FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q (this "Quarterly Report") contains forward-looking statements relating to our future financial performance, business strategy, financing plans and other future events that involve uncertainties and risks. You can identify these statements by forward-looking words such as "anticipate," "intend," "plan," "continue," "could," "grow," "may," "potential," "predict," "strive" "will," "seek," "estimate," "believe," "expect," and similar expressions that convey uncertainty of future events or outcomes. Any forward-looking statements we make herein are pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements concerning future:
•results of operations;
•liquidity, cash flow and capital expenditures;
•demand for and pricing of our products and services;
•cloud services annual contract value (“ACV”);
•viability and effectiveness of strategic alliances;
•industry conditions and market conditions;
•acquisition activities and the effect of completed acquisitions; and
General economic conditions.
Although we believe that the goals, plans, expectations, and prospects that our forward-looking statements reflect are reasonable in view of the information currently available to us, those statements are not guarantees of performance. There are many factors that could cause our actual results to differ materially from those anticipated by forward-looking statements made herein. These factors include, but are not limited to, continuingU.S. and global economic uncertainty, the timing and degree of business recovery, unpredictability and the irregular pattern of future revenue, dependence on particular market segments or customers, competitive pressures, delays, product liability and warranty claims and other risks associated with new product development, undetected software errors, market acceptance of our products, technological complexity, the challenges and risks associated with integration of acquired product lines, companies and services, as well as a number of other risk factors that could affect our future performance. All forward-looking statements included in this Quarterly Report are based upon information available to us as of the filing date of this Quarterly Report. We undertake no obligation to update any of these forward-looking statements for any reason. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance, or achievements to differ materially from those expressed or implied by these statements. We discuss certain factors in greater detail in "Business Overview" below. ECONOMIC OVERVIEW For the remainder of fiscal 2022 and 2023, we expect the global economy to improve modestly when compared to recent periods. We believe improved economic conditions and increasingly complex supply chain challenges may be driving some businesses to focus on achieving more process and efficiency enhancements in their operations and to invest in solutions that improve operating margins, rather than make large infrastructure-type technology purchases. If this trend continues, we believe it may tend to favor solutions such as our supply chain solutions, which are designed to provide a more rapid return on investment and are targeted at some of the largest profit drivers in a customer's business. While we do not expect that the COVID-19 pandemic will cause any material adverse changes on our business or financial results for fiscal 2022, we are unable to accurately predict the impact that the coronavirus will have due to various uncertainties, including the ultimate geographic spread of the virus, the severity of the disease, the duration of the outbreak, and actions that may be taken by governmental authorities. Corporate capital spending trends and commitments are the primary determinants of the size of the market for business software. Corporate capital spending is, in turn, a function of general economic conditions in theU.S. and abroad and in particular may be affected by conditions inU.S. and global credit markets. In recent years, the weakness in the overall global economy and theU.S. economy has resulted in reduced expenditures in the business software market. InJanuary 2022 , theInternational Monetary Fund ("IMF") provided an update to the World Economic Outlook for 2022. The update noted that, "The global economy enters 2022 in a weaker position than previously expected. As the new Omicron COVID-19 variant spreads, countries have reimposed mobility restrictions. Rising energy prices and supply disruptions have resulted in higher and more broad-based inflation than anticipated, notably inthe United States and many emerging market 20
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and developing. The ongoing retrenchment of
BUSINESS OVERVIEW
American Software was incorporated as aGeorgia corporation in 1970. We develop, market and support a portfolio of software and services that deliver end-to-end supply chain planning and sourcing solutions to the global marketplace. We have designed our software and services to bring business value to enterprises by supporting their operations through cloud subscriptions. References to "the Company," "our products," "our software," "our services" and similar references include the appropriate business segment actually providing the product or service. The Company enables enterprises to accelerate their operations from product concept to customer availability. Our brands -Logility and DMI - provide a single platform spanning eight supply chain process areas, including demand optimization, inventory optimization, supply optimization, retail optimization, quality and compliance, product lifecycle management, sourcing management and integrated business planning. Our platform includes advanced analytics and is fueled by supply chain master data, allowing for the automation of critical business processes through the application of artificial intelligence and machine learning algorithms to a variety of internal and external data streams. Our primary operating units under our SCM segment includeLogility and DMI.Logility is a wholly-owned subsidiary of the Company, and DMI is a wholly-owned subsidiary ofLogility . In addition to our core SCM software business, we also offer technology staffing and consulting services through our wholly-owned subsidiary,The Proven Method, Inc. , in theIT Consulting segment. The Other segment consists of software and services provided to our legacy enterprise resource planning ("ERP") customers, as well as corporate overhead and other common expenses. We derive revenue primarily from four sources: subscriptions (SaaS), software licenses, professional services and other, and maintenance. SaaS and maintenance agreements typically are for a one- to three-year term, commencing at the time of the initial contract. We generally bill these fees, monthly, quarterly and annually in advance under agreements with terms of one to three years, and then recognize the resulting revenue ratably over the term of the agreement We generally determine software license and SaaS fees based on the depth of functionality, contractual term, number of production deployments, users and/or sites licensed and/or subscribed. Professional services and other revenue consist primarily of fees from software implementation, training, and consulting services. We bill primarily under time and materials arrangements and recognize revenue as we perform services. Deferred revenue represents payments or billings for subscriptions and services and maintenance in advance of the time we recognize the related revenue. Our cost of revenue for licenses and subscriptions includes amortization of capitalized computer software development costs, amortization of acquired developed technology, royalties paid to third-party software vendors, and agent commission expenses related to revenue generated by the indirect channel, primarily from DMI. Costs for maintenance and services include the cost of personnel to conduct implementations and customer support, consulting, other personnel-related expenses, and agent commission expenses related to maintenance revenue generated by the indirect channel, primarily from DMI. We account for the development costs of software intended for sale in accordance with the Software topic of the FASB ASC. We monitor the net realizable value of our capitalized software on a quarterly basis based on an estimate of future product revenue. We currently expect to fully recover the value of the capitalized software asset recorded on our Condensed Consolidated Balance Sheets; however, if future product revenue are less than management's current expectations, we may incur a write-down of capitalized software costs. Our sales and marketing expenses mainly include the salary and commissions paid to our sales professionals, along with marketing, promotional, travel and associated costs. Our general and administrative expenses mainly include the salary and benefits paid to executive, corporate and support personnel, as well as facilities-related costs, utilities, communications expenses, and various professional fees.
We currently view the following factors as the primary opportunities and risks associated with our business:
•Acquisition Opportunities. There are opportunities for selective acquisitions or investments to expand our sales distribution channels and/or broaden our product offering by providing additional solutions for our target markets.
•Dependence on Capital Spending Patterns. There is risk associated with our dependence on the capital spending patterns ofU.S. and international businesses, which in turn are functions of economic trends and conditions over which we have no control. •Acquisition Risks. There are risks associated with acquisitions of complementary companies, products and technologies, including the risks that we will not achieve the financial and strategic goals that we contemplate at the time of the transaction. More specifically, in any acquisition, we will face risks and challenges associated with 21
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the uncertain value of the acquired business or assets, the difficulty of assimilating operations and personnel, integrating acquired technologies and products and maintaining the loyalty of the customers of the acquired business.
•Competitive Technologies. There is a risk that our competitors may develop technologies that are substantially equivalent or superior to our technology.
•Competition in General. There are risks inherent in the market for business application software and related services, which has been and continues to be intensely competitive; for example, some of our competitors may become more aggressive with their prices and/or payment terms, which may adversely affect our profit margins. A discussion of a number of additional risk factors associated with our business is included in our Annual Report for fiscal 2021. Additional information and other factors that could affect future financial results may be included, from time to time, in our filings with theSecurities and Exchange Commission ("SEC").
Recent Accounting Pronouncements
For information with respect to recent accounting pronouncements, if any, and the impact of these pronouncements on our condensed consolidated financial statements, if any, see Note A in the Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report.
COMPARISON OF RESULTS OF OPERATIONS
Three-Month Comparisons. The following table sets forth certain revenue and expense items as a percentage of total revenue and the percentage changes in those items for the three months ended
Three Months Ended January 31,
Percentage of Total Pct. Change in
Revenue Dollars
2022 2021 2022 vs. 2021
Revenue:
Subscription fees 34 % 27 % 45 %
License 3 % 2 % 87 %
Professional services and other 35 % 34 % 21 %
Maintenance 28 % 37 % (10) %
Total revenue 100 % 100 % 17 %
Cost of revenue:
Subscription fees 11 % 11 % 12 %
License 1 % 1 % (17) %
Professional services and other 25 % 26 % 12 %
Maintenance 5 % 7 % (6) %
Total cost of revenue 42 % 45 % 8 %
Gross margin 58 % 55 % 24 %
Research and development 14 % 15 % 3 %
Sales and marketing 16 % 18 % 4 %
General and administrative 18 % 18 % 17 %
Total operating expenses 48 % 51 % 10 %
Operating income 10 % 4 % 246 %
Other income:
Other, net - % 5 % (94) %
Earnings before income taxes 10 % 9 % 41 %
Income tax expense(benefit) 1 % - % 598 %
Net earnings 9 % 9 % 27 %
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Nine-Month Comparisons. The following table sets forth certain revenue and expense items as a percentage of total revenue and the percentage changes in those items for the nine months ended
Nine Months Ended January 31,
Percentage of Total Pct. Change in
Revenue Dollars
2022 2021 2022 vs. 2021
Revenue:
Subscription fees 34 % 25 % 49 %
License 2 % 2 % 30 %
Professional services and other 34 % 36 % 7 %
Maintenance 30 % 37 % (9) %
Total revenue 100 % 100 % 12 %
Cost of revenue:
Subscription fees 11 % 11 % 15 %
License 1 % 2 % (61) %
Professional services and other 24 % 27 % (1) %
Maintenance 6 % 7 % (2) %
Total cost of revenue 42 % 47 % - %
Gross margin 58 % 53 % 22 %
Research and development 14 % 15 % 5 %
Sales and marketing 19 % 18 % 13 %
General and administrative 17 % 17 % 15 %
Total operating expenses 50 % 50 % 11 %
Operating income 8 % 3 % 214 %
Other income:
Other, net 1 % 3 % (46) %
Earnings before income taxes 9 % 6 % 77 %
Income tax expense(benefit) - % - % nm
Net earnings 9 % 6 % 83 %
nm - not meaningful
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED JANUARY
31, 2022 AND 2021
REVENUE
Three Months Ended January 31,
% of Total Revenue
2022 2021 % Change 2022 2021
(in thousands)
Subscription fees $ 10,856 $ 7,486 45 % 34 % 27 %
License $ 992 530 87 % 3 % 2 %
Professional services and other 11,443 9,495 21 % 35 % 34 %
Maintenance 9,131 10,172 (10) % 28 % 37 %
Total revenue $ 32,422 $ 27,683 17 % 100 % 100 %
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Nine Months Ended January 31,
% of Total Revenue
2022 2021 % Change 2022 2021
(in thousands)
Subscription fees $ 31,005 $ 20,815 49 % 34 % 25 %
License $ 2,289 1,767 30 % 2 % 2 %
Professional services and other 31,751 29,551 7 % 34 % 36 %
Maintenance 27,859 30,709 (9) % 30 % 37 %
Total revenue $ 92,904 $ 82,842 12 % 100 % 100 %
For the three months ended January 31, 2022 compared to January 31, 2021 revenue
increased by 17%, which was attributable primarily to a 87% increase in license
revenue, a 45% increase in subscription fees and a 21% increase in professional
services and other revenue, partially offset by a 10% decrease in maintenance
revenue when compared to the same period last year.
For the nine months ended January 31, 2022 compared to January 31, 2021 revenue
increased by 12%, which was attributable primarily to a 49% increase in
subscription fees, a 30% increase in license revenue and a 7% increase in
professional services and other revenue, partially offset by a 9% decrease in
maintenance revenue when compared to the same period last year.
Due to intense competition in our industry, we sometimes discount license fees
from our published list price. Numerous factors contribute to the amount of the
discount provided, such as previous customer purchases, the number of customer
sites utilizing the software, the number of modules purchased and the number of
users, as well as the overall size of the contract. While all these factors may
affect the discount amount of a particular contract, the overall percentage
discount has not materially changed in the recent reported fiscal periods.
The change in our revenue from period to period is primarily due to the volume
of products and related services sold in any period and the number of products
or modules purchased with each sale.
International revenue represented approximately 16% of total revenue in the
three and nine months ended January 31, 2022 compared to 15% for the same
periods in the prior year. Our revenue, particularly our international revenue,
may fluctuate substantially from period to period, primarily because we derive
most of our license and subscription fee revenue from a relatively small number
of customers in a given period.
Subscription Fees
Three Months Ended January 31,
2022 2021 % Change
(in thousands)
Supply Chain Management $ 10,856 $ 7,486 45 %
Total subscription fees revenue $ 10,856 $ 7,486 45 %
Nine Months Ended January 31,
2022 2021 % Change
(in thousands)
Supply Chain Management $ 31,005 $ 20,815 49 %
Total subscription fees revenue $ 31,005 $ 20,815
49%
For the three and nine months endedJanuary 31, 2022 , subscription fees revenue increased 45% and 49%, respectively compared to the same periods in the prior year primarily due to an increase in the number of contracts, including contracts with a higher cloud services ACV, as well as an increase in multi-year contracts. This is evidenced by our successful transition to the cloud subscription model. 24
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License Revenue
Three Months Ended January 31,
2022 2021 % Change
(in thousands)
Supply Chain Management $ 992 $ 530 87 %
Other - - - %
Total license revenue $ 992 $ 530 87 %
Nine Months Ended January 31,
2022 2021 % Change
(in thousands)
Supply Chain Management $ 2,267 $ 1,751 29 %
Other 22 16 38 %
Total license revenue $ 2,289 $ 1,767 30 %
For the three and nine months ended January 31, 2022 , license fee revenue
increased 87% and 30%, respectively when compared to the same periods in the
prior year. In the three months ended January 31, 2022 , license fee revenue
increased 87%, when compared to the corresponding period in the prior year,
which was entirely attributable to our SCM segment. The majority of our current
license fee revenue is generated from additional users and expanded scope from
our existing on-premise customers. For the three and nine months ended
January 31, 2022 and 2021, our SCM segment constituted approximately 100%, 100%,
99% and 99% of total license fee revenue, respectively. Our Other segment
license fee revenue increased by 38% for the nine months ended January 31, 2022
when compared to the same period in the prior year primarily due to timing of
sales to our existing ERP customers.
The direct sales channel provided approximately 94% and 90% of license fee
revenues for the three and nine months ended January 31, 2022 , compared to
approximately 85% and 80% in the comparable periods last year due to larger
customers obtained through our direct sales channel moving to the Cloud platform
faster than those in the mid-sized market that are primarily served by our
indirect sales channel. For the three and nine months ended January 31, 2022 ,
our margins after commissions on direct sales were approximately 91% and 89%,
compared to 84% and 84% in the comparable periods last year. The increase in
margins is due to the mix of sales commission rates based on each individual
salesperson's quotas and related achievement. For the three months ended
January 31, 2022 and 2021, our margins after commissions on indirect sales were
approximately 64% and 61%, respectively. For the nine months ended January 31,
2022 and 2021, our margins after commissions on indirect sales were
approximately 66% and 57 %, respectively. The indirect channel margins
increased for the three and nine months ended January 31, 2022 , compared to the
same periods in the prior year due to the mix of value-added reseller ("VAR")
commission rates. These margin calculations include only commission expense for
comparative purposes and do not include other costs of license fees such as
amortization of capitalized software.
Professional Services and Other Revenue
Three Months Ended
2022 2021 % Change
(in thousands)
Supply Chain Management $ 5,396 $ 4,762 13 %
IT Consulting 5,842 4,543 29 %
Other 205 190 8 %
Total professional services and other revenue $ 11,443 $ 9,495 21 %
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Nine Months Ended January 31,
2022 2021 % Change
(in thousands)
Supply Chain Management $ 15,496 $ 14,318 8 %
IT Consulting 15,544 14,602 6 %
Other 711 631 13 %
Total professional services and other revenue $ 31,751 $ 29,551 7 %
For the three and nine months ended January 31, 2022 , professional services
and other revenue increased by 21% and 7%, respectively due to the increased
professional services and other revenue derived from our IT Consulting , SCM and
Other segments. For the three and nine months ended January 31, 2022 , our IT
Consulting segment's revenue increased 29% and 6%, respectively when compared to
the same period in the prior year due to the demand of project work from
existing customers during the applicable period. For the three and nine months
ended January 31, 2022 , our SCM segment's revenue increased 13% and 8%,
primarily due to a higher ramp up of implementation project work due to an
increase in subscription fees revenue in recent periods. For the three and nine
months ended January 31, 2022 , our Other segment's revenue increased 8% and 13%,
respectively due to the timing of project work with existing customers. We have
observed that there is a tendency for services and other revenue, other than
from IT Consulting , to lag changes in license and subscription revenue by one to
three quarters, as new licenses and subscriptions in one quarter often involve
implementation and consulting services in subsequent quarters, for which we
recognize revenue only as we perform those services.
Maintenance Revenue
Three Months Ended January 31,
2022 2021 % Change
(in thousands)
Supply Chain Management $ 8,817 $ 9,867 (11) %
Other 314 305 3 %
Total maintenance revenue $ 9,131 $ 10,172 (10) %
Nine Months Ended January 31,
2022 2021 % Change
(in thousands)
Supply Chain Management $ 26,924 $ 29,794 (10) %
Other 935 915 2 %
Total maintenance revenue $ 27,859 $ 30,709 (9) %
For the three and nine months ended January 31, 2022 , maintenance revenue
decreased 10% and 9%, respectively when compared to the same period in the prior
year. Our SCM maintenance revenue decreased 11% and 10% for the three and nine
months ended January 31, 2022 , respectively when compared to the same period
last year due to a normal customer attrition rate. The SCM segment accounted for
97% of total maintenance revenue for the three and nine months ended January 31,
2022 and for the same periods in the prior year. Typically, our maintenance
revenue have had a direct relationship to current and historic license fee
revenue, since licenses are the source of maintenance customers.
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GROSS MARGIN
The following table provides both dollar amounts (in thousands) and percentage
measures of gross margin:
Three Months Ended January 31, Nine Months Ended January 31,
2022 % 2021 % 2022 % 2021 %
Gross margin on subscription fees $ 7,425 68 % $ 4,424 59 % $ 20,946 68 % $ 12,048 58 %
Gross margin on license fees 752 76 % 242 46 % 1,692 74 % 251 14 %
Gross margin on professional services
and other 3,431 30 % 2,317 24 % 9,252 29 % 6,919 23 %
Gross margin on maintenance 7,342 80 % 8,278 81 % 22,350 80 % 25,101 82 %
Total gross margin $ 18,950 57 % $ 15,261 55 % $ 54,240 58 % $ 44,319 53 %
For the three and nine months ended January 31, 2022 , our total gross margin
percentage increased by 2% and 5%, respectively when compared to the same
periods in the prior year primarily due to higher margins on subscription fees
revenue, license fees and professional services and other revenue, partially
offset by a decrease in maintenance revenue.
Gross Margin on Subscription Fees
For the three months endedJanuary 31, 2022 , our gross margin percentage on subscription fees revenue increased from 59% to 68% when compared to the same period in the prior year, primarily due to the increased subscription revenue and related cost efficiencies. For the nine months endedJanuary 31, 2022 , our gross margin percentage on subscription fees revenue increased from 58% to 68% when compared to the same period in the prior year, primarily due to the portfolio shift from license fee to subscription revenue.
Gross Margin on License Fees
License fee gross margin percentage for the three and nine months endedJanuary 31, 2022 increased by 30% and 60%, respectively, when compared to the same period in the prior year. License fee gross margin percentage tends to be directly related to the level of license fee revenue due to the relatively fixed cost of computer software amortization expense, amortization of acquired software and the sales mix between our direct and indirect channels.
Gross Margin on Professional Services and Other
Our gross margin percentage on professional services and other revenue increased from 24% to 30% for the three months endedJanuary 31, 2022 , primarily due to an increase in revenues, improved utilization and better billing rates. Our gross margin percentage in our SCM segment services increased to 38% from 31% for the three months endedJanuary 31, 2022 and 2021, respectively. This is primarily the result of an increase in professional services and other revenue, which is being driven by an increase in billing rates and utilization. Our Other segment professional services gross margin increased to 43% from 29% for the three months endedJanuary 31, 2022 and 2021, respectively, due to higher margin projects year to date. OurIT Consulting segment professional services gross margin increased to 22% for the three months endedJanuary 31, 2022 , when compared to 18% the same period last year due to higher margin project work. Professional services and other gross margin is directly related to the level of services and other revenue. The primary component of cost of services and other revenue is services staffing, which is relatively inelastic in the short term. For the nine months endedJanuary 31, 2022 andJanuary 31, 2021 , our SCM segment gross margins increased to 37% from 30%, respectively, due to higher billing utilization, and sooner project start dates compared to the same period in the prior year. Our Other segment professional services gross margin increased to 43% from 38% for the nine months endedJanuary 31, 2022 and 2021, respectively, due to higher margin projects year to date. OurIT Consulting segment professional services gross margin increased to 21% from 17% for the nine months endedJanuary 31, 2022 and 2021, respectively, due to higher margin projects in the current quarter. Professional services and other gross margin is directly related to the level of services and other revenues.
Gross Margin on Maintenance
Maintenance gross margin percentage decreased from 81% to 80% for the three months endedJanuary 31, 2022 andJanuary 31, 2021 , and decreased from 82% to 80% for the nine months endedJanuary 31, 2022 andJanuary 31, 2021 , respectively. The decrease is primarily due to lower maintenance revenue and increase in personnel costs, compared to the same period in the prior year. The primary cost component is maintenance staffing, which is relatively inelastic in the short term. 27
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EXPENSES
Three Months Ended January 31, Nine Months Ended January 31,
% of Revenue % of Revenue
2022 2021 2022 2021 2022 2021 2022 2021
(in thousands) (in thousands)
Research and development $ 4,602 $ 4,242 14 % 15 % $ 13,304 $ 12,674 14 % 15 %
Sales and marketing $ 5,222 $ 5,029 16 % 18 % $ 17,234 $ 15,202 19 % 18 %
General and administrative $ 5,834 $ 5,002 18 % 18 % $ 15,844 $ 13,833 17 % 17 %
Amortization of acquisition-related
intangible assets $ 53 $ 53 - % - % $ 159 $ 159 - % - %
Other income, net $ 92 $ 1,432 - % 5 % $ 1,459 $ 2,722 1 % 3 %
Income tax expense(benefit) $ 391 $ 56 1 % - % $ (43) $ 136 - % - %
Research and Development
Gross product research and development costs include all non-capitalized and capitalized software development costs. A breakdown of the research and development costs is as follows:
Three Months Ended
2022 2021 % Change
(in
thousands)
Total capitalized computer software development costs $ -$ 233 (100) % Percentage of gross product research and development costs - % 5 % Total research and development expense$ 4,602 $ 4,242 8 % Percentage of total revenue 14 % 15 %
Total gross product research and development expense and capitalized computer software development costs
$ 4,602 $ 4,475 3 % Percentage of total revenue 14 % 16 % Total amortization of capitalized computer software development costs * $ 757$ 997 (24) % Nine Months Ended January 31, 2022 2021 % Change (in thousands) Total capitalized computer software development costs $ -$ 604 (100) % Percentage of gross product research and development costs - % 5 % Total research and development expense$ 13,304 $ 12,674 5 % Percentage of total revenue 14 % 15 %
Total gross product research and development expense and capitalized computer software development costs
$ 13,304 $ 13,278 - % Percentage of total revenue 14 % 16 %
Total amortization of capitalized computer software development costs *
$ 2,467 $ 3,257 (24) %
*Included in cost of license fees and subscription fees.
For the three and nine months endedJanuary 31, 2022 , gross product research and development costs increased 3% and remained flat, respectively, when compared to the same period in the previous year, primarily due to an increase in the use of third-party contractors. Capitalized software development costs decreased inJanuary 31, 2022 compared to the same period in the prior year, due to an increase in agile software programming that accelerates the software releases from months to weeks. We expect capitalized software costs to be zero in fiscal 2022. For the three and nine months endedJanuary 31, 2022 , amortization of capitalized software development costs decreased 24%, when compared to fiscal 2021 as some projects were fully amortized. Costs included in gross product development are salaries of product development personnel, hardware lease expense, computer software expense, telephone expense and rent. 28
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Sales and Marketing
For the three months endedJanuary 31, 2022 , sales and marketing expenses decreased from 18% to 16% of revenue when compared to the same period last year due to marketing cost containment. For the nine months endedJanuary 31, 2022 , sales and marketing expenses increased from 18% to 19% of revenue when compared to the same period last year due to increased marketing spend and variable compensation.
General and Administrative
For the three and nine months ended
AtJanuary 31, 2022 , the total number of employees was 418 compared to 429 atJanuary 31, 2021 . Operating Income/(Loss) Three Months Ended January 31, Nine Months Ended January 31, 2022 2021 % Change 2022 2021 % Change (in thousands) (in thousands) Supply Chain Management$ 7,458 $ 4,713 58 %$ 19,531 $ 12,800 53 % IT Consulting 506 83 226 % 1005 292 244 % Other* (4,725) (3,861) 22 % (12,837) (10,641) 21 % Total Operating Income$ 3,239 $ 935 246 %$ 7,699 $ 2,451 214 %
* Includes all corporate overhead and other common expenses.
Our SCM segment operating income increased by 58% and 53%, respectively for the three and nine months endedJanuary 31, 2022 , compared to the same periods in the prior year primarily due to improved gross margins.
Our
Our Other segment operating loss increased by 22% and 21%, respectively for the three and nine months endedJanuary 31, 2022 , when compared to the same periods in the prior year due primarily to an increase in variable compensation and stock option expenses.
Other Income
Other income is comprised of net interest and dividend income, rental income, exchange rate gains and losses, miscellaneous income, and realized and unrealized gains and losses from investments. For the three months endedJanuary 31, 2022 , the decrease in Other income is mainly due to lower unrealized gains from investments of$1.2 million , higher realized losses from our investments of$83,000 and lower gains on exchange rates of$81,000 , partially offset by a gain on sale of assets of$36,000 when compared to the same period last year. We recorded unrealized losses of approximately$14,000 and realized losses of approximately$0.1 million for the three months endedJanuary 31, 2022 from our trading securities portfolio. The decrease in Other income for the nine months endedJanuary 31, 2022 is mainly due to a decrease in unrealized gains of$1.2 million compared to$2.0 million for the same period last year and an increase in realized losses of$0.1 million compared to$16,000 for the same period last year. We also recorded higher exchange rate losses of approximately$0.2 million for the nine months endedJanuary 31, 2022 compared to$80,000 of exchange rate gains in the prior year, this decrease was partially offset by a gain on sale of assets of$36,000 compared to$0 for the same period last year.
For the three and nine months ended
Income Taxes
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We recognize deferred tax assets and liabilities based on the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their tax bases. We
measure deferred tax assets and liabilities using statutory tax rates in effect
in the year in which we expect the differences to reverse. We establish a
deferred tax asset for the expected future benefit of net operating losses,
credit carry-forwards and nonqualified stock options. Under the Income Tax Topic
of the FASB ASC, we cannot recognize a deferred tax asset for the future benefit
of our net operating losses, tax credits and temporary differences unless we can
establish that it is "more likely than not" that the deferred tax asset would be
realized.
During the three and nine months ended January 31, 2022 , we recorded an income
tax expense of $391,000 and an income tax benefit of $42,000 , respectively,
primarily due to discrete stock compensation benefits of $327,000 and $1.9
million , respectively, net of normal income tax expense from operations. During
the three and nine months ended January 31, 2021 , we recorded an income tax
expense of $56,000 and 136,000, respectively, primarily due to discrete stock
compensation benefits of $233,000 and $504,000 respectively, net of normal
income tax expense from operations. Before adjusting for these discrete tax
benefits, our effective tax rate would have been 22.4% and 20.7%, respectively,
in the three and nine months ended January 31, 2022 compared to our effective
tax rate of 16.2% and 14.2%, respectively, in the three and nine months ended
January 31, 2021 . In addition, research and development and foreign tax credits
reduced our effective tax rate by 4.3% and 0% in the nine months ended January
31, 2022 , compared to reductions of 8.9% and 1.1% in the nine months ended
January 31, 2021 .
Operating Pattern
We experience an irregular pattern of quarterly operating results, caused primarily by fluctuations in both the number and size of software license and subscription contracts received and delivered from quarter to quarter and our ability to recognize revenue in that quarter in accordance with our revenue recognition policies. We expect this pattern to continue.
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION
Sources and Uses of Cash
Historically we have funded, and we continue to fund, our operations and capital expenditures primarily with cash generated from operating activities. The changes in net cash that our operating activities provide generally reflect the changes in net earnings and non-cash operating items plus the effect of changes in operating assets and liabilities, such as investment trading securities, trade accounts receivable, trade accounts payable, accrued expenses and deferred revenue. We have no debt obligations or off-balance sheet financing arrangements, and therefore, we used no cash for debt service purposes. The following table shows information about our cash flows and liquidity positions during the nine months endedJanuary 31, 2022 and 2021. You should read this table and the discussion that follows in conjunction with our Condensed Consolidated Statements of Cash Flows contained in Item 1 in Part I of this Quarterly Report and in our Annual Report for fiscal 2021. Nine Months EndedJanuary 31, 2022 2021
Net cash provided by operating activities
Net cash used in investing activities
(801) (1,065)
Net cash used in financing activities (3,552) (5,961) Net change in cash and cash equivalents
For the nine months endedJanuary 31, 2022 , the net increase in cash provided by operating activities when compared to the same period last year was due primarily to the following: (1) an increase in net earnings, (2) a relative increase in deferred revenue when compared to a decrease in the same period last year due to timing of revenue recognition, (3) a relative smaller decrease in accounts payable and other liabilities compared to the same period last year due to timing of payments, (4) an increase in stock-based compensation expense, (5) lower gains on investments than in prior year, (6) a decrease in purchases of trading securities and (7) a decrease in deferred income taxes. This increase in cash provided by operating activities was partially offset by: (1) a relative increase in customer accounts receivables when compared to a decrease in the same period last year due to the timing of closing customer sales and related collections, (2) a relative increase in prepaid expenses when compared to a decrease in the same period last year due to the timing of purchases, (3) a decrease in depreciation and amortization and (4) a decrease in the proceeds from the maturity and sales of trading securities. 30
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The decrease in cash used in investing activities when compared to the same
period in the prior year was mainly due to an increase in purchases of property
and equipment, which was partially offset by a decrease in capitalized computer
software development costs.
The decrease in cash used in financing activities compared to the prior year was
due primarily to an increase in proceeds from exercise of stock options, which
was partially offset by an increase in dividends paid.
The following table shows net changes in total cash, cash equivalents, and
investments, which is one measure management uses to understand net total cash
generated by our activities:
As of January 31,
(in thousands)
2022 2021
Cash and cash equivalents $ 98,355 $ 86,721
Short-term investments 16,463 14,052
Total cash and short and long-term investments 114,818 100,773
Net increase in total cash and investments during nine months ended
$
10,154
Our total activities used less cash and investments during the months ended
Days Sales Outstanding in accounts receivable were 77 days as ofJanuary 31, 2022 , compared to 65 days as ofJanuary 31, 2021 . This increase is primarily due to the timing of billings and cash collections. Our current ratio was 2.9 to 1 onJanuary 31, 2022 and 2021. Our business in recent periods has generated substantial positive cash flow from operations, excluding purchases and proceeds of sale of trading securities. For this reason, and because we had$114.8 million in cash and investments with no debt as ofJanuary 31, 2022 , we believe that our sources of liquidity and capital resources will be sufficient to satisfy our presently anticipated requirements during at least the next twelve months for working capital, capital expenditures and other corporate needs. However, at some future date we may need to seek additional sources of capital to meet our requirements. If such need arises, we may be required to raise additional funds through equity or debt financing. We do not currently have a bank line of credit. We can provide no assurance that bank lines of credit or other financing will be available on terms acceptable to us. If available, such financing may result in dilution to our shareholders or higher interest expense. OnAugust 19, 2002 , our Board of Directors approved a resolution authorizing the repurchase of up to an additional 2.0 million shares of our Class A common stock. We have made and will make these repurchases through open market purchases at prevailing market prices. The timing of any repurchase will depend upon market conditions, the market price of our common stock and management's assessment of our liquidity and cash flow needs. Under this repurchase plan, throughJanuary 31, 2022 , we have repurchased 1,053,679 shares of common stock at a cost of approximately$6.2 million . As ofJanuary 31, 2022 , under all repurchase plans previously authorized, including this most recent plan, we have repurchased a total of 4,588,632 shares of common stock at a cost of approximately$25.6 million .
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
We have based the following discussion and analysis of financial condition and results of operations on our condensed consolidated financial statements, which we have prepared in accordance withU.S. GAAP. The preparation of these condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Note 1 to the Consolidated Financial Statements in our Annual Report for fiscal 2021, describes the significant accounting policies that we have used in preparing our condensed consolidated financial statements. On an ongoing basis, we evaluate our estimates, including, but not limited to, those related to revenue/collectability. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our actual results could differ materially from these estimates under different assumptions or conditions.
We believe the critical accounting policies listed below affect significant judgments and estimates used in the preparation of the financial statements.
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Revenue Recognition.
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.
License. Our on-premise 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 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.
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 $28,000 and $69,000 for the three and nine months ended
January 31, 2022 and $0 and $16,000 for the three and nine months ended
January 31, 2021 , 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.
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
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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.
Maintenance and support contracts are generally priced as a percentage of the
net fees paid by the customer to access the on-premise license.
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