Q2 2020 Earnings Call
[music].
Good day, and we'll come to the gain fiscal 2022nd quarter financial reasons Conference call today's college being afforded.
Time over much turned the conference over to Jim buyers M.K., our industrial Nations. Please go ahead.
Thank you operator, and good afternoon, everyone welcome to the game second quarter of fiscal 2020 financial results Conference call.
<unk> color Egains, Chief Executive Officer, Ashley Roy and Chief Financial Officer, Eric Smith.
Before we begin I would like to remind everyone that during this conference call management will make certain forward looking statements.
Convey management's expectations beliefs clients and objectives regarding the future financial and operational performance.
Forward looking statements are generally preceded by words, such as believe plan and tend to expect anticipate or similar expressions forward looking statements are protected by safe Harbor provisions.
Chained in the private Securities Litigation Reform Act 1995.
He's forward looking statements are subject to a wide range of risk and uncertainties and could cause actual results to differ in material respect.
Information on various factors that could affect you games result.
Details on the company's reports filed with the Securities and Exchange Commission <unk>, making these statements asked him today February 620, 20 and assumes no obligation to public publicly update or revise any of the forward looking information in this conference call.
In addition to gap results, because we'll discuss certain noncat financial measures such as non gap operating income our earnings press release can be found on the news release blank and the Investor Relations page, but he gains website at www Dot com.
And the tables included with the earnings press release include reconciliation at the historical non get financial manager measures should the most directly comparable gap financial measures.
Play at this conference call also be available at the Investor Relations section of these games website and now with that said I'd like to turn the color already Egains CEO actually really.
<unk> found good afternoon, everyone.
We have quite pleased with our financial results for the second floor.
Both from the top line on the bottom line, we exceeded our guidance and we're kind of freaked consensus and we saw solid growth in south revenue both sequentially and <unk>.
We also continued to rapidly March toward was fastened beat business model in fact.
Fast plus professional services record.
Which is essentially all go forward in business.
<unk>, 87% the front total revenue in too.
This is from I'm, 77% off Cooper revenue in the same quarter last year.
It's a good progress.
Our fast lust professional services revenue grew 16% this quarter.
If we drive our legacy customers actively to adopt hours fast solution you wouldn't be <unk>.
<unk>.
Sometimes.
We have talked about this for a few borders an hour.
Going forward. We believe this is the the relevant talk like a number which is fast loss professional services represents the relevant to talk my humble for Christmas.
Focus on back from a growth and boundaries correctly.
Looking at business and just work on.
Oh customer help from banks trial, we books good business in the portrait as well across new logos and existing customers.
One of our exciting you logos last quarter was a very large retailers.
<unk>.
According to the market.
See a couple of trends in terms of Oracle and geography.
Positive.
Financial services continue to be our number one would be cool I've always they're going to fast.
Especially the U.S. financial services climb cut investing heavily in customer engagement and elegance and self service.
On the negative we see Europe slowing down in terms of technology investment.
Given the <unk>, we anticipate increased the friction risk in our European customers.
Accordingly, but we are investing more into financial services were nickel and more soil the west bank in Europe.
Oh sales and marketing investment as you may have c. stands out 26% of revenue Institute.
<unk>.
Mute hiring and increased marketing, we expect it to move closer to 30% in two three and then move up into the local 30% range in two four.
As you mentioned before.
Sales and marketing investment falls in three buckets.
Customer success, which includes from a success team sparkling closely with I would expanding professional services.
Illegal or continuous value who are <unk> customers.
Okay.
Generation, which includes more marketing most people in programs as well as expanded sparkling recruiting enablement training.
If sales capacity expansion both inside <unk>.
So we've tracking likely to the <unk> increased investment in sales and marketing across the street.
<unk>.
Next topic.
Wanted to share an update on is our progress on both the market around our new feels that if I got solution.
As you all know we launched the failed advisor solution to very good reception.
<unk>.
In Chicago.
Susannah market feedback has been very encouraging and brought based.
Cross megabytes regional banks credit unions mortgage funds insurance companies <unk> sort of already broadcast.
<unk> I have a sequel.
Was conducted over 25 animals too interested prospects in the last three months, including the holidays.
Illusion is also attracting.
We've conversations and interest was what could be focused teams in both large and midsized aside and consulting organization. These up an extra five times for us.
They are interested in our solution.
They are looking to.
Provide.
Interesting approaches to see Sweet science, we'll be advice on how can move the growth needle. It's an interesting approach for us to be relevant it'd be.
Feasts, we'd conversation working with some of the Packers.
What we are hearing consistently.
Our sales advise the solution is addressing three outstanding.
<unk> number one sales effectiveness hockey <unk> second.
<unk> <unk> <unk>.
<unk> what is now almost a universal corporate mission and send it back and financial services companies.
Customer.
<unk>.
So these three panes points are kept feature.
They seem to be getting drunk based on we seem to be addressing them in a way that is quite compelling.
<unk>.
Oh, Okay, well what is available out there that's what we heard.
So we have not allowed to pilot customers both in the S.N.B.A., yeah, because their decision, making pasta. That's you know interestingly both of those we have a direct a relationship in conversation with the seal off the too fine yeah, the sponsors off our engagement.
Scheme as I could you could find a solution.
Overall sales focused got someone engagement, which is what sales buys it is.
The V.A. hospital expansion of our current business, which is <unk>.
You get so excited.
<unk>.
Oh did finally I want to share that appeared to round up <unk>.
But then we announced that we have any <unk> for the wire, which will enable up I have to offer.
I work clouds based digital engagement capabilities branded a liar.
Oh I have worked space for a deep customers.
The solution is currently flicked it to be generally available later this courtroom.
Well I announced this capability.
Customer event, Oh, I engage in Phoenix are going to sleep.
Truth about the second we feed us as a very nice opportunity to jointly so oh I have plans with.
<unk> solutions across what some digital.
Well at least trust a field level.
<unk>.
We believe this <unk> just like our successful Cisco partnership.
We live overtime enable us to so many more global businesses with rich easy solutions.
If we.
Oh.
I was mark I'm less than our cost wants to tell us.
Solutions are best in class it sounds a feature a few coupled with the scale.
What are your focused on now with an example of this or why our friendship and of course are successful Cisco partnership is increasingly deliberately used so I would wake solutions.
Oh, these partnerships with complementary technology, black, possibly ecosystems as well as direct supplies. So we're driving force.
Because I I lost <unk>, our chief financial officer to add more color around financial operations.
<unk>.
But it's actually know too we achieve top and bottom line results hutus that exceeded our guidance and where it hit a street consensus.
Looking at the financial highlights for Q2 sets revenue was up 19% year over year and 13 for since she could sleep.
No one to get gross margins were 72% fill the quota 8300 basis points improvement appear over yet.
On pace to achieve a long term Paul good of 75%.
<unk> income was 2.5 million or eight cents per share and we generated 5.3 million and cash cooperation stream of course <unk>, 29%.
Now looking at a quarterly results in more detail.
You have shifted to 100% sets business.
Eventually all about professional services is now for assessed customers. So we leave as I should mention the combination obsessed with me and professional service revenue.
A useful measure to value out business, what afford looking basis.
Well to to assess in professional services revenue Fiftyp with 9 million comprised 87% of our total revenue.
This leaves 13% of our total revenue in the legacy buckets.
Thing that we are completely attractive to get down to 10% of total revenue when they could be basis by the end up <unk>.
What was.
I have two two sets those professional services repeat grew at 16% Europe, Yeah and.
Yesterday faces screw, 18% your rubber yeah.
Highlights of progress towards.
Alone to phobic model.
Cool revenue growth of between 20% to 25% for yeah.
<unk> increase investment in sales and marketing in line with outlet.
Looking at the revenue components <unk>. He was 14 million up 19%, you're a year and accounted for 77% about total written cute too.
Oh, you're up against a tough come from two to last year, given one time 900000 seasonal benefit we experience last year.
What a sequential basis.
That's revenue grew 13% over to what.
And yet you're dates <unk>, 24% you're over yet.
That's expected.
She's will impact was down significantly when compared to a year ago. The amounts of seasonal benefits, we estimate to be approximately 150000. This quota.
And looking at the sequential growth rates. The primary drivers lumped into three categories, we sort of new bookings expansion of on <unk> and the migration of the large legacy custom of two sets.
Renewals and Retentions continued to be positive and a quota for training 12 months ask retention rate for me and healthy.
With groceries tension in the low 90% cringe, no nets attention, which fruits sell enough to lift continued to be above 100%.
Legacy revenue was 2.3 million down 42% put a year ago quota.
<unk> large customer migration.
And legacy accounted for 30% about total revenue in the quota.
We've noted on public schools were driving the transition.
The remaining on premise customers.
Oh sets off or you know such we expect to see put the decline legacy written you oppose the Knicks several courses.
Official services revenue was 1.8 million.
10% of total revenue <unk>.
We've noted before a goal was to get appears revenue in the I. single digits as a percentage of total revenue now that we've achieved the school we would expect a piece of neutral made in this range as a percentage of total revenue going forward.
I'm looking at a known get gross profits and gross margins soy milk improvements and I'm watching too too too gross profit for the second quarter was 13 billion or a gross margin of 72% from a gross profit of 12.3 million, where a gross margin of 69% a year ago.
It's 300 basis, which improvement.
There'll be a you know little gross margin reflects a combination of the benefits. We have started to see the scale inefficiencies around those tests operations and the growth to know hi, <unk> well, our little margin kids for the has declined.
No 22 operations.
Okay operating costs with a second quarter came in at 10.5 million compared to 9.8 million a year ago quota.
Continue to put in P. increase our investments in sales and marketing and love to December coach was quite to in terms of hiring due to the holidays. It's actually noted hiring activity has increased no plans investments is pretty much underway.
We expect sales and marketing as a percentage of it and you get close to 30% two to three up to 26% Hmm cute.
Oh no one gets operating income in the second quarter was 2.6 million or operating margin to 14% compared to 2.5 million or more to the 14% in the year ago quotes.
<unk> <unk> <unk> for the second quarter was 2.5 million for instance for shit when a basic contribute to basis.
<unk> lifting come with 2.4 million nine cents per show the basic and they say that's for sure that diluted basis, you ever go quota.
Ethnic income for the second quarter was 2 million or six cents per share compared to get from the incumbent 2 million.
Since per shit you ever go quota.
I think too bad about one sheet and cash flows total cash and cash improvements as of December 31st Tricky 19 was 40.3 million compared to 51.9 million June 30th 2019.
During the course of regenerated cash flow from operations at 5.3 million significantly from 863000, Hmm cheap to last year.
Operating catch the marching improved between 90% of the quota.
Oh, turning to our financial outlooks and guidance.
It's actually states, it's we see it locked opportunity for there's some close protocol free with a healthy balance sheets wheel wells position to increase our investments, particularly around sales and marketing to support.
<unk> and ramping up inside sales.
Full providing a <unk> a few points to highlights.
First we are excited about via via announcement, but have not affected it into if white Pinky gardens.
I was expected us to to seasonal increase was noted as great as last year, but we still so.
$150000, well seasoned M.C. that we do not expect to re occur <unk>.
That's true of new plus professional services is a metric that's it's becoming increasingly relevant we believe the <unk>. The overall growth rates about cool business going forward.
Total revenue will continue to be negatively impacted without migration.
To drop legacy business below 10% before the end of calendar year Twinkie.
And again, there's actually mentioned in the media, we are seeing some softness and we expect to see a reduction in some of the account set up for a new will be two three.
And this would impact says trip you by approximately 300000 <unk>.
Yeah today.
Ethics impact Oh, No service revenue is a negative 267000.
Total revenue and negative 362, thousands if we affected into I'm tightness.
If the U.S. dollars too.
Problems exchange rate could means that the current levels, we don't anticipate the significant so the impact on the revenue for the remainder the yet.
Yeah onto a guidance for the fiscal year ending June 30th Twentytwenty, we are increasing the bottom end about previously provided range before yes sets revenue.
83.8 million up to 54.8 million new guidance range for such revenue for the full.
2020 is between 54.8 million to 55.4 million, what it costs and courtesy basis, which would represent close between pretty to include you flip. The since you were at the.
What do we expect says superficial services retinue of between 61, Queen 2 million and 62.4 million dollar close and courtesy basis, which would represent growth of between 18 and 20% yeah.
We expect total revenue for the <unk> cool fiscal pretty pretty to be at the lower end up previously provided guidance.
Which was 72 million 273, 6 million 73.6 million, what it costs and currency basis, which would represent gross 7% your yeah.
And finally, we are raising previously provided guidance <unk> income of between break even 2 million.
Well do you ever since two six is put value to check to the new guidance for the full fiscal year for <unk> of between 3.1 million to 4.5 million or 10 cents to 14 since put that leads and shit.
Well the third fiscal quarter fiscal Printy initiating guidance obsessed with new hope 13.8 million to 14 with 1 million.
S and professional services revenue, a 15.5 million for 15.8 million.
Total revenue of 17.5 million 278 million.
And to generate <unk> break even to 500000, what was ever since two once and we've got Lincolnshire.
You know assuming due to check how tough cookie 2.6 million was the third fiscal quarter and for the for school yet.
Mostly on the Investor Relations friends later this month you get it will be presenting at the J.M.P. Securities Technology Conference taking place February 24th in San Francisco and this and then next month, we will be presenting gets the fourth annual growth conference in Orange County, California on March 17th you hope to see somebody to use it.
<unk> operate that we will not open the corporate questions.
Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is turned off to a lot of your signal to recharge equipment.
<unk> one to ask a question well pause for just a moment told lauer run an opportunity to signal for questions.
[laughter] and our first question comes from Cucci Akita with Oppenheimer.
Hi, This is chat cheney non for coterie. Thanks for taking the question guys. Congrats on good quarter.
Can you give us a split an idea to split between new first existing hair are signed up during the quarter you know in the past he mentioned customers increasingly starting small and growing so.
So that I'd be curious to hear kind of what products customers I'm. Most excited about in terms of upscale opportunities going forward and then I have one more question. Thanks.
Okay. This is actually right okay. So.
Yeah, I think the trend is still very much the the case, which is which is something we are accustomed to now so the the the levels. We see now is more like in terms of dollars, we see more like.
<unk> expansion, one target you, but not in terms of new lows and we still acquiring new lows, but they tend to build a little what time, which which is something that has been up.
Trend for some time.
And sit down to your question.
Yeah. Thank you that's great.
And then in terms of kind of yeah, what what customers I'm most excited about kind of it not set up some option.
If anything kind of comes to mind that'd be great.
Right now I must say the the most the highest level of interest we see is in in college and self service around which what assistance and messaging most of the new ideas, we see a lot of interest in the market.
And other than that of course, the whole omni channels capable unlucky, where you don't have to silos off <unk> alright.
The increase in thumbs up.
Real and.
Ability to pull the trigger quickly I would say those too, but I mentioned are pop.
Great. Thank you.
[laughter]. Our next question comes from Mark Chappelle, what the benchmark.
[noise] hi, Thank you for taking my question.
I suppose one if you could just address a little bit more detail. The the slowing in Europe that you noted and you're prepared remarks, particularly where in New York and you're noticing as flowing.
Sure. So I would say differentially if you looked at it from mainland Europe is is definitely a few slower than U.K., but even then you'll cave you're seeing decisions are are just taking long though.
So that's kind of one observation. The other is U.S. continues to be quite active and therefore incompatible I think it's even more.
A patent right. So those are the two comments out.
Okay, great. Thank you and then.
<unk> and you're prepared to Mark She noted a a large legacy customer bike riding a sounds sounds warning it what the company's outlook was for additional sounds migration, so for main or the or.
It's actually very good I think this for US obviously the numbers coming down that's you know as we've been communicating this is a very high focus for us and I think we're encouraged to see.
Yeah, most of the <unk> that we're engaged with or interested in in the door in different stages of that migration. So absolute people P.T.U. experts can teach you see that.
Through the remainder of become the.
Okay, great. Thank you. That's that's good news and then just finally, one last question you know I realized that still earlier, but I was wondering if you could just give us an update on your recently released messaging hub and maybe maybe any progress you're making there.
Sure. So that's kind of been adopted very well by the market. It. So we we are selling it's not just as messaging back messaging has sparked off the overall on any channel in fact couple of customers, we signed up recently, which I didn't mention in the mid market.
He started out with interest on and that's just being but eventually ended up buying the entire sweet. So you see method <unk> Omni channel story like it's a great entry points in terms of interest and <unk>, just like I mentioned to the <unk> question messaging and books.
Assistance and conversational box those are the things, we see a lot of interesting.
Great. Thank you very helpful myself for me.
Thank you are next question comes from Richard Paltry with Ross capital.
[noise], Thanks, I'd like recurring cost fell in the corridor, even with the revenues rising not be the second quarter in row for that.
Is there anything unusual happening in their how do you see that trending has the second half that maybe next year I'm fall.
Like a good point krych, so big consistent with what you've seen in previous years the impact of.
Any of 'em employees in California in particular, reaching their social security cats.
But the closest to benefit from.
Reduction in Texas expenses <unk>, Yeah, <unk> expenses, and then that's combined with people taking time off towards the end of the kind of the year as well resulted in reduction so certainly oh. It estimates that there was probably six to $700000 what.
And if it's that we received.
On those two components that with L.D.C. would not <unk>.
And maybe close talk a little bit more about the EVIA only you know certain maybe compare and contrast sat to your assist growing relationship now what type of resources, you will need to allocate to that or no commitments from a by it allocate to that.
I understand you know what to tell what could be maybe size. What you think the market opportunity would be thanks.
Sure. So many questions about let me see if I can pick off Oh, when it's time to comes with market opportunity I would say that.
The <unk> something enterprise as you well no. It is very large probably the largest keep them now well. Despite so you know some historic attrition, but <unk>. So that's the first part.
Second is that the solution we announced.
<unk>, we are the providers and back.
Is a is that plowing based you gain capability that they seem to be enterprise solutions from a via so different from what our current go younger arrangement is went to school as you know in the school a partnership but we haven't components that is not.
From from you again is not so from the time, the resettle from phone and stuff. He again <unk> are so <unk>. So.
Is it important distinction as we think that the market has now moved into the plows model and the adoption is is is good that we will.
Comparatively speaking, we'll be able to be level group a customer success. In this arrangement just given the nature of <unk> implementation of the ability to control the eventual <unk>. The apply so that was the second point.
The thought is.
The partnership the weights times now is unlike the Cisco partnership, which is a bundled only yeah, which has its own I spoiling fan and and.
That's right.
I'm like Nah I this partnership.
<unk>, it's an optional one in other words accustomed to lose by something additional.
Who get the digital capability, which will be <unk> and we wouldn't be provided for that so so.
So those are sweet kind of some partisan points I can bring up in terms of our.
San himself.
The opportunity here.
<unk> I remember one partner they successfully been working very closely with them for a number of years I'm clearly, we have joint customers and business success.
Yeah, we just <unk> looks like I'm a thing but.
So has mentioned.
For fiscal 20, we have not factoring anything some <unk>, but we do think that in fiscal 21, we should see a positive thing back from that.
And it can last thing.
So.
I think that's <unk>.
Maybe lastly, the cash on the balance sheets been growing nicely any thoughts about like talking acquisition.
I'll buybacks any other way to deploy that cash that spelling out. Thanks.
Mm.
Getting good point, it's rich that's something that will receive pleased with the progress and so definitely those are all options that we were considering but nothing at this stage that we would want to highlight.
Thanks, Congrats on a corner.
Okay.
Our next question comes from Jeff Andrey with Craig how long capital Quirk.
Hey, guys. This is I really on for Jeff couple of questions for me first Eric I want to go back to that weakness in Europe. If I heard correctly I think you said that it's going to be a 300000.
Head, winning Q3 from customers coming up for noise is that attrition or customers, taking less product that renewal less seats, just a bit more color there would be great.
I think it's.
It was a bit of both but I think for most part was <unk>. The reduction was the primary driver search was taking less as opposed to a loss.
Got it got it helpful and then <unk> with the by <unk> bright color, they're just one or more thing <unk>. So you're guy solutions, they're there oh, yeah and into the workspace offering it that's the target there on prime installed base are your Guy solutions all.
Oh I know, it's early for them in the cloud but are your ass solution is also available for their cloud contact center seats as while they're just the beyond friend.
So we have not announced anything <unk> not announced anything in that regard, we obviously looking at all those things as part of the partnership.
Okay got it and then lastly, just probably look at the the deferred revenue is on the balance sheet and obviously, we'll get the R.T. I was in the in the 10 Q. you know as I look over the last four or five quarters revenues, you know going up in in sort of divergence between the.
Short term R.P.O.'s and and be guided red nose gotten wider how should we think about how deferred revenue into our P.O. should trend from here going forward.
[laughter], Yeah center, we've addressed to send the plus Rudy I think to sort of given our current business structure. You know. Unfortunately. This is a metric. That's you know since it's been adopted you haven't seen some obvious patterns.
It would sort of provides useful leading indicators and I think because I've sit in the post.
You know the main effects is that in Texas is.
Because we have a relatively.
Concentrated.
Group of customers, you know one or two.
Renewals there could be done on a multi.
Oh.
Renewed on to an annual basis is good as swayed thing. So I think it's really it around the timing of these big renewals come up and.
From one quarter to the next you may have fluctuations that are going on but as you point out really on an indication of revenue growth is happening. So yeah, I think two point.
These numbers really haven't moved around much that are getting more I would say a function of the timing.
Oh send the length of the renewals more so than anything else.
Got it I forgot to for me.
Thank you are next question comes from Ryan Mcdonald was need them and company.
Hey, this is Alex airline for Ryan and I was hoping to get an update on the partnership with Amazon that you're seeing any traction on that <unk>.
Yeah.
Oh, Yeah, we continue to work with Amazon.
I've been doing some joint marketing and working with their partners.
And that kind of an ongoing progress just like in a biochemist right and we worked with a buyer for some time and then no we have something for chair and we share.
Benefit in that mode with Amazon be working with them when we have something worthwhile for shared in terms of no real progress and milestones.
How big they are one of the top three partners and working with it's going to buy a BB other <unk>.
Okay, Great and then could you give us an update on the investment in the mid market and how you're building up its sales organization and when it will be able to see some of that rubbed and possibly some from that.
Oh good good question I sort of mid market is already starting to contribution <unk> and what we have really working now is how do we systematically scale that sales and the customer acquisition manager of my expectation as a theme on expectation is about.
In fiscal 21, we should be able to show real so attribute symbols evidence to those kind of impact. If we can have one you local acquisition I think from a total of looking standpoint, obviously make a difference, but the real interesting, but for me is going to be <unk>.
Increase in in your local acquisition. So yeah. That's something you can look forward for sharing about.
Okay, great. Thank you.
[noise] or <unk> there are no further questions in the queue at this time.
Okay. Thanks, everybody.
[noise] just concludes days conference. Thank you for your participation you may now disconnect.
[laughter].
[laughter].
[music].