eGain Q1 Earnings Call Highlights

Key Points

• Q1 results exceeded guidance, with revenue down 7% year over year to $21.9 million as declining legacy business outweighed 7% growth in AI-customer revenue. Net income and adjusted EBITDA also fell, while eGain ended the quarter with $71.3 million in cash and no debt.
• AI customer ARR rose 11% to $54.5 million and made up 74% of SaaS ARR, but retention softened: AI-customer net retention was 104%, and overall retention was 92%. The company cited new customer wins and product investment as it seeks to convert demand for AI knowledge management into growth.
• eGain reiterated its fiscal 2027 revenue outlook of $84.5 million to $86 million and its target of about 20% AI-customer ARR growth, while warning that legacy revenue declines will accelerate. The plan assumes roughly 30% lower legacy revenue and increased sales and marketing spending.

eGain NASDAQ: EGAN reported fiscal first-quarter revenue and earnings above its guidance, even as the continued runoff of its legacy business outweighed growth among customers on its AI-enabled platform.

Revenue fell 7% from a year earlier to $21.9 million, while AI customer revenue increased 7% to $14.4 million, or 66% of the total. The company reiterated its full-year outlook and said it plans to increase sales and marketing spending as it seeks to turn growing interest in AI knowledge management into new business.

Chief Executive Officer Ashu Roy said the company’s opportunity is expanding as businesses seek trusted information to support AI applications. “Our numbers do not yet reflect the size of that opportunity,” he said, adding that eGain is focused on scaling its go-to-market efforts.

Legacy runoff weighs on results

Chief Financial Officer Eric Smit said legacy revenue declined approximately 28% year over year in the quarter, consistent with the company’s planned transition. Non-GAAP total gross margin narrowed to 74% from 76%, while non-GAAP SaaS gross margin fell to 78% from 81%, partly because lower legacy SaaS revenue was spread against a largely fixed hosting cost base.

GAAP net income fell to $1.6 million, or $0.06 per share, from $2.6 million, or $0.10 per share, a year earlier. Non-GAAP net income declined to $2.4 million, or $0.09 per share, from $4.7 million, or $0.17 per share. Adjusted EBITDA was $2.7 million, compared with $5 million a year earlier.

Cash provided by operating activities was $1.8 million, down from $10.4 million. Smit attributed the difference primarily to the timing of an annual payment from a large federal customer, which arrived in the fourth quarter of fiscal 2026 rather than the first quarter of fiscal 2027. eGain ended the quarter with $71.3 million in cash and cash equivalents and no debt.

The company repurchased approximately 644,000 shares for $3.6 million during the quarter. About $6 million remained under its repurchase authorization.

AI customer growth and retention

AI customer annual recurring revenue, or ARR, increased 11% to $54.5 million as of September 30 and represented 74% of total SaaS ARR, according to Smit. Total SaaS ARR fell 4% to $73.4 million as legacy customer business declined.

eGain defines AI customers as those on its current AI-enabled platform. AI customer ARR includes all SaaS ARR from those customers, while AI customer revenue includes both SaaS and professional services revenue generated from them.

Trailing 12-month dollar-based net retention for AI customers was 104%, unchanged from the preceding quarter but down from 117% a year earlier. Smit said the earlier period included a significant expansion with a U.S. mega bank. Net retention across all customers fell to 92% from 102%.

In response to an analyst’s question about the gap between AI customer ARR and revenue growth, Smit said ARR is a leading indicator: Revenue recognition follows as newly signed contracts take effect. He also said eGain had not seen a significant shift in the balance between legacy customers leaving and moving to its AI platform.

Product investment and customer wins

Roy said Gartner named eGain a leader in its first Magic Quadrant for customer service knowledge management systems. He also described five capabilities introduced under the company’s AI KnowledgeOps framework, including tools for analyzing customer questions, preparing content for AI use and continuously testing answer quality.

New customers included Technology Credit Union, which Roy said is building a knowledge foundation across its contact center, digital banking, branches and back office. A privately held consumer packaged goods company also plans to deploy eGain’s AI Agent to as many as 1,000 plant-floor operators, he said.

Roy said another investment management customer signed in early October, after the first quarter ended. Existing customers expanded their use of eGain, including a U.S. mutual insurer making its governed knowledge available within Salesforce AI.

Asked where additional sales and marketing investment would go, Roy said eGain is focused on generating awareness and leads, then expanding its sales development capacity to turn those leads into opportunities. He said the company believes it has sufficient capacity for selling and closing at the back end of the funnel.

Outlook calls for higher spending

For the fiscal second quarter, eGain expects revenue of $21 million to $21.5 million, including AI customer revenue of $14.5 million to $14.8 million. It forecasts non-GAAP net income of $200,000 to $900,000 and adjusted EBITDA ranging from break-even to $500,000.

For fiscal 2027, the company reiterated its forecast for revenue of $84.5 million to $86 million and AI customer revenue of $59.5 million to $60.5 million. It continues to target approximately 20% year-over-year growth in AI customer ARR by June 30, 2027.

Smit said legacy revenue runoff is expected to become more pronounced starting in the second quarter, including the impact of the planned wind-down of the legacy messaging business. He said the remaining messaging business finished at the end of the first quarter.

The CFO cautioned that first-quarter profitability was not representative of expected earnings for the rest of the year, partly because some sales and marketing spending occurred later than the first quarter. The full-year outlook assumes an approximately 30% decline in legacy revenue and a meaningful increase in marketing investment over the remaining three quarters.

About eGain (NASDAQ:EGAN)

eGain Corporation develops cloud-based software for enterprise knowledge management and customer service operations. Its platform combines artificial intelligence (AI), knowledge management, workflow automation, and analytics to help organizations manage information and support customer interactions.

The company's products and services include knowledge management systems, conversational AI, digital engagement tools, agent-assistance software, and customer service analytics.

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