AMERICAN SOFTWARE INC - Quarter Report: 2022 January (Form 10-Q)

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 January 31, 2022


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

For the transition period from _________ to _________

Commission File Number: 0-12456

_________________

AMERICAN SOFTWARE, INC.

(Exact name of registrant as specified in its charter)

_________________

Georgia

58-1098795

(State or other jurisdiction of
incorporation or organization)

(IRS Employer
Identification Number)

470 East Paces Ferry Road, N.E.

Atlanta

Georgia

30305

(Address of principal executive offices)

(Zip Code)

(404) 261-4381

(Registrant’s telephone number, including area code)

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


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock	AMSWA	NASDAQ Global Select Market

_________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, an emerging growth company or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “emerging growth company” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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 ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Classes						Outstanding at March 2, 2022
Class A Common Stock, $.10 par value						31,736,063 Shares
Class B Common Stock, $.10 par value						1,821,587 Shares

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AMERICAN SOFTWARE, INC. AND SUBSIDIARIES

Form 10-Q

Quarter ended January 31, 2022

Index


Page No
Part I—Financial Information

Item 1.	Financial Statements (Unaudited)

	Condensed Consolidated Balance Sheets as of January 31, 2022 and April 30, 2021	3

	Condensed Consolidated Statements of Operations for the Three and Nine Months ended January 31, 2022 and 2021	4

	Condensed Consolidated Statements of Shareholders' Equity for the Three and Nine Months ended January 31, 2022 and 2021	5

	Condensed Consolidated Statements of Cash Flows for the Nine Months ended January 31, 2022 and 2021	6

	Notes to Condensed Consolidated Financial Statements – Unaudited	7

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

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34

Item 4.	Controls and Procedures	35

Part II—Other Information

Item 1.	Legal Proceedings	36

Item 1A.	Risk Factors	36

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36

Item 3.	Defaults Upon Senior Securities	36

Item 4.	Mine Safety Disclosures	36

Item 5.	Other Information	36

Item 6.	Exhibits	36

Signatures		37

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

American Software, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

(in thousands, except share data)


	January 31, 2022		April 30, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	98,355	$	88,658
Investments	16,463		16,006
Trade accounts receivable, less allowance for doubtful accounts of $443 at January 31, 2022 and $430 at April 30, 2021:
Billed	24,164		24,438
Unbilled	3,255		2,201
Prepaid expenses and other current assets	6,474		5,320
Total current assets	148,711		136,623

Property and equipment, net of accumulated depreciation of $31,040 at January 31, 2022 and $30,581 at April 30, 2021	3,720		3,428
Capitalized software, net of accumulated amortization of $41,293 at January 31, 2022 and $38,826 at April 30, 2021	2,301		4,767
Goodwill	25,888		25,888
Other intangibles, net of accumulated amortization of $13,175 at January 31, 2022 and $13,015 at April 30, 2021	201		360
Lease right of use assets	1,093		1,454
Deferred sales commissions—noncurrent	2,122		2,474

Other assets	2,014		2,163
Total assets	$	186,050	$	177,157
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	3,158	$	1,732
Accrued compensation and related costs	5,242		6,129
Dividends payable	3,689		3,615
Operating lease obligations	604		739
Other current liabilities	1,123		1,307
Deferred revenue	38,095		37,142
Total current liabilities	51,911		50,664
Deferred income taxes	2,460		2,627
Long-term operating lease obligations	566		821

Other long-term liabilities	234		654
Total liabilities	55,171		54,766
Shareholders’ equity:
Common stock:
Class A, $.10 par value. Authorized 50,000,000 shares: 36,307,695 (31,719,063, net) shares issued and outstanding respectively at January 31, 2022 and 35,629,566 (31,040,934, net) shares issued and outstanding respectively at April 30, 2021	3,630		3,563
Class B, $.10 par value. Authorized 10,000,000 shares: 1,821,587 shares issued and outstanding at January 31, 2022 and April 30, 2021; convertible into Class A Common Shares on a one-for-one basis	182		182
Additional paid-in capital	169,740		159,492
Retained deficit	(17,114)		(15,287)
Class A treasury stock, 4,588,632 shares at January 31, 2022 and April 30, 2021, at cost	(25,559)		(25,559)
Total shareholders’ equity	130,879		122,391
Commitments and contingencies
Total liabilities and shareholders’ equity	$	186,050	$	177,157

See accompanying notes to condensed consolidated financial statements—unaudited.

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American Software, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations (Unaudited)

(in thousands, except per share data)


	Three Months Ended January 31,				Nine Months Ended January 31,
	2022		2021		2022		2021
Revenue:
Subscription fees	$	10,856	$	7,486	31,005		20,815
License	992		530		$	2,289	$	1,767
Professional services and other	11,443		9,495		31,751		29,551
Maintenance	9,131		10,172		27,859		30,709
Total revenue	32,422		27,683		92,904		82,842
Cost of revenue:
Subscription fees	3,431		3,062		10,059		8,767
License	240		288		597		1,516
Professional services and other	8,012		7,178		22,499		22,632
Maintenance	1,789		1,894		5,509		5,608
Total cost of revenue	13,472		12,422		38,664		38,523
Gross margin	18,950		15,261		54,240		44,319
Research and development	4,602		4,242		13,304		12,674
Sales and marketing	5,222		5,029		17,234		15,202
General and administrative	5,834		5,002		15,844		13,833
Amortization of acquisition-related intangibles	53		53		159		159
Total operating expenses	15,711		14,326		46,541		41,868
Operating income	3,239		935		7,699		2,451
Other income\(loss):
Interest income	97		90		287		313
Other, net	(5)		1,342		1,172		2,409
Earnings before income taxes	3,331		2,367		9,158		5,173
Income tax expense\(benefit)	391		56		(43)		136
Net earnings	$	2,940	$	2,311	$	9,201	$	5,037
Earnings per common share (a):
Basic	$	0.09	$	0.07	$	0.28	$	0.16
Diluted	$	0.09	$	0.07	$	0.27	$	0.15
Cash dividends declared per common share	$	0.11	$	0.11	$	0.33	$	0.33
Shares used in the calculation of earnings per common share:
Basic	33,490		32,628		33,293		32,485
Diluted	34,578		33,293		34,325		33,107

______________

(a)Basic per share amounts are the same for Class A and Class B shares. Diluted per share amounts for Class A shares are shown above. Diluted earnings per share for Class B shares under the two-class method are $0.09 and $0.07 for the three months ended January 31, 2022 and 2021 and $0.28 and $0.16 for the nine months ended January 31, 2022 and 2021. See Note D to the Condensed Consolidated Financial Statements.

See accompanying notes to condensed consolidated financial statements—unaudited.

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American Software, Inc. and Subsidiaries

Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)

(in thousands, except share data)


	Common stock				Additional paid-in capital	Retained deficit	Treasury stock	Total shareholders’ equity
	Class A		Class B
For the Three Months Ended January 31, 2021	Shares	Amount	Shares	Amount

Balance at October 31, 2020	35,277,846	3,528	1,821,587	182	154,335	(13,433)	(25,559)	119,053
Proceeds from stock options exercised	185,124	18	—	—	1,864	—	—	1,882
Stock-based compensation	—	—	—	—	703	—	—	703
Net earnings	—	—	—	—	—	2,311	—	2,311
Dividends declared*	—	—	—	—	—	(3,599)	—	(3,599)
Balance at January 31, 2021	35,462,970	3,546	1,821,587	182	156,902	(14,721)	(25,559)	120,350
For the Three Months Ended January 31, 2022
Balance at October 31, 2021	36,174,808	3,617	1,821,587	182	166,969	(16,362)	(25,559)	128,847
Proceeds from stock options exercised*	132,887	13	—	—	1,678	—	—	1,691
Stock-based compensation	—	—	—	—	1,093	—	—	1,093
Net earnings	—	—	—	—	—	2,940	—	2,940
Dividends declared*	—	—	—	—	—	(3,692)	—	(3,692)
Balance at January 31, 2022	36,307,695	3,630	1,821,587	182	169,740	(17,114)	(25,559)	130,879

*Amounts adjusted for rounding


	Common stock				Additional paid-in capital	Retained deficit	Treasury stock	Total shareholders’ equity
	Class A		Class B
For the Nine Months Ended January 31, 2021	Shares	Amount	Shares	Amount

Balance at April 30, 2020	35,000,649	3,500	1,821,587	182	150,312	(9,013)	(25,559)	119,422
Proceeds from stock options exercised	462,321	46	—	—	4,689	—	—	4,735
Stock-based compensation	—	—	—	—	1,901	—	—	1,901
Net earnings	—	—	—	—	—	5,037	—	5,037
Dividends declared*	—	—	—	—	—	(10,745)	—	(10,745)
Balance at January 31, 2021	35,462,970	3,546	1,821,587	182	156,902	(14,721)	(25,559)	120,350
For the Nine Months Ended January 31, 2022
Balance at April 30, 2021	35,629,566	3,563	1,821,587	182	159,492	(15,287)	(25,559)	122,391
Proceeds from stock options exercised*	678,129	67	—	—	7,338	—	—	7,405
Stock-based compensation	—	—	—	—	2,910	—	—	2,910
Net earnings	—	—	—	—	—	9,201	—	9,201
Dividends declared*	—	—	—	—	—	(11,028)	—	(11,028)
Balance at January 31, 2022	36,307,695	3,630	1,821,587	182	169,740	(17,114)	(25,559)	130,879

*Amounts adjusted for rounding

See accompanying notes to condensed consolidated financial statements—unaudited.

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American Software, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in thousands)


	Nine Months Ended January 31,
	2022		2021
Cash flows from operating activities:
Net earnings	$	9,201	$	5,037
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	3,170		4,441
(Gain) on sale of fixed assets	(36)		—
Stock-based compensation expense	2,910		1,901
Net gain on investments	(1,073)		(1,945)
Deferred income taxes	(167)		(325)
Changes in operating assets and liabilities:
Purchases of trading securities	(215)		(779)
Proceeds from maturities and sales of trading securities	831		3,534
Accounts receivable, net	(780)		5,248

Prepaid expenses and other assets	(653)		922
Accounts payable and other liabilities	(91)		(1,897)
Deferred revenue	953		(2,204)
Net cash provided by operating activities	14,050		13,933
Cash flows from investing activities:
Capitalized computer software development costs	—		(604)
Purchases of property and equipment, net of disposals	(801)		(461)

Net cash used in investing activities	(801)		(1,065)
Cash flows from financing activities:
Proceeds from exercise of stock options	7,405		4,735
Dividends paid	(10,957)		(10,696)
Net cash used in financing activities	(3,552)		(5,961)
Net change in cash and cash equivalents	9,697		6,907
Cash and cash equivalents at beginning of period	88,658		79,814
Cash and cash equivalents at end of period	$	98,355	$	86,721

Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes, net of refunds	$	180	$	485
Supplemental disclosures of noncash operating, investing and financing activities:
Accrual of dividends payable	$	3,689	$	3,597

See accompanying notes to condensed consolidated financial statements—unaudited.

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AMERICAN SOFTWARE, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements—Unaudited

January 31, 2022

A. Presentation and Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required for complete consolidated financial statements. In the opinion of our management, these Condensed Consolidated Financial Statements contain all normal recurring adjustments considered necessary for a fair presentation of the Company’s financial position at January 31, 2022, results of operations for the three and nine months ended January 31, 2022 and 2021, consolidated statements of shareholders’ equity for the three and nine months ended January 31, 2022 and 2021 and cash flows for the nine months ended January 31, 2022 and 2021. The Company’s results for the three months ended January 31, 2022 are not necessarily indicative of the results expected for the full year. You should read these statements in conjunction with our audited consolidated financial statements and management’s discussion and analysis and results of operations included in our Annual Report on Form 10-K (the “Annual Report”) for the fiscal year ended April 30, 2021. The terms “fiscal 2022” and “fiscal 2021” refer to our fiscal years ending April 30, 2022 and 2021, respectively.

The preparation of these Condensed Consolidated Financial Statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities, at the date of the Condensed Consolidated Financial Statements and the reported amounts of revenue and expenses during the reporting period. Note 1 in the Notes to the Consolidated Financial Statements for fiscal 2021 contained in the Annual Report describes the significant accounting policies that we have used in preparing our consolidated financial statements. On an ongoing basis, we evaluate our estimates, including, but not limited to, those related to revenue/reserves and allowances. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our actual results could differ materially from these estimates under different assumptions or conditions.

Principles of Consolidation

The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of American Software, Inc. (“American Software”) and its wholly-owned subsidiaries (collectively, the “Company”). All significant intercompany balances and transactions have been eliminated in consolidation.

Recent Accounting Pronouncements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The new guidance eliminates certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating taxes for each quarter and the recognition of deferred tax liabilities for outside basis differences. This guidance also simplifies aspects of the accounting for franchise taxes and changes in tax laws or rates, as well as clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. ASU 2019-12 was effective for the Company beginning May 1, 2021 and would require us to recognize a cumulative effect adjustment to the opening balance of reinvested earnings, if applicable. The adoption of ASU 2019-12 did not have a material impact on the Company's condensed consolidated financial statements.

B. Revenue Recognition

We recognize revenue when we transfer control of the promised goods or services to our customers, in an amount that reflects the consideration we expect to receive in exchange for those goods or services. We derive our revenue from software licenses; maintenance services; consulting, implementation and training services; and Software-as-a-Service (“SaaS”), which includes a subscription to our software as well as maintenance, hosting and managed services.

The Company determines revenue recognition through the following steps:

Step 1 – Identification of the Contract with the Customer

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Step 2 – Identification of Promised Goods and Services and Evaluation of Whether the Promised Goods and Services are Distinct Performance Obligations

Step 3 – Determination of the Transaction Price

Step 4 – Allocation of the Transaction Price to Distinct Performance Obligations

Step 5 – Attribution of Revenue for Each Distinct Performance Obligation

Nature of Products and Services.

Subscription Fees. Subscription fees include SaaS revenue for the right to use the software for a limited period of time in an environment hosted by the Company in either a public or privately managed data center. The customer accesses and uses the software on an as-needed basis over the Internet or via a dedicated line; however, the customer has no right to take delivery of the software without incurring a significant penalty. The underlying arrangements typically include a single fee for the service that is billed monthly, quarterly or annually. The Company’s SaaS solutions represent a series of distinct services that are substantially the same and have the same pattern of transfer to the customer. Revenue from a SaaS solution is generally recognized ratably over the term of the arrangement.

Licenses. Our software licenses provide the customer with a right to use the software as it exists at the time of purchase. We recognize revenue for distinct software licenses once the license period has begun and we have made the software available to the customer.

Our perpetual software licenses are sold with maintenance which services are described below in the Maintenance section.

Professional Services and Other. Our services revenue consists of fees generated from consulting, implementation and training services, including reimbursements of out-pocket expenses in connection with our services. Services are typically optional to our customers, and are distinct from our software. Fees for our services are separately priced and are generally billed on an hourly basis, and revenue is recognized over time as the services are performed. We believe the output method of hours worked provides the best depiction of the transfer of our services since the customer is receiving the benefit from our services as the work is performed. The total amount of expense reimbursement included in professional services and other revenue was approximately $28,000 and $69,000 for the three and nine months ended January 31, 2022 and $0 and $16,000 for the three and nine months ended January 31, 2021, respectively.

Maintenance. Revenue is derived from maintenance under which we provide customers with telephone consulting, product updates and releases of new versions of products previously purchased by the customer on a when and if available basis, as well as error reporting and correction services. Maintenance for perpetual licenses is renewable, generally on an annual basis, at the option of the customer. Maintenance terms typically range from one to three years. Revenue related to maintenance is generally paid in advance and recognized ratably over the term of the agreement since the Company is standing ready to provide a series of maintenance services that are substantially the same each period over the term; therefore, time is the best measure of progress. Support services for subscriptions are included in the subscription fees and are recognized as a component of such fees.

Indirect Channel Revenue. We record revenue from sales made through the indirect sales channels on a gross basis, because we control the goods or services and act as the principal in the transaction. In reaching this determination, we evaluated sales through our indirect channel on a case-by-case basis and considered a number of factors including indicators of control such as the party having the primary responsibility to provide specified goods or services and the party having discretion in establishing prices.

Sales Taxes. We account for sales taxes collected from customers on a net basis.

Significant Judgments. Many of our contracts include multiple performance obligations. Our products and services generally do not require a significant amount of integration or interdependency; therefore, our products and services are generally not combined. We allocate the transaction price for each contract to each performance obligation based on the relative standalone selling price (SSP) for each performance obligation within each contract.

We use judgment in determining the SSP for products and services. For substantially all performance obligations, other than on-premise licenses, we are able to establish SSP based on the observable prices of products or services sold separately in comparable circumstances to similar customers. We typically establish an SSP range for our products and services which is reassessed on a periodic basis or when facts and circumstances change. Historically our on-premise licenses have not been sold on a standalone basis, as the vast majority of all customers elect to purchase on-premise license maintenance and support contracts at the time of an on-premise license purchase. We are unable to establish the SSP for our on-premise licenses based on observable prices, as the same products are sold for a broad range of prices (that is, the selling price is highly variable) and a

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representative SSP is not discernible from past transactions or other observable evidence. As a result, the SSP for an on-premise license included in a contract with multiple performance obligations is determined by applying a residual approach whereby all other performance obligations within a contract are first allocated a portion of the transaction price based upon their respective SSPs, with any residual amount of transaction price allocated to on-premise license revenue. Maintenance and support contracts are generally priced as a percentage of the net fees paid by the customer to access the on-premise license.

Contract Balances. Timing of invoicing to customers may differ from timing of revenue recognition and these timing differences result in unbilled accounts receivables or contract liabilities (deferred revenue) on the Company’s condensed consolidated balance sheets. Fees for our software licenses are generally due within 30 days of contract execution. We have an established history of collecting under the terms of our software license contracts without providing refunds or concessions to our customers. SaaS solutions and maintenance are typically billed in advance on a monthly, quarterly, or annual basis. Services are typically billed as performed. In instances where the timing of revenue recognition differs from the timing of invoicing, we have determined that our contracts generally do not include significant financing component. The primary purpose of our invoicing terms is to provide customers with predictable ways to purchase our software and services, not to provide or receive financing. Additionally, we are applying the practical expedient to exclude any financing component from consideration for any contracts with payment terms of one year or less since we rarely offer terms extending beyond one year. The consideration in our customer contracts is fixed.

We have an unconditional right to consideration for all goods and services transferred to our customers. That unconditional right to consideration is reflected in billed and unbilled accounts receivable in the accompanying condensed consolidated balance sheets in accordance with ASC Topic 606.

Deferred revenue consists of amounts collected prior to having completed the performance of maintenance, SaaS, hosting, and managed services. We typically invoice customers for cloud subscription and support fees in advance on a monthly, quarterly or annual basis, with payment due at the start of the cloud subscription or support term. During the three months ended January 31, 2022, we recognized $17.5 million of revenue that was included in the deferred revenue balance as of October 31, 2021. During the nine months ended January 31, 2022, we recognized $34.4 million of revenue that was included in the deferred revenue balance as of April 30, 2021.


	January 31, 2022		April 30, 2021
	(in thousands)





Deferred revenue, current	38,095		37,142
Deferred revenue, long-term*	105		540
Total deferred revenue	$	38,200	$	37,682

*included in other long-term liabilities on the accompanying condensed consolidated balance sheets.

Remaining Performance Obligations. 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. Remaining performance obligations represent the transaction price of orders for which products have not been delivered or services have not been performed. As of January 31, 2022, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $129 million. The Company expects to recognize revenue on approximately 46% of the remaining performance obligations over the next 12 months, with the remainder recognized thereafter.

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

The Company’s revenue by geography is as follows:

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	Three Months Ended January 31,				Nine Months Ended January 31,
	2022		2021		2022		2021
	(in thousands)				(in thousands)
Revenue:
Domestic	$	27,334	$	23,668	$	77,958	$	70,467
International	5,088		4,015		14,946		12,375
	$	32,422	$	27,683	$	92,904	$	82,842

Contract Costs. The Company capitalizes the incremental costs of obtaining a contract with a customer if the Company expects to recover those costs. The incremental costs of obtaining a contract are those that the Company incurs to obtain a contract with a customer that it would not have incurred if the contract had not been obtained (for example, a sales commission). The Company capitalizes the costs incurred to fulfill a contract only if those costs meet all of the following criteria:

a. The costs relate directly to a contract or to an anticipated contract that the Company can specifically identify.

b. The costs generate or enhance resources of the Company that will be used in satisfying (or in continuing to satisfy) performance obligations in the future.

c. The costs are expected to be recovered.

Certain sales commissions incurred by the Company were determined to be incremental costs to obtain the related contracts, which are deferred and amortized ratably over the economic benefit period. These deferred commission costs are classified as current or non-current based on the timing of when the Company expects to recognize the expense. The current and non-current portions of deferred commissions are included in prepaid expenses and other current assets and deferred sales commissions—noncurrent, respectively, in the Company’s Condensed Consolidated Balance Sheets. Total deferred commissions at January 31, 2022 and April 30, 2021 were $3.5 million and $3.9 million, respectively. Amortization of sales commissions was $0.5 million and $1.5 million for the three and nine months ended January 31, 2022, respectively, and $0.5 million and $1.4 million for the three and nine months ended January 31, 2021, respectively, which is included in "Sales and marketing" expense in the accompanying Condensed Consolidated Statements of Operations. No impairment losses were recognized during the periods.

C. Declaration of Dividend Payable

On November 17, 2021, our Board of Directors declared a quarterly cash dividend of $0.11 per share of our Class A and Class B common stock. The cash dividend was paid on February 18, 2022 to Class A and Class B shareholders of record at the close of business on February 4, 2022.

D. Earnings Per Common Share

The Company has two classes of common stock. Class B common shares are convertible into Class A common shares at any time, on a one-for-one basis. Under the Company’s Articles of Incorporation, if dividends are declared, holders of Class A common shares shall receive a $0.05 dividend per share prior to the Class B common shares receiving any dividend and holders of Class A common shares shall receive a dividend at least equal to Class B common shares dividends on a per share basis. As a result, the Company has computed the earnings per share in compliance with the Earnings Per Share Topic of the FASB ASC, which requires companies that have multiple classes of equity securities to use the “two-class” method in computing earnings per share.

For the Company’s basic earnings per share calculation, the Company uses the “two-class” method. Basic earnings per share are calculated by dividing net earnings attributable to each class of common stock by the weighted average number of shares outstanding. All undistributed earnings are allocated evenly between Class A and B common shares in the earnings per share calculation to the extent that earnings equal or exceed $0.05 per share. This allocation is based on management’s judgment after considering the dividend rights of the two-classes of common stock, the control of the Class B shareholders and the convertibility rights of the Class B shares to Class A shares. If Class B shares convert to Class A shares during the period, the distributed net earnings for Class B shares is calculated using the weighted average common shares outstanding during the period.

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Diluted earnings per share is calculated similarly to basic earnings per share, except that the calculation includes the dilutive effect of the assumed exercise of options issuable under the Company’s stock incentive plans. For the Company’s diluted earnings per share calculation for Class A shares, the Company uses the “if-converted” method. This calculation assumes that all Class B common shares are converted into Class A common shares and, as a result, assumes there are no holders of Class B common shares to participate in undistributed earnings.

For the Company’s diluted earnings per share calculation for Class B shares, the Company uses the “two-class” method. This calculation does not assume that all Class B common shares are converted into Class A common shares. In addition, this method assumes the dilutive effect of Class A stock options were converted to Class A shares and the undistributed earnings are allocated evenly to both Class A and B shares including Class A shares issued pursuant to those converted stock options. This allocation is based on management’s judgment after considering the dividend rights of the two-classes of common stock, the control of the Class B shareholders and the convertibility rights of the Class B shares into Class A shares.

The following tables set forth the computation of basic earnings per common share and diluted earnings per common share (in thousands except for per share amounts):

Basic earnings per common share:


	Three Months Ended January 31, 2022				Nine Months Ended January 31, 2022
	Class A Common Shares		Class B Common Shares		Class A Common Shares		Class B Common Shares
Distributed earnings	$	0.11	$	0.11	$	0.33	$	0.33
Undistributed losses	(0.02)		(0.02)		(0.05)		(0.05)
Total	$	0.09	$	0.09	$	0.28	$	0.28
Distributed earnings	$	3,488	$	201	$	10,426	$	602
Undistributed losses	(708)		(41)		(1,727)		(100)
Total	$	2,780	$	160	$	8,699	$	502
Basic weighted average common shares outstanding	31,668		1,822		31,471		1,822


	Three Months Ended January 31, 2021				Nine Months Ended January 31, 2021
	Class A Common Shares		Class B Common Shares		Class A Common Shares		Class B Common Shares
Distributed earnings	$	0.11	$	0.11	$	0.33	$	0.33
Undistributed losses	(0.04)		(0.04)		(0.17)		(0.17)
Total	$	0.07	$	0.07	$	0.16	$	0.16
Distributed earnings	$	3,396	$	201	$	10,142	$	602
Undistributed losses	(1,214)		(72)		(5,387)		(320)
Total	$	2,182	$	129	$	4,755	$	282
Basic weighted average common shares outstanding	30,806		1,822		30,663		1,822

Diluted EPS for Class A Common Shares Using the If-Converted Method

Three Months Ended January 31, 2022

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	Undistributed & Distributed Earnings to Class A Common Shares		Class A Common Shares	EPS*
Per Basic	$	2,780	31,668	$	0.09
Common Stock Equivalents	—		1,088	—
	2,780		32,756	0.09
Class B Common Share Conversion*	160		1,822	—
Diluted EPS for Class A Common Shares	$	2,940	34,578	$	0.09

Nine Months Ended January 31, 2022


	Undistributed & Distributed Earnings to Class A Common Shares		Class A Common Shares	EPS*
Per Basic	$	8,699	31,471	$	0.28
Common Stock Equivalents	—		1,032	—
	8,699		32,503	0.27
Class B Common Share Conversion	502		1,822	—
Diluted EPS for Class A Common Shares	$	9,201	34,325	$	0.27

Three Months Ended January 31, 2021


	Undistributed & Distributed Earnings to Class A Common Shares		Class A Common Shares	EPS*
Per Basic	$	2,182	30,806	$	0.07
Common Stock Equivalents	—		665	—
	2,182		31,471	0.07
Class B Common Share Conversion	129		1,822	—
Diluted EPS for Class A Common Shares	$	2,311	33,293	$	0.07

Nine Months Ended January 31, 2021


	Undistributed & Distributed Earnings to Class A Common Shares		Class A Common Shares	EPS*
Per Basic	$	4,755	30,663	$	0.16
Common Stock Equivalents	—		622	—
	4,755		31,285	0.15
Class B Common Share Conversion	282		1,822	—
Diluted EPS for Class A Common Shares	$	5,037	33,107	$	0.15

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Diluted EPS for Class B Common Shares Using the Two-Class Method

Three Months Ended January 31, 2022


	Undistributed & Distributed Earnings to Class B Common Shares		Class B Common Shares	EPS*
Per Basic	$	160	1,822	$	0.09
Reallocation of undistributed earnings/losses from Class A Common Shares to Class B Common Shares	2		—	—
Diluted EPS for Class B Common Shares	$	162	1,822	$	0.09

Nine Months Ended January 31, 2022


	Undistributed & Distributed Earnings to Class B Common Shares		Class B Common Shares		EPS*
Per Basic	$	502	$	1,822	$	0.28
Reallocation of undistributed earnings/losses from Class A Common Shares to Class B Common Shares	4		—		—
Diluted EPS for Class B Common Shares	$	506	1,822		$	0.28

Three Months Ended January 31, 2021


	Undistributed & Distributed Earnings to Class B Common Shares		Class B Common Shares	EPS*
Per Basic	$	129	1,822	$	0.07
Reallocation of undistributed earnings/losses from Class A Common Shares to Class B Common Shares	2		—	—
Diluted EPS for Class B Common Shares	$	131	1,822	$	0.07

Nine Months Ended January 31, 2021


	Undistributed & Distributed Earnings to Class B Common Shares		Class B Common Shares		EPS*
Per Basic	$	282	$	1,822	$	0.16
Reallocation of undistributed earnings/losses from Class A Common Shares to Class B Common Shares	6		—		—
Diluted EPS for Class B Common Shares	$	288	1,822		$	0.16

_______________

*Amounts adjusted for rounding

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For the three and nine months ended January 31, 2022, we excluded options to purchase 890,783 and 858,210, Class A Common Shares, respectively, and for the three and nine months ended January 31, 2021, we excluded options to purchase 775,087 and 1,669,870 Class A Common Shares, respectively, from the computation of diluted earnings per Class A Common Shares. We excluded these option share amounts because the exercise prices of those options were greater than the average market price of the Class A Common Shares during the applicable period. As of January 31, 2022, we had a total of 4,743,104 options outstanding and as of January 31, 2021, we had a total of 4,405,329 options outstanding.

E. Stock-Based Compensation

During the nine months ended January 31, 2022 and 2021, we granted options for 1,438,500 and 1,340,000 shares of Class A common stock, respectively. The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model. The forfeiture rates are estimated using historical data. We recorded stock option compensation cost of approximately $1.1 million and $0.7 million and income tax benefits of approximately $326,682 and $232,882 from option exercises during the three months ended January 31, 2022 and 2021, respectively. We recorded stock option compensation cost of approximately $2.9 million and $1.9 million and income tax benefits of approximately $1.9 million and $0.5 million from option exercises during the nine months ended January 31, 2022 and 2021, respectively. We record stock-based compensation expense on a straight-line basis over the vesting period directly to additional paid-in capital.

During the nine months ended January 31, 2022 and 2021, we issued 678,129 and 462,321 shares of Class A common stock, respectively, resulting from the exercise of stock options. The total intrinsic value of options exercised during the nine months ended January 31, 2022 and 2021 based on market value at the exercise dates was approximately $9.1 million and $2.8 million, respectively. As of January 31, 2022, unrecognized compensation cost related to unvested stock option awards approximated $13.1 million, which we expect to recognize over a weighted average period of two years.

F. Fair Value of Financial Instruments

We measure our investments based on a fair value hierarchy disclosure framework that prioritizes and ranks the level of market price observability used in measuring assets and liabilities at fair value. A number of factors affect market price observability, including the type of asset or liability and its characteristics. This hierarchy prioritizes the inputs into three broad levels as follows:

•Level 1—Quoted prices for identical instruments in active markets.

•Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.

•Level 3—Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

The following is a general description of the valuation methodologies we use for financial assets and liabilities measured at fair value, including the general classification of such assets and liabilities pursuant to the valuation hierarchy.

Cash Equivalents—Cash equivalents include investments in government obligation based money-market funds, other money market instruments and interest-bearing deposits with initial terms of three months or less. The fair value of cash equivalents approximates its carrying value due to the short-term nature of these instruments.

Marketable Securities—Marketable securities utilizing Level 1 inputs include active exchange-traded equity securities and equity index funds, and most U.S. government debt securities, as these securities all have quoted prices in active markets. Marketable securities utilizing Level 2 inputs include municipal bonds. We value these securities using market-corroborated pricing or other models that use observable inputs such as yield curves.

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The following tables present our assets and liabilities that we measured at fair value on a recurring basis as of January 31, 2022 and April 30, 2021, and indicate the fair value hierarchy of the valuation techniques we used to determine such fair value (in thousands):


	January 31, 2022
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance
Cash equivalents	$	89,285	$	—	$	—	$	89,285
Marketable securities	16,463		—		—		16,463
Total	$	105,748	$	—	$	—	$	105,748


	April 30, 2021
	Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)	Balance
Cash equivalents	81,720	—	—	81,720
Marketable securities	15,332	674	—	16,006
Total	97,052	674	—	97,726

G. Stock Repurchases

On August 19, 2002, our Board of Directors authorized the repurchase of up to an additional 2.0 million shares of our Class A common stock. We have made and will make these repurchases through open market purchases at prevailing market prices. The timing of any repurchase will depend upon market conditions, the market price of our Class A common stock and management’s assessment of our liquidity and cash flow needs. Under this repurchase plan, we have repurchased 1,053,679 shares of Class A common stock at a cost of approximately $6.2 million, which had no impact on fiscal 2022. As of January 31, 2022, under all repurchase plans previously authorized, including this most recent plan, we have repurchased a total of 4,588,632 shares of common stock at a cost of approximately $25.6 million.

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H. Comprehensive Income

We have not included condensed consolidated statements of comprehensive income in the accompanying unaudited Condensed Consolidated Financial Statements since comprehensive income and net earnings presented in the accompanying Condensed Consolidated Statements of Operations would be substantially the same.

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I. Industry Segments

FASB ASC 280, Segment Reporting, establishes standards for reporting information about operating segments. Operating segments are defined as components of a public entity about which separate financial information is available that is evaluated regularly by the chief operating decision makers (“CODMs”), or decision making group, in deciding how to allocate resources and in assessing performance. Our CODMs are our Chief Executive Officer and President and our Chief Financial Officer. While our CODMs are apprised of a variety of financial metrics and information, we manage our business primarily on a segment basis, with the CODMs evaluating performance based upon segment operating profit or loss that includes an allocation of common expenses, but excludes certain unallocated corporate expenses, which are included in the Other segment. Our CODMs review the operating results of our three segments, assess performance and allocate resources in a manner that is consistent with the changing market dynamics that we have experienced. The three operating segments are: (1) Supply Chain Management (“SCM”), (2) Information Technology Consulting (“IT Consulting”) and (3) Other.

The SCM segment consists of Logility, Inc. ("Logility") and Demand Management Inc. ("DMI"). Both operating companies leverage a single platform spanning eight supply chain process areas, including demand optimization, inventory optimization, supply optimization, retail optimization, product lifecycle management, sourcing management, corporate responsibility, product compliance, automated order processing and integrated business planning. The IT Consulting segment consists of The Proven Method, Inc., an IT staffing and consulting services firm, which provides consulting, software development, systems integration services, maintenance and support services. The Other segment consists of (i) American Software ERP, which provides purchasing and materials management, customer order processing, financial, e-commerce and traditional manufacturing solutions, and (ii) unallocated corporate overhead expenses.

All of our revenue is derived from external customers. We do not have any inter-segment revenue. Our income taxes and dividends are paid at a consolidated level. Consequently, it is not practical to show these items by operating segment.

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In the following table, we have broken down the intersegment transactions applicable to the three and nine months ended January 31, 2022 and 2021 (in thousands):


	Three Months Ended January 31,				Nine Months Ended January 31,
	2022		2021		2022		2021
Revenue:
Supply Chain Management	$	26,061	$	22,646	$	75,692	$	66,679
IT Consulting	5,842		4,543		15,544		14,602
Other	519		494		1,668		1,561
	$	32,422	$	27,683	$	92,904	$	82,842
Operating income\(loss):
Supply Chain Management	$	7,458	$	4,713	$	19,531	$	12,800
IT Consulting	506		83		1,005		292
Other	(4,725)		(3,861)		(12,837)		(10,641)
	$	3,239	$	935	$	7,699	$	2,451










Capital expenditures:
Supply Chain Management	$	57	$	152	$	672	$	236
IT Consulting	—		—		—		—
Other	165		146		165		225
	$	222	$	298	$	837	$	461
Capitalized software:
Supply Chain Management	$	—	$	233	$	—	$	604
IT Consulting	—		—		—		—
Other	—		—		—		—
	$	—	$	233	$	—	$	604
Depreciation and amortization:
Supply Chain Management	$	907	$	1,149	$	2,889	$	4,150
IT Consulting	—		—		—		2
Other	93		98		281		289
	$	1,000	$	1,247	$	3,170	$	4,441
Earnings\(loss) before income taxes:
Supply Chain Management	$	7,458	$	4,803	$	19,377	$	13,023
IT Consulting	506		83		1,005		290
Other	(4,633)		(2,519)		(11,224)		(8,140)
	$	3,331	$	2,367	$	9,158	$	5,173

J. Major Customers

No single customer accounted for more than 10% of total revenue for the three and nine months ended January 31, 2022 and 2021.

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K. Contingencies

We generally indemnify our customers against damages and costs resulting from third-party claims of patent, copyright or trademark infringement associated with use of our products. Historically, we have not been required to make any payments under such indemnifications. However, we continue to monitor the conditions that are subject to indemnification to identify whether it is probable that a loss has occurred, and would recognize any such losses when those losses are estimable. In addition, we warrant to our customers that our software products operate substantially in accordance with their documentation. Historically, we have incurred no costs related to software product warranties and we do not expect to incur such costs in the future, and as such we have made no accruals for software product warranty costs. Additionally, we are involved in various claims arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on our financial position or results of operations.

L. Subsequent Event

On February 16, 2022, our Board of Directors declared a quarterly cash dividend of $0.11 per share of our Class A and Class B common stock. The cash dividend is payable on May 20, 2022 to Class A and Class B shareholders of record at the close of business on May 6, 2022.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q (this “Quarterly Report”) contains forward-looking statements relating to our future financial performance, business strategy, financing plans and other future events that involve uncertainties and risks. You can identify these statements by forward-looking words such as “anticipate,” “intend,” “plan,” “continue,” “could,” “grow,” “may,” “potential,” “predict,” “strive” “will,” “seek,” “estimate,” “believe,” “expect,” and similar expressions that convey uncertainty of future events or outcomes. Any forward-looking statements we make herein are pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements concerning future:

•results of operations;

•liquidity, cash flow and capital expenditures;

•demand for and pricing of our products and services;

•cloud services annual contract value (“ACV”);

•viability and effectiveness of strategic alliances;

•industry conditions and market conditions;

•acquisition activities and the effect of completed acquisitions; and

•general economic conditions.

Although we believe that the goals, plans, expectations, and prospects that our forward-looking statements reflect are reasonable in view of the information currently available to us, those statements are not guarantees of performance. There are many factors that could cause our actual results to differ materially from those anticipated by forward-looking statements made herein. These factors include, but are not limited to, continuing U.S. and global economic uncertainty, the timing and degree of business recovery, unpredictability and the irregular pattern of future revenue, dependence on particular market segments or customers, competitive pressures, delays, product liability and warranty claims and other risks associated with new product development, undetected software errors, market acceptance of our products, technological complexity, the challenges and risks associated with integration of acquired product lines, companies and services, as well as a number of other risk factors that could affect our future performance. All forward-looking statements included in this Quarterly Report are based upon information available to us as of the filing date of this Quarterly Report. We undertake no obligation to update any of these forward-looking statements for any reason. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance, or achievements to differ materially from those expressed or implied by these statements. We discuss certain factors in greater detail in “Business Overview” below.

ECONOMIC OVERVIEW

For the remainder of fiscal 2022 and 2023, we expect the global economy to improve modestly when compared to recent periods. We believe improved economic conditions and increasingly complex supply chain challenges may be driving some businesses to focus on achieving more process and efficiency enhancements in their operations and to invest in solutions that improve operating margins, rather than make large infrastructure-type technology purchases. If this trend continues, we believe it may tend to favor solutions such as our supply chain solutions, which are designed to provide a more rapid return on investment and are targeted at some of the largest profit drivers in a customer’s business. While we do not expect that the COVID-19 pandemic will cause any material adverse changes on our business or financial results for fiscal 2022, we are unable to accurately predict the impact that the coronavirus will have due to various uncertainties, including the ultimate geographic spread of the virus, the severity of the disease, the duration of the outbreak, and actions that may be taken by governmental authorities.

Corporate capital spending trends and commitments are the primary determinants of the size of the market for business software. Corporate capital spending is, in turn, a function of general economic conditions in the U.S. and abroad and in particular may be affected by conditions in U.S. and global credit markets. In recent years, the weakness in the overall global economy and the U.S. economy has resulted in reduced expenditures in the business software market.

In January 2022, the International Monetary Fund (“IMF”) provided an update to the World Economic Outlook for 2022. The update noted that, “The global economy enters 2022 in a weaker position than previously expected. As the new Omicron COVID-19 variant spreads, countries have reimposed mobility restrictions. Rising energy prices and supply disruptions have resulted in higher and more broad-based inflation than anticipated, notably in the United States and many emerging market

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and developing economies. The ongoing retrenchment of China’s real estate sector and slower-than-expected recovery of private consumption also have limited growth prospects."

BUSINESS OVERVIEW

American Software was incorporated as a Georgia corporation in 1970. We develop, market and support a portfolio of software and services that deliver end-to-end supply chain planning and sourcing solutions to the global marketplace. We have designed our software and services to bring business value to enterprises by supporting their operations through cloud subscriptions. References to “the Company,” “our products,” “our software,” “our services” and similar references include the appropriate business segment actually providing the product or service.

The Company enables enterprises to accelerate their operations from product concept to customer availability. Our brands - Logility and DMI - provide a single platform spanning eight supply chain process areas, including demand optimization, inventory optimization, supply optimization, retail optimization, quality and compliance, product lifecycle management, sourcing management and integrated business planning. Our platform includes advanced analytics and is fueled by supply chain master data, allowing for the automation of critical business processes through the application of artificial intelligence and machine learning algorithms to a variety of internal and external data streams.

Our primary operating units under our SCM segment include Logility and DMI. Logility is a wholly-owned subsidiary of the Company, and DMI is a wholly-owned subsidiary of Logility. In addition to our core SCM software business, we also offer technology staffing and consulting services through our wholly-owned subsidiary, The Proven Method, Inc., in the IT Consulting segment. The Other segment consists of software and services provided to our legacy enterprise resource planning (“ERP”) customers, as well as corporate overhead and other common expenses.

We derive revenue primarily from four sources: subscriptions (SaaS), software licenses, professional services and other, and maintenance. SaaS and maintenance agreements typically are for a one- to three-year term, commencing at the time of the initial contract. We generally bill these fees, monthly, quarterly and annually in advance under agreements with terms of one to three years, and then recognize the resulting revenue ratably over the term of the agreement We generally determine software license and SaaS fees based on the depth of functionality, contractual term, number of production deployments, users and/or sites licensed and/or subscribed. Professional services and other revenue consist primarily of fees from software implementation, training, and consulting services. We bill primarily under time and materials arrangements and recognize revenue as we perform services. Deferred revenue represents payments or billings for subscriptions and services and maintenance in advance of the time we recognize the related revenue.

Our cost of revenue for licenses and subscriptions includes amortization of capitalized computer software development costs, amortization of acquired developed technology, royalties paid to third-party software vendors, and agent commission expenses related to revenue generated by the indirect channel, primarily from DMI. Costs for maintenance and services include the cost of personnel to conduct implementations and customer support, consulting, other personnel-related expenses, and agent commission expenses related to maintenance revenue generated by the indirect channel, primarily from DMI. We account for the development costs of software intended for sale in accordance with the Software topic of the FASB ASC. We monitor the net realizable value of our capitalized software on a quarterly basis based on an estimate of future product revenue. We currently expect to fully recover the value of the capitalized software asset recorded on our Condensed Consolidated Balance Sheets; however, if future product revenue are less than management’s current expectations, we may incur a write-down of capitalized software costs.

Our sales and marketing expenses mainly include the salary and commissions paid to our sales professionals, along with marketing, promotional, travel and associated costs. Our general and administrative expenses mainly include the salary and benefits paid to executive, corporate and support personnel, as well as facilities-related costs, utilities, communications expenses, and various professional fees.

We currently view the following factors as the primary opportunities and risks associated with our business:

•Acquisition Opportunities. There are opportunities for selective acquisitions or investments to expand our sales distribution channels and/or broaden our product offering by providing additional solutions for our target markets.

•Dependence on Capital Spending Patterns. There is risk associated with our dependence on the capital spending patterns of U.S. and international businesses, which in turn are functions of economic trends and conditions over which we have no control.

•Acquisition Risks. There are risks associated with acquisitions of complementary companies, products and technologies, including the risks that we will not achieve the financial and strategic goals that we contemplate at the time of the transaction. More specifically, in any acquisition, we will face risks and challenges associated with

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the uncertain value of the acquired business or assets, the difficulty of assimilating operations and personnel, integrating acquired technologies and products and maintaining the loyalty of the customers of the acquired business.

•Competitive Technologies. There is a risk that our competitors may develop technologies that are substantially equivalent or superior to our technology.

•Competition in General. There are risks inherent in the market for business application software and related services, which has been and continues to be intensely competitive; for example, some of our competitors may become more aggressive with their prices and/or payment terms, which may adversely affect our profit margins.

A discussion of a number of additional risk factors associated with our business is included in our Annual Report for fiscal 2021. Additional information and other factors that could affect future financial results may be included, from time to time, in our filings with the Securities and Exchange Commission (“SEC”).

Recent Accounting Pronouncements

For information with respect to recent accounting pronouncements, if any, and the impact of these pronouncements on our condensed consolidated financial statements, if any, see Note A in the Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report.

COMPARISON OF RESULTS OF OPERATIONS

Three-Month Comparisons. The following table sets forth certain revenue and expense items as a percentage of total revenue and the percentage changes in those items for the three months ended January 31, 2022 and 2021:


	Three Months Ended January 31,
	Percentage of Total Revenue				Pct. Change in Dollars
	2022		2021		2022 vs. 2021
Revenue:
Subscription fees	34	%	27	%	45	%
License	3	%	2	%	87	%
Professional services and other	35	%	34	%	21	%
Maintenance	28	%	37	%	(10)	%
Total revenue	100	%	100	%	17	%
Cost of revenue:
Subscription fees	11	%	11	%	12	%
License	1	%	1	%	(17)	%
Professional services and other	25	%	26	%	12	%
Maintenance	5	%	7	%	(6)	%
Total cost of revenue	42	%	45	%	8	%
Gross margin	58	%	55	%	24	%
Research and development	14	%	15	%	3	%
Sales and marketing	16	%	18	%	4	%
General and administrative	18	%	18	%	17	%

Total operating expenses	48	%	51	%	10	%
Operating income	10	%	4	%	246	%
Other income:

Other, net	—	%	5	%	(94)	%
Earnings before income taxes	10	%	9	%	41	%
Income tax expense\(benefit)	1	%	—	%	598	%
Net earnings	9	%	9	%	27	%

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Nine-Month Comparisons. The following table sets forth certain revenue and expense items as a percentage of total revenue and the percentage changes in those items for the nine months ended January 31, 2022 and 2021:


	Nine Months Ended January 31,
	Percentage of Total Revenue				Pct. Change in Dollars
	2022		2021		2022 vs. 2021
Revenue:
Subscription fees	34	%	25	%	49	%
License	2	%	2	%	30	%
Professional services and other	34	%	36	%	7	%
Maintenance	30	%	37	%	(9)	%
Total revenue	100	%	100	%	12	%
Cost of revenue:
Subscription fees	11	%	11	%	15	%
License	1	%	2	%	(61)	%
Professional services and other	24	%	27	%	(1)	%
Maintenance	6	%	7	%	(2)	%
Total cost of revenue	42	%	47	%	—	%
Gross margin	58	%	53	%	22	%
Research and development	14	%	15	%	5	%
Sales and marketing	19	%	18	%	13	%
General and administrative	17	%	17	%	15	%

Total operating expenses	50	%	50	%	11	%
Operating income	8	%	3	%	214	%
Other income:

Other, net	1	%	3	%	(46)	%
Earnings before income taxes	9	%	6	%	77	%
Income tax expense\(benefit)	—	%	—	%	nm
Net earnings	9	%	6	%	83	%

nm - not meaningful

COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED JANUARY 31, 2022 AND 2021

REVENUE


	Three Months Ended January 31,
							% of Total Revenue
	2022		2021		% Change		2022		2021
	(in thousands)
Subscription fees	$	10,856	$	7,486	45	%	34	%	27	%
License	$	992	530		87	%	3	%	2	%
Professional services and other	11,443		9,495		21	%	35	%	34	%
Maintenance	9,131		10,172		(10)	%	28	%	37	%
Total revenue	$	32,422	$	27,683	17	%	100	%	100	%

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	Nine Months Ended January 31,
							% of Total Revenue
	2022		2021		% Change		2022		2021
	(in thousands)
Subscription fees	$	31,005	$	20,815	49	%	34	%	25	%
License	$	2,289	1,767		30	%	2	%	2	%
Professional services and other	31,751		29,551		7	%	34	%	36	%
Maintenance	27,859		30,709		(9)	%	30	%	37	%
Total revenue	$	92,904	$	82,842	12	%	100	%	100	%

For the three months ended January 31, 2022 compared to January 31, 2021 revenue increased by 17%, which was attributable primarily to a 87% increase in license revenue, a 45% increase in subscription fees and a 21% increase in professional services and other revenue, partially offset by a 10% decrease in maintenance revenue when compared to the same period last year.

For the nine months ended January 31, 2022 compared to January 31, 2021 revenue increased by 12%, which was attributable primarily to a 49% increase in subscription fees, a 30% increase in license revenue and a 7% increase in professional services and other revenue, partially offset by a 9% decrease in maintenance revenue when compared to the same period last year.

Due to intense competition in our industry, we sometimes discount license fees from our published list price. Numerous factors contribute to the amount of the discount provided, such as previous customer purchases, the number of customer sites utilizing the software, the number of modules purchased and the number of users, as well as the overall size of the contract. While all these factors may affect the discount amount of a particular contract, the overall percentage discount has not materially changed in the recent reported fiscal periods.

The change in our revenue from period to period is primarily due to the volume of products and related services sold in any period and the number of products or modules purchased with each sale.

International revenue represented approximately 16% of total revenue in the three and nine months ended January 31, 2022 compared to 15% for the same periods in the prior year. Our revenue, particularly our international revenue, may fluctuate substantially from period to period, primarily because we derive most of our license and subscription fee revenue from a relatively small number of customers in a given period.

Subscription Fees


	Three Months Ended January 31,
	2022		2021		% Change
	(in thousands)
Supply Chain Management	$	10,856	$	7,486	45	%
Total subscription fees revenue	$	10,856	$	7,486	45	%


	Nine Months Ended January 31,
	2022		2021		% Change
	(in thousands)
Supply Chain Management	$	31,005	$	20,815	49	%
Total subscription fees revenue	$	31,005	$	20,815	49	%

For the three and nine months ended January 31, 2022, subscription fees revenue increased 45% and 49%, respectively compared to the same periods in the prior year primarily due to an increase in the number of contracts, including contracts with a higher cloud services ACV, as well as an increase in multi-year contracts. This is evidenced by our successful transition to the cloud subscription model.

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License Revenue


	Three Months Ended January 31,
	2022		2021		% Change
	(in thousands)
Supply Chain Management	$	992	$	530	87	%
Other	—		—		—	%
Total license revenue	$	992	$	530	87	%


	Nine Months Ended January 31,
	2022		2021		% Change
	(in thousands)
Supply Chain Management	$	2,267	$	1,751	29	%
Other	22		16		38	%
Total license revenue	$	2,289	$	1,767	30	%

For the three and nine months ended January 31, 2022, license fee revenue increased 87% and 30%, respectively when compared to the same periods in the prior year. In the three months ended January 31, 2022, license fee revenue increased 87%, when compared to the corresponding period in the prior year, which was entirely attributable to our SCM segment. The majority of our current license fee revenue is generated from additional users and expanded scope from our existing on-premise customers. For the three and nine months ended January 31, 2022 and 2021, our SCM segment constituted approximately 100%, 100%, 99% and 99% of total license fee revenue, respectively. Our Other segment license fee revenue increased by 38% for the nine months ended January 31, 2022 when compared to the same period in the prior year primarily due to timing of sales to our existing ERP customers.

The direct sales channel provided approximately 94% and 90% of license fee revenues for the three and nine months ended January 31, 2022, compared to approximately 85% and 80% in the comparable periods last year due to larger customers obtained through our direct sales channel moving to the Cloud platform faster than those in the mid-sized market that are primarily served by our indirect sales channel. For the three and nine months ended January 31, 2022, our margins after commissions on direct sales were approximately 91% and 89%, compared to 84% and 84% in the comparable periods last year. The increase in margins is due to the mix of sales commission rates based on each individual salesperson’s quotas and related achievement. For the three months ended January 31, 2022 and 2021, our margins after commissions on indirect sales were approximately 64% and 61%, respectively. For the nine months ended January 31, 2022 and 2021, our margins after commissions on indirect sales were approximately 66% and 57 %, respectively. The indirect channel margins increased for the three and nine months ended January 31, 2022, compared to the same periods in the prior year due to the mix of value-added reseller (“VAR”) commission rates. These margin calculations include only commission expense for comparative purposes and do not include other costs of license fees such as amortization of capitalized software.

Professional Services and Other Revenue


	Three Months Ended January 31,
	2022		2021		% Change
	(in thousands)
Supply Chain Management	$	5,396	$	4,762	13	%
IT Consulting	5,842		4,543		29	%
Other	205		190		8	%
Total professional services and other revenue	$	11,443	$	9,495	21	%

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	Nine Months Ended January 31,
	2022		2021		% Change
	(in thousands)
Supply Chain Management	$	15,496	$	14,318	8	%
IT Consulting	15,544		14,602		6	%
Other	711		631		13	%
Total professional services and other revenue	$	31,751	$	29,551	7	%

For the three and nine months ended January 31, 2022, professional services and other revenue increased by 21% and 7%, respectively due to the increased professional services and other revenue derived from our IT Consulting, SCM and Other segments. For the three and nine months ended January 31, 2022, our IT Consulting segment’s revenue increased 29% and 6%, respectively when compared to the same period in the prior year due to the demand of project work from existing customers during the applicable period. For the three and nine months ended January 31, 2022, our SCM segment’s revenue increased 13% and 8%, primarily due to a higher ramp up of implementation project work due to an increase in subscription fees revenue in recent periods. For the three and nine months ended January 31, 2022, our Other segment’s revenue increased 8% and 13%, respectively due to the timing of project work with existing customers. We have observed that there is a tendency for services and other revenue, other than from IT Consulting, to lag changes in license and subscription revenue by one to three quarters, as new licenses and subscriptions in one quarter often involve implementation and consulting services in subsequent quarters, for which we recognize revenue only as we perform those services.

Maintenance Revenue


	Three Months Ended January 31,
	2022		2021		% Change
	(in thousands)
Supply Chain Management	$	8,817	$	9,867	(11)	%
Other	314		305		3	%
Total maintenance revenue	$	9,131	$	10,172	(10)	%


	Nine Months Ended January 31,
	2022		2021		% Change
	(in thousands)
Supply Chain Management	$	26,924	$	29,794	(10)	%
Other	935		915		2	%
Total maintenance revenue	$	27,859	$	30,709	(9)	%

For the three and nine months ended January 31, 2022, maintenance revenue decreased 10% and 9%, respectively when compared to the same period in the prior year. Our SCM maintenance revenue decreased 11% and 10% for the three and nine months ended January 31, 2022, respectively when compared to the same period last year due to a normal customer attrition rate. The SCM segment accounted for 97% of total maintenance revenue for the three and nine months ended January 31, 2022 and for the same periods in the prior year. Typically, our maintenance revenue have had a direct relationship to current and historic license fee revenue, since licenses are the source of maintenance customers.

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GROSS MARGIN

The following table provides both dollar amounts (in thousands) and percentage measures of gross margin:


	Three Months Ended January 31,								Nine Months Ended January 31,
	2022		%		2021		%		2022		%		2021		%
Gross margin on subscription fees	$	7,425	68	%	$	4,424	59	%	$	20,946	68	%	$	12,048	58	%
Gross margin on license fees	752		76	%	242		46	%	1,692		74	%	251		14	%
Gross margin on professional services and other	3,431		30	%	2,317		24	%	9,252		29	%	6,919		23	%
Gross margin on maintenance	7,342		80	%	8,278		81	%	22,350		80	%	25,101		82	%
Total gross margin	$	18,950	57	%	$	15,261	55	%	$	54,240	58	%	$	44,319	53	%

For the three and nine months ended January 31, 2022, our total gross margin percentage increased by 2% and 5%, respectively when compared to the same periods in the prior year primarily due to higher margins on subscription fees revenue, license fees and professional services and other revenue, partially offset by a decrease in maintenance revenue.

Gross Margin on Subscription Fees

For the three months ended January 31, 2022, our gross margin percentage on subscription fees revenue increased from 59% to 68% when compared to the same period in the prior year, primarily due to the increased subscription revenue and related cost efficiencies. For the nine months ended January 31, 2022, our gross margin percentage on subscription fees revenue increased from 58% to 68% when compared to the same period in the prior year, primarily due to the portfolio shift from license fee to subscription revenue.

Gross Margin on License Fees

License fee gross margin percentage for the three and nine months ended January 31, 2022 increased by 30% and 60%, respectively, when compared to the same period in the prior year. License fee gross margin percentage tends to be directly related to the level of license fee revenue due to the relatively fixed cost of computer software amortization expense, amortization of acquired software and the sales mix between our direct and indirect channels.

Gross Margin on Professional Services and Other

Our gross margin percentage on professional services and other revenue increased from 24% to 30% for the three months ended January 31, 2022, primarily due to an increase in revenues, improved utilization and better billing rates. Our gross margin percentage in our SCM segment services increased to 38% from 31% for the three months ended January 31, 2022 and 2021, respectively. This is primarily the result of an increase in professional services and other revenue, which is being driven by an increase in billing rates and utilization. Our Other segment professional services gross margin increased to 43% from 29% for the three months ended January 31, 2022 and 2021, respectively, due to higher margin projects year to date. Our IT Consulting segment professional services gross margin increased to 22% for the three months ended January 31, 2022, when compared to 18% the same period last year due to higher margin project work. Professional services and other gross margin is directly related to the level of services and other revenue. The primary component of cost of services and other revenue is services staffing, which is relatively inelastic in the short term.

For the nine months ended January 31, 2022 and January 31, 2021, our SCM segment gross margins increased to 37% from 30%, respectively, due to higher billing utilization, and sooner project start dates compared to the same period in the prior year. Our Other segment professional services gross margin increased to 43% from 38% for the nine months ended January 31, 2022 and 2021, respectively, due to higher margin projects year to date. Our IT Consulting segment professional services gross margin increased to 21% from 17% for the nine months ended January 31, 2022 and 2021, respectively, due to higher margin projects in the current quarter. Professional services and other gross margin is directly related to the level of services and other revenues.

Gross Margin on Maintenance

Maintenance gross margin percentage decreased from 81% to 80% for the three months ended January 31, 2022 and January 31, 2021, and decreased from 82% to 80% for the nine months ended January 31, 2022 and January 31, 2021, respectively. The decrease is primarily due to lower maintenance revenue and increase in personnel costs, compared to the same period in the prior year. The primary cost component is maintenance staffing, which is relatively inelastic in the short term.

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EXPENSES


	Three Months Ended January 31,								Nine Months Ended January 31,
	2022		2021		% of Revenue				2022		2021		% of Revenue
					2022		2021						2022		2021
	(in thousands)								(in thousands)
Research and development	$	4,602	$	4,242	14	%	15	%	$	13,304	$	12,674	14	%	15	%
Sales and marketing	$	5,222	$	5,029	16	%	18	%	$	17,234	$	15,202	19	%	18	%
General and administrative	$	5,834	$	5,002	18	%	18	%	$	15,844	$	13,833	17	%	17	%
Amortization of acquisition-related intangible assets	$	53	$	53	—	%	—	%	$	159	$	159	—	%	—	%
Other income, net	$	92	$	1,432	—	%	5	%	$	1,459	$	2,722	1	%	3	%
Income tax expense\(benefit)	$	391	$	56	1	%	—	%	$	(43)	$	136	—	%	—	%

Research and Development

Gross product research and development costs include all non-capitalized and capitalized software development costs. A breakdown of the research and development costs is as follows:


	Three Months Ended January 31,
	2022			2021			% Change
	(in thousands)
Total capitalized computer software development costs	$	—		$	233		(100)	%
Percentage of gross product research and development costs	—		%	5		%
Total research and development expense	$	4,602		$	4,242		8	%
Percentage of total revenue	14		%	15		%
Total gross product research and development expense and capitalized computer software development costs	$	4,602		$	4,475		3	%
Percentage of total revenue	14		%	16		%
Total amortization of capitalized computer software development costs *	$	757		$	997		(24)	%


	Nine Months Ended January 31,
	2022			2021			% Change
	(in thousands)
Total capitalized computer software development costs	$	—		$	604		(100)	%
Percentage of gross product research and development costs	—		%	5		%
Total research and development expense	$	13,304		$	12,674		5	%
Percentage of total revenue	14		%	15		%
Total gross product research and development expense and capitalized computer software development costs	$	13,304		$	13,278		—	%
Percentage of total revenue	14		%	16		%
Total amortization of capitalized computer software development costs *	$	2,467		$	3,257		(24)	%

*Included in cost of license fees and subscription fees.

For the three and nine months ended January 31, 2022, gross product research and development costs increased 3% and remained flat, respectively, when compared to the same period in the previous year, primarily due to an increase in the use of third-party contractors. Capitalized software development costs decreased in January 31, 2022 compared to the same period in the prior year, due to an increase in agile software programming that accelerates the software releases from months to weeks. We expect capitalized software costs to be zero in fiscal 2022. For the three and nine months ended January 31, 2022, amortization of capitalized software development costs decreased 24%, when compared to fiscal 2021 as some projects were fully amortized. Costs included in gross product development are salaries of product development personnel, hardware lease expense, computer software expense, telephone expense and rent.

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Sales and Marketing

For the three months ended January 31, 2022, sales and marketing expenses decreased from 18% to 16% of revenue when compared to the same period last year due to marketing cost containment. For the nine months ended January 31, 2022, sales and marketing expenses increased from 18% to 19% of revenue when compared to the same period last year due to increased marketing spend and variable compensation.

General and Administrative

For the three and nine months ended January 31, 2022, general and administrative expenses remained flat as a percentage of revenue when compared to the same periods a year ago.

At January 31, 2022, the total number of employees was 418 compared to 429 at January 31, 2021.

Operating Income/(Loss)


	Three Months Ended January 31,						Nine Months Ended January 31,
	2022		2021		% Change		2022		2021		% Change
	(in thousands)						(in thousands)
Supply Chain Management	$	7,458	$	4,713	58	%	$	19,531	$	12,800	53	%
IT Consulting	506		83		226	%	1005		292		244	%
Other*	(4,725)		(3,861)		22	%	(12,837)		(10,641)		21	%
Total Operating Income	$	3,239	$	935	246	%	$	7,699	$	2,451	214	%

* Includes all corporate overhead and other common expenses.

Our SCM segment operating income increased by 58% and 53%, respectively for the three and nine months ended January 31, 2022, compared to the same periods in the prior year primarily due to improved gross margins.

Our IT Consulting segment operating income increased by 226% and 244%, respectively for the three and nine months ended January 31, 2022, compared to same periods last year primarily due to higher margin project work and a decrease in expenses related to sales and third-party contractors.

Our Other segment operating loss increased by 22% and 21%, respectively for the three and nine months ended January 31, 2022, when compared to the same periods in the prior year due primarily to an increase in variable compensation and stock option expenses.

Other Income

Other income is comprised of net interest and dividend income, rental income, exchange rate gains and losses, miscellaneous income, and realized and unrealized gains and losses from investments. For the three months ended January 31, 2022, the decrease in Other income is mainly due to lower unrealized gains from investments of $1.2 million, higher realized losses from our investments of $83,000 and lower gains on exchange rates of $81,000, partially offset by a gain on sale of assets of $36,000 when compared to the same period last year. We recorded unrealized losses of approximately $14,000 and realized losses of approximately $0.1 million for the three months ended January 31, 2022 from our trading securities portfolio.

The decrease in Other income for the nine months ended January 31, 2022 is mainly due to a decrease in unrealized gains of $1.2 million compared to $2.0 million for the same period last year and an increase in realized losses of $0.1 million compared to $16,000 for the same period last year. We also recorded higher exchange rate losses of approximately $0.2 million for the nine months ended January 31, 2022 compared to $80,000 of exchange rate gains in the prior year, this decrease was partially offset by a gain on sale of assets of $36,000 compared to $0 for the same period last year.

For the three and nine months ended January 31, 2022, our investments generated an annualized yield of approximately 1.31% and 1.43%, respectively, compared to approximately 1.67% and 1.80% for the same periods in the prior year.

Income Taxes

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We recognize deferred tax assets and liabilities based on the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their tax bases. We measure deferred tax assets and liabilities using statutory tax rates in effect in the year in which we expect the differences to reverse. We establish a deferred tax asset for the expected future benefit of net operating losses, credit carry-forwards and nonqualified stock options. Under the Income Tax Topic of the FASB ASC, we cannot recognize a deferred tax asset for the future benefit of our net operating losses, tax credits and temporary differences unless we can establish that it is “more likely than not” that the deferred tax asset would be realized.

During the three and nine months ended January 31, 2022, we recorded an income tax expense of $391,000 and an income tax benefit of $42,000, respectively, primarily due to discrete stock compensation benefits of $327,000 and $1.9 million, respectively, net of normal income tax expense from operations. During the three and nine months ended January 31, 2021, we recorded an income tax expense of $56,000 and 136,000, respectively, primarily due to discrete stock compensation benefits of $233,000 and $504,000 respectively, net of normal income tax expense from operations. Before adjusting for these discrete tax benefits, our effective tax rate would have been 22.4% and 20.7%, respectively, in the three and nine months ended January 31, 2022 compared to our effective tax rate of 16.2% and 14.2%, respectively, in the three and nine months ended January 31, 2021. In addition, research and development and foreign tax credits reduced our effective tax rate by 4.3% and 0% in the nine months ended January 31, 2022, compared to reductions of 8.9% and 1.1% in the nine months ended January 31, 2021.

Operating Pattern

We experience an irregular pattern of quarterly operating results, caused primarily by fluctuations in both the number and size of software license and subscription contracts received and delivered from quarter to quarter and our ability to recognize revenue in that quarter in accordance with our revenue recognition policies. We expect this pattern to continue.

LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION

Sources and Uses of Cash

Historically we have funded, and we continue to fund, our operations and capital expenditures primarily with cash generated from operating activities. The changes in net cash that our operating activities provide generally reflect the changes in net earnings and non-cash operating items plus the effect of changes in operating assets and liabilities, such as investment trading securities, trade accounts receivable, trade accounts payable, accrued expenses and deferred revenue. We have no debt obligations or off-balance sheet financing arrangements, and therefore, we used no cash for debt service purposes.

The following table shows information about our cash flows and liquidity positions during the nine months ended January 31, 2022 and 2021. You should read this table and the discussion that follows in conjunction with our Condensed Consolidated Statements of Cash Flows contained in Item 1 in Part I of this Quarterly Report and in our Annual Report for fiscal 2021.


	Nine Months Ended January 31,
	2022		2021
Net cash provided by operating activities	$	14,050	$	13,933
Net cash used in investing activities	(801)		(1,065)
Net cash used in financing activities	(3,552)		(5,961)
Net change in cash and cash equivalents	$	9,697	$	6,907

For the nine months ended January 31, 2022, the net increase in cash provided by operating activities when compared to the same period last year was due primarily to the following: (1) an increase in net earnings, (2) a relative increase in deferred revenue when compared to a decrease in the same period last year due to timing of revenue recognition, (3) a relative smaller decrease in accounts payable and other liabilities compared to the same period last year due to timing of payments, (4) an increase in stock-based compensation expense, (5) lower gains on investments than in prior year, (6) a decrease in purchases of trading securities and (7) a decrease in deferred income taxes.

This increase in cash provided by operating activities was partially offset by: (1) a relative increase in customer accounts receivables when compared to a decrease in the same period last year due to the timing of closing customer sales and related collections, (2) a relative increase in prepaid expenses when compared to a decrease in the same period last year due to the timing of purchases, (3) a decrease in depreciation and amortization and (4) a decrease in the proceeds from the maturity and sales of trading securities.

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The decrease in cash used in investing activities when compared to the same period in the prior year was mainly due to an increase in purchases of property and equipment, which was partially offset by a decrease in capitalized computer software development costs.

The decrease in cash used in financing activities compared to the prior year was due primarily to an increase in proceeds from exercise of stock options, which was partially offset by an increase in dividends paid.

The following table shows net changes in total cash, cash equivalents, and investments, which is one measure management uses to understand net total cash generated by our activities:


	As of January 31, (in thousands)
	2022		2021
Cash and cash equivalents	$	98,355	$	86,721
Short-term investments	16,463		14,052
Total cash and short and long-term investments	114,818		100,773
Net increase in total cash and investments during nine months ended January 31,	$	10,154	$	6,097

Our total activities used less cash and investments during the months ended January 31, 2022, when compared to the prior year period, in the course of normal business operations.

Days Sales Outstanding in accounts receivable were 77 days as of January 31, 2022, compared to 65 days as of January 31, 2021. This increase is primarily due to the timing of billings and cash collections. Our current ratio was 2.9 to 1 on January 31, 2022 and 2021.

Our business in recent periods has generated substantial positive cash flow from operations, excluding purchases and proceeds of sale of trading securities. For this reason, and because we had $114.8 million in cash and investments with no debt as of January 31, 2022, we believe that our sources of liquidity and capital resources will be sufficient to satisfy our presently anticipated requirements during at least the next twelve months for working capital, capital expenditures and other corporate needs. However, at some future date we may need to seek additional sources of capital to meet our requirements. If such need arises, we may be required to raise additional funds through equity or debt financing. We do not currently have a bank line of credit. We can provide no assurance that bank lines of credit or other financing will be available on terms acceptable to us. If available, such financing may result in dilution to our shareholders or higher interest expense.

On August 19, 2002, our Board of Directors approved a resolution authorizing the repurchase of up to an additional 2.0 million shares of our Class A common stock. We have made and will make these repurchases through open market purchases at prevailing market prices. The timing of any repurchase will depend upon market conditions, the market price of our common stock and management’s assessment of our liquidity and cash flow needs. Under this repurchase plan, through January 31, 2022, we have repurchased 1,053,679 shares of common stock at a cost of approximately $6.2 million. As of January 31, 2022, under all repurchase plans previously authorized, including this most recent plan, we have repurchased a total of 4,588,632 shares of common stock at a cost of approximately $25.6 million.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

We have based the following discussion and analysis of financial condition and results of operations on our condensed consolidated financial statements, which we have prepared in accordance with U.S. GAAP. The preparation of these condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Note 1 to the Consolidated Financial Statements in our Annual Report for fiscal 2021, describes the significant accounting policies that we have used in preparing our condensed consolidated financial statements. On an ongoing basis, we evaluate our estimates, including, but not limited to, those related to revenue/collectability. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our actual results could differ materially from these estimates under different assumptions or conditions.

We believe the critical accounting policies listed below affect significant judgments and estimates used in the preparation of the financial statements.

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Revenue Recognition.

Subscription. Subscription fees include Software-as-a-Service ("SaaS") revenue for the right to use the software for a limited period of time in an environment hosted by the Company or by a third party. The customer accesses and uses the software on an as needed basis over the Internet or via a dedicated line; however, the customer has no right to take delivery of the software. The underlying arrangements typically include a single fee for the service that is billed monthly, quarterly or annually. The Company’s SaaS solutions represent a series of distinct services that are substantially the same and have the same pattern of transfer to the customer. Revenue from a SaaS solution is generally recognized ratably over the term of the arrangement.

License. Our on-premise software licenses provide the customer with a right to use the software as it exists at the time of purchase. We recognize revenue for distinct software licenses once the license period has begun and we have made the software available to the customer.

Our software licenses are sold with maintenance under which we provide customers with telephone consulting, product updates on a when and if available basis, and releases of new versions of products previously purchased by the customer, as well as error reporting and correction services.

Professional Services and Other. Our professional services revenue consists of fees generated from consulting, implementation and training services, including reimbursements of out-pocket expenses in connection with our services. These services are typically optional to our customers, and are distinct from our software. Fees for our professional services are separately priced and are generally billed on an hourly basis, and revenue is recognized over time as the services are performed. We believe the output method of hours worked provides the best depiction of the transfer of our services since the customer is receiving the benefit from our services as the work is performed. Reimbursements received from customers for out-of-pocket expenses were recorded in revenue and totaled approximately $28,000 and $69,000 for the three and nine months ended January 31, 2022 and $0 and $16,000 for the three and nine months ended January 31, 2021, respectively

Maintenance and Support. Revenue is derived from maintenance and support services, under which we provide customers with telephone consulting, product updates on a when and if available basis, and releases of new versions of products previously purchased by the customer, as well as error reporting and correction services. Maintenance for perpetual licenses is renewable, generally on an annual basis, at the option of the customer. Maintenance terms typically range from one to three years. Revenue related to maintenance is generally paid in advance and recognized ratably over the term of the agreement since the Company is standing ready to provide a series of maintenance services that are substantially the same each period over the term; therefore, time is the best measure of progress. Support services for subscriptions are included in the subscription fees and are recognized as a component of such fees.

Indirect Channel Revenue. We record revenue from sales made through the indirect sales channels on a gross basis, because we control the goods or services and act as the principal in the transaction. In reaching this determination, we evaluate sales through our indirect channel on a case-by-case basis and consider a number of factors including indicators of control such as the party having the primary responsibility to provide specified goods or services, and the party having discretion in establishing prices.

Sales Taxes. We account for sales taxes collected from customers on a net basis.

We use judgment in determining the SSP for products and services. For substantially all performance obligations, except on-premise licenses, we are able to establish SSP based on the observable prices of products or services sold separately in comparable circumstances to similar customers. We typically establish an SSP range for our products and services which is reassessed on a periodic basis or when facts and circumstances change. Our on-premise licenses have not historically been sold on a standalone basis, as the vast majority of all customers elect to purchase on-premise license support contracts at the time of a on-premise license purchase. Support contracts are generally priced as a percentage of the net fees paid by the customer to access the on-premise license. We are unable to establish the SSP for our on-premise licenses based on observable prices given the same products are sold for a broad range of amounts (that is, the selling price is highly variable) and a representative SSP is

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not discernible from past transactions or other observable evidence. As a result, the SSP for a on-premise license included in a contract with multiple performance obligations is determined by applying a residual approach whereby all other performance obligations within a contract are first allocated a portion of the transaction price based upon their respective SSPs, with any residual amount of transaction price allocated to on-premise license revenue. Maintenance and support contracts are generally priced as a percentage of the net fees paid by the customer to access the on-premise license.

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Item 3 Quantitative and Qualitative Disclosures About Market Risk

Foreign Currency. In the three and nine months ended January 31, 2022, we generated approximately 16% of our revenue outside the United States. We typically make international sales through our VARs and employees located in foreign countries and denominate those sales in U.S. and New Zealand dollars, British pounds sterling or euros. However, expenses incurred in connection with these sales are typically denominated in the local currencies. We recorded an exchange rate gain of approximately $8,000 for the three months ended January 31, 2022 and loss of $151,000 for the nine months ended January 31, 2022 compared to an exchange rate gains of approximately $0.1 million for the same periods in the prior year. We estimate that a 10% movement in foreign currency rates would have had the effect of creating up to a $0.4 million and $0.3 million exchange rate gain or loss for the three and nine months ended January 31, 2022, respectively. We have not engaged in any hedging activities.

Interest Rates and Other Market Risks. We have no debt, and therefore limit our discussion of interest rate risk to risk associated with our investment profile. We manage our interest rate risk by maintaining an investment portfolio of trading investments with high credit quality and relatively short average maturities. These instruments include, but are not limited to, money-market instruments, bank time deposits, and taxable and tax-advantaged variable rate and fixed rate obligations of corporations, municipalities, and national, state, and local government agencies. These instruments are denominated in U.S. dollars. The fair market value of these instruments as of January 31, 2022 was approximately $105.7 million compared to $93.8 million as of January 31, 2021.

We also hold cash balances in accounts with commercial banks in the United States and foreign countries. These cash balances represent operating balances only and are invested in short-term time deposits of the local bank. Such operating cash balances held at banks outside the United States are denominated in the local currency and are minor.

Many of our investments carry a degree of interest rate risk. When interest rates fall, our income from investments in variable-rate securities declines. When interest rates rise, the fair market value of our investments in fixed-rate securities declines. In addition, our investments in equity securities are subject to stock market volatility. Due in part to these factors, our future investment income may fall short of expectations or we may suffer losses in principal if forced to sell securities, which have seen a decline in market value due to changes in interest rates. We attempt to mitigate risk by holding fixed-rate securities to maturity, but, if our liquidity needs force us to sell fixed-rate securities prior to maturity, we may experience a loss of principal.

Inflation. Although we cannot accurately determine the amounts attributable thereto, we have been affected by inflation through increased costs of employee compensation and other operational expenses. To the extent permitted by the marketplace for our products and services, we attempt to recover increases in costs by periodically increasing prices.

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Item 4. Controls and Procedures

Management’s Report on Internal Control Over Financial Reporting

Our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934 (“Exchange Act”)) are designed to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms. Our disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding disclosure.

Our principal executive officer and principal financial officer, with the assistance of our Disclosure Committee, have conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report. We perform this evaluation on a quarterly basis so that the conclusions concerning the effectiveness of our disclosure controls and procedures can be reported in our Annual Report and Quarterly Reports. Based on this evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report.

Changes in Internal Control over Financial Reporting

There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings

We are not currently involved in legal proceedings requiring disclosure under this item.

Item 1A. Risk Factors

In addition to the other information set forth in this Quarterly Report, you should carefully consider the risk factors disclosed in Item 1A, “Risk Factors,” of our Annual Report for fiscal 2021. There have been no material changes to the risk factors as previously disclosed in such Annual Report.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits


Exhibit 3.1						Amended and Restated Articles of Incorporation, and amendments thereto. (1) (P)

Exhibit 3.2						Amended and Restated By-Laws dated May 18, 2009. (2)

Exhibits 31.1-31.2.						Rule 13a-14(a)/15d-14(a) Certifications

Exhibit 32.1.						Section 906 Certifications

Exhibit 101.INS						XBRL Instance Document.

Exhibit 101.SCH						XBRL Taxonomy Extension Schema Document.

Exhibit 101.CAL						XBRL Taxonomy Extension Calculation Linkbase Document.

Exhibit 101.DEF						XBRL Taxonomy Extension Definition Linkbase Document.

Exhibit 101.LAB						XBRL Taxonomy Extension Label Linkbase Document.

Exhibit 101.PRE						XBRL Taxonomy Extension Presentation Linkbase Document.

______________

(1)Incorporated by reference herein. Filed by the Company as an exhibit to its Quarterly Report filed on Form 10-Q for the quarter ended October 31, 1990. (P) Filed in paper format.

(2)Incorporated by reference herein. Filed by the Company as Exhibit 3.1 to its Quarterly Report filed on Form 10-Q for the quarter ended January 31, 2010.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	AMERICAN SOFTWARE, INC.

Date: March 4, 2022	By:	/s/ H. Allan Dow
		H. Allan Dow Chief Executive Officer and President (Principal Executive Officer)

Date: March 4, 2022	By:	/s/ Vincent C. Klinges
		Vincent C. Klinges Chief Financial Officer (Principal Financial Officer)

Date: March 4, 2022	By:	/s/ Bryan L. Sell
		Bryan L. Sell Controller and Principal Accounting Officer