eGain Corporation

Good day and welcome to the eGain Fiscal 2020 Second Quarter Financial Results Conference Call. Today's call is being recorded. At this time, I would like to turn the conference over to Jim Byers at MKR Investor Relations. Please go ahead.

Thank you, Operator, and good afternoon, everyone. Welcome to eGain's Second Quarter Fiscal 2020 Financial Results Conference Call. On today's call are eGain's Chief Executive Officer, Ashutosh Roy, and Chief Financial Officer, Eric Smit. Before we begin, I would like to remind everyone that during this conference call, management will make certain 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. These forward-looking statements are subject to a wide range of risks and uncertainties and could cause actual results to differ in material respect. Information on various factors that could affect eGain's results are detailed in the company's reports filed with the Securities and Exchange Commission. eGain is making these statements as of today, February 6, 2020, 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 website at www.egain.com. The tables included with the earnings press release include reconciliation of the historical non-GAAP financial measures to the most directly comparable GAAP financial measures. A replay of this conference call will also be available at the investor relations section of eGain's website. And now with that said, I'd like to turn the call over to eGain's CEO, Ashutosh Roy.

Thank you, Jim, and good afternoon, everyone. We are quite pleased with our financial results for the second quarter. Both on the top line and the bottom line, we exceeded our guidance and were ahead of street consensus. And we saw solid growth in SaaS revenue, both sequentially and year over year. We also continue to rapidly march toward a SaaS-only business model. In fact, SaaS plus professional services revenue, which is essentially our go-forward business, represents 87% of our total revenue. in Q2. This is up from 77% of total revenue in the same quarter last year. So good progress. And our SaaS plus professional services revenue grew 16% this quarter year over year. As we drive our legacy customers actively to adopt our SaaS solution, even at the risk of attrition, sometimes We have talked about this for a few quarters now. Going forward, we believe this is the relevant top-line number, which is SaaS plus professional services revenue, the relevant top-line number for our business. So we focus on that from a growth and value standpoint. Looking at business in the quarter, our customer health remains strong. We book good business in the quarter as well across new logos and existing customers. One of our exciting new logos last quarter was a very large retailer where we partnered with Cisco. Turning to the market, we see a couple of trends in terms of vertical and geography. The positive, financial services continue to be our number one vertical as always, and they're growing the fastest. Especially in the US, financial services clients are investing heavily in customer engagement and intelligent self-service. On the negative, we see Europe slowing down in terms of technology investment. Given this trend, we anticipate increased attrition risk in our European customer base. Accordingly, we are investing more in the financial services vertical and more so in the US than in Europe. Our sales and marketing investment, as you may have seen, stands at 26% of revenue in Q2. With continued hiring and increased marketing, we expect it to move closer to 30% in Q3 and then move up into the low 30% range in Q4. As we have mentioned before, our sales and marketing investment falls in three buckets. First, customer success, which includes customer success teams partnering closely with our expanding professional services team to deliver continuous value to our SaaS customers. Second, demand generation, which includes more marketing, both people and programs, as well as expanded partner recruiting, enablement, and training. And third, is sales capacity expansion, both inside and free. So we're tracking nicely to the growth plan in terms of increased investment in sales and marketing across these three threats. The next topic I want to share an update on is our progress on go-to-market around our new sales advisor solution. As you all know, we launched the sales advisor solution to very good reception last October in Chicago. Since then, market feedback has been very encouraging and broad-based across megabanks, regional banks, credit unions, mortgage firms, insurance companies, and fintechs. So very broad-based. In fact, our team, led by Evan Siegel, has conducted over 25 demos to interested prospects in the last three months, including the holidays. Solution is also attracting good conversations and interest with vertically-focused teams in both large and mid-sized SIs and consulting organizations. These are potential partners for us. They are interested in our solution because they are looking to provide interesting approaches to C-suite clients who they are advising on how to move the growth needle. It's an interesting approach for us to be relevant in these C-suite conversations working with some of the partners. What we are hearing consistently is that our sales advisor solution is addressing three outstanding strategic pain points. Number one, sales effectiveness, how do you drive it up? Second, compliance adherence, how do you ensure it better and in an auditable, provable way? And third, operationalizing what is now almost a universal corporate mission in fintech and financial services companies of improving customer financial health, quote-unquote. So these three pain points are strategic. They seem to be very broad-based, and we seem to be addressing them in a way that is quite compelling and differentiated compared to what is available out there. That's what we hear. So we have now landed two pilot customers, both in the SMB area because their decision-making is faster, as you know. Interestingly, both of those, we are in direct relationship and conversation with the CEO of the two clients. They are the sponsors of our engagement. And now our team is actively deploying the solution. Overall, sales-focused customer engagement, which is what Sales Advisor is, proving to be a natural extension of our current business, which is centered around customer service. We are super excited about the potential. Third and finally, I want to share an update around our partnership with Avaya. Today we announced that we have entered into an OEM agreement with Avaya, which will enable Avaya to offer our cloud-based digital engagement capabilities, branded Avaya, to Avaya Workspace for elite customers. This solution is currently slated to be generally available later this quarter. Avaya announced this capability at their customer event, Avaya Engage, in Phoenix earlier this week. We are thrilled about this agreement. We see this as a very nice opportunity to jointly serve Avaya clients with integrated best-in-class solutions across voice and digital. Early interest at the field level in Avaya and their partner ecosystem is strong. We believe this partnership, just like our successful Cisco partnership, will, over time, enable us to serve many more global businesses with rich, easy solutions that we offer. As market analysts and our customers tell us, our solutions are best in class in terms of feature, usability, scale. What we are focused on now with an example of the Havaya partnership, and of course our successful Cisco partnership, is to increasingly deliver these cloud-based solutions through these partnerships with complementary technology platforms and vehicle systems, as well as direct appliance. So we're driving both. With that, I'll ask Eric Smit, our Chief Financial Officer, to add more color around financial operations. Eric?