eGain Corporation

Good day and welcome to the eGain Fiscal 2021 Second Quarter Financial Results Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Jim Byers of MKR Investor Relations. Please go ahead.

Thank you, Operator, and good afternoon, everyone. Welcome to eGain Second Quarter Fiscal 2021 Financial Results Conference Call. On the call today are eGain's Chief Executive Officer, Ashutosh Roy, and Chief Financial Officer, Eric Smit. Before we begin, I'd 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 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, February 10th, 2021, 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. The tables included with the earnings press release include reconciliation of the historical non-GAAP financial measures to the most recently directly comparable GAAP financial measures. Our earnings press release can be found on the news release link on the investor relations page of eGain's website at eGain.com. And a phone replay of this conference call will be available for one week. Information is in the press release. With that said, I'd now like to turn the call over to eGain's CEO, Ashutosh Roy.

Thank you, Jim, and good afternoon, everyone. Sorry for the little late start there. So we are very pleased with our performance in the second quarter. Our top and bottom line results exceeded our guidance and were ahead of street consensus. Our SaaS revenue grew 15% year-over-year and 21% year-to-date. On the gross margins, we improved by 500 basis points over the prior year quarter. We were gap profitable with net income of 1.6 million and we were, again, cash flow positive in the quarter. So good financial results ahead of guidance. As we have noted on our last call, we are continuing to increase our investment in sales and marketing. Halfway through the year, it's good to see that we are seeing positive indicators from that investment. Let me share some metrics. At the funnel level, firstly looking at brand awareness. Our website traffic is a good metric for it. So that website traffic at the end of Q2 and through January is up more than 90% year-over-year thanks to significant marketing investment increases we have particularly focused on scalable digital channels. Next, we're tracking our marketing generated lead and that in Q2 was up 60% year-over-year. Then our sales pipeline at the end of Q2 Our sales pipeline in dollar terms is more than twice as large as it was a year ago. Our total number of opportunities is also up, in fact, a little more than twice. So the average deal size in the pipe is a little lower than it was before because we're getting more new logos in the opportunity bucket. Which brings me to our number one focus for the year from a sales perspective. In addition to scaling our team and executing the change programs, number one focus this year for us is adding new SaaS logos. in the enterprise market. And we are seeing that trend continue to be at a pace which is about twice the number of new logos. So in Q2 and Q1 put together, we acquired 20 new SaaS logos in fiscal 21 compared to seven in the same time period last year. So we have more than doubled our pace and we hope to increase this SaaS logo acquisition pace even further in the second half of the fiscal year. I'll give you some examples of SAS logos. These are good logos. The first one is a large North American utility out of the East Coast. Another one is a top 20 healthcare provider in the US where we are helping them with their telehealth solution with our Digital First chat capability around video and messaging. Then another one we're very excited about is an auto major, a global auto major, where we have gotten in with a small footprint, a couple of hundred thousand dollar ARR, but there's a big opportunity for us to expand in terms of digital engagement and messaging. Another one is a large multinational insurance business out of Europe, where we have the opportunity to now go across their different geographies with our solution. In terms of expansion, we saw healthy new bookings in the quarter with new clients. New clients meaning existing customers, new expansion here. Some notable expansions, you know, large U.S. telco, one of the top ones where We have expanded across the entire enterprise with our analytic solution on the contact center. Another one is a diversified bank where we are now rolling out across all their business units in the contact centers. And finally, a fast growing European financial services business where we started with an innovation in 30 days engagement a year ago and now they are standardizing on our platform for both self-service and agent engagement. On the renewal front during the quarter, we also saw a nice bunch of renewals in the quarter. Our net retention rate in the quarter continued to be north of 100% and we did not see any significant unusual churn. Moving to our investments on the direct sales front, As you know, we have been ramping our sales team, specifically increasing the quota capacity for our high-tech selling. So we have executed the first phase of that expansion, completed the hiring for the first cohort of reps. And our focus now, which is where we are, is on onboarding and getting this cohort productive. Once ramped, this team will increase our quota capacity by about 50%. All the new sales reps that we have hired this fiscal year, they are focused on new logo acquisition. And customer expansion opportunities are being handled by our tenure reps in partnership with the customer success team. We plan to hire the next cohort of reps in Q4 this fiscal year, so April through June. On the partner front, again, we started investing in this at the beginning of the fiscal year. As you know, on the existing partner front, we continue to have a productive partnership with Cisco. We closed several new logos with them in the last six months. And our Avaya partnership is now generating new logos as well, both with some CCaaS wins as well as some enterprise wins. On a parallel front in terms of adding more to our partnership ecosystem, and Mike Taylor, who joined us at the beginning of this fiscal year to lead our business development effort. He and his team are focusing on building out new partnerships with system integrators. So in Q2, we signed up and brought in two new SI partners, BT Global Services and Infogain. They are a mid-sized SI, in fact, a top 50 on the worldwide list. So both of them have now joined our partner program and we have completed formally training over 50 consultants across these two partners. This program now will continue to drive forward. This will help us scale our implementation capability globally as well as increase our market reach, which, as you know, is a strategic objective for us in this year. Moving to existing customers, I want to share a couple of stories with you to highlight the value we are delivering to clients and the resulting expansion. At the same time, equally exciting is the rate at which we are able to roll out innovation on our platform and how it's something that our existing clients can consume very quickly. On the Before I get into the stories, I just wanted to remark on one thing. We have seen what I call the four-step cycle of customer acquisition, quick value delivery, client expansion, and then advocacy and marketing. These four legs starting to work nicely and unison. Now, that's very encouraging for us. For instance, on the advocacy front, our customer feedback ratings on the Gartner G2 site, which most people are aware of. It's publicly available to all Gartner clients. That rating has trended up nicely in the last couple of quarters. Thanks to improved customer satisfaction, of course, we continue to work on that to improve it even further. Coming back to the stories that I want to share, a couple of them. The first one is with an existing client. Again, this is around expansion, where It was a sales force takeaway around knowledge management. And 18 months ago when we first got this mandate for knowledge management, it started out being a couple of hundred thousand dollar ARR, and now they're up to a million dollars plus. So it's good to see the speed with which we are able to systematically drive some of these expansion opportunities, which again speaks to the fact that as we drive more new logo acquisition, we can see how that builds our top line over a period. Another one I want to share is a large retailer in the US who is again an existing customer. They deployed our smart IDR solution and I'll talk to you in a bit around that during this holiday season. It essentially allows their customers who are calling from the smartphone to check on their order and to switch to SMS chat if they want to instead of waiting for the next available voice agent. We were able to activate the solution in seven days. That plugged right into the existing contact center infrastructure. And during the holiday season, they saw a 30% shift of that voice traffic waiting for the voice agent moved back to SMS queues. And these agents on the digital side can handle five chats at the same time. So a huge improvement in both customer experience as well as efficiency. Interestingly, and just a little bit about the SmartIDR solution. We announced that in Q2 and the speed with which we got an enterprise client, an existing one, to use the solution introduction was remarkable. Less than 40 days. And we continue to see good amount of market interest around SmartIDR as businesses are looking to continue to shift their voice traffic to digital channels without throwing away all their existing voice technology. to wrap up this story. After the holidays, the same client, they reconfigured the smart IVR to deal with the returns questions and not deal with where is my order questions. And they did that entirely on their own. There's no eGain involvement in that. Talk about easy with eGain. This sort of trend of rolling out new capabilities on our platform showcases the power where our clients and partners can create these new solutions by composing them using our modular capabilities in digital messaging, in knowledge, in AI, and in analytics. So to us, that's a big differentiator that we see the market gravitating toward, quick value. That's in fact one of the three big trends that Gartner highlights in their predictions for 2021. in the customer engagement space. It's good to see that we are delivering it today. So in conclusion, we continue to invest in ourselves in marketing and that trend will continue, will increase as a percentage of our revenue will increase our level of investment. We are seeing early results through the pipeline, starting from brand awareness to marketing leads through to The pipeline size and starting to result in new local acquisition acceleration, which is really important. We are very pleased with where we are with our product innovation pipeline. SmartIDR was a solution we launched in Q2, and there's plenty more that we're looking to announce in spring this year. Our SI partner development program, which is new, started out in the beginning of fiscal 21, is now underway with those two partners I mentioned, British BT and Global Services and Infogain. And this 50 consultants having gone through the formal training and now we're starting to figure out how we use them in our projects as well as them getting into other projects on their side. And finally, our partnership with our two of the three contact center platforms, Cisco and Avaya continues to be and the Cisco case continues to be productive. In the case of Avaya, it's good to see that we are now on the board with CCAS wins and new enterprise logos. So with that, I'll ask Eric Smit, our Chief Financial Officer, to add more color around our financial operations.