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eGain Corporation (NASDAQ:EGAN)
Q4 2020 Earnings Call
Sep 2, 2020, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the eGain Fiscal 2020 Fourth Quarter and Full Year Financial Results Conference Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Jim Byers of MKR Investor Relations. Please go ahead, sir.

Jim Byers -- Senior Vice President, MKR Group

Thank you, operator. Good afternoon, everyone. Welcome to eGain's fiscal 2020 fourth quarter and full year financial results conference call. On the call today are eGain's Chief Executive Officer, Ashu Roy; and Chief Financial Officer, Eric Smit.

Before we begin, I would like to remind everyone that during this conference call, management will make certain forward-looking statements, which convey management's expectations, beliefs, plans and objectives regarding future financial and operational performance. Forward-looking statements are generally preceded by words such as believe, plan, intend, expect, anticipate or similar expressions. Forward-looking statements are protected by safe harbor provisions contained in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to a wide range of risks and uncertainties that could cause actual results to differ in material respects. Information on various factors that could affect eGain's results are detailed in the company's reports filed with the Securities and Exchange Commission. eGain is making these statements as of today, September 2, 2020, and assumes no obligation to publicly update or revise any of the forward-looking information in this conference call.

In addition to GAAP results, we will also discuss certain non-GAAP financial measures such as non-GAAP operating income. Our earnings press release can be found in the News Release link on the Investor Relations page at eGain's website at egain.com. The tables included with the earnings press release include reconciliation of the historical non-GAAP financial measures to the most directly comparable GAAP financial measures.

And lastly, a replay of this conference call will also be available at the Investor Relations section of eGain's website.

And now with that said, I'd like to turn the call over to eGain's CEO, Ashu Roy.

Ashutosh Roy -- Chairman and Chief Executive Officer

Thank you. And hello everyone. We are pleased to report strong financial performance across the board for our fiscal 2020 fourth quarter and full year. In summary, our fiscal 2020 full-year performance exceeded our guidance. Our top and bottom line results are ahead of Street consensus. We also saw a healthy increase in bookings year-over-year and we generated strong profits and record cash flow for the year. It's been a good year of business performance. In addition, we exited fourth quarter of fiscal 2020 with our SaaS business revenue, which is some of SaaS revenue plus professional services that SaaS business revenue is now at a little over 90% of our total revenue for the fourth quarter. As you all know we had targeted to get to this 90% plus level of SaaS business revenue in the December 2020 quarter, which is two quarters from now and we have reached that milestone two quarters early, which is good momentum.

Turning to the evolving business climate, in the ongoing pandemic. Some of our deals, especially new logos that slipped in March, have since closed while some remain engaged. The spike in business that we saw from customers looking to deflect more phone interactions to digital during the early months of the pandemic as since pulled back a little to a new normal. As I mentioned during the last call, many of our clients successfully handled customer contact surge with our solutions, driving more digital self-service and enabling their contact center workforce with our knowledge in AI solutions.

Several customers have also activated our Virtual Assistant for conversational automation to reduce pressure on their contact centers. These customers have seen up to 80% deflection in specific contact types, even as customers sat remains higher. This is contrary to what we hear from the broader marketplace. As you all may have seen, we recently issued a press release where we had sponsored a comprehensive consumer survey in which chatbots ranked dead last in customer satisfaction across all digital service options. The reason we believe is that our Virtual Assistant solution is smart and connected to the rest of the channels and to core knowledge in AI for automatically solving customer issues.

Interest in our recently announced eGain Messaging Hub with our novel Bring Your Own Bot architecture has been strong, we announced that a couple of months ago. Specifically, prospects are attracted to our unified approach that harmonizes and connects all the multiple messaging channels, diverse Bot technologies, multitude of back-end systems. In effect, automating the engagement with a common and proven AI knowledge and analytics capability. Our solution is unique and proven in this regard. Having said that, given the macro uncertainty brought about by the COVID situation, we do anticipate some negative impact in the short term as investment decisions get delayed and greater scrutiny is placed on renewals.

Looking at our business performance in the fourth quarter. We saw healthy new bookings, with a mixture of new logos and expansion. Notable deals included a large government organization in the US, a leading healthcare insurance in the US, a multinational telecom. In addition, we had several large renewals in the quarter, including US federal agency, large P&C insurance in the US, and a large full-service bank. So all-in-all, a balanced good booking environment.

Turning to our field and our partners. At the beginning of this calendar year, we announced our OEM agreement with Avaya. This was followed by the announcement of general availability of the product in March. And now we are on the go-to-market runway, jointly executing our plan to train the Avaya sales and partner network. We also closed our first deal with Avaya, right after the end of the fourth quarter. So at the beginning of the current quarter, which is the first quarter of fiscal '21. Early pipeline growth is encouraging. So we expect our Avaya partnership to favorably impact our top line in fiscal '21.

Speaking of partnerships, we recently welcomed back Mike Taylor, an eGain alum, as our new Head of Business Development, reporting to me, focused on new channel partnerships and building out our developer ecosystem. Mike brings a wealth of relevant experience, most recently at ServiceNow, where he built partnerships with global service providers and SIs. I'm excited to have Mike back on board and so is he. The time is now for us to rapidly increase our market reach through complementary partnerships and that's what he is focused on building out.

Looking ahead to fiscal '21. We are quite bullish about our business, despite the short-term COVID uncertainty. Our digital platform is increasingly preferred by enterprises looking for smart automation. And automation is not just about digital connection with customers, even though that is a critical first step. It's about smartly solving the problems once connected in as automated way as possible. And finally, it's about rapidly optimizing the experience for all stakeholders, associates, business and customers. So we see that connecting, solving, and optimizing, all working together, lead to customer engagement automation. Forrester Research in the recent Digital-First Customer Service Wave, rates eGain Number one in current product offerings. Gartner in the recent critical capabilities report, rates eGain as the Number one digital plus knowledge management provider. Much of what analysts consider vision for tomorrow, we delivered today. Now with strong business performance in fiscal '20 and a healthy balance sheet, we are increasing our investment in sales and marketing. Our installed base of 150 SaaS customers presents a significant opportunities to grow, so we are investing in that. On the new logo front, we're investing more in digital marketing and expanded partner support. And finally, we are aggressively continuing to court our legacy customers to migrate them to be in cloud as quickly as possible.

The market for our solutions is huge and horizontal. This year, we will strategically focus on three things, customer acquisition, build out of our partner in developer ecosystem, and continued product innovation. We believe that we can be the leading customer engagement automation company over the next three years to five years, the leading customer engagement automation company. This is the goal we are committing to.

With that, I'll ask Eric Smit, our Chief Financial Officer, to add more color and -- from financial operations. Eric?

Eric Smit -- Chief Financial Officer

Great. Thanks Ashu, and thanks everybody for joining us today. As Ashu noted we are pleased to report strong financial performance across the board for our fiscal 2020 fourth quarter and full year. Let me start by sharing some financial highlights from the quarter and the full year. We grew our SaaS revenue by 34% for the quarter and 27% for the year, compared to the same period a year ago. Our SaaS and professional services revenue or our SaaS business grew 30% for the quarter and 22% for the year. Our SaaS business comprised, as Ashu said, 91% of total revenue for the quarter and again two quarters ahead of the target that we set at the beginning of the year to achieve the 90% revenue by the end of calendar 2020. Our SaaS net retention rates for the year was 114%, up from 106% in fiscal 2019. Our GAAP net income was up significantly 300% [Phonetic] for the quarter and up 50% from the year ago quarter. Our operating cash flow margins were 29% for the quarter and 19% for the year. And with the strong cash flow, we ended the year with $47 million in cash and no debt.

Looking at our quarterly results in more detail. First, the revenue components. SaaS revenue was $15.5 million or 34% -- or up 34% year-over-year. Legacy revenue was $1.8 million, down 50% from the year ago, driven by the combined migration of our legacy customers to the cloud and the sun setting of our legacy non-cloud offering. Professional services revenue was $1.7 million for the quarter, up 3% from Q4 last year and accounted for 9% of our total revenue in Q4.

Now looking at our non-GAAP gross profits and gross margins. Gross profit for the fourth quarter was $14.1 million or gross margin 74%, up from a gross profit of $11.2 million or a gross margin of 67% a year ago. This 700 basis points improvement year-over-year reflects a combination of the benefits we are starting to see in the scale and efficiencies around our cloud operations and the growth in our higher margin SaaS revenue. Our subscription gross margin was 81% in Q4, up from 72% in Q4 last year. Professional services gross margin was 7% in Q4, although down from 15% in Q4 last year, it was up sequentially where we had a negative margin in Q3 of fiscal '20.

Now turning to operations. Non-GAAP operating costs for the fourth quarter came in at $11 million, compared to $9.9 million in the year ago quarter. Our non-GAAP operating income in the fourth quarter was $3.1 million, for an operating margin of 16% compared to an operating margin of 8% in the year ago quarter.

Looking at net income, non-GAAP net income for the fourth quarter was $2.7 million or $0.09 per share on a basic and $0.08 per share on a diluted basis. This compares to non-GAAP net income of $659,000 or $0.02 per share in the year ago quarter. GAAP net income for the fourth quarter was $2.2 million or $0.07 per share compared to GAAP net income of $166,000 or $0.01 per share in the year ago quarter.

Now looking at our financial results for fiscal 2020. SaaS revenue was $56.8 million, up 27% year-over-year or up 28% in constant currency and ahead of our guidance. Our SaaS business was $63.4 million, up 22% year-over-year and comprised 87% of total revenue. Total revenue was $72.7 million, up 8% year-over-year or 9% in constant currency, also ahead of our guidance. Legacy revenue was $9.3 million, down 39% from $15.2 million in fiscal 2019. And professional services revenue was $6.6 million or 9% of total revenue compared to $7.2 million or 11% of total revenue a year ago.

Now looking at our non-GAAP gross profits and gross margins. For fiscal 2020 gross profit was $52.1 million or a gross margin of 72% compared to a gross profit of $46 million or a gross margin of 68% a year ago. Our subscription gross margin improved to 79% compared to 76% for the prior year. And professional services gross margin was 2% compared to 9% for the prior year.

Now turning to operations. Non-GAAP operating costs for the fiscal 2020 came in at $42.6 million, up 11% from $38 million in the prior fiscal year; reflecting our increased investments in sales and product innovation. Non-GAAP operating income improved to $9.5 million or an operating margin of 13% compared to $7.6 million or a margin of 11% in the prior fiscal year. And looking at our bottom line, non-GAAP net income was $9.3 million or $0.30 per share on a basic and $0.29 per share on a diluted basis. This compares to non-GAAP net income of $6.2 million or $0.22 per share on a basic and $0.21 per share on a diluted basis for fiscal 2019. GAAP net income was $7.2 million or $0.24 per share on a basic and $0.23 on a diluted basis compared to GAAP net income of $4.2 million or $0.15 per share on a basic and $0.14 per share on a diluted basis for fiscal 2019.

Turning to our balance sheet and cash flows. Total cash and cash equivalents as of June 30, 2020 was $46.6 million compared to $31.9 million at June 30, 2019. During the year, we generated record cash flow from operations of $14.1 million, a 100% increase from $7 million in fiscal 2019 and that translates into an operating cash flow margin of 19%, up from a 10% margin in fiscal 2019.

Now onto our guidance. Given the investments we are continuing to make in our business to drive growth as well as the continued level of uncertainty around the COVID-19 pandemic and its impact on the current business environment, we are electing to only provide quarterly guidance for the time being. We will revisit the said as the year progresses. For fiscal 2021 first quarter ended September 30, 2020, we expect SaaS revenue of between $15.5 million to $16.0 million, which would represent between 25% to 29% growth year-over-year. SaaS and professional services revenue of between $17 million and $17.6 million, which would represent growth of between 21% and 25% year-over-year. Total revenue of $18.6 million to $19.3 million, which would represent growth between 8% and 12% year-over-year. And GAAP net income of $1.1 million to $2.1 million or $0.03 per diluted share to $0.06 per diluted share. And non-GAAP net income of $1.6 million to $2.6 million or $0.05 per diluted share to $0.08 per diluted share. We are assuming diluted share count of 31.9 million for this first fiscal quarter.

Before closing, just a couple of Investor Relations updates. We will be participating in two virtual investor conferences later this month. Next week, we will be participating in the DA Davidson Software and Internet virtual Conference on September 9. We will also be participating in the Jefferies Software Virtual Conference on September 15. We hope to see some of you virtually at these conferences.

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

Questions and Answers:

Operator

Thank you. [Operator Instructions] We'll take our first question from Ryan MacDonald with Needham & Company.

Ryan MacDonald -- Needham & Company -- Analyst

Yes, good afternoon Ashu and Eric. Thanks for taking my questions and congrats on a great quarter. Ashu, I guess the first for you. We're obviously now getting into the final month of the first quarter here, we just love to hear what you're hearing from sort of your customer conversations. What you are seeing from a pipeline perspective as we look out for fiscal '21? And I guess maybe some of the moving parts that make you cautious, I guess still on providing that full-year outlook?

Ashutosh Roy -- Chairman and Chief Executive Officer

Yeah sure thing Ryan. So what we are seeing is the engagement level in these conversations and deals is high. People are working, interacting closely, progressing the opportunities. The part that we want to make sure off, and that's the nervousness that all of us have is, whether the decisions and the signatures can be done in time. Classically, even in the SaaS world in the enterprise, as we all know deals are signed toward the end of quarter mostly, unless they slip from one to the next. And so that's the part that we still kind of watching closely. Other than that the engagement level is high. And so that gives us comfort.

Ryan MacDonald -- Needham & Company -- Analyst

That's helpful. And I guess as we've seen sort of this shift in sort of work from home and adoption of alternative channels for sort of customer interaction, can you talk about how that's been framing the conversations you're having with prospective customers around things like the Messaging Hub and the Virtual Assistant?

Ashutosh Roy -- Chairman and Chief Executive Officer

Yeah. So I think the part which is -- the two trends, which have accelerated, and again no surprise, but it does affect us positively in our business. One is just more digital and that we are seeing the Messaging Hub pull in that regard. More migration into digital, more investment into digital. And the second thing we're seeing is more knowledge and guidance requirements either for self-service automation as well as for agent support. On the agent side, we are seeing an interesting thing where because of the dislocation in workforce a lot of these agents are now working from home, some different offices and so they are not quite in a position where they can just ask their co-workers when they have a question. So access to knowledge systems and guidance systems, we are seeing more interest because of that as well.

Ryan MacDonald -- Needham & Company -- Analyst

Actually, just one last follow-up for me. You know you talked for this fiscal year sort of the strategic focus on customer acquisition and building out that partner developer ecosystem. Can you talk about sort of the magnitude you're expecting in terms of sort of sales headcount additions there and then perhaps what types of partners you're looking forward to add -- to continue to build out that ecosystem? Thanks.

Ashutosh Roy -- Chairman and Chief Executive Officer

Sure. So, I mean there are two areas where we are investing on the partner side. One is existing partners, which all of those partner team members are part of Todd's organization, who runs our worldwide sales, and so we are increasing investment in that area. And the second area is Mike's, which is the new area where he is building out a team. To begin with, probably I would say three people to four people and the areas we're going to be targeting, which we are already working on are some of the CRM, and -- the help desk ecosystem, to see how we can get into complementary partnerships in those areas. We have certified integrations, but the question is can we develop more mutually beneficial go-to-market strategies in those partnerships. And then the other area is just the integrators and global service providers. So those are the areas that we're looking to expand into from a partner standpoint.

Ryan MacDonald -- Needham & Company -- Analyst

Excellent, thanks a lot.

Ashutosh Roy -- Chairman and Chief Executive Officer

Thank you.

Operator

Thank you. We will take our next question from Koji Ikeda with Oppenheimer.

Koji Ikeda -- Oppenheimer -- Analyst

Great, thanks for taking my questions. Congrats on the nice quarter. I had a question on billings and deferred revenue. Granted, both metrics have been a little bit all over the place over the past several quarters, especially with the run-up in maintenance revenue, but I noticed this quarter was particularly strong. I guess what are some of the puts and takes there that were driving the billings and deferred revenue strength? Was there any changes to contract durations or seasonality that we should be thinking about or any true-ups from previous customer relief programs? I mean is there any of that going on there. Is it really just good execution in the fourth quarter?

Eric Smit -- Chief Financial Officer

Thanks Koji. Yeah, I think it's probably a combination of those items. Certainly there is the good execution, I think the bookings were good. But as we have stated on previous calls just so given the nature of our business and the timing of renewals and the sort of still the relative lumpiness of the timing of the bigger deals occurring that this metric does tend to sort of move across as opposed to having some consistent movement. So obviously, we are pleased to see the positive movement this quarter, but again I think it's probably a combination of those factors is what's driving it.

Koji Ikeda -- Oppenheimer -- Analyst

Okay. Thanks, Eric. And maybe a follow-up for you or Ashu, just thinking about the operating margin in the quarter, really good operating margin there, I think it's the most you've had in a really long time definitely as far as our model goes back, but the guidance for the fiscal first quarter implies, it should be coming down a bit from where it ended up in the fiscal fourth quarter. So how should we be thinking about any incremental investments or upside that we saw in the fourth quarter being reinvested in the business in the first quarter? And is there anything seasonal in the first quarter in terms of expense side that we should be thinking about?

Ashutosh Roy -- Chairman and Chief Executive Officer

Eric, you want to start with and I can add to that.

Eric Smit -- Chief Financial Officer

Sounds good. Thanks Ashu. So I think -- so the one point worth noting, just from a seasonal timing standpoint is the -- we do see sort of as we kick off the fiscal year, there is an element of finalizing the budget and sort of locking in the headcount. So Ashu can talk a little bit to it, but we actually as we've talked about our plans are to ramp investments to gain more market share. And so I think the execution around continuing to bring those people on is something that certainly plays into it. I think from a seasonal standpoint we are still, I mean not specifically seasonal, but I think as a business, we are still adjusting to the new operations where we are scheduled to have physical events from a marketing side. So there is clearly money saved from those on premise events that didn't happen. I think now what are adjusting to those increasing the digital spend and looking at other ways to increase that spend. So yeah, I think it's a matter of as we transition into this new way of doing business and increasing the headcount is what we're looking to drive that increased investment. But maybe Ashu can add a little more color to that.

Ashutosh Roy -- Chairman and Chief Executive Officer

Sure. Yeah, so everything you said Eric is -- that's correct. So Koji, from our standpoint the headcount increase investments in the areas we mentioned that is under way. The marketing bit that Eric mentioned he is right in the fourth quarter of fiscal 2020 because we did not hold this big event. We do -- we do one in US and one in UK. So we did not do the one, which normally gets done in the UK in the calendar Q2. So that kind of saved money, but you will see that digital marketing spend is going to be up as an overall sort of marketing bucket in Q1 fiscal and beyond. So I think that overall that sales and marketing investments will be up in Q1 and then on in Q2 as well.

Koji Ikeda -- Oppenheimer -- Analyst

Got it. Thank you for the color. Appreciate it. And one last one from me and I'll jump back in the queue. So about $1.8 million-ish of legacy maintenance revenue sitting here, I guess it's well ahead of the target for the end of calendar 2020. Where do you see legacy maintenance revenues stabilizing, as we kind of think about the end of calendar 2020? And how should we be thinking about any run-off from there within that legacy revenue -- legacy maintenance revenue line item? Thanks for taking my question guys.

Ashutosh Roy -- Chairman and Chief Executive Officer

So I'll go first here Eric and just kind of give my sense. And I think we haven't nailed it down on a public basis to say where we want it to be, but I would -- I would like to see that percentage be in the 5% area by the end of fiscal 2020 that would be my hope, and that's what we are kind of gunning toward. But Eric, do you have any targets in mind at this point or -- go ahead.

Eric Smit -- Chief Financial Officer

Well, I think just to -- just to clarify, fiscal '21 Ashu so.

Ashutosh Roy -- Chairman and Chief Executive Officer

'21. I'm sorry, I apologize.

Eric Smit -- Chief Financial Officer

So basically a year from now yeah. I think sort of -- I think just to add to that, I think now that we've sort of got post this milestone that we had set, I think we are continuing to be more aggressive in encouraging, the remaining customers and really looking at opportunities that we can to drive them over. I think in the early days when we began the transition, we were very sensitive and working closely with customers more on their terms. But as we get down to the final stages, I think we can be a more aggressive in our approach toward moving these final customers. So hopefully to Ashu's point we can get that closer to that 5% range by the end of the fiscal '21.

Koji Ikeda -- Oppenheimer -- Analyst

Got it. Thanks everyone. Thanks for taking my questions.

Operator

Thank you. We will take our next question from Richard Baldry with ROTH Capital Partners.

Rich Baldry -- ROTH Capital Partners -- Analyst

Thanks. Kind of getting back into the booking side again, can you talk about the linearity you saw through the quarter, was it up -- deferred rev up $10 million sequentially, which looks like a pretty strong number. Sort of curious, how that played out throughout, was it pretty tough in the early months and then kind of picked up pace or was it more linear than I would have expected?

Eric Smit -- Chief Financial Officer

It was definitely more linear as quarters go. So, we definitely saw some deals close earlier in the quarter as opposed to being completely back-loaded, which is more often the case.

Ashutosh Roy -- Chairman and Chief Executive Officer

I think just to add to that, sorry, just one more thing. It's not so much that that's the pattern in every quarter, but just the fact that we have been cooking some of these large deals through the fiscal year and that resulted in the steady linearity that Eric was referring to.

Rich Baldry -- ROTH Capital Partners -- Analyst

Okay. And then maybe building off of that, how about aside from the first value deal you talked about that closed early this quarter, maybe how has the trend continued early in the first quarter versus last quarter?

Ashutosh Roy -- Chairman and Chief Executive Officer

I would say that we are in the usual quarter pattern, which is you do get some business in the first half, but you get more business in the second half of the quarter. That's how our pattern -- Q4 was an aberration. And Eric rightly pointed that out. So that's how we see it right now.

Rich Baldry -- ROTH Capital Partners -- Analyst

Okay. And then in terms of absolute dollars, the recurring cost of goods actually fell sequentially while the revenues keep climbing. Is there anything unusual in there or one-time oriented in their -- reversal or something, or you talked about efficiency, but seeing the dollars fall is not necessarily something we usually count on how do we think about that on a run rate maybe your go-forward?

Ashutosh Roy -- Chairman and Chief Executive Officer

Eric, you want to take that?

Eric Smit -- Chief Financial Officer

Sure. So I think that what we've seen is, I think the team is doing a good job in working with the platform providers of continuing to find ways to sort of drive that average cost of SaaS revenue down when it comes down to that direct cost. And then I think so that really was a big element. I think we saw some renegotiation of some contracts where we saw a pickup. So there may have been some catch up in the previous quarter that contributed to the decline, but there wasn't as if there was anything out of line in this particular quarter that drove a lower number.

Ashutosh Roy -- Chairman and Chief Executive Officer

I agree. I think the combination of those two factors, Rich. One is the continuing automation and efficiency gains. And so, as you know, since our architecture of the new cloud that we have had for the last several years, it uses AWS and Azure as the infrastructure-as-a-service. So we keep optimizing that in terms of how we use those resources. That's the first one and that efficiency gain kind of helps us. And the second one, I do think that there were some catch-up items there, just end of year in terms of contract negotiations, which helped as well.

Rich Baldry -- ROTH Capital Partners -- Analyst

And lastly, you have sort of a general view that cloud-based communications is going to pick up in demand side especially as people's bandwidth sort of clears from the earliest headwinds from COVID. How do you feel about sort of your direct sales headcount and this transition to virtual selling sort of the capacity or efficiencies you got so far, like can you keep up to it if the demand side accelerates, like a lot of people think? Thanks.

Ashutosh Roy -- Chairman and Chief Executive Officer

It's a good question. I mean we are expanding our direct sales team, though it's an overlay model. So it's more of an enterprise sales team, hardly a field element there right now. It's all virtual as you said, but the seniority and the kind of domain expertise we certainly see as enterprise. So, we are increasing our investment in that area. Whether we have the capacity to fulfill? I think we are hiring quite aggressively, so we believe we will have the capacity, but we'll see how things evolve as we get more and more demand generated both from direct and from our partners.

Rich Baldry -- ROTH Capital Partners -- Analyst

Thanks.

Operator

Thank you. We will take our next question from Jeff Van Rhee with Craig-Hallum.

Jeff Van Rhee -- Craig-Hallum Capital Group LLC -- Analyst

Great. Thanks for taking my questions. A few from me. I think just going back, I think when we started FY20 the original modeling outlook was 30 to 32 in S&M, 24 to 26 in R&D. As you look at FY '20, realize you don't want to get into the annual because you're more concerned on the revenue flow, but conceptually kind of that aggression to get you end of those ranges. As that mindset changed at all? Again, I realize COVID has changed things a bit on the revenue side, but if that abates here is that thinking still intact?

Eric Smit -- Chief Financial Officer

Yeah, absolutely. I think if anything, just given the way the market is accelerating to us we are looking at obviously prudently doing so, but continuing to ramp that spend to really capitalize on the opportunity. So I think given the strong cash flow and the balance sheet position that puts us in it, I think that's just gives us further confidence in working toward ramping that -- those investments.

Jeff Van Rhee -- Craig-Hallum Capital Group LLC -- Analyst

So those ranges wouldn't be off the table, all else the same if the market bears out the way you think it is?

Eric Smit -- Chief Financial Officer

That's right.

Jeff Van Rhee -- Craig-Hallum Capital Group LLC -- Analyst

Okay. From a usage, I realize model is not primarily usage based model, certainly saw spikes and surges in a lot of different kinds of digital channels and consumptions, to be clear, any notable revenue impact from usage related streams?

Eric Smit -- Chief Financial Officer

There was. I think definitely not as much as the previous quarter, but it's an area that we will obviously still seeing the uptick from many of our customers that saw the spike in their own interactions in the more so in the early part of the quarter. So there was -- I don't have the exact amount, but there was definitely an element of some average seasonality, if you will, driven by the environment that I would say sort of tapered off some now.

Jeff Van Rhee -- Craig-Hallum Capital Group LLC -- Analyst

Got it. And then along the lines of the pipeline, at this point if you kind of dissect that pipeline a little more precisely. What's changed with respect to, two aspects, new versus existing type prospects and then also the used cases you're seeing really drive the pipe?

Ashutosh Roy -- Chairman and Chief Executive Officer

So this is actually -- so yeah two comments. One is we are seeing more in our pipeline over the last say three months to four months, more of new logos in the pipeline. So that's a welcome change and a lot of it is driven by the new partner channel, which is good. And the second piece around whether we are seeing particular areas of demand, like I said, one is the messaging area, messaging and virtual assistance sort of go hand in hand. It's more around digital connectivity and automation and self-service. So we're seeing that as one bucket of demand that continues to be strong. And the second area we see increased and sustained demand now is knowledge and AI in contact centers. So agent facing knowledge, we are seeing more sustained increase on incoming interest on that.

Jeff Van Rhee -- Craig-Hallum Capital Group LLC -- Analyst

Sounds good. Appreciate it.

Ashutosh Roy -- Chairman and Chief Executive Officer

Sure.

Operator

Thank you. We'll take our next question from Mark Schappel with Benchmark.

Mark W. Schappel -- Benchmark Company -- Analyst

Hi, thank you for taking my question. And congratulations on the quarter. Building on an earlier question, with respect to your sales capacity, could you just discuss your plans for adding new quota carriers during the coming fiscal year, what we can expect as far as numbers?

Ashutosh Roy -- Chairman and Chief Executive Officer

So we haven't quite talked about the numbers in terms of headcount. But what we are -- and we are doing this so we can share with you, which is as a percentage of our revenue, we are kind of ramping our sales and marketing investment to the 35% level. Whether we get there in six months or we get there in 12 months, that's something we'll have to monitor quarterly because of the nature of where we are in the economy. But that's kind of where we want to take it to, subject to obviously bringing in the cohorts and making sure that they are being able to deliver to early milestones.

Mark W. Schappel -- Benchmark Company -- Analyst

Great. And then Ashu, with respect to the Avaya partner deal that was signed early in fiscal 1Q, I was wondering if you could just give a few details about how that deal kind of developed and came together?

Ashutosh Roy -- Chairman and Chief Executive Officer

Sure. So it happens to be a large BPO client of Avaya. They had been trying out some other solutions and once the Avaya branded solution, which is eGain solution, but Avaya branded was launched and as you know, the general availability was in March, we closed the deal in mid-July. So not a very long sales cycle. That happened to just be situation where they needed to get into some client of theirs where they needed to deliver digital capability. So it wasn't really a competitive environment. It's -- to us it's -- it's a start. What we are seeing there's a lot of pent-up demand in the Avaya installed base, particularly around the elite customers. And as you know there is -- Avaya well, there is challenges around the Avaya customer base in terms of other new age competitors, but there is also a lot of reliability and confidence in the Avaya installed base to look at Avaya solutions, if they, if they make sense. So we feel like it's a good fit between our solution and it can be deployed extremely quickly because it's a cloud-based solution, which is what we have done. So for this client, they just going live imminently now. And so you're talking about a six-week deployment cycle. So all in all, looking encouraging and based on that small early deals because it's a large BPO, we do expect that there'll be more expansion.

Mark W. Schappel -- Benchmark Company -- Analyst

Great, thank you.

Operator

Thank you. [Operator Instructions] At this time, I show no questions in queue. I'd like to turn it back to eGain management for closing remarks.

Ashutosh Roy -- Chairman and Chief Executive Officer

Thanks. Well, thanks everybody. Appreciate you taking the time to listen. And we look forward to updating you when we put out our Q1 results and again hopefully we get opportunity to chat with some of you at the upcoming virtual investor events that we're at later this month. Thank you.

Operator

[Operator Closing Remarks]

Duration: 44 minutes

Call participants:

Jim Byers -- Senior Vice President, MKR Group

Ashutosh Roy -- Chairman and Chief Executive Officer

Eric Smit -- Chief Financial Officer

Ryan MacDonald -- Needham & Company -- Analyst

Koji Ikeda -- Oppenheimer -- Analyst

Rich Baldry -- ROTH Capital Partners -- Analyst

Jeff Van Rhee -- Craig-Hallum Capital Group LLC -- Analyst

Mark W. Schappel -- Benchmark Company -- Analyst

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