American Software(AMSWA) - 2022 Q4 - Annual Report

Part I Business American Software, Inc. operates through three segments: Supply Chain Management (SCM), IT Consulting, and Other, providing a cloud-architected SCM platform and related services Company Overview American Software, incorporated in 1970, provides software and services through three main operating segments: Supply Chain Management (SCM), IT Consulting, and an "Other" segment for legacy ERP clients - The company operates through three major segments: Supply Chain Management (SCM), IT Consulting, and Other (legacy ERP)[11] - The core offering is the Logility Digital Supply Chain Platform, which uses AI and machine learning to automate business processes[12] - Revenue is derived from four sources: subscriptions, software licenses, maintenance, and services, with subscription and maintenance agreements typically lasting three to five years[15] Market Opportunity and Strategy The company targets the growing supply chain management software market, focusing on creating sustainable supply chains, expanding partnerships, and pursuing complementary acquisitions - Gartner forecasts the Supply Chain Management software market to grow at a 14.6% CAGR, reaching $31 billion by 2025[18] - Key company strategies include enabling client sustainability, expanding strategic partnerships, and acquiring complementary businesses and technologies[19][20][21] Products and Services The company offers a comprehensive, cloud-architected SCM platform covering seven key processes, alongside technology staffing and support for legacy ERP products - The SCM platform encompasses seven critical planning processes, including Product Lifecycle Management, Demand Planning, Inventory Optimization, and Supply Planning[22][23][24] - The company provides 24/7 support services, which are included in subscriptions or offered via separate maintenance contracts for licensed products[28] - Professional services include cloud hosting, managed services, and implementation and training, which typically takes three to nine months[29][30] Competition The company faces diverse competition from large ERP vendors and specialized SCM software providers, leveraging its comprehensive platform and domain expertise as key advantages - Competitors include large ERP vendors (SAP, Oracle), specialized SCM vendors (Blue Yonder, o9 Solutions, Kinaxis), and internal corporate IT departments[37] - Principal competitive advantages are cited as the comprehensive solution platform, ability to generate quick business benefits, deep domain expertise, and rapid deployment[39] Human Capital, Data Privacy and Security As of April 30, 2022, the company had 418 full-time employees and over 100 contractors, maintaining robust data privacy and security measures compliant with global regulations - As of April 30, 2022, the company employed 418 full-time employees and over 100 independent contractors[48] - The company maintains compliance with data privacy laws such as GDPR in the EU/UK and CCPA in the United States[55][56] - An independent third-party audit provides a SOC 2 Type II report annually, attesting to the effectiveness of the company's controls for security, availability, and confidentiality[59] - Client data in cloud solutions is hosted in a Microsoft Azure environment, which provides geo-redundant storage and other security measures[60] Risk Factors The company identifies numerous risks that could adversely affect its business, including economic disruptions, intense competition, industry dependence, and its "controlled company" status - Economic risks include disruptions from the COVID-19 pandemic, the invasion of Ukraine, and potential reductions in technology spending by clients[66][76] - The company faces intense competition from large ERP vendors (SAP, Oracle) and specialized SCM vendors who have significantly greater resources[67][85] - A significant portion of revenue is derived from the retail industry, making the company vulnerable to downturns in that sector[68][92] - The company is a "controlled company" as one shareholder, James C. Edenfield, has the right to elect a majority of the Board of Directors, which exempts it from certain NASDAQ governance requirements[71][146][148] Properties The company owns its corporate headquarters in Atlanta, Georgia, and leases additional sales and technology development offices both domestically and internationally - The company owns its 100,000 sq. ft. corporate headquarters in Atlanta, Georgia[157] - Leased office spaces are maintained in the US and internationally to support sales and development[157] Legal Proceedings The company is not currently a party to any material legal proceedings and believes any existing matters will not have a material adverse effect - As of the report date, the company is not a party to any material legal proceedings[159] Mine Safety Disclosures This item is not applicable to the company's business - Not applicable[161] Part II Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities The company's Class A Common Shares trade on NASDAQ, maintains a quarterly dividend of $0.11 per share, and has an ongoing share repurchase program - The company's Class A Common Shares are listed on the NASDAQ Global Select Market under the symbol "AMSWA"[164] - The quarterly dividend was increased to $0.11 per share in May 2016 and is expected to continue at this level[167] Equity Compensation Plan Information (as of April 30, 2022) | Plan Category | Securities to be issued upon exercise | Weighted-average exercise price | Securities remaining for future issuance | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 4,540,104 | $16.05 | 2,902,643 | - Under a 2002 board authorization, the company has authority to repurchase up to 2.0 million shares; 946,321 shares remained available for repurchase as of April 30, 2022[173] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) In fiscal 2022, total revenue increased 14% to $127.6 million, driven by strong subscription and license fee growth, leading to significant increases in operating income and net earnings Results of Operations For fiscal year 2022, total revenue increased by 14% to $127.6 million, driven by a 46% surge in subscription fees and an 80% rise in license fees Fiscal 2022 vs. 2021 Revenue Breakdown (in thousands) | Revenue Type | FY 2022 | FY 2021 | YoY Change | | :--- | :--- | :--- | :--- | | Subscription fees | $42,066 | $28,877 | +46% | | License fees | $5,390 | $2,993 | +80% | | Professional services & other | $43,476 | $39,616 | +10% | | Maintenance | $36,621 | $39,922 | -8% | | Total Revenue | $127,553 | $111,408 | +14% | Fiscal 2022 vs. 2021 Profitability (in thousands) | Metric | FY 2022 | FY 2021 | YoY Change | | :--- | :--- | :--- | :--- | | Gross Margin | $75,795 (59%) | $60,980 (54%) | +24% | | Operating Income | $13,156 | $4,361 | +202% | | Net Earnings | $12,782 | $8,089 | +58% | - The SCM segment was the primary growth driver, with revenue increasing 16% and operating income increasing 54% in fiscal 2022 compared to fiscal 2021[199][228] - The increase in subscription revenue was driven by a 26% increase in Cloud Services Annual Contract Value (ACV) to $48.2 million[205] Liquidity and Capital Resources The company maintains strong liquidity with $127.5 million in cash and investments and no debt, primarily funding operations through robust cash flow from operating activities Cash Flow Summary (in thousands) | Cash Flow | FY 2022 | FY 2021 | | :--- | :--- | :--- | | Net cash from operating activities | $29,020 | $17,756 | | Net cash used in investing activities | ($934) | ($1,298) | | Net cash used in financing activities | ($6,054) | ($7,614) | Cash and Investments Position (in thousands) | As of April 30, | 2022 | 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $110,690 | $88,658 | | Investments | $16,826 | $16,006 | | Total cash and investments | $127,516 | $104,664 | - Days Sales Outstanding (DSO) improved to 62 days as of April 30, 2022, compared to 85 days at the end of the prior fiscal year[239] - The company has no debt obligations or off-balance sheet financing arrangements[232] Quantitative and Qualitative Disclosures about Market Risk The company is exposed to market risks from foreign currency fluctuations and interest rate changes, with international revenue accounting for 16% of total revenue in fiscal 2022 - International revenue was 16% of total revenue in fiscal 2022, creating exposure to foreign currency risk[242] - A 10% change in foreign currency exchange rates would result in an estimated exchange gain or loss of approximately $0.3 million for fiscal 2022[242] - Interest rate risk is managed with an investment portfolio of high-credit-quality, short-maturity instruments, and the company does not expect a 10% rate fluctuation to have a material effect[243][245] Consolidated Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for fiscal year 2022, including management's assertion of effective internal controls and the auditor's unqualified opinion Auditor's Report and Management's Assessment Management concluded that the company's internal control over financial reporting was effective, and KPMG LLP issued an unqualified opinion, noting revenue testing as a critical audit matter - Management assessed internal controls over financial reporting as effective as of April 30, 2022, based on the COSO framework[252] - KPMG LLP issued an unqualified opinion on the consolidated financial statements and internal controls[255][262] - A critical audit matter was identified concerning the sufficiency of audit evidence for revenue recognition, due to the high volume of transactions and reliance on IT systems[266][267] Consolidated Financial Statements The consolidated financial statements for fiscal year 2022 show total assets of $192.8 million, total revenue of $127.6 million, and net earnings of $12.8 million, reflecting strong financial performance Consolidated Balance Sheet Highlights (in thousands) | As of April 30, | 2022 | 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $110,690 | $88,658 | | Total Assets | $192,835 | $177,157 | | Total Liabilities | $59,859 | $54,766 | | Total Shareholders' Equity | $132,976 | $122,391 | Consolidated Statement of Operations Highlights (in thousands) | For the Year Ended April 30, | 2022 | 2021 | | :--- | :--- | :--- | | Total Revenue | $127,553 | $111,408 | | Operating Income | $13,156 | $4,361 | | Net Earnings | $12,782 | $8,089 | | Diluted EPS | $0.37 | $0.24 | Notes to Consolidated Financial Statements The notes detail accounting policies, segment performance, and a significant subsequent event: the acquisition of Starboard Solutions Corp. for approximately $6.5 million cash FY 2022 Segment Performance (in thousands) | Segment | Revenue | Operating Income | | :--- | :--- | :--- | | Supply Chain Management | $104,288 | $29,164 | | IT Consulting | $21,032 | $1,601 | | Other | $2,233 | ($17,609) | - As of April 30, 2022, the company had remaining performance obligations of approximately $134.0 million, with 47% expected to be recognized as revenue in the next 12 months[300] - Subsequent to fiscal year-end, on June 28, 2022, the company acquired the assets of Starboard Solutions Corp. for ~$6.5 million cash plus a potential $6.0 million earn-out over three years[402][403] - The effective income tax rate for fiscal 2022 was 7.6%, down from 8.6% in 2021, primarily due to higher excess tax benefits from stock option deductions[367] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of April 30, 2022, with no material changes to internal controls during the last fiscal quarter - Management concluded that disclosure controls and procedures were effective as of April 30, 2022[407] - No material changes were made to internal controls over financial reporting during the last fiscal quarter[410] Part III Part III of the report, covering Items 10 through 14, incorporates information by reference from the company's Proxy Statement for the 2022 Annual Meeting of Shareholders Directors, Executive Officers and Corporate Governance Information required by this item is incorporated by reference from the company's Proxy Statement - Information regarding directors, executive officers, and corporate governance is incorporated by reference from the Proxy Statement[413] Executive Compensation Information required by this item is incorporated by reference from the company's Proxy Statement - Information regarding executive compensation is incorporated by reference from the Proxy Statement[414] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information required by this item is incorporated by reference from the company's Proxy Statement - Information regarding security ownership is incorporated by reference from the Proxy Statement[416] Certain Relationships and Related Transactions, and Director Independence Information required by this item is incorporated by reference from the company's Proxy Statement - Information regarding related transactions and director independence is incorporated by reference from the Proxy Statement[418] Principal Accountant Fees and Services Information required by this item is incorporated by reference from the company's Proxy Statement - Information regarding principal accountant fees and services is incorporated by reference from the Proxy Statement[420] Part IV Exhibits and Financial Statement Schedules This section lists the documents filed as part of the Form 10-K, including financial statements, Schedule II, and various required exhibits and certifications - Lists all financial statements, Schedule II, and exhibits filed with the report[423] Form 10-K Summary This item is noted as "None," indicating no summary is provided under this section - None[432]