US SOFTWARE: Management Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)

0
FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q (this "Quarterly Report") contains
forward-looking statements relating to our future financial performance,
business strategy, financing plans and other future events that involve
uncertainties and risks. You can identify these statements by forward-looking
words such as "anticipate," "intend," "plan," "continue," "could," "grow,"
"may," "potential," "predict," "strive" "will," "seek," "estimate," "believe,"
"expect," and similar expressions that convey uncertainty of future events or
outcomes. Any forward-looking statements we make herein are pursuant to the safe
harbor provision of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements include statements concerning future:
•results of operations;
•liquidity, cash flow and capital expenditures;
•demand for and pricing of our products and services;
•cloud services annual contract value ("ACV");
•viability and effectiveness of strategic alliances;
•industry conditions and market conditions;
•acquisition activities and the effect of completed acquisitions; and
•general economic conditions.
Although we believe that the goals, plans, expectations, and prospects that our
forward-looking statements reflect are reasonable in view of the information
currently available to us, those statements are not guarantees of performance.
There are many factors that could cause our actual results to differ materially
from those anticipated by forward-looking statements made herein. These factors
include, but are not limited to, continuing U.S. and global economic
uncertainty, the timing and degree of business recovery, unpredictability and
the irregular pattern of future revenue, dependence on particular market
segments or customers, competitive pressures, delays, product liability and
warranty claims and other risks associated with new product development,
undetected software errors, market acceptance of our products, technological
complexity, the challenges and risks associated with integration of acquired
product lines, companies and services, as well as a number of other risk factors
that could affect our future performance. All forward-looking statements
included in this Quarterly Report are based upon information available to us as
of the filing date of this Quarterly Report. We undertake no obligation to
update any of these forward-looking statements for any reason. These
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause our actual results, levels of activity,
performance, or achievements to differ materially from those expressed or
implied by these statements. We discuss certain factors in greater detail in
"Business Overview" below.
ECONOMIC OVERVIEW
For fiscal 2022, we expect the global economy to improve modestly when compared
to recent periods. We believe improved economic conditions and increasingly
complex supply chain challenges may be driving some businesses to focus on
achieving more process and efficiency enhancements in their operations and to
invest in solutions that improve operating margins, rather than make large
infrastructure-type technology purchases. If this trend continues, we believe it
may tend to favor solutions such as our supply chain solutions, which are
designed to provide a more rapid return on investment and are targeted at some
of the largest profit drivers in a customer's business. While we do not expect
that the COVID-19 pandemic will cause any material adverse changes on our
business or financial results for fiscal 2022, we are unable to accurately
predict the impact that the coronavirus will have due to various uncertainties,
including the ultimate geographic spread of the virus, the severity of the
disease, the duration of the outbreak, and actions that may be taken by
governmental authorities.
Corporate capital spending trends and commitments are the primary determinants
of the size of the market for business software. Corporate capital spending is,
in turn, a function of general economic conditions in the U.S. and abroad and in
particular may be affected by conditions in U.S. and global credit markets. In
recent years, the weakness in the overall global economy and the U.S. economy
has resulted in reduced expenditures in the business software market.
In July 2021, the International Monetary Fund ("IMF") provided an update to the
World Economic Outlook for 2021. The update noted that, "The global economy is
projected to grow 6.0 percent in 2021 and 4.9 percent in 2022.The 2021 global
forecast is unchanged from the April 2021 WEO, but with offsetting revisions.
Prospects for emerging market and developing economies have been marked down for
2021, especially for Emerging Asia. By contrast, the forecast for advanced
economies is revised up. These revisions reflect pandemic developments and
changes in policy support. The 0.5 percentage-point upgrade
                                       19
--------------------------------------------------------------------------------
  Table of Contents
for 2022 derives largely from the forecast upgrade for advanced economies,
particularly the United States, reflecting the anticipated legislation of
additional fiscal support in the second half of 2021 and improved health metrics
more broadly across the group."
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 Company enables enterprises to accelerate their operations from product
concept to customer availability. Our brands - Logility and Demand Solutions -
provide a single platform spanning eight supply chain process areas, including
demand optimization, inventory optimization, supply optimization, retail
optimization, quality and compliance, product lifecycle management, sourcing
management and integrated business planning. Our platform includes advanced
analytics and is fueled by supply chain master data, allowing for the automation
of critical business processes through the application of artificial
intelligence and machine learning algorithms to a variety of internal and
external data streams.

Our primary operating units under our SCM segment include Logility, Inc. and
Demand Management, Inc. ("DMI"). Logility is a wholly-owned subsidiary of the
Company, and DMI is a wholly-owned subsidiary of Logility. In addition to our
core SCM software business, we also offer technology staffing and consulting
services through our wholly-owned subsidiary, The Proven Method, Inc., in the IT
Consulting segment. The Other segment consists of software and services provided
to our legacy enterprise resource planning ("ERP") customers, as well as
corporate overhead and other common expenses.
We derive revenue primarily from four sources: 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 revenue consist primarily of fees
from software implementation, training, and consulting services. We bill
primarily under time and materials arrangements and recognize revenue as we
perform services. SaaS and maintenance agreements typically are for a one- to
three-year term, commencing at the time of the initial contract. We generally
bill these fees, monthly, quarterly and annually in advance under agreements
with terms of one to three years, and then recognize the resulting revenue
ratably over the term of the agreement. Deferred revenue represents payments or
billings for subscriptions and services and maintenance in advance of the time
we recognize the related revenue.
Our cost of revenue for licenses and subscriptions includes amortization of
capitalized computer software development costs, amortization of acquired
developed technology, royalties paid to third-party software vendors, and agent
commission expenses related to revenue generated by the indirect channel,
primarily from DMI. Costs for maintenance and services include the cost of
personnel to conduct implementations and customer support, consulting, other
personnel-related expenses, and agent commission expenses related to maintenance
revenue generated by the indirect channel, primarily from DMI. We account for
the development costs of software intended for sale in accordance with the
Software topic of the FASB ASC. We monitor the net realizable value of our
capitalized software on a quarterly basis based on an estimate of future product
revenue. We currently expect to fully recover the value of the capitalized
software asset recorded on our Condensed Consolidated Balance Sheets; however,
if future product revenue are less than management's current expectations, we
may incur a write-down of capitalized software costs.
Our sales and marketing expenses mainly include the salary and commissions paid
to our sales professionals, along with marketing, promotional, travel and
associated costs. Our general and administrative expenses mainly include the
salary and benefits paid to executive, corporate and support personnel, as well
as facilities-related costs, utilities, communications expenses, and various
professional fees.
We currently view the following factors as the primary opportunities and risks
associated with our business:
•Acquisition Opportunities. There are opportunities for selective acquisitions
or investments to expand our sales distribution channels and/or broaden our
product offering by providing additional solutions for our target markets.
•Dependence on Capital Spending Patterns. There is risk associated with our
dependence on the capital spending patterns of U.S. and international
businesses, which in turn are functions of economic trends and conditions over
which we have no control.
•Acquisition Risks. There are risks associated with acquisitions of
complementary companies, products and technologies, including the risks that we
will not achieve the financial and strategic goals that we contemplate at
                                       20
--------------------------------------------------------------------------------
  Table of Contents
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 2021. Additional information and
other factors that could affect future financial results may be included, from
time to time, in our filings with the Securities and Exchange Commission
("SEC").
Recent Accounting Pronouncements
For information with respect to recent accounting pronouncements, if any, and
the impact of these pronouncements on our condensed consolidated financial
statements, if any, see Note A in the Notes to Condensed Consolidated Financial
Statements included elsewhere in this Quarterly Report.
                                       21
--------------------------------------------------------------------------------
  Table of Contents
COMPARISON OF RESULTS OF OPERATIONS
Three-Month Comparisons. The following table sets forth certain revenue and
expense items as a percentage of total revenue and the percentage changes in
those items for the three months ended July 31, 2021 and 2020:
                                                                                           Three Months Ended July 31,
                                                                               Percentage of Total                             Pct. Change in
                                                                                     Revenue                                       Dollars
                                                                           2021                          2020                   2021 vs. 2020
Revenue:
Subscription fees                                                                      33  %                  23  %                           54  %
License                                                                                 2  %                   3  %                          (37) %
Professional services and other                                                        33  %                  36  %                           (3) %
Maintenance                                                                            32  %                  38  %                           (8) %
Total revenue                                                                         100  %                 100  %                            7  %
Cost of revenue:
Subscription fees                                                                      11  %                  10  %                           17  %
License                                                                                 1  %                   2  %                          (76) %
Professional services and other                                                        24  %                  29  %                          (10) %
Maintenance                                                                             7  %                   6  %                           11  %
Total cost of revenue                                                                  43  %                  47  %                           (5) %
Gross margin                                                                           57  %                  53  %                           19  %
Research and development                                                               15  %                  15  %                            8  %
Sales and marketing                                                                    21  %                  17  %                           29  %
General and administrative                                                             15  %                  16  %                            2  %
Amortization of acquisition-related intangibles                                         -  %                   -  %                            -  %
Total operating expenses                                                               51  %                  48  %                           13  %
Operating income                                                                        6  %                   5  %                          100  %
Other income:
Interest income                                                                         -  %                   -  %                          (26) %
Other, net                                                                              1  %                   4  %                          (71)
Earnings before income taxes                                                            7  %                   9  %                            -  %
Income tax (benefits)expense                                                          (3) %                   1  %                              nm
Net earnings                                                                           10  %                   8  %                           45  %


nm - not meaningful
                                       22

————————————————– ——————————

Contents


COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JULY 31, 2021 AND
2020
REVENUE
                                                                                   Three Months Ended July 31,
                                                                                                                       % of Total Revenue
                                              2021                2020               % Change                       2021                       2020
                                                  (in thousands)
Subscription fees                        $      9,788          $  6,363                      54  %                            33  %                23  %
License                                  $        492               787                     (37) %                             2  %                 3  %
Professional services and other                 9,529             9,814                      (3) %                            33  %                36  %
Maintenance                                     9,462            10,314                      (8) %                            32  %                38  %
Total revenue                            $     29,271          $ 27,278                       7  %                           100  %               100  %


For the three months ended July 31, 2021 compared to July 31, 2020 revenue
increased by 7% attributable primarily to a 54% increase in subscription fees,
that were partially offset by a 37% decrease in license revenue, a 8% decrease
in maintenance revenue and a 3% decrease professional services and other revenue
in when compared to the same period last year.
Due to intense competition in our industry, we sometimes discount license fees
from our published list price. Numerous factors contribute to the amount of the
discount provided, such as previous customer purchases, the number of customer
sites utilizing the software, the number of modules purchased and the number of
users, as well as the overall size of the contract. While all these factors may
affect the discount amount of a particular contract, the overall percentage
discount has not materially changed in the recent reported fiscal periods.
The change in our revenue from period to period is primarily due to the volume
of products and related services sold in any period and the number of products
or modules purchased with each sale.
International revenue represented approximately 17% of total revenue in the
three months ended July 31, 2021 compared to 21% for the same period in the
prior year. Our revenue, particularly our international revenue, may fluctuate
substantially from period to period, primarily because we derive most of our
license and subscription fee revenue from a relatively small number of customers
in a given period.
Subscription Fees
                                               Three Months Ended July 31,
                                             2021                  2020        % Change
                                               (in thousands)
Supply Chain Management           $       9,788                  $ 6,363           54  %
Total subscription fees revenue   $       9,788                  $ 6,363    

54%


For the three months ended July 31, 2021, subscription fees revenue increased by
54% primarily due to an increase in the number of contracts, contracts with a
higher cloud services ACV, as well as an increase in multi-year contracts. This
is evidence of our successful transition to the cloud subscription model.
License Revenue
                                               Three Months Ended July 31,
                                              2021                   2020       % Change
                                               (in thousands)
       Supply Chain Management   $         476                      $ 787          (40) %
       Other                                16                          -          100  %
       Total license revenue     $         492                      $ 787          (37) %

For the three months ended July 31, 2021, license fee revenues decreased by 37% compared to the same period last year. During the three months ended
July 31, 2021, our SCM segment license fee revenues decreased by 40% compared to the same period last year. The majority of our current license fee revenue is generated by

                                       23
--------------------------------------------------------------------------------
  Table of Contents
additional users and expanded scope from our existing customers. For the three
months ended July 31, 2021 and 2020, our SCM segment constituted approximately
97% and 100% of total license fee revenue, respectively. Our Other segment
license fee revenue increased by 100% for the three months ended July 31, 2021
when compared to the same period in the prior year primarily due to timing of
sales to our existing ERP customers.

  The direct sales channel provided approximately 92% of license fee revenue for
the three months ended July 31, 2021, compared to approximately 84% in the
comparable period last year. For the three months ended July 31, 2021, our
margins after commissions on direct sales were approximately 88%, compared to
85% in the comparable period last year. The increase in margins is due to the
mix of sales commission rates based on each individual salesperson's quotas and
related achievement. For the three months ended July 31, 2021 and 2020, our
margins after commissions on indirect sales were approximately 64% and 53%,
respectively. The indirect channel margins for the fiscal year increased
compared to the same periods in the prior year due to the mix of value-added
reseller ("VAR") commission rates. These margin calculations include only
commission expense for comparative purposes and do not include other costs of
license fees such as amortization of capitalized software.

Professional services and other income

                                                                            Three Months Ended July 31,
                                                                   2021                2020               % Change
                                                                       (in thousands)
Supply Chain Management                                      $       4,836          $  4,575                       6  %
IT Consulting                                                        4,476             5,026                     (11) %
Other                                                                  217               213                       2  %
Total professional services and other revenue                $       9,529          $  9,814                      (3) %



  For the three months ended July 31, 2021, professional services and other
revenue decreased by 3%, due to the decreased professional services and other
revenue from our IT Consulting segment. For the three months ended July 31,
2021, our IT Consulting segment's revenue decreased 11% when compared to the
same period in the prior year due to a decrease in project work from existing
customers. This decrease was partially offset by an increase in professional
services and other revenue from our SCM and Other segments. For the three months
ended July 31, 2021, our SCM segment's revenue increased 6%, primarily due to a
higher ramp up of implementation project work due to an increase in subscription
fees revenue in recent periods. For the three months ended July 31, 2021, our
Other segment's revenue increased 2% due to an increase in license fee sales
when compared to the same period last year. We have observed that there is a
tendency for services and other revenue, other than from IT Consulting, to lag
changes in license and subscription revenue by one to three quarters, as new
licenses and subscriptions in one quarter often involve implementation and
consulting services in subsequent quarters, for which we recognize revenue only
as we perform those services.

Maintenance Revenue
                                         Three Months Ended July 31,
                                       2021                  2020        % Change
                                         (in thousands)
Supply Chain Management     $       9,151                 $ 10,011           (9) %
Other                                 311                      303            3  %
Total maintenance revenue   $       9,462                 $ 10,314           (8) %



For the three months ended July 31, 2021, maintenance revenue decreased 8% when
compared to the same period in the prior year. Our SCM maintenance revenue
decreased 9% for the three months ended July 31, 2021, when compared to the same
period last year due to a normal customer attrition rate of approximately 9%.
The SCM segment accounted for 97% of total maintenance revenue for the three
months ended July 31, 2021 and for the same periods in the prior year.
Typically, our maintenance revenue have had a direct relationship to current and
historic license fee revenue, since licenses are the source of maintenance
customers.
                                       24
--------------------------------------------------------------------------------
  Table of Contents
GROSS MARGIN
The following table provides both dollar amounts (in thousands) and percentage
measures of gross margin:
                                                                            

Three months ended July 31,

                                                                    2021                %              2020              %
Gross margin on subscription fees                             $       6,564             67  %       $  3,604             57  %
Gross margin on license fees                                            333             68  %            112             14  %
Gross margin on professional services and other                       2,519             26  %          1,984             20  %
Gross margin on maintenance                                           7,488             79  %          8,541             83  %
Total gross margin                                            $      16,904             57  %       $ 14,241             53  %


For the three months ended July 31, 2021, our total gross margin percentage
increased by 4% when compared to the same period in the prior year primarily due
to higher margins on subscription fees revenue, license fee and professional
services and other revenue, partially offset by a decrease in maintenance
revenue.
Gross Margin on Subscription Fees
  For the three months ended July 31, 2021, our gross margin percentage on
subscription fees revenue increased from 57% to 67% when compared to the same
period in the prior year, primarily due to the portfolio shift from license fee
to subscription revenue.
Gross Margin on License Fees
  License fee gross margin percentage for the three months ended July 31, 2021
increased by 54%, when compared to the same period in the prior year. License
fee gross margin percentage tends to be directly related to the level of license
fee revenue due to the relatively fixed cost of computer software amortization
expense, amortization of acquired software and the sales mix between our direct
and indirect channels.
Gross Margin on Professional Services and Other
Our gross margin percentage on professional services and other revenue increased
to 26% for the three months ended July 31, 2021 from 20% for the three months
ended July 31, 2020. This increase was primarily due to higher gross margins in
our SCM segment services of 32% and 23% for the three months ended July 31, 2021
and 2020, respectively. This is primarily the result of an increase in
professional services and other revenue, which is being driven by an increase in
billing utilization rates. Our Other segment professional services gross margin
decreased slightly to 42% from 43% for the three months ended July 31, 2021 and
2020, respectively, due to lower margin projects year to date. Our IT Consulting
segment professional services gross margin increased to 21% of revenue when
compared to 17% the same period last year due to higher margin project work.
Professional services and other gross margin is directly related to the level of
services and other revenue. The primary component of cost of services and other
revenue is services staffing, which is relatively inelastic in the short term.
Gross Margin on Maintenance
  Maintenance gross margin percentage decreased from 83% to 79% for the three
months ended July 31, 2021 and July 31, 2020, due to lower maintenance revenue
and increase in personnel costs. The primary cost component is maintenance
staffing, which is relatively inelastic in the short term.








                                       25

————————————————– ——————————

Contents

EXPENSES
                                                                                         Three Months Ended July 31,
                                                                                                                     % of Revenue
                                                                         2021                2020                2021               2020
                                                                            (in thousands)
Research and development                                           $       4,424          $ 4,095                     15  %           15  %
Sales and marketing                                                $       6,120          $ 4,744                     21  %           17  %
General and administrative                                         $       4,534          $ 4,464                     15  %           16  %
Amortization of acquisition-related intangible assets              $          53          $    53                      -  %            -  %
Other income, net                                                  $         437          $ 1,332                      1  %            4  %
Income tax (benefit)expense                                       $        (737)         $   183                     (3) %            1  %


Research and Development
Gross product research and development costs include all non-capitalized and
capitalized software development costs. A breakdown of the research and
development costs is as follows:
                                                                             Three Months Ended July 31,
                                                                   2021                 2020               % Change
                                                              (in thousands)
Total capitalized computer software development costs        $           -           $    245                    (100) %
Percentage of gross product research and development costs               -   %              6  %
Total research and development expense                       $       4,424           $  4,095                       8  %
Percentage of total revenue                                             15   %             15  %

Total gross product research and development expenses and capitalized computer software development costs

              $       4,424           $  4,340                       2  %
Percentage of total revenue                                             15   %             16  %

Total amortization of capitalized IT software development costs *

                                          $         903           $  1,218                     (26) %


* Included in license and subscription fees.

  For the three months ended July 31, 2021, gross product research and
development costs increased 2% when compared to the same period in the previous
year, primarily due to an increase in the use of third-party contractors and
personnel costs. Capitalized software development costs decreased in July 31,
2021 compared to the same period in the prior year, due to the timing of project
work and an increase in agile software programming that accelerates the software
releases from months to weeks. We expect capitalized software to be immaterial
in fiscal 2022. Amortization of capitalized software development decreased 26%
in fiscal 2022 when compared to fiscal 2021 as some projects were fully
amortized. Costs included in gross product development are salaries of product
development personnel, hardware lease expense, computer software expense,
telephone expense and rent.
Sales and Marketing

For the three months ended July 31, 2021, sales and marketing expenses increased to 21% of revenue from 17% in the same period last year due to increased marketing and personnel expenses. General and administrative

  For the three months ended July 31, 2021, general and administrative expenses
increased by 2%, when compared to the same period a year ago, primarily due to
an increase in personnel costs and insurance.
At July 31, 2021, the total number of employees was 416 compared to 437 at
July 31, 2020.


                                       26
--------------------------------------------------------------------------------
  Table of Contents
Operating Income/(Loss)
                                       Three Months Ended July 31,
                                     2021                  2020        % Change
                                       (in thousands)
Supply Chain Management   $       5,356                  $ 4,105           30  %
IT Consulting                       163                      106           54  %
Other*                           (3,746)                  (3,326)          13  %
Total Operating Income    $       1,773                  $   885          100  %

* Includes all corporate overhead and other common expenses.

  Our SCM segment operating income increased by 30% in the three months ended
July 31, 2021, compared to the same period in the prior year primarily due to
improved gross margins.

Our IT consultancy segment operating income increased by 54% for the three months ended July 31, 2021, compared to the same period last year, mainly due to a decrease in sales and subcontractor expenses.

  Our Other segment operating loss increased by 13% for the three months ended
July 31, 2021, when compared to the same period in the prior year due to an
increase in corporate expenses.
Other Income
  Other income is comprised of net interest and dividend income, rental income,
exchange rate gains and losses, and realized and unrealized gains and losses
from investments. For the three months ended July 31, 2021, the decrease in
other income is mainly due to lower unrealized gains on investments when
compared to the same period last year. We recorded unrealized gains of
approximately $0.4 million and realized losses of approximately $0 for the three
months ended July 31, 2021 from our trading securities portfolio. We recorded
unrealized gains of approximately $0.9 million and realized losses of
approximately $0 for the three months ended July 31, 2020 from our trading
securities portfolio.

  For the three months ended July 31, 2021, our investments generated an
annualized yield of approximately 1.65%, compared to approximately 2.03% for the
three months ended July 31, 2020.
Income Taxes
We recognize deferred tax assets and liabilities based on the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their tax bases. We
measure deferred tax assets and liabilities using statutory tax rates in effect
in the year in which we expect the differences to reverse. We establish a
deferred tax asset for the expected future benefit of net operating losses,
credit carry-forwards and nonqualified stock options. Under the Income Tax Topic
of the FASB ASC, we cannot recognize a deferred tax asset for the future benefit
of our net operating losses, tax credits and temporary differences unless we can
establish that it is "more likely than not" that the deferred tax asset would be
realized.

During the three months ended July 31, 2021, we recorded an income tax benefit
of $737,000, primarily due to discrete stock compensation benefits of $1.2
million, net of normal income tax expense from operations. During the three
months ended July 31, 2020, we recorded an income tax expense of $183,000,
primarily due to discrete stock compensation benefits of $234,000, net of normal
income tax expense from operations. Before adjusting for these discrete tax
benefits, our effective tax rate would have been 19.9% in the three months ended
July 31, 2021 compared to our effective tax rate of 18.7% in the three months
ended July 31, 2020. In addition, research and development and foreign tax
credits reduced our effective tax rate by 5.7% in the three months ended
July 31, 2021, compared to reductions of 6.0% in the three months ended July 31,
2020.
Operating Pattern
We experience an irregular pattern of quarterly operating results, caused
primarily by fluctuations in both the number and size of software license and
subscription contracts received and delivered from quarter to quarter and our
ability to recognize revenue in that quarter in accordance with our revenue
recognition policies. We expect this pattern to continue.

LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL POSITION Sources and uses of cash

                                       27
--------------------------------------------------------------------------------
  Table of Contents
Historically we have funded, and we continue to fund, our operations and capital
expenditures primarily with cash generated from operating activities. The
changes in net cash that our operating activities provide generally reflect the
changes in net earnings and non-cash operating items plus the effect of changes
in operating assets and liabilities, such as investment trading securities,
trade accounts receivable, trade accounts payable, accrued expenses and deferred
revenue. We have no debt obligations or off-balance sheet financing
arrangements, and therefore, we used no cash for debt service purposes.
The following table shows information about our cash flows and liquidity
positions during the three months ended July 31, 2021 and 2020. You should read
this table and the discussion that follows in conjunction with our Condensed
Consolidated Statements of Cash Flows contained in Item 1 in Part I of this
Quarterly Report and in our Annual Report for fiscal 2021.
                                                           Three Months Ended
                                                                July 31,
                                                             (in thousands)
                                                            2021            2020
Net cash provided by operating activities             $    3,034          $ 

1,479

Net cash used in investing activities                       (302)           

(363)

Net cash provided by (used in) financing activities 464 (1,164) Net change in cash and cash equivalents

               $    3,196          $ 

(48)


For the three months ended July 31, 2021, the net increase in cash provided by
operating activities when compared to the same period last year was due
primarily to the following: (1) a relative decrease in customer accounts
receivables caused by the timing of closing customer sales and related
collections, (2) a relative smaller decrease in deferred revenue due to timing
of revenue recognition, (3) an increase in net earnings, (4) lower gains on
investments than in prior year, (5) a relative smaller decrease in accounts
payable and other accruals compared to the same period last year due to timing
of payments, (6) an increase in stock-based compensation expense and (7) a
decrease in purchases of trading securities.
This increase in cash provided by operating activities was partially offset by:
(1) a relative increase in prepaid expenses when compared to a decrease in the
same period last year due to the timing of purchases, (2) a decrease in the
proceeds from the maturity and sales of trading securities, (3) a decrease in
depreciation and amortization and (4) a decrease in deferred income taxes.
The decrease in cash used in investing activities when compared to the same
period in the prior year was mainly due to a decrease in capitalized computer
software development costs, which was partially offset by an increase in
purchases of property and equipment.
The increase in cash provided by financing activities compared to the prior year
was due primarily to an increase in proceeds from exercise of stock options,
which was partially offset by an increase in dividends paid.
The following table shows net changes in total cash, cash equivalents, and
investments, which is one measure management uses to understand net total cash
generated by our activities:
                                                                                    As of July 31,
                                                                                    (in thousands)
                                                                                2021               2020
Cash and cash equivalents                                                   $  91,854          $  79,766
Short and long-term investments                                                16,280             13,253
Total cash and short and long-term investments                                108,134             93,019

Net increase / decrease in total cash and investments (three months ended
July 31)

$ 3,470 $ (1657)


Our total activities used less cash and investments during the months ended
July 31, 2021, when compared to the prior year period, in the course of normal
business operations.
Days Sales Outstanding in accounts receivable were 78 days as of July 31, 2021,
compared to 88 days as of July 31, 2020. This decrease is primarily due to the
timing of billings and cash collections. Our current ratio was 2.8 to 1 on
July 31, 2021 and 2020.
Our business in recent periods has generated substantial positive cash flow from
operations, excluding purchases and proceeds of sale of trading securities. For
this reason, and because we had $108.1 million in cash and investments with no
debt
                                       28
--------------------------------------------------------------------------------
  Table of Contents
as of July 31, 2021, we believe that our sources of liquidity and capital
resources will be sufficient to satisfy our presently anticipated requirements
during at least the next twelve months for working capital, capital expenditures
and other corporate needs. However, at some future date we may need to seek
additional sources of capital to meet our requirements. If such need arises, we
may be required to raise additional funds through equity or debt financing. We
do not currently have a bank line of credit. We can provide no assurance that
bank lines of credit or other financing will be available on terms acceptable to
us. If available, such financing may result in dilution to our shareholders or
higher interest expense.
On August 19, 2002, our Board of Directors approved a resolution authorizing the
repurchase of up to an additional 2.0 million shares of our Class A common
stock. We have made and will make these repurchases through open market
purchases at prevailing market prices. The timing of any repurchase will depend
upon market conditions, the market price of our common stock and management's
assessment of our liquidity and cash flow needs. Under this repurchase plan,
through July 31, 2021, we have repurchased 1,053,679 shares of common stock at a
cost of approximately $6.2 million. As of July 31, 2021, under all repurchase
plans previously authorized, including this most recent plan, we have
repurchased a total of 4,588,632 shares of common stock at a cost of
approximately $25.6 million.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
We have based the following discussion and analysis of financial condition and
results of operations on our condensed consolidated financial statements, which
we have prepared in accordance with U.S. GAAP. The preparation of these
condensed consolidated financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosures of contingent assets and liabilities at the date of the
condensed consolidated financial statements and the reported amounts of revenue
and expenses during the reporting period. Note 1 to the Condensed Consolidated
Financial Statements for the fiscal year ended in our Annual Report for fiscal
2021, describes the significant accounting policies that we have used in
preparing our condensed consolidated financial statements. On an ongoing basis,
we evaluate our estimates, including, but not limited to, those related to
revenue/collectability. We base our estimates on historical experience and on
various other assumptions that we believe to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Our actual results could differ materially from these estimates
under different assumptions or conditions.
We believe the critical accounting policies listed below affect significant
judgments and estimates used in the preparation of the financial statements.
Revenue Recognition.
License. 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. Subscription fees include Software-as-a-Service ("SaaS") revenue
for the right to use the software for a limited period of time in an environment
hosted by the Company or by a third party. The customer accesses and uses the
software on an as needed basis over the Internet or via a dedicated line;
however, the customer has no right to take delivery of the software. The
underlying arrangements typically include a single fee for the service that is
billed monthly, quarterly or annually. The Company's SaaS solutions represent a
series of distinct services that are substantially the same and have the same
pattern of transfer to the customer. Revenue from a SaaS solution is generally
recognized ratably over the term of the arrangement.
Professional Services and Other. Our professional services revenue consists of
fees generated from consulting, implementation and training services, including
reimbursements of out-pocket expenses in connection with our services. These
services are typically optional to our customers, and are distinct from our
software. Fees for our professional services are separately priced and are
generally billed on an hourly basis, and revenue is recognized over time as the
services are performed. We believe the output method of hours worked provides
the best depiction of the transfer of our services since the customer is
receiving the benefit from our services as the work is performed. Reimbursements
received from customers for out-of-pocket expenses were recorded in revenue and
totaled approximately $29,000 for the three months ended July 31, 2021, and
approximately $4,000 for the three months ended July 31, 2020.
                                       29
--------------------------------------------------------------------------------
  Table of Contents
Maintenance and Support. Revenue is derived from maintenance and support
services, under which we provide customers with telephone consulting, product
updates on a when and if available basis, and releases of new versions of
products previously purchased by the customer, as well as error reporting and
correction services. Maintenance for perpetual licenses is renewable, generally
on an annual basis, at the option of the customer. Maintenance terms typically
range from one to three years. Revenue related to maintenance is generally paid
in advance and recognized ratably over the term of the agreement since the
Company is standing ready to provide a series of maintenance services that are
substantially the same each period over the term; therefore, time is the best
measure of progress. Support services for subscriptions are included in the
subscription fees and are recognized as a component of such fees.
Indirect Channel Revenue. We record revenue from sales made through the indirect
sales channels on a gross basis, because we control the goods or services and
act as the principal in the transaction. In reaching this determination, we
evaluate sales through our indirect channel on a case-by-case basis and consider
a number of factors including indicators of control such as the party having the
primary responsibility to provide specified goods or services, and the party
having discretion in establishing prices.
Sales Taxes. We account for sales taxes collected from customers on a net basis.

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

We use judgment in determining the SSP for products and services. For
substantially all performance obligations except on-premise licenses, we are
able to establish SSP based on the observable prices of products or services
sold separately in comparable circumstances to similar customers. We typically
establish an SSP range for our products and services which is reassessed on a
periodic basis or when facts and circumstances change. Our on-premise licenses
have not historically been sold on a standalone basis, as the vast majority of
all customers elect to purchase on-premise license support contracts at the time
of a on-premise license purchase. Support contracts are generally priced as a
percentage of the net fees paid by the customer to access the on-premise
license. We are unable to establish the SSP for our on-premise licenses based on
observable prices given the same products are sold for a broad range of amounts
(that is, the selling price is highly variable) and a representative SSP is not
discernible from past transactions or other observable evidence. As a result,
the SSP for a on-premise license included in a contract with multiple
performance obligations is determined by applying a residual approach whereby
all other performance obligations within a contract are first allocated a
portion of the transaction price based upon their respective SSPs, with any
residual amount of transaction price allocated to on-premise license revenue.


                                       30

————————————————– ——————————

Contents

© Edgar online, source Previews


Source link

Share.

About Author

Comments are closed.