Q2 2022 eGain Corp Earnings Call
Good day I won't come today against that's called 2022 second quarter financial results Conference call. Today's conference is being recorded at this time I would like to turn the conference over to Mr. Jim bias. Okay. At investors Relations. Please go ahead Sir.
Thank you operator, and good afternoon, everyone welcome to E gains second quarter fiscal 2022 financial results conference call on.
On the call today are your games, Chief Executive Officer, Ashley 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.
Back to 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 your gains results.
Our detailed in the Companys reports filed with the Securities and Exchange Commission.
<unk> is making these statements as of today February three 2022 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 reconciliation of the historical non-GAAP financial measures to the most directly comparable GAAP financial measures.
Our earnings press release can be found by clicking the press release link on the Investor Relations page of your games website at Www Dot com.
Along with the earnings release, we have also posted an updated investor presentation to the Investor Relations page of E gaming site in.
And lastly, a phone replay of this conference call will be available for one week.
With that said I'd like to turn the call over to gains CEO actually really.
Thank you Jim.
And <unk>.
Good afternoon, everyone.
We have had a good quarter.
Accelerating our topline growth in Florida.
Total revenue in the second quarter.
$23 1 million.
20% year over year and up 8% sequentially.
Quarterly SaaS revenue.
Gross 26% year over year.
And 7% sequentially.
So.
It's a it's an execution cycle, which we are deep into.
And we are increasing our clock speed on it.
Let me share some notable new logos in the quarter.
A top U S insurance company there.
They selected our knowledge hubs.
For customer service.
Member engagement.
They plan to deploy it across tens of thousands of contact center reps and field agents.
Interestingly This company has chosen to go with.
Another provider three years ago.
What time, we would be unfortunate recipe in Sop the Doj.
As the losing quite a list.
So this win is W suite for us.
The second one.
One I mentioned is a major U S airline.
We have selected our platform.
As part of their contact center modernization program.
And interestingly, we wanted this client in partnership with Avaya.
Also some interesting expansions in the quarter a couple of them.
Large U S financial services client.
They are expanding their use of our conversation hub.
To deliver billions of <unk>.
Proactive.
Personalized member notifications across all touch points.
Our unique.
Elizabeth architecture.
Off the conversation hub is very attractive to clients like this one because they are looking to compose new experiences for customers.
By bringing together.
Best in class capabilities within a API ecosystem.
And this is something we are seeing more and more rock, which is quite interesting.
Second expansion one that I want to mention is the is a large.
U S based utility company.
They are significantly expanding the use of your game.
As part of a large contact center modernization program.
Noteworthy here is that we are expanding this customer footprint in partnership with Cisco.
So.
From the ecosystem front, which is something we've been working on for awhile.
We are making good progress.
And we our goal is to integrate with most of the leading contact center and CRM platforms using our open Apis.
So I want to mentioned three new ones that are noteworthy here.
The first one is is five nine.
We have certified our knowledge.
Capability with just now.
Connected and published on the five nine CX marketplace.
The next one I would talk about is Genesis.
With Genesis our knowledge hub connector is now certified and available on the Genesis a foundry.
And the third one I want to bring out as a service now.
Earlier today, we announced our certified connector with service now.
Built on now which is their new platform.
What we see as his knowledge management are being a.
Horizontal need across the customer engagement.
And our goal is to make it super easy for partners and customers.
Use our knowledge.
Our platform alongside all their current CRM on contact center investments.
In the enterprise market, which is where we are playing.
After any given time.
Most companies have.
More than one CRM and more than one contact center platform operational.
So our approach is simple.
We are building these.
Certified connectors with all the leading contact center and CRM platforms. This way.
We make it really quick.
For our customers to deploy our solution across all those.
I am in contact center platforms, even as they execute their migration and transformation plans for the underlying CRM and contact center investments.
On the customer success shrunk.
Have you already.
I'm pleased that our client BT consumer won the 2021 km reality award in November last year. This is a big deal for them.
And a huge deal for us.
Interestingly they were the sole winners of this award in 2021.
If you have a moment go check out the articles at amounts that award on the Camborne website. In fact, it's hyper linked to our inside our press release.
For the quarterly.
I think you will be impressed all of you with the detail and the business value that they share.
That they generate.
With that you get knowledge hub at scale across <unk>.
They say.
Nearly 10000 little over 10000 contact center agents right handling.
A million inquiries every week, which is over 25 million inquiries every year.
It's really quite amazing the value they're getting.
In fact, the business value. They have achieved that is shared and the operational streamlining that they have.
Now been able to accomplish it's exactly what our prospects are asking for.
What everyone's looking for now is a.
Modern knowledge hub that is conversational that is automated.
Intelligent and.
Hum possible.
So to us that's a that's a great.
Sorry.
And on the product shrunk.
Some exciting news for us, which I know you may have seen through press releases.
We received our fed ramp authorization.
Just the best holiday gift, we could've imagined came through in late December .
And congratulations to our product team.
It's been a long road.
Been months since the start of this process to achieve this authorization for our product suite.
In fact, I want to I want to particularly call out and thank God, the IRS leadership team.
Internal revenue service leadership team for sponsoring us in this process.
We continue to partner with them as you know to help modernize the <unk> experience with a solution.
Currently we are one of the few knowledge powered platforms.
In the fed ramp authorization.
Proved marketplace.
As best as we know none of our.
Knowledge competitors that we track closely are in that mix.
And we are now seeing in the last months, we are seeing growing inbound interest from partners.
Who are focused on the federal and state markets, particularly fragile inviting us into opportunities, where they need fed ramp authorized capability for knowledge management as well as digital engagement.
And while the sales cycles are understandably long in the government sector.
These opportunities are quite attractive and our solution is a good fit.
So this is exciting.
In conclusion with our continued product leadership.
Our expanding ecosystem capability the connectors that we're building.
Our fed ramp authorization.
And our scaled up sales and marketing capability.
We are looking forward to continuing this momentum in the second half of the year.
With that I'll ask Eric Smit, our Chief financial officer to add more color around our financial operations Eric.
Thanks, Joshua and thanks to everybody for joining us today.
As you noted we delivered record total revenue in the quarter of $23 1 million up 20% year over year, well ahead of our guidance and consensus estimates SaaS revenue was $20 5 million up 26% year over year up 7% sequentially and accounted for 89% of tow.
Revenue.
Looking at non-GAAP gross profits and gross margins gross profit for the quarter was $18 million or a gross margin of 78% up 200 basis points from 76% a year ago.
Now turning to operations.
non-GAAP operating costs for the quarter came in at $14 8 million compared to $12 3 million in the year ago quarter. The increase was primarily driven by investments in sales and marketing, which increased 22% year over year.
Looking at our bottom line non-GAAP operating income in the quarter was $3 2 million or an operating margin of 14% up from an operating margin of 12% in the year ago quarter non-GAAP net income for the quarter was 3 million or 10 cents per share. This compares to non-GAAP net Inc.
<unk> 2 million or <unk> <unk> per share on a diluted basis in the year ago quarter.
Turning to our balance sheet and cash flows.
Another sheet remained strong with cash flow from operations of $4 7 million for the first six months of the fiscal year.
11% operating cash flow margin.
We ended the second quarter with total cash and cash equivalents of 68.5 million up 26% from a year ago.
Now turning to our customer metrics.
You mentioned, a strong bookings in the quarter reflected new customer wins, as well as expansions and renewals with existing customers.
This is highlighted by the improvements in several of our customer metrics for the quarter.
Our LTM dollar based net retention rate increased to 112% up from 103% a year ago.
Our LTM says expansion rates increased to 119% from 115% a year ago.
<unk> says a all excluding OEM customers increased 25% year over year.
Our short term OPO increased 10% year over year to 58.7.
7 million.
And our long term opioid increased 32% year over year to 89.8 million.
Now on to our financial outlook and guidance as I noted on our last call.
Primary focus is on topline growth we have seen positive early results from our increased investments based upon this success. We plan to continue investing in sales and marketing to further increase our brand awareness.
And penetrates and capture greater share of the massive market opportunity, we see in front of us.
Before sharing our updated guidance.
We'd like to.
Highlights a few changes based on our strong results in Q2 and positive outlook for the fiscal year. We are raising our annual revenue guidance. We are also updating our bottom line guidance to reflect our year to date performance, while remaining committed to make the necessary investments to draw.
<unk> sustainable topline growth.
Now onto the guidance for.
For the third quarter of fiscal 2022 we expect total revenue of between $22 9 million to $23 5 million, which would represent growth of 16% to 19% year over year.
Notes this guidance takes into account that this current quarter has fewer days than in Q2, which translates into approximately 400000 less revenue.
Also note that with the start of the new calendar year bookings tend to be more backend loaded this quarter and that's not expected to materially contribute to revenue in the quarter.
We expect third quarter non-GAAP net loss of breakeven to a million or zero to a loss of <unk> <unk> per share.
And GAAP net loss of 3 million to $4 million.
Or a loss of 10 cents to <unk> 13 per share.
We estimate share based compensation expense will be approximately 3 million and depreciation and amortization expense will be approximately 120000 for the quarter.
For the fiscal 2022 full year ending June 30th 'twenty 'twenty. Two we expect total revenue of between $19 5 million to $92 million, which would represent growth of 16% to 18% year over year, an increase from our previous annual revenue guidance.
non-GAAP net income of 1.5 million to $3 million or five to 10 cents per share.
GAAP net loss of $9 billion to $10 5 million or a loss of 29 since 233 cents per share, where we estimate share based compensation expense of approximately $12 million and depreciation and amortization expense of approximately 500000 for the year.
So in summary, we saw continued positive momentum in Q2 with a second consecutive quarter of record total revenue, reflecting double digit growth.
We continue on track.
Without sales and marketing investments to expand our market coverage and partner ecosystem.
Our product leadership and knowledge management and digital customer engagement continues to build momentum generating increased interest and activity in our business pipeline.
And with our recent fed ramp authorization, we are already seeing increased demand for our solutions from potential federal and large state government agency clients.
So based on this recent performance and the significant market opportunity. We are also updating our target model included in our Q2 investor presentation that can be accessed from the IR section of our website.
Our interim targets, which we define as in one to two years, we are raising our annual revenue growth rate from 20% to 20% from 15%.
For our long term targets, which we defined as in three to five years, we are raising our annual revenue growth rate to 30% 25%.
Lastly, on the Investor Relations calendar, you gain will be presenting and meeting with investors at the annual Roth Conference taking place March 14th and 15th in Dana Point, California will provide more details as we get closer to that date and hope to see some of you there in person.
This concludes our prepared remarks, operator, we will now open the call for questions.
Thank you, ladies and gentlemen, if you would like to ask a question. Please state by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is turned off to like a signal to reach our equipment well pause for just a moment to allow I didnt want an opportunity to take no follow up questions.
Yes.
We will now take our first question.
From Mr. Richard Baldry from Roth Capital. Your line is open. Please go ahead.
Thanks can you maybe talk about the sales productivity levels that you're seeing with your longer term ones as well as sort of the newer cohorts and then the progress that's being made and start building new sales cohort teams to ramps in the second half or for <unk>.
<unk> 23.
Sure sure rich, yes, so yeah, our sales productivity.
On the core team, which has been around for a year plus.
It is holding steady which is good.
New groups that the first cohort that we brought in.
Earlier this fiscal.
Fiscal year, that's kind of ready too.
The pipeline going now and now the second cohort of this fiscal year.
Which is the hiring we are doing now.
We have started that Oh archiving as well so we have this cadence going now which will essentially do.
Two cohorts every fiscal year for now.
Six months apart.
The training and the Onboarding Park is working quite well.
Okay.
And the professional services cost line went up fairly meaningfully.
In the quarter.
And more so than the revenue side do you feel like the revenues there are probably going to see an acceleration are you hiring to support that store or are there any one time that things we should think about in there that maybe skew that number.
Eric do you want to take that.
Sure.
So definitely a good point rich we are increasing our investments so as the business scales. There's certainly the expectation that we would see.
C.
P. S line increase as well I think for the end of the year there was some.
Yeah.
Irrigation is driven by you.
Into the.
The holiday periods and the like that might have contributed that number being a little higher but.
Overall.
Think the points that you made around increased investments to drive.
Sort of increasing this this.
This revenue growth is the one that we are focusing on.
Okay, and then on the legacy maintenance side, it came down a little bit sequentially, but at a fairly slow pace versus some of you know what we'd seen in some prior quarters.
Do you want to talk about how long it takes to sort of phase out that it's a stub revenue now for you. It's fairly small but do you think that's a year, we could see it gone or do you feel like because those are customers that are still important and hung on this long that that could maybe be a multiyear still to see that.
Get transitioned it into the cloud and disappear.
[noise] different elections.
Yeah.
I think we're certainly pushing to get it done within the year.
As we've mentioned in the past.
What do we expect to see is somewhat of a step function because.
The remaining balances fairly concentrated so you win one or two of these larger accounts move.
They've seen before they might be flattening and then youll see a philly.
Meaningful declines so I'd say, that's sort of the pattern that we would expect to continue but actually if you have any further color to that so that is exactly right I would I would venture.
Venture to guess that.
In the next 12 months, we'll probably whittle it down by 80% or so but and at that point, we just stopped we ignore it properly.
And lastly, if you can.
Can you talk a bit about seasonality because implied in the guidance is sort of a flattish third quarter, which is kind of at odds with what the win rates that are accelerating inside our you know.
The data that we're getting the number of heads that are ramping so do you feel like there is there any again any one time things we need to be thinking about as we look at the sequential sort of growth patterns or I think just appropriate conservatism.
Well I think the one item just to reiterate that I've mentioned in the remarks rich is that.
In.
Q2 numbers, we really benefited from closing business early in the quarter. So we certainly.
Ended up.
Recognizing revenue from deals closed in the quarter definitely ahead of where we had expected I think what we've put into the guidance and expectations for Q3.
Any of the.
Enterprise customers that we have.
Turning to have annual budget cycles that are just closing now so the expectation that bookings that happened.
In Q3 really on.
At this stage, we are modeling the significant impact from those bookings, whereas we saw a lot of the upside already in.
In the Q2 numbers, so we're not seeing a significant.
Planned sequential increase in the revenue from Q2 bookings because we recognize a fair amount of that already in Q2.
Great Congrats on the accelerated momentum.
Thank you.
We will now take the next question from Tim Horan from Oppenheimer. Your line is open. Please go ahead.
Thanks, guys can you give a little bit more color on the dollar based net retention.
Year over year improvement.
Is that.
Is that from less customer churn I don't think you had much customer churn or is it mostly just from customer spending more money and I guess you know.
Where is the potential for that to go to overtime.
Thanks, Tim.
So I think both points, so or correct I think we've talked about our focus on.
Increased investments in our customer success team and ultimately the retention of an expansion within existing customers. So I think the team is doing a good job.
In that area. The good news at least from my perspective is that we still.
Believe that we are quite underpenetrated so the.
The ability for us to continue to grow that number over time I think because.
It is a good.
Good likelihood and.
Certainly.
As you May recall, we had had some.
Fairly significant churn reductions just over a year ago, yeah, which obviously it contributed to the reduced number from a comparable standpoint and so since then we are pleased to report that we haven't seen sort of that level of significant churn.
Through the business since then.
And can it continue to improve like we seen him. He can we get up to a 120% this year or next or two.
Kind of drive that 30% growth you're talking about.
Yes, we certainly see that as a line of sight to think the again in investments that we're making and expansion business. There's certainly.
An element that we would look to.
Hopefully see this continued improvement of this this metric.
Great and then just lastly, you know what what do you think is the bottleneck to getting better.
Children tour activity for customers and customer care customer better just overall customer experiences.
Yeah, you know when when will those bottlenecks start to get reduced so the overall industry can just.
Basically a better quality of services and better revenue growth.
[laughter], you're asking a very big question here [laughter]. Our view is is that.
Limited, but I think a reasonable one which is not.
Not.
Which is very much along the lines of what Gartner is saying about customer service.
In 2020 to predict they have said explicitly that the only technology in fact, they're recommending.
They're recommending other processing people stuff outside of that are the only technology.
Apologies are recommending his knowledge management it sounds.
Not not really it.
It doesn't sound very bizarre because would you would you would you see here is most companies in the enterprise have.
<unk> a ton of money on digital connectivity for customer service, Okay and also the cloud move.
And what they realize is that once you do that all you do is instead of an analog or legacy connection you have a digital connection so the conversation the content that flows through the pipes are still broken and so knowledge management is sort of the next big thing for customer service. Because then you can create that BARDA and knowledge experience with.
As the automated which has the intelligence and the the conversational capability would you need to drive better customer experience.
And what's and what do you think is the bottleneck to adopting this are really seeing that better customer experience like what does the industry need to do at this point.
I mean, I'm, not being flippant, but essentially invest in knowledge management, which which again I'll court Gardner paraphrase it I'm not sure if I'm quoting them, but the and this is from the airport.
Is that the leaders in digital transformation.
Are disproportionately investing higher in knowledge management right now.
So to the extent to draw a cause and effect I don't know if you can but.
That's kind of the indication.
Makes sense. Thank you.
Ladies and gentlemen, once again, please press star one to ask a question. We will now take the next question from Jeff Landry from Craig Hallum Capital Group. Your line is open. Please go ahead.
Hey, guys. This is Aaron on for Jeff I. Appreciate you taking my questions first question I know in the past you've given some bounds around a new logo capture just curious if you have those metrics on what that looked like in the quarter and then kind of more broadly and how is that broken down as far as direct versus partner, maybe some color there.
Yeah. So thanks for the question, but we really not sharing that as systematic number right now because as you have seen now we the enterprise focus is really where we're seeing the biggest returns right now.
So the quality off logos that we are closing it.
Is where the big advantages for us.
That's not to say that we are not closing new logos, but it's not like we are targeting at this time at this time to book closed hundreds of logos every corporate at this time.
Now the focus is let's get quality logos, which would result in again the E. R. Our average that we were able to drive for customer backed numbers moving up nicely I know Eric didn't talk about it but it's in our investment presentation. So that's kind of where we are focusing and it's working well for us I have to say.
Perfect makes sense and then the second part of that as far as direct versus partner.
Oh, that's a good point I think right now, it's probably right around 50 50 on the new logos are partner assisted and direct and I think both of them continue to do well. So we are kind of driving both of them.
Got you that's helpful.
And then as far as what you're seeing you know obviously knowledge management is there and everything is moving to even alluded to that.
I'm just curious if you're how you've seen use cases change there amongst your customers and then you know what you you think your revenue mix might look like you know as we move out into the future and how much would that skewed towards the knowledge management versus the traditional customer care.
Okay. Good.
Good question I think the trend is definitely upward for knowledge, but it's also pretty good for digital so it's not like digital is is how to fashion is just that what we are seeing is the big good opportunities bigger opportunities are leading more toward knowledge first and that's kind of.
The the trend right now.
Gotcha, and then last one for me on the hiring front you talked about see of having those those kind of two cohorts per year and I think previously you talked about this year, adding 50% capacity or is that still true and is that kind of a trend that you are thinking about going forward.
Definitely yeah.
We have we're going for more than that but I think that 50% is definitely a number a conservative number we will be going to go after it in a bigger way.
Gotcha. That's helpful. That's it for me thanks, guys.
Thank you.
Ladies and gentlemen, once again, please press star one to ask a question.
Ladies and gentlemen, once again, please press star one if you have any questions.
It appears there are no further question at this time I would like to turn the conference back to you again management for any additional or closing remarks.
Great. Thanks, operator, and thanks everybody.
Taking the time to listen to the update today, we look forward to updating you further with though Q3 results and getting out on the road.
Decided to hopefully get starting some meetings in person in the coming quarter. Thank you.
This concludes today's call. Thank you for your participation you may now disconnect.
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