SOURCE: eGain Communications Corp.

September 08, 2005 16:17 ET

eGain Announces Financial Results for the Quarter and Fiscal Year Ended June 30, 2005

MOUNTAIN VIEW, CA -- (MARKET WIRE) -- September 8, 2005 --

-- Fourth quarter highlights
          -  Revenue up 24% year-over-year
          -  License revenue up 200% year-over-year
          -  Net profit from operations improves to $20,000
             from a prior year fourth fiscal quarter net loss
             from operations of $717,000

-- Fiscal year 2005 highlights
          -  Revenue up 4% year-over-year
          -  License revenue up 47% year-over-year
          -  Net profit from operations improves to
             $212,000 from a prior fiscal year net loss
             from operations of $4.4 million
eGain Communications Corporation (OTC BB: EGAN), a leading provider of customer service and contact center software, today announced financial results for the fourth quarter and fiscal year ended June 30, 2005.

Revenue for the quarter ended June 30, 2005 was $5.8 million, an increase of $1.1 million or 24% from the comparable year-ago quarter. For the fiscal year ended June 30, 2005, revenue was $20.4 million, an increase of $825,000 or 4% compared to revenue of $19.6 million in fiscal year 2004.

Net loss applicable to common stockholders for the quarter ended June 30, 2005 was $277,000, or $0.02 per share, compared to a net loss applicable to common stockholders of $2.8 million, or $0.77 per share, for the same quarter a year ago. For the fiscal year ended June 30, 2005, net loss applicable to common stockholders was $4.6 million, or $0.47 per share, compared to a net loss applicable to common stockholders of $12.3 million, or $3.33 per share for the fiscal year 2004.

Pro forma net income for the quarter ended June 30, 2005 was $149,000 or $0.01 per share, compared to a pro forma net loss of $34,000, or $0.00 per share, for the same quarter a year ago. For the fiscal year ended June 30, 2005, pro forma net loss was $178,000, or $0.01 per share, compared to a pro forma net loss of $563,000, or $0.04 per share, for fiscal year 2004. Pro forma net income (loss) figures exclude depreciation, amortization, accreted dividends, interest expense, tax expense and restructuring charges. A table reconciling the pro forma net income (loss) to GAAP net loss is included in the condensed consolidated financial statements in this release.

Total cash and cash equivalents were $4.5 million at June 30, 2005, compared to $5.2 million at June 30, 2004. Days sales outstanding in receivables for the June 2005 quarter were 71 days compared to 55 days for the comparable year-ago quarter.

"We are pleased with our overall performance for fiscal year 2005," said Ashu Roy, CEO of eGain. "We increased revenues and recorded a profit from operations for the fiscal year, a first in eGain's history. We see increased adoption for eGain Service™ 7, our awardwinning suite for implementing customer interaction hubs, across the enterprise and midmarket businesses and look forward to continuing this positive momentum in fiscal year 2006."

Fiscal 2005 business highlights

Industry recognition

eGain Service 7 won highly coveted industry awards during FY2005:

--  "Best-of-breed" recognition from Forrester and Patricia Seybold Group.
    The suite received the #1 rating in the "current offering" category in the
    2005 eService ForresterWave™ research report, and also in Patricia
    Seybold Group's Bull's Eye Reports on customer service overall as well as
    multiple sub-domains in customer service software -- knowledge management,
    architecture, and analytics. All the reports used a comprehensive
    evaluation framework to rate the solutions.
    
--  Selected as one of three finalists in eWeek's fifth Annual Excellence
    Awards Program in the Business Relationship Management category.
    
--  "Positive" rating from Gartner in its eService suites marketscope
    report.
    
--  "Product of the year" award for 2004 from Customer Inter@ction
    Solutions magazine for demonstrating product excellence and delivering a
    compelling return on investment to customers.
    
--  Top score among all vendors for email response management, and the top
    scores for knowledge base, search technology, and reporting and analysis
    among publicly held peers in Forrester's 2004 eService TechRankings.
    
--  eGain was included in the 2004 Deloitte Technology Fast 500 North
    America, a ranking of the fastest growing technology companies in North
    America, based on percentage revenue growth for the past five fiscal year
    period (1999 to 2003).
    
Market demand

On the heels of its pioneering eService study, eGain sponsored a second study -- conducted by BenchmarkPortal, focused exclusively on small and medium-sized businesses (SMBs). The study revealed that online customer service provided by SMBs is even worse than the service level offered by large enterprises, further validating the need for robust multichannel online service solutions.

Partnerships

--  Aspect has validated eGain Mail™, an integral part of eGain Service
    7, on Aspect® Uniphi Suite version 6.1, the latest release of Aspect's
    applications convergence platform for contact centers. Customers can use
    eGain's solution in an Aspect Uniphi Suite environment to integrate email-
    based customer care into their contact centers.
    
--  eGain's knowledge management solution has been certified for use with
    HP ServiceDesk™.  The combined solution will help IT service management
    groups in global enterprises maximize their return on knowledge investments
    and promote self-service.
    
--  eGain's knowledge management solution has also been integrated with
    Remedy'sAction Request System™. The integration will improve problem
    resolution effectiveness and efficiencies in customer helpdesks.
    
--  In July 2004 eGain announced a strategic global partnership with Wipro
    Technologies, one of the world's fastest growing global IT services
    organizations. Wipro will offer system integration services around eGain's
    entire product suite.
    
Customer momentum

The company launched eGain Service 7, a next-generation customer interaction hub offering, at its annual North America user conference held in October 2004. The innovative self-service and multichannel service resolution capabilities of eGain Service 7 have been received well both by existing customers looking to upgrade and new prospects. eGain On Demand™ continues to attract customers with its flexible approach to hosted and on-premise deployments.

Among new customers in fiscal year 2005 are Absolute Entertainment, Adelphia Communications, Alaska Communications, Avon Cosmetics, Beliefnet's Soulmatch, Carlson Wagonlit, May Department Stores Company, Navman, Playboy, Rogers Communications, Telecom Italia Media - Internet Division, Thomson Education Direct, Thrivent Financial Bank, and Xpedite.

Also in fiscal year 2005, the company significantly expanded its business with one of the top-tier North American financial services providers and a Japanese government agency as well as ABN AMRO, Aliant, Barclays, Centrica, Coors Brewers, HSBC, La Quinta, Scottish & Southern Energy, Staples, Streets Online, Timberland, and Vodafone Ireland.

Fourth quarter and fiscal year 2005 financial highlights

Revenue

Revenue for the quarter was $5.8 million, an increase of $1.1 million or 24%, compared to $4.7 million for the same quarter a year ago. For the fiscal year ended June 30, 2005, revenue was $20.4 million, an increase of $825,000 or 4%, compared to $19.6 million for fiscal year 2004.

License revenue for the quarter was $2.2 million, an increase of $1.5 million or 200%, compared to $740,000 for the same quarter a year ago. For the fiscal year ended June 30, 2005, license revenue was $6.0 million, an increase of 47% compared to $4.1 million for fiscal year 2004.

Support and services revenue for the quarter was $3.6 million, a decrease of $367,000 or 9%, compared to $4.0 million for the same quarter a year ago. For the fiscal year ended June 30, 2005, support and services revenue was $14.5 million, a decrease of $1.1 million or 7%, compared to $15.5 million for fiscal year 2004.

International revenue accounted for 52% and domestic revenue accounted for 48% of total revenue for the quarter, compared to 47% and 53% respectively in the comparable year-ago quarter. For the fiscal year ended June 30, 2005, international revenue accounted for 49% and domestic revenue for 51% of total revenue, compared to 48% and 52% respectively for fiscal year 2004.

Cost of revenue and gross profit

Gross profit for license revenue for the quarter was $2.1 million or a gross margin of 96% compared to $378,000 or 51% in the comparable year-ago quarter. Gross profit for license revenue for the fiscal year 2005 was $5.6 million or a gross margin of 93% compared to $2.4 million or 59% for fiscal year 2004. The significant increase in the gross margin for license revenue in fiscal year 2005 was primarily due to the expiration and renegotiation of certain third-party software royalty agreements that resulted in a reduction in the amortization of prepaid royalties. In addition, as part of our ongoing product development strategy, eGain Service 7 has less third-party software built into it than prior product releases and therefore lower corresponding costs for third-party software royalty costs.

The gross profit for support and services revenue for the quarter was $1.9 million or a gross margin of 53% compared to $2.4 million or 61% in the comparable year-ago quarter. Gross profit for support and services revenue for the fiscal year 2005 was $8.3 million or a gross margin of 57% compared to $9.1 million or 58% for fiscal year 2004.

Research and development

Research and development expense for the quarter was $734,000, an increase of $115,000 or 19% from the comparable year-ago quarter. For the fiscal year 2005, total research and development expense was $2.4 million, a decrease of 20% or $575,000 from the fiscal year 2004.

Sales and marketing

Sales expense for the quarter was $2.0 million, an increase of $337,000 or 20% from the comparable year-ago quarter. For the fiscal year 2005, total sales expense was $7.1 million, an increase of $27,000 from the fiscal year 2004.

Marketing expense for the quarter was $427,000, an increase of $103,000 or 32% from the comparable year-ago quarter. The total marketing expense for the fiscal year 2005 was $1.8 million, an increase of $545,000 or 43% from the fiscal year 2004.

General and administrative

General and administrative expense for the quarter was $882,000, an increase of $105,000 or 14% from the comparable year-ago quarter. For the fiscal year 2005, total general and administrative expense was $3.3 million, a decrease of $152,000 or 4% from the fiscal year 2004.

Restructuring and other

There was no restructuring expense for the quarter, compared to a restructuring expense of $19,000 in the comparable year-ago quarter. Other operating expense for the quarter was $6,000, compared to other operating income of $154,000 in the comparable year-ago quarter. For the fiscal year 2005, total restructuring benefit was $944,000 compared to an expense of $186,000 for fiscal year 2004. For the fiscal year 2005, other operating expense was $22,000 compared to other operating income of $163,000 for fiscal year 2004.

Non-operating income/expense

Non-operating expense for the quarter was $297,000 compared to $263,000 for the same quarter a year ago. For the fiscal year 2005, total non-operating expense was $1.1 million compared to $490,000 for the fiscal year 2004.

Earnings

On a GAAP basis, net loss applicable to common stockholders for the quarter was $277,000 or $0.02 per share, compared to a net loss applicable to common stockholders of $2.8 million, or $0.77 per share for the same quarter a year ago. The GAAP-basis net loss applicable to common stockholders for the fiscal year ended June 30, 2005 was $4.6 million, a reduction of $7.7 million or 63% from a loss of $12.3 million for the fiscal year 2004.

Pro forma net income for the quarter ended June 30, 2005, was $149,000 or $0.01 per share, compared to a pro forma net loss of $34,000, or $0.00 per share, for the same quarter a year ago. For the fiscal year ended June 30, 2005, pro forma net loss was $178,000, or $0.01 per share, compared to a pro forma net loss of $563,000, or $0.04 per share, for the fiscal year 2004.

Balance sheet

Cash

Total cash and cash equivalents were $4.5 million at June 30, 2005, a decrease of $683,000 from $5.2 million at June 30, 2004.

Days sales outstanding (DSO)

DSO for the June 2005 quarter was 71 days, compared to 55 days during the comparable year-ago quarter.

Guidance for fiscal year 2006

--  Revenue is currently anticipated to be in the range of approximately
    $22 million to $24 million.
    
--  Diluted EPS is currently anticipated to be in the range of
    approximately $0.01 to $0.05 based on an estimated average of 15.3 million
    diluted shares.
    
--  Cash flow from operations is currently anticipated to be positive.
    
The full year earnings per share guidance does not include the incremental impact of the recently issued Financial Accounting Standards Board (FASB) stock option expense requirement that will become effective in fiscal year 2006.

Use of non-GAAP financial measures

To supplement eGain's consolidated financial statements presented in accordance with GAAP (Generally Accepted Accounting Principles), eGain uses non-GAAP pro forma net income (loss) and pro forma net income (loss) per share measures, which are not in accordance with, nor an alternative to, GAAP financial measures and may be different from pro forma measures used by other companies. eGain's management believes that the presentation of these measures is useful to investors and other interested persons because, by excluding certain expenses we believe are not indicative of our core operating results, the users of the financial statements are provided with valuable insight into eGain's operating results. Further, these non-GAAP results are one of the primary indicators eGain's management uses for planning and forecasting future performance. In addition, eGain has consistently provided these pro forma measurements in previous earnings releases and believes that it is important to provide investors and other interested persons with a consistent basis for comparison between quarters.

About eGain Communications Corporation

eGain (OTC BB: EGAN) is a leading provider of customer service and contact center software for in-house or on-demand deployment. Trusted by prominent enterprises and growing mid-sized companies worldwide, eGain has been helping organizations achieve and sustain customer service excellence for more than a decade. Twenty-four of the fifty largest global companies rely on eGain to transform their traditional call centers, help desks and web customer service operations into multichannel customer interaction hubs, and extend their service-based competitive advantage.

eGain Service™ 7, the company's software suite, includes integrated, best-in-class applications for web self-service, email management, knowledge management, live web collaboration through chat and cobrowse, automation of fax and paper-based service interactions, case management and service fulfillment. These robust applications are built on the eGain Service Management Platform™ (eGain SMP™), a scalable next-generation framework that includes end-to-end service process management, multichannel, multisite contact center management and certified out-of-the-box integrations with leading call center, content, and business systems.

Headquartered in Mountain View, California, eGain has an operating presence in 18 countries and serves over 800 enterprise customers worldwide. To find out more about eGain, visit www.eGain.com or call the company's offices: United States: 800-821-4358; UK/Europe: 1753-464646.

Cautionary Note Regarding Forward-looking Statements

All statements in this release that involve eGain's plans, forecasts, beliefs, projections, expectations, strategies and intentions are forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements, which are based on information available to eGain at the time of this release, are not guarantees of future results; rather, they are subject to risks and uncertainties that may cause actual results to differ materially from those set forth in this release. These risks include, but are not limited to, the uncertainty of demand for eGain products; the anticipated customer benefits from eGain products; increased competition and technological changes in the markets in which eGain competes; eGain's ability to manage its expenditures; and other risks detailed from time to time in the company's filings with the Securities and Exchange Commission, including the company's annual report on Form 10-K filed on September 28, 2004, and the company's quarterly reports on Form 10-Q. eGain assumes no obligation to update these forward-looking statements.

Note: eGain is a registered trademark, and the other eGain product and service names appearing in this release are trademarks or service marks, of eGain Communications Corp. All other company names and products are trademarks or registered trademarks of their respective companies.


                        eGain Communications Corporation
                      Condensed Consolidated Balance Sheets
                                (in thousands)


                                                    June 30,     June 30,
                                                      2005         2004
                                                   ----------   ----------
                                                   (unaudited)
ASSETS

Current assets:
  Cash and cash equivalents                        $    4,498   $    5,181
  Restricted cash                                          12           12
  Accounts receivable, net                              4,590        2,876
  Prepaid and other current assets                      1,125        1,408
                                                   ----------   ----------
    Total current assets                               10,225        9,477

Property and equipment, net                               741          473
Goodwill, net                                           4,880        4,880
Other assets                                               58          331
                                                   ----------   ----------
    Total assets                                   $   15,904   $   15,161
                                                   ==========   ==========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable                                 $    1,109   $    1,036
  Accrued compensation                                  1,386          765
  Accrued liabilities                                   1,190        1,335
  Deferred revenue                                      4,144        3,731
  Current portion of accrued restructuring                 17           86
  Current portion of bank borrowings                    1,585          506
  Current portion of capital lease obligations              —            9
                                                   ----------   ----------
    Total current liabilities                           9,431        7,468

Related party notes payable                             7,579        6,607
Bank borrowings, net of current portion                    69            —
Accrued restructuring, net of current portion               —        1,264
Other long term liabilities                               229          242
                                                   ----------   ----------
    Total liabilities                                  17,308       15,581

Stockholders' equity:
  Cumulative convertible preferred stock           $        —   $  108,755
  Common stock                                             15            4
  Additional paid-in capital                          315,467      206,721
  Notes receivable from stockholders                      (72)         (94)
  Accumulated other comprehensive income (loss)          (456)        (290)
  Accumulated deficit                                (316,358)    (315,516)
                                                   ----------   ----------
    Total shareholders' equity                     $   (1,404)  $     (420)
                                                   ----------   ----------
                                                   $   15,904   $   15,161
                                                   ==========   ==========


                        eGain Communications Corporation
                 Condensed Consolidated Statements of Operations
                    (in thousands, except per share amounts)


                           Three Months Ended       Twelve Months Ended
                                 June 30,                  June 30,
                            2005         2004         2005         2004
                         ----------   ----------   ----------   ----------
                         (unaudited)               (unaudited)

Revenue:
  License                $    2,232   $      743   $    5,960   $    4,058
  Support and Services        3,610        3,977       14,468       15,545
                         ----------   ----------   ----------   ----------
    Total revenue             5,842        4,720       20,428       19,603
  Cost of license               100          365          406        1,646
  Cost of support and
   services                   1,679        1,541        6,215        6,462
                         ----------   ----------   ----------   ----------
    Gross profit              4,063        2,814       13,807       11,495

Operating costs and
 expenses:
  Research and
   development                  734          619        2,367        2,942
  Sales and marketing         2,421        1,981        8,855        8,284
  General and
   administrative               882          777        3,295        3,447
  Amortization of other
   intangible assets              —          289            —        1,203
  Restructuring and
   other                          6         (135)        (922)          23
                         ----------   ----------   ----------   ----------
    Total operating
     costs and expenses       4,043        3,531       13,595       15,899
                         ----------   ----------   ----------   ----------
Income / (Loss) from
 operations                      20         (717)         212       (4,404)
Non-operating income
 (expenses)                    (297)        (263)      (1,054)        (490)
                         ----------   ----------   ----------   ----------
Net income / (loss)            (277)        (980)        (842)      (4,894)

Dividends on convertible
 preferred stock                  —       (1,867)      (3,732)      (7,384)
                         ----------   ----------   ----------   ----------
Net loss applicable to
 common stockholders           (277)      (2,847)      (4,574)     (12,278)
                         ==========   ==========   ==========   ==========

Per share information:

  Basic and diluted net
   loss per common share $    (0.02)  $    (0.77)  $    (0.47)  $    (3.33)
                         ==========   ==========   ==========   ==========

  Weighted average
   shares used in
   computing basic and
   diluted net loss per
   common share              15,288        3,695        9,731        3,688
                         ==========   ==========   ==========   ==========


Supplemental information:

Non-GAAP financial
 measures and
 reconciliation
    Net loss applicable
     to common
     stockholders        $     (277)  $   (2,847)  $   (4,574)  $  (12,278)
    Less: Amortization
     of other intangible
     assets                       —          289            —        1,203
      Amortization
       of prepaid
       licenses                   —          250           66        1,183
      Depreciation               64          123          326        1,060
      Dividends on
       convertible
       preferred stock            —        1,867        3,732        7,384
      Interest and Tax          362          265        1,216          699
      Restructuring
       costs                      —           19         (944)         186
                         ----------   ----------   ----------   ----------
Pro forma net income
 / (loss):               $      149   $      (34)  $     (178)  $     (563)
                         ==========   ==========   ==========   ==========

Basic and diluted pro
 forma net income /
 (loss) per common share $     0.01   $    (0.00)  $    (0.01)  $    (0.04)
                         ==========   ==========   ==========   ==========

Weighted average shares
 used in computing basic
 and diluted pro forma
 net income / (loss)
 (adjusted for the
 conversion of preferred
 stock at the beginning
 of the period)              15,288       15,286       15,288       15,279

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