What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-09-14 compared with 2022-09-13 · 102 added, 127 removed, 260 unchanged (47% of the section changed)

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

eGain automates customer engagement with an innovative knowledge hub, powered by conversational AI and analytics.

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.

eGain automates customer engagement with an innovative knowledge hub, powered by conversational and generative AI and analytics.

We sell mostly to large enterprises across financial services, telecommunications, retail, government, healthcare, and utilities seeking to better serve customers at scale by eliminating content silos and helping to automate customer engagement processes of all levels of complexity that may also require 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).

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

Leading brands use eGain’s SaaS solution 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 also operate in the 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 2022 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.

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 did not have a material adverse impact on our business during the year ended June 30, 2022.

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.

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

● Implemented hybrid work model and social distancing policies throughout our organization ;

● Limited employee travel ;

● Cancelled certain sales and marketing events;

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

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

The impact, if any, of operational changes we may implement is uncertain,

but changes we have implemented as of the filing date have not affected and are not expected to affect our ability to maintain operations.

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

See our “Risk Factors” for further discussion of the possible impact of the COVID-19 pandemic on our business.

Key Financial Measures

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

SaaS Revenues

With our transition to a SaaS only business model, we believe SaaS revenue better reflects our business momentum and to analyze progress 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.

● SaaS revenue, which is defined as revenue from cloud delivery arrangements, term licenses and embedded original equipment manufacturer (OEM) royalties and associated support;

● Legacy revenue, which is defined as revenue, 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:

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Legacy revenue

Total SaaS and 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.

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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.

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

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 acquisitions.

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).

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

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

Fiscal Year Ended June 30

(Loss) Income from operations

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 believe that the assumptions and estimates 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 consolidated financial statements.

We evaluate these estimates on an ongoing basis.

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These embedded OEM royalties are included as subscription revenue.

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.

Under revenue guidance, since these arrangements are for usage-based licenses of intellectual property, we estimate revenue recognized only as the performance obligation of the OEM royalties has been satisfied or partially satisfied.

Professional Services Revenue

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.

The transaction price is allocated to various performance obligations based on their standalone selling prices (SSP).

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.

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

Our consulting and implementation service contracts are bid either on a time-and-material 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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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.

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

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 June 30, 2023, our remaining performance obligations were $97.3 million, of which we expect to recognize $66.7 million and $30.6 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.

Under Topic 606, 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.

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

We determine the period of benefit by taking into consideration the

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

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

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

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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.

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Tax Legislation

Under the Tax Cuts and Jobs Act, enacted on December 22, 2017 (TCJA), federal NOLs incurred in 2018 and in future years may be carried forward indefinitely, but generally may not be carried back, and the deductibility of such NOLs is limited to 80% of taxable income.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), P.L.

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The CARES Act included a number of federal income tax law changes, including, but not limited to:

(i) permitting net operating loss carrybacks to offset 100% of taxable income for taxable years beginning before 2021, (ii) accelerating alternative minimum tax credit refunds, (iii) temporarily increasing the allowable business interest deduction from 30% to 50% of adjusted taxable income, and (iv) providing a technical correction for depreciation related to qualified improvement property.

correction for depreciation related to qualified improvement property.

The CARES Act had no impact on our consolidated financial statements.

On December 27, 2020, President Trump signed the Consolidated Appropriations Act, 2021 (CAA).

The CAA contains numerous individual, business, payroll, disaster, and energy-related tax provisions, as well as tax extenders.

Many of the provisions, including $600 stimulus payments, and an extension of payroll credits, relate to the COVID-19 pandemic.

The COVID-related Tax Relief Act of 2020 (COVIDTRA) and the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (TCDTR), both part of the CAA, contains numerous provisions related to businesses.

Beginning in 2022, the TCJA eliminates the option to immediately deduct research and development expenditures and requires taxpayers to capitalize and amortize domestic expenditures over five years and foreign expenditures over 15 years.

While the mandatory capitalization requirement increases our deferred tax assets and cash tax liabilities for 2022, the tax year in which the provision took effect, the impact will decline annually over the five-year amortization period to an immaterial amount in year six.

On August 16, 2022, the Inflation Reduction Act of 2022 (IRA) was signed into law and is effective for taxable years beginning after December 31, 2022.

The IRA includes multiple incentives to promote clean energy with tax provisions primarily focused on implementing a 15% minimum tax on global adjusted financial statement income and a 1% excise tax on share repurchases.

These measures may affect our consolidated financial statements and we will continue to evaluate the applicability and effect of the IRA as more guidance is issued.

Fiscal Year 2023 Compared with Fiscal Year 2022

Our effective tax rate for fiscal years 2022 and 2021 was a tax provision of $1.2 million and a tax benefit of $166,000, respectively.

The change in our effective tax rate for fiscal year 2022 as compared to fiscal year 2021 was primarily due to the expiration of tax attributes, the change in valuation allowance, foreign rate differential, stock-based compensation and the research and development tax credit.

Our effective tax rate for both fiscal years 2023 and 2022 was a tax provision of $1.2 million.

The change in our effective tax rate for fiscal year 2023 as compared to fiscal year 2022 was primarily due to the change in valuation allowance, foreign rate differential, GILTI inclusion, stock-based compensation and the research and development tax credits.

The income before income tax provision between the U.S.

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In fiscal year 2023, our U.S.

and foreign income before our income tax provision was a loss of $4.2 million and income of $3.0 million, respectively.

and foreign income before our income tax provision was a loss of $460,000 and an income of $3.8 million, respectively.

In fiscal year 2022, our U.S.

and foreign income before our income tax benefit was $5.0 million and $1.8 million, respectively.

and foreign income before our income tax was loss of $4.2 million and income of $3.0 million, respectively.

Deferred Tax Valuation Allowance

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

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.

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

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

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Total operating expenses

(Loss) Income from operations

Income (Loss) from operations

We classify our revenue into two categories;

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Total Revenue

Total revenue increased $13.7 million during the fiscal year ended June 30, 2022, from the comparable period in 2021, largely due to increased revenues from SaaS of $14.0 million and professional service revenue of $1.5 million in fiscal year 2022.

This increase was partially offset by a decline in our legacy revenue of $1.8 million as we continue to migrate legacy perpetual license customers to our SaaS model.

Total revenue increased $6.1 million during the fiscal year ended June 30, 2023, from the same period in fiscal year 2022, largely due to increased SaaS revenue of $8.7 million and professional services revenue of $293,000 in fiscal year 2023.

This increase was partially offset by a decline of $2.9 million in our legacy revenue.

Legacy revenue decreases 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 a decrease of $354,000 and an increase of $2.0 million in total revenue during the fiscal years ended June 30, 2022 and 2021, respectively.

Foreign exchange rate fluctuation resulted in a decrease of $2.4 million and $354,000 in total revenue during the fiscal years ended June 30, 2023 and 2022, respectively.

Subscription Revenue

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

Revenues from SaaS increased by $14.0 million during the fiscal year ended June 30, 2022, as compared to the comparable period in 2021.

Revenues from SaaS increased by $8.7 million during the fiscal year ended June 30, 2023, from the same period in fiscal year 2022.

SaaS revenue was $89.6 million and $80.9 million during the fiscal years ended June 30, 2023 and 2022, respectively, which represented an increase of 11% or $8.7 million.

SaaS revenue represents 91% and 88% of total revenue for the fiscal years ended June 30, 2023 and 2022, respectively.

Excluding a decrease of $317,000 due to foreign exchange rate fluctuation, SaaS revenue increased by $14.3 million during the fiscal year ended June 30, 2022, as compared to the comparable period in 2021.

Excluding a decrease of $2.1 million due to foreign exchange rate fluctuation, SaaS revenue increased by $10.8 million during the fiscal year ended June 30, 2023, from the same period in fiscal year 2022.

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

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

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

Legacy revenue was $3.7 million and $5.4 million during the fiscal years ended June 30, 2022 and 2021, respectively, which represented a decrease of 33% or $1.8 million.

Legacy revenue was $705,000 and $3.7 million during the fiscal years ended June 30, 2023 and 2022, respectively, which represented a decrease of 81% or $2.9 million.

Legacy revenue represents 1% and 4% of total revenue for the fiscal years ended June 30, 2023 and 2022, respectively.

Excluding a decrease of $5,000 due to foreign exchange rate fluctuation, legacy revenue decreased by $1.8 million during the fiscal year ended June 30, 2022, as compared to the comparable period in 2021.

Excluding a decrease of $130,000 due to foreign exchange rate fluctuation, legacy revenue decreased by $2.8 million during the fiscal year ended June 30, 2023, from the same period in fiscal year 2022.

Professional Services Revenue

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

Revenues from professional services increased by $1.5 million during the fiscal year ended June 30, 2022.

These increases were primarily

due to growth of managed services.

We expect continued improvements in our product deployment process resulting in a reduction in the time required for an average implementation projects.

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 $7.4 million during the fiscal year ended June 30, 2022, which represented an increase of 25% or $1.5 million.

Professional services revenue represents 8% of total revenue for both fiscal years ended June 30, 2022 and 2021.

Excluding a decrease of $32,000 due to foreign exchange rate fluctuation, professional services revenues increased by $1.5 million during the fiscal year ended June 30, 2022, as compared to the comparable period in 2021.

Revenues from professional services increased by $293,000 during the fiscal year ended June 30, 2023.

This increase was primarily due to growth of managed services.

Professional services revenue was $7.7 million during the fiscal year ended June 30, 2023, which represented an increase of 4% or $293,000.

Professional services revenue represents 8% of total revenue for the fiscal years ended June 30, 2023 and 2022.

Excluding a decrease of $190,000 due to foreign exchange rate fluctuation, professional services revenues increased by $483,000 during the fiscal year ended June 30, 2023, from the same period in fiscal year 2022.

Revenue by Geography

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Total revenue

Revenue from North America sales increased by 23% from $54.4 million during the fiscal year ended June 30, 2021 to $66.8 million during the fiscal year ended June 30, 2022 due to an increase of (i) $12.6 million in SaaS revenue, and (ii) $1.3 million in professional service revenue;

offset by a decrease of (i) $1.5 million in legacy revenue.

Revenue from Europe, Middle East, and Africa sales increased by 5% from $23.9 million during the fiscal year ended June 30, 2021 to $25.2 million during the fiscal year ended June 30, 2022 due to an increase of (i) $1.4 million in SaaS revenue and (ii) $208,000 in professional services revenue;

offset by a decrease of $287,000 in legacy revenue.

Revenue from North America sales increased by 14% from $66.8 million during the fiscal year ended June 30, 2022 to $76.4 million during the fiscal year ended June 30, 2023 due to increases of (i) $10.4 million in SaaS revenue and (ii) $1.0 million in professional service revenue;

offset by a decrease of $1.8 million in legacy revenue.

Revenue from EMEA sales decreased by 14% from $25.2 million during the fiscal year ended June 30, 2022 to $21.6 million during the fiscal year ended June 30, 2023 due to decreases of (i) $1.7 million in SaaS revenue, (ii) $1.1 million in legacy revenue, and (iii) $722,000 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 revenues increased by $1.3 million during the fiscal year ended June 30, 2022.

The increase is primarily due to an increase in (i) cloud computing cost of $951,000, (ii) personnel related costs of $529,000;

partially offset with a decrease in (i) outside consulting cost of $138,000 and (ii) intangible asset amortization of $26,000 during the fiscal year ended June 30, 2022, from the comparable period in 2021.

Excluding a decrease of $43,000 due to foreign exchange rate fluctuation between the U.S.

Dollar, Euro, British Pound and Indian Rupee, cost of subscription revenues increased by $1.3 million during the fiscal year ended June 30, 2022, from the comparable period in 2021.

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.

Cost of subscription revenues increased by $3.9 million or 26% during the fiscal year ended June 30, 2023 from the same period in fiscal year 2022.

The increase is primarily due to increases in (i) cloud computing cost of $4.2 million and (ii) outside consulting cost of $39,000, partially offset by a decrease in personnel related costs of $14,000 during the fiscal year ended June 30, 2023, from the same period in fiscal year 2022.

Excluding a decrease of $299,000 due to foreign exchange rate fluctuation, cost of subscription revenues increased by $4.2 million during the fiscal year ended June 30, 2023, from the same period in fiscal year 2022.

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 $4.0 million during the fiscal year ended June 30, 2022 from the comparable period in 2021.

This increase is primarily due to an increase in personnel-related costs of $4.0 million, of which $3.1 million is associated with stock-based compensation cost;

partially offset by a decrease in outside consulting costs of $18,000 for the fiscal year ended June 30, 2022.

Excluding a decrease of $39,000 due to foreign exchange rate fluctuation between the U.S.

Dollar, Euro, British Pound and Indian Rupee, cost of professional services revenue increased by $3.9 million for the fiscal year ended June 30, 2022, from the comparable period in 2021.

Cost of professional services decreased by $1.1 million or 11% during the fiscal year ended June 30, 2023 from the same period in fiscal year 2022.

This decrease is primarily due to a decrease in personnel-related costs of $1.2 million;

partially offset by an increase in outside consulting costs of $344,000 from the same period in fiscal year 2022.

Excluding a decrease of $235,000 due to foreign exchange rate fluctuation, cost of professional services revenue decreased by $884,000 for the fiscal year ended June 30, 2023, from the same period in fiscal year 2022.

Operating Expenses

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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 increased 36% to $24.4 million during the fiscal year ended June 30, 2022, from $17.9 million in the comparable period in 2021.

Excluding a decrease of $105,000 due to foreign exchange rate fluctuation between the U.S.

Dollar, Euro, British Pound and Indian Rupee, research and development expense increased by $6.6 million primarily due to increases of (i) $6.3 million in personnel-related costs, of which $2.9 million is associated with stock-based compensation cost, and (ii) $258,000 in outside consulting costs.

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.

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

Research and development expense increased by $2.9 million or 12% during the fiscal year ended June 30, 2023, from the same period in fiscal year 2022.

The increase is primarily due to increases in (i) $3.5 million in personnel-related costs and (ii) $11,000 in outside consulting costs.

Excluding a decrease of $622,000 due to foreign exchange rate fluctuation, research and development expense increased by $3.5 million for the fiscal year ended June 30, 2023, from the same period in fiscal year 2022.

Sales and Marketing

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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.

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 increased 30% to $33.7 million during the fiscal year ended June 30, 2022, from $26.0 million in the comparable period in 2021.

Excluding a decrease of $120,000 due to foreign exchange rate fluctuation between the U.S.

Dollar, Euro, British Pound and Indian Rupee, sales and marketing expense increased by $7.9 million primarily due to increases of (i) $6.8 million in personnel-related costs, of which $2.4 million is associated with stock-based compensation cost, and (ii) $1.1 million in marketing program costs;

partially offset by a decrease of $4,000 in outside consulting costs.

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

Sales and marketing expenses decreased by $2.0 million or 6% during the fiscal year ended June 30, 2023 from same period in fiscal year 2022.

The decrease is primarily due to a decrease of $2.6 million in personnel-related costs;

partially offset by increases of (i) $1.3 million in marketing program costs and (ii) $54,000 in outside consulting costs.

Excluding a decrease of $743,000 due to foreign exchange rate fluctuation, sales and marketing expense decreased $1.3 million for the fiscal year ended June 30, 2023, from the same period in fiscal year 2022.

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 expense increased 47% to $11.4 million during the fiscal year ended June 30, 2022, from $7.7 million in the comparable period in 2021.

Excluding a decrease of $39,000 due to foreign exchange rate fluctuation between the U.S.

Dollar, Euro, British Pound and Indian Rupee, general and administrative expense increased by $3.7 million primarily due to increases of (i) $3.7 million in personnel-related expenses, of which $3.0 million is associated with stock-based compensation cost, (ii) $147,000 in legal expenses, (iii) $146,000 in accounting, audit, and administrative expenses, (iv) $12,000 in investor relations expense, and (v) $3,000 in outside consulting cost;

partially offset by a decrease of $319,000 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 periods based on our current business plan.

General and administrative expense decreased by $1.1 million or 10% during the fiscal year ended June 30, 2023, from the same period in fiscal year 2022.

The decrease is primarily due to decreases of (i) $1.2 million in personnel-related expenses and (ii) $27,000 in investor relations expense;

partially offset by increases of (i) $178,000 in bad debt expense, (ii) $101,000 in outside consulting cost, (iii) $25,000 in accounting, audit, and administrative expenses, and (iv) $4,000 in legal expenses.

Excluding a decrease of $173,000 due to foreign exchange rate fluctuation, general and administrative expense decreased $946,000 for the fiscal year ended June 30, 2023, from the same period in fiscal year 2022.

Stock-Based Compensation

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Total stock-based compensation

The increase in our stock-based compensation expense in fiscal year 2022 compared to fiscal year 2021 was primarily due to an increase in option grant activity.

We expect our stock-based compensation expense to decrease in fiscal year 2023.

(Loss) Income from Operations

Stock-based compensation expense includes the amortization of the fair value primarily of stock options awarded to employees, members of our board of directors and consultants.

The fair value of stock options granted is recognized as an expense over their respectable vesting schedule.

The decrease in our stock-based compensation expense in fiscal year 2023 compared to fiscal year 2022 was primarily due to decreases in stock option vesting over their respectable periods, company-wide headcount, and option grant activity.

We expect our stock-based compensation expense to continue to decrease in fiscal year 2024 as existing stock options continue to vest over their respectable periods.

Income (Loss) from Operations

Fiscal Year Ended June 30,

(in thousands, except percentages)

(Loss) Income from operations

Income (Loss) from operations

Operating (loss) margin

Results from operations was loss of $2.1 million in fiscal year 2022, compared to income of $7.3 million in fiscal year 2021.

We recorded a negative operating margin of 2% in fiscal year 2022, and a positive operating margin of 9% in fiscal year 2021.

During the fiscal year ended June 30, 2022, SaaS revenue increased by $14.0 million to $80.9 million compared to $66.9 million in fiscal year 2021 due to the continued growth of our cloud delivery business.

Excluding a decrease from foreign exchange fluctuation of $346,000 between the U.S.

Dollar, Euro, British Pound and Indian Rupee, the increase in total costs and operating expenses in fiscal year 2022 was $23.5 million primarily due to increases of (i) $21.4 million in personnel-related expenses, of which $11.4 million is associated with stock-based compensation cost, (ii) $1.1 million in marketing costs, (iii) $951,000 in cloud computing costs, (iv) $147,000 in legal expenses, (v) $146,000 in accounting and administrative services, (vi) $101,000 in outside consulting costs, and (vii) $12,000 in investor relations cost;

partially offset by a decrease of (i) $319,000 in bad debt expenses and (ii) $26,000 in intangible asset amortization.

Results from operations was income of $1.4 million in fiscal year 2023, compared to loss of $2.1 million in fiscal year 2022.

We recorded a positive operating margin of 1% in fiscal year 2023, and a negative operating margin of 3% in fiscal year 2022.

During the fiscal year ended June 30, 2023, SaaS revenue increased by $8.7 million to $89.6 million compared to $80.9 million in fiscal year 2022.

The increase in total costs and operating expenses in fiscal year ended June 30, 2023 was $4.6 million primarily due to increases of (i) $4.2 million in cloud computing costs, (ii) $1.3 million in marketing costs, (iii) $549,000 in outside consulting costs, (iv) $178,000 in bad debt expenses, (v) $25,000 in accounting and administrative services, and (vi) $4,000 in legal expenses;

partially offset by decreases of (i) $1.6 million in personnel-related expenses and (ii) $27,000 in investor relations cost.

Excluding a decrease from foreign exchange fluctuation of $2.1 million, total costs and operating expenses increased by $4.6 million for the fiscal year ended June 30, 2023, from the same period in fiscal year 2022.

Interest Income

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

Interest income was $94,000 and $13,000 for the fiscal years ended June 30, 2022 and 2021, respectively.

Other Income (Expense), Net

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

Other income (expense), net was income of $838,000 and expense of $559,000 for the fiscal years ended June 30, 2022 and 2021, respectively.

Interest income consists primarily of interest earned on money market accounts, which have increased in rates compared to prior year.

Interest income, was income of $2.4 million and income of $94,000 for the fiscal years ended June 30, 2023 and 2022, respectively.

Other (Expense) Income, Net

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

Other (expense) income, net was expense of $434,000 and income of $838,000 for the fiscal years ended June 30, 2023 and 2022, respectively.

Income Tax Provision

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deferred tax assets as of June 30, 2023.

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 $1.2 million and tax benefit of $166,000 in the fiscal years ended June 30, 2022 and 2021, respectively.

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

We recorded an income tax provision of $1.2 million in each of the fiscal years ended June 30, 2023 and 2022.

New Accounting Pronouncements

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Liquidity and Capital Resources

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

Our principal sources of liquidity were cash and cash equivalents, and accounts receivable, net.

Our liquidity sources were $104.8 million compared to $99.1 million as of June 30, 2023 and 2022, respectively.

Our cash, cash equivalents, and restricted cash were $73.2 million and $72.2 million as of June 30, 2023 and 2022, respectively.

As of June 30, 2022, our working capital was $42.1 million compared to $31.1 million as of June 30, 2021.

As of June 30, 2022, our deferred revenue was $49.4 million as compared to $49.5 million as of June 30, 2021.

Our working capital was $46.1 million and $42.1 million as of June 30, 2023 and 2022, respectively.

Our deferred revenue was $49.9 million and $49.4 million as of June 30, 2023, and 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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Net cash used in investing activities

Net cash provided by financing activities

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

costs capitalized to obtain revenue contracts, amortization of right-of-use assets, and changes in operating assets and liabilities during the year.

Cash provided by operating activities decreased by $5.7 million during the fiscal year ended June 30, 2022, driven primarily by the change in our net loss, stock-based compensation, the timing of prepayments received from customers for new cloud arrangements, and the renewal of existing cloud and support arrangements, which is a significant source of operating cash flows.

Net cash used in investing activities decreased by $226,000 during the fiscal year ended June 30, 2022, driven primarily by activities related to the purchase of equipment for new employees and facility expenditures.

Net cash provided by (used in) financing activities

Cash provided by operating activities mainly consists of net income (loss) 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, amortization of right-of-use assets, and changes in operating assets and liabilities during the year.

Cash provided by operating activities decreased by $3.5 million during the fiscal year ended June 30, 2023, driven primarily by the timing of accounts receivable collections and deferred revenue recognitions.

Net cash used in investing activities increased by $340,000 during the fiscal year ended June 30, 2023, driven primarily by reduced 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 $975,000 during the fiscal year ended June 30, 2022, principally consisted of proceeds from employee stock plans.

Net cash provided by financing activities decreased by $7.4 million during the fiscal year ended June 30, 2023.

The changes consist primarily of proceeds from the exercise of employee stock options, our employee stock purchase plan, and funds used with repurchases of our common stock of approximately $5.8 million.

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

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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-K

Item 7. Management’s Discussion and Analysis