EGAIN Corp Q3 FY2023 earnings

eGain's fiscal 2023 third quarter, ended March 31, 2023, produced total revenue of $23.0 million, down 3.7% from the prior-year quarter. The first nine months looked different: revenue of $73.4 million, up 7.2%. SaaS revenue was $20.9 million in the quarter, up 1% year over year, and management put the constant currency gain at 3%. Legacy revenue, the leftover maintenance and support on perpetual licenses the company no longer sells, fell 88% to $126,000. That decline is deliberate. eGain sells only SaaS to new clients and is migrating the remaining perpetual license accounts. Management said North America renewal and expansion rates stayed strong and several new customers signed near the end of the quarter, while the broader market slowdown held the total back. North America revenue rose 2% to $17.9 million, and Europe, the Middle East and Africa revenue fell 20% to $5.2 million. Foreign exchange trimmed $534,000 from quarterly revenue.

Margins compressed. Gross profit was $15.4 million, down 11.2%, and gross margin slid to 67.0% from 72.7%. Higher cloud computing costs carried most of the blame: cost of subscription revenue rose 42% to $5.4 million. Operating loss was $512,000, a wider loss than the prior-year quarter, and operating margin slipped to -2.2% from -2.0%. Net loss was $372,000, or $0.01 per diluted share, a 39.5% narrowing from the prior-year quarter. On a non-GAAP basis, net income was $1.1 million, or $0.03 per diluted share, down from $2.4 million, or $0.07 per diluted share. Over the first nine months, gross profit reached $52.7 million, up 4.4%, with gross margin of 71.9%. Net loss for the nine months was $492,000, or $0.02 per diluted share, a 44.7% narrowing. Operating loss for the nine months was $969,000, wider than the prior-year period, and operating margin was -1.3%.

Cash generation was uneven. Operating cash flow was $905,000 for the quarter, down 22.4%, but $9.08 million for the first nine months, up 55.3%. The nine-month gain came mainly from the timing of accounts receivable collections and deferred revenue recognition. Total cash and cash equivalents were $81.3 million, against $70.5 million a year earlier. Deferred revenue was $35.1 million, down 7.7%. Remaining performance obligations rose 3.7% to $87.3 million, of which $52.1 million is expected to be recognized as revenue within one year and $35.2 million beyond one year. The company repurchased about 145,000 shares at an average cost of $7.57, for $1.1 million.

For the fourth quarter of fiscal 2023 ending June 30, 2023, eGain guided non-GAAP net income to $1.9 million to $2.4 million, or $0.06 to $0.07 per share, on about 32.5 million weighted average shares. For the full fiscal year ending June 30, 2023, it guided non-GAAP net income to $6.5 million to $7.0 million, or $0.20 to $0.21 per share, on about 32.8 million weighted average shares. The company also supplied total revenue ranges for the fourth quarter and the full fiscal year, plus a full-year non-GAAP revenue range adjusted for constant currency. The fourth quarter outlook carries about $1.5 million of stock-based compensation and about $125,000 of depreciation and amortization; the full year outlook carries about $6.8 million and about $600,000, respectively.

Risks stack up. A relatively small number of customers provides a substantial portion of revenue, so the loss of any one matters. Sales cycles are long and the timing of large deals is hard to call. The customer engagement software market is intensely competitive, and operations in the United Kingdom and India add currency and regulatory exposure. Foreign exchange reduced revenue by $534,000 in the quarter and $2.4 million over the first nine months. A valuation allowance still sits against U.S. deferred tax assets. Expense controls helped the bottom line, yet the quarter closed with a GAAP operating loss and a GAAP net loss. Guidance for the fourth quarter and the full year leans on renewals holding and new logos converting.