eGain Q1 2024 Earnings Call Transcript

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November 2, 2023

There are 6 speakers on the call.

Operator

Good day, and welcome to the eGain Fiscal 2024 First Quarter Financial Results Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference I'll turn the call over to Jim Byers of MKR Investor Relations.

Operator

Please go ahead.

Speaker 1

Thank you, operator, and good afternoon, everyone. Welcome to Egain's fiscal 2024 Q1 financial results conference call. On the call today are Egain's Chief Executive Officer, Ashu Roy and Chief Financial Officer, Eric Schmidt. 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.

Speaker 1

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 Egain's results are detailed on the company's reports filed with the Securities and Exchange Commission. EGain is making these statements as of today, November 2, 2023 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.

Speaker 1

The tables included with the earnings press release issued today include reconciliation of the historical non GAAP financial measures to the most directly comparable GAAP Financial Measures. And our earnings press release can be found by clicking the press release's And now I'd like to turn the call over to Egain's CEO, Ashu Roy.

Speaker 2

Thank you, Jim, and good afternoon, everyone. We are off to a good start to our fiscal year. Both our top and bottom line results exceeded our guidance and Street consensus for the quarter. Our adjusted EBITDA for the quarter at 12% was 600 basis points better than the year over quarter. Turning to business highlights, We closed some nice new logos in the Q1, including a large North American industrial distributor and a top 10 Canadian bank.

Speaker 2

We also saw continued expansion across our client base during the quarter. Some expansion clients included a large California state agency, one of the largest U. S. Utilities, A U. K.

Speaker 2

Financial Services Company, a global insurance provider and a U. S. Health plan management provider. Looking at the market, the macro environment remains challenging. At the same time, We see continued pickup in evaluations and decision making in our pipeline.

Speaker 2

These include new opportunities As well as reengagement from opportunities that were on hold. What we are really excited about is the launch of Assist GPT, our newest product that we announced at the customer event in London in September. It's a first of its kind solution that leverages generative AI to automate knowledge management, reducing human effort by up to 80%. The result is direct consumable answers served through contact center agents Reducing the cost of service. Assess GPT allows businesses to confidently use AI in the context of Reliable knowledge content, effective controls and rich analytics within Egame's compliance composable and Given the continued focus in the market on reducing business cost and improving agent experience, we believe that Assist GPT presents the biggest bang for the buck For businesses looking to invest in projects that improve business cost and Investment for customer service.

Speaker 2

Now with an offering like eGain Assist GPT, this recommendation can become reality. Speaking of Gartner, we are excited to note that Gartner recently published its 2023 Magic Quadrant for CRM Customer Engagement, and we were named a visionary this time. Last time around, we were in the niche category. The report from Gartner highlights our operationalized AI capabilities, our composable architecture, And our rich product functionality. We as a team could not be proud of.

Speaker 2

Turning to market awareness, our customer event in London in September was a resounding success. We had a record number of attendees And we had exciting customer success stories shared on stage, including presentations from RSA, a global insurance company Trig, a Nordic Insurance Giant and ALD Automotive, the largest vehicle leasing company in Europe. In addition, Yatra Pacific, one of our recent clients, presented their knowledge journey with Egain along with Deloitte, Our SI partner on this project. Finally, our Assist GPT announcement and deep dive demos generated a lot of buzz among customers and prospects. With our focus on knowledge management And particularly for customer service, our product innovation and improved analyst recognition positions us well as macro conditions improve.

Speaker 2

To conclude, three points I want to make. The first, Cost adjustments in our business over the last couple of quarters has helped improve our profitability even as we continue to invest in product innovation and customer success. While new logo acquisition is still relatively slow in this market, We are seeing increased pipeline activity from both new RFPs and reengagement from deals previously on hold. And finally, the market opportunity to help automate knowledge management for customer service is global, it's exciting and it's large. And we are well positioned to capitalize on it as conditions improve.

Speaker 2

With that, I'll ask Eric Smith, our Chief Financial Officer to add more color around our financial operations. Eric? Thanks, Ashu, and thanks everyone for joining us today.

Speaker 3

As Ashu noted, we delivered a significantly improved bottom line performance in the Q1, reflecting the adjustments we made to operate more profitably in the current environment of continuing to invest in product innovation and customer success. Let me share more detail about our financial results for Q1 before getting into our outlook and guidance for Q2 and fiscal 2024. Starting with revenue, total revenue for Q1 was $24,200,000 Above our expectations, but down 2% year over year. When looking at revenue by region, North America accounted for 79% of Total revenue this quarter, up from 77% in the year ago quarter. North America continues to be our primary focus And market where we see the greatest opportunity.

Speaker 3

Total revenue for North America was 19,000,000 Essentially unchanged year over year. In contrast, total revenue from Europe was $5,200,000 down 8% year over year. Looking at non GAAP gross profits and gross margins, gross profit for the quarter was $17,600,000 for a gross margin of 73% Compared to 76% for the prior year quarter and 74% last quarter. Now turning to operations, non GAAP operating costs for the quarter came in at $15,000,000 a 14% improvement from $17,500,000 in the year ago quarter, reflecting the expense controls we have implemented. Looking at our bottom line, non GAAP net income for the quarter was $3,800,000 or $0.12 per share.

Speaker 3

This is up approximately 90% on a dollar basis from non GAAP net income of $2,000,000 or $0.06 per share in the year ago quarter. Adjusted EBITDA margin for the quarter was 12%, up 600 basis points from 6% in the year ago quarter. Turning to our balance sheet and cash flows, we generated very strong cash flow from operations for the quarter of $8,100,000 for a 34% operating cash flow margin. During the quarter, under our share repurchase program, we purchased Approximately 83,000 shares for $517,000 at an average price of $6.23 per share. Of the $20,000,000 authorized, dollars 13,700,000 remained available as this program at the end of the quarter.

Speaker 3

Our balance sheet remains very strong. Total cash and cash equivalents at the end of the quarter was $79,800,000 Up from $71,500,000 a year ago. Now turning to our customer metrics, as I've mentioned on previous calls, Given our increased focus on North America markets, I'll share some additional customer metrics on a regional basis. LTM dollar based SaaS net retention for North America customers was 103%, while EMEA customer retention was 84% due to the churn we discussed on previous calls, resulting in our overall NRR dropping to 97% compared to 103% a year ago. SaaS ARR for North America customers increased 4% year over year, While total SaaS ARR decreased 1%.

Speaker 3

And looking at ARR by product hub, knowledge now makes up 25% of our total SaaS ARR. The number of $1,000,000 ARR customers remained relatively constant year over year. And looking at our remaining performance obligation or RPO, total RPO decreased 13% year over year to 82,400,000 while our short term Opio was $59,700,000 up 3% year over year. Now turning to our guidance. For the Q2 of fiscal 2024, we expect total revenue of between $23,000,000 to 23,600,000 Turning to the bottom line.

Speaker 3

For Q2, we expect GAAP net income of $800,000 to $1,400,000 or $0.03 to $0.04 per share, Which includes stock based compensation expense of approximately $1,500,000 and depreciation and amortization of We expect non GAAP net income of $2,300,000 to $2,900,000 or $0.07 to $0.09 Looking at the fiscal 2024 full year ending June 30, 2024, We are reiterating our previously provided total revenue guidance of between $96,000,000 to $98,000,000 With our increased profitability, we are increasing our non GAAP net income guidance to $12,100,000 to $4,600,000 Or $0.37 to $0.39 per share, up from $0.33 to $0.35 per share. And we are reiterating our GAAP net income guidance $6,600,000 to $7,100,000 or $0.20 to $0.22 per share, where we estimate Share based compensation expense of approximately $5,500,000 and depreciation and amortization expense of approximately $500,000 Looking at weighted average shares outstanding, we expect approximately 31,600,000 for the Q2 and 32,300,000 for the full year. So in summary, we delivered top and bottom line results ahead of both our projections and Street expectations. We are seeing positive results from the adjustments we made to our business operations to operate more profitably and generate increased cash flow Our new business sales team is working hard to close these deals.

Speaker 3

We also see significant growth opportunity ahead With our new Assist GPT offering, which is a first of its kind solution to automate knowledge for customer engagements. The opportunity for Egain is significant and we remain well positioned to capitalize on our expanding market opportunity with our strong balance sheet and cash Lastly, before I close, on the Investor Relations calendar, Egain will be in New York Later this month, meeting with investors at 2 investor conferences, we will be at the 12th Annual ROTH New York Conference on Wednesday, November 15 and at The annual Craig Hallum Alpha Select Conference the following day on Thursday, November 16. We hope to see you at these conferences. This concludes our prepared remarks. Operator, we will now open the call for questions.

Operator

We will now begin the question and The first question comes from Richard Baldry with ROTH Capital. Please go ahead.

Speaker 4

Thanks. Can you talk about sort of the early indications Getting on where the greatest interest is in the Assist GPT, I'm sort of curious if there's certain verticals that Seem to be looking at things faster. Is it to replace human interactions or For an ROI base sale or maybe to automate things they previously didn't want to address because they thought the human side may be too expensive. Just a little more color around where you're seeing sort of the first opportunities?

Speaker 2

Sure. So, Rich, this is Ashu here. So, with Assist GPT, we have Applied generative capability across the whole platform, but where there is real Interest in the market is around helping improve productivity in the knowledge creation, duration And improvement optimization kind of cycles, right? That part of the assistance that we are automating With GPT is what seems to be most exciting to people because with knowledge management that has always been one of the challenges. So For example, with the new solution we have, we are seeing improvement in productivity of that knowledge management team Going up by 3x to 4x, up to 80% improvement in sort of automation.

Speaker 2

So, that's what we are seeing as the biggest pull. We are also seeing interest in Agent Assist, but that area is kind of there are many providers who have that. We have it too. But the

Speaker 4

And You talked a little about what maybe your early thoughts are around pricing mechanisms, how much of a premium offering this would be or sort of Extension to existing things. Just to kind of give us an idea of how much this might expand your addressable market?

Speaker 2

That's a great question. Right now, we are making it super easy for people to try it and not create a barrier in terms of pricing upfront. But it's based on actual usage of the generative capability on the platform. That's the incremental fee. It's a little bit like How many sessions so how many GPT requests you make in our platform, we are pricing that and that's kind of the incremental Revenue generation for us, but the part we are focusing on today is and the initial market launch is driving more adoption and that's the approach we have taken.

Speaker 4

And this is obviously a lot of hype around The generative side of the world. So do you feel like the low hanging fruit is obviously going after existing customers who know you have a track record with you would feel comfortable Are quickly evaluating adopting or is this really kind of opening new opportunities where people are Seeking out vendors capable of offering solutions in the space rapidly with sort of some credibility. So we get an idea for how you're going to be attacking the market from that direction? Thanks.

Speaker 2

Yes. At this point, I think what we see with market interest is people even in the new logo conversations, People want a platform for knowledge that includes generative capability, but not Just generative capability, right? So in the enterprise where we are selling, generative is a great Addition and differentiation and excitement, but there's still a core need for a knowledge hub for all the core need of correct Content, controls, analytics, all of the rest of it. So that's the place where we are focusing now.

Speaker 4

Great. Thanks for your help.

Operator

The next question comes from Daniel Huebschmann with Craig Hallum Capital Group. Please go ahead.

Speaker 5

Hey, guys. Thanks for taking my question. This is On for Jeff Van Rhee. Just on the improvement in pipeline activity, some of that reengagement you're seeing of clients We're in a sales cycle and previously were on hold. Just maybe if you could give us any additional color on those conversations, what those conversations are like, what's driving those customers To be engaged, if there's any common themes either in terms of the conversations or the verticals that are coming back, just any additional thoughts there?

Speaker 2

So, one dimension we see is businesses seem to have Gotten back into evaluating and running RFPs and structured sort of buying process. You're seeing that happening much more often now. So tire kicking is much less than say 6 months ago. So that's a big change we are seeing across the board. So many more of the early stage Our results are resulting in time bound RFPs.

Speaker 2

So that's one change. We are seeing that across the board. In terms of verticals, I would say Financials and insurance seem to be fronting that. There's more excitement in that space on a vertical basis, but others are also getting in. So it's not that it's only in Financial Services and Insurance.

Speaker 2

But yes, that sector seems to be leading the others.

Speaker 5

And then maybe just one follow-up for me. In terms of the macro headwinds, just if we can dial that in a little bit in terms of do you see this Mostly as general tech budget pressure, is it particular to the contact center, is this particular to knowledge Management, is it uniquely the combination of general macro pressure as well as people taking a step back

Speaker 2

I would say the AI assessment Seems to have run its course a little bit, not entirely. I'm sure there are quite a few companies that are still doing that. But we see people who are coming back from their assessments and saying, all right, we need AI. We also need AI in the context of A knowledge platform so that we can actually use it and rely on it, right? So that's one thing I'll comment in the macro sense.

Speaker 2

I would say the other big comment would be just overall geopolitical uncertainty and the economic Environment, I think that budgets are still fairly cautious. That's the sense we get, but we do see Items being budgeted for calendar 2024. So there is a little bit of loosening of the purse strings, but not As much as one would expect in a sort of more stable economic environment.

Speaker 5

Thanks so much for the answers.

Operator

As there are no further questions, I would like to turn the conference Back over to management for any closing remarks.

Speaker 3

Thanks, operator, and thanks everybody for listening to the call. We look forward to Hopefully seeing some of you at the investor conferences later this month and providing the updates at the end of our next quarter. Thank you.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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Earnings Conference Call
eGain Q1 2024
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