Q1 2025 eGain Corp Earnings Call
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Speaker Change: Good afternoon and welcome to the EGAIN Fiscal 2025 First Quarter Financial Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.
Speaker Change: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your touch-tone phone. To withdraw your question, please press star, then 2. Please note, this event is being recorded.
Speaker Change: I would now like to turn the conference over to Jim Byers, MKR Investor Relations. Please go ahead.
Jim Byers: Thank you, Operator, and good afternoon, everyone. Welcome to EGAINN's Fiscal 2025 First Quarter Financial Results Conference Call.
Jim Byers: On the call today are E-Games Chief Executive Officer, Ashutosh Roy, and Chief Financial Officer, Eric Smit.
Speaker Change: 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.
Speaker Change: Forward-looking statements are generally preceded by words such as believe, plan, intend, expect, anticipate, or similar expressions.
Speaker Change: 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.
Speaker Change: Information on various factors that could affect eGainz results are detailed in the company's reports.
Speaker Change: filed with the Securities and Exchange Commission. EGAIN is making these statements as of today, November 12, 2024, and assumes no obligation to publicly update or revise any of the forward-looking information in this conference call.
Thank you.
Speaker Change: In addition to GAAP results, we will also discuss certain non-GAAP financial measures, such as non-GAAP operating income. The financial tables included with the earnings press release include reconciliation of the historical non-GAAP financial measures to the most directly comparable GAAP financial measures.
EGAINN's earnings press release.
Speaker Change: can be found by clicking the press release link on the investor relations page of EGAINN's website at EGAINN.com. And along with the earnings release, we will post an updated investor presentation to the investor relations page of EGAINN's website. And lastly, a phone replay of this conference call will be available for one week.
Speaker Change: And now, with that said, I'd like to turn the call over to E-Gain's CEO, Ashutosh Roy.
Thank you, Jim, and hello, everyone.
Ashutosh Roy: We are pleased to report first quarter revenue and profitability ahead of consensus estimates.
Ashutosh Roy: In what is a seasonably light new bookings quarter for us, our new bookings were up significantly year over year.
Ashutosh Roy: Returning to business highlights, during the quarter we booked good new and expansion business. Let me share a couple of examples.
Ashutosh Roy: We signed up a client who is looking to improve the productivity of its field service engineering team worldwide, about 4,000 plus engineers.
Ashutosh Roy: They are very large, multi-billion dollar data center builders, and their business is booming in the AI space.
Ashutosh Roy: This client tried to unsuccessfully solve the knowledge problem a couple of times before we got the mandate.
Ashutosh Roy: First, they tried to solve it with a homegrown solution. That didn't scale. Then they toyed with the knowledge capability in their CRM platform, but that couldn't handle the complexity and compliance requirements they had.
Ashutosh Roy: As I've said before, some of our best clients tend to be those who have tried and failed at getting value out of their knowledge management initiatives before they come to us.
Ashutosh Roy: With our hub, this client intends to create a single source of truth, delivering trusted answers using AI and experts in the loop.
Ashutosh Roy: This is an exciting entry for us into the market for food service.
Ashutosh Roy: A huge adjacency to our current market focus on B2C customer service.
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Ashutosh Roy: Another one I want to mention is a recent client, one we signed up in Q4 of last year, so about five months ago. They are now expanding the use of our AI Knowledge Hub based on the quick value we delivered.
Ashutosh Roy: The client, in the first few months of their deployment, established a solid knowledge foundation in their business, focused on customer-facing knowledge. That worked very well.
Ashutosh Roy: And so now, they are centralizing all of their company knowledge in the E-Gain Hub.
Ashutosh Roy: In fact, this is a trend we see in the market where businesses are increasingly recognizing the value of a centralized knowledge hub that natively uses AI and experts to deliver trusted answers to all stakeholders.
Ashutosh Roy: talking with customers and service agents where the pain point tends to be very high and measurable.
Ashutosh Roy: These companies then recognize the value and extend out the capability to serve other functions across the enterprise.
Ashutosh Roy: This, to us, is the productivity and experience prize that AI knowledge can deliver when done right.
And that is transformational impact at speed and scale.
Speaker Change: In fact, I've discussed this before. I'm sure you're aware of it with McKinsey.
data about potential cost savings of 35% in customer operations.
definitely feels well within reach.
Speaker Change: Moving to renewals, we saw good renewals in the quarter with no significant churn.
Now, as we have entered Q2 of this fiscal year,
Speaker Change: Our yield momentum has picked back up post the seasonal slowdown in the summer.
Speaker Change: And we have closed some interesting new logos in the current quarter. I just want to talk about a couple of them because they confirm our assessment of the market trends toward enterprise knowledge hubs.
One is a hypogrowth.
energy solutions provider for projects in North America.
Speaker Change: They are initially starting with knowledge for customer service and field service, and then they plan to scale knowledge across the enterprise.
Speaker Change: Another one is a very large video game developer and publisher in the U.S.
Speaker Change: They are initially looking to embed knowledge into the flow of play for their customers, so more self-service, and also empower their trust and safety teams, all from a knowledge hub.
And with that knowledge hub,
Speaker Change: Then they intend to take it out to the rest of the enterprise.
Speaker Change: We see knowledge centralization as a powerful trend in the market, especially as businesses are looking to
Speaker Change: get more business value out of their AI projects and investments.
Speaker Change: The centralization of knowledge in the right architecture ensures compliance, improves experience and boosts productivity all at the same time.
looking at customers and products.
Speaker Change: I want to talk about our Solve24 event in Chicago last month in October.
Speaker Change: That was a very, very good event for us. We had clients sharing their success stories of real business impact at scale with AI and knowledge.
And I mentioned in my keynote at that event.
Speaker Change: that the excitement around generative AI continues to grow, but also that we all recognize that generative AI is a commodity.
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Speaker Change: It's a commodity that will keep getting faster and cheaper. The big question for every business is how to marshal that commodity in the context of a business to deliver transformational impact.
Speaker Change: Our clients shared their stories about how the eGain AI knowledge hub and associated knowledge method process.
Speaker Change: helps them accelerate value realization in an easy, quick, and assured manner.
Thank you.
Speaker Change: We also at the event announced an exciting new solution. We call it EGAN AI Agent. It's a conversational health service offering that can be used across all touch points.
Speaker Change: What's special about it is that it uses trusted knowledge from within the eGainz hub and taps into necessary enterprise data using connectors and delivers guidance and customer inquiry resolution going beyond simple FAQs and narrow domain interactions that are pre-programmed.
Thank you very much.
Speaker Change: Moreover, it does not require clients to engineer a solution themselves, starting with an AI toolbox.
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with EGAME AI Agent.
Speaker Change: We will challenge the plateau of poor customer self-service that most businesses are stuck in for many years now.
Speaker Change: We believe that our AI and agent solution will help clients achieve significant incremental customer self-service adoption.
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This solution-oriented approach that we have taken
Speaker Change: Using AI and knowledge is very different from the pooled approach that most providers offer today.
Speaker Change: We intend to deliver working AI agent solutions and then partner with clients to drive effective adoption.
Speaker Change: We do not want to sell a DIY AI toolbox and walk away.
Speaker Change: an approach that is commonly offered and we believe is causing significant frustration in the market as businesses find themselves in the
operationalization gap.
Speaker Change: in trying to go from an AI prototype, which is very exciting,
to value at scale.
Speaker Change: Given the rapid pace of AI technology change now and in the foreseeable future,
We believe our full-stack approach for delivering these solutions.
is an attractive and low-risk proposition for the market.
Speaker Change: And that is the value we are pursuing with our increased product investment in partnership with our clients.
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Speaker Change: With that, I'll ask Eric Smit, our Chief Financial Officer, to add color around our financial operations. Eric?
Eric Smit: Thanks Ashu and thanks everyone for joining us today. As Ashu noted, both first quarter revenue and profitability came in ahead of consensus estimates.
Eric Smit: We continue to see positive momentum in our AI knowledge business and stabilization within our conversation and analytics customer base with strong renewals and no material losses in the quarter.
Eric Smit: Let me share more detail about our financial results for Q1 before discussing our outlook and guidance for Q2 and Fiscal 2025.
Eric Smit: Looking at our revenue, total revenue for the first quarter was $21.8 million at the high end of our guidance, but down 10% year over year.
Eric Smit: The decline was primarily due to the impact of the two large client losses in our conversation and analytics business this past year, which we've discussed on prior calls.
Eric Smit: When looking at revenue by region, North America accounted for 75% of total revenue, down from 79% in the year-ago quarter.
Eric Smit: Looking at non-GAAP gross profits and gross margins, gross profit for the quarter was $15.4 million for a gross margin of 70% compared to a gross margin of 73% a year ago and 71% last quarter.
Eric Smit: Now turning to operations, non-GAAP operating costs for the first quarter came in at 14.2 million, down 5% from 15 million in the year-ago quarter.
Eric Smit: R&D was up 16% year-over-year as we invest in product innovation to capitalize on the significant market opportunity.
Eric Smit: Looking at our bottom line, non-GAAP net income was $1.3 million, or $0.04 per share, compared to non-GAAP net income of $3.8 million, or $0.12 per share in the year-ago quarter.
Eric Smit: Adjusted dividend margin for the quarter was 6% compared to 12% in the year-ago quarter.
Eric Smit: Turning to our balance sheet and cash flows, for the first quarter we generated $954,000 in cash flow from operations, or a 4% operating cash flow margin, as compared to $8.1 million generated in the year-ago quarter.
Eric Smit: During the quarter, under our share repurchase program, we repurchased approximately 671,000 shares, an average price of $6.84 per share, totaling $4.6 million.
Eric Smit: Of the $14 million authorized, $12.4 million remain available under the program at the end of the quarter.
Eric Smit: A balance sheet remains very strong, total cash and cash dividends at the end of the quarter of $67.2 million.
Now, turning to our customer metrics.
Eric Smit: To highlight the momentum we are seeing in our knowledge business, I have broken out the knowledge metrics from the total metrics, which, as previously discussed, were impacted by the two conversation and analytics customs and losses last fiscal year.
Eric Smit: Looking at ARR, total SAS ARR for knowledge customers increased 16% year over year.
Eric Smit: While the total SAS ARR for all customers decreased 4% year over year, but was up 2% sequentially.
Turning to our net retention rates.
Eric Smit: LTM dollar-based SAS Net Retention for knowledge customers was 103%, up from 98%.
Eric Smit: at the end of last quarter, while net retention for all customers was 90 percent, up from 88 percent at the end of last quarter.
Now turning to our net expansion rates.
LTM dollar-based SASS net expansion rates
Eric Smit: was 108% for both our knowledge customers and for all our customers.
Eric Smit: Looking at our remaining performance obligations, total RPO decreased 15% year-over-year and our short-term RPO of $54.5 million was down 9% year-over-year. The declines were primarily due to the two customer losses previously mentioned.
I want to have financial outlook and guidance.
Eric Smit: One item I'd like to call out again before providing our guidance is the change in revenue forecasted from our Cisco OEM business.
Eric Smit: which we discussed on last quarter's conference call. As I mentioned, we are seeing the Cisco OEM business shift to more rateable recognition.
Eric Smit: which we estimate will result in a deferral of approximately $1.3 million of revenue that would have otherwise been recognized in fiscal 2025.
Eric Smit: Most of that impact to revenue occurred in the first quarter. To be clear, we did not lose the revenue, but more of the revenue will be recognized relatively over the term of the contract.
Eric Smit: Now, turning to guidance, for the second quarter of fiscal 2025, we expect total revenue of between $22.2 million to $22.6 million.
Eric Smit: Turning to the bottom line for Q2, we expect net loss of $400,000 to $900,000 or a loss of $0.01 to $0.03 per share, which includes stock-based compensation expense of approximately $900,000 and depreciation and amortization of $100,000.
Eric Smit: We expect non-GAAP net income of breakeven to $500,000 or $0.02 per share.
Eric Smit: Looking at our fiscal year ending June 30, 2025, we are reiterating our guidance of total revenue of between $92 million to $93 million.
and excluding the impact of the two large customer losses.
Eric Smit: and the Cisco OEM revenue recognition timing difference, we expect that SAS revenue to grow in the high single digits this fiscal year, with that growth rate accelerating next fiscal year as we continue to close on deals in our growing pipeline.
Eric Smit: Now turning to our bottom line, we expect on-gap net income of $5 million to $6 million or $0.17 to $0.20 per share and gap net income of breakeven to $1 million or $0 to $0.03 per share.
Eric Smit: We estimate share-based compensation expense of approximately $5 million and depreciation and amortization expense of approximately $400,000.
Eric Smit: Looking at weighted average shares outstanding, we expect approximately $29.1 million for the second quarter and $29.7 million for the full fiscal year.
Eric Smit: In summary, we are seeing continued strong momentum and inbound interest in pipeline activity for our AI knowledge offering, as businesses look to leverage AI and knowledge management to lower their cost of service.
Eric Smit: This momentum is translating into increased business with our ARR for AI knowledge customers growing 16% year over year.
Eric Smit: As such, we are doubling down on product innovation, partnering with clients to capitalize on the market opportunity created at the intersection of AI and knowledge management.
Eric Smit: Lastly, on the investor relations calendar, EGAIN will meet with investors at the 13th annual Roth Technology Conference in New York City on November 20th. We hope to see some of you there in person.
Eric Smit: This concludes our prepared remarks. Operator, we will now open the call for questions. Thank you.
Speaker Change: We will now begin our question and answer session. To ask a question, you may press star, then 1 on your touch-tone phone. To withdraw your question, please press star, then 2. At this time, we will pause momentarily to assemble our roster.
Speaker Change: And the first question will be from Jeff VanRee from Craig Hallam. Please go ahead.
Speaker Change: Hey, good evening, Ashu, Eric. This is Daniel on for Jeff.
Speaker Change: Just briefly we could speak to, you know, in previous quarters you've been talking about some of the improvements we're seeing go to market in terms of you know the sales cycles coming down more at more RFPs, better conversion rates.
Speaker Change: Just maybe in terms of those green shoots that you guys have been seeing, just any developments, what you can call out compared to 90 days ago, where that's been, and then maybe a two-parter here kind of in that vein. You mentioned new bookings up substantively year over year, just any quantification there would be helpful.
Speaker Change: So, I can speak to the RFP stuff and maybe to the extent you can talk about any bookings breakdown.
So, I believe the RFP...
Speaker Change: Pace is quite steady. We have the summer slowdown, which is always there because summers are slow time, but post-op, so in October, we've seen a big pickup again. So I think the RFP pipeline continues to be quite good for us.
And on the booking side, if you recall,
Speaker Change: I think this quarter a year ago was probably one of the slowest points.
Speaker Change: in the business. So, again, this quarter seasonally slow, you know, significant improvements.
Speaker Change: from a year ago, but still, you know, from a total booking standpoint, certainly not a very strong quarter relative to what we would expect as the year continues. So we certainly expect that
booking number to increase as we see the quarters progress.
Speaker Change: kind of update us on, you know, how far are we into actioning, you know, those R&D changes. And then specifically on S&M, looks like that was down sequentially. You know, maybe just help us with what's happening there.
Speaker Change: Let me take the marketing one. Maybe I can answer this. So the marketing stuff is impacted by our seasonality in terms of some of the big investments we make in our own events.
Speaker Change: So, for example, we had the big event in October, so you'll see a spike because of that, right? So that is one way to think about marketing. It's not necessarily quarter-on-quarter sequential increase. It's more timing-driven through the year.
Speaker Change: In terms of R&D, I mean, we are definitely increasing our spend in that and it'll probably go up a little bit more as we get closer to some new announcements. We will be going GA, for instance, with our AI agent in the first quarter, calendar 25.
Ashutosh Roy: And so you'll see some of the studies pick up on that, not a huge amount, but you'll see a steady pickup. Exactly. I think that's exactly it, Ashutosh. Yeah. I think so that's a number we've made good progress and, you know, there might be some incremental spending, but I think we've...
Ashutosh Roy: Done a good start to the year with those numbers that we've set.
Speaker Change: Okay, that's helpful. And then just a high-level question for me.
Speaker Change: As the company is, you know, pivoting to sort of focusing on these Gen-AI...
Speaker Change: you know, products as the tip of the icebreaker on sales in terms of, you know, CPT and the new agent product.
Speaker Change: Just help us understand at a high level where we're at in the evolution for the company as in terms of both product and go-to-market in making those the drivers and, you know, in terms of the maturity of where we're at in that process.
So a couple of comments I'll make. One is from...
Speaker Change: From a product standpoint, I would say we are fairly advanced because we've been investing in it for the last two years, and so I think we have made some very good progress on the product front.
Speaker Change: It will continue, but you'll start to see results as we announce this new AI agent that was the result of some good investment over the last 9 to 12 months. And you'll see a continued string of new things coming up as we announce them.
Speaker Change: In terms of sales and marketing, we see it as a sort of...
Speaker Change: somewhat of a sequential process, right? So, as we are driving more product innovation and announcing new capabilities...
Speaker Change: We are also seeing our pipeline filling up. And then there are some new things we are working on that will then give us the basis, a platform if you will, to invest much more effectively in market development and go to market.
Speaker Change: And I think that's going to be likely to be in the second half of this fiscal year.
is when you start.
Speaker Change: That's helpful. And then just the last for me, just in terms of kind of geographical splits, I saw a particularly strong quarter out of EMEA, it looks like, and a little bit lighter in North America. Is that an anomaly, anything we should read in there as a trajectory, just any commentary on that would be helpful. Thanks, guys.
Speaker Change: In terms of new business, sorry, U.S. is still the engine of growth. Yeah. And I think just to add to that, this was really more a function of some of those customer losses. So those happened to be U.S.-based businesses. So as the revenue declined, that adjusted that shift as opposed to it.
Speaker Change: So the market demand, to Ashutosh's point, is very much still U.S.-focused.
Speaker Change: Okay, thank you, Ashu. Thank you, Eric. Congrats on the quarter.
Thanks.
Speaker Change: And the next question is from Richard Baldry with Roth Capital. Please go ahead.
Thanks.
Speaker Change: It seems like, you know, AI coming into the market was largely a confusion factor for quite a while, that it added to what people wanted to put into their solutions. They didn't know exactly how it would work. Can you talk how much about...
It's still a confusion factor in the sales cycle.
Speaker Change: Are there, you know, new competitors coming with very small point solutions that are still confusing that? Do they have real offerings or is a lot of that slideware?
Speaker Change: How do you feel about it? And in the long run, we feel like it should be a driver and a market expander, but how close do you think you are to that sort of a tipping point as opposed to sort of bogging down the processes?
Thank you.
Speaker Change: I think the realization in the market that you need more than just a small widget or a very narrow solution that would solve business problems across
Speaker Change: Lots of use cases. We are seeing that realization more and more now. And I can see that in the night view, some of the RFPs that come in and RFIs, and I can see that.
Speaker Change: At the same time, I would say that new entrants continue to enter the market, so the confusion factor is not going down.
Speaker Change: Enough people in that churn are exiting that churning drum and saying, okay, let's try to solve this in a more thoughtful way using AI as opposed to just AI as the solution for everything.
operationally useful.
Speaker Change: That is a trend we are seeing more and more now.
Thanks.
Speaker Change: You know, some quarters you've been able to talk about sort of big trialers that are underway, sort of, you know, $10 billion plus kind of customers. Any update on sort of that very large opportunity, how those pipelines are looking, how far people are moving through that? Is it changing sales cycles, timings, and, you know, how that should play out as fiscal 25 unfolds?
Speaker Change: Let's say we are seeing more trials. Well, let me rephrase that. We are seeing more large trials.
Speaker Change: So that, to me, is a good sign. That tells me that
Big companies are getting more serious.
Speaker Change: about making a decision in this area, right? Not on seed.
Speaker Change: In terms of cycle time, it's still pretty much the same, right? Nine to twelve months.
Speaker Change: for these large deals. But we have more of these large trials underway.
Speaker Change: Last to be still following on that. I think you said before you had something very high like a 75% conversion of pilots to customers
Speaker Change: You know, maybe that's early into the cycle, but what are you seeing about, you know, when people trial it extensively, you know, sort of win rates or you know, the ability to move to a decision as opposed to continuing to, you know, look for solutions.
Thank you.
Speaker Change: I would say that is still in the ballpark of what we are seeing, yes. It's almost like if we are able to move them into the trial, that's our qualification to the next stage of the process.
Ashutosh, good night.
All right, thanks for your help.
Speaker Change: Thank you. And ladies and gentlemen, this concludes today's question and answer session. I would like to turn the conference back over to eGain Management for any closing remarks.
Speaker Change: Thanks, operator, and thanks, everyone, for listening to the call, and look forward to giving you an update for our Q2 results. Thank you.
Speaker Change: Thank you, sir. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.