Good day, and welcome to the eGain Fiscal 2022 First Quarter Financial Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Jim Byers of MKR, Investor Relations. Please go ahead, sir..

Thank you, operator, and good afternoon, everyone. Welcome to eGain's first quarter fiscal 2022 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, and 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 is detailed in the company's reports filed with the Securities and Exchange Commission. eGain is making these statements as of today, November 9, 2021, and assumes no obligation to publicly update or revise any of the forward-looking information on this conference call.

In addition to GAAP results, we will discuss certain non-GAAP financial measures such as non-GAAP operating income. The tables included with the earnings press release include reconciliation of the historical non-GAAP financial measures to the most directly comparable GAAP financial measures.

Our earnings press release can be found on the news release link on the Investor Relations page at eGain's website at www.egain.com, and a phone replay of this conference call will be available for 1 week. Now, with that said, I'd like to turn the call over to eGain's CEO, Ashu Roy..

Thank you, Jim, and good afternoon, everyone. We are off to a very good start to fiscal '22. In the first quarter, we delivered record revenue of $21.5 million, that is 13%, year-over-year growth. Our quarterly SaaS revenue grew 20% year-over-year, and we increased our sales and marketing investment in the quarter by 25% year-over-year.

So our business momentum is building nicely around the eGain knowledge hub, our recently launched solution that raises the bar on knowledge powered automation of customer engagement.

Our timing is good because in a recently published report, Gartner analysts cited, and I quote, knowledge management is the number one technology for enhancing the 3 main customer service perspectives of operational performance, CX and employee experience, end quote. That is quite a statement about the value of knowledge for customer service.

What we are seeing now is that, deals that had paused during the early stage of the pandemic, because of the heightened focus from businesses to virtualize their service operations and keep them running, are all coming back to life. Investment in agent experience and automation is getting prioritized again.

In parallel, our sales and marketing investments we began just over a year ago, are now starting to yield results. Our first cohort of sales reps who we hired late last year roughly, are now productive. And now we are substantially complete with the hiring of our second cohort, who are all in the process of being onboarded, trained and ramped up.

It's a good timing in terms of the market and our increased investment. Some of that's starting to show in our performance. Turning to some new logo wins in the quarter. We added exciting new logos. Let me share some examples. One was a hypergrowth crypto exchange business. We did mention them in our Q4 call as well.

They were committed to the Salesforce CRM platform. So we ended up competing with not just the other knowledge providers, but also the Salesforce knowledge option. We won this business with our leading functionality, our open architecture of integrations, and proven cloud security.

The last item was critical for them, given the nature of their business. The next 2 new logos I want to highlight are both state departments, one a Department of Health, and the other, a Department of Retirement.

The Department of Health wanted to modernize their citizen communication by implementing knowledge capabilities for their agents, but they did not want to walk away from their existing investment in IBM Watson BOT technology.

So with our unique bring your own BOT architecture, which is part of our hub, we easily meet their requirements, while leveraging their existing BOT technology investments in IBM. The second one, the Department of Retirement. They wanted to shift more of their citizen interaction to online interaction away from face-to-face.

Our secure co-browsing and digital engagement capability will enable this agency to support retirees through website navigation and form filling. Another new logo I want to talk about is a fast-growing insurance company in Europe. For them, technology is a basis to deliver differentiated customer experiences.

They are implementing eGain to create an omnichannel customer service capability powered by knowledge and AI. What's extra sweet about this particular logo is that, we lost this opportunity a couple of years ago when this client decided to implement multiple point solutions, which on the face, seemed less expensive in total compared to our solution.

And when the client decided to come back to us, now we are going to be replacing all those point solutions that they had selected 2 years ago. And the last one I'll mention is a leading telecom provider in EMEA.

They are deploying an advanced omnichannel solution to support demand for an upcoming global sporting event, and we will be delivering an omnichannel capability with integrated digital and bundled analytics. So lots of good, new enterprise SaaS logos.

On the partner front, we are investing in building connectors to new contact center and CRM platforms, prioritizing it by market opportunity and go-to-market alignment. 2 new connectors worth mentioning are for SAP and for Genesis.

In the case of SAP, we are also starting to build joint go-to-market campaigns to serve their client base, particularly in utilities and manufacturing. With Genesis, we just recently announced our connector certification, and we are seeing good interest from some of our clients who are also Genesis telephony clients.

With existing partners, we continue to develop our joint proposition and actively sell. Our Cisco partnership continues to deliver across the board with new logos and business expansion. And our Avaya partnership is now also generating new logos.

And it's good to see our Avaya partnership getting to a point where we are starting to deliver on new logos on a steady basis. Finally, on the partner front, we are seeing inbound interest, growing inbound interest, from global SI, as we get closer to our FedRAMP certification.

This is something we expect to receive before the end of this calendar year. In fact, some of the state department global wins I highlighted earlier, are the tip of the demand iceberg. We expect that once we are certified, there are not too many providers in the FedRAMP certified category at this time.

So to us, it is a significant opportunity that we are going after. In anticipation of that, we have bulked up our sales and marketing investment in the government vertical, and we are already actively sourcing opportunities.

On the Virtual Financial Coach front, something that we have been now selling for about 9 months since the market launch, we are making very good progress.

Our turnkey AI-powered coach is a compelling and unique proposition, especially for small to mid-sized credit unions and banks, as we are all aware of, financial institutions are increasingly focusing on financial wellness for their customers. To date, our team has signed up 33 new clients for our code solution in the U.S.

since market launch in March this year. Note that these clients are not part of our enterprise SaaS client count. These are small to mid-market clients. And we expect to accelerate our new logo sign-ups in this market over the coming quarters. To summarize, we are off to a strong start in fiscal '22, with record revenue and growing momentum.

Our first cohort of sales hires is productive and the second cohort is in ramp. We are now actively building out our ecosystem with product connectors and go-to-market partnerships. We expect our FedRAMP certification to be done by the end of this calendar year.

So with all this and our top-rated products, we look forward to accelerating growth in an exciting market. With that, let me ask Eric Smit, our Chief Financial Officer, to add more color around our financial operations.

Eric?.

Thanks, Ashu, and thanks, everybody, for joining us today. As Ashu noted, we are off to a very good start to our new fiscal year with top and bottom line results that exceeded our guidance and we're ahead of Street consensus. Looking at our financial results.

We generated record revenue of $21.5 million, with a return to double-digit total revenue growth of 13% year-over-year and up 6% sequentially. SaaS revenue was $19.2 million, up 20% year-over-year and accounted for 89% of total revenue. Looking at non-GAAP gross profits and gross margins.

Gross profit for the quarter was $16.7 million or a gross margin of 78%, up 200 basis points from 76% a year ago. Now turning to operations. Non-GAAP operating costs for the quarter came in at $13.9 million compared to $11.7 million in the year ago quarter.

The increase was primarily driven by investments in sales and marketing, which increased 25% year-over-year. Looking at our bottom line. Non-GAAP operating income in the quarter was $2.8 million or an operating margin of 13% compared to an operating margin of 15% in the year ago quarter.

Non-GAAP net income for the quarter was $2.7 million or $0.08 per share. This compares to non-GAAP net income of $2.5 million or $0.08 per share in the year ago quarter. Turning to our balance sheet and cash flows. Our balance sheet remains strong.

During the quarter, we generated cash flow from operations of $7.2 million or an operating cash flow margin of 33%, up from $5.8 million or 30% margin in the year ago quarter. Total cash and cash equivalents at the end of the quarter was $70.4 million, up 33% from a year ago. Now turning to our customer metrics.

As Ashu mentioned, we had very good bookings in the quarter, a combination of new logos, expansion deals and renewals. This is highlighted by the improvement in several of our key enterprise customer metrics.

Our LTM dollar-based SaaS net retention rates increased to 112% from 102% in the year ago quarter, and was up sequentially from Q4 with no significant churn in the quarter. Our LTM SaaS expansion rate increased to 122% from 111% in the year ago quarter and also up sequentially from Q4.

The number of $1 million ARR customers increased 30% year-over-year, and our short-term RPO increased 18% year-over-year to $52.8 million. Now, on to our financial outlook and guidance. As I noted on our last call, our priority focus in the coming year will be on top line growth.

We have seen great early results from our sales and marketing investments, and based upon this, we plan to continue our investments to further increase our brand awareness and penetrate and capture more market share of this massive market opportunity we see in front of us.

In addition, we plan to increase investment in R&D to maintain our competitive advantage and build out our product-led growth strategy. We also plan to invest in internal systems and processes that will be needed to scale the business as planned.

Before sharing our updated guidance, I want to highlight a few changes to the guidance we issued last quarter. Based on our strong start and positive outlook for the fiscal year, we are raising our annual revenue guidance.

But even though our Q1 bottom line came in better than expected, we are not adjusting our bottom line guidance, as we remain committed to making the necessary investments to drive sustainable top line growth. And finally, some color around the increase in stock-based compensation projected for the quarter and the fiscal year.

As we drive aggressively to grow our top line, never before has it been as important to attract and retain key talent, and stock-based awards are a critical tool to achieve these goals. Driven by this, we reviewed and updated our long-term equity incentive plans to bring them up to industry standards.

This resulted in company-wide stock option grants to existing employees this quarter, and new stock-based compensation guidelines we'll be using for attracting new hires.

We are seeing early positive feedback from existing employees motivated by this new incentive, and from recruiting managers able to attract high-quality talent with the increased stock-based components in their offers. Now, on to the guidance.

For the second quarter of fiscal 2022, we expect total revenue of between $21.9 million to $22.3 million, which would represent growth of 14% to 16% year-over-year.

Non-GAAP net income of $0.3 million to $1 million or $0.01 to $0.03 per share and GAAP net loss of $2.90 million to $3.6 million or a loss of $0.09 to $0.11 per share, where we estimate share-based compensation expense of approximately $4 million and depreciation and amortization expense of approximately $120,000.

For the fiscal 2022, full year ending June 30, 2022, we expect total revenue of between $89 million to $90.5 million, which would represent growth of 14% to 16% year-over-year.

Non-GAAP net loss of breakeven to $1 million or $0.00 to a loss of $0.03 per share, and GAAP net loss of $12.1 to $13.1 million or a loss of $0.37 to $0.40 per share, where we estimate share-based compensation expense of approximately $12 million, and depreciation and amortization expense of approximately $500,000.

So in summary, we're off to a strong start to the fiscal year with record revenue in the quarter. We delivered strong cash flow and bottom line results, even with our continued investment in sales and marketing. We saw very strong bookings, and continue to see expansion from the installed base of our enterprise customers.

And with our continued sales investments, the momentum we are building around our top-rated knowledge powered customer engagement platform in the marketplace, is resulting in increased opportunities in both our direct sales pipeline and through our expanded partner ecosystem. So in closing, lastly, looking at our Investor Relations calendar.

As we announced last week, we'll be participating in 3 virtual investor conferences this month. Tomorrow, we will be participating in the Berenberg U.S. CEO conference. Next week, we'll be participating in the Craig-Hallum Alpha Select Conference, on Tuesday, November 16. And then the ROTH Technology Conference on Thursday, November 18.

We hope to see some of you virtually at these conferences. This concludes our prepared remarks. Operator, we will now open the call for questions..

[Operator Instructions] And we'll take the first question from the line of Tim Horan with Oppenheimer..

This is actually Edward Gang for Tim Horan. Ashu was -- I was very interested to hear your comment about the FedRAMP certification by year-end. You mentioned it's a tip of the demand iceberg.

I was wondering if you could quantify or size up that opportunity?.

Yes. Sure. I can give you some color. So what we are seeing from our existing clients in the government space -- so that is more and more investment going into the whole sort of digital transformation area.

And part of that is trying to figure out how to improve automation of the self-service capabilities as well as improving the agent experience and agent tools. For example, we just put out a press release a few days ago where we talked about how I'm going to be doing a keynote with one of the CIOs as one of our client agencies, federal agencies.

And we're going to be talking about again, knowledge and AI used in automating the citizen engagement and then improving agent experience as well.

So what we are seeing just anecdotally as well as looking at the market stat, that the federal and state -- not so much local, but definitely, federal and state seem to be increasing their investment in the customer and citizen engagement area, and that's really where our confidence is coming from.

Plus we are seeing more activity in our pipeline, even when we don't have the FedRAMP certification completed yet. Of course, people are aware that we are very close to it because they can see it on the FedRAMP website. So all that put together kind of gives us that added confidence around the incremental opportunity..

And maybe just a couple of modeling questions for Eric. What was the D&A and CapEx in the quarter? And if you could provide a projection for the year? And your legacy revenue -- sales revenue actually rose sequentially. So I was wondering what the cadence would look like on that line item for the rest of the year..

Sure. First off, I'll just respond to your last question. So for the legacy business, you're correct. There was a slight uptick. This was actually a catch-up from a customer renewal. Although, as we look forward, certainly, the expectation is that this number will continue to decline.

So as we've discussed on previous calls, at this stage, the remaining legacy customers -- we're working on actively moving them to the cloud. Some of them have internal IT requirements that have delayed the move, but overall, through the remainder of the year, we would expect this number to continue to decline.

And then, for the question around CapEx, when I look at the --.

CapEx, D&A..

Sorry, yes. So G&A. So for the G&A -- sorry, just to be clear on the question. On the G&A question, the --.

I meant D&A depreciation and amortization?.

Sorry. Okay. So for the quarter, the depreciation and amortization payment was about -- just over $100,000. And again, from a modeling perspective, we expect that -- close to that for the quarter and about $500,000 for the year..

And CapEx?.

And CapEx was probably just over about $150,000. And again, for the year in that $0.5 million range..

[Operator Instructions] It appears there are no further questions at this time. I will turn the call back over to eGain management for any additional comments or closing remarks..

Well, thanks, operator, and thanks, everybody, for listening today. As I've mentioned, we've got several upcoming investor conferences. So hopefully, we'll have the opportunity to connect with you at one of those events, and we look forward to providing you an update when we announce our Q2 financial results. Thank you..

Ladies and gentlemen, this does conclude today's call. Thank you for your participation. And you may now disconnect your lines..