eGain Corporation

Good day and welcome to the eGain fiscal 2024 first quarter financial results call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, Please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Jim Byers of MKR Investor Relations. Please go ahead.

Thank you, operator, and good afternoon, everyone. Welcome to EGAIN's Fiscal 2024 First Quarter Financial Results Conference Call. On the call today are EGAIN's Chief Executive Officer, Ashu Roy, and Chief Financial Officer Eric Schmidt. 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 the eGains results are detailed on the company's reports filed with the Securities and Exchange Commission. EGAIN is making these statements as of today, November 2nd, 2023, 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. The tables included with the earnings press release issued today include reconciliation of the historical non-GAAP financial measures to the most relief to the most directly comparable GAAP financial measures. And our earnings press release can be found by clicking the press releases link on the investor relations page of eGain's website at eGain.com. And along with the earnings release, we will post an updated investor presentation to the investor relations page of eGain's website. And lastly, a phone replay of this conference call will be available for one week. And now I'd like to turn the call over to eGains CEO, Ashu Roy.

Thank you, Jim, and good afternoon, everyone. We are off to a good start to our fiscal year. Both our top and bottom line results exceeded our guidance and street consensus for the quarter. Our adjusted EBITDA for the quarter at 12% was 600 basis points better than the year-over-quarter. Turning to business highlights, we closed some nice new logos in the first quarter, including a large North American industrial distributor and a top 10 Canadian bank. We also saw continued expansion across our client base during the quarter. Some expansion clients included a large California state agency, one of the largest US utilities, a uk financial services company a global insurance provider and a u.s health plan management provider looking at the market the macro environment remains challenging at the same time we see continued pickup in evaluations and decision making in our pipeline these include new opportunities as well as re-engagement from opportunities that were on hold What we are really excited about is the launch of AssistGPT, our newest product that we announced at the customer event in London in September. It's the first of its kind solution that leverages generative AI to automate knowledge management, reducing human effort by up to 80%. The result is correct consumable answers served to contact center agents, reducing the cost of service. AssistGPT allows businesses to confidently use AI in the context of reliable knowledge content, effective controls, and rich analytics within eGain's compliant, composable, and scalable knowledge platform. given the continued focus in the market on reducing business cost and improving agent experience we believe that assist gpt presents the biggest bang for the buck for businesses looking to invest in projects that improve business cost and improve agent experience. In fact, Gartner in 2022 recommended knowledge management as the number one technology investment for customer service. Now with an offering like eGain Assist GPT, this recommendation can become a reality. Speaking of Gartner, we are excited to note that Gartner recently published its 2023 Magic Quadrant for CRM Customer Engagement, and we were named a visionary this time. Last time around, we were in the niche category. The report from Gartner highlights our operationalized AI capabilities, our composable architecture, and our rich product functionality. We, as a team, could not be prouder. Turning to market awareness, our customer event in London in September was a resounding success. We had a record number of attendees, and we had exciting customer success stories shared on stage, including presentations from RSA, a global insurance company, Trig, a Nordic insurance giant, and ALV Automotive, the largest vehicle leasing company in Europe. In addition, Cafe Pacific, one of our recent clients, presented their knowledge journey with eGain along with Deloitte, our SI partner on this project. Finally, our assist GPT announcement and deep dive demos generated a lot of buzz among customers and prospects. With our focus on knowledge management, and particularly for customer service, Our product innovation and improved analyst recognition positions us well as macro conditions improve. To conclude, three points I want to make. The first, cost adjustments in our business over the last couple of quarters have helped improve our profitability, even as we continue to invest in product innovation and customer success. While new logo acquisition is still relatively slow in this market, we are seeing increased pipeline activity from both new RFPs and re-engagement from deals previously on hold. And finally, the market opportunity to help automate knowledge management for customer service is global, it's exciting, and it's large. And we are well positioned to capitalize on it as conditions improve. With that, I'll ask Eric Smith, our Chief Financial Officer, to add more color around our financial operations. Eric?

Thanks, Ashu, and thanks, everyone, for joining us today. As Ashu noted, we delivered a significantly improved bottom-line performance in the first quarter, reflecting the adjustments we made to operate more profitably in the current environment of continuing to invest in product innovation and customer success. Let me share more detail about our financial results for Q1 before getting into our outlook and guidance for Q2 and fiscal 2024. Starting with revenue, total revenue for Q1 was 24.2 million above our expectations, but down 2% year over year. When looking at revenue by region, North America accounted for 79% of total revenue this quarter, up from 77% in the year-ago quarter. North America continues to be our primary focus and market where we see the greatest opportunity. Total revenue for North America was $19 million, essentially unchanged year-over-year. In contrast, total revenue from Europe was $5.2 million, down 8% year-over-year. Looking at non-GAAP gross profits and gross margins, gross profit for the quarter was $17.6 million, for a gross margin of 73% compared to 76% for the prior year quarter and 74% last quarter. Now turning to operations, non-GAAP operating costs for the quarter came in at 15 million, a 14% improvement from 17.5 million in the year-ago quarter, reflecting the expense controls we have implemented. Looking at our bottom line, non-GAAP net income for the quarter was $3.8 million, or $0.12 per share. This is up approximately 90% on a dollar basis from non-GAAP net income of $2 million, or $0.06 per share in the year-ago quarter. Adjusted EBITDA margin for the quarter was 12%, up 600 basis points from 6% in the year-ago quarter. Turning to our balance sheet and cash flows, We generated very strong cash flow from operations for the quarter of 8.1 million, or a 34% operating cash flow margin. During the quarter, under our share repurchase program, we purchased approximately 83,000 shares for $517,000, and an average price of $6.23 per share. Of the 20 million authorized, 13.7 million remain available under the program at the end of the quarter. Our balance sheet remains very strong. Total cash and cash equivalents at the end of the quarter was $79.8 million, up from $71.5 million a year ago. Now turning to our customer metrics, as I've mentioned on previous calls, given our increased focus on North American markets, I'll share some additional customer metrics on a regional basis. LTM dollar-based SaaS net retention for North America customers was 103%, while in-year customer retention was 84% due to the churn we discussed on previous calls, resulting in our overall NRR cropping to 97% compared to 103% a year ago. SAS ARR for North America customers increased 4% year-over-year, while total SAS ARR decreased 1%. And looking at ARR by product hub, knowledge now makes up 45% of our total SAS ARR. The number of $1 million ARR customers remained relatively constant year over year. And looking at our remaining performance obligation or RPO, total RPO decreased 13% year over year to 82.4 million, while our short-term RPO was 59.7 million, up 3% year over year. Now turning to our guidance, For the second quarter of fiscal 2024, we expect total revenue of between 23 million to 23.6 million. Turning to the bottom line, for Q2, we expect GAAP net income of 800,000 to 1.4 million, or 3 cents to 4 cents per share, which includes stock-based compensation expense of approximately 1.5 million and depreciation and amortization of approximately 125,000. we expect non-GAAP net income of $2.3 million to $2.9 million or $0.07 to $0.09 per share. Looking at the fiscal 2024 full year ending June 30th, 2024, we are reiterating our previously provided total revenue guidance of between $96 million to $98 million. With our increased profitability, we are increasing our non-GAAP net income guidance to $12.1 million to $4.6 million or $0.37 to $0.39 per share, up from $0.33 to $0.35 per share. And we are reiterating our gap net income guidance of $6.6 million to $7.1 million, or $0.20 to $0.22 per share, where we estimate share-based compensation expense of approximately $5.5 million and depreciation and amortization expense of approximately $500,000. Looking at weighted average shares outstanding, we expect approximately $31.6 million for the second quarter and $32.3 million for the full year. So in summary, we delivered top and bottom line results ahead of both our projections and street expectations. We are seeing positive results from the adjustments we made to our business operations to operate more profitably and generate increased cash flow in the current environment while we continue to invest in products innovation and customer success. While the macro environment remains challenging, we are seeing increased RFP activity and re-engagement from deals previously put on hold. And our new business sales team is working hard to close these deals. We also see significant growth opportunity ahead of us with our new assist GPT offering, which is a first of its kind solution to automate knowledge for customer engagement. The opportunity for e-gain is significant, and we remain well positioned to capitalize on our expanding market opportunity with our strong balance sheet and cash flow generation. Lastly, before I close, on the investor relations calendar, e-gain will be in New York later this month, meeting with investors at two investor conferences. We will be at the 12th annual Roth New York Conference on Wednesday, November 3rd. and at the annual Craig Hallam Alpha Select Conference the following day on Thursday, November the 16th. We hope to see you at these conferences. This concludes our prepared remarks. Operator, we will now open the call for questions.

We will now begin the question and answer session. To ask a question, you may press star, then one on your telephone keypad. If you are using a speakerphone, Please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Richard Baldry with Roth Capital. Please go ahead.

Thanks. Can you talk about the early indications you're getting on where the greatest interest is in the assist GPT? I'm curious if there's certain verticals that seem to be looking at things faster. Is it to replace human interactions or for an ROI base sale or maybe to automate things they previously didn't want to address because they thought the human side was maybe too expensive, just Just a little more color around where you're seeing sort of the first opportunities.

Sure. So, Rich, this is Ashu here. With AssistGPT, we have applied generative capability across the whole platform, but where there is real interest in the market is around helping improve productivity in the knowledge creation, curation, and improvement optimization cycles. That part of the assistance that we are automating with GPT is what seems to be most exciting to people because With knowledge management, that has always been one of the challenges. So, for example, you know, with the new solution we have, we are seeing improvement in productivity of that knowledge management team going up by, you know, 3 to 4x, up to 80% improvement in sort of automation. So that's what we are seeing as the biggest pull. We are also seeing interest in agent assist. But that area is kind of, there are many providers who have that, we have it too, but the knowledge management part is where the real excitement seems to be driven at this point.

And you talk a little about what maybe your early thoughts are around pricing, pricing mechanisms, how much of a premium offering this would be, or sort of an extension to existing things, just to kind of give us an idea of how much this might expand your addressable market.

That's a great question. Right now, we are making it super easy for people to try it and not create a barrier in terms of pricing up front. But it's based on actual usage of the generative capability on the platform. That's the incremental fee. It's a little bit like how many sessions or how many GPT requests you make in our platform. We are pricing that, and that's kind of the incremental... revenue generation for us, but the part we are focusing on today in the initial market launch is driving more adoption. That's the approach we have taken.

There's obviously a lot of hype around the generative side of the world. Do you feel like the low-hanging fruit is obviously going after existing customers who know you have a track record with you, would feel comfortable quickly evaluating, adopting, or Is this really kind of opening new opportunities where people are seeking out vendors capable of offering solutions in the space rapidly with sort of some credibility so we get an idea for how you're going to be attacking the market from that direction? Thanks.

Yeah, at this point, I think what we see with market interest is people even in the new logo conversations, people want a platform for knowledge that includes generative capability, but not just generative capability. So in the enterprise where we are selling, generative is a great and differentiation and excitement, but there's still a core need for a knowledge hub for all the core need of correct content, controls, analytics, all of the rest of it. So that's the place where we are focusing now.

Great. Thanks for your help.

The next question comes from Daniel Hipschman. with Craig Hallam Capital Group. Please go ahead.

Hey guys, thanks for taking my question. This is Daniel Ahn for Jeff Van Rie. Just on the improvement in pipeline activity, some of that re-engagement you're seeing of clients that were in a sales cycle and previously were on hold, just maybe if you could give us any additional color on those conversations, what those conversations are like, what's driving those customers to re-engage, if there's any common themes, either in terms of the conversations with the verticals that are coming back, just any additional thoughts there?

So one dimension we see is businesses seem to have gotten back into evaluating and running RFPs and structured sort of buying process. We're seeing that happening much more often now. So tie-kicking is much less than say six months ago. So that's a big change we're seeing across the board. So many, many more of the early stage conversations are resulting in time-bound RFPs. So that's one change we're seeing that across the board. In terms of verticals, I would say financials and insurance seem to be fronting that. There's more excitement in that space on a vertical basis, but others are also getting in. So it's not that it's only in financial services and insurance, but yeah, that sector seems to be leading the others.

Maybe just one follow-up for me. In terms of the macro headwinds, if we can dial that in a little bit in terms of do you see this mostly as general tech budget pressure? Is it particular to the contact center? Is it particular to knowledge management? Is it uniquely the combination of general macro pressure as well as people taking a step back to assess AI in their roadmap? Maybe just give us some additional thoughts on the nature of the headwinds.

I would say the AI assessment seems to have run its course a little bit, not entirely. I'm sure there are quite a few companies that are still doing that. But we see people who are coming back from their assessments and saying, all right, we need AI. We also need AI in the context of a knowledge platform so that we can actually use it and rely on it. So that's one thing I'll comment in the macro sense. I would say the other big comment would be just the overall geopolitical uncertainty and the economic environment. I think that budgets are still fairly cautious. That's the sense we get, but we do see items being budgeted for calendar 24. So there is a little bit of loosening of the purse strings, but not as much as one would expect in a more stable economic environment.

Thanks so much for the answers.

As there are no further questions, I would like to turn the conference back over to management for any closing remarks.

Thanks, Operator, and thanks, everybody, for listening to the call. We look forward to hopefully seeing some of you at the investor conferences later this month and providing the updates at the end of our next quarter. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.