eGain Q1 Revenue Falls 7% as AI Customer ARR Grows

eGain (NASDAQ: EGAN) reported first-quarter fiscal 2027 revenue and earnings above the high end of its guidance, as growth from customers on its AI-enabled platform partially offset the continued runoff of legacy business. Total revenue fell 7% year over year to $21.9 million, while AI customer revenue increased 7% to $14.4 million and accounted for 66% of the quarter’s revenue.

Profitability declined as the revenue mix shifted and the company incurred incremental disaster-recovery rollout costs. Non-GAAP total gross margin narrowed to 74% from 76% a year earlier, while non-GAAP SaaS gross margin decreased to 78% from 81%.

GAAP net income was $1.6 million, or $0.06 per basic and diluted share, compared with $2.8 million, or $0.10 per share, in the prior-year period. Non-GAAP net income fell to $2.4 million, or $0.09 per share, from $4.7 million, or $0.17 per share. Adjusted EBITDA declined to $2.7 million from $5.0 million, with the adjusted EBITDA margin contracting to 12% from 21%.

AI business expands as legacy revenue declines

AI customer annual recurring revenue rose 11% year over year to $54.5 million and represented 74% of total SaaS ARR, up from 65% a year ago. However, total SaaS ARR declined 4% to $73.4 million as legacy business continued to run off.

The company defines AI customer ARR as all SaaS ARR from customers using its AI-enabled platform, rather than only revenue tied directly to AI products. That measure therefore reflects the full customer relationship.

Retention metrics also weakened. Trailing-12-month, dollar-based net retention among AI customers was 104%, down from 117% a year earlier. Total customer net retention decreased to 92% from 102%.

Remaining performance obligations totaled $71 million, down 18% year over year, while short-term RPO fell 11% to $52 million. eGain attributed the declines to the timing of large multi-year renewals and the continued reduction of its legacy business.

Operating cash flow was $1.8 million. The company noted that a large government customer’s annual payment was received in the fourth quarter of fiscal 2026, compared with the first quarter in the prior year, affecting the period-to-period cash flow comparison.

eGain ended the quarter with $71.3 million in cash and cash equivalents and no debt. It repurchased approximately 644,000 shares for $3.6 million during the quarter. Management said its capital priorities remain investment in AI growth, maintaining financial flexibility and making opportunistic share repurchases.

Fiscal 2027 outlook reiterated

For the second quarter, eGain expects total revenue of $21.0 million to $21.5 million, including AI customer revenue of $14.5 million to $14.8 million. The company projects a GAAP result ranging from a net loss of $0.5 million to net income of $0.2 million, equivalent to a loss of $0.02 per share to earnings of $0.01 per share.

Second-quarter non-GAAP net income is expected to be between $0.2 million and $0.9 million, or $0.01 to $0.03 per share. Adjusted EBITDA is forecast at zero to $0.5 million.

The company reiterated its fiscal 2027 outlook for revenue of $84.5 million to $86.0 million, with AI customer revenue of $59.5 million to $60.5 million. It continues to target approximately 20% year-over-year growth in AI customer ARR as of June 30, 2027.

eGain expects a full-year GAAP net loss of $3.0 million to $2.0 million, or $0.11 to $0.08 per share. Non-GAAP net income is projected at $1.0 million to $2.0 million, or $0.04 to $0.07 per share, with adjusted EBITDA of $0.65 million to $1.4 million. Management said the profitability outlook reflects increased sales and marketing investment during the remaining three quarters of the fiscal year.

Looking further ahead, eGain said it expects the transition away from legacy revenue to continue through fiscal 2029, with the runoff largely complete by fiscal 2030. Its fiscal 2030 targets include AI customer ARR of $100 million to $120 million, total revenue of $110 million to $120 million and AI customer revenue of $105 million to $115 million. The company expects AI customers to account for substantially all SaaS ARR and about 95% of total revenue by that point, with a non-GAAP SaaS gross margin of approximately 80% and a positive adjusted EBITDA margin.

The outlook remains subject to risks including the pace of generative AI development, demand for AI-enabled products, fluctuating customer demand, lengthy sales cycles, renewal timing and reliance on a relatively small number of customers for a substantial portion of revenue. eGain also cited competition, currency exposure, international operations, regulatory changes and its ability to convert customer engagement into new business and expansions as potential uncertainties.