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Summary of Business and Significant Accounting Policies | 9 Months Ended
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Mar. 31, 2020
Summary of Business and Significant Accounting Policies |
Summary of Business and Significant Accounting Policies | 1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES Organization and Nature of Business eGain Corporation (eGain, the Company, our, we or us) is a leading provider of cloud-based customer engagement software with operations in the United States, United Kingdom and India. We help B2C brands operationalize digital customer engagement strategy. Our suite includes rich applications for digital interaction, knowledge management, and AI-based process guidance. We also provide advanced, integrated analytics for contact centers and digital properties to holistically measure, manage, and optimize resources. We believe the benefits of our products include reduced customer effort, customer satisfaction, connected service processes, converted upsell opportunities, and improved compliance—across mobile, social, web, and phone. Hundreds of global enterprises rely on eGain to transform fragmented customer service systems into unified customer engagement hubs. Fiscal Year Our fiscal year ends on June 30. References to fiscal year 2020 refer to fiscal year ending June 30, 2020. Basis of Presentation The accompanying condensed consolidated balance sheet as of March 31, 2020 and the condensed consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for the three and nine months ended March 31, 2020 and 2019, are unaudited. The consolidated balance sheet as of June 30, 2019 included herein was derived from the audited financial statements as of that date. Certain information and footnote disclosures, normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP), have been condensed or omitted pursuant to such rules and regulations although we believe that the disclosures made are adequate to make the information not misleading. In our opinion, the unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of our financial position, results of operations and cash flows for the periods presented. These condensed consolidated financial statements and notes should be read in conjunction with our audited consolidated financial statements and accompanying notes for the fiscal year ended June 30, 2019, included in our Annual Report on Form 10-K. The condensed consolidated balance sheet as of June 30, 2019 was derived from audited consolidated financial statements as of that date but does not include all the information and footnotes required by GAAP for complete financial statements. The results of our operations for the interim periods presented are not necessarily indicative of results that may be expected for any other interim period or for the full fiscal year ending June 30, 2020. The Company adopted Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842), on a modified retrospective basis, as discussed below. As a result, the condensed consolidated balance sheet as of March 31, 2020 is not comparable with that as of June 30, 2019. Principles of Consolidation We prepared the condensed consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) and included the accounts of our wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated. Use of Estimates The preparation of financial statements requires us to make estimates and assumptions in the condensed consolidated financial statements and accompanying notes. Actual results could differ significantly from estimates. We make estimates that we believe to be reasonable based on historical experience and other assumptions. Significant estimates and assumptions made by management include the following:
| · |  | Standalone selling price (SSP) of performance obligations for contracts with multiple performance obligations;
| · |  | Estimate of variable consideration for performance obligations in connection with Topic 606;
| · |  | Period of benefit associated with capitalized costs to obtain revenue contracts;
| · |  | Valuation, measurement and recognition of current and deferred income taxes;
| · |  | Fair value of stock-based awards,
| · |  | Useful lives of intangible assets; and
| · |  | Lease term and incremental borrowing rate for lease liabilities.
Follow-On Public Offering In March 2019, we completed a follow-on public offering, in which we issued 2.0 million shares of our common stock at a public offering price of $11.00 per share. In April 2019, the underwriters exercised an over-allotment option to purchase 149,000 additional shares of our common stock. We received net proceeds of $21.7 million after deducting underwriting discounts and commissions of $1.6 million and other offering expenses of $282,000. Recent Accounting Pronouncements Pronouncements Not Yet Adopted In August 2018, the Financial Accounting Standards Board (FASB) issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40). This update requires a customer in a cloud computing service arrangement to follow the internal-use software guidance to determine which implementation costs to recognize and defer as an asset. This update is effective for fiscal years beginning after December 15, 2019 (our fiscal year 2021). We are currently evaluating the impact of this update on our consolidated financial statements and related disclosures. In December 2019, FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This update simplifies the accounting for income taxes. This update is effective for fiscal years beginning after December 15, 2020 (our fiscal year 2022). We are currently evaluating the impact of this update on our consolidated financial statements and related disclosures. Pronouncements Recently Adopted In February 2016, the FASB issued ASU 2016-02, Topic 842, which requires that we recognize lease assets and liabilities on the balance sheet, but recognize the expenses on our statement of operations in a manner similar to previous accounting guidance. Topic 842 generally requires that lessees recognize operating and financing liabilities for the obligation to make lease payments and a right-of-use asset for the right to use the underlying asset for the lease term. We adopted this guidance as of our first fiscal quarter of fiscal year 2020. In February 2018, the FASB issued ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This update provides the option to reclassify tax effects to retained earnings relating to items in accumulated other comprehensive income that the FASB refers to as having been stranded in accumulated other comprehensive income as a result of the U.S. Tax Act. We adopted this guidance as of our first quarter of fiscal year 2020 without a significant impact on our consolidated financial statements. In June 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718)—Improvements to Nonemployee Share-Based Payment Accounting. This update expands the scope of Topic 718, Compensation—Stock Compensation, to include share-based awards granted to non-employees in exchange for goods or services. The accounting for employees and non-employees will be substantially aligned. We adopted this guidance as of our first quarter of fiscal year 2020 without a significant impact on our consolidated financial statements. In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, which provides an alternative transition method by allowing companies to initially apply the new leases guidance at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. We adopted this guidance as of our first quarter of fiscal year 2020. In February 2019, the FASB issued ASU No. 2019-01 Leases (Topic 842) Codification Improvements, which aligns the guidance for fair value of the underlying asset by lessors that are not manufacturers or dealers in Topic 842 with that of existing guidance. As a result, the fair value of the underlying asset at lease commencement is its cost. We adopted this guidance as of our first quarter of fiscal year 2020. Leases Effective July 1, 2019, the Company adopted the provisions and expanded disclosure requirements described in Topic 842. The Company adopted the standard under a modified retrospective approach, using the provision of ASU 2018-11, Leases (Topic 842) Targeted Improvements, which allows for the adoption of Topic 842 to be applied at the beginning of the fiscal year of adoption. As a result, the condensed consolidated balance sheet and statement of operations for prior periods are not comparable to fiscal year 2020. In addition, the Company elected the package of practical expedients permitted under the transition guidance, which among other things, allowed the Company to not reassess prior conclusions on lease classifications or initial direct costs, or on whether contracts are or contain a lease. The Company did not use hindsight when determining the lease term. Upon adoption, operating leases are now reported on the condensed consolidated balance sheet, which has materially increased total assets and liabilities. As a result, the Company recorded operating lease right-of-use assets of approximately $4.5 million and corresponding operating lease liabilities of $4.8 million on its opening condensed consolidated balance sheet.
|  | Balance at June 30, 2019 |  | Adjustments due to ASC 842 |  | Balance at July 1, 2019
Balance sheet captions: |  |  |  |  |  |  |  |  |
Prepaid expenses |  |  | 2,517 |  |  | (114) | 1 |  | 2,403
Total current assets |  |  | 56,589 |  |  | (114) | 1 |  | 56,475
Operating lease right-of-use assets (Note 6) |  |  | — |  |  | 4,494 | 1,2,3 |  | 4,494
Total assets |  |  | 73,754 |  |  | 4,380 | 1,2,3 |  | 78,134
Accrued liabilities |  |  | 2,353 |  |  | (143) | 3 |  | 2,210
Operating lease liabilities (Note 6) |  |  | — |  |  | 1,653 | 4 |  | 1,653
Total current liabilities |  |  | 42,694 |  |  | 1,510 | 3, 4 |  | 44,204
Operating lease liabilities, net of current portion (Note 6) |  |  | — |  |  | 3,104 | 4 |  | 3,104
Other long-term liabilities |  |  | 952 |  |  | (234) | 4 |  | 718
Total liabilities |  |  | 49,447 |  |  | 4,380 | 3,4 |  | 53,827
Total liabilities and stockholders' equity |  |  | 73,754 |  |  | 4,380 | 3,4 |  | 78,134
| 1. |  | Represents prepaid rent reclassified to operating lease right-of-use assets.
| 2. |  | Represents capitalization of operating lease right-of-use assets.
| 3. |  | Represents reclassification of deferred rent reclassified to operating lease right-of-use assets.
| 4. |  | Represents recognition of operating lease liabilities.
Revenue Recognition Revenue Recognition Policy Our revenue is comprised of two categories including subscription and professional services. Subscription includes SaaS revenue and legacy revenue. SaaS revenue includes revenue from cloud delivery arrangements, term licenses, and embedded OEM royalties and associated support. Legacy revenue is associated with license, or maintenance and support contracts on perpetual license arrangements that we no longer offer. Professional services includes consulting, implementation and training. Significant Judgment Applied in the Determination of Revenue Recognition We enter into contractual arrangements with customers that may include promises to transfer multiple services, such as subscription, support and professional services. With respect to our business, a performance obligation is a promise to transfer a service to a customer that is distinct. Significant judgment is required to determine whether services are distinct performance obligations that should be accounted for separately or combined as one unit of accounting. Additionally, significant judgment is required to determine the timing of revenue recognition. We allocate the transaction price to each performance obligation on a relative standalone selling price (SSP). The SSP is the price at which we would sell a promised service separately to one of our customers. Judgment is required to determine the SSP for each distinct performance obligation. We determine the SSP by considering our pricing objectives in relation to market demand. Consideration is placed based on our history of discounting prices, size and volume of transactions involved, customer demographics and geographic locations, price lists, contract prices and our market strategy. Determination of Revenue Recognition Under Topic 606, we recognize revenue upon the transfer of control of promised services to our customers in the amount that is commensurate with the consideration that we expect to receive in exchange for those services. If consideration includes a variable amount in the arrangement, such as service level credits or contingent fees, then we include an estimate of the amount that we expect to receive for the total transaction price. The amount of revenue that we recognize is based on (i) identifying the contract with a customer; (ii) identifying the performance obligations in the contract; (iii) determining the transaction price; (iv) allocating the transaction price to the performance obligations in the contract on a relative SSP basis; and (v) recognizing revenue when, or as, we satisfy each performance obligation in the contract typically through delivery or when control is transferred to the customer. Subscription Revenue The following customer arrangements are recognized ratably over the contract term as the performance obligations are delivered:
| · |  | Cloud delivery arrangements;
| · |  | Maintenance and support arrangements; and
| · |  | Term license subscriptions which incorporate on-premise software licenses and substantial cloud functionality that are not distinct in the context of our arrangements as such are considered highly interrelated and represent a single combined performance obligation.
For contracts involving distinct software licenses, the license performance obligation is satisfied at a point in time when control is transferred to the customer. We typically invoice our customers in advance upon execution of the contract or subsequent renewals with payment terms between 30 and 45 days. Invoiced amounts are recorded in accounts receivable, deferred revenue or revenue, depending if control transferred to our customers based on each arrangement. The Company has a royalty revenue agreement with a customer related to the Company’s embedded intellectual property. Under the terms of the agreement, the customer is to remit a percentage of sales to the Company. These embedded OEM royalties are included as subscription revenue. Under Topic 606, since these arrangements are for sales-based licenses of intellectual property, for which the guidance in paragraph ASC 606-10-55-65 applies, the Company recognizes revenue only as the subsequent sale occurs. However, the Company notes that such sales are reported by the customer with a quarter in arrears, such revenue is recognized at the time it is reported and paid by the customer given that any estimated variable consideration would have to be fully constrained due to the unpredictability of such estimate and the unavoidable risk that it may lead to significant revenue reversals. Professional Services Revenue Professional services revenue includes system implementation, consulting and training. The transaction price is allocated to various performance obligations based on their stand-alone selling prices. Revenue allocated to each performance obligation is recognized at the earlier of satisfaction of discrete performance obligations, or as work is performed on a time and material basis. Our consulting and implementation service contracts are bid either on a time-and-materials basis or on a fixed-fee basis. Fixed fees are generally paid upon milestone billing or acceptance at pre-determined points in the contract. Amounts that have been invoiced are recorded in accounts receivable and in deferred revenue or revenue, depending on whether transfer of control to customers has occurred. Training revenue that meets the criteria to be accounted for separately is recognized when training is provided. Costs Capitalized to Obtain Revenue Contracts Under Topic 606, we capitalize incremental costs of obtaining a non-cancelable subscription and support revenue contracts. The capitalized amounts consist primarily of sales commissions paid to our direct sales force. Capitalized amounts also include (i) amounts paid to employees other than the direct sales force who earn incentive payouts under annual compensation plans that are tied to the value of contracts acquired and (ii) the associated payroll taxes and fringe benefit costs associated with the payments to our employees. Costs capitalized related to new revenue contracts are generally deferred and amortized on a straight-line basis over a period of benefit that we estimate to be five years. We determine the period of benefit by taking into consideration the historical and expected durations of our customer contracts, the expected useful lives of our technologies, and other factors. Commissions for renewal contracts relating to our cloud-based arrangements are expensed when incurred, as we do not consider renewal contracts to be commensurate with initial customer contracts. Historically, any commission associated with renewals have been immaterial. Amortization of costs to obtain revenue contracts is included as a component of sales and marketing expenses in our condensed consolidated statements of operations. During the three and nine months ended March 31, 2020, we capitalized $459,000 and $1.0 million of costs to obtain revenue contracts, respectively, and amortized $210,000 and $607,000 to sales and marketing expense, respectively. During the three and nine months ended March 31, 2019, we capitalized $227,000 and $742,000 of costs to obtain revenue contracts, respectively, and amortized $179,000 and $481,000 to sales and marketing expense, respectively. Capitalized costs to obtain revenue contracts, net were $2.9 million and $2.5 million as of March 31, 2020 and June 30, 2019, respectively. Deferred Revenue Deferred revenue primarily consists of payments received or invoiced in advance of revenue recognition from cloud delivery arrangements, term licenses and embedded OEM royalties and associated support. Deferred revenue is recognized as revenue once revenue recognition criteria is met. We generally invoice our customers in annual installments. The deferred revenue balance does not represent the total transaction price of our non-cancelable cloud delivery and support arrangements as a result from the timing of revenue recognition. Deferred revenue that is expected to be recognized within one year and beyond one year is classified as current and noncurrent deferred revenue, respectively. Segment Information We operate in one segment: the development, license, implementation and support of our customer interaction software solutions. Operating segments are identified as components of an enterprise for which discrete financial information is available and regularly reviewed by the Company’s chief operating decision-makers in order to make decisions about resources to be allocated to the segment and assess its performance. Our chief operating decision-makers, under ASC 280, Segment Reporting, are our executive management team. Our chief operating decision-makers review financial information presented on a consolidated basis for purposes of making operating decisions and assessing financial performance. The Company operates in one operating segment and all required financial segment information can be found in the condensed consolidated financial statements. Our sales are derived from North America and Europe, Middle East, and Africa. However, we incur operating expenses in the North America, Europe, Middle East, Africa and Asia Pacific regions. Revenue by geography is generally determined on the region of our contracting entity rather than the region of our customer. Information relating to our geographic areas for the three and nine months ended March 31, 2020 and 2019 is as follows (in thousands):
|  | Three Months Ended |  | Nine Months Ended
|  | March 31, |  | March 31,
|  | 2020 |  | 2019 |  | 2020 |  | 2019
Revenue: |  |  |  |  |  |  |  |  |  |  |  |
North America |  | $ | 11,485 |  | $ | 9,669 |  | $ | 32,049 |  | $ | 28,209
Europe, Middle East, & Africa |  |  | 6,869 |  |  | 7,335 |  |  | 21,650 |  |  | 22,199
Total revenue |  | $ | 18,354 |  | $ | 17,004 |  | $ | 53,699 |  | $ | 50,408
Income from operations: |  |  |  |  |  |  |  |  |  |  |  |
North America |  | $ | 167 |  | $ | 1,270 |  | $ | (468) |  | $ | 2,219
Europe, Middle East, & Africa |  |  | 2,952 |  |  | 1,740 |  |  | 9,436 |  |  | 6,101
Asia Pacific |  |  | (1,362) |  |  | (1,221) |  |  | (4,115) |  |  | (3,648)
Income from operations |  | $ | 1,757 |  | $ | 1,789 |  | $ | 4,853 |  | $ | 4,672
In addition, long-lived assets, which consist primarily of property and equipment and operating lease right-of-use assets, corresponding to our geographic areas are as follows (in thousands):
|  | March 31, |  | June 30,
|  | 2020 |  | 2019
Long-lived Assets: |  |  |  |  |  |
North America |  | $ | 2,611 |  | $ | 206
Europe, Middle East, & Africa |  |  | 756 |  |  | 112
Asia Pacific |  |  | 625 |  |  | 207
Long-lived Assets |  | $ | 3,992 |  | $ | 525
Concentration of Credit Risk and Significant Customers Our financial instruments that are exposed to concentrations of credit risk include cash and cash equivalents and accounts receivable. We maintain an allowance for doubtful accounts which is based on historical losses and the number of days past due for collection. Receivables are written off against the allowance when we have exhausted collection efforts without success. Two customers, who are also our partners, accounted for 18% and 10%, respectively, of total revenue during the three and nine months ended March 31, 2020. One customer accounted for 16% and 17% of total revenue during the three and nine months ended March 31, 2019, respectively. Accounts Receivable and Allowance for Doubtful Accounts We extend unsecured credit to our customers on a regular basis. Our accounts receivable are derived from revenue earned from customers and are not interest bearing. We also maintain an allowance for doubtful accounts to reserve for potential uncollectible trade receivables. We review our trade receivables by aging category to identify specific customers with known disputes or collectability issues. We exercise judgment when determining the adequacy of these reserves as we evaluate historical bad debt trends, general economic conditions in the U.S. and internationally, and changes in customer financial conditions. We write off a receivable after collection efforts have been exhausted and the amount is deemed uncollectible. In certain Company contracts, contractual billings do not coincide with revenue recognized on the contract. Unbilled accounts receivables are recorded when revenue recognized on the contract exceeds billings, pursuant to contract provisions, and become billable upon certain criteria being met. Unbilled accounts receivables, for which the Company has the unconditional right to consideration, totaled $1.5 million and $1.4 million as of March 31, 2020, and June 30, 2019, respectively, and are included in the accounts receivable balance. Deferred Financing Costs Costs relating to obtaining the credit agreement (as amended from time to time, Credit Agreement) with Wells Fargo Bank, National Association, as administrative agent (Wells Fargo) were capitalized and amortized over the term of the related debt using the effective interest method. We capitalized deferred financing costs of $981,000 in connection with our term loan that has since been fully amortized. As of March 31, 2020, all financing costs have been removed from the related accounts and charged to operations as interest expense in the prior fiscal year, in connection with the repayment of the term loan. Amortization of deferred financing costs recorded as interest expense was $83,000 and $242,000 for the three and nine months ended March 31, 2019, 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. Stock-based compensation expense consists of expenses for stock options and our 2017 employee stock purchase plan (ESPP). The ESPP provides that eligible employees may purchase the Company’s common stock through payroll deductions at a price equal to 85% of the lower of the fair market value at the entry date of the applicable offering period or at the end of each applicable purchasing period. The offering period, meaning a period with respect to which the right to purchase shares of our common stock may be granted under the ESPP, will not exceed twenty-seven months and consist of a series of six-month purchase periods. Eligible employees may join the ESPP at the beginning of any six-month purchase period. Under the terms of the ESPP, employees can choose to have between 1% and 15% of their base earnings withheld to purchase the Company’s common stock. Determining the fair value of the stock-based awards at the grant date requires significant judgment and the use of estimates, particularly surrounding Black-Scholes valuation assumptions such as stock price volatility and expected option term. Below is a summary of stock-based compensation included in the costs and expenses (in thousands):
|  | Three Months Ended |  | Nine Months Ended
|  | March 31, |  | March 31,
|  | 2020 |  | 2019 |  | 2020 |  | 2019
Stock-Based Compensation Expense: |  |  |  |  |  |  |  |  |  |  |  |
Cost of revenue |  | $ | 62 |  | $ | 97 |  | $ | 148 |  | $ | 241
Research and development |  |  | 171 |  |  | 163 |  |  | 549 |  |  | 387
Sales and marketing |  |  | 144 |  |  | 81 |  |  | 422 |  |  | 181
General and administrative |  |  | 83 |  |  | 158 |  |  | 274 |  |  | 388
Total stock-based compensation expense |  | $ | 460 |  | $ | 499 |  | $ | 1,393 |  | $ | 1,197
Total stock-based compensation includes expense related to non-employee awards of $14,000 and $57,000 during the three and nine months ended March 31, 2020, respectively. Total stock-based compensation includes expense related to non-employee awards of $95,000 and $143,000 during the three and nine months ended March 31, 2019, respectively. Total stock-based compensation includes expense related to the ESPP of $87,000 and $211,000 for the three and nine months ended March 31, 2020, respectively. Total stock-based compensation includes expense related to the ESPP of $128,000 and $161,000 for the three and nine months ended March 31, 2019, respectively. We utilize the Black-Scholes valuation model for estimating the fair value of the stock-based compensation of options granted. All shares of our common stock issued pursuant to our stock option plans are only issued out of an authorized reserve of shares of common stock which were previously registered with the SEC on Registration Statements on Form S-8. During the three months ended March 31, 2020 and 2019, we granted options to purchase 46,550 and 24,000 shares of common stock with a weighted-average fair value of $5.12 and $7.86 per share, respectively. During the nine months ended March 31, 2020 and 2019, we granted options to purchase 294,875 and 237,250 shares of common stock with a weighted-average fair value of $4.42 and $5.21 per share, respectively. We used the following assumptions:
|  | Three Months Ended |  |  | Nine Months Ended |
|  | March 31, |  |  | March 31, |
|  | 2020 |  | 2019 |  |  | 2020 |  | 2019 |
Expected volatility |  | 71 | % | 71 | % |  | 70 | % | 67 | %
Average risk-free interest rate |  | 1.16 | % | 2.47 | % |  | 1.55 | % | 2.81 | %
Expected life (in years) |  | 4.34 |  | 4.43 |  |  | 4.33 |  | 4.35 |
Dividend yield |  | — |  | — |  |  | — |  | — |
The dividend yield of zero is based on the fact that we have never paid cash dividends and have no present intention to pay cash dividends. We determined the appropriate measure of expected volatility by reviewing historic volatility in the share price of our common stock, as adjusted for certain events that management deemed to be non-recurring and non-indicative of future events. The risk-free interest rate is derived from the average U.S. Treasury Strips rate with maturities approximating the expected lives of the awards during the period, which approximate the rate in effect at the time of the grant. The fair value of the ESPP stock-based expense for the three and nine months ended March 31, 2020 were estimated using the following weighted-average assumptions:
|  | Three and Nine Months Ended |  |
|  | March 31, 2020 |  |
Expected term (in years) |  |  |  |  | 0.50 |  |
Volatility |  |  |  |  | 64 | % |
Expected dividend |  |  |  |  | — |  |
Risk-free interest rate |  |  |  |  | 2.04 | % |
Estimated forfeiture rate |  |  |  |  | — |  |
During the three and nine months ended March 31, 2020, employees were granted the right to purchase an aggregate of 69,368 shares under the ESPP, and compensation expense related to those purchase rights for the three and nine months ended March 31, 2020 was $87,000. During the three and nine months ended March 31, 2019, 94,805 grants were made pursuant to the ESPP, and compensation expense related to those purchase rights for the three and nine months ended March 31, 2019 was $267,000. As of March 31, 2020, there were 837,978 shares of common stock available for issuance under the ESPP. We base our estimate of expected life of a stock option on the historical exercise behavior and cancellations of all past option grants made by the Company during the time period which its equity shares have been publicly traded, the contractual term of the option, the vesting period and the expected remaining term of the outstanding options. In accordance with ASU 2016-09, Compensation—Stock Compensation: Improvements to Employee Share-Based Accounting, we elected to continue to estimate forfeitures in the calculation of stock-based compensation expense. As of March 31, 2020 there was approximately $1.3 million of total unrecognized compensation cost related to nonvested stock options, which is expected to be recognized over the weighted-average period of 1.17 years. There were 52,004 and 276,354 options exercised during the three months ended March 31, 2020 and 2019, respectively. There were 141,639 and 492,607 options exercised during the nine months ended March 31, 2020 and 2019, respectively. Leases Lease agreements are evaluated to determine whether an arrangement is or contains a lease in accordance with ASC 842, Leases. Operating leases are included in operating lease right-of-use (ROU) assets, current operating lease liabilities, and noncurrent operating lease liabilities in the condensed consolidated financial statements. ROU assets represent the Company’s right to use leased assets over the agreed upon term. Lease liabilities represent the Company’s contractual obligation to make lease payments over the lease term. For operating leases, ROU assets and lease liabilities are recognized at the commencement date of the lease. The lease liability is measured as the present value of the lease payments over the lease term, using the rate implicit in the lease if readily determinable. If the rate implicit in the lease cannot be readily determined, the Company uses its incremental borrowing rate at lease commencement. The operating lease right-of-use assets are calculated as the present value of the remaining lease payments plus unamortized initial direct costs and any prepayments, less unamortized lease incentives received. Operating leases typically include non-lease components such as common-area maintenance costs. We have elected to include non-lease components with lease payments for the purpose of calculating lease right-of-use assets and liabilities, to the extent that they are fixed. Non-lease component payments that are not fixed are expensed as incurred as variable lease payments. Lease terms may include renewal or extension options to the extent they are reasonably certain to be exercised. The assessment of whether renewal or extension options are reasonably certain to be exercised is made at lease commencement. Factors considered in determining whether an option is reasonably certain of exercise include, but are not limited to, the value of any leasehold improvements, the value of renewal rates compared to market rates, and the presence of factors that would cause a significant economic penalty to the Company if the option were not exercised. Lease expense is recognized on a straight-line basis over the lease term. The Company has elected not to recognize right-of-use assets and obligations for leases with an initial term of twelve months or less, and has applied a capitalization threshold to recognize a lease on the balance sheet. The expense associated with short-term leases and leases that do not meet the Company’s capitalization threshold are recorded to lease expense in the period it is incurred.

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