Item 1. BUSINESS
Special Cautionary Notice Regarding Forward-Looking Statements
We believe that it is important to communicate our future expectations to our shareholders and to the public. This report contains forward-looking statements, including, in particular, statements about our goals, plans, objectives, beliefs, expectations and prospects under the headings “Item 1. Business” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” You can identify these statements by forward-looking words such as “anticipate,” “intend,” “plan,” “continue,” “could,” “grow,” “may,” “potential,” “predict,” “strive,” “will,” “seek,” “estimate,” “believe,” “expect,” and similar expressions that convey uncertainty about future events or outcomes. Any forward-looking statements herein are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements concerning future:
•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 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 reflected by our forward-looking statements are reasonable based on the information currently available to us, those statements are not guarantees of performance. There are a number of factors that could cause actual results or performance to differ materially from what is anticipated by statements made herein. These factors include, but are not limited to, continuing U.S. and global economic uncertainty and the timing and degree of business recovery; the irregular pattern of our revenue; dependence on particular market segments or clients; competitive pressures; market acceptance of our products and services; technological complexity; undetected software errors; potential product liability or warranty claims; risks associated with new product development; the challenges and risks associated with integration of acquired product lines, companies and services; uncertainty about the viability and effectiveness of strategic alliances; as well as a number of other risk factors that could affect our future performance. Factors that could cause or contribute to such differences include, but are not limited to, those we discuss under the section captioned “Risk Factors” in Item 1A. of this Form 10-K as well as the cautionary statements and other factors that we discuss in other sections of this Form 10-K.
Company Overview
American Software, Inc. (“American Software” or the “Company”) was incorporated in Georgia in 1970. The Company is headquartered in Atlanta, Georgia with U.S. offices in Boston, Chicago, Dallas, St. Louis, 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 (“SCM”), (2) Information Technology Consulting (“IT 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 enterprise resource planning (“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 Product, Demand, Inventory, Supply and Deploy aligned with Integrated Business Planning. Our Logility Digital Supply Chain Platform includes advanced analytics and is fueled by supply chain master data, allowing for the automation of critical business processes through the application of artificial intelligence and machine learning algorithms to a variety of internal and external data streams.
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 continuously analyze business and market signals to better inform product design and development, increase forecast accuracy, optimize inventory across the supply chain source products sustainability and ethically, and ensure 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 2020 report IDC MarketScape: Worldwide PLM Applications for Apparel, Footwear, and Retail Brands 2020 Vendor Assessment; the January 2020 report IDC MarketScape: Worldwide Supply Chain Supply Planning 2019 Vendor Assessment; and the January 2020 report IDC MarketScape: Worldwide Supply Chain Demand Planning 2019 Vendor Assessment.
We have been positioned in the Challenger quadrant in Gartner, Inc.’s (“Gartner”) May 17, 2022 report, Magic Quadrant for Supply Chain Planning Solutions. 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 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.
Market Opportunity
Today’s manufacturers, distributors and retailers must respond to rising consumer expectations to buy anywhere, deliver anywhere and return anywhere, even as global economic conditions and competitive pressures force businesses to reduce costs, decrease order cycle times and improve operating efficiencies. To meet these demands, we believe businesses must dramatically improve the performance of their supply chains, which can only be achieved through automation, artificial intelligence and advanced analytics. We leverage artificial intelligence and machine learning algorithms throughout our supply chain management software platform, enabling enterprises to accelerate the cycle time from product concept to client availability.
Supply chain management refers to the process of managing the complex global network of relationships that organizations maintain with external trading partners (clients and suppliers) to design products, forecast demand, source supply, manufacture products, distribute and allocate inventory and deliver goods and services to the end client. Supply chain management involves the activities related to sourcing and supplying and merchandising products or services as well as the sales and marketing activities that influence the demand for goods and services, such as new product introductions, promotions, pricing and forecasting. Additional aspects of supply chain management include comprehensive sales and operations planning (“S&OP”) as well as product lifecycle management (“PLM”), product sourcing quality and vendor compliance, to ensure the right products are brought to market on time and in good condition. Companies that effectively communicate, collaborate and integrate with their trading partners across the multi-enterprise network or supply chain can realize significant competitive advantages in the form of lower costs, greater customer loyalty, reduced stock-outs, more efficient sourcing, reduced inventory levels, synchronized supply and demand and increased revenue.
Gartner’s December 2021 report, Forecast: Enterprise Application Software, Worldwide, 2019-2025, 4Q21 Update, predicts spending on Supply Chain Management software solutions will exceed $20 billion in 2022 and reach $31 billion by 2025. This represents a compounded annual growth rate (“CAGR”) of 14.6% through 2025. Within the Supply Chain Management software market, Gartner includes solutions for supply chain planning, supply chain execution and procurement.
We focus primarily on supply chain planning processes and certain procurement and sourcing functions, which we estimate account for approximately one-third of the Supply Chain Management software market as defined by Gartner. Our platform includes more than thirty components spanning seven key supply chain planning processes that clients may adopt independently or as a comprehensive solution platform. We believe our opportunity to cross-sell and up-sell existing clients is significant, given the potential for clients to adopt additional components over time. Within the sourcing function, organizations are increasing their focus on vendor compliance and sourcing linked with supply chain planning and other enterprise applications, in order to increase the efficient and effective fulfillment of customer orders in both the business-to-business and the business-to-consumer sectors. These multi-enterprise supply chains have heightened the need for robust supply chain master data management (“MDM”) to provide an accurate digital twin of the supply chain network, allowing enterprises to quickly plan strategically and accurately respond to dynamic market conditions to take advantage of business opportunities and mitigate risk.
Company Strategy
Our goal is to deliver the fastest time to value for our clients to achieve an agile, resilient and higher velocity sustainable supply chain. Our strategy includes the following key elements:
Create Sustainable Supply Chains for Our Clients. By enabling our clients to shorten their supply chains, reduce energy consumption, reduce water usage, increase the use of recyclable material, enforce proper labor practices and track products through their entire lifecycle, we enable them to achieve more sustainable operations and improve conditions in the world in which we live.
Expand Strategic Relationships. We are increasingly working with industry-leading consultants and other software and services providers. Our strategic partnerships help us to grow more quickly and to more efficiently deliver our products and services. We intend to continue to develop strategic relationships with systems integrators and other providers to combine our software solutions with their services and products and create joint marketing and co-development opportunities.
Acquire or Invest in Complementary Businesses, Products and Technologies. We believe that selective acquisitions or investments may offer opportunities to broaden our product offering for our target markets. We will evaluate acquisitions or investments that will provide us with complementary products and technologies, expand our geographic presence and distribution channels, penetrate additional vertical markets with challenges and requirements similar to those we currently meet, and further solidify our leadership position within the SCM market.
Products and Services
We provide a comprehensive, cloud-architected supply chain management platform that helps our clients manage seven critical planning processes, Product, Demand, Inventory, Supply, Deploy, Integrated Business Planning and Supply Chain Data Management. Within each of these process areas, we offer one or more components that clients may leverage independently, in combination, or as a comprehensive solution platform, either in the cloud or on-premise. Our supply chain MDM platform and advanced analytics capabilities enable clients to derive new insights and automate planning processes that continuously analyze demand, production, supply and distribution signals to inform product design and development, increase forecast accuracy, optimize inventory across the global supply chain and in-store, and ensure high client satisfaction.
While clients can use our software applications individually, we have designed them to be combined as integrated systems to meet specific client requirements. Clients may select virtually any combination of components to form an integrated solution for a particular business problem, from a single module to a multi-module, multiple-user solution incorporating our full range of products.
Our platform, which may be deployed as a hosted SaaS solution or on-premise, encompasses the following processes and associated components:
Product: Streamlines moving product concepts to market, rationalizes complex product lines, and drives smart assortment plans and allocation strategies. Includes merchandise and assortment planning, product lifecycle management, and traceability.
Demand: Improves prediction of true market demand, new product introductions and phase-outs, short life cycle products and promotions. Includes demand planning and optimization, demand sensing, pricing and promotion analysis, causal forecasting, life cycle planning, and proportional profile planning.
Inventory: Minimizes cost and reduces risk while meeting customer service requirements with multi-echelon inventory optimization (MEIO). Includes inventory planning and optimization.
Supply: Maximizes cost-effective throughput and satisfies market demand every day. Includes supply planning and optimization, manufacturing planning and optimization, vendor management, quality control and compliance, and sourcing management.
Deploy: Positions supply to quickly meet demand requirements with smart allocation. Includes allocation, and automated order promising.
Integrated Business Planning: Guides business resources to meet revenue, profitability and customer service goals. Includes annual planning, long-term planning, S&OP.
Supply Chain Data Management: Gains access to tailored data integration, machine learning and advanced analytics without the headaches of custom development. Includes data management, machine learning and artificial intelligence, and advanced analytics.
Additional Products and Services
Through our wholly-owned subsidiary, The Proven Method, Inc., we provide technology staffing and services to a diverse client base to solve business issues. These services include professional services, product management, and project management outsourcing; staff augmentation for cloud, collaboration, network and security; and social media and analytic marketing.
We also continue to provide software, support and services related to our legacy American Software ERP products, which include our e-Intelliprise solution and e-applications for various integrated business functions.
Client Support and Maintenance
We provide our clients with ongoing product support services, which are included in subscription fees. For licenses, we enter into support or maintenance contracts with clients for an initial one- to three-year term, billed annually in advance, with renewal for additional periods thereafter. Under both subscription and license contracts, we provide telephone consulting, product updates and releases of new versions of products previously purchased by the client, as well as error reporting and correction services. We provide ongoing support and maintenance services on a seven-days-a-week, 24-hours-a-day basis through telephone, email and web-based support, using a call logging and tracking system for quality assurance.
Consulting Services
Clients frequently require services beyond our standard support and maintenance. To meet those clients’ needs, our professional services team provides specialized business and software implementation consulting, development and configuration, system-to-system interfacing and extensive training and certification. We offer these services for an additional fee, usually based upon time and materials utilized. We provide the following professional services to our clients:
Cloud Hosting and Managed Services. Our clients can deploy our solutions in a hosted or on-premise environment. Companies may choose and then adjust the deployment methodology and services that best suit their individual needs as their business changes and their IT strategies evolve. Managed Services leverage our resources to assist and augment the client’s technical and operational needs on a day-to-day basis. We also have some clients for which we operate the solution on a daily basis in support of their supply chain operations.
Implementation and Training Services. We offer our clients a professional and proven program that facilitates rapid implementation of our software products. Our consultants help clients define the nature of their project and proceed through the implementation process. We establish measurable financial and logistical performance indicators and then evaluate them for conformance during and after implementation. We offer training for all users and managers. Implementation of our products typically requires three to nine months, depending on factors such as the complexity of a client’s existing systems, breadth of functionality, and number of business units and users.
We also offer our clients post-delivery professional services consisting primarily of implementation and training services, for which we typically charge on a daily basis. Clients that invest in implementation services receive assistance in integrating our solution with existing enterprise software applications and databases. Additional services may include post-implementation reviews and benchmarks to further enhance the benefits to clients, and training and user certification programs can help our clients gain even greater benefits from our robust planning platform.
Clients
We deliver our solutions and services to clients in a variety of industries, including apparel and other soft goods, food and beverage, fast moving consumer goods, consumer durable goods and process and chemical manufacturing. A sample of companies that we have served in the past two years is as follows:
| | | | | | | | | | | | | | |
| Consumer Goods | Berry Global | Niagara Bottling | Parker Hannifin Corporation | PVH Corp. |
| Ancestry.com Inc. | Birchwood Laboratories LLC | Peet's Coffee, Inc. | Pattonair Ltd. | Red Wing Shoe Company |
| Blue Buffalo | Bridgestone Australia Ltd | Ready Pac Foods, Inc. | Sandvik | Renfro |
| Bondi Sands Australia Pty Ltd | Bruni Glass S.p.A | Sauer Brands, Inc | Savant Technologies LLC (GE Lighting) | Rocky Brands, Inc. |
| CooperVision | BWAY Corporation | Sazerac Company | The Starco Group | SPANX |
| Dometic Group AB | Croda Europe Limited | Sunny Delight Beverages Company | Thermo Fisher Scientific | Stichd B.V. |
| GOJO Industries, Inc. | Empresa Siderúrgica del Peru SAA | Taylor Fresh Foods | Thermos LLC | Techstyle |
| Griffith Laboratories Worldwide | HollyFrontier Corporation | The J.M. Smucker Company | Timken | The Collected Group |
| Hamilton Beach | Huhtamaki | The Spice Tailor Limited | Walzcraft | Town & Country Living |
| Hasbro, Inc | Infineum | Tillamook County Creamery Association | WEG Equipamentos Elétricos S.A. | Urban Outfitters |
| Heli Biotech, LLC | Insmed Incorporated | Whitebridge Pet Brands, LLC | Zagg Inc. | Wohali Outdoors |
| Herbalife International of America, Inc. | Intertape Polymer Group | | | Workwear Outfitters, LLC |
| Irish Breeze Unlimited Company | Kelly Moore Paint Company, Inc | Durable Goods | Apparel | |
| Jeneil Biotech, Inc. | Norbrook Laboratories | A.O. Smith | 5.11 Tactical | Wholesale Distribution / Retail |
| L'Oreal USA, Inc | ORBIS Corporation | Apex Tools Group, LLC | Aeropostale | American Hotel Register Company |
| MGA Entertainment | Petrobras Distribuidora S.A. | Ashley Furniture | AGS Sports, Inc. | Argosy Trading Company, Ltd |
| Mizuno USA | Plastic Packaging Technologies, LLC | Bio-Medical Devices International | Ariela & Associates International | Balkamp, Inc. |
| New Chapter, Inc | Societe Philadelphia | Briggs & Stratton | Bernard Cap Co., Inc. | Bed Bath & Beyond Inc. |
| Novartis Pharma Services | Sonoco Products | Clarios | Broder Brothers | Bellamy's Organic Pty Ltd |
| Nutracom, LLC | Trinseo S.A. | Columbus McKinnon Corporation | C&A Mexico | Big Lots! |
| Omega Pharma International NV | Universal Fiber Systems | Conduit Del Ecaudor | Canada Goose | Bobs Discount Furniture |
| Reckitt Benckisen | | Cooper Lighting, LLC | Color Image Apparel, Inc. | ChemPoint |
| Reynolds Consumer Products LLC | Food & Beverage | CQMS Razer Pty. Ltd. | Converse, Inc | CHF Industries |
| Rockline Industries | Black Rifle Coffee Company | Electrical Home-Aids Pty Limited (Godfrey's) | Delta Apparel | Dealer Tire |
| Rodan & Fields, LLC | Caribou Coffee Company | Glen Raven, Inc. | Destination XL | Fastenal Company |
| Specialty Pharmaceutical/ Cardinal | Dole Fresh Vegetables, Inc. | Global Resources International, Inc | Dyehard Fan Supply, LLC | Fintyre S.p.A. |
| Sunovion Pharmaceuticals, Inc. | Ficosota Ltd., Ital Food S.A. | Husqvarna AB | Finish Line | Groupe Seb Holdings |
| TBC DE MÉXICO S.A. DE C.V. | FoodScience Corporation | Interlock USA, Inc. | Foot Locker, Inc. | Hancocks Wine, Spirits and Beer |
| Tetrosyl Group Limited | Founders Brewing Company | Johnson Controls | Hunkemoller International BV | Helzberg Diamonds |
| Vitalize, LLC | Freddy Hirsch | Johnson Controls Hitachi AC Europe SAS | Hunter Boot Ltd | Johnstone Supply |
| Vitalus Nutrition, Inc. | Freedom Foods Group Ltd | Le Creuset Group AG | Jockey International | Mayoreo Ferreteria y Acabados S.A |
| Groupo Herdez | Leatherman Tool Group, Inc. | Joseph Ribkoff | Screwfix |
| Process & Chemical | Hostess Brands | Lifetech Resources, LLC | Jump Design Group, Inc. | Standard Motor Products |
| Allnex | J. R. Simplot Company | LINDSAY CORPORATION | Kontoor Brands, Inc | The Foschini Group Pty |
| Amcor Rigid Plastics USA, LLC | J.D. Irving, Limited | Moen | Lacoste | The Gem Group, Inc. |
| Ansell Limited | Jackson Family Wines | Mustad Netherlands B.V. | Lacrosse Footwear | The Home Depot |
| Avery Dennison Corporation | Marquez Brothers International | OFS Fitel, LLC | Manhattan Beachwear, LLC | Trelleborg Wheel Systems |
| BERICAP Holding GMBH | Mazoon Dairy Company SAOC | One World Technologies, Inc. | Neatfreak | US Autoforce |
| Berlin Packaging LLC | Mondelez International | Otter Products, LLC | Patagonia | Woolworths Group Ltd |
No client accounted for more than 10% of fiscal 2022 revenue. We typically experience a slight degree of seasonality, reflected in a slowing of services revenue during the winter holiday season, which occurs in the third quarter of our fiscal year. We are not reliant on government-sector clients.
Competition
Our competitors are diverse and offer a variety of solutions targeted at various aspects of the supply chain, retail and general enterprise application markets. Our existing competitors include, but are not limited to:
•Large ERP application software vendors such as SAP, Oracle and Infor, each of which offers sophisticated ERP solutions that currently, or may in the future, incorporate supply chain management, advanced planning and scheduling, warehouse management, transportation, collaboration or S&OP software components;
•Vendors focusing on the supply chain application software market, including, but not limited to, Blue Yonder, o9 Solutions, Kinaxis and OM Partners;
•Other business application software vendors that may broaden their product offerings by internally developing, acquiring or partnering with independent developers of supply chain management software; and
•Internal development efforts by corporate information technology departments.
We also expect to face additional competition as other established and emerging companies enter the market for advanced retail planning and supply chain management software and/or introduce new products and technologies. In addition, current and potential competitors have made and may continue to make strategic acquisitions or establish cooperative relationships among themselves or with third parties.
The principal competitive factors in the target markets in which we compete include product functionality and quality, domain expertise, integration technologies, product suite integration, breadth of products, and related services such as client support, training and implementation. Other factors important to clients and prospects include:
•customer service and satisfaction;
•ability to provide relevant client references;
•compliance with industry-specific requirements and standards;
•flexibility to adapt to changing business requirements;
•ability to generate business benefits;
•rapid payback and measurable return on investment;
•vendor financial stability and company and product reputation; and
•initial price, cost to implement and long term total cost of ownership.
We believe that our principal competitive advantages are our comprehensive, end-to-end solution platform, the ability of our solutions to quickly generate business benefits for our clients, our substantial investment in product development, our deep domain expertise, the ease of use of our software products, our client support and professional consulting services, our ability to deploy quickly, and our ability to deliver rapid return on investment for our clients.
Sales and Marketing
We sell our products globally through direct and indirect sales channels. We conduct our principal sales and marketing activities from our corporate headquarters in Atlanta, Georgia, and have North American sales and/or support offices in Boston, Chicago, Dallas, St. Louis, Miami and San Diego. We manage sales and/or support outside of North America from our international offices in the United Kingdom, India, Germany, New Zealand and Australia.
In addition to our direct sales force, we have developed a network of VARs who assist in selling our products globally. We will continue to utilize these and future relationships with software and service organizations to enhance our sales and marketing position. Currently located in North America, South America, Mexico, Europe, South Africa, and the Asia/Pacific region, these independent distributors and resellers distribute our product lines domestically and in foreign countries. These vendors typically sell their own consulting and systems integration services in conjunction with contracts for our products. Our global distribution channel consists of 20 organizations with sales, implementation and support resources serving clients in approximately 80 countries.
Marketing and communications contribute significantly to our growth and the demand for our products and services in the market. We made significant changes in the last year to modernize the marketing department and increase focus on digital promotion. We raise market awareness of our brands and engage with the prospective market through concentrated marketing and communications programs. The consolidation of resources supporting the entire SCM business that has occurred over the last year will provide the Company with an opportunity to amplify a unique and market leading value proposition. We do this through a variety of marketing efforts, including public and media relations, direct marketing, advertising, events, and industry influencers. We also collaborate and participate in a variety of global industry associations, such as those organized by the Association for Supply Chain Management, the Council of Supply Chain Management Professionals, and the Institute of Business Forecasting.
Research and Development
Our success depends in part upon our ability to continue to recognize and meet client needs, anticipate opportunities created by changing technology, adapt our products to the changing expectations of our client community, and keep pace with emerging industry standards. As a part of our ongoing commitment to these goals, we continue to focus on the people, processes, and technology that help to achieve them. We are committed to partnering with our clients in co-development efforts to ensure our products map well to market needs from day one. We are continually shortening release cycles to more rapidly respond to market opportunities. We leverage design thinking approaches to ensure that we understand not only the expressed needs of our clients, but also the lived realities of the people that use them to accomplish their supply chain goals each and every day.
We continue to leverage the opportunities presented by artificial intelligence, machine learning, advance analytics platforms, in-memory computing, and alternative data management approaches as well as advancing research efforts in the application of blockchain and other technologies with promise in supply chain use cases. Our research and development efforts will continue to focus on deploying solutions within a complex global supply chain landscape. Our cloud-architected solutions designed for SaaS deployment with master data management built in will be increasingly important for our long-term growth. As of April 30, 2022, we employed 104 persons in product research, development and enhancement activities. We also engage contractors for research and development, bringing our total human capital resources dedicated to research and development to 163 persons.
Proprietary Rights
Our success and ability to compete are dependent in part upon our proprietary technology. To protect this proprietary technology, we rely on a combination of copyright and trade secret laws, confidentiality obligations and other contractual provisions. However, we also believe that factors such as the knowledge, ability, and experience of our personnel, new product developments, frequent product enhancements, reliable maintenance and timeliness and quality of support services are essential
to establishing and maintaining a technology leadership position. The source code for our proprietary software is protected as a trade secret and as a copyrighted work. Generally, copyrights expire 95 years after the year of first publication. In addition, we have registered a number of trademarks in the U.S. and internationally and have applications pending for others. We enter into confidentiality or similar agreements with our employees, consultants and clients, control access to and distribution of our software, documentation and other proprietary information, and deliver only object code (compiled source code) to our licensed clients. As is customary in the software industry, in order to protect our intellectual property rights, we do not sell or transfer title to our products to our clients.
Human Capital Resources
As of April 30, 2022, we had 418 full-time employees, including 104 in product research, development and enhancement, 43 in client support, 151 in professional services, 75 in marketing, sales and sales support, and 45 in accounting, facilities and administration. Of these, 344 are based in the United States and 74 are based in our international locations. Our operations are further supported by over 100 independent full-time contractors who fulfill critical needs around the globe. We have never had a work stoppage and no employees or contractors are represented under collective bargaining arrangements.
Core Values. Our corporate culture is based on our core values: Passion, Accountability, Curiosity, and Teamwork. Employee performance and Company fit are assessed in part based on these core values. We reinforce them in employee communications and celebrate extraordinary examples of these values with quarterly “Living the Core Values” awards for employees nominated by colleagues and selected by the executive leadership team.
Diversity. American Software and its subsidiaries are enriched by the diverse, talented and highly skilled workforce that brings a variety of experiences and perspectives to address the needs of our team, Clients and shareholders. We make better decisions and draw strength from this diversity and thus, are purposefully committed to providing an accessible workplace where members from every race, national origin, ethnicity, gender, sexual orientation, religion, age and personality profile feel included and valued. We will ensure that all qualified candidates receive full consideration and that for every open role we seek a diverse pool of candidates for consideration prior to selecting the most qualified individual to fill those open roles.
Talent and Career Development. We support and encourage continuous learning, training and career development for all employees. In addition to our general new hire orientation, employees are trained on job-specific requirements, as well as topics such as cybersecurity, data privacy, anti-harassment and anti-bullying.
Employee career development is a key focus in the attraction, retention and management of our human capital resources. Our success planning process allows each employee to discuss career development goals with his or her manager and to provide feedback on broader company processes, to help both the employee and the Company become more successful. Success plans are tracked via the employee portal, which senior management monitors to ensure full participation.
Community Engagement. We believe in the importance of giving back to the communities where we live and work. Our Community imPACT initiative has two major components. We organize Company-sponsored volunteer opportunities with selected organizations across our geographic locations that focus on combating food insecurity. We also encourage our employees to take action in their own communities by volunteering with charitable organizations of their choice, and we support their efforts by providing up to 16 hours of paid time off each year for individual volunteering.
COVID-19 and Employee Safety. During the COVID-19 pandemic our primary focus has been the health and safety of our employees and their families. We encouraged all employees to transition to remote work, implemented additional safety measures for employees continuing critical on-site work, and restricted travel to essential business-critical needs. We have taken a flexible approach to help our employees manage their work and personal responsibilities. In addition, we have provided our employees with health and wellness resources, such as up-to-date COVID information and counseling resources. Our CEO
and President has provided COVID-19 updates in all of our monthly all-hands town hall calls, and we believe that these transparent, ongoing communications have been critical to maintaining our productivity during the pandemic. As a result, we have been able to seamlessly transition to primarily virtual work without interruption.
Data Privacy
Regulatory and legislative activity in the areas of data protection and privacy continues to increase worldwide. We have established and continue to maintain policies to comply with applicable privacy and data protection laws. We also ensure that third parties processing data on our behalf are contractually obligated to follow or are otherwise compliant with such laws.
We are subject to certain privacy and data protection laws in other countries in which we operate, many of which are stricter than those in the United States. Some countries also have instituted laws requiring in-country data processing and/or storage of data. Most notably, in the European Union (“EU”) and United Kingdom (“UK”), the General Data Protection Regulation (“GDPR”) and comparable UK law create legal and compliance obligations for companies that process personal data of individuals in those regions, regardless of the geographical location of the company, and impose significant fines for non-compliance. We process a limited amount of personal data (as defined under the GDPR) for our clients and act as a data controller with respect to the personal data of our employees and job applicants, some of whom are located outside the United States. Therefore, our privacy policies comply with the GDPR.
In the United States, the California Consumer Privacy Act (“CCPA”) requires us to offer certain specific data privacy rights to California residents. Other states have adopted or are considering similar requirements that may be more stringent and/or expansive than federal requirements. Our privacy policies are compliant with the CCPA and other existing state laws.
Data Security
Information Security Management. Our Software Security Program is managed by our Manager of Information Security, who reports to the VP of Information Systems. We conduct vendor and internal risk assessments at least annually. Our Security Incident Response Team, consisting of personnel from Legal, Human Resources, Marketing, and IT across our business units, is responsible for implementing our Incident Response Policy and Procedure, which includes processes for detection, analysis, containment, eradication, and recovery, as well as an annual tabletop exercise.
Our employees are regularly trained on appropriate security measures. We provide security awareness training for new hires, and for all employees at least quarterly. We conduct user testing through “phishing” campaigns and require remedial training based on results. Our Manager of Information Security produces a monthly security awareness newsletter and periodic updates on recent malicious information security trends and scams.
The Service Organization Control (SOC) 2 Type II examination demonstrates that an independent accounting and auditing firm has reviewed and examined an organization’s control objectives and activities, and tested those controls to ensure that they are operating effectively. The Company obtains a SOC 2 Type II report annually based on an independent third-party audit. The third party examines the suitability of the design and operating effectiveness of the Company’s controls to provide reasonable assurance that our service commitments and system requirements were achieved based on the applicable trust services criteria for security, availability, processing integrity and confidentiality.
Client Data Security. We have web application firewalls and data encryption (both in transit and at rest) to ensure that our client data is adequately protected. Our software applications undergo manual code reviews, static code analysis to test for vulnerabilities, and annual third-party penetration testing, with a formal change control process in place to correct any deficiencies. Our SaaS environments are safeguarded by vulnerability management software that detects Operating Systems ("OS") and third-party application vulnerabilities; applies vulnerability patching on a monthly basis; and ensures emergency patching of critical vulnerabilities. Data security is monitored with fully-integrated Security Information and Event Management (SIEM) software, and we provide 24/7 security monitoring and alerting for all SaaS client environments. Only approved users may access our SaaS environments, and such access is further controlled through two-factor authentication and quarterly access reviews.
Data in our cloud-based solutions is hosted in a Microsoft Azure environment. Microsoft provides numerous security measures, including geo-redundant storage (GRS) with cross-regional replication for storage of backup data, and site recovery that replicates virtual machines in real-time to a different Azure region.
Business Continuity and Disaster Recovery. We have a documented Disaster Recovery Procedure and Business Continuity Plan. Key actions and responsibilities are handled by a designated Disaster Recovery Team and Emergency Management Team, respectively. The policies and procedures are reviewed, updated, and approved by executive management annually, and a Business Impact Analysis is performed as part of our Business Continuity Plan.
Sustainability in Data Operations
Hosting. Sustainability is a critical factor when we evaluate potential hosting partners. We continue to expand our partnership with Microsoft, including increases in our Azure footprint for hosting client SaaS environments as well as many internal operations. Microsoft has been carbon neutral since 2012 and is committed to being carbon negative by 2030, with the commitment by 2050 to remove all the carbon it has directly emitted since its founding in 1975. Our primary hosting partner, Microsoft Azure, has committed to focus on four key areas of environmental impact on local communities—carbon, water, waste, and ecosystems:
a.100% renewable energy by 2025
b.Water positive by 2030 (replenish more water than consumed)
c.Zero-waste certification by 2030
d.Net-zero deforestation for all new data centers.
Data Destruction & Sanitation Policy. Third parties perform secure destruction of media and we receive a certificate of secure destruction from such parties. Items for destruction or recycling are processed using an environmentally friendly waste-to-energy incineration process or e-Stewards® certified recycling process so that the information cannot be reconstructed.
Available Information
We make our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to these reports available free of charge on or through our website, located at http://www.amsoftware.com, as soon as reasonably practicable after they are filed with or furnished to the Securities and Exchange Commission (“SEC”). Reference to our website does not constitute incorporation by reference of the information contained on the site, which should not be considered part of this document.
ITEM 1A. RISK FACTORS
The following summarizes risks and uncertainties that could materially adversely affect our business, financial condition, results of operations and stock price. You should read this summary together with the detailed description of each risk factor contained below.
RISK FACTORS RELATED TO THE ECONOMY
a.Disruptions in the financial and credit markets, government policies regarding interest rates, international trade disputes, the ongoing COVID-19 pandemic, the invasion of Ukraine by Russia, and other external influences may reduce demand for our software and related services.
b.The effects of the ongoing COVID-19 pandemic have materially affected how we and our clients are operating our businesses.
c.There may be an increase in client bankruptcies due to weak economic conditions.
d.We are subject to foreign exchange rate risk.
RISK FACTORS RELATED TO COMPETITION
a.Our markets are very competitive, and we may not be able to compete effectively.
b.Many of our current and potential competitors have significantly greater resources than we do, and therefore we may be at a disadvantage in competing with them.
c.Due to competition, we may change our pricing practices, which could adversely affect operating margins or client ordering patterns.
RISK FACTORS RELATED TO OUR OPERATIONS
a.Our growth is dependent upon the successful further development of our direct and indirect sales channels.
b.Our growth depends upon our ability to develop and sustain relationships with complementary vendors to market and implement our software products.
c.We are dependent upon the retail industry for a significant portion of our revenue.
d.We derive a significant portion of our services revenue from a small number of clients.
e.We may derive a significant portion of our revenue from a limited number of large, non-recurring sales.
f.Our lengthy sales cycle makes it difficult to predict quarterly revenue levels and operating results.
g.Services revenue carries lower gross margins than do license or subscription revenue and an overall increase in services revenue as a percentage of total revenue could have an adverse impact on our business.
h.Failure to maintain our margins and service rates for implementation services could have a material adverse effect on our operating performance and financial condition.
i.We are subject to risks related to renewal of maintenance contracts.
j.We are subject to risks related to accounting interpretations.
k.Our past and future acquisitions may not be successful and we may have difficulty integrating acquisitions.
l.Our business may require additional capital.
m.Business disruptions could affect our operating results.
n.Our international operations and sales subject us to risks.
o.It may become increasingly expensive to obtain and maintain liability insurance.
p.Growth in our operations could increase demands on our managerial and operational resources.
RISK FACTORS RELATED TO OUR PRODUCTS
a.We may not be successful in convincing clients to migrate to current or future releases of our products.
b.We may be unable to retain or attract clients if we do not develop new products and enhance our current products in response to technological changes and competing products.
c.If our products are not able to deliver quick, demonstrable value to our clients, our business could be seriously harmed.
d.If we do not maintain software performance across accepted platforms and operating environments, our license, subscription and services revenue could be adversely affected.
e.Our software products and product development are complex, which makes it increasingly difficult to innovate, extend our product offerings, and avoid costs related to correction of program errors.
f.The use of open source software in our products may expose us to additional risks and harm our intellectual property.
g.If the open source community expands into enterprise application and supply chain software, our revenue may decline.
h.Implementation of our products can be complex, time-consuming and expensive, clients may be unable to implement our products successfully, and we may become subject to warranty or product liability claims.
i.An increase in sales of software products that require customization would result in revenue being recognized over the term of the contract for those products.
j.We sometimes experience delays in product releases, which can adversely affect our business.
k.We may not receive significant revenue from our current research and development efforts for several years.
l.We have limited protection of our intellectual property and proprietary rights and may potentially infringe third-party intellectual property rights.
m.We may experience liability claims arising out of the sale of our software and provision of services.
n.Privacy and security concerns, including evolving government regulation in the area of data privacy, could adversely affect our business and operating results.
o.We face risks associated with the security of our products.
p.We depend on third-party technology which could result in increased costs or delays in the production and improvement of our products if it should become unavailable or if it contains defects.
q.Any interruptions or delays in services from third parties or our inability to adequately plan for and manage service interruptions or infrastructure capacity requirements, could impair the delivery of our services and harm our business.
RISK FACTORS RELATED TO OUR PERSONNEL
a.We are dependent upon key personnel, and need to attract and retain highly qualified personnel.
b.We periodically have restructured our sales force, which can be disruptive.
c.Our technical personnel have unique access to client data, and may abuse that privilege.
RISK FACTORS RELATED TO OUR CORPORATE STRUCTURE AND GOVERNANCE
a.Our business is subject to changing regulation of corporate governance and public disclosure.
b.One shareholder beneficially owns a substantial portion of our stock, and as a result, exerts substantial control over us.
c.Our articles of incorporation and bylaws and Georgia law may inhibit a takeover of our company.
d.We are a “controlled company” within the meaning of NASDAQ rules and, as a result, qualify for, and rely on, exemptions from certain corporate governance requirements.
RISK FACTORS RELATED TO OUR STOCK PRICE
a.We could experience fluctuations in quarterly operating results that could adversely affect our stock price.
b.Our stock price is volatile and there is a risk of litigation.
c.Our dividend policy is subject to change.
d.The price of our common stock may decline due to shares eligible for future sale or actual future sales of substantial amounts of our common stock.
A variety of factors may affect our future results and the market price of our stock.
We have included certain forward-looking statements in Management’s Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this Form 10-K. We may also make oral and written forward-looking statements from time to time, in reports filed with the SEC and otherwise. We undertake no obligation to revise or publicly release the results of any revisions to these forward-looking statements based on circumstances or events which occur in the future, unless otherwise required by law. Actual results may differ materially from those projected in any such forward-looking statements due to a number of factors, including those set forth below and elsewhere in this Form 10-K.
We operate in a dynamic and rapidly changing environment that involves numerous risks and uncertainties. New risk factors emerge from time to time, and it is not possible for management to predict all such risk factors, nor can it assess the potential impact of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those in any forward-looking statements. The following section lists some, but not all, of the risks and uncertainties that we believe may have a material adverse effect on our business, financial condition, cash flow or results of operations. In that case, the trading price of our securities could decline and you may lose all or part of your investment in our Company. This section should be read in conjunction with the audited Consolidated Financial Statements and Notes thereto, and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this Form 10-K.
We cannot predict every event and circumstance that may affect our business, and therefore the risks and uncertainties discussed below may not be the only ones you should consider.
The risks and uncertainties discussed below are in addition to those that apply to most businesses generally. Furthermore, as we continue to operate our business, we may encounter risks of which we are not aware at this time. These additional risks may cause serious damage to our business in the future, the impact of which we cannot estimate at this time.
RISK FACTORS RELATED TO THE ECONOMY
Disruptions in the financial and credit markets, government policies regarding interest rates, international trade disputes, the ongoing COVID-19 pandemic, the invasion of Ukraine by Russia, and other external influences in the U.S. and global markets may reduce demand for our software and related services, which may negatively affect our revenue and operating results.
Our revenue and profitability depend on the overall demand for our software, professional services and maintenance services. Regional and global changes in the economy and financial markets, such as the severe global economic downturn in 2008, which was followed by a slow and relatively weak recovery, and more recently, the timing, likelihood and amount of future increases in interest rates by the U.S. Federal Reserve, have resulted in companies generally reducing their spending for technology projects and therefore delaying or reconsidering potential purchases of our products and related services. A new
economic recession, or adverse conditions in credit markets, lagging consumer confidence and spending, inflation, higher labor, healthcare, and insurance costs, the fluctuating cost of fuel and commodities and their effects on the U.S. and global economies and markets are all examples of negative factors that have delayed or canceled certain potential client purchases. Furthermore, the uncertainty posed by the long-term effects of global and regional conflicts, terrorist activities, the ongoing COVID-19 pandemic, and other geopolitical and trade issues also may adversely affect the purchasing decisions of current or potential clients. For example, financial and credit markets around the world experienced volatility following the invasion of Ukraine by Russia in February 2022. In response to the invasion, the United States, United Kingdom and European Union, along with others, imposed significant new sanctions and export controls against Russia, Russian banks and certain Russian individuals and may implement additional sanctions or take further punitive actions in the future. The full economic and social impact of the sanctions imposed on Russia (as well as possible future punitive measures that may be implemented), as well as the counter measures imposed by Russia, remains uncertain. Furthermore, weakness in European economies may adversely affect demand for our products and services, both directly and by affecting U.S. clients that rely heavily on European sales. There can be no assurance that government responses to these factors will sufficiently restore confidence, stabilize markets or increase liquidity and the availability of credit.
We are a technology company selling technology-based solutions with total pricing, including software and services, in many cases exceeding $500,000. Reductions in the capital budgets of our clients and prospective clients could have an adverse impact on our ability to sell our solutions. These economic, trade, public health and political conditions may reduce the willingness or ability of our clients and prospective clients to commit funds to purchase our products and services or renew existing post-contract support agreements, or their ability to pay for our products and services after purchase. Future declines in demand for our products or services, or a broadening or protracted extension of these conditions, would have a significant negative impact on our revenue and operating results.
The effects of the ongoing COVID-19 pandemic have materially affected how we and our clients are operating our businesses, and the duration and extent to which this will impact our future results of operations and overall financial performance remain uncertain.
In December 2019, a novel coronavirus, COVID-19, was first reported. On March 11, 2020, the World Health Organization (WHO) characterized COVID-19 as a pandemic. The COVID-19 pandemic, which has spread throughout the world, and the related adverse public health developments, including orders to shelter-in-place, travel restrictions, and mandated business closures, have adversely affected workforces, organizations, clients, economies, and financial markets globally, leading to increased market volatility. It also has disrupted the normal operations of many businesses, including ours.
As a result of the COVID-19 pandemic, substantially all Company employees globally have been encouraged to work from home and we have either canceled or changed employee, client and industry events to dial-in experiences. We may deem it advisable to similarly alter, postpone or cancel entirely additional client, employee or industry events in the future. All of these changes may disrupt the way we operate our business.
Moreover, the conditions caused by the COVID-19 pandemic may continue to affect the rate of spending on our products and services, and could adversely affect our clients’ ability or willingness to purchase our offerings or the timing of our current or prospective clients’ purchasing decisions; require pricing discounts or extended payment terms; or increase client attrition rates, all of which could adversely affect our future sales, operating results and overall financial performance.
The duration and extent of the impact of the COVID-19 pandemic depends on future developments that cannot be accurately predicted at this time, such as the severity and transmission rate of the virus and any new variant, the extent and effectiveness of containment actions, the disruption caused by such actions, the efficacy of vaccines and rates of vaccination in various states and countries, and the impact of these and other factors on our employees, clients, partners, vendors and the global economy. If we are not able to effectively respond to and manage the impact of such events, our business will be harmed.
To the extent that the COVID-19 pandemic adversely affects our business and financial results, it may also amplify many of the other risks described in this “Risk Factors” section.
There may be an increase in client bankruptcies due to weak economic conditions.
We have been in the past, and may be in the future, affected by client bankruptcies that occur in periods subsequent to the software sale. During weak economic conditions, there is an increased risk that some of our clients will file a petition for bankruptcy. When our clients file a petition for bankruptcy, we may be required to forego collection of pre-petition amounts owed and to repay amounts remitted to us during the 90-day preference period preceding the filing. Accounts receivable balances related to pre-petition amounts may in some of these instances be large, due to extended payment terms for software fees and significant billings for consulting and implementation services on large projects. The bankruptcy laws, as well as the specific circumstances of each bankruptcy, may severely limit our ability to collect pre-petition amounts, and may force us to disgorge payments made during the 90-day preference period. We also face risk from international clients that file for bankruptcy protection in foreign jurisdictions, as the application of foreign bankruptcy laws may be more difficult to predict. Although we believe that we have sufficient reserves to cover anticipated client bankruptcies, there can be no assurance that such reserves will be adequate, and if they are not adequate, our business, operating results and financial condition would be adversely affected. We anticipate that the ongoing COVID-19 pandemic will increase the likelihood of these risks.
Changes in the value of the U.S. dollar, as compared to the currencies of foreign countries where we transact business, could harm our operating results.
Our international revenue and the majority of our international expenses, including the wages of some of our employees, are denominated primarily in currencies other than the U.S. dollar. Therefore, changes in the value of the U.S. dollar as compared to these other currencies may adversely affect our operating results. We do not hedge our exposure to currency fluctuations affecting future international revenue and expenses and other commitments. For the foregoing reasons, currency exchange rate fluctuations have caused, and likely will continue to cause, variability in our foreign currency denominated revenue streams and our cost to settle foreign currency denominated liabilities.
RISK FACTORS RELATED TO COMPETITION
Our markets are very competitive, and we may not be able to compete effectively.
The markets for our solutions are very competitive. The intensity of competition in our markets has significantly increased, in part as a result of the slow growth in investment in IT software. We expect this intense competition to increase in the future. Our current and potential competitors have made and may continue to make acquisitions of other competitors and may establish cooperative relationships among themselves or with third parties. Any significant consolidation among supply chain software providers could adversely affect our competitive position. Increased competition has resulted and, in the future, could result in price reductions, lower gross margins, longer sales cycles and loss of market share. Each of these developments could have a material adverse effect on our operating performance and financial condition.
Many of our current and potential competitors have significantly greater resources than we do, and therefore we may be at a disadvantage in competing with them.
We directly compete with other supply chain software vendors, including SAP SE, Oracle Corporation, Blue Yonder, o9 Solutions, Kinaxis, Inc. and others. Many of our current and potential competitors have significantly greater financial, marketing, technical and other competitive resources than we do, as well as greater name recognition and a larger installed base of clients. The software market has experienced significant consolidation, including numerous mergers and acquisitions. It is difficult to estimate what long-term effect these acquisitions will have on our competitive environment. We have encountered competitive situations where we suspect that large competitors, in order to encourage clients to purchase non-retail applications and gain retail market share, also have offered at no charge certain retail software applications that compete with our solutions. If competitors such as Oracle and SAP SE and other large private companies are willing to offer their retail and/ or other applications at no charge, this may result in a more difficult competitive environment for our products. In addition, we could face competition from large, multi-industry technology companies that historically have not offered an enterprise solution set to the retail supply chain market. We cannot guarantee that we will be able to compete successfully for clients against our current or future competitors, or that such competition will not have a material adverse effect on our business, operating results and financial condition.
Also, some prospective buyers are reluctant to purchase applications that could have a short lifespan, as an acquisition could result in the application’s life being abruptly cut short. In addition, increased competition and consolidation in these markets is likely to result in price reductions, reduced operating margins and changes in market share, any one of which could adversely affect us. If clients or prospects want fewer software vendors, they may elect to purchase competing products from a larger vendor than us since those larger vendors offer a wider range of products. Furthermore, some of these larger vendors may be able to bundle their software with their database applications, which underlie a significant portion of our installed applications. When we compete with these larger vendors for new clients, we believe that these larger businesses often attempt to use their size as a competitive advantage against us.
Many of our competitors have well-established relationships with our current and potential clients and have extensive knowledge of our industry. As a result, they may be able to adapt more quickly to new or emerging technologies and changes in client requirements or devote greater resources to the development, promotion and sale of their products than we can. Some competitors have become more aggressive with their prices and payment terms and issuance of contractual implementation terms or guarantees. In addition, third parties may offer competing maintenance and implementation services to our clients and thereby reduce our opportunities to provide those services. We may be unable to continue to compete successfully with new and existing competitors without lowering prices or offering other favorable terms. Furthermore, potential clients may consider outsourcing options, including application service providers, data center outsourcing and service bureaus, as alternatives to our software products. Any of these factors could materially impair our ability to compete and have a material adverse effect on our operating performance and financial condition.
We also face competition from the corporate IT departments of current or potential clients capable of internally developing solutions and we compete with a variety of more specialized software and services vendors, including:
•Internet (on demand) software vendors;
•single-industry software vendors;
•enterprise resource optimization software vendors;
•human resource management software vendors;
•financial management software vendors;
•merchandising software vendors;
•services automation software vendors; and
•outsourced services providers.
As a result, the market for enterprise software applications has been and continues to be intensely competitive. We expect competition to persist and continue to intensify, which could negatively affect our operating results and market share.
Due to competition, we may change our pricing practices, which could adversely affect operating margins or client ordering patterns.
The intensely competitive markets in which we compete can put pressure on us to reduce our prices. If our competitors offer deep discounts on certain products or services in an effort to recapture or gain market share or to sell other products or services, we may need to lower prices or offer other favorable terms in order to compete successfully. For these and other reasons, in the future we may choose to make changes to our pricing practices. For example, we may offer additional discounts to clients; increase (or decrease) the use of pricing that involves periodic fees based on the number of users of a product; or change maintenance pricing. Such changes could materially and adversely affect our margins, and our revenue may be negatively affected if our competitors are able to recapture or gain market share.
RISK FACTORS RELATED TO OUR OPERATIONS
Our growth is dependent upon the successful further development of our direct and indirect sales channels.
We believe that our future growth will depend on developing and maintaining successful strategic relationships with systems integrators and other technology companies. We intend to continue to increase the proportion of clients served through these indirect channels, so we are currently investing, and plan to continue to invest, significant resources to develop them. This investment could adversely affect our operating results if these efforts do not generate sufficient license, subscription and service revenue to offset our investment. Also, our inability to partner with other technology companies and qualified systems integrators could adversely affect our results of operations. Because lower unit prices are typically charged on sales made through indirect channels, increased indirect sales could reduce our average selling prices and result in lower gross margins. In addition, sales of our products through indirect channels will likely reduce our consulting service revenue, as third- party systems integrators generally provide these services. As indirect sales increase, our direct contact with our client base will decrease, and we may have more difficulty accurately forecasting sales, evaluating client satisfaction and recognizing emerging client requirements. In addition, these systems integrators and third-party software providers may develop, acquire or market products competitive with our products. Marketing our products directly to clients and indirectly through systems integrators and other technology companies may result in distribution channel conflicts. Our direct sales efforts may compete with those of our indirect channels and, to the extent that different systems integrators target the same clients, systems integrators also may come into conflict with each other. Any channel conflicts that develop may have a material adverse effect on our relationships with systems integrators or harm our ability to attract new systems integrators.
Our growth depends upon our ability to develop and sustain relationships with complementary vendors to market and implement our software products, and a failure to develop and sustain these relationships could have a material adverse effect on our operating performance and financial condition.
We are developing, maintaining and enhancing significant working relationships with complementary vendors, such as software companies, consulting firms, resellers and others that we believe can play important roles in marketing our products and solutions. We are currently investing, and intend to continue to invest, significant resources to develop and enhance these relationships, which could adversely affect our operating margins. We may be unable to develop relationships with organizations that will be able to market our products effectively. Our arrangements with these organizations are not exclusive, and in many cases may be terminated by either party without cause. Many of the organizations with which we are developing or maintaining marketing relationships have commercial relationships with our competitors. There can be no assurance that any organization will continue its involvement with us. The loss of relationships with such organizations could materially and adversely affect our operating performance and financial condition.
We are dependent upon the retail industry for a significant portion of our revenue.
Historically, we have derived a significant percentage of our revenue from the sale of software products and collaborative applications that address vertical market opportunities with manufacturers and wholesalers that supply retail clients. The success of our clients is directly linked to economic conditions in the retail industry, which in turn are subject to intense competitive pressures and are affected by overall economic conditions. In addition, we believe that the acquisition of certain of our software products involves a large capital expenditure, which is often accompanied by large-scale hardware purchases or other capital commitments. As a result, demand for our products and services could decline in the event of instability or potential downturns in our clients’ industries.
Due to current economic conditions, including the ongoing COVID-19 pandemic, we expect the retail industry to remain relatively cautious in its level of investment in IT when compared to other industries. We are concerned about weak and uncertain economic conditions, consolidations and the disappointing results of retailers in certain markets, especially if such
weak economic conditions persist for an extended period of time. Weak and uncertain economic conditions have negatively affected our revenue in the past and may do so in the future, including potential deterioration of our maintenance revenue base as clients look to reduce their costs, elongation of our selling cycles, and reduction in the demand for our products. As a result, in the current economic environment it is difficult to predict exactly when specific sales will close. In addition, weak and uncertain economic conditions could impair our clients’ ability to pay for our products or services. We also believe the retail business transformation from retail brick-and-mortar to technology-enabled omni-channel commerce models will be a multi-year trend and may have been accelerated by the onset of the COVID-19 pandemic. Consequently, we cannot predict when the disruption from the COVID-19 pandemic or the transformation to new commerce models may moderate or end. Any of these factors could adversely affect our business, our quarterly or annual operating results and our financial condition.
We have observed that as the retail industry consolidates, it is experiencing increased competition in certain geographic regions that could negatively affect the industry and our clients’ ability to pay for our products and services. Such consolidation has negatively impacted our revenue in the past and may continue to do so in the future, which may reduce the demand for our products, and may adversely affect our business, operating results and financial condition.
We derive a significant portion of our services revenue from a small number of clients. If these clients were to discontinue the use of our services or delay their implementation, our total revenue would be adversely affected.
We derive a significant portion of our services revenue from a small number of clients. If these clients were to discontinue or delay their use of these services, or obtain these services from a competitor, our services revenue and total revenue would be adversely affected. Clients may delay or terminate implementation of our services due to budgetary constraints related to economic uncertainty, dissatisfaction with product quality, the difficulty of prioritizing numerous IT projects, changes in business strategy, personnel or priorities, or other reasons. Clients may be less likely to invest in additional software in the future or continue to pay for software maintenance. Our business relies to a large extent upon sales to existing clients and maintenance and services revenue are key elements of our revenue base, so any reduction in these sales or these maintenance and services payments could have a material adverse effect on our business, results of operations, cash flows and financial condition.
We may derive a significant portion of our revenue in any quarter from a limited number of large, non-recurring sales.
From time to time, we expect to continue to experience large, individual client sales, which may cause significant variations in quarterly fees. We also believe that purchasing our products is relatively discretionary and generally involves a significant commitment of a client’s capital resources. Therefore, a downturn in any client’s business could result in order cancellations or requests for flexible payment terms that could have a significant adverse impact on our revenue and quarterly results. Moreover, continued uncertainty about general economic conditions could precipitate significant reductions in corporate spending for IT, which could result in delays or cancellations of orders for our products.
Our lengthy sales cycle makes it difficult to predict quarterly revenue levels and operating results.
Because fees for our software products are substantial and the decision to purchase our products typically involves members of our clients’ senior management, the sales process for our solutions is lengthy. Furthermore, our existing and prospective clients routinely require education regarding the use and benefits of our products, which may lead to delays in receiving clients’ orders. Accordingly, the timing of our revenue is difficult to predict, and the delay of an order could cause our quarterly revenue to fall substantially below our expectations and those of public market analysts and investors. Moreover, to the extent that we succeed in shifting client purchases away from individual software products and toward more costly integrated suites of software and services, our sales cycle may lengthen further, which could increase the likelihood of delays and cause the effect of a delay to become more pronounced. Delays in sales could cause significant shortfalls in our revenue and operating results for any particular period. Also, it is difficult for us to forecast the timing and recognition of revenue from sales of our products because our existing and prospective clients often take significant time evaluating our products before purchasing them. The period between initial client contact and a purchase by a client could be nine months or longer. During the evaluation period, prospective clients may decide not to purchase or may scale down proposed orders of our products for various reasons, including:
•reduced demand for enterprise software solutions;
•introduction of products by our competitors;
•lower prices offered by our competitors;
•changes in budgets and purchasing priorities;
•increased time to obtain purchasing approval; and
•reduced need to upgrade existing systems.
Services revenue carries lower gross margins than do license or subscription revenue and an overall increase in services revenue as a percentage of total revenue could have an adverse impact on our business.
Because our service revenue has lower gross margins than do our license or subscription revenue, an increase in the percentage of total revenue represented by service revenue or a change in the mix between services that are provided by our
employees versus services provided by third-party consultants could have a detrimental impact on our overall gross margins and could adversely affect operating results.
Failure to maintain our margins and service rates for implementation services could have a material adverse effect on our operating performance and financial condition.
A significant portion of our revenue is derived from implementation services. If we fail to scope our implementation projects correctly, our services margins may suffer. We bill for implementation services predominantly on an hourly or daily basis (time and materials) and sometimes under fixed price contracts, and we generally recognize revenue from those services as we perform the work. If we are not able to maintain the current service rates for our time and materials implementation services and cannot make corresponding cost reductions, or if the percentage of fixed price contracts increases and we underestimate the costs of our fixed price contracts, our operating performance may suffer. The rates we charge for our implementation services depend on a number of factors, including:
•perceptions of our ability to add value through our implementation services;
•complexity of services performed;
•competition;
•pricing policies of our competitors and of systems integrators;
•use of globally sourced, lower-cost service delivery capabilities within our industry; and
•economic, political and market conditions.
If our clients elect not to renew maintenance contracts after the initial maintenance period and the loss of those clients is not offset by new maintenance clients, our maintenance revenue and total revenue would be adversely affected.
Upon the purchase of a software license, our clients typically enter into a maintenance contract with a typical term of one to three years. If clients elect not to renew their maintenance contracts after this initial maintenance period and we do not offset the loss of those clients with new maintenance clients as a result of new license fees, our maintenance revenue and total revenue would be adversely affected.
If accounting interpretations relating to revenue recognition change or companies we acquire have applied such standards differently than we do or have not applied them at all, our reported revenue could decline or we could be forced to make changes in our business practices or we may incur the expense and risks associated with an audit or restatement of the acquired company’s financial statements.
There are several accounting standards and interpretations covering revenue recognition for the software industry. These standards address software revenue recognition matters primarily from a conceptual level and do not include specific implementation guidance. We believe that we currently comply with these standards.
The accounting profession and regulatory agencies continue to discuss various provisions of these pronouncements with the objective of providing additional guidance on their application and potential interpretations. These discussions and the issuance of new interpretations could lead to unanticipated changes in our current revenue accounting practices, which could change the timing of recognized revenue. They also could drive significant adjustments to our business practices, which could result in increased administrative costs, lengthened sales cycles and other changes that could adversely affect our reported revenue and results of operations. In addition, companies we acquire historically may have interpreted software revenue recognition rules differently than we do or may not have been subject to U.S. GAAP as a result of reporting in a foreign country. If we discover that companies we have acquired have interpreted and applied software revenue recognition rules differently than prescribed by U.S. GAAP, we could be required to devote significant management resources, and incur the expense associated with an audit, restatement or other examination of the acquired companies’ financial statements.
Our past and future acquisitions may not be successful and we may have difficulty integrating acquisitions.
We continually evaluate potential acquisitions of complementary businesses, products and technologies. We have in the past acquired and invested, and may continue to acquire or invest in, complementary companies, products and technologies, and enter into joint ventures and strategic alliances with other companies. Acquisitions, joint ventures, strategic alliances, and investments present many risks, and we may not realize the financial and strategic goals that were contemplated at the time of any transaction. Risks commonly encountered in such transactions include:
•risk that an acquired company or assets may not further our business strategy or that we paid more than the company or assets were worth;
•difficulty of assimilating the operations and retaining and motivating personnel of an acquired company;
•risk that we may not be able to integrate acquired technologies or products with our current products and technologies;
•potential disruption of our ongoing business and the diversion of our management’s attention from other business concerns;
•inability of management to maximize our financial and strategic position through the successful integration of an acquired company;
•adverse impact on our annual effective tax rate;
•dilution of existing equity holders caused by capital stock issuance to the shareholders of an acquired company or stock option grants to retain employees of an acquired company;
•difficulty in maintaining controls, procedures and policies;
•potential adverse impact on our relationships with partner companies or third-party providers of technology or products;
•impairment of relationships with employees and clients;
•potential assumption of liabilities of the acquired company;
•significant exit or impairment charges if products acquired in business combinations are unsuccessful; and
•issues with product quality, product architecture, legal contingencies, product development issues, or other significant issues that may not be detected through our due diligence process.
Accounting rules require the use of the purchase method of accounting in all new business acquisitions. Many acquisition candidates have significant intangible assets, so an acquisition of these businesses would likely result in significant amounts of goodwill and other intangible assets. The purchase method of accounting for business combinations may require large write-offs of any in-process research and development costs related to companies being acquired, as well as ongoing amortization costs for other intangible assets. Goodwill and certain other intangible assets are not amortized to income, but are subject to impairment reviews at least annually. If the acquisitions do not perform as planned, future write-offs and charges to income arising from such impairment reviews could be significant. In addition, these acquisitions could involve acquisition- related charges, such as one-time acquired research and development charges. Such write-offs and ongoing amortization charges may have a significant negative impact on operating margins and net earnings in the quarter of the combination and for several subsequent years. We may not be successful in overcoming these risks or any other problems encountered in connection with such transactions.
Fully integrating an acquired company or business into our operations may take a significant amount of time. In addition, we may be able to conduct only limited due diligence on an acquired company’s operations. Following an acquisition, we may be subject to liabilities arising from an acquired company’s past or present operations, including liabilities related to data security, encryption and privacy of client data, and these liabilities may not be covered by the warranty and indemnity provisions that we negotiate. We cannot assure you that we will be successful in overcoming these risks or any other problems encountered with acquisitions. To the extent we do not successfully avoid or overcome the risks or problems related to any acquisitions, our results of operations and financial condition could be adversely affected. Future acquisitions also could impact our financial position and capital needs, and could cause substantial fluctuations in our quarterly and yearly results of operations.
Our business may require additional capital.
We may require additional capital to finance our growth or to fund acquisitions or investments in complementary businesses, technologies or product lines. Our capital requirements may be influenced by many factors, including:
•demand for our products;
•timing and extent of our investment in new technology;
•timing and extent of our acquisition of other companies;
•level and timing of revenue;
•expenses of sales, marketing and new product development;
•cost of facilities to accommodate a growing workforce;
•extent to which competitors are successful in developing new products and increasing their market shares; and
•costs involved in maintaining and enforcing intellectual property rights.
To the extent that our resources are insufficient to fund our future activities, we may need to raise additional funds through public or private financing. However, additional funding, if needed, may not be available on terms attractive to us, or at all. Our inability to raise capital when needed could have a material adverse effect on our business, operating results and financial condition. If additional funds are raised through the issuance of equity securities, the percentage ownership of our Company by our current shareholders would be diluted.
Business disruptions could affect our operating results.
A significant portion of our research and development activities and certain other critical business operations is concentrated in a few geographic areas. We are a highly automated business and a disruption or failure of our systems could cause delays in completing sales and providing services. A natural disaster, public health crisis such as the COVID-19 pandemic, or other catastrophic event such as fire, power loss, telecommunications failure, cyber-attack, war, or terrorist attack that results in the destruction or disruption of any of our critical business or IT systems could severely affect our ability to conduct normal business operations and, as a result, our future operating results could be materially and adversely affected.
To effectively mitigate this risk, we must continue to improve our operational, financial and management controls and our reporting systems and procedures by, among other things, improving our key processes and IT infrastructure to support our business needs, and enhancing information and communication systems to ensure that our employees and offices around the world are well-connected and can effectively communicate with each other and our clients and employees can work remotely as appropriate.
Although we maintain crisis management and disaster response plans, in the event of a natural disaster, public health crisis or other catastrophic event, or if we fail to implement the improvements described above, we may be unable to continue our
operations and may experience system interruptions, reputational harm, delays in our product development, lengthy interruptions in service, breaches of data security, and loss of critical data, all of which could have an adverse effect on our future operating results.
Our international operations and sales subject us to risks associated with unexpected activities outside of the United States.
The global reach of our business could cause us to be subject to unexpected, uncontrollable and rapidly changing events and circumstances outside the United States. As we grow our international operations, we may need to recruit and hire new consulting, product development, sales, marketing and support personnel in the countries in which we have or will establish offices or otherwise have a significant presence. Entry into new international markets typically requires the establishment of new marketing and distribution channels, and may involve the development and subsequent support of localized versions of our software. International introductions of our products often require a significant investment in advance of anticipated future revenue. In addition, the opening of a new office typically results in initial recruiting and training expenses and reduced labor efficiencies. If we are less successful than we expect in a new market, we may not be able to realize an adequate return on our initial investment and our operating results could suffer. We cannot guarantee that the countries in which we operate will have a sufficient pool of qualified personnel from which to hire, that we will be successful at hiring, training or retaining such personnel or that we can expand or contract our international operations in a timely, cost-effective manner. If we have to downsize certain international operations, the costs to do so are typically much higher than downsizing costs in the United States. The following factors, among others, could have an adverse impact on our business and earnings:
•failure to properly comply with foreign laws and regulations applicable to our foreign activities including, without limitation, software localization requirements;
•failure to properly comply with U.S. laws and regulations relating to the export of our products and services;
•compliance with multiple and potentially conflicting regulations in Europe, Asia and North America, including export requirements, tariffs, import duties and other trade barriers, as well as health and safety requirements;
•difficulties in managing foreign operations and appropriate levels of staffing;
•longer collection cycles;
•tariffs and other trade barriers, including the economic burden and uncertainty placed on our clients by the imposition and threatened imposition of tariffs by the U.S., China and other countries;
•seasonal reductions in business activities, particularly throughout Europe;
•reduced protection for intellectual property rights in some countries;
•proper compliance with local tax laws which can be complex and may result in unintended adverse tax consequences;
•anti-American sentiment due to conflicts in the Middle East and elsewhere and U.S. policies that may be unpopular in certain countries;
•localized spread of infection resulting from the COVID-19 pandemic, including any economic downturns and other adverse impacts;
•political instability, adverse economic conditions and the potential for war or other hostilities in many of these countries;
•difficulties in enforcing agreements through foreign legal systems;
•fluctuations in exchange rates that may affect product demand and may adversely affect the profitability in U.S. dollars of products and services provided by us in foreign markets where payment for our products and services is made in the local currency, including any fluctuations caused by uncertainties related to the invasion of Ukraine by Russia;
•changes in general economic, health and political conditions in countries where we operate;
•potential labor strikes, lockouts, work slowdowns and work stoppages; and
•restrictions on downsizing operations in Europe and expenses and delays associated with any such activities.
It may become increasingly expensive to obtain and maintain liability insurance.
Our products are often critical to the operations of our clients’ businesses and provide benefits that may be difficult to quantify. If our products fail to function as required, we may be subject to claims for substantial damages. Courts may not enforce provisions in our contracts that would limit our liability or otherwise protect us from liability for damages. Although we maintain general liability insurance coverage, including coverage for errors or omissions and cybersecurity risks, this coverage may not continue to be available on reasonable terms or in sufficient amounts to cover claims against us. In addition, our insurers may disclaim coverage for future claims. If claims exceeding the available insurance coverage are successfully asserted against us, or our insurers impose premium increases, large deductibles or co-insurance requirements, our business and results of operations could be adversely affected.
We contract for insurance to cover a variety of potential risks and liabilities, including those relating to the unexpected failure of our products. In the current market, insurance coverage for all types of risk is becoming more restrictive, and when insurance coverage is offered, the amount for which we are responsible is larger. In light of these circumstances, it may become more difficult to maintain insurance coverage at historical levels or, if such coverage is available, the cost to obtain or maintain it may increase substantially. Consequently, we may be forced to bear the burden of an increased portion of risks for which we have traditionally been covered by insurance, which could negatively impact our results of operations.
Growth in our operations could increase demands on our managerial and operational resources.
If the scope of our operating and financial systems and the geographic distribution of our operations and clients significantly expand, this may increase demands on our management and operations. Our officers and other key employees will need to implement and improve our operational, client support and financial control systems and effectively expand, train and manage our employee base. We also may be required to manage an increasing number of relationships with various clients and other third parties. We may not be able to manage future expansion successfully, and our inability to do so could harm our business, operating results and financial condition.
RISK FACTORS RELATED TO OUR PRODUCTS
We may not be successful in convincing clients to migrate to current or future releases of our products, which may lead to reduced services and maintenance revenue and less future business from existing clients.
Our clients may not be willing to incur the costs or invest the resources necessary to complete upgrades to current or future releases of our products. This may lead to a loss of services and maintenance revenue and future business from clients that continue to operate prior versions of our products or choose to no longer use our products.
We may be unable to retain or attract clients if we do not develop new products and enhance our current products in response to technological changes and competing products.
Over time, we have been required to migrate our products and services from mainframe to client server to web- based environments. In addition, we have been required to adapt our products to emerging standards for operating systems, databases and other technologies. We will be unable to compete effectively if we fail to:
•maintain and enhance our technological capabilities to correspond to these emerging environments and standards;
•develop and market products and services that meet changing client needs; or
•anticipate or respond to technological changes on a cost-effective and timely basis.
A substantial portion of our research and development resources is devoted to product upgrades that address regulatory and support requirements, leaving fewer resources available for new products. New products require significant development investment. That investment is further constrained because of the added costs of developing new products that work with multiple operating systems or databases. We face uncertainty when we develop or acquire new products because there is no assurance that a sufficient market will develop for those products. If we do not attract sufficient client interest in those products, we will not realize a return on our investment and our operating results will be adversely affected.
Our core products face competition from new or modified technologies that may render our existing technology less competitive or obsolete, reducing the demand for our products. As a result, we must continually redesign our products to incorporate these new technologies and adapt our software products to operate on, and comply with evolving industry standards for, various hardware and software platforms. Maintaining and upgrading our products to operate on multiple hardware and database platforms reduces our resources for developing new products. Because of the increased costs of developing and supporting software products across multiple platforms, we may need to reduce the number of those platforms. In addition, conflicting new technologies present us with difficult choices about which new technologies to adopt. If we fail to anticipate the most popular platforms, fail to respond adequately to technological developments, or experience significant delays in product development or introduction, our business and operating results will be negatively impacted.
In addition, to the extent we determine that new technologies and equipment are required to remain competitive, the development, acquisition and implementation of such technologies may require us to make significant capital investments. We may not have sufficient capital for these purposes and investments in new technologies may not result in commercially viable products. The loss of revenue and increased costs from such changing technologies would adversely affect our business and operating results.
If our products are not able to deliver quick, demonstrable value to our clients, our business could be seriously harmed.
Enterprises are requiring their application software vendors to provide faster returns on their technology investments. We must continue to improve our speed of implementation and the pace at which our products deliver value or our competitors may gain important strategic advantages over us. If we cannot successfully respond to these market demands, or if our competitors respond more successfully than we do, our business, results of operations and financial condition could be materially and adversely affected.
If we do not maintain software performance across accepted platforms and operating environments, our license, subscription and services revenue could be adversely affected.
We continuously evaluate new technologies and implement advanced technology into our products. However, if in our product development efforts we fail to accurately address, in a timely manner, evolving industry standards, new technology advancements or important third-party interfaces or product architectures, sales of our products and services will suffer. Market acceptance of new platforms and operating environments may require us to undergo the expense of developing and maintaining compatible product lines. We can license our software products for use with a variety of popular industry standard relational database management system platforms using different programming languages and underlying databases and architectures. There may be future or existing relational database platforms that achieve popularity in the marketplace that may or may not be
architecturally compatible with our software product design. In addition, the effort and expense of developing, testing, and maintaining software product lines will increase as more hardware platforms and operating systems achieve market acceptance within our target markets. Moreover, future or existing user interfaces may or may not be architecturally compatible with our software product design. If we do not achieve market acceptance of new user interfaces that we support, or adapt to popular new user interfaces that we do not support, our sales and revenue may be adversely affected. Developing and maintaining consistent software product performance characteristics across all of these combinations could place a significant strain on our resources and software product release schedules, which could adversely affect revenue and results of operations.
Our software products and product development are complex, which makes it increasingly difficult to innovate, extend our product offerings, and avoid costs related to correction of program errors.
The market for our software products is characterized by rapid technological change, evolving industry standards, changes in client requirements and frequent new product introductions and enhancements. For example, existing products can become obsolete and unmarketable when vendors introduce products utilizing new technologies or new industry standards emerge. As a result, it is difficult for us to estimate the life cycles of our software products. There can be no assurance that we will successfully identify new product opportunities or develop and bring new products to the market in a timely and cost- effective manner, or that products, capabilities or technologies developed by our competitors will not render our products obsolete. Our future success will depend in part upon our ability to:
•continue to enhance and expand our core applications;
•continue to sell our products;
•continue to successfully integrate third-party products;
•enter new markets and achieve market acceptance; and
•develop and introduce new products that keep pace with technological developments, satisfy increasingly sophisticated client requirements and achieve market acceptance.
Despite our testing, our software programs, like software programs generally, may contain a number of undetected errors or “bugs” when we first introduce them or as new versions are released. We do not discover some errors until we have installed the product and our clients have used it. Errors may result in the delay or loss of revenue, diversion of software engineering resources, material non-monetary concessions, negative media attention, or increased service or warranty costs as a result of performance or warranty claims that could lead to client dissatisfaction, litigation, damage to our reputation, and impaired demand for our products. Correcting bugs may result in increased costs and reduced acceptance of our software products in the marketplace. Further, such errors could subject us to claims from our clients for significant damages, and we cannot assure you that courts would enforce the provisions in our client agreements that limit our liability for damages. The effort and expense of developing, testing and maintaining software product lines will increase with the increasing number of possible combinations of:
•vendor hardware platforms;
•operating systems and updated versions;
•application software products and updated versions; and
•database management system platforms and updated versions.
Developing consistent software product performance characteristics across all of these combinations could place a significant strain on our development resources and software product release schedules.
The use of open source software in our products may expose us to additional risks and harm our intellectual property.
Some of our products use or incorporate software that is subject to one or more open source licenses. Open source software is typically freely accessible, usable and modifiable. Certain open source software licenses require a user who intends to distribute the open source software as a component of the user’s software to disclose publicly part or all of the source code to the user’s software. In addition, certain open source software licenses require the user of such software to make any derivative works of the open source code available to others on unfavorable terms or at no cost. This can subject previously proprietary software to open source license terms.
While we monitor the use of all open source software in our products, processes and technology and try to ensure that our open source software use does not require us to disclose the source code to the related product or solution, such use could inadvertently occur. Additionally, if a third-party software provider has incorporated certain types of open source software in software we license from such third party for our products and solutions, under certain circumstances we could be required to disclose the source code to our products and solutions. This could harm our intellectual property rights and have a material adverse effect on our business, results of operations, cash flow and financial condition.
If the open source community expands into enterprise application and supply chain software, our revenue may decline.
The open source community is comprised of many different formal and informal groups of software developers and individuals who have created a wide variety of software and have made that software available for use, distribution and modification, often free of charge. Open source software, such as the Linux operating system, has been gaining in popularity among business users. If developers contribute enterprise and supply chain application software to the open source community and that software has competitive features and scale to support business users in our markets, we will need to change our product pricing and distribution strategy to compete successfully.
Implementation of our products can be complex, time-consuming and expensive, clients may be unable to implement our products successfully, and we may become subject to warranty or product liability claims, which could be costly to resolve and result in negative publicity.
Our products must integrate with the existing computer systems and software programs of our clients. This can be complex, time-consuming and expensive, and may cause delays in the deployment of our products. Our clients may be unable to implement our products successfully or otherwise achieve the benefits attributable to our products. Although we test each of our new products and releases and evaluate and test the products we obtain through acquisitions before introducing them to the market, there still may be significant errors in existing or future releases of our software products, with the possible result that we may be required to expend significant resources in order to correct such errors or otherwise satisfy client demands. In addition, defects in our products or difficulty integrating our products with our clients’ systems could result in delayed or lost revenue, warranty or other claims against us by clients or third parties, adverse client reactions and negative publicity about us or our products and services, or reduced acceptance of our products and services in the marketplace, any of which could have a material adverse effect on our reputation, business, results of operations and financial condition.
An increase in sales of software products that require customization would result in revenue being recognized over the term of the contract for those products and could have a material adverse effect on our operating performance and financial condition.
Historically, we generally have been able to recognize software revenue upon delivery of our solutions and contract execution. Clients and prospects could ask for unique capabilities in addition to our core capabilities, which could cause us to recognize more of our software revenue on a contract accounting basis over the course of the delivery of the solution rather than upon delivery and contract execution. The period between the initial contract and the completion of the implementation of our products can be lengthy and is subject to a number of factors (over many of which we have little or no control) that may cause significant delays, including the size and complexity of the overall project. As a result, a shift toward a higher proportion of software contracts requiring contract accounting would have a material adverse effect on our operating performance and financial condition and cause our operating results to vary significantly from quarter to quarter.
We sometimes experience delays in product releases, which can adversely affect our business.
Historically, we have issued significant new releases of our software products periodically, with minor interim releases issued more frequently. Although we now issue software releases more frequently under our agile methodology, the complexities inherent in our software, major new product enhancements and new products often require long development and testing periods before they are released. On occasion, we have experienced delays in the scheduled release dates of new or enhanced products, and we cannot provide any assurance that we will achieve future scheduled release dates. The delay of product releases or enhancements, or the failure of such products or enhancements to achieve market acceptance, could materially affect our business and reputation.
We may not receive significant revenue from our current research and development efforts for several years.
Developing and localizing software is expensive, and investment in product development may involve a long payback cycle. Our future plans include significant investments in software research and development and related product opportunities. We believe that we must continue to dedicate a significant amount of resources to our research and development efforts to maintain or improve our competitive position. However, we do not expect to receive significant revenue from these investments for several years, if at all.
We have limited protection of our intellectual property and proprietary rights and may potentially infringe third-party intellectual property rights.
We consider certain aspects of our internal operations, software and documentation to be proprietary, and rely on a combination of copyright, trademark and trade secret laws; confidentiality agreements with employees and third parties; protective contractual provisions (such as those contained in our agreements with consultants, vendors, partners and clients); and other measures to protect this information. Existing copyright laws afford only limited protection. We believe that the rapid pace of technological change in the computer software industry has made trade secret and copyright protection less significant than factors such as:
•knowledge, ability and experience of our employees;
•frequent software product enhancements;
•client education; and
•timeliness and quality of support services.
Our competitors may independently develop technologies that are substantially equivalent or superior to our technology. The laws of some countries in which our software products are or may be sold do not protect our software products and intellectual property rights to the same extent as do the laws of the United States.
We generally enter into confidentiality or similar agreements with our employees, clients, and vendors. These agreements control access to and distribution of our software, documentation, and other proprietary information. Despite our efforts to protect our proprietary rights, unauthorized parties may copy aspects of our products, obtain and use information that we regard as proprietary, or develop similar technology through reverse engineering or other means. Preventing or detecting unauthorized use of our products is difficult. There can be no assurance that the steps we take will prevent misappropriation of our technology or that such agreements will be enforceable. In addition, we may need to resort to litigation to enforce our intellectual property rights, protect our trade secrets, determine the validity and scope of others’ proprietary rights, or defend against claims of infringement or invalidity. Such litigation could result in significant costs and the diversion of resources. This could materially and adversely affect our business, operating results and financial condition.
Third parties may assert infringement claims against us. Although we do not believe that our products infringe on the proprietary rights of third parties, we cannot guarantee that third parties will not assert or prosecute infringement or invalidity claims against us. These claims could distract management, require us to enter into royalty arrangements, and result in costly and time-consuming litigation, including damage awards. Such assertions or the defense of such claims may materially and adversely affect our business, operating results, or financial condition. In addition, such assertions could result in injunctions against us. Injunctions that prevent us from distributing our products would have a material adverse effect on our business, operating results, and financial condition. If third parties assert such claims against us, we may seek to obtain a license to use such intellectual property rights. There can be no assurance that such a license would be available on commercially reasonable terms or at all. If a patent claim against us were successful and we could not obtain a license on acceptable terms or license a substitute technology or redesign to avoid infringement, we may be prevented from distributing our software or required to incur significant expense and delay in developing non-infringing software.
We may experience liability claims arising out of the sale of our software and provision of services.
Our agreements normally contain provisions designed to limit our exposure to potential liability claims and generally exclude consequential and other forms of extraordinary damages. However, these provisions could be rendered ineffective, invalid or unenforceable by unfavorable judicial decisions or by federal, state, local or foreign laws or ordinances. For example, we may not be able to avoid or limit liability for disputes relating to product performance or the provision of services. If a claim against us were to be successful, we may be required to incur significant expense and pay substantial damages, including consequential or punitive damages, which could have a material adverse effect on our business, operating results and financial condition. Even if we prevail in contesting such a claim, the accompanying publicity could adversely affect the demand for our products and services.
We also rely on certain technology that we license from third parties, including software that is integrated with our internally developed software. Although these third parties generally indemnify us against claims that their technology infringes on the proprietary rights of others, such indemnification is not always available for all types of intellectual property. Often such third-party indemnifiers are not well capitalized and may not be able to indemnify us in the event that their technology infringes on the proprietary rights of others. As a result, we may face substantial exposure if technology we license from a third party infringes on another party’s proprietary rights. Defending such infringement claims, regardless of their validity, could result in significant cost and diversion of resources.
Privacy and security concerns, including evolving government regulation in the area of data privacy, could adversely affect our business and operating results.
Governments in many jurisdictions have enacted or are considering enacting consumer data privacy legislation, including laws and regulations applying to the solicitation, collection, processing and use of consumer data. For example, in 2016, the European Union adopted a new law governing data practices and privacy called the General Data Protection Regulation (“GDPR”), which became effective in May 2018. The law establishes new requirements regarding the handling of personal data. Non-compliance with the GDPR may result in monetary penalties of up to 4% of worldwide revenue. The GDPR and other changes in laws or regulations associated with the enhanced protection of certain types of sensitive data could greatly increase our cost of providing our products and services or even prevent us from offering certain services in jurisdictions that we operate. In the U.S., California enacted the California Consumer Privacy Act of 2018 (“CCPA”), which took effect on January 1, 2020, and the California Privacy Rights Act (“CPRA”), which expands upon the CCPA was passed in November 2020 and comes into effect on January 1, 2023, with a “lookback” period to January 1, 2022. This legislation broadly defines personal information, gives California residents expanded privacy rights and protections and provides for civil penalties for violations.
Additionally, public perception and standards related to the privacy of personal information can shift rapidly, in ways that may affect our reputation or influence regulators to enact regulations and laws that may limit our ability to provide certain products. Federal, state, or foreign laws and regulations, including laws and regulations regulating privacy, data security, or consumer protection, or other policies, public perception, standards, self-regulatory requirements or legal obligations, could reduce the demand for our software products if we fail to design or enhance our products to enable our clients to comply with the privacy and security measures dictated by these requirements. Moreover, we may be exposed to liability under existing or new data privacy legislation. Even technical violations of these laws can result in penalties that are assessed for each non- compliant transaction. If we or our clients were found to be subject to and in violation of any of these laws or other data privacy laws or regulations, our business could suffer and we and/or our clients would likely have to change our business practices.
We face risks associated with the security of our products, and if our data protection or other security measures are compromised and as a result our data, our clients’ data or our IT systems are accessed improperly, made unavailable, or improperly modified, our products and services may be perceived as vulnerable, our reputation could be damaged, the IT services we provide to our clients could be disrupted, and clients may stop using our products and services, all of which could reduce our revenue and earnings, increase our expenses and expose us to legal claims and regulatory actions.
Maintaining the security of computers and computer networks is an issue of critical importance for our clients. Attempts by experienced computer programmers, or hackers, to penetrate client network security or the security of web sites to misappropriate confidential information have become an industry-wide phenomenon that affects computers and networks across all platforms. We have included security features in certain of our Internet browser-enabled products that are intended to protect the privacy and integrity of client data. In addition, some of our software applications use encryption technology to permit the secure exchange of valuable and confidential information. Despite these security features, our products may be vulnerable to break-ins and similar problems caused by hackers, which could jeopardize the security of information stored in and transmitted through the computer systems of our clients. Actual or perceived security vulnerabilities in our products (or the Internet in general) could lead some clients to seek to reduce or delay future purchases or to purchase competitors’ products which are not Internet-based applications. Clients may also increase their spending to protect their computer networks from attack, which could delay adoption of new technologies. Any of these actions by clients and the cost of addressing such security problems may have a material adverse effect on our business.
Although our agreements with our clients contain provisions designed to limit our exposure as a result of the situations listed above, such provisions may not be effective. Existing or future federal, state, local or foreign laws or ordinances or unfavorable judicial decisions could affect their enforceability. To date, we have not experienced any such product liability claims, but there can be no assurance that this will not occur in the future. Because our products may be used in essential business applications, a successful product liability claim could have a material adverse effect on our business, operating results, and financial condition. Additionally, defending such a suit, regardless of its merits, could entail substantial expense and require the time and attention of key management.
We depend on third-party technology, which could result in increased costs or delays in the production and improvement of our products if it should become unavailable or if it contains defects.
We license critical third-party software that we incorporate into our own software products. We are likely to incorporate and include additional third-party software in our products and solutions as we expand our product offerings. The operation of our products would be impaired if errors occur in the third-party software that we utilize. It may be difficult for us to correct any defects in third-party software because the software is not within our control. Accordingly, our business could be adversely affected in the event of any errors in this software. There can be no assurance that third parties will continue to make their software available to us on acceptable terms, invest the appropriate levels of resources in their products and services to maintain and enhance the capabilities of their software, or even remain in business. Further, due to the limited number of vendors of certain types of third-party software, it may be difficult for us to replace such third-party software if a vendor terminates our license of the software or our ability to license the software to clients. If our relations with any of these third- party software providers are impaired, and if we are unable to obtain or develop a replacement for the software, our business could be harmed. In addition, if the cost of licensing any of these third-party software products significantly increases, our gross margin levels could significantly decrease.
Any interruptions or delays in services from third parties, including data center hosting facilities and cloud computing platform providers, or our inability to adequately plan for and manage service interruptions or infrastructure capacity requirements, could impair the delivery of our services and harm our business.
We currently serve our clients from third-party data center hosting facilities and cloud computing platform providers located in the United States and other countries. Any damage to or failure of our systems generally, including the systems of our third-party platform providers, could result in interruptions in our services. From time to time we have experienced interruptions in our services and such interruptions may occur in the future. As we increase our reliance on these third-party systems, the risk of service interruptions may increase. Interruptions in our services may cause clients to make warranty or other claims against us or terminate their agreements and adversely affect our ability to attract new clients, all of which would reduce our revenue. Our business also would be harmed if clients and potential clients believe our services are unreliable.
These data and cloud computing platforms may not continue to be available at reasonable prices, on commercially reasonable terms or at all. Any loss of the right to use any of these cloud computing platforms could significantly increase our expenses and otherwise result in delays in providing our services until equivalent technology either is developed by us or, if available, is identified, purchased or licensed and integrated into our services.
If we do not accurately plan for our infrastructure capacity requirements and we experience significant strain on our data center capacity, our clients could experience performance degradation or service outages that may subject us to financial liability, result in client losses and harm our business. As we add data centers and capacity and continue to move to a cloud computing platform, we may move or transfer our data and our clients’ data. Despite precautions taken during this process, any unsuccessful data transfers may impair the delivery of our services, which may adversely impact our business.
RISK FACTORS RELATED TO OUR PERSONNEL
We are dependent upon key personnel, and need to attract and retain highly qualified personnel in all areas.
Our future operating results depend significantly upon the continued service of a relatively small number of key senior management and technical personnel, including our Chief Executive Officer and President, H. Allan Dow. None of our key personnel are bound by long-term employment agreements. We do not have in place “key person” life insurance policies on any of our employees. If we fail to retain senior management or other key personnel, or fail to attract key personnel, our succession planning and operations could be materially and adversely affected and could jeopardize our ability to meet our business goals.
Our future success also depends on our continuing ability to attract, train, retain and motivate other highly qualified managerial and technical personnel. Competition for these personnel is intense, and at times we have experienced difficulty in recruiting and retaining qualified personnel, including sales and marketing representatives, qualified software engineers involved in ongoing product development, and personnel who assist in the implementation of our products and provide other services. The market for such individuals is competitive. Given the critical roles of our sales, product development and consulting personnel, our inability to recruit successfully or any significant loss of key personnel would adversely affect us. The software industry is characterized by a high level of employee mobility and aggressive recruiting of skilled personnel. It may be particularly difficult to retain or compete for skilled personnel against larger, better-known software companies. We cannot guarantee that we will be able to retain our current personnel, attract and retain other highly qualified technical and managerial personnel in the future, or assimilate the employees from any acquired businesses. We will continue to adjust the size and composition of our workforce to match the relevant product and geographic demand cycles. If we are unable to attract and retain the necessary technical and managerial personnel, or assimilate the employees from any acquired businesses, our business, operating results and financial condition would be adversely affected.
The failure to attract, train, retain and effectively manage employees could negatively impact our development and sales efforts and cause a degradation of our customer service. In particular, the loss of sales personnel could lead to lost sales opportunities because it can take several months to hire and train replacement sales personnel. If our competitors increase their use of non-compete agreements, the pool of available sales and technical personnel may further shrink, even if the non-compete agreements ultimately prove to be unenforceable. We may grant large numbers of stock options to attract and retain personnel, which could be highly dilutive to our shareholders. The volatility or lack of positive performance of our stock price may adversely affect our ability to retain or attract employees. The loss of key management and technical personnel or the inability to attract and retain additional qualified personnel could have an adverse effect on us.
We periodically have restructured our work force, which can be disruptive.
Periodically, we have restructured or made other adjustments to our work force in response to factors such as product changes, geographical coverage and other internal considerations. Change in the structures of the work force and management can cause us to terminate and then hire new personnel, and/or result in temporary lack of focus and reduced productivity, which may affect revenue in one or more quarters. Future restructuring of our work force could occur, and if so we may again experience the adverse transition issues associated with such restructuring.
Our technical personnel have unique access to client data, and may abuse that privilege.
In order to properly render the services we provide, our technical personnel have the ability to access data on the systems run by our clients or hosted by us for our clients, including data about the operations of our clients and even about the customers of our clients. Although we have never had such an occurrence in the entire history of our Company, it is conceivable that such access could be abused in order to improperly utilize that data to the detriment of such clients.
RISK FACTORS RELATED TO OUR CORPORATE STRUCTURE AND GOVERNANCE
Our business is subject to changing regulation of corporate governance and public disclosure that has increased both our costs and the risk of non-compliance.
Because our common stock is publicly traded, we are subject to certain rules and regulations of federal, state and financial market exchange entities charged with the protection of investors and the oversight of companies whose securities are publicly traded. These entities, including the Public Company Accounting Oversight Board, the SEC and NASDAQ, have issued requirements and regulations and continue to develop additional regulations and requirements in response to laws enacted by Congress. Our efforts to comply with these regulations have resulted in, and are likely to continue to result in, increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities.
In particular, our efforts to comply with Section 404 of the Sarbanes-Oxley Act of 2002 and the related regulations regarding our required assessment of our internal control over financial reporting and our independent registered public accounting firm’s audits of that assessment have required, and continue to require, the commitment of significant financial and managerial resources. Moreover, because these laws, regulations and standards are subject to varying interpretations, their application in practice may evolve over time as new guidance becomes available. This evolution may result in continuing uncertainty regarding compliance matters and additional costs necessitated by ongoing revisions to our disclosure and governance practices. Over time, we have made significant changes in, and may consider making additional changes to, our
internal controls, our disclosure controls and procedures, and our corporate governance policies and procedures. Any system of controls, however well-designed and -operated, is based in part on certain assumptions and can provide only reasonable, and not absolute, assurances that the objectives of the system are met. Any failure of our controls, policies and procedures could have a material adverse effect on our business, results of operations, cash flow and financial condition.
If in the future we are unable to assert that our internal control over financial reporting is effective as of the end of the then current fiscal year (or if our independent registered public accounting firm is unable to express an opinion on the effectiveness of our internal control over financial reporting), we could lose investor confidence in the accuracy and completeness of our financial reports, which would have a negative market reaction.
One shareholder beneficially owns a substantial portion of our stock, and as a result exerts substantial control over us.
As of June 27, 2022, James C. Edenfield, Executive Chairman, Treasurer and a Director of the Company, beneficially owned 1,821,587 shares, or 100%, of our Class B common stock, and 60,000 shares, or 0.18%, of our Class A common stock. If all of Mr. Edenfield’s Class B shares were converted into Class A shares, Mr. Edenfield would beneficially own 1,881,587 Class A shares, which would represent approximately 5.59% of all outstanding Class A shares after giving effect to such conversion. As a result of Mr. Edenfield’s ownership of Class B common stock, he has the right to elect a majority of our Board of Directors. Such control and concentration of ownership may discourage a potential acquirer from making a purchase offer that other shareholders might find favorable, which in turn could adversely affect the market price of our common stock.
Our articles of incorporation and bylaws and Georgia law may inhibit a takeover of our company.
Our basic corporate documents and Georgia law contain provisions that might enable our management to resist a takeover. These provisions might discourage, delay or prevent a change in the control or a change in our management. These provisions could also discourage proxy contests and make it more difficult for you and other shareholders to elect directors and take other corporate actions. The existence of these provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock.
We are a “controlled company” within the meaning of NASDAQ rules and, as a result, qualify for, and rely on, exemptions from certain corporate governance requirements.
Because Mr. Edenfield has the ability to elect more than half of the members of our Board of Directors, we are a “controlled company” within the meaning of the rules governing companies with stock quoted on the NASDAQ Global Select Market. Under these rules, a “controlled company” is a company of which more than 50% of the voting power for the election of directors is held by an individual, a group or another company. As a controlled company, we are exempt from certain corporate governance requirements, including requirements that: (1) a majority of the board of directors consist of independent directors; (2) compensation of officers be determined or recommended to the board of directors by a majority of its independent directors or by a compensation committee that is composed entirely of independent directors; and (3) director nominees be selected or recommended for selection by a majority of the independent directors or by a nominating committee composed solely of independent directors. Our Board of Directors does not have a majority of independent directors, and our compensation committee is not required to consist entirely of independent directors. We are not required to have, and have not chosen to establish, a nominating committee. Accordingly, our procedures for approving significant corporate decisions are not subject to the same corporate governance requirements as non-controlled companies with stock quoted on the NASDAQ Global Select Market.
RISK FACTORS RELATED TO OUR STOCK PRICE
We could experience fluctuations in quarterly operating results that could adversely affect our stock price.
We have difficulty predicting our actual quarterly operating results, which have varied widely in the past and which we expect to continue to vary significantly from quarter to quarter due to a number of factors, many of which are outside our control. We base our expense levels, operating costs and hiring plans on projections of future revenue, and it is difficult for us to rapidly adjust when actual results do not match our projections. If our quarterly revenue or operating results fall below the expectations of investors or public market analysts, the price of our common stock could fall substantially. Revenue in any quarter depend on the combined sales activity of the American Software group of companies and our ability to recognize revenue in that quarter in accordance with our revenue recognition policies. Our sales activity is difficult to forecast for a variety of reasons, including the following:
•we complete a significant portion of our client agreements within the last few weeks of each quarter;
•if an agreement includes cloud services that are performed over the term of the contract, this requires all revenue to be spread over the term of the contract;
•our sales cycle for products and services, including multiple levels of authorization required by some clients, is relatively long and variable because of the complex and mission-critical nature of our products;
•the demand for our products and services can vary significantly;
•the size of our transactions can vary significantly;
•the possibility of adverse global political or public health conditions and economic downturns, both domestic and international, characterized by decreased product demand, price erosion, technological shifts, work slowdowns and layoffs, may substantially reduce client demand and contracting activity;
•clients may unexpectedly postpone or cancel anticipated system replacement or new system evaluation and implementation due to changes in their strategic priorities, project objectives, budgetary constraints, internal purchasing processes or company management;
•client evaluation and purchasing processes vary from company to company, and a client’s internal approval and expenditure authorization process can be difficult and time-consuming, even after selection of a vendor; and
•the number, timing and significance of software product enhancements and new software product announcements by us and by our competitors may affect purchase decisions.
Variances or slowdowns in our contracting activity in prior quarters may affect current and future consulting, training and maintenance revenue, since these revenue typically follow license or subscription fee revenue. Our ability to maintain or increase services revenue primarily depends on our ability to increase the number and size of our client agreements. In addition, we base our budgeted operating costs and hiring plans primarily on our projections of future revenue. Because most of our expenses, including employee compensation and rent, are relatively fixed in the near term, if our actual revenue falls below projections in any particular quarter, our business, operating results, and financial condition could be materially and adversely affected. In addition, our expense levels are based, in part, on our expectations regarding future revenue increases. As a result, any shortfall in revenue in relation to our expectations could cause significant changes in our operating results from quarter to quarter and could result in quarterly losses. As a result of these factors, we believe that period-to-period comparisons of our revenue and operating results are not necessarily meaningful. Therefore, predictions of our future performance should not be based solely on our historical quarterly revenue and operating results.
Our stock price is volatile and there is a risk of litigation.
The trading price of our common stock has been in the past and in the future may be subject to wide fluctuations in response to factors such as the following:
•general market conditions including an economic recession;
•revenue or results of operations in any quarter failing to meet the expectations, published or otherwise, of the investment community;
•client order deferrals resulting from the anticipation of new products, economic uncertainty, disappointing operating results by the client, management changes, corporate reorganizations or otherwise;
•reduced investor confidence in equity markets, due in part to corporate collapses in recent years;
•speculation in the press or analyst community;
•wide fluctuations in stock prices, particularly in relation to the stock prices for other technology companies;
•announcements of technological innovations by us or our competitors;
•new products or the acquisition or loss of significant clients by us or our competitors;
•developments with respect to our proprietary rights or those of our competitors;
•changes in interest rates;
•changes in investors’ beliefs as to the appropriate price-earnings ratios for us and our competitors;
•changes in recommendations or financial estimates by securities analysts who track our common stock or the stock of other software companies;
•changes in management;
•sales of common stock by our controlling shareholder, directors and executive officers;
•rumors or dissemination of false or misleading information, particularly through Internet chat rooms, instant messaging, and other rapid-dissemination methods;
•conditions and trends in the software industry generally;
•the announcement of acquisitions or other significant transactions by us or our competitors;
•adoption of new accounting standards affecting the software industry;
•domestic or international terrorism, global or regional conflicts including the invasion of Ukraine by Russia, public health crises including the COVID-19 pandemic, and other significant external factors; and
•other factors described in these “Risk Factors.”
Fluctuations in the price of our common stock may expose us to the risk of securities class action lawsuits. Although no such lawsuits are currently pending against us and we are not aware that any such lawsuit is threatened to be filed in the future, there is no assurance that we will not be sued based on fluctuations in the price of our common stock. Defending against such lawsuits could result in substantial cost and divert management’s attention and resources. In addition, any settlement or adverse determination of these lawsuits could subject us to significant liabilities.
Our dividend policy is subject to change.
On May 25, 2022, our Board of Directors declared a quarterly cash dividend of $0.11 per share of our Class A and Class B common stock. The cash dividend will be payable on or about August 26, 2022 to Class A and Class B shareholders of record at the close of business on August 12, 2022. We currently expect to declare and pay cash dividends at this level on a quarterly basis in the future. However, our dividend policy may be affected by, among other things, our views on business conditions,
financial position, earnings, earnings outlook, capital spending plans and other factors that our Board of Directors considers relevant at that time. Our dividend policy has changed in the past and may change from time to time, and we cannot provide assurance that we will continue to declare dividends in any particular amounts or at all. A change in our dividend policy could have a negative effect on the market price of our common stock.
The price of our common stock may decline due to shares eligible for future sale or actual future sales of substantial amounts of our common stock.
Sales of substantial amounts of our common stock in the public market, or the perception that such sales may occur, could cause the market price of our common stock to decline. As of June 27, 2022, if all of our outstanding Class B common shares were converted into Class A common shares, our current directors and executive officers of the Company as a group would beneficially own approximately 10.40% of all outstanding Class A common shares after giving effect to such conversion. Sales of substantial amounts of our common stock in the public market by these persons, or the perception that such sales may occur, could cause the market price of our common stock to decline and could impair our ability to raise capital through the sale of additional equity securities.