Q2 2025 eGain Corp Earnings Call
Hello, and welcome to the gain in fiscal 'twenty 'twenty, five second quarter financial results call.
Operator: Hello and welcome to the eGain Fiscal 2025 Second Quarter Financial Results 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.
All participants will be in listen only mode.
If you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
Operator: After today's presentations, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your telephone keypad, and to withdraw from the question queue, you may press star, then 2. As a reminder, this conference is being recorded.
After todays presentation, there will be an opportunity to ask questions.
To ask a question you May press Star then one on your telephone keypad to withdraw from the question queue. You May Press Star then two.
As a reminder, this conference is being recorded.
Jim Byers: I would now like to hand the call to Jim Byers, Pondell Wilkinson, Investor Relations. Please go ahead.
Speaker Change: I would now like to hand, the call to Jim Byers Pando Wilkinson Investor Relations. Please go ahead.
Speaker Change: Thank you operator, and good afternoon, everyone welcome to Ea's fiscal 'twenty 'twenty five second quarter financial results conference call on the call. Today are you gained chief Executive Officer, Ashley ROI, and Chief Financial Officer, Eric Smith.
Jim Byers: Thank you operator and good afternoon everyone.
Jim Byers: Welcome to eGain's fiscal 2025 second quarter financial results conference call. On the call today are eGain's chief executive officer, Ashutosh Roy, and chief financial officer, Eric Smit.
Jim Byers: 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 respect. Information on various factors that could affect eGain's results are detailed in the company's report filed with the Securities and Exchange Commission.
Speaker Change: Before we begin I would like to remind everyone that during this conference call management will make certain forward looking statements.
Speaker Change: 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 forward looking statements are protected by safe Harbor provisions contained in the private Securities Litigation Reform Act of 1995 East.
Speaker Change: 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 your gains results are detailed in the company's reports filed with the Securities and Exchange Commission.
Jim Byers: eGain is making these statements as of today, February 13, 2025, and assumes no obligation to publicly update or revise any of the forward-looking information in this conference call.
Speaker Change: Again, it is making these statements as of today February 13th 2025, and assumes no obligation to publicly update or revise any of the forward looking information in this conference call.
Jim Byers: 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 gap financial measure.
Speaker Change: 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 historical non-GAAP financial measures.
Speaker Change: To the most directly comparable GAAP financial measures.
Jim Byers: eGain's earnings press release can be found by clicking the press releases link on the investor relations page of eGain's website at eGain.com.
Speaker Change: The earnings press release can be found by clicking the press releases link on the Investor Relations page of the game's website at he gained dot com 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 your gains CEO Ash you really.
Jim Byers: And lastly, a phone replay of this conference call will be available for one week.
Jim Byers: And now with that said, I'd like to turn the call over to eGain's CEO, Ashutosh Roy.
Speaker Change: Thank you Jim and good afternoon, everyone.
Ashutosh Roy: Thank you, Jim, and good afternoon, everyone. In the second quarter, we closed some exciting new enterprise logos for our AI Knowledge Hub offering. Let me share three examples. First, we signed up a major U.S. airline, one of the largest in the world. They wanted to modernize their knowledge platform to improve customer experience and reduce service cost using AI automation. and we are the selected provider for that. Second, we signed up a leading interactive entertainment company, one that has 800 million player accounts worldwide. This company has a vision of putting knowledge in the game for their players.
Speaker Change: In the second quarter, we closed some exciting new enterprise logos or our AI knowledge hub offering.
Speaker Change: Can you share three examples.
Speaker Change: First we signed up a major U S Airlines one of the largest in the world.
Speaker Change: They wanted to modernize their knowledge platform to improve customer experience and reduce service costs using yes.
Speaker Change: Automation.
Speaker Change: And we are the selected provider for that.
Speaker Change: Second we signed up a leading interactive entertainment company.
Speaker Change: One that has 800 million player accounts worldwide.
Speaker Change: This company has a vision of putting knowledge in the game for their plans, but they were struggling with the existing knowledge platform, we have because it could not provide the necessary API functionality to implement division.
Ashutosh Roy: But they were struggling with the existing knowledge platform they had because it could not provide the necessary APIs and functionality to implement the vision. After a successful innovation in 30 days pilot with us, they selected our solution. And the last one, a global money transfer company with 150 million customers across 200 countries. They, incidentally, had successfully or. unsuccessfully, sorry, tried to implement a customer knowledge platform two times before they ended up selecting us.
Speaker Change: After a successful innovation in 30 days pilots with us they selected our solution.
Speaker Change: The last one.
Speaker Change: Global money transfer company with 150 million customers across 200 countries.
Speaker Change: They incidentally had successfully.
Unsuccessfully sorry try.
Speaker Change: Try to implement a customer knowledge platform.
Speaker Change: Before they ended up selecting us.
Speaker Change: Looking at trends in our overall business.
Ashutosh Roy: Looking at trends and our overall business. The first trend, which continues, is knowledge centralization and privacy. This trend is attracting even greater focus. due to its foundational relevance to AI projects. As enterprises push to operationalize meaningful AI use cases Particularly in customer service, they are struggling with content silos and fragmented knowledge. which makes it hard to ensure that AI systems relying on these silos for input can generate correct, consistent, and compliant answers. As a result, having a single source of truth in a knowledge central hub across the business is becoming critical. The other trend we see emerging is that knowledge management projects starting out with a mandate of automating customer service.
Speaker Change: First trend, which continues his knowledge centralization and enterprises.
Speaker Change: This trend of attracting even greater focus.
Speaker Change: Due to its foundational relevant to AI projects.
Speaker Change: As enterprises push to operationalize meaningfully I use cases.
Particularly in customer service, they are struggling with concrete silos and fragmented knowledge.
Speaker Change: Which makes it hard to ensure that.
Speaker Change: Systems' relying on these silos for input and generates correct consistent and compliance answers.
Speaker Change: As a result, having a single source of truth in a knowledge central hall across the business is becoming critical.
Speaker Change: The other trend we see emerging is that.
Speaker Change: Knowledge management projects, starting out with the mandate of automating customer service.
Ashutosh Roy: are incrementally adding enterprise-facing use cases for employee service or partner service during the sales process. As a result, we see larger knowledge opportunities in our pipeline. In the last six months, for example, we have seen the number of seven-figure deals in our pipeline more than double. This was exciting. At the same time, though, the side effect of this trend is more scrutiny on these projects. And the vetting process now includes groups like the AI office. So these bigger deals are taking some more time to close. On balance, we see this as a very good thing for us.
Speaker Change: Are incrementally, adding enterprise facing use cases are for employee service or partner service during the sales process.
As a result, we see larger knowledge opportunities in our pipeline.
Speaker Change: In the last six months for example, we have seen the number of seven figure deals in our pipeline more than double.
This is exciting.
Speaker Change: At the same time, though the side effect of this trend as more scrutiny on these projects and the vetting process now includes groups like me how your office.
Speaker Change: So these bigger deals are taking some more time to close.
Speaker Change: On balance we see this as a very good thing for us.
Ashutosh Roy: We have the ability and patience to nurture these deals to close.
We have the ability in patients for much of these deals to close.
Speaker Change: Turning to our customers and products.
Ashutosh Roy: Turning to our customers and products. At the end of October last year, we had a very successful eGain Solve24 event in Chicago. This is our main U.S. customer event. Many of our clients shared success stories about getting real value from AI capabilities in our platform. One client presentation in particular comes to mind, the Head of Knowledge Management at Specialized Bikes, which is a name brand bike manufacturer for high-end stuff. She was on stage talking about their experience with eGain AI Knowledge Hub. And she said, I quote, eGain AI is like having an army of interns on Red Bull.
Speaker Change: At the end of October last year, we had a very successful you gain solid 24 event in Chicago. This is our main U S customer event.
Speaker Change: Many of our clients shared success stories about getting real value from AI capabilities in our platform.
Speaker Change: One client presentation in particular comes to mind.
Speaker Change: The head of knowledge management got specialized which is.
Speaker Change: Name brand based manufacturer of high end checklist.
Speaker Change: He was on stage talking about their experience with ebay and AI knowledge.
Speaker Change: And she said I quote.
Speaker Change: You again AI, it's like having an army of interns on Red Bull our content team is really freaking happy and.
Ashutosh Roy: Our content team is really frickin' happy. End quote. At the event, we also announced eGain AI Agent, a new omnichannel conversational product that guides and resolves customer and agent questions using documents, websites, and our knowledge base. Customer interest in eGain AI agents is very strong. We see the pressure in enterprises all the way up or coming down from the board and the CEO to show real business value with AI this year. Most of our clients are actively looking for full-stack AI solutions to quickly move the needle in customer service, both in cost and experience. And we are on track to launch our eGain AI agent in the current quarter as planned.
Speaker Change: At the event, we also announced you gain AI agent, our new Omnichannel conversational product that guides and resolve customer and agent questions using documents websites and our knowledge base.
Speaker Change: Customer interest in Uganda agent is very strong.
Speaker Change: We see the pressure in enterprises, all the way up or coming down from the board and the CEO show real business value with.
Speaker Change: This year.
Speaker Change: Most of our clients are actively looking for full stack AI solutions quickly move the needle in customer service, both in cost and the experience.
Speaker Change: And we are on track launch our <unk> in the current quarter Atlanta.
Speaker Change: To conclude.
Ashutosh Roy: to conclude. Our AI knowledge hub solution is driving growth in our pipeline. We are actively investing and leading and shaping the AI knowledge hub market to automate business operations, starting with customer service. and eGain AI Agent, our omnichannel conversational solution. that we announced at our Solve event. will be available this quarter.
Speaker Change: Our AI knowledge hub solution is driving growth in our pipeline.
Speaker Change: We are actively investing in leading and shaping the AI knowledge hub market to automating business operations, starting with customer service.
Speaker Change: E gaming AI agent, our Omnichannel conversational solution.
Speaker Change: We announced at our solve event.
Speaker Change: We'll be available this quarter.
Speaker Change: With that allow us Eric Smith, our chief financial.
Eric Smit: With that, I'll ask Eric Smit, our Chief Financial Officer, to add more color around our financial operations.
Speaker Change: <unk> officer to add more color around our financial operations.
Speaker Change: Thanks, Sue and thanks, everyone for joining us today is actually you mentioned, we won several new enterprise logos in the quarter that resulted in a 17% increase in AI knowledge hub, a all year over year.
Eric Smit: Thanks, Ashu, and thanks, everyone, for joining us today. As Ashu mentioned, we won several new enterprise logos in the quarter that resulted in a 17% increase in AI Knowledge Hub ARR year over year.
Eric Smit: Let me share more details about our financial results for Q2 before discussing our outlook and guidance for Q3 and fiscal 2025. Looking at our revenue, total revenue for the second quarter was $22.4 million, which was within our guidance, but down 6% year-over-year. As discussed on previous calls, the year-over-year decline was primarily due to the impact of two large client losses last year. one a conversation hub customer and the other an analytics customer. Looking at the revenue in more detail, our SAS revenue in the quarter was ahead of our internal expectations and accounted for 93% of total revenue.
Speaker Change: Let me share more details about our financial results for Q2 before discussing our outlook and guidance for Q3 in fiscal 2025.
Speaker Change: Looking at our revenue total revenue for the second quarter was $22 4 million, which was within our guidance, but down 6% year over year.
Speaker Change: As discussed on previous calls the year over year decline was primarily due to the impact of.
Speaker Change: Two large client losses last year.
Speaker Change: One the conversation to a customer and the other in analytics customer.
Speaker Change: Looking at revenue in more detail our search revenue in the quarter was ahead of our internal expectations and accounted for 93% of total revenue.
Eric Smit: This was offset by our peers' revenue coming in lower than expectations. With the recent product improvements, we are seeing the PS attached rates for revenue on new implementations go down as designed. This improvement results in faster deployments and quicker time to value for our clients. But based on this, we are lowering our P.S. Revenue targets for fiscal 2025 by approximately $2.1 billion.
Speaker Change: This was offset by our peers revenue coming in lower than expectations.
Speaker Change: With the recent product improvements, we are seeing the PS attach rates.
Speaker Change: Full revenue on new implementations go down as designed.
Speaker Change: This improvement results in cost of deployment and quicker time to value for our clients.
Speaker Change: But based on this we are lowering our payer scrutiny targets for fiscal 'twenty 25 by approximately $2 million.
Eric Smit: This will be reflected in our updated guidance, which I will cover later on in the call. Looking at the non-GAAP gross profits and gross margins, SAS gross margin for the quarter was 78% unchanged from a year ago. Total gross margin for the quarter was 71% compared to 72% a year ago. Now turning to our operations, non-GAAP operating costs for the second quarter came in at $14.7 million, up from 9% from $13.5 million in the year-ago quarter. R&D was up 21% year-over-year as we invest in product innovation to capitalize on the significant AI knowledge market opportunity.
Speaker Change: This will be reflected in our updated guidance, which I will cover later on in the call.
Speaker Change: Looking at the non-GAAP gross profits and gross margins <unk> gross margin for the quarter was 78% unchanged from a year ago.
Gross margin for the quarter was 71% compared to 72% a year ago.
Speaker Change: Now turning to our operations non-GAAP operating costs for the second quarter came in at $14 7 million up from 9% from $13 5 million in the year ago quarter.
Speaker Change: R&D was up 21% year over year as we invest in product innovation to capitalize on the significant knowledge market opportunity.
Speaker Change: Looking at our bottom line non-GAAP net income was $1 3 million or five cents per share.
Eric Smit: Looking at our bottom line, non-GAAP net income was $1.3 million, or $0.05 per share, on a basic basis, and $0.04 per share on a diluted basis. compared to non-GAAP net income of $3.4 million, or $0.11 per share, on a basic and diluted basis in the IRIGO quota. Adjusted EBITDA margin for the quarter was 7% compared to 16% in the year-ago quarter. Turning to our balance sheet and cash flows, for the second quarter we generated $6.4 million in cash flow from operations, or a 29% operating cash flow mark. as compared to 7.7 million generated in a year ago.
Speaker Change: Basic basis, and <unk> per share on a diluted basis.
Speaker Change: Compared to non-GAAP net income was three 4 million or <unk> <unk> per share on a basic and diluted basis year ago quarter.
Speaker Change: Adjusted EBITDA margin for the quarter was 7% compared to 16% in the year ago quarter.
Speaker Change: Turning to our balance sheet and cash flows for the second quarter, we generated $6 4 million in cash flow from operations or 29% operating cash flow more P. <unk>.
This compares to $7 7 million generated in the year ago quarter.
Eric Smit: During the quarter, under our share repurchase program, we repurchased approximately 421,000 shares at an average price of $5.73 per share, totaling $2.4 million. of the $40 million authorized, $10 million remain available under the program at the end of the Our balance sheet remains very strong. Total cash and cash equivalents at the end of the quarter was $70.5 million.
Speaker Change: During the quarter under our share repurchase program, we repurchased approximately 421000 shares at an average price of $5 73 per share totaling $2 $4 million.
Speaker Change: Of the $14 million authorized $10 million remained available under the program at the end of the quarter.
Speaker Change: Our balance sheet remains very strong total cash and cash equivalents at the end of the quarter was $70 5 million.
Eric Smit: are turning to our customer metrics. To highlight the momentum we are seeing in our knowledge business, I've broken out the AI knowledge matrix. from the Total Metrics. First, looking at ARR. assess ARR for our AI knowledge customers increased 17% year over year. while total SSAR for all customers decreased 3% year-over-year, was up 2% sequentially. Looking at ARR for our AI knowledge customers, this accounted for 55% of our total SAS ARR at the end of the quarter, and up 46% from a year ago. Turning to our net retention rates, LTM dollar-based SAS net retention for our AI knowledge customers was 99%, while net retention for our all customers was 89%.
Speaker Change: Now turning to our customer metrics.
Speaker Change: I like the momentum we are seeing in our knowledge business I've broken out the AI knowledge metrics from.
Speaker Change: From the total metrics.
Speaker Change: First looking at all.
Speaker Change: The SaaS they are all for.
Speaker Change: AI knowledge customers increased 17% year over year.
Speaker Change: Total says to you all for all customers decreased 3% year over year was up 2% sequentially.
Speaker Change: With me here.
Speaker Change: They are all for AI knowledge customers this accounted for 55%.
Speaker Change: Total says or at the end of the quarter and up 46% from a year ago.
Speaker Change: Turning to our net retention rates LTM dollar based net retention for our AI knowledge customers was 19, 9%.
Speaker Change: While net retention for our old customers was 89%.
Eric Smit: Now, turning to our net expansion rates, our LTM dollar-based SaaS net expansion rate was 104% for our AI knowledge customers and 105% for all our customers. Looking at our remaining performance obligations, total RPO decreased 5% year-over-year, which was up 5% sequentially. And our short-term RPO of 51 million was down 9% year-over-year. Their year-over-year decline The signs were primarily due to the two large custom losses previously mentioned.
Speaker Change: Now turning to our net expansion rates, our LTM dollar based.
Speaker Change: Net expansion rate was.
Speaker Change: 104% for for all AI knowledge customers and 105% all our customers.
Speaker Change: Looking at our remaining performance obligations total opioid decreased 5% year over year, which was up 5% sequentially and our short term OPO or <unk>.
Speaker Change: <unk> 1 billion was down 9% year over year the year over year decline.
Speaker Change: The declines were primarily due to the two large customer losses previously mentioned.
Speaker Change: Looking at our outlook for the remainder of fiscal 'twenty five two factors are driving the updates to our guidance.
Eric Smit: Looking at our outlook for the remainder of fiscal 25, two factors are driving the updates to our guidance. First, the change to our P.S. implementations, as I discussed earlier, are reducing our P.S. revenue target by $2 million for fiscal year 25. Second, as Ashu mentioned, our AI Knowledge Hub is becoming a more strategic offering for global 1,000 enterprises focusing on customer service automation. As a result, we are seeing a growing number of seven-figure AR deals in our sales pipeline. However, with this strategic importance comes increased review cycles and extended timelines for final decisions and implementation.
Speaker Change: First the change to our PSS implementations as I discussed earlier, while reducing our peers revenue target by 2 billion for fiscal year 'twenty five.
Speaker Change: Second is actually had mentioned our AI knowledge hub is becoming a more strategic offering for global 1000 enterprises, focusing on customer service automation as a result, we are seeing.
Number of seven figure deals in our sales pipeline. However, with the strategic importance comes increased review cycles and extended timelines for final decisions and implementation as such we wanted to give ourselves more cushion in the revenue guidance for fiscal 'twenty five to factor in the additional time that may be needed to clear.
Eric Smit: As such, we want to give ourselves more cushion in the revenue guidance for fiscal 25 to factor in the additional time that may be needed to close these large strategic deals.
Speaker Change: These large strategic deals.
Speaker Change: Now turning to our guidance for fiscal 2025 full year ending June 32025 based upon the points I just outlined we are updating our guidance as follows we are lowering our total revenue guidance range to $88 5 million to $90 million down from our original guidance of 92 to 93 million.
Eric Smit: Now, turning to our guidance for fiscal 2025, full year ending June 30th, 2025, based on the points I just outlined, we are updating our guidance as follows. We are lowering our total revenue guidance range to $88.5 million to $90 million, down from our original guidance of $92 to $93 million. Our revised expectations. is for SAS revenue to equal approximately 93% of total revenue for the year. Turning to the bottom line, we are lowering our non-GAP net income guidance range to $4.1 to $4.7 million, or $0.14 to $0.16 per share, but down from our original guidance range of $5 million to $6 million, or $0.17 to $0.20 per share.
Our revised expectations.
Speaker Change: As for SaaS revenue to equal approximately 93% of total revenue for the year.
Speaker Change: Turning to the bottom line, we are lowering our non-GAAP net income guidance range to $4, one to $4 7 million or 14 to 16 <unk> per share down from our original guidance range of $5 million to $6 million or 17 cents to <unk> 20 per share.
Speaker Change: And we are raising our GAAP net income guidance range to $1 1 million to $1 7 million or <unk> <unk> per share up from our original guidance range of breakeven to $1 million or zero to three cents per share.
Eric Smit: And we are raising our GAAP net income guidance range to $1.1 million to $1.7 million, or $0.04 to $0.06 per share, up from our original guidance range of breakeven to $1 million, or $0 to $0.03 per share. We now estimate share-based compensation expense of approximately $3 million for the year, and depreciation and amortization expense of approximately $350,000. Looking at weighted average shares outstanding, we expect approximately $28.5 million for the third quarter and $28.6 million for the full fiscal year.
Speaker Change: We now estimate share based compensation expense of approximately $3 million for the year.
Speaker Change: Depreciation and amortization expense of approximately 350000.
Speaker Change: Looking at weighted average shares outstanding we expect approximately $28 5 million for the third quarter and 28 6 million for the full fiscal year.
Eric Smit: Turning to our guidance for the third quarter of fiscal 2025. We expect total revenue of between $21 million to $21.5 million. As a reminder, the fewer number of days in Q3 has an approximate 330,000 negative impacts on the revenue for the quarter. In addition, in our Q2 revenue included approximately 600,000 of usage-based revenue, which we do not expect to recur in Q3. Turning to the bottom line for Q3, we expect gap net loss of $300,000 to $800,000, or $0.01 to $0.03 per share, which includes stock-based compensation expense of approximately $800,000 and depreciation and amortization expense of approximately $80,000.
Speaker Change: Turning to our guidance for the third quarter of fiscal 2025.
Speaker Change: We expect total revenue of between 21 to 'twenty one.
Speaker Change: $5 million as a reminder, the fewer number of days in Q3 has approximately 330000 negative impacts on the revenue for the quarter. In addition in our Q2 revenue.
Speaker Change: Diluted approximately 600 of thousands of usage based revenue, which we do not expect to recur in Q3.
Speaker Change: Turning to the bottom line for Q3, we expect GAAP net loss of 300000 to 800000 or <unk> <unk> per share, which includes stock based compensation expense.
Speaker Change: Approximately 800000 in depreciation and amortization expense of approximately 80000.
Eric Smit: We expect non-GAAP net income of breakeven to $500,000 or $0.02 per share.
Speaker Change: We expect non-GAAP net income of breakeven to 500000 or <unk> <unk> per share.
Eric Smit: In summary, we won several new enterprise logos in the second quarter that drove our AI knowledge ARR up 17% year-over-year. We see our AI knowledge have become more strategic, resulting in a growing number of seven-figure ARR deals in our sales pipeline. The strategic importance of these opportunities is extending the sales cycle that we believe it sets us up well for continued acceleration in the growth of our AI knowledge business going forward.
Speaker Change: In summary, we won several new enterprise logos in the second quarter that drove our AI knowledge or up 17% year over year.
Speaker Change: We see our AI knowledge are becoming more strategic resulting in a growing number of seven figure.
Speaker Change: Our deals in our sales pipeline the.
Speaker Change: The strategic importance of these opportunities is extending the sales cycle.
Speaker Change: It sets us up well for continued acceleration in the growth of our AI knowledge business going forward.
Speaker Change: Lastly on the Investor Relations calendar, we'll be meeting with investors at the annual Roth Conference on March 17th.
Eric Smit: Lastly, on the Investor Relations Calendar, eGain will be meeting with investors at the annual Roth Conference on March 17. We'll provide more details as we get closer to that date and hope to see some of you there in person.
Speaker Change: We will provide more details as we get closer to that date and hope to see some of you there in person.
Eric Smit: This concludes our prepared remarks.
Speaker Change: It concludes our prepared remarks, operator, we will now open the call for questions.
Operator: Operator, we will now open the call for questions. Thank you very much. We will now begin the question-and-answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then 2. At this time, we will pause momentarily to assemble our roster.
Speaker Change: Thank you very much we will now begin the question and answer session.
Speaker Change: The question you May Press Star then one on your telephone keypad.
Speaker Change: If youre using a speakerphone please pick up your handset before pressing the keys.
Speaker Change: Withdraw your question. Please press Star then two.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Speaker Change: Today's question comes from Jeff Van <unk> with Craig Hallum. Please go ahead.
Jeff VanRhee: Today's question comes from Jeff VanRhee with Craig Hallam. Please go ahead.
Ashutosh Roy: Great. Thanks for taking my questions, guys. A couple. Just obviously professional services, as you described, the bulk of the reduction to the guide. Just talk about the evolution of what's gone on there. I have it yet at a couple million Q1, a million and a half Q2, and a $2 million cut with two quarters remaining. It's pretty substantial given the scope of that organization. So talk about just kind of what's played out there. It seems pretty rapid, whatever's playing out there.
Speaker Change: Oh, great. Thanks for taking my questions guys. A couple of just obviously professional services yeah. As you described the bulk of the the reduction to the guide can you just talk about the evolution of what's gone on there I haven't yet at a couple of million Q1, a million and half to two and a 2 million cut for with two quarters remaining is pretty substantial given the scope of that organization. So.
Speaker Change: Talk about just kind of what's played out there. It seems it seems pretty rapid whatever's playing out there and then along with that question. Obviously, if the revenue base is that substantially reduced any staffing adjustments you need to make there or do you expect that to come back at some point.
Ashutosh Roy: And then along with that question, obviously, if the revenue base is that substantially reduced, any staffing adjustments you need to make there, or you expect that to come back at some point? So, yeah, let's start with the driver for the reduction. So, as Eric mentioned, it's two things. The primary one is what Eric said, which is we keep trying to add more and more connectors and pre-built capabilities in the product so that the effort required for custom integration goes down. So, that's something which we are driving more and more also on the front end, building out more and more templates that are out-of-the-box so that people can consume the knowledge faster without having to build custom interfaces to use it.
Speaker Change: Right I just was actually here so yeah.
Speaker Change: Let's start with.
Speaker Change: The driver for the reduction.
Speaker Change: Eric mentioned.
Speaker Change: The primary one has looked at it said, which is we keep trying to add more and more connectors and we built the capabilities of the product. So that the efforts required for custom integration goes down.
Speaker Change: So that's something which we are driving more and more also on the front end building out more and more template that all out of the box. So that people can consume the knowledge faster without having to build custom interfaces to use it.
Ashutosh Roy: So, that's the primary driver, but the second one, which is also, I think, important, is that we are also developing some partnerships, and that's still something we want more and more of to try to create third-party capabilities to implement our solution. So, the combination of those two is creating that big reduction. Like I said, outside of the estimation adjustment, this is a desirable thing for us. I think from the cost side, we'll certainly look to look at those spends appropriately, right? We'll see if those resources can be reallocated or reduced to align with the revised numbers.
Speaker Change: So that that's the primary driver, but the second one which is also I think important.
Speaker Change: Is that we.
Speaker Change: We are also developing some partnerships and that's still something we want more and more rock.
Speaker Change: To create third party capabilities to implement our solution. So the combination of those two is creating that big reduction that.
Speaker Change: Like I said outside of the.
Speaker Change: Estimation adjustment and this is a desirable thing for us.
Speaker Change: Mhm.
Speaker Change: I think from a cost side.
Speaker Change: When you look too.
Speaker Change: Look at those those spends appropriate you're right, we'll see if those resources can be reallocated or reduced to align with the with the revised numbers.
Jeff VanRhee: Okay. All right, helpful.
Speaker Change: Okay.
Speaker Change: That's helpful and then the U S airline it sounds like a pretty compelling obviously large customer large potential customer talk about the operating environment what were they using on the knowledge management side, what did you displace.
Jeff VanRhee: And then the U.S. airline, it sounds like a pretty compelling, obviously, large customer, large potential customer.
Ashutosh Roy: Talk about the operating environment. What were they using on the knowledge management side? What did you displace? What was the competitive landscape in winning that deal? Yeah, so a couple of points. One, they had multiple knowledge systems. I didn't get into the detail in the prepared remarks, but they had multiple knowledge systems. They had a legacy solution, which was a standalone solution. They also had a CRM platform, in this case Microsoft, where they had a knowledge capability added to that as part of that as well. They had lots of SharePoint also because, as you can imagine, a large organization.
Speaker Change: What what was the competitive landscape in winning that deal.
Speaker Change: Yeah. So a couple of points one they have multiple knowledge systems I didn't get into the detail in the prepared remarks, but they have multiple health systems. They had a legacy solution, which was a standalone solution also had a CRM platform in this case.
Speaker Change: Microsoft where they had the knowledge capability added to that as part of that as well. They had lots of share point also because as you can imagine a large organization. So this was as much a replacement as it was a consolidation play for them.
Ashutosh Roy: So this was as much a replacement as it was a consolidation play for them. Okay, got it.
Speaker Change: Hum.
Jeff VanRhee: I'll leave it there. Thank you.
Speaker Change: Got it I'll leave it there thank you.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: As a reminder to ask a question you May press Star and then one.
Speaker Change: At this time, we're showing no further questions I would like to turn the call back over to management for closing remarks.
Operator: At this time, we are showing no further questions.
Jim Byers: I would like to turn the call back over to management for closing remarks. Thanks operator and thanks everyone for listening to the call and we look forward to providing you an update on the next conference call and hopefully see some of you at the Roth event in March. Thank you.
Speaker Change: Thanks, operator, and thanks, everyone for.
Speaker Change: Thanks for the call and we look forward to providing you an update.
On the next conference call and hope to see some of USPI rough event in March. Thank you.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.
Operator: The conference has now concluded. Thank you for attending today's presentation.
Operator: You may now disconnect your line.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: [music].