Good day, and welcome to the eGain Fiscal 2019 First Quarter Financial Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Jim Byers with MKR group. Please go ahead, sir.

Thank you, operator, and good afternoon, everyone. Welcome to eGain's First Quarter Fiscal 2019 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, November 8, 2018, 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 also discuss certain 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 in the earnings press release include reconciliation of the historical non-GAAP financial measures to the most directly comparable GAAP financial measures. And lastly, 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, Ashu Roy.

Thank you, Jim. Good afternoon, everyone. We are executing well under our new SaaS model, good momentum in the first quarter. Let me share some financial highlights. Note that I will use our 605 revenue numbers for consistent year-over-year comparison. For the SaaS revenue growth over the quarter, on a year-over-year basis, it was 46%. Subscription revenue growth year-over-year was 19%. Gross margin in the quarter was at 68%, which was up from 64% last quarter same -- last year same quarter. And we generated $3.3 million operating cash in dollars in the quarter. And a nice kind of artifact of this quarter was also that we were GAAP profitable for this quarter, not a bad start. So that's kind of good. And let's move to the quarter in terms of actual wins and some of the notable wins that we had. So one of the ones that I want to mention is a large U.S. financial services provider that we won and new logo, that specialize in consumer loan portfolio management. That's a good win for us. Another one was a fast-growing digital brand retailer. They decided to switch from, as it turns out, Zendesk to eGain for a richer, more comprehensive and scalable alternative. What we saw there was that they ran out of gas on Zendesk as their business grew, and in less than 30 days from contract signature since then, we have now helped them go live on our platform and away from the competitive option. Another win worth mentioning, which is more of an expansion, is a large U.S. banking client who are migrating to the eGain Cloud from an on-premise model that they used to be in. And in the process, they are also significantly expanding the use of eGain. One last one I…

Thanks, Ashu, and thanks, everybody. Before I review our quarterly results, I'd like to note that eGain adopted the new revenue recognition accounting standard known as ASC 606 effective July 1, 2018, the start of our fiscal first quarter. We adopted ASC 606 using a modified retrospect method, under which we are not required to restate our prior period financial statements. The Q1 results I will discuss today are presented in compliance with the new ASC 606 revenue recognition standard. For purposes of comparison to prior year results, in some cases, I will also share Q1 results that are presented in conformity with the amounts previously disclosed under the prior recognition standard, ASC 605. In conjunction with the adoption of this accounting standard, I'd also like to note the change in the way we are classifying our revenue going forward. Through June 30, 2018, eGain revenue was classified in three categories on our income statement: recurring, legacy license and professional services. With our SaaS transition complete, we're changing how we classify revenue to better align with our go-forward business. We now classify our revenue in two categories: subscription and professional services, with a further breakdown of subscription revenue into SaaS revenue and legacy support revenue, SaaS revenue being the key metric we're using internally to measure our growth. As our legacy license revenue is no longer material and accounted for less than 1% of revenue in fiscal year 2018, we are no longer breaking it out and instead include it with our subscription number. Now turning to our financials, as Ashu noted, our execution continues to improve under our new SaaS revenue model. And we are seeing continued positive momentum in the business. Looking at the financial highlights for the quarter, SaaS revenue was up 40% year-over-year, up 46% year-over-year…

[Operator Instructions] We'll take our first question from Richard Baldry with Roth Capital.

Could you talk about your expectation for sort of a typical time to productivity for new sales hires? We're trying to gauge, as you accelerate your spending there, when we would expect to see that sort of inflect on the bookings, maybe and/or the revenue side of the table.

So we think that, Rich, right now, we see about 6 months ramp. So that's our current thinking, that for the first 6 months, I think, it's a ramp-up and after that, we expect the reps to be productive.

And then can you talk at all the thoughts around the magnitude of increase you're sort of looking there, either on a dollar basis, a headcount basis, percent versus headcount you have in place today?

The headcount might be a little harder, but my guess -- we're going to be incremental in our increase here. But I do think that over the next -- through the end of fiscal '19, we would like to grow our capacity by 50% more than where it is now on the sales front.

And then in terms of the legacy maintenance that's left, you talk about any trends you sort of see in terms of the dollars you get when they move over to the SaaS platform versus sort of the maintenance levels of spending they've seeing prior and any contrast that to your retention rate on that? So do you think that's a good field to farm for increased revenues? Or you sort of see that static as you kind of move from one side to the other?

So I'll give you the qualitative and maybe a little bit of quantitative. So for the customers who move to the cloud, what we're seeing now is roughly, roughly a 75% and up to a 100% uplift on the annuity stream that they would have had on the on-premise support side. That's kind of -- that's -- I think the 75% is probably a good number to think about as an uplift. Eric, you want to add to that?

No, I think that's consistent. But then, I think, Ashu, as you were saying, in talking about the opportunity that it presents for the expansion is an interesting one.

Yes, which is layered on top.

And I got cut off in the beginning, so not sure if you already addressed this, but could you talk a little bit about your successes and trending with the partner sales model?

So that -- the model that Todd has put in place is working well. It's an overlay model where the partner team -- the partner sales team is working hand-in-hand with the enterprise sales team, and both of them get credit for any sales generated through those partner. So that part is, I'd say, on the margin maybe a little more expensive for us, but certainly more collaborative and more effective from a booking standpoint. So we are going to stay with that and continue to have that overlay. And likely, as we scale the enterprise -- the sales team, we're going to make sure that the partner overlays also our accordingly resource turn and enhanced.

We'll take our next question from Ryan MacDonald with Needham & Company.

This is Alex Narum. I'm on for Ryan. Last quarter you spoke about increasing your focus on the mid-market. Can you provide some color on the progress that you're making there? And what have you learned thus far? I know you are starting to see mid-market contributions to the pipeline.

Sure. Yes. So the mid-market continues to be an area of investment for us. On the margin, it's still a small percentage of our total investment in sales and marketing. But that's an area where we are adding more sales capacity incrementally, and making sure that we can scale that in a replicable way. So, so far we are seeing that as a good place for us to drive more growth.

We'll take our next question from Jeff Van Rhee with Craig-Hallum Capital.

This is Rudy on for Jeff. Just a couple of quick questions. Building off of, sorry, the analyst with Roth Capital, with regards to the migration from the legacy over to the cloud, you said you're getting about 75% uplift on that? So say, roughly, $1 up to $1.75 translation?

Yes. That is correct.

Okay. Then roughly what percent total have you migrated over at this point?

So I think for us, we've -- the total count is not a number that we focus on just because the part we've taken is target the higher ARR customers. And so we've done, I think, a good job working on a number of these larger accounts. And that continues to be our focus. I think we are -- we've now got a good handle on, I would say, most of the accounts that are paying us north of $50,000 annually. And certainly, in some instances, these accounts have got factors at play that have resulted in them thinking in almost all cases, saying that there is a level of interest, but then they have internal drivers that are delaying the transition process. So from our perspective, this is an ongoing activity. We've obviously seen this number come down quite a bit over the years. But I think we've got a good handle, at least, on the larger accounts that we're working through.

Okay, got it. Then another question, in regards to bookings that you guys had this quarter, if you could give some color on what percent of those came from new customers? And what percent of new bookings came from migrations?

I think -- okay, so say that number -- there are not just two categories. There is actually -- broadly, at a high level, I think the way to think about is about 50% of the business came from new logos. And the rest, half of it, came from existing customers. Some of those existing customer new bookings were from migration and some were just expansion in those accounts that were cloud customers to begin with.

You couldn't give any quantitative as to, of that 50%, what percentage of those were from the migration, or no?

I don't think we have that.

We don't have that data right here.

Then just lastly real quick. In regards to the new bookings you guys are driving right now, just which modules and capabilities, I know you touched a lot on the virtual assistant, the AI and everything any other modules or capabilities that are really driving the new bookings right now?

So we are seeing two things. One is the whole VA, virtual assistant front and digital engagement. That's an area where we're seeing very good demand. And the other is knowledge and AI in the contact centers, just broadly across all of the contact centers. Those are two big areas we see in terms of demand drivers.

[Operator Instructions] At this time, I'm showing no further questions in the queue. I will now turn the call over back to management.

Great. Okay, thanks, everybody, for listening. And look forward to providing you an update when we report our Q2 results, and hopefully we'll see some of you at the upcoming Investor Relations events. Thank you.

Thank you. Ladies and gentlemen, this concludes today's teleconference. You may now disconnect.