American Software, Inc. engages in the development and marketing of supply chain management and enterprise software solutions. It operates through the following segments: Supply Chain Management (SCM), Information Technology (IT) Consulting, and Other. The SCM segment offers supply chain optimization and retail planning solutions. The IT Consulting segment provides software enhancements, documentation, updates, customer education, consulting, systems integration services, maintenance, and support services. The Other segment involves the purchasing and materials management, customer order processing, financial, e-commerce, and traditional manufacturing solutions. The company was founded by James C. Edenfield in 1970 and is headquartered in Atlanta, GA.
A variety of factors may affect our future results and the market price of our stock.
We cannot predict every event and circumstance that may affect our business, and therefore the risks and uncertainties discussed below may not be the only ones you should consider.
RISK FACTORS RELATED TO THE ECONOMY
Disruptions in the financial and credit markets, a slow economic recovery, and other external influences in the U.S. and global markets may reduce demand for our software and related services, which may negatively affect our revenues and operating results.
There may be an increase in customer bankruptcies due to weak economic conditions.
Changes in the value of the U.S. dollar, as compared to the currencies of foreign countries where we transact business, could harm our operating results.
RISK FACTORS RELATED TO COMPETITION
Our markets are very competitive, and we may not be able to compete effectively.
Many of our current and potential competitors have significantly greater resources than we do, and therefore we may be at a disadvantage in competing with them.
Due to competition, we may change our pricing practices, which could adversely affect operating margins or customer ordering patterns.
RISK FACTORS RELATED TO OUR OPERATIONS
Our growth is dependent upon the successful further development of our direct and indirect sales channels.
We may be required to defer recognition of license revenue for a significant period of time after entering into an agreement, which could negatively affect our results of operations.
We are dependent upon the retail industry for a significant portion of our revenues.
We may derive a significant portion of our revenues in any quarter from a limited number of large, non-recurring license sales.
Our lengthy sales cycle makes it difficult to predict quarterly revenue levels and operating results.
We derive a significant portion of our services revenues from a small number of customers. If these customers were to discontinue the usage of our services or delay their implementation our total revenues would be adversely affected.
Services revenues carry lower gross margins than license revenues and an overall increase in services revenues as a percentage of total revenues could have an adverse impact on our business.
If our customers elect not to renew maintenance contracts after the initial maintenance period and the loss of those customers is not offset by new maintenance customers, our maintenance revenues and total revenues would be adversely affected.
If accounting interpretations relating to revenue recognition change or companies we acquire have applied such standards differently than we do or have not applied them at all, our reported revenues could decline or we could be forced to make changes in our business practices or we may incur the expense and risks associated with an audit or restatement of the acquired company’s financial statements.
Our future growth depends upon our ability to develop and sustain relationships with complementary vendors to market and implement our software products, and a failure to develop and sustain these relationships could have a material adverse effect on our operating performance and financial condition.
Failure to maintain our margins and service rates for implementation services could have a material adverse effect on our operating performance and financial condition.
Our past and future acquisitions may not be successful and we may have difficulty integrating acquisitions.
Our business may require additional capital.
Business disruptions could affect our operating results.
Our international operations and sales subject us to risks associated with unexpected activities outside of the United States.
It may become increasingly expensive to obtain and maintain liability insurance.
Adverse litigation results could affect our business.
Growth in our operations could increase demands on our managerial and operational resources.
Unanticipated changes in effective tax rates or adverse outcomes resulting from examination of our income or other tax returns could adversely affect our operating results and financial condition.
RISK FACTORS RELATED TO OUR PRODUCTS
We may not be successful in convincing customers to migrate to current or future releases of our products, which may lead to reduced services and maintenance revenues and less future business from existing customers.
We depend on third-party technology which, if it should become unavailable or if it contains defects, could result in increased costs or delays in the production and improvement of our products.
The use of open source software in our products may expose us to additional risks and harm our intellectual property.
We may be unable to retain or attract customers if we do not develop new products and enhance our current products in response to technological changes and competing products.
If our products are not able to deliver quick, demonstrable value to our customers, our business could be seriously harmed.
If we do not maintain software performance across accepted platforms and operating environments, our license and services revenue could be adversely affected.
Our software products and product development are complex, which make it increasingly difficult to innovate, extend our product offerings, and avoid costs related to correction of program errors.
If the open source community expands into enterprise application and supply chain software, our license fee revenues may decline.
Implementation of our products can be complex, time-consuming and expensive, customers may be unable to implement our products successfully, and we may become subject to warranty or product liability claims, which could be costly to resolve and result in negative publicity.
An increase in sales of software products that require customization would result in revenue being recognized over the term of the contract for those products and could have a material adverse effect on our operating performance and financial condition.
We sometimes experience delays in product releases, which can adversely affect our business.
We may not receive significant revenues from our current research and development efforts for several years.
We have limited protection of our intellectual property and proprietary rights and may potentially infringe third-party intellectual property rights.
We may experience liability claims arising out of the licensing of our software and provision of services.
Concerns that our products do not adequately protect the privacy of consumers could inhibit sales of our products.
We face risks associated with the security of our products, and if our data protection or other security measures are compromised and as a result our data, our customers’ data or our IT systems are accessed improperly, made unavailable, or improperly modified, our products and services may be perceived as vulnerable, our brand and reputation could be damaged, the IT services we provide to our customers could be disrupted, and customers may stop using our products and services, all of which could reduce our revenue and earnings, increase our expenses and expose us to legal claims and regulatory actions.
Any interruptions or delays in services from third-parties, including data center hosting facilities and cloud computing platform providers, or our inability to adequately plan for and manage service interruptions or infrastructure capacity requirements, could impair the delivery of our services and harm our business.
Privacy and security concerns, including evolving government regulation in the area of consumer data privacy, could adversely affect our business and operating results.
We might experience significant errors or security flaws in our software products and services.
RISK FACTORS RELATED TO OUR PERSONNEL
We are dependent upon key personnel, and need to attract and retain highly qualified personnel in all areas.
We periodically have restructured our sales force, which can be disruptive.
Our technical personnel have unique access to customer data, and may abuse that privilege.
RISK FACTORS RELATED TO OUR CORPORATE STRUCTURE AND GOVERNANCE
Our business is subject to changing regulation of corporate governance and public disclosure that has increased both our costs and the risk of noncompliance.
One stockholder beneficially owns a substantial portion of our stock, and as a result exerts substantial control over us.
Our articles of incorporation and bylaws and Georgia law may inhibit a takeover of our company.
We are a “controlled company” within the meaning of NASDAQ rules and, as a result, qualify for, and rely on, exemptions from certain corporate governance requirements.
RISK FACTORS RELATED TO OUR STOCK PRICE
We could experience fluctuations in quarterly operating results that could adversely affect our stock price.
Our stock price is volatile and there is a risk of litigation.
Our dividend policy is subject to change.
The price of our common stock may decline due to shares eligible for future sale or actual future sales of substantial amounts of our common stock.
Corporate capital spending trends and commitments are the primary determinants of the size of the market for business software. Corporate capital spending is, in turn, a function of general economic conditions in the U.S. and abroad and in particular may be affected by conditions in U.S. and global credit markets. In recent years, the weakness in the overall global economy and the U.S. economy in particular has resulted in reduced expenditures in the business software market.
In April 2019, the International Monetary Fund (“IMF”) provided an update to the World Economic Outlook for the 2019 and 2020 world economic growth forecast. The update noted that, “After strong growth in 2017 and early 2018, global economic activity slowed notably in the second half of last year, reflecting a confluence of factors affecting major economies. China’s growth declined following a combination of needed regulatory tightening to rein in shadow banking and an increase in trade tensions with the United States. The euro area economy lost more momentum than expected as consumer and business confidence weakened and car production in Germany was disrupted by the introduction of new emission standards; investment dropped in Italy as sovereign spreads widened; and external demand, especially from emerging Asia, softened. As a result of these developments, global growth is now projected to slow from 3.6 percent in 2018 to 3.3 percent in 2019, before returning to 3.6 percent in 2020. Growth for 2018 was revised down by 0.1 percentage point relative to the October 2018 World Economic Outlook (WEO), reflecting weakness in the second half of the year, and the forecasts for 2019 and 2020 are now marked down by 0.4 percentage point and 0.1 percentage point, respectively.”
For fiscal 2020, we expect the global economy to improve when compared to the prior year, which could result in an improved selling environment. Overall information technology spending is improving as a result of the current global economic environment. We believe information technology spending will incrementally improve over the long term as increased global competition forces companies to improve productivity by upgrading their technology systems. Although this improvement could slow or regress at any