Afternoon, everyone. Welcome to eGain's First Quarter Fiscal 2021 Financial Results Conference Call. On the call today are eGain's Chief Executive Officer, Ashu Roy, and Chief Financial Officer, Eric Smit. Before we begin, I would like to remind everyone that during this conference call, management will make certain forward-looking statements which convey management's expectations, beliefs, plans, and objectives regarding future financial and operational performance.
Forward-looking statements are generally preceded by words such as believe, plan, intend, expect, anticipate, or similar expressions. Forward-looking statements are protected by Safe Harbor provisions contained in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to a wide range of risks and uncertainties that could cause actual results to differ materially. Information on various factors that could affect eGain's results are detailed in the company's reports filed with the Securities and Exchange Commission.
eGain is making these statements as of today, November 10th, 2020, and assumes no obligation to publicly update or revise any of these forward-looking statements or information in this conference call. In addition to GAAP results, we will discuss certain non-GAAP financial measures, such as non-GAAP operating income. Our earnings press release can be found on the news release link on the investor relations page at eGain's website at egain.com.
The tables included with the earnings press release include reconciliation of the historical non-GAAP financial measures to the most directly comparable GAAP financial measures. Lastly, a replay of this conference call will be available at the investor relations section of eGain's website. Now with that said, I'd like to turn the call over to eGain's CEO, Ashu Roy.
Thank you, Jim, and good afternoon, everyone. We achieved another solid quarter for the company in Q1. Our SaaS revenue grew 29% year-over-year and at the high end of our guidance. We generated $5.8 million of operating cash in the quarter, operating margin of 31%, and we ended the quarter with a cash balance of $53 million and no debt. The strong financial position gives us increased confidence in continuing to execute to our growth plan despite the COVID uncertainty.
We see fiscal 2021 as an investment year for eGain, given the typical nine-month enterprise sales cycle, which, if anything, is being somewhat extended in the current environment. We expect our investments to have a meaningful impact only in fiscal 2022 on our top line. Let me share some more details around our investment plans and execution to date.
As I have mentioned before, we are focusing our investments on the four pillars. First is brand awareness. This fiscal year, we have significantly increased our digital marketing programs, participating in virtual events, increasing ad-based spend, and overall thought leadership activities. In fact, in Q1, we doubled the number of events and digital marketing activities when compared to the same quarter last year. We are also starting to see some early returns, which are good. For example, traffic to our website, egain.com, more than doubled in Q1 year-over-year. This is a big jump in brand awareness.
Our marketing-generated leads were up nearly 90% in the U.S. in Q1 year-over-year. Overall, worldwide, they grew by 53%. The second pillar in which we're investing is partner enablement. First off, we have expanded our contact center partner teams with more technical and sales resources, especially in the U.S.
Our pipeline with Cisco and Avaya growing nicely, especially around new logos. Second, we are now building our go-to-market plans with some of the CRM ecosystem platforms. We have staffed up our business development team now to focus on three of those CRM platforms, Salesforce, Microsoft, and ServiceNow.
We see growing demand from our customers to integrate our customer engagement platform with multiple CRM systems of record in the enterprise. Because we go over the top and provide one consistent layer of engagement, and underneath that, across different brands, different business units, typically there are different CRM systems. It works well for the client to have one layer of engagement working across these different CRM systems. Third, we are striking new vertical-based partnerships, starting with financial services.
These partnerships will be in the form of jointly developed, jointly branded customer engagement solutions, targeting clients in financial services who need turnkey capabilities to implement conversational customer engagement with AI technology. We expect to share more progress on this front next quarter. All these investments are starting to show some results now. The number of partner-driven opportunities in our pipeline at the end of Q1 was up more than 50% year-over-year for us. That's good.
The third pillar for us is direct sales. Before I share the progress on our investment in sales, let me share some relevant metrics. At the end of Q1, our sales pipeline was up 35% in dollar terms year-over-year. New logos now make up nearly 2/3 of our sales pipeline compared to about 50% a year ago.
We see new logo opportunities continuing to trend up thanks to the investments we just talked about. This is very exciting because new logo wins are key to our top-line growth in the medium term. Now back to our sales investments. We intend to double our sales capacity in fiscal 2021, and we are executing that expansion in two phases. In the first phase, we are on track to complete that first phase of direct sales team hiring by the end of November.
We are substantially done with the selections and most of the people have joined, but we expect the remaining ones to join by the end of November. This team, once ramped, will boost our sales capacity by about 50%. The second half of that, we plan to bring the next cohort of sales reps in the March-April timeframe of this fiscal year.
Of course, assuming that the markets continue to operate the way they are. In terms of geographic focus, 2/3 of our sales capacity expansion that we are targeting is in the U.S., and the rest is in Europe. As a side note, we are very pleased, Todd and I, with the sales talent we are attracting now. The excitement around our market opportunity, our product leadership, growth ambition, it's all fueling this talent that we are able to attract. The fourth pillar is continued commitment to our customer success. We see big opportunity in our installed base, and it continues to grow.
Our clients are looking at us as an enterprise-wide system of engagement across brands, across customer segments, connecting back into systems of recording communication. More and more of our clients are now taking advantage of our Innovation in 30 Days program to try out our new capabilities.
At the same time, given our current size and relatively small SaaS customer base of roughly 150 clients, we are susceptible to the law of small numbers. In Q1, we had a couple of out of band, one attrition and one termination, which clients, those put together, will negatively impact our quarterly SaaS revenue by $750,000 quarterly in Q2. One of the clients decided to implement an on-premise solution in their private cloud, and the other consolidated our capabilities that we were offering onto a larger CRM platform.
While these two put together were significant in dollar terms, we do see them as somewhat isolated incidents. This sort of volatility in a relatively concentrated client base that we have makes the need for expanding our new logos even more urgent. Here we have good news to report.
In Q1, we doubled the pace of our new logo wins year-over-year. We see this trend continuing in Q2, thanks to our growing pipeline and increase in new logo percentage in our pipeline. Based on new logo wins we have already had until now in Q2, we believe that we will again double our new win logo count in Q2 year-over-year, and we expect that this momentum will continue. This is very exciting. Equally exciting is the fact that the quality of new logos are really impressive for us.
In Q1, for example, we were selected by a global automotive brand to modernize their digital customer engagement capability. Another one was a leading U.S.-based hospital system where we were selected as one of the providers in their large contact center modernization program.
A final mention for another new logo, which is a multinational manufacturer based in the U.S., a household name, where we just got into the program where they are looking to execute digital transformation. These new clients, all of them, start relatively small, and they scale the investment based on success. As we build our sales momentum with new logos, we are confident that we will translate them into success at scale, just like we did with a U.S.-based health insurance client we won late last year.
Started with a pilot opportunity, since then, that client has standardized on our platform for the enterprise-wide knowledge-powered engagement. Now it's a seven-figure ARR account for us. These new logos are a key indicator of our, and leading, obviously, of our top-line growth.
Turning to products and trends, we announced our eGain Messaging Hub in Q1, and it has been very well received. Our ability to deliver a one-stop solution to connect, solve, and optimize for messaging-based engagement is unique.
Unlike other solutions, we are allowing businesses to bring their own bot, their own messaging channels if they have their own private implementations, their own desktop, if they already have an existing desktop for advisors. They don't need all of that. They don't need to bring all of it. We offer all of them together, but it's an open platform. This sort of convenience that combines comprehensive capability with openness is unique.
In fact, the auto major I referred to as a new logo win, they were particularly impressed with our open and comprehensive Messaging Hub as they selected us as a partner. Just this morning, we launched another exciting new capability, eGain SmartIVR. What we are offering here is simple and radical. Simple because a business can modernize their existing IVR estate without throwing away their existing technology investments. Radical because they can deliver digital service through IVR to all smartphone users with virtual assistants and AI guidance in a matter of days.
In a matter of days, without huge upfront investment. As contact centers get digitalized, IVR is a huge pain point for our clients. They don't have an easy way to bring their existing IVR estate into their digital transformation plans. With eGain SmartIVR, they can do just that.
In fact, we have a U.S.-based retailer who is now implementing the eGain SmartIVR solution from us, and they'll be going live with it later this month, just in time for the holiday season. Very exciting. Looking at the market, the need to automate customer engagement continues to grow, especially with the COVID effect on contactless commerce and remote work. We are thrilled with our new logo momentum in Q1, and we are confident that we can sustain it moving forward.
Now that we see our sales investment showing early results in brand awareness, pipeline health, and new logo wins, we are increasingly comfortable in our ability to effectively execute ambitious and accelerated growth plans. This is a good place for our team to be. With that, I'll ask Eric Smit, our chief financial officer, to add more color around financial operations. Eric?
Great. Thanks, Ashu. Thanks very much, and thanks, everybody, for joining us today. As Ashu noted, we are pleased to report another strong quarter, which included solid SaaS revenue growth year-over-year, along with solid bottom-line results and strong cash flow from operations. As I've noted on prior calls, we believe the combination of SaaS revenue and professional services revenue, or what we call our SaaS business revenue, is a useful measure to value our business on a forward-looking basis and is one that I'll highlight on this call.
Looking at our financial highlights for the first quarter, SaaS revenue was up 29% year-over-year. Our non-GAAP gross margins were 76% for the quarter, a 600 basis point improvement year-over-year. Non-GAAP net income was $2.5 million, or $0.08 per share, and cash provided by operations was $3.7 million, or an operating cash flow margin of 30%.
Looking at the quarterly results in more detail, SaaS and professional services revenue was up 23% and comprised 91% of total revenue. For the first quarter, our SaaS revenue was $16 million, up 29% year-over-year. Legacy revenue was $1.8 million, down 44% from a year ago, driven by the continued migration of our remaining legacy customers to the cloud and the sunsetting of our legacy non-cloud offering. Professional services revenue was $1.3 million for the quarter, down 19% from the first quarter last year and accounted for 7% of total revenue.
Our continued product innovation is driving increased efficiencies on our service delivery, driving the PS numbers down somewhat. As a result, we've been able to redeploy key PS resources to assist in the winning of the new logos that Ashu talked about. Now looking at our non-GAAP gross profits and gross margins.
Gross profit for the first quarter was $14.5 million or a gross margin of 76%, up from the gross profit of $12 million or a gross margin of 70% a year ago. This was driven by a solid improvement in our subscription gross margin, which was 82%, up from 76% in the first quarter last year. Professional services gross margin was -1% compared to 5% in the first quarter last year. Now turning to operations.
Non-GAAP operating costs for the first quarter came in at $11.7 million, compared to $10.4 million in the year-ago quarter. The increase was primarily driven by our investment in sales and marketing, which was up 20% year-over-year and accounted for 29% of revenue, up from 27% in the year-ago quarter.
As Ashu stated, we have made good progress in expanding our sales and marketing efforts and expect this level of spend to increase sequentially as many of the new hires joined towards the end of the quarter.
Our non-GAAP operating income in the first quarter was $2.8 million or an operating margin of 15%, compared to an operating margin of 9% in the year-ago quarter. Looking at net income. Non-GAAP net income for the first quarter was $2.5 million or $0.08 per share. This compares to non-GAAP net income of $1.7 million or $0.06 per share on a basic basis and $0.05 per share on a diluted basis in the year-ago quarter.
GAAP net income for the first quarter was $2 million or $0.07 per basic share and $0.06 per diluted share compared to GAAP net income of $1.2 million or $0.04 per basic and diluted share in the year-ago quarter. Turning to our balance sheet and cash flows. I'm pleased to report we believe our balance sheet has never been stronger. With our cash flow from operations of $5.7 million, a 108% increase over the prior year quarter, we ended the quarter with cash and cash equivalents of $53.1 million, compared to $46.6 million on June 30th, 2020.
Now on to our financial outlook and guidance. With the tremendous customer engagement opportunity in front of us, along with the strength of the balance sheet, our plan is to continue to invest in sales and marketing to capitalize on this opportunity.
As Ashu indicated, we are encouraged by the early positive signs from this increased investment to date. Given the length of the enterprise sales cycle and the pattern of new logos starting small and expanding, we expect the increased investments in sales and marketing to further accelerate our growth in fiscal 2022. To illustrate this point, the average ARR for new logos signed in Q1 came in at around $115,000. Whereas if you look at the existing SaaS customers, the average ARR is north of $300,000.
With our continued focus on customer success, we believe these new logos present a significant opportunity for expansion, as Ashu indicated on some of the recent successes that we've experienced. Now finally, before getting into the actual guidance numbers, a few additional comments.
Just to reiterate the point that Ashu made, during the quarter, we had two reductions, one a reduction and the other a termination, that Ashu referenced, which will impact our Q2 revenue by about $750,000 reduction from Q1. The other point I wanted to mention, as discussed before, as a result of certain customer contract changes, which included the increase in their minimum payments or minimum commitments, we are not expecting the approximately $150,000 increase in seasonal business when you look back to Q2 a year ago.
Finally, as noted on our last call, given the continued level of uncertainty in the current business environment, we have elected to continue to only provide quarterly guidance for now, but we'll revisit this as the year progresses.
For the fiscal 2021 second quarter ended December 31st, 2020, we expect SaaS revenue of between $15.2 million-$15.6 million, which would represent growth of between 8%-11% year-over-year. Beyond Q2, based upon our upcoming renewals for the year and current pipeline activity, we expect SaaS revenue to increase sequentially in Q3 and in Q4.
Looking at SaaS and professional services revenue, we expect that to be between $16.6 million and $17.1 million, which would represent growth of between 5% and 8% year-over-year. Total revenue of $18.1 million-$18.7 million, which would represent growth between $0 and $0.03 year-over-year.
GAAP net loss of $1 million to break even or -$0.03 to $0 per basic share, non-GAAP net loss of $500,000 to net income of $500,000 , or a - $0.02 per basic share to $0.02 per diluted share. We assume a diluted share count of 32.8 million for the second fiscal quarter and for the fiscal year.
Lastly, on the investor relations front, we will be participating in multiple virtual investor conferences this month. Tomorrow, we'll be participating in the Roth Technology Virtual Event. The following day, we'll be participating in the Benchmark Technology One-on-One Investor Virtual Conference. A week from now, on November 17, we'll also be participating in the Craig-Hallum Alpha Select Virtual Conference.
On the 19th, we'll be participating in the 10th Annual Needham Virtual SaaS One-on-One Conference. We hope to see some of you virtually at these conferences. This concludes our prepared remarks. Operator, we will now open the call for questions.
Thank you. If you would like to ask a question, please signal by pressing the star key, followed by the one key on your touchtone phone now. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal for questions. The first question will come from Philip Rigby with D.A. Davidson. Please go ahead.
Right. Hi there. Thanks for taking the question. I wanted to start by circling back on 2Q guidance. I really appreciate the insights and numbers you all provided there. Can you just give us a bit more color on the customers, on the attrition customer and the termination customer? Maybe what led to that decision? Was it a cost-based decision to reduce spend or competitive pressures? Any color you can give there would be really helpful.
Sure. I can take that. This is Ashu here. The one that we talked about reducing, and one we talked about terminating, the one that was reducing, they use multiple applications from us. They decided that they wanted to bring the solution into their private cloud because of security reasons that they felt that they were exposing themselves to.
We obviously have the best security and the best cloud certifications, their IT organization felt that they needed to bring capability like that in-house, in-house meaning in their private cloud. They still continue to use the other parts of our platform, but they took a significant chunk of the digital engagement and took it in-house. That was one. The second one was, I believe more a change in the C-level suite of the company. That is our
Assessment. The CEO changed in that organization. It's a multibillion-dollar business that we are talking about. He kind of brought in a new crew who decided that they wanted to standardize. They had done it before, and they wanted to standardize on one CRM platform. They told us about it, and it was something where we were doing a really good job. They were very happy with us, but it was a decision on their part to standardize, and so that was the logic for it from what they told us.
Very helpful. Thank you. We have a question on your demo initiatives, like Fast Track or Innovation in 30. Could you talk about what you're seeing in terms of appetite for the demos? Maybe now relative to what you were seeing in the early innings of the lockdown. If you could maybe talk about what you've seen in terms of conversion of customers taking advantage of these demos. Be really interested to get insight on that.
I did not really touch on that as much as I could have or should have. Both the demo and the Innovation in 30 Days, they are oversubscribed right now. We are, as Eric mentioned in his remarks, we are moving some of the spare capacity we have on the services team into doing more of those trials and demos, because there is a lot of appetite, particularly around two areas: virtual assistance and messaging. Those are really active right now, in fact. We have seen some great results from that.
The conversion we are seeing right now with those is right around, let's say, north of 50%. About one in two will end up actually going into an investment mode. The others, not because they think it doesn't work, but because they don't have the budget right now.
In the current environment, we are seeing a lot of people saying they've run out of budget in the second half of this calendar year. That's something we know will hopefully start to come back in with the new calendar year.
Great. Thank you.
Thank you. The next question will come from Koji Ikeda with Oppenheimer. Please go ahead.
Thanks for taking my questions. Hey, guys, nice quarter on that SaaS growth line. I wanted to dig deeper on the SaaS revenue growth guide for the second quarter and just thinking about excluding the customer attrition and that contract change for the prior seasonal business, it looks like the SaaS growth guide is somewhere mid-teen. That's against an easy comp, too. Is there anything else we should be aware of in that fiscal second quarter?
Just thinking a bit further out, I know you're not guiding to the full year today, but just thinking about the second half growth comps versus the first half, is there any sort of second half seasonality or large upcoming renewals that we should be aware of?
Oh, hi, Koji. This is Eric. I'll take the question. I think just for one point of clarification, if you look back, and I alluded to the seasonality, I think in the past, we have seen a big spike. If you look last year from Q1 to Q2, there was a significant increase. I think that element we have found has been reduced. I would say that this is a fairly tough comp in relation to that component.
I think to the point that Ashu made, what we have seen is that for some of these new logos, although the business activity is healthy, we've seen some constraints on their level of budget spending, the expectation that this will pick up in Q3 of our fiscal year. That also has contributed to the guide that we've provided.
Great.
To the second point, I think from our perspective, and obviously always subject to change, when we just look at the upcoming renewals, at both the dollar value and sort of the timing of them, we don't see anything significant from that regard. Again, over time, we've seen the seasonality somewhat subside. Nothing too out of the ordinary that we expect as of now on that.
Thanks, Eric, for that. That's actually really, really helpful. I wanted to ask a question on the Avaya partnership, specifically on the Avaya partnership. I recently saw a press release from another vendor in the space expanding its partnership with Avaya. I guess thinking about that partnership, does that partnership announcement change anything with eGain's relationship with Avaya from a technology partner standpoint and also from a go-to-market strategy?
Yeah. No, I know what you mean. This is Ashu here, Koji. Yes. No, the short answer, before I give you a little more color, is no, nothing changes. The long version of the response is, as you know, there are two parts to our partnership with Avaya, and I'm just focusing on Avaya.
One is the digital capabilities of our platform, which are private labeled and OEM-ed as Avaya CCED. There is the resell component, which is all the knowledge and AI solutions, which are resold as eGain branded. Both those still continue to be active, and we are seeing the pipeline continuing to mature and grow. We hope to and expect to start to share some of the results from the Avaya partnership in Q2, meaning the quarter we are in right now, and then moving forward.
Great. Thanks, Ashu. Thanks for that. Last question from me, and I'll jump out of the queue. Just thinking about overall sales force ramp today, where are you at today, and how long are you thinking it will take this new November sales cohort to become fully ramped up in your view? Thanks for taking my questions.
Sure thing. I think, like I said, about 50% of our planned growth. We are increasing our sales capacity, doubling it by the end of this fiscal year from where we were at the end of fiscal 2021. The first half of that increase is going to be done by November of this month's end. We expect that cohort will become productive by end of fiscal 2021. Six months of ramp. We see a six months ramp in most of these sales hires. The second cohort we're looking to bring on board, which is the other 50% increase, in the March, April timeframe of fiscal 2021.
Got it. Thanks for taking my questions.
Thank you.
Thank you. The next question will come from Richard Baldry with ROTH Capital. Please go ahead.
Thanks. Earlier in the call, I think I heard you say that you felt some of the sales cycles are extending. I'm sort of curious if you can unpack that a bit. I would've felt that maybe COVID would pressure people to make some decisions faster. You've talked about getting in some smaller deals for new logo deals, that kind of seed the world first and land and expand later. I would've thought those would be faster. Can you maybe talk about that a little? I may have just misheard. Thanks.
Sure. You're right, and you heard it correct. Let me try to add some more detail to that. What we are seeing is with existing customers, they are doing more with us, and that buying pace has picked up incrementally, and also the cadence has picked up.
With new logos, what we are seeing is not as much that the entire sales cycle has extended, but the fact that they are chunking it a little bit. They're starting small, and then they're scaling it, and there is the added bit, which we have heard a few times now, where people are saying, "We're out of budget for this calendar year, and we will have a bigger budget next year. So let's do a smaller deal now, and we'll do more later." That's sort of the extension of the sales cycle on new logos that I was referring to.
Okay. Can you maybe talk about in terms of the overall platform, your feeling on its completeness in this world of sort of a concept of you can do a bring your own bot. Do you feel like there could be a need to go out and buy some things like bots for people who do want to have sort of an in-house preference offered up as well, or different flavors of those things that can sort of react differently in different environments? I guess that against the backdrop of your cash setting a new high in the quarter. Thanks.
Sure. I may have somehow conveyed the wrong impression. What I meant with the conversation on the eGain Messaging Hub was that we have an eGain Messaging Hub solution that offers all those capabilities to begin with as part of our solution. That's the first thing, right? We have the bot, we have the channel connectivity, we have the desktop. What we are seeing in the enterprises that we are selling into, for instance, the auto company that I talked about, they already have an enterprise-wide initiative around bots.
When you go into these conversations, they like the fact that you have your own, but they also want to make sure that whatever they have built, and there are lots of domain-specific bots that people are developing now. That's where the ability to bring your own domain-specific bot becomes quite important.
That was the part I was referring to. Now, to the second point that you mentioned about looking at gaps in our solution and whether we should go out. Yes, I think that we have the opportunity, and we do see a lot of, I guess, mostly smaller companies, much smaller than us, who have some interesting technology. We keep looking at it, and that's an area that is of interest to us.
Last would be the maintenance revenue line, as I back it out, only fell very narrowly in the quarter, and it'd been on a pretty steady downtrend. Is there anything unusual in that? Any sort of change in your expectation for how long it'll take to sunset that maintenance revenue base? Thanks.
Eric, do you have a view on that?
I do, yeah. I think it was just more of a timing issue. I think absolutely, if anything, we've accelerated our push for that migration. Certainly as we look forward, there's plenty of on-premise customers that are in the pipeline to make that shift. Certainly would expect that to continue to move downwards in future quarters.
Thanks.
Thank you. The next question will come from Jeff Van Rhee with Craig-Hallum. Please go ahead.
Great. Thanks for taking my questions, guys. Several from me. First on the usage, I think you commented on a decent amount of usage revenue in March, a little bit less in June. Can you continue that trajectory? What did you see with respect to usage in the September quarter versus prior quarters?
Eric?
I think that, Jeff, apologies, maybe if you could clarify the question just a little bit more, just to make sure we're responding correctly.
Yeah. You've got some volume exposed revenue streams. I think you've commented in both of the prior quarters about usage. I think you had expressed that March quarter was larger usage than June. I think the expectation was that amount would continue to taper off. I'm just trying to get a sense of magnitude and directionally what you saw in the usage-based, transactionally-based, any of the revenue streams that react to volumes.
Good. No, thanks for the clarification. Yes. I think we definitely have seen that continue to taper off. I think, given the pricing model that we have in place, we've sort of worked with many of our customers that had overages that have now sort of worked into a higher minimum, and so that usage amount has dropped off. As I'd indicated, last year, we saw that spike up into Q2, and again this year, we really don't anticipate that same level of spike, based upon the changes.
Okay. That's helpful. On the two customers, the one that decided to take the solution in-house, maybe Ashu, can you just expand on that a little bit? In terms of going in-house, what were they using prior to going in-house? Once they go in-house, is it a build your own, or they use a different premise-based packaged solution? Just what does that look like in terms of what they're going from and to?
Good question. Before they started with us, they had an on-prem solution. They kind of moved into the cloud with us. I think what they're going with now is a combination of their own internal development, is a large organization, big IT shop internally, and some on-premise software that they have from an existing vendor. Mostly they are kind of taking all the intelligence and building it into their own internally developed solution.
Okay.
Not too many businesses in the world can afford to do that. These guys are super large, which is how they can. Yeah.
Yeah. That makes sense. On the CRM, the other customer, what were they using from you? What specific functionality was it? You said they I'm curious. It sounded like some embedded solution in the CRM was able to ultimately replace the capability you had.
Yeah. Digital engagement, so largely chat and self-service, web-based self-service. Yeah.
Yep. Okay. Just one last one for me, the IVR replacement opportunity. I think you had some press out today, and you emphasized it again tonight. Can you just talk in a little more specifics exactly what that looks like? You've got a legacy IVR solution. How does that look to the consumer? What exactly are you bringing, and how does it extend the life cycle of the IVR? I get a fair volume of questions and a little bit of confusion around that.
Sure. Okay. There are three parts to it. The first part is that, let's take an IVR from, in this case, I'll give you the example of the retailer that we are working with, that'll make it real. What the retail business has is an existing IVR from one of the big vendors. What we're doing is going into their IVR design studio.
We have a piece of code that will just plug into one of the nodes, software points of the IVR tree. Press nine, let's say. It automatically detects the fact that you're calling from a smartphone, based on decisioning that the business would set up, you would get an option to say, "Would you like to chat with us on SMS?" Let's say. You say, "Yes." You start to talk on SMS with the customer.
At that point, they still can retain their position in the IVR, but they're now chatting on SMS. In that SMS, they can, and in this case, they will, have our virtual assistant doing the automated responses to begin with. If the customer then gets escalated, they'll go to a human chat agent on the other side on our desktop, eGain desktop, and that conversation will conclude.
That's the doing part of it, both the connect part and the solve part. Then there is the analytics on top to make sure that we can do that. We have the ability to do analytics across IVR, across digital, across the contact center, so end-to-end analytics. All those three pieces together.
Yeah. Very helpful. Thanks so much.
Sure.
Thank you for the question. The next question will come from Mark Schappel with Benchmark. Please go ahead.
Hi. Thank you for taking my question. Eric, let me start with you. Help me, if you could, better understand the SaaS revenue guide for fiscal 2Q. It appears that even with the $750,000 reduction and termination, growth appears to be significantly lower than, say, the past 18 months or so. Help me with the puts and takes there.
I think in addition to the $750, I also indicated the fact that there was about this $150K of seasonality that we weren't expecting this quarter that we saw last quarter. From a business standpoint, I think as we've seen this increased focus on the new logos, I think some of these initial deals that we've been closing have started off smaller, which I think is contributing to this in this environment. But over time, we would expect that to pick up.
Okay, great. Thank you. Ashu, with respect to the priority or initiative to expand your partnerships to the CRM vendors, how far along are you with respect to partnerships with the various CRM vendors?
Some of them are more advanced than others. I would say that we are still probably six months away from meaningful pipeline that we can have. I expect that these CRM partnerships will yield new business to us in the second half of calendar 2021, so beginning fiscal 2022.
Great. Thank you. That's all for me.
Sure.
Thank you. The next question will come from Ryan MacDonald with Needham & Company. Please go ahead.
Hi. Thanks for the question. This is Alex on for Ryan. It was announced that the company achieved in-process status with FedRAMP. What do you expect to receive in full FedRAMP authorization? Can you give us any sense of what you're seeing with the government vertical from a pipeline perspective?
At this time, our expectation, and again, this is dependent on the certification authorities and whatever we discover in the process of certification that we have to remedy, and we are actively in the process as we speak. The expectation is that we should be certified by calendar Q2 in 2021. Calendar Q2.
Okay, great. With the recent shutdown occurring in EMEA, can you give us a sense of what you're seeing from customers over the past couple weeks? Do you think that businesses are now positioned better to operate effectively in a lockdown environment versus what was happening before COVID? What are you kind of seeing in EMEA with elongated sales cycles as well?
Yeah. I don't know if the last two weeks' change has quite rippled through our business. What we have seen up until, say, a month ago and leading up to now, is that businesses have kind of accommodated operating in EMEA around the new rules. I'm not sure how the recent lockdown, say, in Europe and particularly the U.K., is going to affect things, so hard to say. I would say that leading up to that, we were seeing reasonable business activity, mostly around more automation, more digitalization. All the things we talked about in the U.S., we see that there as well.
Great. Thank you.
Sure.
Thank you. I'm showing no further questions at this time. I'll turn it back to our speakers.
Great. Well, thanks, operator, and thanks everybody for joining us today, and look forward to updating you when we finish up our Q2. Thanks.
Thank you, ladies and gentlemen. This concludes today's event. You may now disconnect your lines.