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eGain Company (NASDAQ:EGAN) This fall 2023 Earnings Name Transcript September 14, 2023 5:00 PM ET
Firm Members
Jim Byers – IR, MKR IR
Ashu Roy – CEO
Eric Smit – CFO
Convention Name Members
Richard Baldry – ROTH MKM
Jeff Van Rhee – Craig-Callum
Operator
Good day and welcome to the eGain Fiscal 2023 Fourth Quarter and Full Yr Monetary Outcomes Convention Name. All members might be in a listen-only mode. [Operator Instructions] After at the moment’s presentation, there might be a chance to ask questions. [Operator Instructions] Please be aware, this occasion is being recorded.
I might now like to show the convention over to Jim Byers with MKR Investor Relations. Please go forward.
Jim Byers
Thanks, operator, and good afternoon, everybody. Welcome to eGain’s fiscal 2023 fourth quarter and full yr monetary outcomes convention name. On the decision at the moment are eGain’s Chief Govt Officer, Ashu Roy, and Chief Monetary Officer, Eric Smit.
Earlier than we start, I want to remind everybody that in this convention name, administration will make sure forward-looking statements which convey administration’s expectations, beliefs, plans and targets concerning future monetary and operational efficiency. Ahead-looking statements are usually preceded by phrases comparable to consider, plan, intend, count on, anticipate, or related expressions, and forward-looking statements are protected by secure harbor provisions contained within the Personal Securities Litigation Reform Act of 1995. These forward-looking statements are topic to a variety of dangers and uncertainties that might trigger precise outcomes to vary in materials respects. Data on varied elements that might have an effect on eGain’s outcomes are detailed within the firm’s experiences filed with the securities and trade fee. eGain is making these statements as of at the moment, September 14, 2023, and assumes no obligation to publicly replace or revise any of the forward-looking data on this convention name.
Along with GAAP outcomes, we will even talk about sure non-GAAP monetary measures comparable to non-GAAP working earnings. The tables included with the earnings press launch embody reconciliation of the historic non-GAAP monetary measures to probably the most immediately comparable GAAP monetary measures. As well as, eGain’s earnings press launch may be discovered by clicking the press launch hyperlink on the Investor Relations web page of eGain’s web site at egain.com. And together with the earnings launch, we’ll publish an up to date investor presentation to the Investor Relations web page of eGain’s web site. And lastly, a telephone replay of this convention name might be accessible for one week.
And now with that mentioned, I would like to show the decision over to eGain’s CEO, Ashu Roy.
Ashu Roy
Thanks, Jim, and hi there, everybody. We have had a stable yr regardless of a tough financial setting via the fiscal yr. Our complete income for fiscal 2023 grew 7% year-over-year to $98 million. Our non-GAAP web earnings was $8.4 million or $0.25 per diluted share. And we purchased again $5.8 million of our personal inventory whereas nonetheless producing good money circulation from operations for the yr of $4.6 million, rising our money stability to only above $73 million on the finish of the fiscal yr.
Wanting on the fourth quarter, each our high and bottom-line outcomes had been forward of our steering and road consensus. We noticed good renewals from our present prospects through the quarter, together with a number of huge ones, multi-million greenback ARR shoppers. On the similar time, new emblem acquisition continued to be difficult within the quarter as choices proceed to get pushed out. Stepping again, as I take a look at the yr, I wish to share what I see as market developments, and that impacts how we’re planning to function in fiscal 2024.
As you all know, in late 2022, calendar, the ChatGPT announcement positively ended up impacting our new emblem acquisition plans in an already difficult macroeconomic setting when companies had been retrenching they usually had been scrutinizing their know-how investments. Lots of our energetic enterprise alternatives paused to evaluate how ChatGPT and extra broadly generative AI would affect their buyer engagement investments going ahead.
Now, curiously, over the past couple of months, we’re seeing that companies appear to have largely run via their preliminary evaluation train. And a number of other of them we see are, once more, prioritizing a data hub, which might function a dependable and compliance-ready supply of content material for generative AI instruments to be taught from and contribute to. Particularly, we are actually seeing enterprises searching for these fashionable data hub platforms the place they’ll plug and play their generative AI IP that they appear to be engaged on internally. On the similar time, we’re seeing some companies with legacy data programs which can’t benefit from these generative AI capabilities as effectively. These companies appear to be seeking to re-platform.
So these two developments, they’re type of ensuing within the quantity of elevated RFP and pilot exercise for us, which has ramped up properly within the final two, 2.5 months, primarily this present quarter. What appears to us is that generative AI is elevating the significance of and rejuvenating the demand for data hubs. Companies wish to optimize their enterprise expertise and drive productiveness with AI-powered automation. And buyer engagement appears to be a preferred beachhead to begin that.
our shoppers, we proceed to do very effectively with them. Our shopper satisfaction ranges are at an all-time excessive, inching as much as about 4.8 on a scale of 5 on the Gartner peer evaluations web site. Our shoppers wish to make investments extra in implementing their data methods to drive extra automation throughout all buyer contact factors, each agent assisted in addition to self-service.
Turning to enterprise outlook for fiscal 2024. We’re optimistic concerning the demand development. As I discussed, it is jumped up within the final 2.5 months in comparison with the primary half of calendar 2023. We see re-engagement from a number of alternatives which have stalled in our pipeline. And we see new ones coming in. And I am speaking about Fortune 500 firms right here. So we do consider that we are going to see new international momentum enhancing in fiscal 2024. Nonetheless, we consider it is prudent to stay cautious from a planning and forecasting perspective as a result of the macroeconomic setting continues to be considerably unsure.
Over the previous couple of quarters, now we have made the mandatory changes to replicate our warning and align our enterprise operation to an setting the place we are able to nonetheless proceed to put money into product innovation and buyer success in addition to prosecute these gross sales alternatives successfully, however do it with a view that we’re nonetheless navigating via what looks as if the again half of the market decelerate.
On the gross sales and advertising and marketing entrance, we’re very enthusiastic about our upcoming annual buyer convention, eGain Clear up 23, which we’re holding in London. That is on September 25. Convention registrations are at an all-time excessive for us for this occasion, which incorporates shoppers, prospects, companions. We’ll have shoppers, many, really six of them, sharing buyer tales and successes and journeys with eGain, the innovation. And we, eGain, might be asserting and demonstrating some new thrilling capabilities on the convention as effectively.
To conclude, primarily based on our current improved pipeline exercise, we consider that the marketplace for data hubs is working again up. As I discussed, we are actually engaged in additional RFPs and pilots, the truth is, greater than now we have ever been within the final 12 months. Nonetheless, we proceed to be cautious and conscious of the broader financial uncertainty. And so, with the operational changes in place that now we have made, we really feel that we are able to proceed to put money into product innovation and buyer success whereas pursuing these enterprise alternatives which are reengaged with us and the brand new ones which are coming in. Lastly, we’re tremendous enthusiastic about Clear up 23 and we invite you to hitch us at this occasion in London for those who can on September twenty fifth.
With that, I am going to ask Eric Smit, our Chief Monetary Officer, so as to add extra shade round our monetary operations. Eric?
Eric Smit
Thanks, Ashu, and thanks everybody for becoming a member of us at the moment. Let me share some monetary highlights for the quarter and full yr earlier than entering into our outlook and steering for fiscal 2024. Complete income for the fourth quarter was $24.6 million, up 5% year-over-year, and up 7% sequentially. Contribution from Cisco OEM was constructive this quarter and helped drive income above our steering. SaaS income for This fall was $22.7 million, up 10% year-over-year. And for the total yr, complete income was $98 million, up 7% year-over-year, or up 9% in fixed forex. SaaS income for the total yr was $89.6 million, or up 11% year-over-year, or up 13% in fixed forex. And legacy income in This fall was down to only $99,000.
When taking a look at income by area. In This fall, North America accounted for 80% of complete income this quarter, up from 74% within the year-ago quarter. For the total yr, North America accounted for 78% of complete income, up from 73% within the prior yr. In This fall, complete income from North America was $19.6 million, up 13% year-over-year, the place in distinction, complete income from Europe was $5 million, a lower of 19% year-over-year.
non-GAAP gross earnings and gross margins. Gross revenue for the fourth quarter was $18.2 million, up 3% year-over-year for a gross margin of 74% in comparison with 75% for the prior yr quarter, however up from 69% final quarter. For fiscal 2023, gross revenue was $72.2 million, or a gross margin of 74% in comparison with a gross margin of 77% for the prior yr.
Now turning to operations, non-GAAP working prices for the fourth quarter got here in at $14.9 million, down 12% from $16.9 million within the year-ago quarter, reflecting the expense controls now we have applied. our backside line for This fall, non-GAAP working earnings for the fourth quarter was $3.3 million or an working margin of 13%, up considerably from 3% within the year-ago quarter and 4% final quarter. Non-GAAP web earnings for This fall was $3.6 million or $0.11 per share as in comparison with non-GAAP web earnings of $893,000 or $0.03 per diluted share within the year-ago quarter. Adjusted EBITDA margin for the quarter was 16% in comparison with 4% within the year-ago quarter.
For the total fiscal yr, non-GAAP working earnings for the fiscal yr was $7.6 million or an working margin of 8% in comparison with an working margin of 10% for the prior yr. Non-GAAP web earnings was $8.4 million or $0.26 per share on a fundamental foundation and $0.25 per share on a diluted foundation. This compares to non-GAAP web earnings of $8.9 million or $0.28 per share on a fundamental and $0.27 per share on a diluted foundation within the prior fiscal yr. Adjusted EBITDA margin for the fiscal yr was 9% in comparison with 11% within the prior fiscal yr.
Turning to our stability sheet and money flows. We continued to generate good money flows from operations whereas shopping for again shares of our inventory. For the total fiscal yr, money circulation from operations was $4.6 million, or a 5% working money circulation margin. Throughout FY ‘23, below our share repurchase program we bought roughly 786,000 shares, totaling 5.8 million. Of the $20 million approved, $14.2 million stay accessible below this system on the finish of the fiscal yr. Our stability sheet stays sturdy. Complete money and money enhancements on the finish of the fiscal yr was $73.2 million, up from $72.2 million a yr in the past.
Now turning to our buyer metric. We noticed sturdy renewals from our present buyer base with over $20 million in ARR renewing through the quarter. And as I had talked about on earlier calls, given our elevated concentrate on North American markets, I’ll share some extra buyer metrics on a regional foundation. LTM dollar-based SaaS web retention for North America prospects was 106%, whereas EMEA buyer’s retention continued under 100% because of the churn we had mentioned on earlier calls, leading to our complete NRR, web retention charge, dropping to 100% in comparison with 105% a yr in the past. SaaS ARR for North America prospects elevated 8% year-over-year, whereas complete SaaS ARR elevated 3%. And taking a look at ARR by product hub, data now makes up 47% of complete SaaS ARR, as data offers have accounted for two-thirds of recent bookings within the final 12 months. The variety of $1 million ARR prospects remained comparatively fixed year-over-year.
our RPO. Complete RPO decreased 3% year-over-year to $97.3 million, however elevated 11% sequentially with the sturdy renewals closed within the quarter. And our short-term RPO was $66.7 million, up 6% year-over-year, however up 28% sequentially, once more, because of the sturdy renewals within the quarter.
Now, turning to our steering. For the primary quarter of fiscal 2024, we count on complete income of between $23.5 million to $24 million. Turning to the underside line, for Q1, we count on GAAP web earnings of $500,000 to $1 million or $0.02 to $0.03 per share, which incorporates stock-based compensation expense of roughly $1.2 million and depreciation and amortization of roughly $120,000. We count on non-GAAP web earnings of $1.7 million to $2.2 million or $0.05 to $0.07 per share.
Wanting on the fiscal 2024 full yr ending June 30, 2024, we count on complete income of between $96 million to $98 million, non-GAAP web earnings of $11.8 million to $4.3 million, or $0.37 to $0.38 per share, and GAAP web earnings of $7.6 million to $8.1 million, or $0.24 to $0.25 per share, the place we estimate share-based compensation expense of roughly $4.2 million, and depreciation and amortization of roughly $500,000. weighted common shares excellent, we count on roughly 32.2 million for the primary quarter and for the total fiscal yr of ‘24.
So in abstract, now we have adjusted our enterprise operations to a stage the place we are able to function profitably within the present setting. Our gross sales and advertising and marketing investments are on the proper stage, and we’re seeing extra alternatives developed within the pipeline. Total, our present enterprise is doing effectively, as evidenced by the wholesome renewals we booked within the quarter. Innovation is on observe with some thrilling bulletins to return at our Clear up 23 buyer occasion in London later this month. We applied a share repurchase program that we plan to proceed in fiscal ‘24. And the chance for eGain is important. We stay effectively positioned to capitalize on our increasing market alternative and with our sturdy stability sheet and money circulation technology.
Lastly, on the Make investments Relations calendar, eGain might be assembly with traders on the twelfth Annual ROTH New York Convention on November fifteenth and the Annual Craig-Hallum Alpha Choose Convention additionally in New York on November sixteenth. We hope to see a few of you there in particular person.
This concludes our ready remarks. Operator, we’ll now open the decision for questions.
Query-and-Reply Session
Operator
We’ll now start the question-and-answer session. [Operator Instructions] Our first query comes from Richard Baldry with ROTH MKM. Please go forward.
Richard Baldry
Thanks. If you discuss concerning the RFP pipeline beginning to speed up, cease pausing, no matter you wish to give it some thought, are the RFPs which are coming again explicitly speaking about AI performance, both included or able to the APIs, some demonstration of the power to work together with the brand new generative AI engines, is that type of one of many alerts that is telling you that persons are type of getting via their evaluation course of? Thanks.
Ashu Roy
That is precisely proper, Richard. So what we’re seeing is these RFPs in some instances have been reissued. In different instances, they’d not issued any RFPs as a result of folks had been nonetheless form of deciding whether or not they had been going to take a position or not, proper, there have been a lot of conversations, however no structured RFP but. However I might say just about each single RFP now within the final two months that now we have been working with, have generative AI in a type of three configurations or asking what all are you able to do, proper? Do you might have in-built generative in your data platform? do you might have it as an choice that I can plug in? Or is there one thing else that you just do that’s completely different? So these type of three questions come up.
Richard Baldry
And with the tempo of the RFPs coming again, and you lately streamlined a few of your prices within the gross sales and advertising and marketing aspect. Do you’re feeling such as you’re appropriately staffed to deal with it for now? What sort of alerts or progress in that RFP quantity would it’s essential to see to say, perhaps we should always return and begin including head counts, given it takes a while to get them up and operating?
Ashu Roy
Yeah, yeah. So this time round, we’re type of staying near our knittings, which is, the massive alternatives. And so that offers us good headroom presently, I might say for the following couple of quarters, I do not suppose that we’ll want so as to add extra headcount. So perhaps within the fiscal fourth quarter, assuming issues proceed to ramp, that may be the time to take a look at extra headcount.
Richard Baldry
Thanks. And you’ve got been energetic within the purchase again. Can we discuss — do you might have a principle since your profitability stepped up of how a lot of money circulation must be allotted to that return of capital? Is it depending on M&A alternatives you would possibly see? How can we take into consideration the best way to count on that buyback to deploy?
Eric Smit
That was a very good query. I feel that is precisely the best way we’re evaluating it. I feel definitely on this setting, exploring inorganic alternatives is an space that we are going to possible pay nearer consideration to. I feel, given our sturdy stability sheets and the challenges that others are having within the market, we definitely wish to have funds accessible and we’ll look to extra fastidiously at this than we have performed prior to now. However with that mentioned, given our present type of, I might say, type of optimized price construction, given the present run charge, we definitely really feel comfy about persevering with to execute to the plan on the charge we have performed and hopefully speed up it if attainable given type of the place the present inventory worth is.
Richard Baldry
And final, perhaps, when you consider the AI performance that prospects are searching for, how a lot of that do you suppose is necessary to have the ability to do or present in-house type of bespoke versus having the ability to use APIs, no matter, to plug into our greatest of breed, whichever the client needs to work with externally? And for those who had been to look within the M&A aspect of the desk, wouldn’t it be one thing across the AI world you would be taking a look at, or are there different issues that’d be attention-grabbing? Thanks.
Ashu Roy
Proper. So I might say, Wealthy, apart from the very, very excessive finish of the market, there are — most firms, I consider, will search for multi function options round generative functionality, however not essentially the core know-how of generative being completely different, however the best way it’s utilized and the best way you wonderful tune it, these issues we intend to do ourselves, however not the core know-how, which clearly shouldn’t be our [daily work] (ph), and we do not suppose that is our place to put money into innovation. However how we join the dots and compose the options, completely. How we benefit from all of the loops of enchancment and optimization, completely. These are going to be the place we put money into. After which the — now we have a number of of those bigger prospects who clearly wish to have their very own generative functionality, however they wish to plug it into our data platform very tightly in order that they’ll get the very best of each worlds. In order that’s the extent we’re taking part in at. So I feel we’ll have our personal — with wonderful tuning and contextual optimization as the best way to distinguish after which have the power to compose and join into somebody who might have their very own generative functionality.
Richard Baldry
Possibly one final one, if I may. The recurring income line sequentially was up fairly strongly. Was there any one-time-oriented type of impacts inside that that we must be cautious about once we’re modeling trying ahead? Thanks.
Eric Smit
I feel, type of, as I identified and for those who recall on the earlier name, we do see some variability from quarter to quarter on the Cisco OEM. So final quarter, it got here in under the quantity and resulted within the decline the place on the flip aspect and as we type of had anticipated to some extent, type of given the commentary we might heard that business trip had been constructive that what we noticed this quarter was a wholesome uptick in that. So there’s positively that fluctuation that comes from that Cisco OEM enterprise that we’d be conscious of not essentially repeating once more within the coming quarter. So that is the one call-out that I might make.
Richard Baldry
Nice. Thanks to your assist.
Operator
Our subsequent query comes from Jeff Van Rhee with Craig-Callum. Please go forward.
Jeff Van Rhee
Nice, yeah, thanks for taking my questions. So on that annual information, discuss to me about what else you could be seeing that is supplying you with the warning. I imply you commented that the pipeline, in lots of respects, pilots et cetera, are actually breaking out to the constructive but the ahead information primarily guides for flat sequentials for some time. Speak past what you possibly can see in your pipeline that is inflicting you to not put any of it actually via into the information as a result of it is clearly effectively under the stream.
Ashu Roy
Yeah, that is — so, Jeff, the factor is, timing of closing these offers is the place we’d like extra proof to have closed some huge offers within the, this quarter and subsequent to say, okay, the cadence is beginning to be extra predictable on the shut, proper? So now we have a number of alternatives the place we deepen the dialogue and settlement and the whole lot is okay, however the query is when are we going to signal? And that course of nonetheless appears slightly bit macroeconomic influenced, proper? So that is the problem we’re making an attempt to navigate with this query.
Jeff Van Rhee
Okay. That is useful. After which, the AI offers you talked about, form of GPT got here out, froze issues, lots of people took a take a look at it, went away, some got here again. Of those that did not come again, what did you be taught? I imply, what did they select to do and the way do you react to that to doubtlessly make your self extra engaging to these prospects as effectively?
Ashu Roy
It is a good query. My sense is that, to be sincere, I do not know the precise reply. However what we’re seeing is that some firms have determined that they may apply GPT or broadly generative functionality on present content material shops that they’ve, proper? And in order that — there’s a college of thought there. We do not consider that works with high quality and compliance and price effectiveness, however that is all the time been one of many issues that’s the substitute, is that may you might have [share point] (ph) and if I simply put GPT on it, will it remedy the issue? In order that’s form of the — I feel there’s going to be crossovers on that line each methods over time.
Jeff Van Rhee
Yeah, useful. After which final only for me, the companions, I feel you touched on Cisco form of ebbing and flowing. You’ve got bought a variety of key relationships. Possibly spend a second simply speaking about each your outlook on Cisco for the yr, how you’re feeling about that and why, after which the opposite key two or three that that both are displaying traction or are worthy of calling out?
Ashu Roy
Yeah, so on Cisco, I feel it is form of flat to modest upside, I might say. I would not say something greater than that, in all probability flat, however, Eric, [what’s your] (ph) take?
Eric Smit
Yeah. I feel that appears constant.
Ashu Roy
We have seen that year-over-year. So that may in all probability be the outlook there however with different companions which is — yeah, you are proper, now we have invested in among the bigger SIs, they’re equally challenged presently. Lots of their massive tasks are form of not getting the massive engagements and investments that shoppers have stalled on over the previous couple of quarters. So the truth is, I feel that we’re beginning to see extra engagement. Possibly we aren’t deep into that. We do not have visibility into their pipeline as a lot. So wouldn’t actually touch upon that. However I do suppose that the system integration companions appear fairly attention-grabbing to us, particularly in monetary companies, among the partnerships — we’re speaking to prospects who’re banks and insurance coverage firms who’ve been working with these companions, and people appear to be perking again up as effectively.
Jeff Van Rhee
Okay. Acquired it. Nice. Thanks for taking my questions. Respect it.
Ashu Roy
You are welcome.
Operator
As I present no additional questions presently, I want to flip the decision again over to the administration for any closing remarks.
Eric Smit
Thanks, operator, and thanks, everybody, for becoming a member of the decision at the moment. We sit up for hopefully seeing a few of you on the buyer occasion in London after which the upcoming investor conferences and we’ll be offering an replace as soon as we shut out our Q1. Thanks very a lot.
Ashu Roy
Thanks.
Operator
This concludes the convention at the moment. Thanks for attending at the moment’s presentation. You might all now disconnect. Thanks.
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