eGain EGAN reported second-quarter fiscal 2019 adjusted earnings of 8 cents per share that comfortably beat the Zacks Consensus Estimate by 7 cents. The figure also came well above the year-ago quarter's adjusted earnings of 2 cents.
Revenues of $16.68 million increased 8.3% from the year-ago quarter per revenue recognition standard 605. The figure increased 15% year over year to $17.7 million per the new revenue recognition standard 606. The quarter results benefited from a mix of new bookings and customer renewals owing to demand for eGain's services.
The Zacks Consensus Estimate for revenues was pegged at $16 million.
eGain Corporation Price, Consensus and EPS Surprise
eGain Corporation Price, Consensus and EPS Surprise | eGain Corporation Quote
Quarter Details (per revenue recognition standard 606)
Subscription revenues (89.4% of total revenues) increased 25.3% year over year to $15.8 million. Subscription revenues include Software-as-a-Service (SaaS) and legacy support revenue.
SaaS revenues, which include revenues from "cloud delivery arrangements, term licenses and embedded OEM royalties and associated support", surged 53% year over year to $11.9 million. The increase was primarily due to change in pricing owing to higher volumes in the holiday period from a retail client.
Legacy support revenues declined 19.1% year over year to $3.95 million. The decline was due to eGain's efforts to completely transition its on-premise customers to cloud platform. The transition is expected to be completed by the end of calendar year 2020. Therefore, legacy support revenues will continue to decline going forward.
Notably, legacy revenues are from support contracts on perpetual license arrangements that eGain no longer sells in its efforts to transition to a completely cloud platform.
Professional services (10.6% of total revenues), which includes revenues from training, consulting and implementation decreased 32.1% year over year to $1.88 million.
On the basis of geography, revenues from North America - Domestic (56.9% of total revenues) increased 15.9% year over year to $10.1 million on increased demand from providers like financial services, healthcare and government. Moreover, eGain stated that it is looking to increase its domestic business in the next year or two.
Revenues from Europe, Middle East and Africa (EMEA) - International (43.1% of total revenues) increased 13.8% year over year to $7.64 million.
eGain's customer retention rate is in the low 90s. Additionally, the company's enterprise market continues had more bookings (about nearly 90%) and its mid-market less than 10% bookings. However, eGain stated that it continues to see increased booking in its mid-market area.
Gross profit increased 24% year over year to $12.18 million. Gross margin expanded 500 basis points (bps) to 68.7%. The increase was due to growth in SaaS revenues and improvement in scale and efficiency of eGain's cloud operations.
Research and development and sales and marketing expenses declined 3% and 7.1% year over year to $3.59 million and $4.39 million respectively. The decline was due to the shift of a few expenses into the second half of fiscal 2019. However, general and administration expense increased 15.7% year over year to $2.05 million.
eGain generated non-GAAP operating income of $2.5 million compared with $843,000 in the year-ago quarter.
Balance Sheet and Cash Flow
As of Dec 31, 2018, cash & cash equivalents were $11.2 million compared with $11.5 million as of Sep 30, 2018.
Cash flow from operations was $863,000 compared with $3.3 million in first-quarter fiscal 2019. The decline was due to timing of prepayments from renewal of existing and new cloud customers.
Wins & Expansions in the Quarter
H&R Block, a tax preparing company, chose eGain's artificial intelligence (AI) powered digital engagement solution. The solution is used to support agent assisted interactions with the help of eGain's Knowledge and AI capability.
Another win was from a major tech company. eGain will work with the company's sales team to engage the tech company's customers over various platforms like online and social. eGain's AI technology will allow the tech company to understand which platform is generating more sales.
Notably, the company's new customer wins primarily came on demand for eGain's virtual assistant and AI solutions.
One of eGain's financial services clients expanded its Advisor Desktop to their financial service's global asset management business. Another communication provider client in the United States expanded use of eGain's service to a new vertical and started using its messaging solution.
eGain also noted that it is witnessing higher demand for AI-powered digital engagement solutions. The company's virtual assistant, which is connected with its platform and applications, is witnessing increasing adoption with customers. Apart from this, the company's messaging and social platforms are also gaining traction.
Further, demand for sales solutions is increasing.
eGain noted that it saw increased OEM booking with Cisco CSCO . The company's enhanced OEM chat and email solution, which is included within Cisco's enterprise contact center platform, was likely the reason behind increased bookings.
eGain's partnerships with Avaya AVYA and Amazon AMZN Connect are also gaining traction. The company expects these partnerships to contribute to eGain's fiscal 2019 results.
Fiscal 2019 Guidance
eGain revised its previously provided guidance owing to strong demand for the company's services.
SaaS revenues are now anticipated to grow in the range of 30-35% as opposed to 25-30% guided earlier. Subscription revenues are expected to grow in the range of 13-16% compared to the earlier range of 10-15%. The company expects to generate cash flow from operations.
However, eGain will continue to make heavy investments to boost its top line. The investments will span across marketing activities, enhance customer success and boost sales.
eGain currently carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
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