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Edited Transcript of EGAN.OQ earnings conference call or presentation 10-Nov-20 10:00pm GMT

·37 min read

Q1 2021 eGain Corp Earnings Call MOUNTAIN VIEW Nov 15, 2020 (Thomson StreetEvents) -- Edited Transcript of eGain Corp earnings conference call or presentation Tuesday, November 10, 2020 at 10:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Ashutosh Roy eGain Corporation - Co-Founder, Executive Chairman, CEO & President * Eric N. Smit eGain Corporation - CFO ================================================================================ Conference Call Participants ================================================================================ * Alex Narum Needham & Company, LLC, Research Division - Associate * Jeffrey Lee Van Rhee Craig-Hallum Capital Group LLC, Research Division - Partner & Senior Research Analyst * Koji Ikeda Oppenheimer & Co. Inc., Research Division - Director & Senior Analyst * Mark William Schappel The Benchmark Company, LLC, Research Division - Director of Research & Equity Research Analyst * Philip Rigby;D.A. Davidson;Analyst * Richard Kenneth Baldry ROTH Capital Partners, LLC, Research Division - MD & Senior Research Analyst * Jim Byers MKR Group, Inc. - SVP ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good day, and welcome to the eGain Fiscal 2021 First Quarter Financial Results Conference Call. 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. -------------------------------------------------------------------------------- Jim Byers, MKR Group, Inc. - SVP [2] -------------------------------------------------------------------------------- Thank you, operator, and good afternoon, everyone. Welcome to eGain's First Quarter Fiscal 2021 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 materially. 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 10, 2020, and assumes no obligation to publicly update or revise any of these forward-looking statements or information in this conference call. And 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 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. And lastly, a replay of this conference call will 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. -------------------------------------------------------------------------------- Ashutosh Roy, eGain Corporation - Co-Founder, Executive Chairman, CEO & President [3] -------------------------------------------------------------------------------- Thank you, Jim, and good afternoon, everyone. We achieved another solid quarter for the company in Q1. Our SaaS revenue grew 29% year-over-year and at the high end of our guidance. We generated $5.8 million of operating cash in the quarter, operating margin of 31%. And we ended the quarter with a cash balance of $53 million and no debt. The strong financial position gives us increased confidence in continuing to execute to our growth plan despite the COVID uncertainty. We see fiscal '21 as an investment year for eGain, given the typical 9-month enterprise sales cycle, which, if anything, is being somewhat extended in the current environment. We expect our investments to have a meaningful impact only in fiscal '22 on our top line. Let me share some more details around our investment plans and execution to date. As I have mentioned before, we are focusing our investments on the 4 pillars. First is brand awareness. This fiscal year, we have significantly increased our digital marketing programs, participating in virtual events, increasing ad-based spend and overall thought leadership activities. In fact, in Q1, we doubled the number of events and digital marketing activities when compared to the same quarter last year. We are also starting to see some early returns, which are good. For example, traffic to our website, eGain.com, more than doubled in Q1 year-over-year. This is a big jump in brand awareness. Our marketing-generated leads were up nearly 90% in the U.S. in Q1 year-over-year. Overall, worldwide, they grew by 53%. The second pillar in which we're investing is partner enablement. First off, we have expanded our contact center partner teams with more technical and sales resources, especially in the U.S. Our pipeline with Cisco and Avaya growing nicely, especially around new logos. Second, we are now building our go-to-market plans with some of the CRM ecosystem platforms. We have staffed up our business development team now to focus on 3 of those CRM platforms, Salesforce, Microsoft and ServiceNow. We see growing demand from our customers to integrate our customer engagement platform with multiple CRM systems of record in the enterprise because we go over-the-top and provide one consistent layer of engagement, and underneath that across different brands, different business units, typically, there are different CRM systems. So it works well for the client to have 1 layer of engagement working across these different CRM systems. Third, we are striking new vertical based partnerships, starting with financial services. These partnerships will be in the form of jointly developed, jointly branded customer engagement solutions, targeting clients in financial services who need turnkey capabilities to implement conversational customer engagement with AI technology. We expect to share more progress on this front next quarter. All these investments are starting to show some results now. The number of partner-driven opportunities in our pipeline at the end of Q1 was up more than 50% year-over-year for us. So that's good. The third pillar for us is direct sales. Before I share the progress on our investment in sales, let me share some relevant metrics. At the end of Q1, our sales pipeline was up 35% in dollar terms year-over-year. New logos now make up nearly 2/3 of our sales pipeline compared to about 50% a year ago. And we see new logo opportunities continuing to trend up, thanks to the investments we just talked about. This is very exciting because new logo wins are key to our top line growth in the medium term. So now back to our sales investments. We intend to double our sales capacity in fiscal '21, and we're executing that expansion in 2 phases. So in the first phase, we are on track to complete our first phase of direct sales team hiring by the end of November. We are substantially done with the selections, and most of the people have joined, but we expect the remaining ones to join by the end of November. This team once ramped, will boost our sales capacity by about 50%. The second half of that, we plan to bring the next cohort of sales reps in the March, April timeframe of this fiscal year. Of course, assuming that the markets continue to operate the way they are. In terms of geographic focus, 2/3 of our sales capacity expansion that we are targeting is in the U.S. and the rest is in Europe. As a side note, we are very pleased, Todd and I, with the sales talent we are attracting now. The excitement around our market opportunity, our product leadership, growth ambition, it's all fueling this talent that we are able to attract. The fourth pillar is continued commitment to our customer success. We see big opportunity in our installed base, and it continues to grow. Our clients are looking at us as an enterprise-wide system of engagement across brands, across customer segments, connecting back into systems of record and communication. And more and more of our clients are now taking advantage of our Innovation in 30 Days program to try out our new capabilities. At the same time, given our current size and relatively small SaaS customer base of roughly 150 clients, we are susceptible to the law of small numbers. In Q1, we had a couple of out-of-band 1 attrition and 1 termination, which clients, those put together, will negatively impact our quarterly SaaS revenue by $750,000 quarterly in Q2. One of the clients decided to implement an on-premise solution in their private cloud. And the other consolidated our capabilities that we were offering onto a larger CRM platform. While these 2 put together were significant in dollar terms, we do see them as somewhat isolated incidents. This sort of volatility in a relatively concentrated client base that we have makes the need for expanding our new logos even more urgent. And here we have good news to report. In Q1 we doubled the pace of our new logo wins year-over-year. And we see this trend continuing in Q2, thanks to our growing pipeline and increase in new logo percentage in our pipeline. Based on new logo wins, we have already had until now in Q2, we believe that we will again double our new win logo count in Q2 year-over-year. And we expect that this momentum will continue. So this is very exciting. Equally exciting is the fact that the quality of new logos are really impressive for us. In Q1, for example, we were selected by a global automotive brand to modernize their digital customer engagement capability. Another one was a leading U.S.-based hospital system where we were selected as one of the providers in their large contact center modernization program. And a final mention or another new logo, which is a multinational manufacturer based in the U.S., a household name, where we just got into the program where they are looking to execute digital transformation. These new clients, all of them, start relatively small, and they scale the investment based on success. As we build our sales momentum with new logos, we are confident that we will translate them into success at scale, just like we did with a U.S.-based health insurance client we won late last year, started with a pilot opportunity. And since then, that client has standardized on our platform for the enterprise-wide knowledge-powered engagement. And now it's a 7-figure ARR account for us. So these new logos are a key indicator of our -- and leading, obviously, of our top line growth. Turning to products and trends. We announced our eGain messaging hub in Q1, and it has been very well received. Our ability to deliver a one-stop solution to connect, solve and optimize for messaging-based engagement is unique. Unlike other solutions, we are allowing businesses to bring their own bot, their own messaging channels, if they have their own private implementations, their own desktop if they already have an existing desktop for advisors. And they don't need all of that. They don't need to bring all of it. We offer all of them together, but it's an open platform. And this sort of convenience that combines comprehensive capability with openness is unique. In fact, the auto major I referred to as a new logo win, they were particularly impressed with our open and comprehensive messaging hub as they selected us as a partner. And just this morning, this morning we launched another exciting new capability eGain Smart IVR. What we are offering here is simple and radical, simple because a business can modernize their existing IVR estate without throwing away their existing technology investments. Radical, because they can deliver digital service through IVR to all smartphone users with virtual assistance and AI guidance in a matter of days, in a matter of days without huge upfront investment. As contact centers get digitalized, IVR is a huge pain point for our clients. They don't have an easy way to bring their existing IVR estate into their digital transformation plan. And with eGain's Smart IVR, they can do just that. In fact, we have a U.S.-based retailer who is now implementing the Smart IVR solution from us. And they'll be going live with it later this month, just in time for the holiday season. So very exciting. Looking at the market, the need to automate customer engagement continues to grow, especially with the COVID effect on contactless commerce and remote work. So we are thrilled with our new logo momentum in Q1, and we are confident that we can sustain that moving forward. Now that we see our sales investment showing early results in brand awareness, pipeline health and new logo wins, we are increasingly comfortable in our ability to effectively execute ambitious and accelerated growth plans, and this is a good place for our team to be. With that, I'll ask Eric Smit, our Chief Financial Officer, to add more color around financial operations. Eric? -------------------------------------------------------------------------------- Eric N. Smit, eGain Corporation - CFO [4] -------------------------------------------------------------------------------- Great. Thanks, Ashu. Thanks very much, and thanks, everybody, for joining us today. As Ashu noted, we are pleased to report another strong quarter which included solid SaaS revenue growth year-over-year along with solid bottom line results and strong cash flow from operations. As I've noted on prior calls, we believe the combination of SaaS revenue and professional services revenue, or what we call our SaaS business revenue is a useful measure to value our business on a forward-looking basis and is one that I'll highlight on this call. Looking at our financial highlights for the first quarter. SaaS revenue was up 29% year-over-year. Our non-GAAP gross margins were 76% for the quarter, a 600 basis point improvement year-over-year. Non-GAAP net income was $2.5 million or $0.08 per share, and cash provided by operations was $3.7 million or an operating cash flow margin of 30%. Looking at the quarterly results in more detail, SaaS and professional services revenue was up 23% and comprised 91% of total revenue. For the first quarter, our SaaS revenue was $16 million, up 29% year-over-year. Legacy revenue was $1.8 million, down 44% from a year ago, driven by the continued migration of our remaining legacy customers to the cloud and the sunsetting of our legacy noncloud offering. Professional services revenue was $1.3 million for the quarter, down 19% from the first quarter last year and accounted for 7% of total revenue. Our continued product innovation is driving increased efficiencies on our service delivery, driving the PS numbers down somewhat. And as a result, we have been able to redeploy key PS resources to assist in the winning of the new logos that Ashu talked about. Now looking at our non-GAAP gross profits and gross margins, gross profit for the first quarter was $14.5 million or a gross margin of 76%, up from the gross profit of $12 million or a gross margin of 70% a year ago. This was driven by a solid improvement in our subscription gross margin, which was 82%, up from 76% in the first quarter last year. Professional services gross margin was a negative 1% compared to 5% in the first quarter last year. Now turning to operations. Non-GAAP operating costs for the first quarter came in at $11.7 million compared to $10.4 million in the year ago quarter. The increase was primarily driven by our investment in sales and marketing, which was up 20% year-over-year and accounted for 29% of revenue, up from 27% in the year ago quarter. As Ashu stated, we have made good progress in expanding our sales and marketing efforts and expect this level of spend to increase sequentially as many of the new hires joined towards the end of the quarter. Our non-GAAP operating income in the first quarter was $2.8 million or an operating margin of 15% compared to an operating margin of 9% in the year ago quarter. Looking at net income. Net -- non-GAAP net income for the first quarter was $2.5 million or $0.08 per share. This compares to non-GAAP net income of $1.7 million or $0.06 per share on a basic basis and $0.05 per share on a diluted basis in the year ago quarter. GAAP net income for the first quarter was $2 million or $0.07 per basic share and $0.06 per diluted share compared to GAAP net income of $1.2 million or $0.04 per basic and diluted share in the year ago quarter. Turning to our balance sheet and cash flows. I am pleased to report that we believe our balance sheet has never been stronger, with our cash flow from operations of $5.7 million, a 108% increase over the prior year quarter. We ended the quarter with cash and cash equivalents of $53.1 million compared to $46.6 million at June 30, 2020. Now on to our financial outlook and guidance. With the tremendous customer engagement opportunity in front of us, along with the strength of the balance sheet, our plan is to continue to invest in sales and marketing to capitalize on this opportunity. As Ashu indicated, we are encouraged by the early positive signs from this increased investment to date. And given the length of the enterprise sales cycle and the pattern of new logos starting small and expanding, we expect the increased investments in sales and marketing to further accelerate our growth in fiscal 2022. To illustrate this point, the average ARR for new logos signed in Q1 came in at around 115,000, whereas if you look at the existing SaaS customers, the average ARR is north of 300,000. So with our continued focus on customer success, we believe these new logos present a significant opportunity for expansion, as Ashu indicated, on some of the recent successes that we've experienced. Now finally, before getting into the actual guidance numbers, a few additional comments. So just to reiterate the point that Ashu made. During the quarter we had 2 reductions, one a reduction, and the other a termination that Ashu referenced which would impact our Q2 revenue by about $750,000 reduction from Q1. And the other point I wanted to mention, as discussed before, as a result of certain customer contract changes, which included the increase in their minimum payments or minimum commitments, we are not expecting the approximately $150,000 increase in seasonal business when you look back to Q2 a year ago. And finally, as noted on our last call, given the continued level of uncertainty in the current business environment, we have elected to continue to only provide quarterly guidance for now, but we'll provide -- we'll revisit this as the year progresses. So for the fiscal 2021 second quarter ended December 31, 2020, we expect SaaS revenue of between $15.2 million to $15.6 million, which would represent growth of between 8% to 11% year-over-year. Beyond Q2, based upon our upcoming renewals for the year and current pipeline activity, we expect SaaS revenue to increase sequentially in Q3 and in Q4. Looking at SaaS and professional services revenue, we expect that to be between $16.6 million and $17.1 million, which would represent growth of between 5% and 8% year-over-year. And total revenue of $18.1 to $18.7 million, which would represent growth between $0 and $0.03 year-over-year. GAAP net loss of $1 million to breakeven or negative $0.03 to $0.00 per basic share and non-GAAP net loss of $0.5 million to net income of $0.5 million or a negative $0.02 per basic share to $0.02 per diluted share. We assume our diluted share count of 32.8 million for the second fiscal quarter and for the fiscal year. Lastly, on the Investor Relations front, we will be participating in multiple virtual investor conferences this month. Tomorrow, we will be participating in the ROTH Technology Virtual Conference. The following day we'll be participating in the Benchmark Technology One on one investor virtual conference. And then a week from now, on November 17, we'll also be participating in the Craig-Hallum Alpha Select Virtual Conference. And on the 19th we'll be participating in the 10th Annual Needham Virtual SaaS 1x1 Conference. We hope to see some of you virtually at these conferences. This concludes our prepared remarks. Operator, we will now open the call for questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) The first question will come from Philip Rigby with D.A. Davidson. -------------------------------------------------------------------------------- Philip Rigby;D.A. Davidson;Analyst, [2] -------------------------------------------------------------------------------- I want to start by circling back on 2Q guidance. I really appreciate the insights and numbers you all provided there. Can you just give us a bit more color on the customers -- on the attrition customer and the termination customer, maybe what led to that decision? Was it a cost-based decision to reduce spend or competitive pressures? Any color you can give there would be really helpful. -------------------------------------------------------------------------------- Ashutosh Roy, eGain Corporation - Co-Founder, Executive Chairman, CEO & President [3] -------------------------------------------------------------------------------- Sure. I can take that. This is Ashu here. So the one that we talked about reducing and one we talked about terminating, the one that was reducing, they use multiple applications from us. And they decided that they wanted to bring the solution into their private cloud because of security reasons that they felt that they were exposing themselves to. We obviously have the best security and the best cloud certifications. But their IT organization felt that they needed to bring capability like that in-house. In-house, meaning in their private cloud. So they still continue to use the other parts of our platform, but they took a significant chunk of the digital engagement and took it in-house. So that was one. The second one was, I believe, more a change in the C-level suite of the company. That is our assessment. The CEO changed in that organization. It's a multibillion-dollar business that we are talking about. And he kind of brought in a new crew who decided that they wanted to standardize. They have done it before, and they wanted to standardize on one CRM platform. And they told us about it, and it was something where we were doing a really good job. They were very happy with us, but it was a decision on their part to standardize. And so that was the logic for it from what they told us. -------------------------------------------------------------------------------- Philip Rigby;D.A. Davidson;Analyst, [4] -------------------------------------------------------------------------------- Very helpful. I have a question on your demo initiatives like Fast Track or Innovation in 30. Could you talk about what you're seeing in terms of appetite for the demos, maybe now relative to what you're seeing in the early innings of the lockdown? And then if you could maybe talk about what you've seen in terms of conversion of customers taking advantage of these demos, be really interested to get into that. -------------------------------------------------------------------------------- Ashutosh Roy, eGain Corporation - Co-Founder, Executive Chairman, CEO & President [5] -------------------------------------------------------------------------------- Okay. Yes. This -- I did not really touch on that as much as I could have or should have. But the whole -- these -- both the demo and the Innovation in 30 Days, these are -- they are oversubscribed right now. In fact we are, as Eric mentioned in his remarks, we are moving some of the spare capacity we have on the services team into doing more of those trials and demos because there is a lot of appetite, particularly around 2 areas. Virtual assistance and messaging. Those are really active right now. In fact -- so we have seen some great results from that. And the conversion we are seeing right now with those is right around, let's say, north of 50%. So look, 1 and 2 will end up actually going into an investment mode. And the others, not because they think it doesn't work, but because they don't have the budget right now. In the current environment, we are seeing a lot of people saying they've run out of budget in the second half of this calendar year. And so that's something we know will hopefully start to come back in with the new calendar year. -------------------------------------------------------------------------------- Operator [6] -------------------------------------------------------------------------------- The next question will come from Koji Ikeda with Oppenheimer. -------------------------------------------------------------------------------- Koji Ikeda, Oppenheimer & Co. Inc., Research Division - Director & Senior Analyst [7] -------------------------------------------------------------------------------- Nice quarter on that SaaS growth line. I wanted to dig deeper on the SaaS revenue growth guide for the second quarter. And just thinking about -- excluding the customer attrition and that contract change for the prior seasonal business, it looks like the SaaS growth guide is somewhere mid-teens. And that's against an easy comp too. So is there anything else we should be aware of in that fiscal second quarter? And then just thinking a bit further out, I know you're not guiding to the full year today, but just thinking about the second half growth comps versus the first half. Is there any sort of second half seasonality or large upcoming renewals that we should be aware of? -------------------------------------------------------------------------------- Eric N. Smit, eGain Corporation - CFO [8] -------------------------------------------------------------------------------- Hi, Koji. This is Eric. I'll take the question. So I think just for one point of clarification, if you look back and I alluded to the seasonality, I think in the past we have seen a big spike. So if you look last year from Q1 to Q2, there was a significant increase. So I think that element we have found has been reduced. So I would say that this is a fairly tough comp in relation to that component. And then I think to the point that Ashu made, what we have seen is that for some of these new logos, although the business activity is healthy. We've seen some constraints on the level of budget spending, the expectation that this will pick up in Q3 of our fiscal year. And so that also has contributed to that -- the guide that we've provided. And then I think -- and then to the second point, I think, from our perspective, and obviously are always subject to change. When we just look at the upcoming renewals at both the dollar value and sort of the timing of them, we don't see anything significant from that regard. And again, over time we've seen the seasonality somewhat subside. So nothing too out of the ordinary that we expect as of now on that. -------------------------------------------------------------------------------- Koji Ikeda, Oppenheimer & Co. Inc., Research Division - Director & Senior Analyst [9] -------------------------------------------------------------------------------- Thanks, Eric, for that. That's actually really, really helpful. I wanted to ask a question on the Avaya partnership, specifically on the Avaya partnership. I recently saw a press release from another vendor in the space, expanding its partnership with Avaya. So I guess thinking about that partnership, does that partnership announcement change anything with eGain's relationship with Avaya from a technology partner standpoint and also from a go-to-market strategy. -------------------------------------------------------------------------------- Ashutosh Roy, eGain Corporation - Co-Founder, Executive Chairman, CEO & President [10] -------------------------------------------------------------------------------- Yes. No, I know what you mean. This is Ashu here Koji. Yes. So no, the short answer before I give you a little more color is no, nothing changes. And the long version of these responses, as you know, there are 2 parts to our partnership with Avaya, and I'm just focusing on Avaya. One is the digital capabilities of our platform, which are private labeled and OEM as Avaya CCED. And then there is the resell component, which is all the knowledge and AI solutions which are resold as eGain branded. So both those still continue to be active. And we are seeing the pipeline continuing to mature and grow. So we hope to and expect to start to share some of the results from the Avaya partnership in Q2, meaning the quarter we are in now and then moving forward. -------------------------------------------------------------------------------- Koji Ikeda, Oppenheimer & Co. Inc., Research Division - Director & Senior Analyst [11] -------------------------------------------------------------------------------- Great. Last question for me, and I'll jump back into the queue. Just thinking about overall sales force ramp today, where are you at today? And how long are you thinking it will take this new November cohort, sales cohort to become fully ramped in your view? -------------------------------------------------------------------------------- Ashutosh Roy, eGain Corporation - Co-Founder, Executive Chairman, CEO & President [12] -------------------------------------------------------------------------------- Sure thing. So I think the -- like I said, about 50% of our planned growth. So we are increasing our sales capacity, doubling it by the end of this fiscal year from where we were at the end of fiscal '21. And the first half of that increase is going to be done by November of this month end. And we expect that that cohort will become productive by end of fiscal '21, right, 6 months of ramp. And so we see a 6-month ramp in most of these sales hires. And then the second cohort we're looking to bring on board, which is the other 50% increase in the March-April time frame of fiscal '21. -------------------------------------------------------------------------------- Operator [13] -------------------------------------------------------------------------------- The next question will come from Richard Baldry with Roth Capital. -------------------------------------------------------------------------------- Richard Kenneth Baldry, ROTH Capital Partners, LLC, Research Division - MD & Senior Research Analyst [14] -------------------------------------------------------------------------------- Earlier on the call I think I heard you say you felt that some of the sales cycles are extending. I'm sort of curious if you can unpack that a bit. I felt that maybe COVID would pressure people to make some decisions faster. And you've talked about getting in some smaller deals for new logo deals, that kind of seed the world first on land and expand later, I would have thought those would be faster. So can you maybe talk about that a little? And I may have just misheard. -------------------------------------------------------------------------------- Ashutosh Roy, eGain Corporation - Co-Founder, Executive Chairman, CEO & President [15] -------------------------------------------------------------------------------- Sure. So that is -- you're right, and you heard it correct. So let me try to add some more detail to that. So what we are seeing is with existing customers they are doing more with us, and that buying pace has picked up incrementally. And also the cadence has picked up. With new logos, what we are seeing is not as much that the entire sales cycle has extended, but the fact that they are chunking it a little bit. So they're starting small and then they're scaling it. And there is the added bit, which we have heard a few times now, where people are saying, we are out of budget for this calendar year, and we will have a bigger budget next year. So let's do a smaller deal now and we'll do more later. So that's sort of the extension of the sales cycle on new logos that I was referring to. -------------------------------------------------------------------------------- Richard Kenneth Baldry, ROTH Capital Partners, LLC, Research Division - MD & Senior Research Analyst [16] -------------------------------------------------------------------------------- Okay. And can you maybe talk about, in terms of the overall platform your feeling on its completeness in this world of sort of concept of you can do -- bring your own bot. Do you feel like there could be a need to go out and buy some things like bots for people who do want to have sort of an in-house preference offered up as well or different flavors of those things that can sort of react differently in different environments? I guess, against the backdrop of your cash setting a new high in the quarter. -------------------------------------------------------------------------------- Ashutosh Roy, eGain Corporation - Co-Founder, Executive Chairman, CEO & President [17] -------------------------------------------------------------------------------- Sure. Sure. So I may have somehow conveyed the wrong impression. So what I meant with the conversation on the messaging hub was that we have a messaging hub solution that offers all those capabilities to begin with as part of our solution. That's the first thing, right? So we have the bot, we have the channel connectivity, we have the desktop. What we are seeing in the enterprises that we are selling into, for instance the auto company that I talked about, they already have an enterprise-wide initiative around bots. So when you go into these conversations, they like the fact that you have your own, but they also want to make sure that whatever they have built -- and there are lots of domain-specific bots that people are developing now. And so that's where the ability to bring your own domain-specific bot becomes quite important. So that was the part I was referring to. Now to the second point that you mentioned about looking at gaps in our solution and whether we should go out. Yes, I think that we have the opportunity, and we do see a lot of, I guess, mostly smaller companies, much smaller than us, who have some interesting technology. We keep looking at it, and that's an area that is of interest to us. -------------------------------------------------------------------------------- Richard Kenneth Baldry, ROTH Capital Partners, LLC, Research Division - MD & Senior Research Analyst [18] -------------------------------------------------------------------------------- And last, the maintenance revenue line, as I back it out, only fell very narrowly in the quarter and it had been on a pretty steady downturn. Is there anything sort of unusual in that? Any sort of change in your expectation for how long it will take to sunset that maintenance revenue base? -------------------------------------------------------------------------------- Ashutosh Roy, eGain Corporation - Co-Founder, Executive Chairman, CEO & President [19] -------------------------------------------------------------------------------- Eric, if you… -------------------------------------------------------------------------------- Eric N. Smit, eGain Corporation - CFO [20] -------------------------------------------------------------------------------- -- yes, I do, yes. So I think it was just more of a timing issue. I think, absolutely, if anything, we've accelerated our push for that migration. So certainly as we look forward there's plenty of on-premise customers that are in the pipeline to make that shift. So certainly would expect that to continue to move downwards in future quarters. -------------------------------------------------------------------------------- Operator [21] -------------------------------------------------------------------------------- The next question will come from Jeff Van Rhee with Craig-Hallum. -------------------------------------------------------------------------------- Jeffrey Lee Van Rhee, Craig-Hallum Capital Group LLC, Research Division - Partner & Senior Research Analyst [22] -------------------------------------------------------------------------------- Several for me. First, on the usage, I think you commented on a decent amount of usage revenue in March, a little bit less in June. Just can you continue that trajectory? What did you see with respect to usage in the September quarter versus prior quarters? -------------------------------------------------------------------------------- Ashutosh Roy, eGain Corporation - Co-Founder, Executive Chairman, CEO & President [23] -------------------------------------------------------------------------------- Eric? -------------------------------------------------------------------------------- Eric N. Smit, eGain Corporation - CFO [24] -------------------------------------------------------------------------------- So I think that -- Jeff, apologies. Maybe if you could clarify the question just a little bit more, just to make sure we're responding correctly… -------------------------------------------------------------------------------- Jeffrey Lee Van Rhee, Craig-Hallum Capital Group LLC, Research Division - Partner & Senior Research Analyst [25] -------------------------------------------------------------------------------- Yes, yes. I mean, you've got some volume exposed revenue streams, and I think you've commented in both of the prior quarters about usage. And I think you had expressed that March quarter was larger usage than June. And I think the expectation was that, that amount would continue to taper off. So I'm just trying to get a sense of magnitude and directionally, what you saw in the usage-based transactionally based, any of the revenue streams that react to volumes. Good. Thanks for the clarification. -------------------------------------------------------------------------------- Eric N. Smit, eGain Corporation - CFO [26] -------------------------------------------------------------------------------- Good. Thanks for the clarification. Yes, I think we definitely have seen that continue to taper off. I think given the pricing model that we have in place, we've sort of worked with many of our customers that had overages that have now sort of worked into a higher minimum. And so that usage amount has dropped off. And as I indicated, last year we saw that spike up into Q2. And again, this year we really don't anticipate that same level of spike based upon the changes. -------------------------------------------------------------------------------- Jeffrey Lee Van Rhee, Craig-Hallum Capital Group LLC, Research Division - Partner & Senior Research Analyst [27] -------------------------------------------------------------------------------- Okay. That's helpful. And then on the 2 customers, the one that decided to take the solution in-house, maybe, Ashu, can you just expand on that a little bit? What was -- in terms of going in-house, what were they using prior to going in-house? And once they go in-house, is it a build it your -- build your own or they use a different premise-based packaged solution? Just what does that look like in terms of what they're going from and to? -------------------------------------------------------------------------------- Ashutosh Roy, eGain Corporation - Co-Founder, Executive Chairman, CEO & President [28] -------------------------------------------------------------------------------- Yes, yes. Good question. Yes. So before they started with us, they had an on-prem solution. They kind of moved into the cloud with us. And I think what they are going with now is a combination of their own internal development. It's a large organization, big IT shop, internally. And some on-premise software that they have from an existing vendor. But mostly they are kind of taking all the intelligence and building it into their own internally developed solution. Not too many businesses in the world can afford to do that. These guys are super large, which is how they can. Yes. -------------------------------------------------------------------------------- Jeffrey Lee Van Rhee, Craig-Hallum Capital Group LLC, Research Division - Partner & Senior Research Analyst [29] -------------------------------------------------------------------------------- Yes. Yes, that makes sense. And then on the CRM, the other customer, what were they using from you? What specific functionality was it? And then you said that -- I'm curious, it sounded like some embedded solution in the CRM was able to ultimately lease the capability you had. -------------------------------------------------------------------------------- Ashutosh Roy, eGain Corporation - Co-Founder, Executive Chairman, CEO & President [30] -------------------------------------------------------------------------------- Yes, this was -- yes, digital engagement, so largely chat and self-service, web-based self-service. Yes. -------------------------------------------------------------------------------- Jeffrey Lee Van Rhee, Craig-Hallum Capital Group LLC, Research Division - Partner & Senior Research Analyst [31] -------------------------------------------------------------------------------- -- yes. Okay. And then just one last one for me. The IVR replacement opportunity, I mean, I think you had some press out today, and you emphasized it again tonight. Can you just talk a little more specific to exactly what that looks like? You've got a legacy IVR solution. What's -- how does that view -- how does that look to the consumer? What exactly are you bringing? And how does it extend the life cycle of the IVR? I get a fair volume of questions and a little bit of confusion around that. -------------------------------------------------------------------------------- Ashutosh Roy, eGain Corporation - Co-Founder, Executive Chairman, CEO & President [32] -------------------------------------------------------------------------------- Sure. Okay. So there are 3 parts to it. The first part is that, let's take an IVR from -- in this case I'll give you the example of the retailer that we are working with that will make it real. So what the retail business has is an existing IVR from one of the big vendors. And what we're doing is going into their IVR design studio. We have a piece of code that will just plug into one of the nodes, software points of the IVR tree, so press 9, let's say. And it automatically detects the fact that you're calling from a smartphone. And based on decisioning that the business would set up, you would get an option to say, "Would you like to chat with us on SMS," let's say. And you say, "Yes," you start to talk on SMS with the customer. At that point they still can retain their position in the IVR but they're now chatting on SMS. And in that SMS, they can, and in this case they will have our virtual assistant doing the automated responses to begin with. And if the customer then gets escalated, they'll go to a human chat agent on the other side on our desktop, eGain desktop, and that conversation will conclude. So that's the doing part of it, both the connect part and the solve part. And then there is the analytics on top to make sure that we can do that. We have the ability to do analytics across IVR, across digital, across the contact center, so end-to-end analytics. So all those 3 pieces together. -------------------------------------------------------------------------------- Operator [33] -------------------------------------------------------------------------------- The next question will come from Mark Schappel with Benchmark. -------------------------------------------------------------------------------- Mark William Schappel, The Benchmark Company, LLC, Research Division - Director of Research & Equity Research Analyst [34] -------------------------------------------------------------------------------- Eric, let me start with you. Help me, if you could, better understand the SaaS revenue guide for fiscal 2Q. It appears that even with the $750,000 reduction and termination, growth appears to be significantly lower than, say, the past 18 months or so. Help me with the puts and takes there. -------------------------------------------------------------------------------- Eric N. Smit, eGain Corporation - CFO [35] -------------------------------------------------------------------------------- So I think in addition to the -- in addition to the $750 million, I also indicated the fact that there was about this $150,000 of seasonality that we weren't expecting this quarter that we saw last quarter. And then from a business standpoint, I think as we've seen this increased focus on the new logos, I think some of these initial deals that we've been closing have started off smaller, which I think is contributing to this in this environment. But over time we would expect that to pick up. -------------------------------------------------------------------------------- Mark William Schappel, The Benchmark Company, LLC, Research Division - Director of Research & Equity Research Analyst [36] -------------------------------------------------------------------------------- Okay. Great. And then, Ashu, with respect to the priority or initiative to expand your partnerships to the CRM vendors, how far along are you with respect to partnerships with the various CRM vendors? -------------------------------------------------------------------------------- Ashutosh Roy, eGain Corporation - Co-Founder, Executive Chairman, CEO & President [37] -------------------------------------------------------------------------------- Some of them are more advanced than others. But I would say that we are still probably 6 months away from meaningful pipeline that we can have. And so I expect that the CRM partnerships will yield new business to us in the second half of calendar '21. So beginning fiscal '22. -------------------------------------------------------------------------------- Operator [38] -------------------------------------------------------------------------------- The next question will come from Ryan MacDonald with Needham & Company. -------------------------------------------------------------------------------- Alex Narum, Needham & Company, LLC, Research Division - Associate [39] -------------------------------------------------------------------------------- This is Alex on for Ryan. It was announced that the company achieved in-process status with FedRAMP. What do you expect to receive in full FedRAMP authorization? Can you give us any sense of what you're seeing with the government vertical from a pipeline perspective? -------------------------------------------------------------------------------- Ashutosh Roy, eGain Corporation - Co-Founder, Executive Chairman, CEO & President [40] -------------------------------------------------------------------------------- So at this time our expectation, and again this is dependent on the certification authorities and whatever we discovered in the process of certification that we have to remedy. And we are actively in the process as we speak. The expectation is that we should be certified by calendar Q2 in '21, calendar Q2. -------------------------------------------------------------------------------- Alex Narum, Needham & Company, LLC, Research Division - Associate [41] -------------------------------------------------------------------------------- Okay. Great. And then with the recent shutdown occurring in EMEA, can you give us a sense of what you're seeing from customers over the past couple of weeks? Do you think the businesses are now positioned better to operate effectively in the lockdown environment versus what was happening before COVID? And as well as what are you kind of seeing in EMEA with elongated sales cycles as well? -------------------------------------------------------------------------------- Ashutosh Roy, eGain Corporation - Co-Founder, Executive Chairman, CEO & President [42] -------------------------------------------------------------------------------- Yes. We've seen -- I don't know if the last 2 week's change has quite tripled through our business. But what we have seen up until, say, a month ago and leading up to now is that businesses have kind of accommodated operating in EMEA around the new rules. But I'm not sure how the recent lockdown, say in Europe and particularly the U.K. is going to affect things. Hard to say. But I would say that leading up to that, we were seeing reasonable business activity, mostly around more automation, more digitalization. So all the things we talked about in the U.S., we see that there as well. -------------------------------------------------------------------------------- Operator [43] -------------------------------------------------------------------------------- I'm showing no further questions at this time. I'll turn it back to our speakers. -------------------------------------------------------------------------------- Eric N. Smit, eGain Corporation - CFO [44] -------------------------------------------------------------------------------- Great. Well, thanks, operator, and thanks, everybody, for joining us today, and look forward to updating you when we finish up our Q2. Thanks. -------------------------------------------------------------------------------- Operator [45] -------------------------------------------------------------------------------- Thank you. Ladies and gentlemen, this concludes today's event. You may now disconnect your lines.