Presentation and Summary of Significant Accounting Policies | Presentation and Summary of Significant Accounting Policies Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required for complete consolidated financial statements. In the opinion of our management, these condensed consolidated financial statements contain all normal recurring adjustments considered necessary for a fair presentation of the Company’s financial position at January 31, 2019 , results of operations for the three and nine months ended January 31, 2019 and 2018 and cash flows for the nine months ended January 31, 2019 and 2018 . The Company’s results for the three and nine months ended January 31, 2019 are not necessarily indicative of the results expected for the full year. You should read these statements in conjunction with our audited consolidated financial statements and management’s discussion and analysis and results of operations included in our Annual Report on Form 10-K (the “Annual Report”) for the fiscal year ended April 30, 2018 . The terms “fiscal 2019” and “fiscal 2018” refer to our fiscal years ending April 30, 2019 and 2018 , respectively. The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities, at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Note 1 in the Notes to the Consolidated Financial Statements for fiscal 2018 contained in the Annual Report describes the significant accounting policies that we have used in preparing our consolidated financial statements. On an ongoing basis, we evaluate our estimates, including but not limited to those related to revenue/collectability, stock-based compensation, income taxes and contingencies. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our actual results could differ materially from these estimates under different assumptions or conditions. The accompanying condensed consolidated balance sheet as of April 30, 2018 and the condensed consolidated statements of operations for the three and nine months and cash flows for the nine months ended January 31, 2018 have not been revised for the effects of Topic 606 and are therefore not comparable to the January 31, 2019 period. Principles of Consolidation The accompanying unaudited condensed consolidated financial statements include the accounts of American Software, Inc. (“American Software”) and its wholly-owned subsidiaries (collectively, the “Company”). All significant intercompany balances and transactions have been eliminated in consolidation. Recent Accounting Pronouncements In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606) , which replaced the previous revenue recognition guidance. The Company adopted the new revenue standard effective May 1, 2018 using the modified retrospective transition method. Under this method, the Company elected to apply the cumulative effect method to contracts that are not complete as of the adoption date. The Company’s total revenue impact is $1.2 million , with approximately 70% impacting fiscal 2019, which is the result of recognizing revenue for the license component of its term licenses and certain perpetual license contracts that were previously recognized over time due to the lack of vendor-specific objective evidence (VSOE) of fair value at the point in time at which control of the software license is transferred to the customer, rather than ratably over the term of the contract. In addition, under the new standard, the Company will capitalize a portion of sales commission expenses and recognize them ratably over the associated period of economic benefit, which the Company has determined to be six years , which will have an impact of $1.1 million . As a result, the cumulative impact due to the adoption of the new revenue standard on the opening consolidated balance sheet will be an increase in opening retained earnings, with a corresponding increase in contract assets and a decrease in deferred revenue. The following table presents the cumulative effect of adjustments, net of income tax effects, to beginning consolidated balance sheet accounts for the new accounting standard adopted by the Company on the first day of fiscal 2019: April 30, Topic 606 May 1, 2018 (in thousands) ASSETS Current assets: Cash and cash equivalents $ 52,794 $ — $ 52,794 Investments 26,121 — 26,121 Trade accounts receivable, net Billed 18,643 — 18,643 Unbilled 3,375 440 3,815 Prepaid expenses and other current assets 6,592 126 6,718 Total current assets 107,525 566 108,091 Investments—Noncurrent 8,893 — 8,893 Property and equipment, net 3,034 — 3,034 Capitalized software, net 9,728 — 9,728 Goodwill 25,888 — 25,888 Other intangibles, net 5,120 — 5,120 Other assets 2,777 1,325 4,102 Total assets $ 162,965 $ 1,891 $ 164,856 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable $ 1,974 $ — $ 1,974 Accrued compensation and related costs 6,310 — 6,310 Dividends payable 3,367 — 3,367 Other current liabilities 1,246 80 1,326 Deferred revenue 33,226 (521 ) 32,705 Total current liabilities 46,123 (441 ) 45,682 Deferred income taxes 2,615 579 3,194 Long-term deferred revenue 147 — 147 Other long-term liabilities 1,496 — 1,496 Total liabilities 50,381 138 50,519 Shareholders’ equity: Common stock: Class A 3,314 — 3,314 Class B 205 — 205 Additional paid-in capital 131,258 — 131,258 Retained earnings 3,366 1,753 5,119 Class A treasury stock (25,559 ) — (25,559 ) Total shareholders’ equity 112,584 1,753 114,337 Commitments and contingencies Total liabilities and shareholders’ equity $ 162,965 $ 1,891 $ 164,856 The following table summarizes the effects of adopting Topic 606 on the Company’s condensed consolidated balance sheet as of January 31, 2019 : As reported under Topic 606 Adjustments Balances under Prior GAAP (in thousands) ASSETS Current assets: Cash and cash equivalents $ 55,058 $ — $ 55,058 Investments 28,106 — 28,106 Trade accounts receivable, net Billed 20,298 — 20,298 Unbilled 2,992 (339 ) 2,653 Prepaid expenses and other current assets 6,184 (180 ) 6,004 Total current assets 112,638 (519 ) 112,119 Investments—Noncurrent 998 — 998 Property and equipment, net 3,562 — 3,562 Capitalized software, net 10,497 — 10,497 Goodwill 25,888 — 25,888 Other intangibles, net 3,328 — 3,328 Other assets 3,910 (1,303 ) 2,607 Total assets $ 160,821 $ (1,822 ) $ 158,999 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable $ 1,789 $ — $ 1,789 Accrued compensation and related costs 2,909 — 2,909 Dividends payable 3,417 — 3,417 Other current liabilities 1,279 (80 ) 1,199 Deferred revenue 32,947 267 33,214 Total current liabilities 42,341 187 42,528 Deferred income taxes 3,027 (535 ) 2,492 Long-term deferred revenue — — — Other long-term liabilities 1,097 — 1,097 Total liabilities 46,465 (348 ) 46,117 Shareholders’ equity: Common stock: Class A 3,383 — 3,383 Class B 182 — 182 Additional paid-in capital 136,522 — 136,522 Retained earnings (172 ) (1,474 ) (1,646 ) Class A treasury stock (25,559 ) — (25,559 ) Total shareholders’ equity 114,356 (1,474 ) 112,882 Commitments and contingencies Total liabilities and shareholders’ equity $ 160,821 $ (1,822 ) $ 158,999 The following table summarizes the effects of adopting Topic 606 on the Company’s condensed consolidated statement of operations for the three months ended January 31, 2019 : As reported under Topic 606 Adjustments Balances under Prior GAAP (in thousands, except per share amounts) Revenues: License $ 1,718 $ 368 $ 2,086 Subscription Fees 3,687 2 3,689 Professional Services and other 10,176 31 10,207 Maintenance 11,422 — 11,422 Total revenues 27,003 401 27,404 Cost of revenues: License 1,831 — 1,831 Subscription Fees 1,389 — 1,389 Professional Services and other 7,714 — 7,714 Maintenance 2,030 — 2,030 Total cost of revenues 12,964 — 12,964 Gross margin 14,039 401 14,440 Research and development 2,811 — 2,811 Sales and marketing 4,699 41 4,740 General and administrative 4,302 — 4,302 Amortization of acquisition-related intangibles 97 — 97 Total operating expenses 11,909 41 11,950 Operating income 2,130 360 2,490 Other income: Interest income 523 — 523 Other, net 4 — 4 Earnings before income taxes 2,657 360 3,017 Income tax expense 356 49 405 Net earnings $ 2,301 $ 311 $ 2,612 Earnings per common share: Basic $ 0.07 $ 0.01 $ 0.08 Diluted $ 0.07 $ 0.01 $ 0.08 The following table summarizes the effects of adopting Topic 606 on the Company’s condensed consolidated statement of operations for the nine months ended January 31, 2019 : As reported under Topic 606 Adjustments Balances under Prior GAAP (in thousands, except per share amounts) Revenues: License $ 5,432 $ 313 $ 5,745 Subscription Fees 10,196 6 10,202 Professional Services and other 32,240 137 32,377 Maintenance 34,567 — 34,567 Total revenues 82,435 456 82,891 Cost of revenues: License 5,305 — 5,305 Subscription Fees 3,746 — 3,746 Professional Services and other 24,484 — 24,484 Maintenance 6,442 — 6,442 Total cost of revenues 39,977 — 39,977 Gross margin 42,458 456 42,914 Research and development 9,818 — 9,818 Sales and marketing 15,183 134 15,317 General and administrative 12,903 — 12,903 Amortization of acquisition-related intangibles 291 — 291 Total operating expenses 38,195 134 38,329 Operating income 4,263 322 4,585 Other income: Interest income 1,551 — 1,551 Other, net (461 ) — (461 ) Earnings before income taxes 5,353 322 5,675 Income tax expense 424 44 468 Net earnings $ 4,929 $ 278 $ 5,207 Earnings per common share: Basic $ 0.16 $ 0.01 $ 0.17 Diluted $ 0.16 $ 0.01 $ 0.17 The Company’s net cash provided by operating activities for the nine months ended January 31, 2019 did not change due to the adoption of Topic 606. The following table summarizes the effects of adopting Topic 606 on the financial statement line items of the Company’s condensed consolidated statement of cash flows for the nine months ended January 31, 2019 : As reported under Topic 606 Adjustments Balances under Prior GAAP (in thousands) Net earnings $ 4,929 $ 278 $ 5,207 Deferred income taxes $ (166 ) $ 44 $ (122 ) Changes in operating assets and liabilities: Accounts receivable, net $ (831 ) $ (101 ) $ (932 ) Prepaid expenses and other assets $ 724 $ 32 $ 756 Accounts payable and other liabilities $ (4,031 ) $ — $ (4,031 ) Deferred revenue $ 94 $ (253 ) $ (159 ) In February 2016, the FASB issued ASU 2016-02, Leases , which established new ASC Topic 842 (ASC 842), to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Under the new guidance, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than 12 months. Consistent with current GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. However, unlike current GAAP, which requires only capital leases to be recognized on the balance sheet, the new standard will require both types of leases to be recognized on the balance sheet. ASC 842 also will require disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative requirements, providing additional information about the amounts recorded in the financial statements. ASC 842 was previously required to be adopted using the modified retrospective approach. However, in July 2018, the FASB issued ASU 2018-11, which allows for retrospective application with the recognition of a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Under this option, entities would not need to apply ASC 842 (along with its disclosure requirements) to the comparative prior periods presented. ASC 842 is effective for the Company in the first quarter of fiscal 2020 and we expect that most of our operating leases (primarily real estate) will be recognized as operating lease liabilities and right of use assets on our balance sheet. The Company is continuing to evaluate the impact that the adoption of this standard will have on its consolidated financial statements but we currently believe it is likely that the Company will elect to adopt certain of the optional practical expedients, including the package of practical expedients, which, among other things, gives us the option to not reassess: 1) whether expired or existing contracts are or contain leases; 2) the lease classification for expired or existing leases; and 3) initial direct costs for existing leases. |