SECURITIES AND EXCHANGE COMMISSION
_________________
_________________
(Mark One)
☒ | | | | | |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
JanuaryJuly 31,
20182022
☐ | | | | | |
☐ | 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:
0-12456_________________
(Exact name of registrant as specified in its charter)
_________________
| | | | | | | | | | | | | | |
Georgia | | 58-1098795 |
(State or other jurisdiction of
incorporation or organization) | | (IRS Employer
Identification Number) |
| |
470 East Paces Ferry Road, N.E., Atlanta, Georgia | Atlanta | Georgia | | 30305 |
(Address of principal executive offices) | | (Zip Code) |
(Registrant’s telephone number, including area code)
None
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
Title of each class | Trading Symbol | Name of each exchange on which registered |
Common Stock | AMSWA | NASDAQ Global Select Market |
_________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically
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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer,
smaller reportingan emerging growth company or
an emerging growtha smaller reporting company. See the definitions of “large accelerated filer,” “accelerated
filer”,filer,” “emerging growth company” and “smaller reporting company”
and “emerging growth company” in
Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | | | | | | | |
Large Accelerated Filer | | ☒ | | Accelerated Filer | | ☐ |
| | | | | | |
Large acceleratedNon-accelerated filer | | ☐ | | Accelerated filerSmaller reporting company | | ☒☐ |
| | | |
Non-accelerated filer | | ☐ (Do not check if a smaller reporting company) | | Smaller reporting company | | ☐ |
| | | |
| | | | Emerging growth company | | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the exchange act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| | | | | | | | |
Classes | | Outstanding at February 28, 2018August 31, 2022 |
Class A Common Stock, $.10 par value | | 28,199,96531,875,063 Shares |
Class B Common Stock, $.10 par value | | 2,206,5881,821,587 Shares |
AMERICAN SOFTWARE, INC. AND SUBSIDIARIES
Form10-Q
Quarter ended January 31, 2018
Index
AMERICAN SOFTWARE, INC. AND SUBSIDIARIES
Form 10-Q
Quarter ended July 31, 2022
Index
PART I—FINANCIAL INFORMATION
Item 1. | Financial Statements |
Item 1. Financial Statements
American Software, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(unaudited)(Unaudited)
(in thousands, except share data)
| | | | | | | | |
| | January 31, 2018 | | | April 30, 2017 | |
ASSETS | | | | | | | | |
Current assets: | | | | | | | | |
Cash and cash equivalents | | $ | 54,912 | | | $ | 66,001 | |
Investments | | | 23,055 | | | | 19,332 | |
Trade accounts receivable, less allowance for doubtful accounts of $144 at January 31, 2018 and $172 at April 30, 2017: | | | | | | | | |
Billed | | | 20,456 | | | | 17,060 | |
Unbilled | | | 2,714 | | | | 2,811 | |
Prepaid expenses and other current assets | | | 5,510 | | | | 4,322 | |
| | | | | | | | |
Total current assets | | | 106,647 | | | | 109,526 | |
Investments—noncurrent | | | 10,464 | | | | 4,455 | |
Property and equipment, net of accumulated depreciation of $28,513 at January 31, 2018 and $28,153 at April 30, 2017 | | | 2,151 | | | | 2,055 | |
Capitalized software, net of accumulated amortization of $23,150 at January 31, 2018 and $20,423 at April 30, 2017 | | | 9,539 | | | | 8,614 | |
Goodwill | | | 25,468 | | | | 19,549 | |
Other intangibles, net of accumulated amortization of $7,624 at January 31, 2018 and $6,406 at April 30, 2017 | | | 6,171 | | | | 3,399 | |
Other assets | | | 3,483 | | | | 1,176 | |
| | | | | | | | |
Total assets | | $ | 163,923 | | | $ | 148,774 | |
| | | | | | | | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | | |
Current liabilities: | | | | | | | | |
Accounts payable | | $ | 1,841 | | | $ | 1,541 | |
Accrued compensation and related costs | | | 5,624 | | | | 3,329 | |
Dividends payable | | | 3,344 | | | | 3,259 | |
Other current liabilities | | | 2,602 | | | | 5,171 | |
Deferred revenue | | | 33,564 | | | | 29,437 | |
| | | | | | | | |
Total current liabilities | | | 46,975 | | | | 42,737 | |
Deferred income taxes | | | 2,202 | | | | 1,994 | |
Long-term deferred revenue | | | 531 | | | | 214 | |
Other long-term liabilities | | | 1,779 | | | | 79 | |
| | | | | | | | |
Total liabilities | | | 51,487 | | | | 45,024 | |
Shareholders’ equity: | | | | | | | | |
Common stock: | | | | | | | | |
Class A, $.10 par value. Authorized 50,000,000 shares: Issued 32,786,381 shares at January 31, 2018 and 31,821,508 shares at April 30, 2017 | | | 3,279 | | | | 3,182 | |
Class B, $.10 par value. Authorized 10,000,000 shares: Issued and outstanding 2,206,588 shares at January 31, 2018 and 2,393,336 shares at April 30, 2017; convertible into Class A shares on aone-for-one basis | | | 221 | | | | 239 | |
Additionalpaid-in capital | | | 129,028 | | | | 121,280 | |
Retained earnings | | | 5,467 | | | | 4,608 | |
Class A treasury stock, 4,588,632 shares at January 31, 2018 and April 30, 2017, at cost | | | (25,559 | ) | | | (25,559 | ) |
| | | | | | | | |
Total shareholders’ equity | | | 112,436 | | | | 103,750 | |
| | | | | | | | |
Commitments and contingencies | | | | | | | | |
Total liabilities and shareholders’ equity | | $ | 163,923 | | | $ | 148,774 | |
| | | | | | | | |
| | | | | | | | | | | |
| July 31, 2022 | | April 30, 2022 |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 97,878 | | | $ | 110,690 | |
Investments | 16,954 | | | 16,826 | |
Trade accounts receivable, less allowance for doubtful accounts of $344 at July 31, 2022 and $423 at April 30, 2022: | | | |
Billed | 20,556 | | | 20,619 | |
Unbilled | 2,901 | | | 2,989 | |
Prepaid expenses and other current assets | 5,553 | | | 5,067 | |
Total current assets | 143,842 | | | 156,191 | |
Property and equipment, net of accumulated depreciation of $31,452 at July 31, 2022 and $31,240 at April 30, 2022 | 5,013 | | | 3,654 | |
Capitalized software, net of accumulated amortization of $42,464 at July 31, 2022 and $42,007 at April 30, 2022 | 1,129 | | | 1,586 | |
Goodwill | 29,208 | | | 25,888 | |
Other intangibles, net of accumulated amortization of $13,327 at July 31, 2022 and $13,228 at April 30, 2022 | 3,228 | | | 147 | |
Lease right of use assets | 782 | | | 935 | |
Deferred sales commissions—noncurrent | 1,871 | | | 2,050 | |
Other assets | 2,526 | | | 2,384 | |
Total assets | $ | 187,599 | | | $ | 192,835 | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | |
Current liabilities: | | | |
Accounts payable | $ | 3,305 | | | $ | 2,506 | |
Accrued compensation and related costs | 2,804 | | | 6,918 | |
Dividends payable | 3,705 | | | 3,700 | |
Operating lease obligations | 481 | | | 541 | |
Other current liabilities | 4,142 | | | 1,871 | |
Deferred revenue | 38,299 | | | 41,953 | |
Total current liabilities | 52,736 | | | 57,489 | |
Deferred income taxes | 846 | | | 1,772 | |
Long-term operating lease obligations | 356 | | | 461 | |
Other long-term liabilities | 480 | | | 137 | |
Total liabilities | 54,418 | | | 59,859 | |
Shareholders’ equity: | | | |
Common stock: | | | |
Class A, $.10 par value. Authorized 50,000,000 shares: 36,448,695 (31,860,063, net) shares issued and outstanding respectively at July 31, 2022 and 36,405,695 (31,817,063, net) shares issued and outstanding respectively at April 30, 2022 | 3,645 | | | 3,641 | |
Class B, $.10 par value. Authorized 10,000,000 shares: 1,821,587 shares issued and outstanding at July 31, 2022 and April 30, 2022; convertible into Class A Common Shares on a one-for-one basis | 182 | | | 182 | |
Additional paid-in capital | 173,721 | | | 171,948 | |
Retained deficit | (18,808) | | | (17,236) | |
Class A treasury stock, 4,588,632 shares at July 31, 2022 and April 30, 2022, at cost | (25,559) | | | (25,559) | |
Total shareholders’ equity | 133,181 | | | 132,976 | |
Commitments and contingencies | | | |
Total liabilities and shareholders’ equity | $ | 187,599 | | | $ | 192,835 | |
See accompanying notes to condensed consolidated financial statements—unaudited.
American Software, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(unaudited)(Unaudited)
(in thousands, except per share data)
| | | | | | | | | | | | | | | | |
| Three Months Ended July 31, | | | |
| 2022 | | 2021 | | | | | |
Revenue: | | | | | | | | |
Subscription fees | $ | 12,062 | | | $ | 9,788 | | | | | | |
License | 320 | | | 492 | | | | | | |
Professional services and other | 10,009 | | | 9,529 | | | | | | |
Maintenance | 8,905 | | | 9,462 | | | | | | |
Total revenue | 31,296 | | | 29,271 | | | | | | |
Cost of revenue: | | | | | | | | |
Subscription fees | 3,618 | | | 3,224 | | | | | | |
License | 89 | | | 159 | | | | | | |
Professional services and other | 7,304 | | | 7,010 | | | | | | |
Maintenance | 1,573 | | | 1,974 | | | | | | |
Total cost of revenue | 12,584 | | | 12,367 | | | | | | |
Gross margin | 18,712 | | | 16,904 | | | | | | |
Research and development | 4,454 | | | 4,424 | | | | | | |
Sales and marketing | 5,912 | | | 6,120 | | | | | | |
General and administrative | 5,765 | | | 4,534 | | | | | | |
Amortization of acquisition-related intangibles | 24 | | | 53 | | | | | | |
Total operating expenses | 16,155 | | | 15,131 | | | | | | |
Operating income | 2,557 | | | 1,773 | | | | | | |
Other income\(loss): | | | | | | | | |
Interest income | 209 | | | 93 | | | | | | |
Other, net | (90) | | | 344 | | | | | | |
Earnings before income taxes | 2,676 | | | 2,210 | | | | | | |
Income tax expense\(benefit) | 543 | | | (737) | | | | | | |
Net earnings | $ | 2,133 | | | $ | 2,947 | | | | | | |
Earnings per common share (a): | | | | | | | | |
Basic | $ | 0.06 | | | $ | 0.09 | | | | | | |
Diluted | $ | 0.06 | | | $ | 0.09 | | | | | | |
Cash dividends declared per common share | $ | 0.11 | | | $ | 0.11 | | | | | | |
Shares used in the calculation of earnings per common share: | | | | | | | | |
Basic | 33,656 | | | 33,053 | | | | | | |
Diluted | 34,007 | | | 33,946 | | | | | | |
______________
(a)Basic per share amounts are the same for Class A and Class B shares. Diluted per share amounts for Class A shares are shown above. Diluted earnings per share data) | | | | | | | | | | | | | | | | |
| | Three Months Ended January 31, | | | Nine Months Ended January 31, | |
| | 2018 | | | 2017 | | | 2018 | | | 2017 | |
Revenues: | | | | | | | | | | | | | | | | |
License | | $ | 5,955 | | | $ | 3,959 | | | $ | 12,420 | | | $ | 11,726 | |
Services and other | | | 12,926 | | | | 11,815 | | | | 38,017 | | | | 36,385 | |
Maintenance | | | 11,236 | | | | 10,667 | | | | 32,903 | | | | 31,909 | |
| | | | | | | | | | | | | | | | |
Total revenues | | | 30,117 | | | | 26,441 | | | | 83,340 | | | | 80,020 | |
| | | | | | | | | | | | | | | | |
Cost of revenues: | | | | | | | | | | | | | | | | |
License | | | 1,940 | | | | 2,081 | | | | 5,295 | | | | 5,510 | |
Services and other | | | 8,727 | | | | 8,061 | | | | 24,849 | | | | 26,159 | |
Maintenance | | | 2,404 | | | | 2,250 | | | | 6,919 | | | | 7,489 | |
| | | | | | | | | | | | | | | | |
Total cost of revenues | | | 13,071 | | | | 12,392 | | | | 37,063 | | | | 39,158 | |
| | | | | | | | | | | | | | | | |
Gross margin | | | 17,046 | | | | 14,049 | | | | 46,277 | | | | 40,862 | |
| | | | | | | | | | | | | | | | |
Research and development | | | 3,099 | | | | 3,074 | | | | 8,250 | | | | 9,343 | |
Sales and marketing | | | 5,385 | | | | 4,635 | | | | 15,055 | | | | 15,307 | |
General and administrative | | | 4,263 | | | | 3,500 | | | | 11,418 | | | | 10,701 | |
Amortization of acquisition-related intangibles | | | 95 | | | | 385 | | | | 486 | | | | 702 | |
| | | | | | | | | | | | | | | | |
Total operating expenses | | | 12,842 | | | | 11,594 | | | | 35,209 | | | | 36,053 | |
| | | | | | | | | | | | | | | | |
Operating income | | | 4,204 | | | | 2,455 | | | | 11,068 | | | | 4,809 | |
Other income: | | | | | | | | | | | | | | | | |
Interest income | | | 403 | | | | 287 | | | | 1,120 | | | | 882 | |
Other, net | | | 1,171 | | | | 738 | | | | 1,729 | | | | 637 | |
| | | | | | | | | | | | | | | | |
Earnings before income taxes | | | 5,778 | | | | 3,480 | | | | 13,917 | | | | 6,328 | |
Income tax expense | | | 198 | | | | 1,237 | | | | 3,132 | | | | 1,985 | |
| | | | | | | | | | | | | | | | |
Net earnings | | $ | 5,580 | | | $ | 2,243 | | | $ | 10,785 | | | $ | 4,343 | |
| | | | | | | | | | | | | | | | |
Earnings per common share(a): | | | | | | | | | | | | | | | | |
Basic | | $ | 0.18 | | | $ | 0.08 | | | $ | 0.36 | | | $ | 0.15 | |
| | | | | | | | | | | | | | | | |
Diluted | | $ | 0.18 | | | $ | 0.08 | | | $ | 0.36 | | | $ | 0.15 | |
| | | | | | | | | | | | | | | | |
Cash dividends declared per common share | | $ | 0.11 | | | $ | 0.11 | | | $ | 0.33 | | | $ | 0.32 | |
| | | | | | | | | | | | | | | | |
Shares used in the calculation of earnings per common share: | | | | | | | | | | | | | | | | |
Basic | | | 30,244 | | | | 29,333 | | | | 29,940 | | | | 29,136 | |
| | | | | | | | | | | | | | | | |
Diluted | | | 30,701 | | | | 29,630 | | | | 30,299 | | | | 29,447 | |
| | | | | | | | | | | | | | | | |
(a) | Basic per share amounts are the same for Class A and Class B shares. Diluted per share amounts for Class A shares are shown above. Diluted earnings per share for Class B shares under thetwo-class method are $0.18 and $0.08 for the three months ended January 31, 2018 and 2017, and $0.35 and $0.15 for the nine months ended January 31, 2018 and 2017, respectively. See Note D to the Condensed Consolidated Financial Statements. |
for Class B shares under the two-class method are $0.06 and $0.09 for the three months ended July 31, 2022 and 2021. See Note D to the Condensed Consolidated Financial Statements.
See accompanying notes to condensed consolidated financial statements—unaudited.
American Software, Inc. and Subsidiaries
Condensed Consolidated Statements of
Cash Flows (unaudited)Shareholders’ Equity (Unaudited)
(in
thousands) | | | | | | | | |
| | Nine Months Ended January 31, | |
| | 2018 | | | 2017 | |
Cash flows from operating activities: | | | | | | | | |
Net earnings | | $ | 10,785 | | | $ | 4,343 | |
Adjustments to reconcile net earnings to net cash provided by operating activities: | | | | | | | | |
Depreciation and amortization | | | 4,305 | | | | 5,045 | |
Stock-based compensation expense | | | 1,108 | | | | 1,111 | |
Net gain on investments | | | (1,378 | ) | | | (170 | ) |
Deferred income taxes | | | 208 | | | | (281 | ) |
Changes in operating assets and liabilities, net of effects of acquisition: | | | | | | | | |
Purchases of trading securities | | | (20,010 | ) | | | (7,150 | ) |
Proceeds from maturities and sales of trading securities | | | 11,656 | | | | 12,683 | |
Accounts receivable, net | | | (2,926 | ) | | | 3,661 | |
Prepaid expenses and other assets | | | (1,494 | ) | | | (5 | ) |
Accounts payable and other liabilities | | | (999 | ) | | | (53 | ) |
Deferred revenue | | | 4,096 | | | | 78 | |
| | | | | | | | |
Net cash provided by operating activities | | | 5,351 | | | | 19,262 | |
| | | | | | | | |
Cash flows from investing activities: | | | | | | | | |
Capitalized computer software development costs | | | (3,652 | ) | | | (2,471 | ) |
Purchases of property and equipment, net of disposals | | | (413 | ) | | | (500 | ) |
Purchase of business, net of cash acquired | | | (9,253 | ) | | | (4,441 | ) |
| | | | | | | | |
Net cash used in investing activities | | | (13,318 | ) | | | (7,412 | ) |
| | | | | | | | |
Cash flows from financing activities: | | | | | | | | |
Proceeds from exercise of stock options | | | 6,719 | | | | 4,397 | |
Payment for accrued acquisition consideration | | | — | | | | (200 | ) |
Dividends paid | | | (9,841 | ) | | | (9,299 | ) |
| | | | | | | | |
Net cash used in financing activities | | | (3,122 | ) | | | (5,102 | ) |
| | | | | | | | |
Net change in cash and cash equivalents | | | (11,089 | ) | | | 6,748 | |
Cash and cash equivalents at beginning of period | | | 66,001 | | | | 49,004 | |
| | | | | | | | |
Cash and cash equivalents at end of period | | $ | 54,912 | | | $ | 55,752 | |
| | | | | | | | |
thousands, except share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common stock | | Additional paid-in capital | | Retained deficit | | Treasury stock | | Total shareholders’ equity |
| Class A | | Class B | |
For the Three Months Ended July 31, 2021 | Shares | | Amount | | Shares | | Amount | |
| | | | | | | | | | | | | | | |
Balance at April 30, 2021 | 35,629,566 | | | 3,563 | | | 1,821,587 | | | 182 | | | 159,492 | | (15,287) | | | (25,559) | | | 122,391 | |
Proceeds from stock options exercised | 399,000 | | | 40 | | — | | | — | | | 4,032 | | | — | | | — | | | 4,072 |
Stock-based compensation | — | | | — | | | — | | | — | | | 775 | | | — | | | — | | | 775 |
Net earnings | — | | | — | | | — | | | — | | | — | | | 2,947 | | | — | | | 2,947 |
Dividends declared* | — | | | — | | | — | | | — | | | — | | | (3,651) | | | — | | | (3,651) | |
Balance at July 31, 2021 | 36,028,566 | | 3,603 | | 1,821,587 | | 182 | | 164,299 | | (15,991) | | | (25,559) | | | 126,534 |
For the Three Months Ended July 31, 2022 | | | | | | | | | | | | | | | |
Balance at April 30, 2022 | 36,405,695 | | | 3,641 | | | 1,821,587 | | | 182 | | | 171,948 | | (17,236) | | | (25,559) | | | 132,976 | |
Proceeds from stock options exercised* | 43,000 | | | 4 | | — | | | — | | | 467 | | — | | | — | | | 471 | |
Stock-based compensation | — | | | — | | | — | | | — | | | 1,306 | | — | | | — | | | 1,306 | |
Net earnings | — | | | — | | | — | | | — | | | — | | | 2,133 | | — | | | 2,133 | |
Dividends declared | — | | | — | | | — | | | — | | | — | | | (3,705) | | | — | | | (3,705) | |
Balance at July 31, 2022 | 36,448,695 | | | 3,645 | | | 1,821,587 | | | 182 | | | 173,721 | | | (18,808) | | | (25,559) | | | 133,181 | |
*Amounts adjusted for rounding
See accompanying notes to condensed consolidated financial statements—unaudited.
American Software, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
| | | | | | | | | | | |
| Three Months Ended July 31, |
| 2022 | | 2021 |
Cash flows from operating activities: | | | |
Net earnings | $ | 2,133 | | | $ | 2,947 | |
Adjustments to reconcile net earnings to net cash provided by operating activities: | | | |
Depreciation and amortization | 768 | | | 1,131 | |
| | | |
Stock-based compensation expense | 1,306 | | | 775 | |
Net gain on investments | (61) | | | (376) | |
Deferred income taxes | (926) | | | (25) | |
Changes in operating assets and liabilities: | | | |
Purchases of trading securities | (172) | | | (63) | |
Proceeds from maturities and sales of trading securities | 105 | | | 165 | |
Accounts receivable, net | 152 | | | 1,766 | |
| | | |
Prepaid expenses and other assets | (448) | | | (1,606) | |
Accounts payable and other liabilities | (720) | | | (1,459) | |
Deferred revenue | (3,655) | | | (221) | |
Net cash (used in) provided by operating activities | (1,518) | | | 3,034 | |
Cash flows from investing activities: | | | |
| | | |
Purchases of property and equipment, net of disposals | (1,572) | | | (302) | |
Purchases of business | (6,500) | | | — | |
Net cash used in investing activities | (8,072) | | | (302) | |
Cash flows from financing activities: | | | |
Proceeds from exercise of stock options | 471 | | | 4,072 | |
Dividends paid | (3,693) | | | (3,608) | |
Net cash (used in) provided by financing activities | (3,222) | | | 464 | |
Net change in cash and cash equivalents | (12,812) | | | 3,196 | |
Cash and cash equivalents at beginning of period | 110,690 | | | 88,658 | |
Cash and cash equivalents at end of period | $ | 97,878 | | | $ | 91,854 | |
| | | |
Supplemental disclosure of cash flow information: | | | |
Cash paid during the period for: | | | |
Income taxes, net of refunds | $ | 5 | | | $ | — | |
Supplemental disclosures of noncash operating, investing and financing activities: | | | |
Accrual of dividends payable | 3,705 | | | $ | 3,651 | |
See accompanying notes to condensed consolidated financial statements—unaudited.
AMERICAN SOFTWARE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements—Unaudited
January
A. Presentation and Summary of Significant Accounting Policies
Basis of Presentation
and Principles of ConsolidationBasis of Presentation
The accompanying unaudited
condensed consolidated financial statementsCondensed Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles
("GAAP") for interim financial information and
with the instructions to Form
10-Q and Rule
10-01 of
Regulation S-X. Accordingly, they do not include all of the information and footnotes required for complete
consolidated financial statements. In the opinion of our management, these
condensed consolidated financial statementsCondensed Consolidated Financial Statements contain all normal recurring adjustments considered necessary for a fair presentation of the Company’s financial position at
JanuaryJuly 31,
2018, the2022, results of operations for the three
and nine months ended
JanuaryJuly 31,
20182022 and
20172021, consolidated statements of shareholders’ equity for the three months ended July 31, 2022 and 2021 and cash flows for the
ninethree months ended
JanuaryJuly 31,
20182022 and
2017.2021. The Company’s results for the three
and nine months ended
JanuaryJuly 31,
20182022 are not necessarily indicative of the results expected for the full year. You should read these statements in conjunction with our audited consolidated financial statements and management’s discussion and analysis and results of operations included in our Annual Report on Form
10-K (the “Annual Report”) for the fiscal year ended April 30,
2017 (the “Annual Report”).2022. The terms “fiscal 2023” and “fiscal 2022” refer to our fiscal years ending April 30, 2023 and 2022, respectively.
The preparation of these
financial statementsCondensed Consolidated Financial Statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities, at the date of the
financial statementsCondensed Consolidated Financial Statements and the reported amounts of
revenuesrevenue and expenses during the reporting period. Note 1 in the Notes to the Consolidated Financial Statements for
the fiscal
year ended April 30, 20172022 contained in the Annual Report describes the significant accounting policies that we have used in preparing our
financial statements.Consolidated Financial Statements. On an ongoing basis, we evaluate our estimates, including, but not limited to, those related to revenue/
collectability, bad debts, capitalized software costs, goodwill, intangible assets, stock-based compensation, income taxesreserves and
business combination.allowances. We base our estimates on historical experience and on various other assumptions that we believe 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. Our actual results could differ materially from these estimates under different assumptions or conditions.
Principles of Consolidation
The accompanying unaudited
condensed consolidated financial statementsCondensed Consolidated Financial Statements include the accounts of American Software, Inc.
(“American Software”) and its wholly-owned subsidiaries
(“American Software” or(collectively, the “Company”). All significant intercompany balances and transactions have been eliminated in consolidation.
Recent Accounting Pronouncements
Accounting Standards Update ("ASU") 2021-08— In October 2021, the Financial Accounting Standards Board ("FASB") issued ASU 2021-08, "Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers." Under current GAAP, an acquirer generally recognizes assets acquired and liabilities assumed in a business combination, including contract assets and contract liabilities arising from revenue contracts with customers and other similar contracts that are accounted for in accordance with Accounting Standards Codification ("ASC") Topic 606, Revenue from Contracts with Customers ("Topic 606"), at fair value on the acquisition date. ASU 2021-08 requires that an entity recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts, which should generally result in an acquirer recognizing and measuring the acquired contract assets and contract liabilities consistent with how they were recognized and measured in the acquiree’s financial statements. This update also provides certain practical expedients for acquirers when recognizing and measuring acquired contract assets and contract liabilities from revenue contracts in a business combination. The amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years and should be applied prospectively to business combinations occurring on or after the effective date of the amendments. Early adoption is permitted, including adoption in an interim period. Adoption during an interim period requires retrospective application to all business combinations for which the acquisition date occurs on or after the beginning of the fiscal year that includes the interim period of early application. We are evaluating the potential effects of ASU 2021-08 on our consolidated financial statements.
In accordance with the ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), we recognize revenue when we transfer control of the promised goods or services to our clients, in an amount that reflects the consideration we expect to receive, in exchange for those goods or services. We recognizederive our revenue from software licenses, maintenance services,
consulting, implementation and training services, and Software-as-a-Service (“SaaS”), which includes a subscription to our software, as well as support, hosting and managed services.
The Company recognizes revenue in accordance with the Software Revenue Recognition Topicfollowing steps:
Step 1 - Identification of the
Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”).License. We recognize license revenue in connectionContract with license agreements for standard proprietary software upon deliverythe Client
Step 2 - Identification of Promised Goods and Services and Evaluation of Whether the Promised Goods and Services are Distinct Performance Obligations
Step 3 - Determination of the software, provided we consider collection to be probable, the fee is fixed or determinable, there is evidence of an arrangement, and vendor specific objective evidence (“VSOE”) exists with respect to any undelivered elementsTransaction Price
Step 4 - Allocation of the arrangement. For multiple-element arrangements, we recognizeTransaction Price to Distinct Performance Obligations
Step 5 - Attribution of Revenue for Each Distinct Performance Obligation
Nature of Products and Services
Subscription. Subscription fees include SaaS revenue under the residual method, whereby (1) the total fair value of the undelivered elements, as indicated by VSOE, is deferred and subsequently recognized and (2) the difference between the total arrangement fee and the amount deferred for the undelivered elements is recognized as revenue related to the delivered elements. We record revenues from sales of third-party products in accordance with Principal Agent Considerations within the Revenue Recognition Topic of the FASB’s Accounting Standards Codification. Furthermore, we evaluate sales through our indirect channel on acase-by-case basis to determine whether the transaction should be recorded gross or net, including but not limited to assessing whether or not we: (1) act as principal in the transaction, (2) take title to the products, (3) have risks and rewards of ownership, such as the risk of loss for collection, delivery, or returns, and (4) act as an agent or broker with compensation on a commission or fee basis. Accordingly, in most cases we record our sales through the Demand Management, Inc. (“DMI”) channel on a gross basis.Maintenance. Revenue derived from maintenance contracts primarily includes telephone consulting, product updates, and releases of new versions of products previously purchased by the customer, as well as error reporting and correction services. Maintenance contracts are typically sold for a separate fee with initial contractual periods ranging from one to three years with renewal for additional periods thereafter. Maintenance fees are generally billed annually in advance. We recognize maintenance
revenue ratably over the term of the maintenance agreement. In situations where we bundle all or a portion of the maintenance fee with the license fee, VSOE for maintenance is determined based on prices when sold separately.
Services. Revenue derived from services primarily includes consulting, implementation, and training. We primarily bill fees under time and materials arrangements and recognize them as we perform the services. In accordance with the other presentation matters within the Revenue Recognition Topic of the FASB’s Accounting Standards Codification, we recognize amounts received for reimbursement of travel and otherout-of-pocket expenses incurred as revenue in the condensed consolidated statements of operations under services and other. These amounts totaled approximately $419,000 and $1.4 million for the three and nine months ended January 31, 2018, respectively, and $414,000 and $1.6 million for the three and nine months ended January 31, 2017, respectively.
Software-as-a-Service (SaaS) revenues include fees for the right to use the software for a limited period of time in aan environment hosted environment by the Company or by a third party and the customerparty. The client accesses and uses the software on anas-needed as needed basis over the Internet or via a dedicated line; however, the customerclient has no abilityright to take delivery of the software. The underlying arrangements typically include a single fee for the service that is billed monthly, quarterly or annually. The Company’s SaaS revenues (which rolls intosolutions represent a series of distinct services that are substantially the same and other revenue) arehave the same pattern of transfer to the client. Revenue from a SaaS solution is generally recognized ratably over the subscription periodterm of the arrangement.
License. Our perpetual software licenses provide the client with a right to use the software as it exists at the time of purchase. We recognize revenue for distinct software licenses once the license period has begun and we have made the software available to the client. Our perpetual software licenses are sold with maintenance under which we provide clients with telephone consulting, product updates on a when available basis, and releases of new versions of products previously purchased by the client, as well as error reporting and correction services.
Professional Services and Other. Our services commence. Other cloud revenuesrevenue consists of managedfees generated from consulting, implementation and hostingtraining services, including reimbursements of out-pocket expenses in connection with our services. Services are typically optional to our clients, and are distinct from our software. Fees for our services are separately priced and are generally billed on an hourly basis, and revenue is recognized over time as the services are performed. We believe the output method of hours worked provides the best depiction of the transfer of our services since the client is receiving the benefit from our services as the work is performed. The total amount of expense reimbursement included in professional services and other revenue was approximately $30,000 and $29,000 for the three months ended July 31, 2022 and July 31, 2021, respectively.
Maintenance. Revenue is derived from maintenance under which we provide clients with telephone consulting, product updates and releases of new versions of products previously purchased by the client on a when and if available basis, as well as error reporting and correction services. Maintenance for perpetual licenses is renewable, generally on an annual basis, at the option of the client. Maintenance terms typically range from one to three years. Revenue related to maintenance is generally paid in advance and recognized ratably over the term of the agreement since the Company is standing ready to provide a series of maintenance services that are substantially the same each period over the term; therefore, time is the best measure of progress. Support services for subscriptions are included in the subscription fees and are recognized as a component of such fees.
Indirect Channel Revenue.Revenue. We recognize revenues forrecord revenue from sales made through the indirect sales channels principally whenon a gross basis, because we control the distributor makesgoods or services and act as the saleprincipal in the transaction. In reaching this determination, we evaluated sales through our indirect channel on a case-by-case basis and considered a number of factors including indicators of control such as the party having the primary responsibility to anend-user, the license fee is fixedprovide specified goods or determinable, the license fee is nonrefundable,services and the sale meets all other conditions for revenue recognition.Deferred Revenue. Deferred revenue represents advance payments or billings for software licenses, services, and maintenance billedparty having discretion in advance of the time revenue is recognized.
establishing prices.
Sales Taxes.Taxes. We account for sales taxes collected from customersclients on a net basis.Unbilled Accounts Receivable. The
Contract Balances. Timing of invoicing to clients may differ from timing of revenue recognition and these timing differences result in unbilled receivableaccounts receivables or contract liabilities (deferred revenue) on the Company’s condensed consolidated balance consistssheets. Fees for our software licenses are generally due within 30 days of amounts generated from license fee and services revenues. At January 31, 2018 and April 30, 2017, unbilled license fees were approximately $384,000 and $1.0 million, respectively, and unbilled services revenues were approximately $2.3 million and $1.8 million, respectively. Unbilled license fee accounts receivable represents revenue that has been recognized, butcontract execution. We have an established history of collecting under the terms of theour software license agreement, which include specified payment terms thatcontracts without providing refunds or concessions to our clients. SaaS solutions and maintenance are considered normal and customary, certain payments have not yet been invoiced to the customers. Unbilled services revenues primarily occur due totypically billed in advance on a monthly, quarterly, or annual basis. Services are typically billed as performed. In instances where the timing of revenue recognition differs from the respective billings, which occur subsequenttiming of invoicing, we
have determined that our contracts generally do not include significant financing component. The primary purpose of our invoicing terms is to provide clients with predictable ways to purchase our software and services, not to provide or receive financing. Additionally, we are applying the practical expedient to exclude any financing component from consideration for any contracts with payment terms of one year or less since we rarely offer terms extending beyond one year. The consideration in our client contracts is fixed.
We have an unconditional right to consideration for all goods and services transferred to our clients. That unconditional right to consideration is reflected in billed and unbilled accounts receivable in the accompanying Condensed Consolidated Balance Sheets in accordance with ASC Topic 606.
Deferred revenue consists of amounts collected prior to having completed the performance of maintenance, SaaS, hosting, and managed services. We typically invoice clients for cloud subscription and support fees in advance on a monthly, quarterly or annual basis, with payment due at the start of the cloud subscription or support term. During the three months ended July 31, 2022, we recognized $17.6 million of revenue that was included in the deferred revenue balance as of April 30, 2022.
| | | | | | | | | | | |
| July 31, 2022 | | April 30, 2022 |
(in thousands) |
| | | |
| | | |
| | | |
| | | |
| | | |
Deferred revenue, current | 38,299 | | | 41,953 | |
Deferred revenue, long-term | — | | | — | |
Total deferred revenue | $ | 38,299 | | | $ | 41,953 | |
Remaining Performance Obligations. A performance obligation is a promise in a contract to transfer a distinct good or service to the endclient and is the unit of account under Topic 606. The transaction price is allocated to each reportingdistinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied by transferring the promised good or service to the client. The Company identifies and tracks the performance obligations at contract inception so that the Company can monitor and account for the performance obligations over the life of the contract. Remaining performance obligations represent the transaction price of orders for which products have not been delivered or services have not been performed. As of July 31, 2022, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $125 million. The Company expects to recognize revenue on approximately 47% of the remaining performance obligations over the next 12 months, with the remainder recognized thereafter.
Disaggregated Revenue. The Company disaggregates revenue from contracts with clients by geography, as it believes it best depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.
The Company’s revenue by geography is as follows:
| | | | | | | | | | | | | | | | | |
| Three Months Ended July 31, | | |
2022 | | 2021 | | | | |
(in thousands) | | |
Revenue: | | | | | | | |
Domestic | $ | 25,659 | | | $ | 24,427 | | | | | |
International | 5,637 | | | 4,844 | | | | | |
| $ | 31,296 | | | $ | 29,271 | | | | | |
Contract Costs. The Company capitalizes the incremental costs of obtaining a contract with a client if the Company expects to recover those costs. The incremental costs of obtaining a contract are those that the Company incurs to obtain a contract with a client that it would not have incurred if the contract had not been obtained (for example, a sales commission). The Company capitalizes the costs incurred to fulfill a contract only if those costs meet all of the following criteria:
•The costs relate directly to a contract or to an anticipated contract that the Company can specifically identify.
•The costs generate or enhance resources of the Company that will be used in satisfying (or in continuing to satisfy) performance obligations in the future.
•The costs are expected to be recovered.
Certain sales commissions incurred by the Company were determined to be incremental costs to obtain the related contracts, which are deferred and amortized ratably over the economic benefit period.
These deferred commission costs are classified as current or non-current based on the timing of when the Company expects to recognize the expense. The current and non-current portions of deferred commissions are included in prepaid expenses and other current assets and deferred sales commissions—noncurrent, respectively, in the Company’s Condensed Consolidated Balance Sheets. Total deferred commissions at July 31, 2022 and April 30, 2022 were $3.3 million and $3.4 million, respectively. Amortization of sales commissions was $0.4 million and $0.5 million for the three months ended July 31, 2022 and 2021, respectively, which is included in "Sales and marketing" expense in the accompanying Condensed Consolidated Statements of Operations. No impairment losses were recognized during the periods.
C. Declaration of Dividend Payable
On
November 15, 2017,May 25, 2022, our Board of Directors declared a quarterly cash dividend of $0.11 per share of our Class A and Class B
Common Stock.common stock. The cash dividend was
payablepaid on
February 23, 2018August 26, 2022 to Class A and Class B shareholders of record at the close of business on
February 9, 2018.August 12, 2022.
D. Earnings
perPer Common Share
We have
The Company has two classes of common stock, of whichstock. Class B Common Sharescommon shares are convertible into Class A Common Sharescommon shares at any time, on aone-for-one basis. Under ourthe Company’s Articles of Incorporation, if we declare dividends are declared, holders of Class A Common Sharescommon shares shall receive a $0.05 dividend per share prior to the Class B Common Sharescommon shares receiving any dividend and holders of Class A Common Sharescommon shares shall receive a dividend at least equal to Class B Common Sharescommon shares dividends on a per share basis. As a result, we havethe Company has computed the earnings per share in accordancecompliance with the Earnings Per Share within the Presentation Topic of the FASB’s Accounting Standards Codification,FASB ASC 260, Earnings Per Share, which requires companies that have multiple classes of equity securities to use the“two-class” “two-class” method in computing earnings per share. For
ourthe Company’s basic earnings per share calculation,
we use the
“two-class” Company uses the “two-class” method. Basic earnings per share are calculated by dividing net earnings attributable to each class of common stock by the weighted average number of shares outstanding. All undistributed earnings are allocated evenly between Class A and B
Common Sharescommon shares in the earnings per share calculation to the extent that earnings equal or exceed $0.05 per share. This allocation is based on management’s judgment after considering the dividend rights of the
two classestwo-classes of common stock, the control of the Class B shareholders and the convertibility rights of the Class B
Common shares to Class A
Common shares.
The calculation of diluted If Class B shares convert to Class A shares during the period, the distributed net earnings for Class B shares is calculated using the weighted average common shares outstanding during the period.
Diluted earnings per share is
similarcalculated similarly to
the calculation of basic earnings per share, except that the calculation includes the dilutive effect of the assumed exercise of options issuable under
ourthe Company’s stock incentive plans. For
ourthe Company’s diluted earnings per
share calculation for Class A Common Shares, we useshares, the“if-converted” Company uses the “if-converted” method. This calculation assumes that all Class B Common Sharescommon shares are converted into Class A Common Shares (if antidilutive)common shares and, as a result, assumes there are no holders of Class B Common Sharescommon shares to participate in undistributed earnings.
For
ourthe Company’s diluted earnings per share calculation for Class B
Common Shares, we useshares, the
“two-class” Company uses the “two-class” method. This calculation does not assume that all Class B
Common Sharescommon shares are converted into Class A
Common Shares.common shares. In addition, this method assumes the dilutive effect
ifof Class A stock options were converted to Class A
Common Sharesshares and the undistributed earnings are allocated evenly to both Class A and B
Common Sharesshares including Class A
Common Sharesshares issued pursuant to those converted stock options. This allocation is based on management’s judgment after considering the dividend rights of the
two classestwo-classes of common stock, the control of the Class B shareholders and the convertibility rights of the Class B
Common Sharesshares into Class A
Common Shares.shares.
The following tables set forth the computation of basic earnings per common share and diluted earnings per common share (in thousands except for per share amounts):
Basic earnings per common share:
| | | | | | | | | | | | | | | | |
| | Three Months Ended January 31, 2018 | | | Nine Months Ended January 31, 2018 | |
| | Class A | | | Class B | | | Class A | | | Class B | |
Distributed earnings | | $ | 0.11 | | | $ | 0.11 | | | $ | 0.33 | | | $ | 0.33 | |
Undistributed earnings | | | 0.07 | | | | 0.07 | | | | 0.03 | | | | 0.02 | |
| | | | | | | | | | | | | | | | |
Total | | $ | 0.18 | | | $ | 0.18 | | | $ | 0.36 | | | $ | 0.35 | |
| | | | | | | | | | | | | | | | |
Distributed earnings | | $ | 3,102 | | | $ | 242 | | | $ | 9,180 | | | $ | 747 | |
Undistributed earnings | | | 2,069 | | | | 167 | | | | 799 | | | | 59 | |
| | | | | | | | | | | | | | | | |
Total | | $ | 5,171 | | | $ | 409 | | | $ | 9,979 | | | $ | 806 | |
| | | | | | | | | | | | | | | | |
Basic weighted average common shares outstanding | | | 27,992 | | | | 2,252 | | | | 27,630 | | | | 2,310 | |
| | |
| | Three Months Ended January 31, 2017 | | | Nine Months Ended January 31, 2017 | |
| | Class A | | | Class B | | | Class A | | | Class B | |
Distributed earnings | | $ | 0.11 | | | $ | 0.11 | | | $ | 0.32 | | | $ | 0.32 | |
Undistributed earnings | | | (0.03 | ) | | | (0.03 | ) | | | (0.17 | ) | | | (0.17 | ) |
| | | | | | | | | | | | | | | | |
Total | | $ | 0.08 | | | $ | 0.08 | | | $ | 0.15 | | | $ | 0.15 | |
| | | | | | | | | | | | | | | | |
Distributed earnings | | $ | 2,943 | | | $ | 267 | | | $ | 8,583 | | | $ | 778 | |
Undistributed earnings | | | (887 | ) | | | (80 | ) | | | (4,596 | ) | | | (422 | ) |
| | | | | | | | | | | | | | | | |
Total | | $ | 2,056 | | | $ | 187 | | | $ | 3,987 | | | $ | 356 | |
| | | | | | | | | | | | | | | | |
Basic weighted average common shares outstanding | | | 26,901 | | | | 2,432 | | | | 26,687 | | | | 2,449 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended July 31, 2022 | | Three Months Ended July 31, 2021 |
Class A Common Shares | | Class B Common Shares | | Class A Common Shares | | Class B Common Shares |
Distributed earnings | $ | 0.11 | | | $ | 0.11 | | | $ | 0.11 | | | $ | 0.11 | |
Undistributed losses | (0.05) | | | (0.05) | | | (0.02) | | | (0.02) | |
Total | $ | 0.06 | | | $ | 0.06 | | | $ | 0.09 | | | $ | 0.09 | |
Distributed earnings | $ | 3,505 | | | $ | 201 | | | $ | 3,457 | | | $ | 202 | |
Undistributed losses | (1,488) | | | (85) | | | (673) | | | (39) | |
Total | $ | 2,017 | | | $ | 116 | | | $ | 2,784 | | | $ | 163 | |
Basic weighted average common shares outstanding | 31,834 | | | 1,822 | | | 31,231 | | | 1,822 | |
Diluted EPS for Class A Common Shares Using the
If-Converted Method
Three Months Ended
JanuaryJuly 31,
2018 | | | | | | | | | | | | |
| | Undistributed & Distributed Earnings to Class A Common | | | Class A Common Shares | | | EPS* | |
Per Basic | | $ | 5,171 | | | | 27,992 | | | $ | 0.18 | |
Common Stock Equivalents | | | — | | | | 457 | | | | — | |
| | | | | | | | | | | | |
| | | 5,171 | | | | 28,449 | | | | 0.18 | |
Class B Conversion | | | 409 | | | | 2,252 | | | | — | |
| | | | | | | | | | | | |
Diluted EPS for Class A Common Shares | | $ | 5,580 | | | | 30,701 | | | $ | 0.18 | |
| | | | | | | | | | | | |
Nine Months Ended January 31, 2018
| | | | | | | | | | | | |
| | Undistributed & Distributed Earnings to Class A Common | | | Class A Common Shares | | | EPS* | |
Per Basic | | $ | 9,979 | | | | 27,630 | | | $ | 0.36 | |
Common Stock Equivalents | | | — | | | | 359 | | | | — | |
| | | | | | | | | | | | |
| | | 9,979 | | | | 27,989 | | | | 0.36 | |
Class B Conversion | | | 806 | | | | 2,310 | | | | — | |
| | | | | | | | | | | | |
Diluted EPS for Class A Common Shares | | $ | 10,785 | | | | 30,299 | | | $ | 0.36 | |
| | | | | | | | | | | | |
2022
| | | | | | | | | | | | | | | | | |
| Undistributed & Distributed Earnings to Class A Common Shares | | Class A Common Shares | | EPS* |
Per Basic | $ | 2,017 | | | 31,834 | | | $ | 0.06 | |
Common Stock Equivalents | — | | | 351 | | | — | |
| 2,017 | | | 32,185 | | | 0.06 | |
Class B Common Share Conversion* | 116 | | | 1,822 | | | — | |
Diluted EPS for Class A Common Shares | $ | 2,133 | | | 34,007 | | | $ | 0.06 | |
Three Months Ended
JanuaryJuly 31,
2017 | | | | | | | | | | | | |
| | Undistributed & Distributed Earnings to Class A Common | | | Class A Common Shares | | | EPS* | |
Per Basic | | $ | 2,056 | | | | 26,901 | | | $ | 0.08 | |
Common Stock Equivalents | | | — | | | | 297 | | | | — | |
| | | | | | | | | | | | |
| | | 2,056 | | | | 27,198 | | | | 0.08 | |
Class B Conversion | | | 187 | | | | 2,432 | | | | — | |
| | | | | | | | | | | | |
Diluted EPS for Class A Common Shares | | $ | 2,243 | | | | 29,630 | | | $ | 0.08 | |
| | | | | | | | | | | | |
Nine Months Ended January 31, 2017
| | | | | | | | | | | | |
| | Undistributed & Distributed Earnings to Class A Common | | | Class A Common Shares | | | EPS* | |
Per Basic | | $ | 3,987 | | | | 26,687 | | | $ | 0.15 | |
Common Stock Equivalents | | | — | | | | 311 | | | | — | |
| | | | | | | | | | | | |
| | | 3,987 | | | | 26,998 | | | | 0.15 | |
Class B Conversion | | | 356 | | | | 2,449 | | | | — | |
| | | | | | | | | | | | |
Diluted EPS for Class A Common Shares | | $ | 4,343 | | | | 29,447 | | | $ | 0.15 | |
| | | | | | | | | | | | |
2021
| | | | | | | | | | | | | | | | | |
| Undistributed & Distributed Earnings to Class A Common Shares | | Class A Common Shares | | EPS* |
Per Basic | $ | 2,784 | | | 31,231 | | | $ | 0.09 | |
Common Stock Equivalents | — | | | 893 | | | — | |
| 2,784 | | | 32,124 | | | 0.09 | |
Class B Common Share Conversion | 163 | | | 1,822 | | | — | |
Diluted EPS for Class A Common Shares | $ | 2,947 | | | 33,946 | | | $ | 0.09 | |
Diluted EPS for Class B Common Shares Using the
Two-Class Method
Three Months Ended
JanuaryJuly 31,
2018 | | | | | | | | | | | | |
| | Undistributed & Distributed Earnings to Class B Common | | | Class B Common Shares | | | EPS* | |
Per Basic | | $ | 409 | | | | 2,252 | | | $ | 0.18 | |
Reallocation of undistributed earnings from Class A Common Shares to Class B Common Shares | | | (2 | ) | | | — | | | | — | |
| | | | | | | | | | | | |
Diluted EPS for Class B Common Shares | | $ | 407 | | | | 2,252 | | | $ | 0.18 | |
| | | | | | | | | | | | |
Nine Months Ended January 31, 2018
| | | | | | | | | | | | |
| | Undistributed & Distributed Earnings to Class B Common | | | Class B Common Shares | | | EPS* | |
Per Basic | | $ | 806 | | | | 2,310 | | | $ | 0.35 | |
Reallocation of undistributed earnings from Class A Common Shares to Class B Common Shares | | | (1 | ) | | | — | | | | — | |
| | | | | | | | | | | | |
Diluted EPS for Class B Common Shares | | $ | 805 | | | | 2,310 | | | $ | 0.35 | |
| | | | | | | | | | | | |
2022
| | | | | | | | | | | | | | | | | |
| Undistributed & Distributed Earnings to Class B Common Shares | | Class B Common Shares | | EPS* |
Per Basic | $ | 116 | | | 1,822 | | | $ | 0.06 | |
Reallocation of undistributed earnings/losses from Class A Common Shares to Class B Common Shares | 1 | | | — | | | — | |
Diluted EPS for Class B Common Shares | $ | 117 | | | 1,822 | | | $ | 0.06 | |
Three Months Ended
JanuaryJuly 31,
2017 | | | | | | | | | | | | |
| | Undistributed & Distributed Earnings to Class B Common | | | Class B Common Shares | | | EPS* | |
Per Basic | | $ | 187 | | | | 2,432 | | | $ | 0.08 | |
Reallocation of undistributed earnings from Class A Common Shares to Class B Common Shares | | | 2 | | | | — | | | | — | |
| | | | | | | | | | | | |
Diluted EPS for Class B Common Shares | | $ | 189 | | | | 2,432 | | | $ | 0.08 | |
| | | | | | | | | | | | |
Nine Months Ended January 31, 2017
| | | | | | | | | | | | |
| | Undistributed & Distributed Earnings to Class B Common | | | Class B Common Shares | | | EPS* | |
Per Basic | | $ | 356 | | | | 2,449 | | | $ | 0.15 | |
Reallocation of undistributed earnings from Class A shares to Class B shares | | | 6 | | | | — | | | | — | |
| | | | | | | | | | | | |
Diluted EPS for Class B | | $ | 362 | | | | 2,449 | | | $ | 0.15 | |
| | | | | | | | | | | | |
* | Amounts adjusted for rounding |
2021
| | | | | | | | | | | | | | | | | |
| Undistributed & Distributed Earnings to Class B Common Shares | | Class B Common Shares | | EPS* |
Per Basic | $ | 163 | | | $ | 1,822 | | | $ | 0.09 | |
Reallocation of undistributed earnings/losses from Class A Common Shares to Class B Common Shares | 1 | | | — | | | — | |
Diluted EPS for Class B Common Shares | $ | 164 | | | 1,822 | | | $ | 0.09 | |
| | | | | |
_______________*Amounts adjusted for rounding
For the three and nine months ended JanuaryJuly 31, 2018,2022 and 2021, we excluded options to purchase 12,130purchase 3,227,891 and 57,598 Class A Common Shares, respectively, and for the three and nine months ended January 31, 2017, we excluded options to purchase 374,439 and 337,500315,924 Class A Common Shares, respectively, from the computation of diluted earnings per Class A Common Shares. We excluded these option share amounts because the exercise prices of those options were greater than the average market price of the Class A Common Shares during the applicable period. As of JanuaryJuly 31, 2018,2022, we had a total of 3,470,0175,795,104 options outstanding and as of JanuaryJuly 31, 2017,2021, we had a total of 3,230,5754,068,233 options outstanding. We account for business combinations using the acquisition method of accounting and accordingly, the identifiable assets acquired and liabilities assumed are recorded based upon management’s estimates of current fair values as of the acquisition date. The estimation process includes analyses based on income and market approaches. Goodwill represents the excess purchase price over the fair value of net assets, including the amount assigned to identifiable intangible assets. The goodwill generated is due in part to the synergies that are not included in the fair value of identifiable intangible assets. Goodwill recorded in an acquisition is assigned to applicable reporting units based on expected revenues. Identifiable intangible assets with finite lives are amortized over their useful lives. Amortization of current technology is recorded in cost of
revenues-licenserevenue-subscription fees and amortization of all other intangible assets is recorded in amortization of acquisition-related intangibles. Acquisition-related costs, including advisory, legal, accounting, valuation and other costs, are expensed in general and administrative expenses in the periods in which such costs are incurred. The results of operations of acquired businesses are included in the
condensed consolidated financial statementsCondensed Consolidated Financial Statements from the acquisition date.
Effective
November 21, 2017,June 28, 2022, the Company acquired certain assets of
privately held Innovare Holding Co.privately-held Starboard Solutions Corp.,
Incorporated, a
Delaware corporation and its subsidiaries (collectively, “Halo”) and a supplierMichigan based innovator of
advanced analytics and business intelligence solutions, for the supply chain
market,network design software (“Starboard”), pursuant to the terms of an asset purchase agreement, dated as of
November 21, 2017June 28, 2022 (the “Purchase Agreement”).
Halo’s advanced analytics will be embedded
Starboard creates an interactive supply chain digital twin of the physical supply chain network and uses gaming technology to provide an intuitive user experience where users can easily explore answers to various "what if" questions. Starboard offers a unique supply chain visualization solution that can optimize for unknown locations, meaning users do not have to map their plans to a physical location. Applying Starboard’s rich set of reference costs with Logility’s lane rates and time data structures, users have the ability to quickly analyze options in regions for which they have no prior data and locate the absolute best location for future plants, warehouses or Third-party logistic locations ("3PL") locations. The intuitive design and ease of configuration makes the Starboard network design solution stand out. The solution is built for continuous use, eliminating the need for a consulting project to model potential resolutions to unexpected supply chain disruptions. The
integration of Starboard’s capabilities into the Logility
Voyager Solutions advanced analytics platform. These enriched analyticsDigital Supply Chain Platform will
leverage interactive visualization, machine learning algorithms, and artificial intelligence (AI) to transform both structured and unstructured data to accelerateoffer supply chain leaders enhanced integrated business planning
performance and proactively identify new business opportunities or mitigate risks. Customers on the DMI and NGC platformsoutcomes. Users will be able to
addpre-packaged Halo advanced analytics capabilitiesmodel a response to
disruptions and update their
subscriptionsoperating plan within the Logility Digital Supply Chain Platform in minutes to
drive quick insights and appropriate actions for their businesses. In addition, Logility will continue to offer Halo standalone to complement other enterprise systems.enact the new operating paradigm.
Under the terms of the Purchase Agreement, the Company acquired the assets
of Haloin exchange for
cash consideration paid of approximately $9.25 million, which represents a purchase price of approximately
$9.95$6.5 million
net of a $700,000 negative working capital adjustment,in cash, subject to certain post-closing adjustments,
which included anplus up to a maximum aggregate amount of $6.0 million (the "Aggregate Maximum Earnout Payment") of contingent earnout payments upon satisfaction of certain subscription revenue targets over a three year earnout period (the "Earnout Period"). For each year of the Earnout Period (each, a "Calculation Period"), the Company will pay, as additional
negative working capital adjustmentconsideration, $2.0 million once subscription revenue (i.e., revenue contracted for and recorded as revenue in accordance with GAAP) for the applicable Calculation Period equals $1.5 million, plus one dollar of
$113,000 (recordedadditional consideration for each dollar of subscription revenue in excess of $1.5 million, subject to the Aggregate Maximum Earnout Payment. If the subscription revenue for each Calculation Period is less than $1.5 million, no additional payment shall be due for such Calculation Period. The contingent earnout payments are subject to the recipient's continued service with the Company; therefore, any additional consideration will be accounted for as
a receivable), thus resulting in an adjusted purchase price consideration of $9.14 million.post-combination services and will be expensed as incurred. The Company incurred acquisition costs of approximately
$73,000 and $91,000$54,500 during the three
and nine months ended
JanuaryJuly 31,
2018, respectively.2022. The operating results of
HaloStarboard are not material for
pro formaproforma disclosure. We
preliminarily allocated
$5,919,000$3.32 million of the total purchase price to goodwill, which has been assigned to the Supply Chain Management segment and is deductible for income tax purposes.
The
purchase price allocation herein is preliminary. The final purchase price allocation will be determined after completion of a thorough analysis to determine the fair value of all assets acquired and liabilities assumed, but in no event later than one year following
preliminary allocationcompletion of the
total purchase price reflectsacquisition. Accordingly, the final acquisition accounting adjustments could differ materially from the pro forma adjustments presented herein. Any increase or decrease in the fair value of the assets acquired and liabilities assumed, as
compared to the information shown herein, could also change the portion of
November 21, 2017purchase price allocated to goodwill and could impact the operating results of the Company following the acquisition due to differences in purchase price allocation, depreciation and amortization related to some of these assets and liabilities. The acquisition-date fair value of the consideration transferred is as follows (in thousands):
| | | | | | | | |
| | | | | Useful Life | |
Accounts receivable, net | | $ | 373 | | | | | |
Current assets | | | 188 | | | | | |
Property and equipment, net | | | 43 | | | | | |
Other assets | | | 1,700 | | | | | |
Goodwill | | | 5,919 | | | | | |
Non-compete | | | 30 | | | | 2 years | |
Trade name | | | 160 | | | | 2 years | |
Customer relationships | | | 600 | | | | 8 years | |
Current technology | | | 3,200 | | | | 3 years | |
| | | | | | | | |
Total assets acquired | | | 12,213 | | | | | |
Current liabilities | | | (1,370 | ) | | | | |
Long-term liabilities | | | (1,703 | ) | | | | |
| | | | | | | | |
Total liabilities assumed | | | (3,073 | ) | | | | |
| | | | | | | | |
Net assets acquired | | $ | 9,140 | | | | | |
| | | | | | | | |
| | | | | | | | | | | |
| | | Useful Life |
Other assets | 340 | | | |
Goodwill | 3,320 | | | |
Non-compete | 180 | | | 5 years |
Current technology | 2,800 | | | 3 years |
Customer relationships | 200 | | | 6 years |
Total assets acquired | 6,840 | | | |
| | | |
Long-term liabilities | (340) | | | |
Net assets acquired | $ | 6,500 | | | |
Non-compete agreements, trade name,current technology and customer relationships and current technology are being amortized on a straight-line basis over the remaining estimated economic life of the assets, including the period being reported.
F. Stock-Based Compensation
During the three months ended July 31, 2022 and 2021, we granted options for 1,362,000 and 377,500 shares of Class A common stock, respectively. The fair value of
deferred revenues in a business combination is considered to be an assumed liability (which must arise from a legal performance obligation) and, accordingly,each option award is estimated
based on the
direct costdate of
fulfillinggrant using the
obligation plus a normal profit margin, which approximates fair value. Also, in practice, the normal profit margin is limited to the profit margin on the costs to provide the product or service (that is, the fulfillment effort).F. Stock-Based Compensation
During the nine months ended January 31, 2018 and 2017, we granted options for 1,196,000 and 342,000 shares of common stock, respectively.Black-Scholes option pricing model. The forfeiture rates are estimated using historical data. We recorded stock option compensation cost of approximately $314,000$1.3 million and $333,000$0.8 million and related income tax benefits of approximately $138,000$34,000 and $124,000$1,177,000 from option exercises during the three months ended JanuaryJuly 31, 20182022 and 2017, respectively. We recorded stock option compensation cost of approximately $1.1 million and $1.1 million and related income tax benefits of approximately $413,000 and $409,000 during the nine months ended January 31, 2018 and 2017,2021, respectively. We record stock-based compensation expense on a straight-line basis over the vesting period directly to additionalpaid-in-capital.
paid-in capital.
During the
ninethree months ended
JanuaryJuly 31,
20182022 and
2017,2021, we issued
778,12943,000 and
593,082399,000 shares of
Class A common stock, respectively, resulting from the exercise of stock options. The total intrinsic value of options exercised during the
ninethree months ended
JanuaryJuly 31,
20182022 and
20172021 based on market value at the exercise dates was approximately
$2.2$0.2 million and
$1.9$5.5 million, respectively. As of
JanuaryJuly 31,
2018,2022, unrecognized compensation cost related to unvested stock option awards approximated
$3.6$17.0 million, which we expect to recognize over a weighted average period of
1.852.06 years.
G. Fair Value of Financial Instruments
We measure our investments based on a fair value hierarchy disclosure framework that prioritizes and ranks the level of market price observability used in measuring assets and liabilities at fair value. A number of factors affect market price observability, including the type of asset or liability and its characteristics. This hierarchy prioritizes the inputs into three broad levels as follows:
•Level 1—Quoted prices for identical instruments in active markets for identical instruments.markets.
•Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.
•Level 3—Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
The following is a general description of the valuation methodologies we use for financial assets and liabilities measured at fair value, including the general classification of such assets and liabilities pursuant to the valuation hierarchy.
Cash Equivalents—Cash equivalents include investments in government obligation based money-market funds, other money market instruments and interest-bearing deposits with initial terms of three months or less. The fair value of cash equivalents approximates its carrying value due to the short-term nature of these instruments.
Marketable Securities—Marketable securities utilizing Level 1 inputs include active exchange-traded equity securities and equity index funds, and most U.S. Governmentgovernment debt securities, as these securities all have quoted prices in active markets. Marketable securities utilizing Level 2 inputs include municipal bonds. We value these securities using market-corroborated pricing or other models that use observable inputs such as yield curves. The following tables present our assets and liabilities that we measured at fair value on a recurring basis as of
JanuaryJuly 31,
20182022 and April 30,
2017, respectively,2022, and
indicatesindicate the fair value hierarchy of the valuation techniques we used to determine such fair value (in thousands):
| | | | | | | | | | | | | | | | |
| | January 31, 2018 | |
| | Quoted Prices in Active Markets for Identical Assets (Level 1) | | | Significant Other Observable Inputs (Level 2) | | | Significant Unobservable Inputs (Level 3) | | | Balance | |
Cash equivalents | | $ | 50,541 | | | $ | — | | | $ | — | | | $ | 50,541 | |
Marketable securities | | | 12,990 | | | | 20,529 | | | | — | | | | 33,519 | |
| | | | | | | | | | | | | | | | |
Total | | $ | 63,531 | | | $ | 20,529 | | | $ | — | | | $ | 84,060 | |
| | | | | | | | | | | | | | | | |
| |
| | April 30, 2017 | |
| | Quoted Prices in Active Markets for Identical Assets (Level 1) | | | Significant Other Observable Inputs (Level 2) | | | Significant Unobservable Inputs (Level 3) | | | Balance | |
Cash equivalents | | $ | 62,647 | | | $ | — | | | $ | — | | | $ | 62,647 | |
Marketable securities | | | 8,984 | | | | 14,803 | | | | — | | | | 23,787 | |
| | | | | | | | | | | | | | | | |
Total | | $ | 71,631 | | | $ | 14,803 | | | $ | — | | | $ | 86,434 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| July 31, 2022 |
| Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Balance |
Cash equivalents | $ | 91,848 | | | $ | — | | | $ | — | | | $ | 91,848 | |
Marketable securities | 16,954 | | | — | | | — | | | 16,954 | |
Total | $ | 108,802 | | | $ | — | | | $ | — | | | $ | 108,802 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| April 30, 2022 |
| Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Balance |
Cash equivalents | 98,459 | | | — | | | — | | | 98,459 | |
Marketable securities | 16,826 | | | — | | | — | | | 16,826 | |
Total | 115,285 | | | — | | | — | | | 115,285 | |
On August 19, 2002, our Board of Directors approved a resolution authorizingauthorized the repurchase of up to an additional 2.0 million shares of our Class A common stock. We have made and will make these repurchases through open market purchases at prevailing market prices. The timing of any repurchase will depend upon market conditions, the market price of our Class A common stock and management’s assessment of our liquidity and cash flow needs. Under this repurchase plan, through January 31, 2018, we have repurchased 1,053,679 shares of Class A common stock at a cost of approximately $6.2 million.million, which had no impact on fiscal 2023. As of JanuaryJuly 31, 2018,
2022, under all repurchase plans previously authorized, including this most recent plan, we have repurchased a total of 4,588,632 shares of common stock at a cost of approximately $25.6 million.
We have not included condensed consolidated statements of comprehensive income in the accompanying unaudited
condensed consolidated financial statementsCondensed Consolidated Financial Statements since comprehensive income and net earnings presented in the accompanying
condensed consolidated statementsCondensed Consolidated Statements of
operationsOperations would be substantially the same.
FASB ASC 280,Segment Reporting, establishes standards for reporting information about operating segments. Operating segments are defined as components of a public entity about which separate financial information is available that is evaluated regularly by the chief operating decision makers (“CODMs”), or decision making group, in deciding how to allocate resources and in assessing performance. Our chief operating decision makers (“CODMs”)CODMs are our PrincipalChief Executive Officer (“PEO”) and President.President and our Chief Financial Officer. While our CODMs are apprised of a variety of financial metrics and information, we manage our business primarily on a segment basis, with theCODMs evaluating performance based upon segment operating profit or loss that includes an allocation of common expenses, but excludes certain unallocated corporate expenses, which are included in the Other segment. Our CODMs review the operating results of our three segments, assess performance and allocate resources in a manner that is consistent with the changing market dynamics that we have experienced. As a result, in the third quarter of fiscal 2018, we updated our operating segments to reflect the fact that we provide our software solutions through three major operating segments, which are further broken down into a total of six major product and service groups. The three operating segments areare: (1) Supply Chain Management (“SCM”), (2) Information Technology Consulting (“IT”IT Consulting”) Consulting and (3) Other.
The SCM segment
consists of Logility, which providesleverages a single platform spanning seven supply chain
optimization and advance retail planning solutions, as anprocess areas, including product, demand, inventory, supply, deploy, integrated
suite of sales and operations planning, demand optimization, inventory optimization, manufacturingbusiness planning and
scheduling, supply optimization, retail allocation and merchandise planning and transportation optimization, as well as (i) DMI, which provides collaborative supply chain
solutions to streamline and optimize the forecasting, inventory, production, supply, allocation, distribution and management of products between trading partners, (ii) New Generation Computing (“NGC”), which provides cloud solutions for supply chain management, product lifecycle management, quality control, vendor compliance and enterprise resource planning for both retailers and manufacturers in the apparel, sewn products and furniture industries, and (iii) Halo, which provides advanced analytics and business intelligence solutions for the supply chain market.data management. The IT Consulting segment consists of The Proven Method, Inc., an IT staffing and consulting services
firm, which provides support for our software products, such as software enhancements, documentation, updates, customer education, consulting, systems integration services, maintenance and support services.firm. The Other segment consists of (i) American Software ERP, which provides purchasing and materials management,
customerclient order processing, financial,
e-commerce and traditional manufacturing solutions, and (ii) unallocated corporate overhead expenses.
Previously, we maintained three operating segments: (1) SCM, (2) IT and (3) Enterprise Resource Planning (“ERP”). As a result of the organizational realignment during the third quarter fiscal 2018, NGC was repositioned out of the ERP segment and into the SCM segment. There were no changes to the IT segment. Certain prior year amounts have been recasted to conform to fiscal 2018 presentation. The change in reportable segments had no effect on our previously reported consolidated financial position or results of operations.
All of our
revenues arerevenue is derived from external
customers.clients. We do not have any inter-segment revenue. Our income taxes and dividends are paid at a consolidated level. Consequently, it is not practical to show these items by operating segment.
In the following table, we have broken down the intersegment transactions applicable to the three
and nine months ended
JanuaryJuly 31,
20182022 and
2017: | | | | | | | | | | | | | | | | |
| | Three Months Ended January 31, | | | Nine Months Ended January 31, | |
| | 2018 | | | 2017 | | | 2018 | | | 2017 | |
Revenues: | | | | | | | | | | | | | | | | |
| | | | |
Supply Chain Management | | $ | 24,902 | | | $ | 20,770 | | | $ | 67,965 | | | $ | 62,724 | |
IT Consulting | | | 4,557 | | | | 5,108 | | | | 13,522 | | | | 15,386 | |
Other | | | 658 | | | | 563 | | | | 1,853 | | | | 1,910 | |
| | | | | | | | | | | | | | | | |
| | $ | 30,117 | | | $ | 26,441 | | | $ | 83,340 | | | $ | 80,020 | |
| | | | | | | | | | | | | | | | |
Operating income (loss) before intersegment eliminations: | | | | | | | | | | | | | | | | |
| | | | |
Supply Chain Management | | $ | 5,969 | | | $ | 3,667 | | | $ | 15,551 | | | $ | 8,719 | |
IT Consulting | | | 185 | | | | 330 | | | | 775 | | | | 698 | |
Other | | | (1,950 | ) | | | (1,542 | ) | | | (5,258 | ) | | | (4,608 | ) |
| | | | | | | | | | | | | | | | |
| | $ | 4,204 | | | $ | 2,455 | | | $ | 11,068 | | | $ | 4,809 | |
| | | | | | | | | | | | | | | | |
Intersegment eliminations: | | | | | | | | | | | | | | | | |
| | | | |
Supply Chain Management | | $ | 922 | | | $ | 846 | | | $ | 2,763 | | | $ | 2,638 | |
IT Consulting | | | (20 | ) | | | — | | | | (26 | ) | | | (33 | ) |
Other | | | (902 | ) | | | (846 | ) | | | (2,737 | ) | | | (2,605 | ) |
| | | | | | | | | | | | | | | | |
| | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | |
Operating income (loss) after intersegment eliminations: | | | | | | | | | | | | | | | | |
| | | | |
Supply Chain Management | | $ | 6,891 | | | $ | 4,513 | | | $ | 18,314 | | | $ | 11,357 | |
IT Consulting | | | 165 | | | | 330 | | | | 749 | | | | 665 | |
Other | | | (2,852 | ) | | | (2,388 | ) | | | (7,995 | ) | | | (7,213 | ) |
| | | | | | | | | | | | | | | | |
| | $ | 4,204 | | | $ | 2,455 | | | $ | 11,068 | | | $ | 4,809 | |
| | | | | | | | | | | | | | | | |
Capital expenditures: | | | | | | | | | | | | | | | | |
| | | | |
Supply Chain Management | | $ | 79 | | | $ | 65 | | | $ | 160 | | | $ | 257 | |
IT Consulting | | | 2 | | | | — | | | | 8 | | | | 2 | |
Other | | | 120 | | | | 107 | | | | 245 | | | | 241 | |
| | | | | | | | | | | | | | | | |
| | $ | 201 | | | $ | 172 | | | $ | 413 | | | $ | 500 | |
| | | | | | | | | | | | | | | | |
Capitalized software: | | | | | | | | | | | | | | | | |
| | | | |
Supply Chain Management | | $ | 1,035 | | | $ | 865 | | | $ | 3,652 | | | $ | 2,471 | |
IT Consulting | | | — | | | | — | | | | — | | | | — | |
Other | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | |
| | $ | 1,035 | | | $ | 865 | | | $ | 3,652 | | | $ | 2,471 | |
| | | | | | | | | | | | | | | | |
Depreciation and amortization: | | | | | | | | | | | | | | | | |
Supply Chain Management | | $ | 1,551 | | | $ | 1,915 | | | $ | 4,157 | | | $ | 4,645 | |
IT Consulting | | | 2 | | | | 2 | | | | 6 | | | | 6 | |
Other | | | 46 | | | | 83 | | | | 142 | | | | 394 | |
| | | | | | | | | | | | | | | | |
| | $ | 1,599 | | | $ | 2,000 | | | $ | 4,305 | | | $ | 5,045 | |
| | | | | | | | | | | | | | | | |
Earnings (loss) before income taxes: | | | | | | | | | | | | | | | | |
Supply Chain Management | | $ | 6,099 | | | $ | 3,651 | | | $ | 15,892 | | | $ | 8,639 | |
IT Consulting | | | 185 | | | | 329 | | | | 775 | | | | 698 | |
Other | | | (506 | ) | | | (500 | ) | | | (2,750 | ) | | | (3,009 | ) |
| | | | | | | | | | | | | | | | |
| | $ | 5,778 | | | $ | 3,480 | | | $ | 13,917 | | | $ | 6,328 | |
| | | | | | | | | | | | | | | | |
2021 (in thousands):
| | | | | | | | | | | | | | | | | |
| Three Months Ended July 31, | | |
| 2022 | | 2021 | | | | |
Revenue: | | | | | | | |
Supply Chain Management | $ | 26,182 | | | $ | 24,251 | | | | | |
IT Consulting | 4,515 | | | 4,476 | | | | | |
Other | 599 | | | 544 | | | | | |
| $ | 31,296 | | | $ | 29,271 | | | | | |
Operating income\(loss): | | | | | | | |
Supply Chain Management | $ | 7,179 | | | $ | 5,356 | | | | | |
IT Consulting | 215 | | | 163 | | | | | |
Other | (4,837) | | | (3,746) | | | | | |
| $ | 2,557 | | | $ | 1,773 | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Capital expenditures: | | | | | | | |
Supply Chain Management | $ | 1,439 | | | $ | 302 | | | | | |
IT Consulting | — | | | — | | | | | |
Other | 133 | | | — | | | | | |
| $ | 1,572 | | | $ | 302 | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Depreciation and amortization: | | | | | | | |
Supply Chain Management | $ | 653 | | | $ | 1,034 | | | | | |
IT Consulting | — | | | — | | | | | |
Other | 115 | | | 97 | | | | | |
| $ | 768 | | | $ | 1,131 | | | | | |
Earnings\(loss) before income taxes: | | | | | | | |
Supply Chain Management | $ | 7,030 | | | $ | 5,261 | | | | | |
IT Consulting | 215 | | | 163 | | | | | |
Other | (4,569) | | | (3,214) | | | | | |
| $ | 2,676 | | | $ | 2,210 | | | | | |
No
one customersingle client accounted for more than 10% of total
revenuesrevenue for the three
and nine months ended
JanuaryJuly 31,
20182022 and
2017.K.2021.
The Company more often than not indemnify our customersindemnifies its clients against damages and costs resulting from claims of patent, copyright or trademarkintellectual property infringement associated with use of ourthe Company’s products. We haveThe Company historically has not been required to make any payments under such indemnifications. However, we continuethe Company continues to monitor the conditionscircumstances that are subject to the indemnificationsindemnification to identify whether it is probable that a loss has occurred, and would recognize any such losses under the indemnifications when those lossesthey are estimable.
In addition,
we warrantthe Company warrants to
our customersclients that
ourthe Company’s products operate substantially in accordance with the software
products’product’s specifications. Historically,
weno costs have
been incurred
no costs related to software product warranties and
we do not expect to incur such costsnone are expected in the future, and as such
we have made no accruals for software product warranty
costs.costs have been made. Additionally,
we arethe Company is involved in various claims arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on
ourthe financial position or results of
operations.L.operations of the Company.
On
February 15, 2018,August 18, 2022, our Board of Directors declared a quarterly cash dividend of $0.11 per share of our Class A and Class B
Common Stock.common stock. The cash dividend is payable on
May 25, 2018December 2, 2022 to Class A and Class B shareholders of record at the close of business on
May 11, 2018.November 18, 2022.
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
FORWARD-LOOKING STATEMENTS
This
quarterly report on Form
10-Q (this “Quarterly Report”) contains forward-looking statements relating to our future financial performance, business strategy, financing plans and other future events that involve uncertainties and risks. You can identify these statements by forward-looking words such as “anticipate,” “intend,” “plan,” “continue,” “could,” “grow,” “may,” “potential,” “predict,” “strive” “will,” “seek,” “estimate,” “believe,” “expect,” and similar expressions that convey uncertainty of future events or outcomes. Any forward-looking statements we make herein are pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements concerning future:
•results of operations;
•liquidity, cash flow and capital expenditures;
•demand for and pricing of our products and services;
•viability and effectiveness of strategic alliances;
•industry conditions and market conditions;
•acquisition activities and the effect of completed acquisitions; and
•general economic conditions.
Although we believe that the goals, plans, expectations, and prospects that our forward-looking statements reflect are reasonable in view of the information currently available to us, those statements are not guarantees of performance. There are many factors that could cause our actual results to differ materially from those anticipated by forward-looking statements made herein. These factors include, but are not limited to, continuing U.S. and global economic uncertainty, the timing and degree of business recovery, unpredictability and the irregular pattern of future revenues,revenue, dependence on particular market segments or customers,clients, competitive pressures, delays, product liability and warranty claims and other risks associated with new product development, undetected software errors, market acceptance of our products, technological complexity, the challenges and risks associated with integration of acquired product lines, companies and services, as well as a number of other risk factors that could affect our future performance. All forward-looking statements included in this Form10-QQuarterly Report are based upon information available to us as of the filing date of this Form10-Q.Quarterly Report. We undertake no obligation to update any of these forward-looking statements for any reason. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance, or achievements to differ materially from those expressed or implied by these statements. We discuss certain factors in greater detail in “Business Overview” below. The terms “fiscal 2018”
ECONOMIC OVERVIEW
For 2023, we are cautious about the global recovery from the COVID-19 pandemic. We believe uncertain economic conditions and
“fiscal 2017” referincreasingly complex supply chain challenges may be driving some businesses to
focus on achieving more process and efficiency enhancements in their operations and to invest in solutions that improve operating margins, rather than make large infrastructure-type technology purchases. If this trend continues, we believe it may tend to favor solutions such as our
supply chain solutions, which are designed to provide a more rapid return on investment and are targeted at some of the largest profit drivers in a client’s business. While we do not expect that the COVID-19 pandemic will cause any material adverse changes on our business or financial results for fiscal
years ending April 30, 20182023, we are unable to accurately predict the impact that the coronavirus will have due to various uncertainties, including the ultimate geographic spread of the virus, the severity of the disease, the duration of the outbreak, and
2017, respectively.ECONOMIC OVERVIEW
actions that may be taken by governmental authorities.
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 January 2018,recent years, the weakness in the overall global economy and the U.S. economy has resulted in reduced expenditures in the business software market.
In July 2022, the International Monetary Fund (“IMF”)provided an update to the World Economic Outlook (“WEO”)for the 2018 and 2019 world economic growth forecast.2022. The update noted that,“Global economic activity continuesA tentative recovery in 2021 has been followed by increasingly gloomy developments in 2022 as risks began to firm up.materialize. Global output contracted in the second quarter of this year, owing to downturns in China and Russia, while US consumer spending undershot expectations. Several shocks have hit a world economy already weakened by the pandemic: higher-than-expected inflation worldwide––especially in the United States and major European economies––triggering tighter financial conditions; a worse-than-anticipated slowdown in China, reflecting COVID- 19 outbreaks and lockdowns; and further negative spillovers from the war in Ukraine.
The baseline forecast is
estimatedfor growth to
have grown by 3.7slow from 6.1 percent last year to 3.2 percent in 2017, which is 0.12022, 0.4 percentage point fasterlower than projected in the fallApril 2022 World Economic Outlook. Lower growth earlier this year, reduced household purchasing power, and 1⁄2 tighter monetary policy drove a downward revision of 1.4 percentage points in the United States. In China, further lockdowns and the deepening real estate crisis have led growth to be revised down by 1.1 percentage points, with major global spillovers. And in Europe, significant downgrades reflect spillovers from the war in Ukraine and tighter monetary policy. Global inflation has been revised up due to food and energy prices as well as lingering supply-demand imbalances, and is anticipated to reach 6.6 percent in advanced economies and 9.5 percent in emerging market and developing economies this year—upward revisions of 0.9 and 0.8 percentage point, higher than in 2016. The pickup in growth has been broad based,respectively. In 2023, disinflationary monetary policy is expected to bite, with notable upside surprises in Europe and Asia. Global growth forecasts for 2018 and 2019 have been revised upwardglobal output growing by 0.2 percentage point to 3.9just 2.9 percent. The revision reflects increased global growth momentum and the expected impact of the recently approved U.S. tax policy changes.”For the remainder of fiscal 2018, 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 time, due in part to concerns in global capital markets and general economic conditions, we believe that our organizational and financial structure will enable us to take advantage of any sustained economic rebound. Customers continue to take long periods to evaluate discretionary software purchases.
We believe the improvement in economic conditions may be driving some businesses to invest in achieving more process and efficiency enhancements in their operations and to invest in solutions that improve operating margins, rather than make large infrastructure-type technology purchases. If this trend continues, we believe it may tend to favor solutions such as our Logility supply chain solutions, which are designed to provide a more rapid return on investment and are targeted at some of the largest profit drivers in a customer’s business. While the recent low growth environment has had a particularly adverse impact on the weaker companies in our target markets, we believe a large percentage of our customers are seeking to make investments to strengthen their operations, and some are taking advantage of current economic conditions to gain market share.
BUSINESS"
American Software, Inc. (“American Software” or the “Company”) was incorporated as ain Georgia corporation in 1970. The Company is headquartered in Atlanta, Georgia with U.S. offices in Boston, Chicago, Dallas, St. Louis, Miami and San Diego; and international offices in the United Kingdom, India, Germany, New Zealand and Australia.
We
develop, market and support a portfolio of software and services that deliver enterprise management and collaborative supply chain solutions to the global marketplace. We have designedprovide our software and services
to bring business value to enterprises by supporting their operations over intranets, extranets, client/servers or the Internet. References to “the Company,” “our products,” “our software,” “our services” and similar references include the appropriate business unit actually providing the product or service.We provide our software solutions through three major business segments, which are further broken down into a total of six major product and service groups. The three business segments areoperating segments: (1) Supply Chain Management (“SCM”), (2) Information Technology Consulting (“IT”IT Consulting”) Consulting and (3) Other. The SCM software business is our core market. We also offer technology staffing and consulting services through our wholly-owned subsidiary, The Proven Method, Inc., in the IT Consulting segment, consists of Logility, which providesand we continue to provide limited services to our legacy enterprise resource planning (“ERP”) clients included in the Other segment.
American Software delivers an innovative technical platform that enables enterprises to accelerate their digital supply chain optimization from product concept to client availability via the Logility Digital Supply Chain Platform, a single platform spanning seven supply chain process ares, including Product, Demand, Inventory, Supply, Sourcing, Deploy, Corporate Responsibility (ESG) and advance retailNetwork Optimization aligned with Integrated Business Planning.
Fueled by supply chain master data, allowing for the automation of critical business processes through the application of artificial intelligence and machine learning algorithms to a variety of internal and external data streams, the comprehensive Logility portfolio delivered in the cloud includes advanced analytics, supply chain visibility, demand, inventory and replenishment planning, solutions, as an integrated suite of salesSales and operations planning, demand optimization,Operations Planning (S&OP), Integrated Business Planning (IBP), supply and inventory optimization, manufacturing planning and scheduling, supplynetwork design and optimization (NDO), retail allocationmerchandise and merchandiseassortment planning and transportation optimization,allocation, product lifecycle management (PLM), sourcing management, vendor quality and compliance, and product traceability.
We believe enterprises are facing unprecedented rates of change and disruption across their operations. Increasing consumer expectations for convenience and personalization, fast and free delivery and product freshness are forcing enterprises to adapt or be left behind. Given constraints arising from a shortage of skilled supply chain talent and a desire to keep costs at a minimum, we expect enterprises to embrace digital transformation initiatives to meet these challenges. Our solution reduces the business cycle time required from product concept to client availability. Our platform allows our clients to create a digital model of their physical supply chain networks that improves the speed and agility of their operations by implementing automated planning processes. These processes regularly analyze business and market signals to better inform product design and development, increase forecast accuracy, optimize inventory across the supply chain source products sustainability and ethically, and contribute to high client satisfaction.
Our platform is highly regarded by clients and industry analysts alike. We are named a leader in multiple IDC MarketScape reports including: the September 2020 report IDC MarketScape: Worldwide PLM Applications for Apparel, Footwear, and Retail Brands 2020 Vendor Assessment; the January 2020 report IDC MarketScape: Worldwide Supply Chain Supply Planning 2019 Vendor Assessment; andthe January 2020 report IDC MarketScape: Worldwide Supply Chain Demand Planning 2019 Vendor Assessment.
We have been positioned in the Challenger quadrant in Gartner, Inc.’s (“Gartner”) May 17, 2022 report, Magic Quadrant for Supply Chain Planning Solutions. We believe our platform is rated highly due to our flexible advanced analytics, underlying SaaS architecture, ease of integration with third-party systems, lower total cost of ownership relative to competitors and the broad scope of supply chain planning functions supported.
We serve approximately 860 clients located in approximately 80 countries, largely concentrated within key vertical markets including apparel and other soft goods, food and beverage, consumer packaged goods, consumer durable goods, wholesale distribution, specialty chemical and other process manufacturing. Our solutions are marketed and sold through a direct sales team as well as (i) DMI, which provides collaborative supply chainan indirect global value-added reseller (“VAR”) distribution network. Our solutions to streamline and optimize the forecasting, inventory, production, supply, allocation, distribution and management of products between trading partners, (ii) New Generation Computing (“NGC”), which provides cloud solutions for supply chain management, product lifecycle management, quality control, vendor compliance and enterprise resource planning for both retailers and manufacturersmay be deployed in the apparel, sewn productscloud or with existing on-premise clients who may require additional components. We further support our clients with an array of consulting, implementation, operational and furniture industries,training services as well as technical support and (iii) Halo, which provides advanced analytics and business intelligence solutions for the supply chain market. The IT Consulting segment consistshosting.
Table of The Proven Method, Inc., an IT staffing and consulting services firm, which provides support for our software products, such as software enhancements, documentation, updates, customer education, consulting, systems integration services, maintenance and support services. The Other segment consists of (i) American Software ERP, which provides purchasing and materials management, customer order processing, financial,e-commerce and traditional manufacturing solutions, and (ii) unallocated corporate overhead expenses.Contents
We derive
revenues primarilyrevenue from four sources: subscriptions, software licenses,
services,maintenance and
maintenance.services. We generally determine
SaaS subscription and software license
and Software as a Service (SaaS) fees based on the
depthbreadth of functionality
and number of
production deployments, users and/or
sites licensed and/or subscribed.divisions. Services and other revenues consist primarily of fees from software implementation, training, consulting services,
SaaS, hosting and managed services. We bill
service feesfor consulting services primarily under time and materials arrangements and recognize
revenuesrevenue as we perform services. Subscription and maintenance agreements typically are for a
one- three- to
three-year term, commencing at the time of the initial contract.five-year term. We generally bill these fees annually in advance
under agreements with terms of one to three years, and then recognize the resulting
revenuesrevenue ratably over the term of the agreement. Deferred revenues represent advance payments or
billingsfees for subscriptions, software licenses, services and maintenance billed in advance of the time we recognize the related
revenues.Our cost of revenue for licenses includes amortization of technology intangibles and capitalized computer software development costs, royalties paid to third-party software vendors, and agent commission expenses related to license revenues generated by the indirect channel, primarily from DMI. Costs for maintenance and services include the cost of personnel to conduct implementations and customer support, consulting, other personnel-related expenses, and agent commission expenses related to maintenance revenues generated by the indirect channel, primarily from DMI. We account for the development costs of software intended for sale in accordance with the Intangibles—Goodwill and Other topic of the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification.We monitor the net realizable value of our capitalized software on a quarterly basis based on an estimate of future product revenues. We currently expect to fully recover the value of the capitalized software asset recorded on our consolidated balance sheet; however, if future product revenues are less than management’s current expectations, we may incur a write-down of capitalized software costs.
Our selling expenses generally include the salary and commissions paid to our sales professionals, along with marketing, promotional, travel and associated costs. Our general and administrative expenses generally include the salary and benefits paid to executive, corporate and support personnel, as well as facilities-related costs, utilities, communications expenses, and various professional fees.
revenue.
We currently view the following factors as the primary opportunities and risks associated with our business:
| • | | Dependence on Capital Spending Patterns. There is a risk associated with our dependence on the capital spending patterns of U.S. and international businesses, which in turn are functions of economic trends and conditions over which we have no control. |
| • | | Acquisition Opportunities. There are opportunities for selective acquisitions or investments to provide opportunities to expand our sales distribution channels and/or broaden our product offering by providing additional solutions for our target markets. |
| • | | Acquisition Risks. There are risks associated with acquisitions of complementary companies, products and technologies, including the risks that we will not achieve the financial and strategic goals that we contemplate at the time of the transaction. More specifically, in any acquisition we will face risks and challenges associated with the uncertain value of the acquired business or assets, the difficulty of assimilating operations and personnel, integrating acquired technologies and products and maintaining the loyalty of the customers of the acquired business. |
| • | | Competitive Technologies. There is a risk that our competitors may develop technologies that are substantially equivalent or superior to our technology. |
| • | | Competition in General. There are risks inherent in the market for business application software and related services, which has been and continues to be intensely competitive; for example, some of our competitors may become more aggressive with their prices and/or payment terms, which may adversely affect our profit margins. |
•Acquisition Opportunities. There are opportunities for selective acquisitions or investments to expand our sales distribution channels and/or broaden our product offering by providing additional solutions for our target markets.
•Dependence on Capital Spending Patterns. There is risk associated with our dependence on the capital spending patterns of U.S. and international businesses, which in turn are functions of economic trends and conditions over which we have no control.
•Acquisition Risks. There are risks associated with acquisitions of complementary companies, products and technologies, including the risks that we will not achieve the financial and strategic goals that we contemplate at the time of the transaction. More specifically, in any acquisition, we will face risks and challenges associated with the uncertain value of the acquired business or assets, the difficulty of assimilating operations and personnel, integrating acquired technologies and products and maintaining the loyalty of the clients of the acquired business.
•Competitive Technologies. There is a risk that our competitors may develop technologies that are substantially equivalent or superior to our technology.
•Competition in General. There are risks inherent in the market for business application software and related services, which has been and continues to be intensely competitive; for example, some of our competitors may become more aggressive with their prices and/or payment terms, which may adversely affect our profit margins.
A discussion of a number of additional risk factors associated with our business is included in our Annual Report
on Form10-Kfor
fiscal 2022. Additional information and other factors that could affect future financial results may be included, from time to time, in our filings with the
fiscal year ended April 30, 2017, which risk factors have been supplemented by the risk factors appearing in Item 1A of Part II of this report on Form10-Q.Securities and Exchange Commission (“SEC”).
Recent Accounting Pronouncements
In August 2015, the FASB issued Accounting Standards Update (“ASU”)No. 2015-14,Revenue from Contracts
For information with
Customers – Deferral of Effective Date, which defers the implementation of ASU2014-09,Revenue from Contracts with Customers, for one year from the initial effective date. The initial effective date of ASUNo. 2014-09 was for annual reporting periods beginning after December 15, 2016, and early adoption was not permitted. ASUNo. 2015-14 extends the effective daterespect to
annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of reporting periods beginning after December 16, 2016, including interim reporting periods within that reporting period. The Company has performed a review of the requirements of the new revenue standard and is monitoring the activity of the FASB as it relates to specific interpretive guidance. The Company plans to adopt ASU2014-09, as well as other clarifications and technical guidance issued by the FASB related to this new revenue standard, on May 1, 2018. The Company will apply the modified retrospective transition method, which would result in an adjustment to retained earnings for the cumulative effect,recent accounting pronouncements, if any,
of applying the standard to contracts in process as of the adoption date. Under this method, the Company would not restate the prior financial statements presented. Therefore, the new standard would require additional disclosures of the amount by which each financial statement line item is affected in the fiscal year 2019 reporting period.In assessing the new standard, the Company has completed its review of representative contracts and identification of policy and differences resulting from the adoption of the new revenue standard. The Company has drafted policy memos for all streams of revenue and expects to finalize by end of fiscal 2018. The Company has also evaluated and is in the process of documenting internal controls over financial reporting surrounding the adoption of the standard and periodic reporting and disclosures. The Company is still assessing the materiality of the standard’s adoption, including its impact on disclosures.
In February 2016, the FASB issued ASUNo. 2016-02,Leases (Topic 842), to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The ASU is effective for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption of the update is permitted. The Company is evaluating the impact of the adoption of this updatethese pronouncements on our condensed consolidated financial statements, and related disclosures.
if any, see Note A in the Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report.
COMPARISON OF RESULTS OF OPERATIONS
Three-Month Comparisons.The following table sets forth certain revenue and expense items as a percentage of total revenuesrevenue and the percentage changes in those items for the three months ended JanuaryJuly 31, 20182022 and 2017: | | | | | | | | | | | | |
| | Three Months Ended January 31, | |
| | Percentage of Total Revenues | | | Pct. Change in Dollars | |
| | 2018 | | | 2017 | | | 2018 vs. 2017 | |
Revenues: | | | | | | | | | | | | |
License | | | 20 | % | | | 15 | % | | | 50 | % |
Services and other | | | 43 | | | | 45 | | | | 9 | |
Maintenance | | | 37 | | | | 40 | | | | 5 | |
| | | | | | | | | | | | |
Total revenues | | | 100 | | | | 100 | | | | 14 | |
| | | | | | | | | | | | |
Cost of revenues: | | | | | | | | | | | | |
License | | | 6 | | | | 8 | | | | (7 | ) |
Services and other | | | 29 | | | | 30 | | | | 8 | |
Maintenance | | | 8 | | | | 9 | | | | 7 | |
| | | | | | | | | | | | |
Total cost of revenues | | | 43 | | | | 47 | | | | 5 | |
| | | | | | | | | | | | |
Gross margin | | | 57 | | | | 53 | | | | 21 | |
| | | | | | | | | | | | |
Research and development | | | 10 | | | | 12 | | | | 1 | |
Sales and marketing | | | 18 | | | | 18 | | | | 16 | |
General and administrative | | | 14 | | | | 13 | | | | 22 | |
Amortization of acquisition-related intangibles | | | 1 | | | | 1 | | | | (75 | ) |
| | | | | | | | | | | | |
Total operating expenses | | | 43 | | | | 44 | | | | 11 | |
| | | | | | | | | | | | |
Operating income | | | 14 | | | | 9 | | | | 71 | |
| | | | | | | | | | | | |
Other income: | | | | | | | | | | | | |
Interest income | | | 1 | | | | 1 | | | | 40 | |
Other, net | | | 4 | | | | 3 | | | | 59 | |
| | | | | | | | | | | | |
Earnings before income taxes | | | 19 | | | | 13 | | | | 66 | |
Income tax expense | | | — | | | | 5 | | | | (84 | ) |
| | | | | | | | | | | | |
Net earnings | | | 19 | % | | | 8 | % | | | 149 | % |
| | | | | | | | | | | | |
Nine-Month Comparisons.The following table sets forth certain revenue and expense items as a percentage of total revenues and the percentage changes in those items for the nine months ended January 31, 2018 and 2017:
| | | | | | | | | | | | |
| | Nine Months Ended January 31, | |
| | Percentage of Total Revenues | | | Pct. Change in Dollars | |
| | 2018 | | | 2017 | | | 2018 vs. 2017 | |
Revenues: | | | | | | | | | | | | |
License | | | 15 | % | | | 15 | % | | | 6 | % |
Services and other | | | 46 | | | | 45 | | | | 4 | |
Maintenance | | | 39 | | | | 40 | | | | 3 | |
| | | | | | | | | | | | |
Total revenues | | | 100 | | | | 100 | | | | 4 | |
| | | | | | | | | | | | |
Cost of revenues: | | | | | | | | | | | | |
License | | | 6 | | | | 7 | | | | (4 | ) |
Services and other | | | 30 | | | | 33 | | | | (5 | ) |
Maintenance | | | 8 | | | | 9 | | | | (8 | ) |
| | | | | | | | | | | | |
Total cost of revenues | | | 44 | | | | 49 | | | | (5 | ) |
| | | | | | | | | | | | |
Gross margin | | | 56 | | | | 51 | | | | 13 | |
| | | | | | | | | | | | |
Research and development | | | 10 | | | | 12 | | | | (12 | ) |
Sales and marketing | | | 18 | | | | 19 | | | | (2 | ) |
General and administrative | | | 14 | | | | 13 | | | | 7 | |
Amortization of acquisition-related intangibles | | | 1 | | | | 1 | | | | (31 | ) |
| | | | | | | | | | | | |
Total operating expenses | | | 43 | | | | 45 | | | | (2 | ) |
| | | | | | | | | | | | |
Operating income | | | 13 | | | | 6 | | | | 130 | |
| | | | | | | | | | | | |
Other income: | | | | | | | | | | | | |
Interest income | | | 2 | | | | 1 | | | | 27 | |
Other, net | | | 2 | | | | 1 | | | | 171 | |
| | | | | | | | | | | | |
Earnings before income taxes | | | 17 | | | | 8 | | | | 120 | |
Income tax expense | | | 4 | | | | 3 | | | | 58 | |
| | | | | | | | | | | | |
Net earnings | | | 13 | % | | | 5 | % | | | 148 | % |
| | | | | | | | | | | | |
2021:
| | | | | | | | | | | | | | | | | |
| Three Months Ended July 31, |
| Percentage of Total Revenue | | Pct. Change in Dollars |
| 2022 | | 2021 | | 2022 vs. 2021 |
Revenue: | | | | | |
Subscription fees | 39 | % | | 33 | % | | 23 | % |
License | 1 | % | | 2 | % | | (35) | % |
Professional services and other | 32 | % | | 33 | % | | 5 | % |
Maintenance | 28 | % | | 32 | % | | (6) | % |
Total revenue | 100 | % | | 100 | % | | 7 | % |
Cost of revenue: | | | | | |
Subscription fees | 12 | % | | 11 | % | | 12 | % |
License | — | % | | 1 | % | | (44) | % |
Professional services and other | 23 | % | | 24 | % | | 4 | % |
Maintenance | 5 | % | | 7 | % | | (20) | % |
Total cost of revenue | 40 | % | | 43 | % | | 2 | % |
Gross margin | 60 | % | | 57 | % | | 11 | % |
Research and development | 14 | % | | 15 | % | | 1 | % |
Sales and marketing | 19 | % | | 21 | % | | (3) | % |
General and administrative | 18 | % | | 15 | % | | 27 | % |
| | | | | |
Total operating expenses | 51 | % | | 51 | % | | 7 | % |
Operating income | 9 | % | | 6 | % | | 44 | % |
Other income: | | | | | |
| | | | | |
Other, net | — | % | | 1 | % | | (73) | % |
Earnings before income taxes | 9 | % | | 7 | % | | 21 | % |
Income tax expense\(benefit) | 2 | % | | (3) | % | | nm |
Net earnings | 7 | % | | 10 | % | | (28) | % |
nm - not meaningfulCOMPARISON OF RESULTS OF OPERATIONS FOR THE THREE
AND NINE MONTHS ENDED
JANUARYJULY 31,
20182022 AND
2017REVENUES
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended January 31, | |
| | | | | % of Total Revenue | |
| | 2018 | | | 2017 | | | % Change | | | 2018 | | | 2017 | |
| | (in thousands) | | | | | | | | | | | | | |
License | | $ | 5,955 | | | $ | 3,959 | | | | 50 | % | | | 20 | % | | | 15 | % |
Services and other | | | 12,926 | | | | 11,815 | | | | 9 | | | | 43 | % | | | 45 | % |
Maintenance | | | 11,236 | | | | 10,667 | | | | 5 | | | | 37 | % | | | 40 | % |
| | | | | | | | | | | | | | | | | | | | |
Total revenues | | $ | 30,117 | | | $ | 26,441 | | | | 14 | % | | | 100 | % | | | 100 | % |
| | | | | | | | | | | | | | | | | | | | |
| |
| | Nine Months Ended January 31, | |
| | | | | % of Total Revenue | |
| | 2018 | | | 2017 | | | % Change | | | 2018 | | | 2017 | |
| | (in thousands) | | | | | | | | | | | | | |
License | | $ | 12,420 | | | $ | 11,726 | | | | 6 | % | | | 15 | % | | | 15 | % |
Services and other | | | 38,017 | | | | 36,385 | | | | 4 | | | | 46 | % | | | 45 | % |
Maintenance | | | 32,903 | | | | 31,909 | | | | 3 | | | | 39 | % | | | 40 | % |
| | | | | | | | | | | | | | | | | | | | |
Total revenues | | $ | 83,340 | | | $ | 80,020 | | | | 4 | % | | | 100 | % | | | 100 | % |
| | | | | | | | | | | | | | | | | | | | |
The 14% increase in revenues over2021
REVENUE
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended July 31, |
| | | | | | | % of Total Revenue |
| 2022 | | 2021 | | % Change | | 2022 | | 2021 |
| (in thousands) | | | | | | |
Subscription fees | $ | 12,062 | | | $ | 9,788 | | | 23 | % | | 39 | % | | 33 | % |
License | $ | 320 | | | 492 | | | (35) | % | | 1 | % | | 2 | % |
Professional services and other | 10,009 | | | 9,529 | | | 5 | % | | 32 | % | | 33 | % |
Maintenance | 8,905 | | | 9,462 | | | (6) | % | | 28 | % | | 32 | % |
Total revenue | $ | 31,296 | | | $ | 29,271 | | | 7 | % | | 100 | % | | 100 | % |
For the three months ended
JanuaryJuly 31,
20182022 compared to July 31, 2021 revenue increased by 7%, which was attributable primarily to a 23% increase in subscription fees and a 5% increase in professional services and other revenue, partially offset by a 35% decrease in license revenue and a 6% decrease in maintenance revenue when compared to the same period last
year was attributable primarily to a 50% increase in license fee revenues and, to a lesser extent, a 9% increase in services and other revenues and a 5% increase in maintenance revenues. The increase in license fee revenues was attributable to entering into several license fee agreements during the quarter in our SCM segment, due to an increase in general economic activity and higher overall business information technology spending from the US tax reform. The primary reason for the increase in services and other revenues in the three months ended January 31, 2018 was an increase in implementation and cloud services in our SCM segment partially offset by a decrease in our IT consulting services due to decreased demand for IT temporary staff.year.
Due to intense competition in our industry, we dosometimes discount license fees from our published list price. Numerous factors contribute to the amount of the discountsdiscount provided, such as previous customerclient purchases, the number of customerclient sites utilizing
the software, the number of modules purchased and the number of users, as well as the overall size of the contract. While all these factors may affect the discount amount of a particular contract, the overall percentage discount has not materially changed in the recent reported fiscal periods.
The change in our
revenuesrevenue from period to period is primarily due to the volume of products and related services sold in any period and the
amountnumber of products or modules purchased with each sale.
International
revenuesrevenue represented approximately
20% and 17%18% of total
revenuesrevenue in the three months ended
JanuaryJuly 31,
2018 and 2017, respectively.2022 compared to 17% for the same period in the prior year. Our
revenues, in particularrevenue, particularly our international
revenues,revenue, may fluctuate substantially from period to period, primarily because we derive most of our license
and subscription fee
revenuesrevenue from a relatively small number of
customersclients in a given period.
License Revenues
| | | | | | | | | | | | |
| | Three Months Ended January 31, | |
| | 2018 | | | 2017 | | | % Change | |
| | (in thousands) | | | | |
Supply Chain Management | | $ | 5,875 | | | $ | 3,948 | | | | 49% | |
Other | | | 80 | | | | 11 | | | | 627 | |
| | | | | | | | | | | | |
Total license revenues | | $ | 5,955 | | | $ | 3,959 | | | | 50% | |
| | | | | | | | | | | | |
| |
| | Nine Months Ended January 31, | |
| | 2018 | | | 2017 | | | % Change | |
| | (in thousands) | | | | |
Supply Chain Management | | $ | 12,316 | | | $ | 11,592 | | | | 6% | |
Other | | | 104 | | | | 134 | | | | (22 | ) |
| | | | | | | | | | | | |
Total license revenues | | $ | 12,420 | | | $ | 11,726 | | | | 6% | |
| | | | | | | | | | | | |
Subscription Fees
| | | | | | | | | | | | | | | | | |
| Three Months Ended July 31, |
| 2022 | | 2021 | | % Change |
| (in thousands) | | |
Supply Chain Management | $ | 12,062 | | | $ | 9,788 | | | 23 | % |
Total subscription fees revenue | $ | 12,062 | | | $ | 9,788 | | | 23 | % |
For the three and nine months ended JanuaryJuly 31, 2018, license fee revenues2022, subscription fees revenue increased 50% and 6%, respectively, when23% compared to the same periodsperiod in the prior year. Inyear primarily due to an increase in the three and nine months ended January 31, 2018, license fee revenues fromnumber of contracts, including contracts with a higher cloud services annual contract value ("ACV"), as well as an increase in multi-year contracts. This is evidenced by our SCM business unit increased 49% and 6%, respectively, when comparedsuccessful transition to the corresponding periods in the prior year. We believe that the increase was due to the economic improvement in the global economy and higher overall business information technology spending. Our SCM business unit constituted 99% and 100% of total license fee revenues forcloud subscription model.
License Revenue
| | | | | | | | | | | | | | | | | |
| Three Months Ended July 31, |
| 2022 | | 2021 | | % Change |
| (in thousands) | | |
Supply Chain Management | $ | 304 | | | $ | 476 | | | (36) | % |
Other | 16 | | | 16 | | | — | % |
Total license revenue | $ | 320 | | | $ | 492 | | | (35) | % |
For the three months ended
JanuaryJuly 31,
2018 and 2017, respectively. Our SCM business unit constituted 99% and 99% of total2022, license fee
revenues for the nine months ended January 31, 2018 and 2017, respectively. Our Other business unit license fee revenues increased by 627% for the three months ended January 31, 2018revenue decreased 35% when compared to the same period in the prior year,
which was entirely attributable to our SCM segment. The majority of our current license fee revenue is generated from additional users and
decreased 22% inexpanded scope from our existing on-premise clients. For the
ninethree months ended
JanuaryJuly 31,
20182022 and 2021, our SCM segment constituted approximately 95% and 97% of total license fee revenue, respectively. Our Other segment license fee revenue remained flat for the three months ended July 31, 2022 when compared to the same period in the prior year
primarily due to timing of
closingsales to our existing ERP
deals.clients.
The direct sales channel provided approximately
91%100% and
83%71% of license fee revenues for the three
and nine months ended
JanuaryJuly 31,
2018, compared2022 and 2021, respectively, due to
approximately 81% in each of the comparable periods last year. The increase in the proportion of sales bylarger clients obtained through our direct sales channel
was duemoving to
a larger increasethe Cloud platform faster than those in
license fee revenue from the
SCM segment’s directmid-sized market that are primarily served by our indirect sales channel. For the three months ended
JanuaryJuly 31,
20182022 and
2017,2021, our margins after commissions on direct sales were approximately
88%90% and 87%, respectively.
For the nine months ended January 31, 2018 and 2017, ourThe increase in margins
after commissions on direct sales were approximately 87%. The margins increased slightly in the current periodis due to the mix of sales commission rates based on each individual
salespersons’salesperson’s quotas and related achievement. For the three months ended
JanuaryJuly 31,
20182022 and
2017,2021, our margins after commissions on indirect sales were approximately
32%58% and
41%, respectively. For the nine months ended January 31, 2018 and 2017, our margins after commissions on indirect sales were approximately 36% and 44%67%, respectively. The indirect channel margins
decreased for the
current quarter and year to date decreased when three months ended July 31, 2022, compared to the same periods in the prior year due to the mix of value-added reseller (“VAR”) commission rates. These margin calculations include only commission expense for comparative purposes and do not include other costs of license fees such as amortization of capitalized software.
Professional Services and Other
Revenues | | | | | | | | | | | | |
| | Three Months Ended January 31, | |
| | 2018 | | | 2017 | | | % Change | |
| | (in thousands) | | | | |
Supply Chain Management | | $ | 8,151 | | | $ | 6,564 | | | | 24 | % |
IT Consulting | | | 4,557 | | | | 5,108 | | | | (11 | ) |
Other | | | 218 | | | | 143 | | | | 52 | |
| | | | | | | | | | | | |
Total services and other revenues | | $ | 12,926 | | | $ | 11,815 | | | | 9 | % |
| | | | | | | | | | | | |
| |
| | Nine Months Ended January 31, | |
| | 2018 | | | 2017 | | | % Change | |
| | (in thousands) | | | | |
Supply Chain Management | | $ | 23,879 | | | $ | 20,431 | | | | 17 | % |
IT Consulting | | | 13,522 | | | | 15,386 | | | | (12 | ) |
Other | | | 616 | | | | 568 | | | | 8 | |
| | | | | | | | | | | | |
Total services and other revenues | | $ | 38,017 | | | $ | 36,385 | | | | 4 | % |
| | | | | | | | | | | | |
Revenue
| | | | | | | | | | | | | | | | | |
| Three Months Ended July 31, |
| 2022 | | 2021 | | % Change |
| (in thousands) | | |
Supply Chain Management | $ | 5,220 | | | $ | 4,836 | | | 8 | % |
IT Consulting | 4,515 | | | 4,476 | | | 1 | % |
Other | 274 | | | 217 | | | 26 | % |
Total professional services and other revenue | $ | 10,009 | | | $ | 9,529 | | | 5 | % |
For the three
and nine months ended
JanuaryJuly 31,
2018,2022, professional services
and other revenue increased by
9%5% due to the increased professional services and
4%, respectively,other revenue derived from our Other, SCM and IT Consulting segments. For the three months ended July 31, 2022, our Other segment’s revenue increased 26% due to the timing of project work with existing clients. For the three months ended July 31, 2022, our SCM segment’s revenue increased 8% primarily due to
increased services revenues from our SCM business unit partially offset by a
decrease in our IT consulting business unit. For the three and nine months ended January 31, 2018, a 24% and 17% increase, respectively, at our SCM business unit washigher ramp up of implementation project work due to
services revenue related to our Logility cloud services area and an increase in
utilization from project implementation services from higher licensesubscription fees
revenue in
priorrecent periods. For the three
and nine months ended
JanuaryJuly 31,
2018,2022, our IT Consulting segment’s
revenues decreased 11% and 12%, respectively,revenue increased 1% when compared to the same
periods in the prior year due lower project work. For the three and nine months ended January 31, 2018, services and other revenues from our Other segment increased by 52% and 8%, respectively, when compared to the same periodsperiod in the prior year due to the
timingdemand of
implementation work.project work from existing clients during the applicable period. We have observed that there is a tendency for services and other
revenues,revenue, other than from IT Consulting, to lag changes in license
revenuesand subscription revenue by one to three quarters, as new licenses
and subscriptions in one quarter often involve implementation and consulting services in subsequent quarters, for which we recognize
revenuesrevenue only as we perform those services.
Maintenance Revenue
| | | | | | | | | | | | | | | | | |
| Three Months Ended July 31, |
| 2022 | | 2021 | | % Change |
| (in thousands) | | |
Supply Chain Management | $ | 8,596 | | | $ | 9,151 | | | (6) | % |
Other | 309 | | | 311 | | | (1) | % |
Total maintenance revenue | $ | 8,905 | | | $ | 9,462 | | | (6) | % |
For
the three and three months ended July 31, 2022, maintenance revenue decreased 6% when compared to the same period in the prior year. Our SCM maintenance revenue decreased 6% for the three months ended
JanuaryJuly 31,
2018, cloud services Annual Contract Value (“ACV”) increased approximately 125% to $10.9 million2022 when compared to
$4.9 million in the same period of the prior year. ACV is comprised ofsoftware-as-a-service (“SaaS”) ACV of $8.1 million compared to approximately $2.6 million during the same period last year
due to a normal client attrition rate. The SCM segment accounted for 97% of total maintenance revenue for the three months ended July 31, 2022 and
other cloud services ACV of $2.8 million compared to $2.3 million duringfor the same period
last year. ACV is a forward-looking operating measure used by management to better understand cloud services (SaaS and other related cloud services) revenue trends within our business, as it reflects our current estimate of revenue to be generated under existing client contracts in the forward12-month period.Maintenance Revenues
| | | | | | | | | | | | |
| | Three Months Ended January 31, | |
| | 2018 | | | 2017 | | | % Change | |
| | (in thousands) | | | | |
Supply Chain Management | | $ | 10,876 | | | $ | 10,259 | | | | 6 | % |
Other | | | 360 | | | | 408 | | | | (12 | ) |
| | | | | | | | | | | | |
Total maintenance revenues | | $ | 11,236 | | | $ | 10,667 | | | | 5 | % |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | Nine Months Ended January 31, | |
| | 2018 | | | 2017 | | | % Change | |
| | (in thousands) | | | | |
Supply Chain Management | | $ | 31,769 | | | $ | 30,701 | | | | 3 | % |
Other | | | 1,134 | | | | 1,208 | | | | (6 | ) |
| | | | | | | | | | | | |
Total maintenance revenues | | $ | 32,903 | | | $ | 31,909 | | | | 3 | % |
| | | | | | | | | | | | |
For the three and nine months ended January 31, 2018, maintenance revenues increased 5% and 3%, respectively, when compared to the same periods in the prior year, due primarily to increased license fees in recent periods. Our SCM Segment accounted for 97% and 96% of total maintenance revenues for the three and nine months ended January 31, 2018 and 2017, respectively.year. Typically, our maintenance revenues haverevenue has had a direct relationship to current and historic license fee revenues,revenue, since new licenses are the potential source of new maintenance customers.
clients.
The following table provides both dollar amounts (in thousands) and percentage measures of gross margin:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended January 31, | | | Nine months ended January 31, | |
| | 2018 | | | | | | 2017 | | | | | | 2018 | | | | | | 2017 | | | | |
Gross margin on license fees | | $ | 4,015 | | | | 67 | % | | $ | 1,878 | | | | 47 | % | | $ | 7,125 | | | | 57 | % | | $ | 6,216 | | | | 53 | % |
Gross margin on services and other | | | 4,199 | | | | 32 | % | | | 3,754 | | | | 32 | % | | | 13,168 | | | | 35 | % | | | 10,226 | | | | 28 | % |
Gross margin on maintenance | | | 8,832 | | | | 79 | % | | | 8,417 | | | | 79 | % | | | 25,984 | | | | 79 | % | | | 24,420 | | | | 77 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total gross margin | | $ | 17,046 | | | | 57 | % | | $ | 14,049 | | | | 53 | % | | $ | 46,277 | | | | 56 | % | | $ | 40,862 | | | | 51 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended July 31, | | |
| 2022 | | % | | 2021 | | % | | | | | | | | |
Gross margin on subscription fees | $ | 8,444 | | | 70 | % | | $ | 6,564 | | | 67 | % | | | | | | | | |
Gross margin on license fees | 231 | | | 72 | % | | 333 | | | 68 | % | | | | | | | | |
Gross margin on professional services and other | 2,705 | | | 27 | % | | 2,519 | | | 26 | % | | | | | | | | |
Gross margin on maintenance | 7,332 | | | 82 | % | | 7,488 | | | 79 | % | | | | | | | | |
Total gross margin | $ | 18,712 | | | 60 | % | | $ | 16,904 | | | 57 | % | | | | | | | | |
For the three and nine months ended JanuaryJuly 31, 2018,2022, our total gross margin percentage increased by 3% when compared to the same periods in the prior year primarily due to a higher license fee margin from highermargins on subscription fees revenue, license fees, maintenance revenue and for the nine months ended January 31, 2018, to a lesser extent, due to an increase in gross margins inprofessional services and other revenue.
Gross Margin on Subscription Fees
For the three months ended July 31, 2022, our gross margin percentage on subscription fees revenue increased from 67% to 70% when compared to the same period in the prior year, primarily due to the increased subscription revenue and
maintenance revenues.related cost efficiencies.
Gross Margin on License Fees
License fee gross margin percentage for the three
and nine months ended
JanuaryJuly 31,
20182022 increased
by 4% when compared to the same
periodsperiod in the prior
year due to higher license fees.year. License fee gross margin percentage tends to be directly related to the level of license fee
revenuesrevenue due to the relatively fixed cost of computer software amortization expense, amortization of acquired software and the sales mix between our direct and indirect channels.
Gross Margin on
Professional Services and Other
For the nine months ended January 31, 2018, the
Our gross margin percentage on
professional services and other revenue increased
by seven percentage points when compared to
27% for the
same periods in the prior yearthree months ended July 31, 2022, primarily due to an increase in
revenues, improved utilization and better billing rates. Our gross margin percentage in our
Logility cloudSCM segment services
arearemained flat at 32% for the three months ended July 31, 2022 and 2021. This is primarily the result of a small increase in professional services and other revenue, which
hasis being driven by an increase in billing rates and utilization. Our Other segment professional services gross margin increased to 43% from 42% for the three months ended July 31, 2022 and 2021, respectively, due to higher margin
projects year to date. Our IT Consulting segment professional services
and related implementation services. Also,gross margin decreased to 20% for the
margin increase was partially offset by a decrease inthree months ended July 31, 2022, when compared to 21% the same period last year due to the timing of project work. Professional services
revenue from our lower margin IT business unit. Services and other gross margin is directly related to the level of services and other
revenues.revenue. The primary component of cost of services and other
revenuesrevenue is services staffing, which is relatively inelastic in the short term.
Gross Margin on Maintenance
Maintenance gross margin percentage
increased from 79% to 82% for the three months ended
JanuaryJuly 31,
2018 and 2017 remained flat at 79%. For2022 when compared to the
nine months ended January 31, 2018 and 2017,same period in the
gross margin percentage had a slight uptick to 79% from 77%, respectively,prior year. The increase is primarily due to
increasedan increase in maintenance revenue and
cost containment efforts. Maintenance gross margin normally is directly relatedan increase in personnel costs, compared to the
level of maintenance revenues.same period in the prior year. The primary
component of cost
of maintenance revenuecomponent is maintenance staffing, which is relatively inelastic in the short term.
EXPENSES
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended January 31, | | | Nine Months Ended January 31, | |
| | 2018 | | | 2017 | | | % of Revenues | | | 2018 | | | 2017 | | | % of Revenues | |
| | | | 2018 | | | 2017 | | | | | 2018 | | | 2017 | |
| | (in thousands) | | | | | | | | | (in thousands) | | | | | | | |
Research and development | | $ | 3,099 | | | $ | 3,074 | | | | 10 | % | | | 12 | % | | $ | 8,250 | | | $ | 9,343 | | | | 10 | % | | | 12 | % |
Sales and marketing | | $ | 5,385 | | | $ | 4,635 | | | | 18 | % | | | 18 | % | | $ | 15,055 | | | $ | 15,307 | | | | 18 | % | | | 19 | % |
General and administrative | | $ | 4,263 | | | $ | 3,500 | | | | 14 | % | | | 13 | % | | $ | 11,418 | | | $ | 10,701 | | | | 14 | % | | | 13 | % |
Amortization of acquisition-related intangible assets | | $ | 95 | | | $ | 385 | | | | — | | | | 1 | % | | $ | 486 | | | $ | 702 | | | | 1 | % | | | 1 | % |
Other income, net | | $ | 1,574 | | | $ | 1,025 | | | | 5 | % | | | 4 | % | | $ | 2,849 | | | $ | 1,519 | | | | 4 | % | | | 2 | % |
Income tax expense | | $ | 198 | | | $ | 1,237 | | | | — | % | | | 5 | % | | $ | 3,132 | | | $ | 1,985 | | | | 4 | % | | | 3 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended July 31, | | |
| 2022 | | 2021 | | % of Revenue | | | | | | |
| 2022 | | 2021 | | | | |
| (in thousands) | | | | | | | | | | |
Research and development | $ | 4,454 | | | $ | 4,424 | | | 14 | % | | 15 | % | | | | | | | | |
Sales and marketing | $ | 5,912 | | | $ | 6,120 | | | 19 | % | | 21 | % | | | | | | | | |
General and administrative | $ | 5,765 | | | $ | 4,534 | | | 18 | % | | 15 | % | | | | | | | | |
Amortization of acquisition-related intangible assets | $ | 24 | | | $ | 53 | | | — | % | | — | % | | | | | | | | |
Other income, net | $ | 119 | | | $ | 437 | | | — | % | | 1 | % | | | | | | | | |
Income tax expense\(benefit) | $ | 543 | | | $ | (737) | | | 2 | % | | (3) | % | | | | | | | | |
Research and Development
Gross product research
Research and development costs include
allnon-capitalizedpersonnel costs, third-party contractors, travel expense, rent, software expense and
capitalizedother non-capitalized software development costs. A breakdown of the research and development costs is as follows:
| | | | | | | | | | | | |
| | Three Months Ended (in thousands) | |
| | January 31, 2018 | | | Percent Change | | | January 31, 2017 | |
Total capitalized computer software development costs | | $ | 1,035 | | | | 20 | % | | $ | 865 | |
Percentage of gross product research and development costs | | | 25 | % | | | | | | | 22 | % |
Total research and development expense | | | 3,099 | | | | 1 | % | | | 3,074 | |
| | | | | | | | | | | | |
Percentage of total revenues | | | 10 | % | | | | | | | 12 | % |
Total research and development expense and capitalized computer software development costs | | $ | 4,134 | | | | 5 | % | | $ | 3,939 | |
| | | | | | | | | | | | |
Percentage of total revenues | | | 14 | % | | | | | | | 15 | % |
Total amortization of capitalized computer software development costs * | | $ | 965 | | | | (26 | )% | | $ | 1,307 | |
| | | | | | | | | | | | |
| | Nine Months Ended (in thousands) | |
| | January 31, 2018 | | | Percent Change | | | January 31, 2017 | |
Total capitalized computer software development costs | | $ | 3,652 | | | | 48 | % | | $ | 2,471 | |
Percentage of gross product research and development costs | | | 31 | % | | | | | | | 21 | % |
Total research and development expense | | | 8,250 | | | | (12 | )% | | | 9,343 | |
| | | | | | | | | | | | |
Percentage of total revenues | | | 10 | % | | | | | | | 12 | % |
Total research and development expense and capitalized computer software development costs | | $ | 11,902 | | | | 1 | % | | $ | 11,814 | |
| | | | | | | | | | | | |
Percentage of total revenues | | | 14 | % | | | | | | | 15 | % |
Total amortization of capitalized computer software development costs * | | $ | 2,727 | | | | (17 | )% | | $ | 3,287 | |
* | Included in cost of license fees |
| | | | | | | | | | | | | | | | | |
| Three Months Ended July 31, |
| 2022 | | 2021 | | % Change |
| (in thousands) | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Total research and development expense | $ | 4,454 | | | $ | 4,424 | | | 1 | % |
Percentage of total revenue | 14 | % | | 15 | % | | |
Total amortization of capitalized computer software development costs * | $ | 457 | | | $ | 903 | | | (49) | % |
*Included in cost of license fees and subscription fees.
For the three and nine months ended JanuaryJuly 31, 2018, gross2022, total product research and development costs increased 5% andby 1%, respectively when compared to the same periodsperiod in the previous year, primarily due increased headcount and related expenses. Capitalizedto an increase in the use of third-party contractors. For the three months ended July 31, 2022, amortization of capitalized software development costs increased 20%decreased 49%, when compared to fiscal 2022 as some projects were fully amortized.
Sales and 48%, respectively, forMarketing
For the three and nine months ended JanuaryJuly 31, 20182022, sales and marketing expenses decreased from 21% to 19% of revenue when compared to the same period last year due to timing of capitalizable project work. We expect capitalized product development costs to remain consistent for the remainder of fiscal 2018 as compared to the third quarter of 2018,marketing cost containment.
General and
we expect capitalized software amortization expense to be relatively stable in coming quarters. Costs included in gross product development are salaries of product development personnel, hardware lease expense, computer software expense, telephone expense and rent.Sales and Marketing
Sales and marketing expenses forAdministrative
For the three months ended
JanuaryJuly 31,
20182022, general and
2017 remained flat atadministrative expenses increased from 15% to 18% as a percentage of
revenue. For the nine months ended January 31, 2018 and 2017, we had a slight reduction in sales and marketing expenses to 18% from 19% as a percentage of revenue
respectively. We generally include commissions on indirect sales in cost of sales.General and Administrative
For the three and nine months ended January 31, 2018, general and administrative expenses increased when compared to the same periods a year ago, primarily due to the purchase of Halopersonnel costs, third-party contractors and variable compensation.
insurance.
At
JanuaryJuly 31,
2018,2022, the total number of employees was
440406 compared to
386416 at
JanuaryJuly 31,
2017.2021.
Operating Income/(Loss)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended January 31, | | | Nine Months Ended January 31, | |
| | 2018 | | | 2017 | | | % Change | | | 2018 | | | 2017 | | | % Change | |
| | (in thousands) | | | | | | (in thousands) | | | | |
Supply Chain Management | | $ | 5,969 | | | $ | 3,667 | | | | 63 | % | | $ | 15,551 | | | $ | 8,719 | | | | 78 | % |
IT Consulting | | | 185 | | | | 330 | | | | (44 | )% | | | 775 | | | | 698 | | | | 11 | % |
Other* | | | (1,950 | ) | | | (1,542 | ) | | | 26 | % | | | (5,258 | ) | | | (4,608 | ) | | | 14 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total Operating Income | | $ | 4,204 | | | $ | 2,455 | | | | 71 | % | | $ | 11,068 | | | $ | 4,809 | | | | 130 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
* | includes certain unallocated corporate expenses. |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended July 31, | | |
| 2022 | | 2021 | | % Change | | | | | | |
| (in thousands) | | | | | | |
Supply Chain Management | $ | 7,179 | | | $ | 5,356 | | | 34 | % | | | | | | |
IT Consulting | 215 | | | 163 | | | 32 | % | | | | | | |
Other* | (4,837) | | | (3,746) | | | 29 | % | | | | | | |
Total Operating Income | $ | 2,557 | | | $ | 1,773 | | | 44 | % | | | | | | |
* Includes all corporate overhead and other common expenses.
Our SCM
segment’ssegment operating income increased by
63% and 78%34% for the three
and nine months ended
JanuaryJuly 31,
2018, respectively, compared to same period last year primarily due to higher overall revenues and higher margin cloud services.Our IT Consulting segment operating income decreased 44% and increased 11% for the three and nine months ended January 31, 2018, respectively, when compared to the prior year due to lower revenues for the three month period and improved gross margins for the nine month period.
Our Other segment operating loss increased 26% and 14% in the three and nine months ended January 31, 2018, respectively,2022, compared to the same periodperiods in the prior year primarily due to improved gross margins.
Our IT Consulting segment operating income increased by 32% for the three months ended July 31, 2022, compared to same periods last year primarily due to higher corporatemargin project work and a decrease in expenses related to sales and third-party contractors.
Our Other segment operating loss increased by 29% for the three months ended July 31, 2022, when compared to the same periods in the prior year due primarily to an increase in variable compensation and
lower revenues.stock option expenses.
Other income is comprised of net interest and dividend income, rental income,
net of related depreciation expenses, exchange rate gains and losses,
miscellaneous income, and realized and unrealized gains and losses from investments.
For the three months ended JanuaryJuly 31, 2018,2022, the increasedecrease in otherOther income wasis mainly due primarily to a 1) higherlower unrealized gains from investments of $285,000, higher losses on exchange rates of $134,000 and higher realized losses from our investments 2) higher interest income and 3) an exchange rate gain of approximately $75,000 for the three months ended January 31, 2018 when compared to a loss of approximately $56,000 in the same period last year. This increase was$30,000, partially offset by lower rentala gain on interest income of $116,000 when compared to the same period last year as a result of our real estate sale in the fourth quarter of fiscal 2017.
For the nine months ended January 31, 2018, the increase in other income was due primarily to a 1) higheryear. We recorded unrealized gains on investments, 2) higher interest income of $1,120,000 for the nine months ended January 31, 2018 when compared to $882,000 in the same period in the prior year when compared to the same period last year and 3) higher exchange rate gains of approximately $75,000 for the nine months ended January 31, 2018 when compared to a loss$98,000 and realized losses of approximately $236,000 in the same period last year. This increase was partially offset by lower rental income of $263,000 when compared to $697,000 the same period last year as a result of our real estate sale in the fourth quarter of fiscal 2017.
We recorded gains of approximately $997,000 and $1.4 million$37,000 for the three and nine months ended JanuaryJuly 31, 2018, respectively,2022 from our trading securities portfolio. We recorded gains of approximately $564,000 and $170,000 the three and nine months ended January 31, 2017, respectively, from our trading securities portfolio.
For the three
and nine months ended
JanuaryJuly 31,
2018,2022, our investments generated an annualized yield of approximately
1.33% and 1.37%, respectively,1.55% compared to approximately
1.59% and 1.62%1.65% for the
three and nine months ended January 31, 2017,same period in the prior year.
We recognize deferred tax assets and liabilities based on the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their tax bases. We measure deferred tax assets and liabilities using statutory tax rates in effect in the year in which we expect the differences to reverse. We establish a deferred tax asset for the expected future benefit of net operating losslosses, credit carry-forwards and credit carry-forwards.nonqualified stock options. Under the Income Tax Topic of the FASB Accounting Standards Codification,ASC 740, Income Taxes, we cannot recognize a deferred tax asset for the future benefit of our net operating losses, tax credits and temporary differences unless we can establish that it is “more likely than not” that the deferred tax asset would be realized.On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (the “Act”), which significantly changed U.S. tax law. The Act lowered our U.S. statutory federal income tax rate from 35% to 21% effective January 1, 2018. For fiscal year 2018, our blended U.S. federal statutory tax rate is 30.3%. This is the result of using the tax rate of 35% for the first eight months of fiscal year 2018 and the reduced tax rate of 21% for the final four months of fiscal year 2018. During the third quarter of 2018, we recorded a $1.1 million benefit from the impact of changes in the tax rate, primarily on deferred tax assets and liabilities, which was included in income tax expense on our condensed consolidated statements of operations and deferred income taxes on our condensed consolidated balance sheets. We remeasured our deferred taxes to reflect the reduced rate that will apply when these deferred taxes are settled or realized in future periods. To calculate the remeasurement of deferred taxes, we estimated when the existing deferred taxes will be settled or realized.
During the three months ended
JanuaryJuly 31,
2018,2022, we recorded income tax expense of $543,000, primarily due to discrete stock compensation benefits of $34,000, net of normal income tax expense from operations. During the three months ended July 31, 2021, we recorded an income tax benefit of $737,000, primarily due to discrete stock compensation benefits of $1.2 million, net of normal income tax expense from operations. Before adjusting for these discrete tax benefits, our effective tax rate
was 3.4%would have been 21.56%, in the three months ended July 31, 2022 compared to our effective tax rate of
35.5%19.9%, in the three months ended
JanuaryJuly 31,
2017. During2021. In addition, research and development credits reduced our effective tax rate by 4.0% in the
ninethree months ended
JanuaryJuly 31,
2018, our effective rate was 22.5%2022, compared to
our effective ratea reduction of
31.4%5.7% in the
ninethree months ended
JanuaryJuly 31,
2017. Our effective tax rates were lower in both the three and nine months ended January 31, 2018 than the same period last year because of the Act.2021.
We experience an irregular pattern of quarterly operating results, caused primarily by fluctuations in both the number and size of software license
and subscription contracts received and delivered from quarter to quarter and our ability to recognize
revenuesrevenue in that quarter in accordance with our revenue recognition policies. We expect this pattern to continue.
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION
Sources and Uses of Cash
We
Historically we have
historically funded, and
we continue to fund, our operations and capital expenditures primarily with cash generated from operating activities. The changes in net cash that our operating activities provide generally reflect the changes in net earnings and
non-cash operating items plus the effect of changes in operating assets and liabilities, such as investment trading securities, trade accounts receivable, trade accounts payable, accrued expenses and deferred revenue. We have no debt obligations or
off-balance sheet financing arrangements, and therefore, we used no cash for debt service purposes.
The following table shows information about our cash flows and liquidity positions during the
ninethree months ended
JanuaryJuly 31,
20182022 and
2017.2021. You should read this table and the discussion that follows in conjunction with our
condensed consolidated statementsCondensed Consolidated Statements of
cash flowsCash Flows contained in
“Item 1. Financial Statements”Item 1 in Part I of this
reportQuarterly Report and in our Annual Report
on Form10-Kfor
the fiscal
year ended April 30, 2017. | | | | | | | | |
| | Nine Months Ended January 31, (in thousands) | |
| | 2018 | | | 2017 | |
Net cash provided by operating activities | | $ | 5,351 | | | $ | 19,262 | |
Net cash used in investing activities | | | (13,318 | ) | | | (7,412 | ) |
Net cash used in financing activities | | | (3,122 | ) | | | (5,102 | ) |
| | | | | | | | |
Net change in cash and cash equivalents | | $ | (11,089 | ) | | $ | 6,748 | |
| | | | | | | | |
2022.
| | | | | | | | | | | |
| Three Months Ended July 31, |
| 2022 | | 2021 |
Net cash (used in) provided by operating activities | $ | (1,518) | | | $ | 3,034 | |
Net cash used in investing activities | (8,072) | | | (302) | |
Net cash (used in) provided by financing activities | (3,222) | | | 464 | |
Net change in cash and cash equivalents | $ | (12,812) | | | $ | 3,196 | |
For the
ninethree months ended
JanuaryJuly 31,
2018,2022, the net
decrease in cash
provided byused in operating activities
decreased when compared to the same period last year was due primarily to
1) anthe following: (1) a relative increase in
purchases of trading securities, 2) an increase in customer accounts receivablesdeferred revenue when compared to a
lower decrease
in the same period last year
caused by thedue to timing of
closing customer sales and related collections, 3) an increaserevenue recognition, (2) a relative decrease in the comparative increase in prepaid expensesclient accounts receivables when compared to an increase in the same period in the priorlast year due to the timing of purchases, 4)closing client sales and related collections, (3) an increase in gain on investments compared todeferred income taxes, (4) a decrease in net earnings, (5) a decrease in depreciation and amortization, (6) a decrease in purchases of trading securities and (7) a decrease in the same period last year, 5) lower proceeds from the maturity and sales of trading securities, 6)securities.
This decrease in cash used in operating activities was partially offset by: (1) a relative decrease in prepaid expenses when compared to an
increasedecrease in the
same period last year due to the timing of purchases, (2) a relative
smaller decrease in accounts payable and other
accrualsliabilities compared to the same period last year due to timing of payments
7) a decrease in depreciation and amortization, and 8) a decrease(3) an increase in stock-based compensation
expense. This decrease was partially offset by: 1) an increaseexpense, and (4) lower gains on investments than in
net earnings, 2) an increase in the comparative increase in deferred revenues due to timing of revenue recognition and 3) an increase in deferred income tax compared to a decrease the same period lastprior year.
The increase in cash used in investing activities when compared to the same period in the prior year was
mainly due
primarily to the
acquisitionpurchase of
Halo in the current quarter compared to the acquisition of AdapChain, Inc. in the prior year periodStarboard and
higher capitalized computer software development costs, partially offset by a decreasean increase in purchases of property and equipment.
The
decreaseincrease in cash used in financing activities compared to the prior year was
due primarily
due to an increase
in dividends paid, which was partially offset by a decrease in proceeds from exercise of stock
options, partially offset by an increase in dividends paid.options.
The following table shows net changes in total cash, cash equivalents, and investments, which is one measure management uses to
viewunderstand net total cash generated by our activities:
| | | | | | | | |
| | As of January 31, (in thousands) | |
| | 2018 | | | 2017 | |
Cash and cash equivalents | | $ | 54,912 | | | $ | 55,752 | |
Short and long-term investments | | | 33,519 | | | | 23,519 | |
| | | | | | | | |
Total cash and short and long-term investments | | $ | 88,431 | | | $ | 79,271 | |
| | | | | | | | |
Net (decrease) increase in total cash and investments (nine months ended January 31) | | $ | (1,357 | ) | | $ | 1,386 | |
| | | | | | | | | | | |
| As of July 31, (in thousands) |
| 2022 | | 2021 |
Cash and cash equivalents | $ | 97,878 | | | $ | 91,854 | |
Short-term investments | 16,954 | | | 16,280 | |
Total cash and short and long-term investments | 114,832 | | | 108,134 | |
Net increase/decrease in total cash and investments during three months ended July 31, | $ | (12,684) | | | $ | 3,470 | |
Our total activities used
moreless cash and investments during the
nine months ended
JanuaryJuly 31,
2018,2022, when compared to the prior year period,
due primarily toin the
operating results and changes in operating assets and liabilities as noted above.course of normal business operations.
Days Sales Outstanding in accounts receivable were
7068 days as of
JanuaryJuly 31,
2018,2022, compared to
6078 days as of
JanuaryJuly 31,
2017.2021. This increase is primarily due to
billingthe timing of
billings and cash collections. Our current ratio
on January 31, 2018 was
2.32.7 to 1
on July 31, 2022 and
2.8 to 1 on
JanuaryJuly 31,
2017 was 2.4 to 1.2021.
Our business in recent periods has generated substantial positive cash flow from operations, excluding purchases and proceeds of sale of trading securities. For this reason, and because we had
$88.4$114.8 million in cash and investments with no debt as of
JanuaryJuly 31,
2018,2022, we believe that our sources of liquidity and capital resources will be sufficient to satisfy our presently anticipated requirements during at least the next twelve months for working capital, capital expenditures and other corporate needs. However, at some future date we may need to seek additional sources of capital to meet our requirements. If such need arises, we may be required to raise additional funds through equity or debt financing. We do not currently have a bank line of credit. We can provide no assurance that bank lines of credit or other financing will be available on terms acceptable to us. If available, such financing may result in dilution to our shareholders or higher interest expense.
On August 19, 2002, our Board of Directors approved a resolution authorizing the repurchase of up to an additional 2.0 million shares of our Class A common stock. We have made and will make these repurchases through open market purchases at prevailing market prices. The timing of any repurchase will depend upon market conditions, the market price of our common stock and management’s assessment of our liquidity and cash flow needs. Under this repurchase plan, through July 31, 2022, we have repurchased 1,053,679 shares of common stock at a cost of approximately $6.2 million. As of July 31,
2022, under all repurchase plans previously authorized, including this most recent plan, we have repurchased a total of 4,588,632 shares of common stock at a cost of approximately $25.6 million.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
We have based the following discussion and analysis of financial condition and results of operations on our
financial statements,Condensed Consolidated Financial Statements, which we have prepared in accordance with U.S.
generally accepted accounting principles.GAAP. The preparation of these
financial statementsCondensed Consolidated Financial Statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities,
and disclosures of contingent assets and liabilities at the date of the
condensed consolidated financial statements and the reported amounts of
revenuesrevenue and expenses during the reporting period. Note 1
in the Notes to the Consolidated Financial Statements in our Annual Report
on Form10-Kfor
the fiscal
year ended April 30, 2017,2022, describes the significant accounting policies that we have used in preparing our
condensed consolidated financial statements. On an ongoing basis, we evaluate our estimates, including, but not limited to, those related to revenue/
collectability, bad debts, capitalized software costs, goodwill, intangible asset impairment, stock-based compensation, income taxes and business combination.collectability. We base our estimates on historical experience and on various other assumptions that we believe 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. Our actual results could differ materially from these estimates under different assumptions or conditions.
We believe the critical accounting policies listed below affect significant judgments and estimates used in the preparation of the financial statements.
Revenue Recognition. We recognize revenue predominantlyRecognition.The most critical judgments required in accordance with the Softwareapplying ASC 606, Revenue Recognition Topicfrom Customers, and our revenue recognition policy relate to the determination of distinct performance obligations and the evaluation of the Financial Accounting Standards Board’s (FASB) Accounting Standards Codification.We recognizestandalone selling price (SSP) for each performance obligation.
Our client contracts with a software license,
revenuesinclude multiple performance obligations. Judgment is required in
connection with license agreementsdetermining whether each performance obligation within a client contract is distinct. Determining whether products and services are distinct performance obligations that should be accounted for
standard proprietary software upon deliveryseparately or combined as a single performance obligation may require significant judgment that requires us to assess the nature of the
software, provided we deem collection to be probable,promise and the
fee is fixed or determinable, there is persuasive evidence of an arrangement, and VSOE exists with respect to any undelivered elements of the arrangement. We generally bill maintenance fees annually in advance and recognize the resulting revenues ratably over the term of the maintenance agreement. We derive revenues from services which primarily include consulting, implementation, training, SaaS, hosting and managed services. We bill for these services primarily under time and materials arrangements and recognize fees as we perform the services. Deferred revenues represent advance payments or billings for software licenses, services, and maintenance billed in advance of the time we recognize revenues. We record revenues from sales of third-party products in accordance with Principal Agent Considerations within the Revenue Recognition Topic of the FASB Accounting Standards Codification.Furthermore, we evaluate sales through our indirect channel on acase-by-case basis to determine whether the transaction should be recorded gross or net, including but not limited to assessing whether or not we (1) act as principal in the transaction, (2) take titlevalue delivered to the
client. Our products
(3) have risks and
rewards of ownership, such as the risk of loss for collection, delivery, or returns, and (4) act as an agent or broker with compensationservices generally function on a
commission or fee basis. Accordingly, our sales through the DMI channel are typically recorded on a gross basis.Generally, our software productsstandalone basis and do not require a significant modificationamount of integration or customization. Installation ofinterdependency. Therefore, multiple products and services contained within a client contract are generally considered to be distinct and are not combined for revenue recognition purposes.
We allocate the
productstransaction price for each contract to each performance obligation based on the relative SSP for each performance obligation within each contract. Judgment is
routine and is not essentialrequired to
their functionality. Our sales frequently include maintenance contracts and professional services withdetermine the
sale of our software licenses.SSP for each distinct performance obligation. We
have established VSOEevaluate the SSP for
our maintenance contracts and professional services. We determine fair value based upon theeach element by considering prices we charge
to customers when we sell these elements separately. We defer maintenance revenues, including those sold with the initial license fee, based on VSOE, and recognize the revenue ratably over the maintenance contract period. We recognize consulting and training service revenues, including those sold with license fees, as we perform the services based on their established VSOE. We determine the amount of revenue we allocate to the licenses sold with services or maintenance using the “residual method” of accounting. Under the residual method, we allocate the total valuefor similar offerings, size of the
arrangement first to the undelivered elements based on their VSOE and allocate the remainder to license fees. SaaS revenues are recognized ratably over the subscription term as the customer has no ability to take delivery of the software, and the underlying arrangements typically include a single fee for the service that is billed monthly, quarterly or annually.Allowance for Doubtful Accounts. We maintain allowances for doubtful accounts for estimated losses resulting from the inability of customers to make required payments. If the financial condition of these customers were to deteriorate, resulting in an impairment of their ability to make payments, we may require additional allowances or we may defer revenue until we determine that collectability is probable. We specifically analyze accounts receivableorder and historical bad debts, customer creditworthiness, current economic trendspricing practices. We typically establish an SSP range for our products and changes in customer payment termsservices, which is reassessed on a periodic basis or when we evaluatefacts and circumstances change. If our judgment is incorrect for a particular item within an arrangement, the adequacy of the allowance for doubtful accounts.
Valuation of Long-Lived and Intangible Assets. In accordance with the Intangibles-Goodwill and Other Topic of the FASB’s Accounting Standards Codification, we do not amortize goodwill and other intangible assets with indefinite lives. Our goodwill is subject to annual impairment tests, which require us to estimate the fair valuetiming of our business compared to the carrying value. The impairment reviews require an analysis of future projections and assumptions about our operating performance. Shouldrevenue could be impacted between periods, such review indicate the assets are impaired,that we would record an expense for the impaired assets.
In accordance with the Property, Plant, and Equipment Topic of the FASB’s Accounting Standards Codification, long-lived assets, such as property and equipment and intangible assets, are reviewed for impairment whenever events or changesrecognize revenue in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability would be measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, we recognize an impairment charge in the amount by which the carrying amount of the asset exceeds the fair value of the asset. The determination of estimated future cash flows, however, requires management to make estimates. Future events and changes in circumstances may require us to record a significant impairment charge in thedifferent period in which such events or changes occur. Impairment testing requires considerable analysis and judgment in determining results. If other assumptions and estimates were used in our evaluations, the results could differ significantly.
Annual tests or other future events could cause us to conclude that impairment indicators exist and that our goodwill is impaired. For example, if we had reason to believe that our recorded goodwill and intangible assets had become impaired due to decreases in the fair market value of the underlying business,than we would have if a different judgment had been used; however, the revenue for the full arrangement would have the same result.
For substantially all performance obligations except on-premise licenses, we are able to
takeestablish SSP as described above. Our on-premise licenses have not historically been sold on a
chargestandalone basis, as the vast majority of all clients elect to
incomepurchase on-premise license support contracts at the time of a on-premise license purchase. Support contracts are generally priced as a percentage of the net fees paid by the client to access the on-premise license. We are unable to establish the SSP for
thatour on-premise licenses based on observable prices given the same products are sold for a broad range of amounts (that is, the selling price is highly variable) and a representative SSP is not discernible from past transactions or other observable evidence. As a result, the SSP for an on-premise license included in a contract with multiple performance obligations is determined by applying a residual approach whereby all other performance obligations within a contract are first allocated a portion of
goodwill or intangibleassets that we believed was impaired. Any resulting impairment loss could have a material adverse impact on our financial position and results of operations. At January 31, 2018, our goodwill balance was $25.5 million and our intangible assetsthe transaction price based upon their respective SSPs, with definite lives balance was approximately $6.2 million, net of accumulated amortization.
Valuation of Capitalized Software Assets. We capitalize certain computer software development costs in accordance with the Intangibles-Goodwill and Other Topic of the FASB’s Accounting Standards Codification. Costs incurred internally to create a computer software product or to develop an enhancement to an existing product are charged to expense when incurred as research and development expense until technological feasibility for the respective product is established. Thereafter, we capitalize all software development costs and report those costs at the lower of unamortized cost or net realizable value. Capitalization ceases when the product or enhancement is available for general release to customers. We make ongoing evaluations of the recoverability of our capitalized software projects by comparing the amount capitalized for each product to the estimated net realizable value of the product. If such evaluations indicate that the unamortized software development costs exceed the net realizable value, we write off the amount by which the unamortized software development costs exceed net realizable value. We amortize capitalized computer software development costs ratably based on the projected revenues associated with the related software or on a straight-line basis over three years, whichever method results in a higher level of amortization. Amortization of capitalized computer software development costs is included in the cost of license revenues in the condensed consolidated statements of operations.
Stock-Based Compensation. We estimate the value of options granted on the date of grant using the Black-Scholes option pricing model. Management’s judgments and assumptions related to volatility, the expected term and the forfeiture rate are made in connection with the calculation of stock compensation expense. We periodically review all assumptions used in our stock option pricing model. Changes in these assumptions could have a significant impact on theany residual amount of stock compensation expense.
Income Taxes. We provide for the effecttransaction price allocated to on-premise license revenue.
Table of income taxes on our financial position and results of operations in accordance with the Income Tax Topic of the FASB’s Accounting Standards Codification. Under this accounting guidance, income tax expense is recognized for the amount of income taxes payable or refundable for the current year and for the change in net deferred tax assets or liabilities resulting from events that are recorded for financial reporting purposes in a different reporting period than recorded in the tax return. Management must make significant assumptions, judgments and estimates to determine our current provision for income taxes and also our deferred tax assets and liabilities and any valuation allowance to be recorded against our net deferred tax asset. Our judgments, assumptions and estimates relative to the current provision for income tax take into account current tax laws, our interpretation of current tax laws, allowable deductions, and projected tax credits. Changes in tax law or our interpretation of tax laws could significantly impact the amounts provided for income taxes in our financial position and results of operations. Our assumptions, judgments and estimates relative to the value of our deferred tax assets take into account our expectations of the amount and category of future taxable income. Actual operating results and the underlying amount and category of income in future years, which could significantly increase tax expense, could render inaccurate our current assumptions, judgments and estimates of recoverable net deferred taxes.Business Combinations and Intangible Assets Including Goodwill. We account for business combinations using the acquisition method of accounting and accordingly, the identifiable assets acquired and liabilities assumed are recorded based upon management’s estimates of current fair values as of the acquisition date. The estimation process includes analyses based on income and market approaches. Goodwill represents the excess purchase price over the fair value of net assets, including the amount assigned to identifiable intangible assets. The goodwill generated is due in part to the synergies that are not included in the fair value of identifiable intangible assets. Goodwill recorded in an acquisition is assigned to applicable reporting units based on expected revenues. Identifiable intangible assets with finite lives are amortized over there useful lives. Amortization of current technology is recorded in cost of revenues-license and amortization of all other intangible assets is recorded in amortization of acquisition-related intangibles. Acquisition-related costs, including advisory, legal, accounting, valuation and other costs, are expensed in general and administrative expenses in the periods in which the costs are incurred. The results of operations of acquired businesses are included in the consolidated financial statements from the acquisition date.
Contents Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Item 3 Quantitative and Qualitative Disclosures About Market Risk
Foreign CurrencyCurrency. In the three and nine months ended JanuaryJuly 31, 2018,2022, we generated approximately 20% and 20%, respectively,18% of our revenuesrevenue outside the United States. We typically make international sales through our VARs and employees located in foreign branches or our Logility branchcountries and denominate those sales typically in U.S. and New Zealand dollars, British pounds sterling or euros. However, expenses incurred in connection with these sales are typically denominated in the local currencies. We recorded an exchange rate gainsloss of approximately $75,000 for both the three and nine months ended January 31, 2018, compared to exchange rate losses of approximately $56,000 and$236,000$0.2 million for the three months and nine months ended JanuaryJuly 31, 2017, respectively.2022 compared to an exchange rate loss of approximately $0.1 million for the same periods in the prior year. We estimate that a 10% movement in foreign currency rates would have had the effect of creating up to a $456,000 and $455,000 exchange$0.4 million rate gain or loss for the three and nine months ended JanuaryJuly 31, 2018, respectively.2022. We have not engaged in any hedging activities.
Interest Rates and Other Market Risks.Risks. We have no debt, and therefore limit our discussion of interest rate risk to risk associated with our investment profile. We manage our interest rate risk by maintaining an investment portfolio of trading investments with high credit quality and relatively short average maturities. These instruments include, but are not limited to, money-market instruments, bank time deposits, and taxable andtax-advantaged variable rate and fixed rate obligations of corporations, municipalities, and national, state, and local government agencies, in accordance with an investment policy approved by our Board of Directors.agencies. These instruments are denominated in U.S. Dollars.dollars. The fair market value of these instruments as of JanuaryJuly 31, 20182022 was approximately $84.0$108.8 million compared to $72.8$101.3 million as of JanuaryJuly 31, 2017.2021.
We also hold cash balances in accounts with commercial banks in the United States and foreign countries. These cash balances represent operating balances only and are invested in short-term time deposits of the local bank. Such operating cash balances held at banks outside the United States are denominated in the local currency and are minor.
Many of our investments carry a degree of interest rate risk. When interest rates fall, our income from investments in variable-rate securities declines. When interest rates rise, the fair market value of our investments in fixed-rate securities declines. In addition, our investments in equity securities are subject to stock market volatility. Due in part to these factors, our future investment income may fall short of expectations or we may suffer losses in principal if forced to sell securities, which have seen a decline in market value due to changes in interest rates. We attempt to mitigate risk by holding fixed-rate securities to maturity, but, if our liquidity needs force us to sell fixed-rate securities prior to maturity, we may experience a loss of principal.
Inflation.Although we cannot accurately determine the amounts attributable thereto, we have been affected by inflation through increased costs of employee compensation and other operational expenses. To the extent permitted by the marketplace for our products and services, we attempt to recover increases in costs by periodically increasing prices.
Item 4. | Controls and Procedures |
Item 4. Controls and Procedures
Management’s Report on Internal Control Over Financial Reporting
Our disclosure controls and procedures (as
such term is defined in Rule
13a-15(e) and15d-15(e) under of the Securities Exchange Act of 1934 (“Exchange Act”)) are designed to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods
specifiesspecified in the SEC rules and forms. Our disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to our management, including our
chiefprincipal executive
officeofficer and
chiefprincipal financial officer, to allow timely decisions regarding
required disclosure.
Our principal executive officer and principal financial officer, with the assistance of our Disclosure Committee, have conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report. We perform this evaluation on a quarterly basis so that the conclusions concerning the effectiveness of our disclosure controls and procedures can be reported in our Annual Report
onForm 10-Kand Quarterly
Reports onForm 10-Q.Reports. Based on this evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report.
Changes in Internal Control over Financial Reporting
There have not been any changes in our internal control over financial reporting (as such term is defined in Rules13a-15(f)13a-15(f) and15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II—OTHER INFORMATION
Item 1. Legal Proceedings
We are not currently involved in legal proceedings requiring disclosure under this item.
Item 1A. Risk Factors
In addition to the other information set forth in this
report,Quarterly Report, you should carefully consider the risk factors disclosed in Item 1A, “Risk Factors,” of our Annual Report
on Form10-Kfor
the fiscal
year ended April 30, 2017.2022. There have been no material changes to the risk factors as previously disclosed in such Annual
Report on Form10-K.Report.Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
None
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. | Defaults Upon Senior Securities |
Item 3. Defaults Upon Senior Securities
Item 4. | Mine Safety Disclosures |
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
| | | | | | |
Exhibit 3.1 | | Amended and Restated Articles of Incorporation, and amendments thereto. (1) (P) |
| |
Exhibit 3.2 | | |
|
Exhibits 31.1-31.2. | | |
|
Exhibits 31.1 | | Rule13a-14(a)/15d-14(a) Certifications |
| |
Exhibits 31.2. | | Rule13a-14(a)/15d-14(a) Certifications |
| |
Exhibit 32.1. | | |
|
Exhibit 101.INS | | XBRL Instance Document. |
|
Exhibit 101.INS | | XBRL Instance Document. |
| |
Exhibit 101.SCH | | XBRL Taxonomy Extension Schema Document. |
| |
Exhibit 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document. |
| |
Exhibit 101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document. |
| |
Exhibit 101.LAB | | XBRL Taxonomy Extension Label Linkbase Document. |
| |
Exhibit 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document. |
(1) | Incorporated by reference herein. Filed by the Company as an exhibit to its Quarterly Report filed on Form10-Q for the quarter ended October 31, 1990. |
(2) | Incorporated by reference herein. Filed by the Company as an exhibit to its Quarterly Report filed on Form10-Q for the quarter ended January 31, 2010. |
______________
(1)Incorporated by reference herein. Filed by the Company as an exhibit to its Quarterly Report filed on Form 10-Q for the quarter ended October 31, 1990. (P) Filed in paper format.
(2)Incorporated by reference herein. Filed by the Company as Exhibit 3.1 to its Quarterly Report filed on Form 10-Q for the quarter ended January 31, 2010.
Pursuant to the requirements 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.
| | | | | | | | |
| | | | AMERICAN SOFTWARE, INC. |
| | | |
Date: March 9, 2018September 2, 2022 | By: | | | By: | | /s/ James C. Edenfield H. Allan Dow |
| | | | | | James C. Edenfield |
| | | | | | H. Allan Dow Chief Executive Chairman, TreasurerOfficer and Director President (Principal Executive Officer)
|
| | | |
Date: March 9, 2018September 2, 2022 | By: | | | By: | | /s/ Vincent C. Klinges |
| | | | | | Vincent C. Klinges |
| | | | | | Chief Financial Officer
(Principal Financial Officer)
|
| | | |
Date: March 9, 2018September 2, 2022 | By: | | | By: | | /s/ Bryan L. Sell |
| | | | | | Bryan L. Sell |
| | | | | | Controller and Principal Accounting Officer
|