US SOFTWARE: MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS (Form 10-K)

0
The following discussion and analysis should be read in conjunction with "Item
8. Consolidated Financial Statements and Supplementary Data". This discussion
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," "estimate," "believe,"
"expect" and similar expressions that convey uncertainty of future events or
outcomes. Any forward-looking statements herein are made pursuant to the safe
harbor provision of the Private Securities Litigation Reform Act of 1995. Our
actual results could differ materially from the results anticipated by these
forward-looking statements as a result of many known and unknown factors that
are beyond our ability to control or predict, including but not limited to those
discussed above in "Risk Factors" and elsewhere in this report. See also
"Special Cautionary Notice Regarding Forward-Looking Statements" at the
beginning of "Item 1. Business."
                                       43

————————————————– ——————————

Contents

CRITICAL ACCOUNTING POLICIES AND ESTIMATES
We have based the following discussion and analysis of financial condition and
results of operations on our consolidated financial statements, which we have
prepared in accordance with U.S. GAAP. The preparation of these 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 consolidated financial statements and
the reported amounts of revenue and expenses during the reporting period. Note 1
to the Consolidated Financial Statements for the fiscal year ended April 30,
2021, describes the significant accounting policies that we have used in
preparing our consolidated financial statements. On an ongoing basis, we
evaluate our estimates, including, but not limited to, those related to
revenue/collectability. 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 $20,000, $1.5 million, and $1.4 million for 2021, 2020 and
2019, respectively.
Maintenance and Support. Revenue is derived from maintenance and support
services, under which we provide customers with telephone consulting, product
updates on a when and if available basis, and releases of new versions of
products previously purchased by the customer, as well as error reporting and
correction services. Maintenance for perpetual licenses is renewable, generally
on an annual basis, at the option of the customer. Maintenance terms typically
range from one to three years. Revenue related to maintenance is generally paid
in advance and recognized ratably over the term of the agreement since the
Company is standing ready to provide a series of maintenance services that are
substantially the same each period over the term; therefore, time is the best
measure of progress. Support services for subscriptions are included in the
subscription fees and are recognized as a component of such fees.
Indirect Channel Revenue. We record revenue from sales made through the indirect
sales channels on a gross basis, because we control the goods or services and
act as the principal in the transaction. In reaching this determination, we
evaluate sales through our indirect channel on a case-by-case basis and consider
a number of factors including indicators of control such as the party having the
primary responsibility to provide specified goods or services, and the party
having discretion in establishing prices.
Sales Taxes. We account for sales taxes collected from customers on a net basis.

                                       44

————————————————– ——————————

Contents

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.




                                       45

————————————————– ——————————

Contents

RESULTS OF OPERATIONS
The following table sets forth certain revenue and expense items as a percentage
of total revenue for the three years ended April 30, 2021, 2020, and 2019 and
the percentage increases and decreases in those items for the years ended
April 30, 2021 and 2020:
                                                                                                                   Pct. Change in         Pct. Change in
                                                                Percentage of Total Revenue                           Dollars                Dollars
                                                      2021                   2020                 2019             2021 vs. 2020          2020 vs. 2019
Revenue:
Subscription fees                                           26  %                19  %                13  %                  31  %                  57  %
License fees                                                 3                    7                    6                    (61)                     6
Professional services and other                             35                   37                   39                     (7)                     1
Maintenance                                                 36                   37                   42                     (7)                    (5)
Total revenue                                              100                  100                  100                     (4)                     6
Cost of revenue:
Subscription fees                                           11                    8                    5                     25                     65
License fees                                                 2                    4                    6                    (60)                   (25)
Professional services and other                             26                   27                   29                     (5)                    (2)
Maintenance                                                  7                    6                    8                      3                    (12)
Total cost of revenue                                       46                   45                   48                     (4)                     1
Gross margin                                                54                   55                   52                     (3)                    11
Research and development                                    15                   13                   12                     11                     17
Sales and marketing                                         18                   19                   19                     (8)                     5
General and administrative                                  17                   17                   16                     (2)                    15
Amortization of acquisition-related intangibles              -                    -                    -                    (26)                   (27)
Total operating expenses                                    50                   49                   47                     (1) %                  11
Operating income                                             4                    6                    5                    (28)                    15
Other income:
Interest income                                              -                    1                    2                    (73)                   (27)
Other, net                                                   4                   (1)                   -                   (627)                nm
Earnings before income taxes                                 8                    6                    7                     30                    (11)
Income tax expense                                           1                    -                    1                   1255                    (93)
Net earnings                                                 7  %                 6  %                 6  %                  20  %                  (1) %


nm - not meaningful
Economic Overview and Significant Trends in Our Business
For fiscal 2022, we expect the global economy to improve modestly when compared
to recent periods. We believe information technology spending will incrementally
improve over the long term as increased global competition forces companies to
improve productivity by upgrading their technology systems, which could result
in an improved selling environment. Although this improvement could slow or
regress at any time, due in part to concerns related to the effects of the
spread of the global virus and trade conflicts on global capital markets and
general economic conditions, we believe that our organizational and financial
structure will enable us to take advantage of any sustained economic rebound.
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. Customers continue to take long periods to
evaluate discretionary software purchases.
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.
                                       46

————————————————– ——————————

Contents

In April 2021, the International Monetary Fund ("IMF") provided an update to the
World Economic Outlook for the 2021 and 2022 world economic growth forecast. The
update noted that, "High uncertainty surrounds the global economic outlook,
primarily related to the path of the pandemic. The contraction of activity in
2020 was unprecedented in living memory in its speed and synchronized nature.
But it could have been a lot worse. Although difficult to pin down precisely,
IMF staff estimates suggest that the contraction could have been three times as
large if not for extraordinary policy support. Much remains to be done to beat
back the pandemic and avoid divergence in income per capita across economies and
persistent increases in inequality within countries.
After an estimated contraction of -3.3 percent in 2020, the global economy is
projected to grow at 6 percent in 2021, moderating to 4.4 percent in 2022. The
contraction for 2020 is 1.1 percentage points smaller than projected in the
October 2020 World Economic Outlook (WEO), reflecting the higher-than-expected
growth out turns in the second half of the year for most regions after lockdowns
were eased and as economies adapted to new ways of working. The projections for
2021 and 2022 are 0.8 percentage point and 0.2 percentage point stronger than in
the October 2020 WEO, reflecting additional fiscal support in a few large
economies and the anticipated vaccine-powered recovery in the second half of the
year."
As the economy improves from the COVID-19 decline, we believe that the recovery
may drive some businesses to invest in 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 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 the recent difficult economic environment has had a particularly adverse
impact on the weaker companies in our target markets, we believe a large
percentage of our customers are seeking to make investments to strengthen their
operations, and some are taking advantage of current economic conditions to gain
market share. We have taken steps to best ensure the health and safety of our
employees globally. Our daily execution has evolved into a largely virtual
model, and we continue to find innovative ways to engage with customers and
prospects, ensuring that they are supported as they navigate through this
unprecedented period.
Business Opportunities and Risks
We currently view the following factors as the primary opportunities and risks
associated with our business:

•Dependence on Capital Spending Patterns. There is risk associated with our
dependence on the capital spending patterns of U.S. and international
businesses, which in turn are functions of economic trends and conditions over
which we have no control.
•Acquisition Opportunities. There are opportunities for selective acquisitions
or investments to expand our sales distribution channels and/or broaden our
product offering by providing additional solutions for our target markets.
•Acquisition Risks. There are risks associated with acquisitions of
complementary companies, products and technologies, including the risks that we
will not achieve the financial and strategic goals that we contemplate at the
time of the transaction. More specifically, in any acquisition we will face
risks and challenges associated with the uncertain value of the acquired
business or assets, the difficulty of assimilating operations and personnel,
integrating acquired technologies and products and maintaining the loyalty of
the customers of the acquired business.
•Competitive Technologies. There is a risk that our competitors may develop
technologies that are substantially equivalent or superior to our technology.
•Competition in General. There are risks inherent in the market for business
application software and related services, which has been and continues to be
intensely competitive; for example, some of our competitors may become more
aggressive with their prices and/or payment terms, which may adversely affect
our profit margins.
For more information, please see "Risk Factors" in Item 1A. above.
Recent Accounting Pronouncements
For information with respect to recent accounting pronouncements, if any, and
the impact of these pronouncements on our consolidated financial statements, if
any, see Note 1(n) of Notes to Consolidated Financial Statements included
elsewhere in this Form 10-K.
Market Conditions by Operating Segment
                                       47

————————————————– ——————————

Contents

We operate and manage our business in three segments based on software and
services provided in three key product markets: (1) SCM, which provides
collaborative supply chain solutions to streamline and optimize the production,
distribution and management of products between trading partners; (2) IT
Consulting, which consists of IT staffing and consulting services; and
(3) Other, which consists of (i) American Software ERP, a provider of purchasing
and materials management, customer order processing, financial, human resources,
and manufacturing solutions, and (ii) unallocated corporate overhead expenses.
The SCM segment includes the businesses of Logility and DMI.
Our SCM segment experienced a 5% decrease in revenue during fiscal 2021 when
compared to fiscal 2020, primarily due to a 60% decrease in license fees, a 17%
decrease in professional services and other revenue and an 8% decrease in
maintenance revenue partially offset by a 31% increase in subscription fees. Our
SCM segment experienced a 10% increase in revenue during fiscal 2020 when
compared to fiscal 2019, primarily due to a 57% increase in subscription fees, a
12% increase in professional services and other revenue and a 5% increase in
license fees partially offset by a 5% decrease in maintenance revenue.
Our IT Consulting segment experienced an approximately 6% increase in revenue in
fiscal 2021 when compared to fiscal 2020 and a 10% decrease in revenue in fiscal
2020 when compared to fiscal 2019, due primarily to fluctuations in IT staffing
work at our largest customer. As companies have moved to cut costs and limit IT
budgets, they have utilized more outsourcing services, which tend to be more
cost effective for them. In the past, this trend has resulted in increased
business for this segment. However, there is a countervailing trend to outsource
IT to international markets that historically have been more price competitive
than domestic sources like us. Our largest consulting customer comprised 29% of
our IT Consulting revenue in fiscal 2021, 33% in fiscal 2020 and 47% in fiscal
2019. The loss of this customer would negatively and materially affect our IT
Consulting business.
The Other segment revenue decreased 14% in fiscal 2021 when compared to fiscal
2020, primarily due to a 93% decrease in license fees, a 13% decrease in
professional services and other revenue and a 1% decrease in maintenance
revenue. The Other segment revenue increased 2% in fiscal 2020 when compared to
fiscal 2019, primarily due to a 70% increase in license fees and a 4% increase
in professional services and other revenue, partially offset by a 6% decrease in
maintenance revenue.
REVENUE

                                                                                               Years Ended April 30,
                                                                                                % Change                                       % of Total Revenue
                                                                                       2021 vs.          2020 vs.
                                2021               2020               2019               2020              2019                    2021                     2020               2019
                                              (in thousands)
Subscription fees           $  28,877          $  22,033          $  14,026                 31  %             57  %                         26  %              19  %              13  %
License fees                    2,993              7,582              7,126                (61) %              6  %                          3  %               7  %               6  %
Professional service and
other                          39,616             42,774             42,154                 (7) %              1  %                         35  %              37  %              39  %
Maintenance                    39,922             43,077             45,400                 (7) %             (5) %                         36  %              37  %              42  %
    Total revenue           $ 111,408          $ 115,466          $ 108,706                 (4) %              6  %                        100  %             100  %             100  %


For the year ended April 30, 2021, the 4% decrease in total revenue was
attributable primarily to a 61% decrease in license revenue, a 7% decrease in
professional services and other revenue and a 7% decrease in maintenance revenue
partially offset by a 31% increase in subscription fees revenue.
For the year ended April 30, 2020, the 6% increase in total revenue was
attributable primarily to a 57% increase in subscription fees revenue, a 6%
increase in license revenue and a 1% increase in professional services and other
revenue, partially offset by a 5% decrease in maintenance revenue.
Due to intensely competitive markets, we discount subscription and license fees
from our published list price due to pricing pressure in our industry. Numerous
factors contribute to the amount of the discounts provided, such as previous
customer purchases, the number of customer sites utilizing the software, the
number of modules purchased and the number of users, the type of platform
deployment, as well as the overall size of the contract. While all these factors
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 amounts of products
or modules purchased with each sale.
                                       48

————————————————– ——————————

Contents

International revenue represented approximately 15% of total revenue for the
year ended April 30, 2021, 19% of total revenue for the year ended April 30,
2020, and 20% for the year ended April 30, 2019. Our international revenue may
fluctuate substantially from period to period primarily because we derive these
revenue from a relatively small number of customers.
Subscription Fees Revenue

                                                                           Years Ended April 30,
                                                                                                             % Change
                                             2021              2020              2019           2021 vs. 2020        2020 vs. 2019
                                                          (in thousands)
Supply Chain Management                   $ 28,877          $ 22,033          $ 14,026                   31  %               57  %

Total subscription fees revenue           $ 28,877          $ 22,033          $ 14,026                   31  %               57  %




For the year ended April 30, 2021, subscription fee revenue increased by 31%
when compared to the same period in the prior year primarily due to an increase
in Cloud Services Annual Contract Value ("ACV") of approximately 53% to $26.4
million compared to $17.3 million in the same period of the prior year. This
increase was attributable to an increase in the number of contracts, contracts
with a higher Cloud Services ACV, as well as an increase in the value of
multi-year contracts (typically three to five years). This is evidence of our
successful transition to the cloud subscription model. ACV is a forward-looking
operating measure used by management to better understand Cloud Services (SaaS
and other related cloud services) revenue trends within our business, as it
reflects our current estimate of revenue to be generated under existing client
contracts in the forward 12-month period.
License Fees Revenue

                                                       Years Ended April 30,
                                                                                 % Change
                               2021         2020         2019        2021

vs 2020 2020 vs 2019

                                       (in thousands)
Supply Chain Management      $ 2,977      $ 7,354      $ 6,992               (60) %               5  %
Other                             16          228          134               (93) %              70  %
Total license fees revenue   $ 2,993      $ 7,582      $ 7,126               (61) %               6  %


For the year ended April 30, 2021, license fee revenue decreased by 61% when
compared to the previous year. Our Other business segment experienced a 93%
decrease in license fees for the year ended April 30, 2021 when compared to the
same period in the prior year due to the timing of selling into the installed
customer base. Our SCM segment experienced a 60% decrease in license fees
primarily due to a decrease in the number of new customers choosing to deploy
our software on-premise this year. We anticipate that the majority of future
license fee sales will be to existing on-premise customers for add-on expansion.
The SCM segment constituted 99%, 97% and 98% of our total license fee revenue
for the years ended April 30, 2021, 2020 and 2019, respectively.
For the year ended April 30, 2020, license fee revenue increased by 6% when
compared to the previous year. Our Other business segment experienced a 70%
increase in license fees for the year ended April 30, 2020 when compared to the
same period in the prior year due to the timing of selling into the installed
customer base. SCM experienced a 5% increase in license fees primarily due to a
few new customers choosing to deploy our software on-premise. SCM constituted
97% and 98% of our total license fee revenue for the years ended April 30, 2020
and 2019, respectively.
The direct sales channel provided approximately 83% of license fee revenue for
the year ended April 30, 2021, compared to approximately 92% in fiscal 2020 and
84% in fiscal 2019. The decrease in direct license fees from fiscal 2020 to
fiscal 2021 was largely due to one large license fee deal to a new customer last
year compared to none this year. The increase in direct license fees from fiscal
2019 to fiscal 2020 was largely due to our indirect channel selling
proportionately more SaaS than license contracts compared to our direct channel.
For the year ended April 30, 2021, our margins after commissions on direct sales
were approximately 84%, and our margins after commissions on indirect sales were
approximately 58%. For the year ended April 30, 2020, our margins after
commissions on
                                       49

————————————————– ——————————

Contents

direct sales were approximately 88%, and our margins after commissions on
indirect sales were approximately 53%. For the year ended April 30, 2019, our
margins after commissions on direct sales were approximately 87%, and our
margins after commissions on indirect sales were approximately 55%. The margins
after commissions for direct sales were relatively consistent, between 84% to
88%, while the range for indirect sales had a wider spread of 53% to 58%. The
indirect channel margins for the fiscal year ended April 30, 2021 increased when
compared to the same periods in the prior year due to the mix of value-added
reseller ("VAR") commission rates. DMI is responsible for the bulk of our
indirect sales and the commission percentage varies based on whether the sale is
domestic or international.
Professional Services and Other Revenue
                                                                           Years Ended April 30,
                                                                                                            % Change
                                            2021              2020              2019           2021 vs. 2020        2020 vs. 2019
                                                         (in thousands)
Supply Chain Management                  $ 19,713          $ 23,782          $ 21,190                  (17) %                12  %
IT Consulting                              19,036            17,997            20,007                    6  %               (10) %
Other                                         867               995               957                  (13) %                 4  %
Total professional services and other
revenue                                  $ 39,616          $ 42,774          $ 42,154                   (7) %                 1  %



The 7% decrease in total professional services and other revenue for the year
ended April 30, 2021 was due to a 17% decrease in our SCM segment professional
services due primarily due to lower implementation project work resulting from
lower subscription and license fee sales in the first three quarters of fiscal
2021, combined with a 13% decrease in our Other segment due to lower utilization
from project implementation services and services activity. This increase was
partially offset by a 6% increase in our IT consulting segment due to the timing
of project work.
The 1% increase in total professional services and other revenue for the year
ended April 30, 2020 was due to a 12% increase from our SCM segment due
primarily due to a ramp up of implementation project work resulting from
increased subscription and license fee sales in recent periods, combined with a
4% increase in our Other segment due to utilization from project implementation
services and services revenue. This increase was partially offset by an 10%
decrease in our IT consulting segment due to the timing of project work.
In our software segments, we have observed that there is a tendency for
professional services and other revenue to lag changes in license revenue by one
to three quarters, as new licenses 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

                                                       Years Ended April 30,
                                                                                   % Change
                               2021          2020          2019        2021

vs 2020 2020 vs 2019

                                        (in thousands)
Supply Chain Management     $ 38,701      $ 41,848      $ 44,088                (8) %              (5) %
Other                          1,221         1,229         1,312                (1) %              (6) %
Total maintenance revenue   $ 39,922      $ 43,077      $ 45,400                (7) %              (5) %


The 7% decrease in total maintenance revenue for the year ended April 30, 2021
was due to a 1% decrease in our Other segment due to fewer customer renewals and
an 8% decrease in maintenance revenue from our SCM segment due to normal
customer attrition and customers converting from on-premise support to our SaaS
cloud platform.
The 5% decrease in total maintenance revenue for the year ended April 30, 2020
was due to a 6% decrease in our Other segment due to fewer customer renewals and
a 5% decrease in maintenance revenue from our SCM segment due to normal customer
attrition.
                                       50

————————————————– ——————————

Contents

SCM segment maintenance revenues represented 97% of total maintenance revenues for the years ended April 30, 2021, 2021, 2020 and 2019. In general, our maintenance revenues are directly related to current and historical license royalty revenues, as new licenses are the potential source of new maintenance customers.

GROSS MARGIN The following table provides both dollar amounts and percentage measures of gross margin:

                                                                                    Years Ended April 30,
                                                            2021                             2020                             2019
                                                                                        (in thousands)
Gross margin on subscriptions fees               $ 16,993             59  %       $ 12,542             57  %          8,267             59  %
Gross margin on license fees                        1,072             36  %          2,784             37  %            696             10  %
Gross margin on professional services and other    10,523             27  %         12,079             28  %         10,733             25  %
Gross margin on maintenance                        32,392             81  %         35,753             83  %         37,044             82  %
Total gross margin                               $ 60,980             54  %       $ 63,158             55  %       $ 56,740             52  %


The total gross margin percentage for the year ended April 30, 2021 decreased to
54% when compared to the same period in the prior year due to decreases in gross
margin percentage for professional services and other gross margins, license
fees margins and maintenance gross margins, partially offset by an increase in
subscription fees. The total gross margin percentage for the year ended
April 30, 2020 increased to 55% when compared to the same period in the prior
year due to increases in gross margin percentage for license fees, professional
services and other gross margins and maintenance gross margins, partially offset
by a decrease in subscription fees margins.
Gross Margin on Subscription Fees
For the year ended April 30, 2021, our gross margin percentage on subscription
fees increased from 57% in fiscal 2020 to 59% primarily due to an increase in
subscription revenue and lower capitalized software amortization expense.
For the year ended April 30, 2020, our gross margin percentage on subscription
fees decreased from 59% in fiscal 2019 to 57% primarily due to an increase in
capitalized software amortization expense.
Gross Margin on License Fees
The decrease in license fee gross margin percentage for the year ended April 30,
2021 when compared to fiscal 2020 was primarily due to lower license fee
revenue.
The increase in license fee gross margin percentage for the year ended April 30,
2020 when compared to fiscal 2019 was primarily due to lower agent commission
and amortization of intangibles expense and to a lesser extent higher license
fee revenue.
License fee gross margin percentage tends to be directly related to the level of
license fee revenue due to the relatively fixed cost of capitalized software
amortization expense, amortization of acquired software and the sales mix
between our direct and indirect channels.
Gross Margin on Professional Services and Other
For the year ended April 30, 2021, our gross margin percentage on professional
services and other decreased from 28% in fiscal 2020 to 27% primarily because
our IT Consulting segment professional services and other revenue gross margin
decreased from 18% in fiscal 2020 to 17% in fiscal 2021 due to a decrease in
project utilization rates. Our other segment decreased from 53% in fiscal 2020
to 41% in fiscal 2021 due to a slower ramp up of project work. Our SCM segment
professional services and other gross margin was 35% for both fiscal 2021 and
fiscal 2020.
For the year ended April 30, 2020, our gross margin percentage on professional
services and other increased from 25% in fiscal 2019 to 28% due to increased
gross margins in our SCM segment which increased from 28% in fiscal 2019 to 35%
in fiscal 2020 due to increased revenue and higher billing utilization. Our IT
Consulting segment professional services and other revenue
                                       51

————————————————– ——————————

Contents

gross margin decreased from 22% in fiscal 2019 to 18% in fiscal 2020 due to a
decrease in project related billing. Our other segment increased from 47% in
fiscal 2019 to 53% in fiscal 2020 due to improved billing utilization rates.
As discussed above, our IT Consulting segment typically has lower margins when
compared to the Other segments that have higher margin implementation service
revenue. The IT Consulting segment was 48%, 42% and 47% of the Company's
professional services and other revenue in fiscal 2021, 2020 and 2019,
respectively. Our SCM segment was 50%, 56% and 50% of the Company's professional
services and other revenue in fiscal 2021, 2020 and 2019, respectively. Our
Other segment was 2%, 2% and 3% of the Company's professional services and other
revenue in fiscal 2021, 2020 and 2019, respectively.
Gross Margin on Maintenance
Maintenance gross margin decreased to 81% in fiscal 2021 from 83% in fiscal 2020
due to lower maintenance revenue cost containment efforts. The primary cost
component is maintenance staffing, which is relatively inelastic in the short
term.
Maintenance gross margin increased to 83% in fiscal 2020 from 82% in fiscal 2019
due to cost containment efforts. The primary cost component is maintenance
staffing, which is relatively inelastic in the short term.
EXPENSES
                                                                                           Years Ended April 30,
                                                                                                                          % of Revenue
                                                   2021              2020              2019                 2021                 2020              2019
                                                                (in thousands)
Research and development                        $ 16,964          $ 15,348          $ 13,078                      15  %             13  %             12  %
Sales and marketing                               20,304            21,958            20,992                      18  %             19  %             19  %
General and administrative                        19,139            19,519            17,006                      17  %             17  %             16  %
Amortization of acquisition-related intangible
assets                                               212               285               388                       -  %              -  %              -  %
Other income, net                                  4,487               750             2,365                       4  %              -  %              2  %
Income tax expense                                   759                56               838                       1  %              -  %              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:
                                                                                Years Ended April 30,
                                                                   Percent                                 Percent
                                                2021               Change               2020               Change               2019

Total capitalized computer software
development costs                            $    620                   (80) %       $  3,170                   (47) %       $  5,961
Percentage of gross product research and
development costs                                   4  %                                   17  %                                   31  %
Total research and development expense         16,964                    11  %         15,348                    17  %         13,078
Percentage of total revenue                        15  %                                   13  %                                   12  %
Total research and development expense and
capitalized computer software development
costs                                        $ 17,584                    (5) %       $ 18,518                    (3) %       $ 19,039
Percentage of total revenue                        16  %                                   16  %                                   18  %
Total amortization of capitalized computer
software development costs*                  $  4,215                   (28) %       $  5,871                    27  %       $  4,627


______________
*  Included in cost of license fees and cost of subscription fees.
For the year ended April 30, 2021, gross product research and development costs
and capitalized software development costs decreased by 5% primarily due to a
decrease in headcount from third-party contractors compared to fiscal 2020.
Capitalized software development costs decreased in fiscal 2021 compared to
fiscal 2020 due to the timing of project work and an increase in agile software
programming that accelerates the software releases to weeks from months. We
expect capitalized software to be
                                       52

————————————————– ——————————

Contents

immaterial in fiscal 2022. Amortization of capitalized software development
decreased 28% in fiscal 2021 when compared to fiscal 2020 as some projects were
fully amortized.
For the year ended April 30, 2020, gross product research and development costs
and capitalized software development costs decreased by 3% primarily due to a
decrease in headcount from third-party contractors compared to fiscal 2019.
Capitalized software development costs decreased in fiscal 2020 compared to
fiscal 2019 due to the timing of project work. Amortization of capitalized
software development increased 27% in fiscal 2020 when compared to fiscal 2019
due to the timing of project releases.
Sales and Marketing
For the year ended April 30, 2021, the decrease in sales and marketing expenses
compared to fiscal 2020 was due primarily to lower marketing spend, including a
reduction in trade shows and conferences and lower travel costs due to COVID-19.
Fiscal 2021 was impacted by COVID-19 for the entire year versus fiscal 2020.
For the year ended April 30, 2020, the increase in sales and marketing expenses
compared to fiscal 2019 was due primarily to an increase in headcount, higher
variable compensation, higher sales commissions, an increase in contractor costs
and an increase in recruiting fees, which was partially offset by lower
marketing spend and lower travel costs due to COVID-19.
General and Administrative
For the year ended April 30, 2021, general and administrative expenses remained
relatively flat when compared to fiscal 2020 primarily due to a reduction in
variable compensation, legal fees and cost containment efforts of overhead
costs, partially offset by an increase in insurance and benefit expenses.
For the year ended April 30, 2020, the increase in general and administrative
expenses compared to fiscal 2019 was primarily due to higher variable
compensation and higher overhead costs and, to a lesser extent, higher legal,
stock option and insurance costs.
The total number of employees was 424 on April 30, 2021, 428 on April 30, 2020
and 424 on April 30, 2019.
Amortization of Acquisition-related Intangible Assets
For the year ended April 30, 2021, we recorded $0.8 million in intangible
amortization expense, of which $0.2 million is included in operating expenses
and $0.6 million is included in cost of license fees.
For the year ended April 30, 2020, we recorded $1.6 million in intangible
amortization expense, of which $0.3 million is included in operating expenses
and $1.3 million is included in cost of license fees.

Operating Income/(Loss)

                                                     Years Ended April 30,
                                                                                 % Change
                             2021          2020          2019        2021

vs 2020 2020 vs 2019

                                      (in thousands)
Supply Chain Management   $ 18,922      $ 19,612      $ 15,967                (4) %              23  %
IT Consulting                  456           332           964                37  %             (66) %
Other*                     (15,017)      (13,896)      (11,655)                8  %              19  %
Total Operating Income    $  4,361      $  6,048      $  5,276               (28) %              15  %


______________

 *  Includes certain unallocated expenses.
Our SCM segment operating income decreased by 4% in fiscal 2021 compared to
fiscal 2020 primarily due to a 5% decrease in revenue. Our SCM segment operating
income increased by 23% in fiscal 2020 compared to fiscal 2019 primarily due to
a 10% increase in revenue.
Our IT Consulting segment operating income increased 37% in fiscal 2021 compared
to fiscal 2020 primarily due to a 6% increase in revenue due to the type of
project billing. Our IT Consulting segment operating income decreased 66% in
fiscal 2020 compared to fiscal 2019 primarily due to a decrease in revenue and
lower gross margins due to the type of project billing.
                                       53

————————————————– ——————————

Contents

The increase in the Other segment operating loss in fiscal 2021 when compared to
fiscal 2020 was due primarily to a 14% decrease in revenue and an increase in
variable compensation and benefit costs. The increase in the Other segment
operating loss in fiscal 2020 when compared to fiscal 2019 was due primarily to
an increase in variable compensation and overhead costs, partially offset by a
2% increase in revenue in fiscal 2020.
Other Income
Other income is comprised of net interest and dividend income, rental income net
of related depreciation expenses, exchange rate gains and losses, realized and
unrealized gains and losses from investments. Other income was approximately
$4.5 million in the year ended April 30, 2021 compared to $0.8 million in fiscal
2020. The increase was primarily due to unrealized gains of $3.6 million in
fiscal 2021 compared to unrealized losses of $0.1 million for the same period
last year, lower interest income of $0.4 million in fiscal 2021 compared to $1.5
million in fiscal 2020 and exchange rate gains of approximately $53,000 compared
to losses of $605,000 for the same period last year.
Other income was approximately $0.8 million in the year ended April 30, 2020
compared to $2.4 million in fiscal 2019. The decrease was primarily due to
unrealized losses of $0.1 million in fiscal 2020 compared to unrealized gains of
$1.0 million in fiscal 2019, lower interest income of $1.5 million in fiscal
2020 compared to $2.1 million in fiscal 2019 and higher exchange rate losses of
approximately $605,000 compared to $486,000 for the same period last year.
For the years ended April 30, 2021 and 2020, our investments generated an
annualized yield of approximately 1.7% and 1.4%, respectively.
Income Taxes
During the year ended April 30, 2021, we recorded income tax expense of $759,000
compared to $56,000 in fiscal 2020 and $838,000 in fiscal 2019. Our effective
income tax rate takes into account the source of taxable income by state and
available income tax credits. Our effective tax rate was 8.6%, 1%, and 11% in
fiscal 2021, 2020 and 2019, respectively. The effective tax rate for fiscal 2021
is higher compared to fiscal 2020 due to a decrease in the amount of excess tax
benefits from stock option deductions and a decrease in foreign tax credits.

Operating Pattern
We experience an irregular pattern of quarterly and annual operating results,
caused primarily by fluctuations in both the number and size of software
contracts received and delivered from quarter to quarter and our ability to
recognize revenue in that quarter and annually in accordance with our revenue
recognition policies. We expect this pattern to continue.
LIQUIDITY AND CAPITAL RESOURCES
Sources and Uses of Cash
We have historically funded, and 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 tables provide information about our cash flows and liquidity
positions as of and for the fiscal years ended April 30, 2021, 2020 and 2019.
You should read these tables and the discussion that follows in conjunction with
our consolidated statements of cash flows contained in Item 8 of this report.
                                                         Years ended
                                                          April 30,
                                               2021          2020          2019
                                                        (in thousands)
Net cash provided by operating activities   $ 17,756      $ 25,982      $ 23,930
Net cash used in investing activities         (1,298)       (3,590)       (7,213)
Net cash used in financing activities         (7,614)       (3,866)       (8,223)
Net change in cash and cash equivalents     $  8,844      $ 18,526      $  8,494


The decrease in cash provided by operating activities in fiscal 2021 compared to
fiscal 2020 was due primarily to: (1) a decrease in the net proceeds from sales
and maturities of trading securities due to timing of sales and maturity dates,
(2) unrealized
                                       54

————————————————– ——————————

Contents

gains on investments due to timing of sales of investments, (3) lower
depreciation and amortization expense due to several capitalized software
projects and intangible assets being fully amortized and (4) a lower increase in
accounts payable and other liabilities during fiscal 2021, when compared to a
higher increase in fiscal 2020 due primarily to timing and the amount of sales
commissions and bonuses.
These factors were partially offset by: (1) a decrease in the purchases of
trading securities due to timing, (2) the decrease in accounts receivable was
more significant in fiscal 2020 compared to fiscal 2021 due to timing of sales
and billing, (3) an increase in prepaid expenses and other assets in fiscal 2021
compared to the decrease in fiscal 2020 due to timing of purchases, (4) an
increase in deferred revenue in fiscal 2021 when compared to fiscal 2020
primarily due to the timing of cloud and maintenance revenue recognition, (5) an
increase in net earnings, (6) higher stock-based compensation expense in fiscal
2021 due to an increase in options granted and (7) a decrease in deferred income
taxes in fiscal 2021 compared to fiscal 2020 due to timing.
The decrease in cash used in investing activities in fiscal 2021 compared to
cash used in investing activities in fiscal 2020 was due to: a decrease in
capitalized software development costs due to the timing of R&D efforts and
partially offset by higher purchases of equipment.
The increase in cash used in financing activities in fiscal 2021 when compared
to fiscal 2020 was due primarily to: a decrease in proceeds from exercise of
stock options, partially offset by an increase in cash dividends paid on common
stock in fiscal 2021 due to an increase in the number of shares outstanding.

The following table provides information regarding the changes in our total cash and investment position:

                                                  As of April 30,
                                                2021           2020
                                                  (in thousands)
Cash and cash equivalents                    $  88,658      $ 79,814
Investments                                     16,006        14,862
Total cash and investments                   $ 104,664      $ 94,676

Net increase in total cash and investments 9,988 6,194


As of April 30, 2021, we had $104.7 million in total cash and investments with
no outstanding debt, and believe that our sources of liquidity and capital
resources will be sufficient to satisfy our presently anticipated requirements
for working capital, capital expenditures and other corporate needs during at
least the next twelve months. 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
currently do not 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.
Days Sales Outstanding ("DSO") in accounts receivable were 85 and 78 days as of
April 30, 2021 and April 30, 2020, respectively. Our current ratio on April 30,
2021 was 2.7 to 1, compared to 2.9 to 1 on April 30, 2020. DSO can fluctuate
significantly on a quarterly basis due to a number of factors including the
percentage of total revenue that comes from software license sales (which
typically have installment payment terms), seasonality, shifts in customer
buying patterns, the timing of customer payments and annual SaaS and maintenance
renewals, lengthened contractual payment terms in response to competitive
pressures, the underlying mix of products and services, and the geographic
concentration of revenue.
On August 19, 2002, our Board of Directors approved a resolution authorizing the
repurchase of up to 2.0 million shares of our Class A common stock. These
repurchases have been and will be made through open market purchases at
prevailing market prices. The timing of any repurchases will depend upon market
conditions, the market price of our common stock and management's assessment of
our liquidity and cash flow needs. For this repurchase plan, through April 30,
2021, we have repurchased 1,053,679 shares of common stock at a cost of
approximately $6.2 million. Under all repurchase plans as of April 30, 2021, we
have repurchased 4,588,632 shares of common stock at a cost of approximately
$25.6 million.
Off-Balance Sheet Arrangements
We are not a party to any off-balance sheet arrangements that have, or are
reasonably likely to have, a material current or future effect on our financial
condition, revenue or expenses, results of operations, liquidity, capital
expenditures or capital resources.
                                       55

————————————————– ——————————

Contents

See Item 5 of this report, under the caption "Market for Registrant's Common
Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities."
ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency. For the fiscal years ended April 30, 2021 and 2020, we
generated 15% and 19%, respectively, of our revenue outside of the United
States. We typically denominate our international sales in U.S. dollars, euros
or British pounds sterling. Our consolidated financial statements are presented
in U.S. dollars, which is also the functional currency for our foreign
operations. Where transactions may be denominated in foreign currencies, we are
subject to market risk with respect to fluctuations in the relative value of
currencies. We recorded exchange rate gains of approximately $0.1 million in
fiscal 2021, compared to exchange rate losses of $0.6 million in fiscal 2020. We
estimate that a 10% movement in foreign currency rates would have the effect of
creating an exchange gain or loss of approximately $0.4 million for fiscal 2021.
Interest Rates and Other Market Risks. We manage our interest rate risk by
maintaining an investment portfolio of trading investments with high credit
quality and relatively short average maturities. These instruments include, but
are not limited to, money-market instruments, bank time deposits, and taxable
and tax-advantaged variable rate and fixed rate obligations of corporations,
municipalities, and national, state, and local government agencies. These
instruments are denominated in U.S. dollars. The fair market value of our cash
equivalents and investments increased 8% to approximately $97.7 million in
fiscal 2021 from $90.1 million in the prior year.
We also hold cash balances in accounts with commercial banks in the United
States and foreign countries. These cash balances represent operating balances
only and are invested in short-term time deposits of the local bank. Such
operating cash balances held at banks outside the United States are denominated
in the local currency and are nominal.
Many of our investments carry a degree of interest rate risk. When interest
rates fall, our income from investments in variable-rate securities declines.
When interest rates rise, the fair market value of our investments in fixed-rate
securities declines. In addition, our investments in equity securities are
subject to stock market volatility. Due in part to these factors, our future
investment income may fall short of expectations or we may suffer losses in
principal if forced to sell securities, which have seen a decline in market
value due to changes in interest rates. We attempt to mitigate risk by holding
fixed-rate securities to maturity, but if our liquidity needs force us to sell
fixed-rate securities prior to maturity, we may experience a loss of principal.
We believe that a 10% fluctuation in interest rates would not have a material
effect on our financial condition or results of operations.
                                       56

————————————————– ——————————

Contents

© Edgar online, source Previews

Share.

About Author

Comments are closed.