Summary
eGain reported fiscal 2021 second quarter results with revenue growth but lower profitability. Total revenue rose 5.9% to $19.23 million from $18.16 million in the prior-year quarter. Gross profit increased 12.5% to $14.52 million from $12.91 million, and gross margin expanded to 75.5% from 71.1%. Operating income slipped 5.3% to $1.90 million from $2.00 million, and operating margin narrowed to 9.9% from 11.0%. Net income fell 18.6% to $1.61 million from $1.97 million. Diluted EPS was $0.05, down from $0.06. For the first six months of fiscal 2021, revenue rose 8.4% to $38.30 million from $35.34 million. Gross profit climbed 16.8% to $28.95 million from $24.79 million. Operating income rose 37.2% to $4.25 million from $3.10 million. Net income increased 14.4% to $3.65 million from $3.19 million, and diluted EPS was $0.11 versus $0.10. Year-to-date gross margin rose to 75.6% from 70.1%, and year-to-date operating margin improved to 11.1% from 8.8%.
The quarter showed the continuing mix shift toward SaaS. The company said SaaS revenue grew 15% in the quarter and 21% for the first six months. SaaS logo wins doubled year over year for the second consecutive quarter. Management added new logos with Cisco and signed its first Avaya CcaaS customers. The SmartIVR capability drew strong market interest. The sales pipeline doubled year over year. Management noted that legacy revenue kept falling as perpetual license customers migrate to SaaS, and that professional services revenue declined as implementation projects got shorter. Those gains came with higher spending. Operating cash flow for the quarter was $213,000, down 96.0% from $5.31 million. Capital expenditures were $238,000, up 332.7% from $55,000. For the first six months, operating cash flow was $5.95 million, down 26.0% from $8.04 million, while capital expenditures were $317,000, up 153.6% from $125,000. Deferred revenue was $33.72 million, up 11.2% from $30.34 million. Remaining performance obligations were $67.80 million, up 3.8% from $65.30 million.
Non-GAAP results also declined on a quarterly basis. Non-GAAP net income was $2.0 million, or $0.06 per diluted share, compared with $2.5 million, or $0.08 per diluted share, in the year-ago quarter. For the first six months, non-GAAP net income was $4.6 million, or $0.14 per diluted share, compared with $4.3 million, or $0.13 per diluted share. The company issued guidance for the third quarter of fiscal 2021 ending March 31, 2021. That outlook calls for a GAAP loss and a non-GAAP loss ranging from breakeven to $1.0 million, or $0.00 to $(0.03) per share. Management tied the expected sequential decline in SaaS revenue to fewer days in the fiscal third quarter, an expected $300,000 impact, and to seasonal volume increases in the second quarter that are not expected to repeat, an expected $400,000 impact. The guidance also includes stock-based compensation of about $500,000, depreciation and amortization of about $100,000, and weighted average shares outstanding of about 32.9 million.
Management flagged several risks. The COVID-19 pandemic could affect customer demand and delay customer payments. The shift to a work-from-home environment, new product releases, and currency swings add uncertainty. The company depends on a relatively small number of customers for a substantial portion of revenue. Lengthy sales cycles and intense competition in customer engagement software remain challenges. International operations, data privacy rules, cross-border data transfer restrictions, and cybersecurity breaches are also named risks. Management expects sales and marketing expense to grow as a percentage of total revenue in future quarters, research and development expense to stay roughly steady as a percentage of total revenue, and general and administrative expense to rise or hold steady.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2021 | Q1 FY2021 | QoQ | Q2 FY2020 | YoY |
|---|---|---|---|---|---|
| Revenue | $19.2M | $19.1M | +0.9% | $18.2M | +5.9% |
| Gross profit | $14.5M | $14.4M | +0.6% | $12.9M | +12.5% |
| Gross margin | 75.5% | 75.7% | -0.2 pp | 71.1% | +4.4 pp |
| Research & development | $4.5M | $4.5M | +0.1% | $4.1M | +11.3% |
| Sales & marketing | $6.3M | $5.6M | +11.3% | $4.8M | +30.0% |
| General & administrative | $1.9M | $1.9M | -4.7% | $2.0M | -9.0% |
| Total operating expenses | $12.6M | $12.1M | +4.5% | $10.9M | +15.7% |
| Operating income (loss) | $1.9M | $2.4M | -19.4% | $2.0M | -5.3% |
| Operating margin | 9.9% | 12.3% | -2.5 pp | 11.0% | -1.2 pp |
| Net income (loss) | $1.6M | $2.0M | -21.4% | $2.0M | -18.6% |
| Net margin | 8.3% | 10.7% | -2.4 pp | 10.9% | -2.5 pp |
| Diluted EPS | $0.05 | $0.06 | -$0.01 | $0.06 | -$0.01 |
Risks
COVID-19 and related government restrictions, including shelter-in-place orders at the Sunnyvale headquarters and offices in India and the United Kingdom, could materially adversely affect sales and marketing activities and operations. Management stated the pandemic did not have a material adverse impact during the three and six months ended December 31, 2020, but the ultimate impact remains uncertain.
The shift to a SaaS only model is causing legacy revenue to decline, with legacy revenue down 34% for the three months and down 39% for the six months ended December 31, 2020, and management expects legacy fees to continue to decline. Subscription services have generally generated lower short-term gross margins than perpetual license sales.
Lengthy and unpredictable sales cycles, often six months or more, make it difficult to predict the quarter in which sales close. The filing states customer decision-making has become more complicated, causing the average sales cycle to further increase and in some cases preventing closure of expected sales.
The company depends on a relatively small number of customers for a substantial portion of revenue, and the loss of any significant customer or a decline in business with one would materially and adversely affect financial condition and results of operations.
International sales decreased 16% for the three months and decreased 23% for the six months ended December 31, 2020. Approximately 46% of the workforce is in India, and competition for skilled workers there has increased compensation costs and is expected to continue increasing costs.
Changes in European privacy and data protection regulations, including GDPR and the invalidation of the US-EU Privacy Shield, plus California CCPA and New York SHIELD Act requirements, could increase compliance costs, limit data transfers, or expose the company to penalties.
Success depends on senior management, engineering, sales, marketing and other key personnel, including CEO and co-founder Ashutosh Roy. Attrition in the Indian workforce relied on for research and development could have significant negative effects.
Sales and marketing expense increased 30% for the three months and 24% for the six months ended December 31, 2020, and management expects it to increase as a percentage of total revenue in future quarters. Failure to expand sales performance or retain sales and marketing personnel could impede growth.
The customer engagement software market is intensely competitive, with competitors including Genesys, LivePerson, Moxie, Microsoft and Oracle, many having greater financial, marketing and other resources. Failure to compete successfully could adversely affect the business.
Cybersecurity attacks could result in theft of proprietary, personally identifiable, confidential and sensitive information, disrupt business, and lead to contractual disputes, litigation or regulatory action. The filing notes employees or contractors have introduced vulnerabilities in IT environments in the past and may do so in the future.
Operating cash flow decreased 96.0% for the current quarter and decreased 26.0% year to date compared with the prior-year periods, driven by timing of prepayments and accrued liability payouts. If cash generation remains weak, funding operations and growth could be constrained.
The company assumes credit risk with customers and has experienced collection delays. General and administrative expense included an increase of $159,000 in bad debt expense for the three months and $85,000 for the six months ended December 31, 2020, and reserves may be insufficient.
Subscription renewal rates are difficult to predict because customers can elect not to renew, renew for fewer subscriptions or renew for shorter contract lengths. If customers do not renew or reduce paying subscriptions, revenue will decline.
The company has been and may be sued for alleged infringement of proprietary rights, and agreements require indemnifying customers for third-party intellectual property infringement claims. This could increase costs and divert management attention.
Directors and executive officers, together with affiliates and immediate families, beneficially owned approximately 32% of outstanding capital stock as of December 31, 2020, and CEO Ashutosh Roy beneficially owned approximately 28%. This concentration allows significant control over stockholder matters and potential conflicts of interest.
SaaS KPIs
All quarters →Remaining Performance Obligations
SaaS Revenue
SaaS Revenue as % of Total Revenue
Total SaaS and Professional Services Revenue
Non-GAAP Income from Operations
Summary, forecast, risks and KPIs are extracted from EGAIN Corp's SEC filings for Q2 FY2021 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 2, 2026.