eGain Corp (EGAN) 2021 Q4 法說會逐字稿

Good day, and welcome to the eGain Fiscal 2021 Fourth Quarter and Full Year Financial Results Conference Call. Today's conference is being recorded.

At this time, I'd 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 Fiscal 2021 Fourth Quarter and Full Year 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 of 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, September 1, 2021, and assumes no obligation to publicly update of revise any of the forward looking information in 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 a 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 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 very pleased with our financial performance for the quarter and fiscal '21 full year. We exceeded our guidance for the quarter as well as for the fiscal year '21, plus our top and bottom line results were ahead of Street consensus. With a strong balance sheet, we intend to continue to invest in our business to further translate our product leadership into market leadership.

In fiscal '21, we grew our top line by 8%. In fiscal '22, we believe we can grow our top line faster. We plan to grow 13% to 15% in fiscal '22. That's an exciting jump for us as a team. And we are off to a good start in pursuit of that growth goal. We've already closed 2 7-figure ARR deals in the current first quarter of fiscal '22. The first one is a new logo win, a hypergrowth crypto exchange looking to better serve its global customers. The other one is an existing client, a U.S. government agency, actively deploying knowledge-powered automation to improve citizen experience. In both cases, our leading cloud security, on-demand scalability and proven CRM and contact center connectors were key considerations beyond the functional richness of our solution.

According to Gartner, enterprises are looking to modernize knowledge management systems to get more value from digital investment and customer engagement. And we, eGain, are being seen as the premier provider of modern knowledge management solutions in that context. This status is validated by analysts like Gartner and Forrester when they rate our product capabilities, plus a growing roster of big platform partners who are looking to enhance their customer engagement offerings with best-in-class knowledge and digital engagement capabilities are partnering with us.

Last week, for instance, we announced the availability of our certified eGain connector for SAP. This connector will enable global SAP clients to seamlessly enhance their customer engagement capabilities with eGain knowledge. We are already seeing early interest in the global SAP client base for our knowledge solution. We will continue to expand our CRM connector library, which now includes Salesforce, Microsoft and now SAP.

Thanks to sustained investment, our customers are getting good value from eGain and expanding their eGain deployments. As a result, the total number of $1 million plus ARR clients grew by 30% for us in fiscal '21. As we have mentioned before, this is sort of counterbalanced by the fact that our average ARR for new logo wins has been trending down as enterprise buyers look to launch multiyear programs with pilot scale projects to establish success metrics. But on the flip side, which is positive, after the evidence of user adoption and business value in these early engagements, expansion opportunities are growing nicely.

Switching to other initiatives. We continue to be bullish about our Virtual Financial Coach solution that we launched in partnership with GreenPath in March this year. Last month, we announced more than 25 paying credit union clients for our Coach solution. So within a matter of 5 months, we've now got 25 paying credit union clients. These are small clients as we are going after the small to midsized credit unions and banks with this solution.

This solution uniquely suits small to midsized banks and credit unions because they need turnkey capability to serve customers with personalized and intelligent financial coaching options. So we believe it's a no-brainer for over 6,000 credit unions and small to midsized banks in the U.S. And that gives us plenty of opportunity to pursue this growth with our partner, GreenPath.

Looking ahead, we are very excited about fiscal '22. As you all know, we've been setting the stage to accelerate growth for some time, first with our SaaS transition and then with sales and marketing investments in fiscal '21. These investments are now bearing fruit as seen in our increased new customer sales and enterprise expansion in fiscal '21.

In fiscal '22, we will continue to invest disproportionately in sales and marketing. We plan to hire and onboard our next tranche of sales reps by December '21 as we go after these knowledge opportunities in the enterprise. We also plan to increase our product development investment in fiscal '22 to aggressively build out our ecosystem, the marketplace to enhance functional enrichment of the eGain platform.

Today, we have just a handful of partners who offer value-added capabilities on our platform. At the same time, there is growing interest from partners to develop and sell value-added solutions on the eGain platform in an integrated and certified manner. Moreover, there is interest from our customers and prospects to consume such value-added capabilities to accelerate innovation of their own. This is not a new idea in the market, as we know. Most successful SaaS businesses do this well.

However, in our market segment of knowledge-powered engagement, we would be among the first. We believe that this increased R&D investment in fiscal '22 will create significant product-driven growth options, which is really what we are driving toward because that creates the best growth leverage as we know. And that product-driven growth option will emerge in fiscal '23 based on the investments we make in fiscal '22 on the R&D front.

We look forward to sharing our financial performance and progress along strategic initiatives with you throughout this fiscal year. With that, I'll ask Eric Smit, our Chief Financial Officer, to add more color around our financial operations. Eric?

Great. Thanks, Ashu, and thanks, everyone, for joining us today. As Ashu noted, we delivered a strong financial performance in fiscal 2021 with top and bottom line results that exceeded our guidance and Street consensus. And even with our increased investments in sales and marketing, we delivered improved gross margins and strong earnings and cash flow for the fiscal year.

Another highlight was hitting target to bring our legacy maintenance to less than 5% of total revenue in Q4 '21. With our model transition finally behind us, we are starting the new fiscal year with a plan to accelerate our top line growth in fiscal '22 and beyond. Before getting into our outlook and guidance for fiscal '22, let me share some financial highlights for the quarter and full year.

We grew our SaaS revenue by 15% for the quarter and 18% for the year compared to the same period a year ago. Our total revenue grew by 6% for the quarter and 8% for the year compared to the same period a year ago. Looking at our non-GAAP gross profits and gross margins. Gross profit for the fourth quarter was $15.3 million or a gross margin of 75%, up from 74% a year ago. For fiscal 2021, gross profit was $59.4 million or a gross margin of 76% from 72% in the prior year.

Looking at our bottom line, non-GAAP net income for the fourth quarter was $2.5 million or $0.08 per share. This compares to non-GAAP net income of $2.7 million or $0.08 per diluted share in the year ago quarter. Non-GAAP net income for the fiscal year was $8.7 million or $0.27 per diluted share compared to non-GAAP net income of $9.3 million or $0.29 per diluted share in the prior fiscal year.

Turning to our balance sheet and cash flows. Our balance sheet remained strong. During the year, we generated cash flow from operations of $13.9 million, and total cash and cash equivalents at the end of fiscal 2021 was $63.2 million, up 36% from a year ago.

Looking at our current remaining performance obligation, or RPO, as I've mentioned in the past, due to customer concentrations, the timing of renewals can create fluctuations in this balance from quarter-to-quarter. However, with healthy renewals we experienced in the fourth quarter with over 33 customers renewing, our current RPO increased 17% year-over-year to $55.2 million.

Looking at other customer metrics. Our trailing 12 months retention rate, which includes upsell, uplift and churn, continued to be over 100% and was up sequentially from Q3, with no unusual churn in the quarter. Our trailing 12-month SaaS expansion rate, which excludes customer churn, was over 110%, which has been consistently over the last 8 quarters. And the number of $1 million ARR customers -- that $1 million ARR, increased 30% year-over-year.

Now on to our financial outlook and guidance. With the start of fiscal '22, our primary focus will be on top line growth. We have seen great early results from our sales and marketing investments with significant SaaS customer wins and expansions this past fiscal year.

Based upon this success, we plan to continue this investment in the coming year to further increase our brand awareness and penetrate and capture more market share of this massive opportunity we see in front of us. In addition, we plan to increase investment in R&D to maintain our competitive advantage and build on 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.

Now on to our guidance. For the first quarter of fiscal 2022, we expect total revenue of between $20.9 million to $21.3 million, which would represent growth of 10% to 12% year-over-year. GAAP net income of breakeven to $1 million, or $0.00 to $0.03 per share; and non-GAAP net income of $500,000 to $1.5 million, or $0.02 to $0.05 per share.

For fiscal '22 full year, we expect total revenue of between $88.2 million to $89.8 million, which represents growth of 13% to 15% year-over-year. GAAP net loss of $3.5 million to $4.5 million, or a loss of $0.11 to $0.14 per share; and non-GAAP net loss of breakeven to a loss of $1 million, or $0.00 per share to a loss of $0.03 per share.

A few additional items to highlight. We estimate stock-based compensation expense of approximately $500 million for Q1 and $3.5 million for the entire fiscal '22. Depreciation and amortization of expense of approximately $120,000 for Q1 and $500,000 for fiscal '22; and weighted average shares outstanding of approximately 32.8 million for Q1 and 33.1 million for the fiscal year '22.

So in summary, we are pleased with our financial performance this past year. The demand is high for our best-in-class products. We continue to see expansion from our installed base of customers and our expanding partner ecosystem driving more new logo opportunities. Also, our sales momentum is growing as evidenced by the large deals already closed in Q1.

And finally, we have the balance sheet strength to support continued investment to drive top line growth in fiscal year '22 and beyond. We look forward to providing updates on our progress as we execute on our growth plans throughout the fiscal year. Firstly, looking at the Investor Relations calendar, eGain will be participating in 2 virtual investor conferences later this month. Next week, we'll be participating in the D.A. Davidson Software and Internet Virtual Conference on September 9. We will also be presenting at the Jefferies Virtual Software Conference on September 14. 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) Our first question comes from Richard Baldry with ROTH Capital.

Could you maybe talk about the drivers of the deferred revenue line this quarter? It spiked pretty sharply, both sequentially and up 26% year-over-year. And I'm just looking at the current deferred. Is there anything unusual in there? I mean that would argue for growth to accelerate fairly meaningfully above even what the implied guidance is. So I'm just trying to figure out if there's anything anomalous there.

Rich, yes, I think, as I've mentioned, we had a strong number of renewals that came in at the end of the quarter. So I would say that's a big part of what drove that. So I think, again, we feel good about the renewal rates, no unusual churn. And so -- but nothing outside of that, that I would want to comment on at this point.

So there wasn't any meaningful change to the average duration of contracts or anything else to drive that?

No. I think -- I mean, we did have a couple of federal contract renewals that those are typically 1 year in duration. So that certainly would have skewed the shorter-term element from that regard.

Okay. And then maybe can you talk about -- you're into some cohorts a little deeper on the hiring or tenure now. How has that experience been both from recruiting, onboarding, ramping? Are there things that you've learned that you think will help you with the next cohorts that you plan to add by year-end? Just overall, how that process is going in a sort of COVID-dampened environment?

Yes. That's a good way to put it, COVID-dampened, Rich. So yes, I mean we're obviously learning much like everyone else how to do this in a remote way. What we have found is that we are able to attract -- it's not easy to attract sales talent, but we are able to attract sort of the mid-level sales talent, which then we feel we can bring in and onboard quite well. So that's been our strategy, and we are working that quite consistently now.

I think the first bunch, we had some hiccups. Some people joined. Some people are those -- a few left. And what we found was that the big thing and outside of things that are not in our control, like COVID. But other than that, the big thing we noticed was that people who were more -- who could learn faster, learn easier seem to be the ones that stuck around. So that's one of the things we have learned, and we are obviously driving that hard over the next cohort.

Then it looks like the legacy maintenance side is now under $1 million and dropping several hundred thousand a quarter. Can you talk about the end of that? Is that really maybe only another 2, 3 quarters and then that should run to 0 and be done? Or is that something that you think will push past fiscal '22?

Eric, do you want to provide some color on that, please?

I can take that, Ashu. So I think where we sit at the moment, so obviously very pleased that it's now down below that 5% level. The good news is that for the material customers that make up the remainder, we're actively engaged with most of them. And again, many of them have plans to move and migrate. But there may be internal dependencies that they have in place that are sort of creating the lag.

So instead of forcing them to meet the date so that we can sort of drop this off to 0, we are working with the small list of customers. So from that perspective -- continue to trail out over time. But for us, as we look forward to fiscal '22, we don't believe that's going to have that meaningful drag that it's had in previous years. So that's why our focus on this call is to really focus on total revenue growth knowing that this is going to have less of an impact than it's had in previous years, of course.

Okay. And last for me would be the revenues beat what we had pretty solidly, but the professional service is actually below. So recurring being above is where we'd want to see it. I'm just sort of curious, the pro services was down below the prior 2 quarters. Is there any way to think about how that should grow in tandem with the top line? Or what factors sort of make it oscillate quarter-to-quarter as we look to build our '22 models?

No, I think good question, something that we've been looking at closely. I think as we've talked about in the past -- easy deployments, we've seen that the PS numbers declined as a percentage of revenue down below that 10% mark. As looking forward -- expansion opportunities where customers are just buying all of the same products, there's typically less peers associated with that. But as you get into new deployments, that's where the attach rate goes down.

I would say that, as we look forward, our expectation is not to see a significant further decline in PS. I expect it would stabilize at these...

Sir, it's becoming difficult to hear you. And we did lose connection with that speaker please just remain on the line while we reestablish his line. Thank you.

Richard, we will come back to you once Eric reconnect. I'm not sure, he's having some technical issues, but I'm sure he'll complete his thoughts then. I apologize for that.

No, it largely did answer my question. I'm good. I'll take anything else off-line. Congrats on a good end of the year and a nice outlook for next year.

Thank you, Richard.

And our next question will come from Mark Schappel with Benchmark.

On the sales force, in fiscal '21, the company grew or at least plan to grow its sales head count by 50%. I think that was what was announced at the beginning of the year. How much of a sales capacity increase are you anticipating in the coming fiscal year?

Yes. My sense is that we will endeavor to scale by another 50%. Certainly, capacity-wise, I think we'll go up by 50%, whether it's head count-wise or not, that depends on how we organize the quotas and the direct versus channel kind of programs. But I think capacity-wise, that's what we are targeting.

Okay. Great. And then I was wondering if you could provide some additional color around the product development investments that you're planning for the upcoming year. I mean what capabilities are you looking to add or grow into? And what are you planning to focus on in product development?

Sure. So one thing I already mentioned, which was kind of the delta that I alluded to in terms of level of investment as a percentage of our revenue. And that has to do with building out the marketplace and the developer environment for our platform so that we can get more small to midsize value-added solution providers. And we are getting quite a few inbound inquiries around that, both from direct partners or partners who are working with some of the clients we are now selling to. And they're all interested in kind of integrating into the eGain platform and do it efficiently and do it profitably. So that's a marketplace capability that we do not have today, and we want to make sure that we put that in place quickly. So that's one big element.

The second area where more on the functional side where we are going to be focusing is the whole knowledge, embedding knowledge into more and more parts of the enterprise is something we are getting a lot of interest in. We're starting out -- in almost every case, we start out on the customer engagement side, whether it is self-service or it is agent-facing.

But what we are seeing as a quick next step with customers is and interest in taking that capability and system of knowledge management and scaling it across the enterprise, sometimes internal-facing, HR, IT, so on and so forth. So that's an area where we will also increase our product investments in.

And our next question come from Jeff Van Rhee with Craig Hallam.

A couple for me if you would. Ashu, on the partner side, I know it's been a big focus. I didn't hear as much commentary about it this quarter. I guess a couple of specific questions. You've had a -- 2, I think in the most recent quarter, 10% customers, one 23% and one 13%. Any commentary or directionally, any changes with those 2 customers in terms of meaningful trends one way or another?

And then the second question is kind of more specific to the overall partner growth, and that is, can you put some numbers around maybe the growth in bookings value from partners or the growth in logos from partners? Just give us a little finer point on your momentum there.

Okay. I'll try to address the second question first, Jeff. And then, Eric, maybe you could take the first part of Jeff's question, okay?

Sure.

So in terms of new logos from last fiscal, meaning fiscal '21, we saw good new logo acquisition through partners. And that continues even this fiscal year, fiscal '22, our pipeline has a good number of new logo opportunities from partners as well. So I think we're seeing a healthy split, if you will. That split is probably in the, I would say, 50-50 kind of zone on the new logo side or partner versus direct today. In terms of the first question, Eric, maybe you can answer that more.

So just be clear, both of those customers, as they are listed, one is solely a partner. So it's a resell relationship. And then the second one is a combination of a partner and a customer. And so I think, for this quarter, we haven't seen, if anything, the business has continued in the right direction. So no changes anticipated in the revenue from those 2 customers in the quarter.

Yes. And maybe just along that line, then on the partner side, I mean I know you had a lot going with Avaya. You've talked from time to time about Amazon. Cisco's obviously or a BT, Infogain. I mean you've got a lot of things going. Just any particular call-outs in terms of where you're seeing particular strength?

I would say on the -- in the U.S. front, Cisco and Avaya are the top 2 right now on the channel side for us. In Europe, BT is probably the leader from a partner standpoint for us. And now we're kind of excited about, though it's $0 so far, but about the SAP partnership because we are seeing good mutual interest in developing go-to-market motion with some of their field teams globally as well as in the U.S.

Fair enough. One last one, if I could. You mentioned the 2 7-figure ARR deals that you signed post quarter close. And I think you said one was an existing government agency. The other being a new logo crypto player. Assuming there was some competition in each of those, can you just give a quick glimpse into who you're seeing in deals like that?

Right. So the expansion was clearly, we already were in the game. So there was no competitive -- significant competitive play in that deal. Though there were some very large players in the government agency environment where we or our sponsors made the case to go with the eGain proposition versus sort of all-in-one kind of solutions from alternatives.

In the case of the crypto client, which is a new logo, the competitive environment was with people like -- in this case, this particular client has Salesforce as their CRM system of record. So they were evaluating Salesforce for the knowledge management piece as well, and they were evaluating some pure-play knowledge players. Like in this case, they evaluated Oracle as well very seriously. So those were the ones they told us about. And what we will be doing in the case of the crypto client is we will be integrating our solution tightly through our connectors into Salesforce.

And our next question comes from Tim Horan with Oppenheimer.

Can you give a little bit more color on the value-added services that partners can bring? Do you think -- kind of where does this evolve to in the next couple of years? And then I just had a quick follow-up on the financial guidance.

Okay. So we are just beginning the journey here, Tim. So the idea is to create -- to begin with a simple marketplace where we can certify these apps and put them for our clients to be able to use with the confidence that it will work in the eGain environment and not in, but connected into the eGain platform, and that will be step 1. And then step 2 will be looking at whether we want to create some sort of economic model around that, something that people like Salesforce and others do today.

So we are a couple of steps behind that, but we know that there is a need and especially in our market segment, which is knowledge-centric customer engagement, I think that there is an unmet need, and we are seeing that from both small players trying to add value as well as customers and prospects asking for that sort of ease of plugging and playing with smaller value-add providers onto our platform. Does that help?

Yes. That's helpful. And then on the guide, it looks like you're looking for operating expenses to grow basically double what your revenue is going to grow out, if I'm looking at it right, over 30%. I mean can you even ramp up spending that rapidly? And are you doing this because you think you can accelerate revenue growth faster than you're showing this year? Or are you doing it to kind of maintain revenue growth for the next few years?

My view -- and Eric, you can add more here. My view is that we need to get to, what I would call, minimum efficient scale, using industry parlance. And we are at a level in an operational -- if you look at the operational capabilities and the foundational IT systems and sort of core people capabilities, we need to invest in that somewhat in a step function way to get to that level where we can then look at more marginal investments and better returns on top of that.

So that's what you're seeing in fiscal '22. That may not reflect in fiscal '22 top line growth as in a lot of surprise on top of whatever we are saying, but it certainly will and should accelerate our top line growth in tail end of '22 and '23.

And I think just to add to that, one other point I think is many of the investments that we began in '21 were more back-end loaded. So if you just look at the sequential ramp, it's not as steep as it looks when just looking at the year-over-year comparisons.

And that does conclude the question-and-answer session. I'll now turn the conference back over to management.

Great. Well, thanks, everybody, for listening in. Again, I'm very excited about the upcoming year. So I look forward to providing you updates as we put out our Q1 results. Thank you.

Thank you. And that does conclude today's conference. We do thank you for your participation. Have an excellent day.