| Small & micro cap project / Activism insight

American Software: owner-operator

by | May 12, 2020

Owner-operator – proxy research

When business fundamentals and valuation is important, why are we researching just proxy statements? Even though the management team is crucial with all businesses, the management team’s role is profound in micro-cap and small-cap companies. Given the fact that we are flagging only owner-operators in this series, it is crucial to see whether the management team’s motive is aligned with the interests of shareholders. Over time, we intend to build a massive database of “owner-operator” companies.

Ranking: Good/OK

James C. Edenfield is a co-founder of the company and has served as executive chairman since September 2014. Mr. Edenfield previously served as CEO from November 1989 to May 2014.

He owns 100% of Class B shares and controls more than 50% of the voting rights and retains the right to appoint 75% of the total board members.

Takeaways:

+ James C. Edenfield owns a negligible Class A stake (<1%), which is currently traded on the Nasdaq market.

+ Family relationship:  Mr. J. Michael Edenfield is the son of James C. Edenfield. Even though Michael Edenfield is serving on the board, he does not receive any remuneration.

+ No related party transaction in FY 2019

+ Compensation is not out of line. There are no outsized perks. Moreover, the bonus is tied to the company’s performance. In FY 2019, the company did not award any cash bonus to Mr. Edenfield, since the company failed to meet the performance goal. The metrics used are revenue, adjusted EBITDA, and annual contract value.

+ Dividend: The company has regularly paid dividends since fiscal 2013. Dividend per Class B share is the same as, and does not exceed, the dividend of Class A shares. There are 30,368,467 Class A common shares, and 1,821,587 Class B common shares. As such, roughly 94% of the total dividend paid was paid to Class A common shareholders.

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