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EX-32.2 - EX-32.2 - EGAIN Corpegan-20191231ex3221732e1.htm
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EX-31.2 - EX-31.2 - EGAIN Corpegan-20191231ex312e9af96.htm
EX-31.1 - EX-31.1 - EGAIN Corpegan-20191231ex3115bb393.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


Form 10-Q


(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2019

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission File No. 001-35314


 

eGain Corporation

(Exact name of registrant as specified in its charter)


 

 

 

 

Delaware

 

77-0466366

(State or other jurisdiction

of incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

1252 Borregas Avenue, Sunnyvale, CA

 

94089

(Address of principal executive offices)

 

(Zip Code)

 

(408) 636-4500

(Registrant’s telephone number, including area code)

 

 

(Former name, former address and former fiscal year, if changed since last report)


 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:

Yes  ☒    No  ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes  ☒    No  ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 

 

 

 

 

 

 

Large Accelerated Filer

 

  

Accelerated Filer

 

 

 

 

 

Non-accelerated Filer

 

  

Smaller Reporting Company

 

 

 

 

 

Emerging Growth Company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):

Yes  ◻    No  ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

 

 

Title of each class

Trading Symbol(s)

Name of exchange on which registered

Common Stock, par value $0.001 par value

EGAN

The Nasdaq Stock Market LLC

 

The number of outstanding shares of the registrant’s common stock, $0.001 par value per share, was 30,636,745 as of February 7, 2020.

 

 

 

 

 

EGAIN CORPORATION

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2019

 

TABLE OF CONTENTS

 

 

 

 

Page

 

 

    

 

PART I. 

FINANCIAL INFORMATION

 

 

Item 1. 

Financial Statements (Unaudited)

 

2

 

Condensed Consolidated Balance Sheets as of December 31, 2019 and June 30, 2019

 

2

 

Condensed Consolidated Statements of Operations for the Three and Six Months Ended December  31, 2019 and 2018

 

3

 

Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended December  31, 2019 and 2018

 

4

 

Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the Three and Six Months Ended December 31, 2019 and 2018

 

5

 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended December  31, 2019 and 2018 

 

7

 

Notes to Condensed Consolidated Financial Statements

 

8

Item 2. 

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

 

23

Item 3. 

Quantitative and Qualitative Disclosures about Market Risk

 

35

Item 4. 

Controls and Procedures

 

35

PART II. 

OTHER INFORMATION

 

 

Item 1. 

Legal Proceedings

 

37

Item 1A. 

Risk Factors

 

37

Item 6. 

Exhibits

 

53

 

Signatures

 

54

 

 

 

 

i

PART I.  FINANCIAL INFORMATION

 

Item 1. Financial Statements

EGAIN CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value data)

(unaudited)

 

 

 

 

 

 

 

 

 

 

December 31, 

 

June 30, 

 

    

2019

    

2019

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

40,314

 

$

31,860

Restricted cash

 

 

 7

 

 

 7

Accounts receivable, less allowance for doubtful accounts of $447 and $320 as of December 31, 2019 and June 30, 2019, respectively

 

 

14,204

 

 

20,411

Costs capitalized to obtain revenue contracts, net

 

 

858

 

 

740

Prepaid expenses

 

 

1,645

 

 

2,517

Other current assets

 

 

688

 

 

1,054

Total current assets

 

 

57,716

 

 

56,589

Property and equipment, net

 

 

528

 

 

525

Operating lease right-of-use assets (Note 6)

 

 

3,733

 

 

 —

Costs capitalized to obtain revenue contracts, net of current portion

 

 

1,857

 

 

1,777

Intangible assets, net

 

 

160

 

 

294

Goodwill

 

 

13,186

 

 

13,186

Other assets

 

 

1,578

 

 

1,383

Total assets

 

$

78,758

 

$

73,754

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

1,357

 

$

4,173

Accrued compensation

 

 

4,835

 

 

5,480

Accrued liabilities

 

 

2,619

 

 

2,353

Operating lease liabilities (Note 6)

 

 

1,700

 

 

 —

Deferred revenue

 

 

30,335

 

 

30,688

Total current liabilities

 

 

40,846

 

 

42,694

Deferred revenue, net of current portion

 

 

6,080

 

 

5,801

Operating lease liabilities, net of current portion (Note 6)

 

 

2,259

 

 

 —

Other long-term liabilities

 

 

691

 

 

952

Total liabilities

 

 

49,876

 

 

49,447

Commitments and contingencies (Note 6 and 7)

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

Common stock, $0.001 par value - authorized: 50,000 shares; outstanding: 30,637 shares as of December 31, 2019 and 30,478 shares as of June 30, 2019

 

 

31

 

 

31

Additional paid-in capital

 

 

372,676

 

 

371,099

Notes receivable from stockholders

 

 

(89)

 

 

(88)

Accumulated other comprehensive loss

 

 

(1,650)

 

 

(1,459)

Accumulated deficit

 

 

(342,086)

 

 

(345,276)

Total stockholders' equity

 

 

28,882

 

 

24,307

Total liabilities and stockholders' equity

 

$

78,758

 

$

73,754

 

See accompanying notes to condensed consolidated financial statements

2

EGAIN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

December 31, 

 

December 31, 

 

    

2019

    

2018

 

2019

    

2018

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

Subscription

 

$

16,343

 

$

15,823

 

$

31,914

 

$

29,550

Professional services

 

 

1,812

 

 

1,881

 

 

3,430

 

 

3,855

Total revenue

 

 

18,155

 

 

17,704

 

 

35,344

 

 

33,405

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

 

 

Cost of subscription

 

 

3,557

 

 

3,692

 

 

7,307

 

 

7,087

Cost of professional services

 

 

1,687

 

 

1,850

 

 

3,251

 

 

3,690

        Total cost of revenue

 

 

5,244

 

 

5,542

 

 

10,558

 

 

10,777

Gross profit

 

 

12,911

 

 

12,162

 

 

24,786

 

 

22,628

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

4,052

 

 

3,596

 

 

8,050

 

 

7,155

Sales and marketing

 

 

4,821

 

 

4,391

 

 

9,559

 

 

8,385

General and administrative

 

 

2,036

 

 

2,046

 

 

4,081

 

 

4,206

Total operating expenses

 

 

10,909

 

 

10,033

 

 

21,690

 

 

19,746

Income from operations

 

 

2,002

 

 

2,129

 

 

3,096

 

 

2,882

Interest income (expense), net

 

 

124

 

 

(139)

 

 

271

 

 

(329)

Other income (expense), net

 

 

(186)

 

 

(6)

 

 

(21)

 

 

11

Income before income tax (provision) benefit

 

 

1,940

 

 

1,984

 

 

3,346

 

 

2,564

Income tax (provision) benefit

 

 

33

 

 

16

 

 

(156)

 

 

40

Net income

 

$

1,973

 

$

2,000

 

$

3,190

 

$

2,604

Per share information:

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.06

 

$

0.07

 

$

0.10

 

$

0.09

Diluted

 

$

0.06

 

$

0.07

 

$

0.10

 

$

0.09

Weighted-average shares used in computation:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

30,571

 

 

27,875

 

 

30,539

 

 

27,781

Diluted

 

 

31,880

 

 

29,420

 

 

31,858

 

 

29,687

 

See accompanying notes to condensed consolidated financial statements 

3

EGAIN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

December 31, 

 

December 31, 

 

    

2019

    

2018

 

2019

    

2018

Net income

 

$

1,973

 

$

2,000

 

$

3,190

 

$

2,604

Other comprehensive income, net of taxes:

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(34)

 

 

44

 

 

(191)

 

 

(2)

Comprehensive income

 

$

1,939

 

$

2,044

 

$

2,999

 

$

2,602

 

See accompanying notes to condensed consolidated financial statements

4

 

EGAIN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended December 31, 2019

 

Common Stock

 

Additional Paid-in

 

Notes Receivable From

 

Accumulated Other Comprehensive

 

Accumulated

 

Total Stockholders'

 

Shares

    

Amount

    

Capital

    

Stockholders

    

Income (Loss)

    

Deficit

    

Equity (Deficit)

Balances as of September 30, 2019

30,536

 

$

31

 

$

371,665

 

$

(88)

 

$

(1,616)

 

$

(344,059)

 

$

25,933

Interest on stockholder notes

 —

 

 

 —

 

 

 —

 

 

(1)

 

 

 —

 

 

 —

 

 

(1)

Issuance of common stock upon exercise of stock options

32

 

 

 —

 

 

81

 

 

 —

 

 

 —

 

 

 —

 

 

81

Issuance of common stock in connection with employee stock purchase plan

69

 

 

 —

 

 

448

 

 

 —

 

 

 —

 

 

 —

 

 

448

Stock-based compensation

 —

 

 

 —

 

 

482

 

 

 —

 

 

 —

 

 

 —

 

 

482

Foreign currency translation adjustments

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(34)

 

 

 —

 

 

(34)

Net income

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

1,973

 

 

1,973

Balances as of December 31, 2019

30,637

 

$

31

 

$

372,676

 

$

(89)

 

$

(1,650)

 

$

(342,086)

 

$

28,882

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended December 31, 2018

 

Common Stock

 

Additional Paid-in

 

Notes Receivable From

 

Accumulated Other Comprehensive

 

Accumulated

 

Total Stockholders'

 

Shares

    

Amount

    

Capital

    

Stockholders

    

Income (Loss)

    

Deficit

    

Equity (Deficit)

Balances as of September 30, 2018

27,868

 

$

28

 

$

346,801

 

$

(86)

 

$

(1,664)

 

$

(348,840)

 

$

(3,761)

Interest on stockholder notes

 —

 

 

 —

 

 

 —

 

 

(1)

 

 

 —

 

 

 —

 

 

(1)

Issuance of common stock upon exercise of stock options

15

 

 

 —

 

 

45

 

 

 —

 

 

 —

 

 

 —

 

 

45

Stock-based compensation

 —

 

 

 —

 

 

336

 

 

 —

 

 

 —

 

 

 —

 

 

336

Foreign currency translation adjustments

 —

 

 

 —

 

 

 —

 

 

 —

 

 

44

 

 

 —

 

 

44

Net income

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

2,000

 

 

2,000

Balances as of December 31, 2018

27,883

 

$

28

 

$

347,182

 

$

(87)

 

$

(1,620)

 

$

(346,840)

 

$

(1,337)

 

 

See accompanying notes to condensed consolidated financial statements

5

 

 EGAIN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) (cont.)

(in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended December 31, 2019

 

Common Stock

 

Additional Paid-in

 

Notes Receivable From

 

Accumulated Other Comprehensive

 

Accumulated

 

Total Stockholders'

 

Shares

    

Amount

    

Capital

    

Stockholders

    

Income (Loss)

    

Deficit

    

Equity (Deficit)

Balances as of June 30, 2019

30,478

 

$

31

 

$

371,099

 

$

(88)

 

$

(1,459)

 

$

(345,276)

 

$

24,307

Interest on stockholder notes

 —

 

 

 —

 

 

 —

 

 

(1)

 

 

 —

 

 

 —

 

 

(1)

Issuance of common stock upon exercise of stock options

90

 

 

 —

 

 

167

 

 

 —

 

 

 —

 

 

 —

 

 

167

Issuance of common stock in connection with employee stock purchase plan

69

 

 

 —

 

 

448

 

 

 —

 

 

 —

 

 

 —

 

 

448

True up of issuance costs related to public offering

 —

 

 

 —

 

 

29

 

 

 —

 

 

 —

 

 

 —

 

 

29

Stock-based compensation

 —

 

 

 —

 

 

933

 

 

 —

 

 

 —

 

 

 —

 

 

933

Foreign currency translation adjustments

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(191)

 

 

 —

 

 

(191)

Net income

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

3,190

 

 

3,190

Balances as of December 31, 2019

30,637

 

$

31

 

$

372,676

 

$

(89)

 

$

(1,650)

 

$

(342,086)

 

$

28,882

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended December 31, 2018

 

Common Stock

 

Additional Paid-in

 

Notes Receivable From

 

Accumulated Other Comprehensive

 

Accumulated

 

Total Stockholders'

 

Shares

    

Amount

    

Capital

    

Stockholders

    

Income (Loss)

    

Deficit

    

Equity (Deficit)

Balances as of June 30, 2018

27,667

 

$

28

 

$

346,222

 

$

(85)

 

$

(1,618)

 

$

(353,260)

 

$

(8,713)

Cumulative-effect adjustment upon the modified retrospective
adoption of ASU No. 2016-16

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

3,816

 

 

3,816

Interest on stockholder notes

 —

 

 

 —

 

 

 —

 

 

(2)

 

 

 —

 

 

 —

 

 

(2)

Issuance of common stock upon exercise of stock options

216

 

 

 —

 

 

262

 

 

 —

 

 

 —

 

 

 —

 

 

262

Stock-based compensation

 —

 

 

 —

 

 

698

 

 

 —

 

 

 —

 

 

 —

 

 

698

Foreign currency translation adjustments

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(2)

 

 

 —

 

 

(2)

Net income

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

2,604

 

 

2,604

Balances as of December 31, 2018

27,883

 

$

28

 

$

347,182

 

$

(87)

 

$

(1,620)

 

$

(346,840)

 

$

(1,337)

 

 

See accompanying notes to condensed consolidated financial statements

 

6

EGAIN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

Six Months Ended

 

 

December 31, 

 

    

2019

    

2018

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

3,190

 

$

2,604

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Amortization of intangible assets

 

 

134

 

 

304

Amortization of costs capitalized to obtain revenue contracts

 

 

407

 

 

302

Amortization of deferred financing costs

 

 

 —

 

 

158

Amortization of right-of-use assets

 

 

771

 

 

 —

Depreciation

 

 

147

 

 

214

Provision of doubtful accounts

 

 

118

 

 

182

Deferred income taxes

 

 

(277)

 

 

(342)

Stock-based compensation

 

 

933

 

 

698

Loss (gain) on disposal of property and equipment

 

 

(3)

 

 

66

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

6,372

 

 

(8,918)

Costs capitalized to obtain revenue contracts

 

 

(561)

 

 

(513)

Prepaid expenses

 

 

769

 

 

679

Other current assets

 

 

357

 

 

(131)

Other non-current assets

 

 

58

 

 

13

Accounts payable

 

 

(2,824)

 

 

(1,514)

Accrued compensation

 

 

(689)

 

 

(1,179)

Accrued liabilities

 

 

234

 

 

(549)

Deferred revenue

 

 

(434)

 

 

12,112

Operating lease liabilities

 

 

(807)

 

 

 —

Other long-term liabilities

 

 

143

 

 

(3)

Net cash provided by operating activities

 

 

8,038

 

 

4,183

Cash flows from investing activities:

 

 

 

 

 

 

Purchase of property and equipment

 

 

(125)

 

 

(199)

Net cash used in investing activities

 

 

(125)

 

 

(199)

Cash flows from financing activities:

 

 

 

 

 

 

Payments on bank borrowings

 

 

(31)

 

 

(11,753)

Proceeds from bank borrowings

 

 

31

 

 

7,390

Payments on capital lease obligations

 

 

 —

 

 

(35)

Proceeds from exercise of employee stock options

 

 

167

 

 

263

Proceeds from employee stock purchase plan

 

 

448

 

 

 —

Net cash provided by (used in) financing activities

 

 

615

 

 

(4,135)

Effect of change in exchange rates on cash and cash equivalents

 

 

(74)

 

 

(125)

Net increase in cash, cash equivalents and restricted cash

 

 

8,454

 

 

(276)

Cash, cash equivalents and restricted cash at beginning of period

 

 

31,867

 

 

11,504

Cash, cash equivalents and restricted cash at end of period

 

$

40,321

 

$

11,228

 

 

 

 

 

 

 

Supplemental cash flow disclosures:

 

 

 

 

 

 

Cash paid for interest

 

$

 2

 

$

178

Cash paid for taxes, net of tax refunds

 

$

133

 

$

129

 

 

See accompanying notes to condensed consolidated financial statements

7

EGAIN CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

 

Organization and Nature of Business

 

eGain Corporation (eGain, the Company, our, we or us) is a leading provider of cloud-based customer engagement software with operations in the United States, United Kingdom and India. We help B2C brands operationalize digital customer engagement strategy. Our suite includes rich applications for digital interaction, knowledge management, and AI-based process guidance. We also provide advanced, integrated analytics for contact centers and digital properties to holistically measure, manage, and optimize resources. We believe the benefits of our products include reduced customer effort, customer satisfaction, connected service processes, converted upsell opportunities, and improved compliance—across mobile, social, web, and phone. Hundreds of global enterprises rely on eGain to transform fragmented customer service systems into unified customer engagement hubs.

 

Fiscal Year

 

Our fiscal year ends on June 30. References to fiscal year 2020 refer to fiscal year ending June 30, 2020.

 

Basis of Presentation

 

The accompanying condensed consolidated balance sheet as of December 31, 2019 and the condensed consolidated statements of operations, comprehensive income, stockholders’ equity (deficit), and cash flows for the three and six months ended December 31, 2019 and 2018, are unaudited. The consolidated balance sheet as of June 30, 2019 included herein was derived from the audited financial statements as of that date.

 

Certain information and footnote disclosures, normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP), have been condensed or omitted pursuant to such rules and regulations although we believe that the disclosures made are adequate to make the information not misleading. In our opinion, the unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of our financial position, results of operations and cash flows for the periods presented.

 

These condensed consolidated financial statements and notes should be read in conjunction with our audited consolidated financial statements and accompanying notes for the fiscal year ended June 30, 2019, included in our Annual Report on Form 10-K. The condensed consolidated balance sheet as of June 30, 2019 was derived from audited consolidated financial statements as of that date but does not include all the information and footnotes required by GAAP for complete financial statements. The results of our operations for the interim periods presented are not necessarily indicative of results that may be expected for any other interim period or for the full fiscal year ending June 30, 2020.

 

The Company adopted Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842) (ASU 2016-02), also referred to as Topic ASC 842, on a modified retrospective basis, as discussed below. As a result, the condensed consolidated balance sheet as of December 31, 2019 is not comparable with that as of June 30, 2019.

 

Principles of Consolidation

 

We prepared the condensed consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) and included the accounts of our wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated.

 

8

Use of Estimates

 

The preparation of financial statements requires us to make estimates and assumptions in the condensed consolidated financial statements and accompanying notes. Actual results could differ significantly from estimates. We make estimates that we believe to be reasonable based on historical experience and other assumptions. Significant estimates and assumptions made by management include the following:

 

·

Standalone selling price (SSP) of performance obligations for contracts with multiple performance obligations;

·

Estimate of variable consideration for performance obligations in connection with Topic 606;

·

Period of benefit associated with capitalized costs to obtain revenue contracts;

·

Valuation, measurement and recognition of current and deferred income taxes;

·

Fair value of stock-based awards,

·

Useful lives of intangible assets; and

·

Lease term and incremental borrowing rate for lease liabilities.

 

Follow-On Public Offering

 

In March 2019, we completed a follow-on public offering, in which we issued 2.0 million shares of our common stock at a public offering price of $11.00 per share. In April 2019, the underwriters exercised an over-allotment option to purchase 149,000 additional shares of our common stock. We received net proceeds of $21.7 million after deducting underwriting discounts and commissions of $1.6 million and other offering expenses of $282,000.

 

Recent Accounting Pronouncements

 

Pronouncements Not Yet Adopted

 

In August 2018, the Financial Accounting Standards Board (FASB) issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40). This update requires a customer in a cloud computing service arrangement to follow the internal-use software guidance to determine which implementation costs to recognize and defer as an asset. This update is effective for fiscal years beginning after December 15, 2019 (our fiscal year 2021). We are currently evaluating the impact of this update on our consolidated financial statements and related disclosures.

 

In December 2019, the Financial Accounting Standards Board (FASB) issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This update simplifies the accounting for income taxes. This update is effective for fiscal years beginning after December 15, 2020 (our fiscal year 2022). We are currently evaluating the impact of this update on our consolidated financial statements and related disclosures.

 

Pronouncements Recently Adopted

 

In February 2016, the FASB issued ASU 2016-02, Topic ASC 842, which requires that we recognize lease assets and liabilities on the balance sheet, but recognize the expenses on our statement of operations in a manner similar to previous accounting guidance. Topic 842 generally requires that lessees recognize operating and financing liabilities for the obligation to make lease payments and a right-of-use asset for the right to use the underlying asset for the lease term. We adopted this guidance as of our first fiscal quarter of fiscal year 2020.

 

In February 2018, the FASB issued ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This update provides the option to reclassify tax effects to retained earnings relating to items in accumulated other comprehensive income that the FASB refers to as having been stranded in accumulated other comprehensive income as a result of the U.S. Tax Act. We adopted this guidance as of our first quarter of fiscal year 2020 without a significant impact on our consolidated financial statements.

 

9

In June 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718)—Improvements to Nonemployee Share-Based Payment Accounting. This update expands the scope of Topic 718, Compensation—Stock Compensation, to include share-based awards granted to non-employees in exchange for goods or services. The accounting for employees and non-employees will be substantially aligned. We adopted this guidance as of our first quarter of fiscal year 2020 without a significant impact on our consolidated financial statements.

 

In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, which provides an alternative transition method by allowing companies to initially apply the new leases guidance at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. We adopted this guidance as of our first quarter of fiscal year 2020.

 

In February 2019, the FASB issued ASU No. 2019-01 Leases (Topic 842) Codification Improvements, which aligns the guidance for fair value of the underlying asset by lessors that are not manufacturers or dealers in Topic 842 with that of existing guidance. As a result, the fair value of the underlying asset at lease commencement is its cost. We adopted this guidance as of our first quarter of fiscal year 2020.

 

Leases

 

Effective July 1, 2019, the Company adopted the provisions and expanded disclosure requirements described in Topic 842. The Company adopted the standard under a modified retrospective approach, using the provision of Accounting Standards Update 2018-11, Leases (Topic 842) Targeted Improvements (ASU 2018-11), which allows for the adoption of Topic 842 to be applied at the beginning of the fiscal year of adoption. As a result, the condensed consolidated balance sheet and statement of operations for prior periods are not comparable to fiscal year 2020. In addition, the Company elected the package of practical expedients permitted under the transition guidance, which among other things, allowed the Company to not reassess prior conclusions on lease classifications or initial direct costs, or on whether contracts are or contain a lease. The Company did not use hindsight when determining the lease term.

 

Upon adoption, operating leases are now reported on the condensed consolidated balance sheet, which has materially increased total assets and liabilities. As a result, the Company recorded operating lease right-of-use assets of approximately $4.5 million and corresponding operating lease liabilities of $4.8 million on its opening condensed consolidated balance sheet.

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2019

 

Adjustments due to ASC 842

 

Balance at July 1, 2019

Balance sheet captions:

 

 

 

 

 

 

 

 

 

Prepaid expenses

 

 

2,517

 

 

(114)

 1

 

2,403

Total current assets

 

 

56,589

 

 

(114)

 1

 

56,475

Operating lease right-of-use assets (Note 6)

 

 

 —

 

 

4,494

1,2,3

 

4,494

Total assets

 

 

73,754

 

 

4,380

1,2,3

 

78,134

Accrued liabilities

 

 

2,353

 

 

(143)

 3

 

2,210

Operating lease liabilities

 

 

 —

 

 

1,653

 4

 

1,653

Total current liabilities

 

 

42,694

 

 

1,510

3, 4

 

44,204

Operating lease liabilities, net of current portion

 

 

 —

 

 

3,104

 4

 

3,104

Other long-term liabilities

 

 

952

 

 

(234)

 4

 

718

Total liabilities

 

 

49,447

 

 

4,380

3,4

 

53,827

Total liabilities and stockholders' equity

 

 

73,754

 

 

4,380

3,4

 

78,134

                                                                                                                                                                                                                                                                                                                                                                                                                              

1.

Represents prepaid rent reclassified to operating lease right-of-use assets.

2.

Represents capitalization of operating lease right-of-use assets.

3.

Represents reclassification of deferred rent reclassified to operating lease right-of-use assets.

4.

Represents recognition of operating lease liabilities.

 

10

Revenue Recognition

 

Revenue Recognition Policy

 

Our revenue is comprised of two categories including subscription and professional services.  Subscription includes SaaS revenue and legacy revenue. SaaS includes revenue from cloud delivery arrangements, term licenses, and embedded OEM royalties and associated support. Legacy revenue is associated with license, or maintenance and support contracts on perpetual license arrangements that we no longer offer. Professional services includes consulting, implementation and training.

 

Significant Judgment Applied in the Determination of Revenue Recognition

 

We enter into contractual arrangements with customers that may include promises to transfer multiple services, such as subscription, support and professional services. With respect to our business, a performance obligation is a promise to transfer a service to a customer that is distinct. Significant judgment is required to determine whether services are distinct performance obligations that should be accounted for separately or combined as one unit of accounting. Additionally, significant judgment is required to determine the timing of revenue recognition.

 

We allocate the transaction price to each performance obligation on a relative standalone selling price. The SSP is the price at which we would sell a promised service separately to one of our customers. Judgment is required to determine the SSP for each distinct performance obligation.

 

We determine the SSP by considering our pricing objectives in relation to market demand. Consideration is placed based on our history of discounting prices, size and volume of transactions involved, customer demographics and geographic locations, price lists, contract prices and our market strategy.

 

Determination of Revenue Recognition

 

Under Topic 606, we recognize revenue upon the transfer of control of promised services to our customers in the amount that is commensurate with the consideration that we expect to receive in exchange for those services. If consideration includes a variable amount in the arrangement, such as service level credits or contingent fees, then we include an estimate of the amount that we expect to receive for the total transaction price.

The amount of revenue that we recognize is based on (i) identifying the contract with a customer; (ii) identifying the performance obligations in the contract; (iii) determining the transaction price; (iv) allocating the transaction price to the performance obligations in the contract on a relative SSP basis; and (v) recognizing revenue when, or as, we satisfy each performance obligation in the contract typically through delivery or when control is transferred to the customer.

 

Subscription Revenue

 

The following customer arrangements are recognized ratably over the contract term as the performance obligations are delivered:

·

Cloud delivery arrangements;

·

Maintenance and support arrangements; and

·

Term license subscriptions which incorporate on-premise software licenses and substantial cloud functionality that are not distinct in the context of our arrangements as such are considered highly interrelated and represent a single combined performance obligation.

For contracts involving distinct software licenses, the license performance obligation is satisfied at a point in time when control is transferred to the customer.

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We typically invoice our customers in advance upon execution of the contract or subsequent renewals with payment terms between 30 and 45 days. Invoiced amounts are recorded in accounts receivable, deferred revenue or revenue, depending if control transferred to our customers based on each arrangement.

The Company has a royalty revenue agreement with a customer related to the Company’s embedded intellectual property.  Under the terms of the agreement, the customer is to remit a percentage of sales to the Company. These embedded OEM royalties are included as subscription revenue. Under Topic 606 revenue guidance, since these arrangements are for sales-based licenses of intellectual property, for which the guidance in paragraph ASC 606-10-55-65 applies, the Company recognizes revenue only as the subsequent sale occurs.  However, the Company notes that 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 and training. The transaction price is allocated to various performance obligations based on their stand-alone selling prices. Revenue allocated to each performance obligation is recognized at the earlier of satisfaction of discrete performance obligations, or as work is performed on a time and material basis. Our consulting and implementation service contracts are bid either on a time-and-materials basis or on a fixed-fee basis. Fixed fees are generally paid upon milestone billing or acceptance 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.

Costs Capitalized to Obtain Revenue Contracts

 

Under Topic 606, we capitalize incremental costs of obtaining a non-cancelable subscription and support revenue contracts. 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 historical and expected durations of our customer contracts, the expected useful lives of our technologies, and other factors. Commissions for renewal contracts relating to our cloud-based arrangements are generally deferred and then amortized on a straight-line basis over the related contractual renewal period, which is generally five years. Amortization of costs to obtain revenue contracts is included as a component of sales and marketing expenses in our condensed consolidated statements of operations.

 

During the three and six months ended December 31, 2019, we capitalized $261,000 and $561,000 of costs to obtain revenue contracts, respectively, and amortized $207,000 and $407,000 to sales and marketing expense, respectively. During the three and six months ended December 31, 2018, we capitalized $324,000 and $513,000 of costs to obtain revenue contracts, respectively, and amortized $156,000 and $302,000 to sales and marketing expense, respectively. Capitalized costs to obtain revenue contracts, net were $2.7 million and $2.5 million as of December 31, 2019 and June 30, 2019, respectively.

 

Deferred Revenue

Deferred revenue primarily consists of payments received or invoiced in advance of revenue recognition from cloud delivery arrangements, term licenses and embedded OEM royalties and associated support. Deferred revenue is recognized as revenue once revenue recognition criteria is met. We generally invoice our customers in annual installments. The deferred revenue balance does not represent the total transaction price of our non-cancelable cloud delivery and support arrangements as a result from the timing of revenue recognition. Deferred revenue that is expected to be recognized within one year and beyond one year is classified as current and noncurrent deferred revenue, respectively.

12

 

13

Segment Information

 

We operate in one segment: the development, license, implementation and support of our customer interaction software solutions. Operating segments are identified as components of an enterprise for which discrete financial information is available and regularly reviewed by the Company’s chief operating decision-makers in order to make decisions about resources to be allocated to the segment and assess its performance. Our chief operating decision-makers, under Accounting Standards Codification (ASC) 280, Segment Reporting, are our executive management team. Our chief operating decision-makers review financial information presented on a consolidated basis for purposes of making operating decisions and assessing financial performance. The Company operates in one operating segment and all required financial segment information can be found in the condensed consolidated financial statements.

 

Our sales are derived from North America and Europe, Middle East, and Africa. However, we incur operating expenses in the North America, Europe, Middle East, Africa and Asia Pacific regions. Revenue by geography is generally determined on the region of our contracting entity rather than the region of our customer. Information relating to our geographic areas for the three and six months ended December 31, 2019 and 2018 is as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

December 31, 

 

December 31, 

 

    

2019

    

2018

 

2019

    

2018

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

North America

 

$

10,973

 

$

10,065

 

$

20,564

 

$

18,540

Europe, Middle East, & Africa

 

 

7,182

 

 

7,639

 

 

14,780

 

 

14,865

Total revenue

 

$

18,155

 

$

17,704

 

$

35,344

 

$

33,405

Income (loss) from operations: