Item 2. Management’s Discussion and Analysis
Item 2. 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. 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, 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. 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
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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.
Sources of Revenue
Our revenue is comprised of two categories including SaaS and professional services. SaaS revenue includes cloud delivery arrangements, term licenses, embedded 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.
SaaS Revenue
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. For contracts involving distinct software licenses, the license performance obligation is satisfied at a point in time when control is transferred to the customer.
We typically invoice our customers in advance upon execution of the contract or subsequent renewals. Invoiced amounts are recorded in accounts receivable, deferred revenue or revenue, depending on when control is transferred to our customers based on each arrangement.
We have a royalty revenue agreement with a customer related to our embedded intellectual property. 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 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.
Professional Services Revenue
Professional services revenue includes system implementation, consulting, training, and managed services. The transaction price is allocated to various performance obligations based on their SSP. Revenue allocated to each performance obligation is recognized as work is performed. Managed services include a comprehensive set of processes and activities that range from implementation to monitoring the evolution and support of our solutions in a company. Our consulting and implementation service contracts are bid either on a time-and-material basis or on a fixed-fee basis. Managed services contracts are bid on a time-and-material basis. Fixed fees are generally paid on milestone billing at pre-determined points in the contract. Amounts that have been invoiced are recorded in accounts receivable and in deferred revenue or revenue, depending on whether transfer of control to customers has occurred.
Training revenue that meets the criteria to be accounted for separately is recognized when training is provided.
Remaining Performance Obligations
Remaining performance obligations represent contracted revenue that had not yet been recognized, and include billed deferred revenue, consisting of amounts invoiced to customers whether collected or uncollected, which have not been recognized as revenue, as well as unbilled amounts that will be invoiced and recognized as revenue in future periods. The transaction price allocated to the remaining performance obligation is influenced by a variety of factors, including seasonality, timing of renewals, average contract terms and foreign currency exchange rates.
As of 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.
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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. 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
Under Topic 606, we capitalize incremental costs to obtain non-cancelable subscription and maintenance and support revenue contracts with amortization periods that may extend longer than the non-cancelable subscription and maintenance and support revenue contract terms.
We capitalize incremental costs of obtaining a non-cancelable subscription and maintenance and support revenue contract with amortization periods of one year or more. The capitalized amounts consist primarily of sales commissions paid to our direct sales force. Capitalized amounts also include (i) amounts paid to employees other than the direct sales force who earn incentive payouts under annual compensation plans that are tied to the value of contracts acquired and (ii) the associated payroll taxes and fringe benefit costs associated with the payments to our employees.
Costs capitalized related to new revenue contracts are generally deferred and amortized on a straight-line basis over a period of benefit that we estimate to be five years. We determine the period of benefit by taking into consideration the period from initial contract through renewal, which constitutes the length of our customer relationship or customer life. Amortization of costs capitalized related to new revenue contracts is included as a component of sales and marketing expense in our operating results.
Results of Operations
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
Nine Months Ended
March 31,
March 31,
2025
2024
2025
2024
Revenue:
SaaS
93
%
91
%
92
%
92
%
Professional services
7
%
9
%
8
%
8
%
Total revenue
100
%
100
%
100
%
100
%
Cost of revenue:
Cost of SaaS
22
%
20
%
21
%
21
%
Cost of professional services
10
%
11
%
10
%
9
%
Total cost of revenue
32
%
31
%
31
%
30
%
Gross profit
68
%
69
%
69
%
70
%
Operating expenses:
Research and development
36
%
30
%
35
%
28
%
Sales and marketing
22
%
24
%
23
%
24
%
General and administrative
10
%
11
%
10
%
11
%
Total operating expenses
68
%
65
%
68
%
63
%
Income from operations
0
%
4
%
2
%
7
%
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Revenue
We classify our revenue into two categories: 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 nine months ended March 31, 2025 and 2024, respectively:
Three Months Ended
Nine Months Ended
March 31,
March 31,
(in thousands, except percentages)
2025
2024
Change
2025
2024
Change
SaaS
$
19,563
$
20,324
$
(761)
(4)
%
$
60,230
$
64,643
$
(4,413)
(7)
%
Professional services
1,446
2,026
(580)
(29)
%
4,967
5,698
(731)
(13)
%
Total revenue
$
21,009
$
22,350
$
(1,341)
(6)
%
$
65,197
$
70,341
$
(5,144)
(7)
%
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. Dollar, Euro, and British Pound. We recalculate our current period results using the comparable prior period exchange rates to exclude the impact of foreign exchange rate fluctuation. Foreign exchange rate fluctuation resulted in a decrease of $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.
SaaS Revenue
Three Months Ended
Nine Months Ended
March 31,
March 31,
(in thousands, except percentages)
2025
2024
Change
2025
2024
Change
SaaS revenue
$
19,563
$
20,324
$
(761)
(4)
%
$
60,230
$
64,643
$
(4,413)
(7)
%
Percentage of total revenue
93
%
91
%
92
%
92
%
SaaS revenue includes revenue from cloud delivery arrangements, term licenses and embedded OEM royalties and associated support. 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.
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Professional Services Revenue
Three Months Ended
Nine Months Ended
March 31,
March 31,
(in thousands, except percentages)
2025
2024
Change
2025
2024
Change
Professional services revenue
$
1,446
$
2,026
$
(580)
(29)
%
$
4,967
$
5,698
$
(731)
(13)
%
Percentage of total revenue
7
%
9
%
8
%
8
%
Professional services revenue includes consulting, implementation, training, and managed services. 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
Three Months Ended
Nine Months Ended
March 31,
March 31,
(in thousands, except percentages)
2025
2024
Change
2025
2024
Change
North America
$
16,452
$
17,417
$
(965)
(6)
%
$
50,205
$
55,242
$
(5,037)
(9)
%
Europe, Middle East, & Africa
4,557
4,933
(376)
(8)
%
14,992
15,099
(107)
(1)
%
Total revenue
$
21,009
$
22,350
$
(1,341)
(6)
%
$
65,197
$
70,341
$
(5,144)
(7)
%
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.
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Cost of Revenue
Three Months Ended
Nine Months Ended
March 31,
March 31,
(in thousands, except percentages)
2025
2024
Change
2025
2024
Change
SaaS
$
4,594
$
4,487
$
107
2
%
$
13,742
$
14,643
$
(901)
(6)
%
Professional services
2,129
2,371
(242)
(10)
%
6,327
6,043
284
5
%
Total cost of revenue
$
6,723
$
6,858
$
(135)
(2)
%
$
20,069
$
20,686
$
(617)
(3)
%
Percentage of total revenue
32
%
31
%
31
%
30
%
Gross margin
68
%
69
%
69
%
70
%
SaaS
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 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 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 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.
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Operating Expenses
Research and Development
Three Months Ended
Nine Months Ended
March 31,
March 31,
(in thousands, except percentages)
2025
2024
Change
2025
2024
Change
Research and development
$
7,514
$
6,655
$
859
13
%
$
22,643
$
19,947
$
2,696
14
%
Percentage of total revenue
36
%
30
%
35
%
28
%
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. Research and development expense also includes outside consulting services contracted for research and development.
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
Three Months Ended
Nine Months Ended
March 31,
March 31,
(in thousands, except percentages)
2025
2024
Change
2025
2024
Change
Sales and marketing
$
4,704
$
5,448
$
(744)
(14)
%
$
14,715
$
16,901
$
(2,186)
(13)
%
Percentage of total revenue
22
%
24
%
23
%
24
%
Sales and marketing expense primarily consists of personnel-related expenses directly associated with our sales, marketing and business development staff. Included in these costs are salaries, benefits, bonuses, and stock-based compensation and allocated overhead. 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 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; partially offset by an increase of $90,000 in outside consulting costs.
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General and Administrative
Three Months Ended
Nine Months Ended
March 31,
March 31,
(in thousands, except percentages)
2025
2024
Change
2025
2024
Change
General and administrative
$
2,041
$
2,451
$
(410)
(17)
%
$
6,584
$
8,028
$
(1,444)
(18)
%
Percentage of total revenue
10
%
11
%
10
%
11
%
General and administrative expense primarily consists of personnel-related expenses directly associated with our finance, human resources, administrative and legal personnel. 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 credit losses and, to a lesser extent, occupancy costs and related overhead.
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
Three Months Ended
Nine Months Ended
March 31,
March 31,
(in thousands, except percentages)
2025
2024
Change
2025
2024
Change
Income from operations
$
27
$
938
$
(911)
(97)
%
$
1,186
$
4,779
$
(3,593)
(75)
%
Operating margin
0
%
4
%
2
%
7
%
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.
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Income Tax Provision
Provision for income taxes consists of state and foreign income taxes. 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. Release of the valuation allowance in the U.S. would result in a benefit to the income tax provision in the period the release is recorded, which could have a material impact on net earnings. 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 $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
Overview
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. From time to time, however, we may consider opportunities for raising additional capital. We can make no assurances that such opportunities will be available to us on economic terms we consider favorable, if at all. 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.
Cash Flows
For the nine months ended March 31, 2025 and 2024, our cash flows were as follows (in thousands):
Nine Months Ended
March 31,
2025
2024
Net cash provided by operating activities
$
9,588
$
17,574
Net cash used in investing activities
(352)
(149)
Net cash used in financing activities
(11,105)
(7,462)
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 $8.0 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.
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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.
Commitments
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 March 31, 2025, the future non-cancelable minimum payments under these commitments were approximately $4.9 million.
Off-Balance Sheet Arrangements
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
See Note 1 “Summary of Business and Significant Accounting Policies” to the condensed consolidated financial statements for our discussion of new accounting pronouncements adopted and those pending.
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