10-Q 1 egan-20240331x10q.htm 10-Q
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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 March 31, 2024

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)

(408636-4500

(Registrant’s telephone number, including area code)

N/A

(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

The Nasdaq Stock Market, LLC

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 29,826,703 as of May 6, 2024.

EGAIN CORPORATION

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2024

TABLE OF CONTENTS

Page

    

PART I.

FINANCIAL INFORMATION

Item 1.

Financial Statements (Unaudited)

2

Condensed Consolidated Balance Sheets as of March 31, 2024 and June 30, 2023

2

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended March 31, 2024 and 2023

3

 

Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended March 31, 2024 and 2023

4

Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended March 31, 2024 and 2023

5

 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2024 and 2023

9

 

Notes to Condensed Consolidated Financial Statements

10

Item 2.

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

24

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

38

Item 4.

Controls and Procedures

39

PART II.

OTHER INFORMATION

40

Item 1.

Legal Proceedings

40

Item 1A.

Risk Factors

40

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds  

57

Item 5.

Other Information

58

Item 6.

Exhibits

59

 

Signatures

60

1

PART I.  FINANCIAL INFORMATION

Item 1. Financial Statements

EGAIN CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value data)

(unaudited)

March 31, 

June 30, 

    

2024

    

2023

ASSETS

Current assets:

Cash and cash equivalents

$

82,982

$

73,201

Restricted cash

 

7

 

7

Accounts receivable, less provision for credit losses of $209 and $237 as of March 31, 2024 and June 30, 2023, respectively

 

10,950

 

31,569

Costs capitalized to obtain revenue contracts, net

 

1,247

 

1,317

Prepaid expenses

2,387

2,466

Other current assets

 

1,317

 

1,268

Total current assets

 

98,890

 

109,828

Property and equipment, net

 

483

 

633

Operating lease right-of-use assets

4,077

2,797

Costs capitalized to obtain revenue contracts, net of current portion

 

1,734

 

2,318

Goodwill

 

13,186

 

13,186

Other assets, net

 

1,954

 

1,355

Total assets

$

120,324

$

130,117

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable

$

1,534

$

2,044

Accrued compensation

 

6,933

 

7,697

Accrued liabilities

 

5,615

 

5,387

Operating lease liabilities

1,192

832

Deferred revenue

 

34,342

 

47,762

Total current liabilities

 

49,616

 

63,722

Deferred revenue, net of current portion

 

3,157

 

2,101

Operating lease liabilities, net of current portion

2,803

1,762

Other long-term liabilities

 

887

 

836

Total liabilities

 

56,463

 

68,421

Commitments and contingencies (Note 6)

Stockholders' equity:

Common stock, par value $0.001 - authorized: 60,000 shares; issued: 32,523 and 32,268; outstanding: 30,382 and 31,482 shares as of March 31, 2024 and June 30, 2023, respectively

 

33

 

32

Additional paid-in capital

 

405,590

 

401,087

Treasury stock, at cost: 2,141 and 786 shares of common stock as of March 31, 2024 and June 30, 2023, respectively

(14,292)

(5,763)

Notes receivable from stockholders

 

(21)

 

(97)

Accumulated other comprehensive loss

 

(2,282)

 

(2,122)

Accumulated deficit

 

(325,167)

 

(331,441)

Total stockholders' equity

 

63,861

 

61,696

Total liabilities and stockholders' equity

$

120,324

$

130,117

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

Nine Months Ended

March 31, 

March 31, 

    

2024

    

2023

2024

    

2023

Revenue:

Subscription

$

20,324

$

20,980

$

64,643

$

67,517

Professional services

 

2,026

 

2,033

 

5,698

 

5,859

Total revenue

 

22,350

 

23,013

 

70,341

 

73,376

Cost of revenue:

Cost of subscription

 

4,487

 

5,393

 

14,643

 

13,795

Cost of professional services

 

2,371

 

2,202

 

6,043

 

6,834

Total cost of revenue

 

6,858

 

7,595

 

20,686

 

20,629

Gross profit

 

15,492

 

15,418

 

49,655

 

52,747

Operating expenses:

Research and development

 

6,655

 

6,687

 

19,947

 

20,749

Sales and marketing

 

5,448

 

6,837

 

16,901

 

25,191

General and administrative

 

2,451

 

2,406

 

8,028

 

7,776

Total operating expenses

 

14,554

 

15,930

 

44,876

 

53,716

Income (loss) from operations

 

938

 

(512)

 

4,779

 

(969)

Interest income

 

1,002

 

818

 

2,933

 

1,633

Other income (expense), net

 

74

 

(245)

 

(13)

 

20

Income before income tax provision

 

2,014

 

61

 

7,699

 

684

Income tax provision

 

(521)

 

(433)

 

(1,425)

 

(1,176)

Net income (loss)

$

1,493

$

(372)

$

6,274

$

(492)

Per share information:

Earnings (loss) per share:

Basic

$

0.05

$

(0.01)

$

0.20

$

(0.02)

Diluted

$

0.05

$

(0.01)

$

0.20

$

(0.02)

Weighted-average shares used in computation:

Basic

 

30,976

 

32,122

 

31,212

 

32,024

Diluted

 

31,599

 

32,122

 

31,858

 

32,024

See accompanying notes to condensed consolidated financial statements.

3

EGAIN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

(unaudited)

Three Months Ended

Nine Months Ended

March 31, 

March 31, 

    

2024

    

2023

 

2024

    

2023

Net income (loss)

$

1,493

$

(372)

$

6,274

$

(492)

Other comprehensive income (loss), net of taxes:

 

 

Foreign currency translation adjustments

 

(181)

 

392

 

(160)

 

186

Total comprehensive income (loss)

$

1,312

$

20

$

6,114

$

(306)

See accompanying notes to condensed consolidated financial statements.

4

EGAIN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

(unaudited)

Three Months Ended March 31, 2024

Common Stock

Additional
Paid-in

Treasury Stock

Notes Receivable
From

Accumulated
Other
Comprehensive

Accumulated

Total
Stockholders'

Shares

    

Amount

    

Capital

    

Shares

    

Amount

    

Stockholders

    

Loss

    

Deficit

    

Equity

Balances as of December 31, 2023

31,202

$

32

$

404,320

1,260

$

(8,778)

$

(20)

$

(2,101)

$

(326,660)

$

66,793

Interest on stockholder notes

(1)

(1)

Issuance of common stock upon exercise of stock options

61

1

160

161

Repurchase of common stock

(881)

881

(5,514)

(5,514)

Stock-based compensation

1,110

1,110

Foreign currency translation adjustments

(181)

(181)

Net income

1,493

1,493

Balances as of March 31, 2024

30,382

$

33

$

405,590

2,141

$

(14,292)

$

(21)

$

(2,282)

$

(325,167)

$

63,861

See accompanying notes to condensed consolidated financial statements.

5

EGAIN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

(unaudited)

Three Months Ended March 31, 2023

Common Stock

Additional
Paid-in

Treasury Stock

Notes Receivable
From

Accumulated
Other
Comprehensive

Accumulated

Total
Stockholders'

Shares

    

Amount

    

Capital

    

Shares

    

Amount

    

Stockholders

    

Loss

    

Deficit

    

Equity

Balances as of December 31, 2022

32,131

$

32

$

397,998

$

$

(96)

$

(2,893)

$

(333,670)

$

61,371

Issuance of common stock upon exercise of stock options

36

103

103

Repurchase of common stock

(145)

145

(1,101)

(1,101)

Stock-based compensation

1,447

1,447

Foreign currency translation adjustments

392

392

Net loss

(372)

(372)

Balances as of March 31, 2023

32,022

$

32

$

399,548

145

$

(1,101)

$

(96)

$

(2,501)

$

(334,042)

$

61,840

See accompanying notes to condensed consolidated financial statements.

6

EGAIN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (cont.)

(in thousands)

(unaudited)

Nine Months Ended March 31, 2024

Common Stock

Additional
Paid-in

Treasury Stock

Notes Receivable
From

Accumulated
Other
Comprehensive

Accumulated

Total
Stockholders'

Shares

    

Amount

    

Capital

    

Shares

    

Amount

    

Stockholders

    

Loss

    

Deficit

    

Equity

Balances as of June 30, 2023

31,482

$

32

$

401,087

786

$

(5,763)

$

(97)

$

(2,122)

$

(331,441)

$

61,696

Interest on stockholder notes

(1)

(1)

Repayment of stockholder notes

77

77

Issuance of common stock upon exercise of stock options

185

1

573

574

Issuance of common stock in connection with employee stock purchase plan

70

417

417

Repurchase of common stock

(1,355)

1,355

(8,529)

(8,529)

Stock-based compensation

3,513

3,513

Foreign currency translation adjustments

(160)

(160)

Net income

6,274

6,274

Balances as of March 31, 2024

30,382

$

33

$

405,590

2,141

$

(14,292)

$

(21)

$

(2,282)

$

(325,167)

$

63,861

See accompanying notes to condensed consolidated financial statements.

7

EGAIN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (cont.)

(in thousands)

(unaudited)

Nine Months Ended March 31, 2023

Common Stock

Additional
Paid-in

Treasury Stock

Notes Receivable
From

Accumulated
Other
Comprehensive

Accumulated

Total
Stockholders'

Shares

    

Amount

    

Capital

    

Shares

    

Amount

    

Stockholders

    

Loss

    

Deficit

    

Equity

Balances as of June 30, 2022

31,930

$

32

$

393,157

$

$

(95)

$

(2,687)

$

(333,550)

$

56,857

Interest on stockholder notes

(1)

(1)

Issuance of common stock upon exercise of stock options

165

568

568

Issuance of common stock in connection
with employee stock purchase plan

72

540

540

Repurchase of common stock

(145)

145

(1,101)

(1,101)

Stock-based compensation

5,283

5,283

Foreign currency translation adjustments

186

186

Net loss

(492)

(492)

Balances as of March 31, 2023

32,022

$

32

$

399,548

145

$

(1,101)

$

(96)

$

(2,501)

$

(334,042)

$

61,840

See accompanying notes to condensed consolidated financial statements.

8

EGAIN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

Nine Months Ended

March 31, 

    

2024

    

2023

Cash flows from operating activities:

Net income (loss)

$

6,274

$

(492)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Amortization of costs capitalized to obtain revenue contracts

 

1,170

 

1,151

Amortization of right-of-use assets

829

845

Depreciation and amortization

 

296

 

375

Provision for credit losses

 

99

 

182

Deferred income taxes

(464)

(363)

Stock-based compensation

 

3,513

 

5,283

Loss on disposal of property and equipment

(9)

Changes in operating assets and liabilities:

Accounts receivable

 

20,505

 

16,702

Costs capitalized to obtain revenue contracts

 

(522)

 

(415)

Prepaid expenses

75

4

Other current assets

 

(54)

 

(201)

Other non-current assets

(139)

47

Accounts payable

 

(508)

 

(215)

Accrued compensation

 

(754)

 

(1,334)

Accrued liabilities

 

233

 

564

Deferred revenue

 

(12,328)

 

(12,273)

Operating lease liabilities

(709)

(790)

Other long-term liabilities

 

58

 

19

Net cash provided by operating activities

 

17,574

 

9,080

Cash flows from investing activities:

Purchases of property and equipment

(149)

 

(218)

Net cash used in investing activities

 

(149)

 

(218)

Cash flows from financing activities:

Proceeds from exercise of stock options

 

574

 

568

Proceeds from employee stock purchase plan

417

540

Repurchases of common stock

(8,529)

(1,101)

Interest on stockholder notes

(1)

Repayment of stockholder notes

77

Net cash (used in) provided by financing activities

 

(7,462)

 

7

Effect of change in exchange rates on cash and cash equivalents

 

(182)

 

264

Net increase in cash, cash equivalents and restricted cash

 

9,781

 

9,133

Cash, cash equivalents and restricted cash at beginning of period

 

73,208

 

72,180

Cash, cash equivalents and restricted cash at end of period

$

82,989

$

81,313

Supplemental cash flow disclosures:

Cash paid for taxes

$

1,165

$

1,591

Right-of-use assets and lease liabilities recognized from lease modification

$

2,140

91

See accompanying notes to condensed consolidated financial statements.

9

EGAIN CORPORATION

NOTES TO CONDENSED 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) automates customer engagement with an innovative knowledge hub, powered by conversational artificial intelligence (AI) and analytics. We sell mostly to large enterprises across financial services, telecommunications, retail, government, healthcare, and utilities seeking to better serve customers at scale while coping with content silos, process complexity, and regulatory compliance. With our mantra of AX + BX + CX = DX™, we guide clients to effortless digital experience (DX) by holistically optimizing agent experience (AX), business experience (BX), and customer experience (CX). Leading brands use eGain’s cloud software to improve customer satisfaction, empower agents, reduce service cost, and boost sales. We are headquartered in the United States. We also operate in the United Kingdom and India.

Fiscal Year

The Company fiscal year ends on June 30. References to fiscal year 2024 refers to fiscal year ending June 30, 2024.

Basis of Presentation

The accompanying condensed consolidated balance sheet as of March 31, 2024 and the condensed consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for the three and nine months ended March 31, 2024 and 2023 are unaudited.  The condensed consolidated balance sheet as of June 30, 2023 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.

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, 2023, included in our Annual Report on Form 10-K. 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, 2024.

Principles of Consolidation

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

10

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; and
Lease term and incremental borrowing rate for lease liabilities.

Recent Accounting Pronouncements

Pronouncements Recently Adopted

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13), which requires measurement and recognition of expected credit losses for financial assets held at the reporting date based on internal information, external information, or a combination of both relating to past events, current conditions, and reasonable and supportable forecasts. ASU No. 2016-13 replaces the existing incurred loss impairment model with a forward-looking expected credit loss model, which will result in earlier recognition of credit losses. We adopted this guidance as of our first quarter of fiscal year 2024 with no material impact on our condensed 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 cloud delivery arrangements, term licenses, embedded original equipment manufacturer (OEM) royalties, and associated support. Legacy revenue is associated with license, maintenance, and support contracts on perpetual license arrangements that we no longer sell. Professional services include consulting, implementation, training, and managed services.

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 based on relative SSP basis. 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.

11

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 licenses which incorporate on-premise software licenses and a subscription to substantial cloud functionalities.

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 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 provide to the Company a combination of fixed fee, per agent fee, for each software license sold containing the embedded software. These embedded OEM royalties are included as subscription revenue. Under Topic 606 revenue guidance, since these arrangements are for usage-based licenses of intellectual property, for which the guidance in paragraph ASC 606-10-55-65 applies, the Company estimates revenue recognized only as the performance obligation of the OEM royalties has been satisfied or partially satisfied. Differences between actual results and estimated amounts are adjusted in the following period as such sales are reported by the customer with a quarter in arrears.

Professional Services Revenue

Professional services revenue includes system implementation, consulting, training, and managed services. The transaction price is allocated to various performance obligations based on their SSP. Revenue allocated to each performance obligation is recognized at the earlier of satisfaction of discrete performance obligations, or as work is performed on a time and material basis. Managed services include a comprehensive set of processes and activities that range from implementation to monitoring the evolution and support of eGain solutions in a company. Our consulting and implementation service contracts are bid either on a time-and-material basis or on a fixed-fee basis. Managed services contracts are bid on a time-and-material basis. Fixed fees are generally paid upon milestone billing or customer 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.

12

Contracts with Multiple Performance Obligations

The Company enters into contracts that can include various combinations of subscriptions, professional services and maintenance and support, which are generally distinct and accounted for as separate performance obligations. For contracts with multiple performance obligations, the Company allocates the transaction price of the contract to each performance obligation on a relative basis using the respective SSP for each performance obligation.

Costs Capitalized to Obtain Revenue Contracts, Net

Under Topic 606, we capitalize incremental costs of obtaining 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 nine months ended March 31, 2024, we capitalized $36,000 and $522,000 of costs to obtain revenue contracts, respectively, and amortized $325,000 and $1.2 million to sales and marketing expense, respectively.

During the three and nine months ended March 31, 2023, we capitalized $6,000 and $415,000 of costs to obtain revenue contracts, respectively, and amortized $381,000 and $1.2 million to sales and marketing expense, respectively.

Capitalized costs to obtain revenue contracts, net were $3.0 million and $3.6 million as of March 31, 2024 and June 30, 2023, respectively, on our condensed consolidated balance sheets.

Deferred Revenue

Deferred revenue primarily consists of payments received in advance of revenue recognition from cloud, term and ratable licenses, and maintenance and support services and is recognized as the revenue recognition criteria are met. We generally invoice customers in annual or quarterly installments. The deferred revenue balance does not represent the total contract value of annual or multi-year, non-cancelable cloud or maintenance and support agreements. Deferred revenue is influenced by several factors, including seasonality, the compounding effects of renewals, invoice duration, invoice timing, and new business linearity within the financial reporting period.

Segment Information

We operate in one segment - the development, license, implementation, and support of our customer service infrastructure software solutions. Operating segments are identified as components of an enterprise for which discrete financial information is available and regularly reviewed by our chief operating decision-maker 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.

Our revenue is derived from North America and combined Europe, Middle East, and Africa (EMEA) and is disclosed in Note 2. However, we incur operating expenses in the North America, EMEA, and Asia Pacific regions.

13

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

Three Months Ended

Nine Months Ended

March 31, 

March 31, 

2024

    

2023

2024

    

2023

Income (loss) from operations:

North America

$

1,085

$

(297)

$

5,039

$

(917)

Europe, Middle East, & Africa

 

1,416

 

1,256

 

4,607

 

4,792

Asia Pacific

 

(1,563)

 

(1,471)

 

(4,867)

 

(4,844)

Income (loss) from operations

$

938

$

(512)

$

4,779

$

(969)

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

March 31, 

June 30, 

    

2024

    

2023

Long-lived assets:

North America

$

244

$

358

Europe, Middle East, & Africa

 

97

 

131

Asia Pacific

 

142

 

144

Long-lived assets

$

483

$

633

For the purposes of entity-wide geographic area disclosures, long-lived assets consist of computers and equipment, furniture and fixtures, and leasehold improvements, net of accumulated depreciation and amortization. These items are included in property and equipment, net, on the accompanying Company’s condensed consolidated balance sheets.

Concentration of Credit Risk and Significant Customers

Our financial instruments that are exposed to concentrations of credit risk include cash and cash equivalents, restricted cash, and accounts receivable. We complement direct sales with resell partnerships based on product connectors into cloud contact center platforms. We also partner with system integrators and managed service providers. Two customers, who are also partners, accounted for more than 10% of total revenue during the three and nine months ended March 31, 2024. One of such partners accounted for more than 10% of total revenue during the three and nine months ended March 31, 2023. Two customers accounted for more than 10% of our gross accounts receivable balance as of March 31, 2024.

Accounts Receivable and Provision for Credit Losses

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 provision for credit losses 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. Recovered written off receivables are recorded as they occur.

In certain revenue contracts, contractual billings do not coincide with revenue recognized on the contract. Unbilled accounts receivables (contract assets) 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 $1.3 million and $1.7 million as of March 31, 2024 and June 30, 2023, respectively, and are included in the accounts receivable, less provision for credit losses, balance on the accompanying condensed consolidated balance sheets.

As of fiscal year 2024, we adopted ASU 2016-13 - Measurement of Credit Losses on Financial Instruments with no material impact on our condensed consolidated financial statements.

14

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, net of expected forfeitures. Stock-based compensation expense consists of expenses for stock options, restricted stock units (RSUs), and discounted employee common stock granted under our Amended and Restated 2005 Management Stock Option Plan, our Amended and Restated 2005 Stock Incentive Plan, 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.  

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

Nine Months Ended

March 31, 

March 31, 

    

2024

    

2023

2024

    

2023

Stock-based compensation expense:

Cost of revenue

$

343

$

371

$

924

$

1,213

Research and development

 

331

 

509

 

1,095

 

1,633

Sales and marketing

 

120

 

174

 

476

 

997

General and administrative

 

316

 

393

 

1,018

 

1,440

Total stock-based compensation expense

$

1,110

$

1,447

$

3,513

$

5,283

Total stock-based compensation includes expense related to non-employee awards of $26,000 and $77,000 during the three and nine months ended March 31, 2024, respectively.

Total stock-based compensation includes expense related to non-employee awards of $31,000 and $113,000 during the three and nine months ended March 31, 2023, respectively.

Total stock-based compensation includes expense related to the ESPP of $102,000 and $268,000 for the three and nine months ended March 31, 2024, respectively. Total stock-based compensation includes expense related to the ESPP of $115,000 and $305,000 for the three and nine months ended March 31, 2023, respectively.

We utilize the Black-Scholes valuation model for estimating the fair value of the stock-based compensation of options granted and ESPP stock purchase rights. All shares of our common stock issued pursuant to our stock option, RSUs, and ESPP 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 March 31, 2024 and 2023, we granted options to purchase 9,600 and 22,300 shares of common stock with a weighted-average fair value of $3.17 and $4.66 per share, respectively.

During the nine months ended March 31, 2024 and 2023, we granted options to purchase 60,000 and 176,367 shares of common stock with a weighted-average fair value of $3.27 and $4.77 per share, respectively.

15

We used the following weighted-average assumptions as inputs into the Black-Scholes valuation model to estimate the fair value of the options granted:

Three Months Ended

Nine Months Ended

March 31, 

March 31, 

    

2024

    

2023

2024

    

2023

 

Expected volatility

55

%  

63

%  

54

%  

64

%

Average risk-free interest rate

4.12

%  

3.80

%  

4.32

%  

3.53

%

Expected life (in years)