What changed in this filing

/stocks — the workspaceLOADING

Item 5. Market for Registrant’s Common Equity

2020-09-11 compared with 2019-09-12 · 8 added, 430 removed, 45 unchanged (91% of the section changed)

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Our common stock is traded on the Nasdaq Capital Market under the symbol “EGAN”.

As of September 10, 2020, there were approximately 143 stockholders of record.

1 unchanged sentence

We currently anticipate that we will retain all available funds for use in the operation of our business and do not intend to pay any cash dividends in the foreseeable future.

In addition, the terms of our Credit Agreement restrict the payment of dividends.

Stock Performance Graph

The following shall not be deemed incorporated by reference into any of our other filings under the Securities Exchange Act of 1934, as amended, or the Securities Act of 1933, as amended.

The graph below compares the cumulative total stockholder return on our common stock with the cumulative total return on the Standard & Poor’s 500 Index and the Nasdaq Composite Total Return Index for each of the last five fiscal years ended June 30, 2019, assuming an initial investment of $100.

Data for the Standard & Poor’s 500 Index and the Nasdaq Composite Total Return Index assume no dividends.

The comparisons in the graph below are based upon historical data and are not indicative of, nor intended to forecast, future performance of our common stock.

5 unchanged sentences

SELECTED FINANCIAL DATA

The selected consolidated financial data should be read in conjunction with the information under “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations,”

our consolidated financial statements and the related notes which are included in “Item 8.

Financial Statements and Supplementary Data.”

The selected consolidated financial data should be read in conjunction with the information under “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations,” our consolidated financial statements and the related notes which are included in “Item 8.

Financial Statements and Supplementary Data.”

Year ended June 30,

12 unchanged sentences

Income (loss) from operations

Interest expense, net

Interest income (expense), net

Other income (expense), net

16 unchanged sentences

Long-term debt (bank borrowings and capital lease obligations)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of eGain’s financial condition and results of operations should be read together with the consolidated financial statements and related notes in this Annual Report on Form 10-K.

This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties.

These risks and uncertainties may cause actual results to differ materially from those discussed in the forward-looking statements.

eGain is an innovative software-as-a service (SaaS) provider of customer engagement solutions in a digital world.

Our business-to-consumer (B2C) customers quickly operationalize their engagement strategies using our feature-rich, comprehensive and open platform to optimize the experiences of their agents, businesses, and customers.

Connected artificial intelligence (AI) knowledge and analytics capabilities automate self-service across touch points and augment a digital-first, omnichannel agent desktop to reduce service cost, increase upsell, and improve business agility.

Hundreds of customers around the world, primarily in financial services, telecommunications, retail, government, healthcare and utilities, rely on eGain to provide a unified customer engagement hub.

In fiscal year 2017, we completed our transition from a hybrid model where we sold both SaaS and perpetual license solutions to a SaaS only business model (SaaS Transition).

Today we only sell SaaS to new clients and are actively migrating our remaining perpetual license clients to SaaS.

We believe that our go-forward SaaS business model affords us recurring revenue visibility and more predictability.

Our experience confirmed our views that SaaS clients adopt our product innovation much faster than in the perpetual license model and enjoy better service levels.

We believe our SaaS clients enjoy up to 50% faster time to value from their eGain investment as opposed to those using our perpetual license solutions.

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 and thus, we disaggregate our subscription revenue growth between:

SaaS revenue, which is defined as revenue from cloud delivery arrangements, term licenses and embedded OEM royalties and associated support;

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

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

Fiscal Year Ended June 30

(in thousands)

Legacy revenue

Total subscription revenue

As we continue to migrate our legacy perpetual license clients to SaaS, we expect our legacy revenue to continue to decline.

Non-GAAP Operating Income

Non-GAAP operating income (loss) is defined as operating income (loss), adjusted for the impact of stock-based compensation expense and amortization of acquired intangible assets.

Management believes that it is useful to exclude certain non-cash charges and non-core operational charges from non-GAAP operating income (loss) because (i) the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations;

and (ii) such expenses can vary significantly between periods as a result of the timing of new stock-based awards and acquisitions.

The presentation of the non-GAAP financial measures is not intended to be considered in isolation, or as a substitute for, or superior to, the financial information prepared and presented in accordance with generally accepted accounting principles in the United States of America (GAAP).

The following table presents a reconciliation of GAAP income (loss) from operations to non-GAAP income (loss) from operations for each of the following periods:

Fiscal Year Ended June 30

Income (loss) from operations

Stock-based compensation

Amortization of intangible assets

Non-GAAP income from operations

Critical Accounting Policies and Estimates

Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.

The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period.

We believe that the assumptions and estimates associated with revenue recognition, stock-based compensation, allowance for doubtful accounts, the valuation of goodwill and intangible assets, the valuation of deferred tax allowance, and legal contingencies have the greatest potential impact on our consolidated financial statements.

We evaluate these estimates on an ongoing basis.

Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

Actual results may differ from these estimates under different assumptions or conditions.

Sources of Revenues

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

Subscription includes SaaS revenue and legacy revenue.

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

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

Professional services include consulting, implementation and training.

Subscription Revenue

For our cloud delivery arrangements, our maintenance and support arrangements and our term license subscriptions that incorporate substantial cloud functionality, the combined performance obligation is recognized ratably over the contract term as the obligation is delivered.

For contracts involving distinct software licenses, the license performance obligation is satisfied at a point in time when control is transferred to the customer.

We typically invoice our customers in advance upon execution of the contract or subsequent renewals.

Invoiced amounts are recorded in accounts receivable, deferred revenue or revenue, depending on when control is transferred to our customers based on each arrangement.

The Company has a royalty revenue agreement with a customer related to the Company’s embedded intellectual property.

Under the terms of the agreement, the customer is to provide a combined fixed fee, per agent, for each software license sold containing the embedded software to the Company.

These embedded OEM royalties are included as subscription revenue.

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

However, since 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.

Professional Services Revenue

Professional services revenue includes system implementation, consulting and training.

The transaction price is allocated to various performance obligations based on their stand-alone selling prices.

Revenue allocated to each performance obligation is recognized as work is performed.

Our consulting and implementation service contracts are bid either on a time-and-materials basis or on a fixed-fee basis.

Fixed fees are generally paid on milestone billing at pre-determined points in the contract.

Amounts that have been invoiced are recorded in accounts receivable and in deferred revenue or revenue, depending on whether transfer of control to customers has occurred .

Training revenue that meets the criteria to be accounted for separately is recognized when training is provided.

Financial Impact of Topic 606

We adopted Topic 606 , as of July 1, 2018.

In addition, we adjusted the presentation of our consolidated statements of operations in connection with our cloud delivery model.

Through June 30, 2018, our revenue was classified as recurring, legacy license and professional services revenue.

In connection with our adoption of Topic 606 as of July 1, 2018, we classify our revenue as subscription and professional services revenue.

Our legacy license revenue, which has been declining due to our focus on cloud offerings, is included with subscription revenue.

The following table presents the financial impact between guidance under Topic 605 and newly adopted guidance under Topic 606 during the fiscal year ended June 30, 2019 (in thousands):

Reported under Topic 606

Reported under Topic 605

Income statement captions:

Subscription revenue

Professional services revenue

Total revenue

Total operating expenses

Net income (loss)

Remaining Performance Obligations

Remaining performance obligations represent contracted revenues that have 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 obligations are influenced by a variety of factors, including seasonality, timing of renewals, average contract terms and foreign currency rates.

As of June 30, 2019, our remaining performance obligations were $67.6 million of which we expect to recognize $42.7 million and $24.9 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.

We typically issue renewal invoices in advance of the renewal service period.

Depending on timing, the initial invoice and subsequent renewal invoices may occur in different quarters.

This may result in an increase or decrease to our accounts receivable and deferred revenue.

Costs Capitalized to Obtain Revenue Contracts

Under Topic 606, we capitalize incremental costs to obtain non-cancelable subscription, maintenance and support revenue contracts with amortization periods that may extend longer than the non-cancelable subscription and maintenance and support revenue contract terms.

We capitalize incremental costs of obtaining non-cancelable subscription and maintenance and support revenue contracts with amortization periods of one year or more.

The capitalized amounts consist primarily of sales commissions paid to our direct sales force.

Capitalized amounts also include (i) amounts paid to employees other than the direct sales force who earn incentive payouts under annual compensation plans that are tied to the value of contracts acquired and (ii) the associated payroll taxes and fringe benefit costs associated with the payments to our employees.

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.

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

Under Topic 605, we capitalized only commissions earned on initial software and support sales which were amortized ratably over the initial contract period averaging two years.

Stock-Based Compensation

We account for stock-based compensation in accordance with Accounting Standards Codification (ASC) 718, Compensation —

Stock Compensation .

Under the fair value recognition provisions of ASC 718, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as an expense over the vesting period.

Determining the fair value of the stock-based awards at the grant date requires significant judgment and the use of estimates, particularly surrounding Black-Scholes valuation assumptions such as stock price volatility and expected option lives.

We determine the appropriate measure of expected volatility by reviewing historic volatility in the share price of our common stock, as adjusted for certain events that management deems to be non-recurring and non-indicative of future events.

We base our estimate of expected life on the historical exercise behavior, cancellations of all past option grants made by us during the time period in which our common stock has been publicly traded, the contractual term, the vesting period and the expected remaining term of the option.

Based on our historical experience of option pre-vesting cancellations, we have assumed an annualized 12.50% forfeiture rate for our options.

We record additional expense if the actual forfeiture rate is lower than we estimated and record a recovery of prior expense if the actual forfeiture rate is higher than what we estimated.

Goodwill and Other Intangible Assets

We review goodwill annually for impairment or sooner whenever events or changes in circumstances indicate that it may be impaired.

These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, or sale or disposition of a significant portion of a reporting unit.

In addition, we evaluate purchased intangible assets to determine that all such assets have determinable lives.

We operate under a single reporting unit and accordingly, all of our goodwill is associated with the entire company.

We had no impairment for fiscal years ended June 30, 2019 and 2018.

Accounts Receivable and Allowance for Doubtful Accounts

We extend unsecured credit to customers on a regular basis.

Our accounts receivable is derived from revenue earned from customers and are not interest bearing.

We also maintain an allowance for doubtful accounts to reserve for potential uncollectible trade receivables.

We review our trade receivables by aging category to identify specific customers with known disputes or collectability issues.

We exercise judgment when determining the adequacy of these reserves as we evaluate historical bad debt trends, general economic conditions in the U.S.

and internationally, and changes in customer financial conditions.

If we make different judgments or utilize different estimates, then material differences may result in additional reserves for trade receivables, which would be reflected by charges in general and administrative expenses for any period presented.

We write-off a receivable after all collection efforts have been exhausted and the amount is deemed uncollectible.

As described in Note 1 of Notes to Consolidated Financial Statements included in Item 8 Financial Statements and Supplementary Data of this Annual Report, certain Company contracts have contractual billings which do not coincide with revenue recognized on the contract.

Unbilled accounts receivables are recorded when revenue recognized on the contract exceeds billings, pursuant to contract provisions, and become billable at contractually specified dates.

Lease agreements are evaluated to determine whether they are capital or operating leases in accordance with ASC 840, Leases .

When any one of the four test criteria in ASC 840 is met, the lease then qualifies as a capital lease.

Capital leases are capitalized at the lower of the net present value of the total amount payable under the leasing agreement (excluding finance charges) or the fair market value of the leased asset.

Capital lease assets are depreciated on a straight-line basis, over a period consistent with our normal depreciation policy for tangible fixed assets, but not exceeding the lease term.

Interest charges are expensed over the period of the lease in relation to the carrying value of the capital lease obligation.

Rent expense for operating leases, which may include free rent or fixed escalation amounts in addition to minimum lease payments, is recognized on a straight-line basis over the duration of each lease term.

Tax Legislation

On December 22, 2017, the U.S.

government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (Tax Act).

The Tax Act revised the taxation of U.S.

and multinational corporations which significantly reduced the statutory corporate U.S.

federal income tax rate from 35% to 21%, imposed limitations on the ability of corporations to deduct interest expense and made taxation changes on U.S.

multinational corporation’s foreign operations.

The provisions of the Tax Act are complex and likely will be subject to regulatory and administrative guidance.

As we have a fiscal year end of June 30, the lower corporate tax rate will be phased in, resulting in a U.S.

statutory federal rate of approximately 28% for our fiscal year 2018 and 21% for subsequent fiscal years.

As part of the transition to the new territorial tax system, the Tax Act imposed a one-time repatriation tax on the mandatory deemed repatriation of cumulative earnings of foreign subsidiaries.

In addition, the reduction of the U.S.

corporate tax rate will cause us to adjust our U.S.

deferred tax assets and liabilities to the lower federal base rate of 21%.

Because ASC 740-10-25-47 requires the effect of a change in tax laws or rates to be recognized as of the date of enactment, we remeasured our deferred tax assets and liabilities as well as our offsetting valuation allowance in our fiscal year 2018.

There was no impact to tax expense as the remeasurement of net deferred tax assets was completely offset by a corresponding change in valuation allowance.

The reduction to U.S.

deferred tax assets and the offsetting valuation allowance was $26.6 million.

We did not incur a tax liability from the deemed repatriation of accumulated foreign earnings due to a net overall accumulated deficit in foreign earnings and profits .

The Tax 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.

For the fiscal year ended June 30, 2019, we have $1.6 million of GILTI income inclusion and used our net operating losses to offset our taxable income.

For the fiscal year ended June 30, 2019, we did not incur any BEAT tax.

On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No.

118 (SAB 118) which provides guidance on accounting for the tax effects of the Tax Act.

SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740 for the year ended December 31, 2017.

In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete.

We have considered SAB 118, and we believe the accounting for the change of the U.S.

statutory tax rate to our deferred tax balances under ASC 740 is complete and is appropriately reflected in our consolidated financial statements during fiscal year 2019.

Fiscal Year 2019 Compared with Fiscal Year 2018

Our effective tax rate for fiscal years 2019 and 2018 was a tax provision rate of 16.7% and tax benefit rate of 8.6%, respectively.

The change in our effective tax rate for fiscal year 2019 as compared to fiscal year 2018 was primarily due to the rate change related to the enactment of the Tax Act in fiscal year 2018, the change in valuation allowance, foreign rate differential, stock-based compensation and the research and development tax credit.

The income before income tax benefit (provision) between the U.S.

and foreign countries impacted our effective tax rate as a result of the geographic distribution and customer demand related to our products and services.

In fiscal year 2019, our U.S.

and foreign income before our net income tax benefit was $2.9 million and $2.1 million, respectively.

In fiscal year 2018, our U.S.

and foreign loss before our net income tax benefit was $587,000 and $1.6 million, respectively.

Deferred Tax Valuation Allowance

When we prepare our consolidated financial statements, we estimate our income tax liability for each of the various jurisdictions where we conduct business.

This requires us to estimate our actual current tax exposure and to assess temporary differences that result from differing treatment of certain items for tax and accounting purposes.

The net deferred tax assets are reduced by a valuation allowance if, based upon weighted available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

We make significant judgments to determine our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance to be recorded against our net deferred tax assets.

As of June 30, 2019, we had a valuation allowance of approximately $54.4 million of which approximately $51.4 million was attributable to U.S.

and state net operating losses and domestic research and development credit carryforwards.

We apply ASC 740, Income Taxes , in determining any uncertain tax positions.

The guidance seeks to reduce the diversity in practice associated with certain aspects of measurement and recognition in accounting for income taxes and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position that an entity takes or expects to take in a tax return.

Additionally, ASC 740 provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

Under ASC 740, an entity may only recognize or continue to recognize tax positions that meet a “more likely than not”

In accordance with our accounting policy, we recognize accrued interest and penalties related to unrecognized tax benefits as a component of other income (expense), net in the consolidated statements of operations.

We consider the earnings of certain non-U.S.

subsidiaries to be indefinitely invested outside the United States, on the basis of estimates, that future domestic cash generation will be sufficient to meet future domestic cash needs and our specific plans for reinvestments of those subsidiary earnings.

We have not recorded a deferred tax liability related to the U.S.

state income taxes and foreign withholding taxes on approximately $13.8 million of undistributed earnings of foreign subsidiaries indefinitely invested outside the United States.

If we decide to repatriate the foreign earnings, we would need to adjust our income tax provision in the period we determined that the earnings will no longer be indefinitely invested outside the United States.

Fair Value of Financial Instruments

Our financial instruments consist of cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued liabilities.

We do not have any derivative financial instruments.

We believe the reported carrying amounts of these financial instruments approximate fair value, based upon their short-term nature and comparable market information available at the respective balance sheet dates.

The carrying value of our bank borrowings and capital lease obligations

approximates fair value based on the borrowing rates currently available to us for loans and capital leases with similar terms.

Results of Operations

The following table sets forth certain items reflected in our consolidated statements of operations expressed as a percent of total revenue for the periods indicated:

Professional services

Total revenue

Cost of revenue:

Cost of subscription

Cost of professional services

Total cost of revenue

Operating Expenses:

Research and development

Sales and marketing

General and administrative

Total operating expenses

Income (loss) from operations

We classify our revenue into two categories;

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 fiscal years indicated:

Fiscal Year Ended June 30,

(in thousands)

Professional services

Total revenue

Recurring Revenue

Total revenue increased $5.9 million during the fiscal year ended June 30, 2019, largely due to increased revenues from SaaS of $12.1 million 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.

Our revenue was impacted by foreign exchange rate fluctuation between the U.S.

Dollar, Euro, and British Pound.

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 a decrease of $1.2 million and an increase of $1.7 million in total revenue during the fiscal years ended June 30, 2019 and 2018, respectively.

Additionally, our revenue was impacted by the adoption of Topic 606 during the fiscal year ended June 30, 2019.

We adopted the new revenue guidance as of July 1, 2018 with no comparable adjustments to the prior period.

Subscription Revenue

Fiscal Year Ended June 30,

(in thousands)

Percentage of total revenue

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

Revenues from SaaS increased by $12.1 million during the fiscal year ended June 30, 2019, as compared to the comparable period in 2018.

SaaS revenue was $44.8 million and $32.7 million during the fiscal years ended June 30, 2019 and 2018, respectively, which represented an increase of 37% or $12.1 million.

SaaS revenue represents 67% and 53% of total revenue for the fiscal years ended June 30, 2019 and 2018, respectively.

Excluding a decrease of $614,000 due to foreign exchange rate fluctuation, SaaS revenue increased by $12.7 million during the fiscal year ended June 30, 2019, as compared to the comparable period in 2018.

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.

We expect our SaaS revenue to increase in future periods.

Legacy Revenue

Fiscal Year Ended June 30,

(in thousands)

Legacy revenue

Percentage of total revenue

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

We experienced a decrease of $3.4 million for the fiscal year ended June 30, 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 periods.

Legacy revenue was $15.2 million and $18.7 million during the fiscal years ended June 30, 2019 and 2018, respectively, which represented a decrease of 18% or $3.4 million.

Legacy revenue represents 23% and 30% of total revenue for the fiscal years ended June 30, 2019 and 2018, respectively.

Excluding a decrease of $407,000 due to foreign exchange rate fluctuation, legacy revenue decreased by $3.0 million during the fiscal year ended June 30, 2019, as compared to the comparable period in 2018.

Professional Services Revenue

Fiscal Year Ended June 30,

(in thousands)

Professional services revenue

Percentage of total revenue

Professional services revenue includes consulting, implementation and training.

Revenues from professional services decreased by $2.7 million during the fiscal year ended June 30, 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 further.

Professional services revenue was $7.2 million during the fiscal year ended June 30, 2019, which represented a decrease of 27% or $2.7 million.

Professional services revenue represents 11% and 16% of total revenue for the fiscal years ended June 30, 2019 and 2018, respectively.

Excluding a decrease of $160,000 due to foreign exchange rate fluctuation, professional services revenues decreased by $2.6 million during the fiscal year ended June 30, 2019, as compared to the comparable period in 2018.

Revenue by Geography

Fiscal Year Ended June 30,

(in thousands)

International

Total revenue

Revenue from domestic sales increased by 14% from $32.9 million during the fiscal year ended June 30, 2018 to $37.4 million during the fiscal year ended June 30, 2019 due to increases of (i) $6.3 million in SaaS revenue and (ii) $237,000 in legacy revenue;

partially offset by a decrease of $1.9 million in professional services revenue.

Revenue from international sales increased by 5% from $28.4 million during the fiscal year ended June 30, 2018 to $29.8 million during the fiscal year ended June 30, 2019 due to an increase of $5.8 million in SaaS revenue;

partially offset by decreases of (i) $3.7 million in legacy revenue and (ii) $797,000 in professional services revenue.

Cost of Revenue

Fiscal Year Ended June 30,

Cost of revenue

(in thousands)

Professional services

Total cost of revenue

Percentage of total revenue

Cost of subscription revenues consist primarily of expenses related to our cloud services and support provided to 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 increased $1.8 million during the fiscal year ended June 30, 2019.

The increase is primarily due to cloud computing costs which increased $1.1 million during the fiscal year ended June 30, 2019, from the comparable period in 2018, and an increase of personnel-related costs of $675,000 during the fiscal year ended June 30, 2019.

Excluding a decrease of $189,000 due to foreign exchange rate fluctuation, cost of subscription revenues increased by $2.0 million during the fiscal year ended June 30, 2019, from the comparable period in 2018.

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

Professional Services

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 $2.3 million during the fiscal year ended June 30, 2019.

This decrease is primarily due to a decrease in personnel-related costs of $2.3 million for the fiscal year ended June 30, 2019, because of our increased focus to reduce the time required for an average implementation project.

Excluding a decrease of $163,000 due to foreign exchange rate fluctuation, cost of professional services revenue decreased by $2.2 million for the fiscal year ended June 30, 2019, from the comparable period in 2018.

Operating Expenses

Research and Development

Fiscal Year Ended June 30,

(in thousands)

Research and development

Percentage of total revenue

Research and development expense primarily consists of personnel-related expenses directly associated with our engineering, product management and development, and quality assurance staff.

Included in these costs are salaries, benefits, bonuses, stock-based compensation and allocated overhead.

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

Research and development expense decreased 2% to $14.4 million during the fiscal year ended June 30, 2019, from $14.7 million in the comparable period in 2018.

Excluding a decrease of $353,000 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) $1.4 million in personnel-related costs, and (ii) $181,000 in outside consulting services;

principally offset by a decrease of $1.6 million in intangible asset amortization.

Excluding any future foreign exchange rate fluctuation, we expect our research and development expense to increase in future periods based on our product development plans.

Sales and Marketing

Fiscal Year Ended June 30,

(in thousands)

Sales and marketing

Percentage of total revenue

Sales and marketing expense primarily consists of personnel-related expenses directly associated with our sales, marketing and business development staff.

Included in these costs are salaries, benefits, bonuses, and stock-based compensation and allocated overhead.

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 decreased 2% to $17.3 million during the fiscal year ended June 30, 2019, from $17.7 million in the comparable period in 2018.

Excluding a decrease of $404,000 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) $154,000 in personnel-related costs and (ii) $112,000 in marketing program costs;

partially offset by a decrease of $239,000 in outside consulting services.

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.

General and Administrative

Fiscal Year Ended June 30,

(in thousands)

General and administrative

Percentage of total revenue

General and administrative expense primarily consists of personnel-related expenses directly associated with our finance, human resources, administrative and legal personnel.

Included in these costs are salaries, benefits, bonuses, and stock-based compensation and allocated overhead.

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 increased 8% to $8.2 million during the fiscal year ended June 30, 2019, from $7.6 million in the comparable period in 2018.

Excluding a decrease of $134,000 due to foreign exchange rate fluctuation between the U.S.

Dollar, Euro, British Pound and Indian Rupee, general and administrative expense increased primarily due to increases of (i) $282,000 in personnel and personnel-related expenses;

(ii) $142,000 in legal and investor relations costs;

(iii) $135,000 in outside consulting costs;

(iv) $126,000 in bad debt expense;

and (v) $81,000 in accounting, audit and administrative services.

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 periods based on our current business plan.

Stock-Based Compensation

Stock-based compensation expense is accounted for in accordance with the provisions of the accounting guidance which requires the measurement and recognition of compensation expense for all equity-based payment awards made to employees, members of our board of directors and consultants, based upon the grant-date fair value of those awards.

We value our share-based payments under ASC 718, and record compensation expense for all share-based payments made to employees based on the fair value at the date of the grant.

The effect of recording stock-based compensation for fiscal year 2019 and 2018 is as follows:

Fiscal Year Ended June 30,

Stock-based compensation by type of award

(in thousands)

Stock options

Employee stock purchase plan

Total stock-based compensation

Determining the fair value of the equity-based payment awards at the grant date required significant judgment and the use of estimates, particularly surrounding the Black-Scholes valuation assumptions such as stock price volatility and expected option term.

Below is a summary of stock-based compensation included in the cost and expenses:

Fiscal Year Ended June 30,

(in thousands)

Cost of revenue

Research and development

Sales and marketing

General and administrative

Total stock-based compensation

The decrease in our stock-based compensation expense in fiscal year 2019 compared to fiscal year 2018 was primarily due to a decrease in option grant activity and in forfeitures during the year.

We expect our stock-based compensation expense to increase or remain relatively constant in fiscal year 2020.

Income (loss) from Operations

Fiscal Year Ended June 30,

(in thousands)

Income (loss) from operations

Operating margin

*not meaningful

Results from operations was income of $5.5 million in fiscal year 2019, and losses of $988,000 in fiscal year 2018.

We recorded a positive operating margin of 8% in fiscal year 2019, and negative operating margin of 2% in fiscal year 2018.

The increase in operating income in fiscal year 2019 was primarily due to the growth of our cloud delivery business and the decline of costs associated with professional services, as we focused to reduce the time involved in implementation projects.

During the fiscal year ended June 30, 2019.

SaaS revenue increased by $12.1 million to $44.8 million compared to $32.7 million in fiscal year 2018.

Excluding the decrease from foreign exchange fluctuation of $1.2 million, the increase in total costs and operating expenses in fiscal year 2019 was primarily due to increases of (i) $1.2 million in cloud computing costs;

(ii) $519,000 in personnel-related expenses;

(iii) $126,000 in bad debt expenses;

(iv) $120,000 in legal costs;

(v) $112,000 in marketing program expenses;

(vi) $106,000 in outside consulting costs;

and (vii) $101,000 in accounting, audit and administrative services and investor relation expenses;

partially offset by a decrease of $1.6 million in intangible asset amortization.

Interest Expense, Net

Interest expense consists of interest on bank borrowings and capital leases.

Interest expense, net was $319,000 and $983,000 in the fiscal years ended June 30, 2019 and 2018, respectively.

Interest expense decreased due to lower interest paid on reduced average bank borrowings and the expiration of our capital lease obligation.

With the increase in our cash position from the follow-on public offering, we expect interest income in future periods due to increased cash balances in favorable interest-bearing accounts.

Other Expense, Net

Other expense, net was $202,000 and $206,000 for the fiscal years ended June 30, 2019 and 2018, respectively.

Other expense primarily included foreign exchange rate fluctuations on international trade receivables.

Income Tax Provision

Provision for income taxes consists of federal, state and foreign income taxes.

Due to cumulative losses and uncertainty of future profitability, we maintain a valuation allowance against U.S.

deferred tax assets as of June 30, 2019.

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 provision of $833,000 and a tax benefit of $186,000 in the fiscal years ended June 30, 2019 and 2018, respectively, due to income taxes in profitable jurisdictions outside of the United States subject to tax rates greater than 21 percent.

New Accounting Pronouncements

For information with respect to recent accounting pronouncements and the impact of these pronouncements on our consolidated financial statements, see Note 1 of Notes to Consolidated Financial Statements included in Item 8 Financial Statements and Supplementary Data of this Annual Report.

Liquidity and Capital Resources

At June 30, 2019, our principal sources of liquidity were cash and cash equivalents, and accounts receivable totaling $52.3 million.

Our cash, cash equivalents and restricted cash were $31.9 million and $11.5 million as of June 30, 2019 and 2018, respectively.

Our working capital was $13.9 million as of June 30, 2019 compared to a negative working capital of $8.0 million as of June 30, 2018.

As of June 30, 2019, our deferred revenue was $36.5 million as compared to $26.2 million as of June 30, 2018.

In 2019, we sold 2.1 million shares of our common stock in a follow-on public offering.

Shares were offered at a public offering price of $11.00 per share and we raised an aggregate $23.6 million before underwriter’s commission and expenses of $1.9 million.

We currently intend to use the proceeds of this offering for working capital and other general corporate purposes.

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

From time to time, however, we may consider opportunities for raising additional capital.

We can make no assurances that such opportunities will be available to us on economic terms we consider favorable, if at all.

If adequate funds are not available on acceptable terms, our ability to sustain positive cash flows, maintain current operations, fund any potential expansion, take advantage of unanticipated opportunities, develop or enhance products or services, or otherwise respond to competitive pressures would be significantly limited.

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, our ability to retain existing customers and customer purchasing and payment patterns, many of which are beyond our control.

For the fiscal years ended June 30, 2019 and 2018, our cash flows were as follows (in thousands):

Fiscal Year Ended June 30,

Net cash provided by operating activities

Net cash used in investing activities

Net cash provided by (used in) 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 costs capitalized to obtain revenue contracts, and changes in operating assets and liabilities during the year.

Cash provided by operating activities increased by $363,000 during the fiscal year ended June 30, 2019, driven primarily by the timing of prepayments received from customers for new cloud arrangements and the renewal of existing cloud and support arrangements , which is our largest source of operating cash flows, as well as higher net income.

Prior to adopting Topic 606, we netted down our accounts receivable and deferred revenue for amounts that were invoiced but not collected.

We no longer net down our accounts receivable and deferred revenue with the adoption of Topic 606 which resulted in an increase of $14.3 million in accounts receivable and deferred revenue from the adoption impact at July 1, 2018.

Net cash used in investing activities increased by $261,000 during the fiscal year ended June 30, 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 increased by $19.4 million during the fiscal year ended June 30, 2019, driven primarily by net proceeds of $21.7 million from the sale of our common stock in a follow-on public offering;

partially offset by an increase in bank loan payments, net of bank borrowings of $9.4 million.

The following table summarizes our contractual obligations as of June 30, 2019 and the effect such obligations are expected to have on its liquidity and cash flow in future periods (in thousands):

Payments Due by Period

Less than 1 Year

More than 5 Years

Operating leases

Contractual commitments

Off-Balance Sheet Arrangements

As of June 30, 2019, we had no significant off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.

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-K

Item 5. Market for Registrant’s Common Equity