What changed in this filing

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Item 1. Financial Statements

2020-05-11 compared with 2020-02-10 · 227 added, 216 removed, 804 unchanged (36% of the section changed)

6 unchanged sentences

Restricted cash

Accounts receivable, less allowance for doubtful accounts of $447 and $320 as of December 31, 2019 and June 30, 2019, respectively

Accounts receivable, less allowance for doubtful accounts of $429 and $320 as of March 31, 2020 and June 30, 2019, respectively

Costs capitalized to obtain revenue contracts, net

18 unchanged sentences

Total liabilities

Commitments and contingencies (Note 6 and 7)

Commitments and contingencies (Note 7)

Stockholders' equity:

1 unchanged sentence

50,000 shares;

30,637 shares as of December 31, 2019 and 30,478 shares as of June 30, 2019

30,689 shares as of March 31, 2020 and 30,478 shares as of June 30, 2019

Additional paid-in capital

9 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

Professional services

12 unchanged sentences

Other income (expense), net

Income before income tax (provision) benefit

Income tax (provision) benefit

Income before income tax provision

Income tax provision

Per share information:

6 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

Other comprehensive income, net of taxes:

4 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’

EQUITY (DEFICIT)

(in thousands)

Three Months Ended December 31, 2019

Three Months Ended March 31, 2020

Additional Paid-in

3 unchanged sentences

Income (Loss)

Equity (Deficit)

Balances as of September 30, 2019

Interest on stockholder notes

Balances as of December 31, 2019

Issuance of common stock upon exercise of stock options

Issuance of common stock in connection with employee stock purchase plan

Stock-based compensation

Foreign currency translation adjustments

Balances as of December 31, 2019

Three Months Ended December 31, 2018

Balances as of March 31, 2020

Three Months Ended March 31, 2019

Additional Paid-in

3 unchanged sentences

Income (Loss)

Equity (Deficit)

Balances as of September 30, 2018

Interest on stockholder notes

Balances as of December 31, 2018

Issuance of common stock upon exercise of stock options

Issuance of common stock from public offering, net of issuance costs

Stock-based compensation

Foreign currency translation adjustments

Balances as of December 31, 2018

Balances as of March 31, 2019

*Accrued liabilities of $185,000 included for stock issuance costs

See accompanying notes to condensed consolidated financial statements

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’

EQUITY (DEFICIT) (cont.)

EQUITY (cont.)

(in thousands)

Six Months Ended December 31, 2019

Nine Months Ended March 31, 2020

Additional Paid-in

3 unchanged sentences

Income (Loss)

Equity (Deficit)

Balances as of June 30, 2019

5 unchanged sentences

Foreign currency translation adjustments

Balances as of December 31, 2019

Six Months Ended December 31, 2018

Balances as of March 31, 2020

Nine Months Ended March 31, 2019

Additional Paid-in

3 unchanged sentences

Income (Loss)

Equity (Deficit)

Balances as of June 30, 2018

3 unchanged sentences

Issuance of common stock upon exercise of stock options

Issuance of common stock from public offering, net of issuance costs

Stock-based compensation

Foreign currency translation adjustments

Balances as of December 31, 2018

Balances as of March 31, 2019

*Accrued liabilities of $185,000 included for stock issuance costs

See accompanying notes to condensed consolidated financial statements

2 unchanged sentences

(in thousands)

Six Months Ended

Nine Months Ended

Cash flows from operating activities:

30 unchanged sentences

Proceeds from employee stock purchase plan

Net cash provided by (used in) financing activities

Proceeds from follow-on public offering, net of issuance costs

Net cash provided by financing activities

Effect of change in exchange rates on cash and cash equivalents

19 unchanged sentences

Basis of Presentation

The accompanying condensed consolidated balance sheet as of December 31, 2019 and the condensed consolidated statements of operations, comprehensive income, stockholders’

equity (deficit), and cash flows for the three and six months ended December 31, 2019 and 2018, are unaudited.

The accompanying condensed consolidated balance sheet as of March 31, 2020 and the condensed consolidated statements of operations, comprehensive income, stockholders’

equity, and cash flows for the three and nine months ended March 31, 2020 and 2019, are unaudited.

The consolidated balance sheet as of June 30, 2019 included herein was derived from the audited financial statements as of that date.

5 unchanged sentences

The Company adopted Accounting Standards Update (ASU) No.

2016-02, Leases (Topic 842) (ASU 2016-02), also referred to as Topic ASC 842, on a modified retrospective basis, as discussed below.

As a result, the condensed consolidated balance sheet as of December 31, 2019 is not comparable with that as of June 30, 2019.

2016-02, Leases (Topic 842) , on a modified retrospective basis, as discussed below.

As a result, the condensed consolidated balance sheet as of March 31, 2020 is not comparable with that as of June 30, 2019.

Principles of Consolidation

23 unchanged sentences

We are currently evaluating the impact of this update on our consolidated financial statements and related disclosures.

In December 2019, the Financial Accounting Standards Board (FASB) issued ASU 2019-12, Income Taxes (Topic 740):

In December 2019, FASB issued ASU 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes.

3 unchanged sentences

Pronouncements Recently Adopted

In February 2016, the FASB issued ASU 2016-02, Topic ASC 842, which requires that we recognize lease assets and liabilities on the balance sheet, but recognize the expenses on our statement of operations in a manner similar to previous accounting guidance.

In February 2016, the FASB issued ASU 2016-02, Topic 842, which requires that we recognize lease assets and liabilities on the balance sheet, but recognize the expenses on our statement of operations in a manner similar to previous accounting guidance.

Topic 842 generally requires that lessees recognize operating and financing liabilities for the obligation to make lease payments and a right-of-use asset for the right to use the underlying asset for the lease term.

17 unchanged sentences

Effective July 1, 2019, the Company adopted the provisions and expanded disclosure requirements described in Topic 842.

The Company adopted the standard under a modified retrospective approach, using the provision of Accounting Standards Update 2018-11, Leases (Topic 842) Targeted Improvements (ASU 2018-11), which allows for the adoption of Topic 842 to be applied at the beginning of the fiscal year of adoption.

The Company adopted the standard under a modified retrospective approach, using the provision of ASU 2018-11, Leases (Topic 842) Targeted Improvements , which allows for the adoption of Topic 842 to be applied at the beginning of the fiscal year of adoption.

As a result, the condensed consolidated balance sheet and statement of operations for prior periods are not comparable to fiscal year 2020.

11 unchanged sentences

Accrued liabilities

Operating lease liabilities

Operating lease liabilities (Note 6)

Total current liabilities

Operating lease liabilities, net of current portion

Operating lease liabilities, net of current portion (Note 6)

Other long-term liabilities

9 unchanged sentences

Subscription includes SaaS revenue and legacy revenue.

SaaS includes revenue from cloud delivery arrangements, term licenses, and embedded OEM royalties and associated support.

SaaS revenue includes revenue from cloud delivery arrangements, term licenses, and embedded OEM royalties and associated support.

Legacy revenue is associated with license, or maintenance and support contracts on perpetual license arrangements that we no longer offer.

5 unchanged sentences

Additionally, significant judgment is required to determine the timing of revenue recognition.

We allocate the transaction price to each performance obligation on a relative standalone selling price.

We allocate the transaction price to each performance obligation on a relative standalone selling price (SSP).

The SSP is the price at which we would sell a promised service separately to one of our customers.

21 unchanged sentences

These embedded OEM royalties are included as subscription revenue.

Under Topic 606 revenue guidance, since these arrangements are for sales-based licenses of intellectual property, for which the guidance in paragraph ASC 606-10-55-65 applies, the Company recognizes revenue only as the subsequent sale occurs.

Under Topic 606, since these arrangements are for sales-based licenses of intellectual property, for which the guidance in paragraph ASC 606-10-55-65 applies, the Company recognizes revenue only as the subsequent sale occurs.

However, the Company notes that such sales are reported by the customer with a quarter in arrears, such revenue is recognized at the time it is reported and paid by the customer given that any estimated variable consideration would have to be fully constrained due to the unpredictability of such estimate and the unavoidable risk that it may lead to significant revenue reversals.

13 unchanged sentences

We determine the period of benefit by taking into consideration the historical and expected durations of our customer contracts, the expected useful lives of our technologies, and other factors.

Commissions for renewal contracts relating to our cloud-based arrangements are generally deferred and then amortized on a straight-line basis over the related contractual renewal period, which is generally five years.

Commissions for renewal contracts relating to our cloud-based arrangements are expensed when incurred, as we do not consider renewal contracts to be commensurate with initial customer contracts.

Historically, any commission associated with renewals have been immaterial.

Amortization of costs to obtain revenue contracts is included as a component of sales and marketing expenses in our condensed consolidated statements of operations.

During the three and six months ended December 31, 2019, we capitalized $261,000 and $561,000 of costs to obtain revenue contracts, respectively, and amortized $207,000 and $407,000 to sales and marketing expense, respectively.

During the three and six months ended December 31, 2018, we capitalized $324,000 and $513,000 of costs to obtain revenue contracts, respectively, and amortized $156,000 and $302,000 to sales and marketing expense, respectively.

Capitalized costs to obtain revenue contracts, net were $2.7 million and $2.5 million as of December 31, 2019 and June 30, 2019, respectively.

During the three and nine months ended March 31, 2020, we capitalized $459,000 and $1.0 million of costs to obtain revenue contracts, respectively, and amortized $210,000 and $607,000 to sales and marketing expense, respectively.

During the three and nine months ended March 31, 2019, we capitalized $227,000 and $742,000 of costs to obtain revenue contracts, respectively, and amortized $179,000 and $481,000 to sales and marketing expense, respectively.

Capitalized costs to obtain revenue contracts, net were $2.9 million and $2.5 million as of March 31, 2020 and June 30, 2019, respectively.

Deferred Revenue

8 unchanged sentences

Operating segments are identified as components of an enterprise for which discrete financial information is available and regularly reviewed by the Company’s chief operating decision-makers in order to make decisions about resources to be allocated to the segment and assess its performance.

Our chief operating decision-makers, under Accounting Standards Codification (ASC) 280, Segment Reporting , are our executive management team.

Our chief operating decision-makers, under ASC 280, Segment Reporting , are our executive management team.

Our chief operating decision-makers review financial information presented on a consolidated basis for purposes of making operating decisions and assessing financial performance.

3 unchanged sentences

Revenue by geography is generally determined on the region of our contracting entity rather than the region of our customer.

Information relating to our geographic areas for the three and six months ended December 31, 2019 and 2018 is as follows (in thousands):

Information relating to our geographic areas for the three and nine months ended March 31, 2020 and 2019 is as follows (in thousands):

Three Months Ended

Six Months Ended

Nine Months Ended

North America

1 unchanged sentence

Total revenue

Income (loss) from operations:

Income from operations:

North America

10 unchanged sentences

Receivables are written off against the allowance when we have exhausted collection efforts without success.

Two customers, who are also partners, accounted for 18% and 10%, respectively, of total revenue during the three and six months ended December 31, 2019.

One customer accounted for 17% and 16% of total revenue during the three and six months ended December 31, 2018, respectively.

Two customers, who are also our partners, accounted for 18% and 10%, respectively, of total revenue during the three and nine months ended March 31, 2020.

One customer accounted for 16% and 17% of total revenue during the three and nine months ended March 31, 2019, respectively.

Accounts Receivable and Allowance for Doubtful Accounts

9 unchanged sentences

Unbilled accounts receivables are recorded when revenue recognized on the contract exceeds billings, pursuant to contract provisions, and become billable upon certain criteria being met.

Unbilled accounts receivables, for which the Company has the unconditional right to consideration, totaled $2.0 million and $1.4 million as of December 31, 2019, and June 30, 2019, respectively, and are included in the accounts receivable balance.

Unbilled accounts receivables, for which the Company has the unconditional right to consideration, totaled $1.5 million and $1.4 million as of March 31, 2020, and June 30, 2019, respectively, and are included in the accounts receivable balance.

Deferred Financing Costs

Costs relating to obtaining the credit agreement (as amended from time to time, Credit Agreement) with Wells Fargo Bank, National Association, as administrative agent (Wells Fargo) were capitalized and amortized over the term of the related debt using the effective interest method.

We capitalized deferred financing costs of $981,000 in connection with the our term loan that has since been fully amortized.

As of December 31, 2019, all financing costs have been removed from the related accounts and charged to operations as interest expense in the prior fiscal year, in connection with the repayment of the term loan.

Amortization of deferred financing costs recorded as interest expense was $72,000 and $158,000 for the three and six months ended December 31, 2018, respectively.

We capitalized deferred financing costs of $981,000 in connection with our term loan that has since been fully amortized.

As of March 31, 2020, all financing costs have been removed from the related accounts and charged to operations as interest expense in the prior fiscal year, in connection with the repayment of the term loan.

Amortization of deferred financing costs recorded as interest expense was $83,000 and $242,000 for the three and nine months ended March 31, 2019, respectively.

Stock-Based Compensation

9 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

Stock-Based Compensation Expense:

4 unchanged sentences

Total stock-based compensation expense

Total stock-based compensation includes expense related to non-employee awards of $20,000 and $43,000 during the three and six months ended December 31, 2019, respectively.

Total stock-based compensation includes expense related to non-employee awards of $27,000 and $48,000 during the three and six months ended December 31, 2018, respectively.

Total stock-based compensation includes expense related to the ESPP of $96,000 and $124,000 for the three and six months ended December 31, 2019, respectively.

Total stock-based compensation includes expense related to the ESPP of $33,000 for the three and six months ended December 31, 2018, respectively.

Total stock-based compensation includes expense related to non-employee awards of $14,000 and $57,000 during the three and nine months ended March 31, 2020, respectively.

Total stock-based compensation includes expense related to non-employee awards of $95,000 and $143,000 during the three and nine months ended March 31, 2019, respectively.

Total stock-based compensation includes expense related to the ESPP of $87,000 and $211,000 for the three and nine months ended March 31, 2020, respectively.

Total stock-based compensation includes expense related to the ESPP of $128,000 and $161,000 for the three and nine months ended March 31, 2019, respectively.

We utilize the Black-Scholes valuation model for estimating the fair value of the stock-based compensation of options granted.

All shares of our common stock issued pursuant to our stock option plans are only issued out of an authorized reserve of shares of common stock which were previously registered with the SEC on a Registration Statement on Form S-8.

During the three months ended December 31, 2019 and 2018, we granted options to purchase 46,225 and 122,400 shares of common stock with a weighted-average fair value of $4.15 and $3.94 per share, respectively.

During the six months ended December 31, 2019 and 2018, we granted options to purchase 248,325 and 213,250 shares of common stock with a weighted-average fair value of $4.28 and $5.29 per share, respectively.

During the three months ended March 31, 2020 and 2019, we granted options to purchase 46,550 and 24,000 shares of common stock with a weighted-average fair value of $5.12 and $7.86 per share, respectively.

During the nine months ended March 31, 2020 and 2019, we granted options to purchase 294,875 and 237,250 shares of common stock with a weighted-average fair value of $4.42 and $5.21 per share, respectively.

We used the following assumptions:

Three Months Ended

Six Months Ended

Nine Months Ended

Expected volatility

6 unchanged sentences

Treasury Strips rate with maturities approximating the expected lives of the awards during the period, which approximate the rate in effect at the time of the grant.

The fair value of the ESPP stock-based expense for the three and six months ended December 31, 2019 were estimated using the following weighted-average assumptions:

Three and Six Months Ended

December 31, 2019

The fair value of the ESPP stock-based expense for the three and nine months ended March 31, 2020 were estimated using the following weighted-average assumptions:

Three and Nine Months Ended

March 31, 2020

Expected term (in years)

2 unchanged sentences

Estimated forfeiture rate

During the three and six months ended December 31, 2019, employees were granted the right to purchase an aggregate of 69,368 shares under the ESPP, and compensation expense related to those purchase rights for the three and six months ended December 31, 2019 was $29,000.

During the three and six months ended December 31, 2018, 94,805 grants were made pursuant to the ESPP, and compensation expense related to those purchase rights for the three and six months ended December 31, 2018 was $33,000.

As of December 31, 2019, there were 261,310 shares of common stock available for issuance under the ESPP.

During the three and nine months ended March 31, 2020 , employees were granted the right to purchase an aggregate of 69,368 shares under the ESPP, and compensation expense related to those purchase rights for the three and nine months ended March 31, 2020 was $87,000.

During the three and nine months ended March 31, 2019 , 94,805 grants were made pursuant to the ESPP, and compensation expense related to those purchase rights for the three and nine months ended March 31, 2019 was $267,000.

As of March 31, 2020, there were 837,978 shares of common stock available for issuance under the ESPP.

We base our estimate of expected life of a stock option on the historical exercise behavior and cancellations of all past option grants made by the Company during the time period which its equity shares have been publicly traded, the contractual term of the option, the vesting period and the expected remaining term of the outstanding options.

1 unchanged sentence

Improvements to Employee Share-Based Accounting , we elected to continue to estimate forfeitures in the calculation of stock-based compensation expense.

Total compensation cost, net of forfeitures, of all options granted but not yet vested as of December 31, 2019 was $1.5 million, which is expected to be recognized over the weighted-average period of 1.24 years.

There were 31,165 and 14,967 options exercised during the three months ended December 31, 2019 and 2018, respectively.

There were 89,635 and 216,253 options exercised during the six months ended December 31, 2019 and 2018, respectively.

As of March 31, 2020 there was approximately $1.3 million of total unrecognized compensation cost related to nonvested stock options, which is expected to be recognized over the weighted-average period of 1.17 years.

There were 52,004 and 276,354 options exercised during the three months ended March 31, 2020 and 2019, respectively.

There were 141,639 and 492,607 options exercised during the nine months ended March 31, 2020 and 2019, respectively.

Lease agreements are evaluated to determine whether an arrangement is or contains a lease in accordance with ASC 842, Leases .

17 unchanged sentences

Disaggregation of Revenue

The following table presents our subscription and professional services revenue during the three and six months ended December 31, 2019 and 2018, respectively:

The following table presents our subscription and professional services revenue during the three and nine months ended March 31, 2020 and 2019, respectively:

Three Months Ended

Six Months Ended

Legacy revenue

Nine Months Ended

Total subscription

3 unchanged sentences

Revenue by geography is generally determined on the region of our contracting entity rather than the region of our customer.

The relative proportion of our total revenues between each geographic region as presented in the table below was materially consistent across each of our operating regions’

revenues for the periods presented.

The relative proportion of our total revenue between each geographic region as presented in the table below was materially consistent across each of our operating regions’

revenue for the periods presented.

Three Months Ended

Six Months Ended

Nine Months Ended

North America

7 unchanged sentences

Balance as of June 30, 2019

Balance as of December 31, 2019

Balance as of March 31, 2020

Contract liabilities:

1 unchanged sentence

Deferred revenue, net of current portion

With respect to deferred revenue balances as of June 30, 2019, $9.6 million and $21.8 million was recognized to revenue during the three and six months ended December 31, 2019, respectively.

With respect to deferred revenue balances as of June 30, 2019, $6.4 million and $28.2 million was recognized to revenue during the three and nine months ended March 31, 2020, respectively.

Remaining Performance Obligations

Remaining performance obligations represent contracted revenues that had not yet been recognized, and include deferred revenues, invoices that have been issued to customers but were uncollected and have not been recognized as revenues, and amounts that will be invoiced and recognized as revenues in future periods.

The transaction price allocated to the remaining performance obligation is influenced by a variety of factors, including seasonality, timing of renewals, average contract

terms and foreign currency rates.

As of December 31, 2019, our remaining performance obligations were $65.3 million of which we expect to recognize $41.3 million and $24.0 million as revenue within one year and beyond one year, respectively.

Remaining performance obligations represent contracted revenue that had not yet been recognized, and include deferred revenue, invoices that have been issued to customers but were uncollected and have not been recognized as revenue, and amounts that will be invoiced and recognized as revenue in future periods.

The transaction price allocated to the remaining

performance obligation is influenced by a variety of factors, including seasonality, timing of renewals, average contract terms and foreign currency exchange rates.

As of March 31, 2020, our remaining performance obligations were $64.3 million of which we expect to recognize $41.9 million and $22.4 million as revenue within one year and beyond one year, respectively.

NET INCOME PER COMMON SHARE

3 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

Per share information:

2 unchanged sentences

Effect of dilutive options

Weighted-average shares of stock options to purchase 631,140 and 232,634 shares of common stock for the three months ended December 31, 2019 and 2018, respectively, and weighted-average shares of stock options to purchase 593,450 and 184,228 shares of common stock for the six months ended December 31, 2019 and 2018, respectively, were not included in the computation of diluted net income per common share due to their anti-dilutive effect.

Weighted-average shares of stock options to purchase 663,821 and 302,118 shares of common stock for the three months ended March 31, 2020 and 2019, respectively, and weighted-average shares of stock options to purchase 615,649 and 222,951 shares of common stock for the nine months ended March 31, 2020 and 2019, respectively, were not included in the computation of diluted net income per common share due to their anti-dilutive effect.

Such securities could have a dilutive effect in future periods.

4 unchanged sentences

All remaining principal was paid prior to that date and all remaining deferred financing costs have been amortized to interest expense.

As of December 31, 2018, the remaining principal balance on the term loan was $5.0 million and $158,000 of deferred financing costs was amortized to interest expense for the three and six months ended December 31, 2018.

As of March 31, 2019, the remaining deferred financing costs of $83,000 was written-off to interest expense.

Income taxes are accounted for using the asset and liability method in accordance with ASC 740, Income Taxes.

10 unchanged sentences

We consider many factors when evaluating and estimating tax positions and tax benefits, which may require periodic adjustments and which may not accurately anticipate actual outcomes.

As of December 31, 2019, we have not completed a 382 study to assess whether an ownership change has occurred or whether there have been multiple ownership changes since our company’s formation due to the complexity and cost associated with such a study, and the fact that an additional change in ownership can occur in future periods.

As of March 31, 2020, we have not completed a 382 study to assess whether an ownership change has occurred or whether there have been multiple ownership changes since our company’s formation due to the complexity and cost associated with such a study, and the fact that an additional change in ownership can occur in future periods.

If the Company has experienced an ownership change at any time since its formation, utilization of the NOL or tax credit carryforwards to offset future taxable income and taxes, respectively, would be subject to an annual limitation under the Internal Revenue Code of 1986 and similar state provisions.

3 unchanged sentences

These amounts are no longer recognized until they can be measured after an ownership change analysis is completed.

The 2017 Tax Cuts and Jobs Act includes a provision to tax global intangible low-taxed income (GILTI) of foreign subsidiaries and a base erosion anti-abuse tax (BEAT) measure that taxes certain payments between a U.S.

corporation and its foreign subsidiaries.

As of December 31, 2019, we estimate $1.8 million of GILTI income inclusion and used our net operating losses to offset our taxable income.

For the three and six months ended December 31, 2019, we did not incur any BEAT tax.

LEASES AND OTHER COMMITMENTS

The 2017 Tax Cuts and Jobs Act includes a provision to tax global intangible low-taxed income (GILTI) of foreign subsidiaries.

As of March 31, 2020, we estimate $2.0 million of GILTI income inclusion and used our net operating losses to offset our taxable income.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (CARES Act) was signed into law.

The CARES Act includes income tax provisions relating to net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property.

These provisions did not have a material effect on our consolidated financial statements.

We lease our office facilities under non-cancelable operating leases that expire on various dates through fiscal year 2024.

4 unchanged sentences

The following tables present information about leases on our consolidated balance sheet (in thousands):

As of December 31, 2019

As of March 31, 2020

Operating lease right-of-use assets

2 unchanged sentences

The following table presents information about the weighted average lease term and discount rate as follows:

As of December 31, 2019

As of March 31, 2020

Weighted average remaining lease term (in years)

2 unchanged sentences

Three Months Ended

Six Months Ended

December 31, 2019

Nine Months Ended

March 31, 2020

Operating lease expense

3 unchanged sentences

Three Months Ended

Six Months Ended

December 31, 2019

Nine Months Ended

March 31, 2020

Operating cash outflows from operating leases

Right-of-use assets obtained in exchange for new operating lease liabilities

As of December 31, 2019, remaining maturities of lease liabilities are as follows (in thousands):

As of March 31, 2020, remaining maturities of lease liabilities are as follows (in thousands):

Fiscal Period:

Remaining six months of fiscal year 2020

Remaining three months of fiscal year 2020

Total minimum lease payments

Imputed interest

Contractual Commitments

We have contractual agreements with third parties that consist of software licenses, maintenance and support for our operations.

As of December 31, 2019 and June 30, 2019, future payments for non-cancelable contractual agreements were $570,000 and $1.3 million, respectively.

The contractual agreements will expire in our fiscal year 2020.

LEGAL PROCEEDINGS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

In the ordinary course of business, we are involved in various legal proceedings and claims related to alleged infringement of intellectual property rights, commercial, corporate and securities, labor and employment, wage and hour, and other claims that are not expected to have a material impact on our business or our consolidated financial statements.

16 unchanged sentences

We believe that such assessments are without merit and would not have a significant impact on our consolidated financial statements.

Contractual Commitments

We have contractual agreements with third parties that consist of software licenses, maintenance and support for our operations.

As of March 31, 2020 and June 30, 2019, future payments for non-cancelable contractual agreements were $205,000 and $1.3 million, respectively.

The contractual agreements will expire in our fiscal year 2020.

FAIR VALUE MEASUREMENT

14 unchanged sentences

Our money market funds are measured at fair value on a recurring basis based on quoted market prices in active markets and are classified as level 1 within the fair value hierarchy.

As of December 31, 2019 and June 30, 2019, cash equivalents classified as level 1 instruments were measured at $35.2 million and $29.2 million, respectively.

As of March 31, 2020 and June 30, 2019, cash equivalents classified as level 1 instruments were measured at $38.3 million and $29.2 million, respectively.

INTANGIBLE ASSETS

2 unchanged sentences

Carrying Amount

Net Balance December 31, 2019

Net Balance March 31, 2020

Income Statement Category

Customer relationships - maintenance contracts

Cost of sales

Cost of revenue

Intangible Asset

3 unchanged sentences

Customer relationships - maintenance contracts

Cost of sales

Amortization expense incurred for intangible assets for the three months ended December 31, 2019 and 2018 was $67,000 and $67,000, respectively.

Amortization expense incurred for intangible assets for the six months ended December 31, 2019 and 2018 was $134,000 and $304,000, respectively.

Estimated future amortization expense remaining as of December 31, 2019 for intangible assets acquired is as follows:

Cost of revenue

Amortization expense incurred for intangible assets for the three months ended March 31, 2020 and 2019 was $67,000 and $67,000, respectively.

Amortization expense incurred for intangible assets for the nine months ended March 31, 2020 and 2019 was $201,000 and $371,000, respectively.

Estimated future amortization expense remaining as of March 31, 2020 for intangible assets acquired is as follows:

Year Ending June 30,

19 unchanged sentences

The forward-looking statements include, but are not limited to, statements regarding:

the impact of the COVID-19 pandemic on our employees and customers;

our SaaS only business model and that our belief that it affords recurring revenue visibility, more predictability and 50% faster time to value to SaaS clients;

7 unchanged sentences

the adequacy of our capital resources and our ability to raise additional financing;

our intended use of proceeds from our follow-on public offering ;

the development and expansion of our strategic and third party distribution partnerships and relationships with systems integrators;

23 unchanged sentences

These risks and uncertainties include, but are not limited to, those risks discussed in Item 1A “Risk Factors”

in this report, as well as our ability to manage our business plans, strategies and outlooks and any business-related forecasts or projections;

in this report, as well as:

the effect of the COVID-19 pandemic on our business;

our ability to manage our business plans, strategies and outlooks and any business-related forecasts or projections;

our ability to effectively implement and improve our current products;

15 unchanged sentences

or “us”

mean eGain Corporation and its subsidiaries, except where it is clear from the context that such terms mean only the parent company and excludes subsidiaries.

mean eGain Corporation and its subsidiaries, except where it is clear from the context that such terms mean only the parent company and excludes its subsidiaries.

eGain and the eGain®

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We have operations in the US, UK, and India.

In December 2019, a novel strain of coronavirus (COVID-19) was first reported in Wuhan, China.

In March 2020, the World Health Organization characterized the outbreak of COVID-19 as a global pandemic, and the virus continues to spread in areas where we operate and sell our products and services.

Several public health organizations have recommended, and many local governments have implemented, certain measures to slow and limit the transmission of COVID-19, including shelter-in-place and social distancing orders, which has resulted in a significant deterioration of economic conditions in the countries in which we operate.

The impact of COVID-19 and the related disruptions caused to the global economy and our business did not have a material adverse impact on our business during the quarter ended March 31, 2020.

However, the spread of the COVID-19 virus caused us to modify our business practices, including implementing work-from-home policies and restricting travel by our employees, among other things.

In response to the outbreak of COVID-19, we have taken the following measures to date:

Implemented work-from-home and social distancing policies throughout our organization;

Suspended all employee travel;

Cancelled certain sales and marketing events;

Looked to our customer’s needs to best support their operations during this crisis.

The effect of the COVID-19 pandemic, may not be fully reflective in our results of operations and overall financial performance until further periods, if at all.

The impact, if any, of operational changes we may implement is uncertain, but changes we have implemented as of the filing date have not affected and are not expected to affect our ability to maintain operations.

We will continuously monitor the situation to determine what actions may be necessary or appropriate to address the impact of the COVID-19 pandemic, which may include actions mandated or recommended by federal, state or local government authorities.

See our “Risk Factors”

for further discussion of the possible impact of the COVID-19 pandemic on or business.

Key Financial Measures

We monitor the key financial performance measures set forth below as well as cash and cash equivalents and available debt capacity, which are discussed in Liquidity and Capital Resources, to help us evaluate trends, establish budgets, measure the effectiveness of our sales and marketing efforts and assess operational effectiveness and efficiencies.

SaaS Revenues

With our transition to a SaaS only business model, we believe SaaS revenue better reflects our business momentum and to analyze progress, we disaggregate our subscription revenue growth between:

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Legacy revenue, which is defined as revenue from maintenance and support contracts on perpetual license arrangements that we no longer offer.

The following table presents a break out of subscription revenue between SaaS and legacy revenues for each of the following periods:

The following table presents a break out of subscription revenue between SaaS revenue and legacy revenue for each of the following periods:

Three Months Ended

Six Months Ended

Nine Months Ended

(in thousands)

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As we continue to shift to a SaaS only business model, substantially all of professional services revenue is now generated from our SaaS customer base.

We believe the combination of SaaS revenue and professional services is a useful measure to value our business on a forward-looking basis.

We believe the combination of SaaS and professional services revenue is a useful measure to value our business on a forward-looking basis.

The following table presents total SaaS and professional services revenue for each of the following periods:

Three Months Ended

Six Months Ended

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(in thousands)

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Nine Months Ended

Income from operations

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Our significant accounting policies are disclosed in our Notes to Condensed Consolidated Financial Statements in our Annual Report on Form 10-K for fiscal year ended June 30, 2019.

We have not had any material changes to our critical accounting policies and estimates during the six months ended December 31, 2019 as compared to those disclosed on our 10-K for fiscal year ended June 30, 2019 except for the adoption of ASC Topics 842 as discussed in this Quarterly Report on Form 10-Q.

We have not had any material changes to our critical accounting policies and estimates during the nine months ended March 31, 2020 as compared to those disclosed on our 10-K for fiscal year ended June 30, 2019 except for the adoption of ASC Topic 842 as discussed in this Quarterly Report on Form 10-Q.

We believe these policies are critical to the discussion of our financial condition and results of operations.

Sources of Revenues

Sources of Revenue

Our revenue is comprised of two categories, subscription and professional services.

Subscription includes SaaS revenue and legacy revenue.

SaaS includes revenue from cloud delivery arrangements, term licenses and embedded OEM royalties and associated support.

SaaS revenue includes revenue from cloud delivery arrangements, term licenses and embedded OEM royalties and associated support.

Legacy revenue is revenue associated with support contracts on perpetual license arrangements that we no longer offer.

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Remaining Performance Obligations

Remaining performance obligations represent contracted revenues that had not yet been recognized, and include billed deferred revenues, consisting of amounts invoiced to customers whether collected or uncollected which have not been recognized as revenues, as well as unbilled amounts that will be invoiced and recognized as revenues in future periods.

The transaction price allocated to the remaining performance obligation is influenced by a variety of factors, including seasonality, timing of renewals, average contract terms and foreign currency rates.

Remaining performance obligations represent contracted revenue that had not yet been recognized, and include billed deferred revenue, consisting of amounts invoiced to customers whether collected or uncollected which have not been recognized as revenue, as well as unbilled amounts that will be invoiced and recognized as revenue in future periods.

As of March 31, 2020, our remaining performance obligations were $64.3 million, of which we expect to recognize $41.9 million and $22.4 million as revenue within one year and beyond one year, respectively.

We expect our remaining performance obligations to change quarterly for several reasons including the timing of new contracts and renewals, duration and size of our subscription and support arrangements, variable billing cycles and foreign exchange rate fluctuation.

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Costs capitalized related to new revenue contracts are generally deferred and amortized on a straight-line basis over a period of benefit that we estimate to be five years.

We determine the period of benefit by taking into consideration the period from initial contract through renewal, which constitutes the length of our customer relationship or customer life.

We determine the period of benefit by taking into consideration the

period from initial contract through renewal, which constitutes the length of our customer relationship or customer life.

Amortization of costs capitalized related to new revenue contracts is included as a component of sales and marketing expense in our operating results.

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Six Months Ended

Nine Months Ended

Professional services

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subscription and professional services revenue.

We further breakdown subscription revenue into SaaS revenue and legacy revenue, with SaaS revenue being a key metric.

The following table presents our subscription and professional services revenue during the three and six months ended December 31, 2019 and 2018, respectively:

We further break down subscription revenue into SaaS revenue and legacy revenue, with SaaS revenue being a key metric.

The following table presents our subscription and professional services revenue during the three and nine months ended March 31, 2020 and 2019, respectively:

Three Months Ended

Six Months Ended

Nine Months Ended

(in thousands)

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Total revenue

Total revenue increased $451,000 and $1.9 million during the three and six months ended December 31, 2019, compared to the same periods in 2018, respectively, due to an increase in SaaS revenue of $2.2 million and $5.0 million during the three and six months ended December 31, 2019, compared to the same periods in 2018.

Total revenue increased $1.4 million and $3.3 million during the three and nine months ended March 31, 2020, compared to the same periods in fiscal year 2019, respectively, due to an increase in SaaS revenue of $3.0 million and $8.1 million during the three and nine months ended March 31, 2020, compared to the same periods in fiscal year 2019.

This increase was partially offset by a decline in our legacy revenue as we continue to migrate legacy perpetual license customers to our SaaS model and a decline in professional service revenue as we continue to see a reduction in time required for an average implementation project, as a result of the improvements to our product deployment process.

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We recalculate our current period results using the comparable prior period exchange rates to exclude the impact of foreign exchange rate fluctuation.

Foreign exchange rate fluctuation resulted in an increase of $70,000 and a decrease of $273,000 in total revenue during the three months ended December 31, 2019 and 2018, respectively.

Foreign exchange rate fluctuation resulted in decreases of $362,000 and $342,000 for the six months ended December 31, 2019 and 2018, respectively.

Foreign exchange rate fluctuation resulted in an increase of $61,000 and a decrease of $449,000

in total revenue during the three months ended March 31, 2020 and 2019, respectively.

Foreign exchange rate fluctuation resulted in decreases of $534,000 and $792,000 for the nine months ended March 31, 2020 and 2019, respectively.

Subscription Revenue

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(in thousands)

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SaaS revenue includes revenue from cloud delivery arrangements, term licenses and embedded OEM royalties and associated support.

Revenues from SaaS increased by $2.2 million and $5.0 million during the three and six months ended December 31, 2019, respectively, compared to the same periods in 2018.

SaaS revenue represents 77% and 75% of total revenue for the three and six months ended December 31, 2019, respectively, compared to the same periods in 2018.

This represented an increase in SaaS revenue of 19% and 24% for the three and six months ended December 31, 2019, respectively, compared to the same periods in 2018.

Excluding an increase of $65,000 due to foreign exchange rate fluctuation, SaaS revenues increased by $2.2 million during the three months ended December 31, 2019 as compared to the comparable period in 2018.

Excluding a decrease of $188,000 due to foreign exchange fluctuation, SaaS revenues increased by $5.2 million during the six months ended December 31, 2019 as compared to the comparable period in 2018.

Revenue from SaaS increased by $3.0 million and $8.1 million during the three and nine months ended March 31, 2020, respectively, compared to the same periods in fiscal year 2019.

SaaS revenue represents 81% and 77% of total revenue for the three and nine months ended March 31, 2020, respectively, compared to the same periods in fiscal year 2019.

This represented an increase in SaaS revenue of 26% and 24% for the three and nine months ended March 31, 2020, respectively, compared to the same periods in fiscal year 2019.

Excluding an increase of $152,000 due to foreign exchange rate fluctuation, SaaS revenue increased by $2.9 million during the three months ended March 31, 2020 as compared to the same periods in fiscal year 2019.

Excluding a decrease of $265,000 due to foreign exchange fluctuation, SaaS revenue increased by $8.3 million during the nine months ended March 31, 2020 as compared to the same periods in fiscal year 2019.

In connection with our SaaS transition, we are actively migrating our remaining perpetual license clients to SaaS and continue to sell SaaS to new customers.

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Three Months Ended

Six Months Ended

Nine Months Ended

(in thousands)

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Legacy revenue is associated with license, maintenance and support contracts on perpetual license arrangements that we no longer offer.

We experienced a decrease of $1.7 million and $2.7 million during the three and six months ended December 31, 2019, respectively, compared to the same periods in 2018.

We experienced decreases of $1.4 million and $4.1 million during the three and nine months ended March 31, 2020, respectively, compared to the same periods in fiscal year 2019.

This decrease was primarily due to our focus in migrating our legacy customers to SaaS.

We expect these legacy fees to continue to decline in future quarters.

Excluding decreases of $12,000 and $141,000 due to foreign exchange rate fluctuation, legacy revenues decreased by $1.7 million and $2.5 million during the three and six months ended December 31, 2019, respectively, compared to the comparable periods in 2018.

Excluding decreases of $59,000 and $203,000 due to foreign exchange rate fluctuation, legacy revenue decreased by $1.4 million and $3.9 million during the three and nine months ended March 31, 2020, respectively, compared to the same periods in fiscal year 2019.

Professional Services Revenue

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(in thousands)

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Professional services revenue includes consulting, implementation and training.

Revenues from professional services decreased by $69,000 and $425,000 during the three and six months ended December 31, 2019, respectively, compared to the same periods in 2018.

Revenue from professional services decreased by $251,000 and $675,000 during the three and nine months ended March 31, 2020, respectively, compared to the same periods in fiscal year 2019.

These decreases were primarily due to continued improvements in our product deployment process resulting in a reduction in the time required for an average implementation project.

As we continue to onboard new customers and migrate legacy customers to SaaS, we expect the time required for product deployment and implementation projects to decrease.

Excluding an increase of $17,000 and a decrease of $33,000 due to foreign exchange rate fluctuation, professional services revenues decreased by $86,000 and $392,000 during the three and six months ended December 31, 2019, respectively, compared to the comparable periods in 2018.

Excluding decreases of $31,000 and $66,000 due to foreign exchange rate fluctuation, professional services revenue decreased by $220,000 and $609,000 during the three and nine months ended March 31, 2020, respectively, compared to the same periods in fiscal year 2019.

Revenue by Geography

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Total revenue

Revenue from domestic sales increased by 9% from $10.1 million during the three months ended December 31, 2018 to $11.0 million during the three months ended December 31, 2019 due to increases of (i) $2.2 million in SaaS revenue, and (ii) $35,000 in professional services revenue;

Revenue from domestic sales increased by 19% from $9.7 million during the three months ended March 31, 2019 to $11.5 million during the three months ended March 31, 2020 due to increases of (i) $3.0 million in SaaS revenue and (ii) $28,000 in professional services revenue;

partially offset by a decrease of $1.2 million in legacy revenue.

Revenue from domestic sales increased by 11% from $18.5 million during the six months ended December 31, 2018 to $20.6 million during the six months ended December 31, 2019 due to an increase of $4.3 million in SaaS revenue;

Revenue from domestic sales increased by 14% from $28.2 million during the nine months ended March 31, 2019 to $32.0 million during the nine months ended March 31, 2020 due to an increase of $7.3 million in SaaS revenue;

partially offset by decreases of (i) $3.2 million in legacy revenue, and (ii) $272,000 in professional services revenue.

Revenue from international sales decreased by 6% from $7.6 million for the three months ended December 31, 2018 to $7.2 million during the three months ended December 31, 2019, due to decreases of (i) $381,000 in legacy revenue and (ii) $103,000 in professional services revenue;

partially offset by an increase of $27,000 in SaaS revenue.

Revenue from international sales decreased by 1% from $14.9 million for the six months ended December 31, 2018 to $14.8 million during the six months ended December 31, 2019, due to decreases of (i) $720,000 in legacy revenue and (ii) $125,000 in professional services revenue;

Revenue from international sales decreased by 6% from $7.3 million for the three months ended March 31, 2019 to $6.9 million during the three months ended March 31, 2020, due to decreases of (i) $279,000 in professional services revenue, (ii) $178,000 in legacy revenue, and (iii) $9,000 in SaaS revenue.

Revenue from international sales decreased by 2% from $22.2 million for the nine months ended March 31, 2019 to $21.7 million during the nine months ended March 31, 2020, due to decreases of (i) $898,000 in legacy revenue and (ii) $403,000 in professional services revenue;

partially offset by an increase of $751,000 in SaaS revenue.

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(in thousands)

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Percentage of total revenue

Cost of subscription revenues consists primarily of expenses related to our cloud services and providing support to our customers.

Cost of subscription revenue consists primarily of expenses related to our cloud services and providing support to our customers.

These expenses are comprised of cloud computing costs, personnel-related costs directly associated with cloud operations, and customer support, including salaries, benefits, bonuses and stock-based compensation and allocated overhead.

Cost of subscription revenues decreased by $135,000 and increased by $220,000 during the three and six months ended December 31, 2019, respectively, from the comparable periods in 2018.

Cloud-computing costs increased $193,000 and $734,000 during the three and six months ended December 31, 2019, respectively, from the comparable periods in 2018.

This was partially offset by decreases in personnel-related costs of $314,000 and $481,000 during the three and six months ended December 31, 2019, respectively, from the comparable periods in 2018.

Excluding an increase of $18,000 and a decrease of $14,000 due to foreign exchange rate fluctuation, cost of subscription revenues decreased by $153,000 and increased by $234,000 during the three and six months ended December 31, 2019, respectively, from the comparable periods in 2018.

Cost of subscription revenue increased by $114,000 and $335,000 during the three and nine months ended March 31, 2020, respectively, from the same periods in fiscal year 2019.

Cloud-computing costs increased $404,000 and $1.1 million during the three and nine months ended March 31, 2020, respectively, from the same periods in fiscal year 2019.

This was partially offset by decreases in personnel-related costs of $276,000 and $754,000 during the three and nine months ended March 31, 2020, respectively, compared to the same periods in fiscal year 2019.

Excluding decreases of $30,000 and $48,000 due to foreign exchange rate fluctuation, cost of subscription revenue increased by $144,000 and $383,000 during the three and nine months ended March 31, 2020, respectively, from the same periods in fiscal year 2019.

Excluding any future foreign exchange rate fluctuation, we expect our cost of subscription revenue to increase in absolute dollar terms but expect subscription revenue gross margins to improve.

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Cost of professional services consists primarily of personnel-related costs directly associated with our professional services and training departments, including salaries, benefits, bonuses, and stock based-compensation and allocated overhead.

Cost of professional services decreased $163,000 and $439,000 during the three and six months ended December 31, 2019, respectively, from the comparable periods in 2018.

These decreases were primarily due to decreases in outside consulting and personnel-related costs of $170,000 and $411,000, during the three and six months ended December 31, 2019, respectively, because of our increased focus to reduce the time required for an average implementation project.

Excluding an increase of $5,000 and a decrease of $28,000 due to foreign exchange rate fluctuation, cost of professional services revenues decreased by $168,000 and $411,000 during the three and six months ended December 31, 2019, respectively, from the comparable periods in 2018.

Cost of professional services increased $89,000 and decreased by $350,000 during the three and nine months ended March 31, 2020, respectively, compared to the same periods in fiscal year 2019.

The increase for the three months ended March 31, 2020 was primarily due to an increase in personnel-related costs of $100,000.

The decrease for the nine months ended March 31, 2020 was primarily due to decreases of (i) $160,000 in outside consulting costs and (ii) $140,000 in personnel-related costs.

Excluding decreases of $19,000 and $50,000 due to foreign exchange rate fluctuation, cost of professional services revenue increased by $108,000 and decreased by $300,000 during the three and nine months ended March 31, 2020, respectively, compared to the same periods in fiscal year 2019.

Operating Expenses

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Research and development expense also includes outside consulting services contracted for research and development, and amortization of intangible assets.

Research and development expense increased 13% to $4.1 million for the three months ended December 31, 2019, from $3.6 million in the comparable period in 2018.

Excluding an increase of $8,000 due to foreign exchange rate fluctuation between the U.S.

Research and development expense increased 16% to $4.2 million for the three months ended March 31, 2020, from $3.6 million in the same period in 2019.

Excluding a decrease of $40,000 due to foreign exchange rate fluctuation between the U.S.

Dollar, Euro, British Pound and Indian Rupee, research and development expense increased primarily due to increases of (i) $593,000 in personnel-related costs and (ii) $30,000 of outside consulting costs.

Research and development expense increased 13% to $8.1 million for the six months ended December 31, 2019, from $7.2 million in the comparable period in 2018.

Research and development expense increased 14% to $12.3 million for the nine months ended March 31, 2020, from $10.8 million in the same period in fiscal year 2019.

Excluding a decrease of $78,000 due to foreign exchange rate fluctuation between the U.S.

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Sales and marketing expenses also include amortization of commissions paid to our sales staff, lead generation activities, advertising, trade show and other promotional costs and, to a lesser extent, occupancy costs and related overhead.

Sales and marketing expenses increased 10% to $4.8 million for the three months ended December 31, 2019, from $4.4 million in the comparable period in 2018.

Excluding an increase of $24,000 due to foreign exchange rate fluctuation between the U.S.

Dollar, Euro, British Pound and Indian Rupee, sales and marketing expense increased primarily due to increases of (i) $309,000 in personnel-related expenses;

(ii) $72,000 in marketing program expenses;

and (iii) $25,000 in outside consulting and other costs.

Sales and marketing expenses increased 14% to $9.6 million for the six months ended December 31, 2019, from $8.4 million in the comparable period in 2018.

Sales and marketing expenses increased 17% to $5.1 million for the three months ended March 31, 2020, from $4.3 million in the same period in 2019.

Excluding a decrease of $37,000 due to foreign exchange rate fluctuation between the U.S.

Dollar, Euro, British Pound and Indian Rupee, sales and marketing expense increased primarily due to increases of (i) $1.0 million in personnel-related expenses;

(ii) $131,000 in marketing program expenses;

and (iii) $76,000 in outside consulting costs.

Dollar, Euro, British Pound and Indian Rupee, sales and marketing expense increased primarily due to increases of (i) $747,000 in personnel-related expenses and (ii) $24,000 in marketing program expenses.

Sales and marketing expenses increased 15% to $14.6 million for the nine months ended March 31, 2020, from $12.7 million in the same period in fiscal year 2019.

Excluding a decrease of $114,000 due to foreign exchange rate fluctuation between the U.S.

Dollar, Euro, British Pound and Indian Rupee, sales and marketing expense increased primarily due to increases of (i) $1.8 million in personnel-related expenses, (ii) $155,000 in marketing program expenses, and (iii) $85,000 in outside consulting costs.

Excluding any future foreign exchange rate fluctuation, we expect our sales and marketing expense to increase as a percentage of total revenue in future quarters based on our current business plan.

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General and administrative expenses also include fees for professional services, provision for doubtful accounts and, to a lesser extent, occupancy costs and related overhead.

General and administrative expenses decreased less than 1% to $2.0 million for the three months ended December 31, 2019, from the comparable period in 2018.

Excluding an increase of $3,000 due to foreign exchange rate fluctuation between the U.S.

Dollar, Euro, British Pound and Indian Rupee, general and administrative expense decreased primarily due to decreases of $130,000 in accounting and audit, bad debt, and investor relation expenses;

partially offset by increases of (i) $101,000 in legal costs;

(ii) $11,000 in personnel-related costs;

and (iii) $5,000 in outside consulting costs.

General and administrative expenses decreased 3% to $4.1 million for the six months ended December 31, 2019, from $4.2 million in the comparable period in 2018.

General and administrative expenses decreased 7% to $1.8 million for the three months ended March 31, 2020, from $2.0 million in the same period in 2019.

Excluding a decrease of $50,000 due to foreign exchange rate fluctuation between the U.S.

Dollar, Euro, British Pound and Indian Rupee, general and administrative expense decreased primarily due to decreases of (i) $120,000 in accounting and audit, bad debt, and investor relation expenses, and (ii) $43,000 in outside consulting;

partially offset by increases of (i) $44,000 in personnel-related costs, and (ii) $16,000 in legal costs.

Dollar, Euro, British Pound and Indian Rupee, general and administrative expense decreased primarily due to decreases of (i) $145,000 in legal costs, and (ii) $70,000 in bad debt expenses;

partially offset by increases of (x) $75,000 in personnel-related costs, (y) $31,000 in accounting and audit expenses, and (z) $21,000 in outside consulting costs.

General and administrative expenses decreased 4% to $5.9 million for the nine months ended March 31, 2020, from $6.2 million in the same period in fiscal year 2019.

Excluding a decrease of $41,000 due to foreign exchange rate fluctuation between the U.S.

Dollar, Euro, British Pound and Indian Rupee, general and administrative expense decreased primarily due to decreases of (i) $135,000 in bad debt expenses, (ii) $129,000 in legal costs, (iii) $26,000 in accounting and audit expenses, and (vi) $22,000 in outside consulting costs;

partially offset by an increase of $87,000 in personnel-related costs.

Excluding any future foreign exchange rate fluctuation, we expect our general and administrative expense to increase or remain relatively consistent as a percentage of total revenue in future quarters based on our current business plan.

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Operating margin

Income from operations was $2.0 million with an operating margin of 11% during the three months ended December 31, 2019.

Income from operations during the three months ended December 31, 2019 included (i) $482,000 of stock-based compensation;

Income from operations was $1.8 million with an operating margin of 10% during the three months ended March 31, 2020.

Income from operations during the three months ended March 31, 2020 included (i) $460,000 of stock-based compensation;

(ii) $210,000 of amortization of costs capitalized to obtain revenue contracts;

and (iii) $67,000 of amortization of intangible assets.

Income from operations was $3.1 million with an operating margin of 9% during the six months ended December 31, 2019.

Income from operations during the six months ended December 31, 2019 included (i) $933,000 of stock-based compensation;

Income from operations was $4.9 million with an operating margin of 9% during the nine months ended March 31, 2020.

Income from operations during the nine months ended March 31, 2020 included (i) $1.4 million of stock-based compensation;

(ii) $607,000 of amortization of costs capitalized to obtain revenue contracts;

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Interest income (expense), net consists of interest earned on money market accounts and interest paid on bank borrowings.

Interest income (expense), net was income of $124,000 and expense of $139,000 during the three months ended December 31, 2019 and 2018, respectively.

Interest income (expense), net was income of $271,000 and expense of $329,000 during the six months ended December 31, 2019 and 2018, respectively.

Interest income (expense), net changed from expense to income in the current three and six months ended December 31, 2019, compared to the same periods in 2018, primarily due to interest earned from money market accounts and absence of interest paid on bank borrowings which have since been repaid.

We expect interest income in future quarters due to increased cash balances in favorable interest bearing accounts.

Interest income (expense), net was income of $113,000 and expense of $120,000 during the three months ended March 31, 2020 and 2019, respectively.

Interest income (expense), net was income of $384,000 and expense of $449,000 during

the nine months ended March 31, 2020 and 2019, respectively.

Interest income (expense), net changed from expense to income in the three and nine months ended March 31, 2020, compared to the same periods in fiscal year 2019, primarily due to interest earned from money market accounts and absence of interest paid on bank borrowings which have since been repaid.

We expect interest income in future quarters to remain relatively constant, as we continue to see volatility in interest rates for the duration of and possibly beyond the COVID-19 pandemic.

Other Income (Expense), Net

Other income (expense), net was expense of $186,000 and $6,000 during the three months ended December 31, 2019 and 2018, respectively.

Other income (expense), net was expense of $21,000 and income of $11,000 during the six months ended December 31, 2019 and 2018, respectively.

Other income (expense), net was income of $65,000 and expense of $199,000 during the three months ended March 31, 2020 and 2019, respectively.

Other income (expense), net was income of $44,000 and expense of $189,000 during the nine months ended March 31, 2020 and 2019, respectively.

Other income (expense), net primarily included foreign exchange rate fluctuations on international trade receivables.

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Due to cumulative losses, we maintain a valuation allowance against U.S.

deferred tax assets as of December 31, 2019.

deferred tax assets as of March 31, 2020.

We consider all available evidence, both positive and negative, including but not limited to earnings history, projected future outcomes, industry and market trends and the nature of each of the deferred tax assets.

We recorded an income tax benefit of $33,000 and $16,000 for the three months ended December 31, 2019 and 2018, respectively.

We recorded an income tax provision of $156,000 and an income tax benefit of $40,000 for the six months ended December 31, 2019 and 2018, respectively.

We recorded income tax provisions of $68,000 and $72,000 for the three months ended March 31, 2020 and 2019, respectively.

We recorded income tax provisions of $224,000 and $32,000 for the nine months ended March 31, 2020 and 2019, respectively.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (CARES Act) was signed into law and we are continuing to analyze the impact on our financial statements but do not expect a material impact on our provision for income taxes.

Liquidity and Capital Resources

At December 31, 2019 and 2018, our principal sources of liquidity were cash and cash equivalents, and accounts receivable totaling $54.5 million and $52.3 million, respectively.

Our cash, cash equivalents and restricted cash were $40.3 million and $31.9 million as of December 31, 2019 and June 30, 2019, respectively.

Based upon our current business plan, we believe that existing capital resources will enable us to maintain current and planned operations for the next 12 months.

Our expectations as to our future cash flows and our future cash balances are subject to a number of assumptions, including assumptions regarding anticipated increases in our revenue, the mix of new cloud and license business, our ability to retain existing customers and customer purchasing and payment patterns, many of which are beyond our control.

For the six months ended December 31, 2019 and 2018, our cash flows were as follows (in thousands):

Six Months Ended

At March 31, 2020 and 2019, our principal sources of liquidity were cash and cash equivalents, and accounts receivable totaling $54.0 million and $52.3 million, respectively.

Our cash, cash equivalents and restricted cash were $40.7 million and $31.9 million as of March 31, 2020 and June 30, 2019, respectively.

Our expectations as to our future cash flows and our future cash balances are subject to a number of assumptions and uncertainties, including, but not limited to, the effects of COVID-19 pandemic, assumptions regarding anticipated increases in our revenue, our ability to retain existing customers and customer purchasing and payment patterns.

We anticipate our current cash and cash equivalent balances and anticipated cash flow from operations will be sufficient to meet our liquidity needs.

For the nine months ended March 31, 2020 and 2019, our cash flows were as follows (in thousands):

Nine Months Ended

Net cash provided by operating activities

Net cash used in investing activities

Net cash provided by (used in) financing activities

Net cash provided by financing activities

Cash provided by operating activities mainly consists of net income adjusted for non-cash expense items such as depreciation and amortization, expense associated with stock-based awards, the timing of employee related costs including commissions and bonus payments, and changes in operating assets and liabilities during the year.

Net cash provided by operating activities increased by $3.9 million during the six months ended December 31, 2019, from the comparable period in 2018, driven primarily by the timing of customer payments for accounts receivable and increased net income partially offset by decreases in deferred revenue balances related to the timing of prepayments received from customers for new cloud arrangements and the renewal of existing cloud and support arrangements for the six months ended December 31, 2019.

Net cash used in investing activities decreased by $74,000 during the six months ended December 31, 2019, from the comparable period in 2018, driven primarily by activities related to the sale or purchase of equipment for new employees and facility expenditures.

Net cash provided by operating activities increased by $482,000 during the nine months ended March 31, 2020, from the same period in fiscal year 2019, driven primarily by the timing of customer payments for accounts receivable received from customers for new cloud arrangements and the renewal of existing cloud and support arrangements for the nine months ended March 31, 2020.

Net cash used in investing activities increased by $67,000 during the nine months ended March 31, 2020, from the same period in fiscal year 2019, driven primarily by activities related to the purchase of equipment for new employees and facility expenditures.

Historically, cash used in investing activities has been used to purchase equipment and software to support our business and growth.

Net cash provided by financing activities during the six months ended December 31, 2019 consisted primarily of proceeds from the exercise of employee stock options and employee stock purchase plan.

Net cash used by financing during the six months ended December 31, 2018 consisted primarily of bank payments, net of bank borrowings of $4.4 million;

partially offset by proceeds from the exercise of employee stock options of $263,000.

Net cash provided by financing activities decreased by $11.1 million during the nine months ended March 31, 2020, from the same period in fiscal year 2019 primarily due to net proceeds of $20.4 million in a follow-on public offering in 2019;

partially offset by bank payments, net of bank borrowings of $9.4 million.

Our current proceeds consist primarily of proceeds from the exercise of employee stock options and our employee stock purchase plan.

There was no significant change to our contractual obligations since June 30, 2019.

Off-Balance Sheet Arrangements

As of December 31, 2019, we had no significant off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.

As of March 31, 2020, we had no significant off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.

New Accounting Pronouncements

2 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements