Good day, and welcome to the eGain Fiscal 2024 Second Quarter Financial Results Call. 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 2024 Second 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, February 8, 2024, 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. Tables included with the earnings press release include reconciliation of the historical non-GAAP financial measures to the most directly comparable GAAP financial measures. And our 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 also post an updated investor presentation to the Investor Relations page on eGain's website. 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. Our top and bottom line results for the quarter have exceeded our guidance, and our AssistGPT AI offering is being well received by the market and helping us win new logos. Turning to business, we signed several new logos in the quarter. Some notable wins here, a global investment management company chose eGain to modernize their knowledge management capability. Their services staff was struggling to find answers in what are long, complex documents in their business, spread across many silos. They selected eGain based on our ability to unify that knowledge and deliver consumable answers using generative AI in a safe, auditable way. Another new logo is a membership-based primary care practice, which is in hyper-growth mode. They selected eGain to enable their associates with a unified knowledge platform. Again, they will integrate all their content and knowledge sources on the eGain platform and use our AssistGPT capability to deliver easy answers and ramp up the new hires. And lastly, I'll mention a pioneering U.S.-based mutual auto insurance company. They selected us to streamline their agent experience and therefore, improve their customer experience. They've gone live with eGain already for the service group and are now looking to roll out the knowledge capability across the enterprise. We also saw good expansion from existing customers during the quarter. A couple of notable ones, a large P&C insurance company and a global electronic component distributor. Turning to renewals, in the current macro environment, we are working hard to serve and retain customers as they look to reduce their operating costs. We've had good renewals in the quarter, including a large healthcare insurance client, an industry-leading HCM SaaS solution provider, and a large multinational bank. At the same time, we have received notice from 2 large clients about their intent to not renew with us. The first is a Conversation Hub client. They're choosing to consolidate vendors for all their digital customer communications. The second is an Analytics Hub client. They are choosing to build out their homegrown capability to measure and manage their contact centers. The combined ARR of these 2 accounts is approximately $8 million. These churn events are challenging as they are not factored in our fiscal 2024 plan. At the same time, we are very encouraged by the growing interest in our AssistGPT proposition. Our new logo pipeline is growing nicely with knowledge and AI opportunities. We're also feeling good about our new logo sales performance in the quarter. And as macro conditions improve, we believe we can grow our new logo positions without adding sales capacity. Our new AssistGPT and Instant Answers capabilities are generating lots of market interest. With AssistGPT, customers can speed up knowledge creation by 4x. For an early client in the energy vertical whom we piloted with, what historically would have taken 8 weeks of human effort was done in less than 2 weeks. With Instant Answers, another AI product, agents get much better and faster answers from our knowledge base. At one of our insurance clients, agents have seen more than a double improvement in speed to answer, even as answer quality has improved. Our product investments and leadership continue to be recognized by the market and clients. We were honored to be the sole recipient of the 2023 KM Promise award from KMWorld magazine. This award recognizes the provider that best delivers on the promise to customers with innovative solutions integrated into their business process. Also in November, eGain was named a Visionary in the Gartner Magic Quadrant for CRM Customer Engagement. We had mentioned this in our prior call, but that was followed by our receiving the top rating for knowledge management in the 2023 Gartner Critical Capabilities report, and that was something new that we had not mentioned before. We continue to invest at this intersection of AI knowledge and digital technologies to extend our product leadership. To conclude, we see good momentum in new logo wins and pipeline activity. We continue to invest in innovative AI capabilities like AssistGPT and Instant Answers to enhance our Knowledge Hub. And as market conditions improve, we are well positioned to capitalize on this big opportunity to help automate knowledge for customer service. 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. We delivered another quarter of significantly improved profitability and strong cash flow from operations. Both our top and bottom line results exceeded our guidance and Street expectations. Let me share more detail about our financial results for Q2 before getting into our outlook and guidance for Q3 and fiscal 2024. Starting with revenue, total revenue for Q2 was $23.8 million, above our expectations but down 7% year-over-year, reflecting the current cautious spending environment and the tough comparison, where last year, we benefited from a seasonal volume increase of approximately $1 million that did not repeat this year. When looking at the revenue by region, North America accounted for 79% of total revenue this quarter, up from 77% in the year-ago quarter. Total revenue from North America was $18.8 million, down 5% from last year, whereas in contrast, total revenue from Europe was $5 million, down 14% year-over-year. Looking at non-GAAP gross profits and gross margins, gross profit for the second quarter was $17.1 million for a gross margin of 72% compared to 75% for the prior-year quarter and 73% last quarter. Now turning to operations, non-GAAP operating costs for the second quarter came in at $13.5 million, a 22% improvement from $17.3 million in the year-ago quarter, reflecting the expense controls we have implemented. Looking at the bottom line, non-GAAP net income for Q2 was $3.4 million or $0.11 per share, up 100% on a dollar basis from non-GAAP net income of $1.7 million or $0.05 per diluted share in the year-ago quarter. Adjusted EBITDA margin for the quarter was 16%, up 700 basis points from 9% in the year-ago quarter. Turning to our balance sheet and cash flows, we generated very strong cash flow from operations for the quarter of $7.7 million or a 32% operating cash flow margin. During the second quarter, under our share repurchase program, we repurchased approximately 391,000 shares or $2.5 million at an average price of $6.39 per share. Of the $20 million authorized, $11.2 million remains available under the program at the end of the quarter. Our balance sheet remains very strong. Total cash and cash equivalents at the end of the quarter were $86.8 million, up from $80.9 million a year ago. Now turning to our customer metrics. With our continued focus on knowledge, as outlined by Ashu, this quarter and going forward, I will share some additional customer metrics for our knowledge customers. First, looking at our last twelve months dollar-based SaaS net retention from knowledge customers was 103%, while our total net retention dropped down to 94%. The last twelve months dollar-based SaaS net expansion rate for knowledge customers was 113%, while our total net expansion rate was 106%. Looking at our total ARR, the total SaaS ARR for knowledge customers increased 6% year-over-year, while the total SaaS ARR decreased 13% year-over-year. Looking at our remaining performance obligation, total RPO decreased 15% year-over-year to $77.9 million, and our short-term RPO was $55.8 million, down 4% year-over-year. Now turning to our guidance, for the third quarter of fiscal 2024, we expect total revenue of between $22.6 million to $23 million. Turning to the bottom line, for Q3, we expect GAAP net income of $400,000 to $1 million or $0.01 to $0.03 per share, which includes stock-based compensation expense of approximately $1.2 million and depreciation and amortization of $100,000. We expect non-GAAP net income of $1.6 million to $2.2 million or $0.05 to $0.07 per share. For the full year fiscal 2024, given the increased churn, as outlined by Ashu, we are revising our previously provided guidance as follows. For fiscal 2024 full year ending June 30, 2023, we now expect total revenue of between $92 million to $93 million, non-GAAP net income of $9.3 million to $9.8 million or $0.29 to $0.31 per share and GAAP net income of $4.5 million to $5 million or $0.14 to $0.16 per share. We estimate share-based compensation expense of approximately $4.8 million and depreciation and amortization expense of approximately $500,000 for the year. Looking at weighted average shares outstanding, we expect approximately 31.9 million for the third quarter and for fiscal 2024, 32 million for the full year. So in summary, while the macro environment remains challenging, we are very pleased with the increased number of new knowledge customer wins in Q2. And we expect to see continued positive momentum in new business activity, going forward, given the level of interest in our new AssistGPT product offering. The opportunity for eGain is significant. And with our leadership and focus on knowledge and AI, we remain well positioned to capitalize on the expanding market opportunity with our strong balance sheet and cash flow generation. Lastly, on the Investor Relations calendar, again, we'll be presenting and meeting with investors at the annual ROTH Conference taking place March 17 to March 19 in Dana Point, California. We'll be providing more details as we get closer to that date and hope to see some of you there in person. This concludes our prepared remarks. Operator, we will now open the call for questions.

And our first question comes from Richard Baldry with ROTH MKM.

Can you discuss any common factors regarding the unexpected attrition in terms of geographies or vertical end markets? Additionally, it appears that most of this impact will be felt in the fourth quarter. Is that correct? Or will there also be some ongoing pressures into the September quarter?

Let me address the first part, Richard. There isn't anything particularly common. One was a direct client using the conversation hotline, while the Analytics Hub client goes through a partner. Neither of them are knowledge clients, although we might have customers in that area. Both are facing significant cost pressures in their businesses, with public news about them reducing costs and headcount. That seems to be a commonality at this time. However, both have been using our products effectively, and the operational teams remain satisfied and engaged with the product. They are under pressure to make changes, which is affecting the outcomes. Eric, would you like to continue?

I think you're correct that for both of these accounts, the impact will be felt in Q4.

Okay. And flipping over to the AI side of the table. Could you talk about some of the early deal wins, sort of how it's impacting deal sizes, deal cycles? Are you seeing a noticeable increase in the pipeline? Are people evaluating the AI type solutions? And sort of when do you think that if that becomes a tailwind, when could that start to emerge?

Yes. Firstly, I want to mention a couple of things. One, regarding the IITD pilot known as Innovation in 30 Days, we are conducting more pilots now than we have in the past several years. Most of these are AI-related pilots, particularly focused on AssistGPT and more Instant Answers, which are part of AssistGPT. We are currently seeing a lot of Instant Answers pilots with both potential and existing clients. The second point is that we are noticing an early trend where prospects are coming in with a budget and interest in AI, asking questions like, 'What can I do with AI?' This is different from what we observed around six months ago, when there weren't many discussions beginning with AI. There was a lot of discussion about the topic, but people were not initiating conversations. Our SDR team has noted this as a significant trend that is emerging more prominently now. Those are the two things I would highlight.

Okay. Maybe last for me is the AI traction seems to be picking up, and you see sort of an inflection point ahead for growth, but it's not reflected in our current results or maybe arguably your valuation. Do you think you'd find a period where you might be willing to get more aggressive on the buyback front, given the strength of the balance sheet? How do you view sort of the trade-offs there?

Yes. I think, Rich, that's a valid point. I think certainly, as we look at the cash generation that we've generated again, certainly something that we'll continue to look at first, for sure.

And our next question comes from Jeff Van Rhee with Craig-Hallum.

Great. Could you provide a high-level overview of the revenue distribution across the business? Specifically, how is the revenue divided among knowledge management, Conversation Hub, and Analytics? It would be helpful to understand the proportions.

I think, just roughly speaking, the knowledge business is just under 50%. And then I would say the analytics business is probably in the 15% range and the Conversation Hub is in that 35% range.

Okay. And then with respect to the 2 losses, I think it sounded like you had some visibility into where they're going in terms of whatever platforms are moving over to. They are under cost pressure. Is the move that they're making, is it your impression there's that substantial of a cost to benefit by just consolidating onto the platforms of the existing providers? Or are there other motivations? I mean, certainly, if they've got a platform provider, maybe there's some cost benefit. Just a little bit more about why the shift and if you know what the cost benefit was, if there was some for their departures.

Yes. I can share what we know so far. We were aware that there was a conflict within the Conversation Hub clients. There was a struggle between the users who were satisfied with our solution and a company-wide effort to reduce the number of vendors. Ultimately, we have been informed that as they move in this direction, they will assess the quality of the service during the transition, and they are open to the idea of continuing with us as a trusted second source. So that’s the situation regarding the Conversation Hub. Concerning the Analytics, we don’t have enough information yet, as it is tied up with the partner, and we lack visibility into the economic comparison between their homegrown solution and ours.

Okay, that's helpful. Eric, you mentioned a year-over-year comparison and mentioned something about a $1 million volume that did not repeat. Can you remind me what that was from last year?

Yes. So I think what we had seen was an account that was driving an increase in messaging business that was running a special program at the end of this quarter last year that drove that spike. It was a seasonal increase in volume usage.

Okay. All right. And then just on the AssistGPT, obviously, you're trying to get it in the heads of a lot of folks that will let them use it and get feedback. I realize it's early, but any areas of pushback in places where you've decided to pivot, accentuate, or deemphasize already?

Yes. We've learned a couple of things. First, in the enterprise sector, there is a strong emphasis on controls, safety, and auditability. We are significantly enhancing our generative capabilities in response to this focus. Secondly, the feedback from pilot programs has been positive. Even though these trials are not at full production scale, participants seem quite satisfied with the results. We're consistently hearing that they appreciate the solutions we provide.

Okay. And then maybe just one last question, Eric, and we can discuss this further later if it's easier. I'm just trying to understand that there's likely going to be some fluctuations in results in the next couple of quarters as you adjust to the new revenue level. Do you have an estimate for gross margins in Q3 and Q4?

We will definitely experience some pressure due to the reduction. However, one of these accounts had a profile that wasn't at the highest level. I may need to follow up with you on the exact percentage we expect to see, but there will certainly be some pressure.

And seeing no further questions, we will conclude the question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

Okay. Well, thanks, everybody. I appreciate you taking the time. We look forward to updating you as we continue to proceed with this exciting knowledge, driven by the AssistGPT product. Thank you.

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