FinanceLooker

Excrept from filing document 2024-04-30

As of October 31 2023 the last business day of the registrant s most recently completed second fiscal quarter 31 910 287 Class A Common Shares and 1 821 587 Class B Common Shares of the registrant were outstanding The aggregate market value based upon the closing price of Class A Common Shares as quoted on the NASDAQ National Market System on October 31 2023 of the Class A Common Shares held by non affiliates on that date was approximately 370 0 million As of June 24 2024 31 459 011 Class A Common Shares and 1 821 587 Class B Common Shares of the registrant were outstanding
We believe that it is important to communicate our future expectations to our shareholders and to the public This report contains forward looking statements including in particular statements about our goals plans objectives beliefs expectations and prospects under the headings Item 1 Business and Item 7 Management s Discussion and Analysis of Financial Condition and Results of Operations 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 about future events or outcomes Any forward looking statements herein are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 Forward looking statements include statements concerning future
Although we believe that the goals plans expectations and prospects reflected by our forward looking statements are reasonable based on the information currently available to us those statements are not guarantees of performance There are a number of factors that could cause actual results or performance to differ materially from what is anticipated by statements made herein These factors include but are not limited to continuing U S and global economic uncertainty and the timing and degree of business recovery the irregular pattern of our revenue dependence on particular market segments or clients competitive pressures market acceptance of our products and services technological complexity undetected software errors potential product liability or warranty claims risks associated with new product development the challenges and risks associated with integration of acquired product lines companies and services uncertainty about the viability and effectiveness of strategic alliances as well as a number of other risk factors that could affect our future performance Factors that could cause or contribute to such differences include but are not limited to those we discuss under the section captioned Risk Factors in Item 1A of this Form 10 K as well as the cautionary statements and other factors that we discuss in other sections of this Form 10 K
American Software Inc American Software or the Company was incorporated in Georgia in 1970 The Company is headquartered in Atlanta Georgia with international offices in Belgium the United Kingdom Germany India and New Zealand
We provide our software and services solutions through two major operating segments 1 Supply Chain Management SCM and 2 Other The SCM software business is our core market We continue to provide limited services to our legacy ERP clients included in the Other segment
their supply chain including processes ranging from product concept to client availability via the Logility Decision Intelligence Platform a single platform spanning Product Demand Inventory Network Optimization Supply and Order Response aligned with Scenario Planning and Supplier Management Our Logility Digital Intelligence Platform leverages an innovative blend of artificial intelligence AI and advanced analytics 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
We believe enterprises are facing unprecedented rates of change and disruption across their operations Increasing consumer expectations for convenience and personalization fast and free delivery and product freshness are forcing enterprises to adapt or be left behind Given constraints arising from a shortage of skilled supply chain talent and a desire to keep costs at a minimum we expect enterprises to embrace digital transformation initiatives to meet these challenges Our software reduces the business cycle time required from product concept to client availability Our platform allows our clients to create a digital model of their physical supply chain networks that improves the speed and agility of their operations by implementing automated decision making processes These processes regularly analyze business and market signals to better inform product design and development increase forecast accuracy optimize inventory across the supply chain source products sustainability ethically and ensure high client satisfaction
We believe our platform is rated highly due to our AI based approach flexible advanced analytics underlying Software as a Service SaaS architecture ease of integration with third party systems lower total cost of ownership relative to competitors and the broad scope of supply chain planning functions supported
We serve approximately 650 clients located in approximately 80 countries largely concentrated within key vertical markets including apparel and other soft goods food and beverage consumer packaged goods consumer durable goods wholesale distribution specialty chemical and other process manufacturing Our software and services are marketed and sold through a direct sales team as well as an indirect global value added reseller VAR distribution network Our software is sold to be deployed in the cloud as a SaaS subscription We further support our clients with an array of consulting implementation operational and training services as well as technical support and hosting
We derive revenue from four sources subscriptions software licenses incremental users to existing clients maintenance and professional services We generally determine SaaS subscription fees based on the breadth of functionality and number of users and or divisions Services and other revenues consist primarily of fees from software implementation training and consulting services We bill for consulting services primarily under time and materials arrangements and recognize revenue as we perform services Subscription and maintenance agreements typically are for a three to five year term We generally bill these fees annually in advance and then recognize the resulting revenue ratably over the term of the agreement Deferred revenues represent advance payments or fees for subscriptions services and maintenance billed in advance of the time we recognize the related revenue
Today s brands manufacturers distributors and retailers must respond to rising consumer expectations to buy anywhere deliver anywhere and return anywhere even as global economic conditions and competitive pressures force businesses to reduce costs decrease order cycle times and improve operating efficiencies To meet these demands we believe businesses must dramatically improve the performance of their supply chains which can only be achieved through automation artificial intelligence and advanced analytics We leverage artificial intelligence and machine learning algorithms throughout our supply
Supply chain management refers to the process of managing the complex global network of relationships that organizations maintain with external trading partners clients and suppliers to design products forecast demand source supply manufacture products distribute and allocate inventory and deliver goods and services to the end client Supply chain management involves the activities related to sourcing supplying and merchandising products or services as well as the sales and marketing activities that influence the demand for goods and services such as new product introductions promotions pricing and forecasting Additional aspects of supply chain management include comprehensive sales and operations planning S OP as well as product lifecycle management PLM product sourcing quality traceability and vendor compliance to ensure the right products are brought to market on time and in good condition Companies that effectively communicate collaborate and integrate with their trading partners across the multi enterprise network or supply chain can realize significant competitive advantages in the form of lower costs greater customer loyalty reduced stock outs more efficient sourcing reduced inventory levels synchronized supply and demand and increased revenue
predicts spending on Supply Chain Management software and services will exceed 32 billion in 2024 and reach 62 billion by 2028 This represents a compounded annual growth rate CAGR of 17 through 2028 Within the Supply Chain Management software market Gartner includes solutions for supply chain planning supply chain execution and procurement
We focus primarily on supply chain planning processes and certain procurement and sourcing functions which we estimate account for approximately one third of the Supply Chain Management software market as defined by Gartner Our platform includes twenty six components spanning eight key supply chain planning processes that clients may adopt independently or as a comprehensive solution platform We believe our opportunity to cross sell and up sell existing clients is significant given the potential for clients to adopt additional components and by converting over time the existing on premise clients to our cloud SaaS subscription Within the sourcing function organizations are increasing their focus on vendor compliance and sourcing linked with supply chain planning and other enterprise applications in order to increase the efficient and effective fulfillment of customer orders in both the business to business and the business to consumer sectors These multi enterprise supply chains have heightened the need for robust supply chain master data management MDM to provide an accurate digital twin of the supply chain network allowing enterprises to quickly plan strategically and accurately respond to dynamic market conditions to take advantage of business opportunities and mitigate risk
Our goal is to deliver the fastest time to value for our clients to contribute to an agile resilient antifragile and higher velocity sustainable supply chain Our strategy includes the following key elements
AI is a supply chain game changer because it empowers organizations to overcome today s market challenges with its capacity to analyze massive amounts of data empower employees accelerate decision intelligence and streamline complex processes across multiple functions Logility is an AI based company prioritizing the use of AI to solve the industry s toughest supply chain planning challenges Logility s commitment to an AI based strategy is illustrated by our transition from using AI to bolster traditional planning approaches to leveraging AI to reimagine supply chain planning
We are increasingly working with industry leading consultants and other software and services providers Our strategic relationships help us to grow more quickly and to more efficiently deliver our products and services We intend to continue to develop strategic relationships with systems integrators and other providers to combine our software with their services and products and create joint marketing and co development opportunities
We believe that selective acquisitions or investments may offer opportunities to broaden our product offering for our target markets With our acquisition of 100 of the total issued and outstanding shares of capital stock of Garvis AI Limited Garvis a private limited company organized and registered in fiscal 2024 we began delivering on our native AI future forward roadmap as opposed to integrating AI into existing processes We embrace an AI based strategy while applying AI incrementally to get the most out of this rapidly evolving technology We will evaluate acquisitions or investments that will provide us with complementary products and technologies expand our geographic presence and distribution channels penetrate additional vertical markets with challenges and requirements similar to those we currently meet and further solidify our leadership position within the SCM market
We provide a comprehensive cloud architected supply chain management platform that helps our clients manage eight critical planning processes Product Demand Inventory Supply Network Optimization Order Response Supplier Management and Scenario Planning Within each of these process areas we offer one or more components that clients may leverage independently in combination or as a comprehensive solution platform Our supply chain MDM platform and advanced analytics capabilities enable clients to derive new insights and automate supply chain decision making processes that regularly analyze demand production supply and distribution signals to better inform product design and development increase forecast accuracy optimize inventory across the global supply chain and in store and ensure high client satisfaction
While clients can use our software applications individually we have designed them to be combined as an integrated systems to meet specific client requirements Clients may select virtually any combination of components to form an integrated solution for a particular business problem from a single module to a multi module multiple user solution incorporating our full range of products
Streamlines moving product concepts to market rationalizes complex product lines and drives smart assortment plans and allocation strategies Includes merchandise and assortment planning product lifecycle management and traceability
Gains access to tailored data integration machine learning and advanced analytics without the headaches of custom development Includes data management machine learning and artificial intelligence and advanced analytics
We provide our clients with ongoing product support services which are included in subscription fees We enter into support or maintenance contracts with clients for an initial three to five year term billed annually in advance with renewal for additional periods thereafter Under both subscription and license contracts we provide help desk consulting product updates and releases of new versions of products previously purchased by the client as well as error reporting and correction services We provide ongoing support and maintenance services on a seven days a week 24 hours a day basis through email and web based support using a call logging and tracking system for quality assurance
Clients frequently require services beyond our standard support and maintenance To meet those clients needs our professional services team provides specialized business and software implementation consulting configuration system to system interfacing and extensive training and certification We offer these services for an additional fee usually based upon time and materials utilized We provide the following professional services to our clients
We offer our clients a professional and proven program that facilitates rapid implementation of our software products Our consultants help clients define the scope of their project and proceed through the implementation process with the work prioritized to deliver the highest value outcomes first We establish measurable financial and logistical performance indicators and then evaluate them for conformance during and after implementation We offer training for all users and managers Implementation of our products typically requires three to nine months depending on factors such as the complexity of a client s existing systems breadth of functionality and number of business units and users
We also offer our clients post delivery professional services consisting primarily of implementation and training services for which we typically charge on a daily basis Clients that invest in implementation services receive assistance in integrating our software with existing enterprise software applications and databases Additional services may include post implementation reviews and benchmarks to further enhance the benefits to clients and training and user certification programs can help our clients gain even greater benefits from our robust planning platform
We deliver our software and services to clients in a variety of industries including apparel and other soft goods food and beverage fast moving consumer goods consumer durable goods wholesale distribution retail and process and chemical manufacturing A sample of companies that we have served in the past two years is as follows
No client accounted for more than 10 of fiscal 2024 revenue We typically experience a slight degree of seasonality reflected in a slowing of services revenue during the summer and again in the winter holiday season which occurs in the third quarter of our fiscal year We are not reliant on government sector clients
Our competitors are diverse and offer a variety of software and services targeted at various aspects of the supply chain retail and general enterprise application markets Our existing competitors include but are not limited to
Large ERP application software vendors such as SAP Oracle and Infor each of which offers sophisticated ERP software that currently or may in the future incorporate supply chain management advanced planning and scheduling collaboration or S OP software components
Other business application software vendors that may broaden or improve their product offerings by internally developing acquiring or partnering with independent developers of supply chain management software and
We also expect to face additional competition as other established and emerging companies enter the market for supply chain management software and or introduce new products and technologies In addition current and potential competitors have made and may continue to make strategic acquisitions or establish cooperative relationships among themselves or with third parties
The principal competitive factors in the target markets in which we compete include the depth of product functionality and quality domain expertise speed of implementation and value creation integration technologies product suite integration breadth of products and related services such as client support training and implementation Other factors important to clients and prospects include
We believe that our principal competitive advantages are our comprehensive end to end software platform the ability of our software to quickly generate business benefits for our clients our substantial investment in product development our deep domain expertise the ease of use of our software products our client support and professional consulting services our ability to deploy quickly and our ability to deliver rapid return on investment for our clients
We sell our products globally through direct and indirect sales channels We conduct our principal sales and marketing activities from our corporate headquarters in Atlanta Georgia and have North American sales and or support offices at several locations We manage sales and or support outside of North America from our international offices in Belgium the United Kingdom Germany India and New Zealand
In addition to our direct sales force we have developed a network of VARs who assist in selling implementing and supporting our products globally We will continue to utilize these and future relationships with software and service organizations to enhance our sales and marketing position Currently located in North America South America Mexico Europe and the Asia Pacific region these independent distributors and resellers distribute our product lines domestically and in foreign countries These vendors typically sell their own consulting and systems integration services in conjunction with
Marketing and communications contribute significantly to our growth and the demand for our products and services in the market We raise market awareness of our brands and engage with the prospective market through concentrated marketing and communications programs We do this through a variety of marketing efforts including public and media relations direct marketing advertising events and industry influencers We also collaborate and participate in a variety of global industry associations such as those organized by the Association for Supply Chain Management the Council of Supply Chain Management Professionals and the Institute of Business Forecasting
Our success depends in part upon our ability to continue to recognize and meet client needs anticipate opportunities created by changing technology adapt our products to the changing expectations of our client community and keep pace with emerging industry standards As a part of our ongoing commitment to these goals we continue to focus on the people processes and technology that help to achieve them We are committed to partnering with our clients in co development efforts to ensure our products map well to market needs from day one We also continue to shorten release cycles to more rapidly respond to market opportunities We leverage design thinking approaches to ensure that we understand not only the expressed needs of our clients but also the lived realities of the people that use them to accomplish their supply chain goals each and every day
We continue to leverage the opportunities presented by artificial intelligence machine learning advance analytics platforms in memory computing and alternative data management approaches as well as advancing research efforts in the application of blockchain and other technologies with promise in supply chain use cases Our research and development efforts will continue to focus on deploying software within a complex global supply chain landscape Our cloud architected software designed for SaaS deployment with master data management built in will be increasingly important for our long term growth As of April 30 2024 we deploy 151 persons in product research development and enhancement activities
Our success and ability to compete are dependent in part upon our proprietary technology To protect this proprietary technology we rely on a combination of copyright and trade secret laws confidentiality obligations and other contractual provisions However we also believe that factors such as the knowledge ability and experience of our personnel new product developments frequent product enhancements reliable maintenance and timeliness and quality of support services are essential to establishing and maintaining a technology leadership position The source code for our proprietary software is protected as a trade secret and can be protected as a copyrighted work Generally copyrights expire 70 years after the life of the author In addition we have registered a number of trademarks in the U S and internationally and have applications pending for others We enter into confidentiality or similar agreements with our employees consultants and clients control access to and distribution of our software documentation and other proprietary information and deliver only object code compiled source code to our licensed clients As is customary in the software industry in order to protect our intellectual property rights we do not sell or transfer title to our products to our clients
As of April 30 2024 we had 412 personnel 81 of whom are full time contractors including 151 in product research development and enhancement 51 in client support 95 in professional services 73 in marketing sales and sales support and 42
Our corporate culture is based on our core values Passion Accountability Curiosity and Teamwork Employee performance and Company fit are assessed in part based on these core values We reinforce them in employee communications and celebrate extraordinary examples of these values with quarterly Living the Core Values awards for employees nominated by colleagues and selected by the executive leadership team
American Software and its subsidiaries are enriched by the diverse talented and highly skilled workforce that brings a variety of experiences and perspectives to address the needs of our team clients and shareholders We make better decisions and draw strength from this diversity and thus are purposefully committed to providing an accessible workplace where members from every race national origin ethnicity gender sexual orientation religion age and personality profile feel included and valued We will ensure that all qualified candidates receive full consideration and that for every open role we seek a diverse pool of candidates for consideration prior to selecting the most qualified individual to fill those open roles
We support and encourage continuous learning training and career development for all employees In addition to our general new hire orientation employees are trained on job specific requirements as well as topics such as cybersecurity data privacy anti harassment and anti bullying
Employee career development is a key focus in the attraction retention and management of our human capital resources Our success planning process allows each employee to discuss career development goals with his or her manager and to provide feedback on broader company processes to help both the employee and the Company become more successful Success plans are tracked via the employee portal which senior management monitors to ensure full participation
We believe in the importance of giving back to the communities where we live and work Our Community imPACT initiative has two major components We organize Company sponsored volunteer opportunities with selected organizations across our geographic locations that focus on combating food insecurity We also encourage our employees to take action in their own communities by volunteering with charitable organizations of their choice and we support their efforts by providing up to 16 hours of paid time off each year for individual volunteering
Regulatory and legislative activity in the areas of data protection and privacy continues to increase worldwide We have established and continue to maintain policies to comply with applicable privacy and data protection laws We also ensure that third parties processing data on our behalf are contractually obligated to follow or are otherwise compliant with such laws
We are subject to certain privacy and data protection laws in other countries in which we operate many of which are stricter than those in the United States Some countries also have instituted laws requiring in country data processing and or storage of data Most notably in the European Union EU and United Kingdom UK the General Data Protection Regulation GDPR and comparable UK law create legal and compliance obligations for companies that process personal data of individuals in those regions regardless of the geographical location of the company and impose significant fines for non compliance We process a limited amount of personal data as defined under the GDPR for our clients and act as a data controller with respect to the personal data of our employees and job applicants some of whom are located outside the United States Therefore our privacy policies comply with the GDPR
In the United States the California Consumer Privacy Act CCPA requires us to offer certain specific data privacy rights to California residents The amount of regulated data that we possess is small Other states have adopted or are considering similar requirements that may be more stringent and or expansive than federal requirements Our privacy policies are compliant with the CCPA and other existing state laws
Our Software Security Program is managed by our Manager of Information Security who reports to the EVP of Information Technology Risk We conduct vendor and internal risk assessments at least annually Our Security Incident Response Team consisting of personnel from Legal Human Resources Marketing and IT across our business units is responsible for implementing our Incident Response Policy and Procedures which includes processes for detection analysis containment eradication and recovery
Our employees are regularly trained on appropriate security measures We provide security awareness training for new hires and for all employees at least quarterly We conduct user testing through phishing campaigns and require remedial training based on results Our Manager of Information Security produces a monthly security awareness newsletter and periodic updates on recent malicious information security trends and scams
The Company also uses an external auditor to conduct an annual Service and Organization Controls SOC 2 Type II audit that complies with the Statement on Standards for Attestation Engagements 18 SSAE 18 promulgated by the American Institute of Certified Public Accountants AICPA SOC 2 Audit The SOC 2 Audit demonstrates that an independent accounting and auditing firm has reviewed and examined an organization s control objectives and activities and tested those controls to ensure that they are operating effectively The Company obtains a SOC 2 Audit annually The SOC 2 Audit examines the suitability of the design and operating effectiveness of the Company s controls to provide reasonable assurance that our service commitments and system requirements were achieved based on the applicable trust services criteria for security availability processing integrity and confidentiality
We have web application firewalls and data encryption both in transit and at rest to ensure that our client data is adequately protected Our software applications undergo manual code reviews static code analysis to test for vulnerabilities and annual third party penetration testing with a formal change control process in place to correct any deficiencies Our SaaS environments are safeguarded by vulnerability management software that detects operating systems and third party application vulnerabilities applies vulnerability patching on a monthly basis and ensures emergency patching of critical vulnerabilities Data security is monitored with fully integrated Security Information and Event Management software and we provide 24 7 security monitoring and alerting for all SaaS client environments Only approved users may access our SaaS environments and such access is further controlled through two factor authentication and quarterly access reviews
Data in our cloud based software is hosted in a Microsoft Azure environment Microsoft provides numerous security measures including geo redundant storage GRS with cross regional replication for storage of backup data and site recovery that replicates virtual machines in real time to a different Azure region
We have a documented Disaster Recovery Procedure and Business Continuity Plan Key actions and responsibilities are handled by a designated Disaster Recovery Team and Emergency Management Team respectively The policies and procedures are reviewed updated and approved by executive management annually and a Business Impact Analysis is performed as part of our Business Continuity Plan
Sustainability is a critical factor when we evaluate potential hosting partners We continue to expand our relationship with Microsoft including increases in our Azure footprint for hosting client SaaS environments as well as many internal operations Microsoft has been carbon neutral since 2012 and is committed to being carbon negative by 2030 with the commitment by 2050 to remove all the carbon it has directly emitted since its founding in 1975 Microsoft Azure has committed to focus on four key areas of environmental impact on local communities carbon water waste and ecosystems
Third parties perform secure destruction of media and we receive a certificate of secure destruction from such parties Items for destruction or recycling are processed using an environmentally friendly waste to energy incineration process or e Stewards certified recycling process so that the information cannot be reconstructed
as soon as reasonably practicable after they are filed with or furnished to the Securities and Exchange Commission SEC Reference to our website does not constitute incorporation by reference of the information contained on the site which should not be considered part of this document
Logility Inc is committed to operating a sustainable and responsible business We believe that Environmental Social and Governance is essential to our long term success and we are committed to making a positive impact on the environment society and our governance practices
Logility is committed to creating a positive social impact We believe that our employees are our most important asset and we are committed to providing them with a safe and healthy workplace We also support a number of community initiatives including
Logility is committed to good governance practices We have a strong code of ethics and conduct and we are committed to transparency and accountability We also have a number of policies in place to ensure that our business is conducted in a responsible manner
On April 11 2024 the Company announced a plan to reclassify the Company s common stock to eliminate its Class B Common Stock par value 0 10 per share the Class B Common Stock subject to shareholder approval the Reclassification In support of the Reclassification the Company entered into a Reclassification Agreement dated April 10 2024 the Reclassification Agreement with James C Edenfield the beneficial owner of all of the issued and outstanding shares of the Class B Common Stock referred to below as the Class B Shareholder or as Mr Edenfield
The Reclassification Agreement provides that following the satisfaction of the conditions thereto the Company will amend and restate its Amended and Restated Articles of Incorporation the Second Amended and Restated Articles Upon the Second Amended and Restated Articles being duly filed with the Secretary of State of the State of Georgia the Effective
Time among other things each share of Class B Common Stock issued and outstanding immediately prior to the Effective Time will be reclassified exchanged and converted into 1 2 shares of the Company s Class A Common Stock par value 0 10 per share Class A Common Stock
The following summarizes risks and uncertainties that could materially adversely affect our business financial condition results of operations and stock price You should read this summary together with the detailed description of each risk factor contained below
Disruptions in the financial and credit markets government policies regarding interest rates and inflation rates international trade disputes the effects of a pandemic or major public health concern such as the COVID 19 pandemic the conflicts between Hamas and Israel and Russia and the Ukraine and other external influences in the U S and global markets may reduce demand for our software and related services which may negatively affect our revenue and operating results
Our growth depends upon our ability to develop and sustain relationships with complementary vendors to market and implement our software products and a failure to develop and sustain these relationships could have a material adverse effect on our operating performance and financial condition
We are dependent upon the retail industry for a portion of our revenue If these clients were to discontinue the use of our service or delay their implementation our total revenue would be adversely affected
Services revenue carries lower gross margins than subscription and maintenance revenue and an overall increase in services revenue as a percentage of total revenue could have an adverse impact on our business
Unanticipated changes in tax laws or regulations in the various tax jurisdictions we are subject to that are applied adversely to us or our paying clients could increase the costs of our products and services and harm our business
We may not be successful in convincing clients to migrate to current or future releases of our products which may lead to reduced services and maintenance revenue and less future business from existing clients
Implementation of our products can be complex time consuming and expensive clients may be unable to implement our products successfully and we may become subject to warranty or product liability claims
We collect process store share transmit disclose and use sensitive data Our actual or perceived failure to protect such data mitigate data loss and or prevent a cybersecurity or other incident could damage our reputation and harm our business and operating results
Any interruptions or delays in services from third parties or our inability to adequately plan for and manage service interruptions or infrastructure capacity requirements could impair the delivery of our services and harm our business
We have included certain forward looking statements in Management s Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this Form 10 K We may also make oral and written forward looking statements from time to time in reports filed with the SEC and otherwise We undertake no obligation to revise or publicly release the results of any revisions to these forward looking statements based on circumstances or events which occur in the future unless otherwise required by law Actual results may differ materially from those projected in any such forward looking statements due to a number of factors including those set forth below and elsewhere in this Form 10 K
We operate in a dynamic and rapidly changing environment that involves numerous risks and uncertainties New risk factors emerge from time to time and it is not possible for management to predict all such risk factors nor can it assess the potential impact of all such risk factors on our business or the extent to which any factor or combination of factors may cause actual results to differ materially from those in any forward looking statements The following section lists some but not all of the risks and uncertainties that we believe may have a material adverse effect on our business financial condition cash flow or results of operations In that case the trading price of our securities could decline and you may lose all or part of your investment in our Company This section should be read in conjunction with the audited Consolidated Financial Statements and Notes thereto and Management s Discussion and Analysis of Financial Condition and Results of Operations included in this Form 10 K
The risks and uncertainties discussed below are in addition to those that apply to most businesses generally Furthermore as we continue to operate our business we may encounter risks of which we are not aware at this time These additional risks may cause serious damage to our business in the future the impact of which we cannot estimate at this time
The long term impacts of the Reclassification are still unknown and the Reclassification may not result in an increase in shareholder value or improve the liquidity and marketability of our equity If the Reclassification is not viewed favorably by members of the investment community it may cause a decrease in the value of our Class A Common Stock and impair its liquidity and marketability Furthermore securities markets worldwide have recently experienced significant price and volume fluctuations This market volatility as well as general economic market or political conditions could cause a reduction in the market price and liquidity of shares of our Class A Common Stock
The Company has incurred and will continue to incur substantial non recurring costs and expenses in connection with the negotiation and completion of the Reclassification These costs and expenses include among others all filing and other fees paid in connection with the Reclassification the Company s financial and legal advisory and other professional fees incurred related to the Reclassification which amount is expected to be approximately 750 000 These costs and expenses as well as other unanticipated costs and expenses could have an adverse effect on the financial condition and operating results of the Company
As of June 24 2024 the Class B Shareholder owned of record approximately 0 16 of the outstanding shares of Class A Common Stock 100 of the outstanding shares of Class B Common Stock and approximately 36 8 of the combined voting power of the outstanding shares of Class A Common Stock and Class B Common Stock when voting together as a single class Assuming the Class B Common Stock owned by the Class B Shareholder is converted into Class A Common Stock pursuant to the terms of the Reclassification Agreement and the Second Amended and Restated Articles of Incorporation and the Reclassification is completed then 1 821 587 shares of Class B Common Stock held by the Class B Shareholder will be reclassified into 2 185 904 shares of Class A Common Stock Immediately following the Reclassification the 2 245 904 shares of Class A Common Stock held by the Class B Shareholder will represent approximately 6 5 voting interest in the Company based on the number of shares of Class A Common Stock issued and outstanding as of June 24 2024
The Class B Shareholder is party to the Reclassification Agreement Pursuant to the Reclassification Agreement on the terms and subject to the conditions set forth therein the Class B Shareholder has agreed to vote all of his shares of Class A Common Stock and Class B Common Stock owned of record in favor of the Reclassification Proposal and the other proposals in accordance with the Board of Directors recommendation and against among other things any action agreement or transaction involving the Company or any of its subsidiaries that is intended or would reasonably be expected to prevent or materially impair or materially delay the consummation of the Reclassification
As a result of his significant voting power and rights under the Reclassification Agreement the Class B Shareholder has interests in the Reclassification that are different from or in addition to the interests of certain other shareholders The independent members of the Board were aware of and considered these interests among other matters in evaluating and negotiating the Reclassification Agreement and in determining to unanimously recommend that the Board approve the Second Amended and Restated Articles of Incorporation and the Reclassification Agreement and declare that the Second Amended and Restated Articles of Incorporation and the Reclassification Agreement are advisable fair to and in the best interests of the Company and the Unaffiliated Common Shareholders as such term is defined in the Reclassification Agreement Further the members of the Board were aware of and considered these interests among other matters when the Board authorized approved and declared advisable and in the best interests of the Company and its shareholders the terms of the Reclassification Agreement the Second Amended and Restated Articles of Incorporation and the Reclassification
Certain members of the Company s Board have interests in the Reclassification that are different from or in addition to the interests of holders of Class A Common Stock and or Class B Common Stock including that the Class B Shareholder appointed a majority of the Company s Directors
The independent members of the Board were aware of and considered these interests among other matters in evaluating and negotiating the Reclassification Agreement and in determining to unanimously recommend that the Board approve the Second Amended and Restated Articles of Incorporation and the Reclassification Agreement and declare that the Second Amended and Restated Articles of Incorporation and the Reclassification Agreement are advisable fair to and in the best interests of the Company and the Unaffiliated Common Shareholders Further the members of the Board were aware of and considered these interests among other matters when the Board authorized approved and declared advisable and in the best
The Reclassification could cause the Company s management team to focus its time and energies on matters related to the consummation of the Reclassification including any potential litigation or other proceedings which would otherwise be directed to the business and operations of the Company Any such diversion on the part of management if significant could affect the Company s ability to operate its business and or execute its strategy and adversely affect the business and results of operations of the Company Furthermore the cost to the Company of defending any litigation or other proceeding relating to the Reclassification could be substantial
Under the terms of the Reclassification Agreement the Company and the Class B Shareholder s obligation to consummate the Reclassification is subject to customary conditions The Company cannot be certain that these conditions will be satisfied If the Reclassification Agreement is terminated for failure to satisfy a condition precedent or for any other reason the Company and or the Class B Shareholder may determine to not pursue a reclassification
the Company will have expended substantial time and resources that could otherwise have been spent on the Company s existing businesses and the pursuit of other opportunities that could have been beneficial to the Company
If the Reclassification is completed holders of Class B Common Stock will become holders of shares of Class A Common Stock The market price of shares of Class A Common Stock may fluctuate significantly following completion of the Reclassification and holders of our Common Stock could lose some or all of the value of their investment In addition the stock market has experienced significant price and volume fluctuations in recent times which if they continue to occur could have a significant adverse effect on the market for or liquidity of the shares of Class A Common Stock regardless of the Company s actual operating performance
Based on the number of shares of Class B Common Stock issued and outstanding as of June 24 2024 and assuming no adjustment to the consideration contemplated as being paid to the Class B Shareholder pursuant to the terms of the Reclassification Agreement and the Second Amended and Restated Articles of Incorporation the Company expects 1 821 587 shares of Class B Common Stock will be reclassified into 2 185 904 shares of Class A Common Stock in connection with the Reclassification Following the Reclassification the former Class B Shareholder may subject to such limitations as are imposed on the Class B Shareholder pursuant to the Reclassification Agreement seek to sell the shares of Class A Common Stock into which his shares of Class B Common Stock were reclassified as well as shares of Class A Common Stock held by such holders before the Reclassification Other shareholders may also seek to sell the shares of Class A Common Stock held by them following or in anticipation of completion of the Reclassification These sales or the perception that these sales may occur coupled with the increase in the outstanding number of shares of Class A Common Stock relative to shares of Class A Common Stock outstanding may affect the market for and the market price of Class A Common Stock in an adverse manner
Disruptions in the financial and credit markets government policies regarding interest rates and inflation rates international trade disputes the effects of a pandemic or major public health concern such as the COVID 19 pandemic the conflicts between Hamas and Israel and Russia and the Ukraine and other external influences in the U S and global markets may reduce demand for our software and related services which may negatively affect our revenue and operating results
Our revenue and profitability depend on the overall demand for our software professional services and maintenance services The U S and other key international economies have experienced cyclical downturns from time to time in which economic activity was impacted by falling demand for a variety of goods and services poor liquidity reduced corporate
Concerns about the systemic impact of a global recession increasing energy costs public health issues that could arise in connection with a future pandemic geopolitical issues or the availability and cost of credit could lead to increased market volatility decreased consumer confidence and diminished growth expectations in the U S economy and abroad which in turn could affect the rate of information technology spending and adversely affect the purchasing decisions of current or potential clients For example financial and credit markets around the world experienced volatility following the invasion of Ukraine by Russia in February 2022 In response to the invasion the United States United Kingdom and European Union along with others imposed significant new sanctions and export controls against Russia Russian banks and certain Russian individuals and may implement additional sanctions or take further punitive actions in the future The full economic and social impact of the sanctions imposed on Russia as well as possible future punitive measures that may be implemented as well as the counter measures imposed by Russia remains uncertain Furthermore weakness in European economies may adversely affect demand for our products and services both directly and by affecting U S clients that rely heavily on European sales Separately in October 2023 an armed conflict began in Israel and the Gaza Strip which has also involved hostilities in surrounding countries It is not possible to predict the broader consequences of these ongoing conflicts which could include further sanctions embargoes regional instability and geopolitical shifts There can be no assurance that government responses to these factors will sufficiently restore confidence stabilize markets or increase liquidity and the availability of credit
We are a technology company selling technology based software with total pricing including software and services in many cases exceeding 400 000 Reductions in the capital budgets of our clients and prospective clients could have an adverse impact on our ability to sell our software These economic trade and public health and political conditions may reduce the willingness or ability of our clients and prospective clients to commit funds to purchase our products and services or renew existing post contract support agreements or their ability to pay for our products and services after purchase Future declines in demand for our products or services or a broadening or protracted extension of these conditions would have a significant negative impact on our revenue and operating results
We have been in the past and may be in the future affected by client bankruptcies that occur in periods subsequent to the software sale During weak economic conditions there is an increased risk that some of our clients will file a petition for bankruptcy When our clients file a petition for bankruptcy we may be required to forego collection of pre petition amounts owed and to repay amounts remitted to us during the 90 day preference period preceding the filing Accounts receivable balances related to pre petition amounts may in some of these instances be large due to extended payment terms for software fees and significant billings for consulting and implementation services on large projects The bankruptcy laws as well as the specific circumstances of each bankruptcy may severely limit our ability to collect pre petition amounts and may force us to disgorge payments made during the 90 day preference period We also face risk from international clients that file for bankruptcy protection in foreign jurisdictions as the application of foreign bankruptcy laws may be more difficult to predict Although we believe that we have sufficient reserves to cover anticipated client bankruptcies there can be no assurance that such reserves will be adequate and if they are not adequate our business operating results and financial condition would be adversely affected We anticipate that a global pandemic such as the COVID 19 pandemic could increase the likelihood of these risks
Our international revenue and the majority of our international expenses including the wages of some of our employees are denominated primarily in currencies other than the U S dollar Therefore changes in the value of the U S dollar as compared to these other currencies may adversely affect our operating results We do not hedge our exposure to currency fluctuations affecting future international revenue and expenses and other commitments For the foregoing reasons currency exchange rate fluctuations have caused and likely will continue to cause variability in our foreign currency denominated revenue streams and our cost to settle foreign currency denominated liabilities
The markets for our software are very competitive The intensity of competition in our markets has significantly increased in part as a result of the slow growth in investment in IT software We expect this intense competition to increase in the future Our current and potential competitors have made and may continue to make acquisitions of other competitors and may establish cooperative relationships among themselves or with third parties Any significant consolidation among supply chain software providers could adversely affect our competitive position Increased competition has resulted and in the future could result in
We directly compete with other supply chain software vendors including SAP SE Oracle Corporation Blue Yonder o9 Solutions Kinaxis Inc OM Partners and others Many of our current and potential competitors have significantly greater financial marketing technical and other competitive resources than we do as well as greater name recognition and a larger installed base of clients The software market has experienced significant consolidation including numerous mergers and acquisitions It is difficult to estimate what long term effect these acquisitions will have on our competitive environment We have encountered competitive situations where we suspect that large competitors in order to encourage clients to purchase non retail applications and gain market share also have offered at no charge certain retail software applications that compete with our software If competitors such as Oracle and SAP SE and other large private companies are willing to offer their retail and or other applications at no charge this may result in a more difficult competitive environment for our products In addition we could face competition from large multi industry technology companies that historically have not offered an enterprise solution set to the supply chain market We cannot guarantee that we will be able to compete successfully for clients against our current or future competitors or that such competition will not have a material adverse effect on our business operating results and financial condition
Also some prospective buyers are reluctant to purchase applications that could have a short lifespan as an acquisition could result in the application s life being abruptly cut short In addition increased competition and consolidation in these markets is likely to result in price reductions reduced operating margins and changes in market share any one of which could adversely affect us If clients or prospects want fewer software vendors they may elect to purchase competing products from a larger vendor than us since those larger vendors offer a wider range of products Furthermore some of these larger vendors may be able to bundle their software with their database applications which underlie a significant portion of our installed applications When we compete with these larger vendors for new clients we believe that these larger businesses often attempt to use their size as a competitive advantage against us
Many of our competitors have well established relationships with our current and potential clients and have extensive knowledge of our industry As a result they may be able to adapt more quickly to new or emerging technologies and changes in client requirements or devote greater resources to the development promotion and sale of their products than we can Some competitors have become more aggressive with their prices and payment terms and issuance of contractual implementation terms or guarantees In addition third parties may offer competing maintenance and implementation services to our clients and thereby reduce our opportunities to provide those services We may be unable to continue to compete successfully with new and existing competitors without lowering prices or offering other favorable terms Furthermore potential clients may consider outsourcing options including application service providers data center outsourcing and service bureaus as alternatives to our software products Any of these factors could materially impair our ability to compete and have a material adverse effect on our operating performance and financial condition
We also face competition from the corporate IT departments of current or potential clients capable of internally developing software and we compete with a variety of more specialized software and services vendors including
As a result the market for enterprise software applications has been and continues to be intensely competitive We expect competition to persist and continue to intensify which could negatively affect our operating results and market share
The intensely competitive markets in which we compete can put pressure on us to reduce our prices If our competitors offer deep discounts on certain products or services in an effort to recapture or gain market share or to sell other products or services we may need to lower prices or offer other favorable terms in order to compete successfully For these and other reasons in the future we may choose to make changes to our pricing practices For example we may offer additional discounts
to clients increase or decrease the use of pricing that involves periodic fees based on the number of users of a product or change maintenance pricing Such changes could materially and adversely affect our margins and our revenue may be negatively affected if our competitors are able to recapture or gain market share
We believe that our future growth will depend on developing and maintaining successful strategic relationships with systems integrators and other technology companies We intend to continue to increase the proportion of clients served through these indirect channels so we are currently investing and plan to continue to invest significant resources to develop them This investment could adversely affect our operating results if these efforts do not generate sufficient subscription and service revenue to offset our investment Also our inability to partner with other technology companies and qualified systems integrators could adversely affect our results of operations Because lower unit prices are typically charged on sales made through indirect channels increased indirect sales could reduce our average selling prices and result in lower gross margins In addition sales of our products through indirect channels will likely reduce our consulting service revenue as third party systems integrators generally provide these services As indirect sales increase our direct contact with our client base will decrease and we may have more difficulty accurately forecasting sales evaluating client satisfaction and recognizing emerging client requirements In addition these systems integrators and third party software providers may develop acquire or market products competitive with our products Marketing our products directly to clients and indirectly through systems integrators and other technology companies may result in distribution channel conflicts Our direct sales efforts may compete with those of our indirect channels and to the extent that different systems integrators target the same clients systems integrators also may come into conflict with each other Any channel conflicts that develop may have a material adverse effect on our relationships with systems integrators or harm our ability to attract new systems integrators
Our growth depends upon our ability to develop and sustain relationships with complementary vendors to market and implement our software products and a failure to develop and sustain these relationships could have a material adverse effect on our operating performance and financial condition
We are developing maintaining and enhancing significant working relationships with complementary vendors such as software companies consulting firms resellers and others that we believe can play important roles in marketing our products and software We are currently investing and intend to continue to invest significant resources to develop and enhance these relationships which could adversely affect our operating margins We may be unable to develop relationships with organizations that will be able to market our products effectively Our arrangements with these organizations are not exclusive and in many cases may be terminated by either party without cause Many of the organizations with which we are developing or maintaining marketing relationships have commercial relationships with our competitors There can be no assurance that any organization will continue its involvement with us The loss of relationships with such organizations could materially and adversely affect our operating performance and financial condition
We are dependent upon the retail industry for a significant portion of our revenue If these clients were to discontinue the use of our service or delay their implementation our total revenue would be adversely affected
Historically we have derived a significant percentage of our revenue from the sale of software products and collaborative applications that address vertical market opportunities with manufacturers and wholesalers that supply retail clients The success of our clients is directly linked to economic conditions in the retail industry which in turn are subject to intense competitive pressures and are affected by overall economic conditions In addition we believe that the acquisition of certain of our software products involves a large expenditure for implementation integration and change management or other capital commitments As a result demand for our products and services could decline in the event of instability or potential downturns in our clients industries
Due to current economic conditions we expect the retail industry to remain relatively cautious in its level of investment in IT when compared to other industries We are concerned about weak and uncertain economic conditions consolidations and the disappointing results of retailers in certain markets especially if such weak economic conditions persist for an extended period of time Weak and uncertain economic conditions have negatively affected our revenue in the past and may do so in the future including potential deterioration of our maintenance revenue base as clients look to reduce their costs elongation of our selling cycles and reduction in the demand for our products As a result in the current economic environment it is difficult to predict exactly when specific sales will close In addition weak and uncertain economic conditions could impair our clients ability to pay for our products or services We also believe the retail business transformation from retail brick and mortar to technology enabled omnichannel commerce models will be a multi year trend and was accelerated by the COVID 19 pandemic Consequently we cannot predict when the transformation to new commerce models may moderate or end Any of these factors could adversely affect our business our quarterly or annual operating results and our financial condition
We have observed that as the retail industry consolidates it is experiencing increased competition in certain geographic regions that could negatively affect the industry and our clients ability to pay for our products and services Such consolidation has negatively impacted our revenue in the past and may continue to do so in the future which may reduce the demand for our products and may adversely affect our business operating results and financial condition
We derive a significant portion of our services revenue from a small number of clients If these clients were to discontinue or delay their use of these services or obtain these services from a competitor our services revenue and total revenue would be adversely affected Clients may delay or terminate implementation of our services due to budgetary constraints related to economic uncertainty dissatisfaction with product quality the difficulty of prioritizing numerous IT projects changes in business strategy personnel or priorities or other reasons Clients may be less likely to invest in additional software in the future or continue to pay for software maintenance Our business relies to a large extent upon sales to existing clients and maintenance and services revenue are key elements of our revenue base so any reduction in these sales or these maintenance and services payments could have a material adverse effect on our business results of operations cash flows and financial condition
From time to time we expect to continue to experience large individual client sales which may cause significant variations in quarterly fees We also believe that purchasing our products is relatively discretionary and generally involves a significant commitment of a client s capital resources Therefore a downturn in any client s business could result in order cancellations or requests for flexible payment terms that could have a significant adverse impact on our revenue and quarterly results Moreover continued uncertainty about general economic conditions could precipitate significant reductions in corporate spending for IT which could result in delays or cancellations of orders for our products
Because fees for our software products and the associated services to implement them are substantial and the decision to purchase our products typically involves members of our clients senior management who assess the cost staffing requirements risks and return on investment the sales process for our software is lengthy Furthermore our existing and prospective clients routinely require education regarding the use and benefits of our products which may lead to delays in receiving clients orders Accordingly the timing of our revenue is difficult to predict and the delay of an order could cause our quarterly revenue to fall substantially below our expectations and those of public market analysts and investors Moreover to the extent that we succeed in shifting client purchases away from individual software products and toward more costly integrated suites of software and services our sales cycle may lengthen further which could increase the likelihood of delays and cause the effect of a delay to become more pronounced Delays in sales could cause significant shortfalls in our revenue and operating results for any particular period Also it is difficult for us to forecast the timing and recognition of revenue from sales of our products because our existing and prospective clients often take significant time evaluating our products before purchasing them The period between initial client contact and a purchase by a client could be nine months or longer During the evaluation period prospective clients may decide not to purchase or may scale down proposed orders of our products for various reasons including
Services revenue carries lower gross margins than do license or subscription revenue and an overall increase in services revenue as a percentage of total revenue could have an adverse impact on our business
Because our service revenue has lower gross margins than do our license or subscription revenue an increase in the percentage of total revenue represented by service revenue or a change in the mix between services that are provided by our employees versus services provided by third party consultants could have a detrimental impact on our overall gross margins and could adversely affect operating results
A significant portion of our revenue is derived from implementation services If we fail to scope our implementation projects correctly our services margins may suffer We bill for implementation services predominantly on an hourly or daily basis time and materials and sometimes under fixed price contracts and we generally recognize revenue from those services as we perform the work If we are not able to maintain the current service rates for our time and materials implementation services and cannot make corresponding cost reductions or if the percentage of fixed price contracts increases and we underestimate the costs of our fixed price contracts our operating performance may suffer The rates we charge for our implementation services depend on a number of factors including
Upon the purchase of a software license in prior years our clients entered into a maintenance contracts with a typical term of one to three years If clients elect not to renew their maintenance contracts after this initial maintenance period our maintenance revenue and total revenue would be adversely affected
There are several accounting standards and interpretations covering revenue recognition for the software industry These standards address software revenue recognition matters primarily from a conceptual level and do not include specific implementation guidance We believe that we currently comply with these standards
The accounting profession and regulatory agencies continue to discuss various provisions of these pronouncements with the objective of providing additional guidance on their application and potential interpretations These discussions and the issuance of new interpretations could lead to unanticipated changes in our current revenue accounting practices which could change the timing of recognized revenue They also could drive significant adjustments to our business practices which could result in increased administrative costs lengthened sales cycles and other changes that could adversely affect our reported revenue and results of operations In addition companies we acquire historically may have interpreted software revenue recognition rules differently than we do or may not have been subject to U S GAAP as a result of reporting in a foreign country If we discover that companies we have acquired have interpreted and applied software revenue recognition rules differently than prescribed by U S GAAP we could be required to devote significant management resources and incur the expense associated with an audit restatement or other examination of the acquired companies financial statements
We continually evaluate potential acquisitions of complementary businesses products and technologies We have in the past acquired and invested and may continue to acquire or invest in complementary companies products and technologies and enter into joint ventures and strategic alliances with other companies Acquisitions joint ventures strategic alliances and investments present many risks and we may not realize the financial and strategic goals that were contemplated at the time of any transaction Risks commonly encountered in such transactions include
Accounting rules require the use of the purchase method of accounting in all new business acquisitions Many acquisition candidates have significant intangible assets so an acquisition of these businesses would likely result in significant amounts of goodwill and other intangible assets The purchase method of accounting for business combinations may require large write offs of any in process research and development costs related to companies being acquired as well as ongoing amortization costs for other intangible assets Goodwill and certain other intangible assets are not amortized to income but are subject to impairment reviews at least annually If the acquisitions do not perform as planned future write offs and charges to income arising from such impairment reviews could be significant In addition these acquisitions could involve acquisition related charges such as one time acquired research and development charges Such write offs and ongoing amortization charges may have a significant negative impact on operating margins and net earnings in the quarter of the combination and for several subsequent years We may not be successful in overcoming these risks or any other problems encountered in connection with such transactions
Fully integrating an acquired company or business into our operations may take a significant amount of time In addition we may be able to conduct only limited due diligence on an acquired company s operations Following an acquisition we may be subject to liabilities arising from an acquired company s past or present operations including liabilities related to data security encryption and privacy of client data and these liabilities may not be covered by the warranty and indemnity provisions that we negotiate We cannot assure you that we will be successful in overcoming these risks or any other problems encountered with acquisitions To the extent we do not successfully avoid or overcome the risks or problems related to any acquisitions our results of operations and financial condition could be adversely affected Future acquisitions also could impact our financial position and capital needs and could cause substantial fluctuations in our quarterly and yearly results of operations
Unanticipated changes in tax laws or regulations in the various tax jurisdictions we are subject to that are applied adversely to us or our paying clients could increase the costs of our products and services and harm our business
We are subject to income taxes in the United States and various jurisdictions outside of the United States Significant judgment is often required in the determination of our worldwide provision for income taxes Any changes ambiguity or uncertainty in taxing jurisdictions administrative interpretations decisions policies and positions could materially impact our income tax liabilities We may also be subject to additional tax liabilities and penalties due to changes in non income based taxes resulting from changes in federal state or international tax laws changes in taxing jurisdictions administrative interpretations decisions policies and positions results of tax examinations settlements or judicial decisions changes in accounting principles changes to the business operations including acquisitions and the evaluation of new information that results in a change to a tax position taken in a prior period Any resulting increase in our tax obligation or cash taxes paid could adversely affect our cash flows and financial results Additionally new income sales use or other tax laws statutes rules regulations or ordinances could be enacted at any time Those enactments could harm our domestic and international business operations our business results of operations and financial condition
Further tax regulations could be interpreted changed modified or applied adversely to us These events could require us or our paying clients to pay additional tax amounts on a prospective or retroactive basis as well as require us or our paying clients to pay fines and or penalties and interest for past amounts deemed to be due If we raise our prices to offset the costs of these changes existing and potential future paying clients may elect not to purchase our products and services
In addition the United States and other governments adopt tax reform measures from time to time that impact future effective tax rates favorably or unfavorably These tax reforms may be in the form of changes in tax rates changes in the valuation of deferred tax assets or liabilities or changes in tax laws or their interpretation Such changes can have a material adverse impact on our financial results In 2022 the United States enacted the Inflation Reduction Act the Act which includes a 1 excise tax on corporate stock repurchases While we do not anticipate that changes in the tax laws or rates in that Act will have a material direct impact on the Company imposition of new excise taxes and minimum corporate tax rates such as these can have a material adverse impact on the Company in the future
As a multinational organization we may be subject to taxation in various jurisdictions around the world with increasingly complex tax laws the application of which can be uncertain Countries trading regions and local taxing jurisdictions have differing rules and regulations governing sales and use taxes and these rules and regulations are subject to varying interpretations that may change over time We collect and remit U S sales and value added tax VAT in several jurisdictions However it is possible that we could face sales tax or VAT audits and that our liability for these taxes could exceed our estimates as tax authorities could still assert that we are obligated to collect additional tax amounts from our paying clients and remit those taxes to those authorities We could also be subject to audits in states and international jurisdictions for
which we have not accrued tax liabilities Further one or more state or foreign authorities could seek to impose additional sales use or other tax collection and record keeping obligations on us or may determine that such taxes should have but have not been paid by us Liability for past taxes may also include substantial interest and penalty charges Any successful action by state foreign or other authorities to compel us to collect and remit sales tax use tax or other taxes either retroactively prospectively or both could harm our business results of operations and financial condition
We may require additional capital to finance our growth or to fund acquisitions or investments in complementary businesses technologies or product lines Our capital requirements may be influenced by many factors including
To the extent that our resources are insufficient to fund our future activities we may need to raise additional funds through public or private financing However additional funding if needed may not be available on terms attractive to us or at all Our inability to raise capital when needed could have a material adverse effect on our business operating results and financial condition If additional funds are raised through the issuance of equity securities the percentage ownership of our Company by our current shareholders would be diluted
A significant portion of our research and development activities and certain other critical business operations is concentrated in a few geographic areas We are a highly automated business and a disruption or failure of our systems could cause delays in completing sales and providing services A natural disaster major public health concern such as the COVID 19 pandemic or other catastrophic event such as fire power loss telecommunications failure cyber attack war or terrorist attack that results in the destruction or disruption of any of our critical business or IT systems could severely affect our ability to conduct normal business operations and as a result our future operating results could be materially and adversely affected
To effectively mitigate this risk we must continue to improve our operational financial and management controls and our reporting systems and procedures by among other things improving our key processes and IT infrastructure to support our business needs and enhancing information and communication systems to ensure that our employees and offices around the world are well connected and can effectively communicate with each other and our clients and employees can work remotely as appropriate
Although we maintain crisis management and disaster response plans in the event of a natural disaster public health crisis or other catastrophic event or if we fail to implement the improvements described above we may be unable to continue our operations and may experience system interruptions reputational harm delays in our product development lengthy interruptions in service breaches of data security and loss of critical data all of which could have an adverse effect on our future operating results
The global reach of our business could cause us to be subject to unexpected uncontrollable and rapidly changing events and circumstances outside the United States As we grow our international operations we may need to recruit and hire new consulting product development sales marketing and support personnel in the countries in which we have or will establish offices or otherwise have a significant presence Entry into new international markets typically requires the establishment of new marketing and distribution channels and may involve the development and subsequent support of localized versions of our software International introductions of our products often require a significant investment in advance of anticipated future revenue In addition the opening of a new office typically results in initial recruiting and training expenses and reduced labor efficiencies If we are less successful than we expect in a new market we may not be able to realize an adequate return on our initial investment and our operating results could suffer We cannot guarantee that the countries in which we operate will have a sufficient pool of qualified personnel from which to hire that we will be successful at hiring training or retaining such personnel or that we can expand or contract our international operations in a timely cost effective manner If we have to downsize certain international operations the costs to do so are typically much higher than downsizing costs in the United States The following factors among others could have an adverse impact on our business and earnings
compliance with multiple and potentially conflicting regulations in Europe Asia and North America including export requirements tariffs import duties and other trade barriers as well as health and safety requirements
fluctuations in exchange rates that may affect product demand and may adversely affect the profitability in U S dollars of products and services provided by us in foreign markets where payment for our products and services is made in the local currency including any fluctuations caused by uncertainties related to the Hamas Israel and Russia Ukraine conflicts
Our products are often critical to the operations of our clients businesses and provide benefits that may be difficult to quantify If our products fail to function as required we may be subject to claims for substantial damages Courts may not enforce provisions in our contracts that would limit our liability or otherwise protect us from liability for damages Although we maintain general liability insurance coverage including coverage for errors or omissions and cybersecurity risks this coverage may not continue to be available on reasonable terms or in sufficient amounts to cover claims against us In addition our insurers may disclaim coverage for future claims If claims exceeding the available insurance coverage are successfully asserted against us or our insurers impose premium increases large deductibles or co insurance requirements our business and results of operations could be adversely affected
We contract for insurance to cover a variety of potential risks and liabilities including those relating to the unexpected failure of our products In the current market insurance coverage for all types of risk is becoming more restrictive and when insurance coverage is offered the amount for which we are responsible is larger In light of these circumstances it may become more difficult to maintain insurance coverage at historical levels or if such coverage is available the cost to obtain or maintain it may increase substantially Consequently we may be forced to bear the burden of an increased portion of risks for which we have traditionally been covered by insurance which could negatively impact our results of operations
If the scope of our operating and financial systems and the geographic distribution of our operations and clients significantly expand this may increase demands on our management and operations Our officers and other key employees will need to implement and improve our operational client support and financial control systems and effectively expand train and manage our employee base We also may be required to manage an increasing number of relationships with various clients and other third parties We may not be able to manage future expansion successfully and our inability to do so could harm our business operating results and financial condition
Privacy concerns and laws evolving regulation of the Internet and cloud computing cross border data transfer restrictions and other domestic or foreign regulations may limit the use and adoption of our products and adversely affect our business Interruptions in Internet access may adversely affect our business operating results and financial condition by increasing our expenditures and causing client dissatisfaction
Our services depend on the ability of our registered users to access the Internet Currently this access is provided by companies that have significant market power in the broadband and Internet access marketplace including incumbent telephone companies cable companies mobile communications companies and government owned service providers Laws or regulations that adversely affect the growth popularity or use of the Internet including changes to laws or regulations impacting Internet neutrality could decrease the demand for our products increase our operating costs require us to alter the manner in which we conduct our business and or otherwise adversely affect our business
In addition the rapid and continual growth of traffic on the Internet has resulted at times in slow connection and download speeds of Internet users Our business may be harmed if the Internet infrastructure cannot handle our clients demands or if hosting capacity becomes insufficient If our clients become frustrated with the speed at which they can utilize our products over the Internet our clients may discontinue the use of our software and choose not to renew their contracts with us Further the performance of the Internet has also been adversely affected by viruses worms hacking phishing attacks denial of service attacks and other similar malicious programs as well as other forms of damage to portions of its infrastructure which have resulted in a variety of Internet outages interruptions and other delays These service interruptions could diminish the overall attractiveness of our products to existing and potential users and could cause demand for our products to suffer
We may not be successful in convincing clients to migrate to current or future releases of our products which may lead to reduced services and maintenance revenue and less future business from existing clients
Our clients may not be willing to incur the costs or invest the resources necessary to complete upgrades to current or future releases of our products This may lead to a loss of subscription and maintenance revenue and future business from clients that continue to operate prior versions of our products or choose to no longer use our products
Over time as part of our efforts to provide products and services that take advantage of emerging technologies and either lead the marketplace or stay competitive we have migrated our products and services from on premise installed software at client locations to web based software as a service environments In addition we have adapted our products to emerging standards for operating systems databases and other technologies We will be unable to compete effectively if we fail to
A substantial portion of our research and development resources is devoted to product upgrades that address regulatory and support requirements leaving fewer resources available for new products New products require significant development investment We face uncertainty when we develop or acquire new products because there is no assurance that a sufficient market will develop for those products If we do not attract sufficient client interest in those products we will not realize a return on our investment and our operating results will be adversely affected
Our core products face competition from new or modified technologies that may render our existing technology less competitive or obsolete reducing the demand for our products As a result we must continually redesign our products to incorporate these new technologies and adapt our software products to operate on and comply with evolving industry standards for various hardware and software platforms and security standards In addition conflicting new technologies present us with difficult choices about which new technologies to adopt If we fail to anticipate the most popular platforms fail to respond adequately to technological developments or experience significant delays in product development or introduction our business and operating results will be negatively impacted
In addition to the extent we determine that new technologies and equipment are required to remain competitive the development acquisition and implementation of such technologies may require us to make significant capital investments We may not have sufficient capital for these purposes and investments in new technologies may not result in commercially viable products The loss of revenue and increased costs from such changing technologies would adversely affect our business and operating results
Enterprises are requiring their application software vendors to provide faster returns on their technology investments We must continue to improve our speed of implementation and the pace at which our products deliver value or our competitors may gain important strategic advantages over us If we cannot successfully respond to these market demands or if our competitors
We continuously evaluate new technologies and implement advanced technology into our products However if in our product development efforts we fail to accurately address in a timely manner evolving industry standards new technology advancements or important third party interfaces or product architectures sales of our products and services will suffer Market acceptance of new platforms operating environments or hosting platforms may require us to undergo the expense of developing and maintaining compatible product lines There may be future or existing relational database platforms that achieve popularity in the marketplace that may or may not be architecturally compatible with our software product design Moreover future or existing user interfaces may or may not be architecturally compatible with our software product design If we do not achieve market acceptance of new user interfaces that we support or adapt to popular new user interfaces that we do not support our sales and revenue may be adversely affected Developing and maintaining consistent software product performance characteristics across all of these combinations could place a significant strain on our resources and software product release schedules which could adversely affect revenue and results of operations
The market for our software products is characterized by rapid technological change evolving industry standards changes in client requirements and frequent new product introductions and enhancements For example existing products can become obsolete and unmarketable when vendors introduce products utilizing new technologies or new industry standards emerge As a result it is difficult for us to estimate the life cycles of our software products There can be no assurance that we will successfully identify new product opportunities or develop and bring new products to the market in a timely or cost effective manner or that products capabilities or technologies developed by our competitors will not render our products obsolete Our future success will depend in part upon our ability to
Despite our testing our software programs like software programs generally may contain a number of undetected errors or bugs when we first introduce them or as new versions are released We do not discover some errors until we have installed the product and our clients have used it Errors may result in the delay or loss of revenue diversion of software engineering resources material non monetary concessions negative media attention or increased service or warranty costs as a result of performance or warranty claims that could lead to client dissatisfaction litigation damage to our reputation and impaired demand for our products Correcting bugs may result in increased costs and reduced acceptance of our software products in the marketplace Further such errors could subject us to claims from our clients for significant damages and we cannot assure you that courts would enforce the provisions in our client agreements that limit our liability for damages The effort and expense of developing testing and maintaining software product lines will increase with the increasing number of possible combinations of
Some of our products use or incorporate software that is subject to one or more open source licenses Open source software is typically freely accessible usable and modifiable Certain open source software licenses require a user who intends to distribute the open source software as a component of the user s software to disclose publicly part or all of the source code to the user s software In addition certain open source software licenses require the user of such software to make any derivative
While we monitor the use of all open source software in our products processes and technology and try to ensure that our open source software use does not require us to disclose the source code to the related product or solution such use could inadvertently occur Additionally if a third party software provider has incorporated certain types of open source software in software we license from such third party for our products and software under certain circumstances we could be required to disclose the source code to our products and software This could harm our intellectual property rights and have a material adverse effect on our business results of operations cash flow and financial condition
The open source community is comprised of many different formal and informal groups of software developers and individuals who have created a wide variety of software and have made that software available for use distribution and modification often free of charge Open source software such as the Linux operating system has been gaining in popularity among business users If developers contribute enterprise and supply chain application software to the open source community and that software has competitive features and scale to support business users in our markets we will need to change our product pricing and distribution strategy to compete successfully
Implementation of our products can be complex time consuming and expensive clients may be unable to implement our products successfully and we may become subject to warranty or product liability claims
Our products must integrate with the existing computer systems and software programs of our clients This can be complex time consuming and expensive and may cause delays in the deployment of our products Our clients may be unable to implement our products successfully or otherwise achieve the benefits attributable to our products Although we test each of our new products and releases and evaluate and test the products we obtain through acquisitions before introducing them to the market there still may be significant errors in existing or future releases of our software products with the possible result that we may be required to expend significant resources in order to correct such errors or otherwise satisfy client demands In addition defects in our products or difficulty integrating our products with our clients systems could result in delayed or lost revenue warranty or other claims against us by clients or third parties adverse client reactions and negative publicity about us or our products and services or reduced acceptance of our products and services in the marketplace any of which could have a material adverse effect on our reputation business results of operations and financial condition
The complexities inherent in our software major new product enhancements and new products often require long development and testing periods before they are released On occasion we have experienced delays in the scheduled release dates of new or enhanced products and we cannot provide any assurance that we will achieve future scheduled release dates The delay of product releases or enhancements or the failure of such products or enhancements to achieve market acceptance could materially affect our business and reputation
Developing and localizing software is expensive and investment in product development may involve a long payback cycle Our future plans include significant investments in software research and development and related product opportunities We believe that we must continue to dedicate a significant amount of resources to our research and development efforts to maintain or improve our competitive position However we do not expect to receive significant revenue from these investments for several years if at all
We consider certain aspects of our internal operations software and documentation to be proprietary and rely on a combination of copyright trademark and trade secret laws confidentiality agreements with employees and third parties protective contractual provisions such as those contained in our agreements with consultants vendors partners and clients and other measures to protect this information Existing copyright and trade secret laws afford only limited protection We believe that the rapid pace of technological change in the computer software industry has made trade secret and copyright protection less significant than factors such as
Our competitors may independently develop technologies that are substantially equivalent or superior to our technology The laws of some countries in which our software products are or may be sold do not protect our software products and intellectual property rights to the same extent as do the laws of the United States
We generally enter into confidentiality or similar agreements with our employees clients and vendors These agreements control access to and distribution of our software documentation and other proprietary information Despite our efforts to protect our proprietary rights unauthorized parties may copy aspects of our products obtain and use information that we regard as proprietary or develop similar technology through reverse engineering or other means Preventing or detecting unauthorized use of our products is difficult There can be no assurance that the steps we take will prevent misappropriation of our technology or that such agreements will be enforceable In addition we may need to resort to litigation to enforce our intellectual property rights protect our trade secrets determine the validity and scope of others proprietary rights or defend against claims of infringement or invalidity Such litigation could result in significant costs and the diversion of resources This could materially and adversely affect our business operating results and financial condition
Third parties may assert infringement claims against us Although we do not believe that our products infringe on the proprietary rights of third parties we cannot guarantee that third parties will not assert or prosecute infringement or invalidity claims against us These claims could distract management require us to enter into royalty arrangements and result in costly and time consuming litigation including damage awards Such assertions or the defense of such claims may materially and adversely affect our business operating results or financial condition In addition such assertions could result in injunctions against us Injunctions that prevent us from distributing our products would have a material adverse effect on our business operating results and financial condition If third parties assert such claims against us we may seek to obtain a license to use such intellectual property rights There can be no assurance that such a license would be available on commercially reasonable terms or at all If a patent claim against us were successful and we could not obtain a license on acceptable terms or license a substitute technology or redesign to avoid infringement we may be prevented from distributing our software or required to incur significant expense and delay in developing non infringing software
Our agreements normally contain provisions designed to limit our exposure to potential liability claims and generally exclude consequential and other forms of extraordinary damages However these provisions could be rendered ineffective invalid or unenforceable by unfavorable judicial decisions or by federal state local or foreign laws or ordinances For example we may not be able to avoid or limit liability for disputes relating to product performance or the provision of services If a claim against us were to be successful we may be required to incur significant expense and pay substantial damages including consequential or punitive damages which could have a material adverse effect on our business operating results and financial condition Even if we prevail in contesting such a claim the accompanying publicity could adversely affect the demand for our products and services
We also rely on certain technology that we license from third parties including software that is integrated with our internally developed software Although these third parties generally indemnify us against claims that their technology infringes on the proprietary rights of others such indemnification is not always available for all types of intellectual property Often such third party indemnitors are not well capitalized and may not be able to indemnify us in the event that their technology infringes on the proprietary rights of others As a result we may face substantial exposure if technology we license from a third party infringes on another party s proprietary rights Defending such infringement claims regardless of their validity could result in significant costs and a diversion of resources
Governments in many jurisdictions have enacted or are considering enacting consumer data privacy legislation including laws and regulations applying to the solicitation collection processing and use of consumer data For example in 2016 the European Union adopted a new law governing data practices and privacy called the General Data Protection Regulation GDPR which became effective in May 2018 The law establishes new requirements regarding the handling of personal data Non compliance with the GDPR may result in monetary penalties of up to 4 of worldwide revenue Although we do not directly host or process consumer data our clients may request that we utilize corporate data about their employees to use our software such as using a corporate email address to sign in to our software The GDPR and other changes in laws or regulations associated with the enhanced protection of certain types of sensitive data could increase our cost of providing our products and services or even prevent us from offering certain services in jurisdictions that we operate In the U S California enacted the California Consumer Privacy Act of 2018 CCPA which took effect on January 1 2020 and the California Privacy Rights Act CPRA which expands upon the CCPA was passed in November 2020 and took effect on January 1 2023 with a lookback period to January 1 2022 This legislation broadly defines personal information gives California
Additionally public perception and standards related to the privacy of personal information can shift rapidly in ways that may affect our reputation or influence regulators to enact regulations and laws that may limit our ability to provide certain products Federal state or foreign laws and regulations including laws and regulations regulating privacy data security or consumer protection or other policies public perception standards self regulatory requirements or legal obligations could reduce the demand for our software products if we fail to design or enhance our products to enable our clients to comply with the privacy and security measures dictated by these requirements Moreover we may be exposed to liability under existing or new data privacy legislation Even technical violations of these laws can result in penalties that are assessed for each non compliant transaction If we or our clients were found to be subject to and in violation of any of these laws or other data privacy laws or regulations our business could suffer and we and or our clients would likely have to change our business practices
We collect process store share transmit disclose and use sensitive data Our actual or perceived failure to protect such data mitigate data loss and or prevent a cybersecurity or other incident could damage our reputation and harm our business and operating results
Maintaining the security of computers and computer networks is an issue of critical importance for our clients Attempts by experienced computer programmers or hackers to penetrate client network security or the security of web sites to misappropriate confidential information have become an industry wide phenomenon that affects computers and networks across all platforms We collect process store share transmit disclose and use sensitive data provided by clients employees and to a limited degree vendors including personal information to support our business operations We also share this information with third parties including third party service providers in a manner designed to be secure However third parties and potentially our employees could violate applicable laws and our information security policies which could put the sensitive data we store at risk such as if we or a third party were a victim of a cybersecurity incident as an example We expend significant resources to protect against both internal and external security breaches and may need to expend more resources depending upon for example changes in the dynamic cybersecurity landscape expected growth of our company new or changing business ventures or practices use of new or changing technologies and or in the event we need to address problems caused by breaches Any failure or perceived failure to maintain the security of data that is provided to us by clients employees and vendors could harm our reputation and expose us to a risk of loss or litigation regulatory scrutiny and possible liability any of which could adversely affect our business and operating results
Defending such a data breach lawsuit brought by a client or others or responding to a regulatory inquiry regardless of its merits could entail substantial expense and require the time and attention of key management
In addition actual or perceived cybersecurity vulnerabilities could lead some clients to seek to reduce or delay future purchases or to purchase competitors products Clients may also increase their spending to protect their computer networks from attack which could delay adoption of new technologies Any of these actions by clients and the cost of addressing such security problems may have a material adverse effect on our business
Cybersecurity has become a high priority for legislators and regulators around the world and some jurisdictions have enacted laws setting forth cybersecurity compliance standards and or requiring companies to notify certain parties of data security breaches involving certain types of personal data For example the SEC has adopted rules for mandatory disclosure of cybersecurity incidents suffered by public companies and cybersecurity governance and risk management If we fail to comply with the relevant laws and regulations we could suffer financial loss a disruption of our business liability to investors regulatory intervention or reputational damage
We are also subject to contractual requirements that govern the sensitive data from others in our possession They may be costly to comply with and may conflict with other contractual obligations laws regulations or rules These obligations may be interpreted and applied in new ways or in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules obligations or our practices Although our agreements with our clients contain provisions designed to limit our exposure as a result of the situations listed above such provisions may not be effective Existing or future federal state local or foreign laws or ordinances or unfavorable judicial decisions could affect their enforceability
Finally our increased use of AI technology and certain tools to improve internal work efficiencies may result in cybersecurity and data privacy risk This includes AI tools and programs offered by and or used by new or existing vendors
Any failure or perceived failure by us to comply with our cybersecurity related obligations to clients employees or other third parties or our other cybersecurity related legal obligations or any compromise generally of security that results in the unauthorized release or transfer of sensitive data which may include client or employee data may result in governmental enforcement actions litigation provision of required notifications to clients regulators or other authorities and could cause clients employees vendors to lose trust in us which could have an adverse effect on our business If our employees vendors or other parties that we work with violate applicable laws contractual assurances with us or our policies such violations may also put the sensitive data we store at risk and could in turn harm our reputation business and operating results
We license critical third party software that we incorporate into our own software products We are likely to incorporate and include additional third party software in our products and software as we expand our product offerings The operation of our products would be impaired if errors occur in the third party software that we utilize It may be difficult for us to correct any defects in third party software because the software is not within our control Accordingly our business could be adversely affected in the event of any errors in this software There can be no assurance that third parties will continue to make their software available to us on acceptable terms invest the appropriate levels of resources in their products and services to maintain and enhance the capabilities of their software or even remain in business Further due to the limited number of vendors of certain types of third party software it may be difficult for us to replace such third party software if a vendor terminates our license of the software or our ability to license the software to clients If our relations with any of these third party software providers are impaired and if we are unable to obtain or develop a replacement for the software our business could be harmed In addition if the cost of licensing any of these third party software products significantly increases our gross margin levels could significantly decrease
Any interruptions or delays in services from third parties or our inability to adequately plan for and manage service interruptions or infrastructure capacity requirements could impair the delivery of our services and harm our business
We currently serve our clients from third party data center hosting facilities and cloud computing platform providers located in the United States and other countries Any damage to or failure of our systems generally including the systems of our third party platform providers could result in interruptions in our services From time to time we have experienced interruptions in our services and such interruptions may occur in the future As we increase our reliance on these third party systems the risk of service interruptions may increase Interruptions in our services may cause clients to make warranty or other claims against us or terminate their agreements and adversely affect our ability to attract new clients all of which would reduce our revenue Our business also would be harmed if clients and potential clients believe our services are unreliable
These data and cloud computing platforms may not continue to be available at reasonable prices on commercially reasonable terms or at all Any loss of the right to use any of these cloud computing platforms could significantly increase our expenses and otherwise result in delays in providing our services until equivalent technology either is developed by us or if available is identified purchased or licensed and integrated into our services
If we do not accurately plan for our infrastructure capacity requirements and we experience significant strain on our data center capacity our clients could experience performance degradation or service outages that may subject us to financial liability result in client losses and harm our business As we add data centers and capacity and continue to move to a cloud computing platform we may move or transfer our data and our clients data Despite precautions taken during this process any unsuccessful data transfers may impair the delivery of our services which may adversely impact our business
Once our software is implemented our clients use our support organization to resolve technical issues relating to our software In addition we also believe that our success in selling our software and services is highly dependent on our business reputation and on favorable recommendations from our existing clients Any failure to maintain high quality client support or a market perception that we do not maintain high quality support could harm our reputation adversely affect our ability to maintain existing clients or sell our solutions to existing and prospective clients and harm our business operating results and financial condition
We may be unable to respond quickly enough to accommodate short term increases in client demand for support services Increased client demand for these services without corresponding revenues could also increase costs and adversely affect our operating results
Our future operating results depend significantly upon the continued service of a relatively small number of key senior management and technical personnel including our Chief Executive Officer and President H Allan Dow None of our key personnel are bound by long term employment agreements We do not have in place key person life insurance policies on any of our employees If we fail to retain senior management or other key personnel or fail to attract key personnel our succession planning and operations could be materially and adversely affected and could jeopardize our ability to meet our business goals
Our future success also depends on our continuing ability to attract train retain and motivate other highly qualified managerial and technical personnel Competition for these personnel is intense and at times we have experienced difficulty in recruiting and retaining qualified personnel including sales and marketing representatives qualified software engineers involved in ongoing product development and personnel who assist in the implementation of our products and provide other services The market for such individuals is competitive Given the critical roles of our sales product development and consulting personnel our inability to recruit successfully or any significant loss of key personnel would adversely affect us The software industry is characterized by a high level of employee mobility and aggressive recruiting of skilled personnel It may be particularly difficult to retain or compete for skilled personnel against larger better known software companies We cannot guarantee that we will be able to retain our current personnel attract and retain other highly qualified technical and managerial personnel in the future or assimilate the employees from any acquired businesses We will continue to adjust the size and composition of our workforce to match the relevant product and geographic demand cycles If we are unable to attract and retain the necessary technical and managerial personnel or assimilate the employees from any acquired businesses our business operating results and financial condition would be adversely affected
The failure to attract train retain and effectively manage employees could negatively impact our development and sales efforts and cause a degradation of our client service In particular the loss of sales personnel could lead to lost sales opportunities because it can take several months to hire and train replacement sales personnel The enforceability of non compete agreements is currently in question at the federal level in the United States and non compete agreements are not enforceable in certain states but if our competitors increase their use of non compete agreements the pool of available sales and technical personnel may further shrink even if the non compete agreements ultimately prove to be unenforceable We may grant large numbers of stock options to attract and retain personnel which could be highly dilutive to our shareholders The volatility or lack of positive performance of our stock price may adversely affect our ability to retain or attract employees The loss of key management and technical personnel or the inability to attract and retain additional qualified personnel could have an adverse effect on us
Periodically we have restructured or made other adjustments to our work force in response to factors such as product changes geographical coverage and other internal considerations Change in the structures of the work force and management can cause us to terminate and then hire new personnel and or result in temporary lack of focus and reduced productivity which may affect revenue in one or more quarters Future restructuring of our work force could occur and if so we may again experience the adverse transition issues associated with such restructuring
In order to properly render the services we provide our technical personnel have the ability to access data on the systems run by our clients or hosted by us for our clients including data about the operations of our clients and even about the customers of our clients Although we have never had such an occurrence in the entire history of our Company it is conceivable that such access could be abused in order to improperly utilize that data to the detriment of such clients
Because our common stock is publicly traded we are subject to certain rules and regulations of federal state and financial market exchange entities charged with the protection of investors and the oversight of companies whose securities are publicly traded These entities including the Public Company Accounting Oversight Board the SEC and NASDAQ have issued requirements and regulations and in some instances develop additional regulations and requirements in response to laws enacted by Congress Our efforts to comply with these regulations have resulted in and are likely to continue to result in increased general and administrative expenses and a diversion of management time and attention from revenue generating activities to compliance activities
In particular our efforts to comply with Section 404 of the Sarbanes Oxley Act of 2002 and the related regulations regarding our required assessment of our internal control over financial reporting and our independent registered public accounting firm s audits of that assessment have required and continue to require the commitment of significant financial and managerial resources Moreover because these laws regulations and standards are subject to varying interpretations their application in practice may evolve over time as new guidance becomes available This evolution may result in continuing uncertainty regarding compliance matters and additional costs necessitated by ongoing revisions to our disclosure and governance practices Over time we have made significant changes in and may consider making additional changes to our internal controls our disclosure controls and procedures and our corporate governance policies and procedures Any system of controls however well designed and operated is based in part on certain assumptions and can provide only reasonable and not
absolute assurances that the objectives of the system are met Any failure of our controls policies and procedures could have a material adverse effect on our business results of operations cash flow and financial condition
If in the future we are unable to assert that our internal control over financial reporting is effective as of the end of the then current fiscal year or if our independent registered public accounting firm is unable to express an opinion on the effectiveness of our internal control over financial reporting we could lose investor confidence in the accuracy and completeness of our financial reports which would have a negative market reaction
As of June 24 2024 James C Edenfield our former Executive Chairman Treasurer and Director of the Company beneficially owned 1 821 587 shares or 100 of our Class B common stock and 60 000 shares or 0 18 of our Class A common stock If all of Mr Edenfield s Class B shares were converted into Class A shares Mr Edenfield would beneficially own 1 881 587 Class A shares which would represent approximately 5 98 of all outstanding Class A shares after giving effect to such conversion As a result of Mr Edenfield s ownership of Class B common stock he has the right to elect a majority of our Board of Directors Such control and concentration of ownership may discourage a potential acquirer from making a purchase offer that other shareholders might find favorable which in turn could adversely affect the market price of our common stock
Our basic corporate documents and Georgia law contain provisions that might enable our management to resist a takeover These provisions might discourage delay or prevent a change in the control or a change in our management These provisions could also discourage proxy contests and make it more difficult for you and other shareholders to elect directors and take other corporate actions The existence of these provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock
Because Mr Edenfield has the ability to elect more than half of the members of our Board of Directors we are a controlled company within the meaning of the rules governing companies with stock quoted on the NASDAQ Global Select Market Under these rules a controlled company is a company of which more than 50 of the voting power for the election of directors is held by an individual a group or another company As a controlled company we are exempt from certain corporate governance requirements including requirements that 1 a majority of the board of directors consist of independent directors 2 compensation of officers be determined or recommended to the board of directors by a majority of its independent directors or by a compensation committee that is composed entirely of independent directors and 3 director nominees be selected or recommended for selection by a majority of the independent directors or by a nominating committee composed solely of independent directors Accordingly our procedures for approving significant corporate decisions are not subject to the same corporate governance requirements as non controlled companies with stock quoted on the NASDAQ Global Select Market
We have difficulty predicting our actual quarterly operating results which have varied widely in the past and which we expect to continue to vary significantly from quarter to quarter due to a number of factors many of which are outside our control We base our expense levels operating costs and hiring plans on projections of future revenue and it is difficult for us to rapidly adjust when actual results do not match our projections If our quarterly revenue or operating results fall below the expectations of investors or public market analysts the price of our common stock could fall substantially Revenue in any quarter depend on the combined sales activity of the Company and its subsidiaries and our ability to recognize revenue in that quarter in accordance with our revenue recognition policies Our sales activity is difficult to forecast for a variety of reasons including the following
we complete a significant portion of our client agreements within the last few weeks of each quarter if an agreement includes cloud services that are performed over the term of the contract this requires all revenue to be spread over the term of the contract
our sales cycle for products and services including multiple levels of authorization required by some clients is relatively long and variable because of the complex and mission critical nature of our products
the possibility of adverse global political or public health conditions and economic downturns both domestic and international characterized by decreased product demand price erosion technological shifts work slowdowns and layoffs may substantially reduce client demand and contracting activity
clients may unexpectedly postpone or cancel anticipated system replacement or new system evaluation and implementation due to changes in their strategic priorities project objectives budgetary constraints internal purchasing processes or company management
client evaluation and purchasing processes vary from company to company and a client s internal approval and expenditure authorization process can be difficult and time consuming even after selection of a vendor and
Variances or slowdowns in our contracting activity in prior quarters may affect current and future consulting training and maintenance revenue since these types of revenue typically follow license or subscription fee revenue Our ability to maintain or increase services revenue primarily depends on our ability to increase the number and size of our client agreements In addition we base our budgeted operating costs and hiring plans primarily on our projections of future revenue Because most of our expenses including employee compensation and rent are relatively fixed in the near term if our actual revenue falls below projections in any particular quarter our business operating results and financial condition could be materially and adversely affected In addition our expense levels are based in part on our expectations regarding future revenue increases As a result any shortfall in revenue in relation to our expectations could cause significant changes in our operating results from quarter to quarter and could result in quarterly losses As a result of these factors we believe that period to period comparisons of our revenue and operating results are not necessarily meaningful Therefore predictions of our future performance should not be based solely on our historical quarterly revenue and operating results
domestic or international terrorism global or regional conflicts including the Hamas Israel and Russia Ukraine conflicts major public health concern including the COVID 19 pandemic and other significant external factors and
Fluctuations in the price of our common stock may expose us to the risk of securities class action lawsuits Although no such lawsuits are currently pending against us and we are not aware that any such lawsuit is threatened to be filed in the future there is no assurance that we will not be sued based on fluctuations in the price of our common stock Defending against such lawsuits could result in substantial cost and divert management s attention and resources In addition any settlement or adverse determination of these lawsuits could subject us to significant liabilities
On May 30 2024 our Board of Directors declared a quarterly cash dividend of 0 11 per share of our Class A and Class B common stock The cash dividend will be payable on August 30 2024 to Class A and Class B shareholders of record at the close of business on August 16 2024 We currently expect to declare and pay cash dividends at this level on a quarterly basis in the future However our dividend policy may be affected by among other things our views on business conditions financial position earnings earnings outlook capital spending plans and other factors that our Board of Directors considers relevant at that time Our dividend policy has changed in the past and may change from time to time and we cannot provide assurance that we will continue to declare dividends in any particular amounts or at all A change in our dividend policy could have a negative effect on the market price of our common stock
Sales of substantial amounts of our common stock in the public market or the perception that such sales may occur could cause the market price of our common stock to decline As of June 24 2024 if all of our outstanding Class B common shares were converted into Class A common shares our current directors and executive officers of the Company as a group would beneficially own approximately 11 69 of all outstanding Class A common shares after giving effect to such conversion Sales of substantial amounts of our common stock in the public market by these persons or the perception that such sales may occur could cause the market price of our common stock to decline and could impair our ability to raise capital through the sale of additional equity securities
The Company takes an integrated holistic approach to managing risks that pose a significant threat to the Company s business which includes but is not limited to its personnel assets and revenue as well as those of its clients and vendors Those assets include systems networks and data of our clients and our Company as well as our employees our application software our confidential information and other forms of our intellectual property among other examples Cybersecurity threats are an important but not all inclusive risk to the Company s business
The Company s Enterprise Risk Committee provides high level guidance and direction regarding the assessment identification and management of cybersecurity risks Key members of the Enterprise Risk Committee such as our Chief Executive Officer Chief Financial Officer and General Counsel participate in all or substantially all of the meetings of the Committee and make decisions to address cybersecurity and non cybersecurity risks across the enterprise on a prioritized basis
The Committee meets regularly usually on a quarterly basis to reassess the risks facing the Company as cybersecurity and other risks change from time to time both in their nature and potential impact to the Company The Company identifies cybersecurity risks through a layered system of automated and human staffed monitoring systems and controls as well as through guidance from internal and external subject matter experts Potential cybersecurity incidents are subsequently assessed through both automated and human staffed systems and controls that prioritize event review based on their likelihood or probability of occurrence together with their potential harm or impact
Beyond identification and assessment the Company uses automated and human staffed monitoring and other systems to respond to and otherwise manage cybersecurity threats and potential cybersecurity incidents The Company has developed and implemented practices and policies that will guide the Company through responding to actual and suspected cybersecurity incidents
Training the Company s personnel is a vital part of how the Company manages cybersecurity threat risks Effective training can both prevent cybersecurity incidents from occurring and can also enable the Company to rapidly and effectively respond to an actual cybersecurity incident through fast reporting Company personnel are required to participate in new hire annual and monthly training In regular town hall meetings a member of our information security team speaks to the entire Company focusing Company personnel s attention on a specific risk or scenario in real time with the opportunity for Company personnel to ask questions In addition on an on going basis the Company s information security team has and will test Company personnel to see how they respond to phish emails or similar communications that originate from the Company
To take a holistic perspective on risk the Company s processes regarding identification assessment and management of cybersecurity risks are integrated into the Company s overall risk management system and processes As a result as examples the Company s insurance programs standard and negotiated contract terms with clients and vendors operational processes other procedures and communication protocols in the event of a crisis take into account both cybersecurity threat and non cybersecurity threat risks with differentiation based on the nature of the risk
The Company engages outside consultants to conduct vulnerability scans and penetration tests to help the Company find and then mitigate cybersecurity threats As noted above in Item 1 Business under the sub heading Data Security the Company also uses an external auditor to conduct an annual SOC 2 Audit
The Company performs risk assessments on critical third party service providers software and other tools used in the Company s operations that may have the potential to create material cybersecurity threats to our business
The Company does not believe that any risks from past cybersecurity incidents have materially affected the Company or are reasonably likely to materially affect the Company As to ongoing risks from cybersecurity threats see Item 1A Risk Factors
The full Board of Directors receives a report from the Company s Enterprise Risk Committee in connection with each of their quarterly regularly scheduled meetings Twice a year an executive employee member of the Committee presents during those Board meetings with the opportunity for the Board to ask questions and engage in discussions regarding risks and cybersecurity threats and the Company s plans and efforts to address them The materials presented to the Board may include among other topics updates and information regarding risk controls and related initiatives cybersecurity monitoring data cybersecurity threats and related risks our SOC 2 Audit and cybersecurity insurance Our Chief Executive Officer our Chief Financial Officer and our General Counsel who are members of our Enterprise Risk Committee regularly attend Board meetings and are available to liaise between the Board and the rest of the Enterprise Risk Committee should the Board have additional questions or concerns that need to be addressed
The Company s Enterprise Risk Committee described above includes our Chief Executive Officer Chief Financial Officer General Counsel and our Chief Technology Officer Depending on the nature of the risk at issue other managers and employees of the Company may participate in the work of the Enterprise Risk Committee As to cybersecurity threat risks the following individuals play a role
The Company s information security and information technology team reports to our Chief Financial Officer CFO For example our EVP Information Technology Risk reports to our CFO EVP IT Risk Our Chief Financial Officer and EVP IT Risk have familiarity with cybersecurity matters appropriate for their position Our EVP IT Risk is a member of our Enterprise Risk Committee as to cybersecurity threat risks and also participates in Board discussions regarding those risks
Our Manager Information Security identifies assesses and manages our day to day cybersecurity threats and related risks on a daily basis He reports to the EVP IT Risk and is a member of our Enterprise Risk Committee as to cybersecurity threat risks and has eight years of experience as an information security professional
Our General Counsel has experience advising on cybersecurity related matters including cybersecurity incidents cybersecurity risk program design and execution He is also experienced in other related cybersecurity risk management practices such as engaging with outside advisors and risk managers among other examples
The Enterprise Risk Committee meets on a regular basis at least quarterly to review and assess the Company s cybersecurity threat risk and other risk posture new controls and initiatives to prevent or mitigate cybersecurity threat risks and potentially evaluate relevant Company policies Where appropriate other managers and personnel participate in Committee meetings Members of the Committee inform the Board as noted above
We have entered into leases for sales and technology development offices located in various cities in the United States and overseas We believe our existing facilities are adequate for our current needs and that suitable additional or substitute space will be available as needed on commercially reasonable terms
Our Class A common shares are listed on the NASDAQ Global Select Market under the symbol AMSWA As of June 24 2024 there were approximately 11 904 holders of Class A common shares who held their stock either individually or in nominee or street names through various brokerage firms and one holder of Class B common shares
Since the third quarter of fiscal 2013 our Board of Directors had declared quarterly dividends of 0 10 per share On May 11 2016 our Board increased the quarterly dividends to 0 11 per share payable to our Class A and Class B common stockholders We currently expect to declare and pay cash dividends at this level on a quarterly basis in the future The continuation of this policy and payment of future cash dividends will be at the sole discretion of the Board of Directors In exercising this discretion the Board will consider our profitability financial condition cash requirements future prospects and other relevant factors Our dividend policy has changed in the past and may change from time to time and we cannot provide assurance that we will continue to declare dividends in any particular amounts or at all
The graph below reflects the cumulative stockholder return on the Company s shares compared to the return of the NASDAQ Stock Market US Companies NASDAQ Composite Index and a peer group index on a quarterly basis The graph reflects the investment of 100 on April 30 2019 in the Company s stock the NASDAQ Composite Index and the NASDAQ Computer Index a published industry peer group index The NASDAQ Computer Index consists of approximately 451 NASDAQ listed companies including computer hardware and software companies that furnish computer programming and data processing services and firms that produce computers office equipment and electronic component accessories The total cumulative dollar returns shown below represent the value that such investments would have had on April 30 2024
On August 19 2002 our Board of Directors authorized the repurchase of up to an additional 2 0 million shares of our Class A common stock We made these repurchases through open market purchases at prevailing market prices Under this repurchase plan through April 30 2024 we completed our repurchase of 2 0 million shares of Class A common stock at a cost of approximately 16 4 million which had a 10 2 million impact on fiscal 2024 As of April 30 2024 under all repurchase plans previously authorized including this most recent plan we have repurchased a total of 5 534 953 shares of common stock at a cost of approximately 35 8 million
Subject to applicable law the Company may repurchase shares directly in the open market in privately negotiated transactions or pursuant to derivative instruments and plans complying with Rule 10b5 1 under the Exchange Act among other types of transactions and arrangements
Subject to applicable law the Company may repurchase shares directly in the open market in privately negotiated transactions or pursuant to derivative instruments and plans complying with Rule 10b5 1 under the Exchange Act among other types of transactions and arrangements
The following discussion and analysis should be read in conjunction with Item 8 Consolidated Financial Statements and Supplementary Data This discussion contains forward looking statements relating to our future financial performance business strategy financing plans and other future events that involve uncertainties and risks You can identify these statements by forward looking words such as anticipate intend plan continue could grow may potential predict strive estimate believe expect and similar expressions that convey uncertainty of future events or outcomes Any forward looking statements herein are made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995 Our actual results could differ materially from the results anticipated by these forward looking statements as a result of many known and unknown factors that are beyond our ability to control or predict including but not limited to those discussed above in Risk Factors and elsewhere in this report See also Special Cautionary Notice Regarding Forward Looking Statements at the beginning of Item 1 Business
We have based the following discussions and analysis of financial condition and results of operations on our consolidated financial statements which we have prepared in accordance with U S GAAP The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities disclosures of contingent assets and liabilities at the date of consolidated financial statements and the reported amounts of revenue and expenses during the reporting period Note 1 to the Consolidated Financial Statements for the fiscal year ended
describes the significant accounting policies that we have used in preparing our consolidated financial statements On an ongoing basis we evaluate our estimates including but not limited to those related to revenue collectability We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources Our actual results could differ materially from these estimates under different assumptions or conditions
Some of our contracts with clients contain multiple performance obligations For these contracts we account for the individual performance obligations separately if they are distinct The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis We determine the standalone selling prices based on our overall pricing objectives taking into consideration market conditions and entity specific factors including the value of our arrangements length of term client demographics and the numbers and types of users within our arrangements
While changes in assumptions or judgments or changes to the elements of the arrangement could cause an increase or decrease in the amount of revenue that we report in a particular period these changes have not historically been significant because our recurring revenue is primarily subscription and support revenue
The following table sets forth certain revenue and expense items as a percentage of total revenue for the three years ended April 30 2024 2023 and 2022 and the percentage increases or decreases in those items for the years ended April 30 2024 and 2023
was in the Europe Middle East and Africa EMEA and the remaining balance in Asia Pacific APAC Canada and Latin America Gartner Inc Gartner an information technology research and advisory company estimates that nearly 79 of every supply chain solutions dollar invested is spent in North America and Western Europe consequently the health of those economies have a meaningful impact on our financial results
The baseline forecast is for the world economy to continue growing at 3 2 percent during 2024 and 2025 at the same pace as in 2023 A slight acceleration for advanced economies where growth is expected to rise from 1 6 percent in 2023 to 1 7 percent in 2024 and 1 8 percent in 2025 will be offset by a modest slowdown in emerging market and developing economies from 4 3 percent in 2023 to 4 2 percent in both 2024 and 2025 The forecast for global growth five years from now at 3 1 percent is at its lowest in decades Global inflation is forecast to decline steadily from 6 8 percent in 2023 to 5 9 percent in 2024 and 4 5 percent in 2025 with advanced economies returning to their inflation targets sooner than emerging market and developing economies Core inflation is generally projected to decline more gradually
For fiscal 2025 we believe that the mission critical nature of our software combined with a challenging global macro economic environment from increased global disruptions on companies supply chains will require them to improve productivity and profitability by upgrading their technology systems which may result in an improved selling environment Although this improvement could slow or regress at any time due in part to the effects of a possible recession and trade conflicts on global capital markets we believe that our organizational and financial structure will enable us to take advantage of any sustained economic rebound That said the current business climate within the United States and geographic regions in which we operate may affect
There is risk associated with our dependence on the capital spending patterns of U S and international businesses which in turn are functions of economic trends and conditions over which we have no control
There are opportunities for selective acquisitions or investments to expand our sales distribution channels and or broaden our product offering by providing additional software and services for our target markets
There are risks associated with acquisitions of complementary companies products and technologies including the risks that we will not achieve the financial and strategic goals that we contemplate at the time of the transaction More specifically in any acquisition we will face risks and challenges associated with the uncertain value of the acquired business or assets the difficulty of assimilating operations and personnel integrating acquired technologies and products and maintaining the loyalty of the clients of the acquired business
There are risks inherent in the market for business application software and related services which has been and continues to be intensely competitive for example some of our competitors may become more aggressive with their prices and or payment terms which may adversely affect our profit margins
For information with respect to recent accounting pronouncements if any and the impact of these pronouncements on our consolidated financial statements if any see Note 1 n of Notes to Consolidated Financial Statements included elsewhere in this Form 10 K
We operate and manage our business in two segments based on software and services provided in two key product markets 1 SCM which provides collaborative supply chain software and services to streamline and optimize the production distribution and management of products between trading partners and 2 Other which consists of i American Software ERP a provider of purchasing and materials management client order processing financial human resources and manufacturing software and services and ii unallocated corporate overhead expenses
Our SCM segment experienced a 5 decrease in revenue during fiscal 2024 when compared to fiscal 2023 primarily due to a 67 decrease in license fees a 29 decrease in professional services and other revenue a 10 decrease in maintenance revenue partially offset by a 10 increase in subscription fees revenue
The Other segment revenue remained relatively flat in fiscal 2024 when compared to fiscal 2023 primarily due to a 7 decrease in professional services and other revenue partially offset by a 188 increase in license fees and a 2 increase in maintenance revenue
For the year ended April 30 2024 the 5 decrease in total revenue compared to fiscal 2023 was attributable primarily to a 65 decrease in license revenue a 28 decrease in professional services and other revenue a 9 decrease in maintenance revenue partially offset by a 10 increase in subscription fees revenue
Due to intensely competitive markets we discount subscription and license fees from our published list price due to pricing pressure in our industry Numerous factors contribute to the amount of the discounts provided such as previous client purchases the number of client sites utilizing the software the number of modules purchased and the number of users the type of platform deployment as well as the overall size of the contract While all these factors affect the discount amount of a particular contract the overall percentage discount has not materially changed in the recent reported fiscal periods
International revenue represented approximately 21 of total revenue for the year ended April 30 2024 and 22 of total revenue for the year ended April 30 2023 Our international revenue may fluctuate substantially from period to period primarily because we derive this revenue from a relatively small number of clients
For the year ended April 30 2024 subscription fee revenue increased by 10 when compared to the same period in the prior year primarily due to an increase in subscription bookings This increase was attributable to an increase in the number of contracts contracts with a higher subscription Annual Contract Value ACV as well as an increase in the value of multi year contracts typically three to five years This is evidence of our successful transition to the cloud subscription model
The direct sales channel provided approximately 91 of subscription fee revenue for the year ended April 30 2024 compared to approximately 82 in fiscal 2023 The increase in direct subscription fees from fiscal 2023 to fiscal 2024 was largely due to an increase in subscription bookings this year compared to last year
For the year ended April 30 2024 total license fee revenue decreased by 65 when compared to the previous year Our SCM segment experienced a 67 decrease in license fees primarily due to a decrease in the number of existing clients choosing to deploy our software on premise this year and we are not selling on premise licenses to new clients Our Other business segment experienced a 188 increase in license fees revenue for the year ended April 30 2024 when compared to the same period in the prior year due to the timing of selling into the installed client base We anticipate that the majority of future license fee sales will be to existing on premise clients for add on expansion The SCM segment constituted 95 and 99 of our total license fee revenue for the years ended April 30 2024 and 2023 respectively
The direct sales channel provided approximately 100 of license fee revenue for the year ended April 30 2024 compared to approximately 58 in fiscal 2023 The increase in direct license fees from fiscal 2023 to fiscal 2024 was largely due to an increase in international license fee deals to existing clients this year compared to last year
For the year ended April 30 2024 our margins after commissions on direct sales were approximately 93 and our margins after commissions on indirect sales were approximately 54 For the year ended April 30 2023 our margins after commissions on direct sales were approximately 91 and our margins after commissions on indirect sales were approximately 62 The margins after commissions for direct and indirect sales were relatively consistent between 93 and 91 respectively and between 54 to 62 respectively
The indirect channel margins for the fiscal year ended April 30 2024 decreased when compared to the same periods in the prior year due to the mix of value added reseller VAR commission rates The commission percentage on our indirect sales varies based on whether the sale is domestic or international
The 28 decrease in total professional services and other revenue for the year ended April 30 2024 was due to a 29 decrease in our SCM segment professional services primarily due to a decrease in project implementation work resulting from lower license fee sales and a 7 decrease in our Other segment due to lower utilization from project implementation services and services activity in fiscal 2024
We have observed that there is a tendency for professional services and other revenue to lag changes in subscription and license revenue by one to three quarters as new bookings in one quarter often involve implementation and consulting services in subsequent quarters for which we recognize revenue only as we perform those services
The 9 decrease in total maintenance revenue for the year ended April 30 2024 was primarily due to a 10 decrease in maintenance revenue from our SCM segment due to normal client attrition and clients converting from on premise support to our SaaS cloud platform partially offset by a 2 increase in our Other segment
The SCM segment s maintenance revenue constituted 96 of total maintenance revenue for the years ended April 30 2024 and 2023 respectively Typically our maintenance revenue has had a direct relationship to current and historic license fee revenue since new licenses are the potential source of new maintenance clients
The total gross margin percentage for the year ended April 30 2024 decreased to 65 when compared to the same period in the prior year due to decreases in subscription fees professional services and other and maintenance gross margins partially offset by an increase in gross margin percentage for license fees
For the year ended April 30 2024 our gross margin percentage on subscription fees decreased from 69 in fiscal 2023 to 67 primarily due to an increase in personnel costs cost of hosting and intangible amortization due to the Garvis Acquisition
License fee gross margin percentage tends to be directly related to the level of license fee revenue due to the relatively fixed cost of capitalized software amortization expense amortization of acquired software and the sales mix between our direct and indirect channels
For the year ended April 30 2024 our gross margin percentage on professional services and other decreased from 31 in fiscal 2023 to 23 primarily due to decreased gross margins in our SCM segment which decreased from 31 in fiscal 2023 to 22 in fiscal 2024 due to a decrease in revenue and lower billing utilization Our Other segment increased from 39 in fiscal 2023 to 43 in fiscal 2024 due to the timing of project work
Our SCM segment was 95 and 96 of the Company s professional services and other revenue in fiscal 2024 and 2023 respectively Our Other segment was 5 and 4 of the Company s professional services and other revenue in fiscal 2024 and 2023 respectively
Maintenance gross margin decreased from 81 in fiscal 2023 to 80 fiscal 2024 due to maintenance revenue cost containment efforts The primary cost component is maintenance staffing which is relatively inelastic in the short term
For the year ended April 30 2024 gross product research and development costs remained flat primarily due to cost containment related to third party contractors compared to fiscal 2023 During fiscal 2022 the Company completed its transition to an agile development approach As a result the Company s capitalization window is significantly shorter under the agile approach and ultimately results in the Company expensing software development costs as incurred Amortization of capitalized software development decreased 68 in fiscal 2024 when compared to fiscal 2023 as some projects were fully amortized
For the year ended April 30 2024 general and administrative expenses decreased when compared to fiscal 2023 primarily due to decreases in variable compensation expense internal IT costs rent expense and recruiting fees
The total number of full time personnel was 412 which includes 331 employees and 81 third party contractors on April 30 2024 compared to 449 full time personnel which included 342 employees and 107 third party contractors on April 30 2023
For the year ended April 30 2024 we recorded 2 6 million in intangible amortization expense of which 0 6 million is included in operating expense and 2 0 million is included in cost of subscription fees
For the year ended April 30 2023 we recorded 0 8 million in intangible amortization expense of which 0 1 million is included in operating expense and 0 7 million is included in cost of subscription fees
Other income is comprised of net interest and dividend income rental income net of related depreciation expenses exchange rate gains and losses realized and unrealized gains and losses from investments Other income was approximately 7 5 million in the year ended April 30 2024 compared to 2 3 million in fiscal 2023 The increase was primarily due to dividend income of 2 0 million and interest income of 1 8 million in fiscal 2024 compared to dividend income of 1 2 million and interest income of 1 0 million for the same period last year Additionally we had a 1 4 million gain on the sale of TRS defined below in Item 8 Notes to Consolidated Financial Statements Item 12 and 2 3 million in net realized gains on investments in fiscal 2024 compared to 0 1 million in net realized gains on investments for the same period last year
During the year ended April 30 2024 we recorded income tax expense of 1 9 million compared to 2 2 million in fiscal 2023 Our effective income tax rate takes into account the source of taxable income by state and available income tax credits Our effective tax rate was 16 3 and 18 3 in fiscal 2024 and 2023 respectively The effective tax rate for fiscal 2024 is lower compared to fiscal 2023 due to increases in research and development credits and foreign tax credits
We experience an irregular pattern of quarterly and annual operating results caused primarily by fluctuations in both the number and size of software contracts received and delivered from quarter to quarter and our ability to recognize revenue in that quarter and annually in accordance with our revenue recognition policies We expect this pattern to continue
We have historically funded and continue to fund our operations and capital expenditures primarily with cash generated from operating activities The changes in net cash that our operating activities provide generally reflect the changes in net earnings and non cash operating items plus the effect of changes in operating assets and liabilities such as investment trading securities trade accounts receivable trade accounts payable accrued expenses and deferred revenue We have no debt obligations or off balance sheet financing arrangements and therefore we used no cash for debt service purposes
The following tables provide information about our cash flows and liquidity positions as of and for the fiscal years ended April 30 2024 2023 and 2022 You should read these tables and the discussion that follows in conjunction with our consolidated statements of cash flows contained in Item 8 of this report
The increase in cash provided by operating activities in fiscal 2024 compared to fiscal 2023 was due primarily to 1 an increase in the net proceeds from sales and maturities of trading securities due to timing of sales and maturity dates 2 an increase in deferred revenue in fiscal 2024 when compared to fiscal 2023 primarily due to the timing of subscription and maintenance revenue recognition 3 an increase in prepaid expenses and other assets in fiscal 2024 compared to the decrease in fiscal 2023 due to timing of purchases 4 a decrease in accounts receivable in fiscal 2024 compared to fiscal 2023 due to timing of sales and billing 5 an increase in depreciation and amortization expense due to the acquisition of Garvis 6 higher stock based compensation expense in fiscal 2024 due to an increase in the value of options granted 7 an increase in net earnings and 8 a decrease in accounts payable and other liabilities during fiscal 2024 and 2023
These factors were partially offset by 1 an increase in the purchases of trading securities due to timing 2 an increase in realized gains on investments due to timing of sales of investments 3 an increase in gain on sale of discontinued operations 4 an increase in deferred income taxes in fiscal 2024 compared to fiscal 2023 due to timing 5 a gain on sale of TRS and 6 an increase in earning from discontinued operations For more information about our divestitures please see the discussion in Note 11 to the Consolidated Financial Statements
The increase in cash used in investing activities in fiscal 2024 compared to cash used in investing activities in fiscal 2023 was due to due primarily to the Garvis Acquisition compared to the purchase of certain assets of Starboard during the prior year partially offset by a decrease in purchases of property and equipment and proceeds from sale of a business For more information about our business combinations please see the discussion in Note 5 to the Consolidated Financial Statements
The increase in cash used in financing activities in fiscal 2024 when compared to fiscal 2023 was due primarily to repurchases of common stock a decrease in proceeds from the exercise of stock options and an increase in cash dividends paid on common stock in fiscal 2024 due to an increase in the number of shares outstanding
As of April 30 2024 we had 83 8 million in total cash and investments with no outstanding debt and believe that our sources of liquidity and capital resources will be sufficient to satisfy our presently anticipated requirements for working capital capital expenditures and other corporate needs during at least the next twelve months However at some future date we may need to seek additional sources of capital to meet our requirements If such need arises we may be required to raise additional funds through equity or debt financing We currently do not have a bank line of credit We can provide no assurance that bank lines of credit or other financing will be available on terms acceptable to us If available such financing may result in dilution to our shareholders or higher interest expense
Days Sales Outstanding DSO in accounts receivable were 101 and 86 days as of April 30 2024 and April 30 2023 respectively Our current ratio was 2 0 to 1 for April 30 2024 and 2 7 to 1 for April 30 2023 DSO can fluctuate significantly on a quarterly basis due to a number of factors including the percentage of total revenue that comes from software license sales which typically have installment payment terms seasonality shifts in client buying patterns the timing of client payments and annual SaaS and maintenance renewals lengthened contractual payment terms in response to competitive pressures the underlying mix of products and services and the geographic concentration of revenue
On August 19 2002 our Board of Directors authorized the repurchase of up to an additional 2 0 million shares of our Class A common stock We made these repurchases through open market purchases at prevailing market prices Under this repurchase plan through April 30 2024 we completed our repurchase of 2 0 million shares of Class A common stock at a cost of approximately 16 4 million which had a 10 2 million impact on fiscal 2024 As of April 30 2024 under all repurchase plans previously authorized including this most recent plan we have repurchased 5 534 953 shares of common stock at a cost of approximately 35 8 million
As discussed in Note 11 to the consolidated financial statements we disposed of our 100 equity interest in TPM The results of TPM are presented as discontinued operations in the accompanying consolidated financial statements and as such the following tables present unaudited quarterly financial data recast for discontinued operations presentation for each of the four quarters of fiscal 2024 and 2023 in thousands except for per share data
This section generally discusses fiscal 2024 compared to fiscal 2023 Discussions of fiscal 2023 compared to fiscal 2022 not included herein can be found in Part II Item 7 Management s Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10 K for fiscal 2023 filed with the Securities and Exchange Commission on July 13 2023
For the fiscal years ended April 30 2024 and 2023 we generated 21 and 22 respectively of our revenue outside of the United States We typically denominate our international sales in U S dollars Euros or British pounds sterling Our consolidated financial statements are presented in U S dollars which is also the functional currency for our foreign operations Where transactions may be denominated in foreign currencies we are subject to market risk with respect to fluctuations in the relative value of currencies We recorded exchange rate losses of 0 4 million in fiscal 2024 compared to exchange rate losses of approximately 0 2 million in fiscal 2023 We estimate that a 10 movement in foreign currency rates would have the effect of creating an exchange gain or loss of approximately 0 6 million for fiscal 2024
We manage our interest rate risk by maintaining an investment portfolio of trading investments with high credit quality and relatively short average maturities These instruments include but are not limited to money market instruments bank time deposits and taxable and tax advantaged variable rate and fixed rate obligations of corporations municipalities and national state and local government agencies These instruments are denominated in U S dollars The fair market value of our cash equivalents and investments decreased 26 to approximately 77 8 million in fiscal 2024 from 105 3 million in the prior year
We also hold cash balances in accounts with commercial banks in the United States and foreign countries These cash balances represent operating balances only and are invested in short term time deposits of the local bank Such operating cash balances held at banks outside the United States are denominated in the local currency and are nominal
Many of our investments carry a degree of interest rate risk When interest rates fall our income from investments in variable rate securities declines When interest rates rise the fair market value of our investments in fixed rate securities declines In addition our investments in equity securities are subject to stock market volatility Due in part to these factors our future investment income may fall short of expectations or we may suffer losses in principal if forced to sell securities which have seen a decline in market value due to changes in interest rates We attempt to mitigate risk by holding fixed rate securities to maturity but if our liquidity needs force us to sell fixed rate securities prior to maturity we may experience a loss of principal We believe that a 10 fluctuation in interest rates would not have a material effect on our financial condition or results of operations
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a 15 f and 15d 15 f of the Exchange Act Management with participation of the Chief Executive Officer and Chief Financial Officer under the oversight of our Board of Directors conducted an assessment of the effectiveness of our internal control over financial reporting based on the criteria set forth in
issued by the Committee of Sponsoring Organizations of the Treadway Commission 2013 framework Based on the assessment management has concluded that its internal control over financial reporting was not effective as of April 30 2024 because of the material weakness in internal control over financial reporting described below
A material weakness is a deficiency or a combination of deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis
The Company identified that certain process level controls over the reconciliation of cash accounts receivable accounts payable accrued compensation and related costs and cost of revenues were not designed or operated effectively These ineffective controls were attributable to insufficient risk assessment policies and procedures and training that impaired our ability to timely investigate and resolve reconciling items
These control deficiencies resulted in immaterial misstatements in related accounts Furthermore the control deficiencies described above created a reasonable possibility that a material misstatement to the consolidated financial statements would not be prevented or detected on a timely basis Therefore we concluded that the deficiencies in the aggregate represent a material weakness in the Company s internal control over financial reporting and our internal control over financial reporting was not effective as of April 30 2024
In connection therewith our independent registered public accounting firm KPMG LLP who audited the consolidated financial statements included in the Original Form 10 K issued an adverse opinion on the effectiveness of the Company s internal control over financial reporting KPMG LLP s report appears in Item 8 below
With regard to the above described material weakness the Company implemented enhanced policies and procedures over reconciliations and related training including a focus on expectations and procedures for investigating and resolving reconciling items on a timely basis
We anticipate that the material weakness will be fully remediated before July 31 2024 but the material weakness cannot be considered fully remediated until the updated policies and training have been in place and operated for a sufficient period of time to enable management and KPMG LLP to test and to conclude on the operating effectiveness of the controls
Except as related to the identification of the material weakness described above there were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a 15 d and 15d 15 d of the Exchange Act that occurred during the fiscal year ended April 30 2024 that has materially affected or is reasonably likely to materially affect our internal control over financial reporting
In our opinion because of the effect of the material weakness described below on the achievement of the objectives of the control criteria the Company has not maintained effective internal control over financial reporting as of April 30 2024 based on criteria established in
We also have audited in accordance with the standards of the Public Company Accounting Oversight Board United States PCAOB the consolidated balance sheets of the Company as of April 30 2024 and April 30 2023 the related consolidated statements of operations shareholders equity and cash flows for each of the years in the three year period ended April 30 2024 and the related notes and financial statement schedule II collectively the consolidated financial statements and our report dated June 28 2024 expressed an unqualified opinion on those consolidated financial statements
A material weakness is a deficiency or a combination of deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the company s annual or interim financial statements will not be prevented or detected on a timely basis A material weakness related to certain account reconciliations has been identified and included in management s assessment The material weakness was considered in determining the nature timing and extent of audit tests applied in our audit of the 2024 consolidated financial statements and this report does not affect our report on those consolidated financial statements
The Company s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management s Report on Internal Control Over Financial Reporting Our responsibility is to express an opinion on the Company s internal control over financial reporting based on our audit We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U S federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB
We conducted our audit in accordance with the standards of the PCAOB Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting assessing the risk that a material weakness exists and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk Our audit also included performing such other procedures as we considered necessary in the circumstances We believe that our audit provides a reasonable basis for our opinion
A company s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles A company s internal control over financial reporting includes those policies and procedures that 1 pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company 2 provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company and 3 provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition use or disposition of the company s assets that could have a material effect on the financial statements
Because of its inherent limitations internal control over financial reporting may not prevent or detect misstatements Also projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate
We have audited the accompanying consolidated balance sheets of American Software Inc and subsidiaries the Company as of April 30 2024 and April 30 2023 the related consolidated statements of operations shareholders equity and cash flows for each of the years in the three year period ended April 30 2024 and the related notes and financial statement schedule II collectively the consolidated financial statements In our opinion the consolidated financial statements present fairly in all material respects the financial position of the Company as of April 30 2024 and April 30 2023 and the results of its operations and its cash flows for each of the years in the three year period ended April 30 2024 in conformity with U S generally accepted accounting principles
We also have audited in accordance with the standards of the Public Company Accounting Oversight Board United States PCAOB the Company s internal control over financial reporting as of April 30 2024 based on criteria established in
These consolidated financial statements are the responsibility of the Company s management Our responsibility is to express an opinion on these consolidated financial statements based on our audits We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U S federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB
We conducted our audits in accordance with the standards of the PCAOB Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement whether due to error or fraud Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements whether due to error or fraud and performing procedures that respond to those risks Such procedures included examining on a test basis evidence regarding the amounts and disclosures in the consolidated financial statements Our audits also included evaluating the accounting principles used and significant estimates made by management as well as evaluating the overall presentation of the consolidated financial statements We believe that our audits provide a reasonable basis for our opinion
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that 1 relates to accounts or disclosures that are material to the consolidated financial statements and 2 involved our especially challenging subjective or complex judgments The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements taken as a whole and we are not by communicating the critical audit matter below providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates
As discussed in Note 1 to the consolidated financial statements the Company recognizes revenue when they transfer control of the promised goods or services to their clients in an amount that reflects the consideration the Company expects to receive in exchange for those goods or services The Company s revenue consists of the following types of revenue streams i subscription fees ii license iii maintenance and iv professional services and other Total revenue recorded by the Company amounted to 102 5 million in fiscal 2024
We identified the sufficiency of audit evidence over the subscription fees maintenance and professional services and other revenue streams as a critical audit matter Evaluating the sufficiency of audit evidence required subjective auditor judgment
The following are the primary procedures we performed to address this critical audit matter Based on our knowledge of the Company we applied auditor judgment to determine the nature and extent of procedures to be performed over revenue Specifically we
involved IT professionals with specialized skills and knowledge who assisted in the identification and testing of certain IT systems including the design of audit procedures used by the Company for the processing and recording of revenue and
recalculated the recorded revenue for a sample of transactions by comparing the amounts recognized for consistency with the Company s accounting policies and underlying documentation including contracts with customers and other relevant and reliable third party data
Class B 0 10 par value Authorized 10 000 000 shares Issued and outstanding 1 821 587 shares at April 30 2024 and 1 821 587 shares at April 30 2023 convertible into Class A shares on a one for one basis
Diluted per share amounts for Class A shares are shown above Diluted per share for Class B shares under the two class method are 0 34 0 30 and 0 38 for the years ended April 30 2024 2023 and 2022 respectively See Note 1 s to the Consolidated Financial Statements
Founded in 1970 and headquartered in Atlanta Georgia American Software Inc and its subsidiaries collectively the Company are engaged in the development marketing and support activities of a broad range of computer business application software products The Company s operations are principally in the computer software industry and its products and services are used by clients within the United States and certain international markets We provide our software and services through two major business segments The two operating segments are 1 Supply Chain Management SCM and 2 Other
The SCM segment consists of Logility Inc see Note 10 which provides collaborative supply chain software and services to streamline and optimize the production distribution and management of products between trading partners
The Other segment consists of i American Software ERP which provides purchasing and materials management client order processing financial e commerce and traditional manufacturing software and services and ii unallocated corporate overhead expenses
The consolidated financial statements include the accounts of American Software Inc and its wholly owned subsidiaries All significant intercompany balances and transactions have been eliminated in consolidation
In September 2023 we disposed of our 100 equity interest in our information technology staffing firm The Proven Method TPM for approximately 2 1 million in cash For further information regarding the transaction see Note 11 to the accompanying consolidated financial statements
In accordance with Topic 606 we recognize revenue when we transfer control of the promised goods or services to our clients in an amount that reflects the consideration we expect to receive in exchange for those goods or services We derive our revenue from software licenses maintenance services consulting implementation and training services and Software as a Service SaaS which includes a subscription to our software as well as support hosting and managed services
Subscription fees include 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 client accesses and uses the software on an as needed basis over the Internet or via a dedicated line however the client 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 client Revenue from a SaaS solution is generally recognized ratably over the term of the arrangement
Our perpetual software licenses provide the client 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 client Our perpetual software licenses are sold with maintenance under which we provide clients with telephone consulting product updates on a when available basis and releases of new versions of products previously purchased by the client as well as error reporting and correction services
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 clients 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 client is receiving the benefit from our services as the work is performed
Revenue is derived from maintenance and support services under which we provide clients with telephone consulting product updates on a when available basis and releases of new versions of products previously purchased by the client as well as error reporting and correction services Maintenance for perpetual licenses is renewable generally on an annual basis at the option of the client Maintenance terms typically range from
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
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
Timing of invoicing to clients may differ from timing of revenue recognition and these timing differences result in unbilled accounts receivables or contract liabilities deferred revenue on the Company s consolidated balance sheets Fees for our software licenses are generally due within 30 days of contract execution We have an established history of collecting under the terms of our software license contracts without providing refunds or concessions to our clients SaaS services and maintenance are typically billed in advance on a monthly quarterly or annual basis Services are typically billed as performed In instances where the timing of revenue recognition differs from the timing of invoicing we have determined that our contracts generally do not include a significant financing component The primary purpose of our invoicing terms is to provide clients with predictable ways to purchase our software and services not to provide or receive financing Additionally we are applying the practical expedient to exclude any financing component from consideration for any contracts with payment terms of one year or less since we rarely offer terms extending beyond one year Generally the consideration in our client contracts is fixed
We have an unconditional right to consideration for all goods and services transferred to our clients That unconditional right to consideration is reflected in billed and unbilled accounts receivable in the accompanying consolidated balance sheets in accordance with Topic 606
Deferred revenue consists of amounts collected prior to having completed the performance of maintenance SaaS hosting and managed services We typically invoice clients for cloud subscription and support fees in advance on a monthly quarterly or annual basis with payment due at the start of the cloud subscription or support term During the twelve months ended
A performance obligation is a promise in a contract to transfer a distinct good or service to the client and is the unit of account under Topic 606 The transaction price is allocated to each distinct performance obligation and recognized as revenue when or as the performance obligation is satisfied by transferring the promised good or service to the client The Company identifies and tracks the performance obligations at contract inception so that the Company can monitor and account for the performance obligations over the life of the contract Remaining performance obligations represent the
transaction price of orders for which products have not been delivered or services have not been performed As of April 30 2024 the aggregate amount of the transaction price allocated to remaining performance obligations was approximately 128 0 million The Company expects to recognize revenue on
The Company disaggregates revenue from contracts with clients by geography as it believes it best depicts how the nature amount timing and uncertainty of revenue and cash flows are affected by economic factors
The Company does not disclose the value of unsatisfied performance obligations for contracts for which the Company recognizes revenue at the amount to which it has the right to invoice for services performed this applies to time and material engagements
The Company capitalizes the incremental costs of obtaining a contract with a client if the Company expects to recover those costs The incremental costs of obtaining a contract are those that the Company incurs to obtain a contract with a client that it would not have incurred if the contract had not been obtained for example a sales commission The Company capitalizes the costs incurred to fulfill a contract only if those costs meet all of the following criteria
Certain sales commissions incurred by the Company were determined to be incremental costs to obtain the related contracts which are deferred and amortized ratably over the economic benefit period for license and term subscriptions These deferred commission cost
s are classified as current or non current based on the timing of when the Company expects to recognize the expense The current and non current portions of deferred commissions are included in prepaid expenses and other current assets and in other assets within long term assets respectively in the Company s consolidated balance sheets Total deferred commissions at
The unbilled receivable balance consists of amounts generated from license fee and services revenue At April 30 2024 and 2023 unbilled license fees were approximately 0 1 million and 0 3 million respectively and unbilled services revenue was approximately 0 3 million and 2 6 million respectively Unbilled license fee accounts receivable represents revenue that has been recognized but under the terms of the license agreements which include specified payment terms
that are considered normal and customary certain payments have not yet been invoiced to the clients Unbilled services revenue primarily occurs due to the timing of the billings which occur subsequent to the end of each reporting period
Cost of revenue for licenses includes amortization of developed technology and capitalized computer software development costs salaries and benefits and value added reseller VAR commissions Costs for maintenance and services revenue includes the cost of personnel to conduct implementations client support and consulting and other personnel related expenses as well as agent commission expenses related to maintenance revenue generated by the indirect channel Costs for subscriptions revenue includes amortization of developed technology and capitalized computer software development costs third party hosting costs salaries and benefits and value added reseller commissions Commission costs for maintenance are deferred and amortized over the related maintenance term Commission costs for subscriptions are deferred and amortized over the related subscription term
Cash equivalents of 53 5 million and 81 4 million at April 30 2024 and 2023 respectively consist of overnight repurchase agreements and money market deposit accounts The Company considers all such investments with original maturities of three months or less to be cash equivalents for purposes of the consolidated statements of cash flows
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents short term investments and accounts receivable The Company maintains cash and cash equivalents and short term investments with various financial institutions The Company s sales are primarily to companies located in North America and Europe The Company performs periodic credit evaluations of its clients financial condition and does not require collateral Accounts receivable are due principally from companies under stated contract terms
The Company has not experienced significant returns or warranty claims to date and as a result the allowance for the cost of returns and product warranty claims at April 30 2024 and 2023 is not material
The Company records an allowance for doubtful accounts based on the historical experience of write offs and a detailed assessment of accounts receivable The total amounts of expense to operations were approximately 0 for fiscal 2024 and 2023 and 2022 which are included in general and administrative expenses in the accompanying consolidated statements of operations In estimating the allowance for doubtful accounts management considers the age of the accounts receivable the Company s historical write offs and the credit worthiness of the client among other factors Should any of these factors change the estimates made by management will also change accordingly which could affect the level of the Company s future provision for doubtful accounts Uncollectible accounts are written off when it is determined that the specific balance is not collectible
The Company has classified its investment portfolio as trading Trading securities are bought and held principally for the purpose of selling them in the near term and are recorded at fair value Unrealized gains and losses on trading securities are included in the determination of net earnings For the purposes of computing realized gains and losses cost is identified on a specific identification basis Investments with maturities less than one year as of the consolidated balance sheet date are classified as short term investments and those that mature greater than one year are classified as long term investments
Property and equipment are recorded at cost less accumulated depreciation and amortization Depreciation of buildings computer equipment purchased computer software office furniture and equipment is calculated using the straight line method based upon the estimated useful lives of the assets three years for computer equipment and software seven years for office furniture and equipment seven to fifteen years for building improvements and thirty years for buildings Leasehold improvements are amortized using the straight line method over the estimated useful lives of the assets or the related lease term whichever is shorter Depreciation and amortization expense on buildings furniture equipment and purchased computer software was 1 5 million 1 2 million and 0 7 million in fiscal 2024 2023 and 2022 respectively
The Company capitalizes certain computer software development costs in accordance with the Costs of Software to be Sold Leased or Marketed under ASC 985 20 Costs incurred internally to create a computer software product or to develop an enhancement to an existing product are charged when incurred as research and development expense until technological feasibility for the respective product is established Thereafter software development costs are capitalized and reported at the lower of unamortized cost or net realizable value Capitalization ceases when the product or enhancement is available for general release to clients
The Company makes ongoing evaluations of the recoverability of its capitalized software projects by comparing the net amount capitalized for each product to the estimated net realizable value of the product If such evaluations indicate that the unamortized software development costs exceed the net realizable value the Company writes off the amount by which the unamortized software development costs exceed net realizable value Capitalized computer software development costs are amortized ratably based on the projected revenue associated with the related software or on a straight line basis over three years whichever method results to a shorter amortization period Amortization of capitalized computer software development costs is included in the cost of license and subscription revenue in the consolidated statements of operations
Acquisition related intangible assets are stated at historical cost and include acquired software and certain other intangible assets with definite lives Intangible assets are being amortized over a period ranging from one to eight years For 2024 total amortization expense related to acquisition related intangible assets was approximately 2 6 million with 0 6 million included in operating expense and 2 0 million included in cost of subscription fees in the accompanying consolidated statements of operations For 2023 total amortization expense related to acquisition related intangible assets was approximately 0 8 million with 0 1 million included in operating expense and 0 7 million included in cost of subscription fees in the accompanying consolidated statements of operations For 2022 total amortization expense related to acquisition related intangible assets was approximately 0 2 million which is included in operations expense in the accompanying consolidated statements of operations
Goodwill represents the excess of costs over fair value of assets of businesses acquired Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized but instead are tested for impairment at least annually in accordance with the Financial Accounting Standards Board FASB issued Accounting Standards Update ASU No 2017 04
The Company evaluates the carrying value of goodwill annually and between annual evaluations if events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount Such circumstances could include but are not limited to 1 a significant adverse change in legal factors or in business climate 2 unanticipated competition or 3 an adverse action or assessment by a regulator
When evaluating whether the goodwill is impaired the Company compares the fair value of the reporting unit to which the goodwill is assigned to its carrying amount including goodwill The Company identifies the reporting unit on a basis that is similar to its method for identifying operating segments as defined by the Segment Reporting Topic of the FASB ASC If the carrying amount of a reporting unit exceeds its fair value then the amount of the impairment loss must be measured This evaluation is applied annually on each impairment testing date April 30 unless there is a triggering event present during an interim period
For the years ended April 30 2024 and 2023 the Company performed a qualitative assessment based on economic industry and Company specific factors as the initial step in the annual goodwill impairment test for all reporting units Based on the results of the qualitative assessment companies are only required to perform Step 1 of the annual impairment test for a reporting unit if the Company concludes that it is more likely than not that the unit s fair value is less than its carrying amount To the extent the Company concludes it is more likely than not that a reporting unit s estimated fair value is less than its carrying amount the two step approach is applied The first step would require a comparison of each reporting unit s fair value to the respective carrying value If the carrying value exceeds the fair value a second step is performed to measure the amount of impairment loss if any The Company did not identify any macroeconomic industry specific or Company specific conditions as of April 30 2024 that would indicate the fair value of the reporting units were more likely than not to be less than their respective carrying values If circumstances change or events occur to indicate it is more likely than not that the fair value of any reporting units have fallen below their carrying value the Company would test such reporting unit for impairment
Intangible assets with estimable useful lives are required to be amortized over their respective estimated useful lives to their estimated residual values and reviewed for impairment in accordance with the ASU No 2011 10
The Company accounts for income taxes using the asset and liability method Under the asset and liability method deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date
Under current GAAP an acquirer generally recognizes assets acquired and liabilities assumed in a business combination including contract assets and contract liabilities arising from revenue contracts with clients and other similar contracts that are accounted for in accordance with Topic 606 at fair value on the acquisition date ASU 2021 08 requires that an entity recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606 At the acquisition date an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts which should generally result in an acquirer recognizing and measuring the acquired contract assets and contract liabilities consistent with how they were recognized and measured in the acquiree s financial statements This update also provides certain practical expedients for acquirers when recognizing and measuring acquired contract assets and contract liabilities from revenue contracts in a business combination The amendments in this update are effective for fiscal years beginning after December 15 2022 including interim periods within those fiscal years and should be applied prospectively to business combinations occurring on or after the effective date of the amendments The Company adopted this update prospectively on May 1 2023 and it did not have a material impact to our consolidated financial statements
which expands disclosures about a public entity s reportable segments and requires more enhanced information about a reportable segment s expenses interim segment profit or loss and how a public entity s chief operating decision maker uses reported segment profit or loss information in assessing segment performance and allocating resources The standard is effective for annual periods beginning after December 15 2023 with early adoption permitted The Company is assessing the effect of this update on our consolidated financial statements and related disclosures
s which expands disclosures in an entity s income tax rate reconciliation table and regarding cash taxes paid both in the U S and foreign jurisdictions The standard is effective for annual periods beginning after December 15 2024 with early
The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period On an ongoing basis we evaluate our estimates including but not limited to those related to revenue reserves and allowances 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
The Company has two stock based employee compensation plans under which one or more of restricted stock units RSUs or options to purchase common stock of the Company were outstanding as of April 30 2024 This plan is described more fully in Note 7
The Company recorded compensation cost related to stock options of approximately 5 3 million 5 2 million and 4 0 million and related income tax benefits of approximately 0 70 000 and 1 7 million for the years ended April 30 2024 April 30 2023 and April 30 2022 respectively The Company recorded compensation cost related to RSUs of approximately 1 0 million 0 and 0 for the years ended April 30 2024 April 30 2023 and April 30 2022 respectively Stock based compensation expense is recorded on a straight line basis over the vesting period for the entire award directly to additional paid in capital
The Company reviews long lived assets such as property and equipment and purchased intangibles subject to amortization for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset If the carrying amount of an asset exceeds its estimated future cash flows an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset Assets to be disposed of by sale would be separately presented in the consolidated balance sheet and reported at the lower of the carrying amount or fair value less costs to sell and are no longer depreciated The assets and liabilities of a group classified as held for sale would be presented separately in the appropriate asset and liability sections of the consolidated balance sheet
The Company has two classes of common stock Class B common shares are convertible into Class A common shares at any time on a one for one basis Under the Company s Articles of Incorporation if dividends are declared holders of Class A common shares shall receive a 0 05 dividend per share prior to the Class B common shares receiving any dividend and holders of Class A common shares shall receive a dividend at least equal to Class B common shares dividends on a per share basis As a result the Company has computed the earnings per share in compliance with the Earnings Per Share Topic of the FASB ASC which requires companies that have multiple classes of equity securities to use the two class method in computing earnings per share
For the Company s basic earnings per share calculation the Company uses the two class method Basic earnings per share are calculated by dividing net earnings attributable to each class of common stock by the weighted average number of shares outstanding All undistributed earnings are allocated evenly between Class A and B common shares in the earnings per share calculation to the extent that earnings equal or exceed 0 05 per share This allocation is based on management s judgment after considering the dividend rights of the two classes of common stock the control of the Class B shareholders and the convertibility
rights of the Class B shares to Class A shares If Class B shares convert to Class A shares during the period the distributed net earnings for Class B shares is calculated using the weighted average common shares outstanding during the period
Diluted earnings per share is calculated similarly to basic earnings per share except that the calculation includes the dilutive effect of the assumed exercise of options and RSUs issuable under the Company s stock incentive plans For the Company s diluted earnings per share calculation for Class A shares the Company uses the if converted method This calculation assumes that all Class B common shares are converted into Class A common shares and as a result assumes there are no holders of Class B common shares to participate in undistributed earnings
For the Company s diluted earnings per share calculation for Class B shares the Company uses the two class method This calculation does not assume that all Class B common shares are converted into Class A common shares In addition this method assumes the dilutive effect of Class A stock options were converted to Class A shares and the undistributed earnings are allocated evenly to both Class A and B shares including Class A shares issued pursuant to those converted stock options This allocation is based on management s judgment after considering the dividend rights of the two classes of common stock the control of the Class B shareholders and the convertibility rights of the Class B shares into Class A shares
The following tables set forth the computation of basic earnings per common share and diluted earnings per common share in thousands except for per share amounts See Note 7 for total stock options outstanding and potential dilution
All advertising costs are expensed as incurred Advertising expenses which are included within sales and marketing expenses were 2 5 million 2 7 million and 2 9 million in fiscal 2024 2023 and 2022 respectively
The Company s sales agreements with clients generally contain infringement indemnity provisions Under these agreements the Company agrees to indemnify defend and hold harmless the client in connection with intellectual property infringement claims made by third parties with respect to the client s authorized use of the Company s products and services The indemnity provisions generally provide for the Company s control of defense and settlement and cover costs and damages finally awarded against the client as well as the Company s modification of the product so it is no longer infringing or if it cannot be corrected return of the product for a refund The sales agreements with clients sometimes also contain indemnity provisions for breach of confidentiality and death personal injury or property damage caused by the Company s personnel or contractors in the course of performing services to clients Under these agreements the Company agrees to indemnify defend and hold harmless the client in connection with death personal injury and property damage claims made by third parties and confidentiality breach claims with respect to actions of the Company s personnel or contractors The indemnity provisions generally provide for the Company s control of defense and settlement and cover costs and damages finally awarded against the client The indemnity obligations contained in sales agreements may have a limited monetary award The Company has not previously incurred costs to settle claims or pay awards under these indemnification obligations The Company accounts for these indemnity obligations in accordance with the Contingencies Topic of the FASB ASC and records a liability for these obligations when a loss is probable and reasonably estimable The Company has not recorded any liabilities for these agreements as of April 30 2024 or 2023
The Company warrants to its clients that its software products will perform in all material respects in accordance with the standard specifications generally for 90 days after delivery of the licensed products and for the subscription term for SaaS products Additionally the Company warrants to its clients that services will be performed consistent with generally accepted industry standards or specific service levels through completion of the agreed upon services If necessary the Company will provide for the estimated cost of product and service warranties based on specific warranty claims and claim history However the Company has not incurred significant recurring expense under product or service warranties Accordingly the Company has no liabilities recorded for these agreements as of April 30 2024 or 2023
In fiscal 2024 2023 and 2022 the Company s investment portfolio experienced net realized and unrealized gains of 2 3 million net unrealized gains of 0 1 million and net unrealized and realized gains of 0 4 million respectively The increase in net realized gains in fiscal 2024 compared to the same period in the prior year is due to consolidating our investment portfolio to U S treasury securities
The Company measures its investments based on a fair value hierarchy disclosure framework that prioritizes and ranks the level of market price observability used in measuring assets and liabilities at fair value A number of factors affect market price observability including the type of asset or liability and its characteristics This hierarchy prioritizes the inputs into three broad levels as follows
Level 2 Quoted prices for similar instruments in active markets quoted prices for identical or similar instruments in markets that are not active and model derived valuations in which all significant inputs and significant value drivers are observable in active markets
The following is a general description of the valuation methodologies used for financial assets and liabilities measured at fair value including the general classification of such assets and liabilities pursuant to the valuation hierarchy
Cash equivalents include investments in government obligation based money market funds other money market instruments and interest bearing deposits with initial or remaining terms of three months or less The fair value of cash equivalents approximates its carrying value due to the short term nature of these instruments
Marketable securities utilizing Level 1 inputs include active exchange traded equity securities and equity index funds and most U S government debt securities as these securities all have quoted prices in active markets Marketable securities utilizing Level 2 inputs include municipal bonds We value these securities using market corroborated pricing or other models that use observable inputs such as yield curves
The following table presents our assets that we measured at fair value on a recurring basis and indicates the fair value hierarchy of the valuation techniques we utilized to determine such fair value in thousands
The carrying amounts of cash trade accounts receivable and unbilled accounts receivable accounts payable accrued compensation and related costs and other current liabilities approximate fair value because of their short term maturities
We account for business combinations using the acquisition method of accounting and accordingly the identifiable assets acquired and liabilities assumed are recorded based upon management s estimates of current fair values as of the acquisition date The estimation process includes analyses based on income and market approaches Goodwill represents the excess purchase price over the fair value of net assets including the amount assigned to identifiable intangible assets The goodwill generated is due in part to the synergies that are not included in the fair value of identifiable intangible assets Goodwill recorded in an acquisition is assigned to applicable reporting units based on expected revenues Identifiable intangible assets with finite lives are amortized over their useful lives Amortization of current technology is recorded in cost of revenue subscription fees and amortization of all other intangible assets is recorded in amortization of acquisition related intangibles Acquisition related costs including advisory legal accounting valuation and other costs are expensed in general and administrative expenses in the periods in which such costs are incurred The results of operations of acquired businesses are included in the Consolidated Financial Statements from the acquisition date
Effective September 5 2023 the Company entered into a Stock Purchase Agreement Garvis Purchase Agreement with privately held Garvis AI Limited a private limited company organized and registered under the laws of England and Wales Garvis Pursuant to the Garvis Purchase Agreement the Company acquired 100 of the total issued and outstanding shares of capital stock of Garvis a visionary SaaS startup that can combine a large language model based AI interface e g ChatGPT with AI native demand forecasting
Garvis designed from the ground up an AI based forecasting solution now called DemandAI When combined with Generative AI DemandAI creates a modern more inclusive and intuitive planning paradigm that quickly digitizes supply chain relationships and exposes that data to any stakeholder across the organization By simply asking questions planners executives and non planners alike get answers to unanticipated queries in real time providing transparency for more informed decisions that saves precious planning time Demand AI built for the cloud will be embedded into the Logility Digital Intelligence Platform The combined solutions will enable a new supply chain planning paradigm with DemandAI that moves beyond conventional methods to plan demand and inventory at the speed of the market
Under the terms of the Garvis Purchase Agreement the Company acquired the capital stock for cash consideration paid net of cash acquired of approximately 25 0 million subject to certain post closing adjustments The Company incurred acquisition costs of approximately 529 000 0 and 0 during fiscal years 2024 2023 and 2022 respectively The operating results of Garvis
are not material for proforma disclosure The Company allocated 16 2 million of the total purchase price to goodwill which has been assigned to the Supply Chain Management segment and is not deductible for income tax purposes
Effective June 28 2022 the Company acquired certain assets of privately held Starboard Solutions Corp a Michigan based innovator of supply chain network design software Starboard pursuant to the terms of an asset purchase agreement dated as of June 28 2022 the Starboard Purchase Agreement
Starboard creates an interactive supply chain digital twin of the physical supply chain network and uses gaming technology to provide an intuitive user experience where users can easily explore answers to various what if questions Starboard offers a unique supply chain visualization solution that can optimize for unknown locations meaning users do not have to map their plans to a physical location Applying Starboard s rich set of reference costs with Logility s lane rates and time data structures users have the ability to quickly analyze options in regions for which they have no prior data and assess better locations for future plants warehouses or Third party logistic locations The intuitive design and ease of configuration makes the Starboard network design solution stand out The Starboard software is built for recurring use eliminating the need for a consulting project to model potential resolutions to unexpected supply chain disruptions The integration of Starboard s capabilities into the Logility Digital Intelligence Platform will offer supply chain leaders enhanced integrated business planning outcomes Users will be able to model a response to disruptions and update their operating plan within the Logility Digital Intelligence Platform in minutes to enact the new operating paradigm
Under the terms of the Starboard Purchase Agreement the Company acquired the assets in exchange for a purchase price of approximately 6 5 million in cash subject to certain post closing adjustments plus up to a maximum aggregate amount of 6 0 million the Aggregate Maximum Earnout Payment of contingent earnout payments upon satisfaction of certain subscription revenue targets over a three year earnout period the Earnout Period For each year of the Earnout Period each a Calculation Period the Company will pay as additional consideration 2 0 million once subscription revenue i e revenue contracted for and recorded as revenue in accordance with GAAP for the applicable Calculation Period equals 1 5 million plus one dollar of additional consideration for each dollar of subscription revenue in excess of 1 5 million subject to the Aggregate Maximum Earnout Payment If the subscription revenue for each Calculation Period is less than 1 5 million no additional payment shall be due for such Calculation Period The contingent earnout payments are subject to the recipient s continued service with the Company therefore any additional consideration will be accounted for as post combination services and will be expensed in the period s payments are accruable The cumulative earnout paid as of April 30 2024 was 0 The Company incurred acquisition costs of approximately 0 186 000 and 0 during fiscal years 2024 2023 and 2022 respectively The operating results of Starboard are not material for proforma disclosure We allocated 3 7 million of the total purchase price to goodwill which has been assigned to the Supply Chain Management segment and is deductible for income tax purposes
Non compete agreements current technology and customer relationships are being amortized on a straight line basis over the remaining estimated economic life of the assets including the period being reported
The Company s actual income tax expense differs from the expected income tax expense calculated by applying the Federal statutory rate of 21 0 for fiscal 2024 2023 and 2022 to earnings from continuing operations before income taxes as follows
Our effective income tax rates were 16 3 18 3 and 4 6 in fiscal 2024 2023 and 2022 respectively Our effective income tax rate takes into account the source of taxable income by state and available income tax credits The provision for income taxes in fiscal 2024 2023 and 2022 includes approximately 0 83 000 and 2 067 000 respectively in income tax benefits related to the tax benefits realized from stock option deductions
At April 30 2024 the Company had approximately 42 000 of various state net operating loss carryforwards which are available to offset future state taxable income if any through 2039 The Company has foreign branch operations in the United Kingdom and New Zealand These branches have incurred losses since inception dating back to 2003 The losses have been utilized in the US federal jurisdiction but have not been utilized in the respective jurisdictions In addition the Company has foreign operations in Australia Belgium India and Germany which also have incurred losses since inception At April 30 2024 the Company had approximately 19 0 million of net operating loss carryforwards in these foreign jurisdictions which are available to offset future taxable income As a result the Company has recorded a deferred tax asset of 4 9 million related to these losses Furthermore the Company does not believe it will realize the benefit of the foreign net operating loss carryforwards in the United Kingdom New Zealand Australia India and Germany and therefore has established a full valuation allowance against the deferred tax asset associated with these locations
In assessing the realizability of deferred tax assets management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible Management considers the scheduled reversal of deferred tax liabilities projected future taxable income and tax planning strategies in making this assessment Based upon reversal of deferred tax liabilities and expected future profitability management believes it is more likely than not the Company will realize the benefits of these deductible differences net of the existing valuation allowances at April 30 2024
The Company applies the accounting provisions which require us to prescribe a recognition threshold and measurement attribution for the financial statement recognition and measurement of a tax position taken or expected to be taken within an
We recognize potential accrued interest and penalties related to unrecognized tax benefits within income tax expense To the extent interest and penalties are not assessed with respect to uncertain tax positions amounts accrued will be reduced and reflected as a reduction of the overall income tax provision The Company s liability for potential penalties and interest related to uncertain tax positions was immaterial at April 30 2024 and 2023
We conduct business globally and as a result file consolidated income tax returns in the United States Federal jurisdiction and in many state and foreign jurisdictions We are no longer subject to state and local or non U S income tax examinations for years prior to 2005 We are no longer subject to U S Federal income tax examination for years prior to 2019
During the years ended April 30 2024 2023 and 2022 we recorded research and development state tax credits against payroll taxes of approximately 458 000 470 000 and 561 000 respectively which reduced general and administrative expenses by the same amount
Except for the election or removal of directors and class votes as required by law or our Articles of Incorporation holders of both classes of common stock vote as a single class on all matters with each Class A common share entitled to cast one tenth vote per share and each Class B common share entitled to cast one vote per share Neither class has cumulative voting rights Holders of Class A common shares as a class are entitled to elect 25 of the board of directors rounded up to the nearest whole number of directors if the number of outstanding Class A common shares is at least 10 of the number of outstanding shares of both classes of common stock No cash or property dividend may be paid to holders of Class B common shares during any fiscal year of the Company unless a dividend of 0 05 per share has been paid in such year on each outstanding Class A common share This 0 05 per share annual dividend preference is noncumulative Dividends per Class B common share during any fiscal year may not exceed dividends paid per Class A common share during such year Each Class B common share is convertible at any time into one Class A common share at the option of the shareholder
As of April 30 2024 the Company has outstanding stock options granted pursuant to two stock option plans The 2011 Equity Compensation Plan which was effective as of May 17 2010 and the 2020 Equity Compensation Plan the 2020 Plan which was effective as of August 21 2019 and was amended and restated on April 25 2023 The 2020 Plan reserves for issuance 6 250 000 shares of Class A Common Stock
Under the 2020 Plan as amended and restated options to purchase Class A common shares are granted in the form of both non qualified stock options and RSUs The number of options granted under this plan is determined in each grant By resolution of the Board of Directors non employee directors receive annual grants of RSU s worth approximately 120 000 based on the Company s closing share price on the award date The RSUs will vest as Class A Shares of the Company in full one year after the grant subject to the Board members continued service on the Board though the vesting date Options are exercisable based on the terms of such options but no more than six years after the date of grant or five years for incentive stock options granted to any person who owns 10 or more of the combined voting power of all classes of capital stock of the Company at the time of grant Incentive and nonqualified options exercisable at April 30 2024 2023 and 2022 totaled 2 725 704 1 818 957 and 1 315 604 respectively Options available for grant at April 30 2024 under the 2020 Plan were 248 930 shares
The weighted average grant date fair value of RSUs granted during the years ended April 30 2024 2023 and 2022 is 11 82 0 and 0 per share respectively RSU awards are valued at the fair market value on the date of grant
The fair value of option awards are estimated on the date of grant using the Black Scholes option pricing model with the following weighted average assumptions for the years ended April 30 2024 2023 and 2022
The expected volatility is based on the historical volatility and implied volatility The Company uses historical data to estimate stock option exercise and forfeiture rates The expected term represents the period over which the share based awards are expected to be outstanding and was estimated using historical data The dividend yield is an estimate of the expected dividend yield on the Company s stock The risk free rate is based on U S Treasury yields in effect at the time of the grant for the expected term of the stock options
Options with graded vesting are valued as a single award The total value of the award is expensed on a straight line basis over the vesting period with the amount of compensation cost recognized at any date at least equal to the portion of the grant date value of the award that is vested at that date During the years ended April 30 2024 2023 and 2022 we issued 26 253 501 547 and 776 129 shares of common stock respectively resulting from the exercise of stock options The total intrinsic value of options exercised during the years ended April 30 2024 2023 2022 based on market value at the exercise dates was 0 1 1 million and 10 0 million respectively The fair value of grants vested during the years ended April 30 2024 2023 and 2022 was 5 1 million 4 4 million and 2 8 million respectively As of April 30 2024 unrecognized compensation cost related to unvested stock option awards approximated 13 1 million and is expected to be recognized over a weighted average period of 1 64 years
On August 19 2002 our Board of Directors authorized the repurchase of up to an additional 2 0 million shares of our Class A common stock We made these repurchases through open market purchases at prevailing market prices Under this repurchase plan through April 30 2024 we completed our repurchase of 2 0 million shares of Class A common stock at a cost of approximately 16 4 million which had a 10 2 million impact on fiscal 2024 As of April 30 2024 under all repurchase plans previously authorized including this most recent plan we have repurchased a total of 5 534 953 shares of common stock at a cost of approximately 35 8 million
The Company s operating leases are related to facility leases for administration and sales personnel The remaining operating lease has a term of five years While the remaining lease includes a renewal option the Company has only included the base lease term in its calculation of lease assets and liabilities The Company does not have any finance leases
The impact of the Company s leases on the consolidated statement of cash flows is presented in the operating activities section which mainly consisted of cash paid for operating lease liabilities of approximately 1 0 million during fiscal 2024 The Company did not renew four existing leases and did not execute any new leases during fiscal 2024
The impact of the Company s leases on consolidated statement of cash flows is presented in the operating activities section which mainly consisted of cash paid for operating lease liabilities of approximately 1 3 million during fiscal 2023 The Company did not modify any existing leases or execute any new leases during fiscal 2023
The Company leases to other tenants a portion of its headquarters building that it owns in Atlanta Georgia The leases expire at various dates through June 2027 Lease income is included in Other net in the Company s consolidated statements of operations and totaled approximately 315 000 for the year ending April 30 2024 Lease payments to be received as of April 30 2024 are as follows in thousands
Employees are offered the opportunity to participate in the Company s 401 k Profit Sharing Plan the 401 k Plan which is intended to be a tax qualified defined contribution plan under Section 401 k of the Internal Revenue Code Under the 401 k Plan employees are eligible to participate on the first day of the month following the date of hire Eligible employees may contribute up to 23 000 of their salary to the 401 k Plan Subject to certain limitations the Company may make a discretionary profit sharing contribution at an amount determined by the board of directors of the Company The Company s profit sharing contribution was 676 000 for fiscal 2024 444 000 for fiscal 2023 and 444 000 for fiscal 2022
The Company more often than not indemnifies its clients against damages and costs resulting from claims of intellectual property infringement associated with use of the Company s products The Company historically has not been required to make any payments under such indemnifications However the Company continues to monitor the circumstances that are subject to the indemnifications to identify whether it is probable that a loss has occurred and would recognize any such losses under the indemnifications when those losses are estimable
In addition the Company warrants to clients that the Company s products operate substantially in accordance with the software product s specifications Historically no costs have been incurred related to software product warranties and none are expected in the future and as such no accruals for software product warranty costs have been made Additionally the Company is involved in various claims arising in the ordinary course of business In the opinion of management the ultimate disposition of these matters will not have a material adverse effect on the financial position or results of operations of the Company
establishes standards for reporting information about operating segments Operating segments are defined as components of a public entity about which separate financial information is available that is evaluated regularly by the chief operating decision makers CODMs or decision making group in deciding how to allocate resources and in assessing performance Our CODMs are our Chief Executive Officer and President and our Chief Financial Officer While our CODMs are apprised of a variety of financial metrics and information we manage our business primarily on a segment basis with the CODMs evaluating performance based upon segment operating profit or loss that includes an allocation of common expenses but excludes certain unallocated corporate expenses which are included in the Other segment Our CODMs review the operating results of our two segments assess performance and allocate resources in a manner that is consistent with the changing market dynamics that we have experienced The two operating segments are 1 Supply Chain Management SCM and 2 Other
The SCM segment leverages a single platform spanning eight supply chain process areas including Product Demand Inventory Supply Network Optimization Order Response Supplier Management and Scenario Planning The Other segment consists of i American Software ERP which provides purchasing and materials management client order processing financial e commerce and traditional manufacturing software and services and ii unallocated corporate overhead expenses
All of our revenue is derived from external clients We do not have any inter segment revenue Our income taxes and dividends are paid at a consolidated level Consequently it is not practical to show these items by operating segment
International revenue approximated 21 6 million or 21 23 9 million or 22 and 20 4 million or 16 of consolidated revenue for the years ended April 30 2024 2023 and 2022 respectively and were derived primarily from clients in Canada and Europe International revenue is based on the delivery of software and performance of services
On September 18 2023 the Company disposed of its 100 equity interest in its information technology staffing firm The Proven Method Inc TPM to Marathon TS Inc an IT professional services firm for approximately 2 1 million in cash of which 300 000 is held in escrow The amounts held in escrow are limited to claims arising out of or relating to any pre closing taxes Any escrow amounts that are not subject to then outstanding indemnification claims shall be released to the Company in equal 100 000 increments on the 12 24 and 36 month anniversary of the transaction closing date and are included in prepaid expenses and other current assets and other assets in the Consolidated Balance Sheet as of April 30 2024 There have not been any submitted or expected indemnification claims against these escrowed funds This transaction enables us to focus on our core supply chain planning business allowing Logility to continue to expand its AI based supply chain management platform
In accordance with applicable accounting guidance for the disposal of long lived assets the results of TPM are presented as discontinued operations and as such have been excluded from both continuing operations and segment results in the accompanying Consolidated Statements of Operations and Consolidated Statements of Cash Flows and in the Notes to Consolidated Financial Statements TPM was previously reported in the former IT Consulting segment
In the Company s most recently filed Form 10 Q s for the quarterly periods ended October 31 2023 and January 31 2023 current assets and current liabilities of TPM as of April 30 2023 were incorrectly presented as discontinued operations in the Condensed Consolidated Balance Sheets These assets and liabilities were not included within the disposal group and therefore have been reclassified to be correctly presented as current assets and current liabilities in the accompanying Consolidated Balance Sheets Also during fiscal 2024 the Company identified two errors impacting TPM both of which originated during or prior to 2018 were determined to be immaterial to all prior periods impacted and have been corrected in the impacted periods presented herein or by adjusting opening balances as of the beginning of the earliest period presented The first error resulted in an understatement of professional services and other cost of revenue and an understatement of other current liabilities Subsequent to presenting the results of TPM as discontinued operations the amounts related to the error resulted in an adjustment to decrease increase earnings from operations of discontinued operations by 111 000 and 23 000 for the years ended April 30 2023 and 2022 respectively The error also resulted in an increase to retained deficit and other current liabilities of approximately 1 0 million as of the beginning of the year ended April 30 2022 The second error resulted in a 752 000 increase to retained deficit and corresponding decrease in accounts receivable as of the beginning of the year ended April 30 2022
On November 15 2023 we signed an asset purchase agreement for the sale of our Transportation Rating Solutions TRS business which consists of on premise freight shipping solutions for LTL truckload and rail shipments within North America to FOG Software Group FOG a division of Vela Software for approximately 1 1 million in cash of which 440 000 is subject to various holdback provisions which expired 120 days following the date of the agreement The divestiture of TRS will allow us to focus on our core supply chain planning business allowing Logility to continue to expand its AI based supply chain management platform The purchase price is subject to a working capital adjustment We recognized a pre tax gain of approximately 1 4 million which is recorded within Other Income in the accompanying Consolidated Statement of Operations for the year ended 2024 Earnings from the business were not material and the results of the business through the date of sale were reflected in continuing operations within the SCM segment
On May 30 2024 the Company s Board of Directors declared a quarterly cash dividend of 0 11 per share of our Class A and Class B common stock The cash dividend is payable to the Company s Class A and Class B Shareholders of record at the close of business on August 16 2024 to be paid on or about August 30 2024
Management under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer has conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a 15 e and 15d 15 e under the Securities Exchange Act of 1934 as amended the Exchange Act Disclosure controls and procedures are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded processed summarized and reported within the time periods specified in the SEC s rules and forms Disclosure controls and procedures include without limitation controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management including our principal executive and principal financial officers as appropriate to allow timely decisions regarding required disclosure
Based on that evaluation our Chief Executive Officer and Chief Financial Officer concluded that as of April 30 2024 our disclosure controls and procedures were not effective due to the material weakness in internal control over financial reporting described below under the heading Management s Report on Internal Control Over Financial Reporting
In light of the material weakness described below management performed additional analyses and other procedures to ensure that our consolidated financial statements were prepared in accordance with U S Generally Accepted Accounting Principles U S GAAP Accordingly management believes that the consolidated financial statements included in this Annual Report on
Our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud A control system no matter how well conceived and operated can provide only reasonable not absolute assurance that the objectives of the control system are met Because of the inherent limitations in all control systems no evaluation of controls can provide absolute assurance that all control issues and instances of fraud if any have been detected These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of a simple error or mistake Additionally controls can be circumvented by the individual acts of some persons by collusion of two or more people or by management override of the controls The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions over time controls may become inadequate because of changes in conditions or the degree of compliance with policies or procedures may deteriorate Because of the inherent limitations in a cost effective control system misstatements due to error or fraud may occur and not be detected
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a 15 f and 15d 15 f of the Exchange Act Management with participation of the Chief Executive Officer and Chief Financial Officer under the oversight of our Board of Directors conducted an assessment of the effectiveness of our internal control over financial reporting based on the criteria set forth in
issued by the Committee of Sponsoring Organizations of the Treadway Commission 2013 framework Based on the assessment management has concluded that its internal control over financial reporting was not effective as of April 30 2024 because of the material weakness in internal control over financial reporting described below
A material weakness is a deficiency or a combination of deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis
The Company identified that certain process level controls over the reconciliation of cash accounts receivable accounts payable accrued compensation and related costs and cost of revenues were not designed or operated effectively These ineffective controls were attributable to insufficient risk assessment policies and procedures and training that impaired our ability to timely investigate and resolve reconciling items
These control deficiencies resulted in immaterial misstatements in related accounts Furthermore the control deficiencies described above created a reasonable possibility that a material misstatement to the consolidated financial statements would not be prevented or detected on a timely basis Therefore we concluded that the deficiencies in the aggregate represent a material weakness in the Company s internal control over financial reporting and our internal control over financial reporting was not effective as of April 30 2024
In connection therewith our independent registered public accounting firm KPMG LLP who audited the consolidated financial statements included in this Annual Report on Form 10 K issued an adverse opinion on the effectiveness of the Company s internal control over financial reporting KPMG LLP s report appears in Item 8 above
As of April 30 2024 the Company continues its remediation efforts The Company has implemented enhanced policies and procedures over reconciliations and related training including a focus on risk assessment and expectations and procedures for investigating and resolving reconciling items on a timely basis In addition the Company has increased its usage of its financial close management software in order to strengthen account reconciliation accuracy tracking and reporting
We plan to have designed and implemented enhanced policies and procedures and controls necessary to fully remediate the material weakness before July 31 2024 but the material weakness cannot be considered fully remediated until the updated policies and training have been in place and operated for a sufficient period of time to enable management and our auditor KPMG LLP to test and to conclude on the design and operating effectiveness of the controls
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a 15 d and 15d 15 d of the Exchange Act that occurred during the fiscal quarter to which this report relates that have materially affected or are reasonably likely to materially affect our internal control over financial reporting
The information required by this item is incorporated by reference from the information contained in our Proxy Statement for the Annual Meeting of Shareholders expected to be filed with the SEC on or about July 8 2024 the Proxy Statement under the captions Election of Directors Executive Compensation Delinquent Section 16 a Reports Code of Business Conduct and Ethics and Committees of the Board of Directors
Information regarding security ownership of management and others is set forth under the caption Security Ownership of Certain Beneficial Owners and Management in the Proxy Statement which information is incorporated herein by reference
On December 8 2003 our Board of Directors adopted a resolution directing the Audit Committee of the Board of Directors to establish and implement procedures for identifying and conducting an appropriate review of any proposed transaction that meets the definition of related party transaction within the meaning of Item 404 of SEC Regulation S K In January 2004 the Audit Committee adopted written procedures in accordance with such direction Under those procedures the Audit Committee reviews and evaluates any proposed related party transaction and determines whether the terms of such transaction judged at the time of the determination are fair to the Company Our officers are instructed that when a related party transaction is proposed they are to bring it to the attention of the Audit Committee which then reviews the transaction and makes a determination of whether it meets the above standard The Audit Committee is required to prepare a report of its deliberations conclusions and recommendations and furnish that report to the full Board of Directors
Information regarding director independence is set forth under the captions Director Independence and Committees of the Board of Directors in the Proxy Statement which information is incorporated herein by reference
This information is set forth under the caption Ratification of Appointment of Independent Registered Public Accounting Firm in the Proxy Statement which information is incorporated herein by reference
Pursuant to the requirements of Section 13 or 15 d of the Securities Exchange Act of 1934 the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized
Pursuant to the requirements of the Securities Exchange Act of 1934 this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated

Company Name	AMERICAN SOFTWARE INC Vist SEC web-site
Category	SERVICES-PREPACKAGED SOFTWARE
Trading Symbol	AMSWA