Q4 2021 eGain Corp Earnings Call
Please standby.
Good day and welcome to the gain in fiscal 2021 fourth quarter and full year financial results Conference call. Today's conference is being recorded at this time I'd like to turn the conference over to Jim Byers of M. K R. Investor Relations. Please go ahead Sir.
Thank you operator, and good afternoon, everyone welcome to your games <unk>, 'twenty, 'twenty, one and fourth quarter and full year financial results Conference call.
On the call today are your games, Chief Executive Officer, Oscar Your ROI, 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 each.
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 your games results are detailed in the company's reports filed with the Securities and Exchange Commission.
<unk> is making these statements as of today September one 2021 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 discuss certain non-GAAP financial measures such as non-GAAP operating income.
The tables included with the earnings press release include a reconciliation of the historical non-GAAP financial measures to the most directly comparable GAAP financial measures.
Our earnings press release can be found on the news release link on the Investor Relations page at <unk> website.
He gained dot com and a phone replay of this conference call will be available for one week.
Now with that said I'd like to turn the call over to eat gains Yo actually really.
Thank you Jim and good afternoon, everyone.
We are very pleased with our financial performance for the quarter and fiscal 'twenty one.
Yep.
We exceeded our guidance for the quarter as well as for the fiscal year 'twenty one.
Plus our top and bottom line results were ahead of street consensus.
With a strong balance sheet, we intend to continue to invest in our business.
To further translate our product leadership into market leadership.
In fiscal 'twenty, one we grew our top line by 8%.
In fiscal 'twenty two.
We believe we can grow our top line faster.
We plan to grow 13% to 15% in fiscal 'twenty two.
That's an exciting jump for us.
And we're off to a good start in pursuit of that growth goals.
We've already closed two seven figure deals in the current first quarter or fiscal 'twenty. Two the first one is a new logo win.
A hyper growth crypto exchange looking to better serve its global customers.
The other one is an existing client.
U S government agency actively.
Actively deploying knowledge powered automation to improve citizen experience.
Both cases.
Our leading cloud security.
The band scalability and proven.
And contact center collectors were key considerations.
Beyond the functional richness of our solution.
According to Gartner the enterprises are looking to modernize knowledge management systems to get more value from digital investment and customer engagement.
We are.
Are being seen as the premier provider of modern knowledge management solutions in that context.
This topic is validated by analysts like Gartner and Forrester when they retired product capabilities.
Plus a growing roster.
Big platform partners, who are looking to enhance their customer engagement offerings with best in class knowledge and digital engagement capabilities are partnering with US last week for instance, we announced the availability of our certified connector for S. P.
This connector will enable global SMB clients to seamlessly in house their customer engagement capabilities with you getting knowledge.
We're already seeing early interest in the global S&P client base for our knowledge solution.
We will continue to expand.
Our CRM connector library, which now includes Salesforce, Microsoft about S&P.
Thanks to sustained investment.
Our customers are getting good value.
From your game and expanding their deployments.
As a result.
Total number of million dollar plus at our clients grew by 30% for us in fiscal 'twenty one.
As we have mentioned before this is sort of counter balanced by the fact that our average ear are for new logo wins has been trending down.
Enterprise buyers look to launch multiyear programs with pilot scale projects to establish success metrics.
But on the flip side, which is positive after the evidence of user adoption and business value. In these early engagements expansion opportunities are growing nicely.
Switching to other initiatives, we continue to be bullish about our virtual financial coach solution that we launched in partnership with Green path in March this year.
Last month, we announced more than 25 paying credit union clients without court solution.
So within us.
Ralph five months, we've now got 25 paying credit Union clients. These are smaller clients as we are going after the small to mid sized credit unions and banks with the solution.
The solution uniquely suits small to midsize banks and credit unions.
Cuz, they need turnkey capability to serve customers with personalized and intelligent financial coaching options.
So we believe it's a no brainer for over 6000 credit unions in small to mid size banks in the U S.
That gives us plenty of opportunity to pursue this this growth with our partner greenhouse.
Looking ahead.
We are very excited about fiscal 'twenty two.
As you all know we've been setting the stage to accelerate growth for some time first with our cloud transition and then with sales and marketing investments in fiscal 'twenty one.
These investments are now bearing fruit as seen in our increased new customer sales and enterprise expansion in fiscal 'twenty, one and.
In fiscal 'twenty, two we will continue to invest disproportionately in sales and marketing we plan to hire and onboard our next tranche of sales reps by December 21, as we go after these knowledge opportunities in the enterprise.
We also plan to increase our product development investments in fiscal 'twenty two.
To aggressively build out our ecosystem.
The marketplace to enhance functional enrichment of the <unk> platform.
Today, we have just a handful of partners who offer value added capabilities on our platform.
At the same time, there is growing interest from partners to develop.
Sell value added solutions.
On the gaming platform in an integrated and certified manner.
Yeah.
Moreover, there is interest from our customers and prospects consume such value added capabilities to accelerate innovation better isn't.
There's not a new idea in the market as we know most successful SaaS businesses do this well however.
In our market segment of knowledge powered engagement, we would be among the first.
We believe that.
This increased R&D investment in fiscal 'twenty, two will create significant product driven growth options, which is really what we are driving toward because that creates the best gross leverage as we know.
And that product driven growth option will in large in fiscal 'twenty three.
Based on the investments we make in fiscal 'twenty two on the R&D front.
We look forward to sharing our financial performance and progress along strategic initiatives with you throughout this fiscal year.
With that Alaska, Eric Smit, our Chief financial officer to add more color around our financial operations.
Great. Thanks, Joshua and thanks to everyone for joining us today.
As you noted we delivered a strong financial performance in fiscal 'twenty, one with top and bottom line results that exceeded our guidance and street consensus and even with our increased investments in sales and marketing.
Improved gross margins and strong earnings and cash flow for the first year.
Another highlight was hitching target to bring our legacy.
To list in the sense of total revenue in Q4 'twenty one.
With our model transition finally behind US we are starting the new fiscal year with the pledge accelerates our topline growth in fiscal 'twenty two and beyond.
Before getting into our outlook and guidance for fiscal 'twenty two.
Some financial highlights for the quarter in for Jeff.
We grew revenue 15%.
And they came to us.
Compared to the same period a year ago.
Our total revenue grew by 6% for the quarter and 8% for the year compared to the same period a year ago looking.
Looking at our non-GAAP gross profit and gross margins gross profit for the fourth quarter was $18.0 million or a gross margin of 75% up from 74% a year ago.
For fiscal 2021 gross profit was $63.0 million or a gross margin of 76% from 72% in the prior year.
Looking at our bottom line non-GAAP net income for the fourth quarter was $7.0 million or eight cents per share. This compares to non-GAAP net income of $9.0 billion or eight cents per diluted share in the year ago quarter.
Non-GAAP net income for the fiscal year was $15.0 billion or 27 cents per diluted share compared to non-GAAP net income of nine 3 million or 29 cents per diluted share in the prior fiscal year.
Turning to our balance and cash flows.
She remained strong during the year, we generated cash flow from operations of $22.0 billion and total cash and cash equivalents at the end of fiscal 2021 with $65.0 million up 36% from a year ago.
Looking at our current remaining performance obligation or OPO as I've mentioned in the past due to customer concentrations the timing of renewals can create fluctuations in this balance from quarter to quarter. However, with healthy renewals, we experienced in the fourth quarter with over 33 customers renewing our parents OPO increased 17%.
Europe year to $57.0 million.
Looking at the other customer metrics are trailing 12 months retention rates, which includes upsell uplift and should continue to be over 8% and was up sequentially from Q2 with no unusual churn in the quarter.
Our trailing 12 months, that's expansion rates, which excludes matured was over 110%, which has been consistently over the last eight quarters and the number of 1 billion customers.
Got that.
1 billion, they all increased 30% year over year.
Now I'll walk through our financial outlook and guidance with the start of fiscal 'twenty two.
Our focus will be on top.
We are seeing great results from our sales and marketing investments with <unk>.
<unk> customer wins and expansions this past fiscal year.
Based upon this success we plan to continue this investment in the coming year to further increase our brand awareness and penetrate and capture more market share of this mess of opportunity we see in front of us.
Additionally, we plan to increase investments in R&D to maintain our competitive advantage and build on a product led growth strategy.
We also plan to invest in internal systems and processes that will be needed to scale the business as planned.
Now onto our guidance.
The first quarter of 'twenty 'twenty, two we expect total revenue of between 29 million to $24.0 million, which would represent growth of.
10% to 12% year over year GAAP.
Net income of breakeven to a million or zero cents to <unk> <unk> per share.
And non-GAAP net income was 500000 to one 5 billion or <unk>, two five cents per share.
For fiscal 'twenty, two full year, we expect total revenue of between 88.2 million in 1.8.
<unk> 8 billion, which represent growth of 13.
The scent to 15% year over year.
Loss of three five to $9.0 million or a loss of 11 cents to <unk> 14 cents per share.
And non-GAAP net loss of breakeven to a loss of <unk>.
10 billion.
Is there a sense appreciate it too so <unk> per ship.
A few additional items to highlight we estimates based compensation expense of approximately 500 for Q1.
And $8.0 million for the entire fiscal 'twenty two.
Depreciation and amortization expense of approximately 120000 for Q500001 for fiscal 'twenty two.
Weighted average shares outstanding of approximately $40.0 million for Q1.
$34.0 billion for the.
Fiscal year 'twenty two.
So in summary, we are pleased with our financial performance. This past year. The demand is high for a best in class products.
We continue to see expansion from our installed base of customers and our expanding partner ecosystem driving more new logo opportunities also our sales momentum is growing as evidenced by the large deals really closed in Q1.
And finally, we have the balance sheet strength to support continued investment to drive top line growth in fiscal year 'twenty two and beyond.
We look forward to providing updates on our progress as we execute on our growth plans throughout the fiscal year.
Firstly looking at the Investor Relations calendar.
We'll be participating in two virtual investor conferences. Later this month next week, we'll be participating in the D. A Davidson software and Internet Virtual conference on September nine.
We will also be presenting at the Jefferies Virtual software Conference September 14, 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 signal with questions. Please press star one.
One on your Touchtone telephone.
If you are joining us today use a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.
Again that is star one if you would like to signal with questions Star one.
Our first question comes from Richard Baldry with Roth capital.
Yeah.
Thanks could you maybe talk.
About the drivers of the deferred revenue line this quarter, it spiked pretty sharply both sequentially and up 26% year over year and I'm just looking at the current deferred.
You know is there anything unusual in there I mean that would argue for growth to accelerate apparently meaningfully above even what the implied guidance says so I'm just trying to figure out if there's anything anomalous there. Thanks.
Hi, Rich Yeah, I think as I had mentioned we had a strong a number of renewals that came in at the end of the quarter. So I'd say, that's a big part of what.
What drove that so yeah, I think again, we feel good about them.
The renewal rates are no unusual insured and.
Yeah.
But nothing.
Outside of that.
When it comes one at this point.
So there wasn't any meaningful change to the average duration of contracts or anything else to drive that.
So I think I mean, we did have a couple of them.
Federal contract renewals.
Those are typically one year in duration. So that's certainly would've skewed the shorter term elements from that regards.
Okay.
Amy can you talk about you're into some cohort a little deeper on.
The hiring our tenure now.
How has that experience been bolt yeah.
<unk> Onboarding ramping.
Are there things that you've learned that you think will help you with the next cohorts that you plan to add by year end.
And just overall, how that process is going and as are our COVID-19 dampened environment.
Yeah.
So that's a good way to put it COVID-19 dampened.
Rich so yes, I mean, we obviously learning much like everyone else how to do this in a remote way.
We have found is that.
We are able to attract it's not easy to attract sales talent, but we are able to attract the mid level sales talent.
Which then we.
We can bring them onboard quite well.
So that's been our.
<unk> and we are working back quite consistently now.
The first two launch we had some hiccups some some people.
Drawing some people are those a few left and what we found was that at.
Big thing.
Outside of things that are not in our control like Covid.
Other than that the big thing, we noticed was that.
People who were more.
Who could learn faster learning easier.
Seem to be the ones that stuck around so that's one of the things we have learned and we are obviously driving that card over the next call.
Then yeah, it looks like the legacy maintenance side now under $1 million.
You know dropping several hundred thousand a quarter. It could you talk about the end of that you know is that really maybe only another two or three quarters, and then that should run to zero and be done or is that something that you think will push past fiscal 'twenty two.
Eric do you want to provide some color on that.
I can take that tushar so.
I think where we sit at the moment. So obviously very pleased that it's now down below that 5% level.
Good news is that for the.
The material customers that make up the remainder were actively engaged with most of them and.
Again, many of them all.
Have plans to move and migrate but they may be into.
Internal dependencies that they've been placed that so.
So, creating the leg, so instead of forcing them to.
To meet the dates so that we can.
Sort of dropped to zero you know we are working with this small list of customers. So.
From that perspective.
Can you choose.
Trade allowed open cloud, but for us as we look forward to.
Fiscal 'twenty two you know we don't believe that there's going to have that meaningful drag that it's had in previous years. So that's why our focus on this call is to really focus on total revenue growth.
Knowing.
Knowing that.
This is going to have less of an impact than it had been in previous years of course.
Okay and last for me would be you know the revenues beat what we had got pretty solidly, but the professional service is actually below sell it.
Recurring being above is where he would want to see it just sort of curious the pro services was down below the prior two quarters is there any way to think about how that should grow in tandem with the top line or what factors sort of make it oscillate quarter to quarter as we look to build our 'twenty two models.
Nope I think good good.
Something that we've been looking at closely I think as we talked about in the port.
W easy deployment.
We've seen.
The <unk> numbers.
As a percentage of revenue down below that mark.
Forwards.
Okay.
Expansion opportunities where customers are just buying all of the same products. There's typically less piece associated with that but as you get into new deployments, that's where the attach rate goes.
I would say that as we look forward our expectation is.
What you see.
Significant further decline in P. S I expected would stabilize at least.
Yeah.
Okay.
It certainly is becoming difficult to hear you.
And we did lose connection with that speaker. Please just remain on the line while we reestablish his line. Thank you.
Hey.
Richard we will come back to you.
One set of reconnects I'm not sure he was having some technical issues.
Sure. He will complete his talk then I apologize for that.
No. It largely just answered my question I'm done I'll take anything else hotline congrats on a on a good end of the year and a nice outlook for next year.
Thank you rich.
And our next question will come from Mark Chapell with benchmark.
Hi, Thank you for taking my taking my question.
Apache on the Salesforce.
In fiscal 'twenty, one the company grew over <unk> plan to grow sales head count by 50% I think that was what was announced at the beginning of the year.
How much of a sales capacity increase are you anticipating.
Coming fiscal year.
Yeah. My sense is that we will endeavor to two scaled by another 50%.
Certainly go capacity wise I think will go up by 50%, whether its head count wise or not that depends on how we organize the quarters on the go.
Direct courses channel kind of programs, but I think capacity wise, that's what we are targeting.
Okay, great. Thank you and then I was wondering if you could provide some additional color around the product development investments that you're planning for Europe upcoming year I mean, what what are you what capabilities are you looking to add or grow into.
What are you planning to focus on product development.
Sure.
So.
One thing I already mentioned, which was kind of the delta that I alluded to in terms of.
Our level of investment as a percentage of revenue.
Revenue and that has to do with building out the marketplace and the developer environment for our platform. So that we can get more.
Small to mid size.
Value added solution.
Providers and.
We are getting quite a few inbound inquiries around that both from direct partners are partners, who we're working with some of the clients. We are now selling to.
And they are all interested in kind of integrating into the <unk> platform and do it efficiently and do it profitably. So that's the that's the marketplace capability that we do not have today.
And we wanted to make sure that we put that in place quickly. So that's one big element.
The second area, we're more on the functional side, where we are going to be focusing as.
The whole knowledge and.
Embedding knowledge into more and more parts of the enterprise is something we are getting a lot of interest in it.
Starting out in almost every case, we start out on the customer engagement side, whether it is self service or agent facing.
But what we are seeing is a quick sort of next step with customers is.
Our interest in taking that capability and system of knowledge management and scaling it across the enterprise, sometimes internal facing HR I T. So on so forth. So that's an area, where we will also increase our product investments.
Great. Thank you that's all for me thanks.
Thank you.
And our next question will come from Jeff Van <unk> with Craig Hallum.
Great. Thanks for taking my questions a couple for me if you if you would.
As you on the on the partner side I know, it's been a big focus I didn't hear as much commentary about it this quarter I guess a couple of specific questions. You've had two I think in the most recent quarter a.
10% customers 123, and 113% any commentary you're or Directionally any changes with those two.
Customers in terms of meaningful trends, one way or another and then the second question is is kind of more specific to the to the overall partner growth and that is can you put some numbers around maybe the growth in bookings value from partners of the growth in logos from partners just give us a little finer point on your momentum there.
Okay.
Hum.
I'll try to address the second question.
First Jeff and then Eric maybe you could take the first part of Jeff's question.
So.
Okay. So in terms of a.
New logos from last fiscal meaning fiscal 'twenty one.
We we saw good new logo acquisition through partners.
And that continues even this fiscal year fiscal 'twenty two our pipeline has good number of new logo opportunities from partners as well.
So I think we're seeing a healthy.
Split if you will that that split is probably in the.
I would say, it's 50.50 kind of zone on the new logo side our partner.
Oh versus direct today.
In terms of the first question.
Eric maybe you can answer that more.
So yeah.
Be.
Clear both of those.
Customers as they're listed.
Is it solely a partner so it's a resell relationship.
And then the second one is a combination of a policy around the customer and so I think for this quarter.
Havent seen.
If anything the business has continued in the right direction. So no no.
Changes anticipated.
Okay.
The revenue from those two customers in the quarter.
And maybe just along that line than on the partner side I mean, I know you've had a lot going with Avaya you've talked from time to time about Amazon Cisco is obviously with BT and for gain I mean, you've got a lot of things going just any particular callouts in terms of where you're seeing particular strength.
Yeah.
Well I would say.
On the.
The U S from Cisco and Avaya are the top two right now on the channel side for us.
In Europe, <unk> is probably the leader.
From a partner standpoint for us.
And now we are kind of excited about boats.
Zero dollars, so far but about the SAP partnership because we.
We are seeing good mutual interest in developing go to market.
Motion with some of their field teams globally as well as the U S.
Mhm.
Fair enough one last one if I could you mentioned the two seven figure <unk> deals that you signed them posted.
Post quarter close and I think you said one was an existing government agency the other being a new logo crypto player.
Assuming there was some competition in each of those can you just give a quick glimpse into who youre seeing in deals like that.
Right so.
The expansion was what it was clearly we already were in the game. So there was no competitive.
Significant competitive play and that that deal. Although there were some very large players in the in the government agency environment, where we are our sponsors made the case.
To go with you gain proposition versus all in one kind of.
Solutions from from alternatives.
Okay.
In the case of the crypto flying which is a new logo the competitive environment was.
With.
People like Oh.
In this case this particular client.
I have a salesforce as their CRM.
System of record so they were evaluating salesforce for the knowledge management piece as well.
And they were evaluating some pure play knowledge players.
In this case, they evaluated oracle as well very seriously. So those were the ones. They told us about and what we will be doing in the case of this crypto client as we will be integrating our solution tightly to our connectors into salesforce.
Mhm Okay.
Great very nice quarter. Thank you.
Thank you.
And our next question will come from Tim Horan with Oppenheimer.
Thanks, guys could you give a little bit more color on the value added services. The partners can bring do you think kind of where does this evolve to in the next couple of years and then I just had a quick follow up on that on the financial guidance.
Okay.
So we are just beginning the journey here so.
The idea is to create.
Create a to begin with a simple marketplace, where where we can.
Certify these ops.
Put them for art.
Our clients have to be able to use with the confidence that it will work in the game.
Environmental lock in.
But connected into the E gaming platform.
And that would be step one and then step two will be looking at whether we want to create some sort of economic model around that something that people like salesforce and others do today. So we are a couple of steps behind that but we know that there is a need and especially in our market segment, which is knowledge centric.
Customer engagement I think that there is unmet need and we are seeing that from both small players trying to add value as well as customers and prospects asking for that sort of ease off plugging and playing with smaller value add providers onto our platform does that help.
Yeah that's helpful. Thanks.
And then on the guide it looks like you're looking for operating expenses to grow basically double what your revenue is going to grow at if I'm looking at it right now.
It was 30% I mean can you even ramp up spending that rapidly and are you doing this because you think you can accelerate revenue growth faster than you're showing this year or are you doing it to kind of maintain revenue growth. The next few years. Thanks.
My view and Eric you can add more here my view is that we.
We need to get to what I would call minimum efficient scale using industry parlance and Anne.
We are at a level and an operational.
Look at the operational capabilities and the foundational IP systems and sort.
Sure.
Poor people capabilities, we need to invest in that.
Somewhat in a step function way to get to that level, where we can then look at more marginal investments.
Total tons on top of that so that's what you are seeing in fiscal 'twenty two that may not reflect in.
Fiscal 'twenty to topline growth.
I was in a lot of surprise on top of whatever we are saying.
But it certainly will and should accelerate our topline growth and.
Tail end of 'twenty two in 'twenty.
'twenty three.
And I think just to add to that.
One other point.
I think as many of the investments that we began in.
'twenty one more backend loaded so if you just look at the sequential revenue.
So it's not as steep as it looks when you're just looking at the year over year comparisons.
That's very helpful.
Okay.
Okay.
And that does conclude the question and answer session I will now turn the conference back over to management.
Great well, thanks, everybody for listening in.
I'm very excited about.
The upcoming year, so look forward to providing you updates as is.
We put out our Q1 results. Thank you.
Thank you.
It does conclude today's conference we do thank you for your participation.
Excellent.