What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-11-12 compared with 2024-05-09 · 100 added, 158 removed, 221 unchanged (54% of the section changed)

5 unchanged sentences

These forward-looking statements that involves risks and uncertainties include statements as to:

● the benefits of our SaaS only business model, including our belief that it affords recurring revenue visibility, more predictability and 50% faster time to value to SaaS clients;

● our belief that SaaS revenue better reflects business momentum;

● our expectation that legacy fees will continue to decline in future quarters;

● our belief that the combination of SaaS and professional services revenue is a useful measure to value our business on a forward-looking basis;

● our belief that is useful to exclude certain non-cash charges and non-core operational charges from non-GAAP operating income;

5 unchanged sentences

● our business plans, strategies, targets, and outlook;

● changes in technology, including AI technology and services;

● our expectations related to our product development plan;

1 unchanged sentence

● our beliefs regarding our prospects for our business;

● changes in technology, including AI technology and services;

● changes in demand for our solutions;

13 unchanged sentences

These risks and uncertainties could cause actual results to differ materially from those projected and include, but are not limited to:

● our ability to manage our business plans, strategies and outlooks and any business-related forecasts or projections;

● our ability to manage our business plans, strategies, targets, and outlooks and any business-related forecasts or projections;

● our ability to improve our current solutions;

25 unchanged sentences

● Our business is influenced by a range of factors that are beyond our control and that we have no comparative advantage in forecasting.

● Our SaaS only business model is subject to certain risks.

● Our SaaS business model is subject to certain risks.

● Our revenue and operating results have fluctuated in the past and are likely to fluctuate in the future, and because we recognize revenue from subscriptions over a period of time, downturns in revenue may not be immediately reflected in our operating results.

11 unchanged sentences

● The terms we agree to in our Service Level Agreements or other contracts may result in increased costs or liabilities, which would in turn affect our results of operations.

● If we are unable to increase the profitability of subscription revenue, if we experience significant customer attrition, or if we are required to delay recognition of revenue, our operating results could be adversely affected.

● If we are unable to increase the profitability of SaaS revenue, if we experience significant customer attrition, or if we are required to delay recognition of revenue, our operating results could be adversely affected.

● We depend on broad market acceptance of our applications and of our business model.

6 unchanged sentences

● Privacy concerns and laws, evolving regulation of cloud computing and other domestic or foreign regulations may limit the use and adoption of our solutions and adversely affect our business.

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 SaaS solution to improve customer satisfaction, empower agents, reduce service cost, and boost sales.

We are headquartered in the United States.

eGain automates customer engagement with an AI knowledge hub SaaS solution.

We sell to enterprises who want to better serve customers at scale by delivering trusted answers across self-service, contact centers, and field staff.

True to our mantra of AX + BX + CX = DX™ , our AI knowledge hub orchestrates effortless Digital eXperience (DX) as it assists Agent eXperience (AX), empowers Business eXperience (BX) and assures Customer eXperience (CX).

Many global brands use eGain to improve experience and reduce costs.

We are headquartered in the Sunnyvale, California, United States.

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.

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

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.

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

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.

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.

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 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 revenue for each of the following periods:

Three Months Ended

Nine Months Ended

(in thousands)

Legacy revenue

Total subscription revenue

SaaS and Professional Services Revenue

As we continue to shift to a SaaS only business model, substantially all of professional services revenue is now generated from our SaaS customer base.

We believe the combination of SaaS and professional services revenue is a useful measure to value our business on a forward-looking basis.

We believe the combination of SaaS and professional services revenue is a useful measure to value our business.

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

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

The following table presents total SaaS and professional services revenue for each of the following periods:

Three Months Ended

Nine Months Ended

September 30,

(in thousands)

2 unchanged sentences

Non-GAAP Operating Income

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

Non-GAAP operating income is defined as income 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 (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 income (loss) from operations to non-GAAP income from operations for each of the following periods:

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

Three Months Ended

Nine Months Ended

(in thousands)

Income (loss) from operations

September 30,

Income from operations

Stock-based compensation

3 unchanged sentences

The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period.

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

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

We evaluate these estimates on an ongoing basis.

2 unchanged sentences

Sources of Revenue

Our revenue is comprised of two categories, subscription and professional services.

Subscription includes SaaS revenue and legacy revenue.

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

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

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

Subscription Revenue

Our revenue is comprised of two categories including SaaS and professional services.

SaaS revenue includes cloud delivery arrangements, term licenses, embedded original equipment manufacturer (OEM) royalties, and associated support.

An immaterial amount of SaaS revenue is comprised of our legacy revenue which is associated with license, maintenance, and support contracts on perpetual license arrangements that we no longer sell.

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

For our cloud delivery arrangements, our maintenance and support arrangements and our term license subscriptions that incorporate substantial cloud functionality, the combined performance obligation is recognized ratably over the contract term as the obligation is delivered.

4 unchanged sentences

Under the terms of the agreement, the customer is to provide a combined fixed fee, per agent, for each software license sold containing the embedded software to us.

These embedded OEM royalties are included as subscription revenue.

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

These embedded OEM royalties are included as SaaS 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.

12 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 March 31, 2024, our remaining performance obligations were $67.7 million, of which we expect to recognize $47.9 million and $19.8 million as revenue within one year and beyond one year, respectively.

As of September 30, 2024, our remaining performance obligations were $70.4 million, of which we expect to recognize $54.5 million and $15.9 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.

We typically issue renewal invoices in advance of the renewal service period.

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

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

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.

Costs Capitalized to Obtain Revenue Contracts

9 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Professional services

1 unchanged sentence

Cost of revenue:

Cost of subscription

Cost of professional services

5 unchanged sentences

Total operating expenses

Income (loss) from operations

Income from operations

We classify our revenue into two categories:

subscription and professional services revenue.

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 nine months ended March 31, 2024 and 2023, respectively:

SaaS and professional services revenue, with SaaS revenue being a key metric.

The following table presents our SaaS and professional services revenue during the three months ended September 30, 2024 and 2023, respectively:

Three Months Ended

Nine Months Ended

September 30,

(in thousands, except percentages)

1 unchanged sentence

Total revenue

Total revenue for the three months ended March 31, 2024 decreased by $663,000, while SaaS revenue decreased $577,000, compared to the same period in fiscal year 2023.

Total revenue for the nine months ended March 31, 2024 decreased by $3.0 million, while SaaS revenue decreased by $2.4 million, compared to the same period in fiscal year 2023.

Total revenue decreased approximately $2.4 million during the three months ended September 30, 2024, compared to the same period in fiscal year 2024, due to a decrease in SaaS revenue of $2.5 million offset by an increase of $126,000 in professional services, respectively, during the three months ended September 30, 2024, compared to the same period in fiscal year 2024.

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 $226,000 and a decrease of $534,000 in total revenue during the three months ended March 31, 2024 and 2023, respectively.

Foreign exchange rate fluctuation resulted in an increase of $999,000 and a decrease of $2.4 million for the nine months ended March 31, 2024 and 2023, respectively.

Subscription Revenue

Three Months Ended

Nine Months Ended

(in thousands, except percentages)

Percentage of total revenue

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

Revenue from SaaS decreased by $577,000 and $2.4 million during the three and nine months ended March 31, 2024, respectively, compared to the same periods in fiscal year 2023.

This represented a decrease in SaaS revenue of 3% and 4% for the three and nine months ended March 31, 2024, 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 91% and 92% of total revenue for the three and nine months ended March 31, 2024, respectively, compared to 91% during the same periods in fiscal year 2023.

Excluding an increase of $208,000 and $925,000 due to foreign exchange rate fluctuation, SaaS revenue decreased by $785,000 and $3.4 million during the three and nine months ended March 31, 2024, respectively, compared to the same periods in fiscal year 2023.

Legacy Revenue

Foreign exchange rate fluctuation resulted in an increase of $144,000 and $426,000 in total revenue during the three months ended September 30, 2024 and 2023, respectively.

Three Months Ended

Nine Months Ended

September 30,

(in thousands, except percentages)

Legacy revenue

Percentage of total revenue

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

We experienced decreases of $79,000 and $443,000 during the three and nine months ended March 31, 2024, 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 legacy fees to continue to decline in future quarters.

Excluding increases of $3,000 and $14,000 due to foreign exchange rate fluctuation, legacy revenue decreased by $82,000 and $457,000 during the three and nine months ended March 31, 2024, respectively, compared to the same periods in fiscal year 2023.

SaaS revenue includes revenue from cloud delivery arrangements, term licenses and embedded OEM royalties, associated support, and an immaterial amount of legacy revenue.

Revenue from SaaS decreased by $2.5 million during the three months ended September 30, 2024, compared to the same period in fiscal year 2024 primarily due to departures of two impactful customers.

SaaS revenue represents 91% of total revenue for the three months ended September 30, 2024, compared to 92% during the same period in fiscal year 2024.

This represented a decrease in SaaS revenue of 11% for the three months ended September 30, 2024, compared to the same period in fiscal year 2024.

Excluding an increase of $132,000 due to foreign exchange rate fluctuation, SaaS revenue decreased by $2.6 million during the three months ended September 30, 2024, compared to the same period in fiscal year 2024.

Professional Services Revenue

Three Months Ended

Nine Months Ended

September 30,

(in thousands, except percentages)

1 unchanged sentence

Percentage of total revenue

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

Revenue from professional services decreased by $7,000 and $161,000 during the three and nine months ended March 31, 2024, respectively, compared to the same periods in fiscal year 2023.

Excluding an increase of $15,000 and $59,000 due to foreign exchange rate fluctuation, professional services revenue decreased by $22,000 and $220,000 during the three and nine months ended March 31, 2024, respectively, compared to the same periods in fiscal year 2023.

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

Revenue from professional services increased by $126,000 during the three months ended September 30, 2024, compared to the same period in fiscal year 2024.

Excluding an increase of $12,000 due to foreign exchange rate fluctuation, professional services revenue increased by $114,000 during the three months ended September 30, 2024, compared to the same period in fiscal year 2024.

Revenue by Geography

Three Months Ended

Nine Months Ended

September 30,

(in thousands, except percentages)

2 unchanged sentences

Total revenue

Revenue from North America sales decreased by 2% from $17.9 million during the three months ended March 31, 2023 to $17.4 million during the three months ended March 31, 2024, due to decreases of (i) $498,000 in SaaS revenue and (ii) $29,000 in legacy revenue;

partially offset by an increase of $88,000 in professional services revenue.

Revenue from North America sales decreased by 3% from $56.8 million during the nine months ended March 31, 2023 to $55.2 million during the nine months ended March 31, 2024, due to decreases of (i) $1.3 million in SaaS revenue and (ii) $339,000 in legacy revenue;

partially offset by an increase of $72,000 in professional services revenue.

Revenue from EMEA sales decreased by 4% from $5.2 million for the three months ended March 31, 2023 to $4.9 million during the three months ended March 31, 2024, due to decreases of (i) $80,000 in SaaS revenue, (ii) $95,000 in professional services revenue, and (iii) $49,000 in legacy revenue.

Revenue from EMEA sales decreased by 9% from $16.6 million for the nine months ended March 31, 2023 to $15.1 million during the nine months ended March 31, 2024, due to decreases of (i) $1.2 million in SaaS revenue, (ii) $233,000 in professional services revenue, and (iii) $103,000 in legacy revenue.

Revenue from North America sales decreased by 14% from $19.0 million during the three months ended September 30, 2023 to $16.4 million during the three months ended September 30, 2024 primarily due to a decrease of $2.5 million in SaaS revenue.

Revenue from EMEA sales increased by 4% from $5.2 million for the three months ended September 30, 2023 to $5.4 million during the three months ended September 30, 2024, due to increases of (i) $57,000 in SaaS revenue and (ii) $132,000 in professional services revenue.

Cost of Revenue

Three Months Ended

Nine Months Ended

September 30,

(in thousands, except percentages)

2 unchanged sentences

Percentage of total revenue

Cost of subscription revenue consists primarily of expenses related to our cloud services and providing support to our customers.

Cost of SaaS revenue consists primarily of expenses related to our cloud services and providing support to our customers.

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 decreased by $906,000 during the three months ended March 31, 2024, from the same period in fiscal year 2023.

This decrease was primarily due to decreases of $1.4 million in cloud-computing costs;

partially offset by increases of (i) $411,000 in personnel-related costs and (ii) $109,000 in outside consulting costs.

Cost of subscription revenue increased by $848,000 during the nine months ended March 31, 2024, from the same period in fiscal year 2023.

This increase was primarily due to increases of (i) $984,000 in personnel related costs and (ii) $143,000 in outside consulting costs;

partially offset by a decrease of $327,000 in cloud-computing costs.

Excluding an increase of $14,000 and $48,000 due to foreign exchange rate fluctuation, cost of subscription revenue decreased by $920,000 and increased by $800,000 during the three and nine months ended March 31, 2024, respectively, from the same periods in fiscal year 2023.

Cost of SaaS revenue decreased by $525,000 during the three months ended September 30, 2024, from the same period in fiscal year 2024.

This decrease was primarily due to decreases of (i) $282,000 in cloud-computing costs and (ii) $230,000 in personnel-related costs, and (iii) $16,000 in outside consulting costs.

Excluding an increase of $3,000 due to foreign exchange rate fluctuation, cost of SaaS revenue decreased by $528,000 during the three months ended September 30, 2024, from the same period in fiscal year 2024.

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 by $169,000 during the three months ended March 31, 2024, from the same period in fiscal year 2023.

Cost of professional services increased by $353,000 during the three months ended September 30, 2024, from the same period in fiscal year 2024.

This increase was primarily due to an increase of $358,000 in personnel-related costs;

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

Cost of professional services decreased by $791,000 during the nine months ended March 31, 2024, from the same period in fiscal year 2023.

This decrease was primarily due to decreases of (i) $749,000 in personnel-related costs and (ii) $113,000 in outside consulting costs.

Excluding increases of $15,000 and $72,000 due to foreign exchange rate fluctuation, cost of professional services revenue increased by $154,000 and decreased by $863,000 during the three and nine months ended March 31, 2024, respectively, compared to the same periods in fiscal year 2023.

Excluding a decrease of $3,000 due to foreign exchange rate fluctuation, cost of professional services revenue increased by $356,000 during the three months ended September 30, 2024, compared to the same period in fiscal year 2024.

Operating Expenses

1 unchanged sentence

Three Months Ended

Nine Months Ended

September 30,

(in thousands, except percentages)

2 unchanged sentences

Research and development expense primarily consists of personnel-related expenses directly associated with our engineering, product management and development, and quality assurance 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.

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

Research and development expense remained consistent at $6.7 million for the three months ended March 31, 2024, from the same period in fiscal year 2023.

Excluding an increase of $21,000 due to foreign exchange rate fluctuation, research and development expense decreased primarily due to a decrease of $76,000 in personnel-related costs;

partially offset by an increase of $22,000 in outside consulting costs.

Research and development expense decreased by 4% to $19.9 million for the nine months ended March 31, 2024, from $20.7 million in the same period in fiscal year 2023.

Excluding an increase of $71,000 due to foreign exchange rate fluctuation, research and development expense decreased primarily due to decreases of (i) $615,000 in personnel-related costs and (ii) $257,000 from outside consulting costs.

Research and development expense increased by $789,000 during the three months ended September 30, 2024, from the same period in fiscal year 2024.

This increase was primarily due to increase of $795,000 in personnel-related costs and partially offset by a decrease of $12,000 in outside consulting costs.

Excluding an increase of $6,000 due to foreign exchange rate fluctuation, research and development expense increased by $783,000 during the three months ended September 30, 2024, compared to the same period in fiscal year 2024.

Sales and Marketing

Three Months Ended

Nine Months Ended

September 30,

(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 20% to $5.4 million for the three months ended March 31, 2024, from $6.8 million in the same period in fiscal year 2023.

Excluding an increase of $89,000 due to foreign exchange rate fluctuation, sales and marketing expense decreased primarily due to decreases of (i) $1.4 million in personnel-related costs, (ii) $69,000 in outside consulting costs, and (iii) $55,000 in lead generation costs.

Sales and marketing expenses decreased by 33% to $16.9 million for the nine months ended March 31, 2024, from $25.2 million in the same period in fiscal year 2023.

Excluding an increase of $362,000 due to foreign exchange rate fluctuation, sales and marketing expense decreased primarily due to decreases of (i) $7.1 million in personnel-related costs, (ii) $1.2 million in lead generation costs, and (iii) $288,000 in outside consulting costs.

Sales and marketing expenses decreased by $1.3 million during three months ended September 30, 2024, from the same period in fiscal year 2024.

The decrease was primarily due to decreases of (i) $804,000 in personnel-related expenses and (ii) $654,000 in marketing program expenses;

partially offset by an increase of $33,000 in outside consulting expenses.

Excluding an increase of $81,000 due to foreign exchange rate fluctuation, sales and marketing expense decreased by $1.4 million during the three months ended September 30, 2024, compared to the same period in fiscal year 2024.

General and Administrative

Three Months Ended

Nine Months Ended

September 30,

(in thousands, except percentages)

3 unchanged sentences

Included in these costs are salaries, benefits, bonuses, and stock-based compensation and allocated overhead.

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 2% to $2.5 million for the three months ended March 31, 2024, from $2.4 million in the same period in fiscal year 2023.

Excluding an increase of $20,000 due to foreign exchange rate fluctuation, general and administrative expense increased primarily due to increases of (i) $37,000 in personnel-related costs, (ii) $27,000 in legal related costs, and (iii) $15,000 in bad debt costs;

partially offset by decreases of (i) $38,000 in outside-consulting costs and (ii) $16,000 in accounting, audit, and administrative costs.

General and administrative expenses increased by 3% to $8.0 million for the nine months ended March 31, 2024, from $7.8 million in the same period in fiscal year 2023.

Excluding an increase of $63,000 due to foreign exchange rate fluctuation, general and administrative expense increased primarily due to increases of (i) $702,000 in legal related costs and (ii) $111,000 in accounting, audit, and administrative costs;

partially offset by decreases of (i) $427,000 in personnel-related costs, (ii) $106,000 in outside consulting costs, and (iii) $91,000 in bad debt costs.

Income (Loss) from Operations

General and administrative expenses also include fees for professional services, provision for credit losses and, to a lesser extent, occupancy costs and related overhead.

General and administrative expenses decreased by $743,000 during the three months ended September 30, 2024, from the same period in fiscal year 2024.

The decrease was primarily due to decreases of (i) $829,000 in legal expenses and (ii) $64,000 in personnel-related expenses, and (iii) $53,000 in outside-consulting expenses;

partially offset by increases in (i) $185,000 in bad debt expenses, (ii) $12,000 in accounting, audit, and administrative expenses, and (iii) $1,000 in investor relations expenses.

Excluding an increase of $5,000 due to foreign exchange rate fluctuation, general and administrative expense decreased

$748,000 during the three months ended September 30, 2024, compared to the same period in fiscal year 2024.

Income from Operations

Three Months Ended

Nine Months Ended

September 30,

(in thousands, except percentages)

Income (loss) from operations

Income from operations

Operating margin

Income (loss) from operations was income of $938,000 and loss of $512,000 with an operating profit margin of 4% and operating loss margin of 2% during the three months ended March 31, 2024 and 2023, respectively.

Income from operations during the three months ended March 31, 2024 included $1.1 million of stock-based compensation and $325,000 of amortization of costs capitalized to obtain revenue contracts.

Income from operations during the three months ended March 31, 2023 included $1.4 million of stock-based compensation and $381,000 of amortization of costs capitalized to obtain revenue contracts.

Income (loss) from operations was income of $4.8 million with an operating profit margin of 7% during the nine months ended March 31, 2024.

Loss from operations was $969,000 with an operating loss margin of 1% during the nine months ended March 31, 2023.

Income from operations during the nine months ended March 31, 2024 included $3.5 million of stock-based compensation and $1.2 million of amortization of costs capitalized to obtain revenue contracts.

Loss from operations during the nine months ended March 31, 2023 included $5.3 million of stock-based compensation and $1.2 million of amortization of costs capitalized to obtain revenue contracts.

Income from operations was $509,000 with an operating profit margin of 2% during the three months ended September 30, 2024.

Income from operations was $1.4 million during the three months ended September 30, 2023.

Interest Income

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

Interest income was $1.0 million and $818,000 during the three months ended March 31, 2024 and 2023,

respectively.

Interest income was $2.9 million and $1.6 million during the nine months ended March 31, 2024 and 2023, respectively.

Other Income (Expense), Net

Other income (expense), net was income of $74,000 and expense of $245,000 during the three months ended March 31, 2024 and 2023, respectively.

Other income (expense), net was expense of $13,000 and income of $20,000 during the nine months ended March 31, 2024 and 2023, respectively.

Other income (expense), 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.

Interest income was $771,000 and $949,000 during the three months ended September 30, 2024 and 2023, respectively, due to lower interest rates in the current period.

Other (Expense) Income, Net

Other (expense) income, net was expense of $140,000 and income of $610,000 during the three months ended September 30, 2024 and 2023, 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 U.S.

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

deferred tax assets as of March 31, 2024.

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

deferred tax assets as of September 30, 2024.

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 $521,000 and $1.4 million for the three and nine months ended March 31, 2024, respectively.

We recorded income tax provision of $433,000 and $1.2 million for the three and nine months ended March 31, 2023, respectively.

We recorded income tax provision of $488,000 and $379,000 for the three months ended September 30, 2024 and 2023, respectively.

Liquidity and Capital Resources

As of March 31, 2024 and June 30, 2023, our principal sources of liquidity were cash and cash equivalents, restricted cash, and accounts receivable totaling $93.9 million and $104.8 million, respectively.

Our cash, cash equivalents and restricted cash were $83.0 million and $73.2 million as of March 31, 2024 and June 30, 2023, respectively.

As of September 30, 2024 and June 30, 2024, our principal sources of liquidity were cash and cash equivalents, restricted cash, and accounts receivable totaling $90.3 million and $101.7 million, respectively.

Our cash, cash equivalents and restricted cash were $67.2 million and $70.0 million as of September 30, 2024 and June 30, 2024, 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 nine months ended March 31, 2024 and 2023, our cash flows were as follows (in thousands):

Nine Months Ended

For the three months ended September 30, 2024 and 2023, our cash flows were as follows (in thousands):

Three Months Ended

September 30,

Net cash provided by operating activities

Net cash used in investing activities

Net cash (used in) provided by 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 commissions and bonus payments, and changes in operating assets and liabilities during the year.

Net cash provided by operating activities increased by $8.5 million during the nine months ended March 31, 2024, from the same period in fiscal year 2023, driven primarily by net income, stock-based compensation expense, and the timing of collections for accounts receivable.

Net cash used in investing activities decreased by $69,000 during the nine months ended March 31, 2024, 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 used in financing activities

Cash provided by operating activities mainly consists of net income adjusted for non-cash expense items such as depreciation and amortization, expense associated with stock-based awards, the timing of employee related costs including commissions and bonus payments, and changes in operating assets and liabilities during the year.

Net cash provided by operating activities decreased by $7.2 million during the three months ended September 30, 2024, from the same period in fiscal year 2024, 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 increased by $77,000 during the three months ended September 30, 2024, from the same period in fiscal year 2024, 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 was $7.5 million during the nine months ended March 31, 2024, compared to the net cash provided by financing activities of $7,000 for the same period in fiscal year 2023.

Net cash used in financing activities increased by $3.9 million during the three months ended September 30, 2024, from the same period in fiscal year 2024.

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 $4.6 million.

1 unchanged sentence

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

As of March 31, 2024, the future non-cancelable minimum payments under these commitments were approximately $5.1 million.

As of September 30, 2024, the future non-cancelable minimum payments under these commitments were approximately $4.7 million.

Off-Balance Sheet Arrangements

As of March 31, 2024, we had no significant off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.

As of September 30, 2024, 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