eGain Corporation (EGAN) Q3 2026 Earnings Report, Transcript and Summary

Good day, and welcome to the eGain Fiscal 2026 Third Quarter Financial Results Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Jim Byers, PondelWilkinson, Investor Relations. Please go ahead.

Thank you, operator, and good afternoon, everyone. Welcome to eGain's Fiscal 2026 Third Quarter 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. 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, May 14, 2026, 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 a reconciliation of the historical non-GAAP financial measures to the most directly comparable GAAP financial measures. eGain's earnings press release can be found by clicking the Press Releases 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 1 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. Thanks for joining us. We delivered a strong third quarter with continued momentum in our AI Knowledge business, driven by customer expansion, growing partner engagement and new products. Revenue was in line with expectations and profitability remains strong. Year-to-date, our AI Knowledge ARR has grown 26%, and we have generated $18.7 million in operating cash flow year-to-date, which is a 27% margin. Let me share some of the interesting highlights that we are seeing in the business. In the last 60 days, we've seen a meaningful increase in RFP activity in the U.S., most of it from Fortune 1000 BFSI, which is banking and insurance and health care enterprises. These RFPs almost always seem to focus on AI readiness of knowledge, an open architecture for APIs and MCPs and deep integration into the customer service, customer experience stack. Equally importantly, many of these RFPs are coming through our partners. Year-to-date, our partner-sourced opportunities are up 67%. We see the growing interest in AI knowledge as a natural progression from an early adopter phase to an early majority phase of the adoption curve. Knowledge management, we see is being increasingly seen as a core AI infrastructure, a must-have, not a nice-to-have. Switching to customers. Now, we had a very nice quarter for product adoption and expansion. These expansions reflect a pattern of customers standardizing on eGain as their enterprise knowledge platform. Let me highlight some examples. The first one is a top 10 U.S. insurance company. This client expanded from an initial deployment of about 3,000 licenses in one business unit to an additional 5,600 licenses in a second major business unit. This creates a single knowledge hub across these divisions, replacing the fragmented and siloed content and knowledge they had before. With this platform, the client is now establishing consistent taxonomy, knowledge workflows and content life cycle governance across these business units, while analytics and AI help them continuously refine knowledge. This client is also piloting AI Agent, which is one of our products for the contact center, powered by the trusted knowledge coming from our platform. The second example I want to share is a top 10 global airline. To support growth in their customer care department, the client has added licenses to ensure consistent knowledge access across all the new teams, reinforcing eGain as the single platform for knowledge-powered service and operational efficiencies. We're also seeing rapid follow-on expansion from newer clients. I'd give you a couple of examples. After selecting eGain to support a large-scale digital transformation a few months ago, this European financial services conglomerate is now expanding usage across other business units beyond customer service in the contact center to look at self-service options for all their touch points. Another example is a global engineering services leader. They initially deployed our solution for field service knowledge, and now they're expanding to assist all their service personnel, including contact centers and partners. Across these examples, there is a theme, and that is that once we are deployed in a CX or customer service use case, the eGain platform naturally expands to become the centralized enterprise knowledge platform, both for AI and humans. Looking at products during the quarter, we introduced several innovations to deliver greater value in some of our strong verticals and also deepen our ecosystem integrations. First, we launched the eGain AI Knowledge Suite for retail banking. The solution is purpose-built for banks and credit unions to unify knowledge and enable AI-driven service and needs-based guided selling. Early clients like Rogue Credit Union are very excited about the positive user adoption and accelerated time to value, something they shared during a joint webinar last month. Then we introduced our AI Agent for Cisco Webex Contact Center, strengthening our proposition in the Cisco ecosystem. Third, we announced connectors into UCaaS platforms, Microsoft Teams, Slack and Zoom Team Chat, all with the goal to enhance employee collaboration with the same trusted knowledge. These connectors will help our clients build knowledge once for CX use cases and then reuse it for employee-facing use cases across their business. And it's, again, a pattern that we are seeing emerging where we land into the CX world, which is customer service or contact center. And once we show our solution and deploy the success of that then drives a natural extension of that knowledge platform across the rest of the use cases, which are more employee-facing. Finally, we announced enterprise AI connectors to agentic development environments, including Copilot, Claude, Gemini and Cursor. These connectors enable developers to tap into trusted knowledge managed within the eGain platform via APIs and MCP protocols right from their favorite development environment. As I said before, this idea of a trusted governed knowledge base and a hub is very compelling. It connects and controls all the AI projects, including prototypes and offers governance, explainability, observability to developers and business users alike in the business. As I zoom out of the customers and specific products that we announced last quarter, all of us would agree that the pace of innovation is accelerating in the market, and so it is with eGain. We see lots of opportunity to increasingly automate the capture, curation and consumption of knowledge, that loop as it relates to customer service and contact centers in regulated businesses and companies with complex products. Last week, we hosted our annual Solve 26 event in London. We have another annual event in Chicago in October, but this one is a European event in London for customers and partners. The event reinforced what we are seeing across the market, trusted knowledge is becoming the essential foundation for enterprise AI. The reason is simple. Conventional wisdom says that knowledge is nothing more than unstructured data, not true. Knowledge is the instruction layer for AI. It provides the what, and the how and occasionally the why that is used by the models to then deliver automated experiences that are reliable. To build these agentic systems, enterprises must first centralize, govern and improve this knowledge. So the quality of knowledge determines the quality of AI outcomes. This is especially important in customer service and contact centers, which represents one of the largest near-term opportunities for AI transformation. At the same time, our research shows that more than 80% of organizations are still in the very early stages of their AI knowledge maturity and transformation journey, and that creates a significant opportunity for eGain. At our Solve event, we also launched several new products beyond the ones we announced last quarter. And these help our clients consume the knowledge more easily in agentic workflows. They enable our clients to evaluate and ensure quality of these AI Knowledge pipelines they're building all the way from content to begin with and automated experiences that the AI tools deliver. We also launched an IVA product, which brings accurate conversational self-service to the voice channel. And finally, we announced an AI agent for Salesforce version 2, which is a pluggable solution that activates our AI Agent with full context of Salesforce content and data within the Salesforce Service Cloud desktop. Customers and partners love the new capabilities and what they appreciated the most was their fellow customers sharing their knowledge journey and AI ROI stories. Customers like Achmea, BT, BMI, Specialized Bikes, Worldpay, they shared their insights, including tips and tricks, very, very valuable for attendees. And for us, it is gratifying and inspiring. On the team front, during the quarter, we strengthened our leadership team with the appointment of Steve Pappas as Head of Innovation. Steve brings deep expertise in knowledge management, AI and customer experience, along with a strong track record of scaling enterprise SaaS businesses and a sharp focus on helping clients modernize their knowledge architecture. His leadership will help us deliver more consumable innovation and accelerate market expansion as we continue to shape the AI Knowledge category. To conclude, we delivered strong financial performance, expanded within customers and are building a high-quality pipeline driven by growing enterprise demand for AI-powered knowledge. As the market increasingly recognizes Trusted Knowledge as the foundation for enterprise AI, we are well positioned to lead this category. With that, I'll hand it over to Eric.

Thanks, Ashu, and thanks, everyone, for joining us today. Before I begin, I'd like to note that we are again using slides to support today's call. We believe this provides helpful context and makes it easier to follow our results and outlook. You can access the slides in the Investor Relations section of our website alongside the webcast. As Ashu noted, we delivered a solid third quarter with year-over-year growth in both revenue and ARR, along with continued strong profitability. Let me walk you through our Q3 financial results, followed by our outlook. Looking at our revenue. Total revenue for the third quarter was $22.5 million, up 7% year-over-year. SaaS revenue also grew 7% year-over-year and represented 93% of total revenue. Excluding the approximately $600,000 quarterly impact from noncore messaging products we are sunsetting, total revenue and SaaS revenue would have been up 13% and 14%, respectively, year-over-year. Revenue was also impacted by approximately $450,000 due to the 2 fewer days this quarter compared to the prior quarter. Looking at non-GAAP gross profits and gross margins. Total gross margin for the quarter was 74%, up 500 basis points from 69% a year ago. SaaS gross margin was 78%, up 100 basis points year-over-year. This expansion was driven by continued improvements in SaaS margins and a greater mix shift of higher-margin SaaS revenue relative to professional services revenue. Now turning to our operations. Non-GAAP operating costs for the third quarter was $13.9 million, up 1% year-over-year and down 3% sequentially, reflecting ongoing discipline as we streamline operations and benefit from automation and our shift towards a product-led sales model. R&D was up 3% sequentially, reflecting continued investment in engineering talent and leadership. We expect the trend towards approximately 30% of revenue over time as we invest to support innovation and growth. Sales and marketing expense was $4.5 million for the quarter, down 11% sequentially, though we expect this to increase in Q4 as we invest in go-to-market initiatives, including our recently completed eGain Solve event in London. Looking at our bottom line. Non-GAAP net income was $3.2 million or $0.12 per share on a basic basis and $0.11 per share on a diluted basis, up significantly from $765,000 or $0.03 per share on a basic basis and diluted basis in the year ago quarter. Adjusted EBITDA margin was 14% at the high end of our guidance range and up from 6% a year ago. Turning to our balance sheet and cash flows. We used $1.8 million of cash in the third quarter, reflecting typical seasonality and collections, which are weighted toward the first half of the fiscal year. For the first 9 months, cash flow from operations was $18.7 million, representing a 27% cash flow margin, well ahead of our expectations. We end the quarter with $80.5 million in cash, up from $62.9 million as of June 30, 2025, and we have no debt, maintaining a strong balance sheet and financial flexibility. Now turning to our customer metrics. To highlight the strength of our Knowledge business, we are breaking out our ARR metrics for Knowledge customers. SaaS ARR for Knowledge customers increased 26% year-over-year and SaaS ARR for all customers increased 7% year-over-year. Excluding noncore messaging products, SaaS ARR growth for all customers increased -- would have increased 11% year-over-year. During Q3 2026, 1 on-premise subscription customer in EMEA chose not to migrate to our product suite in the eGain Cloud and as a result, terminated the agreement with us. This reduced our total SaaS ARR impact of approximately $1.6 million. And of that, the AI knowledge component of their business was approximately $900,000. We view this as a one-off event given the restrictions in the customers' country of origin on the use of cloud-based services. Also, as expected, bookings reflected normal seasonal trends with Q3 typically being the softer quarter based on historical patterns. Our retention rates also improved significantly. LTM dollar-based SaaS net retention for Knowledge customers was 116%, up from 97% a year ago, while net retention for all customers was 101%, up from 88% a year ago. LTM dollar-based SaaS net expansion rate was 120% for our Knowledge customers and 107% for all customers. Looking at our remaining performance obligations, total RPO increased 11% year-over-year, and our short-term RPO of $48.5 million was up 9% year-over-year. These metrics reflect strong engagement and expansion, particularly within our AI Knowledge offering. Before turning to our guidance, I'd like to share some additional color on the factors influencing our updated FY '26 revenue estimates. As Ashu stated, we are seeing a clear shift in the market. AI Knowledge is now being evaluated as enterprise infrastructure rather than solely as a contact center solution. This aligns directly with how we're positioning the platform and is creating larger, more strategic opportunities that we believe we are well positioned to win. That said, these larger opportunities typically involve longer sales cycles, which are affecting the timing of revenue conversion. But, to the guidance, for the fourth quarter of fiscal 2026, we expect total revenue of between $21.5 million to $22 million. Turning to the bottom line. For Q4, we expect GAAP net loss of $300,000 to net income of $400,000 or $0.01 negative to $0.01 positive per share, which includes stock-based compensation expense of approximately $900,000. We expect non-GAAP net income of $600,000 to $1.3 million or $0.02 to $0.05 per share and adjusted EBITDA of $500,000 to $1 million or a range of 2% to 5%. For the full fiscal year ending June 30, 2026, we expect total revenue to be between $90.5 million to $91 million, representing a return to growth for the year. GAAP net income of $7 million to $7.8 million or $0.25 to $0.28 per share. This includes stock-based compensation expense of approximately $2.9 million. It also includes warrant expense of approximately $1.4 million, and non-GAAP net income of $11.3 million to $12.1 million or $0.39 to $0.42 per share. and adjusted EBITDA margin of $11.9 million to $12.4 million or a margin of 13%. We expect weighted average shares outstanding of approximately 28 million for both the fourth quarter and the full fiscal 2026. In conclusion, we delivered a solid quarter with revenue and ARR growth and strong profitability. Our AI Knowledge Hub ARR grew 26%, highlighting continued momentum. We are executing well against our go-to-market strategy. While it's still early, we are seeing encouraging signs, including increased high-quality RFP activity and pilot programs. We remain focused on expanding our market reach and building on our leadership position in AI knowledge. With that, I'll turn it back to operator for Q&A.

[Operator Instructions] The first question will come from Jeff Van Rhee with Craig-Hallum.

Just a few for me. On Ashu, I guess this would be for both of you. On the RFP surge and the increase in activity, can you just put a little more scoping around that in terms of the magnitude of late-stage opportunities at this point maybe versus 6 months, 12 months, 18 months ago? Just I don't know, put some context around that increase in RFP activity that you referenced.

Sure. I would say that the number of RFPs that we are actively -- that we have responded to, right, in the last 60 days is probably about double of what our average rate in 60 days would be, right? So that's one lens to look at. In terms of the stage of decision around those RFPs and the eventual conclusion into wrap up, I'd say that's a 2- to 4-month process, I would assume for most of them, right? So those are the 2 comments I would make.

Got it. And then maybe I know you're not giving formal guidance for '27, but can you put some bounds around how you think about the year based on what you've got in ARR, what you're looking at there in pipeline, even if it's broad ranges, do you see positive top line? Is there -- are there scenarios where you think double-digit top line is credible? I don't know, anything you would offer there would be helpful.

So a couple of thoughts there. One, I don't know if I have the numbers right away to give you numbers, but I would say that the number of new logos is going to go up substantially, [ perhaps, ] in the sort of the target profile that we are going after, right? So that I'm feeling pretty optimistic about. And the other thing I would say is that the expansion in existing accounts is picking steam, and that's something we saw even in the last quarter. And so that to me bodes well in terms of average ARR per customer. So put those 2 together, I feel like our AI Knowledge ARR should definitely grow double digits in the '27 time frame. Eric, do you have anything to add?

Exactly. Yes. I think, as we see the AI Knowledge piece now 64% of total business, and that will -- we expect that to continue to increase. And certainly, that component certainly we would expect that to continue to grow in double-digit numbers.

Helpful. Maybe just one last question. The -- I guess, there is a 2-part. Just maybe any update on the Cisco relationship. And then obviously, you're building cash. You got a pretty healthy cash balance at this point. Just thoughts on use of cash, returns of capital, how you're thinking about that?

I'll take the first one. Maybe you can take the second one, Eric.

Okay.

So my -- so the Cisco relationship is active and healthy. I think there is more that we can do. And so we are working on seeing how we can partner with them more, especially as some of the AI Agent capability that we have, as you noted, we've announced last quarter in their Webex Contact Center platform. So yes, that's an area that I think is an opportunity for us to further expand our engagement with them in their ecosystem.

And then I think on the use of cash, I mean, obviously, in this environment, having a very healthy balance sheet, we feel very comfortable in this position, both in our focus on the go-to-market execution. So obviously, continuing to be careful in that investment, but recognizing how dynamic and exciting this opportunity is, we want to make sure that we continue to invest in sort of the position and the go-to-market. Obviously, there are seasonal aspects of when the money gets spent. So Q3 is historically a slower spend for us. That's why the numbers were down, but that's spend -- as I indicated, we are spending more in Q4, especially with the big customer events. So that's typically what you would see. And then certainly, we will be opportunistic when it comes to other options, especially in this environment, if there's a plan to acquire customers through inorganic means, we're always open to that. But our primary focus here is driving execution on the core business operation. And we do have $20 million -- roughly $20 million available in our buyback program. So again, depending upon where the stock price is, we would certainly look to sort of reengage on the buyback that we paused for the last quarter or so.

The next question will come from Erik Suppiger with B. Riley.

Two questions. One, the RFP activity, why do you think that's increasing? Do you think that is a function of just market awareness for the need for better knowledge management? Or is that more a function of some of the outreach that you've had? And then secondly, Salesforce announced that it's expanding into the Agentforce Contact Center. It sounds like they're going to be really pushing an integration between CRM and contact centers going forward. Do you think that changes market dynamics in terms of your opportunity going forward as CRM starts getting more blended or the vendors doing CRM get more blended with contact centers?

Right. So the first question about why I think the RFP activity, I would say -- I'd like to say that it has to do entirely with our marketing outreach, but I think it has, as much to do with the market awareness. And awareness around the fact that these AI investments are not scaling and not scaling in ROI positive ways. So that's the theme we are seeing even in our conversations with prospects who are not in our pipeline. They're all struggling with having made big bets on things like Copilot across the enterprise or a few of them working with Gemini, Google or OpenAI. The theme we hear is consistent and that is the foundation is not right. And so it's like a whack-a-mole constantly trying to figure out what part of it broke down in terms of the inputs into the AI system. I think that is as much to -- as a contribution factor as our marketing efforts. In terms of your second question, I would say, at this point, I haven't seen that impact any conversations that we are in. And we -- let's say, the most popular CRM system in our target customers is Salesforce. So we do see a lot of Salesforce. We are used to -- we integrate with them, we enhance these -- we work with their content, all that. So we have not seen too many examples of people saying, "Oh, I'm going to throw away my XYZ CCaaS and just go with Salesforce as the entire solution for CRM plus CCaaS yet.

Do you think it would be more difficult or easier for you to get into an account that has an integrated CRM and contact center solution?

It's a hypothetical. I -- we haven't seen any of those, but I would say that Salesforce generally has an open ecosystem architecture. And so we have not seen that being a huge challenge if the clients decide they want to explore a best-in-class solution like ours for their knowledge layer in their AI kind of strategy.

[Operator Instructions] Showing no further questions, this will conclude our question-and-answer session. I would like to hand the conference back over to management for any closing remarks.

Right. Thanks, operator, and thanks, everyone, for joining us today. Look forward to updating you once we finish out the year and give updated to our plans for FY '27. Thank you.

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