Good day, everyone. And welcome to the eGain Fiscal 2019 Fourth Quarter and Full Year Financial Results Conference. Today's conference is being recorded. At this time, I'd like to turn the conference over to Jim Byers of MKR Investor Relations. Please go ahead sir.

Thank you, operator, and good afternoon everyone. Welcome to eGain's fiscal 2019 fourth quarter and full year financial results conference call. On the call today are eGain's Chief Executive Officer, Ashu Roy and Chief Financial Officer, Eric Smit. Before we begin, I would like to remind everyone that during this conference call, management will make forward-looking statements, which convey management's expectations, beliefs, plans and objectives, regarding future financial and operational performance. Forward-looking statements are generally preceded by words such as believe, plan, intend, expect, anticipate, or similar expressions. Forward-looking statements are protected by Safe Harbor provisions contained in the Private Securities Litigation Reform Act of 1995. And these forward-looking statements are subject to a wide range of risks and uncertainties that could cause actual results to differ in material respects. Information on various factors that could affect eGain's results is detailed in the Company's reports filed with the Securities and Exchange Commission. eGain is making these statements as of today, September 03, 2019, and assumes no obligation to publicly update, or revise any of the forward-looking information in this conference call. In addition to GAAP results, we will discuss certain non-GAAP financial measures, such as non-GAAP operating income. Our earnings press release can be found on the news release link on the Investor Relations page at eGain's Web site at egain.com. The tables included with the earnings press release include reconciliation of the historical non-GAAP financial measures to the most directly comparable financial measures. And lastly, a replay of this conference call will also be available in the Investor Relations section of the eGain's Web site. And now, with that said, I'd like to turn the call over to eGain's CEO, Ashu Roy.

Thank you, Jim, and good afternoon everyone. At the top level we executed quite well in fiscal 2019. Our full year revenue came in ahead of our guidance and street consensus. We also generated strong cash flow and profit for the year. And finally, we completed a successful capital raise. With those funds, we paid down our debt, and now we are investing in growth. Let me share some financial highlights from the full year. We grew our SaaS revenue 37% over the prior year to almost $45 million. Our subscription revenue grew 17% year-over-year to $60 million, and comprised 89% of our total revenue. We were GAAP profitable with net income of $4.2 million compared to a net loss for the prior year. And our non-GAAP net income increased to $6.2 million or $0.21 per diluted share from $1.7 million or $0.06 per diluted share a year ago. We also had strong cash flow from operations of $7 million for the year. Looking at the business highlights. We continue to see strong demand for AI-powered customer engagement capabilities, particularly in our partner ecosystem. So we are ramping our investments in those partner engagements and the channels that we are able to reach both through product integrations as well as channel enablement. We have several new customer wins in fiscal 2019. So let me walk you through some notable ones, and their experience with eGain. I'll start with a U.S. based tax services provider who we helped develop a solution for automated service and sales for their DIY packs offering in 2019. Using rich capabilities in eGain platform for virtual assistance, chat and co-browse, we rolled out in three months a new solution for their Web site and mobile properties. Solution delivered over 50% automated service resolution rates, and improved…

Great, thanks Ashu. Before I review our financial results, I'd like to remind everyone that we adopted the revenue recognition accounting standard, known as ASC 606, effective July 01, 2018 at the start of our fiscal 2019. Unless otherwise noted, the results I'll discuss today are presented in compliance with the ASC 606 revenue recognition standard. It's a reconciliation of the ASC 606 through 605 results is included in our press release we issued today, that is available on our Web site. Now turning to our financials. As Ashu noted, we are pleased with our performance in fiscal 2019. Our top line results exceeded our revenue guidance for fiscal 2019, and we're ahead of Street consensus. We achieved these positive top line results, while improving our cash flow and operating profits for the year. So let's quickly review our financial results for the fiscal year. Total Revenue was $67.2 million, up 10% year-over-year, or 12% in constant currency. SaaS revenue was 44.8 million, or 37% year-over-year and 39% in constant currency. Subscription revenue, which includes SaaS and legacy revenue, was $60 million, up 17% year-over-year, 19% in constant currency. And subscription revenue now accounted for 89% of total revenue for fiscal 2019, up from 83% in fiscal 2018. And professional services revenue was $7.2 million, or 11% of total revenue compared to $10 million or 16% of total revenue a year ago. Before I move on, I'd like to call out two key revenue topics and provide some additional color on how they impacted our performance for the year, and our expectations for them in the coming fiscal year. These topics include the transition of our legacy on-premise customers to our cloud offering and our goal for our professional services revenue, going forward. Starting with the SaaS revenue transition. As…

Thank you [Operator Instructions]. We'll hear first today Richard Baldry with ROTH Capital.

I'm wondering if you can go a little bit deeper into the COGS line on the recurring side. I know you said, there was some infrastructure investment. So is that one time whereas little more than we've seen in the past disproportionately hit. Is that something that plays through throughout the rest of 2020 or fiscal '20? Or are there any -- it reverses in some part if it was more one time oriented? Thanks.

This is Ashu here. So what we are doing right now is we are investing in continuing to scale, and also making investments on geography and compliance. For instance, we are close to -- we haven't yet got the certification, but close to getting certified for high trust, which is one of the really next generations, the securities certification on the cloud. So those are investments that do increase the COGS line for us on the cloud side. I think that that's something that will probably be true for fiscal 2020. But after that, I believe that as a percentage the COGS line would start to build on again.

And when we look at the SaaS revenues in 2019, they grew about a little over $12 million. Your guide argues that they would grow less than that, somewhere between $9 million to $10.5 million range. Was there anything one time skewing in 2019 we should be sort of remembering in the back of our minds, or do we just wrap that up to conservatism, because you are spending more on sales and marketing, arguably getting more momentum with partners and things with typically argue that your year-over-year growth in dollar terms should expand, not to contract? Thanks.

So a couple of points, I think that is a little bit of the conservatism in that number. However, I also think that the migration of existing legacy customers to SaaS, which we have transparency we mentioned as something that benefits our SaaS revenue growth over the last year or so and even the year before, is something that is starting to taper off. So we want to make our investments that we are making in sales and marketing are going to drive in our new SaaS revenue growth. And that's an area where we feel the investments we are making are timely, but these investments might take a little time in terms of showing up as revenue, and perhaps so speaks to the decrease potentially of absolute SaaS revenue growth for fiscal '20.

Last one would be. Could you talk about the sales headcount addition you've been making or plan to make as the year sort of ahead unfolds, has the net number of seats been increasing? There's been any turnover there we should be thinking about the back of our minds, or any other issues around that sort of capacity of your direct sales force in fiscal '20 verses '19? Thanks.

So, on the sales side as we have mentioned in the past, we have an overlay model for the enterprise sales team where we have quota carrying enterprise sales people who are supported by overlay of channel sales. And so the investments we're making at this time are mostly in two areas on the sales side. One is the channel sales overlay where we think that there is an opportunity to drive more pipeline growth through these channel sales investments. So that's one area we are investing in. And we have got three new people in those roles in the U.S., one for Cisco, one for Avaya and one for Amazon Connect. They are dedicated to those channels. In addition, we're also spinning up an inside sales team, again, to assist the enterprise sales folks in driving the early pipeline opportunities through the funnel. And that's something that we have, we intend to have half a dozen people in that group in the U.S., primarily. Most of our increased sales investment at this point will be in the U.S. We expect Europe to be fairly constant in terms of business and given the market environment.

We will hear next from Mark Schappel with Benchmark.

Ashu, starting with you in your prepared remarks, you called out several partner wins and also several competitors' placements. Are you seeing increasing competitors' placements? Or was it just a function of this call where you're deciding to call out a few more of them?

We are seeing more competitive point product replacement, yes. I would say that we are meeting more and more in the enterprise with the vendor ecosystem where there are lots of point products in place already, not for every capability but quite a few. And the clients' desire to rationalize back with a platform is something that we're seeing more of.

And then margins are expected -- with the investments, margins are expected to come down next year. And I was wondering if you give us a sense of when we could expect to see a return to some sort of margin expansion?

So on the gross margin side, along the lines of what I mentioned earlier to which is question. I believe that fiscal 2020 is going to be a time of investment but fiscal '21 we should see improvement on the gross margin line. On the operating line, I think it's a function of our investment. The two areas where we are planning to increase our investment is sales and marketing and product development. I believe that product development will start to marginally reduce beyond 2020 in percentage terms. I do think that sales and marketing will probably continue to go up and not down as we get more and more sales traction through the channel investments we are making. So that's kind of the two-year outlook.

We'll go next to Jeff Van Rhee with Craig Hallam.

Just a couple from me, Ashu, I just want to circle back to your very last answer. You said R&D will reduce marginally in 20 percentage terms, but S&M will go up beyond that. You were talking in percentage terms or dollars?

Both…

Both, okay, good, got it. So if I look at this past fiscal year, in terms of the ARR signed in the year. What percent was from new versus existing?

So roughly 60%, a little over 60% was existing and 40% -- a little less than 40% was new.

And how did that trend through the year?

So what we have seen now, and this is a trend that we have seen over the last year, is that the new logos we acquire are increasingly doing what we think is the right thing by them, which is that they want to start small, even though they intend to grow big. And so you're seeing a phasing of people's investments, not because they are leery of spending a lot of money upfront, but they want to prove out the case with some of these larger programs. And we are fine with that, because we get -- when we do, we do a good job, which we do most of the time, we get more value and more realization monetization on the back end of it. So that's the trend we are seeing now and we see that happened in the second half of 2019, we saw a little more of fiscal. And we are now seeing the advantage of that in fiscal '20 with some of these early bookings, which have some of the more new wins, but also some of those are expansion wins from new logos that we had acquired earlier in fiscal '19.

And for fiscal '19, what was gross churn?

Well, the gross churn basis, it was around -- for the SaaS customers, it was around 6%.

And what about with respect to the maintenance base, trying to get a sense of what percent of them in the process decided to just not make the migration?

So that number wasn't as good as the SaaS number, but I think is that that wasn't, it was maybe closer to 90%...

You mean 10%...

Sorry 10%, yes, it was more -- it was closer to a 90% retention.

And then last one for me. Just I guess two questions together, if I could. On the new deals that you're winning, talk to me about the competitive landscape, just kind of the top two or three folks that you're seeing and how that might be changing? And then also, I'm interested in the drivers from a product standpoint. I hear a lot of knowledge management across the board here, a little chat here, a little messaging there, but a lot of knowledge management. So I guess the question is the mix of drivers with respect to product and how the competitive landscape is changing?

Sure, so two things. One, I would say the top two drivers right now are, one is still omni-channel digital capabilities, is still a big driver and the second driver is knowledge. Those are the top two drivers. Knowledge in dollar side tends to be larger but the digital opportunities, there are more of. And as the two are converging, we are happy to jump onto digital opportunities as well because that gives us a foot into the door, so then develop the larger scale opportunities as well. Looking at the competitive landscape on the two, on the digital side, the primary competitor that we seem to see is LivePerson on chat. On the other, there is really no strong competitor, to be honest, on the other channels. And then on the knowledge side, the primary competitor in the enterprise today is Salesforce. And that sounds a little odd, because they really don't focus in the market, but because they have the full solutions and customers are looking at them as an alternative. Those are the top two, I would say.

And from Needham & Company, we'll hear from Ryan McDonald.

This is Alex Narum on for Ryan. And I was just hoping to get a little color on guidance for 2020, and how we should be thinking of the mix of revenue growth for new and existing customers, going forward?

I think that our intent is to take that number more toward the 50/50 ratio with 50% coming from new logos and 50% from expansion.

And then could you give an update, or could you give a little bit more color being on the progress being made with Avaya? And then also has there been any impact from the M&A rumors surrounding the business?

So, so far we have not seen any impact from our perspective surrounding the M&A rumors for Avaya. We do see a lot of orchestrated and sort of strong interest from their side, and we're working closely with their field team and product teams. Like I mentioned, we are doing some pre-packaged integration, which in the past we've had that we are kind of enhancing that with the -- specifically for the Avaya Elite platform. And we are jointly executing the go-to-market with them that will kind of surface in the next month or two as we roll it out.

And at this time, I'd like to turn things back to management for any closing remarks.

Great. Well, thanks, everybody. Look forward to hopefully seeing some of you at some of the upcoming investor conferences. And certainly, at our -- we will be hosting the Analyst Day at the Customer 360 event in Chicago. So please reach out to me if you want to get an invitation, or want more details around that and otherwise we'll look forward to giving you an update on our Q1 results. Thank you.

That will conclude today's conference. Again, thank you everyone for joining us.