eGain Corporation (NASDAQ:EGAN) Q2 2024 Earnings Call Transcript
eGain Corporation (NASDAQ:EGAN) Q2 2024 Earnings Call Transcript February 8, 2024
eGain Corporation beats earnings expectations. Reported EPS is $0.11, expectations were $0.08. EGAN isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day and welcome to the eGain Fiscal 2024 Second Quarter Financial Results Call. All participants will be in listen-only mode. [Operator Instructions] 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 over to Jim Byers of MKR Investor Relations. Please go ahead.
Jim Byers: Thank you, operator and good afternoon everyone. Welcome to eGain's fiscal 2024 second quarter financial results conference call. On the call today are eGain's Chief Executive Officer, Ashu 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 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, February 8, 2024, 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. 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 link on the Investor Relations page of eGain's website at egain.com. And along with the earnings release, we will post an updated investor presentation to the Investor Relations page of eGain's 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 eGain's CEO, Ashu Roy.
Ashu Roy: Thank you, Jim and good afternoon everyone. Our top and bottom-line results for the quarter have exceeded our guidance, and our AssistGPT AI offering is being well-received by the market and helping us win new logos. Turning to business, we signed several new logos in the quarter. Some notable wins here. A global investment management company chose eGain to modernize their knowledge management capability. Their services staff was struggling to find answers in what are long, complex documents in their business, spread across many silos. They selected eGain based on our ability to unify that knowledge and deliver consumable answers using generative AI in a safe, auditable way. Another new logo is a membership-based primary care practice, which is in hyper-growth mode.
They selected eGain to enable their associates with a unified knowledge platform. Again, they will integrate all their content and knowledge sources on the eGain platform and use our AssistGPT capability to deliver easy answers and ramp up the new hires. And lastly, I mentioned a pioneering US-based mutual auto insurance company. They selected us to streamline their agent experience and therefore, improve their customer experience. They've gone live with eGain already for the service group and are now looking to rollout the knowledge capability across the enterprise. We also saw good expansion from existing customers during the quarter. A couple of notable ones, a large P&C insurance company and the global electronic component distributor. Turning to renewals.
In the current macro environment, we are working hard to serve and retain customers as they look to reduce their operating costs. We've had good renewals in the quarter, including large health care insurance clients, an industry-leading HCM SaaS solution provider, and a large multinational bank. At the same time, we have received notice from two large clients about their intent to not renew with us. The first is a Conversation Hub client. They're choosing to consolidate vendors for all their digital customer communications. The second is an Analytics Hub client. They are choosing to build out their homegrown capability to measure and manage their contact centers. The combined ARR of these two accounts is approximately $8 million. These churn events are challenging as they are not factored in our fiscal 2024 plan.
At the same time, we are very encouraged by the growing interest in our AssistGPT proposition. Our new logo pipeline is growing nicely with knowledge and AI opportunities. We're also feeling good about our new logo sales performance in the quarter. And as macro conditions improve, we believe we can grow our new logo positions without adding sales capacity. Our new AssistGPT and Instant Answers capabilities are generating lots of market interest. With this AssistGPT, customers can speed up knowledge creation by 4x. For an early client in the energy vertical who we'll be piloted with, what historically would have taken eight weeks of human effort was done in less than two weeks. With Instant Answers, another AI product, agents get much better and faster answers from our knowledge base.
At one of our insurance clients -- insurance, this is P&C insurance, agents have seen more than a double improvement in speed to answer, even as answer quality has improved. Our product investments and leadership continues to be recognized by the market and clients. We were honored to be the sole recipient of the 2023 KM Promise Award from KMWorld Magazine. This award recognizes the provider with best delivers on the promise to customers with innovative solutions integrated into their business process. Also in November, eGain was named a Visionary in the Gartner Magic Quadrant for CRM Customer Engagement. We had mentioned this in our prior call. But that was followed by our receiving the top rating for knowledge management in the 2023 Gartner Critical Capabilities Report, and that was something new that we had not mentioned before.
We continue to invest at this intersection of AI knowledge and digital technologies to extend our product leadership. To conclude, we see good momentum in new logo wins and pipeline activity. We continue to invest in innovative AI capabilities like AssistGPT and Instant Answers to enhance our Knowledge Hub. And as market conditions improve, we are well-positioned to capitalize on this big opportunity to help automate knowledge for customer service. With that, I'll ask Eric Smit, our Chief Financial Officer, to add more color around our financial operations. Eric?
Eric Smit: Thanks Ashu and thanks everyone for joining us today. We delivered another quarter of significantly improved profitability and strong cash flow from operations. Both our top and bottom-line results exceeded our guidance and Street expectations. Let me share more detail about our financial results for Q2 before getting into our outlook and guidance for Q3 and fiscal 2024. Starting with revenue. Total revenue for Q2 was $23.8 million, above our expectations, but down 7% year-over-year, reflecting the current cautious spending environment and the tough comparison, where last year, we benefited from a seasonal volume increase of approximately $1 million that did not repeat this year. And looking at the revenue by region, North America accounted for 79% of total revenue this quarter, up from 77% in the year ago quarter.
Total revenue from North America was $18.8 million, down 5% from last year, whereas in contrast, total revenue from Europe was $5 million, down 14% year-over-year. Looking at non-GAAP gross profits and gross margins, gross profit for the second quarter was $17.1 million for gross margin of 72% compared to 75% for the prior year quarter and 73% last quarter. Now, turning to operations. Non-GAAP operating costs for the second quarter came in at $13.5 million, a 22% improvement from $17.3 million in the year ago quarter, reflecting the expense controls we have implemented. Looking at the bottom-line, non-GAAP net income for Q2 was $3.4 million or $0.11 per share, up 100% on a dollar basis from non-GAAP net income of $1.7 million or $0.05 per diluted share in the year ago quarter.
Adjusted EBITDA margin for the quarter was 16%, up 700 basis points from 9% 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 $7.7 million or a 32% operating cash flow margin. During the second quarter, under our share repurchase program, we repurchased approximately 391,000 shares or $2.5 million at an average price $6.39 per share. Of the $20 million authorized, $11.2 million remain available under the program at the end of the quarter. Our balance sheet remains very strong. Total cash and cash equivalents at the end of the quarter were $86.8 million, up from $80.9 million a year ago. Now, turning to our customer metrics. With our continued focus on knowledge, as outlined by Ashu, this quarter and going forward, I will share some additional customer metrics for our knowledge customers.
First, looking at our LTM dollar-based SaaS, net retention from knowledge customers was 103%, while our total net retention dropped down to 94%. The LTM dollar-based SaaS net expansion rate for knowledge customers was 113%, while our total net expansion rate was 106%. Looking at our total ARR. The total SaaS ARR for knowledge customers increased 6% year-over-year, while the total SaaS ARR decreased 13% year-over-year. Looking at our remaining performance obligation, total RPO decreased 15% year-over-year to $77.9 million and our short-term RPO was $55.8 million, down 4% year-over-year. Now, turning to our guidance. For the third quarter of fiscal 2024, we expect total revenue of between $22.6 million to $23 million. Turning to the bottom-line, for Q3, we expect GAAP net income of $400,000 to $1 million or $0.01 to $0.03 per share, which includes stock-based compensation expense of approximately $1.2 million and depreciation and amortization of $100,000.
We expect non-GAAP net income of $1.6 million to $2.2 million or $0.05 to $0.07 per share. For the full year fiscal 2024, given the increased churn, as outlined by Ashu, we are revising our previously provided guidance as follows. For fiscal 2024 full year ending June 30th, 2023, we now expect total revenue of between $92 million to $93 million, non-GAAP net income of $9.3 million to $9.8 million or $0.29 to $0.31 per share, and GAAP net income of $4.5 million to $5 million or $0.14 to $0.16 per share. We estimate share-based compensation expense of approximately $4.8 million and depreciation and amortization expense of approximately $500,000 for the year. Looking at weighted average shares outstanding, we expect approximately 31.9 million for the third quarter and for fiscal 2024, 32 million for the full year.
So, in summary, while the macro environment remains challenging, we are very pleased with the increased number of new knowledge customer wins in Q2, and we expect to see continued positive momentum in new business activity, going forward, given the level of interest for our new AssistGPT product offering. The opportunity for eGain is significant and with our leadership and focus on knowledge and AI, we remain well-positioned to capitalize on the expanding of market opportunity with our strong balance sheet and cash flow generation. Lastly, on the Investor Relations' calendar, eGain will be presenting and meeting with investors at the Annual ROTH Conference taking place March 17th to March 19th in Dana Point, California. We'll be providing more details as we get closer to that date and hope to see some of you there in-person.
This concludes our prepared remarks. Operator, we will now open the call for questions.
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