EPS of $0.02 decreased by 66.5% from previous year
Gross margin of 70.2%
Net income of 671.00K
""eGain AI is like having an army of interns on Red Bull. Our pumpkin team is really freaking happy."" - Head of Knowledge Management, Specialized Bikes
eGain Corporation (EGAN) QQ2 2025 Earnings Review: AI Knowledge Hub Gains Traction Amid Enterprise-Grade Deals and Guidance Revisions
Executive Summary
eGain’s QQ2 2025 results reflect a mix of near-term headwinds and meaningful long-term upside driven by AI-enabled knowledge management offerings. Total revenue declined 6% year over year to $22.4 million, mainly due to the exit of two large customers in the prior year, while SaaS revenue represented 93% of total revenue and remained the primary driver of growth. Non-GAAP gross margins held steady at 78% for SaaS, with overall gross margin at 71%. Despite higher non-GAAP operating costs (+9% YoY as R&D investments rise 21%), the company generated $6.4 million of cash flow from operations and ended the period with $70.5 million of cash and equivalents, underscoring a robust liquidity position.
Management emphasized a strategic pivot toward the AI Knowledge Hub, highlighted by a 17% year-over-year increase in ARR for AI knowledge customers and a concentration of seven-figure ARR opportunities in the sales pipeline. The company reiterated product momentum, including the planned launch of eGain AI Agent in the current quarter, and stressed that bigger deals may entail longer sales cycles and additional governance checks (AI office). The revised fiscal 2025 guidance reflects both the PS (professional services) revenue reassessment and a cautious cadence for large strategic wins, with revenue guidance narrowed to $88.5–$90.0 million and non-GAAP net income guidance of $4.1–$4.7 million. The near-term view remains mixed: limited near-term profitability is expected as investments scale, but the long-run trajectory centers on a scalable AI-first product platform and a broadened enterprise footprint.
Key Performance Indicators
Revenue
22.39M
QoQ: 2.71% | YoY:-5.99%
Gross Profit
15.71M
70.16% margin
QoQ: 3.81% | YoY:-6.63%
Operating Income
650.00K
QoQ: 27.70% | YoY:-73.20%
Net Income
671.00K
QoQ: 2.91% | YoY:-69.29%
EPS
0.02
QoQ: -58.63% | YoY:-66.48%
Revenue Trend
Margin Analysis
Key Insights
Revenue: $22.389 million, down 6% YoY; up ~2.71% QoQ from Q1 2025 (~$21.799 million).
SaaS revenue: 93% of total revenue; SaaS gross margin: 78% (unchanged YoY).
Total gross margin: 71% vs. 72% prior year.
Non-GAAP operating costs: $14.7 million, up 9% YoY; R&D up 21% YoY.
Non-GAAP net income: $1.3 million, or $0.04–$0.05 per share (basic/diluted respectively).
Financial Highlights
Overview of QQ2 2025 outcomes and YoY/QoQ contrasts:
- Revenue: $22.389 million, down 6% YoY; up ~2.71% QoQ from Q1 2025 (~$21.799 million).
- SaaS revenue: 93% of total revenue; SaaS gross margin: 78% (unchanged YoY).
- Total gross margin: 71% vs. 72% prior year.
- Non-GAAP operating costs: $14.7 million, up 9% YoY; R&D up 21% YoY.
- Non-GAAP net income: $1.3 million, or $0.04–$0.05 per share (basic/diluted respectively).
- Adjusted EBITDA margin: 7% vs. 16% in the year-ago quarter.
- Net income: $0.671 million; diluted EPS $0.0231.
- Operating cash flow: $6.424 million, margin 29% of revenue; free cash flow: $6.285 million.
- Balance sheet: cash and equivalents $70.5 million; total assets $111.257 million; total liabilities $55.999 million; total stockholders’ equity $55.258 million; retained earnings negative ($-322.338 million).
- ARR/retention metrics (AI knowledge subset): AI knowledge ARR up 17% YoY; AI knowledge customers represent 55% of SaaS ARR; LTM net retention for AI knowledge customers 99%; net expansion for AI knowledge customers 104%; total SaaS net expansion 105% for all customers.
- RPO: Total RPO down 5% YoY but up 5% sequential; short-term RPO $51 million down 9% YoY.
- Guidance (full year FY2025): Total revenue guided to $88.5–$90.0 million (SaaS ~93% of revenue); non-GAAP net income $4.1–$4.7 million; GAAP net income $1.1–$1.7 million; Q3 revenue guidance $21.0–$21.5 million; GAAP net loss of $0.3–$0.8 million; non-GAAP net income breakeven to $0.5 million.
- Shares: weighted average diluted shares ~28.6 million for the year; ~28.5 million for Q3.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
22.39M
-5.99%
2.71%
Gross Profit
15.71M
-6.63%
3.81%
Operating Income
650.00K
-73.20%
27.70%
Net Income
671.00K
-69.29%
2.91%
EPS
0.02
-66.48%
-58.63%
Key Financial Ratios
currentRatio
1.84
grossProfitMargin
70.2%
operatingProfitMargin
2.9%
netProfitMargin
3%
returnOnAssets
0.6%
returnOnEquity
1.21%
debtEquityRatio
0.07
operatingCashFlowPerShare
$0.23
freeCashFlowPerShare
$0.22
priceToBookRatio
3.22
priceEarningsRatio
66.32
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Key takeaways from management comments on the earnings call:
- Strategy and AI leadership: Ashu Roy highlighted robust enterprise wins in AI Knowledge Hub and the strategic driver of knowledge centralization in enterprises. He cited three large logos (US airline, global money transfer, and a leading interactive entertainment company) and noted that seven-figure ARR deals in the pipeline more than doubled in six months, albeit with longer vetting cycles. He stated, “knowledge centralization in enterprises… having a single source of truth in a knowledge central hub across the business is becoming critical,” and reiterated the forthcoming launch of eGain AI Agent to support enterprise automation.
- Financials and product mix: CFO Eric Smit noted that two large client losses last year weighed on revenue, contributing to a 6% YoY decline in total revenue. SaaS revenue remained the primary driver (93% of revenue), while professional services declined below internal expectations, prompting guidance revisions. Smit emphasized product improvements to reduce PS attach rates and shorten time-to-value for customers, while acknowledging a $2 million reduction to FY2025 PS revenue guidance.
- Pipeline and sales dynamics: Roy highlighted a growing number of seven-figure ARR opportunities and tempered by extended decision cycles due to governance reviews (AI office) but projected continued acceleration in AI knowledge hub growth as larger enterprises adopt end-to-end AI-enabled customer service solutions.
- Operational execution: The company plans to expand connectors, prebuilt capabilities, and templates to reduce bespoke integration, paired with strategic partnerships to broaden implementation capabilities.
"eGain AI is like having an army of interns on Red Bull. Our pumpkin team is really freaking happy."
— Head of Knowledge Management, Specialized Bikes
"We are on track to launch our eGain AI Agent in the current quarter."
— Ashu Roy, CEO
Forward Guidance
Assessment of the outlook given management guidance and market dynamics:
- Near-term trajectory remains cautious due to the PS revenue revision and elongated sales cycles for strategic AI deals. FY2025 revenue guidance was narrowed to $88.5–$90.0 million, with SaaS accounting for roughly 93% of revenue, indicating continued stickiness in the cloud-based portion.
- Profitability remains constrained in the near term: non-GAAP net income is guided to $4.1–$4.7 million (vs. prior higher target), while GAAP net income is guided higher to $1.1–$1.7 million due to lower PS revenue and improved operational efficiency expectations.
- Growth runway anchored by AI Knowledge Hub and AI Agent: Seven-figure ARR deals and a strategic enterprise footprint (Global 1000 customers) support an attractive long-run growth thesis, albeit with execution risk linked to longer close cycles and governance reviews.
- Key monitorables for investors: progression of seven-figure ARR deals, rate of AI Agent adoption post-launch, utilization of new connectors/templates to accelerate time-to-value, evolution of PS revenue contribution, and the conversion of AI knowledge pipeline into realized ARR growth.
- Likely catalysts: deployment of AI Agent, expansion via partnerships, and increments in AI knowledge hub ARR through enterprise deployments; risk is the timing and size of large deployments given extended governance cycles.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
EGAN Focus
70.16%
2.90%
1.21%
66.32%
ASUR
52.90%
-14.90%
-2.23%
-12.48%
CCRD
34.10%
8.33%
1.76%
30.16%
DMRC
66.10%
-96.20%
-12.00%
-17.58%
UPLD
54.10%
-7.75%
-1.76%
-1.43%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Positive long-term investment thesis supported by a scalable AI-first product platform and a pipeline of seven-figure ARR opportunities, albeit with a near-term margin and revenue cadence headwind from PS normalization and longer sales cycles for strategic AI deals. Investors should monitor: progression of AI knowledge hub deals into ARR, timing of AI Agent launch and uptake, effectiveness of connectors/templates in reducing implementation effort, evolution of RPO and overall revenue mix, and the progression of large enterprise deals through governance review processes. Given the cash-rich balance sheet and improving AI-centric product traction, eGain remains positioned to transform knowledge management for customer service into a broader enterprise AI automation play, with a valuation primarily reflecting its growth potential rather than current profitability.
Key Investment Factors
Growth Potential
Material medium-to-long-term growth potential anchored in AI Knowledge Hub adoption by Global 1000 enterprises, with AI knowledge ARR up 17% YoY and AI knowledge representing 55% of SaaS ARR at quarter-end. Expect acceleration as seven-figure ARR deals convert to recurring revenue and AI-assisted knowledge automation scales.
Profitability Risk
Near-term profitability may be pressured by PS revenue normalization and longer sales cycles for strategic AI deals; reliance on a small number of large enterprise logos could heighten revenue volatility; competition in AI-enabled knowledge management and potential delays in product/partner integrations could delay revenue realization.
Financial Position
Solid liquidity with $70.5 million cash; healthy operating cash flow of $6.4 million in the quarter; low near-term debt burden; negative retained earnings imply a legacy accumulation but overall equity base is sufficient to support ongoing investments in AI capabilities.
SWOT Analysis
Strengths
Strong SaaS mix with 93% of revenue from SaaS; SaaS gross margin at 78% supports operating leverage.
AI Knowledge Hub positioning as a strategic enterprise-grade platform with a growing pipeline of seven-figure ARR deals.
Track record of enterprise involvement and positive customer validation (Solve 2024 highlights) and high net retention for AI knowledge customers (99%).
Healthy balance sheet liquidity with $70.5M cash and consistent operating cash flow.
Weaknesses
YoY revenue decline driven by loss of two large clients in prior year; near-term profitability pressured by higher R&D spend and PS revenue normalization.
Longer sales cycles for strategic AI deals due to governance reviews (AI office) can delay revenue recognition.
PS revenue softness requires adjustment to targets and may indicate a longer path to full-time value realization.
Opportunities
Expansion of AI knowledge hub across additional enterprise use cases (employee/partner services) and deeper automation capabilities.
Launch of AI Agent to enable omnichannel customer service automation and improve time-to-value for customers.
Growth through ecosystem partnerships to broaden implementation capabilities and reduce customization overhead.
Increased cross-sell opportunities into Global 1000 accounts as AI governance processes mature.
Threats
Competitive pressure from established knowledge management players and AI-enabled CX platforms.
Regulatory or governance hurdles in large deployments could slow deal closure.
Macro headwinds affecting IT budgets and customer spending in enterprise software.
Concentration risk from large enterprise logos and potential future client churn.