Good afternoon, and welcome to the eGain Fiscal 2023 First Quarter Financial Results Conference Call. [Operator Instructions]. 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 2023 First 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 in the company's reports filed with the Securities and Exchange Commission.

eGain is making these statements as of today, November 14, 2022, 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.

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 by clicking the press release's link on the Investor Relations page of eGain's website at egain.com.

And along with the earnings release, we have also posted 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 1 week. And now with that said, I'd like to turn the call over to eGain's CEO, Ashu Roy..

Thank you, Jim, and hello, everyone. Both our top and bottom line results exceeded our guidance and Street consensus for the quarter. Our total revenue was a record $24.8 million, up 20% year-over-year in constant currency. Our SaaS revenue grew 23% year-over-year in constant currency, and our adjusted EBITDA margin was 10%.

So a good performance for the quarter. Let me share some notable customer wins in the quarter. The first is a major American airline operating globally. They were a legacy analytics hub customer for us, and they're now moving to the eGain Cloud.

With our SaaS solution, they'll enjoy a robust platform to monitor contact center performance and improve customer experiences. Moving them over to our cloud platform also opens up opportunities for them to adopt our knowledge hub and other offerings. The second one is a new logo win, and they are a global leader in licensed sports merchandise.

We're creating a next-generation digital sports platform with partners that include many professional sports leagues. They wanted to improve first contact resolution rates in the contact center as well as reduce agent training and onboarding time, especially for seasonal hires during holiday season.

So they selected our knowledge hub, and this is going to give them a single source of knowledge to easily handle all the retail processes personalized by brand and team. We were also looking for an out-of-the-box integration with their Genesis desktop for omnichannel service and our Genesis connector solves that business need very easily.

We had some good customer expansions in the quarter as well. The first one was a U.S. federal agency where we significantly expanded our rollout in their contact center. This expansion order offsets a onetime COVID order they have placed on last year that ended in the quarter. Next one is a Fortune 500 business with over 3,000 enterprise clients.

They're in the business process outsourcing market. They have now expanded their use of eGain knowledge hub to serve more enterprise clients. The third one is a global B2B travel platform. They expanded their use of eGain across their global contact centers as the business picked back up post-COVID.

And the last one I would bring out is a large state agency in the U.S. They've expanded the use of eGain across more of their citizen contact centers. Moving to customer and product updates. Our eGain Solve 22, which is our annual customer conference, which was held last month after a 2-year gap, was a resounding success.

Record 8 customers shared their eGain success stories at the conference, including tenured clients like L.L.Bean, customer experience leaders like Navy Fed and new clients like Liberty Mutual. We received very positive feedback from participants. Customers enjoy sharing best practices with each other in person.

While prospects were excited to transparently learn the dos and don'ts from eGain clients. We also heard consistent kudos around the comprehensive product capability and functional richness of our solutions. Clients called out our managed services offering as an effective way to maximize value from their eGain investments.

On the platform build out front, we announced our eGain marketplace, showcasing value-added solutions built by us and our partners. These certified solutions can be used by our clients with ease and confidence. The marketplace has been initially seeded with a list of certified connectors from leading contact center and CRM platforms.

In future, we will expect to see partners publishing solutions for gamification, compliance, analytics and much more. On the product front, our recently introduced instant answers capability, which is part of the eGain knowledge hub, was very well received by attendees.

Numerous attendees expressed interest in trying out this capability via our Innovation in 30 Days Offer. Applying state-of-the-art machine learning techniques in conjunction with our core AI capabilities, instant answers easily guide agents to surface the right answer quickly from the knowledge base.

This is an exciting experience innovation to further enhance our knowledge hub leadership. Speaking of product leadership in early October, we earned a perfect score from Gartner in their 2022 market guide for customer service knowledge management systems. That was a nice accolade for our team.

And then last week, we were informed that the eGain knowledge hub was the only solution to win the prestigious 2022 Readers' Choice Award from KMWorld. Our team is proud to lead the market in both technical innovation and user choice. Looking at the market and our overall business.

New inbound interest remains high for our offerings in the knowledge-powered customer engagement areas. Businesses continue to look for technology to drive down costs while improving agent experience. And our pipeline continues to grow with more knowledge hub opportunities, which now include a record number of 7-figure deals.

At the same time, though, we are seeing the impact of the current economic uncertainty on our deals as decision time lines are getting extended and buyers are becoming cautious. Retention and expansion within our U.S. business continues to be relatively healthy. However, we are seeing some challenges in our European business.

With the combination of these factors in mind, we plan to take a more balanced approach to growth and profitability business for our company. So for now, we are pausing the hiring of the next cohort of sales reps. Instead, we are focusing on making our current reps productive. Overall, we remain very excited about our market opportunity.

We are confident that knowledge management and AI-powered automation will continue to grow as a must-have need in the enterprise marketplace. So in summary, we delivered a record revenue quarter. Our new inbound interest remains good. As a result, we have a healthy pipeline, and we continue to see demand for our offerings.

However, given the prevailing economic uncertainty, we plan to take a more balanced approach to growth and profitability. As such, we will continue to maintain our product investments focused on experience innovation and ecosystem build-out. With that, I'll ask Eric Smit, our Chief Financial Officer, to add more color around our financial operations.

Eric?.

For Q2 2023 and FY '23, we are assuming a USD to British pound of $1.15 to $1 -- to GBP 1, sorry. This compares to Q2 '22, where the USD to British pound was $1.35 to GBP 1. And for FY '22, USD to British pound rate was $1.33 to GBP 1. So in summary, we delivered another record revenue quarter.

We have a robust new business pipeline and demand remains high. But given the current macro conditions, we are taking a more balanced approach to growth and profitability.

With our strong balance sheet and continued cash generation, we announced the $20 million stock repurchase program as we believe our stock is a good investment at the current prices. Lastly, before I close, this Wednesday, we will be in New York to participate in the ROTH Technology event.

If you are in New York and planning to attend the conference, we'd love to see you there. This concludes our prepared remarks. Operator, we will now open the call for questions..

[Operator Instructions]. Our first question will come from Richard Baldry with ROTH Capital..

I'm sort of curious, are you seeing changes to the top of the sales funnel or really just slower sales cycles overall? Or is it that vary by geography?.

Richard, this is Ashu here. I think it's more the delaying of the decision-making, which is where we are seeing the delta. There still seems to be good interest levels on the front -- on the top end..

Okay. And on the legacy maintenance side, now that that's virtually gone.

Can you talk about when that would fully sunset? Are there material costs to keeping that last small amount of revenue up that would go away, sort of would there be a onetime benefit to the P&L if that goes away?.

Richard, this is Eric. No, at this point, given the relatively small number of customers, there's not a huge cost impact. So from that perspective, it just -- we wouldn't see any meaningful change in our costs to support these customers..

Okay. And then I'm sort of curious at the decision to slow down the hiring on the sales cohort because it feels like this is probably a fairly quick recession. That's what it turns into being. So given the long time it takes to bring people on board, sort of train them, bring them up and your balance sheet is considerable in resources.

Why not just keep pushing on that so that if when things turn and demand sort of resumes, you've already got sort of a team ready to go..

Yes. I mean, that's a reasonable alternative, Rich. Our sense is that once we see the decision cycle stabilize, I think we'll get back on to that. Right now, it's unclear if the slowdown continues to extend. And as you said, there's a good school of thought that says it's going to be a quick jump back into better economic conditions.

But we just want to see -- we want to see the trends moving backwards a little bit, backwoods meaning upwards..

Okay. And then lastly, assuming conditions sort of stay the way we're seeing them now.

On the buyback front, would you envision drawing down existing reserves to pursue a buyback? Or do you think you'd prefer sort of using cash from operations on a steadier state basis and sort of hold the reserves where they're at?.

So I think we would -- we're still evaluating that. But certainly, at the current prices, and given the healthy balance sheet, we would certainly consider using current resources as opposed to just relying on operating cash flow. But again, we haven't made a firm decision on that yet..

Our next question will come from Jeff Van Rhee with Craig Hallum..

Couple. It looks like pretty good execution into some currency headwinds. So congratulations. I guess, first on the EMEA NRR. Obviously, material lower than the core business.

Can you just expand on that? How concentrated is that the downturn and did you have a few very large customers go away? And then is the decline really loss of customers? Or are they just cutting back on usage, seats? Like how is that playing out? Maybe a little color there would be helpful..

Yes, sure. So a couple of comments. One is, I think given our concentration in the Europe business in the U.K., I think the U.K. has been kind of impacted hard as we know.

And so where we have seen the significant delta is in some of the larger customers can -- even though they're getting value, they are feeling the pressure to reduce their spend significantly. And so a couple of them have made the choice to go with solutions, which frankly don't deliver their needs.

But right now, they are going into that mode of cost reduction being the primary driver rather than continuing to get the business value. So it is not something we expect to see in too many of these customer situations, but that's what we saw.

And so we want to be careful and make sure that we are planning and, of course, being careful in ensuring that the retention and trying to be in the game with some of these customers moving forward.

So that once the -- what we believe these alternatives they're working with may not be adequate that we are still available to come back in and engage with them..

Are these alternatives that you would compete with in other geographies. So that kind of behavior with those specific alternatives is not something you've seen in other geographies? Or is that....

Yes, that's -- yes, -- sorry, yes, good question.

And I mean these alternatives do exist in other geographies, but we haven't seen other geographies really considering them as viable alternatives right now, right?.

And then in terms of the lengthening sales cycles, can you put a little finer point on the timing of how that looked mainly as you progress over the last 90-plus days just in a steady deterioration.

Is it substantial recent sort of decline in the health of the end markets? Any other color there?.

I would say that budgets, which we thought were in fiscal calendar '22 have gotten -- some of them have gotten pushed to calendar '23. And that's what we have seen at this time, which are the material common threat I see in the decision cycle lengthening..

Okay.

And then one last, just any commentary on the channel-related sales momentum traction? Any differences in channel versus the direct efforts?.

No. I think both of them seem to have the same change. But we do think that the channel moving forward could be useful in terms of if there is more pressure on vendor consolidation, that channel could be selectively better for us over time. But right now, we don't have any evidence to that..

[Operator Instructions]. Our next question will come from Tim Horan with Oppenheimer..

So just to be clear, in Europe, some customers traded down to, I think, kind of lower quality services that were lower priced, I think, is what you're saying. And are these relatively new customers? Have you seen them before? Any thoughts on how much cheaper they were? And I know you said maybe the services don't work as well as yours.

Can any way you kind of test the relative productivity or relative quality?.

Yes. So I would say that these are not typically our competitors. The one is more like a kind of a solution, which is not what we see in almost any other environment. I think the clients are just feeling the pressure to cut costs in these particular cases.

And I think that has led them to almost say, let's go with another way to try to solve this problem, something that used to be done 10 years ago with knowledge management. So we feel that that's a trend we will probably not see in the U.S. market, but that's at least where our view is right now..

And any comparisons on your productivity or quality versus theirs?.

I think we deliver value of the kind that they don't even measure, right? So we look at business impact, whereas things like improving your CSAT scores or improving your customer contact -- your first contact resolution or training time. Those are not things that these solutions even target.

They sort of focus on collecting a bunch of content and making it -- present it -- make it available to people who want to use it through search. And there's no AI, nothing of that sort.

So I think that these clients for the right reasons perhaps for their own business have decided to go with a very different approach and probably just making a triaging decision at this time. And we believe that there's still going to be opportunity with these accounts, and we're going to stay close to them.

And then chances are we'll get a chance to get back in..

Got it.

And do you think contact center, in general, your comments, do you think they apply to the whole industry? Or is it just Europe, but I guess in Europe, is it pretty prevalent?.

I'd say that it's a macro effect. I'm not sure if it impacts contact centers equally or not, but I have to believe that buying cycles are -- sorry, wallet sizes are getting squeezed in Europe more than in North America..

Yes, yes. Totally understood.

And any more thoughts on what else to do with the free cash flow that you have or just capital structure in general?.

For now, I think the decision we have made is a good one that gives us an opportunity to see our stock buyback as a good investment when it presents itself. And so that kind of opens the door for some good use of cash. Beyond that, we haven't really made any public decisions around our cash..

It appears there are no further questions. This concludes your question-and-answer session. I would like to turn the conference back over to management for any closing remarks..

Great. Okay. Well, thanks, everybody. I appreciate you listening. And again, anybody in New York this week, we'd be happy to have meet in person. Thanks a lot. Bye..

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect..