Q1 2020 Earnings Call

Eric Smit: I think as we've said in the past, there's going to be somewhat of a step function in it where, you know, we've looked at some of the larger remaining legacy customers. As we move them, we would see that step down. I think again, you know, timing of these activities is not always that easy for us to predict. As opposed to it being gradual, we would probably see some fairly steep declines, you know, in one or two quarters.

Eric Smit: I think as we've said in the past, there's going to be somewhat of a step function in it where, you know, we've looked at some of the larger remaining legacy customers. As we move them, we would see that step down. I think again, you know, timing of these activities is not always that easy for us to predict. As opposed to it being gradual, we would probably see some fairly steep declines, you know, in one or two quarters.

Ryan MacDonald: Got it. Thank you very much.

Ryan MacDonald: Got it. Thank you very much.

Eric Smit: Yeah, we might see anywhere from, you know, $ several hundred thousand decline as a meaningful customer moves.

Eric Smit: Yeah, we might see anywhere from several hundred thousand dollars decline as a meaningful customer moves.

Ryan MacDonald: Okay.

Ryan MacDonald: Okay.

Operator: We'll go next to Richard Baldry with Roth Capital.

Operator: We'll go next to Richard Baldry with Roth Capital.

Richard Baldry: Thanks. Sort of curious, the recurring cost line fell sequentially pretty, you know, meaningfully, sort of more in line with what you had mid last year. Is there anything unusual in that? Or, I know, do you see any step function growth in that ahead? Should we look at this as a new sort of baseline?

Richard Baldry: Thanks. Sort of curious, the recurring cost line fell sequentially pretty, you know, meaningfully, sort of more in line with what you had mid last year. Is there anything unusual in that? Or, I know, do you see any step function growth in that ahead? Should we look at this as a new sort of baseline?

Eric Smit: I think, Rich, you know, a couple of factors. One, just to reiterate the points about the sales and marketing spend, is generally lighter in Q1. We would expect to see that pick up again in Q2. We know that there were some year-end costs around our Q4 numbers that drove those costs up higher. There were certain elements of it that you recorded in Q4. You know, I think just to clarify your final point about, was there a specific line item or just expenses in general? Just the recurring on the profits.

Eric Smit: I think, Rich a couple of factors. One, just to reiterate the points about the sales and marketing spend, is generally lighter in Q1. We would expect to see that pick up again in Q2. We know that there were some year-end costs around our Q4 numbers that drove those costs up higher. There were certain elements of it that you recorded in Q4. You know, I think just to clarify your final point about, was there a specific line item or just expenses in general? Just the recurring on the profits.

Richard Baldry: Yeah, more focused on the recurring line.

Richard Baldry: Yeah, more focused on the recurring line.

Eric Smit: Got it. Okay, sorry. I think we'll obviously continue to see that sort of increase as the revenue grows up, but we don't anticipate a, you know, dramatic change in the margin profile.

Eric Smit: Got it. Okay, sorry. I think we'll obviously continue to see that sort of increase as the revenue grows up, but we don't anticipate a, you know, dramatic change in the margin profile.

Ashu Roy: Yeah. I'll add a little bit, maybe just to follow to that. The recurring line is somewhat sensitive at this scale because as you know, we use partners for Infrastructure as a Service, the public cloud with Amazon and Azure. We keep working with them to drive better value for us. Sometimes there is a little bit of a catch-up on those that happens. I think Q4 may have had some of that catch-up element as well, so.

Ashu Roy: Yeah. I'll add a little bit, maybe just to follow to that. The recurring line is somewhat sensitive at this scale because as you know, we use partners for Infrastructure as a Service, the public cloud with Amazon and Azure. We keep working with them to drive better value for us. Sometimes there is a little bit of a catch-up on those that happens. I think Q4 may have had some of that catch-up element as well, so.

Richard Baldry: If I look back in the past two years, the pattern on deferred revenues sort of seasonally has been hard to discern, but it's been growing, you know, pretty significantly over the past several quarters on a sequential basis. How do I think about evaluating the deferred revenue growth from a seasonal perspective? You know, is the fact that you're kind of exiting the legacy line gonna leave that number more of a sequential grower that gives us an indication of bookings and your future growth rates?

Richard Baldry: If I look back in the past two years, the pattern on deferred revenues sort of seasonally has been hard to discern, but it's been growing, you know, pretty significantly over the past several quarters on a sequential basis. How do I think about evaluating the deferred revenue growth from a seasonal perspective? You know, is the fact that you're kind of exiting the legacy line gonna leave that number more of a sequential grower that gives us an indication of bookings and your future growth rates?

Ashu Roy: Yeah. I think as we've said in the past, we're always a little cautious about reading too much into the deferred revenue line, just given the timing of the renewals as they come in and, you know, for customers as a multi-year renewal that's replaced by a single year renewal. So at this point, I'm not sure if we can provide any further insights into it at this stage.

Ashu Roy: Yeah. I think as we've said in the past, we're always a little cautious about reading too much into the deferred revenue line, just given the timing of the renewals as they come in and, you know, for customers as a multi-year renewal that's replaced by a single year renewal. At this point, I'm not sure if we can provide any further insights into it at this stage.

Richard Baldry: Yeah, your balance sheet's been improved for a couple quarters now. I'm sort of curious if you can talk about whether that's had any impact on your pipeline, your ability to engage with, you know, larger customers to attract, you know, higher end employees, changed your win rates, and competitive deals, sort of, you know, what your takeaway is from that after a few quarters. Thanks.

Richard Baldry: Yeah, your balance sheet's been improved for a couple quarters now. I'm sort of curious if you can talk about whether that's had any impact on your pipeline, your ability to engage with, you know, larger customers to attract, you know, higher end employees, changed your win rates, and competitive deals, sort of, you know, what your takeaway is from that after a few quarters. Thanks.

Ashu Roy: It's a good question. It's hard to correlate that with improved win rates right now, is my assessment. Looks positive. Customers like it. We hear good things from them. A couple of customers at the conference in Chicago commented about the fact that we have strong balance sheets now. I mean, that's sort of the level at which I see it as a positive, but I couldn't put my finger on it and say that we have had this much percentage increase. That's one element. Second part around company confidence in our ability to execute through growth initiatives, that is definitely there. That has changed materially.

Ashu Roy: It's a good question. It's hard to correlate that with improved win rates right now, is my assessment. Looks positive. Customers like it. We hear good things from them. A couple of customers at the conference in Chicago commented about the fact that we have strong balance sheets now. I mean, that's sort of the level at which I see it as a positive, but I couldn't put my finger on it and say that we have had this much percentage increase. That's one element. Second part around company confidence in our ability to execute through growth initiatives, that is definitely there. That has changed materially.

Ashu Roy: Some of the investments we're making on the sales and marketing side, we know that we can sustain it, and we will work through the sort of growing phase to get to a very sort of effective scalable result at the end effect. I feel like the internal impact is very positive and clear to me. The external one is there, but I feel like it's not something I can quantitate.

Ashu Roy: Some of the investments we're making on the sales and marketing side, we know that we can sustain it, and we will work through the sort of growing phase to get to a very sort of effective scalable result at the end effect. I feel like the internal impact is very positive and clear to me. The external one is there, but I feel like it's not something I can quantitate.

Eric Smit: Right. I think the only point I would add is that certainly prior to the improved balance sheet, I had frequent requests from salespeople to participate in due diligence calls around the financial viability. Certainly, since the financing, I have not had one single call of that nature.

Eric Smit: Right. I think the only point I would add is that certainly prior to the improved balance sheet, I had frequent requests from salespeople to participate in due diligence calls around the financial viability. Certainly, since the financing, I have not had one single call of that nature.

Rob a global wealth and asset management Peter.

Richard Baldry: Okay. Last one would be, if we look at the growth in the SaaS revenue sequentially from the June quarter to September, it's almost 2 to 3x the dollar sequential growth you saw in the year prior period. So I'm sort of curious if you can talk about, is that a material step up to sort of your sales productivity? Is it maybe a go live timing issue that we shouldn't think about as, you know, sort of like an outlier execution given, you know, its dramatic improvement year over year? Thanks.

Richard Baldry: Okay. Last one would be, if we look at the growth in the SaaS revenue sequentially from the June quarter to September, it's almost 2 to 3x the dollar sequential growth you saw in the year prior period. So I'm sort of curious if you can talk about, is that a material step up to sort of your sales productivity? Is it maybe a go live timing issue that we shouldn't think about as, you know, sort of like an outlier execution given, you know, its dramatic improvement year over year? Thanks.

Okay. That's been presented the highlighted the speed of scale.

Which they have consumed innovation on began platform.

Over the last couple of years, they have aggressively been able to shift their customer care volume from voice to digital.

Primarily for the extended the business and that includes a lot of products.

And that business.

They see a 15 to 20 points net promoter score advantage.

Brown.

They compare that digital customer service and their voice based customer service. So the same customers when they get digital customer care their net promoter scores at about 15 to 20 points better and boards.

Ashu Roy: I think largely, we should attribute it to this timing of deals earlier in the quarter. Sometimes it happens, as you know, deals slip from prior quarters and some large ones happen earlier in the quarter. I think that's probably the most significant factor. I mean, bookings have been good, but I wouldn't say that that's the single biggest driver.

Ashu Roy: I think largely, we should attribute it to this timing of deals earlier in the quarter. Sometimes it happens, as you know, deals slip from prior quarters and some large ones happen earlier in the quarter. I think that's probably the most significant factor. I mean, bookings have been good, but I wouldn't say that that's the single biggest driver.

And as an important news the VP of Comcast who presented.

Put it.

That 15 point NPS advantages not worth getting out of wed for I don't know what ism, we completely agree and not not customer experience advantage is phenomenal and big companies like Comcast I, recognizing that they can get tremendous improvement in customer experience.

Richard Baldry: Thanks. Congrats on a good start.

Richard Baldry: Thanks. Congrats on a good start.

Eric Smit: Thank you.

Eric Smit: Thank you.

Operator: Again, ladies and gentlemen, that is star one for your questions. We'll go next to Jeff Van Rhee with Craig-Hallum Capital Group.

Operator: Again, ladies and gentlemen, that is star one for your questions. We'll go next to Jeff Van Rhee with Craig-Hallum Capital Group.

And customer SAP.

Just like delivering customer care digitally other them on voice.

Rudy Kessinger: Hey, guys. This is Rudy on for Jeff. A couple for me. One, I think you said last quarter in terms of the new bookings in Q4, it was about a little over 60% from existing, a little under 40% from new. I'm curious how that was in this quarter. In terms of the pipeline, just as you look over the last 3 to 6 months, what sort of products have been driving the pipe? I know you touched a little bit on the sales advisor driving some good pipeline so far, but if you could just touch on the products driving the pipeline.

[Company Representative] (Craig-Hallum Capital Group): Hey, guys. This is Rudy on for Jeff. A couple for me. One, I think you said last quarter in terms of the new bookings in Q4, it was about a little over 60% from existing, a little under 40% from new. I'm curious how that was in this quarter. In terms of the pipeline, just as you look over the last three to six months, what sort of products have been driving the pipe? I know you touched a little bit on the sales advisor driving some good pipeline so far, but if you could just touch on the products driving the pipeline.

That is on top of the significant cost advantages of digital over voice, which runs through about WEX improvement in a typical scenario, which is based on messaging and chat.

Or voice.

Then lump them talked about how they are expanding their digital customer service.

They are adding virtual assistant and messaging all our league in platform. This is on top of the current capabilities that they have around knowledge in guidance and.

Ashu Roy: Sorry, Jeff. I got the first question. Can you just repeat the second question, please?

Ashu Roy: Sorry, Jeff. I got the first question. Can you just repeat the second question, please?

Rudy Kessinger: Yeah, yeah. Secondly, on the pipeline, what products, if you had to rank order, you know, the top couple, are driving growth in the pipeline?

[Company Representative] (Craig-Hallum Capital Group): Yeah. Secondly, on the pipeline, what products, if you had to rank order, you know, the top couple, are driving growth in the pipeline?

Happen email based service from Egain.

They also share the strategy of delivering convenience and choice.

Any channel World.

Ashu Roy: Okay. Gotcha. Okay. The first one, yeah, the percentage of existing versus new or new versus existing is materially similar, I would say, for Q1 as well, probably in that low 60s for the existing expansions and the rest for new. For the products that are driving the growth, we are seeing more and more now that the expansion sales are happening with all our, like, the suite of capabilities, so a bundle of solutions on the expansion side. On the new side, knowledge and AI are clearly the top one, and the second one is messaging and digital. Those are the top two entry points we are seeing in new logos.

Ashu Roy: Okay. Got you, okay. The first one, yeah, the percentage of existing versus new or new versus existing is materially similar, I would say, for Q1 as well, probably in that low 60s for the existing expansions and the rest for new. For the products that are driving the growth, we are seeing more and more now that the expansion sales are happening with all our, like, the suite of capabilities, so a bundle of solutions on the expansion side. On the new side, knowledge and AI are clearly the top one, and the second one is messaging and digital. Those are the top two entry points we are seeing in new logos.

And finally, Northern trust shared their story offer global deployment of Egain for digital customer care.

On the results they saw quantitatively in better service levels productivity and customer SAP.

They also outlined the intent to further expand their omnichannel service options on the impact.

What we saw in what we heard from as they have a great customer successes and great story than we were very grateful.

Our clients or sharing those what we saw the common theme across these clients was.

First of all.

Strategic commitment to a modern digital first customer engagement.

And second the focus on consuming innovation at speed and scale.

And as you gain.

We being the partner of choice in these cases.

Rudy Kessinger: Got it. On the investments in S&M, I know one's marketing, two's channel, how much direct capacity do you think you guys are gonna add, say, in the next 12 months or throughout the remainder of this year?

[Company Representative] (Craig-Hallum Capital Group): Got it. On the investments in S&M, I know one's marketing, two's channel, how much direct capacity do you think you guys are gonna add, say, in the next 12 months or throughout the remainder of this year?

We see is that our solution stands apart from the market in terms of its elected richness and ease of implementation.

And our clients experience it and our prospects learn about Arctic when we do our risk free trial of innovation in 30 days.

Ashu Roy: On the sales side, you mean?

Ashu Roy: On the sales side, you mean?

Rudy Kessinger: Yeah, direct. In terms of direct sales capacity or our direct sales rep.

[Company Representative] (Craig-Hallum Capital Group): Yeah, direct. In terms of direct sales capacity or our direct sales rep.

Ashu Roy: Yeah, we're probably gonna be adding, let's say, 30% or so sales capacity.

Ashu Roy: Yeah, we're probably gonna be adding, let's say, 30% or so sales capacity.

That was very nice view of what we saw.

Customers, reflecting would they felt was the value they got for their money from eating the partnership that we prefer to table.

Rudy Kessinger: Got it. Okay. Helpful.

[Company Representative] (Craig-Hallum Capital Group): Got it, okay. Helpful.

Ashu Roy: The investment incrementally on the channel and marketing will be higher in percentage terms because we think that that's a bigger leverage for us.

Ashu Roy: The investment incrementally on the channel and marketing will be higher in percentage terms because we think that that's a bigger leverage for us.

Turning to partners have events all three of our contact Center technology partners to school of eye on Amazon participated which is great.

Rudy Kessinger: Got it. Helpful. Thank you. That's it for me.

[Company Representative] (Craig-Hallum Capital Group): Got it, helpful. Thank you. That's it for me.

There was very heartening to see.

Positive and enthusiastic attendee interest in their joining proposition and our solution with them.

Ashu Roy: Sure.

Ashu Roy: Sure.

Operator: Again, ladies and gentlemen, that is star one for your questions. We'll pause for just a moment. At this time, I show no further questions.

Operator: Again, ladies and gentlemen, that is star, one for your questions. We'll pause for just a moment. At this time, I show no further questions.

With increased sales investments in channel led growth as we have indicated to.

Investors in the past we are starting to see a nice pipeline growth and we expect this trend to continue through the rest of Europe .

Ashu Roy: Okay. Thanks, everybody. I appreciate you listening, and hopefully we'll get to see some of you in New York next week. Thank you.

Ashu Roy: Okay. Thanks, everybody. I appreciate you listening, and hopefully we'll get to see some of you in New York next week. Thank you.

Finally.

As we announced in our press release as well, we launched some exciting new capabilities on our cloud platform as part of our fall 2019 release.

Operator: Ladies and gentlemen, this does conclude today's conference. We thank you for your participation. You may now disconnect.

Operator: Ladies and gentlemen, this does conclude today's conference. We thank you for your participation. You may now disconnect.

I will run through the important ones the first one worse.

You gave messaging hub this enables businesses to.

Not really engage with their customers across all messaging channels, including Apple business Chakras amassed whatsapp Facebook and others.

Using the have taken effortlessly launch new ways of connecting with their customers either proactively are down our interactive messaging, which as Chuck based.

And all these interactions and leverage our Egain AI technology and virtual assistance.

Liver Smarttalk service.

Are there are other companies in the marketplace, who offer such messaging cost.

Almost all of them that we know off our point tools.

Businesses end up having to do it all together with their knowledge and AI assets.

Our solution comes with the capability all these docs reconnected available in one place simple portal.

Next capability, we announced which was very exciting was virtual assistant for agents, we've been selling and marketing virtual assistant for self service for customers. This is more.

Uh-huh applicable to the agents such that the virtual assistant monitor the digital conversations.

On the edge in desktop and then serves up this practice guidance and knowledge when relevant.

Our clients love the idea of prompted relevant guidance of active agents and focus on working with customers and helping them more like a GP unsecured.

Nick announcement that we have and we have a flatter artisans very proud of what does a new way of looking at applying and.

Solutioning using our technology for sales not just for service.

This recall league infield advisor.

You recall Weve rock has been Siegel a banking industry veteran onboard earlier this year.

It was about seven months ago.

His mandate was to pursue new new growth initiatives, starting with our number one vertical which is financial services.

In six months.

He successfully led a small team internally within fee Bentonville Egain sales advisor.

Which helps guidance coach sales agents.

In an easy best practice driven manner.

While ensuring compliance in the sales process and shore makes all your sales agents as good as your best sales agent with process guidance.

Interest in this solution from the attorneys are the conference was phenomenal.

Now Evan and team have secured a pilot plant. So we offer the races and the pipeline building, so very exciting to see us extending out our core technology and core capability.

For the sales side of the house in our business lines, not just service, which is where we are today.

Moving to be.

So optimize layer of our platform, we announced two capabilities one with analytics for Amazon connect which is Oh. It was on connect is one of our key contracts under partners as we now and that's a rich solution for omni channel analytics on the voice side of Amazon.

And finally, we announced our Ivy our analytics capability. This is a flavor solution than our view because it leverages, our core technology and analytics, but it addresses a.

Unmet need in the market around.

One of the largest pools of customer engagement that most businesses engage in today and that is idea where roughly.

Three out of every four calls into a business for customer care ends up in IDR, either getting result are getting in London.

And most businesses that we have to ARPU and in the market have no idea about what goes on MBOED, 75% of the voice calls.

For questions people want to know who called them in.

Why do they call them, what's their experience an idea and when they ask lake what happens.

And our solution for I'd analytics enabled these businesses to understand that behavior and assess experience. We don't know if any other product in the market.

There may be some point too, but not nothing that is part of our platform like ours that addresses this important piece of the engagement also.

All these innovative capabilities now with leading edge features all connected in available on our common platform with the ease and richness, let's uniquely.

Moving forward. This year, we as you have known we are systematically ramping our sales investments we are up too close to about 30% off our topline now going into sales and marketing for Q1.

Great under that and all of it leveraged by channel. So we continue to systematically hire them onboard people for.

The three layers off investment that we're making.

Marketing first followed by channel and finally sales heads who.

Respond to the demand with regenerate. So we are quite enthusiastic about accelerating our fast growth in this year.

With that I'll ask Andy Smith, our Chief Financial Officer, who add more color around financial operations and it great. Thanks I'll shoot.

As you noted we achieved top and bottom line results that exceeded our guidance and we're here to street consensus and we generated strong cash flow from operations in the quarter.

Looking at the financial highlights for Q1.

That's revenue was up 30% year over year.

33% in constant currency.

Our non-GAAP gross margins were 70% for the quarter, an improvement sequentially and year over year.

non-GAAP net income was 1.7 billion was six cents per share on the basic and five cents per share the diluted basis up from non-GAAP net income of 1.2 million or four cents per share a year ago.

And we generated 2.7 billion in cash from operations during the quarter, the cash flow margin of 16%.

Looking at our quarterly results in more detail total revenue in Q1 was 17.2 million up 9% year over year, 4% in constant currency.

Subscription revenue was 15.6 million or 13% year over year, 16% in constant currency and accounted for 91% of total revenue was.

Is up from 87% year ago.

Looking at revenue components, such revenue was 12.4 million was 30% year over year that accounted for 72% of our total revenue in Q1.

The trailing 12 month says retention rates remains healthy with gross retention in the mid to low 90% range and the metro attention, including Upselling uplift north of 100% consistent with last quarter.

Legacy revenue was 3.2 million.

24% from year ago quarter.

Legacy accounted for 18% of total revenue in Q1 down to 26% in a year ago quarter.

As we've noted on previous calls we are driving a more accelerated transition of our on premise customers to our cloud offering and as such we expect to see a forced a decline in legacy revenue over the next several quarters.

We are targeting legacy revenues to decrease to less than 10% of total revenue by the end of calendar 2020 .

This is accelerated transition you're seeing our legacy retention rates come down slightly to the mid 80 range with 80% range.

Professional services revenue was $1.6 million or 10% of total revenue.

It was down 18% from 2 million or 13% to total revenue the new year third quarter.

As we've noted before a goal was to get appears revenue into the low double digit pool by single digits as a percentage of total revenue range now that we've achieved this goal. We would expect it appears revenue to remain in this range as a percentage of total revenue going forward.

Now looking at our non-GAAP gross profits in gross margins gross profit for the first quarter was 12 million or gross margin of 70% up from a gross profit of 10.6 million or gross margin of 68 to since a year ago.

Year over year, increasing the overall gross margin reflects a combination of the benefits we are seeing.

In the scale efficiencies around cloud operations and the growth in our homework high margin search revenue, while our lower margin Ts revenue declines.

Now turning to operations non-GAAP operating cost for the first quarter came in at 10.4 million compared to 9.3 million in the year ago quarter.

With increased investments in sales and marketing and product development as the primary drivers for this increase.

Overall this resulted in non-GAAP operating income in the first quarter of 1.6 million, an operating margin of 9% compared to 1.4 million or margin of 9% year ago quarter.

Looking at net income non-GAAP net income for the first quarter was 1.7 billion or 6.6 cents per share when a basic and five cents per share on a diluted basis. This compares to non-GAAP net income of 1.2 million or four since we showed a basic and diluted basis in the year ago quarter.

GAAP net income for the first quarter was 1.2 million or four cents per share compared to GAAP net income of 604002 cents a share in the year ago quarter.

Now turning to our balance sheet and cash flows total cash and cash equivalents as of September 30th 29 team was 34.4 million compared to 31.9 million at June 30th.

Team.

During the quarter, we generated cash flow from operations of 2.7 million compared to 3.3 million in Q1 last year.

Now turning to our guidance.

For fiscal 2020 full year ending June 30th 2020 , we are reiterating our previously provided guidance for search revenue of 53.8 million to 55 with formulated on a constant currency basis.

Which represents growth between 20 and 24% year over year.

And for total revenue of 73.

We were 73.6 million on a constant basis.

Representing growth between seven and 10% year over year.

We expect to generate non-GAAP net income of between breakeven to 2 million or zero to six cents per diluted share.

And we assume a diluted share count of 32.6 million for the fiscal year.

Looking at the foreign exchange impacts of the pound to the dollar on our first quarter results.

You can see the impact accounted for approximately 300000, while the difference in our search revenue at about a $400000 difference in total revenue for Q1.

Looking ahead, given the strength in the pound to the U.S. dollar so far this quarter if its should remain at this level, we don't anticipate a significant.

Fixed impact on our results for the remainder of the year.

Now looking to the fiscal 2022nd quarter, we expect SaaS revenue of.

Between 13.3 million to 13.7 billion and total revenue of 17.2 million to 17.7 billion.

We expect to generate non-GAAP net income of 200000 for 700000 or one cents to two cents per diluted share.

We've assumed the diluted share count of 32 million for the second fiscal quarter.

I think further color to our Q2 guidance, we expect to see less of a seasonal impact benefiting our service revenues Q2 that we saw last year.

This is a function of an increase in our base level business and the way certain of our agreements of the gold, which is expected to reduce overages that boosted our Q2 results last year.

Rather than a significant spike in Q2, followed by a decline in our third and fourth quarters, we expect to see a more linear improvements in our search revenue through the remainder of the year, which we view as a positive change.

Mostly on the Investor Relations front, you again will be participating in two upcoming investor conferences next week, we will be participating in the Craig Hallum of annual Elfa Select conference taking place November 4th in New York and the following day, we will be participating in the roads technology and clean Tech conference in November 30.

Teams, which is also in New York, We hope to see some review there.

This concludes our prepared remarks, operator, we will now open the call for questions.

Yes, Sir ladies and gentlemen, if you'd like ask your question. Please signal by pressing star one on your telephone keypad every using a speaker phone. Please make sure. Your mute function is turned off to layer signal to reach our conference again that is star one we'll go first to Ryan Macdonald with Needham.

Yeah, Good evening, Ashu and Eric Thanks for taking my questions. Congrats on a strong first quarter numbers.

I guess first off in terms of the guidance you provided.

Eric I know you made some comments about maybe some impact sort of throughout the year. Some changes here, but I guess the guidance right now and you know at the at the high end assume sort of a flat a year over year.

Yes gross.

To maybe slightly down can you talk about maybe what some of the moving parts.

Of that guidance sarin and I think it also assumes in the SaaS growth guidance.

A bit of a deceleration into maybe the mid teens, there so would love to hear some more color on that possible. Thanks.

Just a confirmed around you're referring to the Q2 numbers is that.

Yes. Thank you as you know.

Yes, I think if you recall.

Last year, we if we mentioned on the call approximately a 900000 dollar.

Benefit from seasonal onetime.

Our revenue.

That as I'd mentioned.

In my prepared remarks that as certain of these contracts have evolved we are instead looking to see more sequential improvement in the growth of the search revenue as opposed to as I've mentioned, if you look at last year, we saw a huge spike.

Next season.

Decreases in the revenue that followed so as I've mentioned, we've sort of maintains the guidance for the year, but instead of being.

For more front end loaded into Q2, we would expect to see that growth rate continues throughout the year does that make sense.

Yeah. That's helpful. Thank you and then in terms of the.

I guess the planned investments can you talk about how you're tracking to internal plan on on sort of that increased level investment on sales and marketing and R&D and then in a sort of how we should expect the cadence of the additional investment to play out through the remainder of there.

Sure It was actually around so yes.

So we talked about increasing our sales and marketing investment Google certain level I think we're right around that level for Q1.

I think we'll continue to see the increases that we have indicated eating up I think that we probably will exit Q4.

Around the 35% level is my sense of sales and marketing investment as a percentage of revenue now that's not going to goes jump up to 35% instantly, but at the trajectory that we along.

I think one more point to Ed when that says that there is elements of.

Seasonality in the sales and marketing spend there so for Q2, where we've had the customer events. That's our shoot book about we'll certainly see too.

A more increased sequentially from the Q1 numbers as a result at that point that applies to the Q4 as well because we do a significant event in London. So for Q2 in Q4, you'll see those on spikes on the marketing fine.

Got it. Thank you and then I guess, just let one more for me in terms of the migration or accelerated migration of customers to get them over to the cloud I know you mentioned you want to have that sort of done by the end of the calendar year 20.

How should we think about sort of the pace of the those migrations I guess through the remainder of the fiscal year here.

So I think as we've said in the fourth is going to be somewhat of a step function limits where weve.

Look at some of the larger remaining.

Legacy customers as we move them, we would see that stepped down.

So I think again timing of these.

Activities is not aware is that how easy for us to predict but as opposed to it being.

Gradual we would probably some fairly volumes.

With that.

In one or two quarters.

Got it thank you see.

Yes, we might see anywhere.

Several hundred thousand dollars.

Got to climb as a meaningful customer moves.

Okay.

Okay.

Well go next to Richard Baldry with Roth capital.

Thanks turn curious to recurring cost fine fell sequentially pretty.

Meaningfully sort of more inline with what you had mid last year. So is there anything unusual in that or.

Do you see any step function in growth in that ahead.

We look at this is a new sort of baseline.

So I think a rich the.

You know a couple of factors one just to reiterate the points about the sales and marketing spend.

It is generally lighter in.

In Q1, so we would expect to see that pickup again.

In Q2 and.

We know that there was some year ends costs around our Q4 numbers that drove.

Those costs up.

So there were certain elements of it that.

We recorded in Q4 so.

Yes, I think just to clarify your final points about.

There are specific line item or just expenses in general.

Mr., Ken on the revenues on it.

Looking at more focused on the recurring line.

Right, Okay sorry.

So that.

Yeah, I think we'll obviously continue to see that.

I.

Sort of increase as the revenue grows up but we don't anticipate to.

Derek change in the margin profile.

Yeah.

I'll I'll add a little bit maybe just hello to that so the recurring line is somewhat sensitive at this scale because as you know we use.

Our towers for infrastructure to service the public cloud with Amazon manager.

And.

We keep working with them to drive better value for us and so sometimes there is a little bit of catch up on those that happens.

And I think Q4 I may have had some of that catch ups element as well so.

Okay.

If I look back in the past two years the pattern on deferred revenue sort of a seasonally it's been hard to discern, but it's been growing pretty significantly over the past several quarters on a sequential basis. So how do I think about.

Evaluating the deferred revenue growth from a seasonal perspective or is the fact that you're kind of exiting the legacy line going to leave that number more of a sequential grower that gives us an indication of bookings and your future growth rate.

Yeah, I think as we've said in the past breweries a little cautious about.

Reading too much into the deferred revenue line, just given the timing of.

The renewals as they come in tier for customers.

As a multiyear renewal that replaced by a single year renewals. So.

At this point doesn't look to if we can provide any further insights into the stage.

And then your balance sheet spending per for a couple of quarters now some sort of curious if you can talk about whether that's had any impact on your pipeline your ability to engage with larger customers to attract.

Higher end employees change your win rates in competitive deals sort of what's your take away.

From that after a few quarters. Thanks.

It's a good question.

It's hard to correlate not with.

Improved when rates right now is my assessment.

Looks positive customers like it we here good things from them uplift customers Abbvie I'm friends and Chicago commented about the fact that we have strong balance sheets now so that's sort of the level at which I see I as a positive but I couldn't put my finger on I can say that we have had.

This much percentage increase.

That's 111 and second part around company confidence in our ability to execute to growth initiatives that is definitely there has changed materially some of the investments, we're making on the sales and marketing side. We know that we can sustain at and we will work through this or that the growing a phase two of.

Sorry.

Sort of effective asking level result at the end effect. So I feel like the internal impact is very positive I'm unclear to me. The external one is there, but I feel like it's not something I can quantity.

I think you any for Intel it addresses that certainly prior to the improved balance sheet.

And frequent requests from salespeople to participate in due diligence calls around the financial viability and certainly since the.

Financing I've not had one single coal that that nature.

And on glass honestly.

If we look at the growth in the SaaS revenues sequentially from the June quarter in September .

It's almost two to three acts the dollar sequential growth you saw in the year prior periods.

Some sort of curious in talk about.

It's data.

Material step up to three your sales productivity is it immediately go live timing issue that we should think about as as yeah, sorry, sorry, outlier execution, given you Alex dramatic improvement year over year. Thanks.

So I think largely.

We should attribute it to this timing of deal earlier in the quarter.

And sometimes it happens as you know deals slipped from prior quarters in some large ones happen no near the border I think that's probably the most significant factor.

[noise] bookings have been good but not I wouldn't say that that's the single biggest driver.

Hi, Thanks, Congrats on a good start.

[laughter].

And again, ladies and gentlemen that star one for your questions. We'll go next to Jeff Van Rhee with Craig Hallum Capital Group.

Hey, guys is really on for Jeff I'm, a couple from me want It you said last quarter terms and the new bookings in Q.

Q4 is about little over 60% from existing little under 40% from new Im curious how that was this quarter and then in terms of the pipeline is as you look over the last three to six months.

What's sort of products have been been driving the pipe I know you touched a little about in the sales advisor driving some good pipeline, so far but I'm just touch on the products driving the pipeline.

Oh, so sorry, Jeff.

I got the first question can you just repeat the second question. Please.

Yeah, Yeah, secondly on on the pipeline, what what product. If you had rank order you know the top couple are driving driving growth in the pipeline.

Okay Gotcha, Okay. So the first one.

Yes, the percentage off.

Existing versus new or new versus existing is materially similar I would say for the Q1 as well I probably in that low sixtys for.

The existing expansions and the rest for new.

For the number of products that are driving the growth. We are seeing more anymore now that the expansion sales are happening with all our reflect a suite of capabilities all a bundle of solutions on the action side on the new side.

Knowledge and they are clearly.

The one the top one I'm the second one is as messaging and the and digital so those are the top two entry points, we're seeing in new logos.

Got it and then on the a and the investments Nasscom M&A ones marketing twos channel how much direct capacity do you think you guys are are going to add stay in the next 12 months or throughout the remainder this year.

On the sales side doing yeah direct in terms of direct sales capacity or direct sale area yeah yeah.

We're probably going to be adding let's say.

A 30% or salt sales capacity.

Okay got it okay. The investment incrementally on the channel and marketing will be higher in percentage terms, because we think that's a bigger leverage for us.

Got it helpful. Thank you that's it for me.

Sure.

And again, ladies and gentlemen that is star one for your questions, we'll pause for just a moment.

And at this time I show no further questions.

Okay. Thanks, everybody is I appreciate you listening and hopefully we'll get to see some of you in New York next week.

Thank you.

Ladies and gentlemen, this does conclude today's conference. We thank you for your participation you may now disconnect.