amswa-20230731

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________

FORM 10-Q

_________________

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 31, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to _________

Commission File Number: 0-12456

_________________

AMERICAN SOFTWARE, INC.

(Exact name of registrant as specified in its charter)

_________________

Georgia

58-1098795

(State or other jurisdiction of
incorporation or organization)

(IRS Employer
Identification Number)

470 East Paces Ferry Road, N.E.

Atlanta

Georgia

30305

(Address of principal executive offices)

(Zip Code)

(404) 261-4381

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock	AMSWA	NASDAQ Global Select Market

_________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, an emerging growth company or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “emerging growth company” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

☐

Accelerated Filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the exchange act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Classes						Outstanding at August 30, 2023
Class A Common Stock, $.10 par value						32,344,863 Shares Shares
Class B Common Stock, $.10 par value						1,821,587 Shares

Table of Contents

AMERICAN SOFTWARE, INC. AND SUBSIDIARIES

Form 10-Q

Quarter ended July 31, 2023

Index


Page No
Part I—Financial Information

Item 1.	Financial Statements (Unaudited)

	Condensed Consolidated Balance Sheets as of July 31, 2023 and April 30, 2023	3

	Condensed Consolidated Statements of Operations for the Three Months ended July 31, 2023 and 2022	4

	Condensed Consolidated Statements of Shareholders' Equity for the Three Months ended July 31, 2023 and 2022	5

	Condensed Consolidated Statements of Cash Flows for the Three Months ended July 31, 2023 and 2022	6

	Notes to Condensed Consolidated Financial Statements – Unaudited	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32

Item 4.	Controls and Procedures	33

Part II—Other Information

Item 1.	Legal Proceedings	34

Item 1A.	Risk Factors	34

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34

Item 3.	Defaults Upon Senior Securities	34

Item 4.	Mine Safety Disclosures	34

Item 5.	Other Information	34

Item 6.	Exhibits	34

Signatures		35

Table of Contents

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

American Software, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

(in thousands, except share data)


	July 31, 2023		April 30, 2023
ASSETS
Current assets:
Cash and cash equivalents	$	93,887	$	90,696
Investments	20,957		23,451
Trade accounts receivable, less allowance for doubtful accounts of $457 at July 31, 2023 and $418 at April 30, 2023:
Billed	21,220		25,405
Unbilled	2,817		2,604
Prepaid expenses and other current assets	5,825		7,833
Total current assets	144,706		149,989
Investments—noncurrent	485		486
Property and equipment, net of accumulated depreciation of $32,731 at July 31, 2023 and $32,371 at April 30, 2023	6,551		6,444
Capitalized software, net of accumulated amortization of $43,340 at July 31, 2023 and $43,202 at April 30, 2023	253		391
Goodwill	29,558		29,558
Other intangibles, net of accumulated amortization of $14,295 at July 31, 2023 and $14,062 at April 30, 2023	1,910		2,143



Other assets	7,120		6,609
Total assets	$	190,583	$	195,620
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,532	$	2,142
Accrued compensation and related costs	2,461		4,268
Dividends payable	3,758		3,756

Other current liabilities	2,639		2,708
Deferred revenue	39,797		43,124
Total current liabilities	50,187		55,998


Other long-term liabilities	271		288
Total liabilities	50,458		56,286
Shareholders’ equity:
Common stock:
Class A, $.10 par value. Authorized 50,000,000 shares: 36,929,495 (32,340,863, net) shares issued and outstanding at July 31, 2023 and 36,907,242 (32,318,610, net) shares issued and outstanding at April 30, 2023	3,693		3,691
Class B, $.10 par value. Authorized 10,000,000 shares: 1,821,587 shares issued and outstanding at July 31, 2023 and April 30, 2023; convertible into Class A Common Shares on a one-for-one basis	182		182
Additional paid-in capital	184,520		182,722
Retained deficit	(22,711)		(21,702)
Class A treasury stock, 4,588,632 shares at July 31, 2023 and April 30, 2023, at cost	(25,559)		(25,559)
Total shareholders’ equity	140,125		139,334
Commitments and contingencies
Total liabilities and shareholders’ equity	$	190,583	$	195,620

See accompanying notes to condensed consolidated financial statements—unaudited.

Table of Contents

American Software, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations (Unaudited)

(in thousands, except per share data)


	Three Months Ended July 31,
	2023		2022
Revenue:
Subscription fees	$	13,764	$	12,062
License	289		320
Professional services and other	6,952		10,009
Maintenance	8,163		8,905
Total revenue	29,168		31,296
Cost of revenue:
Subscription fees	4,217		3,618
License	72		89
Professional services and other	5,608		7,304
Maintenance	1,695		1,573
Total cost of revenue	11,592		12,584
Gross margin	17,576		18,712
Research and development	4,249		4,454
Sales and marketing	6,148		5,912
General and administrative	5,587		5,765
Amortization of acquisition-related intangibles	25		24
Total operating expenses	16,009		16,155
Operating income	1,567		2,557
Other income (loss):
Interest income	1,089		209
Other, net	798		(90)
Earnings before income taxes	3,454		2,676
Income tax expense	706		543
Net earnings	$	2,748	$	2,133
Earnings per common share (a):
Basic	$	0.08	$	0.06
Diluted	$	0.08	$	0.06
Cash dividends declared per common share	$	0.11	$	0.11
Shares used in the calculation of earnings per common share:
Basic	34,155		33,656
Diluted	34,160		34,007

______________

(a)Basic per share amounts are the same for Class A and Class B shares. Diluted per share amounts for Class A shares are shown above. Diluted earnings per share for Class B shares under the two-class method are $0.08 and $0.06 for the three months ended July 31, 2023 and 2022, respectively. See Note D to the Condensed Consolidated Financial Statements.

See accompanying notes to condensed consolidated financial statements—unaudited.

Table of Contents

American Software, Inc. and Subsidiaries

Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)

(in thousands, except share data)


	Common stock						Additional paid-in capital		Retained deficit		Treasury stock		Total shareholders’ equity
	Class A			Class B
For the Three Months Ended July 31, 2022	Shares	Amount		Shares	Amount

Balance at April 30, 2022	36,405,695	$	3,641	1,821,587	$	182	$	171,948	$	(17,236)	$	(25,559)	$	132,976
Proceeds from stock options exercised	43,000	4		—	—		467		—		—		471
Stock-based compensation	—	—		—	—		1,306		—		—		1,306
Net earnings	—	—		—	—		—		2,133		—		2,133
Dividends declared*	—	—		—	—		—		(3,705)		—		(3,705)
Balance at July 31, 2022	36,448,695	$	3,645	1,821,587	$	182	$	173,721	$	(18,808)	$	(25,559)	$	133,181
For the Three Months Ended July 31, 2023
Balance at April 30, 2023	36,907,242	$	3,691	1,821,587	$	182	$	182,722	$	(21,702)	$	(25,559)	$	139,334
Proceeds from stock options exercised*	22,253	2		—	—		244		—		—		246
Stock-based compensation	—	—		—	—		1,554		—		—		1,554
Net earnings	—	—		—	—		—		2,748		—		2,748
Dividends declared*	—	—		—	—		—		(3,757)		—		(3,757)
Balance at July 31, 2023	36,929,495	$	3,693	1,821,587	$	182	$	184,520	$	(22,711)	$	(25,559)	$	140,125

*Amounts adjusted for rounding

See accompanying notes to condensed consolidated financial statements—unaudited.

Table of Contents

American Software, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in thousands)


	Three Months Ended July 31,
	2023		2022
Cash flows from operating activities:
Net earnings	$	2,748	$	2,133
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	731		768

Stock-based compensation expense	1,554		1,306
Net gain on investments	(755)		(61)
Deferred income taxes	(657)		(926)
Changes in operating assets and liabilities:
Purchases of trading securities	—		(172)
Proceeds from maturities and sales of trading securities	3,251		105
Accounts receivable, net	3,973		152

Prepaid expenses and other assets	2,053		(448)
Accounts payable and other liabilities	(2,403)		(720)
Deferred revenue	(3,327)		(3,655)
Net cash provided by (used in) operating activities	7,168		(1,518)
Cash flows from investing activities:

Purchases of property and equipment, net of disposals	(467)		(1,572)
Purchase of business	—		(6,500)
Net cash used in investing activities	(467)		(8,072)
Cash flows from financing activities:
Proceeds from exercise of stock options	246		471
Dividends paid	(3,756)		(3,693)
Net cash used in financing activities	(3,510)		(3,222)
Net change in cash and cash equivalents	3,191		(12,812)
Cash and cash equivalents at beginning of period	90,696		110,690
Cash and cash equivalents at end of period	$	93,887	$	97,878

Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes, net of refunds	$	—	$	5
Supplemental disclosures of noncash operating, investing and financing activities:
Accrual of dividends payable	$	3,758	$	3,705

See accompanying notes to condensed consolidated financial statements—unaudited.

Table of Contents

AMERICAN SOFTWARE, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements—Unaudited

July 31, 2023

A. Presentation and Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required for complete consolidated financial statements. In the opinion of our management, these Condensed Consolidated Financial Statements contain all normal recurring adjustments considered necessary for a fair presentation of the Company’s financial position at July 31, 2023, results of operations for the three months ended July 31, 2023 and 2022, consolidated statements of shareholders’ equity for the three months ended July 31, 2023 and 2022, and cash flows for the three months ended July 31, 2023 and 2022. The Company’s results for the three months ended July 31, 2023 are not necessarily indicative of the results expected for the full year. You should read these statements in conjunction with our audited consolidated financial statements and management’s discussion and analysis and results of operations included in our Annual Report on Form 10-K (the “Annual Report”) for the fiscal year ended April 30, 2023. The terms “fiscal 2024” and “fiscal 2023” refer to our fiscal years ending April 30, 2024 and 2023, respectively.

The preparation of these Condensed 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 Condensed Consolidated Financial Statements and the reported amounts of revenue and expenses during the reporting period. Note 1 in the Notes to the Consolidated Financial Statements for fiscal 2023 contained in the Annual Report 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/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.

Principles of Consolidation

The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of American Software, Inc. (“American Software”) and its wholly-owned subsidiaries (collectively, the “Company”). All significant intercompany balances and transactions have been eliminated in consolidation.

Recent Accounting Pronouncements

Accounting Standards Update ("ASU") 2021-08 — In October 2021, the Financial Accounting Standards Board ("FASB") issued ASU 2021-08, "Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers." 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 customers and other similar contracts that are accounted for in accordance with Accounting Standards Codification ("ASC") Topic 606, Revenue from Contracts with Customers ("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. Early adoption is permitted, including adoption in an interim period. Adoption during an interim period requires retrospective application to all business combinations for which the acquisition date occurs on or after the beginning of the fiscal year that includes the interim period of early application. We are evaluating the potential effects of ASU 2021-08 on our consolidated financial statements.

B. Revenue Recognition

In accordance with ASU 2014-09, Revenue from Contracts with Customers (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,

Table of Contents

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.

The Company recognizes revenue in accordance with the following steps:

Step 1 - Identification of the Contract with the Client

Step 2 - Identification of Promised Goods and Services and Evaluation of Whether the Promised Goods and Services are Distinct Performance Obligations

Step 3 - Determination of the Transaction Price

Step 4 - Allocation of the Transaction Price to Distinct Performance Obligations

Step 5 - Attribution of Revenue for Each Distinct Performance Obligation

Nature of Products and Services

Subscription. 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.

License. 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.

Professional Services and Other. Our services revenue consists of fees generated from consulting, implementation and training services, including reimbursements of out-pocket expenses in connection with our services. Services are typically optional to our clients, and are distinct from our software. Fees for our 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. The total amount of expense reimbursement included in professional services and other revenue was immaterial for the three months ended July 31, 2023 and 2022.

Maintenance. Revenue is derived from maintenance under which we provide clients with telephone consulting, product updates and releases of new versions of products previously purchased by the client on a when and-if-available basis, 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 one to three years. Revenue related to maintenance is generally paid in advance and recognized ratably over the term of the agreement since the Company is standing ready to provide a series of maintenance services that are substantially the same each period over the term; therefore, time is the best measure of progress. Support services for subscriptions are included in the subscription fees and are recognized as a component of such fees.

Indirect Channel Revenue. We record revenue from sales made through the indirect sales channels on a gross basis, because we control the goods or services and act as the principal in the transaction. In reaching this determination, we evaluated sales through our indirect channel on a case-by-case basis and considered a number of factors including indicators of control such as the party having the primary responsibility to provide specified goods or services and the party having discretion in establishing prices.

Sales Taxes. We account for sales taxes collected from clients on a net basis.

Contract Balances. 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 Condensed 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 solutions 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 significant financing component. The primary purpose of our

Table of Contents

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. 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 Condensed 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 three months ended July 31, 2023, we recognized $18.3 million of revenue that was included in the deferred revenue balance as of April 30, 2023.


	July 31, 2023	April 30, 2023
	(in thousands)





Deferred revenue	39,797	43,124

Remaining Performance Obligations. 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 July 31, 2023, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $110.7 million. The Company expects to recognize revenue on approximately 53% of the remaining performance obligations over the next 12 months, with the remainder recognized thereafter.

Disaggregated Revenue. 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’s revenue by geography is as follows:


	Three Months Ended July 31,
	2023		2022
	(in thousands)
Revenue:
Domestic	$	23,815	$	25,659
International	5,353		5,637
	$	29,168	$	31,296

Contract Costs. 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:

•The costs relate directly to a contract or to an anticipated contract that the Company can specifically identify.

•The costs generate or enhance resources of the Company that will be used in satisfying (or in continuing to satisfy) performance obligations in the future.

•The costs are expected to be recovered.

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. These deferred commission costs are

Table of Contents

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 other assets, respectively, in the Company’s Condensed Consolidated Balance Sheets. Total deferred commissions at July 31, 2023 and April 30, 2023 were $2.8 million and $3.0 million, respectively. Amortization of sales commissions was $0.4 million for the three months ended July 31, 2023 and 2022, which is included in "Sales and marketing" expense in the accompanying Condensed Consolidated Statements of Operations. No impairment losses were recognized during the periods.

C. Declaration of Dividend Payable

On June 1, 2023, 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 was payable on August 25, 2023 to Class A and Class B shareholders of record at the close of business on August 11, 2023.

D. Earnings Per Common Share

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 260, Earnings Per Share, 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. 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 is adjusted to give effect to dilutive elements including stock options and restricted stock units ("RSUs") issuable under the Company's stock incentive plans, to the extent these are dilutive. 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 and RSUs 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):

Basic earnings per common share:

Table of Contents


	Three Months Ended July 31, 2023				Three Months Ended July 31, 2022
	Class A Common Shares		Class B Common Shares		Class A Common Shares		Class B Common Shares
Distributed earnings	$	0.11	$	0.11	$	0.11	$	0.11
Undistributed losses	(0.03)		(0.03)		(0.05)		(0.05)
Total	$	0.08	$	0.08	$	0.06	$	0.06
Distributed earnings	$	3,558	$	200	$	3,505	$	201
Undistributed losses	(956)		(54)		(1,488)		(85)
Total	$	2,602	$	146	$	2,017	$	116
Basic weighted average common shares outstanding	32,333		1,822		31,834		1,822

Diluted EPS for Class A Common Shares Using the If-Converted Method

Three Months Ended July 31, 2023


	Undistributed & Distributed Earnings to Class A Common Shares		Class A Common Shares	EPS*
Per Basic	$	2,602	32,333	$	0.08
Common Stock Equivalents	—		5	—
	2,602		32,338	0.08
Class B Common Share Conversion*	146		1,822	—
Diluted EPS for Class A Common Shares	$	2,748	34,160	$	0.08

Three Months Ended July 31, 2022


	Undistributed & Distributed Earnings to Class A Common Shares		Class A Common Shares	EPS*
Per Basic	$	2,017	31,834	$	0.06
Common Stock Equivalents	—		351	—
	2,017		32,185	0.06
Class B Common Share Conversion	116		1,822	—
Diluted EPS for Class A Common Shares	$	2,133	34,007	$	0.06

Diluted EPS for Class B Common Shares Using the Two-Class Method

Three Months Ended July 31, 2023

Table of Contents


	Undistributed & Distributed Earnings to Class B Common Shares		Class B Common Shares	EPS*
Per Basic	$	146	1,822	$	0.08
Reallocation of undistributed earnings/losses from Class A Common Shares to Class B Common Shares	—		—	—
Diluted EPS for Class B Common Shares	$	146	1,822	$	0.08

Three Months Ended July 31, 2022


	Undistributed & Distributed Earnings to Class B Common Shares		Class B Common Shares		EPS*
Per Basic	$	116	$	1,822	$	0.06
Reallocation of undistributed earnings/losses from Class A Common Shares to Class B Common Shares	1		—		—
Diluted EPS for Class B Common Shares	$	117	1,822		$	0.06

____________

*Amounts adjusted for rounding

For the three months ended July 31, 2023 and 2022 we excluded options to purchase 5,799,695 and 3,227,891 Class A Common Shares, respectively. We excluded these option share amounts because the exercise prices of those options were greater than the average market price of the Class A Common Shares during the applicable period. As of July 31, 2023, we had a total of 6,088,804 options outstanding and as of July 31, 2022, we had a total of 5,795,104 options outstanding.

E. Acquisitions

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 Condensed Consolidated Financial Statements from the acquisition date.

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 “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

Table of Contents

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 Supply Chain 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 Supply Chain Platform in minutes to enact the new operating paradigm.

Under the terms of the 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 July 31, 2023 was $0. The Company incurred acquisition costs of approximately $0 and $54,500 during the three months ended July 31, 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.

The following allocation of the total purchase price reflects the fair value of the assets acquired and liabilities assumed as of June 28, 2022 (in thousands):


			Useful Life
Other assets	90
Goodwill	3,670
Non-compete agreements	170		5 years
Current technology	2,500		3 years
Customer relationships	160		6 years
Total assets acquired	6,590

Long-term liabilities	(90)
Net assets acquired	$	6,500

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.

F. Stock-Based Compensation

In the first quarter of 2024, the Compensation Committee of our Board of Directors awarded RSUs to independent directors not employed by the Company that will vest, and shares of common stock will be issued, on the first anniversary of the date of the grant.


	Three Months Ended July 31,
	2023	2022
Awards granted:
Options	880,000	1,362,000
RSUs	74,560	—

Total awards granted	954,560	1,362,000

Table of Contents

The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model and the fair value of each RSU award is estimated on the date of grant using the fair value method. The forfeiture rates are estimated using historical data. We recorded total compensation cost related to stock options and RSUs of approximately $1.6 million and $1.3 million and income tax benefits of approximately $0 and $34,000 from option exercises during the three months ended July 31, 2023 and 2022, respectively. We record stock-based compensation expense on a straight-line basis over the vesting period directly to additional paid-in capital.

During the three months ended July 31, 2023 and 2022, we issued 22,253 and 43,000 shares of Class A common stock, respectively, resulting from the exercise of stock options. The total intrinsic value of options exercised during the three months ended July 31, 2023 and 2022 based on market value at the exercise dates was approximately $40,000 and $0.2 million, respectively. As of July 31, 2023, unrecognized compensation cost related to unvested stock option and RSU awards approximated $15.3 million and $0.7 million, respectively, which we expect to recognize over a weighted average period of 1.81 years.

Table of Contents

G. Fair Value of Financial Instruments

We measure our 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 1—Quoted prices for identical instruments in active markets.

•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.

•Level 3—Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

The following is a general description of the valuation methodologies we use 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—Cash equivalents include investments in government obligation based money-market funds, other money market instruments and interest-bearing deposits with initial 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—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 tables present our assets and liabilities that we measured at fair value on a recurring basis as of July 31, 2023 and April 30, 2023, and indicate the fair value hierarchy of the valuation techniques we used to determine such fair value (in thousands):


	July 31, 2023
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance
Cash equivalents	$	89,068	$	—	$	—	$	89,068
U.S Treasury securities	4,103						4,103
Marketable securities	17,339		—		—		17,339
Total	$	110,510	$	—	$	—	$	110,510


	April 30, 2023
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance
Cash equivalents	$	81,352	—		—		$	81,352
U.S Treasury securities	7,305		—		—		7,305
Marketable securities	16,632		—		—		16,632
Total	$	105,289	$	—	$	—	$	105,289

H. Stock Repurchases

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 have made and will make these repurchases through open market purchases at prevailing market

Table of Contents

prices. The timing of any repurchase will depend upon market conditions, the market price of our Class A common stock and management’s assessment of our liquidity and cash flow needs. Under this repurchase plan, we have repurchased 1,053,679 shares of Class A common stock at a cost of approximately $6.2 million, which had no impact on fiscal 2024. As of July 31, 2023, under all repurchase plans previously authorized, including this most recent plan, we have repurchased a total of 4,588,632 shares of common stock at a cost of approximately $25.6 million.

Table of Contents

I. Comprehensive Income

We have not included Condensed Consolidated Statements of Comprehensive Income in the accompanying unaudited Condensed Consolidated Financial Statements since comprehensive income and net earnings presented in the accompanying Condensed Consolidated Statements of Operations would be substantially the same.

Table of Contents

J. Industry Segments

FASB ASC 280, Segment Reporting, 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 three segments, assess performance and allocate resources in a manner that is consistent with the changing market dynamics that we have experienced. The three operating segments are: (1) Supply Chain Management (“SCM”), (2) Information Technology Consulting (“IT Consulting”) and (3) Other.

The SCM segment leverages a single platform spanning seven supply chain process areas, including product, demand, inventory, supply, deploy, integrated business planning and supply chain data management. The IT Consulting segment consists of The Proven Method, Inc., an IT staffing and consulting services firm. The Other segment consists of (i) American Software ERP, which provides purchasing and materials management, client order processing, financial, e-commerce and traditional manufacturing solutions, 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.

In the following table, we have broken down the intersegment transactions applicable to the three months ended July 31, 2023 and 2022 (in thousands):


	Three Months Ended July 31,
	2023		2022
Revenue:
Supply Chain Management	$	25,360	$	26,182
IT Consulting	3,266		4,515
Other	542		599
	$	29,168	$	31,296
Operating income\(loss):
Supply Chain Management	$	6,442	$	7,179
IT Consulting	176		215
Other	(5,051)		(4,837)
	$	1,567	$	2,557










Capital expenditures:
Supply Chain Management	$	350	$	1,439
IT Consulting	2		—
Other	115		133
	$	467	$	1,572





Depreciation and amortization:
Supply Chain Management	$	551	$	653
IT Consulting	—		—
Other	180		115
	$	731	$	768
Earnings\(loss) before income taxes:
Supply Chain Management	$	6,688	$	7,030
IT Consulting	178		215
Other	(3,412)		(4,569)
	$	3,454	$	2,676

Table of Contents

K. Major Clients

No single client accounted for more than 10% of total revenue for the three months ended July 31, 2023 and 2022.

Table of Contents

L. Contingencies

The Company more often than not indemnifies its clients against damages and costs resulting from third-party 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 indemnification obligations. However, the Company continues to monitor the circumstances that are subject to indemnification to identify whether it is probable that a loss has occurred, and would recognize any such losses under such indemnification obligations when they 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.

M. Subsequent Event

On August 23, 2023, 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 is payable on December 1, 2023 to Class A and Class B shareholders of record at the close of business on November 17, 2023.

Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q (this “Quarterly Report”) contains forward-looking statements relating to our future financial performance, business strategy, financing plans and other future events that involve uncertainties and risks. You can identify these statements by forward-looking words such as “anticipate,” “intend,” “plan,” “continue,” “could,” “grow,” “may,” “potential,” “predict,” “strive” “will,” “seek,” “estimate,” “believe,” “expect,” and similar expressions that convey uncertainty of future events or outcomes. Any forward-looking statements we make herein are pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements concerning future:

•results of operations;

•liquidity, cash flow and capital expenditures;

•demand for and pricing of our products and services;

•viability and effectiveness of strategic alliances;

•industry conditions and market conditions;

•acquisition activities and the effect of completed acquisitions; and

•general economic conditions.

Although we believe that the goals, plans, expectations, and prospects that our forward-looking statements reflect are reasonable in view of the information currently available to us, those statements are not guarantees of performance. There are many factors that could cause our actual results to differ materially from those anticipated by forward-looking statements made herein. These factors include, but are not limited to, continuing U.S. and global economic uncertainty, the timing and degree of business recovery, unpredictability and the irregular pattern of future revenue, dependence on particular market segments or clients, competitive pressures, delays, product liability and warranty claims and other risks associated with new product development, undetected software errors, market acceptance of our products, technological complexity, the challenges and risks associated with integration of acquired product lines, companies and services, as well as a number of other risk factors that could affect our future performance. All forward-looking statements included in this Quarterly Report are based upon information available to us as of the filing date of this Quarterly Report. We undertake no obligation to update any of these forward-looking statements for any reason. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance, or achievements to differ materially from those expressed or implied by these statements. We discuss certain factors in greater detail in “Business Overview” below.

ECONOMIC OVERVIEW

In July 2023, the International Monetary Fund (“IMF”) provided an update to the World Economic Outlook for 2023. The update noted that, “Global growth is projected to fall from an estimated 3.5 percent in 2022 to 3.0 percent in both 2023 and 2024. While the forecast for 2023 is modestly higher than predicted in the April 2023 World Economic Outlook (WEO), it remains weak by historical standards. The rise in central bank policy rates to fight inflation continues to weigh on economic activity. Global headline inflation is expected to fall from 8.7 percent in 2022 to 6.8 percent in 2023 and 5.2 percent in 2024. Underlying (core) inflation is projected to decline more gradually, and forecasts for inflation in 2024 have been revised upward.

The recent resolution of the US debt ceiling standoff and, earlier this year, strong action by authorities to contain turbulence in US and Swiss banking reduced the immediate risks of financial sector turmoil. This moderated adverse risks to the outlook. However, the balance of risks to global growth remains tilted to the downside. Inflation could remain high and even rise if further shocks occur, including those from an intensification of the war in Ukraine and extreme weather-related events, triggering more restrictive monetary policy. Financial sector turbulence could resume as markets adjust to further policy tightening by central banks. China’s recovery could slow, in part as a result of unresolved real estate problems, with negative cross-border spillovers. Sovereign debt distress could spread to a wider group of economies. On the upside, inflation could fall faster than expected, reducing the need for tight monetary policy, and domestic demand could again prove more resilient."

For fiscal 2024, 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

Table of Contents

any sustained economic rebound. That said, the current business climate within the United States and geographic regions in which we operate may affect clients’ and prospects' decisions regarding timing of strategic capital expenditures by taking longer periods to evaluate discretionary software purchases.

Corporate capital spending trends and commitments are the primary determinants of the size of the market for business software. Corporate capital spending is, in turn, a function of general economic conditions in the U.S. and abroad and in particular may be affected by conditions in U.S. and global credit markets. In recent years, the weakness in the overall global economy and the U.S. economy has resulted in reduced expenditures in the business software market.

COMPANY OVERVIEW

American Software was incorporated in Georgia in 1970. The Company is headquartered in Atlanta, Georgia with U.S. offices in Boston, Chicago, Miami and San Diego; and international offices in the United Kingdom, India, Germany, New Zealand and Australia.

We provide our software and services solutions through three major operating segments: (1) Supply Chain Management, (2) Information Technology Consulting and (3) Other. The SCM software business is our core market. We also offer technology staffing and consulting services through our wholly-owned subsidiary, The Proven Method, Inc., in the IT Consulting segment, and we continue to provide limited services to our legacy ERP clients included in the Other segment.

American Software delivers an innovative technical platform that enables enterprises to accelerate their digital supply chain optimization from product concept to client availability via the Logility Digital Supply Chain Platform, a single platform spanning seven supply chain process areas, including product, demand, inventory, supply, deploy, integrated business planning and supply chain data management, and new offerings, such as Corporate Responsibility - Environmental, Social, and Governance ("ESG") and Network Design Optimization aligned with Integrated Business Planning.

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, the comprehensive Logility portfolio delivered in the cloud includes advanced analytics, supply chain visibility, demand, inventory and replenishment planning, Sales and Operations Planning, Integrated Business Planning, supply and inventory optimization, manufacturing planning and scheduling, network design and optimization, retail merchandise and assortment planning and allocation, product lifecycle management, sourcing management, vendor quality and compliance, and product traceability.

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 solution 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 planning 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, improve sourcing of sustainable and ethically produced products, and contribute to high client satisfaction.

Our platform is highly regarded by clients and industry analysts alike. We are named a leader in multiple IDC MarketScape reports including; the September 2022 report IDC MarketScape: Worldwide Holistic Supply Chain Planning 2022 Vendor Assessment; the September 2022 report IDC MarketScape: Worldwide Supply Chain Supply Planning 2022 Vendor Assessment; the September 2022 report IDC MarketScape: Worldwide Supply Chain Sales and Operations Planning 2022 Vendor Assessment; and the September 2022 report IDC MarketScape: Worldwide Supply Chain Inventory Optimization 2022 Vendor Assessment. We were also named as a Major Player in the September 2022 IDC MarketScape: Worldwide Holistic Supply Planning 2022 Vendor Assessment.

We have been positioned in the Challenger quadrant in Gartner, Inc.’s May 2, 2023 report, Magic Quadrant for Supply Chain Planning Solutions and we are positioned in the Leadership quadrant in the Peer Insights for the Gartner Voice of the Customer. We believe our platform is rated highly due to our 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 860 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 solutions are marketed and sold through a direct sales team as well as an indirect global value-added reseller (“VAR”) distribution network. Our solutions may be

Table of Contents

deployed in the cloud or with existing on-premise clients who may require additional components. 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, maintenance and services. We generally determine SaaS subscription and software license 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, consulting services, hosting and managed 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, software licenses, services and maintenance billed in advance of the time we recognize the related revenue.

We currently view the following factors as the primary opportunities and risks associated with our business:

•Acquisition Opportunities. There are opportunities for selective acquisitions or investments to expand our sales distribution channels and/or broaden our product offering by providing additional solutions for our target markets.

•Dependence on Capital Spending Patterns. There is risk associated with our dependence on the capital spending patterns of U.S. and international businesses, which in turn are functions of economic trends and conditions over which we have no control.

•Acquisition Risks. There are risks associated with acquisitions of complementary companies, products and technologies, including the risks that we will not achieve the financial and strategic goals that we contemplate at the time of the transaction. More specifically, in any acquisition, we will face risks and challenges associated with 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.

•Competitive Technologies. There is a risk that our competitors may develop technologies that are substantially equivalent or superior to our technology.

•Competition in General. There are risks inherent in the market for business application software and related services, which has been and continues to be intensely competitive; for example, some of our competitors may become more aggressive with their prices and/or payment terms, which may adversely affect our profit margins.

A discussion of a number of additional risk factors associated with our business is included in our Annual Report for fiscal 2023. Additional information and other factors that could affect future financial results may be included, from time to time, in our filings with the Securities and Exchange Commission (“SEC”).

Recent Accounting Pronouncements

For information with respect to recent accounting pronouncements, if any, and the impact of these pronouncements on our Condensed Consolidated Financial Statements, if any, see Note A in the Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report.

Table of Contents

COMPARISON OF RESULTS OF OPERATIONS

Three-Month Comparisons. The following table sets forth certain revenue and expense items as a percentage of total revenue and the percentage changes in dollars for such items for the three months ended July 31, 2023 and 2022:


	Three Months Ended July 31,
	Percentage of Total Revenue				Pct. Change in Dollars
	2023		2022		2023 vs. 2022
Revenue:
Subscription fees	47	%	39	%	14	%
License	1	%	1	%	(10)	%
Professional services and other	24	%	32	%	(31)	%
Maintenance	28	%	28	%	(8)	%
Total revenue	100	%	100	%	(7)	%
Cost of revenue:
Subscription fees	14	%	12	%	17	%
License	—	%	—	%	(19)	%
Professional services and other	19	%	23	%	(23)	%
Maintenance	6	%	5	%	8	%
Total cost of revenue	39	%	40	%	(8)	%
Gross margin	61	%	60	%	(6)	%
Research and development	15	%	14	%	(5)	%
Sales and marketing	21	%	19	%	4	%
General and administrative	19	%	18	%	(3)	%

Total operating expenses	55	%	51	%	(1)	%
Operating income	6	%	9	%	(39)	%
Other income:

Other, net	6	%	—	%	nm
Earnings before income taxes	12	%	9	%	29	%
Income tax expense	2	%	2	%	30	%
Net earnings	10	%	7	%	29	%

nm - not meaningful

COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JULY 31, 2023 AND 2022

REVENUE


	Three Months Ended July 31,
							% of Total Revenue
	2023		2022		% Change		2023		2022
	(in thousands)
Subscription fees	$	13,764	$	12,062	14	%	47	%	39	%
License	289		320		(10)	%	1	%	1	%
Professional services and other	6,952		10,009		(31)	%	24	%	32	%
Maintenance	8,163		8,905		(8)	%	28	%	28	%
Total revenue	$	29,168	$	31,296	(7)	%	100	%	100	%

Table of Contents

For the three months ended July 31, 2023, revenue decreased by 7% when compared to the same period last year, which was attributable primarily to a 31% decrease in professional services and other revenue, a 10% increase in license revenue and a 8% decrease in maintenance revenue, partially offset by a 14% increase in subscription fees.

Due to intense competition in our industry, we sometimes discount SaaS and license fees from our published list price. Numerous factors contribute to the amount of the discount provided, such as previous client purchases, the number of client sites utilizing the software, the number of modules purchased and the number of users, as well as the overall size of the contract. While all these factors may affect the discount amount of a particular contract, the overall percentage discount has not materially changed in the recent reported fiscal periods.

The change in our revenue from period to period is primarily due to the volume of products and related services sold in any period and the number of products or modules purchased with each sale.

International revenue represented approximately 18% of total revenue in both the three months ended July 31, 2023 and July 31, 2022. Our revenue, particularly our international revenue, may fluctuate substantially from period to period, primarily because we derive most of our license and subscription fee revenue from a relatively small number of clients in a given period.

Subscription Fees


	Three Months Ended July 31,
	2023		2022		% Change
	(in thousands)
Supply Chain Management	$	13,764	$	12,062	14	%
Total subscription fees revenue	$	13,764	$	12,062	14	%

For the three months ended July 31, 2023, subscription fees revenue increased 14%, when compared to the same period in the prior year, primarily due to an increase in the number of contracts, including contracts with a higher cloud services annual contract value, as well as an increase in multi-year contracts. This further evidences by our successful transition to the cloud subscription model.

License Revenue


	Three Months Ended July 31,
	2023		2022		% Change
	(in thousands)
Supply Chain Management	$	273	$	304	(10)	%
Other	16		16		—	%
Total license revenue	$	289	$	320	(10)	%

For the three months ended July 31, 2023, license fee revenue decreased 10% when compared to the same period in the prior year, which was primarily attributable to our SCM segment. The majority of our current license fee revenue is generated from additional users and expanded scope from our existing on-premise clients. For the three months ended July 31, 2023 and 2022, our SCM segment constituted approximately 94% and 95% of total license fee revenue, respectively. Our Other segment revenue remained flat for the three months ended July 31, 2023 when compared to the same period in the prior year primarily due to timing of sales to our existing ERP clients.

The direct sales channel provided approximately 100% of license fee revenues for both the three months ended July 31, 2023 and 2022, due to larger customers obtained through our direct sales channel moving to the Cloud platform faster than those in the mid-sized market that are primarily served by our indirect sales channel. For the three months ended July 31, 2023 and 2022, our margins after commissions on direct sales were approximately 92% and 90%, respectively. The slight increase in margins is due to the mix of sales commission rates based on each individual salesperson’s quotas and related achievement. For the three months ended July 31, 2023 and 2022, our margins after commissions on indirect sales were approximately 56% and 58%, respectively. The indirect channel margins decreased for the three months ended July 31, 2023 compared to the same period in the prior year due to the mix of VAR commission rates. These margin calculations include only

Table of Contents

commission expense for comparative purposes and do not include other costs of license fees such as amortization of capitalized software.

Professional Services and Other Revenue

Three Months Ended July 31,

2023

2022

SEC Form 10-Q filed by American Software Inc.