What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-02-08 compared with 2023-11-07 · 96 added, 79 removed, 277 unchanged (39% of the section changed)

92 unchanged sentences

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

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

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

As we continue to migrate our legacy perpetual license clients to SaaS, we expect our legacy revenue, primarily comprising annual maintenance and support fees for legacy perpetual license clients to continue to decline.

9 unchanged sentences

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.

SaaS and Professional Services Revenue

3 unchanged sentences

Three Months Ended

September 30,

Six Months Ended

(in thousands)

8 unchanged sentences

Three Months Ended

September 30,

Six Months Ended

(in thousands)

Income (loss) from operations

23 unchanged sentences

Under revenue guidance, since these arrangements are for sales-based licenses of intellectual property, we recognize revenue only as the subsequent sale occurs.

constrained due to the unpredictability of such estimate and the unavoidable risk that it may lead to significant revenue reversals.

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

11 unchanged sentences

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, 2023, our remaining performance obligations were $82.4 million, of which we expect to recognize $59.7 million and $22.7 million as revenue within one year and beyond one year, respectively.

As of December 31, 2023, our remaining performance obligations were $77.9 million, of which we expect to recognize $55.8 million and $22.1 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.

1 unchanged sentence

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

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

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

Costs Capitalized to Obtain Revenue Contracts

9 unchanged sentences

Three Months Ended

September 30,

Six Months Ended

Professional services

12 unchanged sentences

subscription and professional services revenue.

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, 2023 and 2022, respectively:

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

The following table presents our subscription and professional services revenue during the three and six months ended December 31, 2023 and 2022, respectively:

Three Months Ended

September 30,

Six Months Ended

(in thousands, except percentages)

1 unchanged sentence

Total revenue

Total revenue decreased approximately $587,000 during the three months ended September 30, 2023, compared to the same period in fiscal year 2023, due to a decrease in SaaS and legacy revenue of $372,000 and $228,000, offset by an increase of $13,000 in professional services, respectively, during the three months ended September 30, 2023, compared to the same period in fiscal year 2023.

Total revenue for the three months ended December 31, 2023 decreased by $1.8 million, while SaaS revenue decreased $1.5 million, compared to the same period in fiscal year 2023.

Total revenue for the six months ended December 31, 2023 decreased by $2.4 million, while SaaS revenue decreased by $1.9 million, compared to the same period in fiscal year 2023.

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

1 unchanged sentence

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 $426,000 and a decrease of $909,000 in total revenue during the three months ended September 30, 2023 and 2022, respectively.

Foreign exchange rate fluctuation resulted in an increase of $340,000 and a decrease of $863,000

in total revenue during the three months ended December 31, 2023 and 2022, respectively.

Foreign exchange rate fluctuation resulted in an increase of $769,000 and a decrease of $1.7 million for the six months ended December 31, 2023 and 2022, 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 decreased by $372,000 during the three months ended September 30, 2023, compared to the same period in fiscal year 2023.

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.

SaaS revenue represents 92% of total revenue for the three months ended September 30, 2023, compared to 91% during the same period in fiscal year 2023.

This represented a decrease in SaaS revenue of 2% for the three months ended September 30, 2023, compared to the same period in fiscal year 2023.

Excluding an increase of $400,000 due to foreign exchange rate fluctuation, SaaS revenue decreased by $772,000 during the three months ended September 30, 2023, compared to the same period in fiscal year 2023.

Revenue from SaaS decreased by $1.5 million and $1.9 million during the three and six months ended December 31, 2023, respectively, compared to the same periods in fiscal year 2023.

This represented a decrease in SaaS revenue of 6% and 4% for the three and six months ended December 31, 2023, respectively, compared to the same periods in fiscal year 2023.

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

SaaS revenue represents 92% of total revenue for the three and six months ended December 31, 2023, compared to 91% during the same periods in fiscal year 2023.

Excluding an increase of $312,000 and $713,000 due to foreign exchange rate fluctuation, SaaS revenue decreased by $1.8 million and $2.6 million during the three and six months ended December 31, 2023, respectively, compared to the same periods in fiscal year 2023.

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 sell.

We experienced a decrease of $228,000 during the three months ended September 30, 2023, compared to the same period in fiscal year 2023.

We experienced decreases of $136,000 and $364,000 during the three and six months ended December 31, 2023, respectively, compared to the same periods in fiscal year 2023.

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 $3,000 due to foreign exchange rate fluctuation, legacy revenue decreased by $231,000 during the three months ended September 30, 2023, compared to the same period in fiscal year 2023.

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

Excluding increases of $6,000 and $11,000 due to foreign exchange rate fluctuation, legacy revenue decreased by $142,000 and $375,000 during the three and six months ended December 31, 2023, respectively, compared to the same periods in fiscal year 2023.

Professional Services Revenue

Three Months Ended

September 30,

Six Months Ended

(in thousands, except percentages)

1 unchanged sentence

Percentage of total revenue

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

Revenue from professional services increased by $13,000 during the three months ended September 30, 2023, compared to the same period in fiscal year 2023.

Excluding an increase of $23,000 due to foreign exchange rate fluctuation, professional services revenue decreased by $10,000 during the three months ended September 30, 2023, compared to the same period in fiscal year 2023.

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

Revenue from professional services decreased by $167,000 and $154,000 during the three and six months ended December 31, 2023, respectively, compared to the same periods in fiscal year 2023.

Excluding an increase of $21,000 and $45,000 due to foreign exchange rate fluctuation, professional services revenue decreased by $188,000 and $199,000 during the three and six months ended December 31, 2023, respectively, compared to the same periods in fiscal year 2023.

Revenue by Geography

Three Months Ended

September 30,

Six Months Ended

(in thousands, except percentages)

2 unchanged sentences

Total revenue

Revenue from North America sales decreased by 1% from $19.1 million during the three months ended September 30, 2022 to $19.0 million during the three months ended September 30, 2023 due to a decrease of $262,000 in legacy revenue;

partially offset by increases of (i) $101,000 in SaaS revenue and (ii) $30,000 in professional services revenue.

Revenue from EMEA sales decreased by 8% from $5.6 million for the three months ended September 30, 2022 to $5.2 million during the three months ended September 30, 2023, due to decreases of (i) $473,000 in SaaS revenue and (ii) $17,000 in professional services revenue;

partially offset by an increase of $34,000 in legacy revenue.

Revenue from North America sales decreased by 5% from $19.8 million during the three months ended December 31, 2022 to $18.8 million during the three months ended December 31, 2023, due to decreases of (i) $872,000 in SaaS revenue, (ii) $48,000 in legacy revenue, and (iii) $46,000 in professional services revenue.

Revenue from North America sales decreased by 3% from $38.9 million during the six months ended December 31, 2022 to $37.8 million during the six months ended December 31, 2023, due to decreases of (i) $771,000 in SaaS revenue, (ii) $310,000 in legacy revenue, and (iii) $16,000 in professional services revenue.

Revenue from EMEA sales decreased by 14% from $5.8 million for the three months ended December 31, 2022 to $5.0 million during the three months ended December 31, 2023, due to decreases of (i) $610,000 in SaaS revenue, (ii) $122,000 in professional services revenue, and (iii) $88,000 in legacy revenue.

Revenue from EMEA sales decreased by 11% from $11.4 million for the six months ended December 31, 2022 to $10.2 million during the six months ended December 31, 2023, due to decreases of (i) $1.1 million in SaaS revenue, (ii) $139,000 in professional services revenue, and (iii) $54,000 in legacy revenue.

Cost of Revenue

Three Months Ended

September 30,

Six Months Ended

(in thousands, except percentages)

4 unchanged sentences

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 $1.1 million during the three months ended September 30, 2023, from the same period in fiscal year 2023.

This increase was primarily due to increases of (i) $749,000 in cloud-computing costs and (ii) $350,000 in personnel-related costs;

partially offset by a decrease of $48,000 in outside consulting costs.

Excluding an increase of $18,000 due to foreign exchange rate fluctuation, cost of subscription revenue increased by $1.0 million during the three months ended September 30, 2023, from the same period in fiscal year 2023.

Cost of subscription revenue increased by $685,000 during the three months ended December 31, 2023, from the same period in fiscal year 2023.

This increase was primarily due to increases of (i) $366,000 in cloud-computing costs, (ii) $222,000 in personnel-related costs, and (iii) $82,000 in outside consulting cost.

Cost of subscription revenue increased by $1.8 million during the six months ended December 31, 2023, from the same period in fiscal year 2023.

This increase was primarily due to increases of (i) $1.1 million in cloud-computing costs, (ii) $572,000 in personnel related costs, and (iii) $34,000 in outside consulting costs.

Excluding an increase of $16,000 and $34,000 due to foreign exchange rate fluctuation, cost of subscription revenue increased by $669,000 and $1.7 million during the three and six months ended December 31, 2023, respectively, from the same periods in fiscal year 2023.

Professional Services

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

Cost of professional services decreased by $513,000 during the three months ended September 30, 2023, from the same period in fiscal year 2023.

This decrease was primarily due to a decrease of $552,000 in personnel-related costs;

partially offset by an increase of $4,000 in outside consulting costs.

Excluding an increase of $36,000 due to foreign exchange rate fluctuation, cost of professional services revenue decreased by $548,000 during the three months ended September 30, 2023, compared to the same period in fiscal year 2023.

Cost of professional services decreased by $447,000 during the three months ended December 31, 2023, from the same period in fiscal year 2023.

This decrease was primarily due to a decrease of (i) $378,000 in personnel-related costs and (ii) $92,000 in outside consulting costs.

Cost of professional services decreased by $960,000 during the six months ended December 31, 2023, from the same period in fiscal year 2023.

This decrease was primarily due to decreases of (i) $929,000 in personnel-related costs and (ii) $88,000 in outside consulting costs.

Excluding an increase of $21,000 and $56,000 due to foreign exchange rate fluctuation, cost of professional services revenue decreased by $468,000 and $1.0 million during the three and six months ended December 31, 2023, respectively, compared to the same periods in fiscal year 2023.

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.

Research and development expense decreased by $242,000 during the three months ended September 30, 2023, from the same period in fiscal year 2023.

This decrease was primarily due to decreases of (i) $153,000 in personnel-related costs and (ii) $113,000 in outside consulting costs.

Excluding an increase of $24,000 due to foreign exchange rate fluctuation, research and development expense decreased by $266,000 during the three months ended September 30, 2023, compared to the same period in fiscal year 2023.

Research and development expense decreased by 7% to $6.7 million for the three months ended December 31, 2023, from $7.2 million in the same period in fiscal year 2023.

Excluding an increase of $26,000 due to foreign exchange rate fluctuation, research and development expense decreased primarily due to decreases of (i) $386,000 in personnel-related costs and (ii) $166,000 in outside consulting costs.

Research and development expense decreased by 5% to $13.3 million for the six months ended December 31, 2023, from $14.1 million in the same period in fiscal year 2023.

Excluding an increase of $49,000 due to foreign exchange rate fluctuation, research and development expense decreased primarily due to decreases of (i) $539,000 in personnel-related costs and (ii) $279,000 from outside consulting costs.

Sales and Marketing

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 decreased by $3.4 million during three months ended September 30, 2023, from the same period in fiscal year 2023.

The decrease was primarily due to decreases of (i) $3.3 million in personnel-related expenses, (ii) $212,000 in marketing program expenses, and (iii) $20,000 in outside consulting expenses.

Excluding an increase of $148,000 due to foreign exchange rate fluctuation, sales and marketing expense decreased by $3.5 million during the three months ended September 30, 2023, compared to the same period in fiscal year 2023.

Sales and marketing expenses decreased by 40% to $5.3 million for the three months ended December 31, 2023, from $8.9 million in the same period in fiscal year 2023.

Excluding an increase of $120,000 due to foreign exchange rate fluctuation, sales and marketing expense decreased primarily due to decreases of (i) $2.5 million in personnel-related costs, (ii) $950,000 in lead generation costs, and (iii) $200,000 in outside consulting costs.

Sales and marketing expenses decreased by 38% to $11.5 million for the six months ended December 31, 2023, from $18.4 million in the same period in fiscal year 2023.

Excluding an increase of $275,000 due to foreign exchange rate fluctuation, sales and marketing expense decreased primarily due to decreases of (i) $5.8 million in personnel-related costs, (ii) $1.2 million in lead generation costs, and (iii) $219,000 in outside consulting costs.

General and Administrative

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 increased by $368,000 during the three months ended September 30, 2023, from the same period in fiscal year 2023.

The increase was primarily due to increases of (i) $755,000 in legal expenses and (ii) $51,000 in accounting, audit, and administrative expenses;

partially offset by decreases of (i) $248,000 in personnel-related expenses, (ii) $207,000 in bad debt expenses, (iii) $17,000 in outside-consulting expenses, and (iv) $2,000 in investor relations expenses.

Excluding an increase of $36,000 due to foreign exchange rate fluctuation, general and administrative expense increased

$332,000 during the three months ended September 30, 2023, compared to the same period in fiscal year 2023.

General and administrative expenses decreased by 6% to $2.4 million for the three months ended December 31, 2023, from $2.6 million in the same period in fiscal year 2023.

Excluding an increase of $10,000 due to foreign exchange rate fluctuation, general and administrative expense decreased primarily due to decreases of (i) $216,000 in personnel-related costs, (ii) $80,000 in legal related costs, and (iii) $50,000 in outside-consulting costs;

partially offset by increases of (i) $99,000 in bad debt costs and (ii) $76,000 in accounting, audit, and administrative costs.

General and administrative expenses increased by 4% to $5.6 million for the six months ended December 31, 2023, from $5.4 million in the same period in fiscal year 2023.

Excluding an increase of $44,000 due to foreign exchange rate fluctuation, general and administrative expense increased primarily due to increases of (i) $675,000 in legal related costs and (ii) $127,000 in accounting, audit, and administrative costs;

partially offset by decreases of (i) $464,000 in personnel-related costs, (ii) $106,000 in bad debt costs, and (iii) $69,000 in outside consulting costs.

Income (Loss) from Operations

Three Months Ended

September 30,

Six Months Ended

(in thousands, except percentages)

1 unchanged sentence

Operating margin

Income from operations was $1.4 million with an operating profit margin of 6% during the three months ended September 30, 2023.

Income from operations during the three months ended September 30, 2023 included $1.2 million of stock-based compensation and $500,000 of amortization of costs capitalized to obtain revenue contracts.

Income from operations was $2.4 million and $213,000 with an operating profit margin of 10% and 1% during the three months ended December 31, 2023 and 2022, respectively.

Income from operations during the three months ended December 31, 2023 included $1.2 million of stock-based compensation and $345,000 of amortization of costs capitalized to obtain revenue contracts.

Income from operations during the three months ended December 31, 2022 included $1.8 million of stock-based compensation and $395,000 of amortization of costs capitalized to obtain revenue contracts.

Income from operations was $3.8 million with an operating profit margin of 8% during the six months ended December 31, 2023.

Loss from operations was $457,000 with an operationg loss margin of 1% during the six months ended December 31, 2022.

Income from operations during the six months ended December 31, 2023 included $2.4 million of stock-based compensation and $845,000 of amortization of costs capitalized to obtain revenue contracts.

Loss from operations during the six months ended December 31, 2022 included $3.8 million of stock-based compensation and $770,000 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 $949,000 and $286,000 during the three months ended September 30, 2023 and 2022, respectively, due to higher interest rates.

Other Income, Net

Other income, net was income of $610,000 and $810,000 during the three months ended September 30, 2023 and 2022, respectively.

Other income, net primarily included foreign exchange rate fluctuations on international trade receivables, net of transactions.

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

Interest income was $982,000 and $529,000 during the three months ended December 31, 2023 and 2022,

respectively.

Interest income was $1.9 million and $815,000 during the six months ended December 31, 2023 and 2022, respectively.

Other (expense) income, Net

Other (expense) income, net was expense of $697,000 and $545,000 during the three months ended December 31, 2023 and 2022, respectively.

Other (expense) income, net was expense of $87,000 and income of $265,000 during the six months ended December 31, 2023 and 2022, respectively.

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

Income Tax Provision

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 September 30, 2023.

Due to cumulative U.S.

book losses, we maintain a valuation allowance against U.S.

deferred tax assets as of December 31, 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 income tax provision of $379,000 and $442,000 for the three months ended September 30, 2023 and 2022, respectively.

We recorded income tax provision of $525,000 and $904,000 for the three and six months ended December 31, 2023, respectively.

We recorded income tax provision of $301,000 and $743,000 for the three and six months ended December 31, 2022, respectively.

Liquidity and Capital Resources

As of September 30, 2023 and June 30, 2023, our principal sources of liquidity were cash and cash equivalents, restricted cash, and accounts receivable totaling $98.3 million and $104.8 million, respectively.

Our cash, cash equivalents and restricted cash were $79.8 million and $73.2 million as of September 30, 2023 and June 30, 2023, respectively.

As of December 31, 2023 and June 30, 2023, our principal sources of liquidity were cash and cash equivalents, restricted cash, and accounts receivable totaling $101.1 million and $104.8 million, respectively.

Our cash, cash equivalents and restricted cash were $86.8 million and $73.2 million as of December 31, 2023 and June 30, 2023, 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.

2 unchanged sentences

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, 2023 and 2022, our cash flows were as follows (in thousands):

Three Months Ended

September 30,

For the six months ended December 31, 2023 and 2022, our cash flows were as follows (in thousands):

Six Months Ended

Net cash provided by operating activities

2 unchanged sentences

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 commissions and bonus payments, and changes in operating assets and liabilities during the year.

Net cash provided by operating activities increased by $7.4 million during the three months ended September 30, 2023, from the same period in fiscal year 2023, driven primarily by the timing of collections for accounts receivable, payments of accounts payable, and recognition of deferred revenue.

Net cash used in investing activities decreased by $88,000 during the three months ended September 30, 2023, from the same period in fiscal year 2023, driven primarily by activities related to the purchase of equipment for new employees and facility expenditures.

Net cash provided by operating activities increased by $7.7 million during the six months ended December 31, 2023, from the same period in fiscal year 2023, driven primarily by the timing of collections for accounts receivable.

Net cash used in investing activities decreased by $158,000 during the six months ended December 31, 2023, from the same period in fiscal year 2023, 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 used in financing activities increased by $510,000 during the three months ended September 30, 2023, from the same period in fiscal year 2023.

Our current proceeds consist primarily of proceeds from the exercise of employee stock options, our employee stock purchase plan, and funds used for repurchases of our common stock of approximately $517,000.

Net cash used in financing activities was $2.1 million during the six months ended December 31, 2023, compared to the net cash provided by financing activities of $1.0 million for the same period in fiscal year 2023.

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 of September 30, 2023, the future non-cancelable minimum payments under these commitments were approximately $2.5 million.

As of December 31, 2023, the future non-cancelable minimum payments under these commitments were approximately $2.2 million.

Off-Balance Sheet Arrangements

As of September 30, 2023, we had no significant off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.

As of December 31, 2023, we had no significant off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.

New Accounting Pronouncements

1 unchanged sentence

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