Good day, everyone, and welcome to the eGain Fiscal 2018 Fourth Quarter and Full-Year Financial Results Conference Call. Today’s call is being recorded. At this time, I would like to turn the call over to Jim Byers with MKR Group. Please go ahead.

Thank you, operator, and good afternoon, everyone. Welcome to eGain’s fiscal 2018 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 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 are detailed in the company’s reports filed with the Securities and Exchange Commission. eGain is making these statements as of today, September 6, 2018, and assumes no obligation to publicly update or revise any forward-looking information in this conference call. In addition to GAAP results, we will also discuss non-GAAP financial measures in this conference call, 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. In addition, a replay of this conference call will also be available in the Investor Relations section of eGain’s website. And with that said, I’d now like to turn the call over to eGain’s CEO, Ashu Roy.

Thank you, Jim, and good afternoon, everyone. In fiscal 2018, we executed very well as a SaaS business and we finished the year strong. Some highlights from the last quarter and the year. Our SaaS revenue was up 37% in both the fourth quarter as well as the full fiscal year. Recurring revenue in Q4 was up 15% year-over-year and comprised 86% of total revenue. Our gross bookings were up sequentially in Q4 and up 20% year-over-year. Total deferred revenue in the quarter was up a little under 30% year-over-year, up from $60 million to $77 million. And cash generated from operations in fiscal 2018 was up 22% year-over-year. So this has been a good year for us in terms of full-year SaaS execution. All the metrics that we were tracking as a business and shared externally have trended the right way. So I want to share some highlights on business that we did in the quarter. Our partner leveraged enterprise sales model is working well. We saw mix of good business success across the board. For example, one of the exciting new customers we acquired is a diversified financial organization. This came to us as a result of a successful Try+Buy we did in partnership with a digital consulting agency, who was working with the bank in helping them transform their customer engagement operation. We worked with the client to demonstrate the value, and as a result now, we are rolling out the eGain platform across their service and sales groups across multiple countries. Another nice deal in the quarter for us was with a mutual financial institution with over 15 million members. This also, we won working with a partner. This client is now modernizing their customer engagement operation, and the first leg of the journey is to…

Great. Thanks, Ashu, and thanks everybody. As Ashu noticed, we are pleased with our performance in fiscal 2018. Our execution is improving under our new SaaS review model, and we are seeing continued positive momentum in the business. For our first year as a SaaS business, we’re pleased to report that we exceeded the guidance that we set for the year. SaaS revenue was up 37% year-over-year, exceeding our guidance for annual growth of between 15% and 25%. Total revenue excluding legacy license was up 13% year-over-year, exceeding our growth guidance of between 5% and 10%. And cash generated from operations increased 22% year-over-year to $6.6 million, compared with our guidance of being cash flow positive from operations for the year. Looking at some of the financial highlights for the year. Total recurring revenue was up 16% year-over-year and accounted for 83% of revenue, up from 75% in the fiscal 2017. And non-GAAP net income of $1.7 million, or $0.06 per share was up from a non-GAAP net loss of $3.3 million, or $0.12 loss per share for fiscal 2017. We ended the year with a net cash position of $2.3 million, a significant improvement from the net debt position of $5.1 million at the end of fiscal 2017. Looking at our financial results in more detail starting with our fourth quarter. Total revenue was $15.6 million, up 8% year-over-year. When compared to Q3, there was a negative foreign currency impact to the quarter of approximately $200,000. Excluding this impact, our total revenue for the fourth quarter was approximately $15.8 million. Our recurring revenue for Q4 was $13.3 million, up 15% from a year ago quarter. For Q4, recurring revenue accounted for 86% of total revenue, up from the 79% in the year ago quarter. Breaking up the revenue components…

Thank you. [Operator Instructions] We’ll take our first question from Richard Baldry with ROTH Capital.

Thanks. Can you talk a little bit about what’s required on the client side to try the AI to Value in 30 Days in terms of the implementation? And then maybe, what type of metrics you’re monitoring to determine the value that’s been created? Thanks.

Sure. So, a couple of things. One, the AI Value in 30 Days program what we are asking for is taking some – there are two ways that we see people taking advantage of the software. One is, in terms of a virtual assistance capability or a chatbot kind of capability on the front-end of their business on the digital side, and that we can setup based on their historic chat transcripts we can setup a virtual assistant that they can try on certain sections of their website. And that can then be monitored for effectiveness in terms of automated service deflection and that, that’s a metric that we would be able to show. The other place where we see AI Value being used is in providing assistance to agents in responding to customer inquiries, which is where our AI guidance capability comes in. And there, we would ask for to some subset of contact drivers and create a small group within the organization with an AB test, which we know how to do in our cloud. And certain contacts when handled by agents will be presented with an AI-based assistance of conversational guidance, and we’ll track the both the handle times as well as the first contact resolution rates of those conversations. That’s the package that we will be offering.

Okay. And then another – looking at the guidance, I understand the cash flow positive for the year. But you’ve been sustainably adjusted operating income positive now for about five quarters. So it’s a bit of a different metric. But do you think that’s also a target internally without necessarily being guidance to remain adjusted or pro forma maybe EPS positive? And do you think there’s a period maybe earlier in the year if you’re investing, it could actually turn slightly negative, and how do we think about that trend?

So I’ll give you my qualitative view and Eric, please add to that. I do think that we will increase our investments in the year. The operating cash flow for the year metric that we’re putting out there that that will be still positive for the year. That gives us some flexibility through the year to increase investments and then to benefit from cash collections in the second half of the year. So, yes, I think that, that sort of a nuance across quarter is something that we would like to have the ability to adjust. Eric?

Yes. I think to add to that, I think, given the momentum that we’re seeing in front of us and as Ashu pointed out, the relatively long sales cycles, although we will be certainly careful as we increase those investments, it’s going to be a function of – if we see the visibility that the investments are making good progress, we want to have that flexibility to increase that investment to realize the opportunity that’s in front of us. So I think, from the perspective of being close to on an EBITDA basis, I don’t anticipate that to change dramatically, but we’re looking to have some flexibility if we feel that opportunity presents itself.

Great. Thanks.

We go next to Mark Schappel with Benchmark.

Hi, thank you for taking my questions. Ashu, starting with you, with respect to the sales force, has there been any major changes to the sales organization in the coming year with respect to the org structure or the comp structure or territory realignments?

So, I don’t anticipate major changes. I think, Todd’s already got a system in place that he put right around the end of last calendar year, and so it’s been about nine months that we have had that new overlay model where the enterprise sales reps and the partner and the channel team work together and are comped on the deals without necessarily creating any conflict. So that is working well. We expect to continue to do that. On the mid-market side, I certainly think that in the U.S., as we scale that operations, we’ll probably put some management in place. But at this time, the organic model is working well, and we’ll look to grow that for sometime before we decide to put some management layers in that team.

Great, thanks. And Ashu, in your prepared remarks, you mentioned some nice customer wins and you mentioned that a lot of them were partner-driven or partner contributed to. And I was wondering if Avaya – the Avaya partnership granted, it’s relatively new. But I was wondering if the Avaya partnership that was announced earlier this year help to generate any of those deals?

So for fiscal 2018, no. But those deals and new wins I mentioned were not coming from the Avaya partnership. However, we are seeing some good activity now on building up. And so I’m encouraged by that. And I think that, that will have some top line impact for us in this fiscal year.

Okay. Thank you. And then with the company’s focus on SaaS, has there been much in the way of changes in the competitive landscape over the last year or so?

I would say, the changes have not – they don’t have to do with fast necessarily. However, most of the new competition is cloud-based and SaaS-based. So I think, there is a lot of new entrants in the AI-based customer service automation space. That is something that we are seeing more of that. We have our approach and what we think differentiate us, but that is an area where we’re seeing more just because of investment from venture capital as well as this market availability of capital for AI-based technologies. And then on the other side, I would say that we are doing well again sort of established players. But I do think that we are seeing some more increased presence of people like Genesis, I’d say. That that’s one area that we see some more presence, so those are the two comments, I would have.

Great. Thank you.

We’ll go next to Ryan MacDonald of Needham & Company.

Hi, guys, thanks for taking my questions. I guess first, when you talked about in the prepared remarks about, I think about $4 million of quarterly revenue that’s recurring that’s still on trend. I guess, as you look at, I know your expectations for fiscal 2019 and some of that guidance you gave on the 25% to 30% growth. Can you just talk about what’s the mix there you’re looking at in terms of growth being driven by transitions on prem customers, SaaS, and then also versus net new customer opportunity?

I understand the – I think I understand the questions you’re saying. Is there some color on how that growth will – where will that growth come from? Will it come from migration or will it come from net new, right, logos?

Yes, that’s correct.

I would say that it’s – yes. I think it’s going to be a mix. I think that we will have a good percentage of our growth comes from new logos. In terms of percentages, I don’t know what exactly we want to guide. Two, I don’t think we have a number in mind. But at the same time I also think that our existing customers are looking to move and we will help them actively migrate with our promotional programs that we have in place. Sorry, I don’t have a very clear number for you, but that’s how I see it.

Got it. And then around the partner activity, you mentioned Avaya, I think is dealing, I think will be more material in conversations. So they’re paying into 2019 here. But I guess, when you look at the newly announced think about the next sort of integration andpartnership there, is that perhaps a driving force in the mid-market opportunity that you see next year?

Well, we’re clearly working on a few. We think that these technology platforms where we can be complimentary with our AI, for instance, with Avaya, the program that we have been partnering with them on is called the AI Connect program. An so yes, the whole AI and knowledge proposition that we bring to these partners is very complementary. And that is something we think we can do for more partners and we are working on those, but nothing that we are talking about yet.

All right. Thank you very much.

We’ll go next to Jeff Van Rhee with Craig-Hallum.

Okay, great. Thanks for taking my questions. A number of them. Ashu, the shift to put more resources behind mid-market, just kind of what’s been the evolution of the thinking why now why mid-market?

So yes, sure I can give. So I – this is not a shift, this is more expansion. And so we are continuing to focus on the enterprise, that is our primary business. There is a lot of growth there. And the growth in that market we see is coming more from driving up demand through partners and then fulfilling it with our enterprise sales capacity, and then seeing growth in terms of increased ARR in terms of deal size. So that’s our current thinking. And then on the mid-market, we see the opportunity to add more so-called bodies to the problem and see – and that we believe can scale, because there’s not rated by access to the right opportunities. We think that we can drive our digital marketing and our direct marketing to drive those demand gen funnel as well. So it’s more – driving more growth vectors in adding to the enterprise sales – primary sales engine that we have.

In the guide you talked about flexibility and essentially giving that cash flow positive guide to leave room for investments. If you just sort of top one or two areas where that investments is probably going to go. Just clarify that for me, if you could?

Sure. So I would say three areas I see right now. One is the core product, I think, with a lot of opportunity that we have to make our product easier to use also to deliver some premium capabilities. For instance, we recently announced and always on capability for our platform, which is first in our market space. There are no application vendors who offer an always on capability, where you don’t have any scheduled maintenance on a weekly or monthly basis…

Right.

No SaaS vendor does that today. And that is a premium offering and we see customers really liking that some. We’re seeing people adopting that. So that is an area we think that – and again, it’s an enterprise cloud requirement. We’ve able to drive more value and therefore, growth with those investments. The second area is CSM investment, which is Customer Success Management, which is an area that we have been investing in for sometime. But we think that we want to do more and that gives us both retention benefits, as well as expansion benefit, so that’s the second. And then the third area is the combined piece that I mentioned around partner investments in terms of increasing more focus our enabling and training these partners and other half of that is the mid-market sales investment. So those are the three areas.

Okay, great. And then just let me shift gears then to just reported quarter. So if you look at, I guess, two questions. One, did bookings meet your expectations, which are planned? And then two, in terms of the on balance sheet deferred revenue step down offset by an unusually large increase in the unbilled deferred. Just maybe a little color there, in particular, whether on balance sheet stepped down sequentially?

Okay. So let me take the first one and maybe Eric, you can take the second one. So from a booking standpoint, yes, we did what we wanted to do, which is good. And as I mentioned in the look ahead, that’s something that what I’m feeling encouraged about is that we are continuing to see our pipeline grow and strengthen even after a strong Q4, and that to me is a good indicator for our fiscal 2019 prospects. And Eric, on the second question?

Sure. I mean, I think, that’s a function of timing of some of the cash payments that we would receive that would impact, because that just as a reminder, the on balance sheet number is a function of sort of whether we received the cash or not. And so with a number of large bookings that happened right at the end of the quarter, we would not have received any of the cash for those items. So that way most of that for short and medium built component if that makes sense.

Was the back-end loading in the quarter more so than typical?

Not at all, it was not. It was not. Just the strength of the bookings is what exacerbates the off balance sheet nature, because we don’t collect for most of the deals that come in the last month of the quarter, we don’t collect the cash for them in that quarter.

Okay. And I guess just then two last quick ones – quick last ones for me. You commented the effect of, I think, in your opening remarks, Ashu, about the increased with rates. Do you expand on that specifically? Where are you seeing that and versus who?

So I think they’re the two comments there. One is that, what we’re doing better in the last few, I would say, in the last quarter or two – two quarters, yes, as we are qualifying much, much harder on things that we’re working on. So that is an important piece of that increased win rate comment, which helps us. So our win rate now are really – we’re focusing on our sweet spot in the enterprise. So that and the other piece that is happening is with the alignment with partners that is improving the win rate as well, where there is less conflict between our channel team and our direct team, because the direct and channel have been comped together on these deals, that has created a better environment and therefore, incremental win rate.

Okay, got it. Okay, I’ll leave it there. Thank you.

Thanks.

And with no further questions in the queue, I would like to turn the call back over to management for any additional or closing remarks.

Thanks, everybody. We look forward to giving you the update when we finish up our Q1. Thanks.