EGAIN Corp Q3 FY2025 earnings call

• Exceeded profitability projections and delivered solid operating cash flow in Q3, but bookings impacted by extended sales cycles.
• Secured one of the largest deals ever with a US mega bank, with deployment to be completed by late fall and the solution to be used by over 100,000 users.
• Launched eGain AI Agent for Contact Center in March, a breakthrough conversational assistant for contact centers.
• Gartner rated eGain a leader in the generative AI knowledge management apps quadrant.
• Invested in product innovation, particularly in AI knowledge offerings, and seeing good customer interest in AI Agent offerings.

Total revenue for the third quarter was $21 million, down 6% year-over-year. SaaS revenue accounted for 93% of total revenue. SaaS gross margin was 77% compared to 78% a year ago, and total gross margin was 69% compared to 71% a year ago. Non-GAAP operating costs for the third quarter were $13.8 million, down 6% sequentially and flat compared to the year ago quarter. R&D was up 15% year-over-year. Non-GAAP net income was $765,000 or $0.03 per share. Operating cash flow was $2.2 million. SaaS ARR for knowledge customers increased 11% year-over-year, while total SaaS ARR for all customers decreased 6% year-over-year. LTM dollar-based SaaS net retention for knowledge customers was 97%, while net retention for all customers was 88%. Total RPO decreased 2% year-over-year and short-term RPO of $44.3 million was down 7% year-over-year.

• Q4 2025 total revenue guidance: $22.8 million to $23.3 million.
• Q4 2025 GAAP net income guidance: $1.1 million to $1.6 million ($0.04 to $0.06 per share); non-GAAP net income: $1.7 million to $2.2 million ($0.06 to $0.08 per share).
• Fiscal 2025 full year total revenue revised to $88 million to $88.5 million (down from prior range). GAAP net income revised to $2.5 million to $3 million ($0.09 to $0.10 per share); non-GAAP net income: $5.1 million to $5.6 million ($0.18 to $0.20 per share).

• Macro uncertainty impacting the timing of closing new deals.
• Impact of two large client losses from the prior year on remaining performance obligations and revenue comparisons.

Q: Can you talk about a little bit more about the mega bank win. I'm sort of curious about the pace to roll out the deployment. How big the expansion is by scale sort of compared to what they were. Is it 50% bigger, 2x? And then maybe sort of how unique or repeatable that win was across the rest of your customer base.

A: Right. There's actually here. So, yeah, let's start with the first one. So, let's say the deployment is at pace right now. So, I think the customer will be fully deployed on this expansion by the -- by late fall. So, it's a pretty aggressive schedule between now when we secured the deal. So, about a six months deployment in multiple phases. And then in terms of the rollout and expansion, I'd say we -- it's an order of magnitude bigger. Right? I would say maybe 10x of what we were before that. It's a much bigger size deal than what we were before. We got into this third expansion -- the second expansion and the third deal. And then as far as the repeatability, I would say it's a pretty common pattern we are seeing in all businesses. As I mentioned earlier, I think maybe two quarters ago we used to see a lot more functional engagement with customer service and contact centers mostly for knowledge management. And that still continues to be our primary entry point in businesses. But we are seeing more and more collapse of the functional boundaries, because of the AI drivers. And so, knowledge is becoming a solution that people are looking to deploy across the business so that they can then have that single source of truth across all functions. So that's kind of the repeatability we are seeing in the sales now.

Q: Maybe last for me, you talked about sales cycles have been a bit extended. Do you feel like they -- while extended, they've maybe stabilized here? Do you think it's getting any worse? Any better? Sort of curious how much.

A: I would say they're stabilized. They're stabilized. I think the increase has been mostly because of the size of the opportunities as well as the number of groups that need to be involved to go through that process of evaluation and ultimately decision. So, yeah, I would say that it's stabilized. So, it's probably more like nine to 12 months now on average as opposed to nine months. This is an extra quarter if you will add it to all of this.

Q: Evening Ashu, Eric. This is Daniel on for Jeff. Just maybe one more question on the mega bank before we move elsewhere. Just maybe unpack a little bit more. What that ramp up through the fall will look like in terms of the process, is there -- is that all sort of sealed and done? It's going to be a very linear, very easy rollout. What are sort of the hurdles in terms of implementation, training, approvals, just how will that look like? And then going along with that, the revenue ramp, will that be linear? How will that curve.

A: Sure. I'll take the first, maybe you can take the second. So, in terms of the implementation, I would say that it's not unusually custom. It's sort of like many other large enterprises we have worked with. The only big difference I would say is that this bank is super aggressive on the AI front. So, their internal AI teams are much more advanced and they are pulling, they expect to -- sorry -- they expect to pull a lot more knowledge content from our knowledge hub to further drive their AI-based workflows on the user end. So that part is kind of new and exciting. But other than that, I would say it's fairly par for a course for a large enterprise deal.

Q: And on the RevRec side, the way the deal is structured, it'll be ramped up pretty much from the beginning as opposed to a phased purchase over time.

A: Okay. That's helpful. And I think that gets sort of to my next question, which was in terms of the sequential growth we're looking for from Q3 to Q4, looks like around 10%. What's the visibility? What are the drivers of that? Is there any sort of rebound in PS? Is this all visibility from this major mega bank deal sort of starting off hot? What's the visibility there.

A: Yeah. Exactly. I think it's a combination. I mean, given the size of this deal and the timing of it, that'll certainly have a meaningful impact of that sequential growth.

Q: And then just as we look a little further out to '26 and beyond, if a bottom was going to be reached on the growth and sort of a rebound back to positive growth, I mean, how do you think about at a high level what that growth formula would look like? Is that analytics and conversation hub hitting a bottom? Is that an acceleration in knowledge? Is that a change in top 10 customers? Where's sort of the change in that growth formula.

A: I would say that '26 should be our year of showing real top line impact of the AI Knowledge investments that we have been making for the last two years and particularly in the last year, meaning fiscal '25. So, I think we'll see the benefit of that in fiscal '26.

Q: And as I mentioned earlier, just in terms of revisiting the results for this quarter. And obviously, the decline was already called out last quarter and we got to discuss it in terms of expecting some headwinds in TS and some pushouts in terms of deals slipping. But sort of beyond deals slipping and beyond PS with subscription down sequentially, just revisit, was that churn, is there something seasonal? Is that push out of renewals where a deal temporarily goes suspended and then it comes back just a sequential there for this quarter.

A: Yeah. So, I think just sort of highlighted this during the call. Just given the fewer number of days, if you look back historically, there's often that sequential decline in this quarter. So that certainly accounts for a portion of it. So, I think -- and then timing of the deals, I think being pushed out, we didn't see any meaningful impact of revenue of deals that closed in the quarter. And I think -- finally, I think there was some catch up in the previous quarter that we talked about. So, I think as you said, we talked about these items on a previous call