Dear(cid:3)eGain(cid:3)stockholder,(cid:3)
(cid:3)
I(cid:3)am(cid:3)delighted(cid:3)to(cid:3)tell(cid:3)you(cid:3)that(cid:3)we(cid:3)have(cid:3)successfully(cid:3)completed(cid:3)our(cid:3)transition(cid:3)to(cid:3)a(cid:3)SaaS(cid:3)business(cid:3)in(cid:3)the(cid:3)
fourth(cid:3)quarter(cid:3)of(cid:3)fiscal(cid:3)2017.(cid:3)To(cid:3)put(cid:3)our(cid:3)transition(cid:3)into(cid:3)perspective,(cid:3)our(cid:3)legacy(cid:3)license(cid:3)revenue(cid:3)went(cid:3)from(cid:3)
$14.5(cid:3)million(cid:3)in(cid:3)fiscal(cid:3)2016(cid:3)to(cid:3)$4.6(cid:3)million(cid:3)in(cid:3)fiscal(cid:3)2017.(cid:3)We(cid:3)expect(cid:3)less(cid:3)than(cid:3)$1.0(cid:3)million(cid:3)of(cid:3)legacy(cid:3)license(cid:3)
revenue(cid:3)in(cid:3)fiscal(cid:3)2018.(cid:3)
(cid:3)
We(cid:3)are(cid:3)singularly(cid:3)focused(cid:3)on(cid:3)SaaS(cid:3)growth,(cid:3)guiding(cid:3)our(cid:3)legacy(cid:3)license(cid:3)clients(cid:3)to(cid:3)a(cid:3)better(cid:3)innovation(cid:3)
consumption(cid:3)model(cid:3)in(cid:3)eGain(cid:3)Cloud.(cid:3)We(cid:3)exited(cid:3)this(cid:3)fiscal(cid:3)year(cid:3)with(cid:3)sequential(cid:3)fourth(cid:3)quarter(cid:3)SaaS(cid:3)revenue(cid:3)
growth,(cid:3)more(cid:3)operating(cid:3)cash(cid:3)flow,(cid:3)and(cid:3)an(cid:3)improving(cid:3)bottom(cid:3)line.(cid:3)Specifically,(cid:3)in(cid:3)the(cid:3)fiscal(cid:3)fourth(cid:3)quarter:(cid:3)
(cid:3)
(cid:120) Our(cid:3)SaaS(cid:3)revenue(cid:3)was(cid:3)up(cid:3)33%(cid:3)sequentially(cid:3)over(cid:3)the(cid:3)third(cid:3)quarter(cid:3)
(cid:120) We(cid:3)generated(cid:3)$3.9(cid:3)million(cid:3)in(cid:3)operating(cid:3)cash(cid:3)flow(cid:3)in(cid:3)this(cid:3)quarter,(cid:3)up(cid:3)39%(cid:3)over(cid:3)third(cid:3)quarter(cid:3)
(cid:120) We(cid:3)improved(cid:3)our(cid:3)non(cid:882)GAAP(cid:3)operating(cid:3)income(cid:3)to(cid:3)$250,000,(cid:3)compared(cid:3)to(cid:3)a(cid:3)loss(cid:3)of(cid:3)$1.2(cid:3)million(cid:3)in(cid:3)the(cid:3)
third(cid:3)quarter(cid:3)
(cid:3)
Looking(cid:3)back,(cid:3)I(cid:3)am(cid:3)proud(cid:3)of(cid:3)our(cid:3)team(cid:3)and(cid:3)the(cid:3)way(cid:3)we(cid:3)executed(cid:3)this(cid:3)transition(cid:3)while(cid:3)in(cid:3)the(cid:3)public(cid:3)eye.(cid:3)In(cid:3)
addition(cid:3)to(cid:3)working(cid:3)through(cid:3)the(cid:3)inherent(cid:3)challenges(cid:3)of(cid:3)moving(cid:3)to(cid:3)a(cid:3)SaaS(cid:3)model,(cid:3)the(cid:3)team(cid:3)moved(cid:3)eGain(cid:3)
forward(cid:3)by(cid:3)driving(cid:3)customer(cid:3)success,(cid:3)accelerating(cid:3)product(cid:3)innovation,(cid:3)and(cid:3)generating(cid:3)operating(cid:3)cash.(cid:3)
Indeed,(cid:3)we(cid:3)lived(cid:3)dangerously(cid:3)through(cid:3)this(cid:3)transition.(cid:3)As(cid:3)far(cid:3)as(cid:3)I(cid:3)know,(cid:3)we(cid:3)are(cid:3)the(cid:3)only(cid:3)public(cid:3)company(cid:3)of(cid:3)
our(cid:3)scale(cid:3)to(cid:3)have(cid:3)successfully(cid:3)completed(cid:3)such(cid:3)a(cid:3)model(cid:3)transition(cid:3)without(cid:3)requiring(cid:3)equity(cid:3)infusion.(cid:3)I(cid:3)trust(cid:3)
this(cid:3)is(cid:3)welcome(cid:3)news(cid:3)to(cid:3)you,(cid:3)my(cid:3)fellow(cid:3)stockholders.(cid:3)The(cid:3)public(cid:3)markets(cid:3)seem(cid:3)to(cid:3)be(cid:3)pleased(cid:3)that(cid:3)our(cid:3)multi(cid:882)
year(cid:3)transition(cid:3)is(cid:3)behind(cid:3)us.(cid:3)
(cid:3)
We(cid:3)continue(cid:3)to(cid:3)acquire(cid:3)new(cid:3)clients(cid:3)looking(cid:3)to(cid:3)digitally(cid:3)transform(cid:3)their(cid:3)customer(cid:3)engagement(cid:3)capability.(cid:3)
In(cid:3)North(cid:3)America,(cid:3)we(cid:3)saw(cid:3)good(cid:3)new(cid:3)logo(cid:3)wins(cid:3)in(cid:3)healthcare(cid:3)in(cid:3)the(cid:3)fiscal(cid:3)year.(cid:3)Our(cid:3)customer(cid:3)success(cid:3)team,(cid:3)
which(cid:3)was(cid:3)launched(cid:3)last(cid:3)year(cid:3)as(cid:3)part(cid:3)of(cid:3)our(cid:3)“land(cid:3)and(cid:3)expand”(cid:3)strategy,(cid:3)is(cid:3)now(cid:3)systematically(cid:3)engaging(cid:3)
clients(cid:3)to(cid:3)help(cid:3)them(cid:3)consume(cid:3)innovation(cid:3)better(cid:3)in(cid:3)eGain(cid:3)Cloud.(cid:3)For(cid:3)example,(cid:3)a(cid:3)large(cid:3)banking(cid:3)client,(cid:3)who(cid:3)
initially(cid:3)implemented(cid:3)our(cid:3)product(cid:3)on(cid:3)premise,(cid:3)moved(cid:3)to(cid:3)eGain(cid:3)Cloud(cid:3)in(cid:3)the(cid:3)fourth(cid:3)quarter(cid:3)and,(cid:3)in(cid:3)the(cid:3)
process,(cid:3)added(cid:3)significant(cid:3)new(cid:3)capabilities(cid:3)from(cid:3)the(cid:3)eGain(cid:3)suite(cid:3)to(cid:3)accelerate(cid:3)its(cid:3)digital(cid:3)transformation(cid:3)
program.(cid:3)Overall,(cid:3)our(cid:3)focus(cid:3)on(cid:3)customer(cid:3)success(cid:3)is(cid:3)showing(cid:3)measurable(cid:3)results(cid:3)in(cid:3)improved(cid:3)customer(cid:3)
satisfaction,(cid:3)better(cid:3)retention,(cid:3)and(cid:3)new(cid:3)expansion(cid:3)opportunities.(cid:3)
(cid:3)
(cid:3)
Our(cid:3)latest(cid:3)product(cid:3)version,(cid:3)eGain(cid:3)Solve(cid:3)17,(cid:3)is being(cid:3)received(cid:3)well.(cid:3)Current(cid:3)clients,(cid:3)prospects,(cid:3)and(cid:3)partners(cid:3)
are(cid:3)all(cid:3)excited(cid:3)about(cid:3)our(cid:3)new(cid:3)eGain(cid:3)Advisor(cid:3)Desktop—a(cid:3)reimagined(cid:3)omnichannel(cid:3)workspace(cid:3)for(cid:3)the(cid:3)
customer(cid:3)engagement(cid:3)associate.(cid:3)This(cid:3)desktop(cid:3)is(cid:3)digital(cid:882)first,(cid:3)knowledge(cid:882)infused,(cid:3)and(cid:3)AI(cid:882)powered.(cid:3)As(cid:3)you(cid:3)
can(cid:3)imagine,(cid:3)our(cid:3)“clean(cid:882)slate”(cid:3)approach(cid:3)is(cid:3)radically(cid:3)different(cid:3)from(cid:3)what(cid:3)has(cid:3)been(cid:3)a(cid:3)conventional(cid:3)phone(cid:882)
centric(cid:3)desktop(cid:3)design(cid:3)for(cid:3)the(cid:3)last(cid:3)25(cid:3)years,(cid:3)starting(cid:3)with(cid:3)the(cid:3)first(cid:3)generation(cid:3)of(cid:3)agent(cid:3)desktop(cid:3)providers(cid:3)
like(cid:3)Scopus,(cid:3)Vantive,(cid:3)and(cid:3)Clarify.(cid:3)In(cid:3)the(cid:3)eGain(cid:3)desktop,(cid:3)digital,(cid:3)mobile,(cid:3)and(cid:3)social(cid:3)interactions(cid:3)are(cid:3)primary,(cid:3)
voice(cid:3)is(cid:3)a(cid:3)component(cid:3)of(cid:3)digital,(cid:3)and(cid:3)omnichannel(cid:3)experiences(cid:3)are(cid:3)optimized(cid:3)out(cid:3)of(cid:3)the(cid:3)box.(cid:3)Our(cid:3)advisor(cid:3)
desktop(cid:3)is(cid:3)built(cid:3)for(cid:3)the(cid:3)millennial(cid:3)associate(cid:3)who(cid:3)grew(cid:3)up(cid:3)texting(cid:3)more(cid:3)than(cid:3)talking.(cid:3)We(cid:3)think(cid:3)our(cid:3)suite(cid:3)helps(cid:3)
clients(cid:3)solve(cid:3)customer(cid:3)problems—easily(cid:3)and(cid:3)quickly—with(cid:3)invisible(cid:3)technology(cid:3)and(cid:3)memorable(cid:3)design.(cid:3)
(cid:3)
With(cid:3)our(cid:3)new(cid:3)product(cid:3)version,(cid:3)we(cid:3)successfully(cid:3)debuted(cid:3)in(cid:3)Gartner’s(cid:3)CRM(cid:3)Customer(cid:3)Engagement(cid:3)Magic(cid:3)
Quadrant(cid:3)(MQ)(cid:3)this(cid:3)year.(cid:3)In(cid:3)the(cid:3)past,(cid:3)as(cid:3)you(cid:3)may(cid:3)recall,(cid:3)we(cid:3)were(cid:3)the(cid:3)leader(cid:3)in(cid:3)the(cid:3)Web(cid:3)Customer(cid:3)Service(cid:3)
MQ(cid:3)for(cid:3)five(cid:3)straight(cid:3)years(cid:3)(until(cid:3)2013(cid:3)when(cid:3)Gartner(cid:3)stopped(cid:3)that(cid:3)MQ).(cid:3)This(cid:3)new(cid:3)MQ(cid:3)recognition(cid:3)from(cid:3)
Gartner(cid:3)positions(cid:3)us(cid:3)nicely(cid:3)in(cid:3)the(cid:3)much(cid:3)larger(cid:3)market(cid:3)of(cid:3)agent(cid:3)desktops,(cid:3)where(cid:3)we(cid:3)are(cid:3)especially(cid:3)attractive(cid:3)
to(cid:3)early(cid:3)B2C(cid:3)adopters—those(cid:3)aggressively(cid:3)driving(cid:3)digital(cid:882)first(cid:3)strategies(cid:3)to(cid:3)transform(cid:3)service(cid:3)and(cid:3)sales.(cid:3)
(cid:3)
Turning(cid:3)to(cid:3)the(cid:3)team,(cid:3)we(cid:3)announced(cid:3)last(cid:3)month(cid:3)that(cid:3)Todd(cid:3)Woodstra(cid:3)is(cid:3)our(cid:3)new(cid:3)head(cid:3)of(cid:3)Global(cid:3)Sales.(cid:3)Todd(cid:3)
is(cid:3)a(cid:3)talented(cid:3)sales(cid:3)leader(cid:3)with(cid:3)a(cid:3)distinguished(cid:3)track(cid:3)record,(cid:3)notably(cid:3)at(cid:3)Nuance(cid:3)where(cid:3)he(cid:3)led(cid:3)worldwide(cid:3)
channels(cid:3)and(cid:3)alliances.(cid:3)At(cid:3)eGain,(cid:3)Todd(cid:3)will(cid:3)drive(cid:3)all(cid:3)direct(cid:3)and(cid:3)channel(cid:3)sales,(cid:3)develop(cid:3)new(cid:3)routes(cid:3)to(cid:3)market,(cid:3)
optimize(cid:3)sales(cid:3)operations,(cid:3)and(cid:3)drive(cid:3)accountable(cid:3)execution.(cid:3)I(cid:3)am(cid:3)very(cid:3)excited(cid:3)to(cid:3)have(cid:3)him(cid:3)on(cid:3)board.(cid:3)
(cid:3)
Our(cid:3)road(cid:3)ahead(cid:3)is(cid:3)exciting(cid:3)and(cid:3)simple.(cid:3)We(cid:3)will(cid:3)continue(cid:3)to(cid:3)delight(cid:3)our(cid:3)customers(cid:3)with(cid:3)rapid(cid:3)innovation(cid:3)and(cid:3)
best(cid:3)value.(cid:3)If(cid:3)you(cid:3)or(cid:3)somebody(cid:3)you(cid:3)know(cid:3)needs(cid:3)digital(cid:3)customer(cid:3)engagement(cid:3)solutions,(cid:3)please(cid:3)visit(cid:3)our(cid:3)
website(cid:3)at(cid:3)www.egain.com(cid:3)or(cid:3)send(cid:3)me(cid:3)an(cid:3)email(cid:3)at(cid:3)ashu@egain.com.(cid:3)We(cid:3)will(cid:3)be(cid:3)thrilled(cid:3)to(cid:3)serve(cid:3)you.(cid:3)
(cid:3)
Sincerely,(cid:3)
Ashu(cid:3)Roy(cid:3)
CEO(cid:3)
(cid:3)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
(cid:95) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended June 30, 2017
or
(cid:133) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-35314
eGain Corporation
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction
of incorporation or organization)
1252 Borregas Avenue
Sunnyvale, California 94089
(Address of principal executive offices, including zip code)
(408) 636-4500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, par value $0.001 per share
Securities registered pursuant to Section 12(g) of the Act: None
77-0466366
(I.R.S. Employer
Identification No.)
Name of Each Exchange on Which Registered
Nasdaq Capital Market
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:133) No (cid:95)
Indicate by check mark if registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes (cid:133) No (cid:95)
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 (cid:95) No (cid:133)
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files). Yes (cid:95) No (cid:133).
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. (cid:95)
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.
(cid:133)
Large accelerated filer
(cid:133) (Do not check if a smaller reporting company)
(cid:133)(cid:3)
Non-accelerated filer
Emerging growth company
Smaller reporting company
Accelerated filer
(cid:133)
(cid:95)
(cid:3)
(cid:3)
(cid:3)
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. (cid:133)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes (cid:133) No (cid:95).
The aggregate market value of the voting and non-voting common equity held by non-affiliates (based on the closing price on the Nasdaq Capital Market)
on December 31, 2016, was approximately $17.7 million. For purposes of the foregoing calculation only, the registrant has included in the shares owned by
affiliates the beneficial ownership of voting and non-voting common equity of officers and directors, and affiliated entities, of the registrant and members of
their families. Such inclusion shall not be construed as an admission that any such person is an affiliate for any other purpose.
There were 27,230,571 shares of the Registrant’s Common Stock $0.001 par value, outstanding on September 19, 2017.
Items 10 (as to directors), 11, 12, 13 and 14 of Part III incorporate by reference information from the registrant’s proxy statement to be filed with the
Securities and Exchange Commission in connection with the solicitation of proxies for the registrant’s 2017 Annual Meeting of Stockholders.
DOCUMENTS INCORPORATED BY REFERENCE
eGAIN CORPORATION
TABLE OF CONTENTS
2017 FORM 10-K
Page
Item
No.
PART I
1.
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1A.
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
1B.
Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.
3.
4.
5.
6.
7.
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . 30
7A.
Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
8.
9.
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Changes In and Disagreements With Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . 83
9A.
Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
9B.
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
PART III
10.
Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
11.
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters . . . . 84
13.
Certain Relationships and Related Transactions and Director Independence . . . . . . . . . . . . . . . . . . . . . . . . . 84
14.
Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
PART IV
15.
Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
2
CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K, contains forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements may be identified by the use of the words such as “anticipates,”
“believes,” “continue,” “could,” “would,” “estimates,” “expects,” “intends,” “may,” “might,” “plans,” “potential,”
“should,” or “will” and similar expressions or the negative of those terms. The forward-looking statements include, but
are not limited to, statements regarding: the effect of changes in macroeconomic factors beyond our control; our hybrid
revenue model and its potential impact on our total revenue; our ability to predict subscription renewals or upgrade rates;
our lengthy sales cycles and the difficulty in predicting timing of sales or delays; competition in the markets in which we
do business and our failure to compete successfully therein; our expectations regarding the composition of our customers
and the result of a loss of a significant customer; the adequacy of our capital resources and need for additional financing
and the effect of failing to obtain adequate funding; the result of our failure to comply with the covenants under the Wells
Fargo Credit Agreement; the development and expansion of our strategic and third party distribution partnerships and
relationships with systems integrators; our ability to effectively implement and improve our current products; our ability
to innovate and respond to rapid technological change and competitive challenges; legal liability or the effect of negative
publicity for the services provided to consumers via our technology platforms; legal and regulatory uncertainties and
other risks related to protection of our intellectual property assets; our ability to anticipate our competitors; the
operational integrity and maintenance of our systems; the effect of unauthorized access to a customer’s data or our data
or our IT systems; the uncertainty of demand for our products; the anticipated customer benefits from our products; the
actual mix in new business between subscription and license transactions when compared with management’s projections;
our ability to increase the profitability of our recurring products and services; the ability to increase revenue as a result
of the increased investment in sales and marketing; our ability to hire additional personnel and retain key personnel; our
ability to expand and improve our sales performance and marketing activities; our ability to manage our expenditures and
estimate future expenses, revenue, and operational requirements; our ability to manage our business plans, strategies and
outlooks and any business-related forecasts or projections; the effect of changes to management judgments and estimates;
the impact of any modification to our pricing practices in the future; risks from our substantial international operations;
our ability to timely adapt and comply with changing European regulatory and political environments; our inability to
successfully detect weaknesses or errors in our internal controls; our ability to take adequate precautions against claims
or lawsuits made by third parties, including alleged infringement of proprietary rights; our ability to manage future
growth; the trading price of our common stock; geographical and currency fluctuations; and our expectations with respect
to revenue, cost of revenue, expenses and other financial metrics.
Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially
from those expected. These risks and uncertainties include, but are not limited to, those risks discussed in Item 1A “Risk
Factors” in this report. Our actual results could differ materially from those discussed in statements relating to our future
plans, product releases, objectives, expectations and intentions, and other assumptions underlying or relating to any of
these statements. These forward-looking statements are subject to risks, uncertainties and assumptions that are difficult to
predict. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking
statements. Readers are directed to risks and uncertainties identified below, under “Risk Factors” and elsewhere in this
report, for factors that may cause actual results to be different than those expressed in these forward-looking statements.
Except as required by law, we undertake no obligation to revise or update publicly any forward-looking statements for
any reason.
All references to “eGain”, the “Company”, “our”, “we” or “us” mean eGain Corporation and its subsidiaries, except
where it is clear from the context that such terms mean only this parent company and excludes subsidiaries.
eGain and the eGain® are trademarks of eGain Corporation. We also refer to trademarks of other corporations and
organizations in this report.
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ITEM 1.
BUSINESS
Overview
PART I
eGain Corporation is a leading provider of cloud-based customer engagement software. We help business-to-
consumer (B2C) brands operationalize digital customer engagement strategy. Our suite includes rich applications for
digital interaction, knowledge management, and artificial intelligence (AI)-based process guidance. We also provide
advanced, integrated analytics for contact centers and digital properties to holistically measure, manage, and optimize
resources. Benefits 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.
We have operations in the United States, United Kingdom and India.
Industry Background
As products become commoditized in a global economy and a digital world, customer loyalty increasingly depends
on ease of doing business. Today’s digital consumers expect to be served intelligently across all touch points. In response,
businesses are seeking efficient, scalable solutions to deliver smart customer experiences that are quick and easy.
Traditional customer relationship management (CRM) solutions are not designed for the digital world. Mostly, they
view the phone as the primary customer interaction channel. Digital channels like web, mobile and social are not designed
into the solution from the start. As a result, customer journeys tend to be fragmented and inconsistent across channels,
especially digital-first engagements. Moreover, traditional CRM tools do not natively leverage the power of AI, knowledge
and analytics to automate and optimize customer journeys as well as to enhance agent capability.
The eGain Solution
Our solution make it easy for B2C businesses to engage customers in a digital world across all touch points, delivering
the following benefits:
• Build profitable long-term customer relationships. Customers are spending more time conducting business
on mobile, social and web. Our solution helps businesses design brand-aligned, omnichannel customer
journeys that are easy, quick and helpful. Whether a customer is looking to buy, ask a question, or pay a bill,
our solution helps businesses provide customers personalized, guided and consistent responses. As a result,
businesses improve their customer satisfaction and NPS scores.
• Reduce operating costs through self-service automation and improved agent productivity. Our solution helps
companies provide highly effective customer service while reducing operating costs. Robust customer self-
service tools fronted by chatbots, guided by AI, and scaffolded with context-aware escalation paths reduce
cost of service without compromising customer effort. Intelligent routing, auto-response, tracking, and
reporting features, complemented with agent-facing knowledge tools, measurably enhance the productivity
of service agents.
•
Increase revenue through intelligent offers and contextual promotions. Our solution also helps businesses
convert more website visitors into buyers, reduce shopping cart abandonment and increase average order
value. It enables agents to contextually up-sell and cross-sell products in the course of customer interactions.
A visitor to a website using eGain is proactively offered personalized promotions or real-time assistance,
based on configurable business rules informed by visitor behavior and history. Visitors collaborate with a
customer service agent live over the web through click-to-call, text or video chat, and cobrowse to inquire
about and buy a product.
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Products and Services
eGain Suite
Recognized by industry analysts and trusted by leading companies worldwide, the eGain software suite helps
businesses engage, acquire, and serve customers through multiple engagement channels. Modular, best-of-breed
applications—built on a customer engagement hub platform—combine 360-degree customer context, AI-powered process
guidance, and actionable knowledge to enhance every customer interaction. Designed to rapidly implement and optimize
digital-first customer engagement strategies, the eGain suite consists of:
• Mobile applications to engage customers through smartphones and tablets.
• Social applications to deliver comprehensive social media based customer service capability and are embedded
into desktop applications in the eGain Suite.
• Web applications to transform B2C websites into interactive shopping destinations.
• Desktop applications to help traditional call centers evolve into AI-and-knowledge-powered omnichannel
customer engagement hubs.
• Management applications to provide the insight and capabilities needed to drive smarter contact center
operations.
• Messaging applications to provide a rich set of secure, personalized customer communication options.
Mobile Applications
•
eGain Mobile™ makes mobile engagement easy. It enables businesses to offer all engagement options in the
eGain suite to mobile users. Capabilities include mobile virtual assistant, offers, chat, click-to-call, cobrowsing,
self-service, and notifications.
Web Applications
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eGain Offers™ helps businesses engage visitors on the company website and Facebook fan pages with
proactive, targeted offers. Using browsing behavior and other customer attributes, the solution anticipates visitor
needs and proactively serves a personalized offer for sales promotion, customer self-service or agent assistance.
eGain Virtual Assistant™, a key AI-based application in the eGain portfolio, enables conversational
automation to engage customers across digital touch points. It leverages Multilingual and emotionally
intelligent, eGain virtual assistants are deployed on websites and mobile devices and support seamless
integration with assisted channels.
eGain Cobrowse™ enables phone and chat reps to show customers around the website, help locate information,
and “hand-hold” them through anxiety-ridden tasks such as complex forms committing consumers to significant
decisions in health care, finance and government. It offers secure, hypertext markup language (HTML)-based
cobrowsing without any customer download requirement. All actions during the cobrowse session are tracked,
auditable and controlled through a combination of user roles and fine-grained business rules.
eGain Super Chat™ enables website visitors to conduct text, short message service (SMS), Facebook
Messenger, audio and video chats with agents. It gives agents a comprehensive set of tools to engage customers
in real-time. The system’s flexible routing and workflow maximize agent productivity and optimize interaction
quality.
eGain ClickToCall™ provides website visitors the ability to request a callback. Callbacks can be scheduled
according to the customer’s convenience or be established in real-time. Customer browsing context is shared
with the agent to seamlessly leverage eGain Cobrowse during the voice call.
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•
eGain SelfService™ is a comprehensive customer self-service application with a rich set of capabilities,
including AI-based virtual assistant, process guidance, dynamic FAQs, topic-based browsing, natural language
search, and case tracking.
Desktop Applications
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eGain Advisor Desktop™ is a reimagined desktop for customer service advisors in a digital world. It is built
ground up to be digital-first, knowledge-infused, AI-guided and analytics-powered. Unlike traditional CRM
applications built on the phone-first interaction model in early 1990s, the eGain Advisor Desktop seamlessly
blends digital self-service engagement with intelligent assisted escalation in a productive, painless, proactive
and personalized manner. Interactions across all digital and voice channels can be resolved in one place.
eGain CallTrack™ is a comprehensive and a flexible call logging system. Together with eGain Knowledge™,
it provides an integrated application for logging, tracking, and resolving customer issues. It also features task-
based workflows and process management for service fulfillment.
eGain Mail+Social™ is an industry-leading application for processing inbound customer emails and providing
mission-critical email customer response, incorporating hundreds of best practices developed over years of
serving innovative global enterprises. The application also enables social media-based customer service,
knowledge harvesting, single-source social publishing, and reputation management.
eGain Knowledge+AI™ empowers contact center agents with best-practice AI-powered knowledge
management and is designed to make every agent as productive and capable as the enterprise’s best agent. eGain
Knowledge uses patented AI technology coupled with natural language processing to establish intent and guide
advisors to resolve customer inquiries.
Management Applications
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eGain Operational Analytics™ helps businesses monitor, measure, and manage their omnichannel contact
center operation. It offers both insight and the ability to intervene effectively.
Messaging Applications
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eGain Secure Messaging™ enables secure and authenticated messaging for business with their customers. It
is a secure web-based portal for customers to read confidential messages, including attachments.
eGain Notify™ is a flexible, responsive and scalable application to deliver automatic reminders, alerts, and
updates at all stages of the customer journey. Typically, businesses use the application to deliver targeted,
personalized, triggered alerts—across SMS, email, secure message and voice mail.
Cloud Operations
We serve our customers and end users from several secure data centers worldwide. Physical security features at these
facilities include 24x7 on-site security, three physical barriers and multiple access controls. The systems at these facilities
are protected by firewalls and encryption technology. Operational redundancy features include redundant power, on-site
backup generators, multiple carrier entrance facilities, and robust environmental controls and monitoring.
We employ a wide range of security features, including two-factor authentication, data encryption, encoded session
identifications and passwords. We contract with specialized security vendors to conduct regular security audits of our
infrastructure. We also employ outside vendors for 24x7 managed network security and monitoring. Every page we serve
is delivered encrypted to the end user via a Secure Socket Layer, or SSL, transaction. We also use encryption in our storage
systems and backup technology.
We continuously monitor the performance of our application suite using a variety of automated tools. We designed
our infrastructure with built-in redundancy for all key components. Our network includes redundant firewalls, switches
and intrusion detection systems, and incorporates failover backup for maximum uptime. We load balance at each tier in
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the network infrastructure. We also designed our application server clusters so that servers can fail without interrupting
the user experience, and our database servers are clustered for failover. We regularly back up and store customer data both
on and off-site in secure locations to minimize the risk of data loss at any facility.
Customers
We serve a worldwide customer base across a wide variety of industry sectors, including healthcare, retail,
telecommunications, financial services, insurance, outsourced services, technology, utilities, government, manufacturing
and consumer electronics. Our product is sold primarily to large B2C enterprises (over $500 million in annual revenue).
For the fiscal year ended June 30, 2017, international revenue accounted for 51% and domestic revenue for 49% of total
revenue, compared to 50% and 50%, respectively, for fiscal year 2016, and 52% and 48%, respectively, for fiscal year
2015.
One customer accounted for 13% of total revenue in fiscal year 2017. Two customers accounted for 14% and 10%,
respectively, of total revenue in fiscal year 2016. One customer accounted for 10% of total revenue in fiscal year 2015.
Competition
We compete with other application software vendors including Genesys Telecommunications, Live Person, Inc., and
Moxie Software, Inc. In addition, we face actual or potential competition from larger software companies such as Microsoft
Corporation, Oracle Corporation, Salesforce.com, Inc., and Verint KANA. that may attempt to sell customer engagement
software to their installed base. We also compete with internally developed applications within large enterprises. Finally,
we face, or expect to face, competition from software vendors who may develop toolsets and products that allow customers
to build new applications that run on the customers’ infrastructure or as hosted services.
We believe the principal competitive factors in our market include the following:
• proven track record of customer success;
•
speed and ease of implementation;
• product functionality;
•
financial stability and viability of the vendor;
• product adoption;
•
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ease of use and rates of user adoption;
low total cost of ownership and demonstrable cost-effective benefits for customers;
• performance, security, scalability, flexibility and reliability of the service;
•
ease of integration with existing applications;
• quality of customer support;
•
availability and quality of implementation, consulting and training services; and
• vendor reputation and brand awareness.
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Sales and Marketing
Sales Strategy
Our sales strategy is to pursue targeted accounts, mostly B2C enterprises, through a combination of our direct sales
force and partners. We target our sales efforts at enterprise companies. Our North American direct sales organization is
based at our corporate headquarters in Sunnyvale, California, with field sales presence throughout the United States.
Internationally, we have offices in India and the United Kingdom.
The direct sales force is organized into teams that include field sales representatives and sales consultants. Our direct
sales force is complemented by lead generation representatives and sales development representatives.
We also complement our direct sales force with reseller and sales alliances. We believe we are able to leverage
additional sales, marketing and deployment capabilities through these alliances.
Marketing and Partner Strategy
Our marketing strategy is to build our brand around innovative and robust products trusted by leading enterprises.
Our marketing organization focuses on public relations, analyst relations, marketing communications and demand
generation. We employ a wide range of marketing avenues to deliver our message, including print and Internet advertising,
targeted electronic and postal mailing, email newsletters, and a variety of trade shows, seminars, webinars, and interest
groups.
Our marketing group also produces sales tools, including product collateral, customer case studies, demonstrations,
presentations, and competitive analyses. In addition, the group performs market analyses and customer reviews to identify
and develop key partnership opportunities and product capabilities.
We believe that our partners help extend the breadth and depth of our product offerings, drive market penetration,
and augment our professional service capabilities. We believe these relationships are important to delivering successful,
integrated products and services to our customers, and scaling our business. Our partner portal, EcoNet™, enables us to
provide comprehensive sales, support and services information for channel partners, while enabling them to collaborate
with one another through an online forum. Partner enablement is a key focus area for our consulting and training teams
too.
As of the fiscal year ended June 30, 2017, we had 81 employees engaged in worldwide sales and marketing activities.
Consulting and Education
Our worldwide professional services organization provides consulting and education services designed to facilitate
customer success and build customer loyalty.
• Consulting Services. Our consulting services group offers rapid implementation services, custom solution
development, and systems integration services. Consultants work with customers to understand their specific
requirements, analyze their business needs, and implement integrated solutions. We provide these services
independently or in partnership with system integrators who have developed consulting expertise on our
platform.
• Education Services. Our education services group provides a comprehensive set of basic and customized
training programs to our customers and partners in addition to online tutorial modules for ongoing refresher
courses. Training programs are offered either in-person at the customer site, or at one of our worldwide training
centers.
As of fiscal year ended June 30, 2017, we had 113 professionals providing worldwide services for systems
installation, solutions development, application management, and education.
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Customer Support
We offer a comprehensive collection of support services designed to rapidly respond to inquiries. Our technical
support services are available to customers worldwide under maintenance and support agreements. The customer success
team uses eGain’s own software suite to provide world-class service to all our customers through support centers located
in California, the United Kingdom, and India.
As of the fiscal year ended June 30, 2017, there were 63 employees engaged in worldwide customer support services
and 42 employees engaged in worldwide cloud services and maintenance support.
Research and Development
The market for our products changes rapidly and is characterized by evolving industry standards, swift changes in
customer requirements, and frequent new product introductions and enhancements. We believe that strong product
development capabilities are essential to our strategy of maintaining technology leadership. This includes enhancing
current technology, providing excellent quality, performance, and functionality, as well as developing additional
applications, and maintaining the competitiveness of our product and service offerings.
We continuously analyze market and customer requirements and evaluate external technology that we believe will
enhance our competitiveness, increase our lifetime customer value or expand our target market. As a result of this process,
we acquired Exony Limited, a leader in enterprise contact center analytics software, in August 2014.
As of the fiscal year ended June 30, 2017, we had 130 employees engaged in worldwide product development
activities. We spent approximately $13.8 million on research and development in fiscal year 2017, and $16.1 million and
$16.0 million, respectively, in fiscal years 2016 and 2015.
Intellectual Property
We regard our intellectual property as critical to our success. We rely on intellectual property and other laws, in
addition to confidentiality procedures and licensing arrangements, to protect the proprietary aspects of our technology and
business.
As of June 30, 2017, we had 7 issued patents in the United States. In addition, we have a number of pending patent
applications in the United States, including one provisional filing and several non-provisional filings. Our issued U.S.
patents expire at various times between 2029 and 2032.
We continually assess the propriety of seeking intellectual property protection for those aspects of our technology
that we believe constitute innovations providing significant competitive advantages. Future applications may or may not
receive the issuance of valid patents or registered trademarks.
We routinely require our employees, customers, and potential business partners to enter into confidentiality and
nondisclosure agreements before we will disclose any sensitive aspects of our products, technology, or business plans. In
addition, we require employees to agree to surrender to us any proprietary information, inventions or other intellectual
property they generate or come to possess while employed by us. Despite our efforts to protect our proprietary rights
through confidentiality and license agreements, unauthorized parties may attempt to copy or otherwise obtain and use our
products or technology. These precautions may not prevent misappropriation or infringement of our intellectual property.
In addition, some of our license agreements with certain customers and partners require us to place the source code for our
products into escrow. These agreements typically provide that some party will have a limited, non-exclusive right to access
and use this code as authorized by the license agreement if there is a bankruptcy proceeding instituted by or against us, or
if we materially breach a contractual commitment to provide support and maintenance to the party.
Employees
As of the fiscal year ended June 30, 2017, we had 479 full-time employees, of which 130 were in product
development, 218 in services and support, 81 in sales and marketing, and 50 in finance and administration.
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None of our employees are covered by collective bargaining agreements. While we believe our relations with our
employees are good, our future performance depends largely upon the continued service of our key technical, sales and
marketing, and senior management personnel, none of whom are bound by employment agreements requiring service for
a defined period of time.
Available Information
We were incorporated in Delaware in September 1997, and our website is located at www.egain.com. We make
available free of charge on our website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports
on Form 8-K and amendments to those reports, as soon as reasonably practicable after we electronically file or furnish
such materials to the Securities and Exchange Commission. Our website and the information contained therein or
connected thereto are not intended to be incorporated into this Annual Report on Form 10-K.
ITEM 1A. RISK FACTORS
The risks and uncertainties described below are not the only ones facing us. Other events that we do not currently
anticipate or that we currently deem immaterial also may affect our results of operations, cash flows and financial
condition.
Our business is influenced by a range of factors that are beyond our control and that we have no comparative
advantage in forecasting. These include:
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general economic and business conditions;
currency exchange rate fluctuations;
the overall demand for enterprise software and services;
customer acceptance of cloud-based solutions;
governmental budgetary constraints or shifts in government spending priorities; and
general political developments.
The global economic climate continues to influence our business. This includes items such as, a general tightening
in the credit markets, lower levels of liquidity, increases in the rates of default and bankruptcy, and extreme volatility in
credit, equity and fixed income markets. These macroeconomic developments negatively affected, and could continue to
negatively affect, our business, operating results or financial condition which, in turn, could adversely affect our stock
price. A general weakening of, and related declining corporate confidence in, the global economy or the curtailment in
government or corporate spending could cause current or potential customers to reduce their technology budgets or be
unable to fund software or services purchases, which could cause customers to delay, decrease or cancel purchases of our
products and services or cause customers not to pay us or to delay paying us for previously purchased products and
services.
Our revenue and operating results have fluctuated in the past and are likely to fluctuate in the future, and
because we recognize revenue from subscriptions over a period of time, downturns in revenue may not be
immediately reflected in our operating results.
Because we recognize recurring revenue and maintenance revenue ratably over the terms of the related
subscription agreements and maintenance support agreements, most of our revenue each quarter results from recognition
of deferred revenue related to agreements entered into during previous quarters. Consequently, declines in new or
renewed subscription agreements and maintenance agreements that occur in one quarter will largely be felt in future
quarters, both because we may be unable to generate sufficient new revenue to offset the decline and because we may be
unable to adjust our operating costs and capital expenditures to align with the changes in revenue. In addition, our
subscription model makes it more difficult for us to increase our revenue rapidly in any period, because revenue from
new customers must be recognized over the applicable subscription term. Legacy license revenue is difficult to forecast
and is likely to fluctuate due to many factors that are beyond our control including transition of license customers to
10
recurring revenue models. Accordingly, we believe that period-to-period comparisons of our results of operations should
not be relied upon as definitive indicators of future performance.
Other factors that may cause our revenue and operating results to fluctuate include:
timing of customer budget cycles;
the priority our customers place on our products compared to other business investments;
size, timing and contract terms of new customer contracts, and unpredictable and often lengthy sales cycles;
reduced renewals;
competitive factors, including new product introductions, upgrades and discounted pricing or special payment
terms offered by our competitors, as well as strategic actions by us or our competitors, such as acquisitions,
divestitures, spin-offs, joint ventures, strategic investments or changes in business strategy;
technical difficulties, errors or service interruptions in our solutions that may cause customer dissatisfaction
with solutions;
consolidation among our customers, which may alter their buying patterns, or business failures that may reduce
demand for our solutions;
operating expenses associated with expansion of our sales force or business, and our product development
efforts;
cost, timing and management efforts related to the introduction of new features to our solutions;
our ability to obtain, maintain and protect our intellectual property rights and adequately safeguard the
information imported to our solutions or otherwise provided to us by our customers; and
extraordinary expenses such as impairment charges, litigation or other payments related to settlement of dispute.
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Any of these developments may adversely affect our revenue, operating results and financial condition. Furthermore, we
maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make
required payments. In such cases, we may be required to defer revenue recognition on sales to affected customers. In the
future, we may have to record additional reserves or write-offs, or defer revenue on sales transactions, which could
negatively impact our financial results.
If we are unable to increase the profitability of our recurring revenue products and services, if we experience
significant customer attrition, or if we are required to defer recognition of revenue, our operating results could be
adversely affected.
We have invested, and expect to continue to invest, substantial resources to expand, market, and implement and
refine our recurring revenue products and services offerings. Our business model shift to recurring revenues, and our
subscription services in particular, has generally generated much lower gross margins than our traditional perpetual
license sales. If we are unable to increase the volume of our subscription business to offset the lower margins, we may
not be able to achieve sustained profitability.
In order to sustain or increase our recent operating profitability, we must improve gross margins in our recurring
revenue product and services offerings. Factors that could harm our ability to improve our gross margins include:
•
increased costs to license and maintain third party software embedded in our software applications or the cost to
create or substitute such third party software if it can no longer be licensed on commercially reasonable terms;
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•
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our inability to maintain or increase the prices customers pay for our products and services based on
competitive pricing pressures and general economic conditions limiting customer demand;
increased cost of third party services providers, including data centers for our cloud operations and professional
services contractors performing implementation and technical support services to cloud customers;
customer contractual requirements that delay revenue recognition until customer implementations commence
production operations or customer-specific requirements are met;
significant attrition as customers decide for their own economic or other reasons to not renew their subscription
contracts when they are up for renewal could negatively impact the efficiency of our data centers and lead to the
costs being spread over fewer customers negatively impacting gross margin; and
the inability to implement, or delays in implementing, technology-based efficiencies and efforts to streamline
and consolidate processes to reduce operating costs.
We cannot accurately predict subscription renewal or upgrade rates and the impact these rates may have on our
future revenue and operating results.
Even though our subscription contracts are typically structured for auto-renewals, we do allow our customers to
elect not to renew their subscriptions for our service after the expiration of their initial subscription period, which is
typically 12 to 36 months, and some customers have elected not to renew. In addition, our customers may choose to
renew for fewer subscriptions, renew for shorter contract lengths, or renew for lower cost editions of our service. We
cannot accurately predict renewal rates given our varied customer base of enterprise and small and medium size business
customers and the number of multiyear subscription contracts. Our renewal rates may decline or fluctuate as a result of a
number of factors, including customer dissatisfaction with our service, decreases in customers’ spending levels,
decreases in the number of users at our customers, pricing changes and deteriorating general economic conditions. If our
customers do not renew their subscriptions for our service or reduce the number of paying subscriptions at the time of
renewal, our revenue will decline and our business will suffer.
Our future success also depends in part on our ability to sell additional features and services, more subscriptions
or enhanced editions of our service to our current customers. This may also require increasingly sophisticated and costly
sales efforts that are targeted at senior management. Similarly, the rate at which our customers purchase new or enhanced
services depends on a number of factors, including general economic conditions and that our customers do not react
negatively to any price changes related to these additional features and services. If our efforts to upsell to our customers
are not successful and negative reaction occurs, our business may suffer.
Our credit agreement contains restrictive and financial covenants that may limit our operational flexibility.
Furthermore, if we default on our obligations under the credit agreement, our operations may be interrupted and
our business and financial results could be adversely affected.
In November 2014, we entered into a credit agreement with Wells Fargo Bank, National Association (Wells
Fargo), under which Wells Fargo agreed to provide a term loan in the amount of $10.0 million (Term) and revolving loan
to us in an amount not to exceed $10.0 million (Revolver), Term and Revolver (collectively, the Loans). In September
2015, we increased the maximum borrowing amount of the Revolver to $15.0 million. The Loans contain a number of
restrictive covenants, and its terms may restrict our current and future operations, including:
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affecting our flexibility to plan for, or react to, changes in our business and industry conditions;
affecting our ability to use our cash flows, or obtain additional financing, for future working capital, capital
expenditures, acquisitions or other general corporate purposes;
placing us at a competitive disadvantage compared to our less leveraged competitors; and
increasing our vulnerability to the impact of adverse economic and industry conditions.
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In addition, if we fail to comply with the covenants or payment obligations specified in the Loans, we may trigger
an event of default, in which case Wells Fargo would have the right to: (i) terminate its commitment to provide
additional loans under the Loans, and (ii) declare all borrowings outstanding, together with accrued and unpaid interest
and fees, to be immediately due and payable. In addition, Wells Fargo would have the right to proceed against the Loans
collateral, which consists of substantially all our assets. If the debt under the Loans were to be accelerated, we may not
have sufficient cash or be able to sell sufficient collateral to repay this debt, which would have an immediate material
adverse effect on our business, results of operations and financial condition.
Our lengthy sales cycles and the difficulty in predicting timing of sales or delays may impair our operating
results.
The long sales cycle for our products may cause license and subscription revenue and operating results to vary
significantly from period to period. The sales cycle for our products can be six months or more and varies substantially
from customer to customer. Because we sell complex and deeply integrated solutions, it can take many months of
customer education to secure sales. Because our potential customers may evaluate our products before, if ever, executing
definitive agreements, we may incur substantial expenses and spend significant management and legal effort in
connection with the potential customer.
Our multi-product offering and the increasingly complex needs of our customers contribute to a longer and
unpredictable sales cycle. Consequently, we often face difficulty predicting the quarter in which expected sales will
actually occur. This contributes to the uncertainty and fluctuations in our future operating results. In particular, the
corporate decision-making and approval process of our customers and potential customers has become more
complicated. This has caused our average sales cycle to further increase and, in some cases, has prevented the closure of
sales that we believed were likely to close.
We may need additional capital, and raising such additional capital may be difficult or impossible and will likely
significantly dilute existing stockholders.
We believe that existing capital resources will enable us to maintain current and planned operations for the next
12 months. However, our working capital requirements in the foreseeable future are subject to numerous risks and will
depend on a variety of factors. We may need to secure additional financing due to unforeseen or unanticipated market
conditions. We may try to raise additional funds through public or private financings, strategic relationships, or other
arrangements. Such financing may be difficult to obtain on terms acceptable to us, if at all. If we succeed in raising
additional funds through the issuance of equity or convertible securities, then the issuance could result in substantial
dilution to existing stockholders. If we raise additional funds through the issuance of debt securities or preferred stock,
these new securities would have rights, preferences, and privileges senior to those of the holders of our common stock.
The terms of these securities could impose restrictions on our operations.
Because we depend on a relatively small number of customers for a substantial portion of our revenue, the loss of
any of these customers or our failure to attract new significant customers could adversely impact our revenue and
harm our business.
We have in the past and expect in the future to derive a substantial portion of our revenue from sales to a
relatively small number of customers. The composition of these customers has varied in the past, and we expect that it
will continue to vary over time. The loss of any significant customer or a decline in business with any significant
customer would materially and adversely affect our financial condition and results of operations.
As we acquire companies or technologies, we may not realize the expected business benefits, the acquisitions could
prove difficult to integrate, disrupt our business, dilute stockholder value and adversely affect our operations.
As part of our business strategy, we periodically make investments in, or acquisitions of, complementary
businesses, joint ventures, services and technologies and intellectual property rights, and we expect that we will continue
to make such investments and acquisitions in the future. In August 2014, we acquired Exony Ltd. Acquisitions and
investments involve numerous risks, including:
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the potential failure to achieve the expected benefits of the combination or acquisition;
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difficulties in and the cost of integrating operations, technologies, services and personnel;
diversion of financial and managerial resources from existing operations;
risks of entering new markets in which we have little or no experience or where competitors may have stronger
market positions;
potential write-offs of acquired assets or investments, and potential financial and credit risks associated with
acquired customers;
potential loss of key employees;
inability to generate sufficient revenue to offset acquisition or investment costs;
the inability to maintain relationships with customers and partners of the acquired business;
the difficulty of transitioning the acquired technology onto our existing platforms and maintaining the security
standards consistent with our other services for such technology;
potential unknown liabilities associated with the acquired businesses;
unanticipated expenses related to acquired technology and its integration into existing technology;
negative impact to our results of operations because of the depreciation and amortization of amounts related to
acquired intangible assets, fixed assets and deferred compensation, and the loss of acquired deferred revenue
and unbilled deferred revenue;
delays in customer purchases due to uncertainty related to any acquisition;
the need to implement controls, procedures and policies at the acquired company;
challenges caused by distance, language and cultural differences;
in the case of foreign acquisitions, the challenges associated with integrating operations across different cultures
and languages and any currency and regulatory risks associated with specific countries; and
the tax effects of any such acquisitions.
In addition, if we finance acquisitions by issuing equity or convertible or other debt securities or loans, our existing
stockholders may be diluted, or we could face constraints related to the terms of repayment obligations related to the
incurrence of indebtedness which could affect the market price of our common stock. Further, if we fail to evaluate and
execute acquisitions or investments effectively, our business operations and prospects may be seriously harmed.
We must compete successfully in our market segment.
The market for customer engagement software is intensely competitive. Other than product innovation and existing
customer relationships, there are no substantial barriers to entry in this market, and established or new entities may enter
this market in the future. While software internally developed by enterprises represents indirect competition, we also
compete directly with packaged application software vendors, including Avaya, Inc., Genesys Telecommunications,
LivePerson, Inc., and Moxie Software, Inc. In addition, we face actual or potential competition from larger software
companies such as Microsoft Corporation, Oracle Corporation, Salesforce.com, Inc. and similar companies that may
attempt to sell customer engagement software to their installed base.
We believe competition will continue to be fierce as current competitors increase the sophistication of their
offerings and as new participants enter the market. Many of our current and potential competitors have longer operating
histories, larger customer bases, broader brand recognition, and significantly greater financial, marketing and other
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resources. With more established and better-financed competitors, these companies may be able to undertake more
extensive marketing campaigns, adopt more aggressive pricing policies, and make more attractive offers to businesses to
induce them to use their products or services.
If we fail to expand and improve our sales performance and marketing activities, we may be unable to grow our
business, negatively impacting our operating results and financial condition.
Expansion and growth of our business is dependent on our ability to expand our sales force and on the ability of
our sales force to increase sales. If we are not able to effectively develop and maintain awareness of our products in a
cost-effective manner, we may not achieve widespread acceptance of our existing and future products. This may result in
a failure to expand and attract new customers and enhance relationships with existing customers. This may impede our
efforts to improve operations in other areas of the Company and may result in declines in the market price of our
common stock.
Due to the complexity of our customer engagement hub platform and related products and services, we must
utilize highly trained sales personnel to educate prospective customers regarding the use and benefits of our products and
services as well as provide effective customer support. If we have turnover in our sales and marketing teams, we may not
be able to successfully compete with those of our competitors.
Our failure to develop and expand strategic and third party distribution channels would impede our revenue
growth.
Our success and future growth depends in part upon the skills, experience, performance and continued service of
our distribution partners, including software and hardware vendors and resellers. We engage with distribution partners in
a number of ways, including assisting us to identify prospective customers, to distribute our products in geographies
where we do not have a physical presence and to distribute our products where they are considered complementary to
other third party products distributed by the partner. We believe that our future success depends in part upon our ability
to develop and expand strategic, long term and profitable partnerships and reseller relationships. If we are unable to do
so, or if any existing or future distribution partners fail to successfully market, resell, implement or support our products
for their customers, or if distribution partners represent multiple providers and devote greater resources to market, resell,
implement and support competing products and services, our future revenue growth could be impeded. Our failure to
develop and expand relationships with systems integrators could harm our business.
We sometimes rely on system integrators to recommend our products to their customers and to install and support
our products for their customers. We likewise depend on broad market acceptance by these system integrators of our
product and service offerings. Our agreements generally do not prohibit competitive offerings and system integrators
may develop market or recommend software applications that compete with our products. Moreover, if these firms fail to
implement our products successfully for their customers, we may not have the resources to implement our products on
the schedule required by their customers. To the extent we devote resources to these relationships and the partnerships do
not proceed as anticipated or provide revenue or other results as anticipated, our business may be harmed. Once
partnerships are forged, there can be no guarantee that such relationships will be renewed in the future or available on
acceptable terms. If we lose strategic third party relationships, fail to renew or develop new relationships, or fail to fully
exploit revenue opportunities within such relationships, our results of operations and future growth may suffer.
Our international operations involve various risks.
We derived 51% of our revenue from international sales for the fiscal year 2017 compared to 50% for the fiscal
year 2016, and 52% for fiscal year 2015. Including those discussed above, our international sales operations are subject
to a number of specific risks, such as:
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general economic conditions in each country or region in which we do or plan to do business;
foreign currency fluctuations and imposition of exchange controls;
expenses associated with complying with differing technology standards and language translation issues;
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difficulty and costs in staffing and managing our international operations;
difficulties in collecting accounts receivable and longer collection periods;
health or similar issues, such as a pandemic or epidemic;
various trade restrictions and tax consequences;
hostilities in various parts of the world; and
reduced intellectual property protections in some countries.
As of June 30, 2017, approximately 47% of our workforce was employed in India. Of these employees, 31% are
allocated to research and development. Although the movement of certain operations internationally was principally
motivated by cost cutting, the continued management of these remote operations requires significant management
attention and financial resources that could adversely affect our operating performance. In addition, with the significant
increase in the numbers of foreign businesses that have established operations in India, the competition to attract and
retain employees there has increased significantly. As a result of the increased competition for skilled workers, we
experienced increased compensation costs and expect these costs to increase in the future. Our reliance on our workforce
in India makes us particularly susceptible to disruptions in the business environment in that region. In particular,
sophisticated telecommunications links, high-speed data communications with other eGain offices and customers, and
overall consistency and stability of our business infrastructure are vital to our day-to-day operations, and any impairment
of such infrastructure will cause our financial condition and results to suffer. The maintenance of stable political relations
between the United States, European Union and India are also of great importance to our operations.
Any of these risks could have a significant impact on our product development, customer support, or professional
services. To the extent the benefit of maintaining these operations abroad does not exceed the expense of establishing
and maintaining such activities, our operating results and financial condition will suffer.
Difficulties in implementing our products could harm our revenue and margins.
We generally recognize license or subscription revenue from a customer sale when persuasive evidence of an
arrangement exists, the product or access to the product has been delivered, the arrangement does not involve significant
customization of the software, the license or subscription fee is fixed or determinable and collection of the fee is
probable. If an arrangement requires significant customization or implementation services from us, recognition of the
associated license or subscription and service revenue could be delayed. The timing of the commencement and
completion of these services is subject to factors that may be beyond our control, as this process may require access to
the customer’s facilities and coordination with the customer’s personnel after delivery of the software. In addition,
customers could cancel or delay product implementations. Implementation typically involves working with sophisticated
software, computing and communications systems. If we experience difficulties with implementation or do not meet
project milestones in a timely manner, we could be obligated to devote more customer support, engineering and other
resources to a particular project. Some customers may also require us to develop customized features or capabilities. If
new or existing customers cancel or have difficulty deploying our products or require significant amounts of our
professional services, support, or customized features, revenue recognition could be cancelled or further delayed and our
costs could increase, causing increased variability in our operating results.
Our reserves may be insufficient to cover receivables we are unable to collect.
We assume a certain level of credit risk with our customers in order to do business. Conditions affecting any of our
customers could cause them to become unable or unwilling to pay us in a timely manner, or at all, for products or
services we have already provided them. In the past, we have experienced collection delays from certain customers, and
we cannot predict whether we will continue to experience similar or more severe delays in the future. Although we have
established reserves to cover losses due to delays or inability to pay, there can be no assurance that such reserves will be
sufficient to cover our losses. If losses due to delays or inability to pay are greater than our reserves, it could harm our
business, operating results and financial condition.
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We may be subject to legal liability and/or negative publicity for the services provided to consumers via our
technology platforms.
Our technology platforms enable representatives of our customers as well as individual service providers to
communicate with consumers and other persons seeking information or advice on the Internet. The law relating to the
liability of online platform providers such as us for the activities of users of their online platforms is often challenged in
the U.S. and internationally. We may be unable to prevent users of our technology platforms from providing negligent,
unlawful or inappropriate advice, information or content via our technology platforms, or from behaving in an unlawful
manner, and we may be subject to allegations of civil or criminal liability for negligent, fraudulent, unlawful or
inappropriate activities carried out by users of our technology platforms.
Claims could be made against online services companies under both U.S. and foreign law such as fraud,
defamation, libel, invasion of privacy, negligence, copyright or trademark infringement, or other theories based on the
nature and content of the materials disseminated by users of our technology platforms. In addition, domestic and foreign
legislation has been proposed that could prohibit or impose liability for the transmission over the Internet of certain types
of information. Our defense of any of these actions could be costly and involve significant time and attention of our
management and other resources.
The Digital Millennium Copyright Act, or DMCA, is intended, among other things, to reduce the liability of online
service providers for listing or linking to third party web properties that include materials that infringe copyrights or
rights of others. Additionally, portions of The Communications Decency Act, or CDA, are intended to provide statutory
protections to online service providers who distribute third party content. A safe harbor for copyright infringement is also
available under the DMCA to certain online service providers that provide specific services, if the providers take certain
affirmative steps as set forth in the DMCA. Important questions regarding the safe harbor under the DMCA and the CDA
have yet to be litigated, and we cannot guarantee that we will meet the safe harbor requirements of the DMCA or of the
CDA. If we are not covered by a safe harbor, for any reason, we could be exposed to claims, which could be costly and
time-consuming to defend.
Unplanned system interruptions and capacity constraints and failure to effect efficient transmission of customer
communications and data over the Internet could harm our business and reputation.
Our customers have in the past experienced some interruptions with eGain cloud operations. We believe that these
interruptions will continue to occur from time to time. These interruptions could be due to hardware and operating
system failures. As a result, our business will suffer if we experience frequent or long system interruptions that result in
the unavailability or reduced performance of our hosted operations or reduce our ability to provide remote management
services. We expect to experience occasional temporary capacity constraints due to sharply increased traffic or other
Internet-wide disruptions, which may cause unanticipated system disruptions, slower response times, impaired quality,
and degradation in levels of customer service. If this were to continue to happen, our business and reputation could be
seriously harmed.
The growth in the use of the Internet has caused interruptions and delays in accessing the Internet and transmitting
data over the Internet. Interruptions also occur due to systems burdens brought on by unsolicited bulk email or “Spam,”
malicious service attacks and hacking into operating systems, viruses, worms and a “Trojan” horse, the proliferation of
which is beyond our control and may seriously impact our and our customers’ businesses.
Because we provide cloud-based software, interruptions or delays in Internet transmissions will harm our
customers’ ability to receive and respond to online interactions. Therefore, our market depends on ongoing
improvements being made to the entire Internet infrastructure to alleviate overloading and congestion.
Our success largely depends on the efficient and uninterrupted operation of our computer and communications
hardware and network systems. A significant amount of our computer and communications systems are located in
Sunnyvale, California. Due to our location, our systems and operations are vulnerable to damage or interruption from
fire, earthquake, power loss, telecommunications failure and similar events. Customer data that we store in third party
data centers may also be vulnerable to damage or interruption from floods, fires, power loss, telecommunications failures
and similar events. Any damage to, or failure of, our systems generally could result in interruptions in our service.
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Interruptions in our service may reduce our revenue, cause us to issue credits or pay penalties, cause customers to
terminate their subscriptions and adversely affect our renewal rate and our ability to attract new customers.
We do maintain a business continuity plan for our customers in the event of an outage. We maintain other co-
locations for the purposes of disaster recovery as well as maintaining backups of our customer’s information. We provide
premium disaster recovery and standard disaster recovery to our customers. If a customer opts not to pay for premium
disaster recovery, we will only assure that their data is available within 72 hours. This delay could cause severe
disruptions to our customers’ customers and may result in customer termination of our solutions. Our premium disaster
recovery service provides for an alternative data center and a return to operations within one business day.
We have entered into service agreements with some of our customers that require minimum performance
standards, including standards regarding the availability and response time of our remote management services. If we fail
to meet these standards, our customers could terminate their relationships with us, and we could be subject to contractual
refunds and service credits to, and exposure to claims for losses by, customers. Any unplanned interruption of services
may harm our ability to attract and retain customers.
If our security measures are breached and unauthorized access is obtained to a customer’s data or our data or
our IT systems, our service may be perceived as not being secure, customers may curtail or stop using our service
and we may incur significant legal and financial exposure and liabilities.
Our service involves the storage and transmission of customers’ proprietary information, and security breaches
could expose us to a risk of loss of this information, litigation and possible liability. These security measures may be
breached as a result of third-party action, including intentional misconduct by computer hackers, employee error,
malfeasance or otherwise and result in someone obtaining unauthorized access to our customers’ data or our data,
including our intellectual property and other confidential business information, or our IT systems. Additionally, third
parties may attempt to fraudulently induce employees or customers into disclosing sensitive information such as user
names, passwords or other information in order to gain access to our customers’ data or our data or IT systems. Because
the techniques used to obtain unauthorized access, or to sabotage systems, change frequently and generally are not
recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate
preventative measures. In addition, our customers may authorize third party access to their customer data located in our
cloud environment. Because we do not control the transmissions between customer authorized third parties, or the
processing of such data by customer authorized third parties, we cannot ensure the integrity or security of such
transmissions or processing. Any security breach could result in a loss of confidence in the security of our service,
damage our reputation, negatively impact our future sales, disrupt our business and lead to legal liability.
The terms we agree to in our Service Level Agreements or other contracts may result in increased costs or
liabilities, which would in turn affect our results of operations.
Our Service Level Agreements (SLAs) provides for service credits for system unavailability, and in some cases,
indemnities for loss, damage or costs resulting from use of our system. If we were required to provide any of these in a
material way, our results of operations would suffer.
We have been and may in the future be sued by third parties for various claims including alleged infringement of
proprietary rights.
We are involved in various legal matters arising from the normal course of business activities. These may include
claims, suits, and other proceedings involving alleged infringement of third-party patents and other intellectual property
rights, and commercial, labor and employment, and other matters.
The software and Internet industries are characterized by the existence of a large number of patents, trademarks
and copyrights and by frequent litigation based on allegations of infringement or other violations of intellectual property
rights. We have received in the past and may receive in the future communications from third parties claiming that we or
our customers have infringed the intellectual property rights of others. In addition we have been, and may in the future
be, sued by third parties for alleged infringement of their claimed proprietary rights. Our technologies and those of our
customers may be subject to injunction if they are found to infringe the rights of a third party or we may be required to
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pay damages, or both. Many of our agreements require us to indemnify our customers for third-party intellectual
property infringement claims, which would increase the cost to us of an adverse ruling on such a claim.
The outcome of any litigation, regardless of its merits, is inherently uncertain. Any claims and lawsuits, and the
disposition of such claims and lawsuits, could be time-consuming and expensive to resolve, divert management attention
from executing our business plan, lead to attempts on the part of other parties to pursue similar claims and, in the case of
intellectual property claims, require us to change our technology, change our business practices or pay monetary
damages, or enter into short- or long-term royalty or licensing agreements.
Any adverse determination related to intellectual property claims or other litigation could prevent us from offering
our service to others, could be material to our financial condition or cash flows, or both, or could otherwise adversely
affect our operating results. In addition, depending on the nature and timing of any such dispute, a resolution of a legal
matter could materially affect our future results of operation or cash flows or both.
We rely on trademark, copyright, trade secret laws, contractual restrictions and patent rights to protect our
intellectual property and proprietary rights and if these rights are impaired, then our ability to generate revenue
will be harmed.
If we fail to protect our intellectual property rights adequately, our competitors might gain access to our
technology, and our business might be harmed. In addition, defending our intellectual property rights might entail
significant expense. Any of our trademarks or other intellectual property rights may be challenged by others or
invalidated through administrative process or litigation. While we have some U.S. patents and pending U.S. patent
applications, we may be unable to obtain patent protection for the technology covered in our patent applications. In
addition, our existing patents and any patents issued in the future may not provide us with competitive advantages, or
may be successfully challenged by third parties. Furthermore, legal standards relating to the validity, enforceability and
scope of protection of intellectual property rights are uncertain. Effective patent, trademark, copyright and trade secret
protection may not be available to us in every country in which our service is available. The laws of some foreign
countries may not be as protective of intellectual property rights as those in the U.S., and mechanisms for enforcement of
intellectual property rights may be inadequate. Accordingly, despite our efforts, we may be unable to prevent third
parties from infringing upon or misappropriating our intellectual property.
We might be required to spend significant resources to monitor and protect our intellectual property rights. We
may initiate claims or litigation against third parties for infringement of our proprietary rights or to establish the validity
of our proprietary rights. Any litigation, whether or not it is resolved in our favor, could result in significant expense to
us and divert the efforts of our technical and management personnel.
Our failure or inability to develop non-infringing technology or license the proprietary rights on a timely basis
would harm our business.
We may be subject to legal proceedings and claims from time to time in the ordinary course of our business,
including claims of alleged infringement of the patents and other intellectual property rights of third parties. Our
products may infringe issued patents that may relate to our products because patent applications in the United States are
not publicly disclosed until the patent is issued, and hence applications may have been filed which relate to our software
products. Intellectual property litigation is expensive, time consuming, and could divert management’s attention away
from running our business. This litigation could also require us to develop non-infringing technology or enter into
royalty or license agreements. These royalty or license agreements, if required, may not be available on acceptable terms,
if at all, in the event of a successful claim of infringement.
Software errors could be costly and time-consuming for us to correct, and could harm our reputation and impair
our ability to sell our solutions.
Our solutions are based on complex software that may contain errors, or "bugs," that could be costly to correct,
harm our reputation and impair our ability to sell our solutions to new customers. Moreover, customers relying on our
solution may be more sensitive to such errors, and potential security vulnerabilities and business interruptions for these
applications. If we incur substantial costs to correct any errors of this nature, our operating margins could be adversely
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affected. Because our customers depend on our solutions for critical business functions, any service interruptions could
result in lost or delayed market acceptance and lost sales, higher service-level credits and warranty costs, diversion of
development resources and product liability suits.
Our stock price has demonstrated volatility and continued market conditions may cause declines or fluctuations.
The price at which our common stock trades has been and will likely continue to be highly volatile and show wide
fluctuations due to factors such as the following:
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transition to a recurring revenue model;
concerns related to liquidity of our stock;
actual or anticipated fluctuations in our operating results, our ability to meet announced or anticipated
profitability goals and changes in or failure to meet securities analysts’ expectations;
announcements of technological innovations and/or the introduction of new services by us or our competitors;
developments with respect to intellectual property rights and litigation, regulatory scrutiny and new legislation;
conditions and trends in the Internet and other technology industries; and
general market and economic conditions.
Furthermore, the stock market has recently and in the past experienced significant price and volume fluctuations
that have affected the market prices for the common stock of technology companies, regardless of the specific operating
performance of the affected company. These broad market fluctuations may cause the market price of our common stock
to decline.
Our insiders who are significant stockholders may control the election of our board and may have interests that
conflict with those of other stockholders.
Our directors and executive officers, together with their affiliates and members of their immediate families,
beneficially owned, in the aggregate, approximately 36% of our outstanding capital stock as of September 19, 2017, of
which our Chief Executive Officer, Ashutosh Roy, beneficially owned approximately 31% as of such date. As a result of
these concentrated holdings, Mr. Roy individually or together with this group has the ability to exercise significant
control over most matters requiring our stockholders’ approval, including the election and removal of directors and the
approval of significant corporate transactions.
Our offshore product development, support and professional services may prove difficult to manage or may not
allow us to realize our cost reduction goals, produce effective new solutions and provide professional services to
drive growth.
We use offshore resources to perform new product and services development and provide support and
professional consulting efforts, which requires detailed technical and logistical coordination. We must ensure that our
international resources and personnel are aware of and understand development specifications and customer support, as
well as implementation and configuration requirements and that they can meet applicable timelines. If we are unable to
maintain acceptable standards of quality in support, product development and professional services, our attempts to
reduce costs and drive growth through new products and margin improvements in technical support and professional
services may be negatively impacted, which would adversely affect our results of operations. Outsourcing services to
offshore providers may expose us to misappropriation of our intellectual property or that of our customers, or make it
more difficult to defend intellectual property rights in our technology.
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If we are unable to hire and retain key personnel, our business and results of operations would be negatively
affected.
Our success will also depend in large part on the skills, experience and performance of our senior management,
engineering, sales, marketing and other key personnel. The loss of the services of any of our senior management or other
key personnel, including our Chief Executive Officer and co-founder, Ashutosh Roy, could harm our business.
Additionally, an increase in attrition in the Indian workforce on which we rely for research and development would have
significant negative effects on us and our results of operations. If we cannot hire and retain qualified personnel, our
ability to expand our business would be impaired and our results of operations would suffer.
Changes in the European regulatory environment regarding privacy and data protection regulations could expose
us to risks of noncompliance and costs associated with compliance.
We have in the past relied on adherence to the U.S. Department of Commerce’s Safe Harbor Privacy Principles
and compliance with the U.S.-EU and U.S.-Swiss Safe Harbor Frameworks as agreed to and set forth by the U.S.
Department of Commerce, and the European Union and Switzerland, which established a means for legitimating the
transfer of PII by U.S. companies doing business in Europe from the European Economic Area to the U.S. As a result of
the October 6, 2015 European Union Court of Justice, or ECJ, opinion in Case C-362/14 (Schrems v. Data Protection
Commissioner) regarding the adequacy of the U.S.-EU Safe Harbor Framework, the U.S. – EU Safe Harbor Framework
is no longer deemed to be a valid method of compliance with restrictions set forth in the Data Protection Directive
(Directive) (and member states’ implementations thereof) regarding the transfer of data outside of the European
Economic Area requiring us to rely on alternative mechanisms permitted under the Directive, such as consent and EU-
specified standard contractual clauses. The U.S. - EU Safe Harbor was replaced with the EU - U.S. Privacy Shield
(Privacy Shield) in July 2016 and, starting on August 1, 2016, the Privacy Shield was made available to companies for
self-certification. We have self-certified with the Privacy Shield. Nevertheless, some of the mechanisms permitting
transfer of data from the EU to the U.S. have been subject to challenges, whose outcomes remain uncertain. On
December 15, 2015, the European Parliament and the Council of the European Union reached a political agreement on
the future EU data protection legal framework. The General Data Protection Regulation (GDPR), adopted on 27 April
2016, will replace the Directive, and becomes enforceable from 25 May 2018 after a two-year transition period. The
GDPR will have significant impacts on how businesses can collect and process the personal data of EU individuals. We
may be unsuccessful in establishing legitimate means of transferring data from the European Economic Area, we may
experience hesitancy, reluctance, or refusal by European or multi-national customers to continue to use our services due
to the potential risk exposure to such customers as a result of the ECJ ruling or the implementation of GDPR, and we and
our customers are at risk of enforcement actions taken by an EU data protection authority until such point in time that we
ensure that all data transfers to us from the European Economic Area are legitimized. We may find it necessary to
establish systems to maintain EU-origin data in the European Economic Area, which may involve substantial expense
and distraction from other aspects of our business. We publicly post our privacy policies and practices concerning our
processing, use and disclosure of PII. Our publication of our privacy policy and other statements we publish that provide
promises and assurances about privacy and security can subject us to potential state and federal action if they are found
to be deceptive or misrepresentative of our practices. Further, the costs of compliance with, and other burdens imposed
by, such laws, regulations and policies that are applicable to us may limit the use and adoption of our products and
solutions and could have a material adverse impact on our results of operations.
Privacy concerns and laws, evolving regulation of cloud computing, cross-border data transfer restrictions and
other domestic or foreign regulations may limit the use and adoption of our solutions and adversely affect our
business.
Regulation related to the provision of services on the Internet is increasing, as federal, state and foreign
governments continue to adopt new laws and regulations addressing data privacy and the collection, processing, storage
and use of personal information. Further, laws are increasingly aimed at the use of personal information for marketing
purposes, such as the European Union’s e-Privacy Directive, and the country-specific regulations that implement that
directive. Such laws and regulations are subject to differing interpretations and may be inconsistent among jurisdictions.
These and other requirements could reduce demand for our solutions or restrict our ability to store and process data or, in
some cases, impact our ability to offer our services and solutions in certain locations.
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In addition to government activity, privacy advocacy and other industry groups have established or may establish
new self-regulatory standards that may place additional burdens on us. Our customers expect us to meet voluntary
certification or other standards established by third parties, such as TRUSTe. If we are unable to maintain these
certifications or meet these standards, it could adversely affect our ability to provide our solutions to certain customers
and could harm our business.
The costs of compliance with and other burdens imposed by laws, regulations and standards may limit the use and
adoption of our service and reduce overall demand for it, or lead to significant fines, penalties or liabilities for any
noncompliance.
Furthermore, concerns regarding data privacy may cause our customers’ customers to resist providing the data
necessary to allow our customers to use our service effectively. Even the perception that the privacy of personal
information is not satisfactorily protected or does not meet regulatory requirements could inhibit sales of our products or
services, and could limit adoption of our subscription solution.
Industry-specific regulation is evolving and unfavorable industry-specific laws, regulations or interpretive
positions could harm our business.
Our customers and potential customers do business in a variety of industries, including financial services, the
public sector, healthcare and telecommunications. Regulators in certain industries have adopted and may in the future
adopt regulations or interpretive positions regarding the use of cloud computing and other outsourced services. The costs
of compliance with, and other burdens imposed by, industry-specific laws, regulations and interpretive positions may
limit customers’ use and adoption of our services and reduce overall demand for our services. For example, some
financial services regulators have imposed guidelines for use of cloud computing services that mandate specific controls
or require financial services enterprises to obtain regulatory approval prior to outsourcing certain functions. If we are
unable to comply with these guidelines or controls, or if our customers are unable to obtain regulatory approval to use
our service where required, our business may be harmed. In addition, an inability to satisfy the standards of certain
voluntary third-party certification bodies that our customers may expect, such as an attestation of compliance with the
Payment Card Industry (PCI) Data Security Standards, may have an adverse impact on our business. If in the future we
are unable to achieve or maintain these industry-specific certifications or other requirements or standards relevant to our
customers, it may harm our business.
In some cases, industry-specific laws, regulations or interpretive positions may also apply directly to us as a
service provider. Any failure or perceived failure by us to comply with such requirements could have an adverse impact
on our business.
We may need to license third-party technologies and may be unable to do so on commercially reasonable terms.
To the extent we need to license third-party technologies, we may be unable to do so on commercially reasonable
terms or at all. In addition, we may fail to successfully integrate any licensed technology into our products or services.
Third-party licenses may expose us to increased risks, including risks associated with the integration of new technology,
the diversion of resources from the development of our own proprietary technology, and our inability to generate revenue
from new technology sufficient to offset associated acquisition and maintenance costs. Our inability to obtain and
successfully integrate any of these licenses could delay product and service development until equivalent technology can
be identified, licensed and integrated. This in turn would harm our business and operating results.
Changes to current accounting policies could have a significant effect on our reported financial results or the way
in which we conduct our business.
Generally accepted accounting principles and the related accounting pronouncements, implementation guidelines
and interpretations for some of our significant accounting policies are highly complex and require subjective judgments
and assumptions. Some of our more significant accounting policies that could be affected by changes in the accounting
rules and the related implementation guidelines and interpretations include:
•
recognition of revenue;
22
•
•
contingencies and litigation; and
accounting for income taxes.
Changes in these or other rules, or scrutiny of our current accounting practices, or a determination that our
judgments or assumptions in the application of these accounting principles were incorrect, could have a significant
adverse effect on our reported operating results or the way in which we conduct our business.
We depend on broad market acceptance of our applications and of our business model.
We depend on the widespread acceptance and use of our applications as an effective solution for businesses
seeking to manage high volumes of customer interactions across multiple channels, including Web, phone, email, print
and in-person. While we believe the potential to be very large, we cannot accurately estimate the size or growth rate of
the potential market for such product and service offerings generally, and we do not know whether our products and
services in particular will achieve broad market acceptance. The market for customer engagement software is rapidly
evolving, and concerns over the security and reliability of online transactions, the privacy of users and quality of service
or other issues may inhibit the growth of the Internet and commercial online services. If the market for our applications
fails to grow or grows more slowly than we currently anticipate, our business will be seriously harmed.
Furthermore, our business model is premised on business assumptions that are still evolving. Our business model
assumes that both customers and companies will increasingly elect to communicate via multiple channels, as well as
demand integration of the online channels into the traditional telephone-based call center. If any of these assumptions is
incorrect or if customers and companies do not adopt digital technology in a timely manner, our business will be
seriously harmed and our stock price will decline.
We may be unable to respond to the rapid technological change and changing customer preferences in the online
sales, marketing, customer service, and/or online consumer services industries and this may harm our business.
If we are unable, for technological, legal, financial or other reasons, to adapt in a timely manner to changing
market conditions in the online sales, marketing, customer service and/or e-commerce industry or our customers’ or
Internet users’ requirements or preferences, our business, results of operations and financial condition would be
materially and adversely affected. Business on the Internet is characterized by rapid technological change. In addition,
the market for online sales, marketing, customer service and expert advice solutions is relatively new. Sudden changes in
customer and Internet user requirements and preferences, frequent new product and service introductions embodying
new technologies, such as broadband communications, and the emergence of new industry standards and practices such
as but not limited to security standards could render our services and our proprietary technology and systems obsolete.
The rapid evolution of these products and services will require that we continually improve the performance, features
and reliability of our services. Our success will depend, in part, on our ability to:
•
•
•
enhance the features and performance of our services;
develop and offer new services that are valuable to companies doing business online as well as Internet users;
and
respond to technological advances and emerging industry standards and practices in a cost-effective and timely
manner.
If any of our new services, including upgrades to our current services, do not meet our customers’ or Internet
users’ expectations, our business may be harmed. Updating our technology may require significant additional capital
expenditures and could materially and adversely affect our business, results of operations and financial condition.
If new services require us to grow rapidly, this could place a significant strain on our managerial, operational,
technical and financial resources. In order to manage our growth, we could be required to implement new or upgraded
operating and financial systems, procedures and controls. Our failure to expand our operations in an efficient manner
could cause our expenses to grow, our revenue to decline or grow more slowly than expected and could otherwise have a
material adverse effect on our business, results of operations and financial condition
23
We may engage in future acquisitions or investments that could dilute our existing stockholders, cause us to incur
significant expenses or harm our business.
We may review acquisition or investment prospects that we believe may complement our current business or
enhance our technological capabilities. Integrating any newly acquired businesses or their technologies or products may
be expensive and time-consuming, and may not result in benefits to our business. To finance any acquisitions, it may be
necessary for us to raise additional funds through public or private financings. Additional funds may not be available on
terms that are favorable to us, if at all, and, in the case of equity financings, may result in dilution to our existing
stockholders. We may not be able to operate acquired businesses profitably. If we are unable to integrate newly acquired
entities or technologies effectively, our operating results could suffer. Future acquisitions by us could also result in large
and immediate write-offs, incurrence of debt and contingent liabilities, or amortization of expenses related to goodwill
and other intangibles, any of which could harm our operating results.
We may not be able to realize the benefits of offering the limited “Try & Buy” free version of our service.
We offer a limited version of our subscription service to customers or potential customers free of charge (known
as “Try & Buy”) in order to promote usage, brand and product awareness, and adoption, and we invest time and
resources for such initial engagements without compensation from the customers. Some customers never enter into a
definitive contract for our paid subscription service despite the time and effort we may have expended on such Try &
Buy initiatives. To the extent that these customers do not become paying customers, we will not realize the intended
benefits of this marketing effort, and our ability to grow our business and revenue may be harmed.
The uncertainty surrounding the implementation and effect of Brexit may cause increased economic volatility,
affecting our operations and business.
On June 23, 2016, voters in the United Kingdom (U.K.) approved an advisory referendum to withdraw
membership from the European Union (E.U.), which proposed exit (referred to as Brexit) could cause disruptions to, and
create uncertainty surrounding, our business in the U.K. and E.U., including affecting our relationships with our existing
and future customers, suppliers and employees. As a result, Brexit could have an adverse effect on our future business,
financial results and operations. The formal process for U.K. leaving the E.U. began in March 2017, when the U.K.
served notice to the European Council under Article 50 of the Treaty of Lisbon. The long-term nature of the U.K.’s
relationship with the E.U. is unclear and there is considerable uncertainty when any relationship will be agreed and
implemented. The political and economic instability created by Brexit has caused and may continue to cause significant
volatility in global financial markets and uncertainty regarding the regulation of data protection in the U.K. Brexit could
also have the effect of disrupting the free movement of goods, services, and people between the U.K., the E.U., and
elsewhere. The effects of Brexit will depend on any agreements the U.K. makes to retain access to E.U. markets either
during a transitional period or more permanently. Brexit could lead to legal uncertainty and potentially divergent national
laws and regulations as the U.K. determines which E.U. laws to replace or replicate. Further, uncertainty around these
and related issues could lead to adverse effects on the economy of the U.K. and the other economies in which we
operate. There can be no assurance that any or all of these events will not have a material adverse effect on our business
operations, results of operations and financial condition.
24
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
PROPERTIES
We lease all facilities used in our business as of June 30, 2017. The following table summarizes our principal
properties:
Location
Sunnyvale, California . . . . Corporate Headquarters
Newbury, England . . . . . . .
Corporate Office – EMEA
Pune, India . . . . . . . . . . . . . Corporate Office – APAC
Principal Use
ITEM 3.
LEGAL PROCEEDINGS
Approximate Square
Footage
42,541
14,090
33,262
Lease Expiration
Date
2022
2024
2021
In the ordinary course of business, we are involved in various legal proceedings and claims related to alleged
infringement of third-party patents and other intellectual property rights, commercial, corporate and securities, labor and
employment, wage and hour, and other claims. 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 infringement.
We evaluate all claims and lawsuits with respect to their potential merits, our potential defenses and counterclaims,
settlement or litigation potential and the expected effect on us. Our technologies may be subject to injunction if they are
found to infringe the rights of a third party. In addition, our agreements require us to indemnify our customers for third-
party intellectual property infringement claims, which could increase the cost to us of an adverse ruling on such a claim.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
Executive Officers of the Registrant.
The following table sets forth information regarding eGain’s current executive officers as of September 26, 2017:
Name
Ashutosh Roy . . . . . . . . . . . . . . . . . . . . . . . . . .
Eric Smit . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Promod Narang . . . . . . . . . . . . . . . . . . . . . . . .
Todd Woodstra . . . . . . . . . . . . . . . . . . . . . . . .
Age
Position
51 Chief Executive Officer and Chairman
55
59
55
Chief Financial Officer
Senior Vice President of Products and Engineering
Senior Vice President of Global Sales
Ashutosh Roy co-founded eGain and has served as Chief Executive Officer and a director of eGain since September
1997 and President since October 2003. From May 1995 through April 1997, Mr. Roy served as Chairman of WhoWhere?
Inc., an Internet-service company co-founded by Mr. Roy. From June 1994 to April 1995, Mr. Roy co-founded Parsec
Technologies, a call center company based in New Delhi, India. From August 1988, to August 1992, Mr. Roy worked as
a Software Engineer at Digital Equipment Corp. Mr. Roy holds a B.S. in Computer Science from the Indian Institute of
Technology, New Delhi, a Master’s degree in Computer Science from Johns Hopkins University and an M.B.A. from
Stanford University.
Eric Smit has served as Chief Financial Officer since August 2002. From April 2001 to July 2002, Mr. Smit served
as Vice President, Operations of eGain. From June 1999 to April 2001, Mr. Smit served as Vice President, Finance and
Administration of eGain. From June 1998 to June 1999, Mr. Smit served as Director of Finance of eGain. From December
1996 to May 1998, Mr. Smit served as Director of Finance for WhoWhere? Inc., an Internet services company. From April
1993 to November 1996, Mr. Smit served as Vice President of Operations and Chief Financial Officer of Velocity
Incorporated, a software game developer and publishing company. Mr. Smit holds a Bachelor of Commerce in Accounting
from Rhodes University, South Africa.
25
Promod Narang has served as Sr. Vice President of Engineering of eGain since March 2000. Mr. Narang joined
eGain in October 1998, and served as Director of Engineering prior to assuming his current position. Prior to joining eGain,
Mr. Narang served as President of VMpro, a system software consulting company from September 1987 to October 1998.
Mr. Narang holds a Bachelor of Science in Computer Science from Wayne State University.
Todd Woodstra was appointed as Senior Vice President of Global Sales on August 14, 2017. Mr. Woodstra has
served as Vice President of Global Channel and Partner Alliances for Nuance Communications, where he managed and
executed business in channels and commercial enterprise, self-service, mobile, collaboration, unified communications,
natural language speech recognition, voice biometrics, gesture technologies, inbound/outbound notification and voice-to-
text transcription. Thereafter, Mr. Woodstra became the Senior Vice President of Enterprise Sales for Interactions LLC,
where he led enterprise customer sales focused on virtual assistant solutions.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
The following table sets forth, for the periods indicated, high and low bid prices for eGain’s common stock as
reported by the Nasdaq Stock Market LLC.
Year Ended June 30, 2017
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended June 30, 2016
High
Low
$ 3.51 $ 2.12
$ 3.40 $ 1.93
$ 2.40 $ 1.35
$ 1.90 $ 1.30
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 5.01 $ 3.13
$ 5.00 $ 3.78
$ 4.46 $ 2.79
$ 3.99 $ 2.65
Holders
As of September 19, 2017, there were approximately 198 stockholders of record. This number does not include
stockholders whose shares are held in trust by other entities. As of September 19, 2017, we estimate that there were
approximately 2,900 beneficial stockholders of our common stock.
Dividends
We have never declared or paid any cash dividends on our common stock. We currently anticipate that we will
retain all available funds for use in the operation of our business and do not intend to pay any cash dividends in the
foreseeable future.
Stock Performance Graph
The following shall not be deemed incorporated by reference into any of our other filings under the Securities
Exchange Act of 1934, as amended, or the Securities Act of 1933, as amended.
The graph below compares the cumulative total stockholder return on our common stock with the cumulative total
return on the Standard & Poor’s 500 Index and the Nasdaq Composite Total Return Index for each of the last five fiscal
26
years ended June 30, 2017, assuming an initial investment of $100. Data for the Standard & Poor’s 500 Index and the
Nasdaq Composite Total Return Index assume no dividends.
The comparisons in the graph below are based upon historical data and are not indicative of, nor intended to
forecast, future performance of our common stock.
eGain Corporation
Nasdaq Composite
S&P Software & Services Select Industry Index
$200
$180
$160
$140
$120
$100
$80
$60
$40
$20
$0
6 / 3 0 /2 0 1 3
6 / 3 0 /2 0 1 4
6 / 3 0 /2 0 1 5
6 / 3 0 /2 0 1 6
6 / 3 0 /2 0 1 7
eGain Corporation . . . . . . . . . . . . . . . . . . . . . . . . . .
Nasdaq Composite . . . . . . . . . . . . . . . . . . . . . . . . . .
S&P Software & Services Select Industry Index . .
Equity Compensation Plan Information
06-30-13
$ 100.00
$ 100.00
$ 100.00
06-30-14
$ 70.37
$ 131.17
$ 124.67
06-30-15
$ 52.08
$ 150.10
$ 144.92
06-30-16
$ 29.31
$ 147.58
$ 144.55
06-30-17
$ 17.15
$ 189.34
$ 180.53
The following table summarizes our equity compensation plans as of June 30, 2017:
Number of
securities to be
issued upon exercise
of outstanding
options and rights
(a)
17,209
1,408,799
Weighted-average
exercise price of
Number of securities
remaining available for
future issuance under
equity compensation
outstanding options plans (excluding securities
and rights
(b)
reflected in column (a)
(c)
$
$
$
$
$
0.67
4.01
0.66
5.16
4.39
—
1,302,880
—
795,038
2,097,918
Plan Category
Equity compensation plans approved by security holders
1998 Stock Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2005 Stock Incentive Plan . . . . . . . . . . . . . . . . . . . . . . .
Equity compensation plans not approved by security
holders
2000 Non-Management Stock Option Plan . . . . . . . . .
2005 Management Stock Option Plan . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,000
837,652
2,273,660
27
Equity Compensation Plans Not Approved By Security Holders
2000 Non-Management Stock Option Plan
In July 2000, our board of directors adopted the 2000 Non-Management Stock Option Plan, which provides for the
grant of non-statutory stock options and stock purchase rights to employees of eGain. A total of 200,000 shares of common
stock were reserved for issuance under the 2000 Non-Management Stock Option Plan. This plan expired in July 2010, and
there are no further options available to grant under the 2000 Plan.
2005 Management Stock Option Plan
In May 2005, our board of directors adopted the 2005 Management Stock Option Plan, or the 2005 Management
Plan, pursuant to which the Compensation Committee may grant non-qualified stock options to purchase up to 962,400
shares of eGain common stock, at an exercise price of not less than 100% of the fair market value of such common stock,
to directors, officers and key employees of the Company and its subsidiaries. Options granted under the 2005 Management
Plan are subject to vesting as determined by the Compensation Committee. The options are exercisable for up to ten years
from the date of grant.
In both November 2007 and September 2011, our board of directors approved an increase of 500,000 shares for
issuance under the 2005 Management Stock Option Plan.
In September 2014, our board of directors approved an amendment to the 2005 Management Stock Option Plan that
increased the number of shares of common stock reserved for issuance by 1,000,000 shares from 1,962,400 shares to
2,962,400 shares and extended the expiration date of the of the 2005 Management Stock Option Plan to September 30,
2024.
Issuer Repurchases of Equity Securities
On September 14, 2009, we announced that our board of directors approved a repurchase program under which we
may purchase up to 1,000,000 shares of our common stock. The duration of the repurchase program is open-ended. Under
the program, we purchase shares of common stock from time to time through the open market and privately negotiated
transactions at prices deemed appropriate by management. The repurchase is funded by cash on hand. There were no shares
repurchased during fiscal years 2017, 2016 and 2015.
28
ITEM 6.
SELECTED FINANCIAL DATA
The selected consolidated financial data should be read in conjunction with the information under “Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations,” our consolidated financial
statements and the related notes which are included in “Item 8. Financial Statements and Supplementary Data.”
Revenue
2017
Year ended June 30,
2015
(in thousands, except per share information)
2014
2016
2013
Recurring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 43,585 $ 42,783 $ 42,311 $ 40,477 $ 32,281
12,853
Legacy license . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13,755
Professional services . . . . . . . . . . . . . . . . . . . . . . . . . . . .
58,889
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,495
Cost of recurring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
151
Cost of legacy license . . . . . . . . . . . . . . . . . . . . . . . . . . .
12,360
Cost of professional services . . . . . . . . . . . . . . . . . . . . . .
18,006
Total cost of revenue . . . . . . . . . . . . . . . . . . . . . . .
40,883
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18,325
15,277
75,913
12,082
61
16,998
29,141
46,772
14,800
14,985
70,262
8,518
104
14,840
23,462
46,800
4,557
10,073
58,215
11,956
50
9,193
21,199
37,016
14,466
12,126
69,375
12,401
29
11,259
23,689
45,686
Operating Expenses
Research and development . . . . . . . . . . . . . . . . . . . . . . .
Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . .
Total operating expenses . . . . . . . . . . . . . . . . . . . . . .
Income / (loss) from operations . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income / (expense), net . . . . . . . . . . . . . . . . . . . . . . .
Income / (loss) before income tax benefit (provision) . . . .
Income tax benefit (provision) . . . . . . . . . . . . . . . . . . . . . . .
Net income / (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (6,020) $ (6,240) $ (12,429) $ (5,246) $
Per share information
16,042
32,703
9,313
58,058
(11,286)
(834)
11
(12,109)
(320)
9,963
33,367
7,529
50,859
(4,059)
(181)
(415)
(4,655)
(591)
16,063
27,722
7,774
51,559
(5,873)
(1,958)
728
(7,103)
863
13,753
20,436
6,552
40,741
(3,725)
(1,730)
(32)
(5,487)
(533)
8,419
24,434
6,787
39,640
1,243
(483)
303
1,063
(379)
684
Basic and diluted net income / (loss) per common
share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.22) $ (0.23) $
Weighted average shares used in computing basic net
income / (loss) per common share . . . . . . . . . . . . . . . . .
Weighted average shares used in computing diluted net
income / (loss) per common share . . . . . . . . . . . . . . . . .
27,108
27,108
27,056
27,056
(0.47) $ (0.21) $
0.03
26,609
26,609
25,353
24,780
25,353
26,089
Below is a summary of stock - based compensation
included in the costs and expenses above:
Cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Research and development . . . . . . . . . . . . . . . . . . . . . . . $
Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
General and administrative . . . . . . . . . . . . . . . . . . . . . . . $
131 $
281 $
80 $
175 $
249 $
472 $
169 $
298 $
476 $
736 $
574 $
531 $
280 $
386 $
464 $
397 $
121
261
360
339
2017
2016
June 30,
2015
2014
2013
Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term investments (including
restricted cash) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt (bank borrowings and capital lease obligations) . . .
$ 10,633 $ 11,785 $ 9,309 $ 8,815 $ 17,235
(886) $ (2,039) $ (1,885) $ 2,021
$ (7,680) $
$ 39,751 $ 48,063 $ 49,731 $ 32,647 $ 43,536
$ 23,219 $ 15,717 $ 15,812 $ 13,713 $ 19,736
$ 14,844 $ 20,376 $ 18,554 $ 4,208 $ 2,000
29
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of eGain’s financial condition and results of operations should be read together with
the consolidated financial statements and related notes in this Annual Report on Form 10-K. This discussion may
contain forward-looking statements based upon current expectations that involve risks and uncertainties. These risks
and uncertainties may cause actual results to differ materially from those discussed in the forward-looking statements.
Overview
eGain Corporation is a leading provider of cloud-based customer engagement software. 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. Benefits 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.
We have operations in the United States, United Kingdom and India.
In fiscal year 2017, we recorded annual revenue of $58.2 million and loss from operations of $3.7 million, compared
to annual revenue of $69.4 million and a loss from operations of $5.9 million in fiscal year 2016. The year-over-year
decrease in total revenue was primarily driven by the 68% decrease in legacy license revenue and 17% decrease in
professional services revenue. Recurring revenue was $43.6 million in fiscal year 2017, compared to $42.8 million in fiscal
year 2016. Legacy license revenue was $4.6 million in fiscal year 2017, compared to $14.5 million in fiscal year 2016.
Professional services revenue was $10.1 million in fiscal year 2017, compared to $12.1 million in fiscal year 2016. Cash
provided by operations was $5.4 million for fiscal year 2017, compared to cash used in operations of $1.9 million for fiscal
year 2016.
Unbilled Deferred Revenue
Unbilled deferred revenue represents business that is contracted but not yet invoiced or collected and off–balance-
sheet and, accordingly, is not recorded in deferred revenue. As such, the deferred revenue balance on our consolidated
balance sheet does not represent the total contract value of annual or multi-year, non-cancelable subscription agreements.
As of June 30, 2017, unbilled deferred revenue increased to $37.0 million, up from $31.1 million as of June 30, 2016.
Key Financial Measures
We monitor the key financial performance measures set forth below as well as cash and cash equivalents and available
debt capacity, which are discussed in Liquidity and Capital Resources, to help us evaluate trends, establish budgets,
measure the effectiveness of our sales and marketing efforts and assess operational effectiveness and efficiencies. These
key financial performance measures include certain non-GAAP metrics, including non-GAAP operating loss as defined
below. The presentation of the non-GAAP financial measures is not intended to be considered in isolation or as a substitute
for, or superior to, the financial information prepared and presented in accordance with generally accepted accounting
principles (GAAP).
Non-GAAP operating loss, a non-GAAP financial measure, is defined as operating loss, adjusted for the impact of
stock-based compensation expense and amortization of acquired intangibles.
Management believes that it is useful to exclude certain non-cash charges and non-core operational charges from
non-GAAP operating loss because (i) the amount of such expenses in any specific period may not directly correlate to the
underlying performance of our business operations and (ii) such expenses can vary significantly between periods as a result
of the timing of new stock-based awards and acquisitions.
30
The following table presents our key financial measures, including a reconciliation of GAAP loss from operations to
non-GAAP loss from operations for each of the following periods:
Loss from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (3,725)
Add:
2017
Fiscal Year Ended June 30
2016
$ (5,873)
2015
$ (11,286)
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of acquired intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-GAAP loss from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
667
2,091
(967)
1,188
2,781
$ (1,904)
2,317
2,510
$ (6,459)
Critical Accounting Policies and Estimates
Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses our consolidated
financial statements, which have been prepared in accordance with accounting principles generally accepted in the United
States of America. The preparation of these financial statements requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during the reporting period. On an on-going
basis, management evaluates its estimates and judgments, including those related to revenue recognition, allowance for
doubtful accounts, goodwill, intangibles, deferred tax valuation allowance, accrued liabilities, long-lived assets and stock-
based compensation. Management bases its estimates and judgments on historical experience and on various other factors
that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.
Business Combinations
Business combinations are accounted for at fair value under the purchase method of accounting. Acquisition costs
are expensed as incurred and recorded in general and administrative expenses and changes in deferred tax asset valuation
allowances and income tax uncertainties after the acquisition date affect income tax expense. The accounting for business
combinations requires estimates and judgment as to expectations for future cash flows of the acquired business, and the
allocation of those cash flows to identifiable intangible assets, in determining the estimated fair value for assets acquired
and liabilities assumed. The fair values assigned to tangible and intangible assets acquired and liabilities assumed are based
on management’s estimates and assumptions, as well as other information compiled by management, including valuations
that utilize customary valuation procedures and techniques. If the actual results differ from the estimates and judgments
used in these estimates, the amounts recorded in the consolidated financial statements could result in a possible impairment
of the intangible assets and goodwill, or require acceleration of the amortization expense of finite-lived intangible assets.
Revenue Recognition
We enter into arrangements to deliver multiple products or services (multiple-elements). We apply software revenue
recognition rules and multiple-elements arrangement revenue guidance. Significant management judgments and estimates
are made and used to determine the revenue recognized in any accounting period. Material differences may result in
changes to the amount and timing of our revenue for any period if different conditions were to prevail. We present revenue
net of taxes collected from customers and remitted to governmental authorities.
We derive revenue from three sources:
i.
ii.
iii.
Recurring fees (previously referred to as subscription and support) primarily consist of cloud revenue from
customers accessing our enterprise cloud computing services, term and ratable license revenue, and
maintenance and support revenue;
Legacy license fees primarily consist of perpetual software license revenue which we no longer sell to new
customers;
Professional services primarily consist of consulting, implementation services and training.
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Revenues are recognized when all of the following criteria are met:
• Persuasive evidence of an arrangement exists: Evidence of an arrangement consists of a written contract signed
by both the customer and management prior to the end of the period. We use signed software license, services
agreements and order forms as evidence of an arrangement for sales of software, cloud, maintenance and
support. We use a signed statement of work as evidence of arrangement for professional services.
• Delivery or performance has occurred: Software is delivered to customers electronically, and license files are
delivered electronically. Delivery is considered to have occurred when we provide the customer access to the
software along with a license file and/or login credentials.
• Fees are fixed or determinable: We assess whether the fee is fixed or determinable based on the payment terms
associated with the transaction. Arrangements where a significant portion of the fee is due beyond 90 days from
delivery are generally not considered to be fixed or determinable.
• Collectibility is probable: We assess collectibility based on a number of factors, including the customer’s past
payment history and its current creditworthiness. Payment terms generally range from 30 to 90 days from
invoice date. If we determine that collection of a fee is not reasonably assured, we defer the revenue and
recognize it at the time collection becomes reasonably assured, which is generally upon receipt of cash payment.
Revenue from sales to resellers is generally recognized upon delivery to the reseller dependent on the facts and
circumstances of the transaction, such as our understanding of the reseller’s plans to sell the software, existence of return
provisions, price protection or other allowances, the reseller’s financial status and our past experience with the reseller.
Historically sales to resellers have not included any return provisions, price protection or other allowances.
We apply the provisions of Accounting Standards Codification (ASC) 985-605, Software Revenue Recognition, to
all transactions involving the licensing of software products. In the event of a multiple element arrangement for a license
transaction, we evaluate the transaction as if each element represents a separate unit of accounting taking into account all
factors following the accounting standards. We apply ASC 605, Revenue Recognition, for cloud transactions to determine
the accounting treatment for multiple elements. We also apply ASC 605-35 for fixed fee arrangements in which we use
the percentage of completion method to recognize revenue when reliable estimates are available for the costs and efforts
necessary to complete the implementation services. When such estimates are not available, the completed contract method
is utilized. Under the completed contract method, revenue is recognized only when a contract is completed or substantially
complete.
When legacy perpetual licenses were sold together with system implementation and consulting services, legacy
license fees were recognized upon shipment, provided that (i) payment of the license fees were not dependent upon the
performance of the consulting and implementation services, (ii) the services were available from other vendors, (iii) the
services qualified for separate accounting as we have sufficient experience in providing such services, had the ability to
estimate cost of providing such services, and we had vendor specific objective evidence, or VSOE, of fair value, and
(iv) the services were not essential to the functionality of the software.
We enter into arrangements with multiple-deliverables that generally include subscription, maintenance and support,
and professional services. We evaluate whether each of the elements in these arrangements represents a separate unit of
accounting, as defined by ASC 605, using all applicable facts and circumstances, including whether (i) we sell or could
readily sell the element unaccompanied by the other elements, (ii) the element has stand-alone value to the customer, and
(iii) there is a general right of return. For revenue recognition with multiple-deliverable elements, we apply the selling
price hierarchy, which includes VSOE, third-party evidence of selling price, or TPE, and best estimate of selling price, or
BESP. We determine the relative selling price for a deliverable based on VSOE, if available, or BESP, if VSOE is not
available. We determined that TPE is not a practical alternative due to differences in its service offerings compared to
other parties and the availability of relevant third-party pricing information.
We determine BESP by considering our overall pricing objectives and market conditions. Significant pricing
practices taken into consideration include our discounting practices, the size and volume of our transactions, the customer
demographic, the geographic area where services are sold, price lists, its go-to-market strategy, historical standalone sales
32
and contract prices. The determination of BESP is made through consultation with and approval by our management,
taking into consideration the go-to-market strategy. As our go-to-market strategies evolve, we may modify its pricing
practices in the future, which could result in changes in relative selling prices, including both VSOE and BESP.
Recurring Revenue
Cloud Revenue
Cloud revenue consists of subscription fees along with bundled maintenance and support revenue from customers
accessing our cloud-based service offerings. We recognize cloud revenue ratably over the period of the applicable
agreement as services are provided. Cloud agreements typically have an initial term of 12 to 36 months and automatically
renew unless either party cancels the agreement. The majority of the cloud services customers purchase a combination of
our cloud service and professional services.
We consider the applicability of ASC 985-605, on a contract-by-contract basis. In cloud-based agreements, where
the customer does not have the contractual right to take possession of the software, the revenue is recognized on a monthly
basis over the term of the contract. Invoiced amounts are recorded in accounts receivable and in deferred revenue or
revenue, depending on whether the revenue recognition criteria have been met. We consider a software element to exist
when we determine that the customer has the contractual right to take possession of our software at any time during the
cloud period without significant penalty and can feasibly run the software on its own hardware or enter into another
arrangement with a third party to host the software. Additionally, we have established VSOE for the cloud and maintenance
and support elements of perpetual license sales, based on the prices charged when sold separately and substantive renewal
terms. Accordingly, when a software element exists in a cloud services arrangement, license revenue for the perpetual
software license element is determined using the residual method and is recognized upon delivery. Revenue for the cloud
and maintenance and support elements is recognized ratably over the contractual time period. Professional services are
recognized as described below under Professional Services Revenue. If VSOE of fair value cannot be established for the
undelivered elements of an agreement, the entire amount of revenue from the arrangement is recognized ratably over the
period that these elements are delivered.
Term and Ratable License Revenue
Term and ratable license revenue includes arrangements where our customers receive license rights to use our
software along with bundled maintenance and support services for the term of the contract or the Company has not
established VSOE for the bundled multi-year maintenance and support services. The majority of our contracts provide
customers with the right to use one or more products up to a specific license capacity. Certain terms of our license
agreements stipulate that customers can exceed pre-determined base capacity levels, in which case additional fees are
specified in the license agreement. Term license revenue is recognized ratably over the term of the license contract, and
ratable license revenue is recognized over the term of the associated bundled maintenance and support contract.
Version 15.5 and future releases of the perpetual license is a cloud and perpetual license hybrid software which
represents a service contract under ASC 605-25. The cloud components are essential to the functionality of version 15.5
and future releases, and we have a contractual obligation to deliver these cloud components. Per ASC 605-25, a delivered
item is considered a separate unit of accounting only if (i) the delivered item has standalone value; and (ii) if the service
contract has a general right of return, then delivery and performance of the undelivered item is probable and substantially
within the vendor’s control. We cannot separate the cloud components because there is no standalone value of the cloud
components. The perpetual license revenue is recognized over the economic life of the software which was determined to
be three years.
Maintenance and Support Revenue
Maintenance and support revenue consists of customers purchasing maintenance and support for our on-premise
software. We use VSOE of fair value for maintenance and support to account for the arrangement using the residual
method, regardless of any separate prices stated within the contract for each element. Maintenance and support revenue is
recognized ratably over the term of the maintenance contract, which is typically one year. Maintenance and support is
33
renewable by the customer on an annual basis. Maintenance and support rates, including subsequent renewal rates, are
typically established based upon a specified percentage of net license fees as set forth in the arrangement.
Legacy License Revenue
Legacy license revenue consists of perpetual license rights sold to customers to use our software in conjunction with
related maintenance and support services. If an acceptance period is required, revenue is recognized upon the earlier of
customer acceptance or the expiration of the acceptance period. In software arrangements that include rights to multiple
software products and/or services, we use the residual method for perpetual licenses released as version 15 or prior under
which revenue is allocated to the undelivered elements based on VSOE of the fair value of such undelivered elements. The
residual amount of revenue is allocated to the delivered elements and recognized as revenue, assuming all other criteria
for revenue recognition have been met. Such undelivered elements in these arrangements typically consist of software
maintenance and support, implementation and consulting services and, in some cases, cloud services.
Professional Services Revenue
Professional services revenue includes system implementation, consulting and training. For license transactions, the
majority of our consulting and implementation services qualify for separate accounting. We use VSOE of fair value for
the services to account for the arrangement using the residual method, regardless of any separate prices stated within the
contract for each element. Our consulting and implementation service contracts are bid either on a fixed-fee basis or on a
time-and-materials basis. Substantially all of our contracts are on a time-and-materials basis. For time-and-materials
contracts, where the services are not essential to the functionality, we recognize revenue as services are performed. If the
services are essential to functionality, then both the product license revenue and the service revenue are recognized under
the percentage of completion method. For a fixed-fee contract, we recognize revenue based upon the costs and efforts to
complete the services in accordance with the percentage of completion method, provided we are able to estimate such cost
and efforts.
Under ASC 605-25, in order to account for deliverables in a multiple-deliverable arrangement as separate units of
accounting, the deliverables must have standalone value upon delivery. For cloud services, in determining whether
professional services have standalone value, we consider the following factors for each professional services agreement:
availability of the services from other vendors, the nature of the professional services, the timing of when the professional
services contract was signed in comparison to the subscription service start date and the contractual dependence of the
subscription service on the customer’s satisfaction with the professional services work.
We have standalone value for consulting and implementation services. For those contracts that have standalone
value, we recognized the services revenue when rendered for time and material contracts, when the milestones are achieved
and accepted by the customer for fixed price contracts or by percentage of completion basis if there is no acceptance
criteria.
Training revenue that meets the criteria to be accounted for separately is recognized when training is provided.
Deferred Revenue
Deferred revenue primarily consists of payments received in advance of revenue recognition from cloud, term and
ratable license, 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 quarter.
Deferred revenue that will be recognized during the succeeding twelve-month period is recorded as current deferred
revenue and the remaining portion is recorded as noncurrent. As of June 30, 2017, deferred revenue increased to $23.2
million compared to $15.7 million as of June 30, 2016.
34
Deferred Commissions
Deferred commissions are the direct and incremental costs directly associated with cloud and term license contracts
with customers and consist of sales commissions to our direct sales force.
The commissions are deferred and amortized over the terms of the related customer contracts, which are typically
12 to 36 months. The commission payments are paid based on contract terms in the month following the quarter in which
the commissions are earned. The deferred commission amounts are recognized as sales and marketing expense in the
consolidated statements of operations over the terms of the related customer contracts, in proportion to the recognition of
the associated revenue.
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 an expense over the vesting period. 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 lives. We determine 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 deems to be non-recurring and non-indicative of future events. We base our estimate of
expected life on the historical exercise behavior, cancellations of all past option grants made by us during the time period
in which our equity shares have been publicly traded, the contractual term, the vesting period and the expected remaining
term of the option. Based on our historical experience of option pre-vesting cancellations, we have assumed an annualized
14.93% forfeiture rate for our options. We record additional expense if the actual forfeiture rate is lower than we estimated,
and record a recovery of prior expense if the actual forfeiture is higher than what we estimated.
Goodwill and Other Intangible Assets
In accordance with ASC 350, Goodwill and Other Intangible Assets, we review goodwill annually for impairment
or sooner whenever events or changes in circumstances indicate that they may be impaired. These events or circumstances
could include a significant change in the business climate, legal factors, operating performance indicators, competition, or
sale or disposition of a significant portion of a reporting unit. In addition, we evaluate purchased intangible assets to
determine that all such assets have determinable lives. We operate under a single reporting unit and accordingly, all of our
goodwill is associated with the entire company. We early adopted Accounting Standards Update (ASU) 2017-04,
Intangibles—Goodwill and Other, in 2017 and had no impairment due to a negative carrying amount of our reporting unit.
We performed an annual impairment review for fiscal year 2016 and found no impairment.
Accounts Receivable and Allowance for Doubtful Accounts
We extend unsecured credit to 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. If we make different judgments or utilize different estimates, then material differences may result in
additional reserves for trade receivables, which would be reflected by charges in general and administrative expenses for
any period presented. We write-off a receivable after all collection efforts have been exhausted and the amount is deemed
uncollectible.
Leases
Lease agreements are evaluated to determine whether they are capital or operating leases in accordance with ASC
840, Leases. When any one of the four test criteria in ASC 840 is met, the lease then qualifies as a capital lease.
Capital leases are capitalized at the lower of the net present value of the total amount payable under the leasing
agreement (excluding finance charges) or the fair market value of the leased asset. Capital lease assets are depreciated on
35
a straight-line basis, over a period consistent with our normal depreciation policy for tangible fixed assets, but not
exceeding the lease term. Interest charges are expensed over the period of the lease in relation to the carrying value of the
capital lease obligation.
Rent expense for operating leases, which may include free rent or fixed escalation amounts in addition to minimum
lease payments, is recognized on a straight-line basis over the duration of each lease term.
Deferred Tax Valuation Allowance
When we prepare our consolidated financial statements, we estimate our income tax liability for each of the various
jurisdictions where we conduct business. This requires us to estimate our actual current tax exposure and to assess
temporary differences that result from differing treatment of certain items for tax and accounting purposes. The net deferred
tax assets are reduced by a valuation allowance if, based upon weighted available evidence, it is more likely than not that
some or all of the deferred tax assets will not be realized. We must make significant judgments to determine our provision
for income taxes, our deferred tax assets and liabilities and any valuation allowance to be recorded against our net deferred
tax assets. As of June 30, 2017, we had a valuation allowance of approximately $83.7 million of which approximately
$80.2 million was attributable to U.S. and state net operating losses and research and development credit carryforwards.
We apply ASC 740, Income Taxes, in determining any uncertain tax positions. The guidance seeks to reduce the
diversity in practice associated with certain aspects of measurement and recognition in accounting for income taxes and
prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of
a tax position that an entity takes or expects to take in a tax return. Additionally, ASC 740 provides guidance on de-
recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Under ASC 740,
an entity may only recognize or continue to recognize tax positions that meet a “more likely than not” threshold. In
accordance with our accounting policy, we recognize accrued interest and penalties related to unrecognized tax benefits as
a component of other income (expense), net in the consolidated statements of operations.
Fair Value of Financial Instruments
Our financial instruments consist of cash and cash equivalents, restricted cash, accounts receivable, accounts payable
and accrued liabilities. We do not have any derivative financial instruments. We believe the reported carrying amounts of
these financial instruments approximate fair value, based upon their short-term nature and comparable market information
available at the respective balance sheet dates. The carrying value of our bank borrowings and capital lease obligations
approximates fair value based on the borrowing rates currently available to us for loans and capital leases with similar
terms.
36
Results of Operations
The following table sets forth certain items reflected in our consolidated statements of operations expressed as a
percent of total revenue for the periods indicated.
Revenue:
2017
2016
2015
Recurring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legacy license . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Professional services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
62 %
21 %
17 %
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 % 100 %
18 %
— %
16 %
34 %
66 %
Cost of recurring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of legacy license . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of professional services . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total cost of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20 %
— %
16 %
36 %
64 %
75 %
8 %
17 %
56 %
24 %
20 %
100 %
16 %
— %
23 %
39 %
61 %
Operating Expenses:
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24 %
35 %
11 %
70 %
(6)%
23 %
40 %
11 %
74 %
(8)%
21 %
43 %
12 %
76 %
(15)%
Revenue
Total revenue, which consists of recurring, legacy license and professional services revenue, was $58.2 million,
$69.4 million, and $75.9 million, in fiscal years 2017, 2016, and 2015, respectively.
In fiscal year 2017, total revenue decreased 16% or $11.2 million, from the prior year. The decrease in legacy
license revenue in fiscal year 2017 was primarily attributable to the transition from a perpetual license business toward a
cloud delivery model. Our international sales accounted for approximately 51% of total revenue in fiscal year 2017, an
increase from 50% of total revenue in fiscal year 2016. The impact of the foreign exchange fluctuation between the U.S.
dollar, the Euro and British pound in total revenue was $4.8 million and $2.1 million in fiscal years 2017 and 2016,
respectively. One customer accounted for 13% of total revenue in fiscal year 2017. Two customers accounted for 14% and
10% of total revenue in fiscal year 2016. There was one customer that accounted for 10% of total revenue in fiscal year
2015.
Recurring Revenue
Revenue
Fiscal Year Ended June 30
2016
2015
2017
Year-Over-Year Change
2016 to 2017 2015 to 2016
(in thousands)
Recurring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 43,585 $ 42,783 $ 42,311 $ 802 2 %$ 472 1 %
Percentage of total revenue . . . . . . . . . . . . . . . . . . . . . .
56 %
62 %
75 %
Recurring revenue includes cloud, term and ratable licenses, software maintenance and support revenue. Recurring
revenue was $43.6 million, $42.8 million, and $42.3 million in fiscal years 2017, 2016, and 2015, respectively. This
represented an increase of 2% or $802,000 in fiscal year 2017 compared to fiscal year 2016 and an increase of 1% or
$472,000 in fiscal year 2016 compared to fiscal year 2015. Recurring revenue represented 75%, 62%, and 56% of total
revenue for the fiscal years 2017, 2016 and 2015, respectively.
The increase in fiscal year 2017 was primarily due to the strategic decision to move to a ratable or cloud delivery
business model from the hybrid model that included legacy perpetual licenses. The impact from foreign currency
fluctuations was a decrease of $3.4 million in fiscal year 2017.
37
The increase in fiscal year 2016 was primarily an increase in cloud revenue due to the shift from a perpetual license
business toward a cloud delivery model and the improved renewal rate. The impact from foreign currency fluctuations
was a decrease of $1.2 million in fiscal year 2016.
Excluding the impact from any future foreign currency fluctuation, we expect recurring revenue to increase in fiscal
year 2018 due to the shift from a legacy perpetual license business toward a cloud delivery model.
Legacy license Revenue
Fiscal Year Ended June 30
2016
2015
2017
Year-Over-Year Change
2016 to 2017
2015 to 2016
Revenue
Legacy license . . . . . . . . . . . . . . . . . . . . . . . .
Percentage of total revenue . . . . . . . . . . . . . .
(in thousands)
$ 18,325 $ (9,909) (68)% $ (3,859) (21)%
$ 4,557 $ 14,466
8 %
21 %
24 %
Legacy license revenue was $4.6 million, $14.5 million, and $18.3 million in fiscal years 2017, 2016, and 2015,
respectively. This represents a decrease of 68% or $9.9 million in fiscal year 2017 from fiscal year 2016, compared to a
decrease of 21% or $3.9 million in fiscal year 2016 from fiscal year 2015. Legacy license revenue represented 8%, 21%,
and 24% of total revenue for the fiscal years 2017, 2016, and 2015, respectively.
The decrease in legacy license revenue in fiscal year 2017 was primarily attributable to the transition from perpetual
license business toward a cloud delivery model. The impact from the foreign currency fluctuations on legacy license
revenue was a decrease of $418,000 in fiscal year 2017.
The decrease in legacy license revenue in fiscal year 2016 was primarily attributable to the shift from perpetual
license business toward a cloud delivery model. The impact from the foreign currency fluctuations on legacy license
revenue was a decrease of $363,000 in fiscal year 2016.
As we no longer sell legacy licenses to new customers and are actively working to migrate all existing legacy license
customers to our cloud delivery model, we anticipate legacy license revenue to decrease in fiscal year 2018.
Professional Services Revenue
Revenue
Fiscal Year Ended June 30
2016
2015
2017
Year-Over-Year Change
2016 to 2017
2015 to 2016
(in thousands)
Professional services . . . . . . . . . . . . . . . . . . $ 10,073
Percentage of total revenue . . . . . . . . . . . . .
17 %
$ 12,126 $ 15,277
17 %
20 %
$ (2,053) (17)% $ (3,151) (21)%
Professional services revenue was $10.1 million, $12.1 million, and $15.3 million in fiscal years 2017, 2016 and
2015, respectively. This represented a decrease of 17%, or $2.1 million in fiscal year 2017 compared to fiscal year 2016
and a decrease of 21%, or $3.2 million in fiscal year 2016 compared to fiscal year 2015.
The decrease in professional services revenue in fiscal year 2017 was primarily attributable to a continued reduction
in time required for an average implementation project as a result of the improvements to our product deployment process.
The impact from foreign currency fluctuation was an increase of $987,000.
The decrease in professional services revenue in fiscal year 2016 was primarily attributable to a reduction in time
required for an average implementation project as a result of the improvements to our product deployment process. The
impact from foreign currency fluctuation was an increase of $468,000.
Excluding the impact from any future foreign currency fluctuations, we expect professional services revenue to
increase or remain relatively constant in fiscal year 2018.
38
Cost of Revenue
Fiscal Year Ended June 30
2016
2015
2017
Year-Over-Year Change
2016 to 2017
2015 to 2016
Cost of revenue . . . . . . . . . . . . . . . . . $ 21,199 $ 23,689
$ 29,141 $ (2,490) (11)%$ (5,452) (19)%
(in thousands)
Percentage of total revenue . . . . . .
Gross margin . . . . . . . . . . . . . . . . .
36 %
64 %
34 %
66 %
39 %
61 %
Total cost of revenue was $21.2 million, $23.7 million, and $29.1 million in fiscal years 2017, 2016 and 2015,
respectively. This represented a decrease of 11% or $2.5 million in fiscal year 2017 compared to fiscal year 2016 and a
decrease of 19% or $5.5 million in fiscal year 2016 compared to fiscal year 2015.
Total cost of revenue as a percentage of total revenue was 36%, 34%, and 39% for fiscal years 2017, 2016 and 2015,
respectively.
The decrease in fiscal year 2017 was primarily due to decreases of (i) international subsidiaries’ expenses of
approximately $1.4 million related to the strengthening of the U.S. dollar against the Euro, British pound, and Indian rupee;
(ii) $1.4 million in personnel and personnel-related expenses primarily in professional services related to the improved
efficiency in customer system implementations; and (iii) $438,000 in outside consulting expense partially offset by
increases of (i) $676,000 in cloud related expenses due to increased costs incurred to migrate from the use of traditional
data centers to web-based services; and (ii) $22,000 in license related expenses.
The decrease in fiscal year 2016 was primarily due to decreases of (i) $4.4 million in personnel and personnel-related
expenses; (ii) international subsidiaries’ expenses of approximately $970,000 related to the strengthening of the U.S. dollar
against the Euro, British pound, and Indian rupee; and (iii) $376,000 in outside consulting expense partially offset by
increases of (i) $240,000 in cloud related expenses such as hosted network and lease cost paid to remote co-location centers
and (ii) $26,000 in intangible amortization of customer relationships related to acquired maintenance contracts.
Gross margin was 64%, 66% and 61% for fiscal years 2017, 2016 and 2015, respectively.
In order to better understand the changes within our cost of revenue and resulting gross margins, we have provided
the following discussion of the individual components of our cost of revenue.
Cost of Recurring
Fiscal Year Ended June 30
2016
2015
2017
Year-Over-Year Change
2016 to 2017
2015 to 2016
Cost of recurring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,956 $ 12,401 $ 12,082 $ (445) (4)%$ 319 3 %
Percentage of recurring revenue . . . . . . . . . . . . . . .
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
27 %
73 %
29 %
71 %
29 %
71 %
(in thousands)
Cost of recurring revenue includes personnel costs for our cloud services and maintenance and support, and to a
lesser extent occupancy costs and related overhead. It also includes depreciation of capital equipment used in our hosted
network, cost of support for the third-party software, and lease costs paid to remote co-location centers.
Total cost of recurring revenue was $12.0 million, $12.4 million, and $12.1 million in fiscal years 2017, 2016 and
2015, respectively. This represented a decrease of 4% or $445,000 in fiscal year 2017 compared to fiscal year 2016 and an
increase of 3%, or $319,000 in fiscal year 2016 compared to fiscal year 2015. Total cost of recurring revenue as a
percentage of total recurring revenue was 27% (a gross margin of 73%) in fiscal year 2017. Total cost of recurring revenue
as a percentage of total recurring revenue was 29% (a gross margin of 71%) in fiscal years 2016 and 2015.
The decrease in cost of recurring revenue in fiscal year 2017 was primarily due to decreases of (i) international
subsidiaries’ expenses of approximately $689,000 from foreign exchange fluctuation between the U.S. dollar, the Euro,
British pound and Indian rupee; (ii) $252,000 in personnel and personnel-related expenses; and (iii) $180,000 in outside
39
consulting services partially offset by an increase of (i) $676,000 in cloud related expenses due to increased costs incurred
to migrate from the use of traditional data centers to web-based services.
The increase in cost of recurring revenue in fiscal year 2016 was primarily due to increases of (i) $276,000 in cloud
related expenses; (ii) $221,000 in personnel and personnel-related expenses; (iii) $162,000 in outside consulting services;
and (iv) $26,000 in intangible amortization of customer relationships related to acquired maintenance contracts partially
offset by a decrease of international subsidiaries’ expenses of approximately $364,000 from the foreign exchange
fluctuation between the U.S. dollar, the Euro, British pound and Indian rupee.
Excluding the impact from any future foreign currency fluctuations, we anticipate cost of recurring revenue to
increase slightly or remain relatively constant and recurring revenue as well as gross margin to increase in fiscal year 2018.
Cost of Legacy License
Cost of legacy license . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 50
$ 29
$ 61 $ 21 72 %$ (32) (52)%
Fiscal Year Ended June 30
2015
2017
2016
Year-Over-Year Change
2016 to 2017 2015 to 2016
(in thousands)
Percentage of legacy license revenue . . . . . . . . . . . . . . . . .
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1 %
- %
99 % 100 % 100 %
- %
Cost of legacy license primarily includes third-party software royalties and delivery costs for shipments to customers.
Total cost of legacy license was $50,000, $29,000 and $61,000 in fiscal years 2017, 2016 and 2015, respectively. This
represented an increase of 72% or $21,000 in fiscal year 2017 compared to 2016 and a decrease of 52% or $32,000 in
fiscal year 2016 compared to 2015. Total cost of legacy license as a percentage of total legacy license revenue was
approximately 1% (a gross margin of 99%) in fiscal year 2017. Total cost of legacy license as a percentage of total legacy
license revenue was approximately 0% (a gross margin of 100%) in fiscal years 2016 and 2015.
The increase in cost of legacy license in fiscal year 2017 was primarily due to increase in third party royalty expense.
The decrease in cost of legacy license in fiscal year 2016 was primarily due to decrease in third party royalty expense.
We anticipate cost of legacy license to remain relatively constant in future periods but to increase as a percentage of
legacy license revenue as we expect legacy license revenue to decline.
Cost of Professional Services
Fiscal Year Ended June 30
2016
2015
2017
Year-Over-Year Change
2016 to 2017
2015 to 2016
Cost of professional services . . . . . . . . . . . . $ 9,193 $ 11,259 $ 16,998 $ (2,066) (18)% $ (5,739) (34)%
Percentage of professional services . . . . . .
Gross margin . . . . . . . . . . . . . . . . . . . . . . . .
91 %
9 %
93 %
7 %
111 %
(11)%
(in thousands)
Cost of professional services includes personnel costs for consulting services, and to a lesser extent occupancy costs
and related overhead. Total cost of professional services was $9.2 million, $11.3 million and $17.0 million in fiscal years
2017, 2016, and 2015, respectively. This represented a decrease of 18% or $2.1 million in fiscal year 2017 compared to
fiscal year 2016 and a decrease of 34% or $5.7 million in fiscal year 2016 compared to fiscal year 2015. Total cost of
professional services as a percentage of total professional services revenue was 91% (gross margin of 9%) in fiscal year
2017 compared to 93% (gross margin of 7%) in fiscal year 2016 and 111% (a negative gross margin of 11%) in fiscal year
2015.
The decrease in cost of professional services in fiscal year 2017 was primarily due to decreases of (i) $1.8 million
in personnel and personnel-related expense from the decreased headcount; and (ii) $258,000 in outside consulting
expenses. The decrease in personnel costs and improved gross margin was due to a decrease in personnel costs and the
40
reduction in time required for an average implementation project as a result of improvements to our product development
process.
The decrease in cost of professional services in fiscal year 2016 was primarily due to decreases of (i) $4.6 million
in personnel and personnel-related expense from the decreased headcount; (ii) international subsidiaries’ expenses of
approximately $606,000 from the foreign exchange fluctuation between the U.S. dollar, the Euro, British pound and the
Indian rupee and (iii) $538,000 in outside consulting expenses. The decrease in personnel costs and improved gross margin
was due to the reduction in time required for an average implementation project as a result of improvements to our product
development process.
Excluding the impact from any future foreign currency fluctuations, we anticipate cost of professional services to
increase or remain relatively constant and gross margin to increase or remain relatively constant in future periods.
Research and Development
Fiscal Year Ended June 30
2016
2017
Year-Over-Year Change
2016 to 2017
2015 to 2016
2015
(in thousands)
Research and development . . . . . . . . . . . . . . . . $ 13,753 $ 16,063 $ 16,042 $ (2,310) (14)%$ 21 — %
Percentage of total revenue . . . . . . . . . . . . . . .
24 %
23 %
21 %
Research and development expenses primarily consist of compensation and benefits for our engineering, product
management and quality assurance personnel, and, to a lesser extent, occupancy costs and related overhead. Research and
development expense was $13.8 million, $16.1 million and $16.0 million in fiscal years 2017, 2016 and 2015, respectively.
This represented a decrease of $2.3 million in fiscal year 2017 compared to fiscal year 2016 and an increase of $21,000 in
fiscal year 2016 compared to fiscal year 2015. Total research and development expenses as a percentage of total revenue
was 24%, 23% and 21% for fiscal years 2017, 2016 and 2015, respectively.
The decrease in research and development expense in fiscal year 2017 was primarily due to decreases of (i) $1.5
million in personnel and personnel-related expenses consisting of $925,000 in personnel expenses and a reduction of
$544,000 in overhead expenses; (ii) international subsidiaries’ expenses of approximately $653,000 from the foreign
exchange fluctuation between the U.S. dollar, the Euro, British pound and the Indian rupee; and (iii) $148,000 in outside
consulting services.
Research and development expense in fiscal year 2016 was consistent with fiscal year 2015.
Excluding any fluctuation of foreign exchange rates in the Euro, British pound, and Indian rupee against the U.S.
dollar, we anticipate research and development expense to remain relatively constant as a percentage of total revenue in
fiscal year 2018 based upon our current product development plans.
Sales and Marketing
Fiscal Year Ended June 30
2016
2015
2017
Year-Over-Year Change
2016 to 2017
2015 to 2016
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 17,141 $ 24,628 $ 28,970 $ (7,487) (30)% $ (4,342) (15)%
(17)%
Marketing . . . . . . . . . . . . . . . . . . . . . . . .
Total sales and marketing . . . . . . . . . .
(15)%
Percentage of total revenue . . . . . . . .
$ 3,295 $ 3,094 $ 3,733 $
201
$ 20,436 $ 27,722 $ 32,703 $ (7,286)
(639)
(26)% $ (4,981)
40 %
43 %
35 %
6 % $
(in thousands)
Sales and marketing expenses primarily consist of compensation and benefits for our sales, marketing and business
development personnel, lead generation activities, advertising, trade show and other promotional costs and, to a lesser
extent, occupancy costs and related overhead. Sales and marketing expense was $20.4 million, $27.7 million and $32.7
million in fiscal years 2017, 2016 and 2015 respectively. This represented a decrease of 26%, or $7.3 million in fiscal year
2017 compared to fiscal year 2016 and a decrease of 15%, or $5.0 million in fiscal year 2016 compared to fiscal year 2015.
41
Total sales and marketing expenses as a percentage of total revenue was 35%, 40% and 43% in fiscal years 2017, 2016
and 2015, respectively.
Total sales expense was $17.1 million for fiscal 2017, a decrease of 30% or $7.5 million, from $24.6 million for
fiscal year 2016. The decrease in fiscal year 2017 was primarily due to decreases of (i) $5.9 million in personnel and
personnel-related expense related to the decreased headcount; (ii) international subsidiaries’ expenses of approximately
$1.1 million primarily from the foreign exchange fluctuation between the U.S. dollar, the Euro, British pound and Indian
rupee; (iii) $623,000 in intangible amortization of customer relationships related to acquired software contracts partially
offset by an increase of (i) $125,000 in outside consulting.
Total marketing expense was $3.3 million for fiscal 2017, an increase of 6% or $201,000 from $3.1 million for fiscal
year 2016. The increase in fiscal year 2017 was primarily due to increases of (i) $169,000 in outside consulting; (ii)
$168,000 in marketing program expenses; (iii) $38,000 in personnel and personnel-related expense partially offset by a
decrease of international subsidiaries’ expenses of approximately $174,000 primarily from the foreign exchange
fluctuation between the U.S. dollar, the Euro, British pound and Indian rupee.
Total sales expense was $24.6 million for fiscal 2016, a decrease of 15% or $4.3 million, from $29.0 million for
fiscal year 2015. The decrease in fiscal year 2016 was primarily due to decreases of (i) $3.0 million in personnel and
personnel-related expense related to the decreased headcount and (ii) international subsidiaries’ expenses of approximately
$1.5 million primarily from the foreign exchange fluctuation between the U.S. dollar, the Euro, British pound and Indian
rupee partially offset by increases of (i) $129,000 in outside consulting and (ii) $67,000 in intangible amortization of
customer relationships related to acquired software contracts.
Total marketing expense was $3.1 million for fiscal 2016, a decrease of 17% or $639,000, from $3.7 million for
fiscal year 2015. The decrease in fiscal year 2016 was primarily due to decreases of (i) $360,000 in marketing program
expenses, (ii) international subsidiaries’ expenses of approximately $184,000 primarily from the foreign exchange
fluctuation between the U.S. dollar, the Euro, British pound and Indian rupee; (iii) $64,000 in outside consulting and (iv)
$32,000 in personnel and personnel-related expense.
Excluding any fluctuation of foreign exchange rates in the Euro, British pound, and Indian rupee against the U.S.
dollar, we anticipate sales and marketing expense to decrease or remain relatively constant as a percentage of total revenue
in fiscal year 2018.
General and Administrative
Fiscal Year Ended June 30
2016
2015
2017
Year-Over-Year Change
2016 to 2017
2015 to 2016
General and administrative . . . . . . . . . . . . . . . . $ 6,552 $ 7,774 $ 9,313 $ (1,222) (16)%$ (1,539) (17)%
11 %
Percentage of total revenue . . . . . . . . . . . . . . .
11 %
12 %
(in thousands)
General and administrative expenses primarily consist of compensation and benefits for our finance, human
resources, administrative and legal services personnel, fees for outside professional services, provision for doubtful
accounts, occupancy costs and related overhead. General and administrative expense was $6.6 million, $7.8 million and
$9.3 million in the fiscal years 2017, 2016 and 2015, respectively. This represented a decrease of 16% or $1.2 million in
fiscal year 2017 compared to fiscal 2016 and a decrease of 17% or $1.5 million in fiscal year 2016 compared to fiscal year
2015. Total general and administrative expenses as a percentage of total revenue was 11%, 11% and 12% in fiscal years
2017, 2016 and 2015, respectively.
The decrease in fiscal year 2017 was primarily due to decreases of (i) $1.2 million in personnel and personnel-related
expense from the decreased headcount; (ii) international subsidiaries’ expenses of approximately $345,000 primarily from
the foreign exchange fluctuation between the U.S. dollar, the Euro, British pound and Indian rupee; (iii) $68,000 in
intangible amortization of acquired developed software technology; and (iv) $71,000 in legal and other costs partially
offset by increases of (i) $345,000 from outside consulting services, including accounting and audit services; and (ii)
$115,000 in bad debt expense.
42
The decrease in fiscal year 2016 was primarily due to decreases of (i) $888,000 in personnel and personnel-related
expense from the decreased headcount; (ii) $798,000 in one-time acquisition transaction costs; (iii) international
subsidiaries’ expenses of approximately $215,000 primarily from the foreign exchange fluctuation between the U.S. dollar,
the Euro, British pound and Indian rupee; and (iv) $33,000 from outside consulting services, including accounting and
audit services partially offset by increases of (i) $336,000 in legal expenses as a result of a June 30, 2015 accrual reversal
and (ii) $52,000 in bad debt expense.
We anticipate general and administrative expenses to increase or remain relatively constant as a percentage of total
revenue in fiscal year 2018 based upon current revenue expectations excluding the fluctuation of foreign exchange rates
in the Euro, British pound, and Indian rupee against the U.S. dollar.
Amortization of Stock-Based Compensation
Fiscal Year Ended June 30
2015
2016
2017
Year-Over-Year Change
2016 to 2017
2015 to 2016
(in thousands)
(227) (48)%
476 $ (118) (47)%$
Cost of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 131 $
Research and development . . . . . . . . . . . . . . . . . . . .
(36)%
(264)
(40)%
736 (191)
281
Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . .
(71)%
(405)
(53)%
574 (89)
80
(44)%
(41)%
175
General and administrative . . . . . . . . . . . . . . . . . . . .
(233)
531 (123)
Total stock-based compensation . . . . . . . . . . . . . .
(49)%
(44)%$ (1,129)
$ 667 $ 1,188 $ 2,317 $ (521)
Percentage of total revenue . . . . . . . . . . . . . . . . .
249 $
472
169
298
3 %
1 %
2 %
Stock-based compensation expenses include the amortization of the fair value of share-based payments made to
employees, members of our board of directors and consultants, primarily in the form of stock options. The fair value of
stock options granted is recognized as an expense as the underlying stock options vest. The decrease in our stock-based
compensation expense in fiscal 2017 was primarily due to the decrease in Company-wide headcount as well as a decrease
in option grant activity. The decrease in our stock-based compensation expense in fiscal 2016 was primarily due to the
decrease in Company-wide headcount as well as decrease in option grant activity.
We value our share-based payments under ASC 718, and record compensation expense for all share-based payments
made to employees based on the fair value at the date of the grant.
We expect our stock-based compensation expense to increase in fiscal year 2018 based on anticipated hiring and/or
stock price increases. Refer also to Subsequent Event (Note 12) regarding the repricing of certain options.
Loss from Operations
Fiscal Year Ended June 30
2016
2015
2017
Year-Over-Year Change
2016 to 2017
2015 to 2016
Operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . $ (3,725) $ (5,873) $ (11,286) $ 2,148 37 % $ 5,413 48 %
(6) %
Operating margin . . . . . . . . . . . . . . . . . . . . . .
(15)%
(8)%
(in thousands)
Loss from operations was $3.7 million in fiscal year 2017 compared to loss from operations of $5.9 million in fiscal
year 2016 and loss from operations of $11.3 million in fiscal year 2015. We recorded a negative operating margin of 6%,
8% and 15% in fiscal years 2017, 2016 and 2015, respectively.
The decrease in operating loss in fiscal year 2017 was due to a decrease in total cost of revenue and operating
expenses of $13.3 million partially offset by a decrease in revenue of $11.2 million. The decrease in revenue was primarily
due to a decrease in new legacy license transactions, as we transition to a cloud delivery model, and professional services
revenue. The impact of fluctuations of foreign currencies against the U.S. dollar on revenue was a decrease of $4.8 million.
The decrease in total costs and operating expenses was primarily due to decreases of (i) $9.8 million in personnel-related
costs; (ii) $3.7 million in international expenses from the foreign exchange fluctuation between the U.S. dollar, the Euro,
British pound and Indian rupee; (iii) $691,000 in intangible amortization from prior acquisition; and (iv) $71,000 in legal
and other costs partially offset by increases of (i) $639,000 cloud related expenses; (ii) $168,000 in marketing program
43
expenses; (iii) $115,000 in bad debt expense; and (iv) $52,000 in outside consulting services which includes accounting,
audit and investor relations fees.
The decrease in operating loss in fiscal year 2016 was due to a decrease in total costs of revenue and operating
expenses of $12.0 million partially offset by a decrease in revenue of $6.5 million. The decrease in revenue was primarily
due to a decrease in new license transactions and professional services revenue. The impact of any fluctuation of foreign
currencies against the U.S. dollar on revenue was a decrease of $2.1 million. The decrease in total costs and operating
expenses was primarily due to decreases of (i) $7.8 million in in personnel-related costs; (ii) $3.3 million in international
expenses from the foreign exchange fluctuation between the U.S. dollar, the Euro, British pound and Indian rupee; (iii)
$798,000 in one-time acquisition transaction costs; (iv) $551,000 in outside consulting services which includes accounting,
audit and investor relations fees and (v) $360,000 in marketing program expenses partially offset by increases of (i)
$321,000 in legal expenses as a result of a June 30, 2015 accrual reversal; (ii) $270,000 in intangible amortization from
acquisition; (iii) $245,000 cloud related expenses and (iv) $45,000 in bad debt expense.
Interest Expense, Net
Net interest expense was $1.7 million, $2.0 million and $834,000 in fiscal years 2017, 2016 and 2015, respectively.
This represents a decrease of 12% or $228,000 in fiscal year 2017, compared to fiscal year 2016 and an increase of 135%
or $1.1 million in fiscal year 2016, compared to fiscal year 2015. Interest income was not significant in any year.
The decrease in interest expense in fiscal year 2017 was primarily due to the repayment of bank borrowings resulting
in lower average indebtedness.
The increase in interest expense in fiscal years 2016 and 2015 was primarily due to interest incurred on bank
borrowings and capital leasing agreements.
Other Income (Expense), Net
Other expense, net, was $32,000 in fiscal year 2017, compared to other income, net, of $728,000 in fiscal year 2016
and other income, net, of $11,000 in fiscal year 2015. Other income and expense in fiscal years 2017 and 2016 primarily
included the foreign exchange loss and gain on international trade receivables. Other expense and income in fiscal year
2015 was primarily due to (i) $359,000 reclassification of the accumulated translation expense recorded when liquidating
our Inference, SiteBridge and Australia subsidiaries, and (ii) $190,000 in foreign exchange loss and gain on international
trade receivables due to the weakening of the British pound and Euro against the dollar in which certain sales were
denominated.
Income Tax Benefit (Provision)
Income tax provision was $533,000 in fiscal year 2017, and income tax benefit was $863,000 in fiscal year 2016.
Income tax provision was $320,000 in fiscal year 2015. The tax provision in fiscal year 2017 primarily relates to foreign
and state provisions. The federal provision was fully provided with a valuation allowance. The tax benefit in fiscal year
2016 primarily relates to the release of valuation allowance against deferred tax assets in the United Kingdom and reversal
of the intangible amortization generated and benefited by Exony Limited (Exony) which was acquired in fiscal year 2015,
partially offset by the income tax provision for foreign subsidiaries.
New Accounting Pronouncements
For information with respect to recent accounting pronouncements and the impact of these pronouncements on our
consolidated financial statements, see Note 1 of Notes to Consolidated Financial Statements included in Item 8 Financial
Statements and Supplementary Data of this Annual Report.
44
Liquidity and Capital Resources
Overview
As of June 30, 2017 and 2016, our cash and cash equivalents were $10.6 million and $11.8 million, respectively.
Our working capital was a negative $7.7 million as of June 30, 2017, compared to a negative working capital of $886,000
as of June 30, 2016. As of June 30, 2017, our deferred revenue was $23.2 million, compared to $15.7 million as of June
30, 2016. Unbilled deferred revenue, representing business that is contracted but not yet invoiced or collected and off
balance sheet, was $37.0 million as of June 30, 2017, up from $31.1 million as of June 30, 2016.
As of June 30, 2017 and 2016, our restricted cash was $6,000 and $5,000, respectively. The increase was primarily
attributed to foreign exchange movement.
On November 21, 2014, we entered into a new $20 million credit facility with Wells Fargo Bank to be used for
working capital and support our strategic growth plans. The facility, which includes a $10 million, five-year term loan and
a $10 million revolver, replaces our prior credit facility with Comerica Bank. For the term loan, we must make quarterly
installments of principal at varying amounts, plus all accrued interest, at specified dates through the maturity date of
November 21, 2019, at which time remaining amounts shall be immediately due and payable.
On September 1, 2015, we amended the credit facility with Wells Fargo to increase the revolver from $10 million
to $15 million and increased the quarterly installments of principal at varying amounts, plus all accrued interest, at specified
dates through the maturity date which remained unchanged at November 21, 2019.
Based upon our fiscal year 2018 plan, we believe that existing capital resources will enable us to maintain current
and planned operations for at least the next 12 months. From time to time, however, we may consider opportunities for
raising additional capital and/or exchanging all or a portion of our existing debt for equity. We can make no assurances
that such opportunities will be available to us on economic terms we consider favorable, if at all.
If adequate funds are not available on acceptable terms, our ability to achieve or sustain positive cash flows, maintain
current operations, fund any potential expansion, take advantage of unanticipated opportunities, develop or enhance
products or services, or otherwise respond to competitive pressures would be significantly limited. Our expectations as to
our future cash flows and our future cash balances are subject to a number of assumptions, including assumptions regarding
anticipated increases in our revenue, the mix of new cloud and license business, our ability to retain existing customers
and customer purchasing and payment patterns, many of which are beyond our control.
Cash Flows
Net cash provided by operating activities was $5.4 million in fiscal year 2017 compared to net cash provided by
operating activities of $1.9 million in fiscal year 2016. In fiscal year 2017, net cash provided by operating activities
increased $3.5 million over fiscal year 2016 primarily due to lower net loss after adjusting for amortization of acquired
intangibles, depreciation and amortization, amortization of deferred commissions, stock-based compensation, provision
for doubtful accounts, amortization of deferred financing costs, and changes in working capital accounts, specifically a
decrease in accounts receivables and an increase in deferred revenue due to timing of prepayments received for cloud
customer renewals.
Net cash provided by operating activities was $1.9 million in fiscal year 2016 compared to net cash used in operating
activities of $10.5 million in fiscal year 2015. The decrease in cash used was primarily due to a net loss of $6.2 million for
the fiscal year 2016 compared to a net loss of $12.4 million in the comparable year-ago period after adjusting for
depreciation, amortization of deferred commissions, deferred financing costs, and intangible assets, stock-based
compensation, and changes in working capital accounts. Decreases in accrued compensation related to the settlement of
Exony working capital and management incentive commitments, deferred revenue and accounts receivable decreased due
to the timing of prepayments received for cloud customer renewals and improved cash collections led to the improvement
in cash used in operations, as well. The increase in accrued liabilities was primarily due to the increase in customer
advances.
45
Net cash used in operating activities was $10.5 million in fiscal year 2015 compared to net cash used in operating
activities of $4.7 million in fiscal year 2014. In fiscal year 2015, net cash used by operating activities increased $5.8 million
over fiscal year 2014 primarily due to lower net income after adjusting for depreciation and amortization, amortization of
deferred commissions, stock-based compensation, and changes in working capital accounts specifically, the addition of
acquired intangible amortization of $2.5 million and increases in deferred revenue due to the addition of acquired customer
balances from our Exony acquisition, accounts receivable due to timing of prepayments received for cloud customer
renewals, accrued liabilities due to the addition of working capital and other consideration accrued as part of the Exony
acquisition and accrued compensation due to acquired liabilities from our Exony acquisition.
Net cash used in investing activities was $492,000 in fiscal year 2017. Net cash used in investing activities primarily
related to purchases of equipment and software of $492,000 to support the increase in investment for cloud infrastructure
and equipment for new employees.
Net cash provided by investing activities was $74,000 in fiscal year 2016. Net cash provided by investing activities
in fiscal year 2016 primarily related to a decrease of $621,000 in restricted cash partially offset by $547,000 of equipment
and software purchases.
Net cash used in investing activities was $3.4 million in fiscal year 2015. Net cash used in investing activities
primarily related to (i) $1.9 million of cash paid for the acquisition of Exony, net of cash acquired (ii) an increase in
restricted cash of $779,000 related to escrow funds reserved for the payment of Exony management incentive bonuses and
(iii) $741,000 of equipment and software purchases.
Net cash used in financing activities was $6.0 million in fiscal year 2017. Net cash used in financing activities
primarily included payments of $14.0 million on existing bank borrowings, payments of $329,000 on capital lease
obligations, and payments of $130,000 made for debt issue costs partially offset by proceeds from bank borrowings of
$8.5 million and proceeds from exercise of stock options of $11,000.
Net cash provided by financing activities was $1.7 million in fiscal year 2016. Net cash provided by financing
activities primarily related to (i) $11.8 million in bank borrowings from our bank facility to fund operations and (ii)
$172,000 from the exercise of stock options partially offset by (i) $9.5 million repayment of existing bank borrowings; (ii)
$498,000 payments on capital lease obligations and (iii) $270,000 payments for debt issue costs.
Net cash provided by financing activities was $13.6 million in fiscal year 2015. Net cash provided by financing
activities primarily related to (i) $26.5 million in borrowings from our bank facilities used to finance the majority of the
acquisition of Exony on August 6, 2014 and to support our strategic growth plans and (ii) $339,000 from the exercise of
stock options partially offset by (i) the repayment of $12.2 million of existing bank borrowings, (ii) $550,000 payments
made for debt issue costs, and (iii) $434,000 principal payments on capital lease obligations.
Commitments
The following table summarizes our contractual obligations as of June 30, 2017 and the effect such obligations are
expected to have on its liquidity and cash flow in future periods (in thousands):
Total
1 Year
2 - 3 Years
4 - 5 Years
More than
5 Years
Payments Due by Period
Operating leases . . . . . . . . . . . . . . $
Capital leases . . . . . . . . . . . . . . . .
Bank borrowings . . . . . . . . . . . . .
Contractual commitments . . . . . .
Total . . . . . . . . . . . . . . . . . . . .
$
4,207 $
1,172 $
162
16,056
3,839
24,264
$
119
1,000
981
3,272
$
1,969 $
43
15,056
2,858
19,926
$
1,066 $
—
—
—
1,066
$
—
—
—
—
—
Off-Balance Sheet Arrangements
As of June 30, 2017, we had no significant off-balance-sheet arrangements, as defined in Item 303(a)(4) of
Regulation S-K.
46
Quarterly Results of Operations
The following tables set forth certain unaudited consolidated statement of operations data for the eight quarters ended
June 30, 2017. This data has been derived from unaudited consolidated financial statements that, in the opinion of
management, include all adjustments consisting only of normal recurring adjustments, necessary for a fair presentation of
such information when read in conjunction with the Consolidated Financial Statements and Notes thereto.
The unaudited quarterly information should be read in conjunction with the Consolidated Financial Statements and
Notes thereto included elsewhere in this Form 10-K. We believe that period-to-period comparisons of our financial results
are not necessarily meaningful and should not be relied upon as an indication of future performance.
Jun. 30,
2017
Mar. 31, Dec. 31,
2017
2016
Sep. 30,
2016
Jun. 30,
2016
Mar. 31, Dec. 31,
2016
2015
Sep. 30,
2015
(in thousands, except per share information)
Consolidated Statements of Operations Data: . . .
Revenue:
Recurring . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,603
333
Legacy license . . . . . . . . . . . . . . . . . . . . . . . .
2,685
Professional services . . . . . . . . . . . . . . . . . . . .
14,621
Total revenue . . . . . . . . . . . . . . . . . . . . . .
3,080
Cost of recurring . . . . . . . . . . . . . . . . . . . . . . .
Cost of legacy license . . . . . . . . . . . . . . . . . . .
15
2,318
Cost of professional services . . . . . . . . . . . . . .
5,413
Total cost of revenue . . . . . . . . . . . . . . . . .
9,208
Gross profit . . . . . . . . . . . . . . . . . . . . . . . .
$ 10,137
1,156
2,557
13,850
3,149
24
2,486
5,659
8,191
$ 10,982
1,418
2,599
14,999
2,800
4
2,259
5,063
9,936
$ 10,863
1,650
2,232
14,745
2,927
7
2,130
5,064
9,681
$ 10,828
3,807
2,987
17,622
3,065
5
2,450
5,520
12,102
$ 10,330
3,169
2,792
16,291
3,141
8
2,572
5,721
10,570
$ 10,783
5,064
3,139
18,986
3,116
9
2,851
5,976
13,010
$ 10,842
2,426
3,208
16,476
3,079
7
3,386
6,472
10,004
Operating Expenses:
Research and development . . . . . . . . . . . . . . .
Sales and marketing . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . .
Total operating expenses . . . . . . . . . . . . . .
Income (loss) from operations . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense), net . . . . . . . . . . . . . . . . . .
Loss before income tax benefit (provision) . . . . . . . .
Income tax benefit (provision) . . . . . . . . . . . . . . . . .
Net Income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . $
Per share information:
3,487
4,553
1,499
9,539
(331)
(379)
(79)
(789)
744
(45)
Basic net income (loss) per common share . . . . . $ (0.00)
Weighted average shares used in computing
basic net income (loss) per common share . . . . .
27,114
Diluted net income (loss) per common share . . . . $ (0.00)
Weighted average shares used in computing
diluted net income (loss) per common share . . . .
27,114
3,231
5,541
1,462
10,234
3,675
5,240
2,031
10,946
3,360
5,102
1,560
10,022
(1,831)
(470)
12
3,900
3,939
6,668
6,311
2,246
1,743
12,814
11,993
(516) (2,810)
109
(333)
(676)
(437)
217
240
(74)
(111) (2,823) (1,266) (2,903)
(334)
1,488
$ (3,001) $ (1,379) $ (3,237)
$ (2,515) $ (1,049) $ (2,411) $ 1,377
4,208
7,126
1,892
13,226
(2,656)
(512)
345
(298) (1,265)
(422)
(459)
108
(73)
(830) (1,579)
(832)
(219)
4,016
7,617
1,893
13,526
(2,289)
(226)
(113)
(178)
$ (0.09) $ (0.04) $ (0.09) $
0.05
$ (0.11) $ (0.05) $ (0.12)
27,105
$ (0.09) $ (0.04) $ (0.09) $
27,108
27,106
27,096
0.05
27,070
27,022
27,036
$ (0.11) $ (0.05) $ (0.12)
27,105
27,106
27,108
27,607
27,070
27,036
27,022
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency Exchange Risk
We develop products in the United States and India and sell these products in the United States and internationally.
Generally, international sales are made in local currency. As a result, our financial results could be affected by factors such
as changes in foreign currency exchange rates or weak economic conditions in foreign markets. Identifiable assets
denominated in foreign currency as of June 30, 2017 totaled approximately $8.6 million. A 10% increase in the value of
the dollar relative to other currencies would decrease the value of these assets by $860,000. We do not currently use
derivative instruments to hedge against foreign exchange risk. As such we are exposed to market risk from fluctuations in
foreign currency exchange rates, principally from the exchange rate between the U.S. dollar and the Euro and the British
pound and the Indian rupee. An unfavorable change in the foreign currency exchange rates may cause an adverse effect
on our financial position or results of operations.
47
Interest Rate Risk
Our exposure to market risk for changes in interest rates relates primarily to interest earned on our cash and cash
equivalents. The primary objective of our investment activities is to preserve our capital to fund operations. We also seek
to maximize income from our investments without assuming significant risk. Our investment policy provides for
investments in short-term, low-risk, investment-grade debt instruments. These investments are subject to interest rate risk
and will decrease in value if market interest rates increase.
Our cash and cash equivalents, totaling $10.6 million as of June 30, 2017, did not include any auction preferred
stock, auction rate securities or mortgage-backed investments. We currently do not hedge interest rate exposure, and we
do not have any foreign currency or other derivative financial instruments. To date, we have not experienced a loss of
principal on any of our investments. Although we currently expect that our ability to access or liquidate these investments
as needed to support our business activities will continue, we cannot ensure that this will not change. We believe that, if
market interest rates were to change immediately and uniformly by 10% from levels as of June 30, 2017, the impact on
the fair value of these securities or our cash flows or income would not be material.
48
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
eGain Corporation
Consolidated Financial Statements
As of June 30, 2017 and 2016 and for the years ended June 30, 2017, 2016, and 2015
Index to Consolidated Financial Statements
Report of BPM LLP, Independent Registered Public Accounting Firm
Consolidated Financial Statements:
Consolidated Balance Sheets as of June 30, 2017 and 2016
Consolidated Statements of Operations for the years ended June 30, 2017, 2016 and 2015
Consolidated Statements of Comprehensive Loss for the years ended June 30, 2017, 2016 and 2015
Consolidated Statements of Stockholders’ Equity (Deficit) for the years ended June 30, 2017, 2016
and 2015
Consolidated Statements of Cash Flows for the years ended June 30, 2017, 2016 and 2015
Notes to Consolidated Financial Statements
Page
Number
50
51
52
53
54
55
56
49
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
eGain Corporation
Sunnyvale, California
We have audited the accompanying consolidated balance sheets of eGain Corporation and its subsidiaries (the
“Company”) as of June 30, 2017 and 2016, and the related consolidated statements of operations, comprehensive loss,
stockholders’ equity (deficit), and cash flows for each of the three years in the period ended June 30, 2017. Our audits also
included the financial statement schedule listed in the index to this Annual Report on Form 10-K at Part IV Item 15(a)(2).
These consolidated financial statements and the financial statement schedule are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the
amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of eGain Corporation and its subsidiaries as of June 30, 2017 and 2016, and the results of their operations
and their cash flows for each of the three years in the period ended June 30, 2017 in conformity with accounting principles
generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when
considered in relation to the consolidated financial statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
/s/ BPM LLP
San Jose, California
September 26, 2017
50
eGAIN CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
June 30,
2017
2016
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, less allowance for doubtful accounts of $357 and $756 as of
June 30, 2017 and 2016, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred commissions, net of current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accrued compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue, net of current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital lease obligations, net of current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank borrowings, net of current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,627 $
6
11,780
5
7,201
690
1,737
370
20,631
1,059
694
2,748
13,186
1,433
39,751 $
2,363 $
4,339
2,364
18,332
108
805
28,311
4,887
42
14,802
1,330
49,372
11,876
787
1,480
426
26,354
1,688
325
4,839
13,186
1,671
48,063
2,099
5,642
5,670
12,672
329
828
27,240
3,045
153
20,223
1,679
52,340
Commitments and contingencies (Notes 7 and 8)
Stockholders' deficit:
Common stock, $0.001 par value - authorized: 50,000 shares; outstanding: 27,127
and 27,108 shares as of June 30, 2017 and 2016, respectively . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes receivable from stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders' deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and stockholders' deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
27
343,367
(83)
(1,663)
(351,269)
(9,621)
39,751 $
27
342,689
(81)
(1,663)
(345,249)
(4,277)
48,063
The accompanying notes are an integral part of these consolidated financial statements
51
eGAIN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share information)
Revenue:
Years Ended June 30,
2016
2015
2017
Recurring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 43,585 $ 42,783 $ 42,311
Legacy license . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18,325
15,277
Professional services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
75,913
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12,082
Cost of recurring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of legacy license . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
61
16,998
Cost of professional services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
29,141
Total cost of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
46,772
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,557
10,073
58,215
11,956
50
9,193
21,199
37,016
14,466
12,126
69,375
12,401
29
11,259
23,689
45,686
Operating expenses:
16,042
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
32,703
9,313
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
58,058
(11,286)
Loss from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(834)
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11
(12,109)
Loss before income tax benefit (provision) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax benefit (provision) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(320)
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (6,020) $ (6,240) $ (12,429)
Per share information:
16,063
27,722
7,774
51,559
(5,873)
(1,958)
728
(7,103)
863
6,552
40,741
(3,725)
(1,730)
(32)
(5,487)
(533)
13,753
20,436
Basic and diluted net loss per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.22) $ (0.23) $
Weighted average shares used in computing basic and diluted net loss per
common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
27,108
27,056
(0.47)
26,609
Below is a summary of stock-based compensation included in the costs and
expenses above:
Cost of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
131 $
281 $
80 $
175 $
249 $
472 $
169 $
298 $
476
736
574
531
The accompanying notes are an integral part of these consolidated financial statements
52
eGAIN CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (6,020) $ (6,240) $ (12,429)
Other comprehensive loss, net of taxes:
Years Ended June 30,
2016
2015
2017
159
Foreign currency translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cumulative translation adjustments from liquidation of inactive subsidiaries . . . .
(359)
Other comprehensive loss, net of taxes: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(200)
Total comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (6,020) $ (6,733) $ (12,629)
(493)
—
(493)
—
—
—
The accompanying notes are an integral part of these consolidated financial statements
53
eGAIN CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(in thousands)
Common Stock
Shares
Additional Receivable
Paid-in
Amount Capital
330,657
From
Stockholders
25
—
—
1
—
—
—
338
2,317
Notes
Accumulated
Other
Total
Loss
Comprehensive Accumulated Stockholders'
Equity (Deficit)
Deficit
3,049
8
(3)
339
2,317
(970) (326,580)
—
—
—
—
—
—
—
—
(83)
8
(3)
—
—
BALANCES AS OF JUNE 30, 2014 25,471
—
Repayment on stockholder notes . . . .
—
Interest on stockholder notes . . . . . . .
341
Exercise of stock options . . . . . . . . . .
Stock-based compensation . . . . . . . . .
—
Share issuance related to business
combination . . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation
adjustments . . . . . . . . . . . . . . . . . . . .
Cumulative translation adjustment
from liquidation of inactive
subsidiaries . . . . . . . . . . . . . . . . . . .
1,210
—
—
—
BALANCES AS OF JUNE 30, 2015 . 27,022
—
Interest on stockholder notes . . . . . . .
86
Exercise of stock options . . . . . . . . . .
Stock-based compensation . . . . . . . . .
—
Net loss . . . . . . . . . . . . . . . . . . . . . . .
—
Foreign currency translation
adjustments . . . . . . . . . . . . . . . . . . . .
BALANCES AS OF JUNE 30, 2016 . 27,108
—
Interest on stockholder notes . . . . . . .
19
Exercise of stock options . . . . . . . . . .
Stock-based compensation . . . . . . . . .
—
Net loss . . . . . . . . . . . . . . . . . . . . . . .
—
BALANCES AS OF JUNE 30, 2017 . 27,127
—
$
1
—
8,017
—
—
—
—
—
—
(12,429)
8,018
(12,429)
—
—
—
159
—
159
—
27
—
—
—
—
—
27
—
—
—
—
27
—
341,329
—
172
1,188
—
—
342,689
—
11
667
—
$ 343,367
$
—
(78)
(3)
—
—
—
—
(81)
(2)
—
—
—
(83) $
(359)
(1,170)
—
—
—
—
—
(339,009)
—
—
—
(6,240)
(493)
(1,663)
—
—
—
—
—
(345,249)
—
—
—
(6,020)
(1,663) $ (351,269) $
(359)
1,099
(3)
172
1,188
(6,240)
(493)
(4,277)
(2)
11
667
(6,020)
(9,621)
The accompanying notes are an integral part of these consolidated financial statements
54
eGAIN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Cash flows from operating activities:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on disposal of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of deferred financing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of acquired intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of deferred commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in operating assets and liabilities:
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash flows from investing activities:
Acquisitions, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decrease (increase) in restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash flows from financing activities:
Payments on bank borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments on capital lease obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from bank borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments made for debt issue costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayments on related party notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of exchange rate differences on cash and cash equivalents . . . . . . . . . . . . . . . . . . . .
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Years Ended June 30,
2016
2017
2015
$
(6,020)
$
(6,240) $ (12,429)
1,108
18
—
207
2,091
667
303
884
4,209
(1,168)
(267)
54
(216)
262
(1,285)
(3,281)
7,711
124
5,401
—
(492)
—
(492)
2,057
(1,406)
47
231
2,781
1,188
264
728
(272)
(1,049)
(586)
248
48
429
(864)
3,208
825
230
1,867
—
(547)
621
74
2,503
(268)
—
79
2,510
2,317
194
1,006
(116)
(794)
(515)
448
44
(1,093)
(1,454)
(1,113)
(1,566)
(256)
(10,503)
(1,905)
(741)
(779)
(3,425)
(14,000)
(329)
8,479
(130)
11
—
(5,969)
(93)
(1,153)
11,780
10,627
$
$
(9,510)
(498)
11,837
(270)
172
—
1,731
(525)
3,147
8,633
11,780 $
(12,200)
(434)
26,450
(550)
339
8
13,613
163
(152)
8,785
8,633
Supplemental cash flow disclosures:
Cash paid for interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash paid for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
1,537
268
$
$
1,748 $
282 $
362
412
Non-cash items:
$
Purchases of equipment through trade accounts payable . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment acquired under a capital lease . . . . . . . . . . . . . . . . . . . . . . . . .
$
Issuance of common stock in connection with business acquisition . . . . . . . . . . . . . . . . $
15 $
— $
— $
11 $
250 $
— $
40
208
8,018
The accompanying notes are an integral part of these consolidated financial statements
55
eGAIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. 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.
Benefits 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.
We have operations in the United States, United Kingdom and India.
Principles of Consolidation
The consolidated financial statements include the accounts of eGain and our wholly-owned subsidiaries, eGain
Communications Ltd., Exony Limited (Exony), eGain Communications Pvt. Ltd., eGain Communications (SA), eGain
France S.A.R.L and eGain Deutschland GmbH. All significant intercompany balances and transactions have been
eliminated.
In fiscal year 2016, we closed our Italy (eGain Communications SrL), Netherlands (eGain Communications B.V.
and Ireland (eGain Communications Ltd.) offices.
In fiscal year 2015, we liquidated our Inference, SiteBridge and Australia (eGain Communications Pty Ltd)
subsidiaries and recorded a reclassification adjustment from accumulated other comprehensive loss on the consolidated
balance sheets to other expense on the consolidated statements of operations.
Reclassification
Certain reclassifications were made to the consolidated financial statements to conform to the current period
presentation. As of June 30, 2017, we classify subscription and support revenue as recurring revenue due to the strategic
decision to move to a ratable or cloud delivery business model from the hybrid model that included legacy perpetual
licenses. These reclassifications did not result in any change in previously reported net losses, total assets or stockholders’
equity (deficit).
Business Combinations
Business combinations are accounted for at fair value under the purchase method of accounting. Acquisition costs
are expensed as incurred and recorded in general and administrative expenses and changes in deferred tax asset valuation
allowances and income tax uncertainties after the acquisition date affect income tax expense. The accounting for business
combinations requires estimates and judgment as to expectations for future cash flows of the acquired business, and the
allocation of those cash flows to identifiable intangible assets, in determining the estimated fair value for assets acquired
and liabilities assumed. The fair values assigned to tangible and intangible assets acquired and liabilities assumed are based
on management’s estimates and assumptions, as well as other information compiled by management, including valuations
that utilize customary valuation procedures and techniques. If the actual results differ from the estimates and judgments
used in these estimates, the amounts recorded in the condensed consolidated financial statements could result in a possible
impairment of the intangible assets and goodwill, or require acceleration of the amortization expense of finite-lived
intangible assets.
56
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in
the United States of America requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements
and the reported amounts of revenue and expenses during the reporting period. The estimates are based upon information
available as of the date of the consolidated financial statements. Actual results could differ from those estimates.
We evaluate our significant estimates, including those related to revenue recognition, provision for doubtful accounts,
valuation of stock-based compensation, valuation of long-lived assets, valuation of deferred tax assets, and litigation,
among others. We base our estimates on historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other sources. We refer to accounting estimates of this type as
“critical accounting estimates.”
Foreign Currency
The functional currency of each of our international subsidiaries is the local currency of the country in which it
operates. Assets and liabilities of our foreign subsidiaries are translated at month-end exchange rates, and revenue and
expenses are translated at the average monthly exchange rates. The resulting cumulative translation adjustments are
recorded as a component of accumulated other comprehensive loss. Foreign currency transaction gains and losses are
included in “other income (expense), net” in the consolidated statements of operations, and resulted in a gain of $14,000,
a gain of $697,000, and a loss of $400,000 in fiscal years 2017, 2016 and 2015, respectively.
Cash and Cash Equivalents, Restricted Cash and Investments
We consider all highly liquid investments with an original purchase to maturity date of three months or less to be
cash equivalents. Time deposits held for investments that are not debt securities are included in short-term investments in
the consolidated balance sheets. Investments in time deposits with original maturities of more than three months but
remaining maturities of less than one year are considered short-term investments. Investments held with the intent to
reinvest or hold for longer than a year, or with remaining maturities of one year or more, are considered long-term
investments. As of June 30, 2017 and 2016 we did not have any short-term or long-term investments.
Cash earmarked for a specific purpose and therefore not available for immediate and general use by the Company is
considered restricted cash. Expected usage of restricted cash within one year is classified as a current asset; expected usage
more than a year is considered a non-current asset. As of June 30, 2017 and 2016, our restricted cash was nominal.
Fair Value of Financial Instruments
Our financial instruments consist of cash and cash equivalents, restricted cash, accounts receivable, accounts payable
and accrued liabilities. We do not have any derivative financial instruments. We believe the reported carrying amounts of
these financial instruments approximate fair value, based upon their short-term nature and comparable market information
available at the respective balance sheet dates. The carrying value of our bank borrowings and capital lease obligations
approximates fair value based on the borrowing rates currently available to us for loans and capital leases with similar
terms.
Concentration of Credit Risk
Financial instruments that subject us to concentrations of credit risk consist principally of cash and cash equivalents
and trade accounts receivable. Cash and cash equivalents and investments are deposited with high credit quality
institutions. We are exposed to credit risk in the event of default by these institutions to the extent of the amount recorded
on the balance sheet. We invest excess cash primarily in money market funds, which are highly liquid securities that bear
minimal risk. In addition, we have investment policies and procedures that are reviewed periodically to minimize credit
risk. Our cash, cash equivalents and restricted cash were $10.6 million as of June 30, 2017 which exceeded the FDIC
(Federal Deposit Insurance Corporation) limit.
57
Our customer base extends across many different industries and geographic regions. Revenue is allocated to
individual countries and geographic region by customer, based on where the product is shipped to and location of services
performed. One customer accounted for 13% of total revenue in fiscal year 2017. There were two customers that accounted
for 10% and 14%, respectively, of total revenue in fiscal years 2016. One customer accounted for 10% of total revenue in
fiscal year 2015.
We perform ongoing credit evaluations of our customers with outstanding receivables and generally do not require
collateral. In addition, we established an allowance for doubtful accounts based upon factors surrounding the credit risk of
customers, historical trends and other information. Two customers accounted for 20% and 11% of accounts receivable as
of June 30, 2017. There were two customers that accounted for 23% and 14% of accounts receivable as of June 30, 2016.
Two customers accounted for approximately 16% and 12%, respectively, of accounts receivable as of June 30, 2015.
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 collectibility 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. If we made different judgments or utilized different estimates, material differences may
result in additional reserves for trade receivables, which would be reflected by charges in general and administrative
expenses for any period presented. We write off a receivable after all collection efforts have been exhausted and the amount
is deemed uncollectible.
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation and amortization. Depreciation is
computed using the straight-line method over the estimated useful life of the respective assets, which typically is between
three to five years. Leasehold improvements and leased equipment are depreciated on straight-line basis over the shorter
of the lease term or useful life of the asset, which is typically three to five years.
Goodwill and Other Intangible Assets
We review goodwill annually for impairment or sooner whenever events or changes in circumstances indicate that
it may be impaired. These events or circumstances could include a significant change in the business climate, legal factors,
operating performance indicators, competition, or sale or disposition of a significant portion of a reporting unit. In addition,
we evaluate purchased intangible assets to determine that all such assets have determinable lives. We operate under a single
reporting unit and accordingly, all of our goodwill is associated with the entire company. We early adopted Accounting
Standards Update (ASU) 2017-04, Intangibles—Goodwill and Other, in fiscal year 2017 and had no impairment due to a
negative carrying amount of our reporting unit. We performed an annual impairment review in June 2016 and identified
no impairment.
Impairment of Long-Lived Assets
We review long-lived assets for impairment, including property and equipment, whenever events or changes in
business circumstances indicate that the carrying amounts of the assets may not be fully recoverable. An impairment loss
is recognized when estimated undiscounted future cash flows expected to result from the use of the asset and its eventual
disposition are less than its carrying amount. Impairment, if any, is assessed using discounted cash flows. During fiscal
years 2017, 2016 and 2015, we did not have any such losses.
Revenue Recognition
We enter into arrangements to deliver multiple products or services (multiple-elements). We apply software revenue
recognition rules and multiple-elements arrangement revenue guidance. Significant management judgments and estimates
are made and used to determine the revenue recognized in any accounting period. Material differences may result in
58
changes to the amount and timing of our revenue for any period if different conditions were to prevail. We present revenue,
net of taxes collected from customers and remitted to governmental authorities.
We derive revenue from three sources:
i.
ii.
iii.
Recurring fees (previously referred to as subscription and support) primarily consist of cloud revenue from
customers accessing our enterprise cloud computing services, term and ratable license revenue, and
maintenance and support revenue;
Legacy license fees primarily consist of perpetual software license revenue which we no longer sell to new
customers;
Professional services primarily consist of consulting, implementation services and training.
Revenues are recognized when all of the following criteria are met:
• Persuasive evidence of an arrangement exists: Evidence of an arrangement consists of a written contract signed
by both the customer and management prior to the end of the period. We use signed software license, services
agreements and order forms as evidence of an arrangement for sales of software, cloud, maintenance and
support. We use signed statement of work as evidence of arrangement for professional services.
• Delivery or performance has occurred: Software is delivered to customers electronically, and license files are
delivered electronically. Delivery is considered to have occurred when we provide the customer access to the
software along with a license file and/or login credentials.
• Fees are fixed or determinable: We assess whether the fee is fixed or determinable based on the payment terms
associated with the transaction. Arrangements where a significant portion of the fee is due beyond 90 days from
delivery are generally not considered to be fixed or determinable.
• Collectibility is probable: We assess collectibility based on a number of factors, including the customer’s past
payment history and its current creditworthiness. Payment terms generally range from 30 to 90 days from
invoice date. If we determine that collection of a fee is not reasonably assured, we defer the revenue and
recognize it at the time collection becomes reasonably assured, which is generally upon receipt of cash payment.
Revenue from sales to resellers is generally recognized upon delivery to the reseller dependent on the facts and
circumstances of the transaction, such as our understanding of the reseller’s plans to sell the software, existence of return
provisions, price protection or other allowances, the reseller’s financial status and our experience with the reseller.
Historically sales to resellers have not included any return provisions, price protections or other allowances.
We apply the provisions of Accounting Standards Codification, or ASC, 985-605, Software Revenue Recognition,
to all transactions involving the licensing of software products. In the event of a multiple element arrangement for a license
transaction, we evaluate the transaction as if each element represents a separate unit of accounting taking into account all
factors following the accounting standards. We apply ASC 605, Revenue Recognition, for cloud transactions to determine
the accounting treatment for multiple elements. We also apply ASC 605-35 for fixed fee arrangements in which we use
the percentage of completion method to recognize revenue when reliable estimates are available for the costs and efforts
necessary to complete the implementation services. When such estimates are not available, the completed contract method
is utilized. Under the completed contract method, revenue is recognized only when a contract is completed or substantially
complete.
When legacy perpetual licenses were sold together with system implementation and consulting services, legacy
license fees were recognized upon shipment, provided that (i) payment of the license fees were not dependent upon the
performance of the consulting and implementation services, (ii) the services were available from other vendors, (iii) the
services qualified for separate accounting as we have sufficient experience in providing such services, had the ability to
estimate cost of providing such services, and we had vendor-specific objective evidence, or VSOE, of fair value, and
(iv) the services were not essential to the functionality of the software.
59
We enter into arrangements with multiple-deliverables that generally include subscription, maintenance and support,
and professional services. We evaluate whether each of the elements in these arrangements represents a separate unit of
accounting, as defined by ASC 605, using all applicable facts and circumstances, including whether (i) we sell or could
readily sell the element unaccompanied by the other elements, (ii) the element has stand-alone value to the customer, and
(iii) there is a general right of return. For revenue recognition with multiple-deliverable elements, we apply the selling
price hierarchy, which includes VSOE, third-party evidence of selling price, or TPE, and best estimate of selling price, or
BESP. We determine the relative selling price for a deliverable based on VSOE, if available, or BESP, if VSOE is not
available. We determined that TPE is not a practical alternative due to differences in our service offerings compared to
other parties and the availability of relevant third-party pricing information.
We determine BESP by considering our overall pricing objectives and market conditions. Significant pricing
practices taken into consideration include our discounting practices, the size and volume of our transactions, customer
demographic, the geographic area where services are sold, price lists, its go-to-market strategy, historical standalone sales
and contract prices. The determination of BESP is made through consultation with and approval by our management,
taking into consideration the go-to-market strategy. As our go-to-market strategies evolve, we may modify our pricing
practices in the future, which could result in changes in relative selling prices, including both VSOE and BESP.
Recurring Revenue
Cloud Revenue
Cloud revenue consists of subscription fees along with bundled maintenance and support revenue from customers
accessing our cloud-based service offerings. We recognize cloud services revenue ratably over the period of the applicable
agreement as services are provided. Cloud agreements typically have an initial term of 12 to 36 months and automatically
renew unless either party cancels the agreement. The majority of the cloud services customers purchase a combination of
our cloud service and professional services. In some cases, the customer may also acquire a license for our software.
We consider the applicability of ASC 985-605, on a contract-by-contract basis. In cloud based agreements, where
the customer does not have the contractual right to take possession of the software, the revenue is recognized on a monthly
basis over the term of the contract. Invoiced amounts are recorded in accounts receivable and in deferred revenue or
revenue, depending on whether the revenue recognition criteria have been met. We consider a software element to exist
when we determine that the customer has the contractual right to take possession of our software at any time during the
cloud period without significant penalty and can feasibly run the software on its own hardware or enter into another
arrangement with a third party to host the software. Additionally, we have established VSOE for the cloud and maintenance
and support elements of perpetual license sales, based on the prices charged when sold separately and substantive renewal
terms. Accordingly, when a software element exists in a cloud services arrangement, license revenue for the perpetual
software license element is determined using the residual method and is recognized upon delivery. Revenue for the cloud
and maintenance and support elements is recognized ratably over the contractual time period. Professional services are
recognized as described below under Professional Services Revenue. If VSOE of fair value cannot be established for the
undelivered elements of an agreement, the entire amount of revenue from the arrangement is recognized ratably over the
period that these elements are delivered.
Term and Ratable License Revenue
Term and ratable license revenue includes arrangements where our customers receive license rights to use our
software along with bundled maintenance and support services for the term of the contract or the Company has not
established VSOE for the bundled multi-year maintenance and support services. The majority of our contracts provide
customers with the right to use one or more products up to a specific license capacity. Certain terms of our license
agreements stipulate that customers can exceed pre-determined base capacity levels, in which case additional fees are
specified in the license agreement. Term license revenue is recognized ratably over the term of the license contract, and
ratable license revenue is recognized over the term of the associated bundled maintenance and support contract.
Version 15.5 and future releases of the perpetual license is a cloud and perpetual license hybrid software which
represents a service contract under ASC 605-25. The cloud components are essential to the functionality of version 15.5
and future releases, and we have a contractual obligation to deliver these cloud components. Per ASC 605-25, a delivered
60
item is considered a separate unit of accounting only if (i) the delivered item has standalone value; and (ii) if the service
contract has a general right of return, then delivery and performance of the undelivered item is probable and substantially
within the vendor’s control. We cannot separate the cloud components because there is no standalone value of the cloud
components. The perpetual license revenue is recognized over the economic life of the software which was determined to
be three years.
Maintenance and Support Revenue
Maintenance and support revenue consists of customers purchasing maintenance and support for our on-premise
software. We use VSOE of fair value for maintenance and support to account for the arrangement using the residual
method, regardless of any separate prices stated within the contract for each element. Maintenance and support revenue is
recognized ratably over the term of the maintenance contract, which is typically one year. Maintenance and support is
renewable by the customer on an annual basis. Maintenance and support rates, including subsequent renewal rates, are
typically established based upon a specified percentage of net license fees as set forth in the arrangement.
Legacy License Revenue
Legacy license revenue consists of perpetual license rights sold to customers to use our software in conjunction with
related maintenance and support services. If an acceptance period is required, revenue is recognized upon the earlier of
customer acceptance or the expiration of the acceptance period. In software arrangements that include rights to multiple
software products and/or services, we use the residual method for perpetual licenses released as version 15 or prior under
which revenue is allocated to the undelivered elements based on VSOE of the fair value of such undelivered elements. The
residual amount of revenue is allocated to the delivered elements and recognized as revenue, assuming all other criteria
for revenue recognition have been met. Such undelivered elements in these arrangements typically consist of software
maintenance and support, implementation and consulting services and, in some cases, cloud services.
Professional Services Revenue
Professional services revenue includes system implementation, consulting and training. For license transactions, the
majority of our consulting and implementation services qualify for separate accounting. We use VSOE of fair value for
the services to account for the arrangement using the residual method, regardless of any separate prices stated within the
contract for each element. Our consulting and implementation service contracts are bid either on a fixed-fee basis or on a
time-and-materials basis. Substantially all of our contracts are on a time-and-materials basis. For time-and-materials
contracts, where the services are not essential to the functionality, we recognize revenue as services are performed. If the
services are essential to functionality, then both the product license revenue and the service revenue are recognized under
the percentage of completion method. For a fixed-fee contract, we recognize revenue based upon the costs and efforts to
complete the services in accordance with the percentage of completion method, provided we are able to estimate such cost
and efforts.
Under ASC 605-25, in order to account for deliverables in a multiple-deliverable arrangement as separate units of
accounting, the deliverables must have standalone value upon delivery. For cloud services, in determining whether
professional services have standalone value, we consider the following factors for each professional services agreement:
availability of the services from other vendors, the nature of the professional services, the timing of when the professional
services contract was signed in comparison to the subscription service start date and the contractual dependence of the
subscription service on the customer’s satisfaction with the professional services work.
We have standalone value for consulting and implementation services. For those contracts that have standalone value,
we recognized the services revenue when rendered for time and material contracts, when the milestones are achieved and
accepted by the customer for fixed price contracts or by percentage of completion basis if there is no acceptance criteria.
Training revenue that meets the criteria to be accounted for separately is recognized when training is provided.
Deferred Revenue
Deferred revenue primarily consists of payments received in advance of revenue recognition from cloud, term and
ratable license, and maintenance and support services and is recognized as the revenue recognition criteria are met. We
61
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 quarter.
Deferred revenue that will be recognized during the succeeding twelve-month period is recorded as current deferred
revenue and the remaining portion is recorded as noncurrent.
Deferred Commissions
Deferred commissions are the direct and incremental costs directly associated with cloud and term license contracts
with customers and consist of sales commissions to our direct sales force.
The commissions are deferred and amortized over the terms of the related customer contracts, which are typically
12 to 36 months. The commission payments are paid based on contract terms in the month following the quarter in which
the commissions are earned. The deferred commission amounts are recognized as sales and marketing expense in the
consolidated statements of operations over the terms of the related customer contracts, in proportion to the recognition of
the associated revenue.
Deferred Financing Costs
Costs relating to obtaining the credit agreement with Wells Fargo Bank are capitalized and amortized over the term
of the related debt using the effective interest method. As of June 30, 2017 and 2016, deferred financing costs were
$950,000 and $820,000, respectively, and accumulated amortization was $501,000 and $294,000, respectively. Deferred
financing costs are included net of bank borrowings in the accompanying consolidated balance sheets. Amortization of
deferred financing costs recorded as interest expense was $207,000, $231,000 and $79,000 for the fiscal years ended June
30, 2017, 2016 and 2015, respectively. When a loan is paid in full, any unamortized financing costs are removed from the
related accounts and charged to operations as interest expense.
Leases
Lease agreements are evaluated to determine whether they are capital or operating leases in accordance with ASC
840, Leases. When any one of the four test criteria in ASC 840 is met, the lease then qualifies as a capital lease.
Capital leases are capitalized at the lower of the net present value of the total amount payable under the leasing
agreement (excluding finance charges) or the fair market value of the leased asset. Capital lease assets are depreciated on
a straight-line basis, over a period consistent with our normal depreciation policy for tangible fixed assets, but not
exceeding the lease term. Interest charges are expensed over the period of the lease in relation to the carrying value of the
capital lease obligation.
Rent expense for operating leases, which may include free rent or fixed escalation amounts in addition to minimum
lease payments, is recognized on a straight-line basis over the duration of each lease term.
Software Development Costs
We account for software development costs in accordance with ASC 985, Software, for costs of the software to be
sold, leased or marketed, whereby costs for the development of new software products and substantial enhancements to
existing software products are included in research and development expense as incurred until technological feasibility has
been established, at which time any additional costs are capitalized. Technological feasibility is established upon
completion of a working model. To date, software development costs incurred in the period between achieving
technological feasibility and general availability of software have not been material and have been charged to operations
as incurred.
62
Advertising Costs
We expense advertising costs as incurred. Total advertising expenses for the fiscal years ended June 30, 2017, 2016
and 2015 were $52,000, $121,000, and $68,000 respectively.
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. 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.
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 and the reported cumulative net losses in all prior years, 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.
Comprehensive Loss
We report comprehensive loss and its components in accordance with ASC 220, Comprehensive Income. Under the
accounting standards, comprehensive loss includes all changes in equity during a period except those resulting from
investments by or distributions to owners. Total comprehensive loss for each of the three years in the period ended June
30, 2017 is shown in the accompanying statements of comprehensive loss. Accumulated other comprehensive loss
presented in the accompanying consolidated balance sheets as of June 30, 2017 and 2016 consist of accumulated foreign
currency translation adjustments.
Net Loss Per Common Share
Basic net loss 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.
63
The following table represents the calculation of basic and diluted net loss per common share (in thousands, except
per share data):
Net loss applicable to common stockholders . . . . . . . . . . . . .
Basic net loss per common share . . . . . . . . . . . . . . . . . . . . . . .
Weighted average common shares used in computing basic
net loss per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of dilutive options and warrants outstanding . . . . .
Weighted average common shares used in computing diluted
net loss per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted net loss per common share . . . . . . . . . . . . . . . . . . . . .
2017
Years Ended June 30,
2016
$ (6,020) $ (6,240) $ (12,429)
(0.47)
$ (0.22) $ (0.23) $
2015
27,108
—
27,056
—
26,609
—
27,108
$ (0.22) $ (0.23) $
27,056
26,609
(0.47)
Weighted average shares of stock options to purchase 2,404,591, 2,661,609, and 2,718,069 shares of common stock
as of June 30, 2017, 2016, and 2015, respectively, were not included in the computation of diluted net income (loss) per
common share due to their anti-dilutive effect. Such securities could have a dilutive effect in future periods.
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.
Information relating to our geographic areas for the fiscal years ended June 30, 2017, 2016 and 2015 is as follows
(in thousands):
Year ended June 30, 2017:
North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EMEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year ended June 30, 2016:
North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EMEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year ended June 30, 2015:
North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EMEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
Revenue
Operating
Income
(Loss)
Long-Lived
Assets
$ 28,711
28,106
1,398
$ 58,215
$ (4,515) $
4,283
(3,493)
463
497
99
$ (3,725) $ 1,059
$ 34,922
32,157
2,296
$ 69,375
$ (6,078) $
3,162
(2,957)
925
627
136
$ (5,873) $ 1,688
$ 36,551
37,666
1,696
$ 75,913
$ (7,382)
204
(4,108)
$ (11,286)
For the purposes of entity-wide geographic area disclosures, we define long-lived assets as hard assets that cannot
be easily removed, such as property and equipment.
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New Accounting Pronouncements
In May 2017, the Financial Accounting Standards Board (FASB) issued ASU 2017-09, Compensation—Stock
Compensation (Topic 718): Scope of Modification Accounting, which provides guidance about which changes to the terms
or conditions of a shared-based payment award require an entity to apply modification accounting in Topic 718. ASU
2017-09 is effective for annual reporting periods beginning after December 15, 2017 (our fiscal 2019), including interim
reporting periods within those annual reporting periods. Early adoption is permitted. We are currently assessing the future
impact of this update on our consolidated financial statements and related disclosures.
In January 2017, the FASB issued ASU 2017-04 Intangibles—Goodwill and Other (Topic 350): Simplifying the Test
for Goodwill Impairment, which eliminates Step 2 from goodwill impairment testing. The Board also eliminated
requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment. ASU
2017-04 is effective for annual reporting periods beginning after December 15, 2019 (our fiscal 2021), including interim
reporting periods within those annual reporting periods. Early adoption is permitted. We early adopted this guidance in
fiscal year 2017.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which
provides specific guidance on how to classify restricted cash. ASU 2016-18 is effective for annual reporting periods
beginning after December 15, 2017 (our fiscal 2019), including interim reporting periods within those annual reporting
periods. Early adoption is permitted. We are currently assessing the future impact of this update on our consolidated
financial statements and related disclosures.
In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other
Than Inventory, which provides that an entity should recognize the income tax consequences of an intra-entity transfer of
an asset other than inventory when the transfer occurs. ASU 2016-16 is effective for annual reporting periods beginning
after December 15, 2017 (our fiscal 2019), including interim reporting periods within those annual reporting periods. Early
adoption is permitted. We are currently assessing the future impact of this update on our consolidated financial statements
and related disclosures.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain
Cash Receipts and Cash Payments, to address diversity in how certain cash receipts and cash payments are presented and
classified in the statement of cash flows. The amendments should be applied using a retrospective transition method to
each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the
amendments for those issues would be applied prospectively as of the earliest date practicable. ASU 2016-15 is effective
for fiscal years beginning after December 15, 2017 (our fiscal 2019), and interim periods within those fiscal years. Early
adoption is permitted. We are currently assessing the future impact of this update on our consolidated financial statements
and related disclosures.
In March 2016, the FASB issued ASU 2016-09, Compensation-Stock Compensation: Improvements to Employee
Share-Based Payment Accounting (ASU 2016-09), which simplifies several aspects of the accounting for share-based
payment award transactions, including the income tax consequences, classification of awards as either equity or liabilities,
and classification on the statement of cash flows. ASU 2016-09 is effective for annual periods beginning after December
15, 2016 (our fiscal 2018), and interim periods within those annual periods. Early adoption is permitted. We are currently
assessing the future impact of this update on our consolidated financial statements and related disclosures.
In February 2016, the FASB issued ASU 2016-02, Leases, which requires that we recognize lease assets and liabilities
on the balance sheet. This standard is effective for annual periods beginning after December 15, 2018 (our fiscal 2020),
and interim periods within those annual periods. Early adoption is permitted. We are currently assessing the future impact
of this update on our consolidated financial statements and related disclosures.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which supersedes the revenue
recognition requirements in Topic 605, Revenue Recognition and requires entities to recognize revenue in a way that
depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the
entity expects to be entitled in exchange for those goods or services. The amendments in this update are effective for annual
reporting periods beginning after December 15, 2017 (our fiscal 2019), including interim periods within that reporting
65
period, with early application permitted for periods beginning after December 31, 2016. In March 2016, the FASB issued
ASU 2016-08, Revenue from Contracts with Customers (Topic 606) Principal versus Agent Considerations (Reporting
Revenue Gross versus Net), which clarifies how to apply the implementation guidance on principal versus agent
considerations related to the sale of goods or services to a customer as updated by ASU 2014-09. In April 2016, the FASB
issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606) Identifying Performance Obligations and
Licensing, which clarifies two aspects of Topic 606: identifying performance obligations and the licensing implementation
guidance, while retaining the related principles for those areas, as updated by ASU 2014-09. In May 2016, the FASB
issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical
Expedients, which makes narrow scope amendments to Topic 606 including implementation issues on collectability, non-
cash consideration and completed contracts at transition. In December 2016, the FASB issued ASU 2016-20, Technical
Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, which provides technical
corrections and improvements to Topic 606 and other Topics amended by ASU 2014-09 to increase stakeholders’
awareness of the proposals and to expedite improvements to ASU 2014-09. The effective date and transition requirements
for the amendments are equivalent to those for Topic 606.
Topic 606 is effective for our fiscal year 2019 beginning on July 1, 2018 using either one of two transition methods
including several practical expedients: (i) full retrospective method, in which the new standard would be applied to each
prior reporting period presented; or (ii) the modified retrospective method, in which the cumulative effect of initially
applying the new standard would be recognized at the date of initial application and providing certain additional
disclosures as defined in the guidance. We have not selected a transition method yet. We are still evaluating the overall
effect that the standard will have on our consolidated financial statements and accompanying notes to the consolidated
financial statements.
2. BALANCE SHEET COMPONENTS
Property and equipment consists of the following (in thousands):
Computers and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,382 $ 2,215
475 1,473
Leased equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
249
255
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
553
412
2,524 4,490
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . .
(1,465) (2,802)
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,059 $ 1,688
June 30,
2017
2016
Depreciation and amortization expense was $1.1 million, $2.1 million and $2.5 million for the years ended June 30,
2017, 2016 and 2015, respectively. Accumulated depreciation relating to computers, equipment and software under capital
leases totaled $863,000 and $1.0 million as of June 30, 2017 and 2016, respectively. Amortization of assets under capital
leases is included in depreciation and amortization expense. Disposals of fixed assets were $14.0 million and $1.2 million
and for the years ended June 30, 2017, and 2016, respectively. Fully depreciated equipment of $6.1 million and $17.6
million as of June 30, 2017 and 2016, respectively, is not included in the table above.
Accrued compensation consists of the following (in thousands):
June 30,
Accrued bonuses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,326
1,794
Accrued vacation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
752
Payroll and other employee related costs . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
467
Accrued compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,339
2017
2016
$ 1,514
1,834
891
1,403
$ 5,642
66
Accrued liabilities consists of the following (in thousands):
Accrued other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
VAT liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales tax payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
June 30,
2017
2016
$
907
980
602
364
558
193
462 3,968
$ 5,670
$ 2,364
3. BANK BORROWINGS
On November 21, 2014, we entered into a Credit Agreement (the Credit Agreement) with Wells Fargo Bank, as
administrative agent and the lenders party thereto. The Credit Agreement provides for the extension of revolving loans
(Revolving Loans) in an aggregate principal amount not to exceed $10.0 million, and a term loan (Term Loan) in an
aggregate principal amount not to exceed $10.0 million, but in each case limited by an amount not to exceed 60% of our
trailing twelve month recurring revenues from subscription and support fees attributable to software, as calculated under
the Credit Agreement. The obligations under the Credit Agreement mature on November 21, 2019.
Borrowings under the Credit Agreement bear interest, in the case of LIBOR rate loans, at a per annum rate
equal to the applicable LIBOR rate, plus 4.75%. Borrowings under the Credit Agreement that are not LIBOR rate loans
bear interest at a per annum rate equal to (i) the greatest of (A) the Federal Funds Rate plus 0.50%, (B) the one month
LIBOR rate plus 1.00% per annum, and (C) the rate of interest announced, from time to time, by Wells Fargo Bank,
National Association as its “prime rate,” plus (ii) 3.75%.
We will pay certain recurring fees with respect to the Credit Agreement, including servicing fees to the
administrative agent. Prior to the first anniversary of the closing date of the Credit Agreement voluntary repayments of the
Term Loan, voluntary permanent reductions of the commitment related to the Revolving Loans and certain mandatory
prepayments are subject a prepayment premium of 1.0% of the amount prepaid or reduced.
Subject to certain exceptions, the loans extended under the Credit Agreement are subject to customary mandatory
prepayment provisions with respect to the following: net proceeds from certain asset sales; net proceeds from certain
issuances or incurrences of debt (other than debt permitted to be incurred under the terms of the Credit Agreement); net
proceeds of certain judgments, settlements and other claims or causes of action of us; and a portion with step-downs based
upon the achievement of a financial covenant linked to the Leverage Ratio; as such term is defined in the Credit Agreement
of our annual excess cash flow and our subsidiaries, and with such required prepayment amount to be reduced dollar-for-
dollar by any voluntary prepayments of term loans.
The Credit Agreement contains customary representations and warranties, subject to limitations and exceptions, and
customary covenants restricting our ability and our subsidiaries to: incur additional indebtedness; incur liens; engage in
mergers or other fundamental changes; consummate acquisitions; sell certain property or assets; change the nature of their
business; prepay or amend certain indebtedness; pay dividends, other distributions or repurchase our equity interests or
our subsidiaries; make investments; or engage in certain transactions with affiliates. In addition, the Credit Agreement
contains financial covenants which initially require us to achieve minimum EBITDA and liquidity levels. However, subject
to the conditions of the Credit Agreement, once we have achieved a minimum Fixed Charge Coverage Ratio (as defined
in the Credit Agreement) of 1.50 to 1.00 and a Leverage Ratio of less than 2.50 to 1.00, we will be required to comply with
a minimum Fixed Charge Coverage Ratio and a specific Leverage Ratio.
The Credit Agreement contains customary events of default, including with respect to: nonpayment of principal,
interest, fees or other amounts; failure to perform or observe covenants; monetary judgment defaults; bankruptcy,
insolvency and dissolution events; cross-default to other material indebtedness; material inaccuracy of a representation or
warranty when made; failure to perfect a lien; actual or asserted invalidity or impairment of any definitive loan
documentation or repudiation of guaranties; or a change of control.
67
As a condition to entering into the Credit Agreement, we pledged substantially all assets such as accounts receivable
and property and equipment as collateral for the benefit of Wells Fargo Bank.
On September 2, 2015, the Company entered into Amendment Number One (the Amendment) to that certain Credit
Agreement, dated as of November 21, 2014 (as further amended, restated, supplemented or otherwise modified from
time to time), among us, the lenders, and Wells Fargo Bank, as administrative agent. Pursuant to the Amendment, we
increased the total maximum revolving loan commitments thereunder from $10.0 million to $15.0 million and increased
the quarterly amortization payments of the term loan under the Credit Agreement to $187,500 for the quarters ended
September 30, 2015 through December 31, 2015 and $250,000 in each quarter ending thereafter. Borrowings under the
Amendment bear interest, in the case of LIBOR rate loans, at a per annum rate equal to the applicable LIBOR rate, plus
7.0%. Borrowings under the Credit Agreement that are not LIBOR rate loans bear interest at a per annum rate equal to
the rate of interest announced, from time to time, by Wells Fargo Bank, National Association as its “prime rate,” plus
6.0%. In connection with the Amendment, certain fees were also modified such that prior to the first anniversary of the
Amendment, voluntary repayments of the Term Loan, voluntary permanent reductions of the commitment related to the
Revolving Loans and certain mandatory prepayments will be subject a prepayment premium of 1.0% of the amount
prepaid or reduced. The financial covenants concerning minimum EBITDA and liquidity levels contained in the Credit
Agreement were modified in the Amendment as follows:
1. We were required to achieve minimum EBITDA of not more negative than $1.68 million for the three (3) month
period ended September 30, 2015 and not more negative than $2.228 million for the six (6) month period ended
December 31, 2015. Thereafter, minimum EBITDA levels will be based on amounts agreed to by us and the
requisite lenders based upon annual projections delivered to the agent, and the failure to reach an agreement on
reset minimum EBITDA levels acceptable to the agent in its sole discretion shall constitute an event of default
under the Credit Agreement; and
2. We were required to achieve minimum liquidity of at least $10.0 million for the month ended December 31,
2015 and at all times thereafter.
On January 27, 2017, the Company entered into Amendment Number Two to the Credit Agreement (the
Amendment No. 2), which amends the Credit Agreement dated as of November 21, 2014, among the Company, Wells
Fargo Bank, National Association, as agent, and the lenders party thereto (as amended, the Credit Agreement). Pursuant
to the Amendment, the Applicable Margin (as defined in the Credit Agreement) at which LIBOR loans advanced under
the Credit Agreement bear interest may be either the applicable LIBOR rate plus 5.5% per annum or 7.0% per annum,
depending on the Company’s “TTM Recurring Revenue Calculation” (as defined in the Credit Agreement). The TTM
Recurring Revenue Calculation is based on the Company’s consolidated trailing twelve months of revenue relating to
recurring revenue attributable to the Company’s software. Loans may also bear interest under the Credit Agreement at
the applicable Base Rate (as defined in the Credit Agreement) and the corresponding Applicable Margin for Base Rate
loans is 1.0% per annum less than for LIBOR loans. Under the Amendment No. 2, a 1.0% fee will also be payable until
the first anniversary of the Amendment No. 2 on the amount of any voluntary prepayment of the term loan advanced
under the Credit Agreement or the amount of any voluntary reduction of revolving commitments provided under the
Credit Agreement.
The Amendment No. 2 modifies the two financial covenants the Company is required to comply with until the
Financial Covenant Replacement Date (as defined in the Credit Agreement) has occurred. The Financial Covenant
Replacement Date is the first day of the fiscal quarter following the date on which the Company has achieved (i) a Fixed
Charge Coverage Ratio equal to or greater than 1.50 to 1.00 and (ii) a Leverage Ratio of less than 2.50 to 1.00 for the
immediately preceding two consecutive fiscal quarters (as such terms are defined in the Credit Agreement). In addition,
the Financial Covenant Replacement Date will not be deemed to occur unless the Company is in compliance with the
applicable Leverage Ratio as of the last day of the fiscal quarter preceding the test date. As of June 30, 2017, the Fixed
Charge Coverage Ratio and Leverage Ratio financial covenants were not met, and the Financial Covenant Replacement
Date was not deemed to have occurred.
68
Under the Amendment No. 2 the minimum EBITDA (as defined in the Credit Agreement and specific to Wells
Fargo) levels the Company is required to achieve on and prior to the Financial Covenant Replacement Date were
modified to be, as of the end of each fiscal quarter, at the least the amount set forth in the table below for the applicable
period opposite such amount:
$
For the four quarter period ending
December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
March 31, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
June 30, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
September 30, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
March 31, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
June 30, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
September 30, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
March 31, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
June 30, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
September 30, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Applicable Amount
(900,000)
(2,000,000)
(4,500,000)
(6,100,000)
(5,100,000)
(3,800,000)
(3,000,000)
(1,500,000)
—
1,500,000
3,000,000
4,000,000
In addition, the amount of Liquidity (as defined in the Credit Agreement) the Company is required to maintain on
and prior to the Financial Covenant Replacement Date was reduced from $10 million to $4 million.
As of June 30, 2017, we were in compliance with these financial covenant terms.
If the Leverage Ratio is greater than 3.00 to 1:00 as of the end of the fiscal year, then we are contractually obligated
to repay an amount equivalent to 50% of the Excess Cash Flow as specified in the Credit Agreement. As of June 30,
2017, our Leverage Ratio was above this threshold, and 50% of Excess Cash Flow was determined to be the amount of
$729,000. We obtained a bank waiver and were not required to pay this amount.
As of June 30, 2017, balances on the Term Loan, Revolving Loans and debt maturities during each of the next five
years on an aggregate basis were (in thousands):
Year Ending June 30,
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total bank borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less amounts representing deferred financing costs, net . . . . . . . . . . . . . . . . . . . .
Total bank borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less current debt maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank borrowings, net of current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank
Borrowings
1,000
1,000
14,056
—
—
16,056
(449)
15,607
(805)
$ 14,802
Amortization expense related to deferred financing costs amounted to $207,000 and $231,000 and $79,000 for
the years ended June 30, 2017, 2016 and 2015, respectively.
69
4. INCOME TAXES
Loss before income tax benefit (provision) consisted of the following (in thousands):
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (5,148) $ (11,823) $ (24,621)
4,720 12,512
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss before income tax benefit (provision) . . . . . . . . . . . . $ (5,487) $ (7,103) $ (12,109)
(339)
Year Ended June 30,
2016
2015
2017
The following table reconciles the federal statutory tax rate to the effective tax rate of the income tax provision:
Year Ended June 30,
2017
2016
2015
34.0 % 34.0 %
Federal statutory income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(0.2)
Current state taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign rate differential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(8.9)
3.1
Research and development credits . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign withholding tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4.3)
Other items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5.7)
Net change in valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . (27.7)
(0.1)
(0.8)
3.5
(5.4)
(2.4)
(16.7)
Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(9.7)% 12.1 %
34.0 %
—
(4.9)
1.5
(2.2)
1.8
(32.8)
(2.6)%
The components of the income tax (benefit) provision are as follows (in thousands):
Year Ended June 30,
2016
2015
2017
Current provision:
Federal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
505
10
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
515
Total current: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred (benefit):
— $
23
533 560
5
543 588
10
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax (benefit) provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 533 $
18 (1,406) (268)
18 (1,406) (268)
(863) $ 320
As of June 30, 2017, we had federal and state net operating loss carryforwards of approximately $218.3 million and
$32.7 million, respectively. The net operating loss carryforwards will expire at various dates beginning in fiscal year ending
June 30, 2018 through June 30, 2037, if not utilized. Partial amounts of the net operating losses are generated from the
exercise of options and the tax benefit would be credited directly to stockholders’ equity (deficit). We also had federal
research and development credit carryforwards of approximately $2.8 million as of June 30, 2017 which will expire at
various dates beginning in fiscal year ending June 30, 2019 through June 30, 2037, if not utilized. The California research
and development credit carryforwards are approximately $4.3 million as of June 30, 2017 and have an indefinite carryover
period. We also have U.K. net operating loss carryforwards, which do not expire, of approximately $1.5 million as of June
30, 2017.
Utilization of the Federal and California net operating losses and credits may be subject to a substantial limitation
due to the “change in ownership” provisions of the Internal Revenue Code of 1986 and similar state provisions. The annual
limitation may result in the expiration of net operating losses and credits before utilization.
Deferred tax assets and liabilities reflect the net tax effects of net operating loss and credit carryforwards and of
temporary differences between the carrying amounts of assets and liabilities for financial reporting and the amounts used for
income tax purposes.
70
We early adopted ASU 2015-17, Income Taxes—Balance Sheet Classification of Deferred Taxes, as of June 30, 2016
on a prospective basis. Periods presented in the consolidated financial statements reflect the adoption of the guidance.
Significant components of our deferred tax assets and liabilities for federal, state and foreign income taxes are as
follows (in thousands):
Deferred tax assets:
Net operating loss carryforwards. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accruals and reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets, included in other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities:
June 30,
2017
2016
5,658
886
1,564
1,260
376
$ 74,806 $ 74,751
5,289
372
111
1,199
411
82,133
(80,863)
1,270
84,550
(83,747)
803
Foreign, primarily intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities, included in other long term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(256)
(256)
547 $
(705)
(705)
565
ASC 740, Income Taxes, provides for the recognition of deferred tax assets if realization of such assets is more likely
than not. For the legacy eGain business in the United States, based upon the weight of available evidence, which includes
our historical operating performance and the reported cumulative net losses in all prior years, 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 carryforwards which had previously been valued against as well as
our foreign operations.
The net valuation allowance increased by $2.9 million for the year ended June 30, 2017, compared to the increase
of $2.3 million for year ended June 30, 2016.
Deferred tax liabilities have not been recognized for $11.2 million of undistributed earnings of our foreign
subsidiaries as of June 30, 2017. It is our intention to reinvest such undistributed earnings indefinitely in our foreign
subsidiaries. If we distribute these earnings, in the form of dividends or otherwise, we would be subject to both United
States income taxes (net of applicable foreign tax credits) and withholding taxes payable to the foreign jurisdiction.
71
Uncertain Tax Positions
The aggregate changes in the balance of our gross unrecognized tax benefits during fiscal years 2017, 2016 and 2015
were as follows (in thousands):
Year Ended June 30,
2016
2017
2015
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,413 $ 1,346 $ 1,290
Increases in balances related to tax positions taken during current
periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decrease in balances related to tax positions taken during prior
periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,465 $ 1,413 $ 1,346
67
—
—
52
56
No accrued interest and penalties have been recognized related to unrecognized tax (benefit) in the provision for
income tax until the credits have been utilized.
We do not anticipate the amount of existing unrecognized tax benefits will significantly increase or decrease within
the next 12 months. We file income tax returns in the United States, and various state and foreign jurisdictions. In these
jurisdictions tax years 1994-2015 remain subject to examination by the appropriate governmental agencies due to tax loss
carryovers from those years.
5. STOCKHOLDERS’ EQUITY
Common Stock
We have reserved shares of common stock for issuance as of June 30, 2017 as follows:
Stock options outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,273,660
Reserved for future grants of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,097,918
Total reserved shares of common stock for issuance . . . . . . . . . . . . . . . . . . . . . . . . . . 4,371,578
Reserved
Stock
Options
Preferred Stock
We are authorized to issue 5,000,000 shares of preferred stock with a par value of $0.001 per share, and no shares
of preferred stock are outstanding. Our board of directors has the authority, without further action by our stockholders, to
issue up to 5,000,000 shares of preferred stock in one or more series and to fix the rights, preferences, privileges and
restrictions thereof. These rights, preferences and privileges could include dividend rights, conversion rights, voting rights,
terms of redemption, liquidation preferences, sinking fund terms and the number of shares constituting any series or the
designation of such series, any or all of which may be greater than the rights of the common stock.
2005 Management Stock Option Plan
In May 2005, our board of directors adopted the 2005 Management Stock Option Plan, or the 2005 Management
Plan, which provides for the grant of non-statutory stock options to directors, officers and key employees of eGain and its
subsidiaries. The Plan was increased by 500,000 shares of common stock in November 2007, 500,000 shares of common
stock in September 2011 and 1.0 million shares of common stock in September 2014. Our board also extended the
expiration date of the 2005 Management Stock Option Plan to September 30, 2024. Options under the 2005 Management
Plan are granted at a price not less than 100% of the fair market value of the common stock on the date of grant. Options
granted under the 2005 Management Plan are subject to eGain’s right of repurchase, whose right shall lapse with respect
to one-forty-eighth (1/48th) of the shares granted to a director, officer or key employee for each month of continuous service
provided by such director, officer or key employee to eGain. The options granted under this plan are exercisable for up to
ten years from the date of grant.
72
The following table represents the activity under the 2005 Management Stock Option Plan:
Shares
Available for Options
Weighted
Balance as of June 30, 2014 . . . . . . . . . . . . . . . . . . . . . . . .
Grant
352,481
Shares Authorized for Issuance . . . . . . . . . . . . . . . . . . . 1,000,000
Options Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (670,200)
Options Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options Forfeited / Expired . . . . . . . . . . . . . . . . . . . . . .
Balance as of June 30, 2015 . . . . . . . . . . . . . . . . . . . . . . . .
Options Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options Forfeited / Expired . . . . . . . . . . . . . . . . . . . . . .
Balance as of June 30, 2016 . . . . . . . . . . . . . . . . . . . . . . . .
Options Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options Forfeited / Expired . . . . . . . . . . . . . . . . . . . . . .
Balance as of June 30, 2017 . . . . . . . . . . . . . . . . . . . . . . . .
537,207 $
— $
670,200 $
— (218,691) $
(40,709) $
948,007 $
98,875 $
(38,307) $
132,534 (132,534) $
876,041 $
756,649
68,750 $
(68,750)
— $
—
107,139 (107,139) $
837,652 $
795,038
Outstanding Average Price
2.92
—
6.10
0.91
5.95
5.50
3.99
3.08
6.29
5.33
1.92
—
4.33
5.16
40,709
722,990
(98,875)
—
2005 Stock Incentive Plan
In March 2005, our board of directors adopted the 2005 Stock Incentive Plan, the 2005 Incentive Plan, which
provides for the grant of stock options to eGain’s employees, officers, directors and consultants. The 2005 Stock Incentive
Plan was subsequently amended in February 2009, September 2011, and in September 2014. In September 2014, our board
of directors approved an increase in the 2005 Incentive Plan by 1.0 million shares of common stock, extend the expiration
date of the 2005 Stock Incentive Plan to September 30, 2024 and made certain other changes. Options granted under the
2005 Incentive Plan are either incentive stock options or non-statutory stock options. Incentive stock options may be
granted to employees with exercise prices of no less than the fair value of the common stock on the date of grant. The
options generally vest ratably over a period of four years and expire no later than ten years from the date of grant.
The following table represents the activity under the 2005 Stock Incentive Plan:
Shares
Available for Options
Weighted
Average
Balance as of June 30, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares Authorized for Issuance . . . . . . . . . . . . . . . . . . . . . 1,000,000
Options Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (257,800)
Options Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Options Forfeited / Expired . . . . . . . . . . . . . . . . . . . . . . . .
150,730
Grant
Outstanding Price
200,624 1,632,435 $ 4.96
— $
—
257,800 $ 4.77
(73,510) $ 1.47
(150,730) $ 7.83
Balance as of June 30, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . 1,093,554 1,665,995 $ 4.83
199,775 $ 3.98
(39,320) $ 0.92
(259,915) $ 6.45
Balance as of June 30, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . 1,153,694 1,566,535 $ 4.55
138,675 $ 2.08
(8,550) $ 0.75
(287,861) $ 6.10
1,302,880 1,408,799 $ 4.01
Options Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options Forfeited / Expired . . . . . . . . . . . . . . . . . . . . . . . .
Balance as of June 30, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . .
Options Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (199,775)
Options Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Options Forfeited / Expired . . . . . . . . . . . . . . . . . . . . . . . .
259,915
(138,675)
—
287,861
2000 Non-Management Stock Option Plan
In July 2000, our board of directors adopted the 2000 Non-Management Stock Option Plan, or the 2000 Plan, which
provided for the grant of non-statutory stock options to our employees, advisors and consultants of eGain. Options under
73
the 2000 Plan were granted at a price not less than 85% of the fair market value of the common stock on the date of grant.
Our board of directors determines the fair market value (as defined in the 2000 Plan) of the common stock, date of grant
and vesting schedules of the options granted. The options generally vest ratably over 4 years and expire no later than 10
years from the date of grant. This plan expired in July 2010 and there are no further options available to grant under the
2000 Plan.
The following table represents the activity under the 2000 Non-Management Stock Option Plan:
Shares
Available for Options
Weighted
Average
Grant
Outstanding Price
Balance as of June 30, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options Forfeited / Expired . . . . . . . . . . . . . . . . . . . . . . . . .
Balance as of June 30, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options Forfeited / Expired . . . . . . . . . . . . . . . . . . . . . . . . .
Balance as of June 30, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options Forfeited / Expired . . . . . . . . . . . . . . . . . . . . . . . . .
Balance as of June 30, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
—
—
—
—
—
—
21,180 $ 0.68
(9,030) $ 0.65
— $
—
12,150 $ 0.71
(900) $ 1.09
(1,250) $ 0.86
10,000 $ 0.66
—
— $
— $
—
10,000 $ 0.66
1998 Stock Plan
In June 1998, our board of directors adopted the 1998 Stock Plan, or the 1998 Plan, which provides for grant of stock
options to eligible participants. Options granted under the 1998 Plan are either incentive stock options or non-statutory
stock options. Incentive stock options may be granted to employees with exercise prices of no less than the fair value of
the common stock and non-statutory options may be granted to eligible participants at exercise prices of no less than 85%
of the fair value of the common stock on the date of grant. Our board of directors determines the fair market value (as
defined in the 1998 Plan) of the common stock, date of grant and vesting schedules of the options granted. The options
generally vest ratably over a period of four years and expire no later than 10 years from the date of grant. Options are
generally exercisable upon grant, subject to our repurchase rights until vested. This plan expired in November 2010 and
there are no further options available to grant under the 1998 Plan.
The following table represents the activity under the 1998 Stock Plan:
Shares
Available for Options
Weighted
Average
Grant
Outstanding Price
Balance as of June 30, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options Forfeited / Expired . . . . . . . . . . . . . . . . . . . . . . . . .
Balance as of June 30, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options Forfeited / Expired . . . . . . . . . . . . . . . . . . . . . . . . .
Balance as of June 30, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options Forfeited / Expired . . . . . . . . . . . . . . . . . . . . . . . . .
Balance as of June 30, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
—
—
—
—
—
—
91,568 $ 0.66
(39,809) $ 0.64
(12,800) $ 0.67
38,959 $ 0.67
(3,750) $ 0.65
— $
—
35,209 $ 0.67
(15,000) $ 0.68
(3,000) $ 0.60
17,209 $ 0.67
74
The following table summarizes information about stock options outstanding and exercisable under all stock option
plans as of June 30, 2017:
Options Outstanding
Options Exercisable
Range of
Exercise
Prices
$0.30-$0.30
$0.50-$0.74
$0.75-$1.80
$2.10-$3.74
$3.85-$5.28
$5.31-$6.25
$6.29-$6.29
$6.36-$7.94
$8.02-$13.58
$15.50-$15.50
$0.30-$15.50
Weighted
Average
Remaining
Contractual Life
1.45
2.09
4.08
7.65
5.78
4.73
7.20
6.63
5.97
6.25
5.38
$
$
$
$
$
$
$
$
$
$
$
Number
3,000
446,913
275,493
235,039
416,885
67,063
429,000
247,117
148,050
5,100
2,273,660
Weighted
Average
Exercise Price
0.30
0.74
1.36
3.12
4.75
5.55
6.29
7.63
10.39
15.50
4.39
Number
3,000 $
446,913 $
192,059 $
102,462 $
323,627 $
66,438 $
292,852 $
195,960 $
132,704 $
4,675 $
$
1,760,690
Weighted
Average
Exercise Price
0.30
0.74
1.20
3.55
4.94
5.54
6.29
7.63
10.42
15.50
4.36
The summary of options vested and exercisable as of June 30, 2017 comprised:
Weighted
Average
Number of
Shares
Weighted
Average
Exercise Price
Aggregate Remaining
Contractual
Term
Intrinsic
Value
Options outstanding . . . . . . . . . . . . . . . . . . . 2,273,660 $
Fully vested and expected to vest options . . 2,190,876 $
Options exercisable . . . . . . . . . . . . . . . . . . . . 1,760,690 $
4.39 $ 501,634
4.41 $ 501,103
4.36 $ 499,669
5.38
5.26
4.57
The aggregate intrinsic value in the preceding table represents the total intrinsic value based on stock options with a
weighted average exercise price less than our closing stock price of $1.65 as of June 30, 2017 that would have been received
by the option holders, had they exercised their options on June 30, 2017. The total intrinsic value of stock options exercised
during fiscal years 2017, 2016 and 2015 was $21,000, $53,000, and $1.0 million, respectively.
Stock-Based Compensation
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. All of our stock-based compensation is accounted for as an equity instrument.
The table below summarizes the effect of stock-based compensation (in thousands, except per share amounts):
Year Ended June 30,
2016
2015
2017
Non-cash stock-based compensation expense . . . . . . . . . . . . . . . $ (667) $ (1,188) $ (2,317)
—
Income tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (667) $ (1,188) $ (2,317)
Net effect on income (loss) per share, basic and diluted . . . . . . $ (0.02) $ (0.04) $ (0.09)
—
—
We utilized 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 Securities and Exchange
Commission on a registration statement on Form S-8.
75
During the fiscal years ended June 30, 2017, 2016 and 2015 there were 207,425, 298,650, and 928,000 options
granted, respectively, with a weighted average fair value of $1.20, $2.06, and $3.50, per share, respectively, using the
following assumptions:
Year Ended June 30,
2015
—
Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
79 %
Average risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.70 % 1.53 % 1.66 %
Expected life (in years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.89
—
56 %
—
61 %
2017 2016
4.50
5.01
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.
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.
Total compensation cost, net of forfeitures, for all options granted but not yet vested as of June 30, 2017 was
$323,000 which is expected to be recognized over the weighted average period of 1.17 years.
6. ACQUISITION
On July 30, 2014, we entered into a Share Purchase Agreement (Purchase Agreement) with Exony Limited, a
privately held United Kingdom company (Exony), and certain of its shareholders (collectively, the Shareholders), pursuant
to which we agreed to acquire all the outstanding share capital of Exony for (A) an aggregate of 1,209,308 shares of the
Company’s common stock, $0.001 par value per share (Company Stock), with a value of $8.02 million as of August 6,
2014, the closing date of the acquisition (based on the closing price of the Company’s common stock as of such date) and
(B) an aggregate of $8.13 million in cash (collectively “Acquisition Consideration”), with 15% of each of the cash and
Company Stock being held in an escrow account to secure certain indemnification obligations of the Shareholders. The
Acquisition Consideration is subject to an adjustment based on Exony’s working capital as of the closing. The other
purchase consideration relates to two shareholders of Exony who have the right to exercise their options within six months
from the acquisition date which entitles them to $299,000 (45,119 shares) of Company Stock and $341,000 of cash
acquisition consideration. The cash portion of the transaction was funded from eGain’s existing cash and its available
credit facility. We have incurred acquisition costs of approximately $844,000 through June 30, 2015, which are included
in general and administrative expenses.
76
The purchase price for this acquisition had been allocated based on estimates of the fair values of the acquired assets
and assumed liabilities at the date of acquisition as follows (in thousands):
Purchase consideration:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock (1,164,189 shares of Company Stock) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other purchase consideration (includes 45,119 shares of Company Stock) . . . . . . . . . .
Working capital adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total purchase price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
7,841
7,719
640
1,355
$ 17,555
Fair value of assets acquired and liabilities assumed:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of identifiable intangibles at acquisition-date:
Developed technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total identifiable intangibles at acquisition-date . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liability: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,751
3,185
2,850
281
315
(786)
(3,139)
(352)
(4,185)
(326)
6,990
2,990
150
9,382
(8,788)
10,130
(1,475)
8,306
$
The allocation of the purchase price consideration was based on estimates of fair value; such estimates and
assumptions are subject to change within the measurement period (up to one year from the acquisition date). As of June
30, 2015, we finalized the working capital adjustment and other purchase consideration, adjusting goodwill down by
$44,000. Such values were updated in the purchase consideration noted in the table above.
Included in the acquisition of Exony are operating lease commitments for office space in Newbury, England. The
annual lease payment for a 5 year term lease is approximately $260,000 and $91,000 for a 2 year term lease.
The goodwill of $8.3 million arising from the Exony acquisition largely reflects the expansion of our service offerings
complementary to our existing products. As Exony is considered an innovative contact center software provider, the
acquisition was intended to extend eGain's platform with contact center management, reporting and analytics capabilities
to our customers.
77
Intangible assets will be amortized over the estimated lives, as follows (in thousands):
Intangible Asset
Developed technology . . . . . . $
Customer relationships -
software contracts . . . . . . . . .
Customer relationships -
maintenance contracts . . . . . .
Trade name . . . . . . . . . . . . . .
$
Gross
Carrying
Amount
Accumulated
Amortization
Net Balance
June 30, 2017
Life
Consolidated
Statements of Operations
Category
6,990 $
(5,073) $
1,917
4 Research and development
1,380
(1,380)
—
2 Sales and marketing
1,610
150
10,130 $
(779)
(150)
(7,382) $
831
—
2,748
6 Cost of recurring
2 General and administrative
Intangible Asset
Developed technology . . . . . . $
Customer relationships -
software contracts . . . . . . . . .
Customer relationships -
maintenance contracts . . . . . .
Trade name . . . . . . . . . . . . . .
$
Gross
Carrying
Amount
Accumulated
Amortization
Net Balance
June 30, 2016
Life
Consolidated
Statements of Operations
Category
6,990 $
(3,325) $
3,665
4 Research and development
1,380
(1,313)
67
2 Sales and marketing
1,610
150
10,130 $
(510)
(143)
(5,291) $
1,100
7
4,839
6 Cost of recurring
2 General and administrative
Amortization expense related to the above intangible assets for fiscal year ended June 30, 2017, 2016 and 2015 was
$2.1 million, $2.8 million and $2.5 million, respectively.
Estimated future amortization expense remaining as of June 30, 2017 for intangible assets acquired is as follows:
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total future amortization expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2,016
438
268
26
2,748
Year Ending
June 30,
The operating results for this acquisition are included in the consolidated results of operations from August 6, 2014
(the date of acquisition). The Company determined that it is impracticable to provide comparative pro forma financial
information related to the acquisition. Exony, a private company, did not historically prepare financial statements in
accordance with U.S. GAAP for interim financial reporting. Accordingly, significant estimates of amounts to be included
in pro forma financial information would be required and subject to an inordinate level of subjectivity. For fiscal years
ended 2017, 2016 and 2015, Exony contributed revenues of $10.4 million, $11.2 million and $11.0 million, respectively.
Exony contributed a net loss of $227,000 during fiscal year 2017 and net income of $3.7 million and $793,000 during
fiscal years 2016 and 2015, respectively.
7. COMMITMENTS AND CONTINGENCIES
Leases
We lease our facilities under non-cancelable operating leases that expire on various dates through fiscal year 2022.
On May 14, 2014, we entered into the First Amendment to the office lease for our Sunnyvale facility to extend the term
of the lease through March 2022 and lease additional space in the current premises. The term of the additional space
commenced on August 5, 2015 and is scheduled to expire on March 31, 2022. As part of the lease extension, the landlord
provided the Company with a tenant improvement allowance during 2015 through 2016 of $411,000. Our lease
agreements provide us with the option to renew. We recognize rent expense, which includes fixed escalation amounts
in addition to minimum lease payment, on a straight-line basis over each lease term. The difference between the amount
paid for rent and the amount recognized under the straight-line basis is recorded as a deferred rent liability. The deferred
78
rent liability was $406,000 and $364,000 as of June 30, 2017 and 2016, respectively. We lease certain equipment and
software under operating and capital leases with various expiration dates.
For the fiscal years ended June 30, 2017, 2016 and 2015, rent expense for facilities under operating leases was
$1.0 million, $1.9 million, and $1.4 million, net of rental income of $521,000, $466,000 and $83,000, respectively.
We entered into a sublease agreement that commenced on August 8, 2015 and that expired on August 31, 2016.
Rental income from the sublease was approximately $426,000 for the year ended June 30, 2016. The sublease tenant
did not renew and in accordance with ASC 420 Exit or Disposal Cost Obligations, we recorded a $305,000 lease exit
liability and related rent expense on June 30, 2016 for an expected loss on the sublease for approximately 22,000
square feet of space as we will not receive sublease payments until another sublease tenant is found. The sublease is
under our master lease agreement for our Sunnyvale facility. We classified the $305,000 lease exit liability in current
liabilities in the accompanying consolidated balance sheet as of June 30, 2016. We expect the future minimum lease
payments under non-cancellable operating leases to be offset with sub-lease income, once a tenant is secured.
In December 2016, we entered into a two year sublease agreement for the 22,000 square feet of space with a
subtenant that commenced on January 1, 2017. As a result, the remaining lease exit liability was reversed as a credit
to rent expense during the three months ended December 31, 2016.
A summary of future minimum lease payments is as follows (in thousands):
Fiscal Year June 30,
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total minimum lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Less amounts representing interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less current capital lease obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital lease obligation, net of current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cloud Services
Operating
Leases
Capital
Leases
1,172
967
1,002
597
469
4,207
119
43
—
—
—
162
(12)
150
(108)
42
$
We have agreements with third parties to provide co-location services for cloud operations that expire on various
dates through fiscal year 2017. The agreements require payment of a minimum amount per month in return for which the
cloud services provider provides co-location services with certain guarantees of network availability. Rental expense for
co-location centers was $888,000, $1.1 million, and $1.2 million for the fiscal years ended June 30, 2017, 2016 and 2015,
respectively. Our commitment for minimum payments under the leases as of June 30, 2017 is $121,000 through year 2017.
Contractual Obligations and Commitments
Contractual agreements with third parties consist of software licenses, maintenance and support for our operations.
As of June 30, 2017, future payments for non-cancellable contractual agreements are $860,000, $1.5 million and $1.4
million in fiscal years 2018, 2019 and 2020, respectively.
Employee benefit plans
Defined Contribution Plans
We sponsor an employee savings and retirement plan, the 401(k) Plan, as allowed under Section 401(k) of the
Internal Revenue Code. The 401(k) Plan is available to all domestic employees who meet minimum age and service
requirements, and provides employees with tax deferred salary deductions and alternative investment options. Employees
may contribute up to 60% of their salary, subject to certain limitations. We, at the discretion of our board of directors, may
79
contribute to the 401(k) Plan. In fiscal years 2017, 2016 and 2015, we contributed approximately $376,000, $446,000 and
$391,000 to the 401(k) Plan, respectively. We also have a defined contribution plan related to our foreign subsidiaries.
Amounts expensed under this plan were $385,000, $636,000, and $1.1 million for the fiscal years ended June 30, 2017,
2016 and 2015, respectively.
Gratuity Plan—India
In accordance with Gratuity Act of 1972, we sponsor a defined benefit plan, or the Gratuity Plan, for all of our Indian
employees. The Gratuity Plan is required by local law, which provides a lump sum payment to vested employees upon
retirement or termination of employment in an amount based on each employee’s salary and duration of employment with
the company. The Gratuity Plan benefit cost for the year is calculated on an actuarial basis. Current service costs and
actuarial gains or losses, or prior service cost, for the Gratuity Plan were insignificant for the fiscal years 2017, 2016 and
2015.
Severance Pay – Italy
We accrue a severance provision and pay related taxes to local governmental agencies consistent with local
regulatory requirements. There were no severance plan expenses for fiscal year 2016 and insignificant plan expenses for
fiscal year 2015.We closed the Italy office during fiscal year 2016.
Warranty
We generally warrant that the program portion of our software will perform substantially in accordance with certain
specifications for a period up to one year from the date of delivery. Our liability for a breach of this warranty is either a
return of the license fee or providing a fix, patch, work-around or replacement of the software.
We also provide standard warranties against and indemnification for the potential infringement of third party
intellectual property rights to our customers relating to the use of our products, as well as indemnification agreements with
certain officers and employees under which we may be required to indemnify such persons for liabilities arising out of
their duties to us. The terms of such obligations vary. Generally, the maximum obligation is the amount permitted by law.
Historically, costs related to these warranties have not been significant. However, we cannot guarantee that a
warranty reserve will not become necessary in the future.
Indemnification
We have also agreed to indemnify our directors and executive officers for costs associated with any fees, expenses,
judgments, fines and settlement amounts incurred by any of these persons in any action or proceeding to which any of
those persons is, or is threatened to be, made a party by reason of the person’s service as a director or officer, including
any action by us, arising out of that person’s services as our director or officer or that person’s services provided to any
other company or enterprise at our request.
Transfer pricing
We have received transfer-pricing assessments from tax authorities with regard to transfer pricing issues for certain
fiscal years, which we have appealed with the appropriate authority. We review the status of each significant matter and
assess its potential financial exposure. We believe that such assessments are without merit and would not have a significant
impact on our consolidated financial statements.
8. LITIGATION
In the ordinary course of business, we are involved in various legal proceedings and claims related to alleged
infringement of third-party patents and other 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. We have been, and may in
80
the future be, put on notice and/or sued by third parties for alleged infringement of their proprietary rights, including patent
infringement.
We evaluate all claims and lawsuits with respect to their potential merits, our potential defenses and counterclaims,
settlement or litigation potential and the expected effect on us. Our technologies may be subject to injunction if they are
found to infringe the rights of a third party. In addition, our agreements require us to indemnify our customers for third-
party intellectual property infringement claims, which could increase the cost to us of an adverse ruling on such a claim.
9. FAIR VALUE MEASUREMENT
ASC 820, Fair Value Measurement and Disclosures, defines fair value, establishes a framework for measuring fair
value of assets and liabilities, and expands disclosures about fair value measurements. Fair value is defined as the exchange
price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the
assets or liabilities in an orderly transaction between market participants on the measurement date. Subsequent changes in
fair value of these financial assets and liabilities are recognized in earnings or other comprehensive income when they
occur. ASC 820 applies whenever other statements require or permit assets or liabilities to be measured at fair value.
ASC 820 includes a fair value hierarchy, of which the first two are considered observable and the last unobservable,
that is intended to increase the consistency and comparability in fair value measurements and related disclosures. Valuation
techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable
inputs. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market
data obtained from independent sources while unobservable inputs reflect a reporting entity’s pricing based upon their own
market assumptions.
The fair value hierarchy consists of the following three levels:
Level 1 – instrument valuations are obtained from real-time quotes for transactions in active exchange markets involving
identical assets.
Level 2 – instrument valuations are obtained from readily-available pricing sources for comparable instruments.
Level 3 – instrument valuations are obtained without observable market value and require a high level of judgment to
determine the fair value.
As of June 30, 2017 and 2016, we did not have any Level 1, 2 or 3 assets or liabilities.
10. SHARE REPURCHASE PROGRAM
On September 14, 2009, we announced that our board of directors approved a repurchase program under which we
may purchase up to 1,000,000 shares of our common stock. The duration of the repurchase program is open-ended. Under
the program, we purchase shares of common stock from time to time through the open market and privately negotiated
transactions at prices deemed appropriate by management. The repurchase is funded by cash on hand. There were no shares
repurchased during fiscal years 2017, 2016 and 2015.
81
11. QUARTERLY FINANCIAL DATA (Unaudited)
Following is a summary of quarterly operating results and share data for the years ended June 30, 2017 and 2016,
respectively:
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Fiscal Year
(in thousands, except per share data)
Fiscal 2017
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,745 $ 14,999 $
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,681 $
9,936 $
Loss from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1,265) $
(298) $
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (2,411) $ (1,049) $
(0.04) $
Basic and diluted net income (loss) per share . . . . . . . $
(0.09) $
13,850 $ 14,621 $ 58,215
9,208 $ 37,016
8,191 $
(331) $ (3,725)
(1,831) $
(45) $ (6,020)
(2,515) $
(0.22)
(0.09) $
(0.00) $
Fiscal 2016
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16,476 $ 18,986 $
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,004 $ 13,010 $
Income (loss) from operations . . . . . . . . . . . . . . . . . . . $ (2,810) $
(516) $
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (3,237) $ (1,379) $
(0.05) $
Basic and diluted net loss per share . . . . . . . . . . . . . . . $
(0.12) $
16,291 $ 17,622 $ 69,375
10,570 $ 12,102 $ 45,686
109 $ (5,873)
(2,656) $
1,377 $ (6,240)
(3,001) $
(0.23)
(0.11) $
0.05 $
12. SUBSEQUENT EVENT
On September 19, 2017, our board of directors approved a repricing to $2.50 of certain outstanding options under
our 2005 Stock Incentive Plan held by employees who are not executive officers or directors of the Company. The repricing
applied to options held by such employees with an exercise price greater than $2.50 per share which was the closing stock
price as reported on Nasdaq on September 19, 2017.
82
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures. We maintain “disclosure controls and procedures,” as such
term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, the Exchange Act, that are designed to ensure
that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded,
processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and
forms, and that such information is accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing
and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures,
no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the
disclosure controls and procedures are met. Our disclosure controls and procedures have been designed to meet reasonable
assurance standards. Additionally, in designing disclosure controls and procedures, our management necessarily was
required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures.
The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood
of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential
future conditions.
Based on their evaluation as of the end of the period covered by this Annual Report on Form 10-K, our Chief
Executive Officer and Chief Financial Officer have concluded that, as of June 30, 2017, our disclosure controls and
procedures were effective at the reasonable assurance level.
Changes in Internal Controls. There was no change in our internal control over financial reporting (as defined in
Rule 13a-15(f) under the Exchange Act) that occurred during our last fiscal quarter that has materially affected, or is
reasonably likely to materially affect, our internal control over financial reporting.
Management’s Annual Report on Internal Control Over Financial Reporting. Our management is responsible
for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange
Act Rules 13a-15(f). Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Projections of any evaluation of the effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, conducted
an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal
Control—Integrated Framework (2013 Framework) issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on our evaluation under the framework in Internal Control—Integrated Framework (2013
Framework), our management concluded that our internal control over financial reporting was effective as of June 30,
2017.
ITEM 9B. OTHER INFORMATION
None.
83
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this item (with respect to our Directors) is incorporated by reference from the
information under the caption “Election of Directors” contained in eGain’s Proxy Statement to be filed with the Securities
and Exchange Commission in connection with the solicitation of proxies for the Company’s 2017 Annual Meeting of
Stockholders, the Proxy Statement.
Certain information required by this item concerning executive officers is set forth in Part I of this Report under the
caption “Executive Officers of the Registrant” and is incorporated herein by reference.
The information contained under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” in the
definitive Proxy Statement for the Company’s 2017 Annual Meeting of Stockholders is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information contained under the heading “Executive Compensation” and under the captions “Director
Compensation,” and “Recent Option Grants” in the definitive Proxy Statement for eGain’s 2017 Annual Meeting of
Stockholders is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information contained under the heading “Security Ownership of Certain Beneficial Owners and Management”
in the definitive Proxy Statement for eGain’s 2017 Annual Meeting of Stockholders is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
The information contained under the caption “Related Party Transactions” in the definitive Proxy Statement for
eGain’s 2017 Annual Meeting of Stockholders is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information contained under the heading “Principal Accounting Fees and Services” in the definitive Proxy
Statement for eGain’s 2017 Annual Meeting of Stockholders is incorporated herein by reference.
84
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)
1. Financial Statements
See Index to Financial Statements in Item 8 of this Report.
2. Financial Statement Schedule
Financial statement schedule, which is included at the end of this report:
Schedule II—Valuation and Qualifying Accounts.
All other schedules have been omitted since they are either not required, not applicable or the information has been
included in the consolidated financial statements or notes thereto.
3. Exhibits
See Item 15(b) of this report.
(b) Exhibits
Exhibit
No.
23.1
31.1
31.2
32.1
32.2
The exhibits listed below are filed or incorporated by reference herein.
Description of Exhibits
Consent of BPM LLP, Independent Registered Public Accounting Firm.
Rule 13a/15(d)-14 Certification of Chief Executive Officer.*
Rule 13a/15(d)-14 Certification of Chief Financial Officer.*
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes Oxley Act of 2002 of Ashutosh Roy, Chief Executive Officer.*
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes Oxley Act of 2002 of Eric Smit, Chief Financial Officer.*
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
*
The material contained in this exhibit is not deemed “filed” with the Securities and Exchange Commission and is
not to be incorporated by reference into any filing of the company under the Securities Act of 1933 or the Securities
Exchange Act of 1934, whether made before or after date hereof and irrespective of any general incorporation
language contained in such filing.
#
Indicates management contract or compensatory plan or arrangement.
85
Exhibit
No.
23.1
31.1
31.2
32.1
32.2
EXHIBIT INDEX
Description of Exhibits
Consent of BPM LLP, Independent Registered Public Accounting Firm.
Rule 13a-15(e)/15(d)-15(e) Certification of Chief Executive Officer.
Rule 13a-15(e) /15(d)-15(e) Certification of Chief Financial Officer.
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes Oxley Act of 2002 of Ashutosh Roy, Chief Executive Officer.*
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes Oxley Act of 2002 of Eric Smit, Chief Financial Officer.*
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
*
The material contained in this exhibit is not deemed “filed” with the Securities and Exchange Commission and is
not to be incorporated by reference into any filing of the company under the Securities Act of 1933 or the Securities
Exchange Act of 1934, whether made before or after date hereof and irrespective of any general incorporation
language contained in such filing.
#
Indicates management contract or compensatory plan or arrangement.
86
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: September 26, 2017
eGAIN CORPORATION
By:
/s/ ASHUTOSH ROY
Chief Executive Officer
KNOW ALL MEN BY THESE PRESENT, that each person whose signature appears below constitutes and appoints
Ashutosh Roy and Eric Smit, and each of them, his true and lawful attorneys-in-fact and agents, each with full power of
substitution and resubstitution, for him and in his name, place, and stead, in any and all capacities, to sign any and all
amendments to this annual report, and to file the same, with exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full
power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and confirming all that each of said attorneys-in-
fact and agents or their substitute or substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below
by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Name
Title
Date
/s/ ASHUTOSH ROY
Ashutosh Roy
Chief Executive Officer and Director
(Principal Executive Officer)
September 26, 2017
/s/ ERIC N. SMIT
Eric N. Smit
Chief Financial Officer
September 26, 2017
(Duly Authorized Officer and Principal Financial
and Accounting Officer)
/s/ CHRISTINE RUSSELL
Christine Russell
/s/ GUNJAN SINHA
Gunjan Sinha
Director
Director
/s/ PHIROZ P. DARUKHANAVALA
Phiroz P. Darukhanavala
Director
/s/ BRETT SHOCKLEY
Brett Shockley
Director
September 26, 2017
September 26, 2017
September 26, 2017
September 26, 2017
87
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Amounts
Balance at Additions Written Off,
Beginning of Charged to
Period
Expense
Net of
Recoveries
Balance at
End of Period
Allowance for Doubtful Accounts:
Year ended June 30, 2017 . . . . . . . . . . . . . $
Year ended June 30, 2016 . . . . . . . . . . . . . $
Year ended June 30, 2015 . . . . . . . . . . . . . $
756 $
768 $
574 $
303 $
264 $
194 $
(702) $
(276) $
— $
357
756
768
88