Q1 2023 eGain Corp Earnings Call
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Yeah.
Good afternoon, and welcome to the <unk> fiscal 2023 first quarter financial results Conference call.
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Please note. This event is being recorded I'd like to turn the conference over to Jim Byers MTR Investor Relations. Please go ahead.
Thank you operator, and good afternoon, everyone welcome to Ea's fiscal 2023 first quarter financial results Conference call.
On the call today are you gained chief Executive Officer, <unk>, Roy and Chief Financial Officer, Eric Smit.
Before we begin I would like to remind everyone that during this conference call management will make certain forward looking statements, which convey management's expectations beliefs plans and objectives regarding future financial and operational performance.
Forward looking statements are generally preceded by words, such as believe plan intend expect anticipate or similar expressions forward looking.
Statements are protected by Safe Harbor provisions contained in the private Securities Litigation Reform Act of 1995.
These forward looking statements are subject to a wide range of risks and uncertainties that could cause actual results to differ in material respects.
Information on various factors that could affect egan gains.
<unk> are detailed in the company's reports.
Filed with the Securities and Exchange Commission. He gain is making these statements as of today November 14th 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 also 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 releases link on the Investor Relations page of your gains website at <unk> Dot com along with the earnings release, we have also posted an updated investor presentation to the Investor Relations page of <unk> website.
And lastly, a phone replay of this conference call will be available for one week and now with that said I'd like to turn the call over to gains CEO as you Roy.
Thank you, Jim and Hello, everyone.
Both our top and bottom line results exceeded our guidance and street consensus for the quarter.
Our total revenue was a record $24 $8 million.
80% year over year in constant currency.
Our SaaS revenue grew 23% year over year in constant currency.
And our adjusted EBITDA margin was 10%.
So a good performance for the quarter.
Let me share some notable customer wins in the quarter.
The first is a major American airline operating globally.
They were legacy analytics hub customer for us and they're now moving to the cloud.
With our SaaS solution will enjoy a robust platform to monitor contact kind of performance and improve customer experiences.
Moving them over to our cloud platform also opens up opportunities for them to adopt our knowledge hub.
Other offerings.
The second one is the new logo wins and they are a global leader in licensed sports merchandise.
Creating a next generation digital sports platform with partners that include many professional sports leagues.
They wanted to improve first contact resolution rates on their contact center as well as reduce agent training and Onboarding time, especially for seasonal hires during holiday season.
The selected our knowledge hub and this is going to give them a single source of knowledge to easily handle all the retail processes personalized by Brian and team.
And we're also looking for an out of the box integration with their Genesys desktop for Omnichannel service.
Our genesys connector solves that business made very easily.
We had some good customer expansions in the quarter as well. The first one was the U S. Federal agency, where we significantly expanded our rollout and their contact center.
This expansion order offsets a onetime COVID-19 order they had placed on last year that ended in the quarter.
Next one is a fortune 500 business with over 3000 enterprise clients.
Business process outsourcing.
Our market there.
They have now expanded their use of <unk> knowledge hub to serve more enterprise clients.
The third one is a.
Our global <unk> travel platform they expanded their use of fee game across the global contact centers as their business pick back up post COVID-19.
And the last one hour to bring out is a large.
State agency in the U S.
They have expanded their use of fee game across more of their citizens contact centers.
Moving to customer and product updates.
Our gain solid 22, which is our annual customer conference.
Which was held last month after a two year gap was a resounding success.
A record eight customers customer shared that he gave his success stories at the conference, including tenured clients like L. L Bean customer experience leaders like Navy Fad and new clients like Liberty mutual.
We received very positive feedback from participants customers enjoy sharing best practices with each other in person.
While prospects, we are excited to transparently learned the dos and don'ts from European clients.
We also heard consistent kudos around the comprehensive product capability and functional richness of our solutions.
Clients called out our managed services offering as an effective way to maximize value from the regain investments.
On the platform build out front, we announced our gained marketplace showcasing value added solutions.
Built by Us and our partners.
These certified solutions can be used by our clients with ease and confidence.
The marketplace Hasnt been initially ceded with a list of certified connectors from leading contact center and CRM platforms.
In future, we would expect to see partners publishing solutions for gamification compliance analytics and much more.
On the product trunk, our recently introduced instant and service capability, which is part of the <unk> knowledge hub was very well received by our candies.
Numerous attendees expressed interest in trying out this capability.
Our innovation in 30 days offer.
Yeah.
Applying state of the art machine learning techniques in conjunction with our core AI capabilities.
Instant answers easily guide agents to surface the right answer quickly from the knowledge base.
This is an exciting experience innovation to further enhance our knowledge leadership.
Speaking of product leadership in early October we earned a perfect score from Gartner in the 2022 market guide for customer service knowledge management systems.
That was a nice accolade for our team.
And then last week, we were informed that you gained knowledge hub was the only solution to win the prestigious 2022 readers Choice award from Cam World.
Our team is proud to lead the market in both technical innovation and user choice.
Looking at the market and our overall business.
New inbound interest remains high for our offerings in the knowledge powered customer engagement carriers.
Businesses continue to look for technology to drive down costs, while improving agent experience.
And our pipeline continues to grow with more knowledge hub opportunities.
Which now include a record number of seven figure deals.
At the same time, though we are seeing the impact of the current economic uncertainty on our deals.
As decision timelines are getting extended.
And buyers are becoming cautious.
Retention and expansion within our U S business continues to be relatively healthy. However, we are seeing some challenges in our European business.
With the combination of these factors in mind, we plan to take a more balanced approach to growth and profitability this fiscal year.
So for now.
We are pausing the hiring of the next cohort of sales reps instead, we are focusing on making our current reps productive.
Overall, we remain very excited about our market opportunity, we are confident that knowledge management.
High powered automation will continue to grow as a must have need in the enterprise marketplace.
So in summary, we delivered a record revenue quarter.
Our new bound inbound interest remains.
As a result, we have a healthy pipeline and we continue to see demand for our offerings.
However, given the prevailing economic uncertainty.
We plan to take a more balanced approach to growth and profitability.
As such.
We will continue to maintain our product investments focused on experience innovation and ecosystem build out.
With that I'll ask Eric Smit, our chief financial officer to add more color around our financial operations.
Thanks, Rajiv and thanks, everyone for joining us today, let me share some financial highlights for the quarter before getting into our outlook and guidance for Q2 and fiscal 2023.
As you are seeing the macroeconomic conditions have a greater impact on our European business, when compared to North America or include regional metrics where relevant.
First on the revenue side total revenue for Q1 was a record $24 8 billion up 15% year over year or 20% in constant currency and up 5% sequentially from Q4 <unk>.
<unk> revenue was $22 6 million up 18% year over year or 23% in constant currency and up 10% sequentially from Q4.
Legacy revenue in Q1 was down to just 295000.
And now accounts for less than 2% of total revenue.
When you were looking at revenue by region, North America accounted for 77% of total revenue up from 71% in the year ago quarter.
Total revenue from North America was $19 1 million up 26% year over year, where in contrast, total revenue from Europe was $5 7 million a decrease of 9% year over year.
Looking at non-GAAP gross profit and gross margins gross profit for the first quarter was $18 9 million up 13% year over year for a gross margin of 7% to 6%.
Compared to 78%.
The prior quarter, but up sequentially from 75%.
Q4.
Now turning to operations non-GAAP operating costs for the first quarter came in at $17 5 million compared to $13 9 million in the year ago quarter.
Included in the costs this quarter.
Annual compensation company wide compensation adjustments.
That were effective at the beginning of the fiscal year.
The increase in the costs and expenses again were primarily primarily driven by investments in product development and sales and marketing.
Over the last year however.
With the current.
As you mentioned.
Yeah.
Conditions, we will report the sales hiring and when looking at sales and marketing spend in Q1, they were actually flat sequentially when compared to Q4 of 'twenty two.
Looking at our bottom line non-GAAP operating income for the first quarter was $1 4 million or an operating margin of 6% compared to operating margin of 13% in the year ago quarter.
And up from 3% in Q4 of fiscal 'twenty two.
non-GAAP net income for Q1 was 2 million or <unk> <unk> per share. This compares to non-GAAP net income of $2 7 million or <unk> <unk> per share in the year ago quarter.
And adjusted EBITDA margin for the quarter was 10%.
Again up from 6% in the preceding fourth quarter.
Turning to our balance sheet and cash flows cash flow from operations for the quarter was 760000 for a 3% operating cash for the margin.
Our balance sheet remained strong total cash and cash equivalents at the end of the quarter was $71 5 million up 2% from a year ago.
Now turning to our customer metrics.
Our first quarter is typically a seasonally slow quarter for bookings that was further impacted by the current macroeconomic conditions, especially in Europe .
Our LTM dollar based assessment net retention rate was 103% compared to 113% a year ago.
Looking at it by region, Retentions and expansions within our U S customer base continued to be relatively healthy with the end or closer to 110.
We are again seeing challenges in the European base within all dropped below 100.
On the positive side, the number of $1 million or customers increased 31% year over year.
<unk> says they are all excluding OEM increased 15% year over year and when looking at our by.
By product knowledge now the knowledge now mix of 50% of our total set say all.
His knowledge deals accounted for two thirds of new bookings in the last 12 months.
Looking at our OPO total OPO increased 32% year over year to $94 5 million and our short term opioid increased 27% year over year.
So moving onto before moving on to our financial outlook and guidance of one to note the share repurchase program, we announced today.
Under which he gained may purchase up to $20 million of its outstanding.
Comments $20 million.
Outstanding common stock on.
On a discretionary basis from time to time through open market transitions or privately negotiated transactions at prices deemed appropriate by E. K.
In addition at the discretion of <unk> open market repurchase of common stock. We also be made under a rule <unk>, one plan, which would permit common stock to be repurchased by the company might otherwise be precluded from doing so under insider trading loss or self imposed trading restrictions.
The stock repurchase program is effective immediately has a one year term from adoption unless extended and does not obligate Iain to acquire a specific number of shares.
While our focus remains on growing the business, we see investing in the gain at the current stock price is a good use of.
Our excess cash reserves and with our strong balance sheet, we look to implement a stock repurchase plan without impacting our long term growth strategy.
Now onto our financial outlook and guidance.
With the current strength of the U S dollar to the pound and euro for comparable purposes. We are also providing.
Estimates on a constant currency basis to provide better visibility into the underlying business trends.
So for the second quarter of fiscal 2023, we expect total revenue of between 25 million to $25 4 million, representing a growth of 8% to 10% year over year.
Adjusted for constant currency, we expect Q2 total revenue of between $25 8 million to $26 2 million representing growth of 12% to 13%.
Turning to the bottom line for Q2, we expect a GAAP net loss of 700000 to $1 billion.
Or <unk> to <unk> <unk> per share, which includes stock based compensation expense of approximately 2 million and depreciation and amortization of approximately 130000.
We expect non-GAAP net income of $1 1 billion to $1 4 million or <unk> <unk> to <unk> <unk> per share.
And the weighted average shares outstanding are expected to be approximately $32 million for the second quarter of fiscal 2023.
For the fiscal 2023 full year again, given the current macro economic environment, we are optimizing our growth and profitability targets by slightly lowering the midpoint of our total revenue guidance by $1 million, but adjusting our projected cost and expenses.
By a greater amount, resulting in an improvement to our previous guidance of our non-GAAP EPS.
Hi.
<unk> per share at the midpoint.
So for fiscal 2023 full year ending June 30th 2023, we now expect total revenue of between $100 million to $102 million representing growth of 9% to 11% year over year.
Adjusted for constant currency that would equal one to $102 1 million.
To $104 2 million representing growth of 11% to 13.
<unk>.
non-GAAP net income of $5 3 million to $6 3 million or 16 cents to <unk> 19 per share.
GAAP net loss.
Of $2 2 million to $3 2 million or <unk> 10 per share, where we estimate share based compensation expense of approximately $8 5 million and depreciation and amortization of approximately 550000.
Our currency conversion rate assumptions are as follows for Q2, 2023, and FY 'twenty three we are assuming.
D to British pound of $1 15 to $1.
Two a pound sorry.
This compares to Q2, 'twenty, two where the U S. T. Two British pound was $1 35 to $1 two a pound and for FY 'twenty to U S. D to British pound rate was $1 33 to one.
So in summary, we delivered another record revenue quarter, we have a robust new business pipeline and demand remains high.
Given the current macro conditions, we are taking a more balanced approach to growth and profitability with a strong balance sheets and continued cash generation, we announced the $20 million stock repurchase program as we believe.
Our stock is a good investment at current prices.
Lastly, before I close this Wednesday, we will be in New York to participate in the Roth technology events, if you're in New York and planning to attend the conference we'd love to see you there.
This concludes our prepared remarks, operator, we will now open the call for questions.
We will now begin the question answer session.
To ask a question you May press Star then one on your telephone keypad, if you're using a speakerphone. Please pick up the handset before pressing the keys.
To withdraw your question. Please press star two.
At this time.
Momentarily to assemble our roster.
Our first question will come from Richard Baldry with Roth capital.
Go ahead.
Thanks.
Curious are you seeing.
As to the top of the sales funnel or really just slower sales cycles overall or is it that vary by geography.
Richard as I show here.
I think it's more the delaying of the decision, making which is where we are seeing the delta.
There are still things to be good interest levels on the front on the top end.
Yes.
Okay.
Then on the legacy maintenance side now that that's virtually gone can you talk about when that would fully sunset are there material costs, keeping that lasts a small amount of revenue up it would go away.
Would there be a one time benefit to the P&L of that goes away.
Uh huh.
Hi, Richard This is Eric I would note at this point.
Given the relatively small number of customers, there's not a huge.
Cost impact so from that perspective.
We wouldn't see any meaningful change in our cost to support these customers.
Okay, and then I'm sorry.
The decision to slow down the hiring on the sales cohort because it it feels like this is probably a fairly quick recession.
What it turns into being so given the long time it takes to bring people onboard her train them bring them up and your balance sheet is considerable and resources.
Why not just keep pushing on that so that you know if when things turn demand servers, you've already got sort of a team ready to go.
Yes.
That's a reasonable alternative bridge.
Our sense is that once we see the the decision cycle stabilize I think we will get back on to that right now it's unclear if the slowdown continues to extend and as you said.
Good school of thought that says it's going to be a quick jump back into.
Better economic conditions, but we just wanted to see the we want to see the trend moving backwards backwards, meaning upwards.
Okay, and then lastly, assuming conditions sort of stay the way, we're seeing them now on the buyback front would you envision drawing down existing reserves to pursue a buyback or do you think you'd prefer or using cash from operations on a steadier state basis and sort of hold there.
Reserves, where they're at.
So I think.
We would we still evaluating that.
But certainly at the current prices and given the healthy balance sheet, we would certainly consider using current resources as opposed to just relying on operating cash flow, but again, we haven't made a firm decision on that yet.
Great. Thanks for your help.
Our next question will come from Jeff Van <unk> with Craig Hallum.
You May now go ahead.
Thanks, Thanks for taking my questions guys couple.
So it's pretty good execution into some currency headwinds so congratulations.
I guess first on the EMEA and IRR.
You know, obviously a material lower than the core business can you just expand on that.
How concentrated is that the downturn and then when you have a few very large customers go away and then is the decline really loss of customers or are they just cutting back on you know usage seats like how is that playing out maybe a little color there would be helpful.
Yeah sure. So a couple of comments one is I think a.
Given our concentration in the Europe business in the U K I think the UK has been kind of impacted.
Hard as we know and so where we have seen the significant delta is in some of the larger customers, even though they are getting value. They are feeling the pressure to reduce their spend significantly and so.
All of them have made the choice to go with solutions, which frankly don't deliver their needs.
Right now they are going into that mode of our.
Cost reduction being the primary driver rather than continuing to get the business value. So it is not something we expect to see.
Hum.
And too many of these customer situations, but that's what we saw.
And so we want to be careful and make sure that we are planning and of course being careful and ensuring that the retention.
Triangle.
In the game.
Some of these customers moving forward so that once the what we believe these alternatives. They are working with may not be adequate that we are still available to come back in and engage with them.
Are these alternatives that you would compete with in other geographies, so that kind of behavior with those specific alternatives not something you've seen in other geographies or is that yes that was better.
Yeah.
Yes, sorry, yes, good question.
On these alternatives do exist in other geographies, but we haven't seen other geographies really considering them as viable alternatives right now right. So.
And then <unk>.
In terms of the you know the lengthening sales cycles.
No can you put a little finer point on the timing.
How that looked namely as you progressed, you know over the last 90 plus days.
Just been a steady deterioration.
Substantial recent.
What sort of decline in the health of the end markets or any other color there.
Uh huh.
I would say that.
Budgets, which we talked we're in fiscal <unk>.
Calendar 'twenty two have gotten some of them have gotten pushed to calendar 'twenty three and that that's what we have seen at this time, which are the material common threat IC and the and.
And the decision cycle lengthening.
Okay.
And then one last just any commentary on the channel related sale.
Momentum traction in differences in channel versus the direct efforts.
No I think both of them seem to have the same.
Same.
<unk>.
But.
But we do think that that would be channel.
Moving forward could be useful in terms of.
There is more pressure on vendor consolidation that channel could be.
Selectively battle for us over time, but right now we don't we don't have any evidence to that.
Yeah.
Okay. Thanks for taking my questions I appreciate it.
Yeah.
Yes.
Again, if you have a question. Please press Star then one our next question will come from Tim Horan with Oppenheimer.
You May now go ahead.
Thanks, guys.
So just to be clear in Europe , some customers traded down to you.
Kind of lower quality services.
<unk>.
Lower priced spot.
Because what youre, saying and.
Or are these relatively new customers have you seen them before.
And any thoughts on how much cheaper they were and I know you said.
Maybe the surface just don't work as well as yours, Ken any.
Any way, if you kind of touched the relative productivity of relative quality.
Yeah. So I would say that these are not typically our competitors.
No one is.
Or like are we keep kind of a solution, which is not what we see in almost any other environment. I think the clients are just feeling the pressure to cut cost in these particular cases.
And I think.
That has led them to almost say.
Let's go with another way to try to solve this problem something that used to be done then.
10 years ago with.
With knowledge management.
We feel that that's that's a trend we will probably not see in the in the U S market.
That's at least where our view is right now.
And any.
Any comparisons on your productivity your quality versus theirs.
And I think we deliver a value of a kind that they don't even measure right. So we look at business impact, whether it's things like improving <unk> fat scores are improving your.
Customer contact the first contact resolution in our training time those are not things that these solutions, even target is sort of focus on <unk>.
Collecting a bunch of content and making it presented make it available to people who want to use it research and Theres no AI nothing of that sort. So I think that these clients.
For the right reasons, perhaps to their own business have decided to go with a.
With a very different approach and probably just make.
Making a triaging deficient at this time and we believe that there's still going to be opportunity with these accounts and we're going to stay close to them.
And then chances are really good accounts to get back in.
And do.
Do you think contact center in General you know your comments do you think they apply to the whole industry.
Or is it just Europe , but I guess in Europe is it pretty prevalent.
I'd say that it's a macro effect I'm not sure if it impacts contact centers equally or not but I have to believe that <unk>.
Buying cycles are.
Sorry.
Wallet sizes are getting squeezed in Europe more of them and then in North America.
Yeah sure.
Totally understood.
Any more thoughts on what also do with the free cash flow that you have or just capital structure in general.
For now I think the decision we've made is a good one.
It gives us an opportunity to.
See our stock buyback as a good investment when it presents itself and so that that kind of opens the door for some.
Good use of cash.
Beyond that we haven't really made any public.
Decisions around their cash.
Got it thanks, so much.
Okay.
It appears there are no further questions. This concludes our question and answer session I would like to turn the conference back over to management for any closing remarks.
Right, Okay, well, thanks, everybody I appreciate you listening and again anybody in.
New York This week would be.
Happy to have meet in person thanks, a lot.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.