Executive Summary / Key Takeaways

• eGain is strategically pivoting to capitalize on the burgeoning AI Knowledge market, positioning its AI Knowledge Hub as a foundational layer for enterprises seeking to operationalize AI for trusted customer and employee interactions.
• Despite a recent decline in total revenue and professional services, driven partly by past client losses and a shift to faster product deployment, the company is seeing strong momentum in its core AI Knowledge offering, evidenced by increasing pipeline activity, seven-figure deal opportunities, and double-digit ARR growth in this segment.
• Recent significant customer wins, including a major US mega bank and large enterprises across various sectors, validate the demand for eGain's solution-oriented approach to AI-powered knowledge management, displacing legacy and competing systems.
• The company maintains a solid balance sheet with ample cash and continues to generate operating cash flow, providing financial flexibility to invest in R&D for AI innovation and execute its share repurchase program, even as sales cycles for larger strategic deals extend.
• While navigating near-term revenue adjustments and competitive pressures from larger players, eGain's increased R&D investment, focus on product differentiation (like the AI Agent), and cost optimization efforts are aimed at driving future growth acceleration and improved profitability, as reflected in its upwardly revised full-year GAAP net income guidance.

The Foundation of Trusted AI: eGain's Strategic Pivot

eGain Corporation operates at the intersection of customer engagement and artificial intelligence, providing cloud software designed to automate and enhance customer service interactions. At its core is the AI Knowledge Hub, a SaaS solution aimed at helping enterprises deliver trusted answers at scale across various touch points, from self-service channels to contact centers and field staff. The company's strategic vision, encapsulated in its mantra AX + BX + CX = DX, emphasizes orchestrating effortless Digital eXperience by assisting Agent eXperience, empowering Business eXperience, and assuring Customer eXperience.

In recent periods, eGain has undergone a significant strategic pivot, intensifying its focus on the emerging AI Knowledge market. This shift is driven by the increasing recognition among enterprises that a robust, centralized knowledge foundation is critical for the successful operationalization of AI, particularly in customer service. Fragmented content silos and inconsistent knowledge bases hinder the ability of AI systems to generate accurate, consistent, and compliant answers, creating an "operationalization gap" between exciting AI prototypes and real business value at scale. eGain positions its AI Knowledge Hub as the necessary "single source of truth" and "must have infrastructure" to power AI and empower users across the business.

This strategic focus is underpinned by deliberate R&D investment. Over the past year, eGain has rotated its R&D spending increasingly towards AI Knowledge products. This has resulted in key innovations like AssistGPT, launched in February 2024 to automate tasks for agents and knowledge authors, and the eGain AI Agent, a conversational offering first announced in October 2024 and becoming generally available in Q3 FY2025 with versions for Customer Self Service and Contact Centers. The AI Agent is designed to deliver proactive, real-time guidance using trusted knowledge from the Hub, going beyond simple FAQs or preprogrammed interactions. This "solution-oriented" or "full stack" approach, delivering working AI Agent solutions rather than a "DIY AI toolbox," is presented as an attractive, low-risk proposition for clients seeking to achieve significant incremental self-service adoption and drive value quickly.

In the competitive landscape, eGain operates against a backdrop of intense competition. Direct rivals include large enterprise software companies with broad suites like Salesforce (CRM), Oracle (ORCL), and ServiceNow (NOW), as well as specialized contact center players like Five9 (FIVN) and other packaged application vendors such as Genesys, LivePerson (LPSN), and Verint (VRNT). Additionally, the company competes with internal homegrown solutions, platforms like SharePoint and Confluence, and the knowledge capabilities embedded within CRM platforms like Salesforce. While larger competitors possess greater financial resources and broader market recognition, eGain aims to differentiate itself through its specialized AI Knowledge technology and solution-oriented approach. The company's AI is highlighted for its potential to offer quantifiable benefits like faster processing and higher efficiency, contributing to a competitive moat, particularly in addressing the specific challenge of providing trusted content for AI applications.

Performance Reflecting Transition and Opportunity

eGain's recent financial performance reflects both the challenges of a strategic transition and the emerging opportunities in its new focus area. For the three months ended March 31, 2025 (Q3 FY2025), total revenue was $21.0 million, a decrease of 6% from $22.4 million in the same period of fiscal year 2024. For the nine months ended March 31, 2025, total revenue was $65.2 million, down 7% from $70.3 million year-over-year. This decline was primarily attributed to the impact of two large client losses in the Conversation Hub and Analytics business areas in the prior fiscal year, with Q3 FY2025 being the final quarter affected by these losses. Foreign exchange fluctuations also played a minor role, causing a slight decrease in revenue in Q3 FY2025 and an increase over the nine-month period.

Breaking down revenue, SaaS revenue accounted for the vast majority, representing 93% of total revenue in Q3 FY2025 and 92% over the nine months. SaaS revenue decreased by 4% in Q3 and 7% over the nine months year-over-year. Professional services revenue saw a more significant decrease, down 29% in Q3 and 13% over the nine months. Management noted that the decrease in professional services revenue and its attach rate on new implementations is a deliberate outcome of product improvements enabling faster deployments and quicker time to value for clients, reducing the need for these lower-margin services.

Despite the overall revenue decline, the company demonstrated profitability and solid cash flow generation. Gross profit for Q3 FY2025 was $14.3 million, resulting in a gross margin of 68%, down from 69% a year prior. For the nine months, gross profit was $45.1 million, with a margin of 69%, down from 70%. Operating expenses decreased in Q3 FY2025 compared to the prior year period, with sales and marketing down 14% and general and administrative down 17%. However, research and development expense increased by 13% in Q3 and 14% over the nine months, reflecting the increased investment in AI Knowledge product innovation. Income from operations decreased significantly for both periods, primarily due to the reduction in gross margin. GAAP net income for Q3 FY2025 was $66,000, or $0.00 per share, compared to $1.5 million, or $0.05 per share, in the prior year. For the nine months, GAAP net income was $1.4 million, or $0.05 per share, down from $6.3 million, or $0.20 per share. Non-GAAP operating income and net income also saw decreases year-over-year.

Liquidity remains a strength. As of March 31, 2025, cash, cash equivalents, and restricted cash totaled $68.7 million. Total current assets, including accounts receivable, amounted to $85.8 million.

Net cash provided by operating activities for the nine months ended March 31, 2025, was $9.6 million, though this was down from $17.6 million in the prior year, primarily due to changes in net income and the timing of accounts receivable collections.

The company continued its share repurchase program, utilizing $12.0 million for buybacks during the nine-month period, with approximately $5.0 million remaining authorized as of March 31, 2025. Management believes existing capital resources are sufficient to fund operations for at least the next 12 months.

Operational metrics highlight the momentum in the strategic focus area. While total SaaS ARR decreased 6% year-over-year in Q3 FY2025, SaaS ARR for Knowledge customers increased 11%. Net retention rates for Knowledge customers stood at 97% in Q3 FY2025, while net expansion rates for both Knowledge and all customers were healthy at 103% and 104%, respectively. Remaining performance obligations (RPO) decreased year-over-year but showed sequential improvement in prior quarters, reflecting renewed bookings activity.

Building the Future on AI Knowledge

The strategic pivot towards AI Knowledge is beginning to translate into tangible business momentum, particularly in the sales pipeline and customer acquisition. The company has reported growing inbound interest and pipeline activity for its AI Knowledge offerings, noting that pipeline activity in the summer of 2024 was the strongest in four years. This momentum is leading to larger opportunities, with the number of seven-figure ARR deals in the pipeline more than doubling in the six months leading up to Q2 FY2025. While these larger, strategic deals involving AI initiatives are subject to increased scrutiny and extended sales cycles (now averaging around 9-12 months), eGain's financial strength provides the patience to nurture them.

Recent customer wins underscore the traction of the AI Knowledge Hub. Shortly after Q3 FY2025 closed, eGain secured one of its largest deals ever with the US Consumer Group of a US mega bank (one of the Big Four), expanding its platform to over 100,000 users across more than half the bank. This win followed prior successes within the same institution, displacing homegrown solutions. Other notable wins in recent quarters include a major US airline (displacing multiple legacy and CRM knowledge systems), a leading interactive entertainment company, a global money transfer company (which had previously failed at knowledge implementation twice), a large data center builder (for field service knowledge), a hyper-growth energy solutions provider, and a major video games developer/publisher. These wins demonstrate the platform's ability to address complex knowledge needs, consolidate disparate systems, and extend beyond traditional customer service to areas like field service and internal/partner knowledge, validating the trend of knowledge centralization.

Looking ahead, eGain has provided guidance that reflects both the near-term adjustments and the anticipated impact of its strategic focus. For the fourth quarter of fiscal 2025, the company expects total revenue between $22.8 million and $23.3 million. For the full fiscal year 2025, the total revenue guidance was revised slightly downward to a range of $88.0 million to $88.5 million, primarily due to the reduction in the professional services revenue target ($2 million) and the extended timelines for closing large strategic deals. However, reflecting ongoing cost optimization efforts, the full-year GAAP net income guidance was increased to a range of $2.5 million to $3.0 million ($0.09 to $0.10 per share), and non-GAAP net income is expected to be between $5.1 million and $5.6 million ($0.18 to $0.20 per share).

Management expects SaaS ARR for Knowledge customers to increase in the high teens year-over-year in fiscal 2025, with year-over-year growth in total SaaS ARR also anticipated. Excluding the impact of past large customer losses and the Cisco (CSCO) OEM revenue recognition timing difference, SaaS revenue is expected to grow in the high single-digits in FY2025, with acceleration projected for FY2026 as the growing pipeline of larger deals closes.

Key risks to this outlook include the continued variability and length of sales cycles for large enterprise deals, intense competition from well-resourced players and new AI-focused entrants, the ability to successfully execute on large implementations and drive adoption of new AI products like the AI Agent, and potential impacts from macroeconomic conditions and evolving data privacy regulations.

Conclusion

eGain is navigating a pivotal moment, transitioning its focus and investments to the high-growth AI Knowledge market. While recent financial results show the impact of past headwinds and strategic adjustments like the planned reduction in professional services, the underlying momentum in the AI Knowledge segment, evidenced by pipeline growth, increasing deal sizes, and key customer wins, points to potential for future acceleration. The company's differentiated AI Knowledge Hub and new AI Agent offerings position it to capitalize on the critical need for trusted content as enterprises seek to leverage AI for operational efficiency and improved customer experience. With a solid balance sheet and a commitment to R&D and cost management, eGain appears financially prepared to pursue this opportunity. Investors should monitor the company's progress in closing larger strategic deals, the adoption rate of its new AI Agent solutions, and the continued growth in AI Knowledge ARR as key indicators of its ability to translate strategic focus into sustained financial performance and shareholder value in the evolving AI landscape.