Participants
Ashutosh Roy; Chairman of the Board, President, Chief Executive Officer; eGain Corp
Eric Smit; Chief Financial Officer; eGain Corp
Jeff Van Rhee; Analyst; Craig-Hallum Capital Group
Presentation
Operator
Good day and welcome to the eGain’s fiscal 2024 fourth quarter And full year financial results call. All participants will be in listen-only mode. (Operator Instructions) Please note this event is being recorded.
I would now like to turn the conference over to Jim Byers, MKR Investor Relations. Please go ahead.
Thank you, operator, and good afternoon, everyone. Welcome to eGain’s fiscal 2024 fourth quarter and full year financial results conference call. On the call today are eGain, 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 the games results are detailed in the company’s reports filed with the Securities and Exchange Commission.
eGain is making these statements as of today, September 5, 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 in the tables included with the earnings press release include a reconciliation of historical non-GAAP financial measures to the most directly comparable GAAP financial measures.
eGain, the earnings press release can be found by clicking the press releases link on the Investor Relations page of eGain website at egain.com. And along with the earnings release, we will post an updated investor presentation to the Investor Relations page of our game’s website. And lastly, a phone replay of this conference 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.
Ashutosh Roy
Thank you, Jim, and hello, everyone. We finished our fiscal year with revenue and profitability ahead of our projections. Total revenue for the year was excuse me, was $92.8 million, and our non-GAAP net income was $12.3 million or $0.39 per diluted share.
Looking at the fourth quarter specifically, we saw increased new logo momentum in our AI knowledge offering. This included some big brands, for example, a travel management subsidiary of a financial megabrand in the US. Our AI Knowledge Hub will replace their homegrown knowledge base.
Next is a mobility division offering a multinational conglomerate in Germany. Here are our AI Knowledge Hub will consolidate their knowledge across multiple silos, which includes salesforce and other internal knowledge base.
Third logo I want to point out is a global consumer brand based out of London to support their new product introductions across 84 countries. They have selected you eGain knowledge hub. And the last one I want to highlight is an industry leader for higher education savings in the US. Our AI Knowledge Hub will replace this client’s legacy Knowledge Systems.
Looking at our overall business and the market, we are seeing growing inbound interest in our knowledge offerings in fiscal 2024. Our new logo win RFPs for AI knowledge were up 50% year-over-year, and our pipeline activity remains strong in July and August. In fact, this summer has been the strongest in four years, pretty much since COVID.
Give you a good sense of the foundational role of knowledge in delivering value with a customer service, specifically that we share verbatim an excerpt from a Gartner report that was recently published in June this year. By 2025, 100% of generative AI, virtual customer assistant and virtual agent assistant project.
That lack integration to modern knowledge management systems will fail to meet that customer experience and operational cost reduction goals. And so very strong statement coming from backlog. I’m sure many of you read Gartner reports over the years.
You have read many I cannot recall and I’ve been doing this for many years, a prediction like this, that has a 100% number on the predictor and the timeframe, which is basically 12 months from now or a few months from now and running on an average 12 months.
What that means. And we are seeing this that every CEO of a large business is urgently demanding that their teams apply generative AI technology and the key applications apply generative AI technology to reduce operating cost and do it at scale. So they move the needle as we know customer service is one of the significant operating line item costs in business.
Given that, Jenny, I need a solid knowledge foundation to deliver that value as Gartner points out not surprising that we are seeing more and more businesses looking to centralize and modernize and knowledge platform. So as we’ve been saying for a few quarters, we are doubling down on this a knowledge market opportunity.
Currently half of our revenue comes from a knowledge effort over the past year. We have increasingly rotated our R&D investments to work behind knowledge products as you may know, we launched assist GPT and iGen product in February this year, a novel solution to automate and accelerate what our routine, but time taking tasks for customer service agents and knowledge offers.
This has been enthusiastically received in the market. Historically, knowledge, centralization and creation of scale has been what you would call a proverbial Guardian off, and we are helping clients flash fluid, they began AI knowledge offering.
Before I ask Eric, our Chief Financial Officer, to add more color to our financial operations, I want to mention that our annual customer event, solve ’24 will be held in Chicago on October 29. At that event, we’ll have many clients sharing success stories using our AI Knowledge Hub, and we’ll also announce and demo new product capabilities. So we’re very excited about that.
And now over to Eric.
Eric Smit
Thanks, Ashu, and thanks, everyone, for joining us today. Let me provide more details about the financial results for the fourth quarter and full year of fiscal 2024. But before discussing our outlook and guidance for fiscal 2025, looking at our revenue, total revenue for the fourth quarter was $22.5 million ahead of our guidance, but down 9% year-over-year.
The decline was primarily due to the impact of the large two large client losses we have discussed on our Q2 call, one of them from our conversation hub and the other from our Analytics Hub. For the full year, total revenue was $92.8 million, down 5% year over year. When looking at our revenue by region for the full year, North America accounted for 78% of total revenue the same as in the prior year.
Looking at our non-GAAP gross profits and gross margins, gross profit for the fourth quarter was $15.9 million for a gross margin of 71% compared to a gross margin of 74% a year ago and 71% last quarter. For fiscal 2024, gross profit was $66.4 million for a gross margin of 72% compared to 74% of the prior year.
Now turning to our operations, non-GAAP operating costs for the fourth quarter came in at $13.7 million, down 8% from $14.9 million in the year-ago quarter, reflecting the expense controls we implemented earlier in the year. Non-GAAP operating costs for the full fiscal year were $56 million, down 13% year-over-year. As we see increased momentum from our AI knowledge offering, we plan to increase investments, particularly in R&D and brand marketing to capitalize on this very exciting opportunity.
Looking at our bottom line for Q4, non-GAAP net income was $2.5 million or $0.08 per share compared to $3.6 million or $0.11 per share in the year ago quarter. Adjusted EBITDA margin for the quarter was 11% compared to 16% in the year-ago quarter.
For the full fiscal year, non-GAAP net income was $12.3 million, or $0.4 per share on a basic and $0.39 per share on a diluted basis, up 47% on a dollar basis from non-GAAP net income of $8.4 million for $0.26 per share on a basic and $0.25 per share on a diluted basis in the prior fiscal year. Adjusted EBITDA margin for the fiscal year was 12% compared to 9% in the prior fiscal year.
Turning to our balance sheet and cash flows for the full fiscal year, cash flow from operations was $12.4 million or a 13% operating cash flow margin during fiscal 2024, we repurchased approximately 2.8 million shares at an average price of $6.28 per share, totaling $17.3 million.
Since inception, we have purchased 3.5 million shares for 4% of the shares outstanding when we began the buyback program of the $40 million authorized $17 million remained available under the program at the end of the year.
Our balance sheet remains very strong. Total cash and cash equivalents at the end of the year were $70 million compared to $73.2 million a year ago. Now turning to our customer metrics, with our focus on AI and knowledge of broken out the knowledge metrics from the total metrics.
As a reminder, total metrics were impacted by the two conversation and analytics customers losses with I previously discussed eyesight of these losses, I’m pleased to report that all material customer renewals came in as planned during the quarter.
Looking at LTM dollar-based net retention for knowledge customers, it came in at 97% that while total net retention was 85%. LTM dollar-based net expansion rate for knowledge customers was 1.6, while our total net expansion rate was 1.3. Looking at total, all total CASA offer knowledge customers increased 8% year over year, while total SaaS ARR of decreased 10% year over year.
Looking at our remaining performance obligations, total RPO decreased 19% year over year, but was up 16% sequentially from last quarter as renewals came in, as I mentioned, and we also had strong new bookings in the quarter. Our short-term RPO was $60.4 million, down 9% year-over-year, but up 26% sequentially.
Now onto our financial outlook and guidance, one item I’d like to call out before providing our guidance is the expected change in revenue forecasts from our Cisco OEM business. As I mentioned last quarter, we are seeing the shift to more ratable recognition, and we estimate this change will result in deferral of approximately $1.3 million of revenue that would have otherwise been recognized in fiscal 2025.
Just to be clear, we are not lose. We don’t expect to lose this revenue, but rather instead recognize it more ratably than upfront that we’ve done in the previous peak. And we see most of that impact taking place in Q1 of ’25 fiscal 2025, we expect total revenue between $21.4 million to $21.8 million.
Falling to the bottom line for Q1, we expect net loss of $400,000 to $1.2 million for net losses, $0.01 to $0.05 per share, which includes stock-based compensation expense of approximately $900,000 and depreciation and amortization of approximately $120,000. We expect non-GAAP net loss of $400,000 to net income of $500,000 for a loss of $0.01 to a gain of $0.02 per share for the quarter.
Looking at fiscal 2025, full year ending June 30, 2025, we expect total revenue of between $92 million to $93 million, non-GAAP net income of $5 million to $6 million or $0.17 to $0.2 per share, and GAAP net income of breakeven to $1 million or zero to $0.03 per share.
We estimate share-based compensation expense of approximately $5 million and depreciation and amortization expense of approximately $400,000. Looking at weighted average shares outstanding, we expect approximately $29.3 million shares for the first quarter and $29.7 million for the full year.
So in summary, we are seeing continued strong momentum with new customers for our AI knowledge offering. And while we double down on the AI knowledge market opportunity, we are remaining focused on ensuring high customer satisfaction and delivering full business value to our conversation and analytics customers.
Firstly, we will be hosting an Investor and Analyst Day event in conjunction with the upcoming customer event in Chicago on October 29. This event is a great opportunity for prospective investors and analysts to meet with customers and learn more about our business. You can register for the event on our website, and we hope you can join us.
This concludes our prepared remarks. Operator, we’ll now open the call for questions.
Question and Answer Session
Operator
(Operator Instructions) Jeff Van Rhee, Craig Hallum.
Jeff Van Rhee
Hey, guys. Great. Thanks for. Thanks for taking the questions. Real nice quarter, a dumb, a handful of questions, if I could on, I’m curious in the AI knowledge wins, you talked about two or three specific customers and would love to hear a bit about the competitive landscape.
I think guys, I think you said in one you took out a homegrown solution and in others, I don’t recall, I think you might have had a sales force competitor in the second, if I recall, but just talking about the competitive landscape, what are you displacing and what are you competing with.
Ashutosh Roy
Yes, rushing here. So let me maybe take a few seconds to give you a sense of what both in terms of the customer profile we’re going after as well as what we are seeing in terms of incumbency replacement and competition, right? So who we are going after, as our customers who have at this point, we target companies with 5,000 employees or more.
That’s what we that’s our sweet spot is companies that are 5,000 employees or more. So typically billion dollars plus in revenue. Now we do get customers well below that. And that’s when these large companies have some flex content and compliance needs and where agent turnover is an issue.
That’s where we do have so that’s the need that we are targeting the size of the company in terms of who we end up being winning more and more is where there has been a failed knowledge project. And typically that’s getting more and more highlighted because people are recognizing that when we’re doing these, Jenny, I investments in trying to automate customer service.
They realize that trusted content and trusted knowledge needs to be fed into the AI tool for them to do their job and we have rent. So we are replacing, I would say, number one replacement for us, SharePoint, homegrown, essentially, that’s what it means, right? Number two, with Confluence replacement eGain, homegrown number three replacement is Salesforce.
So people deploy salesforce knowledge and it’s not delivering the value as much as they want it and the pressure to allow them to do work. And the fourth one that we have been replacing is Genesis as much. So but salesforce and Confluence are the dominant ones in terms of incumbency because they’ve been around for a while and people effort on resolution and the last part of these responses in terms of competitors.
I would say broadly, those are the competitors that we are also working up against the people who are trying to retain those knowledge setups. And we are in the replacement business.
Jeff Van Rhee
Okay. That’s helpful. And in the presentation, you talk about the conversion of some pilots to customers. I think you quote a 75% number there in there, obviously very very good number. You give you a sense of sample size here would be what’s the quality of that indication and the ability to repeat that?
Ashutosh Roy
I would say more than in the last few in the last couple of quarters. Correct.
Jeff Van Rhee
And is there anything about those that that gives you doubt that you can retain that, that pace of conversion?
Ashutosh Roy
That’s hard to say, I feel like we know how to quantify much better now, and that’s probably what I would say. So we are I think part of the reason for the conversion rate being that high is that we are qualifying things well, before we put them through the innovation pilot and beyond, as we do that, I think we should be good.
But if you expand that and we’re doing that with some partners we’re developing, then I would expect that some of those partner-led pilots might actually have perhaps a smaller conversion contract flow conversion and on is on the sales front, I think you said you’re going to spend.
Jeff Van Rhee
A bit on sales, if I recall, around branding and then a bit on development. What about quota reps. Are you at the right headcount? Where are your quota rep right wise? Where do you think you’ll be in 12 months?
Ashutosh Roy
So we feel that the biggest opportunity right now is to drive more pipeline and generate more pipeline. And that’s why we are focusing on the brand and sometimes sort of market demand investments. We feel that we are in a good place with our reps, especially because our deal sizes are reasonable.
We are still talking about north of $200,000 ARR for new logos. So we feel like we can manage that reasonably well with all the growth expectation we have on the AI knowledge bookings side.
Jeff Van Rhee
Okay. And one last, if I could sneak it in on the obviously you’ve got a couple of things going on here, knowledge on one side on catching a tailwind and in conversation and in analytics. And obviously your focus there is customer sat and keeping butts in seats, so to speak.
And you had you had the two big customer churn off a couple of quarters ago. I’m sure you’ve got your ears really tune I mean, how are you getting comfortable in the conversation and Analytics Hub base that you’re not at risk with any of your other customers and avoiding future large churn?
Ashutosh Roy
Yes, that’s a good point on. We are, as you can only expect, we are hyper focused on that satisfaction, value delivery and continuing to work with these clients to find opportunities. And it happens at the sort of cycle time that every one of these customers have as they are investing on the knowledge and AI side, finding ways to get into that slipstream of knowledge and AI opportunity as well, because then that creates our collective stickiness embodied in these accounts.
Jeff Van Rhee
Got it. Okay, great. Thanks for taking my questions.
Operator
Richard Baldry, Roth Capital.
Thanks. And you guys have tended to be pretty conservative on the spending side. Some sort curious that only a couple of quarters ago, we’re talking about cost controls and now we’re talking about investments.
So could you maybe talk about what you’re seeing that that’s changing there, whether that’s top of the funnel sales cycles are approved, sort of give us some backdrop for why that, that positive shift in sort of your test your stance looking forward?
Ashutosh Roy
Okay. So I’d say two things. One is that there are three things. One is that with existing clients, we are seeing a consistent increase in interest in faster rollout of knowledge across other businesses or other functions like self-service are enterprise facing. So for those where we are already with now, we are in there with engine facing Knowledge Solutions.
So that’s some one-off credits. And so that’s our kind of the most reliable ear to the ground. And the next thing we are seeing is more inbound interest, and that has been consistently and edging up even in the summer months as I mentioned, it’s very unusual for us to be this busy in the summer months on the on that, sir, on the sales side, and this has been unusual.
As Eric and I were talking we felt like last time we were this active and busy was summer of 2019, and it has been awhile. So that’s the second item. And then the third thing that has changed is I’m noticing this and our sales leadership is also pointing it out that we are seeing more and more of these opportunities prosecute all the way to a decision much more predictably than before.
So people when they come in the amount of tire kicking is going down, people are executing RFPs and let’s say they will execute. It’s kind of happening around that time and eventually they’re deciding whether we win or not. So those are the three things we are seeing that’s making these changes our investment posture.
And like Alex says, this is important, Richard, right now we are saying product investments and then brand marketing investments. And those are the two primary areas we’re investing right now and then as the pipeline gets to a point where it starts to become really not something we can handle with our current sales capacity, are we going to lag with that investment.
Yes. Got it. And in the past quarter or two, you’ve gone through some pretty specifics about some of your larger trailers or how they fit into the Fortune 30 et cetera. Is there any update to that? Any changes, any new sort of larger scale pilots going on there? A continuing sort of to fill that back top of the funnel while others are working their way through it. I know it’s hard because it’s sort of lumpy, but just curious if there’s anything.
Ashutosh Roy
A couple of things. I’ll say on. I think the quality of companies we’re engaging with in terms of size and brand continues to be very good, right? So for example, the megabrands, when I said the financial megabrand, I meant a megabrand in the US on the financial side, when I said multinational conglomerate.
Where we have just got a foot in the door with a reasonably chunky air, our deal in June in Germany, specifically, this was in Europe, we’re talking about a Global 100 companies. So these are very large companies even on the logos that we are acquiring.
Then on the pilot side, I feel like if I look at it, the there are many large companies up. One of the things we do see and this is a secular thing. We don’t see as many more time million-dollar ARR initial purchases anymore. We just don’t see that. What we see is the average is pretty good.
Like I said, it’s north of $200,000. like Eric, just north of $200,000 initial error. But the quality of these companies is large, the potential is large. So I feel like that is a good trend for us.
And then last for me, you’re still sitting on a pretty good amount of cash on the balance sheet, even after doing some pretty meaningful buyback. Is there anything interesting sort of on the technology side, whether it’s to keep wrapping more product around the AI side of the table, you think your capital allocation still remains very focused on the buybacks over the near term? Thanks.
Ashutosh Roy
So we are increasing investment R&D. I know it’s not a good thing that are burning a big hole in the balance sheet, but we are increasing our investments and in terms of the rotation that we’ve done in new innovation. So we have a very chunky amount of money that we are putting in the people and the capability around their knowledge.
That is an area that we’ll continue to invest in for some time because we think there’s a lot of runway to differentiate as well as make a make an attempt to dominate the emerging market of their knowledge systems. So and I’d say that’s our primary focus right now.
Got it. Thanks.
Operator
Concludes our question-and-answer session. I would like to turn the conference back over to eGain, management for any closing remarks.
Ashutosh Roy
But thanks, everybody, for taking the time today and for eGain, seeing some of you at our silver event in Chicago at the end of October. Thank you.
Operator
The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.