Q3 2022 eGain Corp Earnings Call
Okay.
[music].
Good day and welcome to the ethane Cisco 2022 third quarter financial results Conference call Today's conference is being recorded.
At this time I'd like to turn the conference over to Jim Byers M. K. Our group. Please go ahead.
Thank you operator, and good afternoon, everyone welcome to eat games third quarter of fiscal 2022 financial results Conference call.
On the call today are gains Chief Executive Officer, actually 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. These forward looking statements are protected by safe Harbor provisions contained in the private Securities Litigation Reform Act of 1095. These.
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 the results are detailed in the Companys reports filed with the Securities and Exchange Commission.
<unk> is making these statements as of today may five 2022 and assumes no obligation to publicly update or revise any 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.
<unk> 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 in the Investor Relations page of your games website.
<unk> Dot com.
Along with the earnings release, we have also posted an updated investor presentation.
On the Investor Relations page of the games side.
And lastly, a replay of this conference call will be available for one week.
Now with that said I'd like to turn the call over to gains CEO <unk> Roy.
Alright, Thank you Tim.
Hello, everyone.
We executed well to.
To deliver another quarter of record revenue in the third quarter our total.
Revenue was $23 9 million or <unk>.
1% year over year and up 4% sequentially from a record revenue in Q2.
Revenue was ahead of our guidance and street consensus.
Our quarterly software revenue grew 23% year over year.
Primarily we were cash flow positive ending the quarter with more than $17 million in cash.
So that goes like let me share some.
Notable new SaaS.
For the quarter.
We have some good one Lee David Crypto exchange.
Elected our knowledge hub.
Deliver customer service across the globe in compliance with.
Specific regulations.
Oh, another one a fortune 500 investment management firm selected us to replace the legacy Marlin solution.
Another one global vehicle leasing business, it's a multibillion dollar business with electric.
Knowledge again to improve.
<unk> experience.
Another one I just wanted to state that Youll see in the U S.
It's possible for workforce development selected to deliver better service.
And then one more I wanted to bring out which is not a new logo for us but moved from our on premise.
<unk> to the latest and greatest gain cloud, but this is a.
Top five U S insurance company.
We have been selling them in the on premise world as you know we have a few customers let them back mode and this one now.
Decided to move to the cloud so that was good for us.
Overall demand.
There is still good and the enterprise.
Particularly in sectors like financial services insurance.
Healthcare and government.
On the demand side, our sales team our plans continues to grow.
Now hired two cohorts this fiscal year one.
The first quarter and one in Q3.
The first cohort is now shaping up.
We believe we will start winning new logos.
In the coming fiscal year.
With the second thing, which is interesting on the demand side of it is that our with our fed ramp certification. We are now seeing.
Increasing interest in the government sector, both federal and state are both direct as well as true partners.
I know that that was a big investment for us.
And we are one of the very few providers with a combination of knowledge on digital capabilities.
Spreadtrum certified so this is an area that.
We believe will work out well for us.
Another area, which is which is going as planned as the whole expanded contact center ecosystem partnerships like with all the connectors that we have as you all may recall, when we talked about with <unk>.
Sector, we added last quarter or five nine so we are now connected.
Our knowledge solution, we are connected pretty much to all the significant enterprise contact center providers and with that expansion. We are now seeing more activity in that market.
The way it is is that more and more of these contact centers rfps.
Seem to require a mark just digital channel alongside voids.
Also agent facing knowledge and so that.
Interesting one for us in terms of demand.
Growth.
And then the final one I want to bring out which is relatively new but it's kind of interesting and exciting.
Building, a couple of new partnerships with global system integrators.
These are focused around common enterprise clients and some new opportunities.
It is early days, but the potential is high.
Good. So we're excited we are investing.
Something that is another iron in the fire for us as we drive our growth.
On the product front.
April .
We released the first version of our <unk> marketplace.
For our partners to certify and publish ops on big impact.
At the same time, we refresh the game developer portal.
Enhanced API SDK xenograft models.
This is a significant milestone for us because.
It provides us the foundation to launch.
New product led growth initiatives in the medium term.
And in the short term benefit from the ecosystem awareness effects.
And I'm pleased to say that the partner interest is strong in fact, we have several new apps that are already in the development pipeline.
Also in April we.
We launched the <unk> knowledge Academy.
Part of the game University, our online learning center for customers.
What's new and different about the knowledge Academy is that.
Using the usual self paced learning content and technique.
Focuses on teaching knowledge management practitioners has the solution how could implement and operate.
On the gain knowledge platform. This is not about features and functionality, it's about how to make it easy.
Our practitioners are also partnered with.
The solution implement and operate.
We know this academy is the first of its kind in the mortgage space.
Now this two step back we've made these investments.
Response to what we see as a gap in the market of knowledge.
We have shared this before with all of your knowledge management as a technology is recommended by Gartner research is the number one investment area for technology and customer service in 2022.
At the same time, we feel that the corresponding rate of knowledge technology adoption is still limited by the lack of what we believe is.
Lack of whole product capability.
Knowledge management.
Beyond the functionality.
So now with our triad of.
Knowledge Academy, the new partner marketplace, and the enhanced developer portal.
We believe that we are now going to go beyond just functionality, which we do we have a strong advantage in but to go to the next level of offering the all product capability to help clients easily select implemented adopt knowledge platforms of course, focusing on the <unk> platform.
This is a big shift for us a closed ecosystem enablement.
Catch up.
In conclusion, we are pleased with our overall execution over the last couple of quarters.
Okay.
Despite the macro headwinds, which we are all very familiar with.
As far as we can see demand for.
Technology for effectively.
Yes top pools for customer service and contact center agents.
<unk> seems to be strong.
And so our knowledge power portfolio benefit from that.
Moving forward.
We are going to continue to invest in brand awareness and sales expansion as we have said before.
On the Canadian side, the platform build out, which we just talked about around the marketplace and the academy and the developer portal, which will lead to ecosystem expansion. We believe that this is going to help us accelerate our topline growth.
With that I'll ask Eric Smit, our chief financial officer to add more color around our financial operations.
The revenue to decline below 3% of total revenue in queue for.
Looking at non-GAAP gross profits and gross margins gross profit for the quarter was $18 $2 million.
21% year over year for gross margin of 76%.
The slide sequential decline reflects.
Mix in Q3, including a healthy sequential increase in professional services.
As we move to more knowledge in AI business, we are seeing more consults to <unk> work.
And our increased investment in ramping up artists organization contributed to the sequential margin decline.
Yes, we're still only 9% of total Q3 revenue and we remain comfortable with the medium and long term target range is that we've set.
Now turning to operations non-GAAP operating costs for the quarter came in at $15.7 million compared to $13 million in the year ago quarter.
Increase increase was primarily driven by investments in sales and marketing, which increased 20% year over year.
Looking at our bottom line non-GAAP operating income in the quarter was $2.5 million or an operating margin of 11% unchanged from the year ago quarter.
non-GAAP net income for the quarter was $2.4 million or eight cents per share on a basic basis and seven per share in a diluted basis.
This compares to non-GAAP income of $1.6 million or five cents per share in the year ago quarter.
Turning to our balance sheet and cash flows during the quarter, we generated cash flow from operations of $1.2 million.
And for the nine months for the fiscal year cash flow from operations.
Is five $8 million or 9% operating cash flow margin.
A balance sheet remained strong and we ended the third quarter with total cash and cash equivalents of $75 million up 32% from a year ago.
Now turning to our customer metrics.
Strong bookings in the quarter reflected the healthy mix of new and customer wins and expansion with an existing customers.
This is highlighted by the improvement and several of our customer metrics for the quarter.
Ltm's dollar based assess net retention rates increased to 109% from one O five.
A year ago.
Assess all excluding OEM business increased 24% year over year.
The number of $1 million, our customers increased 31% year over year.
And our total of Leo increased 35% year over year to $84.2 million.
I want to our quarterly guidance.
But for sharing our updated guidance I would like to highlight a few items.
If the current strength of the U S dollars to the pound and Euro continues this will impact our expectations for Q4.
Therefore for comparable purposes. We are also providing revenue estimates on a constant currency basis to provide better visibility into the underlying business trends.
As I mentioned earlier, there was a 200000 increase in our legacy revenue in Q3 that we do not expect to repeat in queue for and as I stated, we expect legacy revenue in Q4, two dropped below 3% of total revenue.
We are also updating our bottom line guidance to reflect the continued investments in sales and marketing to drive growth.
Now onto the guidance for Q4, we expect total revenue of between 23.1% to $23 $5 million representing growth of 14% to 16% year over year.
Adjusted for constant currency, we expect Q4 total revenue of between 2000 $306 million to $24 million representing growth of 17% to 19%.
Looking at total revenue for FY 2002.
If you add the midpoint of our currency adjusted queue for revenues.
He was a total revenue through Q3, you'll get $292 $2 million, which is ahead of the high end of our previous guidance for the year.
Turning to the bottom line for Q4, we expect GAAP net loss of $3 $1 million to three $7 million.
And lots of 10 to 12 cents per share.
Which includes stock based compensation expense of approximately $3 million and depreciation and amortization of approximately 120000.
non-GAAP net loss.
We expect to be breakeven too and loss of 700000 or zero cents to a negative two cents per share.
The weighted average shares outstanding are expected to be approximately $31.7 million for the fourth quarter of fiscal 2002.
So in summary, we leave.
We are executing well and saw continued positive momentum in Q3 with the third consecutive quarter of record total revenue and double digit growth.
In closing.
One updates on the Investor relations calendar will be participating in three investor conferences in June .
Be meeting with investors virtually at the annual Craig Hallum institutional investor confidence on June one and the following day will be presenting a meeting with investors in person at the Jeffrey software conference taking place in San Francisco in June two.
We will also be participating in the loop capital markets Investor confidence in June will provide more details as we get closer to these dates and hope to see some of you at these conferences.
This concludes our prepared remarks, operator will now open the call for questions.
Thank you.
Ladies and gentlemen, if you wish to ask a question at this time. Please check now hi Passion Star one on your telephone Keith.
Please ensure I prefer mute function on your telephone you switched off to allow you to take now tell me talk Clinton.
Again to ask a question.
Cigna bypassing star one.
We will go to our first question from hatred.
Hum Roth capital. Please go ahead.
Could you maybe carolyn to the sales cohort.
Experience you've had so far.
Where are you think your first hiring cohort as in terms of building pipelines maybe.
Early conversions and then talk about how you feel that that hiring cohort Patrick might Ah repeat itself or not repeat itself looking out to fiscal twenty-three. Thanks.
Sure.
So as I mentioned rich and the two cohorts Greg one in Q1, one in Q3.
Q1, one novel upload them have already got some withdrawing.
Small lings, but they've got somebody going so we we know that the.
Primary source of wrapping process on the Onboarding pipeline building process has worked.
With.
And as I mentioned in the prepared remarks.
I feel like the fuel without Q1 cohort, which will be 12 months and roughly by the end of Q1 off next fiscal that we shouldn't be seeing production from them in fiscal 2003. So that's good.
And then with the Q3 cohort faster loading.
Manual billing for any average of two.
Three months.
So I think we now have the process down now to question off.
Getting the right kind of people, which we are also defined in queue and the second part we ran photos.
Then the first one.
Which I think will work well for us so yeah I feel good about what we are doing in terms of operational refinement measurement.
Optimizing that.
And then if I look at the professional services side, the the cost of been sort of leading up ahead of the revenues, which have now started to grow pretty quick. So you know how do we chili view that as a leading indicator of sort of demand that you're seeing out there and then maybe can you talk about how you're tying that increase professional service.
Sort of resource base to winning new customers and the types of abilities, you bring to those new prospects with that for a greater resource in house. Thanks.
Right so.
Make three points for that.
Merced.
The significant step up cost the fee.
The services team.
Minimum efficient scale thing that we have to get two which was important for us. So we could then.
Capably from their answer some buildings.
Some infrastructure around teams and organizations overhead et cetera, So that is one element.
The other two elements. The second one is we are seeing more and more especially as Eric mentioned with knowledge and AI project.
That that investment Bolton the implementation service as well as in the managed service.
It it goes a long way in driving adoption to enact so in some cases, we are investing ahead of the curve.
Of the increased adoption so not part is definitely showing a little better than our cost structure, the currencies, which I think is equally good for us in a way is that.
The service was partner, who we are starting to enable there was a little bit of overhead for our current services team to help them get on board and add them.
Them going in terms of certain projects that we are working with 10 months. So that early enablement is also an investment that we we are happy to Max.
Thanks, and they need the the last one I guess from a very camera perspective.
How many people are looking at these solutions particular area he sort of knowledge tied to bought as.
Adding features they couldn't have done before versus you know, enabling them to lower costs by deflecting higher costs strokes live person alive human being sort of the operator interactions, but the reason I'm asking is if we went ahead and tighter economic macro backdrop, how how much do you think you'd be able to push it through that selling.
A lower cost replacement solution to higher costs.
Human intensive solutions. Thanks.
Yeah that's.
Good observation and one that we think about but.
I don't have a very good answer for it except to say that what we are seeing right now is the pressure on agent investing an agent.
Experience is fairly high not just because there is a cost argument in terms of lower cost of service, but also there is a is that available.
<unk> ability off of.
All.
Appropriate workforce in the agent population, so that attrition is creating a lot of havoc and so people are investing in tools, which which are reducing the need to go train people up again and again.
Take a lot of time doing that so I think that's one element that.
Is relevant in this conversation as well alongside the.
Service versus a substitute service languages, which is a reasonable argument.
And as you know our solution have both self service.
Assistant service component.
But the dollar yen.
Generally speaking the dollar realization on the self service side.
Typically not at the same level as long.
Users and a contact centers.
<unk>, that's my General assessment.
Businesses.
Alright, congrats on a great quarter.
Thank you.
Thank you go to our next question now from Jeff <unk> from crank. Please.
Please go ahead.
[noise] great. Thanks number for me I I think maybe you guys, maybe maybe touch on the pipeline and the breadth and depth of the pipeline I mean, you've added a lot of resources and and particularly gotta be driving a lotta Legion at the front end of that so I don't really give a little color on what's changing in the pipeline then specifically if you could quantify the magnitude.
The growth in the pipeline maybe year over year.
Yeah. So I'll I'll tell you one metric that we track pretty closely which is kind of in the middle of the pipeline not just of the content.
Over the last three months.
We will just doing this a couple of days ago. So I remember the number of other fees that we have responded to.
Is about double of what we responded through for the same three months last year, but.
That's not frontal the pipeline caught the end of the pipeline, but that gives you a feel for the the level of <unk>.
Increase that we are seeing in our pipeline.
Yeah, and what do you make of that you know in terms of Ah doubling D is that it.
How much of that is just your better coverage getting yourself involved in things more often versus an inflection in the market to knowledge management understanding you gotta support agents and all the other digital channels.
There is a while so for example, we have seen a space of government.
Yeah.
Unaffected. So that's one I will give it to the fact that we have.
That can be et cetera.
Hum.
<unk> for that.
Other than that I think the fact that we are in more places now through our partners are direct marketing I would say, it's probably the bulk of that increase was mindset.
Uh-huh.
That's helpful. It is obviously you're fiscal year, we're looking at the end of the year here. So you know be looking forward to formal guidance for FY twenty-three end of June but in advance of that I mean, it looks like you're lining up around 17% year over year growth I mean, it can you give us some guard rails for twenty-three do you think we see similar growth accelerated.
Growth and and even maybe some directional commentary on margins just even even some preliminary thoughts to help us frame or Ford models.
Joe So I think that.
As we've.
Updates a deck and we're looking at so.
With a medium term models rights moving that that gross right up into the 20% low 20% range.
What's that ultimate goal of getting closer to 30% in the in the <unk>.
T as we've seen though.
Change that would sort of horseback from continuing to execute that plan, so that sort of way will directly where it will be <unk>.
Continuing to work on but obviously you will have more details.
When you finish up the year.
Mhm.
Okay, and then one last if I could there were a number of things you know obviously you didn't you didn't mention of ideas disco Amazon connect you've got a number of partners. You also launched a boatload of connectors.
Genesis 590 et cetera.
And you also reference still a little bit of a teaser on some global S eyes.
That you are trying to ramp.
Sort through that 80 21 in their matters like what is what's really materially different than what you would maybe even seeing previously that can move the needle.
So I think the cloud will contact centre connector that we have slightly historic the score viable as more of the Orange model, whereas in the last nine months all the connectors capability at all embedded in the cloud model focused more on the knowledge side right, whereas the earlier one does you know.
We were doing all the solution sweet so that knowledge specific one where we are seeing more replicability and more.
More activity.
Mhm.
One comment the GSI, one is not really leading to a big pipeline chain drive the way that our commodity conversations, but I brought it up only because I'm hopeful that as we start making progress on back we'll be able to report back.
In the coming quarters.
Yeah, Okay, Yeah real nice progress here guys. Thanks for the updates and for taking the questions.
Thank you.
Thank you I shall we have no further questions at this time I would now like to turn back to the management.
Max.
Okay, well thanks, everybody for.
Listening today look forward to giving you the update resignation.
Fiscal year and thank you.
Thank you.
<unk> today's call. Thank you for your participation you may 9th disconnect.
Mmm.