Good day, and welcome to the eGain Fiscal 2024 Second 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 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. 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. 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 mentioned 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 health care insurance client, an industry-leading HCM SaaS solution provider and a large multinational bank. At the same time, we have received notice from 2…

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…

[Operator Instructions] And our first question comes from Richard Baldry with ROTH MKM.

In terms of the unexpected attrition, can you talk about -- is there any commonality there in terms of geographies or vertical end markets? And then in terms of the timing, it looks, if I backed out right, that most of it hits in the fourth quarter. Is that right? Or is there some residual pressures into the September quarter as well?

Okay. So let me address the first part, maybe, Richard, and then -- so no, there is nothing particularly common. One was a direct client, the conversation hotline to the direct clients. The Analytics Hub client goes through a partner. My exclusion, I guess, neither of them are knowledge clients, but that's not to say that we may not have customers in that area, if there's a usual sort of pattern to that. But I think both of them are under tremendous cost pressure in their businesses that we see. And there's a lot of public news about them looking to reduce cost, head count reduction. So that, I guess, is a commonality right now. But that's -- both of them have been using our products well. We seem to still be -- the operational teams are still very happy with us, seem to be engaged with the product. But they are being given marching orders, and so that's where the outcome is. Eric, you want to...

I think you're correct that for both of these accounts, impact will be felt in the 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. So firstly, I would say that -- a couple of things. One, in terms of the IITD pilot that we do, the Innovation in 30 Days, we are doing more pilots now than we have done in the last several years, right? So -- and almost all of those, let's say, are those AI pilots, like around AssistGPT or more -- at this point, more Instant Answers, which is part of the AssistGPT. And so we're seeing a lot of Instant Answers pilots right now, both in prospects as well as existing accounts. So that's one thing. Second thing we are seeing, and this is early, but my sense is that the early engagement with prospects, early in the funnel, people seem to be coming in with an AI-oriented budget and AI-oriented interest into knowledge, saying, "What can I do with AI?" And so that's something different from what we had seen, say, 6 months ago. There were not a lot of ground-level conversations that started with AI. There was a lot of talk about it, but people who are not starting their conversations, we're just chatting with our -- the [ SDR ] team, and that's one of the trends that we are seeing much more now. Those are the two things I would point out.

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 firstly, for sure.

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

Great. Just maybe high level in terms of the splits of the business. So from a revenue -- percent of revenue perspective, how much is sitting in? I think you gave some splits in SaaS ARR, but can you give it holistically where the revenue sits with respect to knowledge management versus Conversation Hub versus Analytics so we have a sense of proportion?

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 the -- 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. So I can tell you what we know so far. Yes, we were aware that, that was an ongoing battle inside. Let's say, the Conversation Hub clients, let's talk about that first. We were aware that there was a tussle going on between the people who were using the solution from us and were very happy with it, and sort of a company-wide agenda to try to reduce number of vendors. And ultimately, I think what we have been told is that moving this direction, they'll see how the quality of that service goes in that migration, and they are open to the idea. And we're still working with them, but no guarantees to see if we can continue to operate as a trusted second source. So that's what we know on the first one, the Conversation Hub one. On the second one, the Analytics one, I think the what we -- we don't know enough about that, to be honest, because it's behind the partner and we don't have enough visibility to know what is the economic sort of trade-off between their homegrown and ours.

Okay. All right. That's helpful. And then, Eric, you mentioned on the year-over-year compares, I think you mentioned something about a volume -- $1 million in volume that didn't repeat. Can you just refresh me on what that was a year ago?

Yes. So I think what we had seen was an account that was driving an increase in messaging business that it 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, deemphasize already?

Yes. A couple of learnings we have got. One is that people are very -- in the enterprise, not in the mid-market, but in the enterprise, people are very focused on controls, safety and auditability. So we have -- we are enhancing that significantly around generative capabilities. So that is a learning for us. And the second is that the results that people are seeing in the pilots, and these pilots are obviously trials, right, they're not production level at scale, they're limited production trials; people seem to be very happy with the solution results. So we're consistently seeing a strong positive feedback saying, "Yes, we like this," right? So that's the second thing that we are seeing.

Okay. And then maybe just one last, Eric, and then we can take this offline if it's easier. Just trying to -- there's obviously going to be some volatility in results in the next couple of quarters as you kind of reset to the new revenue level. Do you have a sense of gross margins, Q3, Q4?

So we'll definitely see some pressure, obviously, given the -- that reduction. But I think one of these accounts actually had -- sort of the profile wasn't at the high level. So -- but yes, I think we'll -- maybe I'll have to get back to you on the exact percentage where we see it. But certainly, there'll be some pressure.

[Operator Instructions] 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.