AMERICAN SOFTWARE INC [AMSWA] Filings

10-Q 1 amswa-20221031.htm 10-Q amswa-20221031

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________

FORM 10-Q

_________________

(Mark One)


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

For the quarterly period ended October 31, 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 December 1, 2022
Class A Common Stock, $.10 par value						31,918,863 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 October 31, 2022

Index


Page No
Part I—Financial Information

Item 1.	Financial Statements (Unaudited)

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

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

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

	Condensed Consolidated Statements of Cash Flows for the Six Months ended October 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	22

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36

Item 4.	Controls and Procedures	37

Part II—Other Information

Item 1.	Legal Proceedings	38

Item 1A.	Risk Factors	38

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38

Item 3.	Defaults Upon Senior Securities	38

Item 4.	Mine Safety Disclosures	38

Item 5.	Other Information	38

Item 6.	Exhibits	38

Signatures		39

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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)


	October 31, 2022		April 30, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	83,962	$	110,690
Investments	22,805		16,826
Trade accounts receivable, less allowance for doubtful accounts of $354 at October 31, 2022 and $423 at April 30, 2022:
Billed	24,127		20,619
Unbilled	2,690		2,989
Prepaid expenses and other current assets	5,384		5,067
Total current assets	138,968		156,191
Property and equipment, net of accumulated depreciation of $31,755 at October 31, 2022 and $31,242 at April 30, 2022	5,847		3,654
Capitalized software, net of accumulated amortization of $42,726 at October 31, 2022 and $42,007 at April 30, 2022	867		1,586
Goodwill	29,558		25,888
Other intangibles, net of accumulated amortization of $13,597 at October 31, 2022 and $13,228 at April 30, 2022	2,609		147
Lease right of use assets	646		935
Deferred sales commissions—noncurrent	1,702		2,050
Deferred income taxes	227		—
Other assets	2,588		2,384
Total assets	$	183,012	$	192,835
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	2,485	$	2,506
Accrued compensation and related costs	3,723		6,918
Dividends payable	3,711		3,700
Operating lease obligations	441		541
Other current liabilities	2,361		1,871
Deferred revenue	36,008		41,953
Total current liabilities	48,729		57,489
Deferred income taxes	—		1,772
Long-term operating lease obligations	250		461
Other long-term liabilities	465		137
Total liabilities	49,444		59,859
Shareholders’ equity:
Common stock:
Class A, $.10 par value. Authorized 50,000,000 shares: 36,503,495 (31,914,863, net) shares issued and outstanding at October 31, 2022 and 36,405,695 (31,817,063, net) shares issued and outstanding at April 30, 2022	3,650		3,641
Class B, $.10 par value. Authorized 10,000,000 shares: 1,821,587 shares issued and outstanding at October 31, 2022 and April 30, 2022; convertible into Class A Common Shares on a one-for-one basis	182		182
Additional paid-in capital	175,733		171,948
Retained deficit	(20,438)		(17,236)
Class A treasury stock, 4,588,632 shares at October 31, 2022 and April 30, 2022, at cost	(25,559)		(25,559)
Total shareholders’ equity	133,568		132,976
Commitments and contingencies
Total liabilities and shareholders’ equity	$	183,012	$	192,835

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 October 31,				Six Months Ended October 31,
	2022		2021		2022		2021
Revenue:
Subscription fees	$	12,326	$	10,361	$	24,388	$	20,149
License	688		805		1,008		1,297
Professional services and other	9,594		10,779		19,603		20,308
Maintenance	8,830		9,266		17,735		18,728
Total revenue	31,438		31,211		62,734		60,482
Cost of revenue:
Subscription fees	4,059		3,404		7,677		6,628
License	94		198		183		357
Professional services and other	6,847		7,477		14,151		14,487
Maintenance	1,577		1,746		3,150		3,720
Total cost of revenue	12,577		12,825		25,161		25,192
Gross margin	18,861		18,386		37,573		35,290
Research and development	4,364		4,278		8,818		8,702
Sales and marketing	5,697		5,892		11,609		12,012
General and administrative	6,001		5,476		11,766		10,010
Amortization of acquisition-related intangibles	32		53		56		106
Total operating expenses	16,094		15,699		32,249		30,830
Operating income	2,767		2,687		5,324		4,460
Other income (loss):
Interest income	364		97		573		190
Other, net	(509)		833		(599)		1,177
Earnings before income taxes	2,622		3,617		5,298		5,827
Income tax expense (benefit)	541		303		1,084		(434)
Net earnings	$	2,081	$	3,314	$	4,214	$	6,261
Earnings per common share (a):
Basic	$	0.06	$	0.10	$	0.12	$	0.19
Diluted	$	0.06	$	0.10	$	0.12	$	0.18
Cash dividends declared per common share	$	0.11	$	0.11	$	0.22	$	0.22
Shares used in the calculation of earnings per common share:
Basic	33,720		33,337		33,688		33,195
Diluted	34,071		34,685		34,040		34,448

______________

(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 $0.06 and $0.10 for the three months ended October 31, 2022 and 2021 and $0.12 and $0.19 for the six months ended October 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 October 31, 2021	Shares	Amount		Shares	Amount

Balance at July 31, 2021	36,028,566	$	3,603	1,821,587	$	182	$	164,299	$	(15,991)	$	(25,559)	$	126,534
Proceeds from stock options exercised	146,242	14		—	—		1,628		—		—		1,642,000
Stock-based compensation	—	—		—	—		1,042		—		—		1,042
Net earnings	—	—		—	—		—		3,314		—		3,314
Dividends declared*	—	—		—	—		—		(3,685)		—		(3,685)
Balance at October 31, 2021	36,174,808	$	3,617	1,821,587	$	182	$	166,969	$	(16,362)	$	(25,559)	$	128,847
For the Three Months Ended October 31, 2022
Balance at July 31, 2022	36,448,695	$	3,645	1,821,587	$	182	$	173,721	$	(18,808)	$	(25,559)	$	133,181
Proceeds from stock options exercised*	54,800	5		—	—		669		—		—		674,000
Stock-based compensation	—	—		—	—		1,343		—		—		1,343
Net earnings	—	—		—	—				2,081		—		2,081
Dividends declared	—	—		—	—		—		(3,711)		—		(3,711)
Balance at October 31, 2022	36,503,495	$	3,650	1,821,587	$	182	$	175,733	$	(20,438)	$	(25,559)	$	133,568

*Amounts adjusted for rounding


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

Balance at April 30, 2021	35,629,566	3,563	1,821,587	182	159,492	(15,287)	(25,559)	122,391
Proceeds from stock options exercised	545,242	54	—	—	5,660	—	—	5,714
Stock-based compensation	—	—	—	—	1,817	—	—	1,817
Net earnings	—	—	—	—	—	6,261	—	6,261
Dividends declared*	—	—	—	—	—	(7,336)	—	(7,336)
Balance at October 31, 2021	36,174,808	3,617	1,821,587	182	166,969	(16,362)	(25,559)	128,847
For the Six Months Ended October 31, 2022
Balance at April 30, 2022	36,405,695	3,641	1,821,587	182	171,948	(17,236)	(25,559)	132,976
Proceeds from stock options exercised*	97,800	9	—	—	1,136		—	1,145
Stock-based compensation	—	—	—	—	2,649		—	2,649
Net earnings	—	—	—	—	—	4,214	—	4,214
Dividends declared*	—	—	—	—	—	(7,416)	—	(7,416)
Balance at October 31, 2022	36,503,495	3,650	1,821,587	182	175,733	(20,438)	(25,559)	133,568

*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)


	Six Months Ended October 31,
	2022		2021
Cash flows from operating activities:
Net earnings	$	4,214	$	6,261
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	1,601		2,170

Stock-based compensation expense	2,649		1,817
Net gain on investments	331		(1,193)
Deferred income taxes	(1,999)		(99)
Changes in operating assets and liabilities:
Purchases of trading securities	(7,094)		(174)
Proceeds from maturities and sales of trading securities	784		210
Accounts receivable, net	(3,209)		4,502

Prepaid expenses and other assets	(173)		(2,013)
Accounts payable and other liabilities	(2,420)		(2,595)
Deferred revenue	(5,945)		(1,174)
Net cash (used in) provided by operating activities	(11,261)		7,712
Cash flows from investing activities:

Purchases of property and equipment, net of disposals	(2,706)		(615)
Purchases of business	(6,500)		—
Net cash (used in) investing activities	(9,206)		(615)
Cash flows from financing activities:
Proceeds from exercise of stock options	1,145		5,714
Dividends paid	(7,406)		(7,268)
Net cash (used in) financing activities	(6,261)		(1,554)
Net change in cash and cash equivalents	(26,728)		5,543
Cash and cash equivalents at beginning of period	110,690		88,658
Cash and cash equivalents at end of period	$	83,962	$	94,201

Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes, net of refunds	$	2,997	$	176
Supplemental disclosures of noncash operating, investing and financing activities:
Accrual of dividends payable	$	3,711	$	3,676

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

October 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 October 31, 2022, results of operations for the three and six months ended October 31, 2022 and 2021, consolidated statements of shareholders’ equity for the three and six months ended October 31, 2022 and 2021 and cash flows for the six months ended October 31, 2022 and 2021. The Company’s results for the three months ended October 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, 2022. The terms “fiscal 2023” and “fiscal 2022” refer to our fiscal years ending April 30, 2023 and 2022, 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 2022 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

Accounting Standards Update ("ASU") 2021-08 — In October 2021, the Financial Accounting Standards Board ("FASB") issued ASU 2021-08, "Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers." Under current GAAP, an acquirer generally recognizes assets acquired and liabilities assumed in a business combination, including contract assets and contract liabilities arising from revenue contracts with customers and other similar contracts that are accounted for in accordance with Accounting Standards Codification ("ASC") Topic 606, Revenue from Contracts with Customers ("Topic 606"), at fair value on the acquisition date. ASU 2021-08 requires that an entity recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts, which should generally result in an acquirer recognizing and measuring the acquired contract assets and contract liabilities consistent with how they were recognized and measured in the acquiree’s financial statements. This update also provides certain practical expedients for acquirers when recognizing and measuring acquired contract assets and contract liabilities from revenue contracts in a business combination. The amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years and should be applied prospectively to business combinations occurring on or after the effective date of the amendments. Early adoption is permitted, including adoption in an interim period. Adoption during an interim period requires retrospective application to all business combinations for which the acquisition date occurs on or after the beginning of the fiscal year that includes the interim period of early application. We are evaluating the potential effects of ASU 2021-08 on our consolidated financial statements.

B. Revenue Recognition

In accordance with the ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), we recognize revenue when we transfer control of the promised goods or services to our clients, in an amount that reflects the consideration we expect to receive, in exchange for those goods or services. We derive our revenue from software licenses, maintenance services,

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consulting, implementation and training services, and Software-as-a-Service (“SaaS”), which includes a subscription to our software, as well as support, hosting and managed services.

The Company recognizes revenue in accordance with the following steps:

Step 1 - Identification of the Contract with the Client

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

Step 3 - Determination of the 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. 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 or by a third party. The client accesses and uses the software on an as needed basis over the Internet or via a dedicated line; however, the client 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 client. Revenue from a SaaS solution is generally recognized ratably over the term of the arrangement.

License. Our perpetual software licenses provide the client with a right to use the software as it exists at the time of purchase. We recognize revenue for distinct software licenses once the license period has begun and we have made the software available to the client. Our perpetual software licenses are sold with maintenance under which we provide clients with telephone consulting, product updates on a when available basis, and releases of new versions of products previously purchased by the client, as well as error reporting and correction services.

Professional Services and Other. Our services 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 clients, and are distinct from our software. Fees for our services are separately priced and are generally billed on an hourly basis, and revenue is recognized over time as the services are performed. We believe the output method of hours worked provides the best depiction of the transfer of our services since the client is receiving the benefit from our services as the work is performed. The total amount of expense reimbursement included in professional services and other revenue was immaterial for the three and six months ended October 31, 2022 and October 31, 2021.

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

Indirect Channel Revenue. 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 clients on a net basis.

Contract Balances. Timing of invoicing to clients 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 clients. 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

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invoicing terms is to provide clients with predictable ways to purchase our software and services, not to provide or receive financing. Additionally, we are applying the practical expedient to exclude any financing component from consideration for any contracts with payment terms of one year or less since we rarely offer terms extending beyond one year. The consideration in our client contracts is fixed.

We have an unconditional right to consideration for all goods and services transferred to our clients. That unconditional right to consideration is reflected in billed and unbilled accounts receivable in the accompanying Condensed Consolidated Balance Sheets in accordance with Topic 606.

Deferred revenue consists of amounts collected prior to having completed the performance of maintenance, SaaS, hosting, and managed services. We typically invoice clients for cloud subscription and support fees in advance on a monthly, quarterly or annual basis, with payment due at the start of the cloud subscription or support term. During the three months ended October 31, 2022, we recognized $17.6 million of revenue that was included in the deferred revenue balance as of July 31, 2022. During the six months ended October 31, 2022, we recognized $29.6 million of revenue that was included in the deferred revenue balance as of April 30, 2022.


	October 31, 2022		April 30, 2022
	(in thousands)





Deferred revenue, current	36,008		41,953
Deferred revenue, long-term	—		—
Total deferred revenue	$	36,008	$	41,953

Remaining Performance Obligations. A performance obligation is a promise in a contract to transfer a distinct good or service to the client 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 client. The Company identifies and tracks the performance obligations at contract inception so that the Company can monitor and account for the performance obligations over the life of the contract. Remaining performance obligations represent the transaction price of orders for which products have not been delivered or services have not been performed. As of October 31, 2022, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $122.7 million. The Company expects to recognize revenue on approximately 50% of the remaining performance obligations over the next 12 months, with the remainder recognized thereafter.

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

The Company’s revenue by geography is as follows:


	Three Months Ended October 31,				Six Months Ended October 31,
	2022		2021		2022		2021
	(in thousands)				(in thousands)
Revenue:
Domestic	$	25,570	$	26,197	$	51,229	$	50,624
International	5,868		5,014		11,505		9,858
	$	31,438	$	31,211	$	62,734	$	60,482

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

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

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

•The costs are expected to be recovered.

Certain sales commissions incurred by the Company were determined to be incremental costs to obtain the related contracts, which are deferred and amortized ratably over the economic benefit period. These deferred commission costs are classified as current or non-current based on the timing of when the Company expects to recognize the expense. The current and non-current portions of deferred commissions are included in prepaid expenses and other current assets and deferred sales commissions—noncurrent, respectively, in the Company’s Condensed Consolidated Balance Sheets. Total deferred commissions at October 31, 2022 and April 30, 2022 were $3.1 million and $3.4 million, respectively. Amortization of sales commissions was $0.4 million and $0.8 million for the three and six months ended October 31, 2022, respectively, and $0.5 million and $1.0 million for the three and six months ended October 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 August 17, 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 December 2, 2022 to Class A and Class B shareholders of record at the close of business on November 18, 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 260, Earnings Per Share, 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.

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):

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Basic earnings per common share:


	Three Months Ended October 31, 2022				Six Months Ended October 31, 2022
	Class A Common Shares		Class B Common Shares		Class A Common Shares		Class B Common Shares
Distributed earnings	$	0.11	$	0.11	$	0.22	$	0.22
Undistributed losses	(0.05)		(0.05)		(0.10)		(0.10)
Total	$	0.06	$	0.06	$	0.12	$	0.12
Distributed earnings	$	3,511	$	200	$	7,016	$	400
Undistributed losses	(1,542)		(88)		(3,030)		(172)
Total	$	1,969	$	112	$	3,986	$	228
Basic weighted average common shares outstanding	31,898		1,822		31,866		1,822


	Three Months Ended October 31, 2021				Six Months Ended October 31, 2021
	Class A Common Shares		Class B Common Shares		Class A Common Shares		Class B Common Shares
Distributed earnings	$	0.11	$	0.11	$	0.22	$	0.22
Undistributed losses	(0.01)		(0.01)		(0.03)		(0.03)
Total	$	0.10	$	0.10	$	0.19	$	0.19
Distributed earnings	$	3,475	$	201	$	6,926	$	401
Undistributed losses	(342)		(20)		(1,007)		(59)
Total	$	3,133	$	181	$	5,919	$	342
Basic weighted average common shares outstanding	31,515		1,822		31,373		1,822

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

Three Months Ended October 31, 2022


	Undistributed & Distributed Earnings to Class A Common Shares		Class A Common Shares	EPS*
Per Basic	$	1,969	31,898	$	0.06
Common Stock Equivalents			352
	1,969		32,250	0.06
Class B Common Share Conversion*	112		1,822
Diluted EPS for Class A Common Shares	$	2,081	34,072	$	0.06

Six Months Ended October 31, 2022

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	Undistributed & Distributed Earnings to Class A Common Shares		Class A Common Shares	EPS*
Per Basic*	$	3,986	31,866	$	0.12
Common Stock Equivalents	—		352
	3,986		32,218	0.12
Class B Common Share Conversion*	228		1,822
Diluted EPS for Class A Common Shares	$	4,214	34,040	$	0.12

Three Months Ended October 31, 2021


	Undistributed & Distributed Earnings to Class A Common Shares		Class A Common Shares	EPS*
Per Basic	$	3,133	31,515	$	0.10
Common Stock Equivalents	—		1,348
	3,133		32,863	0.10
Class B Common Share Conversion	181		1,822
Diluted EPS for Class A Common Shares	$	3,314	34,685	$	0.10

Six Months Ended October 31, 2021


	Undistributed & Distributed Earnings to Class A Common Shares		Class A Common Shares	EPS*
Per Basic	$	5,919	31,373	$	0.19
Common Stock Equivalents	—		1,253
	5,919		32,626	0.18
Class B Common Share Conversion	342		1,822
Diluted EPS for Class A Common Shares	$	6,261	34,448	$	0.18

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

Three Months Ended October 31, 2022

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	Undistributed & Distributed Earnings to Class B Common Shares		Class B Common Shares	EPS*
Per Basic	$	112	1,822	$	0.06
Reallocation of undistributed earnings/losses from Class A Common Shares to Class B Common Shares	1		—
Diluted EPS for Class B Common Shares	$	113	1,822	$	0.06

Six Months Ended October 31, 2022


	Undistributed & Distributed Earnings to Class B Common Shares		Class B Common Shares	EPS*
Per Basic*	$	228	1,822	$	0.12
Reallocation of undistributed earnings/losses from Class A Common Shares to Class B Common Shares	2		—
Diluted EPS for Class B Common Shares*	$	230	1,822	$	0.12

Three Months Ended October 31, 2021


	Undistributed & Distributed Earnings to Class B Common Shares		Class B Common Shares		EPS*
Per Basic	$	181	$	1,822	$	0.10
Reallocation of undistributed earnings/losses from Class A Common Shares to Class B Common Shares	1		—
Diluted EPS for Class B Common Shares	$	182	1,822		$	0.10

Six Months Ended October 31, 2021


	Undistributed & Distributed Earnings to Class B Common Shares		Class B Common Shares		EPS*
Per Basic	$	342	$	1,822	$	0.19
Reallocation of undistributed earnings/losses from Class A Common Shares to Class B Common Shares	2		—
Diluted EPS for Class B Common Shares	$	344	1,822		$	0.19

_______________

*Amounts adjusted for rounding

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For the three and six months ended October 31, 2022, we excluded options to purchase 3,426,398 and 3,286,253 Class A Common Shares, respectively, and for the three and six months ended October 31, 2021, we excluded options to purchase 1,098,815 and 704,554 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 October 31, 2022, we had a total of 5,728,204 options outstanding and as of October 31, 2021, we had a total of 4,831,991 options outstanding.

E. Acquisitions

We account for business combinations using the acquisition method of accounting and accordingly, the identifiable assets acquired and liabilities assumed are recorded based upon management’s estimates of current fair values as of the acquisition date. The estimation process includes analyses based on income and market approaches. Goodwill represents the excess purchase price over the fair value of net assets, including the amount assigned to identifiable intangible assets. The goodwill generated is due in part to the synergies that are not included in the fair value of identifiable intangible assets. Goodwill recorded in an acquisition is assigned to applicable reporting units based on expected revenues. Identifiable intangible assets with finite lives are amortized over their useful lives. Amortization of current technology is recorded in cost of revenue-subscription fees and amortization of all other intangible assets is recorded in amortization of acquisition-related intangibles. Acquisition-related costs, including advisory, legal, accounting, valuation and other costs, are expensed in general and administrative expenses in the periods in which such costs are incurred. The results of operations of acquired businesses are included in the Condensed Consolidated Financial Statements from the acquisition date.

Effective June 28, 2022, the Company acquired certain assets of privately-held Starboard Solutions Corp., a Michigan based innovator of supply chain network design software (“Starboard”), pursuant to the terms of an asset purchase agreement, dated as of June 28, 2022 (the “Purchase Agreement”).

Starboard creates an interactive supply chain digital twin of the physical supply chain network and uses gaming technology to provide an intuitive user experience where users can easily explore answers to various "what if" questions. Starboard offers a unique supply chain visualization solution that can optimize for unknown locations, meaning users do not have to map their plans to a physical location. Applying Starboard’s rich set of reference costs with Logility’s lane rates and time data structures, users have the ability to quickly analyze options in regions for which they have no prior data and locate the absolute best location for future plants, warehouses or Third-party logistic locations ("3PL") locations. The intuitive design and ease of configuration makes the Starboard network design solution stand out. The solution is built for continuous use, eliminating the need for a consulting project to model potential resolutions to unexpected supply chain disruptions. The integration of Starboard’s capabilities into the Logility Digital Supply Chain Platform will offer supply chain leaders enhanced integrated business planning outcomes. Users will be able to model a response to disruptions and update their operating plan within the Logility Digital Supply Chain Platform in minutes to enact the new operating paradigm.

Under the terms of the Purchase Agreement, the Company acquired the assets in exchange for a purchase price of approximately $6.5 million in cash, subject to certain post-closing adjustments, plus up to a maximum aggregate amount of $6.0 million (the "Aggregate Maximum Earnout Payment") of contingent earnout payments upon satisfaction of certain subscription revenue targets over a three year earnout period (the "Earnout Period"). For each year of the Earnout Period (each, a "Calculation Period"), the Company will pay, as additional consideration, $2.0 million once subscription revenue (i.e., revenue contracted for and recorded as revenue in accordance with GAAP) for the applicable Calculation Period equals $1.5 million, plus one dollar of additional consideration for each dollar of subscription revenue in excess of $1.5 million, subject to the Aggregate Maximum Earnout Payment. If the subscription revenue for each Calculation Period is less than $1.5 million, no additional payment shall be due for such Calculation Period. The contingent earnout payments are subject to the recipient's continued service with the Company; therefore, any additional consideration will be accounted for as post-combination services and will be expensed as incurred. The Company incurred acquisition costs of approximately $81,500 and $136,000 during the three and six months ended October 31, 2022, respectively. The operating results of Starboard are not material for proforma disclosure. We allocated $3.7 million of the total purchase price to goodwill, which has been assigned to the Supply Chain Management segment and is deductible for income tax purposes.

The purchase price allocation herein is preliminary. The final purchase price allocation will be determined after completion of a thorough analysis to determine the fair value of all assets acquired and liabilities assumed, but in no event later than one year following completion of the acquisition. Accordingly, the final acquisition accounting adjustments could differ materially from the pro forma adjustments presented herein. Any increase or decrease in the fair value of the assets acquired and liabilities assumed, as compared to the information shown herein, could also change the portion of purchase price allocated to goodwill and could impact the operating results of the Company following the acquisition due to differences in purchase

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price allocation, depreciation and amortization related to some of these assets and liabilities. The acquisition-date fair value of the consideration transferred is as follows (in thousands):


			Useful Life
Other assets	340
Goodwill	3,670
Non-compete	170		5 years
Current technology	2,500		3 years
Customer relationships	160		6 years
Total assets acquired	6,840

Long-term liabilities	(340)
Net assets acquired	$	6,500

Non-compete agreements, current technology and customer relationships are being amortized on a straight-line basis over the remaining estimated economic life of the assets, including the period being reported.

F. Stock-Based Compensation

During the six months ended October 31, 2022 and 2021, we granted options for 1,424,000 and 1,308,500 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 $1.3 million and $1.0 million and income tax benefits of approximately $29,000 and $439,000 from option exercises during the three months ended October 31, 2022 and 2021, respectively. We recorded stock option compensation cost of approximately $2.6 million and $1.8 million and income tax benefits of approximately $63,000 and $1,616,000 from option exercises during the six months ended October 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 six months ended October 31, 2022 and 2021, we issued 97,800 and 545,242 shares of Class A common stock, respectively, resulting from the exercise of stock options. The total intrinsic value of options exercised during the six months ended October 31, 2022 and 2021 based on market value at the exercise dates was approximately $0.5 million and $7.6 million, respectively. As of October 31, 2022, unrecognized compensation cost related to unvested stock option awards approximated $15.7 million, which we expect to recognize over a weighted average period of 1.96 years.

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G. Fair Value of Financial Instruments

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

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

•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.

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


	October 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	$	77,498	$	—	$	—	$	77,498
Marketable securities	22,805		—		—		22,805
Total	$	100,303	$	—	$	—	$	100,303


	April 30, 2022
	Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)	Balance
Cash equivalents	98,459	—	—	98,459
Marketable securities	16,826	—	—	16,826
Total	115,285	—	—	115,285

H. 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 2023. As of October 31,

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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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I. 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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J. 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 leverages a single platform spanning seven supply chain process areas, including product, demand, inventory, supply, deploy, integrated business planning and supply chain data management. The IT Consulting segment consists of The Proven Method, Inc., an IT staffing and consulting services firm. The Other segment consists of (i) American Software ERP, which provides purchasing and materials management, client order processing, financial, e-commerce and traditional manufacturing solutions, and (ii) unallocated corporate overhead expenses.

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

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


	Three Months Ended October 31,				Six Months Ended October 31,
	2022		2021		2022		2021
Revenue:
Supply Chain Management	$	26,752	$	25,380	$	52,934	$	49,631
IT Consulting	4,159		5,226		8,674		9,702
Other	527		605		1,126		1,149
	$	31,438	$	31,211	$	62,734	$	60,482
Operating income\(loss):
Supply Chain Management	$	7,646	$	6,718	$	14,825	$	12,073
IT Consulting	217		336		432		499
Other	(5,096)		(4,367)		(9,933)		(8,112)
	$	2,767	$	2,687	$	5,324	$	4,460










Capital expenditures: