Company Quick10K Filing
eGain
Price7.91 EPS0
Shares32 P/E53
MCap252 P/FCF46
Net Debt-34 EBIT5
TEV218 TEV/EBIT43
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-12-31 Filed 2021-02-12
10-Q 2020-09-30 Filed 2020-11-12
10-K 2020-06-30 Filed 2020-09-11
10-Q 2020-03-31 Filed 2020-05-11
10-Q 2019-12-31 Filed 2020-02-10
10-Q 2019-09-30 Filed 2019-11-12
10-K 2019-06-30 Filed 2019-09-12
10-Q 2019-03-31 Filed 2019-05-09
10-Q 2018-12-31 Filed 2019-02-11
10-Q 2018-09-30 Filed 2018-11-09
10-K 2018-06-30 Filed 2018-09-13
10-Q 2018-03-31 Filed 2018-05-10
10-Q 2017-12-31 Filed 2018-02-13
10-Q 2017-09-30 Filed 2017-11-13
10-K 2017-06-30 Filed 2017-09-26
10-Q 2017-03-31 Filed 2017-05-10
10-Q 2016-12-31 Filed 2017-02-09
10-Q 2016-09-30 Filed 2016-11-09
10-K 2016-06-30 Filed 2016-09-13
10-Q 2016-03-31 Filed 2016-05-06
10-Q 2015-12-31 Filed 2016-02-05
10-Q 2015-09-30 Filed 2015-11-06
10-K 2015-06-30 Filed 2015-09-14
10-Q 2015-03-31 Filed 2015-05-08
10-Q 2014-12-31 Filed 2015-02-09
10-Q 2014-09-30 Filed 2014-11-10
10-K 2014-06-30 Filed 2014-09-12
10-Q 2014-03-31 Filed 2014-05-09
10-Q 2013-12-31 Filed 2014-02-12
10-Q 2013-09-30 Filed 2013-11-08
10-K 2013-06-30 Filed 2013-09-23
10-Q 2013-03-31 Filed 2013-05-15
10-Q 2012-12-31 Filed 2013-02-11
10-Q 2012-09-30 Filed 2012-11-14
10-K 2012-06-30 Filed 2012-09-25
10-Q 2012-03-31 Filed 2012-05-14
10-Q 2011-12-31 Filed 2012-02-14
10-Q 2011-09-30 Filed 2011-11-14
10-K 2011-06-30 Filed 2011-09-27
10-Q 2011-03-31 Filed 2011-05-16
10-Q 2010-12-31 Filed 2011-02-14
10-Q 2010-09-30 Filed 2010-11-12
10-K 2010-06-30 Filed 2010-09-23
10-Q 2010-03-31 Filed 2010-05-17
10-Q 2009-12-31 Filed 2010-02-16
8-K 2021-02-10 Earnings, Exhibits
8-K 2020-12-04 Shareholder Vote
8-K 2020-11-10
8-K 2020-10-27
8-K 2020-09-02
8-K 2020-08-11
8-K 2020-05-07
8-K 2020-02-06
8-K 2019-12-13
8-K 2019-11-21
8-K 2019-11-06
8-K 2019-09-03
8-K 2019-05-08
8-K 2019-03-14
8-K 2019-03-13
8-K 2019-02-07
8-K 2018-11-27
8-K 2018-11-08
8-K 2018-09-06
8-K 2018-05-07
8-K 2018-02-08

EGAN 10Q Quarterly Report

Part I. Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 6. Exhibits
EX-10.1 egan-20201231ex101680ff7.htm
EX-31.1 egan-20201231ex3112b34bb.htm
EX-31.2 egan-20201231ex31247b25e.htm
EX-32.1 egan-20201231ex32145afc2.htm
EX-32.2 egan-20201231ex322b2fcbf.htm

eGain Earnings 2020-12-31

Balance SheetIncome StatementCash Flow
806244268-102012201420172020
Assets, Equity
2518114-3-102012201420172020
Rev, G Profit, Net Income
201482-4-102012201420172020
Ops, Inv, Fin

10-Q 1 egan-20201231x10q.htm 10-Q

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, 2020

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)


Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.001 per share

EGAN

Nasdaq Capital Market

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, a 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  

The number of outstanding shares of the registrant’s common stock, par value $0.001 per share, was 31,055,016 as of February 11, 2021.


EGAIN CORPORATION

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED December 31, 2020

TABLE OF CONTENTS

Page

    

PART I.

FINANCIAL INFORMATION

Item 1.

Financial Statements (Unaudited)

2

Condensed Consolidated Balance Sheets as of December 31, 2020 and June 30, 2020

2

Condensed Consolidated Statements of Operations for the Three and Six Months Ended December 31, 2020 and 2019

3

 

Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended December 31, 2020 and 2019

4

Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended December 31, 2020 and 2019

5

 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2020 and 2019

7

 

Notes to Condensed Consolidated Financial Statements

8

Item 2.

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

21

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

35

Item 4.

Controls and Procedures

35

PART II.

OTHER INFORMATION

37

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, 

    

2020

    

2020

ASSETS

Current assets:

Cash and cash equivalents

$

54,203

$

46,609

Restricted cash

 

7

 

6

Accounts receivable, less allowance for doubtful accounts of $621 and $384 as of December 31, 2020 and June 30, 2020, respectively

 

16,649

 

22,708

Costs capitalized to obtain revenue contracts, net

 

1,148

 

1,066

Prepaid expenses

1,817

2,514

Other current assets

 

575

 

617

Total current assets

 

74,399

 

73,520

Property and equipment, net

 

851

 

713

Operating lease right-of-use assets

2,323

2,962

Costs capitalized to obtain revenue contracts, net of current portion

 

2,251

 

2,380

Intangible assets, net

 

 

26

Goodwill

 

13,186

 

13,186

Other assets

 

941

 

918

Total assets

$

93,951

$

93,705

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable

$

1,850

$

2,429

Accrued compensation

 

5,822

 

7,916

Accrued liabilities

 

3,765

 

3,423

Operating lease liabilities

1,675

1,753

Deferred revenue

 

33,724

 

36,644

Total current liabilities

 

46,836

 

52,165

Deferred revenue, net of current portion

 

4,731

 

4,826

Operating lease liabilities, net of current portion

771

1,385

Other long-term liabilities

 

815

 

688

Total liabilities

 

53,153

 

59,064

Commitments and contingencies (Note 6)

Stockholders' equity:

Common stock, par value $0.001 - authorized: 50,000 shares; outstanding: 31,048 shares as of December 31, 2020 and 30,821 shares as of June 30, 2020

 

31

 

31

Additional paid-in capital

 

376,546

 

374,399

Notes receivable from stockholders

 

(91)

 

(90)

Accumulated other comprehensive loss

 

(1,270)

 

(1,631)

Accumulated deficit

 

(334,418)

 

(338,068)

Total stockholders' equity

 

40,798

 

34,641

Total liabilities and stockholders' equity

$

93,951

$

93,705

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, 

    

2020

    

2019

2020

    

2019

Revenue:

Subscription

$

17,699

$

16,343

$

35,447

$

31,914

Professional services

 

1,534

 

1,812

 

2,849

 

3,430

Total revenue

 

19,233

 

18,155

 

38,296

 

35,344

Cost of revenue:

Cost of subscription

 

3,248

 

3,557

 

6,470

 

7,307

Cost of professional services

 

1,463

 

1,687

 

2,873

 

3,251

Total cost of revenue

 

4,711

 

5,244

 

9,343

 

10,558

Gross profit

 

14,522

 

12,911

 

28,953

 

24,786

Operating expenses:

Research and development

 

4,508

 

4,052

 

9,013

 

8,050

Sales and marketing

 

6,266

 

4,821

 

11,897

 

9,559

General and administrative

 

1,852

 

2,036

 

3,796

 

4,081

Total operating expenses

 

12,626

 

10,909

 

24,706

 

21,690

Income from operations

 

1,896

 

2,002

 

4,247

 

3,096

Interest income, net

 

2

 

124

 

6

 

271

Other expense, net

 

(160)

 

(186)

 

(323)

 

(21)

Income before income tax (provision) benefit

 

1,738

 

1,940

 

3,930

 

3,346

Income tax (provision) benefit

 

(132)

 

33

 

(280)

 

(156)

Net income

$

1,606

$

1,973

$

3,650

$

3,190

Per share information:

Earnings per share:

Basic

$

0.05

$

0.06

$

0.12

$

0.10

Diluted

$

0.05

$

0.06

$

0.11

$

0.10

Weighted-average shares used in computation:

Basic

 

30,967

 

30,571

 

30,910

 

30,539

Diluted

 

32,732

 

31,880

 

32,605

 

31,858

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, 

    

2020

    

2019

 

2020

    

2019

Net income

$

1,606

$

1,973

$

3,650

$

3,190

Other comprehensive income, net of taxes:

 

 

Foreign currency translation adjustments

 

217

 

(34)

 

361

 

(191)

Total comprehensive income

$

1,823

$

1,939

$

4,011

$

2,999

See accompanying notes to condensed consolidated financial statements.

4


EGAIN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

(unaudited)

Three Months Ended December 31, 2020

Common Stock

Additional Paid-in

Notes Receivable From

Accumulated Other Comprehensive

Accumulated

Total Stockholders'

Shares

    

Amount

    

Capital

    

Stockholders

    

Income (Loss)

    

Deficit

    

Equity

Balances as of September 30, 2020

30,924

$

31

$

375,357

$

(91)

$

(1,487)

$

(336,024)

$

37,786

Issuance of common stock upon exercise of stock options

67

255

255

Issuance of common stock in connection with employee stock purchase plan

57

508

508

Stock-based compensation

426

426

Foreign currency translation adjustments

217

217

Net income

1,606

1,606

Balances as of December 31, 2020

31,048

$

31

$

376,546

$

(91)

$

(1,270)

$

(334,418)

$

40,798

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

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

See accompanying notes to condensed consolidated financial statements.

5


EGAIN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (cont.)

(in thousands)

(unaudited)

Six Months Ended December 31, 2020

Common Stock

Additional Paid-in

Notes Receivable From

Accumulated Other Comprehensive

Accumulated

Total Stockholders'

Shares

    

Amount

    

Capital

    

Stockholders

    

Income (Loss)

    

Deficit

    

Equity

Balances as of June 30, 2020

30,821

$

31

$

374,399

$

(90)

$

(1,631)

$

(338,068)

$

34,641

Interest on stockholder notes

(1)

(1)

Issuance of common stock upon exercise of stock options

170

743

743

Issuance of common stock in connection with employee stock purchase plan

57

508

508

Stock-based compensation

896

896

Foreign currency translation adjustments

361

361

Net income

3,650

3,650

Balances as of December 31, 2020

31,048

$

31

$

376,546

$

(91)

$

(1,270)

$

(334,418)

$

40,798

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

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

Issuance of common stock from public offering, net of issuance costs

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

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, 

    

2020

    

2019

Cash flows from operating activities:

Net income

$

3,650

$

3,190

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

Amortization of intangible assets

 

26

 

134

Amortization of costs capitalized to obtain revenue contracts

 

562

 

407

Amortization of right-of-use assets

829

771

Depreciation

 

199

 

147

Provision of doubtful accounts

 

207

 

118

Deferred income taxes

(21)

(277)

Stock-based compensation

 

896

 

933

Loss on disposal of property and equipment

(1)

(3)

Changes in operating assets and liabilities:

Accounts receivable

 

6,657

 

6,372

Costs capitalized to obtain revenue contracts

 

(370)

 

(561)

Prepaid expenses

723

769

Other current assets

 

64

 

357

Other non-current assets

24

58

Accounts payable

 

(597)

 

(2,824)

Accrued compensation

 

(2,286)

 

(689)

Accrued liabilities

 

230

 

234

Deferred revenue

 

(4,056)

 

(434)

Operating lease liabilities

(800)

(807)

Other long-term liabilities

 

11

 

143

Net cash provided by operating activities

 

5,947

 

8,038

Cash flows from investing activities:

Purchase of property and equipment

(317)

 

(125)

Net cash used in investing activities

 

(317)

 

(125)

Cash flows from financing activities:

Payments on bank borrowings

 

 

(31)

Proceeds from bank borrowings

 

 

31

Proceeds from exercise of employee stock options

 

743

 

167

Proceeds from employee stock purchase plan

508

448

Net cash provided by financing activities

 

1,251

 

615

Effect of change in exchange rates on cash and cash equivalents

 

714

 

(74)

Net increase in cash, cash equivalents and restricted cash

 

7,595

 

8,454

Cash, cash equivalents and restricted cash at beginning of period

 

46,615

 

31,867

Cash, cash equivalents and restricted cash at end of period

$

54,210

$

40,321

Supplemental cash flow disclosures:

Cash paid for interest

$

$

2

Cash paid for taxes, net of tax refunds

$

176

$

133

Non-cash items:

Purchases of equipment through trade accounts payable

$

11

$

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 business-to-consumer (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 2021 refer to fiscal year ending June 30, 2021.

Basis of Presentation

The accompanying condensed consolidated balance sheet as of December 31, 2020 and the condensed consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for the three and six months ended December 31, 2020 and 2019, are unaudited. The consolidated balance sheet as of June 30, 2020 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 generally accepted accounting principles (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, 2020, included in our Annual Report on Form 10-K. The condensed consolidated balance sheet as of June 30, 2020 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, 2021.

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.

Recent Accounting Pronouncements

Pronouncements Not Yet Adopted

In December 2019, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (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 August 2018, 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. We adopted this guidance as of our first quarter of fiscal year 2021 with no impact on our consolidated financial statements.

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 revenue 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 (SSP). 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.

9


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.

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 royalty revenue agreements with two partners related to the Company’s embedded intellectual property. Under the terms of these agreements, the partners are to provide to the Company a combined fixed fee and per agent fee, for each software license sold containing the embedded software. These embedded OEM royalties are included as subscription revenue. Under Topic 606-10-55-65 revenue guidance (Topic 606), since these arrangements are for sales-based licenses of intellectual property, the Company recognizes revenue only as the subsequent sale occurs. However, certain sales from one partner are reported 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.

10


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 expensed when incurred, as we do not consider renewal contracts to be commensurate with initial customer contracts. Historically, any commission associated with renewals have been immaterial. 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, 2020, we capitalized $343,000 and $370,000 of costs to obtain revenue contracts, respectively, and amortized $305,000 and $562,000 to sales and marketing expense, respectively.

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.

Capitalized costs to obtain revenue contracts, net were $3.4 million as of December 31, 2020 and June 30, 2020, respectively.

Deferred Revenue

Deferred revenue primarily consists of payments received or invoiced in advance of revenue recognition from cloud delivery arrangements, term licenses and support associated with embedded OEM royalties. 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.

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 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.

The following table presents our operating income among our three operating regions (in thousands):

Three Months Ended

Six Months Ended

December 31, 

December 31, 

2020

    

2019

2020

    

2019

Income from operations:

North America

$

1,643

$

249

$

3,318

$

(635)

Europe, Middle East, & Africa

 

1,968

 

3,110

 

4,014

 

6,484

Asia Pacific

 

(1,715)

 

(1,357)

 

(3,085)

 

(2,753)

Income from operations

$

1,896

$

2,002

$

4,247

$

3,096

11


The following table presents our long-lived assets, corresponding to our geographic areas are as follows (in thousands):

December 31, 

June 30, 

    

2020

    

2020

Long-lived Assets:

North America

$

404

$

401

Europe, Middle East, & Africa

 

92

 

90

Asia Pacific

 

355

 

222

Long-lived Assets

$

851

$

713

We define long-lived assets as hard assets, that cannot be easily removed, such as property and equipment.

Concentration of Credit Risk and Significant Customers

Our financial instruments that are exposed to concentrations of credit risk include cash and cash equivalents and accounts receivable. We maintain an allowance for doubtful accounts which is based on historical losses and the number of days past due for collection. Receivables are written off against the allowance when we have exhausted collection efforts without success. Two customers, who are also our partners, accounted for 19% and 13%, respectively, of total revenue during the three months ended December 31, 2020 and 19% and 12%, respectively for the six months ended December 31, 2020. The same partners, accounted for 18% and 10%, respectively, of total revenue during the three months ended December 31, 2019 and 18% and 10%, respectively, for the six months ended December 31, 2019.

Accounts Receivable and Allowance for Doubtful Accounts

We extend unsecured credit to our customers on a regular basis. Our accounts receivable are derived from revenue earned from customers and are not interest bearing. We also maintain an allowance for doubtful accounts to reserve for potential uncollectible trade receivables. We review our trade receivables by aging category to identify specific customers with known disputes or collectability issues. We exercise judgment when determining the adequacy of these reserves as we evaluate historical bad debt trends, general economic conditions in the U.S. and internationally, and changes in customer financial conditions. We write off a receivable after collection efforts have been exhausted and the amount is deemed uncollectible.

In certain Company contracts, contractual billings do not coincide with revenue recognized on the contract. Unbilled accounts receivables are recorded when revenue recognized on the contract exceeds billings, pursuant to contract provisions, and become billable upon certain criteria being met. Unbilled accounts receivables, for which the Company has the unconditional right to consideration, totaled $1.1 million and $1.7 million as of December 31, 2020, and June 30, 2020, respectively, and are included in the accounts receivable balance.

Stock-Based Compensation

We account for stock-based compensation in accordance with ASC 718, Compensation—Stock Compensation. Under the fair value recognition provisions of ASC 718, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the vesting period. Stock-based compensation expense consists of expenses for stock options and our 2017 employee stock purchase plan (ESPP).

The ESPP provides that eligible employees may purchase the Company’s common stock through payroll deductions at a price equal to 85% of the lower of the fair market value at the entry date of the applicable offering period or at the end of each applicable purchasing period. The offering period, meaning a period with respect to which the right to purchase shares of our common stock may be granted under the ESPP, will not exceed twenty-seven months and consist of a series of six-month purchase periods. Eligible employees may join the ESPP at the beginning of any six-month purchase period. Under the terms of the ESPP, employees can choose to have between 1% and 15% of their base earnings withheld to purchase the Company’s common stock.  

12


Determining the fair value of the stock-based awards at the grant date requires significant judgment and the use of estimates, particularly surrounding Black-Scholes valuation assumptions such as stock price volatility and expected option term.

Below is a summary of stock-based compensation included in the costs and expenses (in thousands):

Three Months Ended

Six Months Ended

December 31, 

December 31, 

    

2020

    

2019

2020

    

2019

Stock-Based Compensation Expense:

Cost of revenue

$

80

$

52

$

155

$

85

Research and development

 

144

 

201

 

302

 

378

Sales and marketing

 

175

 

131

 

306

 

278

General and administrative

 

27

 

98

 

133

 

192

Total stock-based compensation expense

$

426

$

482

$

896

$

933

Total stock-based compensation includes expense related to non-employee awards of an expense reversal of $17,000 and expense of $33,000 during the three and six months ended December 31, 2020, respectively. Total stock-based compensation includes expense related to non-employee awards of $20,000 and $43,000 during the three and six months ended December 31, 2019, respectively.

Total stock-based compensation includes expense related to the ESPP of $115,000 and $217,000 for the three and six months ended December 31, 2020, respectively. Total stock-based compensation includes expense related to the ESPP of $96,000 and $124,000 for the three and six months ended December 31, 2019, respectively.

We utilize the Black-Scholes valuation model for estimating the fair value of the stock-based compensation of options granted. All shares of our common stock issued pursuant to our stock option plans are only issued out of an authorized reserve of shares of common stock which were previously registered with the SEC on Registration Statements on Form S-8.

During the three months ended December 31, 2020 and 2019, we granted options to purchase 75,375 and 46,225 shares of common stock with a weighted-average fair value of $7.69 and $4.15 per share, respectively.

During the six months ended December 31, 2020 and 2019, we granted options to purchase 116,575 and 248,325 shares of common stock with a weighted-average fair value of $7.21 and $4.28 per share, respectively.

We used the following assumptions:

Three Months Ended

Six Months Ended

December 31, 

December 31, 

    

2020

    

2019

    

2020

    

2019

 

Expected volatility

72

%  

69

%  

72

%  

70

%

Average risk-free interest rate

0.37

%  

1.62

%  

0.34

%  

1.63

%

Expected life (in years)

4.36

4.34

4.35

4.33

Dividend yield

The dividend yield of zero is based on the fact that we have never paid cash dividends and have no present intention to pay cash dividends. We determined the appropriate measure of expected volatility by reviewing historic volatility in the share price of our common stock, as adjusted for certain events that management deemed to be non-recurring and non-indicative of future events. The risk-free interest rate is derived from the average U.S. Treasury Strips rate with maturities approximating the expected lives of the awards during the period, which approximate the rate in effect at the time of the grant.

13


On December 1, 2020, employees were granted the right to purchase an aggregate of 74,752 shares under the ESPP, and compensation expense related to those purchase rights for the three and six months ended December 31, 2020 was $48,000.

On December 1, 2019, employees were granted the right to purchase an aggregate of 69,368 shares under the ESPP, and compensation expense related to those purchase rights for the three and six months ended December 31, 2019 was $29,000.

As of December 31, 2020, there were 716,122 shares of common stock available for issuance under the ESPP.

We base our estimate of expected life of a stock option on the historical exercise behavior and cancellations of all past option grants made by the Company during the time period which its equity shares have been publicly traded, the contractual term of the option, the vesting period and the expected remaining term of the outstanding options.

In accordance with ASU 2016-09, Compensation—Stock Compensation: Improvements to Employee Share-Based Accounting, we elected to continue to estimate forfeitures in the calculation of stock-based compensation expense.

As of December 31, 2020 there was approximately $1.3 million of total unrecognized compensation cost related to nonvested stock options, which is expected to be recognized over the weighted-average period of 1.1 years. There were 67,149 and 31,165 options exercised during the three months ended December 31, 2020 and 2019, respectively. There were 170,054 and 89,635 options exercised during the six months ended December 31, 2020 and 2019, respectively.

Leases

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

Operating leases are included in operating lease right-of-use (ROU) assets, current operating lease liabilities, and noncurrent operating lease liabilities in the condensed consolidated financial statements. ROU assets represent the Company’s right to use leased assets over the agreed upon term. Lease liabilities represent the Company’s contractual obligation to make lease payments over the lease term.

For operating leases, ROU assets and lease liabilities are recognized at the commencement date of the lease. The lease liability is measured as the present value of the lease payments over the lease term, using the rate implicit in the lease if readily determinable. If the rate implicit in the lease cannot be readily determined, the Company uses its incremental borrowing rate at lease commencement. The operating lease right-of-use assets are calculated as the present value of the remaining lease payments plus unamortized initial direct costs and any prepayments, less unamortized lease incentives received.

Operating leases typically include non-lease components such as common-area maintenance costs. We have elected to include non-lease components with lease payments for the purpose of calculating lease right-of-use assets and liabilities, to the extent that they are fixed. Non-lease component payments that are not fixed are expensed as incurred as variable lease payments.

Lease terms may include renewal or extension options to the extent they are reasonably certain to be exercised. The assessment of whether renewal or extension options are reasonably certain to be exercised is made at lease commencement. Factors considered in determining whether an option is reasonably certain of exercise include, but are not limited to, the value of any leasehold improvements, the value of renewal rates compared to market rates, and the presence of factors that would cause a significant economic penalty to the Company if the option were not exercised. Lease expense is recognized on a straight-line basis over the lease term. The Company has elected not to recognize right-of-use assets and obligations for leases with an initial term of twelve months or less, and has applied a capitalization threshold to recognize a lease on the balance sheet. The expense associated with short-term leases and leases that do not meet the Company’s capitalization threshold are recorded to lease expense in the period it is incurred.  

14


2. REVENUE RECOGNITION

Disaggregation of Revenue

The following table presents our subscription and professional services revenue during the three and six months ended December 31, 2020 and 2019, respectively:

Three Months Ended

Six Months Ended

December 31, 

December 31, 

2020

    

    

2019

2020

    

    

2019

Revenue:

SaaS revenue

$

16,177

$

14,045

$

32,148

$

26,462

Legacy revenue

1,522

2,298

3,299

5,452

Total subscription revenue

17,699

16,343

35,447

31,914

Professional services revenue

 

1,534

 

1,812

 

2,849

 

3,430

Total revenue

$

19,233

$

18,155

$

38,296

$

35,344

The following table presents our revenue by geography. Revenue by geography is generally determined on the region of our contracting entity rather than the region of our customer. The relative proportion of our total revenue between each geographic region as presented in the table below was materially consistent across each of our operating regions’ revenue for the periods presented.

Three Months Ended

Six Months Ended

December 31, 

December 31, 

    

2020

    

2019

2020

    

2019

Revenue:

North America

$

13,168

$

10,973

$

26,937

$

20,564

Europe, Middle East, & Africa

6,065

 

7,182

 

11,359

 

14,780

Total revenue

$

19,233

$

18,155

$

38,296

$

35,344

Contract Balances

Contract assets, if any, consist of unbilled receivables for completed performance obligations which have not been invoiced, and for which we do not have an unconditional right to consideration. Contract liabilities consist of deferred revenue for which we have an obligation to transfer services to customers and have received consideration in advance or the amount is due from customers. Once the obligations are fulfilled, then deferred revenue is recognized to revenue in the respective period. There were no contract assets for the period ended December 31, 2020 and 2019.

The following table presents the changes in contract liabilities (in thousands):

    

Balance as of June 30, 2020
($)

    

Additions
($)

Deductions
($)

Balance as of December 31, 2020
($)

Contract liabilities:

Deferred revenue

36,644

34,820

(37,740)

33,724

Deferred revenue, net of current portion

 

4,826

 

 

(95)

 

4,731

With respect to deferred revenue balances as of June 30, 2020, $10.6 million and $24.5 million was recognized to revenue during the three and six months ended December 31, 2020, respectively.

15


Remaining Performance Obligations

Remaining performance obligations represent contracted revenue that had not yet been recognized, and include deferred revenue, invoices that have been issued to customers but were uncollected and have not been recognized as revenue, and 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 December 31, 2020, our remaining performance obligations were $67.8 million of which we expect to recognize $53.5 million and $14.3 million as revenue within one year and beyond one year, respectively.

3. NET INCOME PER COMMON SHARE

Basic net income per common share is computed using the weighted-average number of shares of common stock outstanding. In periods where net income is reported, the weighted-average number of shares is increased by warrants and options in the money to calculate diluted net income per common share.

The following table represents the calculation of basic and diluted net income per common share (unaudited, in thousands, except per share data):

Three Months Ended

Six Months Ended

December 31, 

December 31, 

2020

2019

2020

2019

Net income

    

$

1,606

    

$

1,973

$

3,650

    

$

3,190

Per share information:

Earnings per share:

Basic

$

0.05

$

0.06

$

0.12

$

0.10

Diluted

$

0.05

$

0.06

$

0.11

$

0.10

Weighted-average shares used in computation:

Basic

 

30,967

 

30,571

 

30,910

 

30,539

Effect of dilutive options

1,765

1,309

1,695

1,319

Diluted

 

32,732

 

31,880

 

32,605

 

31,858

Weighted-average shares of stock options to purchase 160,077 and 631,140 shares of common stock for the three months ended December 31, 2020 and 2019, respectively, and weighted-average shares of stock options to purchase 223,235 and 593,450 shares of common stock for the six months ended December 31, 2020 and 2019, respectively, were not included in the computation of diluted net income per common share due to their anti-dilutive effect. Such securities could have a dilutive effect in future periods.

16


4. INCOME TAXES

Income taxes are accounted for using the asset and liability method in accordance with ASC 740, Income Taxes. Under this method, deferred tax liabilities and assets are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. For the legacy eGain business in the United States, based upon the weight of available evidence, which includes our historical operating performance, our future investment plans, and the uncertainty in the current market environment due to COVID-19, we have provided a full valuation allowance against our net deferred tax assets. For the legacy eGain business in the United Kingdom, based on the positive evidence, the Company has determined it would be able to utilize the deferred tax assets and does not have a valuation allowance against the deferred tax assets. The remaining eGain foreign operations as well as Exony’s business have historically been profitable and we believe it is more likely than not that those assets will be realized. Our tax provision primarily relates to foreign activities as well as state income taxes. Our income tax rate differs from the statutory tax rates primarily due to the utilization of net operating loss carry-forwards which had previously been valued against as well as our foreign operations.

We account for uncertain tax positions according to the provisions of ASC 740. ASC 740 contains a two-step approach for recognizing and measuring uncertain tax positions. Tax positions are evaluated for recognition by determining if the weight of available evidence indicates that it is probable that the position will be sustained on audit, including resolution of related appeals or litigation. Tax benefits are then measured as the largest amount which is more than 50% likely of being realized upon ultimate settlement. We consider many factors when evaluating and estimating tax positions and tax benefits, which may require periodic adjustments and which may not accurately anticipate actual outcomes.

As of June 30, 2020, we have completed a study under Section 382 of the Internal Revenue Code, and have determined there was no loss of NOLs as a result of any ownership changes since eGain’s formation. Utilization of the NOL or tax credit carryforwards to offset future taxable income and taxes, respectively, are subject to an annual limitation under the Internal Revenue Code of 1986 and similar state provisions, which is determined by first multiplying the value of the Company’s stock at the time of the ownership change by the applicable long-term, tax-exempt rate, and then could be subject to additional adjustments such as built in gain or built in loss, as required. Any limitation may result in expiration of all or a portion of its NOL and or tax credit carryforwards before utilization.

The 2017 Tax Cuts and Jobs Act includes a provision to tax global intangible low-taxed income (GILTI) of foreign subsidiaries. As of December 31, 2020, we estimate $2.6 million of GILTI income inclusion and used our net operating losses to offset our taxable income.

17


5.

LEASES

We lease our office facilities under non-cancelable operating leases that expire on various dates through fiscal year 2024. Additionally, we are the sublessor for certain office space. All of our office leases are classified as operating leases with lease expense recognized on a straight-line basis over the lease term. Lease right-of-use assets and liabilities are recognized at the commencement date at the present value of lease payments over the lease term. As our leases do not provide an implicit rate, we use our incremental borrowing rate based on information available at the commencement date in determining the present value of lease payments.

Total operating lease costs were $452,000 and $441,000 for the three months ended December 31, 2020 and 2019, respectively. Total operating lease costs were $895,000 and $879,000 for the six months ended December 31, 2020 and 2019, respectively.

Operating lease amounts above do not include sublease income. The Company secured a sublease agreement with a third party and recognized sublease income of $154,000 for the three months ended December 31, 2020 and 2019, and $309,000 for the six months ended December 31, 2020 and 2019.

For the three and six months ended December 31, 2020, operating cash outflows for operating leases were $552,000 and $1.0 million, respectively. For the three and six months ended December 31, 2019, operating cash outflows for operating leases were $457,000 and $907,000, respectively.

The following tables present information about leases on our consolidated balance sheet (in thousands):

December 31, 

June 30, 

2020

2020

Assets:

Operating lease right-of-use assets

$

2,323

$

2,962

Liabilities:

Operating lease liabilities

1,675

1,753

Operating lease liabilities, net of current portion

771

1,385

The following table presents information about the weighted average lease term and discount rate as follows:

As of December 31, 2020

As of June 30, 2020

Weighted average remaining lease term (in years)

1.69

2.01

Weighted average discount rate

4.72

%

4.81

%

As of December 31, 2020, remaining maturities of lease liabilities are as follows (in thousands):

Fiscal Period:

Remaining six months of fiscal 2021

$

972

Fiscal 2022

1,224

Fiscal 2023

 

253

Fiscal 2024

 

85

Fiscal 2025

Thereafter

Total minimum lease payments

2,534

Less: Imputed interest

(88)

Total

$

2,446

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6. COMMITMENTS AND CONTINGENCIES

Litigation

In the ordinary course of business, we are involved in various legal proceedings and claims related to alleged infringement of intellectual property rights, commercial, corporate and securities, labor and employment, wage and hour, and other claims that are not expected to have a material impact on our business or our consolidated financial statements. We have been, and may in the future be, put on notice and/or sued by third parties for alleged infringement of their proprietary rights, including patent in