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Item 2. Management’s Discussion and Analysis

2025-05-14 compared with 2025-02-13 · 80 added, 190 removed, 146 unchanged (65% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and the related notes included in Item 1 of Part I of this Quarterly Report on Form 10-Q, and with our audited financial statements and the related notes included in our Annual Report on Form 10-K for the year ended June 30, 2024.

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

These statements relate to future periods, future events or our future operating or financial plans or performance.

Often, these statements include the words “believe,” “expect,” “target,” “anticipate,” “intend,” “plan,” “seek,” “estimate,” “potential,” or words of similar meaning, or future or conditional verbs such as “will,” “would,” “should,” “could,” “might,” or “may,” or the negative of these terms, and other similar expressions.

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

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

● expected benefits of our solutions to our clients and partners;

● our value proposition;

● customer and market expectations in the market in which we operate, and our ability to meet expectations and satisfy such needs;

● our lengthy sales cycles and the difficulty in predicting timing of sales or delays;

● our expectations with respect to revenue, cost of revenue, expenses and other financial metrics;

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

● changes in technology, including AI technology and services;

● our expectations related to our product development plan;

● competition in the markets in which we do business and our competitive advantages;

● our beliefs regarding our prospects for our business;

● changes in demand for our solutions;

● our expectations regarding the composition of our customers and the result of a loss of a significant customer;

● our reliance on strategic and third party distribution partnerships;

● the risk of unauthorized access to a customer’s data or our data or our IT systems and cybersecurity attacks;

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

● the effect of recent changes in U.S.

tax legislation;

● the effect of compliance with privacy laws and regulations on our business and our customers;

● our ability to take adequate precautions against claims or lawsuits made by third parties, including alleged infringement of proprietary rights;

● the adequacy of our capital resources and our ability to raise additional financing;

● the risks related to our international operations;

● the potential impact of foreign currency fluctuations and inflation;

● the potential impact of health epidemics.

These forward-looking statements reflect our current views with respect to future events, are based on assumptions and are subject to risks and uncertainties.

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, target and outlooks and any business-related forecasts or projections;

● our ability to improve our current solutions;

● our ability to innovate and respond to rapid technological change and competitive challenges;

● our ability to execute our sales and marketing strategy;

● customer acceptance of our existing and future solutions;

● our ability to predict subscription renewals;

● the impact of new legislation or regulations on our business;

● the impact of accounting pronouncements and our critical accounting policies, judgments, estimates, models and assumptions on our financial results;

● our ability to compete;

● the success of our strategic and distribution partnerships;

● our ability to obtain capital when needed;

● our ability to manage future growth;

● our ability to retain key personnel and hire additional personnel;

● risks related to protection of our intellectual property;

● foreign currency fluctuations and inflation;

● the global economic environment;

● risks related to public health pandemics;

● the risks set forth under “Risk Factors.”

Given these risks and uncertainties, you should not place undue reliance on these forward-looking statements.

Except as required by federal securities laws, we undertake no obligation to update any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.

All references to “eGain”, the “Company”, “our”, “we” or “us” mean eGain Corporation and its subsidiaries, except where it is clear from the context that such terms mean only eGain and exclude its subsidiaries.

eGain and eGain® are trademarks of eGain Corporation.

We also refer to trademarks of other corporations and organizations in this report.

Summary Risk Factors

Our business is subject to numerous risks and uncertainties that could affect our ability to successfully implement our business strategy and affect our financial results.

You should carefully consider all of the information in this report and, in particular, the following principal risks and all of the other specific factors described in Item 1A.

of this report, “Risk Factors,” before deciding whether to invest in our company:

● 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 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.

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

● Our lengthy sales cycles and the difficulty in predicting timing of sales or delays may impair our operating results.

● Because we depend on a relatively small number of customers for a substantial portion of our revenue, the loss of any of these customers or our failure to attract new significant customers could adversely impact our revenue and harm our business.

● 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.

● 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.

● Our failure to maintain, develop or expand strategic and third-party distribution channels would impede our revenue growth.

● Difficulties and delays in customers implementing our products could harm our revenue and margins.

● We conduct a significant portion of our business and operations outside of the United States, which exposes us to additional risks that may not exist in the United States.

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

● Unplanned system interruptions, delays in service or inability to increase capacity, including internationally, at our third-party data center facilities could impair the use or functionality of our cloud operations and harm our business.

● Software errors could be costly and time-consuming for us to correct, and could harm our reputation and impair our ability to sell our solutions.

● 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 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.

If our expectations regarding the market for our applications are not met, our business could be seriously harmed.

● We may be unable to respond to the rapid technological change and changing customer preferences in the online sales, marketing, customer service, and/or online consumer services industries and this may cause our business to suffer.

● We employ third-party technologies for use in or with our platform and the inability to license such technologies on commercially reasonable terms or the inability to maintain these licenses or errors in the software we license could result in increased costs, or reduced service levels, which could adversely affect our business.

● Our offshore product development, support and professional services may prove difficult to manage or may not allow us to realize our cost reduction goals, produce effective new solutions and provide professional services to drive growth.

● 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.

● Changes in the European regulatory environment regarding privacy and data protection regulations, such as the GDPR, could expose us to risks of noncompliance and costs associated with compliance.

● 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 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 Sunnyvale, California in the United States.

We also operate in the United Kingdom and India.

Key Financial Measures

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

SaaS and Professional Services Revenue

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

Six Months Ended

(in thousands)

Professional services revenue

Total SaaS and professional services revenue:

Non-GAAP Operating Income

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.

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 GAAP.

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

Six Months Ended

(in thousands)

Income from operations

Stock-based compensation

Non-GAAP income from operations

Critical Accounting Policies and Estimates

Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses our condensed consolidated financial statements, which have been prepared in accordance with GAAP.

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We evaluate these estimates on an ongoing basis.

Management bases its estimates and judgments on historical experience and on various

other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making

judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

Actual results may differ from these estimates under different assumptions or conditions.

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The transaction price allocated to the remaining performance obligation is influenced by a variety of factors, including seasonality, timing of renewals, average contract terms and foreign currency exchange rates.

As of December 31, 2024, our remaining performance obligations were $73.6 million, of which we expect to recognize $50.9 million and $22.7 million as revenue within one year and beyond one year, respectively.

As of March 31, 2025, our remaining performance obligations were $66.5 million, of which we expect to recognize $44.3 million and $22.2 million as revenue within one year and beyond one year, respectively.

We expect our remaining performance obligations to change quarterly for several reasons including the timing of new contracts and renewals, duration and size of our subscription and support arrangements, variable billing cycles and foreign exchange rate fluctuation.

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Results of Operations

The following table sets forth certain items reflected in our condensed consolidated statements of operations expressed as a percent of total revenue for the periods indicated:

The following table sets forth certain items reflected in our condensed consolidated statements of operations expressed as a percentage of total revenue for the periods indicated:

Three Months Ended

Six Months Ended

Nine Months Ended

Professional services

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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 and six months ended December 31, 2024 and 2023, respectively:

The following table presents our SaaS and professional services revenue during the three and nine months ended March 31, 2025 and 2024, respectively:

Three Months Ended

Six Months Ended

Nine Months Ended

(in thousands, except percentages)

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Total revenue

Total revenue for the three months ended December 31, 2024 decreased by $1.4 million, while SaaS revenue decreased by $1.1 million, compared to the same period in fiscal year 2024.

Total revenue for the six months ended December 31, 2024 decreased by $3.8 million, while SaaS revenue decreased by $3.7 million, compared to the same period in fiscal year 2024.

Total revenue for the three months ended March 31, 2025 decreased by $1.3 million, while SaaS revenue decreased by $761,000, compared to the same period in fiscal year 2024.

Total revenue for the nine months ended March 31, 2025 decreased by $5.1 million, while SaaS revenue decreased by $4.4 million, compared to the same period in fiscal year 2024.

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

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We recalculate our current period results using the comparable prior period exchange rates to exclude the impact of foreign exchange rate fluctuation.

Foreign exchange rate fluctuation resulted in an increase of $151,000 and $340,000 in total revenue during the three months ended December 31, 2024 and 2023, respectively.

Foreign exchange rate fluctuation resulted in an increase of $298,000 and an increase of $769,000 for the six months ended December 31, 2024 and 2023, respectively.

Foreign exchange rate fluctuation resulted in a decrease of $33,000 and $226,000 in total revenue during the three months ended March 31, 2025 and 2024, respectively.

Foreign exchange rate fluctuation resulted in an increase of $271,000 and an increase of $999,000 for the nine months ended March 31, 2025 and 2024, respectively.

Three Months Ended

Six Months Ended

Nine Months Ended

(in thousands, except percentages)

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

Revenue from SaaS decreased by $1.1 million and $3.7 million during the three and six months ended December 31, 2024, respectively, compared to the same periods in fiscal year 2024.

This represented a decrease in SaaS revenue of 5% and 8% for the three and six months ended December 31, 2024, respectively, compared to the same periods in fiscal year 2024.

SaaS revenue represents 93% and 92% of total revenue for the three and six months ended December 31, 2024, respectively, compared to 92% for the same periods in fiscal year 2024.

Excluding an increase of $144,000 and $276,000 due to foreign exchange rate fluctuation, SaaS revenue decreased by $1.3 million and $3.9 million during the three and six months ended December 31, 2024, respectively, compared to the same periods in fiscal year 2024.

Revenue from SaaS decreased by $761,000 and $4.4 million during the three and nine months ended March 31, 2025, respectively, compared to the same periods in fiscal year 2024.

This represented a decrease in SaaS revenue of 4% and 7% for the three and nine months ended March 31, 2025, respectively, compared to the same periods in fiscal year 2024.

SaaS revenue represents 93% and 92% of total revenue for the three and nine months ended March 31, 2025, respectively, compared to 91% and 92% for the same periods in fiscal year 2024.

Excluding a decrease of $32,000 and an increase of $248,000 due to foreign exchange rate fluctuation, SaaS revenue decreased by $729,000 and $4.7 million during the three and nine months ended March 31, 2025, respectively, compared to the same periods in fiscal year 2024.

Professional Services Revenue

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

Revenue from professional services decreased by $277,000 and $151,000 during the three and six months ended December 31, 2024, respectively, compared to the same periods in fiscal year 2024.

Excluding an increase of $7,000 and $21,000 due to foreign exchange rate fluctuation, professional services revenue decreased by $284,000 and $172,000 during the three and six months ended December 31, 2024, respectively, compared to the same periods in fiscal year 2024.

Revenue from professional services decreased by $580,000 and $731,000 during the three and nine months ended March 31, 2025, respectively, compared to the same periods in fiscal year 2024.

Excluding a decrease of $1,000 and an increase of $22,000 due to foreign exchange rate fluctuation, professional services revenue decreased by $579,000 and $753,000 during the three and nine months ended March 31, 2025, respectively, compared to the same periods in fiscal year 2024.

Revenue by Geography

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Total revenue

Revenue from North America sales decreased by 8% from $18.8 million during the three months ended December 31, 2023 to $17.3 million during the three months ended December 31, 2024, due to decreases of (i) $1.1 million in SaaS revenue and (ii) $356,000 in professional services revenue.

Revenue from North America sales decreased by 11% from $37.8 million during the six months ended December 31, 2023 to $33.8 million during the six months ended December 31, 2024, due to decreases of (i) $3.8 million in SaaS revenue and (ii) $288,000 in professional services revenue.

Revenue from EMEA sales increased by 2% from $5.0 million for the three months ended December 31, 2023 to $5.1 million during the three months ended December 31, 2024, due to increases of (i) $73,000 in SaaS revenue and (ii) $5,000 in professional services revenue.

Revenue from EMEA sales increased by 3% from $10.2 million for the six months ended December 31, 2023 to $10.4 million during the six months ended December 31, 2024, due to increases of (i) $131,000 in SaaS revenue and (ii) $138,000 in professional services revenue.

Revenue from North America sales decreased by 6% from $17.4 million during the three months ended March 31, 2024 to $16.5 million during the three months ended March 31, 2025, due to decreases of (i) $540,000 in professional services revenue and (ii) $425,000 in SaaS revenue.

Revenue from North America sales decreased by 9% from $55.2 million during the nine months ended March 31, 2024 to $50.2 million during the nine months ended March 31, 2025, due to decreases of (i) $4.2 million in SaaS revenue and (ii) $828,000 in professional services revenue.

Revenue from EMEA sales decreased by 8% from $4.9 million for the three months ended March 31, 2024 to $4.6 million during the three months ended March 31, 2025, due to decreases of (i) $336,000 in SaaS revenue and (ii) $40,000 in professional services revenue.

Revenue from EMEA sales decreased by 1% from $15.1 million for the nine months ended March 31, 2024 to $15.0 million during the nine months ended March 31, 2025, due to a decrease of $205,000 in SaaS revenue;

partially offset by an increase of $98,000 in professional services revenue.

Cost of Revenue

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These expenses are comprised of cloud computing costs, personnel-related costs directly associated with cloud operations, and customer support, including salaries, benefits, bonuses and stock-based compensation and allocated overhead.

Cost of SaaS revenue decreased by $483,000 during the three months ended December 31, 2024, from the same period in fiscal year 2024.

This decrease was primarily due to decreases of (i) $208,000 in cloud-computing costs, (ii) $164,000 in personnel-related costs, and (iii) $116,000 in outside consulting costs.

Cost of SaaS revenue decreased by $1.0 million during the six months ended December 31, 2024, from the same period in fiscal year 2024.

This decrease was primarily due to decreases of (i) $490,000 in cloud-computing costs, (ii) $393,000 in personnel related costs, and (iii) $132,000 in outside consulting costs.

Excluding an increase of $4,000 and $7,000 due to foreign exchange rate fluctuation, cost of SaaS revenue decreased by $487,000 and $1.0 million during the three and six months ended December 31, 2024, respectively, from the same periods in fiscal year 2024.

Cost of SaaS revenue increased by $107,000 during the three months ended March 31, 2025, from the same period in fiscal year 2024.

This increase was primarily due to an increase of $658,000 in cloud-computing costs;

partially offset by decreases of (i) $460,000 in personnel-related costs and (ii) $67,000 in outside consulting costs.

Cost of SaaS revenue decreased by $901,000 during the nine months ended March 31, 2025, from the same period in fiscal year 2024.

This decrease was primarily due to decreases of (i) $854,000 in personnel-related costs and (ii) $199,000 in outside consulting costs;

partially offset by an increase of $168,000 in cloud-computing costs.

Excluding a decrease of $24,000 and $16,000 due to foreign exchange rate fluctuation, cost of SaaS revenue increased by $131,000 and decreased by $885,000 during the three and nine months ended March 31, 2025, respectively, from the same periods 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 $173,000 during the three months ended December 31, 2024, from the same period in fiscal year 2024.

This increase was primarily due to increases of (i) $146,000 in personnel-related costs and (ii) $16,000 in outside consulting costs.

Cost of professional services increased by $526,000 during the six months ended December 31, 2024, from the same period in fiscal year 2024.

Cost of professional services decreased by $242,000 during the three months ended March 31, 2025, from the same period in fiscal year 2024.

This decrease was primarily due to decreases of (i) $229,000 in personnel-related costs and (ii) $3,000 in outside consulting costs.

Cost of professional services increased by $284,000 during the nine months ended March 31, 2025, from the same period in fiscal year 2024.

This increase was primarily due to increases of (i) $271,000 in personnel-related costs and (ii) $10,000 in outside consulting costs.

Excluding increase of $13,000 and $8,000 due to foreign exchange rate fluctuation, cost of professional services revenue increased by $160,000 and $518,000 during the three and six months ended December 31, 2024, respectively, compared to the same periods in fiscal year 2024.

Excluding a decrease of $10,000 due to foreign exchange rate fluctuation, cost of professional services revenue decreased by $232,000 during the three months ended March 31, 2025, compared to the same period in fiscal year 2024.

Excluding a decrease of $3,000 due to foreign exchange rate fluctuation, cost of professional services revenue increased by $287,000 during the nine months ended March 31, 2025, compared to the same period in fiscal year 2024.

Operating Expenses

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

Research and development expense increased by 16% to $7.7 million for the three months ended December 31, 2024, from $6.7 million in the same period in fiscal year 2024.

Excluding an increase of $7,000 due to foreign exchange rate fluctuation, research and development expense increased primarily due to increases of (i) $848,000 in personnel-related costs and (ii) $191,000 in outside consulting costs.

Research and development expense increased by 14% to $15.1 million for the six months ended December 31, 2024, from $13.3 million in the same period in fiscal year 2024.

Excluding an increase of $13,000 due to foreign exchange rate fluctuation, research and development expense increased primarily due to increases of (i) $1.6 million in personnel-related costs and (ii) $179,000 in outside consulting costs.

Research and development expense increased by 13% to $7.5 million for the three months ended March 31, 2025, from $6.7 million in the same period in fiscal year 2024.

Excluding a decrease of $43,000 due to foreign exchange rate fluctuation, research and development expense increased primarily due to increases of (i) $884,000 in personnel-related costs and (ii) $18,000 in outside consulting costs.

Research and development expense increased by 14% to $22.6 million for the nine months ended March 31, 2025, from $19.9 million in the same period in fiscal year 2024.

Excluding a decrease of $26,000 due to foreign exchange rate fluctuation, research and development expense increased primarily due to increases of (i) $2.5 million in personnel-related costs and (ii) $197,000 in outside consulting costs.

Sales and Marketing

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Sales and marketing expenses also include amortization of commissions paid to our sales staff, lead generation activities, advertising, trade show and other promotional costs, and, to a lesser extent, occupancy costs and related overhead.

Sales and marketing expenses decreased by 2% but remained consistent at $5.3 million for the three months ended December 31, 2024, compared to the same period in fiscal year 2024.

Excluding an increase of $40,000 due to foreign exchange rate fluctuation, sales and marketing expense decreased primarily due to a decrease of $718,000 in personnel-related costs;

partially offset by increases of (i) $530,000 in lead generation costs and (ii) $50,000 in outside consulting costs.

Sales and marketing expenses decreased by 13% to $10.0 million for the six months ended December 31, 2024, from $11.5 million in the same period in fiscal year 2024.

Sales and marketing expenses decreased by 14% to $4.7 million for the three months ended March 31, 2025, from $5.4 million in the same period in fiscal year 2024.

Excluding a decrease of $7,000 due to foreign exchange rate fluctuation, sales and marketing expense decreased primarily due to decreases of (i) $666,000 in personnel-related costs and (ii) $77,000 in lead generation costs;

partially offset by an increase of $6,000 in outside consulting costs.

Sales and marketing expenses decreased by 13% to $14.7 million for the nine months ended March 31, 2025, from $16.9 million in the same period in fiscal year 2024.

Excluding an increase of $103,000 due to foreign exchange rate fluctuation, sales and marketing expense decreased primarily due to decreases of (i) $2.2 million in personnel-related costs and (ii) $191,000 in lead generation costs;

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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 12% to $2.1 million for the three months ended December 31, 2024, from $2.4 million in the same period in fiscal year 2024.

Excluding an increase of $7,000 due to foreign exchange rate fluctuation, general and administrative expense decreased primarily due to decreases of (i) $106,000 in credit loss expense, (ii) $103,000 in outside-consulting costs, (iii) $70,000 in accounting, audit, and administrative fees, (iv) $57,000 in personnel-related costs and (v) $1,000 in investor relations cost;

partially offset by an increase of $37,000 in legal related costs.

General and administrative expenses decreased by 19% to $4.5 million for the six months ended December 31, 2024, from $5.6 million in the same period in fiscal year 2024.

Excluding an increase of $14,000 due to foreign exchange rate fluctuation, general and administrative expense decreased primarily due to decreases of (i) $792,000 in legal related costs, (ii) $155,000 in outside consulting costs, (iii) $121,000 in personnel-related costs, and (iv) $58,000 in accounting, audit, and administrative fees;

partially offset by an increase of (i) $78,000 in credit loss expense.

General and administrative expenses decreased by 17% to $2.0 million for the three months ended March 31, 2025, from $2.5 million in the same period in fiscal year 2024.

Excluding a decrease of $6,000 due to foreign exchange rate fluctuation, general and administrative expense decreased primarily due to decreases of (i) $220,000 in personnel-related costs, (ii) $112,000 in credit loss expense, (iii) $39,000 in outside-consulting costs, (iv) $27,000 in legal related costs, and (v) $7,000 in accounting, audit, and administrative fees;

partially offset by an increase of $1,000 in investor relations cost.

General and administrative expenses decreased by 18% to $6.6 million for the nine months ended March 31, 2025, from $8.0 million in the same period in fiscal year 2024.

Excluding an increase of $10,000 due to foreign exchange rate fluctuation, general and administrative expense decreased primarily due to decreases of (i) $818,000 in legal related costs, (ii) $342,000 in personnel-related costs, (iii) $194,000 in outside-consulting costs, (iv) $66,000 in accounting, audit, and administrative fees, and (v) $35,000 in credit loss expense;

partially offset by an increase of $1,000 in investor relations cost.

Income from Operations

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Operating margin

Income from operations was $650,000 and $2.4 million with an operating margin of 3% and 10% during the three months ended December 31, 2024 and 2023, respectively.

This is primarily due to a reduction in gross margin and an increase in total research and development cost.

Income from operations was $1.2 million and $3.8 million with an operating margin of 3% and 8% during the six months ended December 31, 2024 and 2023, respectively.

This is primarily due to a reduction in gross margin and an increase in total research and development cost.

Interest Income

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

Interest income was $661,000 and $982,000 during the three months ended December 31, 2024 and 2023, respectively.

Interest income was $1.4 million and $1.9 million during the six months ended December 31, 2024 and 2023, respectively.

Other Expense, Net

Other expense, net was $431,000 and $697,000 during the three months ended December 31, 2024 and 2023, respectively.

Other expense, net was $571,000 and $87,000 during the six months ended December 31, 2024 and 2023, respectively.

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

Income from operations was $27,000 and $938,000 with an operating margin of 0% and 4% during the three months ended March 31, 2025 and 2024, respectively.

This is primarily due to a reduction in gross margin.

Income from operations was $1.2 million and $4.8 million with an operating margin of 2% and 7% during the nine months ended March 31, 2025 and 2024, respectively.

This is primarily due to a reduction in gross margin.

Interest Income, Net

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

Interest income, net was $597,000 and $1.0 million during the three months ended March 31, 2025 and 2024, respectively.

Interest income, net was $2.0 million and $2.9 million during the nine months ended March 31, 2025 and 2024, respectively.

Other Income (Expense), Net

Other income (expense), net was an expense of $304,000 and income of $74,000 during the three months ended March 31, 2025 and 2024, respectively.

Other income (expense), net was expense of $875,000 and $13,000 during the nine months ended March 31, 2025 and 2024, respectively.

Other income (expense), 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.

As of December 28, 2024, the Company concluded that a full valuation allowance on its deferred tax assets in the U.S.

As of March 31, 2025, the Company concluded that a full valuation allowance on its deferred tax assets in the U.S.

continued to be appropriate considering cumulative pre-tax losses in recent years and uncertainty with respect to future taxable income.

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The timing and amount of the potential valuation allowance release are subject to significant management judgment, as well as prospective earnings in the U.S.

We recorded income tax provision of $209,000 and $697,000 for the three and six months ended December 31, 2024, 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 $254,000 and $951,000 for the three and nine months ended March 31, 2025, respectively.

We recorded income tax provision of $521,000 and $1.4 million for the three and nine months ended March 31, 2024, respectively.

Liquidity and Capital Resources

As of December 31, 2024 and June 30, 2024, our principal sources of liquidity were cash and cash equivalents, restricted cash, and accounts receivable totaling $86.3 million and $101.7 million, respectively.

Our cash, cash equivalents and restricted cash were $70.5 million and $70.0 million as of December 31, 2024 and June 30, 2024, respectively.

As of March 31, 2025 and June 30, 2024, our principal sources of liquidity were cash and cash equivalents, restricted cash, and accounts receivable totaling $81.2 million and $101.7 million, respectively.

Our cash, cash equivalents and restricted cash were $68.7 million and $70.0 million as of March 31, 2025 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.

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Our expectations as to our future cash flows and our future cash balances are subject to a number of assumptions, including assumptions regarding anticipated increases in our revenue, our ability to retain existing customers and customer purchasing and payment patterns, many of which are beyond our control.

For the six months ended December 31, 2024 and 2023, our cash flows were as follows (in thousands):

Six Months Ended

For the nine months ended March 31, 2025 and 2024, our cash flows were as follows (in thousands):

Nine Months Ended

Net cash provided by operating activities

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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 $8.4 million during the six months ended December 31, 2024, from the same period in fiscal year 2024, driven primarily by the change in net income, deferred revenue, stock-based compensation expense, and the timing of collections for accounts receivable.

Net cash used in investing activities increased by $113,000 during the six months ended December 31, 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.

Net cash provided by operating activities decreased by $8.0 million during the nine months ended March 31, 2025, from the same period in fiscal year 2024, driven primarily by the change in net income, stock-based compensation expense, and the timing of collections for accounts receivable.

Net cash used in investing activities increased by $203,000 during the nine months ended March 31, 2025, 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 increased by $4.0 million during the six months ended December 31, 2024, from the same period in fiscal year 2024, driven primarily by funds used for repurchases of our common stock of approximately $7.0 million, offset by proceeds from exercises of employee stock options and our employee stock purchase plan.

Net cash used in financing activities increased by $3.6 million during the nine months ended March 31, 2025, from the same period in fiscal year 2024, driven primarily by funds used for repurchases of our common stock of approximately $12.0 million, offset by proceeds from exercises of employee stock options and our employee stock purchase plan.

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 December 31, 2024, the future non-cancelable minimum payments under these commitments were approximately $5.0 million.

As of March 31, 2025, the future non-cancelable minimum payments under these commitments were approximately $4.9 million.

Off-Balance Sheet Arrangements

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

As of March 31, 2025, we had no significant off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.

New Accounting Pronouncements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis