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Summary of Business and Significant Accounting Policies | 3 Months Ended
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Sep. 30, 2022
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”) automates customer engagement with an innovative Software as a Service (SaaS) platform, powered by deep digital, Artificial Intelligence (AI), and knowledge capabilities. We sell mostly to large enterprises across financial services, telecommunications, retail, government, healthcare, and utilities. That is, organizations seeking to better serve customers at scale while coping with content silos, process complexity, and regulatory compliance. With our mantra of AX + BX + CX = DX™, we guide clients to effortless digital experience (DX) by holistically optimizing agent experience (AX), business experience (BX) and customer experience (CX). Leading brands use eGain’s cloud software to improve customer satisfaction, empower agents, reduce service cost, and boost sales. We are headquartered in the United States. We also operate in United Kingdom and India. ​ Fiscal Year ​ Our fiscal year ends on June 30. References to fiscal year 2023 refer to fiscal year ending June 30, 2023. ​ Basis of Presentation ​ The accompanying condensed consolidated balance sheet as of September 30, 2022 and the condensed consolidated statements of operations, comprehensive (loss) income, stockholders’ equity, and cash flows for the three months ended September 30, 2022 and 2021, are unaudited. The condensed consolidated balance sheet as of June 30, 2022 was derived from audited consolidated financial statements as of that date but does not include all the information and footnotes required by GAAP for complete financial statements. ​ Certain information and footnote disclosures, normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles (GAAP), have been condensed or omitted pursuant to such rules and regulations although we believe that the disclosures made are adequate to make the information not misleading. In our opinion, the unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of our financial position, results of operations and cash flows for the periods presented. ​ These condensed consolidated financial statements and notes should be read in conjunction with our audited consolidated financial statements and accompanying notes for the fiscal year ended June 30, 2022, included in our Annual Report on Form 10-K. The results of our operations for the interim periods presented are not necessarily indicative of results that may be expected for any other interim period or for the full fiscal year ending June 30, 2023. ​ Principles of Consolidation ​ We prepared the condensed consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and included the accounts of our wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated. ​ Use of Estimates ​ The preparation of financial statements requires us to make estimates and assumptions in the condensed consolidated financial statements and accompanying notes. Actual results could differ significantly from estimates. We make estimates that we believe to be reasonable based on historical experience and other assumptions. Significant estimates and assumptions made by management include the following: ​
| ● | Standalone selling price (SSP) of performance obligations for contracts with multiple performance obligations;
| ● | Estimate of variable consideration for performance obligations in connection with Topic 606;
| ● | Period of benefit associated with capitalized costs to obtain revenue contracts;
| ● | Valuation, measurement and recognition of current and deferred income taxes;
| ● | Fair value of stock-based awards; and
| ● | Lease term and incremental borrowing rate for lease liabilities.
​ Recent Accounting Pronouncements ​ Pronouncements Not Yet Adopted ​ In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13), which requires measurement and recognition of expected credit losses for financial assets held at the reporting date based on internal information, external information, or a combination of both relating to past events, current conditions, and reasonable and supportable forecasts. ASU No. 2016-13 replaces the existing incurred loss impairment model with a forward-looking expected credit loss model, which will result in earlier recognition of credit losses. Subsequent to the issuance of ASU No. 2016-13, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instrument, ASU No. 2019-05, Financial Instruments - Credit Losses (Topic 326) Targeted Transition Relief, ASU No. 2016-13, ASU No. 2019-10 Financial Instruments-Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842), and ASU No. 2019-11 Codification Improvements to Topic 326, Financial Instruments-Credit Losses. The subsequent ASUs do not change the core principle of the guidance in ASU No. 2016-13. Instead, these amendments are intended to clarify and improve operability of certain topics included within ASU No. 2016-13. ​ Additionally, ASU No. 2019-10 defers the effective date for the adoption of the new standard on credit losses for public filers that are considered small reporting companies (SRC) as defined by the SEC to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, which will be fiscal year 2024 for the Company if it continues to be classified as an SRC. In February 2020, the FASB issued ASU 2020-02, which provides guidance regarding methodologies, documentation, and internal controls related to expected credit losses. The subsequent amendments will have the same effective date and transition requirements as ASU No. 2016-13. Early adoption is permitted. Topic 326 requires a modified retrospective approach by recording a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. While the Company is currently evaluating the impact of Topic 326, the Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements or the related disclosure. ​ 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 sell. Professional services includes consulting, implementation, training, and managed services. ​ Significant Judgment Applied in the Determination of Revenue Recognition ​ We enter into contractual arrangements with customers that may include promises to transfer multiple services, such as subscription, support and professional services. With respect to our business, a performance obligation is a promise to transfer a service to a customer that is distinct. Significant judgment is required to determine whether services are distinct performance obligations that should be accounted for separately or combined as one unit of accounting. Additionally, significant judgment is required to determine the timing of revenue recognition. ​ We allocate the transaction price to each performance obligation based on relative SSP. 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 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. As the sales in connection with the royalty revenue agreement are reported by the customer 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. The Company does not adjust transaction price for the effects of a significant financing component when the period between the transfers of the promised good or service to the customer and payment for that good or service by the customer is expected to be one year or less. The Company assessed its revenue contracts in order to determine whether a significant financing component exists, and determined its contracts did not include a significant financing component for the periods ended September 30, 2022 and 2021. ​ Professional Services Revenue ​ Professional services revenue includes system implementation, consulting, training, and managed services. The transaction price is allocated to various performance obligations based on their 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. Managed services include a comprehensive set of processes and activities that range from implementation to monitoring the evolution and support of eGain solutions in a company. Our consulting and implementation service contracts are bid either on a time-and-materials basis or on a fixed-fee basis. Managed services contracts are bid on a time-and-material basis. Fixed fees are generally paid upon milestone billing or customer acceptance at pre-determined points in the contract. Amounts that have been invoiced are recorded in accounts receivable and in deferred revenue or revenue, depending on whether transfer of control to customers has occurred. Training revenue that meets the criteria to be accounted for separately is recognized when training is provided. Contracts with Multiple Performance Obligations ​ The Company enters into contracts that can include various combinations of subscriptions, professional services and maintenance and support, which are generally distinct and accounted for as separate performance obligations. For contracts with multiple performance obligations, the Company allocates the transaction price of the contract to each performance obligation on a relative basis using the respective SSP for each performance obligation. Costs Capitalized to Obtain Revenue Contracts, Net ​ Under Topic 606, we capitalize incremental costs of obtaining non-cancelable subscription and support revenue contracts. The capitalized amounts consist primarily of sales commissions paid to our direct sales force. Capitalized amounts also include (i) amounts paid to employees other than the direct sales force who earn incentive payouts under annual compensation plans that are tied to the value of contracts acquired and (ii) the associated payroll taxes and fringe benefit costs associated with the payments to our employees. ​ Costs capitalized related to new revenue contracts are generally deferred and amortized on a straight-line basis over a period of benefit that we estimate to be five years. We determine the period of benefit by taking into consideration the historical and expected durations of our customer contracts, the expected useful lives of our technologies, and other factors. Commissions for renewal contracts relating to our cloud-based arrangements are expensed when incurred, as we do not consider renewal contracts to be commensurate with initial customer contracts. Historically, any commission associated with renewals have been immaterial. Amortization of costs to obtain revenue contracts is included as a component of sales and marketing expenses in our condensed consolidated statements of operations. ​ During the three months ended September 30, 2022 and 2021, we capitalized $191,000 and $646,000 of costs to obtain revenue contracts, respectively, and amortized $375,000 and $356,000 to sales and marketing expense, respectively. ​ Capitalized costs to obtain revenue contracts, net were $4.3 million and $4.6 million as of September 30, 2022 and June 30, 2022, respectively, on our condensed consolidated balance sheets. ​ 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 combined Europe, Middle East, and Africa and is disclosed in Note 2. However, we incur operating expenses in the North America, combined Europe, Middle East, and Africa, and Asia Pacific regions. ​ The following table presents our (loss) income from operations among our three operating regions (in thousands): ​
​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Three Months Ended
​ | ​ | September 30,
​ | ​ | 2022 |  | 2021
(Loss) income from operations: | ​ | ​ | ​ | ​ | ​ | ​
North America | ​ | $ | (551) | ​ | $ | 38
Europe, Middle East, & Africa | ​ |  | 1,522 | ​ |  | 2,442
Asia Pacific | ​ |  | (1,641) | ​ |  | (1,789)
(Loss) income from operations | ​ | $ | (670) | ​ | $ | 691
​ The following table presents our long-lived assets, corresponding to our geographic areas are as follows (in thousands): ​
​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | September 30, | ​ | June 30,
​ |  | 2022 |  | 2022
Long-lived assets: | ​ | ​ | ​ | ​ | ​ | ​
North America | ​ | $ | 528 | ​ | $ | 488
Europe, Middle East, & Africa | ​ |  | 99 | ​ |  | 119
Asia Pacific | ​ |  | 185 | ​ |  | 224
Long-lived assets | ​ | $ | 812 | ​ | $ | 831
​ 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, net in the accompanying condensed consolidated balance sheets. ​ Concentration of Credit Risk and Significant Customers ​ Our financial instruments that are exposed to concentrations of credit risk include cash and cash equivalents and accounts receivable. One customer, who is also our partner, accounted for 24% of total revenue during the three months ended September 30, 2022. Two customers, who are also our partners, accounted for 24% and 13%, respectively, of total revenue during the three months ended September 30, 2021. Three and two different customers accounted for more than 10% of our gross accounts receivable balance as of September 30, 2022 and 2021, 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. 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. Recovered written off receivables are recorded as they occur. ​ In certain revenue contracts, contractual billings do not coincide with revenue recognized on the contract. Unbilled accounts receivables 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 $692,000 and $770,000 as of September 30, 2022, and June 30, 2022, respectively, and are included in the accounts receivable balance on the accompanying condensed consolidated balance sheets. ​ 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 granted under our Amended and Restated 2005 Management Stock Option Plan, our Amended and Restated 2005 Stock Incentive Plan, and our 2017 employee stock purchase plan (ESPP). ​ The ESPP provides that eligible employees may purchase the Company’s common stock through payroll deductions at a price equal to 85% of the lower of the fair market value at the entry date of the applicable offering period or at the end of each applicable purchasing period. The offering period, meaning a period with respect to which the right to purchase shares of our common stock may be granted under the ESPP, will not exceed twenty-seven months and consist of a series of six-month purchase periods. Eligible employees may join the ESPP at the beginning of any six-month purchase period. Under the terms of the ESPP, employees can choose to have between 1% and 15% of their base earnings withheld to purchase the Company’s common stock. ​ Determining the fair value of the stock-based awards at the grant date requires significant judgment and the use of estimates, particularly surrounding Black-Scholes valuation assumptions such as stock price volatility and expected option term. ​ Below is a summary of stock-based compensation included in the costs and expenses (in thousands): ​
​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Three Months Ended
​ | ​ | September 30,
​ |  | 2022 |  | 2021
Stock-Based Compensation Expense: | ​ | ​ | ​ | ​ | ​ | ​
Cost of revenue | ​ | $ | 430 | ​ | $ | 518
Research and development | ​ |  | 571 | ​ |  | 540
Sales and marketing | ​ |  | 531 | ​ |  | 509
General and administrative | ​ |  | 533 | ​ |  | 540
Total stock-based compensation expense | ​ | $ | 2,065 | ​ | $ | 2,107
​ Total stock-based compensation includes expense related to non-employee awards of $44,000 and $55,000 during the three months ended September 30, 2022, and 2021, respectively. ​ Total stock-based compensation includes expense related to the ESPP of $127,000 and $132,000 for the three months ended September 30, 2022, and 2021, 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 September 30, 2022 and 2021, we granted options to purchase 100,867 and 2,950,560 shares of common stock with a weighted-average fair value of $5.04 and $7.30 per share, respectively. ​ We used the following assumptions: ​
​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Three Months Ended | ​
​ | ​ | September 30, | ​
​ |  | 2022 |  | 2021 |
Expected volatility | ​ | 65 | % | 70 | %
Average risk-free interest rate | ​ | 3.23 | % | 0.80 | %
Expected life (in years) | ​ | 4.62 | ​ | 4.68 | ​
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. ​ On June 1, 2022 and 2021, employees were granted the right to purchase an aggregate of 97,982 and 80,018 shares under the ESPP, respectively. ​ As of September 30, 2022, there were 1,097,360 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 September 30, 2022 there was approximately $9.4 million of total unrecognized compensation cost, net of expected forfeitures, related to unvested stock options, which is expected to be recognized over the weighted-average period of 1.5 years. There were 7,225 and 156,170 options exercised during the three months ended September 30, 2022 and 2021, 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 ROU 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 ROU 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 ROU 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. ​ Goodwill ​ 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. We operate under a single reporting unit and accordingly, all of our goodwill is associated with the entire company. We had no indicators of impairment during the three months ended September 30, 2022.

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