American Software(AMSWA) - 2024 Q2 - Quarterly Report

markdown Part I—Financial Information [Item 1. Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) Unaudited condensed consolidated financial statements for the quarter ended October 31, 2023, including balance sheets, operations, equity, cash flows, and detailed notes [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets decreased to $183.7 million as of October 31, 2023, from $195.6 million, driven by reduced cash, while total liabilities and shareholders' equity also saw slight decreases Condensed Consolidated Balance Sheets (in thousands) | Account | October 31, 2023 | April 30, 2023 | | :--- | :--- | :--- | | **Total current assets** | $113,232 | $149,989 | | Goodwill | $46,417 | $29,558 | | **Total assets** | **$183,681** | **$195,620** | | **Total current liabilities** | $48,976 | $57,044 | | **Total liabilities** | **$49,231** | **$57,332** | | **Total shareholders' equity** | **$134,450** | **$138,288** | | **Total liabilities and shareholders' equity** | **$183,681** | **$195,620** | [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Q2 FY2024 revenues decreased 6% to $25.7 million, with operating income down 52% to $1.2 million, though net earnings rose to $2.4 million due to a gain on discontinued operations Financial Performance (in thousands, except per share data) | Metric | Q2 2023 (3-mo) | Q2 2022 (3-mo) | H1 2023 (6-mo) | H1 2022 (6-mo) | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $25,690 | $27,279 | $51,591 | $54,060 | | Gross Margin | $16,401 | $18,059 | $33,258 | $35,866 | | Operating Income | $1,229 | $2,550 | $2,621 | $4,892 | | Net Earnings from Continuing Operations | $621 | $1,916 | $3,235 | $3,891 | | Earnings from Discontinued Operations | $1,742 | $189 | $1,876 | $278 | | **Net Earnings** | **$2,363** | **$2,105** | **$5,111** | **$4,169** | | Diluted EPS | $0.07 | $0.06 | $0.15 | $0.12 | [Condensed Consolidated Statements of Shareholders' Equity](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Shareholders%27%20Equity) Shareholders' equity decreased to $134.5 million for the six months ended October 31, 2023, primarily due to dividends and stock repurchases, partially offset by net earnings and stock-based compensation Changes in Shareholders' Equity (Six Months Ended Oct 31, 2023, in thousands) | Description | Amount | | :--- | :--- | | Balance at April 30, 2023 | $138,288 | | Net earnings | $5,111 | | Stock-based compensation | $3,134 | | Purchases of common stock | ($4,814) | | Dividends declared | ($7,515) | | **Balance at October 31, 2023** | **$134,450** | [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operations significantly improved to $8.1 million for the six months ended October 31, 2023, while investing activities used $23.7 million due to an acquisition, and financing used $12.1 million Cash Flow Summary (Six Months Ended, in thousands) | Activity | Oct 31, 2023 | Oct 31, 2022 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $8,054 | ($11,261) | | Net cash used in investing activities | ($23,697) | ($9,206) | | Net cash used in financing activities | ($12,082) | ($6,261) | | **Net change in cash and cash equivalents** | **($27,725)** | **($26,728)** | | Cash and cash equivalents at end of period | $62,971 | $83,962 | [Notes to Condensed Consolidated Financial Statements – Unaudited](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements%20%E2%80%93%20Unaudited) Notes detail accounting policies and events, including the Garvis AI acquisition for **$25.0 million**, TPM disposal for **$2.1 million**, and TRS sale for **$1.1 million**, with SCM as the dominant segment and a $0.11 quarterly dividend - In September 2023, the company disposed of its IT consulting firm, The Proven Method (TPM), for approximately **$2.1 million** in cash[24](index=24&type=chunk)[69](index=69&type=chunk) - Effective September 5, 2023, the company acquired 100% of Garvis AI Limited, a SaaS startup specializing in AI-native demand forecasting, for approximately **$25.0 million** in cash[60](index=60&type=chunk)[61](index=61&type=chunk) - As of October 31, 2023, the company had remaining performance obligations of approximately **$113.0 million**, with **53%** expected to be recognized as revenue over the next 12 months[36](index=36&type=chunk) - Subsequent to the quarter end, on November 15, 2023, the company signed an agreement to sell its Transportation Rating Solutions (TRS) business for approximately **$1.1 million** in cash[95](index=95&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=28&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q2 FY2024 financial results, noting a 6% revenue decrease, significant operating income decline, strong liquidity, and strategic moves including the Garvis AI acquisition and non-core asset divestitures [Company Overview](index=30&type=section&id=COMPANY%20OVERVIEW) American Software, via Logility, offers a cloud-based, AI-driven supply chain management platform, recognized by analysts, serving approximately **860 clients** across **80 countries** in key verticals, with revenue from subscriptions, licenses, maintenance, and professional services - The company's core SCM business, Logility, is recognized as a leader in multiple 2022 IDC MarketScape reports and positioned in the Challenger quadrant in Gartner's May 2023 Magic Quadrant for Supply Chain Planning Solutions[108](index=108&type=chunk)[109](index=109&type=chunk) - The company serves approximately **860 clients** in about **80 countries**, with a focus on key vertical markets like apparel, food & beverage, and consumer packaged goods[110](index=110&type=chunk) [Comparison of Results of Operations](index=32&type=section&id=COMPARISON%20OF%20RESULTS%20OF%20OPERATIONS) Q2 FY2024 total revenue decreased 6% YoY, driven by declines in license and professional services, despite 8% subscription growth, leading to a 52% drop in operating income to $1.2 million Revenue Comparison (Three Months Ended Oct 31) | Revenue Type | 2023 (in thousands) | 2022 (in thousands) | % Change | | :--- | :--- | :--- | :--- | | Subscription fees | $13,358 | $12,326 | 8% | | License | $229 | $688 | (67)% | | Professional services and other | $4,003 | $5,435 | (26)% | | Maintenance | $8,100 | $8,830 | (8)% | | **Total revenue** | **$25,690** | **$27,279** | **(6)%** | Operating Income by Segment (Three Months Ended Oct 31, in thousands) | Segment | 2023 | 2022 | % Change | | :--- | :--- | :--- | :--- | | Supply Chain Management | $5,835 | $7,646 | (24)% | | Other | ($4,606) | ($5,096) | (10)% | | **Total operating income** | **$1,229** | **$2,550** | **(52)%** | - The decrease in professional services revenue was attributed to lower bookings in recent quarters, resulting in less project work[133](index=133&type=chunk) [Liquidity, Capital Resources and Financial Condition](index=41&type=section&id=LIQUIDITY%2C%20CAPITAL%20RESOURCES%20AND%20FINANCIAL%20CONDITION) The company maintains strong liquidity with **$83.9 million** in cash and investments and no debt, generating $8.1 million from operations while using cash for the Garvis acquisition, dividends, and stock repurchases - As of October 31, 2023, the company had **$83.9 million** in cash and investments with no debt obligations[162](index=162&type=chunk) Key Cash Flow Activities (Six Months Ended Oct 31, 2023, in thousands) | Activity | Amount | | :--- | :--- | | Net cash provided by operating activities | $8,054 | | Purchase of business, net of cash acquired | ($25,032) | | Purchases of common stock | ($4,814) | | Dividends paid | ($7,514) | - Days Sales Outstanding (DSO) improved to **72 days** as of October 31, 2023, compared to **78 days** in the prior year, due to the timing of billings and collections[161](index=161&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=43&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company faces market risks from foreign currency fluctuations, interest rate changes on its investment portfolio, and inflation, with **21%** of revenue from international sources, managing interest rate risk through short-maturity instruments - In the first six months of fiscal 2024, approximately **21%** of revenue was generated outside the United States, exposing the company to foreign currency risk[166](index=166&type=chunk) - The company has no debt and manages interest rate risk on its **$79.5 million** investment portfolio by holding high-credit-quality, short-maturity instruments[167](index=167&type=chunk) [Controls and Procedures](index=44&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls and procedures were ineffective as of October 31, 2023, due to a material weakness in process-level controls over account reconciliations, with a remediation plan underway for completion by April 30, 2024 - Management concluded that disclosure controls and procedures were not effective as of October 31, 2023[173](index=173&type=chunk) - A material weakness was identified due to certain process-level controls over the reconciliation of cash, accounts payable, accrued compensation, and cost of revenues not operating effectively[174](index=174&type=chunk) - Management is implementing a remediation plan with enhanced policies and training, which is anticipated to be fully remediated before April 30, 2024[177](index=177&type=chunk) Part II—Other Information [Legal Proceedings](index=45&type=section&id=Item%201.%20Legal%20Proceedings) The company reports no current legal proceedings requiring disclosure - The company reports no current legal proceedings requiring disclosure[179](index=179&type=chunk) [Risk Factors](index=45&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors from the fiscal 2023 Annual Report are reported - No material changes to risk factors from the fiscal 2023 Annual Report are reported[180](index=180&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=45&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During Q2 FY2024, the company repurchased **430,576 shares** of Class A common stock, with 516,056 shares remaining available for repurchase under the authorized plan Issuer Purchases of Equity Securities (Q2 FY2024) | Fiscal Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Aug 2023 | — | $— | | Sep 2023 | 14,807 | $11.47 | | Oct 2023 | 415,769 | $11.18 | | **Total** | **430,576** | | - As of October 31, 2023, the company has repurchased a total of **5,019,208 shares** at a cost of approximately **$30.4 million** under all authorized plans[181](index=181&type=chunk) [Exhibits](index=45&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including the Garvis AI Stock Purchase Agreement, CEO and CFO certifications, and XBRL data files