American Software(AMSWA) - 2023 Q4 - Annual Report

Business Overview American Software, Inc. provides software and services through SCM, IT Consulting, and other divisions, leveraging its Logility platform for global customers Company Overview Founded in 1970, American Software, Inc. offers SCM, IT Consulting, and ERP services globally, with revenue from subscriptions, licenses, maintenance, and services - The company, founded in 1970 and headquartered in Atlanta, provides software and services through Supply Chain Management (SCM), Information Technology Consulting (IT Consulting), and traditional Enterprise Resource Planning (ERP) services as three main operating segments, with SCM as the core market[10] - The Logility digital supply chain platform leverages Artificial Intelligence (AI) and advanced analytics to automate key business processes and accelerate digital supply chain optimization[12] - The company serves approximately 805 customers across about 80 countries, primarily in vertical markets such as apparel, food and beverage, consumer packaged goods, and wholesale distribution[15] - Revenue is derived from subscription fees, software license fees, maintenance fees, and service fees, with subscription and maintenance agreements typically lasting three to five years, prepaid annually and recognized over time[16] Market Opportunity The global SCM software market is projected to grow to $38 billion by 2027, presenting significant opportunities for the company's supply chain planning focus - Businesses must enhance supply chain performance through automation, AI, and advanced analytics to meet consumer expectations and economic pressures[18] Global Supply Chain Management Software and Services Market Forecast | Indicator | 2023 | 2027 | | :--- | :--- | :--- | | Market Size | >$21 billion | $38 billion | | CAGR (2023-2027) | - | 15% | - The company primarily focuses on supply chain planning processes and some procurement functions, estimated to account for one-third of the Gartner-defined supply chain management software market[21] Company Strategy The company's strategy focuses on delivering rapid customer value through sustainable supply chains, strategic partnerships, and selective acquisitions - The company aims to provide customers with the fastest time to value, building agile, resilient, and efficient sustainable supply chains[22] - Through shortening supply chains, reducing energy consumption, and increasing the use of recyclable materials, the company helps customers achieve more sustainable operations - Accelerate growth and more efficiently deliver products and services by establishing strategic partnerships with industry-leading consulting firms and other software service providers - Expand product lines, broaden geographical coverage, penetrate new vertical markets, and consolidate SCM market leadership through selective acquisitions or investments in complementary businesses, products, and technologies[23] Products and Services The company provides a comprehensive cloud-based SCM platform covering eight key planning processes, alongside technical staffing and consulting services - The company offers a comprehensive cloud-architecture supply chain management platform, covering eight key planning processes: product, demand, inventory, supply, network optimization, deployment, integrated business planning, and supply chain data management[24] - Platform components can be used independently or combined, supporting SaaS cloud deployment or on-premise deployment, enabling insights and automated planning through the supply chain MDM platform and advanced analytics capabilities[24][25] - Technical staffing and consulting services are provided through its wholly-owned subsidiary, The Proven Method, Inc., and software, support, and services continue for traditional American Software ERP products[28] Client Support and Maintenance Continuous product support is included in subscriptions, with licensed software customers receiving 24/7 support under annual contracts - Continuous product support services are included in subscription fees; licensed software customers enter into 1-3 year support/maintenance contracts, prepaid annually[29] - Support services include telephone consultation, product updates, new version releases, error reporting, and correction, offering 24/7 support[29] Consulting Services Professional consulting services, including implementation, training, and cloud hosting, are offered to facilitate rapid software deployment and value realization - Professional consulting services are provided, including business and software implementation consulting, development configuration, system interfaces, training, and certification, typically billed on a time-and-materials basis[30] - Services cover cloud hosting and managed services, as well as implementation and training services, aimed at helping customers rapidly deploy software, with implementation cycles typically ranging from 3-9 months[30][31] Clients Serving diverse industries, no single client exceeded 10% of revenue in FY2023, with minor seasonal slowdowns in service revenue - The company's customers span various industries, including apparel, food and beverage, consumer packaged goods, durable goods, and process and chemical manufacturing[33] - In fiscal year 2023, no single customer accounted for more than 10% of total revenue[36] - Service revenue typically experiences a slight seasonal slowdown during the winter holidays, and the company does not rely on government sector clients[36] Competition The company competes with major ERP and specialized SCM vendors, leveraging its comprehensive platform, domain expertise, and rapid value delivery as key advantages - Key competitors include large ERP application software vendors (e.g., SAP, Oracle, Infor), specialized supply chain application software market vendors (e.g., Blue Yonder, o9 Solutions, Kinaxis, OM Partners), and other business application software vendors and in-house development teams - Major competitive factors include product functionality and quality, domain expertise, integration technology, product suite integration, product breadth, and related services (e.g., customer support, training, and implementation)[37][38] - The company's primary competitive advantages lie in its comprehensive end-to-end software platform, ability to quickly create business benefits for customers, significant investment in product development, deep domain expertise, ease of use of software products, customer support and professional consulting services, rapid deployment capabilities, and ability to deliver quick return on investment for customers[39] Sales and Marketing Global sales are driven by direct teams and VARs across 80 countries, supported by modernized digital marketing efforts to enhance brand awareness - The company sells its products globally through a direct sales team and a worldwide network of value-added resellers (VARs)[40][41] - The marketing department underwent modernization in the past year, increasing its focus on digital promotion and enhancing brand awareness through various marketing channels[42] Research and Development R&D focuses on AI, machine learning, and advanced analytics to meet evolving customer needs and technological changes, with 151 personnel dedicated to product development - The company's success depends on its ability to identify and meet customer needs, anticipate technological changes, adapt to customer expectations, and keep pace with emerging industry standards[43] - R&D focuses on Artificial Intelligence, Machine Learning, advanced analytics platforms, in-memory computing, and alternative data management methods, as well as the application of emerging technologies like blockchain in supply chain use cases[44] - As of April 30, 2023, the company had 95 employees and 56 contractors (totaling 151 individuals) engaged in product development and enhancement activities[44][48] Proprietary Rights Proprietary technology is protected through copyrights, trade secrets, and confidentiality, with employee expertise and continuous product development being key to leadership - The company protects its proprietary technology, including software source code and registered trademarks, through copyrights, trade secret laws, confidentiality obligations, and other contractual terms[45][47] - The company believes that the knowledge, capabilities, and experience of its employees, new product development, frequent product enhancements, reliable maintenance, and timely, high-quality support services are crucial for establishing and maintaining technological leadership[45] Human Capital Resources With 394 full-time employees and 80+ contractors, the company fosters an inclusive culture, supporting continuous learning and community engagement - As of April 30, 2023, the company had 394 full-time employees and over 80 independent full-time contractors[48] - The company's culture is based on core values of passion, accountability, curiosity, and teamwork, committed to providing an inclusive and diverse workplace[49][50] - The company supports employees' continuous learning, training, and career development, and encourages participation in community volunteer services through its "Community Impact" initiative, offering paid time off[51][52] Data Privacy The company maintains robust data privacy policies, ensuring compliance with global regulations like GDPR and CCPA for all data processing activities - The company has established and continuously maintains data protection and privacy policies to comply with increasing global regulatory and legislative activities[54] - The company's privacy policies comply with the EU's GDPR and the US's CCPA and other existing state laws[55][56] Data Security A comprehensive security program, managed by an information security manager, ensures data protection through annual assessments, employee training, SOC 2 Type II reports, encryption, and 24/7 monitoring - The software security program is managed by an information security manager, conducting annual vendor and internal risk assessments, and maintaining a security incident response team[57] - The company annually obtains independent SOC 2 Type II reports to demonstrate the effectiveness of its controls in security, availability, processing integrity, and confidentiality[59] - Customer data is protected by web application firewalls and data encryption (in transit and at rest), with the SaaS environment secured by vulnerability management software and 24/7 security monitoring, and access controlled by two-factor authentication[60] Sustainability in Data Operations Sustainability is a key factor in hosting partnerships, with Microsoft Azure's carbon-negative and zero-waste commitments aligning with the company's data operations - The company considers sustainability a key factor when evaluating hosting partners and continues to expand its collaboration with Microsoft Azure[62] - Microsoft is committed to achieving carbon negativity by 2030 and eliminating all direct emissions since its founding by 2050 - Microsoft Azure focuses on four environmental impact areas: carbon, water, waste, and ecosystems, including achieving 100% renewable energy by 2025, and water positivity and zero-waste certification by 2030[62] - The company performs data destruction and sanitization through environmentally friendly incineration or e-Stewards® certified recycling processes[63] Available Information Annual, quarterly, and current reports are available free of charge on the company's website after SEC filing - The company provides its annual reports (Form 10-K), quarterly reports (Form 10-Q), current reports (Form 8-K), and all amendments free of charge on its official website http://www.amsoftware.com[64](index=64&type=chunk) Risk Factors The company faces diverse risks including macroeconomic uncertainties, intense competition, operational challenges, product development issues, personnel dependency, and corporate governance complexities Risk Factors Related to the Economy Macroeconomic uncertainties, including market volatility, inflation, trade disputes, and geopolitical conflicts, pose risks to demand, customer solvency, and foreign exchange rates - Disruptions in financial and credit markets, government policies on interest and inflation rates, international trade disputes, pandemics (such as COVID-19), and external impacts like the Russia-Ukraine war may reduce demand for the company's software and related services, negatively affecting revenue and operating results - Weak economic conditions may lead to an increased number of customer bankruptcies, impacting the collectability of the company's accounts receivable - The company faces foreign exchange rate risk as international revenue and most international expenses are denominated in non-U.S. dollar currencies, and exchange rate fluctuations may affect operating results[66][75][79][81][82] Risk Factors Related to Competition Intense market competition, exacerbated by consolidation and larger rivals, may lead to price pressures, reduced margins, and market share loss - The company's market is highly competitive and it may not be able to compete effectively, with market consolidation potentially leading to price wars, reduced gross margins, and loss of market share - Many existing and potential competitors possess greater resources than the company, potentially placing it at a competitive disadvantage - Competition may force the company to alter its pricing strategies, which could adversely affect operating margins or customer order patterns[67][83][84][85][88] Risk Factors Related to Our Operations Operational risks include reliance on sales channels and the retail industry, revenue volatility from large sales, lower service margins, and challenges in accounting, acquisitions, and international operations - The company's growth depends on the successful development of direct and indirect sales channels, and the establishment and maintenance of relationships with complementary suppliers - The company's revenue is highly dependent on the retail industry, and a portion of service revenue is concentrated among a few customers, with large non-recurring sales potentially causing quarterly revenue fluctuations - Sales cycles are long and unpredictable, service revenue gross margins are lower than license or subscription revenue, and failure to maintain implementation service margins and rates may adversely affect operating results - The company faces risks related to accounting interpretations, acquisition integration, changes in tax laws, needs for additional capital, business interruptions, international operations, rising liability insurance costs, management resource pressures, and internet regulation and disruptions[68][89][90][91][92][93][94][95][97][98][99][100][101][102][103][104][105][107][108][109][110][111][112][113][114] Risk Factors Related to Our Products Product risks encompass customer migration reluctance, development delays, performance issues, open-source challenges, implementation complexities, IP infringement, data security, and reliance on third-party technologies - Customers may be unwilling to migrate to new product versions, leading to reduced service and maintenance revenue - The company may fail to timely develop new products or enhance existing ones to address technological changes and competition - Products failing to quickly deliver measurable value, or failing to maintain cross-platform and operating system performance, may harm the business - Software products and product development are complex, potentially leading to innovation difficulties, product errors, and high correction costs - The use of open-source software may introduce additional risks and harm intellectual property, with open-source community expansion potentially leading to reduced revenue - Product implementation is complex, time-consuming, and expensive, and customers may not successfully implement, potentially leading to warranty or product liability claims - Increased customized software sales may lead to extended revenue recognition cycles, and product launch delays may adversely affect the business - R&D investments may take several years to generate significant revenue - Intellectual property protection is limited, potential infringement of third-party intellectual property, and exposure to liability claims arising from product sales and service provision - Data privacy and security issues, including evolving government regulations, may adversely affect the business and operating results - Reliance on third-party technologies may lead to increased costs or delays in product production and improvement - Third-party service disruptions or delays, or failure to adequately plan for and manage service disruptions or infrastructure capacity needs, may harm service delivery and the business - Failure to provide high-quality customer support for cloud platforms may adversely affect customer relationships and financial performance[69][70][115][116][117][118][119][120][121][122][123][124][125][126][127][128][129][130][131][132][133][135][136][137][138][139][140][141][142] Risk Factors Related to Our Personnel High dependency on key personnel, risks from talent retention, workforce restructuring, and potential abuse of customer data access pose significant personnel-related challenges - The company is highly dependent on a few key senior management and technical personnel, and failure to attract and retain highly qualified talent may severely impact operations and business objectives - Workforce restructuring may lead to business disruptions and decreased productivity - Technical personnel have unique access to customer data, posing a risk of privilege abuse[71][143][144][145] Risk Factors Related to Our Corporate Structure and Governance Governance risks include regulatory compliance costs, substantial control by a single shareholder, anti-takeover provisions, and exemptions as a "controlled company" under Nasdaq rules - The company's business is subject to evolving corporate governance and public disclosure regulations, leading to increased costs and non-compliance risks - A single shareholder (James C. Edenfield) owns a majority of the company's equity, exerting substantial control and potentially blocking acquisition offers favorable to other shareholders - The company's articles of incorporation, bylaws, and Georgia law may prevent its acquisition - As a "controlled company" under Nasdaq rules, the company may be exempt from certain corporate governance requirements[71][146][147][148][149][150] Risk Factors Related to Our Stock Price Quarterly operating result fluctuations, potential class-action lawsuits, changes in dividend policy, and future stock sales pose risks to the company's stock price - The company's quarterly operating results may fluctuate significantly, which could adversely affect its stock price - Stock price volatility may lead to the risk of securities class action lawsuits - The company's dividend policy may change - The future sale or anticipated sale of a large number of shares could cause the stock price to decline[72][151][152][153][154][155][156] Unresolved Staff Comments This report contains no unresolved staff comments - There are no unresolved staff comments in this report[158] Properties The company owns its Atlanta headquarters and leases offices globally, with current facilities deemed sufficient for operations - The company's headquarters is located in Atlanta, where it owns an office building of approximately 100,000 square feet; additionally, the company leases sales and technical development offices in the U.S. and internationally (UK, Germany, India, New Zealand)[159] - The company believes its existing facilities are sufficient for current needs and that suitable additional or alternative space can be obtained on commercially reasonable terms[159] Legal Proceedings This report discloses no legal proceedings - There are no legal proceedings in this report[161] Mine Safety Disclosures Mine safety disclosures are not applicable to the company's operations - Not applicable[162] Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities This section details the trading market for the company's common stock, equity compensation plans, dividend policy, stock performance, and share repurchase activities Trading Market The company's Class A common stock trades on Nasdaq under "AMSWA," with 15,105 Class A holders as of July 3, 2023 - The company's Class A common stock is listed on the Nasdaq Global Select Market under the ticker symbol "AMSWA"[165] - As of July 3, 2023, there were approximately 15,105 holders of Class A common stock and 1 holder of Class B common stock[165] Equity Compensation Plans As of April 30, 2023, 5,273,057 equity awards were outstanding with a $16.59 weighted-average exercise price, and 1,627,143 shares were available for future issuance Equity Compensation Plan Overview (as of April 30, 2023) | Indicator | Quantity | | :--- | :--- | | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights | 5,273,057 | | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights | $16.59 | | Number of Securities Remaining Available for Future Issuance | 1,627,143 | Dividend Policy The company has paid a quarterly dividend of $0.11 per share since 2016, with future payments subject to Board discretion and financial performance - Since the third quarter of fiscal year 2013, the company's Board of Directors has declared a quarterly dividend of $0.10 per share, which was increased to $0.11 per share on May 11, 2016[168] - The company currently expects to declare and pay cash dividends quarterly at $0.11 per share in the future, but this policy may change at any time and is at the sole discretion of the Board based on factors such as profitability, financial condition, cash needs, and future prospects[168] Stock Price Performance Graph Over five years, the company's stock grew from $100 to $107, underperforming the Nasdaq Composite and Nasdaq Computer Indices Cumulative Shareholder Return (April 30, 2018 - April 30, 2023) | Indicator | FY2018 ($) | FY2019 ($) | FY2020 ($) | FY2021 ($) | FY2022 ($) | FY2023 ($) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | American Software | 100 | 105 | 138 | 177 | 149 | 107 | | NASDAQ Composite | 100 | 115 | 126 | 198 | 175 | 173 | | NASDAQ Computer Index | 100 | 120 | 144 | 235 | 229 | 239 | Purchases of Equity Securities by the Company No shares were repurchased in Q4 FY2023, with 946,321 Class A shares remaining available under the existing repurchase program Summary of Stock Repurchases for Q4 FY2023 | Fiscal Period | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs | | :--- | :--- | :--- | :--- | :--- | | February 1 to February 28, 2023 | — | — | — | 946,321 | | March 1 to March 31, 2023 | — | — | — | 946,321 | | April 1 to April 30, 2023 | — | — | — | 946,321 | | Total for Q4 FY2023 | — | — | — | 946,321 | - As of April 30, 2023, the company had repurchased 4,588,632 shares of common stock under all repurchase programs, at a total cost of approximately $25.6 million[240] Transfer Agent Broadridge Shareholder Services acts as the company's transfer agent, managing stock transfers and shareholder record changes - The company's transfer agent is Broadridge Shareholder Services, responsible for handling matters such as stock transfers, lost certificates, or address changes[175] Market Makers Multiple firms, including Alpaca Securities and J.P. Morgan Securities, provide market-making services for the company's Class A common stock - Several companies provide market-making services for American Software, Inc.'s Class A common stock, including Alpaca Securities LLC, Interactive Brokers LLC, J.P. Morgan Securities LLC, among others[177] Reserved This item is intentionally reserved and contains no information Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's analysis of the company's financial condition, operating results, key accounting policies, and significant trends impacting performance Critical Accounting Policies and Estimates Revenue recognition under ASC 606 is a critical accounting policy, involving significant estimates for performance obligations and standalone selling prices - Revenue recognition (ASC 606) is one of the company's most critical accounting policies, involving the identification of distinct performance obligations and the assessment of standalone selling prices (SSPs) for each[183][184] - Although changes in assumptions or judgments may affect reported revenue, these changes have historically not been significant due to the company's recurring revenue primarily consisting of subscription and support income[184] Results of Operations Total revenue decreased by 3% in FY2023, driven by a 49% drop in license fees, despite a 20% rise in subscriptions, leading to an 18% decline in net income FY2023 Operating Performance Overview | Indicator | FY2023 (%) | FY2022 (%) | FY2021 (%) | 2023 vs 2022 Change (%) | | :--- | :--- | :--- | :--- | :--- | | Subscription Fees Revenue | 41 | 33 | 26 | 20 | | License Fees Revenue | 2 | 4 | 3 | (49) | | Professional Services and Other Revenue | 29 | 34 | 35 | (17) | | Maintenance Revenue | 28 | 29 | 36 | (6) | | Total Revenue | 100 | 100 | 100 | (3) | | Total Gross Margin | 60 | 59 | 54 | (2) | | Operating Income | 9 | 10 | 4 | (20) | | Net Income | 9 | 9 | 7 | (18) | - Total revenue for fiscal year 2023 decreased by 3% year-over-year, primarily due to a 49% decline in license fee revenue, partially offset by a 20% increase in subscription fee revenue[201] Economic Overview and Significant Trends in Our Business Global economic trends and SCM market growth are key indicators, with 81% of FY2023 revenue from the US, and an anticipated improved sales environment in FY2024 despite recession risks - In fiscal year 2023, approximately 81% of the company's total revenue came from the United States, and 10% from Europe, the Middle East, and Africa (EMEA)[188] - The International Monetary Fund (IMF) predicts global economic growth will decrease from 3.4% in 2022 to 2.8% in 2023[192] - The company expects the sales environment to improve in fiscal year 2024, as global supply chain disruptions prompt businesses to upgrade technology systems to enhance productivity and profitability, though recession and trade conflict risks persist[192] Business Opportunities and Risks Opportunities lie in expanding through acquisitions, while risks include reliance on capital expenditures, integration challenges, competitive threats, and pricing pressures - Opportunities: Expand sales distribution channels and/or broaden product lines through selective acquisitions or investments - Risks: Reliance on U.S. and international corporate capital expenditure patterns; challenges in acquisition integration; threats from competitors developing alternative technologies; increased market competition potentially leading to price pressure[193][194][195] Recent Accounting Pronouncements The company is assessing the impact of ASU 2021-08, which mandates ASC 606 recognition and measurement for customer contract assets and liabilities in business combinations - The company is evaluating the potential impact of ASU 2021-08, "Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers"[196][329] - This standard requires contract assets and contract liabilities in a business combination to be recognized and measured in accordance with ASC 606, effective for fiscal years beginning after December 15, 2022[329] Market Conditions by Operating Segment In FY2023, SCM revenue grew 2% (driven by subscriptions), IT Consulting revenue fell 27% (due to client staffing fluctuations), and Other segment revenue decreased 5% - SCM Segment: Fiscal year 2023 revenue grew by 2%, primarily due to a 20% increase in subscription fees, partially offset by a 49% decrease in license fees, an 8% decrease in professional services and other revenue, and a 6% decrease in maintenance revenue - IT Consulting Segment: Fiscal year 2023 revenue decreased by 27%, primarily due to fluctuations in IT staffing work for its largest customer, which accounted for 21% of IT consulting revenue in fiscal year 2023 (compared to 31% in fiscal year 2022) - Other Segment: Fiscal year 2023 revenue decreased by 5%, primarily due to a 24% decrease in license fees and a 10% decrease in professional services and other revenue, while maintenance revenue remained flat[199][200] Revenue Total revenue decreased 3% to $123.659 million in FY2023, with 20% subscription growth offset by a 49% decline in license fees Revenue Composition (in thousands of USD) | Revenue Type | 2023 | 2022 | 2021 | 2023 vs 2022 Change (%) | | :--- | :--- | :--- | :--- | :--- | | Subscription Fees | 50,412 | 42,066 | 28,877 | 20 | | License Fees | 2,752 | 5,390 | 2,993 | (49) | | Professional Services and Other | 35,938 | 43,476 | 39,616 | (17) | | Maintenance | 34,557 | 36,621 | 39,922 | (6) | | Total Revenue | 123,659 | 127,553 | 111,408 | (3) | - International revenue as a percentage of total revenue increased from 16% in fiscal year 2022 to 19% in fiscal year 2023[203] - Subscription fee revenue increased by 20%, primarily due to increased cloud service bookings, including growth in contract volume, higher cloud service Annual Contract Value (ACV), and multi-year contract values - License fee revenue decreased by 49%, mainly due to a reduction in existing customers opting for on-premise software deployment; the SCM segment accounted for 99% of total license fee revenue in fiscal year 2023 - Professional services and other revenue decreased by 17%, primarily due to lower utilization and activity in the Other and IT Consulting segments, as well as reduced project implementation work in the SCM segment - Maintenance revenue decreased by 6%, mainly due to natural customer attrition and customers migrating from on-premise support to SaaS cloud platforms[205][206][210][212] Gross Margin Total gross margin increased to 60% in FY2023, driven by higher subscription margins, while professional services margins declined Gross Margin Composition (in thousands of USD) | Gross Margin Type | 2023 ($) | 2023 (%) | 2022 ($) | 2022 (%) | 2021 ($) | 2021 (%) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Subscription Fees Gross Margin | 34,581 | 69 | 28,683 | 68 | 16,993 | 59 | | License Fees Gross Margin | 2,047 | 74 | 4,286 | 80 | 1,072 | 36 | | Professional Services and Other Gross Margin | 9,515 | 26 | 13,170 | 30 | 10,523 | 27 | | Maintenance Gross Margin | 28,148 | 81 | 29,656 | 81 | 32,392 | 81 | | Total Gross Margin | 74,291 | 60 | 75,795 | 59 | 60,980 | 54 | - Subscription fee gross margin increased from 68% in fiscal year 2022 to 69% in fiscal year 2023, primarily due to increased subscription revenue and lower capitalized software amortization expenses[216] - License fee gross margin decreased, mainly due to reduced license fee revenue[217] - Professional services and other gross margin decreased from 30% in fiscal year 2022 to 26% in fiscal year 2023, primarily affected by lower gross margins in the SCM, IT Consulting, and Other segments[218][219] - Maintenance gross margin remained at 81% in both fiscal years 2023 and 2022, benefiting from cost controls[221] Expenses R&D expenses were flat, sales and marketing decreased, while G&A increased due to stock-based compensation and IT costs, with $0.8 million in acquisition intangible amortization Expense Overview (in thousands of USD) | Expense Type | 2023 | 2022 | 2021 | 2023 vs 2022 Change (%) | | :--- | :--- | :--- | :--- | :--- | | Research and Development | 17,767 | 17,600 | 16,964 | 1 | | Sales and Marketing | 22,184 | 22,867 | 20,304 | (3) | | General and Administrative | 23,684 | 21,960 | 19,139 | 8 | | Amortization of Acquisition-Related Intangible Assets | 106 | 212 | 212 | (50) | - Research and development expenses remained flat year-over-year with fiscal year 2022, primarily due to controlled third-party contractor costs, and capitalized software amortization expenses decreased by 62%[225] - Sales and marketing expenses decreased, primarily due to reduced variable compensation and marketing expenditures[226] - General and administrative expenses increased, primarily affected by higher stock-based compensation and internal IT costs; total full-time personnel decreased from 625 in fiscal year 2022 to 545 in fiscal year 2023[227] - Amortization of acquisition-related intangible assets was $0.8 million (of which $0.1 million was recognized in operating expenses and $0.7 million in subscription fee costs)[228] Operating Income/(Loss) Total operating income decreased 20% to $10.55 million in FY2023, with SCM growing 3%, IT Consulting declining 59%, and Other segment losses increasing 14% Operating Income/(Loss) (in thousands of USD) | Segment | 2023 | 2022 | 2021 | 2023 vs 2022 Change (%) | | :--- | :--- | :--- | :--- | :--- | | Supply Chain Management | 29,925 | 29,164 | 18,922 | 3 | | IT Consulting | 664 | 1,601 | 456 | (59) | | Other* | (20,039) | (17,609) | (15,017) | 14 | | Total Operating Income | 10,550 | 13,156 | 4,361 | (20) | - SCM segment operating income increased by 3%, primarily due to revenue growth - IT Consulting segment operating income decreased by 59%, primarily due to lower revenue and reduced billing rates for new customers - Other segment operating loss increased by 14%, primarily affected by higher stock-based compensation and internal IT costs[230] Other Income Other income significantly increased to $2.3 million in FY2023, driven by higher dividend and interest income from the investment portfolio - Other income for fiscal year 2023 was approximately $2.3 million, a significant increase from $0.7 million in fiscal year 2022[231] - The increase was primarily attributable to increased dividend income ($1.2 million) and interest income ($1 million)[231] - The company's investment portfolio generated annualized returns of approximately 2.1% and 1.4% in fiscal years 2023 and 2022, respectively[231] Income Taxes Income tax expense rose to $2.5 million in FY2023, with the effective tax rate increasing to 19.1% due to reduced stock-based compensation tax benefits - Income tax expense for fiscal year 2023 was $2.5 million, higher than $1.1 million in fiscal year 2022[232] - The effective income tax rate increased from 7.6% in fiscal year 2022 to 19.1% in fiscal year 2023, primarily due to a reduction in excess tax benefits from stock-based compensation deductions[232] Operating Pattern The company's operating results show an irregular pattern, influenced by software contract fluctuations and revenue recognition timing - The company's quarterly and annual operating results exhibit an irregular pattern, primarily influenced by fluctuations in the number and size of software contracts and the ability to recognize revenue, and this pattern is expected to continue[233] Liquidity and Capital Resources Operating cash flow was negative $0.38 million in FY2023, impacted by increased receivables and reduced deferred revenue, while total cash and investments stood at $114.633 million Cash Flow Overview (in thousands of USD) | Cash Flow Type | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Net Cash from Operating Activities | (380) | 29,020 | 17,756 | | Net Cash from Investing Activities | (10,422) | (934) | (1,298) | | Net Cash from Financing Activities | (9,192) | (6,054) | (7,614) | | Net Change in Cash and Cash Equivalents | (19,994) | 22,032 | 8,844 | - Cash outflow from operating activities was primarily affected by increased accounts receivable, increased purchases of trading securities, decreased accounts payable and deferred revenue, and lower net income - Cash outflow from investing activities increased primarily due to the acquisition of Starboard and purchases of property and equipment - Cash outflow from financing activities increased primarily due to reduced proceeds from stock option exercises and increased dividend payments[236][237] Total Cash and Investments (in thousands of USD) | Indicator | April 30, 2023 | April 30, 2022 | | :--- | :--- | :--- | | Cash and Cash Equivalents | 90,696 | 110,690 | | Investments | 23,937 | 16,826 | | Total Cash and Investments | 114,633 | 127,516 | - As of April 30, 2023, Days Sales Outstanding (DSO) was 86 days, higher than 62 days as of April 30, 2022; the current ratio was 2.7:1 for both periods[239] Quantitative and Qualitative Disclosures about Market Risk This section provides quantitative and qualitative disclosures regarding the company's exposure to market risks, specifically foreign currency and interest rate fluctuations Foreign Currency With 19% of FY2023 revenue from international sales, the company faces foreign exchange risk, recording a $0.2 million gain in FY2023 - In fiscal year 2023, 19% of the company's revenue came from outside the United States, with international sales typically denominated in USD, EUR, or GBP[242] - The company recorded a $0.2 million exchange rate gain in fiscal year 2023, compared to a $0.5 million exchange rate loss in fiscal year 2022[243] - An estimated 10% fluctuation in foreign exchange rates could result in approximately $0.5 million in exchange gains or losses for fiscal year 2023[243] Interest Rates and Other Market Risks The company manages interest rate risk through a high-quality, short-term investment portfolio, with cash and investments valued at $105.3 million in FY2023 - The company manages interest rate risk by holding a trading investment portfolio of high credit quality with relatively short average maturities[244] - As of fiscal year 2023, the fair market value of cash equivalents and investments decreased by 9% to approximately $105.3 million[244] - The company faces risks from interest rate fluctuations and stock market volatility but believes a 10% fluctuation in interest rates would not materially impact its financial condition or operating results[246] Consolidated Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements, including balance sheets, statements of operations, shareholders' equity, cash flows, and related notes Management's Report on Internal Control Over Financial Reporting Management concluded that internal control over financial reporting was effective as of April 30, 2023, with an unqualified attestation from KPMG LLP - The company's management (including the CEO and CFO) assessed the effectiveness of the company's internal control over financial reporting as of April 30, 2023, and concluded, based on the COSO framework, that internal control is effective[253] Report of Independent Registered Public Accounting Firm KPMG LLP issued unqualified opinions on both internal controls and consolidated financial statements, identifying revenue testing as a critical audit matter - KPMG LLP issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of April 30, 2023[256] - KPMG LLP issued an unqualified opinion on the company's consolidated balance sheets as of April 30, 2023, and April 30, 2022, and the consolidated statements of operations, shareholders' equity, and cash flows for the three years ended April 30, 2023[263] - "Revenue testing" was identified as a critical audit matter due to its extensive data and information technology (IT) application involvement[268] Consolidated Balance Sheets as of April 30, 2023 and 2022 Total assets increased to $195.62 million as of April 30, 2023, with a decrease in cash offset by an increase in investments and shareholders' equity Consolidated Balance Sheets Summary (in thousands of USD) | Item | April 30, 2023 | April 30, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and Cash Equivalents | 90,696 | 110,690 | | Investments | 23,451 | 16,826 | | Trade Accounts Receivable, Net | 28,009 | 23,608 | | Prepaid Expenses and Other Current Assets | 7,833 | 5,067 | | Total Current Assets | 149,989 | 156,191 | | Investments - Noncurrent | 486 | — | | Property and Equipment, Net | 6,444 | 3,654 | | Capitalized Software, Net | 391 | 1,586 | | Goodwill | 29,558 | 25,888 | | Other Intangible Assets, Net | 2,143 | 147 | | Other Assets | 6,609 | 5,369 | | Total Assets | 195,620 | 192,835 | | Liabilities and Shareholders' Equity | | | | Accounts Payable | 2,142 | 2,506 | | Accrued Compensation and Related Costs | 4,268 | 6,918 | | Dividends Payable | 3,756 | 3,700 | | Other Current Liabilities | 2,708 | 2,412 | | Deferred Revenue | 43,124 | 41,953 | | Total Current Liabilities | 55,998 | 57,489 | | Deferred Income Taxes | — | 1,772 | | Other Long-Term Liabilities | 288 | 598 | | Total Liabilities | 56,286 | 59,859 | | Shareholders' Equity | 139,334 | 132,976 | | Total Liabilities and Shareholders' Equity | 195,620 | 192,835 | Consolidated Statements of Operations for the Years ended April 30, 2023, 2022 and 2021 Total revenue decreased 3% to $123.659 million in FY2023, resulting in a 20% drop in operating income and an 18% decline in net income Consolidated Statements of Operations Summary (in thousands of USD) | Item | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Revenue: | | | | | Subscription Fees | 50,412 | 42,066 | 28,877 | | License Fees | 2,752 | 5,390 | 2,993 | | Professional Services and Other | 35,938 | 43,476 | 39,616 | | Maintenance | 34,557 | 36,621 | 39,922 | | Total Revenue | 123,659 | 127,553 | 111,408 | | Cost of Revenue: | | | | | Subscription Fees Cost | 15,831 | 13,383 | 11,884 | | License Fees Cost | 705 | 1,104 | 1,921 | | Professional Services and Other Cost | 26,423 | 30,306 | 29,093 | | Maintenance Cost | 6,409 | 6,965 | 7,530 | | Total Cost of Revenue | 49,368 | 51,758 | 50,428 | | Gross Margin | 74,291 | 75,795 | 60,980 | | Research and Development | 17,767 | 17,600 | 16,964 | | Sales and Marketing | 22,184 | 22,867 | 20,304 | | General and Administrative | 23,684 | 21,960 | 19,139 | | Amortization of Acquisition-Related Intangible Assets | 106 | 212 | 212 | | Total Operating Expenses | 63,741 | 62,639 | 56,619 | | Operating Income | 10,550 | 13,156 | 4,361 | | Other Income, Net | 2,336 | 681 | 4,487 | | Income Before Income Taxes | 12,886 | 13,837 | 8,848 | | Income Tax Expense | 2,465 | 1,055 | 759 | | Net Income | 10,421 | 12,782 | 8,089 | | Earnings Per Share: | | | | | Basic | 0.31 | 0.38 | 0.25 | | Diluted | 0.31 | 0.37 | 0.24 | Consolidated Statements of Shareholders' Equity for the Years ended April 30, 2023, 2022 and 2021 Shareholders' equity increased to $139.334 million as of April 30, 2023, driven by net income and stock-based compensation, partially offset by dividends Consolidated Statements of Shareholders' Equity Summary (in thousands of USD) | Item | April 30, 2021 | April 30, 2022 | April 30, 2023 | | :--- | :--- | :--- | :--- | | Total Shareholders' Equity | 122,391 | 132,976 | 139,334 | | Net Income | 8,089 | 12,782 | 10,421 | | Stock-Based Compensation | 2,546 | 3,956 | 5,183 | | Dividends Paid | (14,363) | (14,731) | (14,887) | | Proceeds from Stock Option Exercises | 6,697 | 8,578 | 5,641 | | Class A Common Stock Issued | 35,629,566 | 36,405,695 | 36,907,242 | | Class B Common Stock Issued | 1,821,587 | 1,821,587 | 1,821,587 | | Treasury Stock | (25,559) | (25,559) | (25,559) | Consolidated Statements of Cash Flows for the Years ended April 30, 2023, 2022 and 2021 Operating cash flow was a $0.38 million outflow in FY2023, leading to a $19.994 million net decrease in cash and cash equivalents Consolidated Statements of Cash Flows Summary (in thousands of USD) | Cash Flow Type | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Net Cash from Operating Activities | (380) | 29,020 | 17,756 | | Net Cash from Investing Activities | (10,422) | (934) | (1,298) | | Net Cash from Financing Activities | (9,192) | (6,054) | (7,614) | | Net Change in Cash and Cash Equivalents | (19,994) | 22,032 | 8,844 | | Cash and Cash Equivalents at End of Period | 90,696 | 110,690 | 88,658 | | Income Taxes Paid | 8,511 | 300 | 518 | | Accrued Dividends Payable | 3,756 | 3,700 | 3,615 | Notes to Consolidated Financial Statements These notes detail the basis of financial statement preparation, key accounting policies, and specific treatments for assets, liabilities, and income, including acquisitions and segment information (1) Presentation and Summary of Significant Accounting Policies This note summarizes the basis of financial statement presentation and key accounting policies, including revenue recognition, asset valuation, and segment reporting - The company's business is divided into three main operating segments: Supply Chain Management (SCM), Information Technology Consulting (IT Consulting), and traditional Enterprise Resource Planning (ERP) services and unallocated corporate expenses (Other)[286][287] - Revenue recognition follows ASC 606, categorizing revenue into subscription fees, license fees, professional services and other, and maintenance fees, recognized based on the nature of performance obligations and the timing of control transfer[289][290][291][292][293] - As of April 30, 2023, total remaining performance obligations were approximately $124 million, with 52% expected to be recognized as revenue within the next 12 months[298] - Capitalized software development costs are capitalized after technological feasibility is established and amortized based on estimated revenue or a three-year straight-line basis, whichever is greater; acquisition-related intangible assets are amortized over 1 to 8 years[312][316] - Goodwill and intangible assets with indefinite useful lives are tested for impairment at least annually, with no impairment identified in fiscal years 2023 and 2022[320][322] (2) Investments The investment portfolio, totaling $23.937 million in FY2023, includes U.S. Treasury and equity securities, generating both unrealized gains and realized losses Investment Portfolio Composition (in thousands of USD) | Investment Type | April 30, 2023 | April 30, 2022 | | :--- | :--- | :--- | | U.S. Treasury Securities | 7,305 | — | | Marketable Equity Securities | 16,632 | 16,826 | | Total | 23,937 | 16,826 | - In fiscal year 2023, marketable equity securities generated $0.1 million in unrealized holding gains, and U.S. Treasury securities generated $0.1 million in unrealized holding gains[353] - In fiscal year 2023, marketable equity securities generated $0.1 million in realized holding losses[354] (3) Fair Value of Financial Instruments Financial instruments are measured using a fair value hierarchy, with most assets, totaling $105.289 million in FY2023, utilizing Level 1 inputs - The company measures the fair value of financial instruments according to the fair value hierarchy framework (Level 1, Level 2, Level 3)[355] - Cash equivalents, U.S. Treasury securities, and marketable equity securities primarily use Level 1 inputs (quoted prices in active markets)[356] Assets Measured at Fair Value (in thousands of USD) | Item | April 30, 2023 (Level 1) | April 30, 2022 (Level 1) | | :--- | :--- | :--- | | Cash Equivalents | 81,352 | 98,459 | | U.S. Treasury Securities | 7,305 | — | | Marketable Securities | 16,632 | 16,826 | | Total | 105,289 | 115,285 | (4) Property and Equipment Net property and equipment increased to $6.444 million as of April 30, 2023, comprising buildings, computer equipment, and office furniture Property and Equipment Composition (in thousands of USD) | Item | April 30, 2023 | April 30, 2022 | | :--- | :--- | :--- | | Buildings and Leasehold Improvements | 19,714 | 17,448 | | Computer Equipment and Purchased Software | 13,788 | 12,443 | | Office Furniture and Equipment | 5,312 | 5,003 | | Total Cost | 38,815 | 34,894 | | Accumulated Depreciation and Amortization | (32,371) | (31,240) | | Net | 6,444 | 3,654 | (5) Acquisitions The company acquired Starboard Solutions Corp. for $6.5 million cash plus potential earn-outs, allocating $3.7 million to goodwill in FY2023 - On June 28, 2022, the company acquired certain assets of Starboard Solutions Corp., a private company innovating in supply chain network design software[362] - The acquisition price was approximately $6.5 million in cash, plus up to $6 million in contingent earn-out payments, dependent on subscription revenue targets over a three-year earn-out period[364] - The company allocated $3.7 million of the purchase price to goodwill, assigned to the Supply Chain Management segment, which is deductible for income tax purposes; acquisition costs of approximately $0.186 million were incurred in fiscal year 2023[364] (6) Income Taxes Income tax expense increased to $2.465 million in FY2023, with an effective tax rate of 19.1%, and net deferred tax assets of $7.289 million Income Tax Expense (in thousands of USD) | Item | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Current Income Tax: | | | | | Federal | 5,205 | 1,294 | 693 | | State | 1,352 | 615 | 386 | | Subtotal | 6,557 | 1,909 | 1,079 | | Deferred Income Tax: | | | | | Federal | (3,666) | (712) | (238) | | State | (426) | (142) | (82) | | Subtotal | (4,092) | (854) | (320) | | Total Income Tax Expense | 2,465 | 1,055 | 759 | - The effective income tax rate was 19.1% in fiscal year 2023 and 7.6% in fiscal year 2022[368] Deferred Tax Assets and Liabilities (in thousands of USD) | Item | April 30, 2023 | April 30, 2022 | | :--- | :--- | :--- | | Total Deferred Tax Assets | 10,150 | 7,292 | | Less: Valuation Allowance | (2,861) | (3,891) | | Net Deferred Tax Assets | 7,289 | 3,401 | | Total Deferred Tax Liabilities | (4,969) | (5,173) | | Net Deferred Tax Assets (Liabilities) | 2,320 | (1,772) | - As of April 30, 2023, the company had approximately $0.4 million in state net operating loss carryforwards and approximately $12.6 million in foreign net operating loss carryforwards[369] (7) Shareholders' Equity Shareholders' equity details 5,273,057 outstanding stock options and $5.2 million in FY2023 stock-based compensation, with no share repurchases - The company has two classes of common stock, Class A and Class B, with Class B convertible to Class A on a one-for-one basis, and Class B shareholders have the right to elect a majority of the directors[374] Outstanding Stock Options Overview (as of April 30, 2023) | Indicator | Quantity | Weighted-Average Exercise Price | | :--- | :--- | :--- | | Outstanding Options | 5,273,057 | $16.59 | | Exercisable Options | 1,818,957 | $15.47 | | Options Available for Grant | 1,627,143 | - | - Stock-based compensation expense for fiscal year 2023 was approximately $5.2 million; as of April 30, 2023, unrecognized stock-based compensation cost was approximately $13.4 million, expected to be recognized over a weighted-average period of 1.79 years[332][381] - The company did not repurchase any shares in fiscal year 2023; 946,321 shares of Class A common stock remained available for repurchase under the plan approved in 2002[382][174] (8) Leases Operating leases for facilities totaled $1.44 million in FY2023, with right-of-use assets at $0.442 million and a weighted-average remaining lease term of 1.2 years Operating Lease Information (in thousands of USD) | Item | April 30, 2023 | April 30, 2022 | | :--- | :--- | :--- | | Right-of-Use Assets | 442 | 93 | | Current Lease Liabilities | 411 | 54 | | Long-Term Lease Liabilities | 65 | 46 | | Total Liabilities | 476 | 100 | | Operating Lease Cost (FY2023) | 515 | - | | Short-Term Lease Cost (FY2023) | 703 | - | | Variable Lease Cost (FY2023) | 222 | - | | Total Lease Cost (FY2023) | 1,440 | 1,549 | | Weighted-Average Remaining Lease Term | 1.2 years | 1.9 years | | Weighted-Average Discount Rate | 3.1% | 3.2% | - The company leases a portion of its headquarters building to other tenants, generating approximately $0.318 million in lease income in fiscal year 2023[389] (9) Commitments and Contingencies The company contributed $0.465 million to its 401(k) plan in FY2023 and provides customer indemnifications and product warranties, with no significant historical costs - The company offers a 401(k) profit-sharing plan to employees, with a company contribution of $0.465 million in fiscal year 2023[391] - The company typically indemnifies customers for intellectual property infringement, breaches of confidentiality agreements, and personal injury claims, and warrants software product performance[349][350][392][393] - Historically, the company has not incurred significant costs from such indemnifications or warranties, thus no related liabilities were recorded as of April 30, 2023[349][350][393] (10) Segment Information Segment reporting shows SCM revenue of $106.128 million and operating income of $29.925 million in FY2023, with IT Consulting and Other segments also detailed - The company is divided into three reporting segments: Supply Chain Management (SCM), Information Technology Consulting (IT Consulting), and traditional ERP and unallocated corporate expenses (Other)[394][395]