UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~October 31, 2020~~April 30, 2021

☐	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 0-22823

QAD Inc.

(Exact name of Registrant as specified in its charter)

Delaware	77-0105228
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

100 Innovation Place, Santa Barbara, California93108

(Address of principal executive offices)

(805) 566-6000

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock, $0.001 par value	QADA	NASDAQ Global Select Market
Class B Common Stock, $0.001 par value	QADB	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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐.

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check One):

Large accelerated filer ☐	Accelerated filer ☑
Non-accelerated filer ☐	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 ☑.

As of ~~November 30, 2020,~~May 31, 2021, there were ~~17,368,759~~17,381,602 shares of the Registrant’s Class A common stock outstanding and 3,330,318 shares of the Registrant’s Class B common stock outstanding.

	October 31, 2020			January 31, 2020			April 30, 2021			January 31, 2021
Assets

Current assets:
Cash and equivalents	$	143,392		$	136,717		$	153,127		$	142,501
Accounts receivable, net of allowances of $3,884 and $2,940 at October 31, 2020 and January 31, 2020, respectively		39,187			80,968
Accounts receivable, net of allowances of $3,427 and $3,340 at April 30, 2021 and January 31, 2021, respectively								44,887			82,609
Prepaid expenses and other current assets, net		23,261			24,952			26,688			22,923
Total current assets		205,840			242,637			224,702			248,033
Property and equipment, net of accumulated depreciation and amortization of $41,289 and $38,861 at October 31, 2020 and January 31, 2020, respectively		26,692			28,687
Property and equipment, net of accumulated depreciation and amortization of $43,413 and $42,596 at April 30, 2021 and January 31, 2021, respectively								24,508			25,598
Lease right-of-use assets		18,764			18,329			19,997			21,016
Capitalized software costs, net		2,129			1,922			10,845			7,980
Goodwill		12,348			12,388			32,507			25,336
Deferred tax assets, net		7,354			5,834			8,596			8,526
Other assets, net		11,799			13,007			18,896			14,298
Total assets	$	284,926		$	322,804		$	340,051		$	350,787

Liabilities and Stockholders’ Equity
Liabilities and Stockholders’ Equity
Current liabilities:
Current portion of long-term debt	$	521		$	503		$	533		$	527
Lease liabilities		3,893			4,371			4,918			4,904
Accounts payable		8,273			9,840			7,689			10,898
Deferred revenue		85,842			118,413			116,852			125,724
Other current liabilities		32,718			39,900			34,481			37,431
Total current liabilities		131,247			173,027			164,473			179,484
Long-term debt		11,955			12,341			11,691			11,825
Long-term lease liabilities		16,026			14,612			16,496			17,510
Other liabilities		7,582			6,759			14,254			12,502
Total liabilities		166,810			206,739			206,914			221,321
Commitments and contingencies (Note 12)
Commitments and contingencies (Note 13)
Stockholders’ equity:
Preferred stock, $0.001 par value. Authorized 5,000,000 shares; none issued or outstanding		0			0
Common stock:
Class A, $0.001 par value. Authorized 71,000,000 shares; issued 17,367,830 and 17,108,846 shares at October 31, 2020 and January 31, 2020, respectively		17			17
Class B, $0.001 par value. Authorized 4,000,000 shares; issued 3,537,380 shares at both October 31, 2020 and January 31, 2020		4			4
Class A, $0.001 par value. Authorized 71,000,000 shares; issued 17,380,897 and 17,375,453 shares at April 30, 2021 and January 31, 2021, respectively								17			17
Class B, $0.001 par value. Authorized 4,000,000 shares; issued 3,537,380 shares at both April 30, 2021 and January 31, 2021								4			4
Additional paid-in capital		201,832			197,824			209,084			205,630
Treasury stock, at cost 207,062 and 216,378 Class B shares at October 31, 2020 and January 31, 2020, respectively		(3,073	)		(3,226	)
Treasury stock, at cost (207,062 Class B shares at both April 30, 2021 and January 31, 2021)								(3,073	)		(3,073	)
Accumulated deficit		(71,676	)		(70,209	)		(64,546	)		(64,924	)
Accumulated other comprehensive loss		(8,988	)		(8,345	)		(8,349	)		(8,188	)
Total stockholders’ equity		118,116			116,065			133,137			129,466
Total liabilities and stockholders’ equity	$	284,926		$	322,804		$	340,051		$	350,787

	Three Months Ended						Nine Months Ended
	October 31,						October 31,						Three Months Ended April 30,
	2020			2019			2020			2019			2021			2020
Revenue:
Subscription	$	33,761		$	27,328		$	95,598		$	78,522		$	36,686		$	30,771
License		1,682			3,295			5,946			11,277			3,115			1,221
Maintenance		27,028			29,699			79,922			89,184			26,563			26,408
Professional services		14,189			17,485			43,422			53,237			16,607			15,747
Total revenue		76,660			77,807			224,888			232,220			82,971			74,147

Costs of revenue:
Subscription		10,716			9,540			31,803			28,860			12,162			10,348
License		441			510			1,407			1,655			538			401
Maintenance		6,267			7,291			19,424			22,353			6,555			6,744
Professional services		13,231			16,376			41,269			53,815			14,934			14,932
Total cost of revenue		30,655			33,717			93,903			106,683			34,189			32,425

Gross profit		46,005			44,090			130,985			125,537			48,782			41,722

Operating expenses:
Sales and marketing		17,415			19,771			53,392			60,853			19,567			18,557
Research and development		14,177			13,622			41,355			41,479			15,638			14,017
General and administrative		10,281			9,234			30,597			29,044			12,576			10,017
Amortization of intangibles from acquisitions		65			67			194			200
Amortization of intangible assets from acquisitions														240			64
Total operating expenses		41,938			42,694			125,538			131,576			48,021			42,655

Operating income (loss)		4,067			1,396			5,447			(6,039	)		761			(933	)

Other expense (income):
Interest income		(108	)		(695	)		(757	)		(2,208	)		(74	)		(436	)
Interest expense		142			176			447			477			141			150
Other expense (income), net		194			386			833			60			238			(1,232	)
Total other expense (income), net		228			(133	)		523			(1,671	)		305			(1,518	)

Income (loss) before income taxes		3,839			1,529			4,924			(4,368	)
Income tax expense		626			1,404			2,061			11,991
Income before income taxes														456			585
Income tax (benefit) expense														(1,376	)		995

Net income (loss)	$	3,213		$	125		$	2,863		$	(16,359	)	$	1,832		$	(410	)

Basic net income (loss) per share
Class A	$	0.16		$	0.01		$	0.14		$	(0.85	)	$	0.09		$	(0.02	)
Class B	$	0.13		$	0.01		$	0.12		$	(0.71	)	$	0.08		$	(0.02	)
Diluted net income (loss) per share
Class A	$	0.16		$	0.01		$	0.14		$	(0.85	)	$	0.09		$	(0.02	)
Class B	$	0.13		$	0.01		$	0.12		$	(0.71	)	$	0.07		$	(0.02	)

Net income (loss)	$	3,213		$	125		$	2,863		$	(16,359	)	$	1,832		$	(410	)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment		405			(313	)		(643	)		(278	)		(161	)		(2,655	)
Total comprehensive income (loss)	$	3,618		$	(188	)	$	2,220		$	(16,637	)	$	1,671		$	(3,065	)

CONDENSED CONSOLIDATED STATEMENTS OF ~~STOCKHOLDERS’~~STOCKHOLDERS’ EQUITY

	Nine Months Ended October 31, 2020																										Three Months Ended April 30, 2021
	Number of Shares							Amount				Additional									Accumulated Other			Total			Number of Shares							Amount				Additional									Accumulated Other			Total
	Class A		Class B		Treasury			Class A		Class B		Paid-in Capital			Treasury Stock			Accumulated Deficit			Comprehensive Loss			Stockholders’ Equity			Class A		Class B		Treasury			Class A		Class B		Paid-in Capital			Treasury Stock			Accumulated Deficit			Comprehensive Loss			Stockholders’ Equity
Balance, January 31, 2020		17,109		3,537		(216	)	$	17	$	4	$	197,824		$	(3,226	)	$	(70,209	)	$	(8,345	)	$	116,065
Balance, January 31, 2021																												17,375		3,537		(207	)	$	17	$	4	$	205,630		$	(3,073	)	$	(64,924	)	$	(8,188	)	$	129,466
Net income		—		—		—			0		0		0			0			2,863			0			2,863			—		—		—			0		0		0			0			1,832			0			1,832
Foreign currency translation adjustments		—		—		—			—		—		—			—			—			(643	)		(643	)		—		—		—			0		0		0			0			0			(161	)		(161	)
Stock award exercises		73		—		9			—		—		(2,590	)		153			—			—			(2,437	)				—					0		0		0			0			0			0			0
Stock compensation expense		—		—		—			—		—		10,126			—			—			—			10,126			—		—		—			0		0		3,637			0			0			0			3,637
Dividends declared ($0.216 and $0.18 per Class A and Class B share, respectively)		—		—		—			—		—		—			—			(4,330	)		—			(4,330	)
Dividends declared ($0.072 and $0.06 per Class A and Class B share, respectively)																												—		—		—			0		0		0			0			(1,454	)		0			(1,454	)
Restricted stock		186		—		—			—		—		(3,528	)		—			—			—			(3,528	)		6		0		0			0		0		(183	)		0			0			0			(183	)
Balance, October 31, 2020		17,368		3,537		(207	)	$	17	$	4	$	201,832		$	(3,073	)	$	(71,676	)	$	(8,988	)	$	118,116
Balance, April 30, 2021																												17,381		3,537		(207	)	$	17	$	4	$	209,084		$	(3,073	)	$	(64,546	)	$	(8,349	)	$	133,137

	Nine Months Ended October 31, 2019																										Three Months Ended April 30, 2020
	Number of Shares							Amount				Additional									Accumulated Other			Total			Number of Shares							Amount				Additional									Accumulated Other			Total
	Class A		Class B		Treasury			Class A		Class B		Paid-in Capital			Treasury Stock			Accumulated Deficit			Comprehensive Loss			Stockholders’ Equity			Class A		Class B		Treasury			Class A		Class B		Paid-in Capital			Treasury Stock			Accumulated Deficit			Comprehensive Loss			Stockholders’ Equity
Balance, January 31, 2019		16,605		3,537		(515	)	$	16	$	4	$	196,723		$	(7,350	)	$	(48,485	)	$	(7,661	)	$	133,247
Balance, January 31, 2020																												17,109		3,537		(216	)	$	17	$	4	$	197,824		$	(3,226	)	$	(70,209	)	$	(8,345	)	$	116,065
Net loss		—		—		—			—		—		—			—			(16,359	)		—			(16,359	)		—		—		—			0		0		0			0			(410	)		0			(410	)
Foreign currency translation adjustments		—		—		—			—		—		—			—			—			(278	)		(278	)		—		—		—			0		0		0			0			0			(2,655	)		(2,655	)
Stock award exercises		421		—		126			1		—		(2,164	)		1,943			—			—			(220	)				—					0		0		(11	)		0			0			0			(11	)
Stock compensation expense		—		—		—			—		—		8,396			—			—			—			8,396			—		—		—			0		0		2,405			0			0			0			2,405
Dividends declared ($0.216 and $0.18 per Class A and Class B share, respectively)		—		—		—			—		—		—			—			(4,187	)		—			(4,187	)
Dividends declared ($0.072 and $0.06 per Class A and Class B share, respectively)																												—		—		—			0		0		0			0			(1,431	)		0			(1,431	)
Restricted stock		4		—		173			—		—		(5,534	)		2,182			—			—			(3,352	)		4		0		0			0		0		(92	)		0			0			0			(92	)
Adoption of ASU2016-02, Leases (Topic 842)		—		—		—			—		—		—			—			(173	)		—			(173	)
Balance, October 31, 2019		17,030		3,537		(216	)	$	17	$	4	$	197,421		$	(3,225	)	$	(69,204	)	$	(7,939	)	$	117,074
Balance, April 30, 2020																												17,113		3,537		(216	)	$	17	$	4	$	200,126		$	(3,226	)	$	(72,050	)	$	(11,000	)	$	113,871

	Three Months Ended April 30,
	2021			2020

Cash flows from operating activities:
Net income (loss)	$	1,832		$	(410	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		2,146			1,652
Amortization of costs capitalized to obtain and fulfill contracts		1,320			1,175
Amortization of right-of-use assets		1,502			1,457
Net change in valuation allowance		(3,093	)		518
Other deferred income taxes		978			(70	)
Provision for doubtful accounts and sales adjustments		144			939
Stock compensation expense		3,637			2,405
Change in fair value of derivative instrument		(64	)		251
Loss on disposal of property and equipment		90			58
Other, net		0			12
Changes in assets and liabilities:
Accounts receivable		37,987			32,458
Costs capitalized to obtain and fulfill contracts		(1,452	)		(899	)
Lease liabilities		(1,488	)		(1,342	)
Prepaid expenses and other assets		(3,089	)		1,279
Accounts payable		(3,309	)		(3,157	)
Deferred revenue		(11,244	)		(13,381	)
Other liabilities		(5,211	)		(12,033	)
Net cash provided by operating activities		20,686			10,912
Cash flows from investing activities:
Purchase of property and equipment		(191	)		(1,017	)
Acquisition, net of cash acquired		(9,493	)		0
Capitalized software costs		(316	)		(272	)
Net cash used in investing activities		(10,000	)		(1,289	)
Cash flows from financing activities:
Repayments of debt		(164	)		(149	)
Dividends paid		0			(1,431	)
Tax payments related to stock awards		(183	)		(103	)
Net cash used in financing activities		(347	)		(1,683	)

Effect of exchange rates on cash and equivalents		287			(4,503	)

Net increase in cash and equivalents		10,626			3,437

Cash and equivalents at beginning of period		142,501			136,717

Cash and equivalents at end of period	$	153,127		$	140,154

Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	132		$	144
Income taxes, net of refunds	$	991		$	758

Nine Months Ended
October 31,

2020

2019

Cash flows from operating activities:

Net income (loss)
$ 2,863 $ (16,359
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization
5,139 4,745
Amortization of costs capitalized to obtain and fulfill contracts
3,633 3,301
Amortization of right-of-use assets
4,381 4,460
Net change in valuation allowance
945 14,376
Other deferred income taxes
(1,939
)
(2
)
Loss on disposal of equipment
80 51
Provision for doubtful accounts and sales adjustments
1,167 656
Stock compensation expense
10,126 8,396
Change in fair value of derivative instrument
149 352
Other, net
58 71
Changes in assets and liabilities:

Accounts receivable
40,455 40,342
Costs capitalized to obtain and fulfill contracts
(3,658
)
(3,489
)
Lease liabilities
(4,018
)
(4,577
)
Prepaid expenses and other assets
1,293 (3,767
)
Accounts payable
(1,758
)
(4,048
)
Deferred revenue
(33,125
)
(31,422
)
Other liabilities
(6,565
)
(5,233
)
Net cash provided by operating activities
19,226 7,853
Cash flows from investing activities:

Purchase of property and equipment
(1,733
)
(4,251
)
Proceeds from sale of building
1,496 0
Purchase of short-term investments
0 (1,200
)
Proceeds from sale of short-term investments
0 2,400
Capitalized software costs
(1,071
)
(963
)
Net cash used in investing activities
(1,308
)
(4,014
)
Cash flows from financing activities:

Repayments of debt
(462
)
(389
)
Tax payments related to stock awards
(5,965
)
(3,572
)
Cash dividends paid
(4,330
)
(4,187
)
Net cash used in financing activities
(10,757
)
(8,148
)

Effect of exchange rates on cash and equivalents
(486
)
(1,289
)

Net increase (decrease) in cash and equivalents
6,675 (5,598
)

Cash and equivalents at beginning of period
136,717 139,413

Cash and equivalents at end of period
$ 143,392 $ 133,815

Supplemental disclosure of cash flow information:

Cash paid during the period for:

Interest
$ 428 $ 464
Income taxes, net of refunds
$ 2,944 $ 2,974

In the opinion of management, the accompanying unaudited Condensed Consolidated Financial Statements fairly present the financial information contained therein. These statements have been prepared in accordance with generally accepted accounting principles in the United States of America (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. The financial statements and footnotes are unaudited. In management’s opinion, all necessary adjustments, consisting of normal, recurring and non-recurring adjustments, have been included in the accompanying Condensed Consolidated Financial Statements to present fairly the financial position and operating results of QAD Inc. (QAD or the Company). The Condensed Consolidated Financial Statements do not include all disclosures required by GAAP annual financial statements and should be read in conjunction with the audited financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended January 31, ~~2020.~~2021. The Condensed Consolidated Financial Statements include the results of the Company and its wholly-owned subsidiaries. Because of seasonal and other factors, results of operations for the three ~~and~~ ~~nine~~months ended ~~October 31, 2020~~April 30, 2021 are not necessarily indicative of the results to be expected for the year ending January 31, ~~2021.~~2022.

The Company’s accounting policies are set forth in detail in Note 1 of the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended January 31, 2021 ~~31,~~~~2020~~filed with the Securities and Exchange Commission. Such Annual Report also contains a discussion of the Company’s critical accounting policies and estimates. The Company believes that these accounting policies and estimates affect its more significant estimates and judgments used in the preparation of the Company’s consolidated financial statements. There have been no material changes to the Company’s accounting ~~policies except as described below upon adoption of ASU~~ ~~2016~~-~~13,~~~~Financial Instruments-Credit Losses.~~

~~During the~~ ~~second~~ ~~quarter of fiscal~~ ~~2020,~~ ~~the Company vacated its building located in Dublin, Ireland, and moved its operations into leased office space. The sale of the building was completed in the~~ ~~third~~ ~~quarter of fiscal~~ ~~2021~~ ~~for $1.5 million in proceeds.~~

Except as discussed below, there have been no recent changes in accounting pronouncements issued by the Financial Accounting Standards Board (FASB) or adopted by the Company during the ~~nine~~three months ended ~~October 31, 2020,~~April 30, 2021, that are of significance, or potential significance, to the Company.

In ~~January 2017,~~ ~~the FASB issued ASU~~ ~~2017~~-~~04,~~~~Simplifying the Test for Goodwill Impairment~~~~, that eliminates “Step~~ 2” ~~from the goodwill impairment test. QAD adopted the new standard on~~ ~~February 1, 2020,~~ ~~the~~ ~~first~~ ~~day of fiscal~~ ~~2021.~~ ~~The new standard did~~ ~~not~~ ~~have an impact on the Company’s condensed consolidated financial statements.~~

In ~~June 2016,~~ ~~the FASB issued ASU~~ ~~2016~~-~~13,~~~~Financial Instruments-Credit Losses (Topic~~ ~~326~~~~): Measurement of Credit Losses on Financial Instruments~~, which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost, which includes the Company's accounts receivables and contract assets. QAD adopted the new standard on ~~February 1, 2020,~~ ~~the~~ ~~first~~ ~~day of fiscal~~ ~~2021,~~ ~~using the modified retrospective approach. The adoption of this standard did~~ ~~not~~ have a material impact on QAD’s condensed consolidated financial statements. The Company’s expected loss allowance methodology for accounts receivable is developed using historical collection experience, consideration of current and anticipated future economic conditions and other relevant data.

In ~~August 2018,~~ ~~the FASB issued ASU~~ ~~2018~~-~~15,~~~~Intangibles-Goodwill and Other-Internal-Use Software (Subtopic~~ ~~350~~-40~~): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract~~, which aligns the accounting for implementation costs incurred in a hosting arrangement that is a service contract with the accounting for implementation costs incurred to develop or obtain internal-use software under ASC ~~350~~-~~40,~~ ~~in order to determine which costs to capitalize and recognize as an asset and which costs to expense. The Company adopted the new standard on~~ ~~February 1, 2020,~~ ~~the~~ ~~first~~ ~~day of fiscal~~ ~~2021.~~ ~~The adoption of this standard did~~ ~~not~~ ~~have a material impact on QAD’s condensed consolidated financial statements.~~

In December 2019, the FASB issued new guidance which is intended to simplify various aspects to accounting for income taxes by removing certain exceptions to the general principles in Topic 740 for recognizing deferred taxes for investments, performing an intraperiod allocation and calculating income taxes in interim periods. The amendment also clarifies and amends certain areas of existing guidance to reduce complexity and improve consistency in application of Topic 740. ~~The new standard is effective for fiscal years beginning after~~ ~~December 15, 2020.~~ ~~Early adoption is permitted, including adoption in any interim period for which financial statements have~~ ~~not~~ ~~yet been issued.~~ Generally, the topics must be applied prospectively upon adoption, with the exception of certain topics which are required to be applied on a retrospective or modified retrospective basis. The Company ~~is evaluating~~has adopted the new standard when applying the income tax guidance to franchise taxes that are partially based on income in the first quarter of fiscal 2022. The simplification did not have a material impact ~~if any, of adopting this new accounting guidance~~ on ~~its~~our overall financial statements.

QAD offers its software using the same underlying technology via two models: a cloud-based subscription model and a traditional on-premises licensing ~~model and a cloud-based subscription~~ model. ~~The on-premises model involves the license of software to customers who take possession of the software and install and maintain the software on their own hardware.~~ Under the cloud-based subscription delivery model, ~~QAD provides~~we provide access to ~~its~~our software on a hosted basis as a service and customers generally do not have the contractual right to take possession of the software. The on-premises model involves the sale or license of software on a perpetual basis to customers who take possession of the software and install and maintain the software on their own hardware.

~~The Company generates~~We generate revenue through subscriptions of our cloud-based software and through sales of licenses and maintenance provided to ~~its~~our on-premises ~~customers and through subscriptions of its cloud-based software. QAD offers~~customers. We offer professional services to both ~~its~~our cloud and on-premises ~~and cloud~~ customers to assist them with the design, testing and implementation of ~~its~~our software.

Revenue is presented net of sales, value-added and other taxes collected from customers and remitted to government authorities.

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account under Topic 606. The transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied by transferring the promised good or service to the customer. 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.

The Company’s contracts which contain multiple performance obligations generally consist of the initial purchase of subscription or licenses and a professional services engagement. License purchases generally have multiple performance obligations as customers purchase maintenance in addition to the licenses. The Company’s single performance obligation arrangements are typically maintenance renewals, subscription renewals and services engagements.

For contracts with multiple performance obligations where the contracted price differs from the standalone selling price (SSP) for any distinct good or service, the Company may be required to allocate the contract’s transaction price to each performance obligation using its best estimate for the SSP. SSP is assessed annually using a historical analysis of contracts with customers executed in the most recently completed fiscal year to determine the range of selling prices applicable to a distinct good or service.

Judgment is required to determine the SSP for each distinct performance obligation. In instances where SSP is not directly observable because the Company does not sell the license, product or service separately, the Company determines the SSP using information that may include market conditions and other observable inputs. In making these judgments, the Company analyzes various factors, including its pricing methodology and consistency, size of the arrangement, length of term, customer demographics and overall market and economic conditions. Based on these results, the estimated SSP is set for each distinct product or service delivered to customers. The Company rarely sells licenses on a stand-alone basis, as the majority of its license sales to customers include first year maintenance with the license purchase. The Company frequently sells subscription, maintenance and services on a stand-alone basis.

Subscription revenue is recognized ratably over the initial subscription period committed to by the customer commencing when the cloud environment is made available to the customer. The initial subscription period is typically 24 to 60 months. The Company generally invoices its customers in advance in quarterly or annual installments and typical payment terms provide that customers make payment within 30 days of invoice. In addition, a majority of customers renew their subscription contracts annually and typical payment terms provide that customers make payment within 30 days of invoice.

Transfer of control for software is considered to have occurred upon electronic delivery of the license key that provides immediate availability of the product to the customer. The Company’s typical payment terms tend to vary by region but its standard payment terms are within 30-90 days of invoice.

Revenue from support services and product updates, referred to as maintenance revenue, is recognized ratably over the term of the maintenance period, which in most instances is one year. Software license updates provide customers with rights to unspecified software product updates, maintenance releases and patches released during the term of the support period on a when-and-if available basis. Product support includes Internet access to technical content, as well as Internet and telephone access to technical support personnel. The Company’s customers purchase both product support and license updates via the Company’s maintenance offering when they acquire new software licenses. In addition, a majority of customers renew their maintenance contracts annually and typical payment terms provide that customers make payment within 30 days of invoice.

Revenue from professional services is typically comprised of implementation, development, training or other consulting services. Consulting services are generally sold on a time-and-materials or fixed fee basis and can include services ranging from software installation to data conversion and building non-complex interfaces to allow the software to operate in integrated environments. The Company recognizes revenue for time-and-materials arrangements as the services are performed. In fixed fee arrangements, revenue is recognized as services are performed as measured by costs incurred to date, compared to total estimated costs to complete the services project. Management applies judgment when estimating project status and the costs necessary to complete the services projects. A number of internal and external factors can affect these estimates, including labor rates, utilization and efficiency variances, and specification and testing requirement changes. Services are generally invoiced upon milestones in the contract or upon consumption of the hourly resources and payments are typically due 30 days after invoice.

The Company executes arrangements through indirect sales channels via sales agents and distributors who are authorized to market its software products to end users. In arrangements with sales agents, QAD contracts directly with the customer and sales agents are compensated on a commission basis. Distributor arrangements are those in which the resellers are authorized to market and distribute the Company’s software products to end users in specified territories and the distributor bears the risk of collection from the end user customer. The Company recognizes revenue from transactions with distributors when the distributor submits a signed agreement and transfer of control has occurred to the distributor in accordance with the five revenue recognition steps noted above. Revenue from distributor transactions is recorded on a net basis (the amount actually received by the Company from the distributor). QAD does not offer rights of return, product rotation or price protection to any of its distributors.

The Company disaggregates revenue from contracts with customers by geography and by the customers’ industry within manufacturing, as it believes it best depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.

Due to the complexity of certain contracts, the actual revenue recognition treatment required under Topic 606 for the Company’s arrangements may be dependent on contract-specific terms and may vary in some instances.

Revenue is recognized over time for the Company’s subscription, maintenance and fixed fee professional services that are separate performance obligations. For the Company’s professional services, revenue is recognized over time, generally using costs incurred or hours expended to measure progress. Judgment is required in estimating project status and the costs necessary to complete projects. A number of internal and external factors can affect these estimates, including labor rates, utilization, specification variances and testing requirement changes.

If multiple agreements are entered into at or near the same time and so closely related that the agreements are, in effect, part of a single arrangement, such agreements are deemed to be combined as a single arrangement for revenue recognition purposes. The Company exercises judgment to evaluate the relevant facts and circumstances in determining whether multiple agreements should be accounted for separately or as a single arrangement. The Company’s judgments about whether multiple agreements comprise a single arrangement can affect the allocation of consideration to the distinct performance obligations, which could have an effect on results of operations for the periods involved.

The timing of revenue recognition may differ from the timing of invoicing to customers and these timing differences result in receivables, contract assets, or contract liabilities (deferred revenue) on the Company’s Condensed Consolidated Balance Sheets. QAD records a contract asset when the Company has transferred goods or services but does not yet have the right to consideration. QAD records deferred revenue when the Company has received or has the right to receive consideration but has not yet transferred goods or services to the customer. The Company presents the contract asset and liability balance on a net basis at the contract level.

The contract assets indicated below are presented as other current and non-current assets in the Condensed Consolidated Balance Sheets. These assets primarily relate to professional services and subscription and consist of the Company’s rights to consideration for goods or services transferred but not billed as of ~~October 31, 2020~~April 30, 2021 and January 31, ~~2020.~~2021. The contract assets are transferred to receivables when the rights to consideration become unconditional, usually upon completion of a milestone.

During the ~~nine~~three months ended ~~October 31, 2020,~~April 30, 2021, the Company recognized ~~$108.3~~$54.4 million of revenue that was included in the ~~gross~~ deferred revenue balance at the beginning of the period. All other activity in deferred revenue is due to the timing of invoicing in relation to the timing of revenue recognition.

Revenue allocated to remaining performance obligations represents the transaction price allocated to the performance obligations that are unsatisfied, or partially unsatisfied, which includes unearned revenue and amounts that will be invoiced and recognized as revenue in future periods. Contracted but unsatisfied performance obligations were approximately ~~$269.2~~$294.9 million as of ~~October 31, 2020,~~April 30, 2021, of which the Company expects to recognize approximately ~~$152.7~~$185.4 million as revenue over the next twelve months and the remainder thereafter. In instances where the timing of revenue recognition differs from the timing of invoicing, QAD has determined that its contracts generally do not include a significant financing component. The primary purpose of invoicing terms is to provide customers with simplified and predictable ways of purchasing the Company’s products and services, and not to facilitate financing arrangements.

The Company typically invoices its customers for subscription and support fees in advance on a quarterly or annual basis, with payment due at the start of the subscription or support term. Unpaid invoice amounts for non-cancelable services starting in future periods are included in accounts receivable and deferred revenue. The portion of deferred revenue that QAD anticipates will be recognized after the succeeding twelve-month period is recorded as non-current deferred revenue, and the remaining portion is recorded as current deferred revenue.

There are several practical expedients and exemptions allowed under Topic 606 that impact the timing of revenue recognition and the Company’s disclosures. Below is a list of the practical expedients applied by the Company:

The Company’s incremental direct costs of obtaining a contract consist of sales commissions and sales agent fees which are deferred and amortized ratably over the term of economic benefit which the Company has determined to be five years. These deferred costs are classified as current or non-current based on the timing of when the Company expects to recognize the expense. Incremental costs related to renewals are expensed as incurred because the term of economic benefit is one year or less. The current and non-current portions of deferred commissions are included in “Prepaid expenses and other current assets, net” and “Other assets, net”, respectively, in the Company’s Condensed Consolidated Balance Sheets. At ~~October 31, 2020~~April 30, 2021 and January 31, 2021, ~~31,~~~~2020,~~the Company had ~~$12.4~~$13.3 million and ~~$12.3~~$13.1 million, respectively, of deferred commissions and sales agent fees. For the three ~~and~~ ~~nine~~months ended ~~October 31,~~ April 30, 2021 and 2020,~~$1.1~~ $1.1 million and ~~$3.2~~$1.0 million, respectively, of amortization expense related to deferred commissions and sales agent fees was recorded in “Sales and marketing” expense in the Company’s Condensed Consolidated Statement of Operations and Comprehensive Income (Loss). ~~For the~~ ~~three~~ ~~and~~ ~~nine~~ ~~months ended~~ ~~October 31, 2019,~~ $1.0 million and $2.9 million, respectively, of amortization expense related to deferred commissions and sales agent fees was recorded in “Sales and marketing” expense in the Company’s Condensed Consolidated Statement of Operations and Comprehensive Income (Loss).

Costs to fulfill a contract, which are incurred upon initiation of certain services contracts and are related to initial customer setup, are included in “Prepaid expenses and other current assets, net” and “Other assets, net” in the Company’s Condensed Consolidated Balance Sheets. At ~~October 31, 2020~~April 30, 2021 and January 31, 2021 ~~31,~~~~2020~~the Company had deferred setup costs of ~~$1.4~~$1.3 million. These costs are amortized over the term of economic benefit which the Company has determined to be five years. During the three ~~and~~ ~~nine~~months ended ~~October 31, 2020,~~April 30, 2021 ~~$0.2 million~~ and ~~$0.4~~2020, $0.1 million ~~respectively,~~ of amortization expense related to deferred setup costs was recorded in “Cost of subscription” in the Company’s Condensed Consolidated Statement of Operations and Comprehensive Income (Loss). ~~During the~~ ~~three~~ ~~and~~ ~~nine~~ ~~months ended~~ ~~October 31, 2019,~~ $0.1 million and $0.4 million, respectively, of amortization expense related to deferred setup costs were recorded in “Cost of subscription” in the Company’s Condensed Consolidated Statement of Operations and Comprehensive Income (Loss).

Recoverability of these costs is subject to various business risks. Quarterly, the Company compares the carrying value of these assets with the undiscounted future cash flows expected to be generated by them to determine if there is impairment. If impaired, these assets are reduced to an estimated fair value on a discounted cash flow basis. NoNaN impairment losses were recognized during the ~~nine~~three months ended ~~October 31, 2020~~April 30, 2021 and ~~2019.~~2020.

The following table sets forth the computation of basic and diluted net income (loss) per share:

	Three Months Ended						Nine Months Ended
	October 31,						October 31,						Three Months Ended April 30,
	2020			2019			2020			2019			2021			2020
	(in thousands, except per share data)						(in thousands, except per share data)						(in thousands except per share data)
Net income (loss)	$	3,213		$	125		$	2,863		$	(16,359	)	$	1,832		$	(410	)
Less: Dividends declared		(1,451	)		(1,426	)		(4,330	)		(4,187	)		(1,454	)		(1,431	)
Undistributed net income (loss)	$	1,762		$	(1,301	)	$	(1,467	)	$	(20,546	)	$	378		$	(1,841	)

Net income (loss) per share – Class A Common Stock
Dividends declared	$	1,251		$	1,226		$	3,732		$	3,596		$	1,254		$	1,232
Allocation of undistributed net income (loss)		1,519			(1,119	)		(1,262	)		(17,641	)		326			(1,585	)
Net income (loss) attributable to Class A common stock	$	2,770		$	107		$	2,470		$	(14,045	)	$	1,580		$	(353	)

Weighted average shares of Class A common stock outstanding— basic		17,367			16,918			17,242			16,586			17,379			17,112
Weighted average potential shares of Class A common stock		497			877			595			0			1,067			0
Weighted average shares of Class A common stock and potential common shares outstanding— diluted		17,864			17,795			17,837			16,586			18,446			17,112

Basic net income (loss) per Class A common share	$	0.16		$	0.01		$	0.14		$	(0.85	)	$	0.09		$	(0.02	)
Diluted net income (loss) per Class A common share	$	0.16		$	0.01		$	0.14		$	(0.85	)	$	0.09		$	(0.02	)

Net income (loss) per share – Class B Common Stock
Dividends declared	$	200		$	200		$	598		$	591		$	200		$	199
Allocation of undistributed net income (loss)		243			(182	)		(205	)		(2,905	)		52			(256	)
Net income (loss) attributable to Class B common stock	$	443		$	18		$	393		$	(2,314	)	$	252		$	(57	)

Weighted average shares of Class B common stock outstanding— basic		3,330			3,308			3,324			3,279			3,330			3,321
Weighted average potential shares of Class B common stock		57			90			65			0			79			0
Weighted average shares of Class B common stock and potential common shares outstanding— diluted		3,387			3,398			3,389			3,279			3,409			3,321

Basic net income (loss) per Class B common share	$	0.13		$	0.01		$	0.12		$	(0.71	)	$	0.08		$	(0.02	)
Diluted net income (loss) per Class B common share	$	0.13		$	0.01		$	0.12		$	(0.71	)	$	0.07		$	(0.02	)

Potential common shares consist of the shares issuable upon the release of restricted stock units (RSUs) and performance stock units (PSUs) and the exercise of stock appreciation rights (SARs). The Company’s unvested RSUs and PSUs, and unexercised SARs are not considered participating securities as they do not have rights to dividends or dividend equivalents prior to release or exercise.

The following table sets forth the number of potential common shares not included in the calculation of diluted earnings per share because their effects were anti-dilutive:

When determining fair value, the Company uses a three-tier value hierarchy which prioritizes the inputs used in measuring fair value. Whenever possible, the Company uses observable market data. The Company relies on unobservable inputs only when observable market data is not available. Classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. The assessment of the significance of a particular item to the fair value measurement in its entirety requires judgment, including the consideration of inputs specific to the asset or liability.

The following table sets forth the financial assets and liability, measured at fair value, as of ~~October 31, 2020~~April 30, 2021 and January 31, ~~2020:~~2021:

Money market mutual funds and certificates of deposit are classified as part of “Cash and equivalents” in the accompanying Condensed Consolidated Balance Sheets. The amount of cash and equivalents deposited with commercial banks was ~~$18.4~~$24.2 million and ~~$14.5~~$52.6 million at ~~October 31, 2020~~April 30, 2021 and January 31, ~~2020,~~2021, respectively.

The Company’s note payable bears a variable market interest rate commensurate with the Company’s credit standing. Therefore, the carrying amount outstanding under the note payable reasonably approximates fair value based on Level 2 inputs.

The contingent liability associated with acquisitions is classified as part of “Other current liabilities” and “Other liabilities” in the accompanying Condensed Consolidated Balance Sheets.

There have been no transfers between fair value measurement levels during the ~~nine~~three months ended ~~October 31, 2020.~~April 30, 2021.

The Company entered into an interest rate swap in May 2012 to mitigate the exposure to the variability of one month LIBOR for its floating rate debt described in Note 78 “Debt” within these Notes to Condensed Consolidated Financial Statements. The fair value of the interest rate swap is reflected as an asset or liability in the Condensed Consolidated Balance Sheets and the change in fair value is reported in “Other expense (income), net” in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). The fair value of the interest rate swap is estimated as the net present value of projected cash flows based upon forward interest rates at the balance sheet date.

The fair ~~values~~value of the derivative instrument at ~~October 31, 2020~~April 30, 2021 and January 31, ~~2020~~2021 ~~were~~was as follows (in thousands):

The change in fair value of the interest rate swap recognized in the Condensed Consolidated Statement of Operations and Comprehensive Income (Loss) was ~~$70,000~~$64,000 and ~~$(149,000)~~$(251,000) for ~~the~~ three ~~and~~ ~~nine~~ months ended ~~October 31, 2020,~~April 30, 2021 ~~respectively; compared to $(101,000) and $(352,000) for the~~ ~~three~~and ~~nine~~2020 ~~months ended~~ ~~October 31, 2019,~~ respectively.

Capitalized software costs and accumulated amortization at ~~October 31, 2020~~April 30, 2021 and January 31, ~~2020~~2021 were as follows:

The Company’s capitalized software development costs relate to translations and localizations of QAD Adaptive Applications. Acquired software technology costs relate to intellectual property purchased during the second and third quarters of fiscal ~~2019.~~2019, the fourth quarter of fiscal 2021 and the first quarter of fiscal 2022.

It is the Company’s policy to write off capitalized software development costs once fully amortized. Accordingly, during the first ~~nine~~three months of fiscal ~~2021,~~2022, approximately ~~$0.8~~$0.3 million of costs and accumulated amortization were removed from the Condensed Consolidated Balance Sheet, related to capitalized software development costs which were fully amortized during the first ~~nine~~three months of fiscal ~~2021.~~2022.

Amortization of capitalized software costs was ~~$0.3~~$0.7 million and ~~$0.9~~$0.3 million for the three ~~and~~ ~~nine~~months ended ~~October 31, 2020,~~April 30, 2021 ~~respectively; compared to $0.2 million and $0.7 million for the~~ ~~three~~and ~~nine~~2020, ~~months ended~~ ~~October 31, 2019,~~ respectively. Amortization of capitalized software costs is included in “Cost of subscription” and “Cost of license” in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

The following table summarizes the estimated amortization expense relating to the Company’s capitalized software costs as of ~~October 31, 2020:~~April 30, 2021 (in thousands):

On April 5, 2021, the Company acquired all of the outstanding stock of Foreign-Trade Zone Corporation (FTZ Corp.), a leading provider of cloud-based Foreign-Trade Zone software and consulting services based in Mobile, Alabama. The Company is integrating FTZ Corp. into QAD Precision, the global trade and transportation division. The total consideration of approximately $12.6 million is comprised of $9.5 million in cash, net of cash acquired of $3.5 million, a contingent earnout consideration with an estimated fair value of $0.7 million and a promissory note of $2.4 million. The earnout consideration is between zero and $2.4 million based on FTZ Corp.’s cloud bookings growth over the next three years. The Company completed the acquisition for the purpose of expanding its product offering and driving revenue growth.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date (in thousands):

The Company believes the amount of goodwill resulting from the purchase price allocation is attributable to the expected synergistic benefits of being able to leverage FTZ Corp.’s software with the Company’s existing software to provide an integrated suite to the customer bases of both the Company and FTZ Corp. The acquired goodwill is not deductible for tax purposes.

Identified intangible assets will be amortized to cost of subscription and operating expense, based upon the nature of the asset, ratably over the estimated useful life, as detailed in the table below (in thousands, except year amounts):

The Company has evaluated and continues to evaluate pre-acquisition contingencies relating to FTZ Corp. that existed as of the acquisition date. The Company has preliminarily determined that certain of these pre-acquisition contingencies are probable in nature and estimable as of the acquisition date and, accordingly, has recorded its best estimates for these contingencies as a part of the purchase price allocation. The Company continues to gather information and evaluate pre-acquisition contingencies that it has assumed. If the Company makes changes to the amounts recorded or identifies additional pre-acquisition contingencies during the remainder of the measurement period, such amounts will be recorded as adjustments to the purchase price allocation.

The financial results of FTZ Corp. are included in the Condensed Consolidated Financial Statements from the date of acquisition. Pro forma information has not been presented for operations of FTZ Corp. as the impact was not material to the Company’s Condensed Consolidated Financial Statements.

On December 31, 2020, the Company acquired all of the outstanding stock of Allocation Network GmbH (Allocation Network), a best-in class provider of strategic sourcing and supplier management solutions founded in 1998 and headquartered in Munich, Germany. The total consideration of approximately $19.0 million is comprised of $14.2 million in cash, net of cash acquired of $0.9 million, and a contingent earnout consideration at an estimated fair value of $4.8 million. The earnout consideration is between 0 and $10.2 million based on Allocation Network’s cloud bookings growth over the next three years. The Company completed the acquisition for the purpose of expanding its product offering and driving revenue growth.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date (in thousands):

The Company believes the amount of goodwill resulting from the purchase price allocation is attributable to the expected synergistic benefits of being able to leverage Allocation Network’s software with the Company’s existing software to provide an integrated suite to the customers of both the Company and Allocation Network. The acquired goodwill is not deductible for tax purposes.

The Company has evaluated and continues to evaluate pre-acquisition contingencies relating to Allocation Network that existed as of the acquisition date. The Company has preliminarily determined that certain of these pre-acquisition contingencies are probable in nature and estimable as of the acquisition date and, accordingly, has recorded its best estimates for these contingencies as a part of the purchase price allocation. The Company continues to gather information and evaluate pre-acquisition contingencies that it has assumed. If the Company makes changes to the amounts recorded or identifies additional pre-acquisition contingencies during the remainder of the measurement period, such amounts recorded will be recorded as adjustments to the purchase price allocation.

The financial results of Allocation Network are included in the Condensed Consolidated Financial Statements from the date of acquisition. Pro forma information has not been presented for operations of Allocation Network as the impact was not material to the Company’s Condensed Consolidated Financial Statements.

The changes in the carrying amount of goodwill for the ~~nine~~three months ended ~~October 31, 2020~~April 30, 2021 were as follows:

The Company performed its annual goodwill impairment review during the fourth quarter of fiscal ~~2020.~~2021. The analysis compared the Company’s market capitalization to its net assets as of the test date, November 30, ~~2019.~~2020. As the market capitalization significantly exceeded the Company’s net assets, there was no indication of goodwill impairment for fiscal ~~2020.~~2021. The Company monitors the indicators for goodwill impairment testing between annual tests. ~~As a result of~~No adverse events occurred during the ~~decline in the global economy due to the global coronavirus (COVID-~~19three~~) pandemic,~~ months ended April 30, 2021 that would cause the Company ~~reviewed~~to test goodwill for ~~impairment in the~~ ~~third~~ ~~quarter of fiscal~~ ~~2021~~ ~~and given that the Company's market capitalization has remained unchanged, there continue to be~~ no ~~indicators of goodwill~~ impairment.

The Company’s intangible assets are related to ~~the~~ acquisitions completed in the second and third quarters of fiscal ~~2019.~~2019, the fourth quarter of fiscal 2021 and the first quarter of fiscal 2022. Intangible assets are included in “Other assets, net” in the accompanying Condensed Consolidated Balance Sheets, and are amortized over an estimated five-year useful life.

Amortization of intangible assets from acquisitions was ~~$0.1~~$0.2 million and ~~$0.2~~$0.1 million for the three ~~and~~ ~~nine~~months ended ~~October 31, 2020~~April 30, 2021 and ~~2019.~~2020, respectively. The following table summarizes the estimated amortization expense relating to the Company’s intangible assets as of ~~October 31, 2020:~~April 30, 2021:

Effective May 30, 2012, QAD Ortega Hill, LLC, a consolidated entity of QAD Inc., entered into a variable rate credit agreement (the 2012 Mortgage) with Mechanics Bank (formerly Rabobank, N.A.), to refinance a pre-existing mortgage. The 2012 Mortgage has an original principal balance of $16.1 million and bears interest at the one month LIBOR rate plus 2.25%. One month LIBOR was ~~0.15%~~0.11% at ~~October 31, 2020.~~April 30, 2021. The 2012 Mortgage matures in June 2022 and is secured by the Company’s headquarters located in Santa Barbara, California. In conjunction with the 2012 Mortgage, QAD Ortega Hill, LLC entered into an interest rate swap with Mechanics Bank. The swap agreement has an initial notional amount of $16.1 million and a schedule matching that of the underlying loan that synthetically fixes the interest rate on the debt at 4.31% for the entire term of the 2012 Mortgage. The terms of the 2012 Mortgage provide for QAD Ortega Hill, LLC to make net monthly payments of $88,100 consisting of principal and interest and one final payment of $11.7 million when the loan matures on June 1, 2022. The unpaid balance as of ~~October 31, 2020~~April 30, 2021 was ~~$12.5~~$12.2 million.

Included in other liabilities, the Company owed $2.4 million as part of the acquisition cost for FTZ Corp. The note is payable to the sellers of FTZ Corp. over four years and accrues interest at 4%.

The components of accumulated other comprehensive loss, net of taxes, were as follows:

During the ~~nine~~three months ended ~~October 31, 2020~~April 30, 2021 there were 0 reclassifications from accumulated other comprehensive loss.

In determining the provision for income taxes for the first ~~nine~~three months of fiscal ~~2021,~~2022, the Company calculated income tax expense based on the estimated annual tax rate for the year, compared to the ~~second~~first ~~quarter~~three months of ~~fiscal~~ ~~2021~~ ~~and~~the prior year where the Company calculated income tax expense based on actual quarterly results. The annual effective tax rate was adjusted for discrete items recorded during the period. The estimated annual tax rate for the year was used in the current period because the Company is forecasting profits for the full fiscal year ~~2021.~~2022. ~~The prior year’s income~~Actual quarterly results were used in fiscal 2021 since they provided a more reliable estimate of quarterly tax expense ~~was based on the actual effective tax rate~~ since the Company was expecting near breakeven results.

The Company recorded income tax (benefit) expense of ~~$0.6~~$(1.4) million and ~~$1.4~~$1.0 million infor the ~~third~~firstthree months of fiscal 2022 and 2021, respectively. The Company’s estimated effective income tax rate was (302%) and 170% for the first quarter of fiscal ~~2021~~2022 and ~~2020,~~2021, respectively. The ~~Company’s~~ effective tax rate ~~was 16% during~~will generally differ from the U.S. federal statutory tax rate of ~~third~~21%, ~~quarter~~due to state taxes, permanent items including amounts disallowed under §162(m) of ~~fiscal~~ ~~2021~~ ~~compared to 92% for~~ the ~~same period in~~Internal Revenue Code, the ~~prior year.~~Company’s global tax strategy, and tax credits. The ~~change~~reduction in the effective tax rate ~~was primarily due to $0.8 million of tax expense related to an out-of-period adjustment recorded in the~~ ~~third~~ ~~quarter of fiscal~~ ~~2020~~ ~~to correct a valuation allowance initially placed on the net deferred tax assets of the Company’s wholly-owned Irish subsidiary (the Irish Principal) in the~~ ~~second~~ ~~quarter of fiscal~~ ~~2020.~~

~~The Company recorded income tax expense of $2.1 million and $12.0 million~~ for the ~~first~~~~nine~~three months ~~of fiscal~~ended April 30, 2021 ~~and~~ ~~2020,~~ ~~respectively. The Company’s effective tax rate was 42% during~~compared to the ~~first~~~~nine~~three months ~~of fiscal~~ended ~~2021~~April 30, 2020 ~~compared to (275%) for the same period in the prior year. The change in the effective tax rate~~ was primarily due to a ~~$10.8~~planned intercompany sale of intellectual property and the release of $2.0 million ~~valuation allowance that was placed on the Irish Principal’s net deferred tax assets in fiscal~~ ~~2020.~~

On ~~March 27, 2020,~~ ~~in response to the COVID-~~19 ~~pandemic, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law. The CARES Act provides additional economic stimulus to address the impact of the COVID-~~19 ~~pandemic. In the~~ ~~first~~~~nine~~ ~~months of fiscal year~~ ~~2021,~~ ~~the Company’s income tax provision was~~ ~~not~~ ~~significantly impacted by the CARES Act. The Company will continue to closely monitor the impact of the COVID-~~19 ~~pandemic, as well as any effects that~~ ~~may~~ ~~result from future legislation.~~

In ~~July 2020,~~ ~~the U.S. Department of Treasury issued final tax regulations related to foreign-derived intangible income and global intangible low-taxed income (GILTI) provisions. Also in~~ ~~July 2020,~~ the U.S. Department of Treasury released final tax regulations that provide certain U.S. taxpayers with an annual election to exclude foreign income that is subject to a high effective tax rate from their GILTI inclusions. The Company is currently assessing the impact of these new regulations on its condensed consolidated financial statements.

~~When calculating QAD’s income tax expense for the~~ ~~first~~~~nine~~ ~~months of fiscal~~ ~~2021,~~ ~~the Company considered the U.S. Tax Cuts and Job Act that was signed into law in~~ ~~December 2017.~~ ~~The Company calculated an estimate for GILTI~~ in the Company’s ~~tax expense based on the final GILTI regulations released on~~ ~~June 14, 2019~~ by the U.S. Department of Treasury. These regulations provide computational, definitional, and anti-avoidance rule guidance relating to the determination of a U.S. shareholder’s GILTI inclusion. In addition, the technical change in depreciation on qualified improvement property enactedvaluation allowance in the ~~CARES Act was also considered in the GILTI calculation. In the~~ ~~first~~~~nine~~three months ~~of fiscal~~ended April 30, 2021 ~~cash taxes were~~ ~~not~~ ~~impacted by GILTI since the Company has enough tax credit to offset this liability.~~

~~The Company has elected to treat the deferred taxes related to GILTI provisions~~ as a ~~current-period expense when incurred (the period cost method).~~result of the acquisition of FTZ Corporation.

At ~~October 31, 2020~~April 30, 2021 and January 31, ~~2020,~~2021, the gross amount of unrecognized tax benefits was $1.3 million ~~and $1.2 million respectively,~~for both periods, including interest and penalties. The unrecognized tax benefits for the first ~~nine~~three months of fiscal 2021 and fiscal 2020 were each reduced by $1$1.0 million with an accompanying reduction of deferred tax assets, as a result of the netting required under ASU 2013-11. The entire amount of unrecognized tax benefits, if recognized, will impact the Company’s effective tax rate. This liability is classified as long-term unless the liability is expected to conclude within twelve months of the reporting date.

The Company’s policy is to recognize interest and penalties, if any, related to unrecognized tax benefits as a component of income tax expense. As of the ~~October 31, 2020~~ first quarter of fiscal 2022and ~~2019,~~2021, the Company accrued approximately $0.1 million of interest and penalty expense relating to unrecognized tax benefits.

The Company reviews its net deferred tax assets by entity at each balance sheet date to determine whether a valuation allowance is necessary based on the more-likely-than-not standard. During the first ~~nine~~three months of fiscal year ~~2021~~2022 management considered all available evidence, both positive and negative, to determine whether, based on the weight of that evidence, a valuation allowance was needed. Management assessed the transfer pricing methodology, the historical profits, the economics of the country in which the entity operates, the impact of COVID-19, the current and future customer base, the type and character of the deferred tax asset and any other current and relevant information by entity to draw its conclusion.

A valuation allowance has been established for select foreign jurisdictions along with U.S. federal and state net deferred tax assets. The following table discloses the Company’s valuation allowance by entity (in millions):

At ~~October 31, 2020~~April 30, 2021 and January 31, ~~2020,~~2021, the worldwide valuation allowance attributable to deferred tax assets was ~~$52.9~~$45.5 million and ~~$51.0~~$48.6 million, respectively.

The Company files U.S. federal, state, and foreign tax returns that are subject to audit by various tax authorities. The Company is currently under audit in:

~~During the fiscal year~~ ~~2021,~~ ~~the Company closed the following audits with~~ no ~~adjustment:~~

The following table sets forth the dividends that were declared by the Company during the first ~~nine~~three months of fiscal ~~2021:~~2022:

The Company’s equity awards consist of RSUs, PSUs and SARs. For a description of the Company’s stock-based compensation plans, see Note 6 “Stock-Based Compensation” in Notes to Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended January 31, ~~2020.~~2021.

The following table sets forth reported stock-based compensation expense for the three ~~and~~ ~~nine~~months ended ~~October 31, 2020~~April 30, 2021 and ~~2019:~~2020:

The estimated fair value of RSUs was calculated based on the closing price of the Company’s common stock on the date of grant, reduced by the present value of dividends foregone during the vesting period.

The following table summarizes the activity for RSUs for the ~~nine~~three months ended ~~October 31, 2020:~~April 30, 2021:

The Company withholds a portion of the released shares as consideration for the Company’s payment of applicable employee income taxes. During the three months ended ~~October 31, 2020,~~April 30, 2021, the Company withheld ~~200~~3,000 shares for payment of these taxes at a value of ~~$9,000. During the~~ ~~nine~~ ~~months ended~~ ~~October 31, 2020,~~ ~~the Company withheld 76,000 shares for payment of these taxes at a value of $3.2~~$0.2 million.

Total unrecognized compensation cost related to RSUs was approximately ~~$24.8~~$20.3 million as of ~~October 31, 2020.~~April 30, 2021. This cost is expected to be recognized over a weighted-average period of approximately ~~2.8~~2.3 years.

The following table summarizes the activity for PSUs for the ~~nine~~three months ended ~~October 31, 2020:~~April 30, 2021:

The Company withholds a portion of the released shares as consideration for the Company’s payment of applicable employee income taxes. During the three months ended ~~October 31, 2020,~~April 30, 2021, the Company did not withhold shares for payment of these taxes as there were no0 shares released during the quarter. ~~During the~~ ~~nine~~ ~~months ended~~ ~~October 31, 2020,~~ ~~the Company withheld 8,000 shares for payment of these taxes at a value of~~ ~~$0.3~~ ~~million.~~

Total unrecognized compensation cost related to PSUs was approximately ~~$2.8~~$1.5 million as of ~~October 31, 2020.~~April 30, 2021. This cost is expected to be recognized over a period of approximately ~~1.2~~0.6 years.

The following table summarizes the activity for outstanding SARs for the ~~nine~~three months ended ~~October 31, 2020:~~April 30, 2021:

The aggregate intrinsic value in the table above represents the total pretax intrinsic value (the aggregate difference between the closing stock price of the Company’s common stock based on the last trading day as of ~~October 31, 2020,~~April 30, 2021, and the exercise price for in-the-money SARs) that would have been received by the holders if all SARs had been exercised on ~~October 31, 2020.~~April 30, 2021. The total intrinsic value of SARs exercised in the ~~nine~~three months ended ~~October 31, 2020~~April 30, 2021 was ~~$6.0 million.~~0.

The number of SARs exercised includes shares withheld on behalf of employees to satisfy minimum statutory tax withholding requirements. During the three months ended ~~October 31, 2020,~~April 30, 2021, the Company ~~withheld 400~~did not withhold shares for payment of these taxes ~~at a value of $15,000. During~~as there were 0 exercises during the ~~nine~~ ~~months ended~~ ~~October 31, 2020,~~ ~~the Company withheld 57,000 shares for payment of these taxes at a value of $2.4 million.~~quarter.

At ~~October 31, 2020,~~April 30, 2021, there was approximately ~~$1.6~~$1.0 million of total unrecognized compensation cost related to unvested SARs. This cost is expected to be recognized over a weighted-average period of approximately ~~1.4~~0.8 years.

The Company sells software licenses and services to its customers under written agreements. Each agreement contains the relevant terms of the contractual arrangement with the customer and generally includes certain provisions for indemnifying the customer against losses, expenses and liabilities from damages that may be awarded against the customer in the event the Company’s software is found to infringe upon certain intellectual property rights of a third party. The agreements generally limit the scope of and remedies for such indemnification obligations in a variety of industry-standard respects.

The Company believes its internal development processes and other policies and practices limit its exposure related to the indemnification provisions of the agreements. For several reasons, including the lack of prior indemnification claims and the lack of a monetary liability limit for certain infringement cases under the agreements, the Company cannot determine the maximum amount of potential future payments, if any, related to such indemnification provisions.

The Company is subject to various legal proceedings and claims, either asserted or unasserted, which arise in the ordinary course of business. While the outcome of these claims cannot be predicted with certainty, management does not believe that the outcome of any of these legal matters will have a material adverse effect on the Company’s consolidated results of operations, financial position or liquidity.

The Company markets its products and services worldwide, primarily to companies in the manufacturing industry, including automotive, consumer products, food and beverage, high technology, industrial products and life sciences industries. The Company sells products and services through its direct sales force in four geographic regions: North America; Europe, the Middle East and Africa (EMEA); Asia Pacific; and Latin America and through distributors where third parties can extend sales reach more effectively or efficiently. The North America region includes the United States and Canada. The EMEA region includes Europe, the Middle East and Africa. The Asia Pacific region includes Asia and Australia. The Latin America region includes South America, Central America and Mexico. In accordance with Topic 606, the Company reports disaggregated revenue by geography and by industry as the Company believes it best depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. The Company does not consider reporting by industry an operating segment in accordance with ASC 280, Segment Reporting, because discrete financial information by industry is not available. The Company’s Chief Operating Decision Maker, the Chief Executive Officer, reviews the consolidated results within one operating segment.

Subscription, license and maintenance revenues are generally assigned to the region where a majority of end users are located. Professional services revenue is assigned based on the region where the services are delivered.

ITEM 2 – ~~MANAGEMENT’S~~ MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

In addition to historical information, this Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995. Any statements contained herein that are not statements of historical fact should be construed as forward looking statements, including statements that are preceded or accompanied by such words as “may,” “believe,” “could,” “anticipate,” “projects,” “estimates,” “will likely result,” “should,” “would,” “might,” “plan,” “expect,” “intend” and words of similar meaning or the negative of these terms or other comparable terminology. Forward-looking statements are based on the Company’s current expectations and assumptions regarding its business, the economy and future conditions. A number of risks and uncertainties could cause actual results to differ materially from those expressed or implied in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in Part I, Item 1A entitled “Risk Factors” within our Annual Report on Form 10-K for the year ended January 31, ~~2020.~~2021. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s opinions, expectations and projections only as of the date hereof and are subject to risks, uncertainties and assumptions about our business. We undertake no obligation to revise or update or publicly release the results of any revision or update to these forward-looking statements except as required by applicable securities laws. Readers should carefully review the risk factors and other information described in other documents we file from time to time with the Securities and Exchange Commission (SEC).

The following discussion should be read in conjunction with the information included within our Annual Report on Form 10-K for the year ended January 31, ~~2020,~~2021, and the Condensed Consolidated Financial Statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q.

Our condensed consolidated financial statements are prepared applying certain critical accounting policies. The SEC defines “critical accounting policies” as those that require application of management’s most difficult, subjective, or complex judgments. Critical accounting policies require numerous estimates and strategic or economic assumptions that may prove inaccurate or subject to variations and may significantly affect our reported results and financial position for the period or in future periods. Changes in underlying factors, assumptions, or estimates in any of these areas could have a material impact on our future financial condition and results of operations. Our financial statements are prepared in accordance with U.S. GAAP, and they conform to general practices in our industry. We apply critical accounting policies consistently from period to period and intend that any change in methodology occur in an appropriate manner. Accounting policies currently deemed critical, including a) revenue and b) income taxes, are further discussed in our Annual Report on Form 10-K for the fiscal year ended January 31, ~~2020.~~2021. There have been no significant changes to our accounting policies and estimates as discussed in our Annual Report on Form 10-K for the fiscal year ended January 31, ~~2020,~~2021, except as described in Note 1 “Basis of Presentation and Recent Accounting Pronouncements” within the Notes to Condensed Consolidated Financial Statements.

QAD (QAD, the Company, we or us) is a ~~leader~~leading provider of next generation manufacturing and supply chain solutions in ~~cloud-based enterprise software solutions for global manufacturing companies.~~the cloud. Our solutions, called QAD Adaptive Applications, are designed specifically for automotive, life sciences, consumer products, food and beverage, high technology and industrial products manufacturers. QAD software offers a full set of core manufacturing enterprise resource planning and supply chain planning capabilities. Our architecture, called the QAD Enterprise Platform, allows manufacturers to upgrade existing functionality by module, and extend or create new applications, providing manufacturers with the flexibility they need to innovate and rapidly adapt to change.

We operate primarily in the following four geographic regions: North America, Latin America, EMEA and Asia Pacific. In the first ~~nine~~three months of fiscal ~~2021,~~2022, approximately ~~51%~~47% of our total revenue was generated in North America, ~~30%~~35% in EMEA, ~~13%~~12% in Asia Pacific and 6% in Latin America. The majority of our revenue is generated from global customers who have operations in multiple countries throughout the world. A significant portion of our revenue and expenses are derived from international operations which are primarily conducted in foreign currencies. As a result, changes in the value of foreign currencies relative to the U.S. dollar have impacted our results of operations and may impact our future results of operations. At ~~October 31, 2020,~~April 30, 2021, we employed approximately ~~1,902~~1,930 employees worldwide, of which ~~623~~640 employees were based in North America, ~~602~~625 employees in EMEA, ~~567~~555 employees in Asia Pacific and 110 employees in Latin America.

Our customer base and our target markets are primarily global manufacturing companies. Therefore, our results are heavily influenced by the state of the global manufacturing economy. As a result, our management team monitors several economic indicators, with particular attention to the Global and Country Purchasing Managers’ Indexes (PMI). The PMI is a survey conducted on a monthly basis by polling businesses that represent the makeup of respective sectors. Since most of our customers are manufacturers, our revenue has historically correlated with fluctuations in the manufacturing PMI. Global macro-economic trends and manufacturing spending are important barometers for our business, and the health of the U.S., Western European and Asian economies have a meaningful impact on our financial results.

We are transitioning our business model from traditional on-premises licensing to cloud-based subscriptions. During the first ~~nine~~three months of fiscal ~~2021,~~2022, we closed virtually all of our new customer deals in the cloud. On a rolling 12-month basis, subscription billings grew by ~~22%~~20% with a three-year compound annual growth rate (CAGR) of ~~23%~~22%. Recurring revenue, which we define as subscription revenue plus maintenance revenue, equaled ~~79%~~76% of total revenue for the fiscal ~~2021 third quarter, a six-percentage point increase over 73% of total revenue for the same period last year.~~2022 first quarter. By reducing our customers’ up-front costs and providing QAD Adaptive Applications with continuous application and infrastructure support in secure and resilient environments, we expect our cloud business model will be more attractive than on-premises licenses. We expect recurring revenue to remain a majority of total revenue as our subscription revenue continues to grow.

In late 2019, a novel strain of COVID-19 was identified, and in March 2020, the World Health Organization characterized the COVID-19 outbreak as a pandemic. The COVID-19 ~~global~~ pandemic has ~~impacted our operations~~resulted in authorities implementing numerous measures to try to contain and mitigate the virus, including travel bans and restrictions; business shut-downs and limitations; quarantines and shelter-in-place; and social distancing orders.

Our priorities during the ~~first nine months of fiscal 2021. Our priorities are~~pandemic have been the health and well-being of our employees, our customers and their respective families and communities as well as ~~ensuring complete~~maintaining continuity of service for our cloud and on-premises customers and those customers with implementation or upgrade projects. ~~For~~Beginning in the first ~~nine months~~fiscal quarter of fiscal 2021 ~~subscription~~ and ~~maintenance revenue have generally performed as expected given~~continuing through the ~~revenue is recurring~~first quarter of fiscal 2022, we took actions in ~~nature. While we see some impact~~response to ~~subscription~~the pandemic that focused on maintaining business continuity, supporting our employees, helping our customers and ~~maintenance revenue, our retention rates continue to be in excess of 90%~~communities and preparing for ~~both subscription and maintenance. However, some~~the long-term success of our ~~subscription~~business. We are continuing to conduct business during the COVID-19 pandemic with substantial modifications to employee travel, employee work locations, and ~~maintenance customers have been negatively impacted by~~virtualization, postponement or cancellation of certain sales and marketing events, among other modifications. In the ~~pandemic~~first quarter of fiscal 2021, we closed our offices globally and ~~have cancelled or reduced their contracts. License fees~~our employees worked remotely. These actions remained in effect throughout fiscal 2021 and professional services revenue have been negatively impacted by the global pandemic as some existing customers are not adding users or modules and some of our customers have postponed or extended their services project go live dates. We implemented prudent expense management measures during the first ~~nine months~~quarter of ~~the year~~fiscal 2022 and are expected to ~~offset the negative~~extend into future quarters. The impact, if any, of ~~lower license fees~~these and ~~professional services revenue. The increasing contribution from higher margin subscription revenue, improved services margins and expense control~~any additional operational changes we may implement is uncertain, but actions we have ~~implemented helped drive an improvement~~taken to date in ~~our profitability in the first nine months of fiscal 2021 compared~~response to the ~~same period in the prior year. As a result, we reported a pre-tax profit of $4.9 million for the first nine months of the year. These expense management measures allow us~~pandemic have not materially impaired, and are not expected to materially impair our ability to maintain ~~a solid~~operations, including financial ~~position which gives us the ability to continue to adapt to changes due to COVID-19.~~reporting systems, internal control over financial reporting and disclosure controls and procedures.

Our customers are global manufacturers and the closure of manufacturing sites, country borders and the increase in unemployment due to the COVID-19 global pandemic are having and will continue to have negative implications on demand for goods, the supply chain, production of goods and transportation. Furthermore, the future impact to our manufacturing customers depends on the duration and spread of the virus. The negative impact on our manufacturing customers has caused some of them to delay purchasing decisions, postpone services projects, reduce users or modules, cancel their maintenance or subscription contracts, request extended payment terms, or request higher discounts. We expect COVID-19 will have a negative impact on our financial results and liquidity in fiscal 2021.

While the effects of the pandemic in the short to medium term remain uncertain, ~~our~~we do see growth in manufacturing activity with the global PMI level at a ten-year high. Our business has a strong cash position with little debt and cash flow remains positive. For these reasons, we believe our financial position is solid and our ~~long term~~long-term strategy is sound.

We operate in several geographical regions as described in Note 1314 “Business Segment Information” within the Notes to Condensed Consolidated Financial Statements. In order to present our results of operations without the effects of changes in foreign currency exchange rates, we provide certain financial information on a “constant currency basis”, which is in addition to the actual financial information presented in the following tables. In order to calculate our constant currency results, we apply the current foreign currency exchange rates to the prior period results.

	Nine Months Ended October 31,			Nine Months Ended October 31,			Change in Constant			Change due to Currency			Total Change as Reported
	2020			2019			Currency			Fluctuations			$			%			Three Months Ended			Three Months Ended			Change in			Change due			Total Change as Reported
(in thousands)																			April 30, 2021			April 30, 2020			Constant Currency			to Currency Fluctuations				$	%
Revenue
Subscription	$	95,598		$	78,522		$	17,787		$	(711	)	$	17,076			22	%	$	36,686		$	30,771		$	4,948		$	(967	)	$	5,915		19	%
Percentage of total revenue		43	%		34	%														44	%		41	%
License		5,946			11,277			(5,203	)		(128	)		(5,331	)		-47	%		3,115			1,221			1,806			(88	)		1,894		155	%
Percentage of total revenue		3	%		5	%														4	%		2	%
Maintenance		79,922			89,184			(8,349	)		(913	)		(9,262	)		-10	%		26,563			26,408			(960	)		(1,115	)		155		1	%
Percentage of total revenue		35	%		38	%														32	%		36	%
Professional services		43,422			53,237			(8,880	)		(935	)		(9,815	)		-18	%		16,607			15,747			216			(644	)		860		5	%
Percentage of total revenue		19	%		23	%														20	%		21	%
Total revenue	$	224,888		$	232,220		$	(4,645	)	$	(2,687	)	$	(7,332	)		-3	%	$	82,971		$	74,147		$	6,010		$	(2,814	)	$	8,824		12	%

Total Revenue. On a constant currency basis, total revenue was ~~$76.7~~$83.0 million for the ~~third~~first quarter of fiscal ~~2021,~~2022, representing a ~~$1.8~~$6.0 million, or 2%8%, ~~decrease~~increase from ~~$78.5~~$77.0 million for the same period last year. When comparing categories within total revenue at constant rates, our results for the ~~third~~first quarter of fiscal ~~2021~~2022 included ~~decreases~~increases in ~~professional services,~~subscription, license and ~~maintenance~~professional services partially offset by ~~an increase~~a decrease in ~~subscription.~~maintenance. Revenue outside the North America region as a percentage of total revenue was ~~49%~~53% and ~~51%~~50% for the ~~third~~first quarter of fiscal ~~2021~~2022 and ~~2020,~~2021, respectively. On a constant currency basis, total revenue ~~decreased~~increased in our North America, EMEA and Asia Pacific regions, ~~remained constant~~and decreased in our Latin America region ~~and increased in our North America region~~ during the ~~third~~first quarter of fiscal ~~2021~~2022 when compared to the same period in the prior year.

On a constant currency basis, total revenue was $224.9 million for the first nine months of fiscal 2021, representing a $4.6 million, or 2%, decrease from $229.5 million for the same period last year. When comparing categories within total revenue at constant currency rates, our results for the first nine months of fiscal 2021 when compared to the prior year included decreases in professional services, licenseOur products and maintenance partially offset by an increase in subscription. Revenue outside the North America region as a percentage of total revenue was 49% and 51% for the first nine months of fiscal 2021 and 2020, respectively. On a constant currency basis, total revenue decreased in our Asia Pacific region and increased in our North America, Latin America, and EMEA regions during the first nine months of fiscal 2021 when compared to the prior year.

~~Our~~ services are sold to manufacturing companies that operate mainly in the following six industries: automotive, consumer products, food and beverage, high technology, industrial products and life sciences. Given the similarities between consumer products and food and beverage as well as between high technology and industrial products, we aggregate them for management review. The following table presents revenue by industry for the three ~~and nine~~ months ended ~~October 31, 2020~~April 30, 2021 and ~~2019:~~ 2020:

The ~~decrease~~change in percentage of revenue by industry for automotive in the ~~third~~first quarter ~~and the first nine months~~ of fiscal ~~2021~~2022 compared to the same ~~periods~~quarter last year primarily relates to ~~lower professional services revenue. The prior year periods included several large services implementation projects~~an increase of subscription and license revenue in the ~~automotive industry. Conversely, the percentage increase for~~life sciences and high technology and industrial products ~~primarily related to an increase in~~industries as well as lower professional services revenue ~~due to an on-going~~in the automotive industry. The prior year period included several large ~~multisite global~~automotive services implementation ~~project for an industrial products customer.~~projects.

Subscription Revenue. Subscription revenue consists of recurring fees from customers to access our products via the cloud and other subscription offerings. Our cloud offerings typically include access to QAD software, hosting, application support, maintenance support and product updates, if and when available. Included in subscription revenue are one-time set up fees for technical services such as configuration of the database and access to the environment.

On a constant currency basis, subscription revenue was ~~$33.8~~$36.7 million for the ~~third~~first quarter of fiscal ~~2021,~~2022, representing a ~~$6.2~~$5.0 million, or ~~22%~~16%, increase from ~~$27.6~~$31.7 million for the same period last year. On a constant currency basis, subscription revenue increased across all regions during the ~~third~~first quarter of fiscal ~~2021~~2022 when compared to the same period last year. One of the metrics that management uses to monitor subscription performance is the number of new cloud deals that have been signed in the period. In the ~~third~~first quarter of fiscal ~~2021~~2022 we closed 2233 new ~~cloud~~subscription deals, including 923 new ~~cloud~~ customers and 1310 conversions from existing customers who previously purchased on-premises licenses. This compared to the ~~third~~first quarter of fiscal ~~2020~~2021 when we closed 2514 new ~~cloud~~subscription deals, including 149 new ~~cloud~~ customers and 115 conversions from existing customers who previously were running our solutions on-premises. The increase in subscription revenue consists of new customer sites, existing customers converting from on-premises, and additional users and modules purchased by our existing cloud customers.

On a constant currency basis, subscription revenue was $95.6 million for the first nine months of fiscal 2021, representing a $17.8 million, or 23%, increase from $77.8 million for the same period last year. On a constant currency basis, subscription revenue increased across all regions during the first nine months of fiscal 2021 when compared to the prior year. In the first nine months of fiscal 2021 we closed 57 new cloud deals, including 28 new cloud customers and 29 conversions from existing customers who previously purchased on-premises licenses. This compared to the first nine months of fiscal 2020 when we closed 64 new cloud deals, including 32 new cloud customers and 32 conversions from existing customers who previously purchased on-premises licenses.

We track our retention rate of subscription by calculating the annualized revenue of customer sites with contracts up for renewal at the beginning of the period compared to the annualized revenue associated with the customer sites that have canceled during the period. The percentage of revenue not canceled is our retention rate. Our subscription customer retention rate is in excess of ~~90%~~95%.

The following table presents subscription revenue by region for the three ~~and nine~~ months ended ~~October 31, 2020~~April 30, 2021 and ~~2019:~~2020:

The following table presents subscription revenue by industry for the three ~~and nine~~ months ended ~~October 31, 2020~~April 30, 2021 and ~~2019:~~2020:

License Revenue. License revenue is derived from software license fees that customers pay for our core product, QAD Adaptive Applications, and any add-on modules they purchase. Our revenue mix has continued to shift from license to subscription revenue as a result of our business model transition as more new customers subscribe to our cloud-based offerings rather than purchase traditional on-premises licenses. While we expect license revenue to decline over time, we do continue to experience quarterly fluctuations.

On a constant currency basis, license revenue was ~~$1.7~~$3.1 million for the ~~third~~first quarter of fiscal ~~2021,~~2022, representing a ~~$1.7~~$1.8 million, or ~~50%~~138%, ~~decrease~~increase from ~~$3.4~~$1.3 million for the same period last year. On a constant currency basis, license revenue increased in our North America, EMEA and Asia Pacific regions and decreased ~~across all regions~~in our Latin America region during the ~~third~~first quarter of fiscal ~~2021~~2022 when compared to the same period last year. ~~During the third quarter of fiscal 2021, three~~License revenue generated in both periods is from existing customers placed license orders totaling more than $0.1 million and no customers placed orders totaling more than $1.0 million. This compared to the third quarter of fiscal 2020 in which seven customers placed license orders totaling more than $0.1 million and no customers placed orders totaling more than $1.0 million. The majority of our license revenue has come frompurchasing additional users and ~~module purchases from our existing customers.~~

~~On a constant currency basis, license~~modules. License revenue in the prior year was ~~$5.9 million for~~negatively impacted by the ~~first nine months~~onset of ~~fiscal 2021, representing a $5.2 million, or 47%, decrease from $11.1 million for~~ the same period last year. On a constant currency basis, license revenue decreased in all our regions during the first nine months of fiscal 2021 when compared to the same period last year. During the first nine months of fiscal 2021, six customers placed license orders totaling more than $0.1 million, one of which exceeded $1.0 million. This compared to the first nine months of fiscal 2020 in which 17 customers placed license orders totaling more than $0.1 million, one of which exceeded $1.0 million.COVID-19 pandemic.

Maintenance. We offer support services 24 hours a day, seven days a week in addition to providing software upgrades, which include additional or improved functionality, when and if available. Maintenance revenue is derived from our on-premises customers who have purchased licenses and would like to receive support services and software upgrades. Our maintenance contracts are generally renewed on an annual basis.

On a constant currency basis, maintenance revenue was ~~$27.0~~$26.6 million for the ~~third~~first quarter of fiscal ~~2021,~~2022, representing a ~~$3.0~~$0.9 million, or ~~10%~~3%, decrease from ~~$30.0~~$27.5 million for the same period last year. On a constant currency basis, maintenance revenue decreased in all our regions during the ~~third~~first quarter of fiscal ~~2021~~2022 when compared to the same period last year. The decrease in maintenance revenue period over period iswas primarily due to customer cancellations and continued conversions of existing customers’ on-premises licenses to cloud subscriptions. When customers convert to the cloud they no longer pay for maintenance as those support services are included as a component of the subscription offering. Though we continue to see renewal rates above 90%, some of our customers have been impacted by the pandemic and therefore, we have seen some increase in maintenance cancellations or maintenance revenue reductions.

We track our maintenance retention rate by calculating the annualized revenue of customer sites with contracts up for renewal at the beginning of the period compared to the annualized revenue associated with the customer sites that have canceled during the period. The percentage of revenue not canceled is our retention rate. Conversions to the cloud are not considered cancellations for purposes of this calculation. Our maintenance retention rate has remained in excess of 90%.

On a constant currency basis, maintenance revenue was $79.9 million for the first nine months of fiscal 2021, representing a $8.4 million, or 10%, decrease from $88.3 million for the same period last year. On a constant currency basis, maintenance revenue decreased in our North America, EMEA, and Asia Pacific regions, and increased in our Latin America region during the first nine months of fiscal 2021 when compared to the prior year. The decrease in maintenance and other revenue period over period is primarily due to customer cancellations and conversions to the cloud.

Professional Services Revenue. Our professional services business includes technical and application consulting in addition to training, implementations, migrations and upgrades related to our solutions. Although our professional services are optional, our customers use these services when planning, implementing or upgrading our solutions whether in the cloud or on-premises. Professional services revenue growth is contingent upon subscription revenue growth and customer upgrade cycles, which are influenced by the strength of general economic and business conditions.

On a constant currency basis, professional services revenue was ~~$14.2~~$16.6 million for the ~~third~~first quarter of fiscal ~~2021,~~2022, representing a ~~$3.4~~$0.2 million, or ~~19%~~1%, ~~decrease~~increase from ~~$17.6~~$16.4 million for the same period last year. On a constant currency basis, professional services revenue ~~decreased across all~~remained consistent in our North America region, and increased in EMEA while decreasing in Asia Pacific and Latin America regions during the ~~third~~first quarter of fiscal ~~2021~~2022 when compared to the same period last year. ~~The decrease primarily related~~Our strategy continues to ~~a reduction in professional services revenue following the completion of a large, multisite global implementation project in fiscal 2020. In addition, the decrease in professional services revenue can~~ be attributed to fewer engagements and a lower amount of professional services revenue per customer. We continue to see delays or elongation of projects due to the global pandemic. In addition, our strategy is to outsource more professional services to our partners in order to have a large global partner network to meet our growth goals and customer demand.

On a constant currency basis, professional services revenue was $43.4 million for the first nine months of fiscal 2021, representing a $8.9 million, or 17%, decrease from $52.3 million for the same period last year. On a constant currency basis, professional services revenue decreased in all regions during the first nine months of fiscal 2021 when compared to the prior year. The decrease primarily related to a reduction in professional services revenue following the completion of a large, multisite global implementation project in fiscal 2020. In addition, the decrease related to fewer engagements and a lower amount of professional services revenue per customer.

Total cost of revenue consists of cost of subscription, cost of license, cost of maintenance and cost of professional services. Cost of subscription includes salaries, benefits, bonuses and other personnel expenses of our cloud operations employees, stock-based compensation for those employees, hosting and hardware costs, amortization of capitalized software costs, third-party contractor expense, royalties, professional fees, travel expense, and an allocation of information technology and facilities costs. Cost of license includes license royalties and amortization of capitalized software costs. Cost of maintenance includes salaries, benefits, bonuses and other personnel expenses of our support group, stock-based compensation for those employees, travel expenses, professional fees and an allocation of information technology and facilities costs. Cost of professional services includes salaries, benefits, bonuses and other personnel expenses of our services employees, stock-based compensation for those employees, third-party contractor expense, travel expense and an allocation of information technology and facilities costs.

On a constant currency basis, total cost of revenue was ~~$30.7~~$34.2 million and ~~$33.9~~$33.2 million for the ~~third~~first quarter of fiscal ~~2021~~2022 and ~~2020,~~2021, respectively, and as a percentage of total revenue was ~~40%~~41% and ~~43%~~44% in the ~~third~~first quarter of fiscal ~~2021~~2022 and ~~2020,~~2021, respectively. The non-currency related ~~decrease~~increase in cost of revenue of ~~$3.2~~$1.0 million, or 9%3%, in the ~~third~~first quarter of fiscal 2022 compared to the first quarter of fiscal 2021 ~~compared to the third quarter of fiscal 2020~~ was primarily due to ~~lower professional services~~higher subscription salaries and related costs, ~~and lower services travel costs due to the pandemic partially offset by~~ higher hosting costs associated with the increase in subscription revenue and higher ~~subscription salaries~~amortization of acquired capitalized software costs partially offset by lower travel costs and ~~related costs. Headcount decreased 85 people within services and increased 22 people within cloud operations when comparing the headcount at October 31, 2020 to October 31, 2019.~~

On a constant currency basis, total cost of revenue was $93.9 million and $105.4 million for the first nine months of fiscal 2021 and 2020, respectively, and as a percentage of total revenue was 42% and 46% for the first nine months of fiscal 2021 and 2020, respectively. The non-currency related decrease in cost of revenue of $11.5 million, or 11%, for the first nine months of fiscal 2021 compared to the first nine months of fiscal 2020 was primarily due to lower professional services salaries and related ~~costs~~costs. Headcount increased 12 people within subscription and ~~lower travel costs partially offset by higher hosting costs associated with~~decreased 29 people within professional services when comparing the ~~increase in subscription revenue and higher subscription salaries and related costs.~~ headcount at April 30, 2021 to April 30, 2020.

Cost of Subscription. On a constant currency basis, cost of subscription was ~~$10.7~~$12.2 million for the ~~third~~first quarter of fiscal ~~2021,~~2022, representing a ~~$1.1~~$1.8 million, or ~~11%~~17%, increase from ~~$9.6~~$10.4 million for the same period last year. The non-currency related increase in cost of subscription of ~~$1.1~~$1.8 million in the ~~third~~first quarter of fiscal 2022 compared to the first quarter of fiscal 2021 ~~compared to the third quarter of fiscal 2020~~ was primarily due to ~~higher hosting costs of $0.5 million and~~ higher salaries and related costs of $0.4 million, higher amortization of acquired capitalized software costs of $0.4 million primarily related to the amortization of our recent acquisitions, higher hosting costs of $0.4 million and a one-time technology purchase of $0.3 million. Cost of subscription as a percentage of subscription revenue was ~~32%~~33% and ~~35%~~34% in the ~~third~~first quarter of fiscal ~~2021~~2022 and ~~2020,~~2021, respectively. We continue to focus on improving our subscription margins over time by leveraging ongoing economies of scale and implementing operational efficiencies. We have experienced and may experience in the future quarterly fluctuations in our subscription margins as we make investments in our data centers and cloud operations to support future growth. Our strategic investments in cloud growth may not match the timing of revenue increases.

Cost of License.On a constant currency basis, cost of ~~subscription~~license was ~~$31.8~~$0.5 million for the first ~~nine months~~quarter of fiscal ~~2021,~~2022, representing a ~~$3.0~~$0.1 million, or ~~10%,~~25% increase from ~~$28.8~~$0.4 million for the same period last year. The non-currency related increase in cost of subscription of $3.0 million for the first nine months of fiscal 2021 compared to the first nine months of fiscal 2020 was primarily due to higher hosting costs of $1.5 million, higher salaries and related costs of $1.1 million, higher bonuses of $0.2 million and a higher allocation of information technology and facilities costs of $0.2 million. Cost of subscription as a percentage of subscription revenue was 33% and 37% for the first nine months of fiscal 2021 and 2020, respectively.

~~Cost of License.~~ On a constant currency basis, cost of license was $0.4 million for the third quarter of fiscal 2021, representing a $0.1 million, or 20% decrease from $0.5 million for the same period last year. The non-currency related decrease in cost of license of $0.1 million for the ~~third~~first quarter of fiscal 2022 compared to the first quarter of fiscal 2021 ~~compared to the third quarter of fiscal 2020~~ was due to ~~lower~~higher license royalty expense of $0.1 ~~million. License royalty expense as a percent of license revenue remained relatively consistent year over year.~~

On a constant currency basis, cost of license was $1.4 million for the first nine months of fiscal 2021, representing a $0.2 million, or 13% decrease from $1.6 million for the same period last year. The non-currency related decrease in cost of license of $0.2 million in the first nine months of fiscal 2021 compared to the first nine months of fiscal 2020 was due to lower license royalty expense of $0.4 million partially offset by higher amortization of capitalized software costs of $0.2 million. License royalty expense as a percent of license revenue remained relatively consistent year over year.

Cost of Maintenance. On a constant currency basis, cost of maintenance was ~~$6.3~~$6.6 million for the ~~third~~first quarter of fiscal ~~2021,~~2022, representing a ~~$1.0~~$0.3 million, or ~~14%~~4%, decrease from ~~$7.3~~$6.9 million for the same period last year. The non-currency related decrease in cost of maintenance of ~~$1.0~~$0.3 million in the ~~third~~first quarter of fiscal 2022 compared to the first quarter of fiscal 2021 ~~compared to the third quarter of fiscal 2020~~ was primarily due to ~~lower salaries and related costs of $0.4 million, as a result of lower headcount of 14 people, lower maintenance royalties of $0.3 million and~~ a lower allocation of information technology and facilities costs of $0.2 million. Cost of maintenance as a percentage of maintenance revenue was ~~23%~~25% and ~~25% in~~26% for the ~~third~~first quarter of fiscal ~~2021~~2022 and ~~2020, respectively.~~

~~On a constant currency basis, cost of maintenance was $19.4 million for the first nine months of fiscal~~ 2021, representing a $2.6 million, or 12%, decrease from $22.0 million for the same period last year. The non-currency related decrease in cost of maintenance of $2.6 million in the first nine months of fiscal 2021 compared to the first nine months of fiscal 2020 was primarily due to lower salaries and related costs of $1.4 million, lower maintenance royalties of $0.6 million and a lower allocation of information technology and facilities costs of $0.5 million. Cost of maintenance as a percentage of maintenance revenue was 24% and 25% for the first nine months of fiscal 2021 and 2020, respectively.

Cost of Professional Services. On a constant currency basis, cost of professional services was ~~$13.2~~$14.9 million for the ~~third~~first quarter of fiscal ~~2021,~~2022, representing a ~~$3.3~~$0.7 million, or ~~20%~~4%, decrease from ~~$16.5~~$15.6 million for the same period last year. The non-currency related decrease in cost of professional services of ~~$3.3~~$0.7 million in the ~~third~~first quarter of fiscal 2022 compared to the first quarter of fiscal 2021 ~~compared to the third quarter of fiscal 2020~~ was primarily due to lower travel costs of $0.7 million, lower salaries and related costs of ~~$1.6~~$0.4 million as a result of lower headcount of 8529 people, ~~lower travel expenses of $1.1 million,~~and a lower allocation of information technology and facilities costs of ~~$0.5~~$0.4 million ~~and lower~~partially offset by higher bonuses of $0.4 million ~~partially offset by~~and higher cross charges from other departments of ~~$0.3~~$0.2 million. Cost of professional services as a percentage of professional services revenues was ~~93%~~90% and ~~94%~~95% for the ~~third~~first quarter of fiscal ~~2021~~2022 and ~~2020,~~2021, respectively. Our professional services strategy has been to grow our partner network, perform more services via third party consultants and perform more services remotely. ~~As a result, we have reduced headcount year over year.~~

On a constant currency basis, cost of professional services was $41.3 million for the first nine months of fiscal 2021, representing an $11.7 million, or 22%, decrease from $53.0 million for the same period last year. The non-currency related decrease in cost of professional services of $11.7 million for the first nine months of fiscal 2021 compared to the first nine months of fiscal 2020 was primarily due to lower salaries and related costs of $5.7 million, lower travel expenses of $3.2 million, lower bonuses of $1.1 million, a lower allocation of information technology and facilities costs of $1.1 million, lower severance of $0.3 million and lower third-party contractor costs of $0.3 million. Cost of professional services as a percentage of professional services revenues was 95% and 101% for the first nine months of fiscal 2021 and 2020, respectively. Our professional services strategy has been to grow our partner network, perform more services via third party consultants and perform more services remotely. As a result, we have reduced headcount year over year.

Sales and marketing expense includes salaries, benefits, commissions, bonuses, stock-based compensation, travel expense and other personnel costs of our sales and marketing employees in addition to costs of programs aimed at increasing revenue, such as trade shows, user group events, lead generation, advertising and various sales and promotional programs. Sales and marketing expense also includes sales agent fees and an allocation of information technology and facilities costs.

On a constant currency basis, sales and marketing expense was ~~$17.4~~$19.6 million for the ~~third~~first quarter of fiscal ~~2021,~~2022, representing a ~~$2.6~~$0.4 million, or ~~13%~~2%, ~~decrease~~increase from ~~$20.0~~$19.2 million for the same period last year. The non-currency related ~~decrease~~increase in sales and marketing expense of ~~$2.6~~$0.4 million in the ~~third~~first quarter of fiscal 2022 compared to the first quarter of fiscal 2021 ~~compared to the third quarter of fiscal 2020~~ was primarily due to ~~lower travel expenses~~higher salaries and related costs of ~~$1.6~~$0.8 million, ~~lower severance~~higher bonuses of ~~$0.6~~$0.5 million, ~~lower cross charges from other departments of $0.3 million, and lower sales agent fees of $0.3 million, partially offset by~~ higher ~~commissions~~systems costs of $0.3 million and higher stock-based compensation ~~of $0.2 million.~~

~~On a constant currency basis, sales and marketing~~ expense was $53.4 million for the first nine months of fiscal 2021, representing a $7.1 million, or 12%, decrease from $60.5 million for the same period last year. The non-currency related decrease in sales and marketing expense of $7.1 million for the first nine months of fiscal 2021 compared to the first nine months of fiscal 2020 was primarily due to lower travel expenses of $4.1 million, lower severance of $1.3 million, lower bonuses of $0.7 million, lower customer conference costs of $0.7 million, lower professional fees of $0.4 million and lower marketing of $0.3 million, partially offset by ~~higher salaries and related~~lower customer conference costs of ~~$0.5~~$0.9 million and ~~higher stock-based compensation~~lower travel expenses of ~~$0.4~~$0.7 million. ~~The global pandemic resulted in savings from a significant reduction in travel and the cancellation of QAD’s Explore annual customer conference in the second quarter of fiscal year 2021.~~

Research and development is expensed as incurred and consists primarily of salaries, benefits, bonuses, stock-based compensation, travel expense and other personnel costs for research and development employees in addition to professional services, such as fees paid to software development firms and independent contractors. Research and development expense includes an allocation of information technology and facilities costs, and is reduced by capitalized localization and translation costs.

On a constant currency basis, research and development expense was ~~$14.2~~$15.6 million for the ~~third~~first quarter of fiscal ~~2021,~~2022, representing a ~~$0.4~~$1.1 million, or 3%8%, increase from ~~$13.8~~$14.5 million for the same period last year. The non-currency related increase in research and development expense of $0.4 million in the third quarter of fiscal 2021 compared to the third quarter of fiscal 2020 was primarily due to higher salaries and related costs of $0.4 million partially offset by lower severance of $0.3 million.

On a constant currency basis, research and development expense was $41.4 million for the first nine months of fiscal 2021, representing a $0.1 million, or less than 1%, increase from $41.3 million for the same period last year. The non-currency related increase in research and development expense of $0.1$1.1 million in the first ~~nine months~~quarter of fiscal ~~2021~~2022 compared to the first ~~nine months~~quarter of fiscal ~~2020~~2021 was primarily due to higher salaries and related costs of $1.0 million as a result of higher headcount of 3319 people and higher bonuses of ~~$0.2 million, a higher allocation of information technology and facilities costs of $0.2 million and higher stock-based compensation of $0.2~~$0.4 million, partially offset by ~~a payroll tax credit~~lower cross charges from other departments of ~~$0.5 million, lower travel expenses of $0.5 million and lower third-party contractor costs of $0.2~~$0.3 million.

General and administrative expense includes salaries, benefits, bonuses, stock-based compensation, travel expense and other personnel costs related to our finance, human resources, legal and executive personnel. General and administrative expense also includes personnel costs of order processing, professional fees for accounting and legal services, bad debt expense and an allocation of information technology and facilities costs.

On a constant currency basis, general and administrative expense was ~~$10.3~~$12.6 million for the ~~third~~first quarter of fiscal ~~2021,~~2022, representing a ~~$1.0~~$2.3 million, or ~~11%~~22% increase from ~~$9.3~~$10.3 million for the same period last year. The non-currency related increase in general and administrative expense of ~~$1.0~~$2.3 million in the ~~third~~first quarter of fiscal ~~2021~~2022 compared to the ~~third~~first quarter of fiscal ~~2020~~2021 was primarily due to higher legal fees of $1.1 million, higher stock-based compensation of ~~$0.5~~$0.7 million, higher ~~professional fees~~bonuses of ~~$0.3~~$0.5 million and higher salaries and related costs of $0.3 ~~million.~~

On a constant currency basis, general and administrative expense was $30.6 million for the first nine months of fiscal 2021, representing a $1.8 million, or 6% increase from $28.8 million for the same period last year. The non-currency related increase in general and administrative expense of $1.8 million in the first nine months of fiscal 2021 compared to the first nine months of fiscal 2020 was primarily due to higher stock-based compensation of $0.8 million, higher bad debt expense of $0.4 million, higher salaries and related costs of $0.4 million, higher professional fees of $0.3 million and higher bonuses of $0.2 million, partially offset by lower ~~travel~~bad debt expense of ~~$0.4~~$0.5 million. The ~~Company increased its bad debt reserve~~increase in legal expense primarily relates to ~~provide for the global economic downturn associated with COVID-19.~~litigation around customer license usage.

Amortization of ~~intangibles~~intangible assets from acquisitions was ~~$65,000~~$240,000 and ~~$194,000~~$64,000 in the ~~third~~first quarter of fiscal 2022 and ~~first nine months~~2021, respectively. The increase relates to the amortization of intangible assets from the acquisitions of Allocation Network in the fourth quarter of fiscal 2021 ~~respectively; compared to $67,000~~ and ~~$200,000~~FTZ Corp. in the ~~third~~first quarter ~~and first nine months~~ of fiscal ~~2020, respectively. Amortization expense for fiscal 2021 and 2020 was due to the intangible assets acquired during fiscal 2019.~~2022.

Total other expense (income), net was ~~$0.2~~$0.3 million and ~~$(0.1)~~$(1.5) million for the ~~third~~first quarter of fiscal ~~2021~~2022 and fiscal ~~2020,~~2021, respectively. The change in net other expense (income) was primarily related to higher foreign exchange losses of $1.7 million and lower interest income of ~~$0.6~~$0.4 million partially offset by the favorable change in fair value of the credit swap of ~~$0.2~~$0.3 million. Interest rates have declined substantially from the first three months of fiscal 2021 resulting in lower interest income earned on our cash and equivalents.

Total other expense (income), net was $0.5 million and $(1.7) million for the first nine months of fiscal 2021 and fiscal 2020, respectively. The change in net other expense (income) was primarily related to lower interest income of $1.5 million and higher foreign exchange losses of $0.9 million partially offset by the favorable change in fair value of the credit swap of $0.2 million. The U.S. dollar versus foreign currencies exchange rates in the countries where we conduct business have fluctuated significantly since the onset of the global pandemic, ~~COVID-19,~~ most notably versus the euro and Mexican peso.

Interest rate swap valuations and foreign exchange gains and losses are subject to changes which are inherently unpredictable. Our interest rate swap is accounted for using mark-to-market accounting. Accordingly, changes in the fair value of the swap each reporting period are adjusted through earnings, subjecting us to non-cash volatility in our results of operations. The swap fixes the interest rate on our mortgage to 4.31% over the entire term of the mortgage and effectively lowered our interest rate from the previous mortgage rate of 6.5%. Although the agreement allows us to prepay the loan and exit the agreement early, we have no intention of doing so. As a result, we will have non-cash adjustments through earnings each reporting period. Over the term of the mortgage, however, the net impact of these mark-to-market adjustments on earnings will be zero.

In determining the provision for income taxes for the first ~~nine~~three months of fiscal ~~2021,~~2022, we calculated income tax expense based on the estimated annual tax rate for the year, compared to the ~~second quarter~~first three months of fiscal 2021 ~~and prior year~~ where we calculated income tax expense based on actual quarterly results. The results were adjusted for discrete items recorded during the period. The estimated annual tax rate for the year was used in the current period since ~~the Company is~~we are forecasting profits for the full fiscal year ~~2021. In~~2022. Actual quarterly results were used in fiscal ~~year 2020, the Company forecast~~2021 since they provided a more reliable estimate of quarterly tax expense since we were expecting near breakeven ~~loss.~~results.

We recorded income tax (benefit) expense of ~~$0.6~~$(1.4) million and ~~$1.4~~$1.0 million infor the ~~third~~first three months of fiscal 2022 and 2021, respectively. Our estimated effective income tax rate was (302%) and 170% for the first quarter of fiscal ~~2021~~2022 and ~~2020,~~fiscal 2021, respectively. Our effective tax rate ~~was 16% during~~will generally differ from the ~~third quarter~~U.S. federal statutory rate of ~~fiscal 2021 compared to 92% for the same period in the prior year. The change in the effective tax rate was primarily~~21%, due to ~~$0.8 million~~state taxes, permanent items including amounts disallowed under §162(m) of ~~tax expense related to an out-of-period adjustment recorded in~~ the ~~third quarter of fiscal 2020 to correct a valuation allowance initially placed on~~Internal Revenue Code, the Company’s ~~Irish Principal’s net deferred~~global tax ~~assets in the second quarter of fiscal 2020.~~

~~We recorded income~~strategy, and tax expense of $2.1 million and $12.0 million for the first nine months of fiscal 2021 and 2020, respectively. Our effective tax rate was 42% during the first nine months of fiscal 2021 compared to (275%) for the same period in the prior year.credits. The change in the effective tax rate was primarily due to a ~~$10.8~~planned intercompany sale of intellectual property and the release of $2.0 million in the Company’s valuation allowance ~~that was placed on~~as a result of the ~~Company’s Irish Principal’s net deferred tax assets for the same period~~acquisition of ~~fiscal 2020.~~FTZ Corp.

Regulation S-K Item 10(e), “Use of Non-GAAP Financial Measures in Commission Filings,” defines and prescribes the conditions for use of non-GAAP financial information. Our measures of non-GAAP adjusted EBITDA, non-GAAP adjusted EBITDA margins and non-GAAP pre-tax income each meet the definition of a non-GAAP financial measure. We define the non-GAAP measures as follows:

QAD’s management uses non-GAAP measures internally to evaluate the business and believes that presenting non-GAAP measures provides useful information to investors regarding the underlying business trends and performance of our ongoing operations as well as useful metrics for monitoring our performance and evaluating it against industry peers. The non-GAAP financial measures presented should be used in addition to, and in conjunction with, results presented in accordance with GAAP, and should not be relied upon to the exclusion of GAAP financial measures. Management strongly encourages investors to review our consolidated financial statements in their entirety and to not rely on any single financial measure in evaluating the ~~company.~~Company.

Stock-based compensation expense: We have excluded the effect of stock-based compensation expense from our non-GAAP adjusted EBITDA and non-GAAP pre-tax income calculations. Although stock-based compensation expense is calculated in accordance with current GAAP and constitutes an ongoing and recurring expense, such expense is excluded from non-GAAP results because it is not an expense which generally requires cash settlement by QAD, and therefore is not used by us to assess the profitability of our operations. We also believe the exclusion of stock-based compensation expense provides a more useful comparison of our operating results to the operating results of our peers.

Amortization of purchased intangible assets: We amortize purchased intangible assets in connection with our acquisitions. We have excluded the effect of amortization of purchased intangible assets, which include purchased technology, customer relationships, trade names and other intangible assets, from our non-GAAP pre-tax income calculation, because doing so makes internal comparisons to our historical operating results more consistent. In addition, we believe excluding amortization of purchased intangible assets provides a more useful comparison of our operating results to the operating results of our peers.

Change in fair value of the interest rate swap: We entered into an interest rate swap to mitigate our exposure to the variability of one-month LIBOR for our floating rate debt related to the mortgage of our headquarters. We have excluded the gain/loss adjustments to record the interest rate swap at fair value from our non-GAAP adjusted EBITDA and non-GAAP pre-tax income calculations. We believe that these fluctuations are not indicative of our operational costs or meaningful in evaluating comparative period results because we currently have no intention of exiting the debt agreement early. Therefore, over the life of the debt the sum of the fair value adjustments will be zero.

The following table sets forth the reconciliation of the non-GAAP financial measures of adjusted EBITDA, adjusted EBITDA margins and non-GAAP pre-tax income to the most comparable GAAP measures for the three ~~and nine~~ months ended ~~October 31, 2020~~April 30, 2021 and ~~2019:~~2020:

Our primary source of cash is from the sale of subscriptions, licenses, maintenance and professional services to our customers. Our primary use of cash is payment of our operating expenses which mainly consist of employee-related expenses, such as compensation and benefits, as well as general operating expenses for facilities, third-party hosting providers, third party contractors and other overhead costs. In addition to operating expenses, we may also use cash for capital expenditures, payment of dividends, payment of our mortgage, withholding taxes on settlement of stock-based compensation and stock repurchases, and to invest in our growth initiatives, which may include acquisitions of products, technologies and businesses.

At ~~October 31, 2020,~~April 30, 2021, our principal sources of liquidity were cash and equivalents totaling ~~$143.4~~$153.1 million and net accounts receivable of ~~$39.2~~$44.9 million. Our cash and equivalents consisted of current bank accounts, registered money market funds and time delineated deposits. Approximately 87% of our cash and equivalents were held in U.S. dollar denominated accounts as of ~~October 31, 2020.~~April 30, 2021.

Our primary commercial banking relationship is with Bank of America and its global affiliates. Our largest cash concentrations are in the United States and Ireland. The percentage of cash and equivalents held outside of the United States was ~~62%~~59% and ~~69%~~58% as of ~~October 31, 2020~~April 30, 2021 and January 31, ~~2020,~~2021, respectively. The majority of our cash and equivalents are held in investment accounts which are predominantly placed in money market mutual funds and government securities funds. The remaining cash and equivalents are held in deposit and saving accounts and certificates of deposit.

We are a U.S.-based multinational company subject to tax in multiple U.S. and foreign tax jurisdictions. In addition to providing for U.S. income taxes on earnings from the United States, we provide for U.S. income taxes on the earnings of foreign subsidiaries unless the subsidiaries’ earnings are considered permanently reinvested outside the United States.

InWe consider the ~~second quarter~~earnings of ~~fiscal 2021, due to~~our foreign subsidiaries as permanently reinvested. We do not anticipate changing our intention regarding permanently reinvested earnings as of the lack of growth opportunities and the capital requirement to fund ordinary business operations, QAD Thailand paid a one-time $3.8 million dividend to its parent QAD Inc. The Company has no intention or plans to repatriate any additional funds from Thailand and believes it is still appropriate to maintain the permanent reinvestment assertion in all its foreign subsidiaries.balance sheet date. Should we decide to repatriate earnings from other foreign subsidiaries in the future, we would not expect to incur significant additional taxes; however, foreign withholding taxes, currency translation, state taxes and currency control laws must always be considered.

On March 27, 2020, in response to the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law. The CARES Act provides additional economic stimulus to address the impact of the COVID-19 pandemic. We do not expect there to be any significant benefit to our income tax provision as a result of the CARES Act, and we continue to closely monitor the impact of the COVID-19 pandemic, as well as any effects that may result from the CARES Act or future legislation.

The following table summarizes our cash flows for the ~~nine~~three months ended ~~October 31, 2020~~April 30, 2021 and ~~2019:~~2020:

Typical factors affecting our cash provided by operating activities include our level of revenue and earnings for the period; the timing and amount of employee-related compensation payments, vendor payments and tax payments; and the timing and amount of billings and cash collections from our customers, which is our largest source of operating cash flow. Net cash flows provided by operating activities were ~~$19.2~~$20.7 million and ~~$7.9~~$10.9 million for the first ~~nine~~three months of fiscal ~~2021~~2022 and ~~2020,~~2021, respectively. The increase in cash flows from operating activities was due primarily to net income of ~~$2.9~~$1.8 million for the first ~~nine~~three months of fiscal ~~2021~~2022 compared to a net loss of ~~$16.4~~$(0.4) million for the same period in fiscal ~~2020~~2021, the lower negative cash flow effect of changes in accounts payable and other liabilities of $6.7 million and the higher positive cash flow effect of changes in accounts receivable of $5.5 million, partially offset by ~~lower changes in~~the negative cash flow effect of the non-cash net change in valuation allowance of ~~$13.4~~$3.6 million. ~~While our revenue has declined due~~Due to the global pandemic, we have implemented cost control initiatives such as reduced travel and discretionary spending. ~~This has~~These measures have lowered expenses and preserved cash.

Net cash used in investing activities ~~included~~consisted primarily of acquisitions and capital expenditures. During the first quarter of fiscal 2022, we acquired FTZ Corp. in order to enhance our product offering in our global trade and transportation division. The total purchase price, excluding future earn-out payments, was $9.5 million, net of cash acquired of $3.5 million. Capital expenditures ~~of $1.7~~were $0.2 million and ~~$4.3~~$1.0 million for the first ~~nine~~three months of fiscal ~~2021~~2022 and ~~2020,~~2021, respectively. The decrease in capital expenditures primarily relates to lower ~~leasehold~~building improvements and computer equipment in the first three months of fiscal ~~2021~~2022 compared to the same period in the prior year. We continue to monitor our capital spending and do not believe we are delaying critical capital expenditures required to run our business.

Net cash used in financing activities consisted primarily of payments of ~~withholding taxes on settlement of stock-based compensation and payment of~~ dividends. In the first ~~nine~~three months of fiscal 2022, we did not make any dividend payments. In the first three months of fiscal 2021, and 2020, we paid employee payroll taxes of $6.0 million and $3.6 million, respectively, on vested restricted stock units, vested performance stock units and exercised stock appreciation rights. In the first nine months of fiscal 2021 and 2020, we made dividend payments ~~of $4.3 million and $4.2 million, respectively.~~$1.4 million. On a regular basis, the Board of Directors evaluates our ability to continue to pay dividends and the structure of potential future dividend payments.

We have historically calculated accounts receivable days’ sales outstanding (DSO), using the countback, or last-in first-out, method. This method calculates the number of days of billed revenue represented by the accounts receivable balance as of period end. When reviewing the performance of our entities, DSO under the countback method is used by management. It is management’s belief that the countback method best reflects the relative health of our accounts receivable as of a given quarter-end or year-end because of the cyclical nature of our billings. Our billing cycle includes high annual maintenance renewal billings at year-end that will not be recognized as earned revenue until future periods.

DSO under the countback method was 4448 days and 4556 days as of ~~October 31,~~April 30, 2021 and 2020, ~~and 2019,~~ respectively. DSO using the average method, which is calculated utilizing the accounts receivable balance and earned revenue for the most recent quarter, was 4649 days and 57 days as of ~~October 31, 2020~~April 30, 2021 and ~~2019.~~

Some of our customers who have been negatively impacted by the COVID-19 pandemic have requested and may continue to request changes to payment terms. Some may also be unable to pay their receivables as they become due. We adopted ASU 2016-13, ~~Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments~~ ~~on February 1, 2020,~~which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost, which includes our accounts receivables and contract assets. Our expected loss allowance methodology for accounts receivable is developed using historical collection experience, consideration of current and anticipated future economic conditions and other relevant data. For the first nine months of fiscal 2021, our expected loss allowance included consideration of the current and expected future economic and market conditions surrounding the COVID-19 pandemic. We recorded an increase of $0.7 million in estimated credit losses related to the impact of COVID-19 on our customers. We have not experienced any significant impact to credit quality or terms and the aging of our accounts receivable remained similar to the same period last year.2020. We believe our reserve methodology is adequate, our reserves are properly stated as of ~~October 31, 2020~~April 30, 2021 and the quality of our receivables remains good.

In connection with our acquisition of Allocation Network GmbH in the fourth quarter of fiscal 2021, we entered into an agreement that included future payments over three years from the acquisition date that are contingent upon cloud bookings growth. The potential undiscounted amount of all future cash payments under the contingent consideration agreements is between zero and $10.2 million. In connection with our acquisition of FTZ Corp. in the first quarter of fiscal 2022, we entered into an agreement that included future payments over three years from the acquisition date that are contingent upon cloud bookings growth. The potential undiscounted amount of all future cash payments under the contingent consideration agreements is between zero and $2.4 million.

We signed a note payable for $2.4 million as part of the acquisition cost for FTZ Corp. There have been no other material changes in our contractual obligations or commercial commitments outside the ordinary course of business. Cash requirements for items other than normal operating expenses are anticipated for capital expenditures, dividend payments and other equity transactions. We may require cash for acquisitions of new businesses, software products or technologies complementary to our business.

We are continuing to monitor the impact of COVID-19 on our operating results and liquidity and believe the global pandemic ~~will~~could negatively impact operating results and liquidity throughout fiscal ~~2021.~~2022. We have previously implemented, and continue to maintain, cost savings measures in the areas of travel, personnel expense and discretionary spending. We ~~will~~continue to monitor our costs and if needed, we will reduce costs further throughout fiscal ~~2021.~~2022. Because we have ~~$143.4~~$153.1 million of cash and our only debt is the mortgage of our corporate headquarters of ~~$12.5~~$12.2 million and a note payable for the FTZ Corp. acquisition of $2.4 million, we believe we are in a solid position to withstand ~~the~~possible negative impacts to our revenue, operating income and liquidity from COVID-19 in fiscal ~~2021.~~2022. We believe that our cash on hand and net cash provided by operating activities will provide us with sufficient resources to meet our current and long-term working capital requirements, debt service, dividend payments and other cash needs for at least the next twelve months.

Our revenue, earnings, cash flows, receivables, and payables are subject to fluctuations due to changes in foreign currency exchange rates. See Part I, Item 3, “Quantitative and Qualitative Disclosures about Market Risk” for further discussion.

A summary of future obligations under our various contractual obligations and commitments as of January 31, ~~2020~~2021 was disclosed in our Annual Report on Form 10-K for the year ended January 31, ~~2020. During the three and nine months ended October 31, 2020 there have been no material changes in our contractual obligations or commercial commitments outside the ordinary course of business.~~2021.

Effective May 30, 2012, QAD Ortega Hill, LLC, a consolidated entity of QAD Inc., entered into a variable rate credit agreement (the 2012 Mortgage) with Mechanics Bank (formerly Rabobank, N.A.), to refinance a pre-existing mortgage. The 2012 Mortgage has an original principal balance of $16.1 million and bears interest at the one month LIBOR rate plus 2.25%. One month LIBOR was ~~0.15%~~0.11% at ~~October 31, 2020.~~April 30, 2021. The 2012 Mortgage matures in June 2022 and is secured by ~~our~~the Company’s headquarters located in Santa Barbara, California. In conjunction with the 2012 Mortgage, QAD Ortega Hill, LLC entered into an interest rate swap with Mechanics Bank. The swap agreement has an initial notional amount of $16.1 million and a schedule matching that of the underlying loan that synthetically fixes the interest rate on the debt at 4.31% for the entire term of the 2012 Mortgage. The terms of the 2012 Mortgage provide for QAD Ortega Hill, LLC to make net monthly payments of $88,100 consisting of principal and interest and one final payment of $11.7 million when the loan matures on June 1, 2022. The unpaid balance as of ~~October 31, 2020~~April 30, 2021 was ~~$12.5~~$12.2 million.

Included in other liabilities, the Company owes $2.4 million as part of the acquisition cost for FTZ Corp. The note is payable to the sellers of FTZ Corp. over four years with $0.6 million paid each year for 4 years and accrues interest at 4%.

We estimate the fair value of the contingent consideration issued in business combinations using a Monte Carlo valuation approach, as well as unobservable inputs, such as forecasted financial information, reflecting our assessment of the assumptions market participants would use to value these liabilities. The fair value of our liability-classified contingent consideration is remeasured at each reporting period with any changes in the fair value recorded as income or expense. In connection with our acquisition of Allocation Network GmbH in the fourth quarter of fiscal 2021, we entered into an agreement that included future payments that are contingent upon cloud bookings growth over the next three years. The potential undiscounted amount of all future cash payments under the contingent consideration agreements is between zero and $10.2 million. In connection with our acquisition of FTZ Corp. in the first quarter of fiscal 2022, we entered into an agreement that included future payments that are contingent upon cloud bookings growth over the next three years. The potential undiscounted amount of all future cash payments under the contingent consideration agreements is between zero and $2.4 million.

Foreign Exchange Rates. We have operations in foreign locations around the world and we are exposed to risk resulting from fluctuations in foreign currency exchange rates. We have experienced significant foreign currency fluctuations during fiscal ~~2020~~2021 and the first ~~nine~~three months of fiscal ~~2021~~2022 due primarily to the volatility of the euro and Mexican peso in relation to the U.S. dollar. However, while strengthening of the U.S. dollar compared to foreign currency exchange rates generally has the effect of reducing revenues it also has the effect of reducing expenses denominated in currencies other than the U.S. dollar. These foreign currency exchange rate movements could create a foreign currency gain or loss that could be realized or unrealized for us. Unfavorable movements in foreign currency exchange rates between the U.S. dollar and other foreign currencies may have an adverse impact on our operations. We did not have any foreign currency forward or option contracts or other foreign currency denominated derivatives or other financial instruments open as of ~~October 31, 2020.~~April 30, 2021.

We face two risks related to foreign currency exchange rates—translation risk and transaction risk. Translation risk relates to amounts invested in our foreign operations that are translated into U.S. dollars using period-end exchange rates. The resulting translation adjustments are recorded as a component of accumulated other comprehensive loss in the Condensed Consolidated Balance Sheets. Revenues and expenses in foreign currencies translate into higher or lower revenues and expenses in U.S. dollars as the U.S. dollar weakens or strengthens against other currencies. Furthermore, we have exposure to foreign exchange fluctuations arising from the remeasurement of non-functional currency assets, liabilities and intercompany balances into U.S. dollars for financial reporting purposes. Transaction risk is related to our international subsidiaries holding non-local currency net monetary accounts subject to revaluation into their local currency, which results in realized or unrealized foreign currency gains or losses.

For the ~~nine~~three months ended ~~October 31,~~April 30, 2021 and 2020, approximately 51% and ~~2019, approximately 48% and 50%~~49%, respectively, of our revenue was generated in foreign currencies. We also incurred a significant portion of our expenses in currencies other than the U.S. dollar, approximately ~~34%~~38% and ~~39%~~35% for the ~~nine~~three months ended ~~October 31,~~April 30, 2021 and 2020, ~~and 2019,~~ respectively. Based on a hypothetical 10% strengthening of the U.S. dollar against all foreign currencies, our revenue would be adversely affected by approximately 4%5% partially offset by a positive effect on our expenses of approximately 3%, and our operating income would be adversely affected by approximately ~~53%~~133%.

For the ~~nine~~three months ended ~~October 31,~~April 30, 2021 and 2020, ~~and 2019,~~ foreign currency transaction and remeasurement ~~losses (gains)~~(losses) gains totaled ~~$834,000~~($0.2) million and ~~$(57,000),~~$1.5 million, respectively, and are included in “Other expense (income), net” in our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). We performed a sensitivity analysis on the net U.S. dollar and euro-based monetary accounts subject to revaluation that are held by our international subsidiaries and on the non-functional currency assets, liabilities and intercompany balances that are remeasured into U.S. dollars. A hypothetical 10% adverse movement in all foreign currency exchange rates would result in foreign currency transaction and remeasurement losses of approximately ~~$2.8~~$2.4 million.

These estimates assume adverse shifts in all foreign currency exchange rates against the U.S. dollar, which do not always move in the same direction or in the same degrees. Actual results may differ materially from the hypothetical analysis.

Interest Rates. We invest our surplus cash in a variety of financial instruments, consisting principally of short-term marketable securities with maturities of less than 90 days at the date of purchase. Our investment securities are held for purposes other than trading. Cash balances held by subsidiaries are invested primarily in registered money market funds with local operating banks. Based on an interest rate sensitivity analysis of our cash and equivalents we estimate that a 10% adverse change in interest ~~rates from the 2020 fiscal year-end~~ rates would not have a material adverse effect on our cash flows or financial condition for the next fiscal year.

Our long-term debt is comprised of a loan agreement, secured by real property, which bears interest at the one month LIBOR rate plus 2.25%. In conjunction with the loan agreement, we entered into an interest rate swap. The swap agreement has an initial notional amount and schedule matching that of the underlying loan that synthetically fixes the interest rate on the debt at 4.31%.

Our interest rate swap is accounted for using mark-to-market accounting. Accordingly, changes in the fair value of the swap each reporting period are adjusted through earnings, subjecting us to non-cash volatility in our results of operations. We prepared a sensitivity analysis using a modeling technique that measures the change in the fair values arising from a hypothetical 10% adverse movement in levels of interest rates across the entire yield curve, with all other variables held constant. Based upon the results of this analysis a 10% adverse change in interest rates from the ~~October 31, 2020~~April 30, 2021 rates would cause less than a $0.1 million reduction in our results of operations. We believe it is prudent to hedge the expected volatility of the variable rate mortgage on our corporate headquarters. The swap fixes the interest rate on our mortgage to 4.31% over the entire term of the mortgage. Although the agreement allows us to prepay the loan and exit the agreement early, we have no intention of doing so. As a result, we will have non-cash adjustments through earnings each reporting period. However, over the term of the mortgage, the net impact of these mark-to-market adjustments on earnings will be zero.

Included in other liabilities, the Company owes $2.4 million as part of the acquisition cost of FTZ Corp. The note is payable to the sellers of FTZ Corp. over four years and accrues interest at 4%.

Evaluation of disclosure controls and procedures.Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are designed to, and are effective to, provide assurance at a reasonable level that the information required to be disclosed by us in this Quarterly Report on Form 10-Q was recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

Changes in internal control over financial reporting. During the first quarter of fiscal 2022, we completed the implementation of a new revenue accounting system and, accordingly, modified certain existing control processes as well as implemented new control processes to adapt to changes for the new revenue system. There were no other changes in our internal control over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent limitations of internal controls.QAD’s management does not expect that its disclosure controls and procedures or its internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within QAD have been detected. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate.

The Company is not party to any material legal proceedings. From time to time, QAD is party, either as plaintiff or defendant, to various legal proceedings and claims which arise in the ordinary course of business. While the outcome of these claims cannot be predicted with certainty, management does not believe that the outcome of any of these legal matters will have a material adverse effect on the Company’s consolidated financial position, results of operations or liquidity.

There have been no material changes to the risk factors reported in Item 1A within the Company’s Annual Report on Form 10-K for the year ended January 31, ~~2020.~~2021.

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.

			Page
PART I - FINANCIAL INFORMATION

	ITEM 1.	Financial Statements (unaudited)

		Condensed Consolidated Balance Sheets as of ~~October 31, 2020~~April 30, 2021 and January 31, ~~2020~~2021	1

		Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three ~~and Nine~~ Months Ended ~~October 31,~~April 30, 2021 and 2020 ~~and 2019~~	2

		Condensed Consolidated ~~Statement~~Statements of Stockholders' Equity for the ~~Nine~~Three Months Ended ~~October 31,~~April 30, 2021 and 2020 ~~and 2019~~	3

		Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~October 31,~~April 30, 2021 and 2020 ~~and 2019~~	4

		Notes to Condensed Consolidated Financial Statements	5

	ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19 20

	ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	33 31

	ITEM 4.	Controls and Procedures	34 32

PART II - OTHER INFORMATION

	ITEM 1.	Legal Proceedings	34 32

	ITEM 1A.	Risk Factors	34 32

	ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34 32

	ITEM 3.	Defaults Upon Senior Securities	34 32

	ITEM 4.	Mine Safety Disclosure	34 32

	ITEM 5.	Other Information	34 32

	ITEM 6.	Exhibits	35 33

	SIGNATURES		36 34

	-	Identification of the contract, or contracts, with a customer;
	-	Identification of the performance obligations in the contract;
	-	Determination of the transaction price;
	-	Allocation of the transaction price to the performance obligations in the contract; and
	-	Recognition of revenue when, or as, the Company satisfies a performance obligation.

	Three Months Ended October 31,				Nine Months Ended October 31,
	2020		2019		2020		2019
	(in thousands)				(in thousands)
North America	$	39,379	$	38,302	$	115,379	$	112,798
EMEA		23,334		22,233		67,281		66,860
Asia Pacific		9,682		11,776		28,895		35,413
Latin America		4,265		5,496		13,333		17,149
Total revenue	$	76,660	$	77,807	$	224,888	$	232,220

	Three Months Ended October 31,				Nine Months Ended October 31,				Three Months Ended April 30,
	2020		2019		2020		2019		2021		2020
	(in thousands)				(in thousands)				(in thousands)
High technology and industrial products									$	30,069	$	26,824
Automotive	$	24,852	$	28,071	$	71,264	$	84,105		23,568		24,137
Life sciences and other										15,930		11,372
Consumer products and food and beverage		12,466		11,244		37,756		35,351		13,404		11,814
High technology and industrial products		26,974		26,612		80,442		78,549
Life sciences and other		12,368		11,880		35,426		34,215
Total revenue	$	76,660	$	77,807	$	224,888	$	232,220	$	82,971	$	74,147

	October 31, 2020		January 31, 2020
	(in thousands)
Contract assets, short-term (in “Prepaid expenses and other current assets, net”)	$	3,958	$	1,595
Contract assets, long-term (in “Other assets, net”)		91		214
Total contract assets	$	4,049	$	1,809
Deferred revenue, short-term	$	85,842	$	118,413
Deferred revenue, long-term (in “Other liabilities”)		2,304		2,811
Total deferred revenue	$	88,146	$	121,224

	Fair value measurement at reporting date using						Fair value measurement at reporting date using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
	(in thousands)						(in thousands)
As of October 31, 2020
As of April 30, 2021
Money market mutual funds	$	116,963					$	117,109
Certificates of deposit	$	8,060					$	11,838
Liability related to the interest rate swap			$	(381	)				$	(261	)
Contingent liability associated with acquisitions												$	(5,417	)

As of January 31, 2020
As of January 31, 2021
Money market mutual funds	$	107,319					$	80,611
Certificates of deposit	$	14,917					$	9,262
Liability related to the interest rate swap			$	(232	)				$	(325	)
Contingent liability associated with acquisitions												$	(4,751	)

	Liability							Liability
		Fair Value							Fair Value
	Balance Sheet Location	October 31, 2020			January 31, 2020			Balance Sheet Location	April 30, 2021			January 31, 2021
Derivative instrument:
Interest rate swap	Other liabilities	$	(381	)	$	(232	)	Other liabilities	$	(261	)	$	(325	)
Total	Total	$	(381	)	$	(232	)	Total	$	(261	)	$	(325	)

Fiscal Years	(in thousands)
2021 remaining	$	298
2022		1,000
2023		636
2024		195
Thereafter		0
	$	2,129

Fiscal Years	Cost of License		Cost of Subscription		Total
2022 remaining	$	847	$	1,389	$	2,236
2023		808		1,852		2,660
2024		363		1,852		2,215
2025		24		1,852		1,876
Thereafter		0		1,858		1,858
	$	2,042	$	8,803	$	10,845

Tangible assets, including cash acquired of $3.5 million	$	4,194
Goodwill		7,217
Other intangible assets		8,280
Total assets acquired		19,691
Liabilities assumed		(1,668	)
Deferred tax liability		(1,951	)
Net assets acquired	$	16,072

	Estimated useful life (years)		Fair value		Estimated annual amortization		Statement of operations classification
Software technology		5	$	3,200	$	640	Cost of subscription
Customer relationships		5		5,000		1,000	Amortization of intangible assets from acquisitions
Trade Name		5		80		16	Amortization of intangible assets from acquisitions

			$	8,280

Tangible assets, including cash acquired of $0.9 million	$	3,420
Goodwill		12,785
Other intangible assets		7,751
Total assets acquired		23,956
Liabilities assumed		(1,576	)
Deferred tax liability		(2,549	)
Net assets acquired	$	19,831

	Gross Carrying Amount			Accumulated Impairment			Goodwill, Net
	(in thousands)
Balance at January 31, 2020	$	27,996		$	(15,608	)	$	12,388
Impact of foreign currency translation		(40	)		0			(40	)
Balance at October 31, 2020	$	27,956		$	(15,608	)	$	12,348

	Foreign Currency Translation Adjustments			Foreign Currency Translation Adjustments
	(in thousands)			(in thousands)
Balance as of January 31, 2020	$	(8,345	)
Balance as of January 31, 2021				$	(8,188	)
Other comprehensive loss before reclassifications		(643	)		(161	)
Amounts reclassified from accumulated other comprehensive loss		0			0
Net current period other comprehensive loss		(643	)		(161	)
Balance as of October 31, 2020	$	(8,988	)
Balance as of April 30, 2021				$	(8,349	)

Jurisdiction	October 31, 2020		January 31, 2020		April 30, 2021		January 31, 2021
U.S. federal and state	$	31.3	$	30.3	$	27.1	$	30.3
Ireland		11.6		11.6		12.1		12.0
Brazil		6.5		5.7		6.1		6.1
Germany		2.7		2.6
Hong Kong		0.6		0.6
South Africa		0.2		0.2		0.2		0.2
Total valuation allowance	$	52.9	$	51.0	$	45.5	$	48.6

	●	India for fiscal years ended March 31, 2010, 2013 and 2018
	●	France for fiscal years ended January 31, 2018, 2019 and 2020

	●	~~Germany for fiscal years ended~~ ~~January 31, 2015,~~ ~~2016~~ ~~and~~ ~~2017~~
	●	~~Thailand for fiscal year ended~~ ~~January 31,~~ ~~2018~~
	●	~~Mexico for calendar years ended~~ ~~December 31, 2015,~~ ~~2016,~~~~2017~~ ~~and~~ ~~2018~~

Declaration Date	Record Date	Payable	Dividend Class A		Dividend Class B		Amount (in thousands)
9/9/2020	9/23/2020	9/30/2020	$	0.072	$	0.06	$	1,451
6/11/2020	6/25/2020	7/7/2020	$	0.072	$	0.06	$	1,448
4/7/2020	4/22/2020	4/29/2020	$	0.072	$	0.06	$	1,431

	RSUs (in thousands)			Weighted Average Grant Date Fair Value		RSUs			Weighted Average Grant Date Fair Value
Restricted stock at January 31, 2020		627		$	39.86
						(in thousands)
Restricted stock at January 31, 2021							698		$	41.56
Granted		343			40.28		12			71.65
Released (1)		(248	)		35.69		(8	)		30.97
Forfeited		(19	)		41.67		(11	)		40.56
Restricted stock at October 31, 2020		703		$	41.49
Restricted stock at April 30, 2021							691		$	42.23

	PSUs (in thousands)			Weighted Average Grant Date Fair Value
Performance stock units at January 31, 2020		90		$	39.82
Granted		93			40.54
Released (1)		(21	)		39.82
Forfeited		(9	)		39.82
Performance stock units at October 31, 2020		153		$	40.26

	SARs (in thousands)			Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value (in thousands)		SARs (in thousands)		Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value (in thousands)
Outstanding at January 31, 2020		1,349		$	24.86
Outstanding at January 31, 2021											1,144	$	27.01
Granted		-			-						—		—
Exercised		(202	)		12.92						—		0
Expired		-			-						—		—
Forfeited		-			-						—		—
Outstanding at October 31, 2020		1,147		$	26.98		3.1	$	17,897
Vested and exercisable at October 31, 2020		1,004		$	24.25		2.8	$	17,413
Outstanding at April 30, 2021											1,144	$	27.01		2.6	$	47,013
Vested and exercisable at April 30, 2021											1,002	$	24.28		2.3	$	43,525

	Three Months Ended October 31,			Three Months Ended October 31,			Change in Constant			Change due to Currency		Total Change as Reported
	2020			2019			Currency			Fluctuations		$			%
(in thousands)
Revenue
Subscription	$	33,761		$	27,328		$	6,209		$	224	$	6,433			24	%
Percentage of total revenue		44	%		35	%
License		1,682			3,295			(1,676	)		63		(1,613	)		-49	%
Percentage of total revenue		2	%		4	%
Maintenance		27,028			29,699			(2,997	)		326		(2,671	)		-9	%
Percentage of total revenue		35	%		38	%
Professional services		14,189			17,485			(3,392	)		96		(3,296	)		-19	%
Percentage of total revenue		19	%		23	%
Total revenue	$	76,660		$	77,807		$	(1,856	)	$	709	$	(1,147	)		-1	%

	Three Months Ended April 30,
	2021			2020
Automotive		29	%		33	%
Consumer products and food and beverage		16	%		16	%
High technology and industrial products		36	%		36	%
Life sciences and other		19	%		15	%
Total revenue		100	%		100	%

	Three Months Ended October 31,			Three Months Ended October 31,			Change in Constant			Change due to Currency			Total Change as Reported						Three Months Ended			Three Months Ended			Change in			Change due			Total Change as Reported
	2020			2019			Currency			Fluctuations			$			%			April 30, 2021			April 30, 2020			Constant Currency			to Currency Fluctuations				$		%
(in thousands)
Cost of revenue
Cost of subscription	$	10,716		$	9,540		$	(1,149	)	$	(27	)	$	(1,176	)		-12	%	$	12,162		$	10,348		$	(1,757	)	$	(57	)	$	(1,814	)		-18	%
Cost of license		441			510			69			-			69			14	%		538			401			(136	)		(1	)		(137	)		-34	%
Cost of maintenance		6,267			7,291			998			26			1,024			14	%		6,555			6,744			322			(133	)		189			3	%
Cost of professional services		13,231			16,376			3,280			(135	)		3,145			19	%		14,934			14,932			631			(633	)		(2	)		0	%
Total cost of revenue	$	30,655		$	33,717		$	3,198		$	(136	)	$	3,062			9	%	$	34,189		$	32,425		$	(940	)	$	(824	)	$	(1,764	)		-5	%
Percentage of revenue		40	%		43	%														41	%		44	%

	Nine Months Ended October 31,			Nine Months Ended October 31,			Change in Constant			Change due to Currency		Total Change as Reported
	2020			2019			Currency			Fluctuations		$			%
(in thousands)
Cost of revenue
Cost of subscription	$	31,803		$	28,860		$	(3,039	)	$	96	$	(2,943	)		-10	%
Cost of license		1,407			1,655			241			7		248			15	%
Cost of maintenance		19,424			22,353			2,589			340		2,929			13	%
Cost of professional services		41,269			53,815			11,686			860		12,546			23	%
Total cost of revenue	$	93,903		$	106,683		$	11,477		$	1,303	$	12,780			12	%
Percentage of revenue		42	%		46	%

	Three Months Ended			Increase (Decrease) Compared to Prior Period						Three Months Ended			Three Months Ended			Increase (Decrease) Compared to Prior Period						Three Months Ended
	October 31, 2020				$		%			October 31, 2019			April 30, 2021				$		%			April 30, 2020
(in thousands)
Other expense (income)
Interest income	$	(108	)	$	587			84	%	$	(695	)	$	(74	)	$	(362	)		-83	%	$	(436	)
Interest expense		142			(34	)		-19	%		176			141			9			6	%		150
Other expense (income), net		194			(192	)		-50	%		386
Other (income), net														238			(1,470	)		-119	%		(1,232	)
Total other expense (income), net	$	228		$	361			271	%	$	(133	)	$	305		$	(1,823	)		-120	%	$	(1,518	)
Percentage of revenue		0	%								0	%		0	%								-2	%

	Nine Months Ended			Increase (Decrease) Compared to Prior Period						Nine Months Ended
	October 31, 2020				$		%			October 31, 2019
(in thousands)
Interest income	$	(757	)	$	1,451			66	%	$	(2,208	)
Interest expense		447			(30	)		-6	%		477
Other expense, net		833			773			1,288	%		60
Total other expense (income), net	$	523		$	2,194			131	%	$	(1,671	)
Percentage of revenue		0	%								-1	%

	Three Months Ended			(Decrease) Compared to Prior Period						Three Months Ended			Three Months Ended			Increase (Decrease) Compared to Prior Period						Three Months Ended
	October 31, 2020				$		%			October 31, 2019			April 30, 2021				$		%			April 30, 2020
(in thousands)
Income tax expense	$	626		$	(778	)		-55	%	$	1,404
Income tax (benefit) expense													$	(1,376	)	$	(2,371	)		-238	%	$	995
Percentage of revenue		1	%								2	%		-2	%								1	%
Effective tax rate		16	%								92	%		-302	%								170	%

	Nine Months Ended			(Decrease) Compared to Prior Period						Nine Months Ended
	October 31, 2020				$		%			October 31, 2019
(in thousands)
Income tax expense	$	2,061		$	(9,930	)		-83	%	$	11,991
Percentage of revenue		1	%								5	%
Effective tax rate		42	%								-275	%

	Nine Months Ended October 31,						Three Months Ended April 30,
(in thousands)	2020			2019			2021			2020
Net cash provided by operating activities	$	19,226		$	7,853		$	20,686		$	10,912
Net cash used in investing activities		(1,308	)		(4,014	)		(10,000	)		(1,289	)
Net cash used in financing activities		(10,757	)		(8,148	)		(347	)		(1,683	)
Effect of foreign exchange rates on cash and equivalents		(486	)		(1,289	)		287			(4,503	)
Net increase (decrease) in cash and equivalents	$	6,675		$	(5,598	)
Net increase in cash and equivalents							$	10,626		$	3,437

Exhibits

31.1	Certification by the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2	Certification by the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1	Certification by the Chief Executive Officer and the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS	Inline XBRL Instance Document (the Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)

101.SCH	Inline XBRL Taxonomy Extension Schema Document

101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document

104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

Date: ~~December 9, 2020~~June 8, 2021	By:	/s/ DANIEL LENDER
		Daniel Lender
		Executive Vice President, Chief Financial Officer
		(Chief Financial Officer)

	By:	/s/ KARA BELLAMY
		Kara Bellamy
		Senior Vice President, Corporate Controller
		(Chief Accounting Officer)