What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-14 compared with 2022-05-09 · 87 added, 115 removed, 274 unchanged (42% of the section changed)

20 unchanged sentences

● our ability to timely adapt and comply with changing European regulatory and political environments;

● uncertainty relating to the implementation and effect of Brexit;

● the effect of recent changes in U.S.

57 unchanged sentences

eGain automates customer engagement with an innovative Software as a Service (SaaS) platform, powered by deep digital, Artificial Intelligence (AI), and knowledge capabilities.

We are headquartered in the United States.

We also operate in United Kingdom and India.

We sell mostly to large enterprises across financial services, telecommunications, retail, government, healthcare, and utilities.

That is, organizations seeking to better serve customers at scale while coping with content silos, process complexity, and regulatory compliance.

With our mantra of AX + BX + CX = DX™, we guide clients to effortless digital experience (DX) by holistically optimizing agent experience (AX), business experience (BX) and customer experience (CX).

Approximately one hundred seventy leading brands use eGain’s cloud software to improve customer satisfaction, empower agents, reduce service cost and boost sales.

Leading brands use eGain’s cloud software to improve customer satisfaction, empower agents, reduce service cost, and boost sales.

We are headquartered in the United States.

We also operate in United Kingdom and India.

We have transitioned from a hybrid model, where we sold both SaaS and perpetual license solutions, to a SaaS only business model.

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

Fiscal year 2021 affirmed our view that SaaS clients adopt our product innovation much faster than the perpetual license model and get better service levels.

Historical fiscal years affirmed our view that SaaS clients adopt our product innovation much faster than the perpetual license model and get better service levels.

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

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

Since early 2020, 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 has not had a material adverse impact on our business.

However, the ongoing spread of the COVID-19 virus, including new variants, current availability of COVID-19 vaccinations, and recent lockdown orders in China, caused us to adapt and modify our business practices, including implementing hybrid work model policies and limiting travel by our employees, among other things.

However, the ongoing spread of the COVID-19 virus, including new variants, current availability of COVID-19 vaccinations, and lockdown orders in China from 2022, caused us to adapt and modify our business practices, including implementing hybrid work model policies and limiting travel by our employees, among other things.

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

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(in thousands)

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(in thousands)

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Non-GAAP Operating Income

Non-GAAP operating income is defined as (loss) income from operations, 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 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.

Non-GAAP operating income is defined as (loss) income from operations, adjusted for the impact of stock-based compensation expense.

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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(Loss) income from operations

Stock-based compensation

Amortization of intangibles assets

Non-GAAP income from operations

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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, which are described in Note 1 “Summary of Business and Significant Accounting Policies” to our condensed consolidated financial statements, 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 condensed consolidated financial statements.

We believe that the assumptions and estimates, which are described in Note 1 “Summary of Business and Significant Accounting Policies” to our condensed consolidated financial statements, associated with revenue recognition, stock-based compensation, allowance for doubtful accounts, the valuation of goodwill, the valuation of deferred tax allowance, and legal contingencies have the greatest potential impact on our condensed consolidated financial statements.

We evaluate these estimates on an ongoing basis.

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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.

Professional services include consulting, implementation and training.

Legacy revenue is associated with license, maintenance and support contracts on perpetual

license arrangements that we no longer sell.

Professional services include consulting, implementation, training, and managed services.

Subscription Revenue

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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 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.

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

We have a royalty revenue agreement with a customer related to our 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 us.

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.

Under revenue guidance, since these arrangements are for sales-based licenses of intellectual property, we recognize 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.

Professional services revenue includes system implementation, consulting, training, and managed services.

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.

Managed services include a comprehensive set of processes and activities that range from implementation to monitoring the evolution and support of eGain solutions in a company.

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

Managed services contracts are bid on a time-and-material basis.

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

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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 March 31, 2022, our remaining performance obligations were $84.2 million, of which we expect to recognize $53.4 million and $30.8 million as revenue within one year and beyond one year, respectively.

As of September 30, 2022, our remaining performance obligations were $94.5 million, of which we expect to recognize $67.2 million and $27.3 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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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 and nine months ended March 31, 2022 and 2021, respectively:

The following table presents our subscription and professional services revenue during the three months ended September 30, 2022 and 2021, respectively:

Three Months Ended

Nine Months Ended

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(in thousands, except percentages)

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Total revenue

Total revenue increased approximately $4.2 million and $10.4 million during the three and nine months ended March 31, 2022, compared to the same periods in 2021, respectively, due to an increase in SaaS revenue of $3.8 million and $11.3 million during the three and nine months ended March 31, 2022, compared to the same periods in 2021.

The increase for the three months ended March 31, 2022 was primarily due to an increase in SaaS revenue that was partially offset by a decline in our legacy revenue as we continue to migrate legacy perpetual license customers to our SaaS model.

The increase for the nine months ended March 31, 2022 was primarily due to an increase in SaaS revenue that was partially offset by a decline in our legacy revenue.

Total revenue increased approximately $3.3 million during the three months ended September 30, 2022, compared to the same periods in 2021, respectively, due to an increase in SaaS revenue of $3.4 million during the three months ended September 30, 2022, compared to the same periods in 2021.

The increase for the three months ended September 30, 2022 was primarily due to an increase in SaaS revenue that was partially offset by a decline in our legacy revenue as we continue to migrate legacy perpetual license customers to our SaaS model.

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

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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 decreases of $181,000 and an increase of $475,000 in total revenue during the three months ended March 31, 2022 and 2021, respectively.

Foreign exchange rate fluctuation resulted in an increase of $310,000 and $885,000 for the nine months ended March 31, 2022 and 2021, respectively.

Foreign exchange rate fluctuation resulted in a decrease of $909,000 and an increase of $356,000 in total revenue during the three months ended September 30, 2022 and 2021, respectively.

Subscription Revenue

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(in thousands, except percentages)

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

Revenue from SaaS increased by $3.8 million and $11.3 million during the three and nine months ended March 31, 2022, respectively, compared to the same periods in 2021.

Revenue from SaaS increased by $3.4 million during the three months ended September 30, 2022, respectively, compared to the same periods in 2021.

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 87% and 88% of total revenue for the three and nine months ended March 31, 2022, compared to 85% and 84%, respectively, during the same periods in 2021.

This represented an increase in SaaS revenue of 23% for the three and nine months ended March 31, 2022, compared to the same periods in 2021.

Excluding a decrease of $154,000 and an increase of $252,000 due to foreign exchange rate fluctuation, SaaS revenue increased by $4.0 million and $11.1 million during the three and nine months ended March 31, 2022, respectively, compared to the same periods in 2021.

SaaS revenue represents 91% of total revenue for the three months ended September 30, 2022, compared to 89%, during the same period in 2021.

This represented an increase in SaaS revenue of 18% for the three months ended September 30, 2022, compared to the same periods in 2021.

Excluding a decrease of $802,000 due to foreign exchange rate fluctuation, SaaS revenue increased by $4.2 million during the three months ended September 30, 2022, compared to the same periods in 2021.

Legacy Revenue

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Percentage of total revenue

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

We experienced decreases of $161,000 and $1.7 million during the three and nine months ended March 31, 2022, respectively, compared to the same periods in 2021.

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

We experienced a decrease of $656,000 during the three months ended September 30, 2022, compared to the same periods in 2021.

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 $10,000 and an increase of $39,000 due to foreign exchange rate fluctuation, legacy revenue decreased by $151,000 and $1.7 million during the three and nine months ended March 31, 2022, respectively, compared to the same periods in 2021.

Excluding a decrease of $49,000 due to foreign exchange rate fluctuation, legacy revenue decreased by $607,000 during the three months ended September 30, 2022, compared to the same periods in 2021.

Professional Services Revenue

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(in thousands, except percentages)

1 unchanged sentence

Percentage of total revenue

Professional services revenue includes consulting, implementation, managed services and training.

Revenue from professional services increased by $511,000 and $754,000 during the three and nine months ended March 31, 2022, respectively, compared to the same periods in 2021.

The increase for three and nine months ended March 31, 2022 compared to the prior year was primarily due to new customer implementations and an increase in managed services.

Excluding a decrease of $17,000 and an increase of $19,000 due to foreign exchange rate fluctuation, professional services revenue increased by $528,000 and $735,000 during the three and nine months ended March 31, 2022, respectively, compared to the same periods in 2021.

Professional services revenue includes consulting, implementation, training, and managed services.

Revenue from professional services increased by $534,000 during the three months ended September 30, 2022, compared to the same periods in 2021.

The increase for three months ended September 30, 2022 compared to the prior year was primarily due to customer implementations and an increase in managed services.

Excluding a decrease of $58,000 due to foreign exchange rate fluctuation, professional services revenue increased by $592,000 during the three months ended September 30, 2022, compared to the same period in 2021.

Revenue by Geography

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(in thousands, except percentages)

North America

International

Europe, Middle East, & Africa

Total revenue

Revenue from North America sales increased by 28% from $13.6 million during the three months ended March 31, 2021 to $17.5 million during the three months ended March 31, 2022 due to increases of (i) $3.8 million in SaaS revenue and (ii) $366,000 in professional services revenue;

partially offset by a decrease of $283,000 in legacy revenue.

Revenue from North America sales increased by 22% from $40.6 million during the nine months ended March 31, 2021 to $49.5 million during the nine months ended March 31, 2022 due to increases of (i) $9.6 million in SaaS revenue, and (ii) $619,000 in professional services revenue;

partially offset by a decrease of $1.3 million in legacy revenue.

Revenue from international sales increased by 5% from $6.1 million for the three months ended March 31, 2021 to $6.4 million during the three months ended March 31, 2022, due to increases of $43,000 in SaaS revenue, (ii) $122,000 in legacy revenue, and (iii) $145,000 in professional services revenue.

Revenue from international sales increased by 9% from $17.5 million for the nine months ended March 31, 2021 to $19.0 million during the nine months ended March 31, 2022, due to increases of (i) $1.7 million in SaaS revenue and $136,000 in professional services revenue;

Revenue from North America sales increased by 26% from $15.2 million during the three months ended September 30, 2021 to $19.1 million during the three months ended September 30, 2022 due to increases of (i) $3.6 million in SaaS revenue and (ii) $619,000 in professional services revenue;

partially offset by a decrease of $346,000 in legacy revenue.

Revenue from Europe, Middle East, and Africa sales decreased by 9% from $6.2 million for the three months ended September 30, 2021 to $5.6 million during the three months ended September 30, 2022, due to decreases of (i) $309,000 in legacy revenue, (ii) $185,000 in SaaS revenue, and (iii) $85,000 in professional services revenue.

Cost of Revenue

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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 revenue increased by $462,000 during the three months ended March 31, 2022, from the same period in fiscal year 2021.

This increase was primarily due to increases of (i) $300,000 in cloud-computing costs, (ii) $172,000 in personnel-related costs, and (iii) $14,000 in outside consulting costs.

Cost of subscription revenue increased by $1.0 million during the nine months ended March 31, 2022, from the same period in fiscal year 2021.

This increase was primarily due to increases of (i) $674,000 in cloud-computing costs and (ii) $541,000 in personnel related costs;

partially offset by a decrease of (i) $203,000 in outside consulting costs and (ii) $26,000 in intangible amortization costs.

Excluding a decrease of $24,000 and an increase of $14,000 due to foreign exchange rate fluctuation, cost of subscription revenue increased by $486,000 and $986,000 during the three and nine months ended March 31, 2022, respectively, from the same periods in 2021.

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.

Cost of subscription revenue increased by $491,000 during the three months ended September 30, 2022, from the same period in fiscal year 2021.

This increase was primarily due to increases of (i) $568,000 in cloud-computing costs and (ii) $47,000 in outside consulting costs;

partially offset by a decrease of $22,000 in personnel-related costs.

Excluding a decrease of $102,000 due to foreign exchange rate fluctuation, cost of subscription revenue increased by $593,000 during the three months ended September 30, 2022, from the same periods in 2021.

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 increased $1.2 million during the three months ended March 31, 2022, from the same period in 2021.

This increase was primarily due to increases of $1.2 million in personnel-related costs, of which $825,000 is associated with stock-based compensation cost;

partially offset with a decrease of $2,000 in outside consulting costs.

Cost of professional services increased by $2.7 million during the nine months ended March 31, 2022, from the same period in 2021.

This increase was primarily due to increases of $2.8 million in personnel-related costs, of which $2.3 million is associated with stock-based compensation cost;

partially offset with a decrease of $20,000 in outside consulting costs.

Excluding a decrease of $17,000 and an increase of $12,000 due to foreign exchange rate fluctuation, cost of professional services revenue increased by $1.2 million and $2.7 million during the three and nine months ended March 31, 2022, respectively, compared to the same periods in 2021.

Cost of professional services increased $493,000 during the three months ended September 30, 2022, from the same period in 2021.

This increase was primarily due to increases of $502,000 in personnel-related costs and $49,000 in outside consulting costs.

Excluding a decrease of $58,000 due to foreign exchange rate fluctuation, cost of professional services revenue increased by $551,000 during the three months ended September 30, 2022, compared to the same periods in 2021.

Operating Expenses

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Included in these costs are salaries, benefits, bonuses, and 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 increased 42% to $6.2 million for the three months ended March 31, 2022, from $4.4 million in the same period in 2021.

Excluding a decrease of $51,000 due to foreign exchange rate fluctuation, research and development expense increased primarily due to an increase of (i) $1.8 million in personnel-related costs, of which $783,000 is associated with stock-based compensation cost, and (ii) $63,000 from outside consulting costs.

Research and development expense increased 34% to $18.0 million for the nine months ended March 31, 2022, from $13.4 million in the same period in 2021.

Excluding an increase of $10,000 due to foreign exchange rate fluctuation, research and development expense increased primarily due to an increase of (i) $4.5 million in personnel-related costs, of which $2.3 million is associated with stock-based compensation cost, and (ii) $128,000 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.

Research and development expense also includes outside consulting services contracted for research and development.

Research and development expense increased by 23% to $6.9 million for the three months ended September 30, 2022, from $5.6 million in the same period in 2021.

Excluding a decrease of $203,000 due to foreign exchange rate fluctuation, research and development expense increased primarily due to increases of (i) $1.4 million in personnel-related costs and (ii) $78,000 in outside consulting costs.

Sales and Marketing

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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 25% to $8.7 million for the three months ended March 31, 2022, from $6.9 million in the same period in fiscal year 2021.

Excluding a decrease of $60,000 due to foreign exchange rate fluctuation, sales and marketing expense increased primarily due to increases of (i) $1.4 million in personnel-related expenses, of which $580,000 is associated with stock-based compensation cost, and (ii) $441,000 in marketing program expenses;

offset by a decrease of $12,000 in outside consulting expenses.

Sales and marketing expenses increased 29% to $24.3 million for the nine months ended March 31, 2022, from $18.8 million in the same period in fiscal year 2021.

Excluding an increase of $91,000 due to foreign exchange rate fluctuation, sales and marketing expense increased primarily due to increases of (i) $4.9 million in personnel-related expenses, of

which $1.8 million is associated with stock-based compensation cost, and (ii) $489,000 in marketing program expenses;

Sales and marketing expenses increased by 28% to $9.5 million for the three months ended September 30, 2022, from $7.4 million in the same period in fiscal year 2021.

Excluding a decrease of $283,000 due to foreign exchange rate fluctuation, sales and marketing expense increased primarily due to increases of (i) $1.6 million in personnel-related expenses and (ii) $858,000 in marketing program expenses;

offset by a decrease of $128,000 in outside consulting expenses.

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

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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 increased 46% to $3.0 million for the three months ended March 31, 2022, from $2.0 million in the same period in fiscal year 2021.

Excluding a decrease of $11,000 due to foreign exchange rate fluctuation, general and administrative expense increased primarily due to an increase of $1.2 million in personnel-related expenses, of which $820,000 is associated with stock-based compensation cost;

partially offset by decreases of (i) $73,000 in outside-consulting expenses, (ii) $62,000 in accounting, audit, and administrative expenses, (iii) $45,000 in bad debt expenses, and (iv) $40,000 in legal related expenses.

General and administrative expenses increased 49% to $8.7 million for the nine months ended March 31, 2022, from $5.8 million in the same period in 2021.

Excluding an increase of $19,000 due to foreign exchange rate fluctuation, general and administrative expense increased primarily due to increases of (i) $3.0 million in personnel-related expenses, of which $2.4 million is associated with stock-based compensation cost, (ii) $92,000 in accounting, audit, and administrative expenses, (iii) $17,000 in investor relations expenses, (iv) $13,000 in legal related expenses, and (v) $12,000 in outside consulting expense.

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

General and administrative expenses increased 15% to $2.8 million for the three months ended September 30, 2022, from $2.4 million in the same period in 2021.

Excluding a decrease of $46,000 due to foreign exchange rate fluctuation, general and administrative expense increased primarily due to increases of (i) $227,000 in bad debt expenses, (ii) $165,000 in personnel-related expenses, (iii) $63,000 in outside-consulting costs, and (iv) $63,000 in legal related expenses;

partially offset by decreases of (i) $91,000 in accounting, audit, and administrative expenses and (ii) $12,000 in investor relations expenses.

(Loss) Income from Operations

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Operating margin

Loss from operations was $476,000 with an operating loss margin of 2% during the three months ended March 31, 2022.

Loss from operations during the three months ended March 31, 2022 included $3.0 million of stock-based compensation and $1.1 million of amortization of costs capitalized to obtain revenue contracts.

Loss from operations was $416,000 with a break even margin of 0% during the nine months ended March 31, 2022.

Loss from operations during the nine months ended March 31, 2022 included $8.9 million of stock-based compensation and $1.1 million of amortization of costs capitalized to obtain revenue contracts.

Loss from operations was $670,000 with an operating loss margin of 3% during the three months ended September 30, 2022.

Loss from operations during the three months ended September 30, 2022 included $2.1 million of stock-based compensation and $375,000 of amortization of costs capitalized to obtain revenue contracts.

Interest Income

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

Interest income was income of $3,000 and $5,000 during the three months ended March 31, 2022 and 2021, respectively.

Interest income was income of $7,000 and $10,000 during the nine months ended March 31, 2022 and 2021, respectively.

Other Income (Expense), Net

Other income (expense), net was income of $200,000 and expense of $378,000 during the three months ended March 31, 2022 and 2021, respectively.

Other income (expense), net was income of $182,000 and expense of $700,000 during the nine months ended March 31, 2022 and 2021, respectively.

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

Interest income was income of $286,000 and $2,000 during the three months ended September 30, 2022 and 2021, respectively.

Other Income, Net

Other income, net was income of $810,000 and $10,000 during the three months ended September 30, 2022 and 2021, respectively.

Other income, net 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.

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

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

deferred tax assets as of March 31, 2022.

deferred tax assets as of September 30, 2022.

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 provision of $342,000 and $663,000 for the three and nine months ended March 31, 2022, respectively.

We recorded income tax benefit of $57,000 and provision of $223,000 for the three and nine months ended March 31, 2021, respectively.

We recorded income tax provision of $442,000 and $152,000 for the three months ended September 30, 2022, and 2021, respectively.

Liquidity and Capital Resources

As of March 31, 2022 and June 30, 2021, our principal sources of liquidity were cash and cash equivalents, and accounts receivable totaling $88.7 million and $89.5 million, respectively.

Our cash, cash equivalents and restricted cash were $70.5 million and $63.2 million as of March 31, 2022 and June 30, 2021, respectively.

As of September 30, 2022 and June 30, 2022, our principal sources of liquidity were cash and cash equivalents, and accounts receivable totaling $96.1 million and $99.1 million, respectively.

Our cash, cash equivalents and restricted cash were $71.5 million and $72.2 million as of September 30, 2022 and June 30, 2022, 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.

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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 nine months ended March 31, 2022 and 2021, our cash flows were as follows (in thousands):

Nine Months Ended

For the three months ended September 30, 2022 and 2021, our cash flows were as follows (in thousands):

Three Months Ended

September 30,

Net cash provided by operating activities

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Cash provided by operating activities mainly consists of net (loss) 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 $840,000 during the nine months ended March 31, 2022, from the same period in 2021, driven primarily by the timing of payments for accounts payable and accrued liabilities.

Net cash used in investing activities increased by $188,000 during the nine months ended March 31, 2022, from the same period in 2021, driven primarily by activities related to the purchase of equipment for new employees and facility expenditures.

Net cash provided by operating activities decreased by $6.4 million during the three months ended September 30, 2022, from the same period in 2021, driven primarily by the timing of collections for accounts receivable.

Net cash used in investing activities decreased by $11,000 during the three months ended September 30, 2022, from the same period in 2021, 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 $1.1 million during the nine months ended March 31, 2022, from the same period in 2021.

Net cash provided by financing activities decreased by $381,000 during the three months ended September 30, 2022, from the same period in 2021.

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

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

As March 31, 2022, the future non-cancelable minimum payments under these commitments were approximately $4.3 million.

As of September 30, 2022, the future non-cancelable minimum payments under these commitments were approximately $3.6 million.

Off-Balance Sheet Arrangements

As of March 31, 2022, we had no significant off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.

As of September 30, 2022, 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