What changed in this filing

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Item 1A. Risk Factors

2024-09-12 compared with 2023-09-14 · 102 added, 46 removed, 381 unchanged (28% of the section changed)

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Any of these developments may adversely affect our revenue, operating results and financial condition.

Furthermore, we maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments.

Furthermore, we maintain a provision for credit losses resulting from the inability of our customers to make required payments.

In such cases, we may be required to defer revenue recognition on sales to affected customers.

In the future, we may have to record additional reserves or write-offs, or defer revenue on sales transactions, which could negatively impact our financial results.

Our SaaS business model is subject to certain risks.

Our business is highly dependent on our ability to continue to expand our SaaS business and cloud operations, including keeping pace with the market transition to SaaS solutions.

If customers choose not to renew, or reduce, their subscriptions, our operating results and financial results will suffer.

The deferral or loss of one or more significant orders can also materially adversely affect our operating results, especially in a given quarter.

As with other software-focused companies, a large amount of our quarterly business tends to come in the last few weeks, or even the last few days, of each quarter.

This trend complicates the process of accurately predicting revenue and other operating results, particularly on a quarterly basis.

In addition, our business is subject to seasonal factors that may also cause our results to fluctuate from quarter to quarter.

If we are unable to properly manage our SaaS transition, our business may suffer.

We cannot accurately predict subscription renewal rates and the impact these rates may have on our future revenue and operating results.

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This may also require increasingly sophisticated and costly sales efforts that are targeted at senior management.

Similarly, the rate at which our customers purchase new or enhanced services depends on a number of factors, including general economic conditions and our customers’ reactions to price changes related to these additional features and services.

Similarly, the rate at which our customers purchase new or enhanced services depends on a number of factors, including general economic conditions and our customers’ reactions to price

changes related to these additional features and services.

If our efforts to upsell to our customers are not successful and negative reaction occurs, our business may suffer.

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The loss of any significant customer or a decline in business with any significant customer would materially and adversely affect our financial condition and results of operations.

The market for customer engagement software is intensely competitive, and our business will be adversely affected if we are unable to successfully compete.

The market for customer engagement software, including generative AI product offerings, is competitive, and our business will be adversely affected if we are unable to successfully compete.

The market for customer engagement software is intensely competitive.

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While software internally developed by enterprises represents indirect competition, we also compete directly with packaged application software vendors, including Genesys Telecommunications Laboratories, Inc., LivePerson, Inc., NICE Ltd., and Verint Systems Inc.

In addition, we face actual or potential competition from larger software companies such as Microsoft Corporation, Salesforce, Inc., ServiceNow, Inc., and similar companies that may attempt to sell customer engagement software to their installed base.

We believe competition will continue to be fierce as current competitors increase the sophistication of their offerings and as new participants enter the market.

In addition, we face actual or potential competition from larger software companies such as Microsoft Corporation, Oracle Corporation, salesforce.com, Inc., ServiceNow, Inc., and similar companies that may attempt to sell customer engagement software to their installed base.

We believe that competition will continue to be fierce as current competitors increase the sophistication of their offerings and as new participants enter the market.

Many of our current and potential competitors have longer operating histories, larger customer bases, broader brand recognition, and significantly greater financial, marketing and other resources.

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If we are unable to compete successfully, our business will be adversely affected.

We are also investing in AI across the entire company and infusing generative AI capabilities into our product and service offerings.

We expect AI technology and services to be a highly competitive and rapidly evolving market.

We will bear significant development and operational costs to build and support the generative AI capabilities, products, and services necessary to meet the needs of our customers.

To compete effectively, we must also be responsive to technological change, potential regulatory developments, and public scrutiny.

Such competitive pressure may cause decreased sales volumes, price reductions, and/or increased operating costs, such as for research and development, marketing, and sales activities.

This may lead to lower revenue, gross margins, and operating income.

In addition, customers are currently assessing their AI utilization strategy, so it is difficult to estimate with any reasonable degree of precision the impact of generative AI product offerings on our future revenue or expected demand for our products.

If we fail to expand and improve our sales performance and marketing activities, or retain our sales and marketing personnel, we may be unable to grow our business, which could negatively impact our operating results and financial condition.

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We believe that our future success depends in part upon our ability to develop, maintain and expand strategic, long-term and profitable partnerships and reseller relationships.

If we are unable to do so for any reason, including as a result of any change in the leadership of our distribution partners, or if any existing or future distribution partners fail to successfully market, resell, implement or support our products for their customers, or if distribution partners represent multiple providers and devote

greater resources to market, resell, implement and support competing products and services, our future revenue growth could be impeded.

We sometimes rely on distribution partners to recommend our products to their customers.

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We generally recognize revenue upon the transfer of control of promised services to our customers in the amount that is commensurate with the consideration that we expect to receive in exchange for those services.

If an arrangement requires significant customization or implementation services from us, recognition of the associated license or subscription and service revenue could be delayed.

The timing of the commencement and completion of these services is subject to factors that may be beyond our control, such as customers’ timely meeting their agreed obligations.

If an arrangement requires significant customization or implementation services from us, recognition of the associated subscription and service revenue could be delayed.

The timing of the commencement and completion of these services is subject to factors that may be beyond our control, as this process may require access to the customer’s facilities and coordination with the customer’s personnel after delivery of the software obligations.

In addition, customers could cancel or delay product implementations.

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These risks in turn could cause our operating results and financial condition to suffer.

We derived 22% and 27% of our revenue from EMEA sales during the fiscal years ended June 30, 2023 and 2022, respectively.

We derived 22% of our revenue from EMEA sales during the fiscal years ended June 30, 2024 and 2023.

In addition to those discussed elsewhere in this section, our EMEA sales operations are subject to a number of specific risks, such as:

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● various trade restrictions and tax consequences;

● hostilities in various parts of the world, including the war in Ukraine;

● hostilities in various parts of the world, such as the conflict between Russia and Ukraine and the evolving events in Israel and Gaza;

● reduced intellectual property protections in some countries.

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Changes in customer and Internet user requirements and preferences, frequent new product and service introductions embodying new technologies and the emergence of new industry standards and practices such as but not limited to security standards could render our services and our proprietary technology and systems obsolete.

The rapid evolution of these products and services will require that we continually improve the performance, features and reliability of our services.

The rapid evolution of these products and services will require that

we continually improve the performance, features and reliability of our services.

Our success will depend, in part, on our ability to:

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The loss of the services of any of our senior management or other key personnel, including our Chief Executive Officer and co-founder, Ashutosh Roy, could harm our business.

Additionally, in the

technology industry, there is substantial and continuous competition for highly skilled business, product development, technical and other personnel.

Additionally, in the technology industry, there is substantial and continuous competition for highly skilled business, product development, technical and other personnel.

We may also experience increased compensation costs that are not offset by either improved productivity or higher sales.

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If we are not able to raise additional funds on terms acceptable to us, if and when needed, our ability to fund our operations, take advantage of opportunities, and develop or expand our business could be significantly limited.

Our reserves may be insufficient to cover receivables we are unable to collect.

Our provision may be insufficient to cover accounts receivable we are unable to collect.

We assume a certain level of credit risk with our customers in order to do business.

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In the past, we have experienced collection delays from certain customers, and we cannot predict whether we will continue to experience similar or more severe delays in the future.

Although we have established reserves to cover losses due to delays or inability to pay, there can be no assurance that such reserves will be sufficient to cover our losses.

Although we have established provision to cover losses due to delays or inability to pay, there can be no assurance that such reserves will be sufficient to cover our losses.

If losses due to delays or inability to pay are greater than our reserves, it could harm our business, operating results and financial condition.

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If our cybersecurity systems or the systems of our vendors, partners and suppliers are breached and unauthorized access is obtained to a customer’s data or our data or IT systems, our service may be perceived as not being secure, customers may curtail or stop using our service and we may incur significant legal and financial exposure and liabilities.

Security incidents have become more prevalent across industries and may occur on our systems.

Security incidents have become more prevalent across industries and the methods and techniques used by threat actors continue to evolve at a rapid pace.

These cyberattacks may occur on our systems and we may be unable to identify current attacks, anticipate these attacks or implement adequate security measures.

Our service involves the storage and transmission of customers’ proprietary information, and security incidents could expose us to a risk of loss of this information, loss of access, litigation and possible liability.

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Further, if unauthorized access or sabotage remains undetected for an extended period of time, the effects of such breach could be exacerbated.

In addition, our ability to defend against and mitigate cyberattacks depends in part on prioritization decisions that we and third parties upon whom we rely make to address vulnerabilities and security defects.

While we endeavor to address all identified vulnerabilities in our products, we must make determinations as to how we prioritize developing and deploying the respective fixes, and we may be unable to do so prior to an attack.

In addition, our customers may authorize third party access to their customer data located in our cloud environment.

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Our platform involves the storage and transmission of our customers’ information, which may including their business and financial data.

As a result, unauthorized access to customer data or security breaches could result in the loss, or

unauthorized dissemination, of such data, which could seriously harm our or our customers’ businesses and reputations.

As a result, unauthorized access to customer data or security breaches could result in the loss, or unauthorized dissemination, of such data, which could seriously harm our or our customers’ businesses and reputations.

Any of these security incidents could negatively affect our ability to attract new customers, cause existing customers to elect to not renew their subscriptions, result in reputational damage or subject us to third-party lawsuits, regulatory fines, or other action or liability, which could adversely affect our operating results.

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Data Protection Commissioner) regarding the adequacy of the U.S.-EU Safe Harbor Framework, and the July 16, 2020 ECJ judgment in Case C-311/18 (Data Protection Commissioner v Facebook Ireland Limited and Maximillian Schrems) regarding the adequacy of the Privacy Shield Framework, both frameworks are no longer deemed to constitute a valid method of compliance with restrictions set forth in European law regarding the transfer of data outside of the EEA.

We are therefore required to rely on alternative mechanisms permitted under European law, such as consent and approved standard contractual clauses.

The standard contractual clauses approved by the European Commission for these purposes have recently been replaced and a significant repapering exercise is therefore required.

The United Kingdom (UK) is also currently consulting on its own updated version of the standard contractual clauses and the result of this may be that different standard contractual clauses are needed depending on the origin of the PII.

While we have sought to implement appropriate transfer mechanisms following the invalidation of the Safe Harbor and Privacy Shield frameworks, owing to the significant changes that are ongoing in this area, we may be unsuccessful in establishing legitimate means of transferring data from the EEA or UK to the U.S.

Moreover, further challenges may be raised against the transfer mechanisms that we have adopted which may require future adaptation.

The EJC also noted that standard contractual clauses (approved by the European Commission as an adequate personal data transfer mechanism) may not necessarily be relied upon in all circumstances.

In addition to other mechanisms, in limited circumstances we may rely on Privacy Shield certifications of third parties (for example, vendors and partners).

The European Commission and the United Kingdom’s Information Commissioner’s Office have published new standard contractual clauses that are required to be implemented.

Following issuance of a U.S.

Executive Order, a new framework, the EU-U.S.

Data Privacy Framework (“EU-U.S.

DPF”) was created as a successor to the Privacy Shield.

Following an adequacy decision issued by the European Commission on July 10, 2023, the DPF, along with a UK extension to the EU-U.S.

DPF that allows the transfer of personal data from the UK to the U.S.

(the “UK DPF Extension”), is available for companies as a lawful transfer mechanism for personal data transfers to the U.S.

from the EEA and UK.

The Swiss-U.S.

Data Privacy Framework (“Swiss-U.S.

DPF”) also has been established, but has not yet been granted an adequacy decision by the Swiss Federal Data Protection and Information Commissioner.

We have self-certified to the EU-U.S.

DPF, the UK DPF Extension, and the Swiss-U.S.

DPF already has been the subject of legal challenge, however, and more generally, these frameworks may be subject to legal challenges from privacy advocacy groups or others.

Additionally, the European Commission's adequacy decision regarding the DPF provides that the DPF will be subject to future reviews and may be subject to suspension, amendment, repeal, or limitations in scope by the European Commission.

These developments regarding cross-border data transfers have created uncertainty and increased the risk around our international operations and may require us to review and amend the legal mechanisms by which we make or receive personal data transfers to the U.S.

and other jurisdictions.

We may, among other things, be required to implement additional contractual and technical safeguards for any personal data transferred out of the EEA, Switzerland, the United Kingdom or other regions which may increase compliance costs, lead to increased regulatory scrutiny or liability, may require additional contractual negotiations, and may adversely impact our business, financial condition and operating results.

We may also experience hesitancy, reluctance, or refusal by European or multi-national customers to continue to use our services due to the potential risk exposure to such customers as a result of the international legal developments.

We and our customers are at risk of enforcement actions taken by an EU or UK data protection authority until such point in time that we ensure that all data transfers to us from the EEA and UK are legitimized.

We and our customers are at risk of enforcement actions taken by an EU or UK data protection authority until such point in time

that we ensure that all data transfers to us from the EEA and UK are legitimized.

We may find it necessary to establish systems to maintain EU/UK-origin data in the EEA or UK, which may involve substantial expense and distraction from other aspects of our business.

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Further, laws are increasingly aimed at the use of personal information for marketing purposes, such as the EU’s e-Privacy Directive (which is set to be replaced by a new EU e-Privacy Regulation which will have a “direct effect” in each EU Member State), and the country-specific regulations that implement that directive.

and other requirements could reduce demand for our solutions or restrict our ability to store and process data or, in some cases, impact our ability to offer our services and solutions in certain locations.

These and other requirements could reduce demand for our solutions or restrict our ability to store and process data or, in some cases, impact our ability to offer our services and solutions in certain locations.

Although we have implemented contracts, diligence programs, policies and procedures designed to address compliance with applicable laws and regulations, there can be no assurance that our employees, contractors, partners, suppliers, data providers or agents will not violate such laws and regulations or our contracts, policies and procedures.

Additionally, public perception and standards related to the privacy of personal information can shift rapidly, in ways that may affect our reputation or influence regulators to enact regulations and laws that may limit our ability to provide certain products and services.

For example, numerous jurisdictions, including the EU, are considering laws and regulations that would impose additional data privacy and other compliance requirements on the use of AI and could require us to adjust or limit our product offerings in such jurisdictions.

In the U.S., California enacted the California Consumer Privacy Act (CCPA) on June 28, 2018, which went into effect on January 1, 2020.

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On November 3, 2020, California passed the California Privacy Rights Act (CPRA), which became effective on January 1, 2023 and amends and expands the CCPA, including the introduction of sensitive personal information as a new regulated dataset in California that is subject to new disclosure and purpose limitation requirements.

Additionally, the Virginia Consumer Data Protection Act (VCDPA) became effective on January 1, 2023, the Colorado Privacy Act and the Connecticut Data Privacy Act both become effective on July 1, 2023, and the Utah Consumer Privacy Act will become effective on December 31, 2023.

Additionally, by July 2024, additional states had enacted numerous comprehensive state data privacy laws, requiring businesses to evaluate each law individually for specific compliance requirements and consumer rights, including the following:

● The Virginia Consumer Data Protection Act (VCDPA) became effective on January 1, 2023;

● The Colorado Privacy Act and the Connecticut Data Privacy Act both become effective on July 1, 2023;

● The Utah Consumer Privacy Act became effective on December 31, 2023;

● Florida's Digital Bill of Rights, Oregon's Consumer Privacy Act, and Texas' Data Privacy and Security Act went into effect on July 1, 2024;

● Montana's Consumer Data Privacy Act will come into effect on October 1, 2024;

● Delaware’s Personal Data Privacy Act, Iowa’s Consumer Data Protection Act, Nebraska’s Online Data Privacy Act and New Hampshire’s Privacy Act will come into effect on January 1, 2025;

● New Jersey’s Privacy Act will come into effect on January 15, 2025;

● Tennessee’s Information Protection Act will come into effect on July 1, 2025;

● Minnesota’s Consumer Privacy Act will come into effect on July 31, 2025;

● Maryland’s Online Data Privacy Act will come into effect on October 1, 2025;

● Indiana’s Consumer Data Protection Act and Kentucky’s Consumer Data Protection Act will come into effect on January 1, 2026.

Furthermore, New York enacted the Stop Hacks and Improve Electronic Data Security Act (SHIELD Act), which became effective March 2020 and requires companies with data relating to New Yorkers to adopt comprehensive cybersecurity programs.

Aspects of the CCPA, CPRA and other laws remain unclear and we may be required to modify our practices further in an effort to comply with them.

Aspects of the CCPA, CPRA and other states’ privacy laws remain unclear and we may be required to modify our practices further in an effort to comply with them.

These statutes may increase our compliance costs and potential liability.

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Moreover, as our customers face increased scrutiny for data privacy breaches, they may elect to transfer the risk to us through contractual provisions which may subject us to increasing levels of contractual liability for data privacy breaches.

Issues in the development and use of AI may result in reputational or competitive harm or liability.

We are integrating AI into several of our offerings, developed either by us or in collaboration with our strategic partner, OpenAI.

We anticipate significant growth in this area.

However, like many innovations, AI comes with risks and challenges that could impact its adoption and our business.

Potential issues include flawed algorithms or training methods, inadequate or biased datasets, and harmful or illegal content generated by AI systems.

Poor AI development or deployment practices could lead to incidents that hinder AI acceptance, cause harm, or result in our products not functioning as intended.

Human oversight may be necessary for certain outputs.

These challenges, along with other issues related to innovative technologies, could expose us to competitive harm, regulatory actions, legal liabilities (including under new AI regulations in the EU), and reputational damage.

Some AI applications raise ethical concerns or have broad societal impacts.

If our AI solutions lead to unintended consequences, misuse, or controversy due to their effects on human rights, privacy, employment, or other social, economic, or political issues, we may face reputational harm, negatively affecting our business and financial performance.

Anti-corruption, anti-bribery, and similar laws, and failure to comply with these laws, could subject us to criminal penalties or significant fines and harm our business and reputation.

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As we increase our international sales and business, our risks under these laws may increase.

Noncompliance with these laws could subject us to investigations, sanctions, settlements, prosecution, other enforcement actions, disgorgement of profits, significant fines, damages, other civil and criminal penalties or injunctions, adverse media coverage, and other consequences.

Noncompliance with these laws could subject us to investigations, sanctions, settlements, prosecution, other enforcement actions, disgorgement of profits, significant fines,

damages, other civil and criminal penalties or injunctions, adverse media coverage, and other consequences.

Any investigations, actions, or sanctions could harm our business, operating results, and financial condition.

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Any failure or perceived failure by us to comply with such requirements could have an adverse impact on our business.

We face risks related to health epidemics, including the COVID-19 pandemic, which could have a material adverse effect on our business, financial condition and results of operations .

The COVID-19 pandemic has created significant worldwide uncertainty, volatility and economic disruption.

The ultimate impact of the COVID-19 pandemic on our business, results of operations, financial condition and cash flows is dependent on future developments, including the duration of the pandemic, the severity of the disease and outbreak, the impact of new strains or resurgence of the virus, future and ongoing actions that may be taken by governmental authorities, the impact on the businesses of our customers and partners, and the length of its impact on the global economy, which are uncertain and are difficult to predict at this time.

The potential effects of the COVID-19 pandemic, each of which could adversely affect our business, results of operations, financial condition and cash flows, include:

● the rate of IT spending and the ability of our customers to purchase our offerings could be adversely impacted.

Further, the impact of the COVID-19 pandemic could delay prospective customers’ purchasing decisions and cause them to become less inclined to trade-up from existing solutions, impact customers’ pricing expectations for our offerings, lengthen payment terms, reduce the value or duration of their subscription contracts, or adversely impact renewal rates;

● increased cyber incidents during the COVID-19 pandemic and our increased reliance on a remote workforce could increase our exposure to potential cybersecurity breaches and attacks;

● our results of operations are subject to fluctuations in foreign currency exchange rates, which risks may be heightened due to increased volatility of foreign currency exchange rates as a result of COVID-19.

Further, our forecasted revenue, operating results and cash flows could vary materially from those we provide as guidance or from those anticipated by investors and analysts if the assumptions on which we base our financial projections are inaccurate as a result of the unpredictability of the impact that the COVID-19 pandemic will have on our businesses, our customers’ and partners’ businesses and the global markets and economy or we make changes to our licensing programs or payment terms in connection with COVID-19.

Even though the COVID-19 pandemic has presumably subsided, it remains difficult to predict the full impact of the pandemic on the broader economy and how consumer behavior may change, and whether such change is temporary or permanent .

We may continue to experience an adverse impact to our business and the value of our securities as a result of its global economic impact, including any recession that has occurred or may occur in the future.

To the extent the COVID-19 pandemic adversely affects our business, results of operations, financial condition and cash flows, it may also heighten many of the other risks described in this “Risk Factors” section.

We face risks related to pandemic and public health emergencies which could have a material adverse effect on our business, financial condition and results of operations.

Pandemics, such as the COVID-19 pandemic, and other public health emergencies, and preventative measures taken to contain or mitigate such crises have caused, and may in the future cause, business slowdown or shutdown in affected areas and significant disruption in the financial markets, both globally and in the United States.

These events have led to and could again lead to adverse impacts to our business, results of operations, financial conditions, and cash flows.

We cannot predict whether, and to what degree, our sales, operations and financial results could in the future be affected by the pandemic and preventative measures.

● Risks presented by pandemics and other public health emergencies include, but are not limited to:

the rate of information technology spending and the ability of our customers to purchase our offerings could be adversely impacted.

Further, the impact of a pandemic or public health emergency could delay prospective customers’ purchasing decisions and cause them to become less inclined to trade-up from existing solutions, impact customers’ pricing expectations for our offerings, lengthen payment terms, reduce the value or duration of their subscription contracts, or adversely impact renewal rates;

● increased cyber incidents during a pandemic or public health emergency and our increased reliance on a remote workforce could increase our exposure to potential cybersecurity breaches and attacks;

Further, our forecasted revenue, operating results and cash flows could vary materially from those we provide as guidance or from those anticipated by investors and analysts if the assumptions on which we base our financial projections are inaccurate as a result of the unpredictability of the impact that a pandemic or public health emergency will have on our businesses, our customers’ and partners’ businesses and the global markets and economy or we make changes to our licensing programs or payment terms in connection with a pandemic or public health emergency.

We cannot reasonably predict the ultimate impact of any pandemic or public health emergency, including the extent of any adverse impact on our business, results of operations and financial condition, which will depend on, among other things, the duration and spread of the pandemic or public health emergency, the impact of governmental regulations that

have been, and may continue to be, imposed in response, the effectiveness of actions taken to contain or mitigate the outbreak, the availability, safety and efficacy of vaccines, including against emerging variants of the infectious disease, and global economic conditions.

Additionally, disruptions have in the past made it more challenging to compare our performance, including our revenue growth and overall profitability, across quarters and fiscal years, and could have this effect in the future.

To the extent a pandemic or public health emergency adversely affects our business, results of operations, financial conditions, and cash flows, it may also heighten many of the other risks described in this “Risk Factors” section.

Changes to current accounting policies could have a significant effect on our reported financial results or the way in which we conduct our business.

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The price at which our common stock trades has been and will likely continue to be highly volatile and show wide fluctuations due to factors such as the following:

● transition to a subscription revenue model;

● concerns related to liquidity of our stock;

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Roy individually or together with this group has the ability to exercise significant control over most matters requiring our stockholders’ approval, including the election and removal of directors and the approval of significant corporate transactions, such as a merger or sale of our company or its assets.

UNRESOLVED STAFF COMMENTS

We lease all facilities used in our business as of June 30, 2023.

Our corporate headquarters is located in Sunnyvale, California, and we also have corporate offices in Newbury, England, and Pune, India.

We believe that our offices are adequate to meet our current and near future operating needs.

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 1A. Risk Factors