eGain Corporation (EGAN) Q4 2022 Earnings Report, Transcript and Summary

Hello, and welcome to the eGain 2022 Fourth Quarter and Full Year Financial Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Jim Byers of MKR Investor Relations. Please go ahead.

Thank you, operator. And good afternoon, everyone. Welcome to eGain's Fiscal 2022 fourth quarter and full year financial results conference call. On the call today are eGain's Chief Executive Officer, Ashu Roy; and Chief Financial Officer, Eric Smit. Before we begin, I would like to remind everyone that during this conference call, management will make certain forward-looking statements, which convey management's expectations, beliefs, plans and objectives regarding future financial and operational performance. Forward-looking statements are generally preceded by words such as believe, plan, expect, anticipate or similar expressions. Forward-looking statements are protected by Safe Harbor provisions contained in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to a wide range of risks and uncertainties that could cause actual results to differ in material respects, information on various factors that could affect eGain's results, the details on the company's reports filed with the Securities and Exchange Commission. eGain is making these statements as of today, September 8, 2022 and assumes no obligation to publicly update or revise any of the forward-looking information in this conference call. In addition to GAAP results, we will discuss certain non-GAAP financial measures, such as non-GAAP operating income. The tables included with the earnings press release include reconciliation of the historical non-GAAP financial measures to the most directly comparable GAAP financial measures. Our earnings press release can be found by clicking the press release's link on the Investor Relations page of eGain's website at egain.com. Along with the earnings release, we have also posted an updated investor presentation to the Investor Relations page of eGain's site. And lastly, a phone replay of this conference call will be available for one week. And now with that said, I'd like to turn the call over to eGain's CEO, Ashu Roy.

Thank you, Jim. And good afternoon, everyone. We finished the year strong. And overall, we are very pleased with our progress this year. Both our top and bottom line results were ahead of our guidance and Street consensus. So our total revenue for the year grew 17% year-over-year to $92 million, and we generated good cash flow from operations for the year of over $8 million. That was a good way to end the fiscal year for us. Looking at the last quarter, let me share some notable new wins. The first one is a -- it's a top 10 airline in the world, and they selected eGain knowledge as their centralized platform to empower agents across their global contact centers. This is Phase 1. In the second phase, they'll use the same knowledge assets to drive better customer self-service. Interestingly, we are partnering with Deloitte to deliver this solution to the airline client. The next one is a leading U.S.-based provider of health and benefit plans. Their challenge was similar. They were struggling with knowledge silos, and it was showing up in long customer calls and repeat contacts. So again, our Knowledge Hub solution is what they went with. The third one is the Department of Taxation for a state government in the U.S. They selected eGain for knowledge as well as the omnichannel adviser desktop capabilities. And in this case, our FedRAMP authorization was a significant factor in their selection. The last one I want to bring out is one of the clients we won, which is a European-based and leading vehicle leasing companies, one of the biggest vehicle leasing companies in the world. They plan to deploy the eGain Knowledge Hub as a central platform across 29 countries in 19 different languages. So the power of centralization, where there is a need for multilingual and appropriate regulatory personalization. That's something which was very important for them. Those are really good wins, excited about those new plans and more. In terms of customer expansion in the quarter, one of the notable ones was, again, a federal agency who is an existing customer, who they have upgraded to the FedRAMP version of the eGain knowledge solution. Looking back at the fiscal year, I just want to observe that at the start of the year, we mentioned we were making a depth to scale our sales capacity, and that's something we continue to do through the year. And by the end of the year, so over the year, we ended up increasing our sales capacity by over 50%, and that steady investment increase also then ramped up improvement in our bookings and our pipeline build. So just a few metrics to share to show our progress over the whole year. These metrics are tricky for quarterly makeup because they can vary. But over the year, you can see the difference of something I'm sharing at this time. Our new logo-based ARR for fiscal '22 was up 45% year-over-year. In terms of pipeline, the RFP volume from prospects went up by over 50% year-over-year in fiscal '22 compared to fiscal '21. And then we ended the year with our RPO, or remaining performance obligation, at over $100 million, which is again up over 50% year-over-year. These are some relevant metrics. Of course, we look at these, and they tend to be a little volatile. But over the year, the progress is evident. Looking at the market, we continue to see the big opportunity in knowledge management and overall customer engagement powered by knowledge. Even with the economic slowdown, leaning into this market with the current level of sales investment we have built up to is a good path. We believe in a tough market, customers will continue to invest in agent experience and also in self-service automation. Further, our top two verticals, that is financial services and insurance being one and government now being the second biggest. Together, these two comprise over half of our business now. These two verticals, we believe, should not get too negatively impact in the market slowdown. Of course, there'll be some impact. So we do anticipate decision-making slowdown. That's natural. So we feel it's prudent for us to plan conservatively while maintaining current levels of sales investment. In fiscal '23, we intend to focus on driving sales productivity as we take a balanced view of growth and profits in the current plan. On the product front, a couple of interesting things in the quarter. We recently announced our eGain Knowledge Connector for Microsoft SharePoint. As you all know, probably, SharePoint is the leading content management tool out there now. And what we are seeing is increasingly, our clients want to modernize their knowledge management, but at the same time, they also want to federate all their legacy content from multiple SharePoint depositories. Just to give you an example, one of the clients we recently won, not in the last quarter, but a couple of quarters before that, and we are deploying and going live with the solution, they have over 60, 6-0, SharePoint repositories in their enterprise that they want to find a rate into. And yes, they'll have a small bit of curated knowledge and intelligence in the eGain knowledge platform, but still the vast majority of legacy content continues to sit in these SharePoint depositories. So we believe this is a good opportunity for us to layer on our modern knowledge hub alongside the SharePoint installed base in the end approach. And then yesterday, we announced our connector to IBM Watson. This leverages our Bring Your Own Bot or BYOB architecture. We are seeing that businesses have built many bots and continue to build their specialized bots using technologies like IBM Watson, and now they want to leverage that specialized bot investment in combination with a modern knowledge platform like ours to deliver better service. So these connectors make it easy for them to do so. Looking ahead, we see businesses continuing to invest in digital transformation. So demand for our solutions, I believe, is still strong and will get stronger while accommodating for the economic slowdown, which is a cycle. So a couple of things I want to highlight. One was, beginning of the year, I think we had mentioned this, a partner had published an annual research paper early 2022, calendar 2022, which brought out the technologies that are important for enterprises looking to improve customer service. And then number one technology recommendation at that time to these customer service leaders for the year was to invest in knowledge management tools. So now you fast forward that, and in July, so a couple of months ago, they published another Gartner estimate. We have talked about the hype cycle of different technologies, which they publish every year and refresh every year. And in that, the penetration of knowledge management technology for customer service, they're rated at still under 20%. Like I said it was anywhere between 5% and 20%, so definitely under 20%, and the fact that there's a big market ahead of us. At the same time, we assess that the value of this technology is high for enterprises. And their assessment on that -- in that document, which we completely agree with, is that the 3 reasons knowledge is seeing a resurgence of interest in the enterprise. The first two are more demand-oriented. The third one is more capabilities of technology and solutions. The first thing is just the proliferation of number of customer contact points. That's driving a lot of inconsistency and customer saturation in service. The second is the world of hybrid work and high levels of employee attrition. That's highlighting the need for better knowledge and guidance tools for these frontline agents. And then the third bit, which is the supply side, their assessment, and we are part of that solution, is that new knowledge and AI technologies are making it possible to deliver these better solutions and show the value of knowledge and guidance using AI and knowledge technologies. These solution stories and client successes at scale, that's creating a virtuous dynamic in the market. So with our leading solutions in the space and our client successes, we believe we are well positioned to capture market share with our scale and sales capacity. Before I hand over to Eric, a couple of comments. First, a plug for our annual customer conference. After a two-year gap, we are very excited to announce eGain Solve '22. This is our annual customer conference. We will be holding it on October 11 and 12 at the MGM Grand in Las Vegas. This time around, we have a record number of customer speakers, so we're very excited about it. We've been missing it for two years. And we'll also be announcing some exciting capabilities on the conference. In addition, several leading partners, including Deloitte, will be showcasing value-added solutions alongside our proposition. In conclusion, I just want to wrap up with a couple of summary thoughts. The first thing is the market need for our solutions continues to be strong and relevant, and we are more excited than ever. Second, given the economic environment, we are adopting a prudent stance, and so we're focusing on productivity of our sales team in fiscal '23 and not necessarily increasing -- further increasing our investments on the sales capacity side until we see the productivity showing up, which we expect. And then lastly, our product strategy overall remains unchanged as we continue to build out our platform and grow our partner ecosystem, connectors, APIs and developer support. So with that, I'll ask Eric Smit, our Chief Financial Officer, to add more color around our financial operations. Eric?

Thanks, Ashu. And thanks, everyone, for joining us today. As Ashu noted, we finished the year strong with both our top and bottom line results ahead of our guidance and Street consensus. Let me share some financial highlights for the quarter and full year before getting into our outlook and guidance for fiscal 2023. Total revenue for the fourth quarter was $23.5 million, up 16% year-over-year or 20% in constant currency. Tax revenue for Q4 was $20.6 million, up 15% year-over-year or 18% in constant currency. For the full year, total revenue was $92 million, up 17% year-over-year or 18% in constant currency. This is an important milestone for us when compared to the 8% growth we realized in fiscal '21 and fiscal '20. For the full year, SaaS revenue was $80.9 million, up 21% year-over-year. Legacy revenue in Q4 was down to $805,000, which was down 14% year-over-year and accounted for now only 3% of total revenue. Looking at non-GAAP gross profits and gross margins. Gross profit for the fourth quarter was $17.6 million or a gross margin of 75% compared to 75% in the prior year quarter. For fiscal 2022, gross profit was $70.5 million or a gross margin of 77% compared to a gross margin of 76% for the prior year. Now turning to our operations. Non-GAAP operating costs for the fourth quarter came in at $16.9 million compared to $13.3 million in the year ago quarter. The increase was primarily driven by investments in product development and sales and marketing. Looking at our bottom line, non-GAAP operating income for the fourth quarter was $722,000 or an operating margin of 3% compared to an operating margin of 10% in the year ago quarter. Non-GAAP net income for Q4 was $893,000 or $0.03 per share. This compares to non-GAAP net income of $2.5 million or $0.08 per share in the year ago quarter. Non-GAAP operating income for the fiscal year was $9.2 million or an operating margin of 10% compared to an operating margin of 4% last year. Non-GAAP net income for the fiscal year was $8.9 million or $0.28 per share on a basic basis and $0.27 per share on a diluted basis. This compares to non-GAAP net income of $8.7 million or $0.28 per share on a basic basis and $0.27 per share on a diluted basis in the prior fiscal year. Turning to our balance sheet and cash flows. During the year, we generated cash flow from operations of $8.1 million for a 9% operating cash flow margin. Our balance sheet remains strong with total cash and cash equivalents at the end of fiscal year was $72.2 million, up from -- up 14% from a year ago. Now turning to our customer metrics. As Ashu mentioned, our strong bookings in the quarter reflected a combination of new customer wins as well as expansion and renewals with existing customers. The number of 1 million ARR customers increased 31% year-over-year, given our continued focus on selling to large B2C organizations and government organizations, and now half year increased 54% year-over-year to 100.5 million driven by the strong renewals. Our SaaS ARR, excluding our OEM business increased 20% year-over-year, and our LTM dollar-based SaaS retention rate was 105% compared to 107% a year ago. What we saw with some of our customers that had increased volume due to the COVID spike that there were some reductions at the renewal time as these customers saw their volumes normalize. These reductions, when they renewed, contributed to that slight decline in our retention rates this quarter. Before moving on to our financial outlook and guidance, I'd like to add to some of the metrics that Ashu discussed around -- specifically around our new ARR bookings and looking to do this really to highlight some of the key initiatives that we focused on in fiscal '22. Again, given the variability, we plan to share these additional metrics on an annual basis. So again, if you look back, our strategic focus in fiscal 2022 was to invest in sales and marketing with an emphasis on the U.S. market to accelerate the growth of new ARR bookings with the knowledge-led focus. So when drilling down into these areas. First off, on the product front, when looking at new knowledge ARR bookings, this went -- was up 69% year-over-year in fiscal '22, some significant increase. And for comparative purposes, this comprised 57% of total new ARR in fiscal '22, and that is up from 48% in fiscal '21. On the second point, when focusing on new customer wins to complement the expansion within the installed base, which has been historically our primary area of new ARR, bookings from new customer wins were up 102% year-over-year in fiscal '22 and comprised 42% of total ARR bookings, and this is up from 30% in fiscal year '21. So again, sort of a marked increase in new ARR coming from the new customers. And then finally, the regional focus. As we've discussed, bookings in North America has been an area that we've seen a big ramp-up, and overall bookings in North America were up 75% year-over-year in fiscal '22 and comprised 79% of total new ARR bookings in '22, and this is up from 64% in fiscal '21. So looking at these metrics, we are encouraged to see the early positive results while expanding the sales team's capacity by more than 50%. Now on to our financial outlook and guidance. As I noted last quarter, with the current strength of the U.S. dollar to the pound, for comparable purposes, we are also providing revenue estimates on a constant currency basis to provide better visibility into the underlying business trends. For the first quarter of fiscal 2023, we expect total revenue of between $24 million to $24.5 million, which would represent growth of 12% to 14% year-over-year. Adjusted for constant currency, we expect Q1 total revenue of between $25.1 million to $25.6 million, representing growth of 17% to 19%. Turning to the bottom line for Tier 1. We expect GAAP net loss of $2.1 million or $2.3 million -- to $2.3 million or a loss of $0.07 per share, which includes stock-based compensation expense of approximately $2.5 million and depreciation and amortization of approximately $120,000. We expect non-GAAP net income of $200,000 to $400,000 or breakeven to $0.01 per share. The sequential increase in spending in Q1 was primarily driven by our annual compensation adjustments, which become effective in the first quarter; and then also the full impact of hiring that took place in Q4, many of the people that came on board towards the end of the quarter, so we'll obviously be seeing the full impact of those hires for the full duration of the quarter. And as Ashu had mentioned, given the current macro environment, where we are seeing some of the deals taking longer to close, leave us prudent to force the hiring of these additional sales cohorts and really move our focus to making the current scene productive. Looking at fiscal '23 full year ending June 30, 2023. We expect total revenue of between $101 million to $103 million, which would represent growth of 10% to 12% year-over-year. Adjusted for constant currency, that would equal $103.2 million to $105.3 million, representing growth of 12% to 15%; and non-GAAP net income of $3.8 million to $4.8 million or $0.12 to $0.15 per share; on a GAAP net loss of $3.7 million to $4.7 million or a loss of $0.04 to $0.15 per share, where we estimated share-based compensation expense of approximately $8.5 million and depreciation and amortization of approximately $500,000. Our current currency conversion rates assumptions are as follows. For Q1 of '23 and FY '23, we are assuming the U.S. dollar to GBP of $1.15 to GBP 1. This compares to Q1 of '22, with the rate was $1.38 to the pound. And then for comparable purposes for FY '22, that exchange rate was -- we used the dollar rate was $1.33 to the pound. Looking at the weighted average shares outstanding. We expect approximately $31.9 million for the first quarter; and for fiscal '23, $32 million for the full year. So in summary, we feel we executed well and are pleased with our strong financial performance this past year. We made significant progress ramping our business in fiscal '22 and are seeing positive results from our strategic investments. For fiscal 2023, we will take a more balanced view of growth and profitability, and we'll be holding off on making additional sales investments until the current team is productive. In the meantime, demand for our knowledge-led offering continues to be robust. And with our strong balance sheet, we are well positioned to continue a positive momentum and grow our market share this fiscal year. And lastly, as Ashu mentioned, we will be hosting an Analyst Investor Day as part of the eGain Solve 2022 Conference in Las Vegas on October 11. Very excited about the attendance, the number of customers and partners that will be at the event. And we look forward to hopefully seeing some of you attend in person at the conference. Feel free to go and sign up at the egain.com website. This concludes our prepared remarks. Operator, we will now open the call for questions.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question today comes from Richard Baldry with ROTH Capital. Please go ahead.

Thanks. So curious, given the strength you had in new logo ARR and a lot of the sort of new productivity from the hiring you've recently done, and you've got a very large cash reserve on the balance sheet, why not keep up the hiring in sales? And even if that resulted in modest near-term losses, you can clearly more than support that. So sort of walk through the logic of pulling back on that when you're seeing some successes there. Thanks.

Sure. Rich, this is Ashu here. Yes. So that's a good point. So this is a judgment call. The way we are looking at it is from an annual standpoint, we are guiding conservatively, but what we are going to do is watch it very carefully and which is what we're doing right now. As the -- so what we will miss is maybe the next cohort cycle. But if we feel, which could very well be the case, that the sales investments are turning productive and the market environment is not as tough as some fear, then we will resume that in the middle of the year. So that's something we are keeping the option open around.

Okay. And maybe could you talk about -- there's two significant cohorts you brought in. Have they been tracking sort of similarly to each other in terms of the ramp from cohort one versus two? Has there been any changes maybe as the macro conditions have gotten a little tougher between the two? Are those the types of lessons that you're sort of watching in real time?

I think the kind of sales reps we're hiring, I feel like, are more aligned to our direct selling plan and in the more recent cohort. So that's the change I see. These guys are out there banging on those is going direct. So that actually is the difference. And then in terms of performance, I feel like that -- the most recent one is not something that they haven't performed yet. But the one before that, they are in performance mode now. So that is good.

Then talk about the legacy maintenance side. Do you feel like that's something that terminates sort of by the end of fiscal '23? Or is that -- given the conditions, you'd hate to sort of press customers to either make a decision or not in a tougher backdrop, so maybe it lasts out another year or two after that.

My sense is that we will probably drop another notch in the legacy revenue maybe get to -- if I were to take a bold guess, I'd say maybe get to half of the current level by the end of this fiscal '23, but then the rest will sort of pretty much ignore and move on.

And last for me would be if you look in sort of the changing conditions, does that change any of the thought process around -- you've been running the professional services with modest losses as you're ramping it. Do you think you manage that to maybe breakeven for a period of time until you figure out when time to kind of get back to pushing on that in a growth mode?

Again, that's a good point. Right now, we feel like that investment is quite helpful in making customers successful and making them advocates. So I think the way we will drive more profits there, or not profit and margin there, is going to be more likely scale than just efficiency gains at this time.

Maybe one last one, sorry. But can you talk very generally about the inflationary environment, too? So what you're seeing the impact on the P&L, whether that's revenue, pricing power side or on the cost side, on the wage inflation, et cetera? It may be hard to discern what the change in currencies and stuff. So I'm sort of curious, your overall broad thoughts on the concept? Thanks.

I'll say something, maybe I will keep add more. My sense is that the impact on cost of doing business is real. I don't know if it is unusually high compared to prior years, to be honest. I think because somewhat mitigated by the economic environment as well. And so from a people cost side, I think we'll have our increase in cost but not unusually high. That's my sense. And then on the pricing power side, now we haven't decided if we are going to pass on any costs. I think from our perspective, it's probably a market share gain. So that's a trade-off we have to think about more. Eric, you have thoughts?

Yeah. I think just to echo Ashu's point, when you think of the labor market, how it's been the last couple of years, we have been in sort of -- it feels like we've been in a very inflationary condition already, right? We have been getting to absorb fairly significant annual increases. So I think in the current environment, we don't see big difference from what we've needed to do in previous years. And I think given the increased investment, this was beyond just the sales and marketing organizations, I think this always gives us the opportunity to really have a close look at and ensure that we're driving efficiencies across the organization. So hopefully, through that process, we can mitigate just expected costs that we may see from pass-throughs from other vendors that we have to deal with.

Great. Thanks, and congrats on the acceleration you saw in fiscal '22?

Thank you.

The next question comes from Jeff Van Rhee from Craig Hallum. Please go ahead.

Thanks. Couple for me. Just to the sort of the overall reflection in your guidance of a more cautious sort of macro outlook, if you would. In terms of the caution you've embedded in the guide, is there any way you can put some quantification around that? And specifically, I guess I'm wondering, how much of it is based on things you've already seen? And how many -- how much is based on things you're anticipating?

Thanks, Jeff. I think for us, it's really more at the anticipation out of it. So that way, to Ashu's point, in general, we feel good about the opportunities, the way the teams are ramping. So I think just consistent with what we've done in previous years, we'd like to start the year out with a more conservative view and then, hopefully, as things develop, we can provide updates as the year progresses.

Okay. And then in the quarter, you didn't specifically comment on. I know there's some details in the Q and the K. But can you talk a bit about any differences you saw in behaviors, specifically even up to today with respect to the OEM side channels and direct. All acting the same as they have been? Again, no wiggles in any of those?

No, I think other than some of these additional metrics that we've talked about that with the increased focus on the direct selling. We've obviously seen more business come through these direct team members, but nothing of note on the changes on the -- I mean, I think from the connector side, we're seeing sort of increased traction with more partners that we're looking to do connections through their systems. But I think in general, nothing worth adding. Ashu, any---

Yeah. I would say quantitatively, no. But qualitatively, there's a change, as you've seen us over the last year really bring out a more Swiss approach to the partner ecosystem, and I think that is working well for us. We see the partner ecosystem increasingly becoming a source of opportunities as opposed to source of revenue. And with our bigger sales team, we were able to go after those opportunities and work with the partner. So just expanding our -- if we go back to, let's say, beginning of fiscal '22, we have integrations with Cisco and Avaya, and we have integration with Amazon Connect at that point. Since then, on the contact center side, we have added three more. Divide the genesis, we've added five months. And we just -- well, we have the connector in to talk to us, but that's something we're rolling out as well. So that's a big expansion of available market. Interestingly, some of the new wins we had, they are Genesis shops. We closed another account in the last quarter where it's a Genesis shop, and we got the opportunity through the Genesis marketplace. We're seeing the same with Five9. So the pure cloud vendors, we're seeing an interesting, very much a modern partner approach based on product connectors and mutual referrals as opposed to a very channel-centric approach to, okay, you're going to get a PO at the end of it. That helps in the color.

It does. Thanks. I appreciate it. The two others, I guess, I think you referenced in the script some impacts of lessening volumes as contracts are getting renewed post-COVID and as overall volumes contract. Can you put that in a little more context in terms of, if you want to call it, a vulnerability? What kind of correlation or revenue impact could take place if you see that more widely? Just maybe help put some bounds around how much of a concern that might or might not be and how much it might be able to impact.

I think, Jeff, I mean the good news is that now that we're lapping it, the exposure to significant further renewals, we don't see that too much because I think the thing is starting to return to normal or the new normal within the last year. But from a -- I think with sort of the increased volumes around probably what we saw was a spike in the usage of the chat of the virtual assistant, so we saw a spike in volumes of the messaging so that as this business has normalized their business, these numbers came down. So I think we haven't calculated the exact impact it would have. But again, hopefully, we'll absorb that sort of obviously with this new business that's coming through.

Okay. I'll leave it there. Thanks for taking my questions.

Next question comes from Tim Horan from Oppenheimer. Please go ahead.

Thanks, guys. So the COVID impact, you think you've largely seen it? Is that behind you at this point? Or is it in front of you? Or is it relatively minor?

Sorry, could you repeat the question?

Yeah. So the impact from COVID, is it material? Is it largely done, do you think, at this point? Or is it still in front of you? Sorry, I just didn't understand the answer overall.

Okay. I would say that business is pretty much back. People are in their normal operation now. So to that extent, I don't think that it is incredibly impactful moving forward. In terms of some of the COVID level, the extra levels of business that we had in the COVID times, we already talked about that. Eric, anything else?

No, I think that's it.

Sorry, I guess the question is, are you back to normalization? Like COVID -- I mean is the impact from COVID behind you in terms of the increased usage? Are you back to steady state? Or do you think there will be more impact on COVID going forward on the excess usage, yes?

Yeah. I mean there might be some further adjustments in the next quarter or two, I think.

Okay. Got it. And are they material or relatively minor at this point?

So I think probably not significantly material. I mean there will be some adjustments. But again, I think these are items that we'll be able to absorb that we factored into the guidance as we go forward.

Got it. And I think you also said the sales cycle was elongating. When did you start to see that? Is it material? Any more color around that?

Not yet. But I mean I would say that is the anticipation right now. Yeah.

Okay. But you haven't seen it yet. Got it.

No.

It makes a lot of sense. And can you give us a sense -- I know you also said focus is on gaining market share. Can you talk about who you're gaining share from? Or is the TAM expanding a lot more? Just some sense around that.

Yeah. I would say primarily, it's a lot of legacy tools. We see in these enterprises that had been implemented five, six, seven years ago. They haven't really done a good job. So we see a bunch of those. We also see expansion of the market in terms of people who have been looking at existing content management systems as knowledge management. And now they're saying, well, that doesn't do the job, so we need a knowledge management overlay on top of it. Then those are the two we see mostly. That's kind of where the market is at today. And I think moving forward, we'll see more TAM expansion as the market expands beyond just knowledge for customer service. I think there is opportunity, let's say, in the next year. These are the proof.

And you gave a whole bunch of metrics on growth that seemed really impressive. It seems like a lot of the bookings numbers and ARPU numbers are up above 40%, close to 50%. I mean absent your concern about the economy, I mean would growth be accelerating next year or for this year's revenue growth? Or those metrics are not indicative of what should happen next year on revenue growth?

Next year being fiscal '24?

Correct. Yeah. Next 12 months, yeah -- sorry, next 12 months, sorry.

Okay. I mean the fiscal '23, which is we're just starting out now. That's where we are giving the guidance, which we have.

Right.

But if you're talking about fiscal '24, yeah, we certainly think --

No, no, no. I meant '23. I mean your growing bookings ARPU, a lot of numbers, sales productivity is up close to over 40%, but your guidance is going for pretty major deceleration in growth because of the weaker economy. I guess what I'm asking is if you weren't concerned about the economy, would revenue growth be accelerating next year? Sorry, did I lose you guys? So the answer is yes, it would be accelerating?

Yeah, it was. Sorry for that.

Yeah.

Okay. That makes sense. And then lastly, I know one of the reasons that you gave for increased spending in the lower margins this year, which you wanted to get to a more scaled business model. I mean do you think you're there now with this scale? Or is it a much bigger number? Just any sense of what you meant by that and how you're thinking about a scaled business model.

I think as we get the productivity from the current levels of sales investment that we are at, I think we get to a scale where we see the advantages of better margins and so on, yes.

And is that a certain revenue number? Is it $150 million of revenue, $200 million revenue? Or just any sense what you think is a location where margins will start to expand again because you're at the right scale.

I would say $150 million would be a reasonable place to see the impact, yes.

Perfect. Thanks a lot, guys.

Seeing no more questions in the queue, this concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

Thank you, operator. And thanks, everybody, for listening. And hopefully, we'll get to see some of you at the Analyst Day in Las Vegas. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.