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Ladenburg Downgrades eGain Following Dismal Earnings

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Earnings Scheduled For September 8, 2016

eGain Corp (NASDAQ: EGAN) reported dismal results for F3Q16. Ladenburg Thalmann’s Jon R. Hickman downgraded the rating for the company from Buy to Neutral, while slashing the price target from $7.50 to $3.75. The analyst commented that the company’s growth is likely to be muted in 2017.

Q3 Fiscal 2016 Results

eGain Corporation reported its revenues at $16.3 million, short of expectations and representing a sequential decline. This results reflected a decline in license revenues from Cisco Systems, Inc. (NASDAQ: CSCO) and “an ongoing trend in higher-than-normal customer attrition rates,” analyst Jon Hickman mentioned.

Gross margins contracted about 350 basis points and operating expenses were marginally higher-than-expected, resulting in a GAAP net loss of $2.8 million and adjusted EBITDA loss of $280K.

Fiscal 2017 Prospects

Hickman lowered the earnings estimate for fiscal 2016 from $70.6 million to $68.0 million, reflecting that subscription and support revenues in the year would be flat with the fiscal 2015 level.

“We believe that with the company's focus on its cloud platform, going forward customer attrition rates will trend higher than historical norms (an issue that affected results in fiscal 2016's first nine months) as some on-premise customers will choose not to adopt a cloud solution,” the analyst wrote.

Thus, eGain’s revenue growth is expected to be muted in fiscal 2017, and could reach merely $70 million, representing merely 2.9 percent growth from fiscal 2016.

“Though we applaud eGain’s move to a SaaS model, it is evident that this transition is more disruptive to revenue growth than we (and management) had originally anticipated,” Hickman commented.

Latest Ratings for EGAN

DateFirmActionFromTo
Nov 2016Ladenburg ThalmannDowngradesBuyNeutral
Sep 2016Ladenburg ThalmannUpgradesNeutralBuy
May 2016Ladenburg ThalmannDowngradesBuyNeutral

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Posted-In: Jon R. Hickman Ladenburg ThalmannAnalyst Color Downgrades Price Target Analyst Ratings

 

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