What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-02-12 compared with 2020-11-12 · 103 added, 82 removed, 275 unchanged (40% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Opera tions

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and the related notes included in Item 1 of Part I of this Quarterly Report on Form 10-Q, and with our audited financial statements and the related notes included in our Annual Report on Form 10-K for the year ended June 30, 2020.

71 unchanged sentences

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

Fiscal year 2019 affirmed our view that SaaS clients adopt our product innovation much faster than our perpetual license clients and get better service levels.

Our transition affirmed our view that SaaS clients adopt our product innovation much faster than our perpetual license clients and get better service levels.

We believe SaaS clients enjoy up to 50% faster time to value from their eGain investment.

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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 September 30, 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.

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 three and six months ended December 31, 2020.

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

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● Suspended all employee travel;

● Cancelled certain sales and marketing events;

● Moved certain sales and marketing events to a virtual platform;

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

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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 revenue 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

September 30,

Six Months Ended

(in thousands)

1 unchanged sentence

Total subscription revenue

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

As we continue to migrate our legacy perpetual license customers to SaaS only model, we expect our legacy revenue to continue to decline.

SaaS and Professional Services Revenue

3 unchanged sentences

Three Months Ended

September 30,

Six Months Ended

(in thousands)

4 unchanged sentences

Management believes that it is useful to exclude certain non-cash charges and non-core operational charges from non-GAAP operating income 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 acquisition of intangible assets.

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

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).

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Three Months Ended

September 30,

Six Months Ended

Income from operations

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Invoiced amounts are recorded in accounts receivable, deferred revenue or revenue, depending on control 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 and per agent fee, for each software license sold containing the embedded software to the Company.

The Company has royalty revenue agreements with two partners related to the Company’s embedded intellectual property.

Under the terms of these agreements, the partners are to provide to the Company a combined fixed fee and per agent fee, for each software license sold containing the embedded software.

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.

However, certain sales from one partner are reported 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

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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 September 30, 2020, our remaining performance obligations were $64.2 million, of which we expect to recognize $44.9 million and $19.3 million as revenue within one year and beyond one year, respectively.

As of December 31, 2020, our remaining performance obligations were $67.8 million, of which we expect to recognize $53.5 million and $14.3 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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Three Months Ended

September 30,

Six Months Ended

Professional services

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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 months ended September 30, 2020 and 2019, respectively:

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

Three Months Ended

September 30,

Six Months Ended

(in thousands, except percentages)

1 unchanged sentence

Total revenue

Total revenue increased $1.9 million during the three months ended September 30, 2020, compared to the same period in 2019, respectively, due to an increase in SaaS revenue of $3.6 million during the three months ended September 30, 2020, compared to the same period in 2019.

Total revenue increased $1.1 million and $3.0 million during the three and six months ended December 31, 2020, compared to the same periods in fiscal year 2020, respectively, due to an increase in SaaS revenue of $2.1 million and $5.7 million during the three and six months ended December 31, 2020, compared to the same periods in fiscal year 2020.

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 $233,000 and a decrease of $432,000 in total revenue during the three months ended September 30, 2020 and 2019, respectively.

Foreign exchange rate fluctuation resulted in increases of $72,000 and $70,000 in total revenue during the three months ended December 31, 2020 and 2019, respectively.

Foreign exchange rate fluctuation resulted in an increase of $515,000 and a decrease of $362,000 for the six months ended December 31, 2020 and 2019, respectively.

Subscription Revenue

Three Months Ended

September 30,

Six Months Ended

(in thousands, except percentages)

1 unchanged sentence

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

Revenue from SaaS increased by $3.6 million during the three months ended September 30, 2020, compared to the same period in 2019.

SaaS revenue represents 84% and 72% of total revenue for the three months ended September 30, 2020 and 2019, respectively.

This represented an increase in SaaS revenue of 29% for the three months ended September 30, 2020 as compared to the comparable period in 2019.

Excluding an increase of $251,000 due to foreign exchange rate fluctuation, SaaS revenue increased by $3.3 million during the three months ended September 30, 2020 as compared to the comparable period in 2019.

Revenue from SaaS increased by $2.1 million and $5.7 million during the three and six months ended December 31, 2020, respectively, compared to the same periods in fiscal year 2020.

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 on a year over year basis.

SaaS revenue represents 84% of total revenue for the three and six months ended December 31, 2020, respectively, compared to the same periods in fiscal year 2020.

This represented an increase in SaaS revenue of 15% and 21% for the three and six months ended December 31, 2020, respectively, compared to the same periods in fiscal year 2020.

Excluding increases of $119,000 and $367,000 due to foreign exchange rate fluctuation, SaaS revenue increased by $2.0 million and $5.3 million during the three and six months ended December 31, 2020, respectively, compared to the same periods in fiscal year 2020.

Legacy Revenue

Three Months Ended

September 30,

Six Months Ended

(in thousands, except percentages)

2 unchanged sentences

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

We experienced decreases of $1.4 million during the three months ended September 30, 2020, compared to the same period in 2019.

We experienced decreases of $776,000 and $2.2 million during the three and six months ended December 31, 2020, respectively, compared to the same periods in fiscal year 2020.

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 an increase of $24,000 due to foreign exchange rate fluctuation, legacy revenue decreased by $1.4 million during the three months ended September 30, 2020, as compared to the comparable period in 2019.

Excluding a decrease of $52,000 and an increase of $97,000 due to foreign exchange rate fluctuation, legacy revenue decreased by $724,000 and $2.3 million during the three and six months ended December 31, 2020, respectively, compared to the same periods in fiscal year 2020.

Professional Services Revenue

Three Months Ended

September 30,

Six Months Ended

(in thousands, except percentages)

2 unchanged sentences

Professional services revenue includes consulting, implementation and training.

Revenue from professional services decreased by $302,000 during the three months ended September 30, 2020, compared to the same period in 2019.

Revenue from professional services decreased by $278,000 and $581,000 during the three and six months ended December 31, 2020, respectively, compared to the same periods in fiscal year 2020.

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 a decrease of $42,000 due to foreign exchange rate fluctuation, professional services revenue decreased by $260,000 during the three months ended September 30, 2020, as compared to the comparable period in 2019.

Excluding increases of $5,000 and $51,000 due to foreign exchange rate fluctuation, professional services revenue decreased by $283,000 and $632,000 during the three and six months ended December 31, 2020, respectively, compared to the same periods in fiscal year 2020.

Revenue by Geography

Three Months Ended

September 30,

Six Months Ended

(in thousands, except percentages)

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Total revenue

Revenue from domestic sales increased by 44% from $9.6 million during the three months ended September 30, 2019 to $13.8 million during the three months ended September 30, 2020, due to increases of (i) $4.1 million in SaaS revenue and (ii) $252,000 in professional services revenue;

partially offset by a decrease of $133,000 in legacy revenue.

Revenue from international sales decreased by 30% from $7.6 million for the three months ended September 30, 2019 to $5.3 million during the three months ended September 30, 2020, due to decreases of (i) $1.2 million in legacy revenue, (ii) $506,000 in SaaS revenue, and (iii) $555,000 in professional services revenue.

Revenue from domestic sales increased by 20% from $11.0 million during the three months ended December 31, 2019 to $13.2 million during the three months ended December 31, 2020 due to increases of (i) $2.0 million in SaaS revenue and (ii) $402,000 in legacy revenue;

offset by a decrease of $225,000 in professional services revenue.

Revenue from domestic sales increased by $31% from $20.6 million during the six months ended December 31, 2019 to $26.9 million during the six months ended December 31, 2020 due to increases of (i) $6.1 million in SaaS revenue, (ii) $269,000 in legacy revenue, and (iii) $27,000 in professional services revenue.

Revenue from international sales decreased by 16% from $7.2 million for the three months ended December 31, 2019 to $6.1 million during the three months ended December 31, 2020, due to decreases of $1.2 million in legacy revenue and $54,000 in professional services revenue;

offset by an increase of $115,000 in SaaS revenue.

Revenue from international sales decreased by 23% from $14.8 million for the six months ended December 31, 2019 to $11.4 million during the six months ended December 31, 2020, due to decreases of (i) $2.4 million in legacy revenue (ii) $608,000 in professional services revenue, and (iii) $390,000 in SaaS revenue.

Cost of Revenue

Three Months Ended

September 30,

Six Months Ended

(in thousands, except percentages)

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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 $528,000 during the three months ended September 30, 2020, from the comparable period in 2019.

This decrease was primarily due to decreases of (i) $397,000 in cloud-computing costs, (ii) $222,000 in personnel-related costs, and (iii) $41,000 in intangible amortization costs during the three months ended September 30, 2020, from the comparable period in 2019.

This was partially offset by an increase in outside consulting costs of $130,000 during the three months ended September 30, 2020, from the comparable period in 2019.

Excluding an increase of $2,000 due to foreign exchange rate fluctuation, cost of subscription revenue decreased by $530,000 during the three months ended September 30, 2020, from the comparable period in 2019.

Cost of subscription revenue decreased by $309,000 during the three months ended December 31, 2020, from the same period in fiscal year 2020.

This decrease was primarily due to decreases of (i) $234,000 in personnel-related costs, (ii) $75,000 in cloud-computing costs, and (iii) $67,000 in intangible amortization cost;

primarily offset by an increase in outside consulting costs of $72,000.

Cost of subscription revenue decreased by $837,000 during the six months ended December 31, 2020, from the same period in fiscal year 2020.

This decrease was primarily due to decreases of (i) $476,000 in cloud-computing costs, (ii) $463,000 in personnel-related costs, and (iii) $108,000 in intangible amortization costs;

primarily offset by an increase in outside consulting costs of $202,000.

Excluding a decrease of $5,000 and an increase of $8,000 due to foreign exchange rate fluctuation, cost of subscription revenue decreased by $304,000 and $845,000 during the three and six months ended December 31, 2020, respectively, from the same periods in fiscal year 2020.

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 by $156,000 during the three months ended September 30, 2020, from the comparable period in 2019.

The decrease for the three months ended September 30, 2020 was primarily due to decreases in personnel-related costs of $112,000 and $43,000 in outside consulting costs.

Foreign exchange rate fluctuation did not have a significant impact on the decrease from cost of professional service.

Cost of professional services decreased by $224,000 during the three months ended December 31, 2020, from the same period in fiscal year 2020.

This decrease was primarily due to decreases of $172,000 in personnel-related costs and $47,000 in outside consulting costs.

Cost of professional services decreased by $378,000 during the six months ended December 31, 2020, from the same period in fiscal year 2020.

This decrease was primarily due to decreases of $307,000 in personnel-related costs and $93,000 in outside consulting costs.

Excluding a decrease of $5,000 and an increase of $22,000 due to foreign exchange rate fluctuation, cost of professional services revenue decreased by $219,000 and $400,000 during the three and six months ended December 31, 2020, respectively, compared to the same periods in fiscal year 2020.

Operating Expenses

1 unchanged sentence

Three Months Ended

September 30,

Six Months Ended

(in thousands, except percentages)

4 unchanged sentences

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 $4.5 million for the three months ended September 30, 2020, from $4.0 million in the comparable period in 2019.

Research and development expense increased 11% to $4.5 million for the three months ended December 31, 2020, from $4.1 million in the same period in fiscal year 2020.

Excluding a decrease of $16,000 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 an increase of $549,000 in personnel-related costs;

offset by a decrease of $54,000 in outside consulting costs.

offset by a decrease of $78,000 from outside consulting costs.

Research and development expense increased 12% to $9.0 million for the six months ended December 31, 2020, from $8.1 million in the same period in fiscal year 2020.

Excluding a decrease of $12,000 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 an increase of $1.1 million in personnel-related costs;

offset by a decrease of $132,000 from outside consulting costs.

Excluding any future foreign exchange rate fluctuation, we expect our research and development expense to remain relatively consistent as a percentage of total revenue in future quarters based on our product development plans.

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Three Months Ended

September 30,

Six Months Ended

(in thousands, except percentages)

4 unchanged sentences

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 19% to $5.6 million for the three months ended September 30, 2020, from $4.7 million in the comparable period in 2019.

Sales and marketing expenses increased 30% to $6.3 million for the three months ended December 31, 2020, from $4.8 million in the same period in fiscal year 2020.

Excluding an increase of $51,000 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) $692,000 in personnel-related expenses and (ii) $160,000 in marketing program expenses;

offset by a decrease of $21,000 in outside consulting expenses.

Dollar, Euro, British Pound and Indian Rupee, sales and marketing expense increased primarily due to increases of $1.7 million in personnel-related expenses and $33,000 in outside consulting expenses;

offset by a decrease of $361,000 from marketing program expenses.

Sales and marketing expenses increased 24% to $11.9 million for the six months ended December 31, 2020, from $9.6 million in the same period in fiscal year 2020.

Excluding an increase 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 $2.4 million in personnel-related expenses and $16,000 in outside consulting expenses;

offset by a decrease of $201,000 from 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.

1 unchanged sentence

Three Months Ended

September 30,

Six Months Ended

(in thousands, except percentages)

4 unchanged sentences

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 5% to $1.9 million for the three months ended September 30, 2020, from $2.0 million in the same period in 2019.

General and administrative expenses decreased 9% to $1.9 million for the three months ended December 31, 2020, from $2.0 million in the same period in fiscal year 2020.

Excluding a decrease 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 (i) $188,000 in accounting, audit, and administrative expenses, (ii) $80,000 in personnel-related expenses, (iii) $75,000 in legal expense, and (iv) $11,000 in outside consulting expenses;

primarily offset by an increase of $159,000 in bad debt expense.

General and administrative expenses decreased 7% to $3.8 million for the six months ended December 31, 2020, from $4.1 million in the same period in fiscal year 2020.

Excluding an increase of $21,000 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) $84,000 in personnel-related expenses, (ii) $76,000 in bad debt expenses, (iii) $19,000 in outside consulting expenses, and (iv) $16,000 in legal costs;

primarily offset by an increase of $78,000 in accounting, audit, and administrative expenses.

Dollar, Euro, British Pound and Indian Rupee, general and administrative expense decreased primarily due to decreases of (i) $173,000 in personnel-related expenses, (ii) $113,000 in accounting, audit, and administrative expenses, (iii) $91,000 in legal expenses, and (iv) $31,000 in outside consulting expenses;

primarily offset by an increase of $85,000 in bad debt expense.

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.

1 unchanged sentence

Three Months Ended

September 30,

Six Months Ended

(in thousands, except percentages)

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Operating margin

Income from operations was $2.4 million with an operating margin of 12% during the three months ended September 30, 2020.

Income from operations during the three months ended September 30, 2020 included (i) $470,000 of stock-based compensation;

(ii) $250,000 of amortization of costs capitalized to obtain revenue contracts;

Income from operations was $1.9 million with an operating margin of 10% during the three months ended December 31, 2020.

Income from operations during the three months ended December 31, 2020 included $426,000 of stock-based compensation and $312,000 of amortized costs capitalized to obtain revenue contracts.

Income from operations was $4.2 million with an operating margin of $11% during the six months ended December 31, 2020.

Income from operations during the six months ended December 31, 2020 included (i) $896,000 of stock-based compensation;

(ii) $562,000 of amortized costs capitalized to obtain revenue contracts;

and (iii) $26,000 of amortization of intangible assets.

Interest Income, Net

Interest income, net primarily consists of interest earned on money market accounts.

Interest income, net was income of $3,000 and $147,000 during the three months ended September 30, 2020 and 2019, respectively.

Interest income, net decreased in the three months ended September 30, 2020, as compared to comparable period in 2019, primarily due to an unfavorable shift in interest rates from money market accounts.

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 $163,000 and income of $164,000 during the three months ended September 30, 2020 and 2019, respectively.

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

Interest income, net was income of $2,000 and $124,000 during the three months ended December 31, 2020 and 2019, respectively.

Interest income, net was income of $6,000 and $271,000 during the six months ended December 31, 2020 and 2019, respectively.

Interest income, net decreased in the three and six months ended December 31, 2020, compared to the same periods in fiscal year 2020, primarily due to an unfavorable shift of interest rates from money market accounts.

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

Other Expense, Net

Other expense, net was $160,000 and $186,000 during the three months ended December 31, 2020 and 2019, respectively.

Other expense, net was $323,000 and $21,000 during the six months ended December 31, 2020 and 2019, respectively.

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

Income Tax Provision

Income Tax (Provision) Benefit

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

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

deferred tax assets as of September 30, 2020.

deferred tax assets as of December 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 income tax provisions of $148,000 and $189,000 for the three months ended September 30, 2020 and 2019, respectively.

We recorded income tax provisions of $132,000 and $280,000 for the three and six months ended December 31, 2020, respectively.

We recorded a tax benefit of $33,000 and provision of $156,000 for the three and six months ended December 31, 2019, respectively.

Liquidity and Capital Resources

At September 30, 2020 and 2019, our principal sources of liquidity were cash and cash equivalents and accounts receivable, totaling $68.6 million and $69.3 million, respectively.

Our cash, cash equivalents and restricted cash were $53.1 million and $46.6 million as of September 30, 2020 and June 30, 2020, respectively.

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.

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 three months ended September 30, 2020 and 2019, our cash flows were as follows (in thousands):

Three Months Ended

September 30,

At December 31, 2020 and June 30, 2020, our principal sources of liquidity were cash and cash equivalents, and accounts receivable totaling $70.9 million and $69.3 million, respectively.

Our cash, cash equivalents and restricted cash were $54.2 million and $46.6 million as of December 31, 2020 and June 30, 2020, respectively.

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

Six Months Ended

Net cash provided by operating activities

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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 $3.0 million during the three months ended September 30, 2020, from the comparable period in 2019, driven primarily by the timing of payments for accounts receivable received from customers for new cloud arrangements and the renewal of existing cloud and support arrangements for the three months ended September 30, 2020.

Net cash used in investing activities increased by $9,000 during the three months ended September 30, 2020, from the comparable period in 2019, driven primarily by activities related to the purchase of equipment for new employees and facility expenditures.

Net cash provided by operating activities decreased by $2.1 million during the six months ended December 31, 2020, from the same period in fiscal year 2020, driven primarily by the timing of prepayments received from customers for new cloud arrangements and the renewal of existing cloud and support arrangements, as well as the timing of accrued liability payouts.

Net cash used in investing activities increased by $192,000 during the six months ended December 31, 2020, from the same period in fiscal year 2020, 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 $402,000 during the three months ended September 30, 2020, from the comparable period in 2019.

Our current proceeds consist primarily of proceeds from the exercise of employee stock options.

Net cash provided by financing activities increased by $636,000 during the six months ended December 31, 2020, from the same period in fiscal year 2020.

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

Our principal commitments consist of obligations under leases for office space.

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

As September 30, 2020, the future non-cancelable minimum payments under these commitments were approximately $2.9 million.

As December 30, 2020, the future non-cancelable minimum payments under these commitments were approximately $2.5 million.

Off-Balance Sheet Arrangements

As of September 30, 2020, we had no significant off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.

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

New Accounting Pronouncements

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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 2. Management’s Discussion and Analysis