Earnings call transcript: eGain Q2 2024 misses EPS forecast, stock drops
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Overview
The earnings call reveals several negative indicators: lowered revenue and net income guidance, a decline in total revenue and gross margins, and increased operating costs. Despite some positive developments like new enterprise logos and share repurchases, these are overshadowed by competitive pressures, economic factors affecting client retention, and operational challenges. The Q&A highlights uncertainties in professional services, adding to concerns. Given the overall negative sentiment and the lack of market cap information, a 'Negative' stock price movement is anticipated over the next two weeks.
Key Financial Performance
Total Revenue $22,400,000, down 6% year over year due to the impact of two large client losses last year.
SaaS Revenue 93% of total revenue, ahead of internal expectations, but offset by lower professional services revenue.
SaaS Gross Margin 78%, unchanged from a year ago.
Total Gross Margin 71%, down from 72% a year ago.
Non GAAP Operating Costs $14,700,000, up 9% from $13,500,000 in the year ago quarter.
R&D Costs Up 21% year over year as investments in product innovation increase.
Non GAAP Net Income $1,300,000 or $0.05 per share, down from $3,400,000 or $0.11 per share in the year ago quarter.
Adjusted EBITDA Margin 7%, down from 16% in the year ago quarter.
Cash Flow from Operations $6,400,000, down from $7,700,000 in the year ago quarter.
Share Repurchase Approximately 421,000 shares repurchased at an average price of $5.73 per share, totaling $2,400,000.
Total Cash and Cash Equivalents $70,500,000 at the end of the quarter.
SaaS ARR for AI Knowledge Customers Increased 17% year over year, accounting for 55% of total SaaS ARR.
LTM Dollar Based SaaS Net Retention for AI Knowledge Customers 99%.
LTM Dollar Based SaaS Net Expansion Rate 104% for AI knowledge customers.
Total Remaining Performance Obligations (RPO) Decreased 5% year over year.
Short Term RPO $51,000,000, down 9% year over year.
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Operating Highlights
New Product Launch: eGain announced the eGain AI Agent, an omni-channel conversational product that guides and resolves customer and agent questions using documents, websites, and the knowledge base.
Market Expansion: eGain signed new enterprise clients including a major U.S. airline, a leading interactive entertainment company, and a global money transfer company, indicating a strong market presence.
Operational Efficiency: The company is focusing on reducing custom integration efforts by adding more connectors and prebuilt capabilities in their product.
Cost Management: Non GAAP operating costs increased by 9% year over year, with R&D up 21% as eGain invests in product innovation.
Strategic Shift: The AI Knowledge Hub is becoming a more strategic offering for Global 1,000 enterprises, leading to a growing number of seven-figure ARR deals in the sales pipeline.
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Risk or Challenges
Competitive Pressures: The company is facing increased scrutiny and longer vetting processes for larger deals, particularly as enterprises are now involving groups like the AI office in decision-making. This has resulted in extended timelines for closing significant contracts.
Regulatory Issues: No specific regulatory issues were mentioned, but the emphasis on compliance in AI systems suggests potential risks related to regulatory scrutiny in the future.
Supply Chain Challenges: No direct supply chain challenges were discussed, but the need for custom integrations and partnerships indicates potential risks in operational execution.
Economic Factors: The company is adjusting its revenue guidance downward due to the impact of two large client losses from the previous year, which reflects economic pressures affecting client retention and revenue stability.
Operational Risks: The company is lowering its professional services revenue targets by approximately $2,800,000, indicating operational challenges in meeting previous expectations.
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Guidance & Outlook
New Enterprise Logos: Closed several new enterprise logos for AI Knowledge Hub, including a major U.S. airline, a leading interactive entertainment company, and a global money transfer company.
AI Knowledge Hub Growth: AI Knowledge Hub is driving growth in the pipeline, with a doubling of seven-figure deals in the last six months.
eGain AI Agent Launch: eGain AI Agent, an omni-channel conversational product, is on track to launch in the current quarter.
Investment in R&D: R&D expenses increased by 21% year over year to capitalize on the AI knowledge market opportunity.
Total Revenue Guidance: Lowered total revenue guidance range to $88,500,000 to $90,000,000 from $92,000,000 to $93,000,000.
SaaS Revenue Expectation: SaaS revenue is expected to account for approximately 93% of total revenue for the year.
Non-GAAP Net Income Guidance: Lowered non-GAAP net income guidance range to $4,100,000 to $4,700,000 from $5,000,000 to $6,000,000.
Q3 Revenue Expectation: Expect total revenue of between $21,000,000 to $21,500,000 for Q3.
GAAP Net Loss Expectation: Expect GAAP net loss of $300,000 to $800,000 for Q3.
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Shareholder Return Plan
Share Repurchase Program: During the quarter, under our share repurchase program, we repurchased approximately 421,000 shares at an average price of $5.73 per share, totaling $2,400,000. Of the $40,000,000 authorized, $10,000,000 remains available under the program at the end of the quarter.
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Key Q&A
Q:Can you just talk about the evolution of what's gone on with professional services and the substantial reduction to the guide?
A:The primary driver for the reduction is that we are adding more connectors and prebuilt capabilities in the product, which reduces the effort required for custom integration. We're also developing partnerships to create third-party capabilities to implement our solution.
Q:What was the operating environment for the U.S. Airline customer? What were they using on the knowledge management side?
A:They had multiple knowledge systems, including a legacy solution, a CRM platform with added knowledge capability, and SharePoint. This was both a replacement and a consolidation play.
Q:Review of Unclear Management Responses
A:Management did not provide a direct answer regarding any potential staffing adjustments related to the reduced revenue base from professional services.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI Knowledge
AI agent
ARR AI
Airline
Bikes
Knowledge Hub
Officer eGain
PS
Solve event
adjustment
automation
breakeven share
channel
custom
deal sale
decline
driver
eGain AI
enterprise logo
implementation
knowledge ARR
knowledge hub
knowledge platform
knowledge system
logo AI
number figure
player
process
project
rate LTM
reduction
sale importance
service cost
share basis
silo
trend knowledge
update
use case
vision
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Earnings call transcript: eGain Q2 2024 misses EPS forecast, stock drops
Unknown2-13
The earnings call reveals several negative indicators: lowered revenue and net income guidance, a decline in total revenue and gross margins, and increased operating costs. Despite some positive developments like new enterprise logos and share repurchases, these are overshadowed by competitive pressures, economic factors affecting client retention, and operational challenges. The Q&A highlights uncertainties in professional services, adding to concerns. Given the overall negative sentiment and the lack of market cap information, a 'Negative' stock price movement is anticipated over the next two weeks.
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Frequently Asked Questions
Where does this earnings call transcript come from?
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Why do some answers appear as “Unclear” or “Inaudible”?
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They are generated by a specialized financial-language model trained exclusively on 15+ years of earnings transcripts. The model extracts financial figures, guidance, and tone with 97%+ accuracy and is regularly validated against human analysts. The full raw transcript always remains available for verification.
