AMERICAN SOFTWARE, INC. 
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."
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CRITICAL ACCOUNTING POLICIES AND ESTIMATES We have based the following discussion and analysis of financial condition and results of operations on our consolidated financial statements, which we have prepared in accordance withU.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 the 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 endedApril 30, 2021 , 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. We believe the critical accounting policies listed below affect significant judgments and estimates used in the preparation of the financial statements. Revenue Recognition. License. Our perpetual software licenses provide the customer with a right to use the software as it exists at the time of purchase. We recognize revenue for distinct software licenses once the license period has begun and we have made the software available to the customer. Our perpetual software licenses are sold with maintenance under which we provide customers with telephone consulting, product updates on a when and if available basis, and releases of new versions of products previously purchased by the customer, as well as error reporting and correction services. Subscription. Subscription fees include Software-as-a-Service ("SaaS") revenue for the right to use the software for a limited period of time in an environment hosted by the Company or by a third party. The customer accesses and uses the software on an as needed basis over the Internet or via a dedicated line; however, the customer has no right to take delivery of the software. The underlying arrangements typically include a single fee for the service that is billed monthly, quarterly or annually. The Company's SaaS solutions represent a series of distinct services that are substantially the same and have the same pattern of transfer to the customer. Revenue from a SaaS solution is generally recognized ratably over the term of the arrangement. Professional Services and Other. Our professional services revenue consists of fees generated from consulting, implementation and training services, including reimbursements of out-pocket expenses in connection with our services. These services are typically optional to our customers, and are distinct from our software. Fees for our professional services are separately priced and are generally billed on an hourly basis, and revenue is recognized over time as the services are performed. We believe the output method of hours worked provides the best depiction of the transfer of our services since the customer is receiving the benefit from our services as the work is performed. Reimbursements received from customers for out-of-pocket expenses were recorded in revenue and totaled approximately$20,000 ,$1.5 million , and$1.4 million for 2021, 2020 and 2019, respectively. Maintenance and Support. Revenue is derived from maintenance and support services, under which we provide customers with telephone consulting, product updates on a when and if available basis, and releases of new versions of products previously purchased by the customer, as well as error reporting and correction services. Maintenance for perpetual licenses is renewable, generally on an annual basis, at the option of the customer. Maintenance terms typically range from one to three years. Revenue related to maintenance is generally paid in advance and recognized ratably over the term of the agreement since the Company is standing ready to provide a series of maintenance services that are substantially the same each period over the term; therefore, time is the best measure of progress. Support services for subscriptions are included in the subscription fees and are recognized as a component of such fees. Indirect Channel Revenue. We record revenue from sales made through the indirect sales channels on a gross basis, because we control the goods or services and act as the principal in the transaction. In reaching this determination, we evaluate sales through our indirect channel on a case-by-case basis and consider a number of factors including indicators of control such as the party having the primary responsibility to provide specified goods or services, and the party having discretion in establishing prices. Sales Taxes. We account for sales taxes collected from customers on a net basis. 44
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Significant Judgments. Many of our contracts include multiple performance
obligations. Our products and services generally do not require a significant
amount of integration or interdependency; therefore, our products and services
are generally not combined. We allocate the transaction price for each contract
to each performance obligation based on the relative standalone selling price
(SSP) for each performance obligation within each contract.
We use judgment in determining the SSP for products and services. For
substantially all performance obligations except on-premise licenses, we are
able to establish SSP based on the observable prices of products or services
sold separately in comparable circumstances to similar customers. We typically
establish an SSP range for our products and services which is reassessed on a
periodic basis or when facts and circumstances change. Our on-premise licenses
have not historically been sold on a standalone basis, as the vast majority of
all customers elect to purchase on-premise license support contracts at the time
of a on-premise license purchase. Support contracts are generally priced as a
percentage of the net fees paid by the customer to access the on-premise
license. We are unable to establish the SSP for our on-premise licenses based on
observable prices given the same products are sold for a broad range of amounts
(that is, the selling price is highly variable) and a representative SSP is not
discernible from past transactions or other observable evidence. As a result,
the SSP for a on-premise license included in a contract with multiple
performance obligations is determined by applying a residual approach whereby
all other performance obligations within a contract are first allocated a
portion of the transaction price based upon their respective SSPs, with any
residual amount of transaction price allocated to on-premise license revenue.
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RESULTS OF OPERATIONS The following table sets forth certain revenue and expense items as a percentage of total revenue for the three years endedApril 30, 2021 , 2020, and 2019 and the percentage increases and decreases in those items for the years endedApril 30, 2021 and 2020: Pct. Change in Pct. Change in Percentage of Total Revenue Dollars Dollars 2021 2020 2019 2021 vs. 2020 2020 vs. 2019 Revenue: Subscription fees 26 % 19 % 13 % 31 % 57 % License fees 3 7 6 (61) 6 Professional services and other 35 37 39 (7) 1 Maintenance 36 37 42 (7) (5) Total revenue 100 100 100 (4) 6 Cost of revenue: Subscription fees 11 8 5 25 65 License fees 2 4 6 (60) (25) Professional services and other 26 27 29 (5) (2) Maintenance 7 6 8 3 (12) Total cost of revenue 46 45 48 (4) 1 Gross margin 54 55 52 (3) 11 Research and development 15 13 12 11 17 Sales and marketing 18 19 19 (8) 5 General and administrative 17 17 16 (2) 15 Amortization of acquisition-related intangibles - - - (26) (27) Total operating expenses 50 49 47 (1) % 11 Operating income 4 6 5 (28) 15 Other income: Interest income - 1 2 (73) (27) Other, net 4 (1) - (627) nm Earnings before income taxes 8 6 7 30 (11) Income tax expense 1 - 1 1255 (93) Net earnings 7 % 6 % 6 % 20 % (1) % nm - not meaningful Economic Overview and Significant Trends in Our Business For fiscal 2022, we expect the global economy to improve modestly when compared to recent periods. We believe information technology spending will incrementally improve over the long term as increased global competition forces companies to improve productivity by upgrading their technology systems, which could result in an improved selling environment. Although this improvement could slow or regress at any time, due in part to concerns related to the effects of the spread of the global virus and trade conflicts on global capital markets and general economic conditions, we believe that our organizational and financial structure will enable us to take advantage of any sustained economic rebound. While we do not expect that the COVID-19 pandemic will cause any material adverse changes on our business or financial results for fiscal 2022, we are unable to accurately predict the impact that the coronavirus will have due to various uncertainties, including the ultimate geographic spread of the virus, the severity of the disease, the duration of the outbreak, and actions that may be taken by governmental authorities. Customers continue to take long 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 theU.S. and abroad and in particular may be affected by conditions inU.S. and global credit markets. In recent years, the weakness in the overall global economy and theU.S. economy has resulted in reduced expenditures in the business software market. 46
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InApril 2021 , theInternational Monetary Fund ("IMF") provided an update to the World Economic Outlook for the 2021 and 2022 world economic growth forecast. The update noted that, "High uncertainty surrounds the global economic outlook, primarily related to the path of the pandemic. The contraction of activity in 2020 was unprecedented in living memory in its speed and synchronized nature. But it could have been a lot worse. Although difficult to pin down precisely,IMF staff estimates suggest that the contraction could have been three times as large if not for extraordinary policy support. Much remains to be done to beat back the pandemic and avoid divergence in income per capita across economies and persistent increases in inequality within countries. After an estimated contraction of -3.3 percent in 2020, the global economy is projected to grow at 6 percent in 2021, moderating to 4.4 percent in 2022. The contraction for 2020 is 1.1 percentage points smaller than projected in theOctober 2020 World Economic Outlook (WEO), reflecting the higher-than-expected growth out turns in the second half of the year for most regions after lockdowns were eased and as economies adapted to new ways of working. The projections for 2021 and 2022 are 0.8 percentage point and 0.2 percentage point stronger than in theOctober 2020 WEO, reflecting additional fiscal support in a few large economies and the anticipated vaccine-powered recovery in the second half of the year." As the economy improves from the COVID-19 decline, we believe that the recovery may drive some businesses to invest in achieving more process and efficiency enhancements in their operations and to invest in solutions that improve operating margins, rather than make large infrastructure-type technology purchases. If this trend continues, we believe it may tend to favor our supply chain solutions, which are designed to provide a more rapid return on investment and are targeted at some of the largest profit drivers in a customer's business. While the recent difficult economic environment has had a particularly adverse impact on the weaker companies in our target markets, we believe a large percentage of our customers are seeking to make investments to strengthen their operations, and some are taking advantage of current economic conditions to gain market share. We have taken steps to best ensure the health and safety of our employees globally. Our daily execution has evolved into a largely virtual model, and we continue to find innovative ways to engage with customers and prospects, ensuring that they are supported as they navigate through this unprecedented period. Business Opportunities and Risks We currently view the following factors as the primary opportunities and risks associated with our business: •Dependence on Capital Spending Patterns. There is risk associated with our dependence on the capital spending patterns ofU.S. and international businesses, which in turn are functions of economic trends and conditions over which we have no control. •Acquisition 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. •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 customers of the acquired business. •Competitive Technologies. There is a risk that our competitors may develop technologies that are substantially equivalent or superior to our technology. •Competition in General. There are risks inherent in the market for business application software and related services, which has been and continues to be intensely competitive; for example, some of our competitors may become more aggressive with their prices and/or payment terms, which may adversely affect our profit margins. For more information, please see "Risk Factors" in Item 1A. above. Recent Accounting Pronouncements 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. Market Conditions by Operating Segment 47
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We operate and manage our business in three segments based on software and services provided in three key product markets: (1) SCM, which provides collaborative supply chain solutions to streamline and optimize the production, distribution and management of products between trading partners; (2)IT Consulting , which consists of IT staffing and consulting services; and (3) Other, which consists of (i) American Software ERP, a provider of purchasing and materials management, customer order processing, financial, human resources, and manufacturing solutions, and (ii) unallocated corporate overhead expenses. The SCM segment includes the businesses ofLogility and DMI. Our SCM segment experienced a 5% decrease in revenue during fiscal 2021 when compared to fiscal 2020, primarily due to a 60% decrease in license fees, a 17% decrease in professional services and other revenue and an 8% decrease in maintenance revenue partially offset by a 31% increase in subscription fees. Our SCM segment experienced a 10% increase in revenue during fiscal 2020 when compared to fiscal 2019, primarily due to a 57% increase in subscription fees, a 12% increase in professional services and other revenue and a 5% increase in license fees partially offset by a 5% decrease in maintenance revenue. OurIT Consulting segment experienced an approximately 6% increase in revenue in fiscal 2021 when compared to fiscal 2020 and a 10% decrease in revenue in fiscal 2020 when compared to fiscal 2019, due primarily to fluctuations in IT staffing work at our largest customer. As companies have moved to cut costs and limit IT budgets, they have utilized more outsourcing services, which tend to be more cost effective for them. In the past, this trend has resulted in increased business for this segment. However, there is a countervailing trend to outsource IT to international markets that historically have been more price competitive than domestic sources like us. Our largest consulting customer comprised 29% of ourIT Consulting revenue in fiscal 2021, 33% in fiscal 2020 and 47% in fiscal 2019. The loss of this customer would negatively and materially affect ourIT Consulting business. The Other segment revenue decreased 14% in fiscal 2021 when compared to fiscal 2020, primarily due to a 93% decrease in license fees, a 13% decrease in professional services and other revenue and a 1% decrease in maintenance revenue. The Other segment revenue increased 2% in fiscal 2020 when compared to fiscal 2019, primarily due to a 70% increase in license fees and a 4% increase in professional services and other revenue, partially offset by a 6% decrease in maintenance revenue. REVENUE Years Ended April 30, % Change % of Total Revenue 2021 vs. 2020 vs. 2021 2020 2019 2020 2019 2021 2020 2019 (in thousands) Subscription fees$ 28,877 $ 22,033 $ 14,026 31 % 57 % 26 % 19 % 13 % License fees 2,993 7,582 7,126 (61) % 6 % 3 % 7 % 6 % Professional service and other 39,616 42,774 42,154 (7) % 1 % 35 % 37 % 39 % Maintenance 39,922 43,077 45,400 (7) % (5) % 36 % 37 % 42 % Total revenue$ 111,408 $ 115,466 $ 108,706 (4) % 6 % 100 % 100 % 100 % For the year endedApril 30, 2021 , the 4% decrease in total revenue was attributable primarily to a 61% decrease in license revenue, a 7% decrease in professional services and other revenue and a 7% decrease in maintenance revenue partially offset by a 31% increase in subscription fees revenue. For the year endedApril 30, 2020 , the 6% increase in total revenue was attributable primarily to a 57% increase in subscription fees revenue, a 6% increase in license revenue and a 1% increase in professional services and other revenue, partially offset by a 5% decrease in maintenance 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 customer purchases, the number of customer 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. 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 amounts of products or modules purchased with each sale. 48
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International revenue represented approximately 15% of total revenue for the year endedApril 30, 2021 , 19% of total revenue for the year endedApril 30, 2020 , and 20% for the year endedApril 30, 2019 . Our international revenue may fluctuate substantially from period to period primarily because we derive these revenue from a relatively small number of customers. Subscription Fees Revenue Years Ended April 30, % Change 2021 2020 2019 2021 vs. 2020 2020 vs. 2019 (in thousands) Supply Chain Management$ 28,877 $ 22,033 $ 14,026 31 % 57 % Total subscription fees revenue$ 28,877 $ 22,033 $ 14,026 31 % 57 % For the year endedApril 30, 2021 , subscription fee revenue increased by 31% when compared to the same period in the prior year primarily due to an increase in Cloud Services Annual Contract Value ("ACV") of approximately 53% to$26.4 million compared to$17.3 million in the same period of the prior year. This increase was attributable to an increase in the number of contracts, contracts with a higher Cloud Services 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. ACV is a forward-looking operating measure used by management to better understand Cloud Services (SaaS and other related cloud services) revenue trends within our business, as it reflects our current estimate of revenue to be generated under existing client contracts in the forward 12-month period. License Fees Revenue Years Ended April 30, % Change 2021 2020 2019 2021
vs. 2020 2020 vs. 2019
(in thousands)
Supply Chain Management $ 2,977 $ 7,354 $ 6,992 (60) % 5 %
Other 16 228 134 (93) % 70 %
Total license fees revenue $ 2,993 $ 7,582 $ 7,126 (61) % 6 %
For the year ended April 30, 2021 , license fee revenue decreased by 61% when
compared to the previous year. Our Other business segment experienced a 93%
decrease in license fees for the year ended April 30, 2021 when compared to the
same period in the prior year due to the timing of selling into the installed
customer base. Our SCM segment experienced a 60% decrease in license fees
primarily due to a decrease in the number of new customers choosing to deploy
our software on-premise this year. We anticipate that the majority of future
license fee sales will be to existing on-premise customers for add-on expansion.
The SCM segment constituted 99%, 97% and 98% of our total license fee revenue
for the years ended April 30, 2021 , 2020 and 2019, respectively.
For the year ended April 30, 2020 , license fee revenue increased by 6% when
compared to the previous year. Our Other business segment experienced a 70%
increase in license fees for the year ended April 30, 2020 when compared to the
same period in the prior year due to the timing of selling into the installed
customer base. SCM experienced a 5% increase in license fees primarily due to a
few new customers choosing to deploy our software on-premise. SCM constituted
97% and 98% of our total license fee revenue for the years ended April 30, 2020
and 2019, respectively.
The direct sales channel provided approximately 83% of license fee revenue for
the year ended April 30, 2021 , compared to approximately 92% in fiscal 2020 and
84% in fiscal 2019. The decrease in direct license fees from fiscal 2020 to
fiscal 2021 was largely due to one large license fee deal to a new customer last
year compared to none this year. The increase in direct license fees from fiscal
2019 to fiscal 2020 was largely due to our indirect channel selling
proportionately more SaaS than license contracts compared to our direct channel.
For the year ended April 30, 2021 , our margins after commissions on direct sales
were approximately 84%, and our margins after commissions on indirect sales were
approximately 58%. For the year ended April 30, 2020 , our margins after
commissions on
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direct sales were approximately 88%, and our margins after commissions on indirect sales were approximately 53%. For the year endedApril 30, 2019 , our margins after commissions on direct sales were approximately 87%, and our margins after commissions on indirect sales were approximately 55%. The margins after commissions for direct sales were relatively consistent, between 84% to 88%, while the range for indirect sales had a wider spread of 53% to 58%. The indirect channel margins for the fiscal year endedApril 30, 2021 increased when compared to the same periods in the prior year due to the mix of value-added reseller ("VAR") commission rates. DMI is responsible for the bulk of our indirect sales and the commission percentage varies based on whether the sale is domestic or international. Professional Services and Other Revenue Years Ended April 30, % Change 2021 2020 2019 2021 vs. 2020 2020 vs. 2019 (in thousands) Supply Chain Management$ 19,713 $ 23,782 $ 21,190 (17) % 12 % IT Consulting 19,036 17,997 20,007 6 % (10) % Other 867 995 957 (13) % 4 % Total professional services and other revenue$ 39,616 $ 42,774 $ 42,154 (7) % 1 % The 7% decrease in total professional services and other revenue for the year endedApril 30, 2021 was due to a 17% decrease in our SCM segment professional services due primarily due to lower implementation project work resulting from lower subscription and license fee sales in the first three quarters of fiscal 2021, combined with a 13% decrease in our Other segment due to lower utilization from project implementation services and services activity. This increase was partially offset by a 6% increase in our IT consulting segment due to the timing of project work. The 1% increase in total professional services and other revenue for the year endedApril 30, 2020 was due to a 12% increase from our SCM segment due primarily due to a ramp up of implementation project work resulting from increased subscription and license fee sales in recent periods, combined with a 4% increase in our Other segment due to utilization from project implementation services and services revenue. This increase was partially offset by an 10% decrease in our IT consulting segment due to the timing of project work. In our software segments, we have observed that there is a tendency for professional services and other revenue to lag changes in license revenue by one to three quarters, as new licenses in one quarter often involve implementation and consulting services in subsequent quarters, for which we recognize revenue only as we perform those services. Maintenance Revenue Years Ended April 30, % Change 2021 2020 2019 2021
vs. 2020 2020 vs. 2019
(in thousands)
Supply Chain Management $ 38,701 $ 41,848 $ 44,088 (8) % (5) %
Other 1,221 1,229 1,312 (1) % (6) %
Total maintenance revenue $ 39,922 $ 43,077 $ 45,400 (7) % (5) %
The 7% decrease in total maintenance revenue for the year ended April 30, 2021
was due to a 1% decrease in our Other segment due to fewer customer renewals and
an 8% decrease in maintenance revenue from our SCM segment due to normal
customer attrition and customers converting from on-premise support to our SaaS
cloud platform.
The 5% decrease in total maintenance revenue for the year ended April 30, 2020
was due to a 6% decrease in our Other segment due to fewer customer renewals and
a 5% decrease in maintenance revenue from our SCM segment due to normal customer
attrition.
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The SCM segment's maintenance revenue constituted 97% of total maintenance
revenue for the years ended
GROSS MARGIN The following table provides both dollar amounts and percentage measures of gross margin:
Years Ended April 30,
2021 2020 2019
(in thousands)
Gross margin on subscriptions fees $ 16,993 59 % $ 12,542 57 % 8,267 59 %
Gross margin on license fees 1,072 36 % 2,784 37 % 696 10 %
Gross margin on professional services and other 10,523 27 % 12,079 28 % 10,733 25 %
Gross margin on maintenance 32,392 81 % 35,753 83 % 37,044 82 %
Total gross margin $ 60,980 54 % $ 63,158 55 % $ 56,740 52 %
The total gross margin percentage for the year ended April 30, 2021 decreased to
54% when compared to the same period in the prior year due to decreases in gross
margin percentage for professional services and other gross margins, license
fees margins and maintenance gross margins, partially offset by an increase in
subscription fees. The total gross margin percentage for the year ended
April 30, 2020 increased to 55% when compared to the same period in the prior
year due to increases in gross margin percentage for license fees, professional
services and other gross margins and maintenance gross margins, partially offset
by a decrease in subscription fees margins.
Gross Margin on Subscription Fees
For the year ended April 30, 2021 , our gross margin percentage on subscription
fees increased from 57% in fiscal 2020 to 59% primarily due to an increase in
subscription revenue and lower capitalized software amortization expense.
For the year ended April 30, 2020 , our gross margin percentage on subscription
fees decreased from 59% in fiscal 2019 to 57% primarily due to an increase in
capitalized software amortization expense.
Gross Margin on License Fees
The decrease in license fee gross margin percentage for the year ended April 30,
2021 when compared to fiscal 2020 was primarily due to lower license fee
revenue.
The increase in license fee gross margin percentage for the year ended April 30,
2020 when compared to fiscal 2019 was primarily due to lower agent commission
and amortization of intangibles expense and to a lesser extent higher license
fee revenue.
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.
Gross Margin on Professional Services and Other
For the year ended April 30, 2021 , our gross margin percentage on professional
services and other decreased from 28% in fiscal 2020 to 27% primarily because
our IT Consulting segment professional services and other revenue gross margin
decreased from 18% in fiscal 2020 to 17% in fiscal 2021 due to a decrease in
project utilization rates. Our other segment decreased from 53% in fiscal 2020
to 41% in fiscal 2021 due to a slower ramp up of project work. Our SCM segment
professional services and other gross margin was 35% for both fiscal 2021 and
fiscal 2020.
For the year ended April 30, 2020 , our gross margin percentage on professional
services and other increased from 25% in fiscal 2019 to 28% due to increased
gross margins in our SCM segment which increased from 28% in fiscal 2019 to 35%
in fiscal 2020 due to increased revenue and higher billing utilization. Our IT
Consulting segment professional services and other revenue
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gross margin decreased from 22% in fiscal 2019 to 18% in fiscal 2020 due to a decrease in project related billing. Our other segment increased from 47% in fiscal 2019 to 53% in fiscal 2020 due to improved billing utilization rates. As discussed above, ourIT Consulting segment typically has lower margins when compared to the Other segments that have higher margin implementation service revenue.The IT Consulting segment was 48%, 42% and 47% of the Company's professional services and other revenue in fiscal 2021, 2020 and 2019, respectively. Our SCM segment was 50%, 56% and 50% of the Company's professional services and other revenue in fiscal 2021, 2020 and 2019, respectively. Our Other segment was 2%, 2% and 3% of the Company's professional services and other revenue in fiscal 2021, 2020 and 2019, respectively. Gross Margin on Maintenance Maintenance gross margin decreased to 81% in fiscal 2021 from 83% in fiscal 2020 due to lower maintenance revenue cost containment efforts. The primary cost component is maintenance staffing, which is relatively inelastic in the short term. Maintenance gross margin increased to 83% in fiscal 2020 from 82% in fiscal 2019 due to cost containment efforts. The primary cost component is maintenance staffing, which is relatively inelastic in the short term. EXPENSES Years Ended April 30, % of Revenue 2021 2020 2019 2021 2020 2019 (in thousands) Research and development$ 16,964 $ 15,348 $ 13,078 15 % 13 % 12 % Sales and marketing 20,304 21,958 20,992 18 % 19 % 19 % General and administrative 19,139 19,519 17,006 17 % 17 % 16 % Amortization of acquisition-related intangible assets 212 285 388 - % - % - % Other income, net 4,487 750 2,365 4 % - % 2 % Income tax expense 759 56 838 1 % - % 1 % Research and Development Gross product research and development costs include all non-capitalized and capitalized software development costs. A breakdown of the research and development costs is as follows: Years Ended April 30, Percent Percent 2021 Change 2020 Change 2019 Total capitalized computer software development costs$ 620 (80) %$ 3,170 (47) %$ 5,961 Percentage of gross product research and development costs 4 % 17 % 31 % Total research and development expense 16,964 11 % 15,348 17 % 13,078 Percentage of total revenue 15 % 13 % 12 % Total research and development expense and capitalized computer software development costs$ 17,584 (5) %$ 18,518 (3) %$ 19,039 Percentage of total revenue 16 % 16 % 18 % Total amortization of capitalized computer software development costs*$ 4,215 (28) %$ 5,871 27 %$ 4,627 ______________ * Included in cost of license fees and cost of subscription fees. For the year endedApril 30, 2021 , gross product research and development costs and capitalized software development costs decreased by 5% primarily due to a decrease in headcount from third-party contractors compared to fiscal 2020. Capitalized software development costs decreased in fiscal 2021 compared to fiscal 2020 due to the timing of project work and an increase in agile software programming that accelerates the software releases to weeks from months. We expect capitalized software to be 52
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immaterial in fiscal 2022. Amortization of capitalized software development decreased 28% in fiscal 2021 when compared to fiscal 2020 as some projects were fully amortized. For the year endedApril 30, 2020 , gross product research and development costs and capitalized software development costs decreased by 3% primarily due to a decrease in headcount from third-party contractors compared to fiscal 2019. Capitalized software development costs decreased in fiscal 2020 compared to fiscal 2019 due to the timing of project work. Amortization of capitalized software development increased 27% in fiscal 2020 when compared to fiscal 2019 due to the timing of project releases. Sales and Marketing For the year endedApril 30, 2021 , the decrease in sales and marketing expenses compared to fiscal 2020 was due primarily to lower marketing spend, including a reduction in trade shows and conferences and lower travel costs due to COVID-19. Fiscal 2021 was impacted by COVID-19 for the entire year versus fiscal 2020. For the year endedApril 30, 2020 , the increase in sales and marketing expenses compared to fiscal 2019 was due primarily to an increase in headcount, higher variable compensation, higher sales commissions, an increase in contractor costs and an increase in recruiting fees, which was partially offset by lower marketing spend and lower travel costs due to COVID-19. General and Administrative For the year endedApril 30, 2021 , general and administrative expenses remained relatively flat when compared to fiscal 2020 primarily due to a reduction in variable compensation, legal fees and cost containment efforts of overhead costs, partially offset by an increase in insurance and benefit expenses. For the year endedApril 30, 2020 , the increase in general and administrative expenses compared to fiscal 2019 was primarily due to higher variable compensation and higher overhead costs and, to a lesser extent, higher legal, stock option and insurance costs. The total number of employees was 424 onApril 30, 2021 , 428 onApril 30, 2020 and 424 onApril 30, 2019 . Amortization of Acquisition-related Intangible Assets For the year endedApril 30, 2021 , we recorded$0.8 million in intangible amortization expense, of which$0.2 million is included in operating expenses and$0.6 million is included in cost of license fees. For the year endedApril 30, 2020 , we recorded$1.6 million in intangible amortization expense, of which$0.3 million is included in operating expenses and$1.3 million is included in cost of license fees. Operating Income/(Loss) Years Ended April 30, % Change 2021 2020 2019 2021
vs. 2020 2020 vs. 2019
(in thousands)
Supply Chain Management $ 18,922 $ 19,612 $ 15,967 (4) % 23 %
IT Consulting 456 332 964 37 % (66) %
Other* (15,017) (13,896) (11,655) 8 % 19 %
Total Operating Income $ 4,361 $ 6,048 $ 5,276 (28) % 15 %
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* Includes certain unallocated expenses. Our SCM segment operating income decreased by 4% in fiscal 2021 compared to fiscal 2020 primarily due to a 5% decrease in revenue. Our SCM segment operating income increased by 23% in fiscal 2020 compared to fiscal 2019 primarily due to a 10% increase in revenue. OurIT Consulting segment operating income increased 37% in fiscal 2021 compared to fiscal 2020 primarily due to a 6% increase in revenue due to the type of project billing. OurIT Consulting segment operating income decreased 66% in fiscal 2020 compared to fiscal 2019 primarily due to a decrease in revenue and lower gross margins due to the type of project billing. 53
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The increase in the Other segment operating loss in fiscal 2021 when compared to fiscal 2020 was due primarily to a 14% decrease in revenue and an increase in variable compensation and benefit costs. The increase in the Other segment operating loss in fiscal 2020 when compared to fiscal 2019 was due primarily to an increase in variable compensation and overhead costs, partially offset by a 2% increase in revenue in fiscal 2020. Other Income 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$4.5 million in the year endedApril 30, 2021 compared to$0.8 million in fiscal 2020. The increase was primarily due to unrealized gains of$3.6 million in fiscal 2021 compared to unrealized losses of$0.1 million for the same period last year, lower interest income of$0.4 million in fiscal 2021 compared to$1.5 million in fiscal 2020 and exchange rate gains of approximately$53,000 compared to losses of$605,000 for the same period last year. Other income was approximately$0.8 million in the year endedApril 30, 2020 compared to$2.4 million in fiscal 2019. The decrease was primarily due to unrealized losses of$0.1 million in fiscal 2020 compared to unrealized gains of$1.0 million in fiscal 2019, lower interest income of$1.5 million in fiscal 2020 compared to$2.1 million in fiscal 2019 and higher exchange rate losses of approximately$605,000 compared to$486,000 for the same period last year. For the years endedApril 30, 2021 and 2020, our investments generated an annualized yield of approximately 1.7% and 1.4%, respectively. Income Taxes During the year endedApril 30, 2021 , we recorded income tax expense of$759,000 compared to$56,000 in fiscal 2020 and$838,000 in fiscal 2019. Our effective income tax rate takes into account the source of taxable income by state and available income tax credits. Our effective tax rate was 8.6%, 1%, and 11% in fiscal 2021, 2020 and 2019, respectively. The effective tax rate for fiscal 2021 is higher compared to fiscal 2020 due to a decrease in the amount of excess tax benefits from stock option deductions and a decrease in foreign tax credits. Operating Pattern We experience an irregular pattern of quarterly and annual operating results, caused primarily by fluctuations in both the number and size of software contracts received and delivered from quarter to quarter and our ability to recognize revenue in that quarter and annually in accordance with our revenue recognition policies. We expect this pattern to continue. LIQUIDITY AND CAPITAL RESOURCES Sources and Uses of Cash We have historically funded, and continue to fund, our operations and capital expenditures primarily with cash generated from operating activities. The changes in net cash that our operating activities provide generally reflect the changes in net earnings and non-cash operating items plus the effect of changes in operating assets and liabilities, such as investment trading securities, trade accounts receivable, trade accounts payable, accrued expenses and deferred revenue. We have no debt obligations or off-balance sheet financing arrangements, and therefore we used no cash for debt service purposes. The following tables provide information about our cash flows and liquidity positions as of and for the fiscal years endedApril 30, 2021 , 2020 and 2019. You should read these tables and the discussion that follows in conjunction with our consolidated statements of cash flows contained in Item 8 of this report. Years ended April 30, 2021 2020 2019 (in thousands) Net cash provided by operating activities$ 17,756 $ 25,982 $ 23,930 Net cash used in investing activities (1,298) (3,590) (7,213) Net cash used in financing activities (7,614) (3,866) (8,223) Net change in cash and cash equivalents$ 8,844 $ 18,526 $ 8,494 The decrease in cash provided by operating activities in fiscal 2021 compared to fiscal 2020 was due primarily to: (1) a decrease in the net proceeds from sales and maturities of trading securities due to timing of sales and maturity dates, (2) unrealized 54
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gains on investments due to timing of sales of investments, (3) lower depreciation and amortization expense due to several capitalized software projects and intangible assets being fully amortized and (4) a lower increase in accounts payable and other liabilities during fiscal 2021, when compared to a higher increase in fiscal 2020 due primarily to timing and the amount of sales commissions and bonuses. These factors were partially offset by: (1) a decrease in the purchases of trading securities due to timing, (2) the decrease in accounts receivable was more significant in fiscal 2020 compared to fiscal 2021 due to timing of sales and billing, (3) an increase in prepaid expenses and other assets in fiscal 2021 compared to the decrease in fiscal 2020 due to timing of purchases, (4) an increase in deferred revenue in fiscal 2021 when compared to fiscal 2020 primarily due to the timing of cloud and maintenance revenue recognition, (5) an increase in net earnings, (6) higher stock-based compensation expense in fiscal 2021 due to an increase in options granted and (7) a decrease in deferred income taxes in fiscal 2021 compared to fiscal 2020 due to timing. The decrease in cash used in investing activities in fiscal 2021 compared to cash used in investing activities in fiscal 2020 was due to: a decrease in capitalized software development costs due to the timing of R&D efforts and partially offset by higher purchases of equipment. The increase in cash used in financing activities in fiscal 2021 when compared to fiscal 2020 was due primarily to: a decrease in proceeds from exercise of stock options, partially offset by an increase in cash dividends paid on common stock in fiscal 2021 due to an increase in the number of shares outstanding.
The following table provides information regarding the changes in our total cash and investments position:
As of April 30,
2021 2020
(in thousands)
Cash and cash equivalents $ 88,658 $ 79,814
Investments 16,006 14,862
Total cash and investments $ 104,664 $ 94,676 Net increase in total cash and investments 9,988 6,194
As ofApril 30, 2021 , we had$104.7 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 85 and 78 days as ofApril 30, 2021 andApril 30, 2020 , respectively. Our current ratio onApril 30, 2021 was 2.7 to 1, compared to 2.9 to 1 onApril 30, 2020 . 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 customer buying patterns, the timing of customer 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. OnAugust 19, 2002 , our Board of Directors approved a resolution authorizing the repurchase of up to 2.0 million shares of our Class A common stock. These repurchases have been and will be made through open market purchases at prevailing market prices. The timing of any repurchases will depend upon market conditions, the market price of our common stock and management's assessment of our liquidity and cash flow needs. For this repurchase plan, throughApril 30, 2021 , we have repurchased 1,053,679 shares of common stock at a cost of approximately$6.2 million . Under all repurchase plans as ofApril 30, 2021 , we have repurchased 4,588,632 shares of common stock at a cost of approximately$25.6 million . Off-Balance Sheet Arrangements We are not a party to any off-balance sheet arrangements that have, or are reasonably likely to have, a material current or future effect on our financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources. 55
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See Item 5 of this report, under the caption "Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases ofEquity Securities ." ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Foreign Currency. For the fiscal years endedApril 30, 2021 and 2020, we generated 15% and 19%, respectively, of our revenue outside ofthe United States . We typically denominate our international sales inU.S. dollars, euros or British pounds sterling. Our consolidated financial statements are presented inU.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 gains of approximately$0.1 million in fiscal 2021, compared to exchange rate losses of$0.6 million in fiscal 2020. We estimate that a 10% movement in foreign currency rates would have the effect of creating an exchange gain or loss of approximately$0.4 million for fiscal 2021. Interest Rates and Other Market Risks. 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 inU.S. dollars. The fair market value of our cash equivalents and investments increased 8% to approximately$97.7 million in fiscal 2021 from$90.1 million in the prior year. We also hold cash balances in accounts with commercial banks inthe 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 outsidethe 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. 56
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