Good day and welcome to the eGain Fiscal 2023 Fourth Quarter and Full Year Financial Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Jim Byers with MKR Investor Relations. Please go ahead.

Thank you, operator, and good afternoon, everyone. Welcome to eGain's fiscal 2023 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, intend, expect, anticipate, or similar expressions, and 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 are detailed in the company's reports filed with the securities and exchange commission. eGain is making these statements as of today, September 14, 2023, 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 also 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. In addition, eGain's earnings press release can be found by clicking the press release link on the Investor Relations page of eGain's website at egain.com. And along with the earnings release, we will post an updated investor presentation to the Investor Relations page of eGain's website. 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 hello, everyone. We've had a solid year despite a difficult economic environment through the fiscal year. Our total revenue for fiscal 2023 grew 7% year-over-year to $98 million. Our non-GAAP net income was $8.4 million or $0.25 per diluted share. And we bought back $5.8 million of our own stock while still generating good cash flow from operations for the year of $4.6 million, growing our cash balance to just above $73 million at the end of the fiscal year. Looking at the fourth quarter, both our top and bottom-line results were ahead of our guidance and street consensus. We saw good renewals from our existing customers during the quarter, including several big ones, multi-million dollar ARR clients. At the same time, new logo acquisition continued to be challenging in the quarter as decisions continue to get pushed out. Stepping back, as I look at the year, I want to share what I see as market trends, and that impacts how we are planning to operate in fiscal 2024. As you all know, in late 2022, calendar, the ChatGPT announcement definitely ended up impacting our new logo acquisition plans in an already challenging macroeconomic environment when businesses were retrenching and they were scrutinizing their technology investments. Many of our active enterprise opportunities paused to assess how ChatGPT and more broadly generative AI would impact their customer engagement investments going forward. Now, interestingly, over the last couple of months, we are seeing that businesses seem to have mostly run through their initial assessment exercise. And several of them we see are, again, prioritizing a knowledge hub, which would serve as a reliable and compliance-ready source of content for generative AI tools to learn from and contribute to. Specifically, we are now seeing enterprises looking for these modern…

Thanks, Ashu, and thanks everyone for joining us today. Let me share some financial highlights for the quarter and full year before getting into our outlook and guidance for fiscal 2024. Total revenue for the fourth quarter was $24.6 million, up 5% year-over-year, and up 7% sequentially. Contribution from Cisco OEM was positive this quarter and helped drive revenue above our guidance. SaaS revenue for Q4 was $22.7 million, up 10% year-over-year. And for the full year, total revenue was $98 million, up 7% year-over-year, or up 9% in constant currency. SaaS revenue for the full year was $89.6 million, or up 11% year-over-year, or up 13% in constant currency. And legacy revenue in Q4 was down to just $99,000. When looking at revenue by region. In Q4, North America accounted for 80% of total revenue this quarter, up from 74% in the year-ago quarter. For the full year, North America accounted for 78% of total revenue, up from 73% in the prior year. In Q4, total revenue from North America was $19.6 million, up 13% year-over-year, where in contrast, total revenue from Europe was $5 million, a decrease of 19% year-over-year. Looking at non-GAAP gross profits and gross margins. Gross profit for the fourth quarter was $18.2 million, up 3% year-over-year for a gross margin of 74% compared to 75% for the prior year quarter, but up from 69% last quarter. For fiscal 2023, gross profit was $72.2 million, or a gross margin of 74% compared to a gross margin of 77% for the prior year. Now turning to operations, non-GAAP operating costs for the fourth quarter came in at $14.9 million, down 12% from $16.9 million in the year-ago quarter, reflecting the expense controls we have implemented. Looking at our bottom line for Q4, non-GAAP operating income for…

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

Thanks. When you talk about the RFP pipeline starting to accelerate, stop pausing, whatever you want to think about it, are the RFPs that are coming back explicitly talking about AI functionality, either included or capable of the APIs, some demonstration of the ability to interact with the new generative AI engines, is that sort of one of the signals that's telling you that people are sort of getting through their analysis process? Thanks.

That's exactly right, Richard. So what we're seeing is those RFPs in some cases have been reissued. In other cases, they had not issued any RFPs because people were still kind of deciding whether they were going to invest or not, right, there were lots of conversations, but no structured RFP yet. But I would say pretty much every single RFP now in the last two months that we have been working with, have generative AI in one of those three configurations or asking what all can you do, right? Do you have in-built generative in your knowledge platform? do you have it as an option that I can plug in? Or is there something else that you do that is different? So those sort of three questions come up.

And with the pace of the RFPs coming back, and you recently streamlined some of your costs in the sales and marketing side. Do you feel like you're appropriately staffed to handle it for now? What kind of signals or growth in that RFP volume would you need to see to say, maybe we should go back and start adding head counts, given it takes some time to get them up and running?

Yeah, yeah. So this time around, we're sort of staying close to our knittings, which is, the large opportunities. And so that gives us good headroom at this time, I would say for the next couple of quarters, I don't think that we'll need to add more headcount. So maybe in the fiscal fourth quarter, assuming things continue to ramp, that would be the time to look at additional headcount.

Thanks. And you've been active in the buy back. Can we talk about -- do you have a theory since your profitability stepped up of how much of cash flow should be allocated to that return of capital? Is it dependent on M&A opportunities you might see? How do we think about how to expect that buyback to deploy?

That was a good question. I think that's exactly the way we're evaluating it. I think certainly in this environment, exploring inorganic opportunities is an area that we will likely pay closer attention to. I think, given our strong balance sheets and the challenges that others are having in the marketplace, we certainly want to have funds available and we'll look to more carefully at this than we've done in the past. But with that said, given our current sort of, I would say, sort of optimized cost structure, given the current run rate, we certainly feel comfortable about continuing to execute to the plan at the rate we've done and hopefully accelerate it if possible given sort of where the current stock price is.

And last, maybe, when you think about the AI functionality that customers are looking for, how much of that do you think is important to be able to do or provide in-house sort of bespoke versus being able to use APIs, whatever, to plug into our best of breed, whichever the customer wants to work with externally? And if you were to look in the M&A side of the table, would it be something around the AI world you'd be looking at, or are there other things that'd be interesting? Thanks.

Right. So I would say, Rich, except for the very, very high end of the market, there are -- most companies, I believe, will look for all in one solutions around generative capability, but not necessarily the core technology of generative being different, but the way it is applied and the way you fine tune it, those things we intend to do ourselves, but not the core technology, which clearly is not our [daily work] (ph), and we don't think that's our place to invest in innovation. But how we connect the dots and compose the solutions, absolutely. How we take advantage of all the loops of improvement and optimization, absolutely. Those are going to be the place we invest in. And then the -- we have several of these larger prospects who clearly want to have their own generative capability, but they want to plug it into our knowledge platform very tightly so that they can get the best of both worlds. So that's the level we are playing at. So I think we'll have our own -- with fine tuning and contextual optimization as the way to differentiate and then have the ability to compose and connect into someone who may have their own generative capability.

Maybe one last one, if I could. The recurring revenue line sequentially was up quite strongly. Was there any one-time-oriented sort of impacts inside of that that we need to be careful about when we're modeling looking forward? Thanks.

I think, sort of, as I pointed out and if you recall on the previous call, we do see some variability from quarter to quarter on the Cisco OEM. So last quarter, it came in below the number and resulted in the decline where on the flip side and as we sort of had expected to some extent, sort of given the commentary we'd heard that business journey had been positive that what we saw this quarter was a healthy uptick in that. So there's definitely that fluctuation that comes from that Cisco OEM business that we would be mindful of not necessarily repeating again in the coming quarter. So that's the one call-out that I would make.

Great. Thanks for your help.

Our next question comes from Jeff Van Rhee with Craig-Callum. Please go ahead.

Great, yeah, thanks for taking my questions. So on that annual guide, talk to me about what else you might be seeing that's giving you the caution. I mean you commented that the pipeline, in many respects, pilots et cetera, are really breaking out to the positive yet the forward guide essentially guides for flat sequentials for a while. Talk beyond what you can see in your pipeline that's causing you not to put any of it really through into the guide because it's obviously well below the stream.

Yeah, this is -- so, Jeff, the thing is, timing of closing those deals is where we need more evidence to have closed some big deals in the, this quarter and next to say, okay, the cadence is starting to be more predictable on the close, right? So we have several opportunities where we deepen the discussion and agreement and everything is fine, but the question is when are we going to sign? And that process still seems a little bit macroeconomic influenced, right? So that's the challenge we're trying to navigate with this question.

Okay. That's helpful. And then, the AI deals you mentioned, kind of GPT came out, froze things, a lot of people took a look at it, went away, some came back. Of the ones that didn't come back, what did you learn? I mean, what did they choose to do and how do you react to that to potentially make yourself more attractive to those customers as well?

It's a good question. My sense is that, to be honest, I don't know the exact answer. But what we are seeing is that some companies have decided that they could apply GPT or broadly generative capability on existing content stores that they have, right? And so that -- there is a school of thought there. We don't believe that works with quality and compliance and cost effectiveness, but that's always been one of the things that is the substitute, is that can you have [share point] (ph) and if I just put GPT on it, will it solve the problem? So that's kind of the -- I think there's going to be crossovers on that line both ways over time.

Yeah, helpful. And then last just for me, the partners, I think you touched on Cisco kind of ebbing and flowing. You've got a lot of key relationships. Maybe spend a second just talking about both your outlook on Cisco for the year, how you feel about that and why, and then the other key two or three that that either are showing traction or are worthy of calling out?

Yeah, so on Cisco, I think it's kind of flat to modest upside, I would say. I wouldn't say anything more than that, probably flat, but, Eric, [what’s your] (ph) take?

Yeah. I think that seems consistent.

We've seen that year-over-year. So that would probably be the outlook there but with other partners which is -- yeah, you're right, we have invested in some of the larger SIs, they are equally challenged at this time. Many of their large projects are kind of not getting the big engagements and investments that clients have stalled on over the last few quarters. So in fact, I think that we are starting to see more engagement. Maybe we are not deep into that. We don't have visibility into their pipeline as much. So wouldn’t really comment on that. But I do think that the system integration partners seem quite interesting to us, especially in financial services, some of the partnerships -- we are talking to prospects who are banks and insurance companies who have been working with these partners, and those seem to be perking back up as well.

Okay. Got it. Great. Thanks for taking my questions. Appreciate it.

You're welcome.

As I show no further questions at this time, I would like to turn the call back over to the management for any closing remarks.

Thanks, operator, and thanks, everyone, for joining the call today. We look forward to hopefully seeing some of you at the customer event in London and then the upcoming investor conferences and we'll be providing an update once we close out our Q1. Thanks very much.

Thank you.

This concludes the conference today. Thank you for attending today's presentation. You may all now disconnect. Thank you.