Company Quick10K Filing
Quick10K
American Software
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$13.27 31 $413
10-Q 2019-01-31 Quarter: 2019-01-31
10-Q 2018-10-31 Quarter: 2018-10-31
10-Q 2018-07-31 Quarter: 2018-07-31
10-K 2018-04-30 Annual: 2018-04-30
10-Q 2018-01-31 Quarter: 2018-01-31
10-Q 2017-10-31 Quarter: 2017-10-31
10-Q 2017-07-31 Quarter: 2017-07-31
10-K 2017-04-30 Annual: 2017-04-30
10-Q 2017-01-31 Quarter: 2017-01-31
10-Q 2016-10-31 Quarter: 2016-10-31
10-Q 2016-07-31 Quarter: 2016-07-31
10-K 2016-04-30 Annual: 2016-04-30
10-Q 2016-01-31 Quarter: 2016-01-31
10-Q 2015-10-31 Quarter: 2015-10-31
10-Q 2015-07-31 Quarter: 2015-07-31
10-K 2015-04-30 Annual: 2015-04-30
10-Q 2015-01-31 Quarter: 2015-01-31
10-Q 2014-10-31 Quarter: 2014-10-31
10-Q 2014-07-31 Quarter: 2014-07-31
10-K 2014-04-30 Annual: 2014-04-30
10-Q 2014-01-31 Quarter: 2014-01-31
8-K 2019-02-20 Earnings, Exhibits
8-K 2019-01-01
8-K 2018-11-29 Earnings, Exhibits
8-K 2018-09-04 Earnings, Exhibits
8-K 2018-08-22 Shareholder Vote
8-K 2018-06-21 Earnings, Exhibits
8-K 2018-02-22 Earnings, Exhibits
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MLAB Mesa Laboratories 986
RMTI Rockwell Medical 318
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NYMX Nymox Pharmaceutical 109
SING Singlepoint 0
PTPRO All Marketing Solutions 0
AMSWA 2019-01-31
Part I-Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3 Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part Ii-Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 amswa-20190131ex311.htm
EX-31.2 amswa-20190131ex312.htm
EX-32.1 amswa-20190131ex321.htm

American Software Earnings 2019-01-31

AMSWA 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 amswa-20190131x10q.htm 10-Q Document

 
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, 2019
OR
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)
None
(Former name, former address and former fiscal year, if changed since last report)
_________________
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 5, 2019
Class A Common Stock, $.10 par value
  
29,303,235 Shares
Class B Common Stock, $.10 par value
  
1,821,587 Shares
 




AMERICAN SOFTWARE, INC. AND SUBSIDIARIES
Form 10-Q
Quarter ended January 31, 2019
Index
Page No
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2


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,
2019
 
April 30,
2018
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
55,058

 
$
52,794

Investments
28,106

 
26,121

Trade accounts receivable, less allowance for doubtful accounts of $132 at January 31, 2019 and $159 at April 30, 2018:
 
 
 
Billed
20,298

 
18,643

Unbilled
2,992

 
3,375

Prepaid expenses and other current assets
6,184

 
6,592

Total current assets
112,638

 
107,525

Investments—noncurrent
998

 
8,893

Property and equipment, net of accumulated depreciation of $29,130 at January 31, 2019 and $28,644 at April 30, 2018
3,562

 
3,034

Capitalized software, net of accumulated amortization of $27,506 at January 31, 2019 and $24,113 at April 30, 2018
10,497

 
9,728

Goodwill
25,888

 
25,888

Other intangibles, net of accumulated amortization of $10,047 at January 31, 2019 and $8,255 at April 30, 2018
3,328

 
5,120

Other assets
3,910

 
2,777

Total assets
$
160,821

 
$
162,965

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
1,789

 
$
1,974

Accrued compensation and related costs
2,909

 
6,310

Dividends payable
3,417

 
3,367

Other current liabilities
1,279

 
1,246

Deferred revenue
32,947

 
33,226

Total current liabilities
42,341

 
46,123

Deferred income taxes
3,027

 
2,615

Long-term deferred revenue

 
147

Other long-term liabilities
1,097

 
1,496

Total liabilities
46,465

 
50,381

Shareholders’ equity:
 
 
 
Common stock:
 
 
 
Class A, $.10 par value. Authorized 50,000,000 shares: 33,833,676 and 29,245,044 shares issued and outstanding respectively at January 31, 2019 and 33,141,760 and 28,553,128 shares issued and outstanding respectively at April 30, 2018
3,383

 
3,314

Class B, $.10 par value. Authorized 10,000,000 shares: 1,821,587 shares issued and outstanding at January 31, 2019 and 2,057,390 shares issued and outstanding at April 30, 2018; convertible into Class A Common Shares on a one-for-one basis
182

 
205

Additional paid-in capital
136,522

 
131,258

Retained (deficit) earnings
(172
)
 
3,366

Class A treasury stock, 4,588,632 shares at January 31, 2019 and April 30, 2018, at cost
(25,559
)
 
(25,559
)
Total shareholders’ equity
114,356

 
112,584

Commitments and contingencies

 

Total liabilities and shareholders’ equity
$
160,821

 
$
162,965

See accompanying notes to condensed consolidated financial statements—unaudited.

3


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,
 
2019
 
2018
 
2019
 
2018
Revenues:
 
 
 
 
 
 
 
License
$
1,718

 
$
5,955

 
$
5,432

 
$
12,420

Subscription Fees
3,687

 
2,584

 
10,196

 
6,244

Professional Services and other
10,176

 
10,342

 
32,240

 
31,773

Maintenance
11,422

 
11,236

 
34,567

 
32,903

Total revenues
27,003

 
30,117

 
82,435

 
83,340

Cost of revenues:
 
 
 
 
 
 
 
License
1,831

 
1,727

 
5,305

 
4,692

Subscription Fees
1,389

 
1,028

 
3,746

 
2,779

Professional Services and other
7,714

 
7,912

 
24,484

 
22,673

Maintenance
2,030

 
2,404

 
6,442

 
6,919

Total cost of revenues
12,964

 
13,071

 
39,977

 
37,063

Gross margin
14,039

 
17,046

 
42,458

 
46,277

Research and development
2,811

 
3,099

 
9,818

 
8,250

Sales and marketing
4,699

 
5,385

 
15,183

 
15,055

General and administrative
4,302

 
4,263

 
12,903

 
11,418

Amortization of acquisition-related intangibles
97

 
95

 
291

 
486

Total operating expenses
11,909

 
12,842

 
38,195

 
35,209

Operating income
2,130

 
4,204

 
4,263

 
11,068

Other (expense)/income:
 
 
 
 
 
 
 
Interest income
523

 
403

 
1,551

 
1,120

Other, net
4

 
1,171

 
(461
)
 
1,729

Earnings before income taxes
2,657

 
5,778

 
5,353

 
13,917

Income tax expense
356

 
198

 
424

 
3,132

Net earnings
$
2,301

 
$
5,580

 
$
4,929

 
$
10,785

Earnings per common share (a):
 
 
 
 
 
 
 
Basic
$
0.07

 
$
0.18

 
$
0.16

 
$
0.36

Diluted
$
0.07

 
$
0.18

 
$
0.16

 
$
0.36

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
31,010

 
30,244

 
30,887

 
29,940

Diluted
31,183

 
30,701

 
31,351

 
30,299

______________
(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 $0.07 and $0.18 for the three months ended January 31, 2019 and 2018, and $0.16 and $0.36 for the nine months ended January 31, 2019 and 2018, respectively. See Note D to the Condensed Consolidated Financial Statements.
See accompanying notes to condensed consolidated financial statements—unaudited.


4


American Software, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
 
Nine Months Ended January 31,
 
2019
 
2018
Cash flows from operating activities:
 
 
 
Net earnings
$
4,929

 
$
10,785

Adjustments to reconcile net earnings to net cash provided by operating activities:
 
 
 
Depreciation and amortization
5,671

 
4,305

Stock-based compensation expense
1,308

 
1,108

Net loss (gain) on investments
393

 
(1,378
)
Deferred income taxes
(166
)
 
208

Changes in operating assets and liabilities:
 
 
 
Purchases of trading securities
(7,427
)
 
(20,010
)
Proceeds from maturities and sales of trading securities
12,944

 
11,656

Accounts receivable, net
(831
)
 
(2,926
)
Prepaid expenses and other assets
724

 
(1,494
)
Accounts payable and other liabilities
(4,031
)
 
(999
)
Deferred revenue
94

 
4,096

Net cash provided by operating activities
13,608

 
5,351

Cash flows from investing activities:
 
 
 
Capitalized computer software development costs
(4,162
)
 
(3,652
)
Purchases of property and equipment, net of disposals
(1,014
)
 
(413
)
Purchases of business, net of cash acquired


(9,253
)
Net cash used in investing activities
(5,176
)
 
(13,318
)
Cash flows from financing activities:
 
 
 
Proceeds from exercise of stock options
4,004

 
6,719

Dividends paid
(10,172
)
 
(9,841
)
Net cash used in financing activities
(6,168
)
 
(3,122
)
Net change in cash and cash equivalents
2,264

 
(11,089
)
Cash and cash equivalents at beginning of period
52,794

 
66,001

Cash and cash equivalents at end of period
$
55,058

 
$
54,912

 
 
 
 
Supplemental disclosure of cash flow information:
 
 
 
Cash paid during the period for:
 
 
 
Income taxes, net of refunds
$
505

 
$
6,764

See accompanying notes to condensed consolidated financial statements—unaudited.


5


AMERICAN SOFTWARE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements—Unaudited
January 31, 2019
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 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, 2019, results of operations for the three and nine months ended January 31, 2019 and 2018 and cash flows for the nine months ended January 31, 2019 and 2018. The Company’s results for the three and nine months ended January 31, 2019 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, 2018. The terms “fiscal 2019” and “fiscal 2018” refer to our fiscal years ending April 30, 2019 and 2018, respectively.
The preparation of these 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 revenues and expenses during the reporting period. Note 1 in the Notes to the Consolidated Financial Statements for fiscal 2018 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/collectability, stock-based compensation, income taxes and contingencies. 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. The accompanying condensed consolidated balance sheet as of April 30, 2018 and the condensed consolidated statements of operations for the three and nine months and cash flows for the nine months ended January 31, 2018 have not been revised for the effects of Topic 606 and are therefore not comparable to the January 31, 2019 period.
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 May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which replaced the previous revenue recognition guidance. The Company adopted the new revenue standard effective May 1, 2018 using the modified retrospective transition method. Under this method, the Company elected to apply the cumulative effect method to contracts that are not complete as of the adoption date. The Company’s total revenue impact is $1.2 million, with approximately 70% impacting fiscal 2019, which is the result of recognizing revenue for the license component of its term licenses and certain perpetual license contracts that were previously recognized over time due to the lack of vendor-specific objective evidence (VSOE) of fair value at the point in time at which control of the software license is transferred to the customer, rather than ratably over the term of the contract. In addition, under the new standard, the Company will capitalize a portion of sales commission expenses and recognize them ratably over the associated period of economic benefit, which the Company has determined to be six years, which will have an impact of $1.1 million. As a result, the cumulative impact due to the adoption of the new revenue standard on the opening consolidated balance sheet will be an increase in opening retained earnings, with a corresponding increase in contract assets and a decrease in deferred revenue.

6


The following table presents the cumulative effect of adjustments, net of income tax effects, to beginning consolidated balance sheet accounts for the new accounting standard adopted by the Company on the first day of fiscal 2019:
 
April 30,
2018
 
Topic 606
 
May 1,
2018
(in thousands)
ASSETS
 
 
 
 
 
Current assets:
 
 
 
 
 
Cash and cash equivalents
$
52,794

 
$

 
$
52,794

Investments
26,121

 

 
26,121

Trade accounts receivable, net
 
 
 
 
 
Billed
18,643

 

 
18,643

Unbilled
3,375

 
440

 
3,815

Prepaid expenses and other current assets
6,592

 
126

 
6,718

Total current assets
107,525

 
566

 
108,091

Investments—Noncurrent
8,893

 

 
8,893

Property and equipment, net
3,034

 

 
3,034

Capitalized software, net
9,728

 

 
9,728

Goodwill
25,888

 

 
25,888

Other intangibles, net
5,120

 

 
5,120

Other assets
2,777

 
1,325

 
4,102

Total assets
$
162,965

 
$
1,891

 
$
164,856

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
Current liabilities:
 
 
 
 
 
Accounts payable
$
1,974

 
$

 
$
1,974

Accrued compensation and related costs
6,310

 

 
6,310

Dividends payable
3,367

 

 
3,367

Other current liabilities
1,246

 
80

 
1,326

Deferred revenue
33,226

 
(521
)
 
32,705

Total current liabilities
46,123

 
(441
)
 
45,682

Deferred income taxes
2,615

 
579

 
3,194

Long-term deferred revenue
147

 

 
147

Other long-term liabilities
1,496

 

 
1,496

Total liabilities
50,381

 
138

 
50,519

Shareholders’ equity:
 
 
 
 
 
Common stock:
 
 
 
 
 
Class A
3,314

 

 
3,314

Class B
205

 

 
205

Additional paid-in capital
131,258

 

 
131,258

Retained earnings
3,366

 
1,753

 
5,119

Class A treasury stock
(25,559
)
 

 
(25,559
)
Total shareholders’ equity
112,584

 
1,753

 
114,337

Commitments and contingencies
 
 
 
 
 
Total liabilities and shareholders’ equity
$
162,965

 
$
1,891

 
$
164,856


7


The following table summarizes the effects of adopting Topic 606 on the Company’s condensed consolidated balance sheet as of January 31, 2019:
 
As reported
under Topic 606
 
Adjustments
 
Balances under
Prior GAAP
(in thousands)
ASSETS
 
 
 
 
 
Current assets:
 
 
 
 
 
Cash and cash equivalents
$
55,058

 
$

 
$
55,058

Investments
28,106

 

 
28,106

Trade accounts receivable, net
 
 
 
 
 
Billed
20,298

 

 
20,298

Unbilled
2,992

 
(339
)
 
2,653

Prepaid expenses and other current assets
6,184

 
(180
)
 
6,004

Total current assets
112,638

 
(519
)
 
112,119

Investments—Noncurrent
998

 

 
998

Property and equipment, net
3,562

 

 
3,562

Capitalized software, net
10,497

 

 
10,497

Goodwill
25,888

 

 
25,888

Other intangibles, net
3,328

 

 
3,328

Other assets
3,910

 
(1,303
)
 
2,607

Total assets
$
160,821

 
$
(1,822
)
 
$
158,999

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
Current liabilities:
 
 
 
 
 
Accounts payable
$
1,789

 
$

 
$
1,789

Accrued compensation and related costs
2,909

 

 
2,909

Dividends payable
3,417

 

 
3,417

Other current liabilities
1,279

 
(80
)
 
1,199

Deferred revenue
32,947

 
267

 
33,214

Total current liabilities
42,341

 
187

 
42,528

Deferred income taxes
3,027

 
(535
)
 
2,492

Long-term deferred revenue

 

 

Other long-term liabilities
1,097

 

 
1,097

Total liabilities
46,465

 
(348
)
 
46,117

Shareholders’ equity:
 
 
 
 
 
Common stock:
 
 
 
 
 
Class A
3,383

 

 
3,383

Class B
182

 

 
182

Additional paid-in capital
136,522

 

 
136,522

Retained earnings
(172
)
 
(1,474
)
 
(1,646
)
Class A treasury stock
(25,559
)
 

 
(25,559
)
Total shareholders’ equity
114,356

 
(1,474
)
 
112,882

Commitments and contingencies
 
 

 

Total liabilities and shareholders’ equity
$
160,821

 
$
(1,822
)
 
$
158,999


8


The following table summarizes the effects of adopting Topic 606 on the Company’s condensed consolidated statement of operations for the three months ended January 31, 2019:
 
As reported
under Topic 606
 
Adjustments
 
Balances under
Prior GAAP
(in thousands, except per share amounts)
Revenues:
 
 
 
 
 
License
$
1,718

 
$
368

 
$
2,086

Subscription Fees
3,687

 
2

 
3,689

Professional Services and other
10,176

 
31

 
10,207

Maintenance
11,422

 

 
11,422

Total revenues
27,003

 
401

 
27,404

Cost of revenues:
 
 
 
 
 
License
1,831

 

 
1,831

Subscription Fees
1,389

 

 
1,389

Professional Services and other
7,714

 

 
7,714

Maintenance
2,030

 

 
2,030

Total cost of revenues
12,964

 

 
12,964

Gross margin
14,039

 
401

 
14,440

Research and development
2,811

 

 
2,811

Sales and marketing
4,699

 
41

 
4,740

General and administrative
4,302

 

 
4,302

Amortization of acquisition-related intangibles
97

 

 
97

Total operating expenses
11,909

 
41

 
11,950

Operating income
2,130

 
360

 
2,490

Other income:
 
 
 
 
 
Interest income
523

 

 
523

Other, net
4

 

 
4

Earnings before income taxes
2,657

 
360

 
3,017

Income tax expense
356

 
49

 
405

Net earnings
$
2,301

 
$
311

 
$
2,612

Earnings per common share:
 
 
 
 
 
Basic
$
0.07

 
$
0.01

 
$
0.08

Diluted
$
0.07

 
$
0.01

 
$
0.08


9


The following table summarizes the effects of adopting Topic 606 on the Company’s condensed consolidated statement of operations for the nine months ended January 31, 2019:
 
As reported
under Topic 606
 
Adjustments
 
Balances under
Prior GAAP
(in thousands, except
per share amounts)
Revenues:
 
 
 
 
 
License
$
5,432

 
$
313

 
$
5,745

Subscription Fees
10,196

 
6

 
10,202

Professional Services and other
32,240

 
137

 
32,377

Maintenance
34,567

 

 
34,567

Total revenues
82,435

 
456

 
82,891

Cost of revenues:
 
 
 
 
 
License
5,305

 

 
5,305

Subscription Fees
3,746

 

 
3,746

Professional Services and other
24,484

 

 
24,484

Maintenance
6,442

 

 
6,442

Total cost of revenues
39,977

 

 
39,977

Gross margin
42,458

 
456

 
42,914

Research and development
9,818

 

 
9,818

Sales and marketing
15,183

 
134

 
15,317

General and administrative
12,903

 

 
12,903

Amortization of acquisition-related intangibles
291

 

 
291

Total operating expenses
38,195

 
134

 
38,329

Operating income
4,263

 
322

 
4,585

Other income:
 
 
 
 
 
Interest income
1,551

 

 
1,551

Other, net
(461
)
 

 
(461
)
Earnings before income taxes
5,353

 
322

 
5,675

Income tax expense
424

 
44

 
468

Net earnings
$
4,929

 
$
278

 
$
5,207

Earnings per common share:
 
 
 
 
 
Basic
$
0.16

 
$
0.01

 
$
0.17

Diluted
$
0.16

 
$
0.01

 
$
0.17


10



The Company’s net cash provided by operating activities for the nine months ended January 31, 2019 did not change due to the adoption of Topic 606. The following table summarizes the effects of adopting Topic 606 on the financial statement line items of the Company’s condensed consolidated statement of cash flows for the nine months ended January 31, 2019:
 
As reported
under Topic 606
 
Adjustments
 
Balances under
Prior GAAP
 
 
(in thousands)
 
 
Net earnings
$
4,929

 
$
278

 
$
5,207

Deferred income taxes
$
(166
)
 
$
44

 
$
(122
)
Changes in operating assets and liabilities:
 
 
 
 
 
Accounts receivable, net
$
(831
)
 
$
(101
)
 
$
(932
)
Prepaid expenses and other assets
$
724

 
$
32

 
$
756

Accounts payable and other liabilities
$
(4,031
)
 
$

 
$
(4,031
)
Deferred revenue
$
94

 
$
(253
)
 
$
(159
)
In February 2016, the FASB issued ASU 2016-02, Leases, which established new ASC Topic 842 (ASC 842), to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Under the new guidance, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than 12 months.
Consistent with current GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. However, unlike current GAAP, which requires only capital leases to be recognized on the balance sheet, the new standard will require both types of leases to be recognized on the balance sheet. ASC 842 also will require disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative requirements, providing additional information about the amounts recorded in the financial statements.
ASC 842 was previously required to be adopted using the modified retrospective approach. However, in July 2018, the FASB issued ASU 2018-11, which allows for retrospective application with the recognition of a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Under this option, entities would not need to apply ASC 842 (along with its disclosure requirements) to the comparative prior periods presented.
ASC 842 is effective for the Company in the first quarter of fiscal 2020 and we expect that most of our operating leases (primarily real estate) will be recognized as operating lease liabilities and right of use assets on our balance sheet. The Company is continuing to evaluate the impact that the adoption of this standard will have on its consolidated financial statements but we currently believe it is likely that the Company will elect to adopt certain of the optional practical expedients, including the package of practical expedients, which, among other things, gives us the option to not reassess: 1) whether expired or existing contracts are or contain leases; 2) the lease classification for expired or existing leases; and 3) initial direct costs for existing leases.

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:

11


Step 1 – Identification of the Contract with the Customer
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.
Licenses. Our perpetual 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 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.
Subscription Fees. Subscription fees include SaaS revenues 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 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.
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 $336,000 and $1.1 million for the three and nine months ended January 31, 2019, respectively, and approximately $419,000 and $1.4 million for the three and nine months ended January 31, 2018, respectively.
Maintenance. Revenue is derived from 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. 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.
Indirect Channel Revenue. We record revenues 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. Our contracts with customers typically contain promises to transfer multiple products and services to a customer. Judgment is required to determine whether each product and service is considered to be a distinct performance obligation that should be accounted for separately under the contract. We allocate the transaction price to distinct performance obligations based on their relative standalone selling price (“SSP”). We estimate SSP primarily based on the prices charged to customers for products or services sold on a standalone basis, or by using information such as market conditions and other observable inputs. However, the selling prices of our software licenses are highly variable or uncertain. Therefore, we estimate SSP for software licenses using the residual approach, determined based on total transaction price less the SSP of other products and services promised in the contract. When

12


performing relative selling price allocations, we use the contract price as the estimate of SSP if it falls within the Company’s range estimate of SSP since any point within the range would be a valid price point on a standalone basis. If the contract price falls outside of the range of SSP, the Company will use the nearest point in the SSP range in its relative selling price allocation.
Contract Balances. Timing of invoicing to customers may differ from timing of revenue recognition and these timing differences result in receivables, contract assets (unbilled accounts receivable), 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 a 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 sheet in accordance with FASB Accounting Standards Codification (“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 nine months ended January 31, 2019, we recognized $13 million of revenue that was included in the deferred revenue balance as of April 30, 2018, as adjusted for Topic 606, at the beginning of the period. 
 
January 31,
2019
 
May 1,
2018
Contract Balances:
 
 
 
Contract assets, current
$
2,992

 
$
3,815

Contract assets, long-term
1,051

 
332

Total contract assets
$
4,043

 
$
4,147

Deferred revenue, current
$
32,947

 
$
32,705

Deferred revenue, long-term

 
147

Total deferred revenue
$
32,947

 
$
32,852

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, 2019, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $59 million. The Company expects to recognize revenue on approximately three-quarters 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:

13


 
Three Months Ended
January 31,
 
Nine Months Ended
January 31,
2019
 
2018
 
2019
 
2018
Revenues:
 
 
 
 
 
 
 
Domestic
$
22,368

 
$
24,003

 
$
66,825

 
$
66,546

International
4,635

 
6,114

 
15,610

 
16,794

 
$
27,003

 
$
30,117

 
$
82,435

 
$
83,340

Practical Expedients and Exemptions. There are several practical expedients and exemptions allowed under Topic 606 that impact the timing of revenue recognition and the Company’s disclosures. Below is a list of practical expedients the Company applied in the adoption and application of Topic 606:
-The Company does not evaluate a contract for a significant financing component if payment is expected within one year or less from the transfer of the promised items to the customer.
-The Company does not disclose the value of unsatisfied performance obligations for contracts for which the Company recognizes revenue at the amount to which it has the right to invoice for services performed (apply to time-and-material engagements).
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 other long-term assets, respectively, in the Company’s condensed consolidated balance sheets. Total deferred commissions at January 31, 2019 and April 30, 2018 were $2.5 million and $2.5 million, respectively. Amortization of sales commissions was $0.1 million for the three months ended January 31, 2019 and $0.7 million for the nine months ended January 31, 2019, which is included in sales and marketing expense in the accompanying condensed consolidated statements of operations. No impairment losses were recognized during the periods.
C. Declaration of Dividend Payable
On November 15, 2018, 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 February 22, 2019 to Class A and Class B shareholders of record at the close of business on February 8, 2019.
D. Earnings Per Common Share
We have two classes of common stock: Class A Common Shares and Class B Common Shares. Our Class B Common Shares are convertible into Class A Common Shares at any time, on a one-for-one basis. Under our Articles of Incorporation, if we declare dividends, 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, we have computed the earnings per share in accordance with Earnings Per Share within the Presentation 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.

14


For our basic earnings per share calculation, we use 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 Common Shares into Class A Common Shares.
The calculation of diluted earnings per share is similar to the calculation of basic earnings per share, except that the calculation includes the dilutive effect of the assumed exercise of options issuable under our stock incentive plans. For our diluted earnings per share calculation for Class A Common Shares, we use the “if-converted” method. This calculation assumes that all Class B Common Shares are converted into Class A Common Shares (if antidilutive) and, as a result, assumes there are no holders of Class B Common Shares to participate in undistributed earnings.
For our diluted earnings per share calculation for Class B Common Shares, we use 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 if Class A stock options are converted to Class A Common Shares and the undistributed earnings are allocated evenly to both Class A and B Common Shares including Class A Common 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 Common Shares into Class A Common 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, 2019
 
Nine Months Ended
January 31, 2019
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
$
3,213

 
$
204

 
$
9,609

 
$
613

Undistributed losses
(1,047
)
 
(69
)
 
(4,974
)
 
(319
)
Total
$
2,166

 
$
135

 
$
4,635

 
$
294

Basic weighted average common shares outstanding
29,188

 
1,822

 
29,036

 
1,851

 
Three Months Ended
January 31, 2018
 
Nine Months Ended
January 31, 2018
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 earnings
0.07

 
0.07

 
0.03

 
0.03

Total
$
0.18

 
$
0.18

 
$
0.36

 
$
0.36

Distributed earnings
$
3,102

 
$
242

 
$
9,180

 
$
747

Undistributed earnings
2,069

 
167

 
799

 
59

Total
$
5,171

 
$
409

 
$
9,979

 
$
806

Basic weighted average common shares outstanding
27,992

 
2,252

 
27,630

 
2,310

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

15


Three Months Ended January 31, 2019
 
Undistributed
& Distributed
Earnings to
Class A
Common
Shares
 
Class A
Common
Shares
 
EPS*
Per Basic
$
2,166

 
29,188

 
$
0.07

Common Stock Equivalents

 
173

 

 
2,166

 
29,361

 
0.07

Class B Common Share Conversion
135

 
1,822

 

Diluted EPS for Class A Common Shares
$
2,301

 
31,183

 
$
0.07

Nine Months Ended January 31, 2019
 
Undistributed
& Distributed
Earnings to
Class A
Common
Shares
 
Class A
Common
Shares
 
EPS*
Per Basic
$
4,635

 
29,036

 
$
0.16

Common Stock Equivalents

 
464

 

 
4,635

 
29,500

 
0.16

Class B Common Share Conversion
294

 
1,851

 

Diluted EPS for Class A Common Shares
$
4,929

 
31,351

 
$
0.16

Three Months Ended January 31, 2018
 
Undistributed
& Distributed
Earnings to
Class A
Common
Shares
 
Class A
Common
Shares
 
EPS*
Per Basic
$
5,171

 
27,992

 
$
0.18

Common Stock Equivalents

 
457

 

 
5,171

 
28,449

 
0.18

Class B Common Share Conversion
409

 
2,252

 

Diluted EPS for Class A Common Shares
$
5,580

 
30,701

 
$
0.18


Nine Months Ended January 31, 2018
 
Undistributed
& Distributed
Earnings to
Class A
Common
Shares
 
Class A
Common
Shares
 
EPS*
Per Basic
$
9,979

 
27,630

 
$
0.36

Common Stock Equivalents

 
359

 

 
9,979

 
27,989

 
0.36

Class B Common Share Conversion
806

 
2,310

 

Diluted EPS for Class A Common Shares
$
10,785

 
30,299

 
$
0.36

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

16


Three Months Ended January 31, 2019
 
Undistributed
& Distributed
Earnings to
Class B
Common
Shares
 
Class B
Common
Shares
 
EPS*
Per Basic
$
135

 
1,822

 
$
0.07

Reallocation of undistributed earnings from Class A Common Shares to Class B Common Shares
1

 

 

Diluted EPS for Class B Common Shares
$
136

 
1,822

 
$
0.07



Nine Months Ended January 31, 2019
 
Undistributed
& Distributed
Earnings to
Class B
Common
Shares
 
Class B
Common
Shares
 
EPS*
Per Basic
$
294

 
1,851

 
$
0.16

Reallocation of undistributed earnings from Class A Common Shares to Class B Common Shares
1

 

 

Diluted EPS for Class B Common Shares
$
295

 
1,851

 
$
0.16

Three Months Ended January 31, 2018
 
Undistributed
& Distributed
Earnings to
Class B
Common Shares
 
Class B
Common
Shares
 
EPS*
Per Basic
$
409

 
2,252

 
$
0.18

Reallocation of undistributed losses from Class A Common Shares to Class B Common Shares
(2
)
 

 

Diluted EPS for Class B Common Shares
$
407

 
2,252

 
$
0.18


Nine Months Ended January 31, 2018
 
Undistributed
& Distributed
Earnings to
Class B
Common Shares
 
Class B
Common
Shares
 
EPS*
Per Basic
$
806

 
2,310

 
$
0.36

Reallocation of undistributed losses from Class A Common Shares to Class B Common Shares
(1
)
 

 

Diluted EPS for Class B Common Shares
$
805

 
2,310

 
$
0.36


*
Amounts adjusted for rounding
For the three and nine months ended January 31, 2019, we excluded options to purchase 2,416,421 and 464,475 Class A Common Shares, respectively, and for the three and nine months ended January 31, 2018, we excluded options to purchase 12,130 and 57,598 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

17


market price of the Class A Common Shares during the applicable period. As of January 31, 2019, we had a total of 4,017,123 options outstanding and as of January 31, 2018, we had a total of 3,470,017 options outstanding.
E. Stock-Based Compensation
During the nine months ended January 31, 2019 and 2018, we granted options for 1,201,000 and 1,196,000 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 $466,000 and $314,000 and income tax shortfall of approximately $26,000 and shortfall of $25,000 from option exercises during the three months ended January 31, 2019 and 2018, respectively. We recorded stock option compensation cost of approximately $1.3 million and $1.1 million, and income tax excess benefit of approximately $260,000 and benefit of $51,000 from option exercises during the nine months ended January 31, 2019 and 2018, 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, 2019 and 2018, we issued 456,113 and 778,129 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, 2019 and 2018 based on market value at the exercise dates was approximately $2.1 million and $2.2 million, respectively. As of January 31, 2019, unrecognized compensation cost related to unvested stock option awards approximated $5.0 million, which we expect to recognize over a weighted average period of 1.94 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.

18


The following tables present our assets and liabilities that we measured at fair value on a recurring basis as of January 31, 2019 and April 30, 2018, respectively, and indicates the fair value hierarchy of the valuation techniques we used to determine such fair value (in thousands):
 
January 31, 2019
 
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Balance
Cash equivalents
$
49,190

 
$

 
$

 
$
49,190

Marketable securities
9,810

 
19,294

 

 
29,104

Total
$
59,000

 
$
19,294

 
$

 
$
78,294

 
April 30, 2018
 
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Balance
Cash equivalents
$
46,972

 
$

 
$

 
$
46,972

Marketable securities
11,125

 
23,889

 

 
35,014

Total
$
58,097

 
$
23,889

 
$

 
$
81,986

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, through January 31, 2019, we have repurchased 1,053,679 shares of Class A common stock at a cost of approximately $6.2 million. As of January 31, 2019, 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.
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.
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 Principal Executive Officer (“PEO”) and President. 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, with certain corporate and other common expenses 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. We recently updated our operating segments to reflect the fact that we provide our software solutions through three major operating segments, which are further broken down into a total of six major product and service groups. The three operating segments are (1) Supply Chain Management (“SCM”), (2) Information Technology (“IT”) Consulting and (3) Other.
The SCM segment primarily consists of Logility, which is a leading provider of collaborative supply chain optimization and advanced retail planning solutions that help medium, large and Fortune 500 companies transform their supply chain

19


operations to gain a competitive advantage and which is recognized for its high-touch approach to customer service, rapid implementations and industry-leading return on investment (ROI). The SCM segment also includes (i) Demand Management, Inc (“DMI”), which delivers affordable, easy-to-use SaaS supply chain planning solutions designed to increase forecast accuracy, improve customer service and reduce inventory to maximize profits and lower costs, (ii) New Generation Computing (“NGC”), which is a leading provider of cloud-based supply chain and product lifecycle management solutions for brands, retailers and consumer products companies, and (iii) Halo Business Intelligence (“Halo”), which is an advanced analytics software provider leveraging an innovative blend of artificial intelligence and machine learning technology to drive greater supply chain performance. 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) corporate overhead and other common expenses.
Previously, we maintained three operating segments: (1) SCM, (2) IT and (3) Enterprise Resource Planning (“ERP”). As a result of the organizational realignment during the third quarter of fiscal 2018, NGC was repositioned out of the ERP segment and into the SCM segment. There were no changes to the IT segment. Certain prior year amounts have been recast to conform to fiscal 2019 presentation. The change in reportable segments had no effect on our previously reported consolidated financial position or results of operations.
All of our revenues are derived from external customers. We do not have any intersegment revenue. Our income taxes and dividends are paid at a consolidated level. Consequently, it is not practical to show these items by operating segment.

20


In the following table, we have broken down the intersegment transactions applicable to the three and nine months ended January 31, 2019 and 2018 (in thousands):
 
Three Months Ended
January 31,
 
Nine Months Ended
January 31,
 
2019
 
2018
 
2019
 
2018
Revenues:
 
 
 
 
 
 
 
Supply Chain Management
$
21,494

 
$
24,902

 
$
65,066

 
$
67,965

IT Consulting
4,938

 
4,557

 
15,517

 
13,522

Other
571

 
658

 
1,852

 
1,853

 
$
27,003

 
$
30,117

 
$
82,435

 
$
83,340

Operating income (loss) before intersegment eliminations:
 
 
 
 
 
 
 
Supply Chain Management
$
4,981

 
$
5,969

 
$
12,021

 
$
15,551

IT Consulting
244

 
185

 
999

 
775

Other
(3,095
)
 
(1,950
)
 
(8,757
)
 
(5,258
)
 
$
2,130

 
$
4,204

 
$
4,263

 
$
11,068

Intersegment eliminations*:
 
 
 
 
 
 
 
Supply Chain Management

 

 

 

IT Consulting

 

 

 

Other

 

 

 

 

 

 

 

Operating income (loss) after intersegment eliminations:
 
 
 
 
 
 
 
Supply Chain Management
$
4,981

 
$
5,969

 
$
12,021

 
$
15,551

IT Consulting
244

 
185

 
999

 
775

Other
(3,095
)
 
(1,950
)
 
(8,757
)
 
(5,258
)
 
$
2,130

 
$
4,204

 
$
4,263

 
$
11,068

Capital expenditures:
 
 
 
 
 
 
 
Supply Chain Management
$
21

 
$
79

 
$
145

 
$
160

IT Consulting

 
2

 
1

 
8

Other
99

 
120

 
868

 
245

 
$
120

 
$
201

 
$
1,014

 
$
413

Capitalized software:
 
 
 
 
 
 
 
Supply Chain Management
$
2,073

 
$
1,035

 
$
4,162

 
$
3,652

IT Consulting

 

 

 

Other

 

 

 

 
$
2,073

 
$
1,035

 
$
4,162

 
$
3,652

Depreciation and amortization:
 
 
 
 
 
 
 
Supply Chain Management
$
1,862

 
$
1,551

 
$
5,416

 
$
4,157

IT Consulting
2

 
2

 
6

 
6

Other
96

 
46

 
249

 
142

 
$
1,960

 
$
1,599

 
$
5,671

 
$
4,305

Earnings (loss) before income taxes:
 
 
 
 
 
 
 
Supply Chain Management
$
5,190

 
$
6,099

 
$
12,248

 
$
15,892

IT Consulting
244

 
185

 
999

 
775

Other
(2,777
)
 
(506
)
 
(7,894
)
 
(2,750
)
 
$
2,657

 
$
5,778

 
$
5,353

 
$
13,917

*
Fiscal 2018 recast to adjust for corporate overhead and other common expenses, which were no longer allocated starting in fiscal 2019.

21



J. Major Customers
No one customer accounted for more than 10% of total revenues for the three and nine months ended January 31, 2019 and 2018.
K. Contingencies
We more often than not indemnify our customers against damages and costs resulting from 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 the indemnifications 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 products operate substantially in accordance with the software products’ specifications. 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 13, 2019, 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 24, 2019 to Class A and Class B shareholders of record at the close of business on May 10, 2019.


22


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;
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 revenues, 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 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
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 global credit markets.
In January 2019, the International Monetary Fund (“IMF”) provided an update to the World Economic Outlook for 2018 and 2019. The update noted that, “Global growth for 2018 is estimated at 3.7 percent, as in the October 2018 World Economic Outlook (WEO) forecast, despite weaker performance in some economies, notably Europe and Asia. The global economy is projected to grow at 3.5 percent in 2019 and 3.6 percent in 2020, 0.2 and 0.1 percentage point below last October’s projections. The global growth forecast for 2019 and 2020 had already been revised downward in the last WEO, partly because of the negative effects of tariff increases enacted in the United States and China earlier that year. The further downward revision since October in part reflects carry over from softer momentum in the second half of 2018—including in Germany following the introduction of new automobile fuel emission standards and in Italy where concerns about sovereign and financial risks have weighed on domestic demand—but also weakening financial market sentiment as well as a contraction in Turkey now projected to be deeper than anticipated."
For fiscal 2019, we expect the global economy to improve modestly when compared to the prior year. We believe information technology spending will incrementally improve over the long term as increased global competition forces companies to improve productivity by upgrading their technology systems, which could result in an improved selling environment. Although this improvement could slow or regress at any time, due in part to concerns in global capital markets

23


and general economic conditions, we believe that our organizational and financial structure will enable us to take advantage of any sustained economic rebound. Customers continue to take long periods to evaluate discretionary software purchases.
We believe improved economic conditions 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.
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 enterprise management and collaborative supply chain solutions to the global marketplace. We have designed our software and services to bring business value to enterprises by supporting their operations over intranets, extranets, client/servers or the Internet. References to “the Company,” “our products,” “our software,” “our services” and similar references include the appropriate business segment actually providing the product or service.
The SCM segment primarily consists of Logility, which is a leading provider of collaborative supply chain optimization and advanced retail planning solutions that help medium, large and Fortune 500 companies transform their supply chain operations to gain a competitive advantage and which is recognized for its high-touch approach to customer service, rapid implementations and industry-leading return on investment (ROI). The SCM segment also includes (i) DMI, which delivers affordable, easy-to-use Software-as-a-Service (SaaS) supply chain planning solutions designed to increase forecast accuracy, improve customer service and reduce inventory to maximize profits and lower costs, (ii) NGC, which is a leading provider of cloud-based supply chain and product lifecycle management solutions for brands, retailers and consumer products companies, and (iii) Halo, which is an advanced analytics software provider leveraging an innovative blend of artificial intelligence and machine learning technology to drive greater supply chain performance. The IT Consulting segment consists of The Proven Method, Inc., an IT staffing and consulting services firm, which provides support for their customers products, such as software enhancements, documentation, updates, customer education, consulting, systems integration services, maintenance and support services. The Other segment consists of (i) American Software ERP, which provides purchasing and materials management, customer order processing, financial, e-commerce and traditional manufacturing solutions, and (ii) corporate overhead and other common expenses.
We derive revenues primarily from four sources: software licenses, subscriptions, professional services and other, and maintenance. 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 revenues consist primarily of fees from software implementation, training, and consulting services. We bill primarily under time and materials arrangements and recognize revenues as we perform services. 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 annually in advance under agreements with terms of one to three years, and then recognize the resulting revenues ratably over the term of the agreement. Deferred revenue represents payments or billings for subscriptions, software licenses, services and maintenance in advance of the time we recognize the related revenues.
Our cost of revenue for licenses 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 license revenues generated by the indirect channel, primarily from DMI. Costs for maintenance and services include the cost of personnel to conduct implementations and customer support, consulting, other personnel-related expenses, and agent commission expenses related to maintenance revenues generated by the indirect channel, primarily from DMI. We account for the development costs of software intended for sale in accordance with the 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 revenues. We currently expect to fully recover the value of the capitalized software asset recorded on our condensed consolidated balance sheet; however, if future product revenues are less than management’s current expectations, we may incur a write-down of capitalized software costs.
Our selling expenses 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:

24


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 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.
Acquisition Risks. There are risks associated with acquisitions of complementary companies, products and technologies, including the risks that we will not achieve the financial and strategic goals that we contemplate at the time of the transaction. More specifically, in any acquisition we will face risks and challenges associated with the uncertain value of the acquired business or assets, the difficulty of assimilating operations and personnel, integrating acquired technologies and products and maintaining the loyalty of the customers of the acquired business.
Competitive Technologies. There is a risk that our competitors may develop technologies that are substantially equivalent or superior to our technology.
Competition in General. There are risks inherent in the market for business application software and related services, which has been and continues to be intensely competitive; for example, some of our competitors may become more aggressive with their prices and/or payment terms, which may adversely affect our profit margins.
A discussion of a number of additional risk factors associated with our business is included in our Annual Report for fiscal 2018. 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 consolidated financial statements, if any, see Note A in the Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report.

25


COMPARISON OF RESULTS OF OPERATIONS
Three-Month Comparisons. The following table sets forth certain revenue and expense items as a percentage of total revenues and the percentage changes in those items for the three months ended January 31, 2019 and 2018:
 
Three Months Ended January 31,
 
Percentage of Total
Revenues
 
Pct. Change in
Dollars
 
2019
 
2018
 
2019 vs. 2018
Revenues:
 
 
 
 
 
License
6
%
 
20
%
 
(71
)%
Subscription Fees
14
%
 
9
%
 
43
 %
Professional Services and other
38
%
 
34
%
 
(2
)%
Maintenance
42
%
 
37
%
 
2
 %
Total revenues
100
%
 
100
%
 
(10
)%
Cost of revenues:
 
 
 
 
 
License
7
%
 
6
%
 
(6
)%
Subscription Fees
5
%
 
3
%
 
35
 %
Professional Services and other
29
%
 
26
%
 
(3
)%
Maintenance
8
%
 
8
%
 
(16
)%
Total cost of revenues
49
%
 
43
%
 
(1
)%
Gross margin
51
%
 
57
%
 
(18
)%
Research and development
10
%
 
10
%
 
(9
)%
Sales and marketing
17
%
 
18
%
 
(13
)%
General and administrative
16
%
 
14
%
 
1
 %
Amortization of acquisition-related intangibles
%
 
%
 
2