UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A10-K
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☑ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 20212022
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☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For transition period from to
Commission file number 0-5734
AGILYSYS, INC.
(Exact name of registrant as specified in its charter)
| 34-0907152 |
State or other jurisdiction of incorporation or organization | (I.R.S. Employer Identification No.) |
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1000 Windward Concourse, Suite 250, Alpharetta, Georgia | 30005 |
(Address of principal executive offices) | (Zip Code) |
Registrant'sRegistrant’s telephone number, including area code: (770) (770) 810-7800
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of each exchange on which registered |
Common Shares, without par value | AGYS | The NASDAQ Stock Market LLC |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐No☑
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐No☑
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | ☑ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||||
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ☑ No ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑
The aggregate market value of Common Shares held by non-affiliates as of September 30, 20202021 was $473,711,377.$830,215,081.
As of May 20, 2021, 23,894,59513, 2022, 24,737,022 shares of the registrant'sregistrant’s common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement to be used in connection with its 2022 Annual Meeting of Shareholders are incorporated by reference into Part III of this Form 10-K.
AGILYSYS, INC.
Agilysys, Inc. (the “Company,” “we,” “us” or “our”) is filing this Amendment No. 1 on Form 10-K/A (this “Amendment”) to amend our Annual Report on Form 10-K for the year ended
Year Ended March 31, 2021, originally filed with the Securities and Exchange Commission (the “SEC”) on May 21, 2021 (the “Original Filing”), to include the information required by Items 10 through 142022
Table of Part III of Form 10-K. This information was previously omitted from the Original Filing in reliance on General Instruction G(3) to Form 10-K, which permits the information in the above referenced items to be incorporated in the Form 10-K by reference from our definitive proxy statement if such statement is filed no later than 120 days after our fiscal year-end. We are filing this Amendment to include Part III information in our Form 10-K because a definitive proxy statement containing such information will not be filed by the Company within 120 days after the end of the fiscal year covered by the Form 10-K. The reference on the cover of the Original Filing to the incorporation by reference to portions of our definitive proxy statement into Part III of the Original Filing is hereby deleted.Contents
In accordance with Rule 12b-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), Part III, Items 10 through 14 of the Original Filing are hereby amended and restated in their entirety, and Part IV, Item 15 of the Original Filing is hereby amended and restated in its entirety, with the only changes being the addition of Exhibits 31.4, 31.5 and 31.6 filed herewith and related footnotes. Except as described above, this Amendment No. 1 does not amend or otherwise update any other information in the Original Filing and does not purport to reflect any information or events subsequent to the filing thereof. Accordingly, this Amendment should be read in conjunction with the Original Filing and with our filings with the SEC subsequent to the Original Filing.
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ITEM | 4 | |
ITEM 1A. | 13 | |
ITEM 1B. | 20 | |
ITEM 2. | 20 | |
ITEM 3. | 20 | |
ITEM 4. | 21 | |
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ITEM 5. | 22 | |
ITEM 6. | 23 | |
ITEM 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 24 |
ITEM 7A. | 35 | |
ITEM 8. | 36 | |
ITEM 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 64 |
ITEM 9A. | 64 | |
ITEM 9B. | 64 | |
ITEM 9C. | Disclosure Regarding Foreign Jurisdictions that Prevent Inspections | 65 |
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ITEM 10. |
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ITEM 11. |
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ITEM 12. | Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters |
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ITEM 13. | Certain Relationships and Related Transactions, and Director Independence |
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ITEM 14. |
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ITEM 15. |
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Forward Looking Information
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Item 10. Directors, Executive OfficersThis Annual Report and Corporate Governance.
DIRECTORS
A biography for eachother publicly available documents, including the documents incorporated herein and therein by reference, contain, and our officers and representatives may from time to time make, “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, statements related to our current expectations, the performance of our directorsbusiness, our financial results, our liquidity and if applicable, arrangements under which a director was appointedcapital resources and other non-historical statements. Forward-looking statements can be identified by words such as: “anticipate,” “intend,” “plan,” “goal,” “seek,” “believe,” “project,” “estimate,” “expect,” “strategy,” “future,” “likely,” “may,” “should,” “will” and similar references to future periods. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the boardfuture, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict, and in many cases, are outside of directors or information regardingour control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any involvementof these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in certain legal or administrative proceedings is provided. Additional information about the experiences, qualifications, attributes, or skillsforward-looking statements include, among others, our ability to manage the direct and indirect impact of each director in support of their servicethe novel coronavirus (“COVID-19”) pandemic on the board of directors is also provided.
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Mr. Colvin is a director of Viavi Solutions Inc. (Nasdaq: VIAV), a global provider of network test, monitoringour business, operations, and assurance solutions,customer demand for our products and a director of Maxeon Solar (NASDAQ: MAXN). He was formerly a director of UTAC holdings, Ltd., a private Singapore technology company,services, our ability to achieve operational efficiencies and a director of Applied Micro Circuits Corporation from 2007 to 2011. Mr. Colvin previously served as Chief Financial Officer of Caesars Entertainment Corporation from November 2012 to January 2015meet customer demand for products and before that was Executive Vice President and Chief Financial Officer of ON Semiconductor Corp. from April 2003 to October 2012. Prior to joining ON Semiconductor, he held a number of financial leadership positions, including Vice President of Finance and Chief Financial Officer of Atmel Corporation, Chief Financial Officer of European Silicon Structuresservices as well as several financial roles at Motorola Inc.the other risks identified in the risk factors set forth in Item 1A of this Annual Report. Any forward-looking statement made by us in this Annual Report is based only on information currently available to us and speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking statement made in this Annual Report or any other forward-looking statement that may be made from time to time, whether written or oral, whether as a result of new information, future events, or otherwise.
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Mr. Colvin earned his B.A. in Economics, with honors,Part I
Item 1. Business.
Overview
Agilysys has been driving hospitality software innovations for more than 40 years, delivering cloud-native SaaS and an M.B.A. fromon-premise ready guest-centric technology solutions for gaming, hotels, resorts and cruise lines, corporate foodservice management, restaurants, universities, stadiums and healthcare. Agilysys offers the University of Strathclyde in Scotland. Mr. Colvin’s qualifications and extensive experience include financial management, capital structure, financial strategy, significant public company leadership and board experience, and recent experiencemost comprehensive software solutions in the hospitality industry, including point-of-sale (POS), property management (PMS), inventory and procurement, payments, and related applications, to manage the entire guest journey. Agilysys is also known for its world class customer-centric service and recent investments in research and development, having modernized virtually all its longstanding trusted software solutions. Some of the largest hospitality companies around the world use Agilysys solutions to help improve guest loyalty, drive revenue growth and increase operational efficiencies. Agilysys operates across North America, Europe, the Middle East, Asia-Pacific and India with headquarters located in Alpharetta, GA.
The Company has just one reportable segment serving the global hospitality industry.
Our principal executive offices are located at 1000 Windward Concourse, Suite 250, Alpharetta, Georgia, 30005.
Reference herein to any particular year or quarter refers to periods within our fiscal year ended March 31. For example, fiscal 2022 refers to the fiscal year ended March 31, 2022.
History and Significant Events
Organized in 1963 as Pioneer-Standard Electronics, Inc., an Ohio corporation, we began operations as a distributor of electronic components and, later, enterprise computer solutions. Exiting the former business in fiscal 2003 with the sale of our Industrial Electronic Division, we used the proceeds to reduce debt and fund growth of our enterprise solutions business. This included acquiring businesses focused on higher-margin and more specialized solutions for the hospitality and retail industries. At the same time, we changed our name to Agilysys, Inc.
In fiscal 2004, we acquired Inter-American Data, Inc., which allowed us to become the Company serves.
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Dana Jones is the Chief Executive Officerleading developer and a director of RealPage, Inc. a provider of softwaretechnology solutions for hotel property management and data analytics forinventory management in the real estate industry. Priorcasino and resort industries.
In fiscal 2007, we exited the enterprise computer distribution business. We used the proceeds from that sale to RealPage, Ms. Jones was the Chief Executive Officerreturn cash to shareholders and fund a number of Spartaacquisitions that broadened our solutions and capabilities portfolios. We acquired InfoGenesis, Inc., Visual One Systems the market leaderCorp. and Eatec Corporation in digital enterprise quality management software for the life sciences space, from March 2018 until March 2021 when Sparta was acquired by Honeywell (Nasdaq: HON). She also served as a director of RealPage, Inc. (Nasdaq: RP), from October 2019 to April 2021 when the company was acquired by Thoma Bravo. Prior to joining Sparta in April 2018, Dana served as Chief Executive Officer of Active Network, the leader in activity and event management software, during 2016 and 2017. Before joining Active Network, Ms. Jones was Chief Marketing Officer and Senior Vice President of Products for Sabre Airline Solutions, a global provider of softwarefiscal 2008, significantly expanding our specialized offerings to the airlinehospitality industry through enterprise-class POS, PMS and inventory and procurement software solutions tailored for a variety of applications in cruise, golf, spa, gaming, lodging, resort and catering. These offerings feature highly intuitive, secure and robust solutions, easily scalable across multiple departments or property locations.
In fiscal 2012, we sold our IT solutions business and restructured our business model to focus on higher-margin, profitable growth opportunities in the hospitality and retail sectors. We also reduced our real-estate footprint and lowered overhead costs by relocating corporate services from 2012Solon, Ohio to 2017. PriorAlpharetta, Georgia, thus moving our senior management team closer to Sabre, Ms. Jones co-founded Noesis Energy,our remaining operating units.
In fiscal 2014, we sold our retail solutions and served as Executive Vice Presidentservices business to Kyrus Solutions, Inc. (Kyrus), an affiliate of Product, Sales, Marketing,Clearlake Capital Group, L.P. Following completion of the transaction, our business focused exclusively on hospitality solutions and Operations. Ms. Jones has held Executivethe growth opportunities in the hospitality market.
In fiscal 2018, we opened a software development center in Chennai, India, to supplement our product development efforts.
We converted to a Delaware corporation in February 2022.
Today, we are focused on providing state-of-the-art, end-to-end solutions that enhance guest experiences and General Management positionsallow our customers to promote their brands. We help our customers win the guest recruitment battle and, in turn, grow revenue, reduce costs and increase efficiency. This is accomplished by developing and deploying innovative solutions that increase data speed and accuracy, integrate
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with other enterprise systems and create a common infrastructure for early stagemanaging guest data thereby enabling more effective management, intelligent upselling, reduced shrinkage, improved brand recognition and global publicly traded enterprise software companies overbetter control of the last 20 years, includingguest relationship.
Our strategy is to increase the Reynolds Companyproportion of revenue we derive from subscription services, cloud applications, ongoing support and Vignette. She started her career as a management consultant with A.T. Kearney.maintenance agreements, and professional services.
Products, Support and Professional Services
Ms. Jones also serves on the Board of Zapata Computing,We are a leading enterprisedeveloper and marketer of software-enabled solutions and services to the hospitality industry, including software company for NISQ-based quantum applications.
Ms. Jones graduated Summa Cum Laudesolutions fully integrated with third party hardware and holds a BSE in industrialoperating systems; support, maintenance and operations engineering from the Universitysubscription services; and professional services. Areas of Michigan. Ms. Jones is an accomplished software executive with decadesspecialization are point of experience leadingsale, property management, and growing cloud-based global enterprise software businesses.
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Mr. Jones is the Executive Vice President, Chief Ethics and Legal Officer of LiveRamp Holdings, Inc. (NYSE: RAMP), a software-as-a-service (SaaS) company that provides the identity platform for powering exceptional experiences. His responsibilities include oversight of its legal, privacy and security teams and various strategic initiatives, including the strategy and execution of mergers and alliances, as well as serving as a director of most wholly owned subsidiary companies. Prior to joining LiveRamp, which is the successor entity to Acxiom Corp., in September 2018, Mr. Jones was the Chief Ethics and Legal Officer at Acxiom since 1999, where he oversaw all legal and data ethics matters, and was a director of most wholly owned subsidiary companies. Prior to joining Acxiom, Mr. Jones was a partner with the Rose Law Firm in Little Rock, Arkansas, where he specialized in problem solving and business litigation for 19 years, representing a broad range of business interests. Previously he was a Directorsolutions that support the ecosystem of Entrust, Inc. (Nasdaq: ENTU).these core solutions.
We present revenue and costs of goods sold in three categories:
Total revenue for these three specific areas is as follows:
Mr. Jones
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| Year ended March 31, |
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(In thousands) |
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| 2021 |
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Products |
| $ | 35,956 |
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| $ | 26,714 |
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| $ | 44,230 |
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Support, maintenance and subscription services |
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| 98,958 |
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| 88,565 |
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| 83,680 |
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Professional services |
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| 27,722 |
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| 21,897 |
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| 32,847 |
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Total |
| $ | 162,636 |
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| $ | 137,176 |
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| $ | 160,757 |
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Products: Products revenue is a 1980 graduatecomprised of the University of Arkansas School of Law and holds a bachelor’s degree in public administrationrevenue from the Universitysale of Arkansas. Assoftware along with third party hardware and operating systems. Software sales include up front revenue for licensing our solutions on a perpetual basis. Software sales are driven by our solutions’ ability to help customers meet the Chief Ethicsdemands of their guests and Legal Officerimprove operating efficiencies. Our software revenue is also driven by the ability of our customers to configure our solutions for their specific needs and the robust catalog of integrations we offer to third party solutions. Our software solutions require varying form factors of third party hardware and operating systems to operate, such as staff facing terminals, kiosk solutions, mobile tablets or servers. Third party hardware and operating system revenue is typically driven by new customer wins and existing customer hardware refresh purchases.
Support, Maintenance and Subscription Services: Technical software support, software maintenance and software subscription services are a SaaS company, Mr. Jonessignificant portion of our consolidated revenue and typically generate higher profit margins than products revenue. Growth has been driven by a strategic focus on developing and promoting end-to-end solutions while market demand for innovative new products addressing specific hospitality needs continues to reinforce this trend. Our commitment to exceptional service has enabled us to become a trusted partner with customers who wish to optimize the level of service they provide to their guests and maximize commerce opportunities both on premise and in the cloud.
Professional Services: We have industry-leading expertise in designing, implementing, integrating and installing customized solutions into both traditional and newly created platforms. For existing enterprises, we seamlessly integrate new systems and for start-ups and fast-growing customers, we become a partner that can manage large-scale rollouts and tight construction schedules. Our extensive experience with legal, privacy, and security matters. He has also led the strategy and execution of mergers and alliances and international expansion efforts.
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Mr. Kaufman is the Chief Executive Officer of MAK Capital, a financial investment advisory firm based in New York, NY, which he founded in 2002. In addition, Mr. Kaufman has served as a director of Skyline Champion Corporation (NYSE: SKY) since June 2018.
Mr. Kaufman holds a B.A. in Economicsranges from the University of Chicago, where he also received his M.B.A. He also earned a law degree from Yale University. As Chief Executive Officer of MAK Capital, a significant shareholder of the Company, Mr. Kaufman is especially qualifiedstaging equipment to represent the interests of the Company’s shareholders as a director and chairman of the board. Additionally, Mr. Kaufman’s qualifications and experience include capital markets, investment strategy and financial management.
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Mr. Keating has been a consultant, providing investment advice and other services to private and public companies and private equity firms since 2008. Mr. Keating also serves as a director of MagnaChip Semiconductor Corporation (NYSE: MX), a specialist in OLED panel technology and a designer/manufacturer of analog and mixed signal semiconductor platform solutions (since August 2016). Previously he was a director of Vitamin Shoppe Inc., a retailer of nutritional supplements, from April 2018 until it was taken private in December 2019, and Red Lion Hotels Corporation from July 2010 until June 2017, serving as Chairman of the Board from May 2013 to 2015. During the past five years, Mr. Keating also served on the boards of directors of the following public companies: SPS Commerce, Inc., a provider of cloud-based supply chain management solutions (from March 2018 to May 2019), API technologies Corp. (2011 to 2016), ModSys international Limited (formerly BluePhoenix solutions Limited, 2010 to 2016), and Harte Hanks Inc. a global marketing services firm (2017 until July 2020).
Mr. Keating holds a B.A. from Rutgers Universityphased rollouts as well as bothtraining staff to provide operational expertise to help achieve maximum effectiveness and efficiencies in a manner that saves our customers time and money.
Our portfolio of hospitality software solutions:
The hospitality industry has long been focused on operating end-to-end businesses, but the technology vendors that service the industry have been focused on product-centric solutions that make use of a high number of software modules and operating silos. To resolve this disconnect and more effectively align with the business operations of our customers, we have evolved our approach to be focused on delivering integrated “platform-centric” solutions for Lodging and Food & Beverage functions, including the applications necessary to support this ecosystem.
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Our technology platform is aimed at transitioning our product and services offerings to better address the needs of hospitality operators as they focus on building better connections with guests before, during and post-visit. We offer an M.S. in Accountingend-to-end solution that helps our customers improve the guest experience, optimize staff efficiency, increase top-line performance and an M.B.A. in Financereduce operating costs, which leads to opportunities for higher profitability. Our integrated yet modular products allow hospitality operators to recruit and retain customers into their facilities, increase their wallet share from The Wharton Schooleach guest and improve the overall experience throughout the entire guest journey – from the initial customer touch point through post-visit interactions.
With our omni-channel suite of software products, we are uniquely positioned to offer solutions that allow customers to adhere to social distancing guidelines, offer contactless solutions at every point of the Universityguest journey, and maximize operational efficiency all while providing an improved guest experience.
Point of Pennsylvania. Mr. Keating has substantialSale (POS) Solutions:
Agilysys POS solution suite allows customers to provide their guests with an omni-channel experience leading public companieswithin their property. Guests are empowered to create their own experiences through ordering from a mobile device or walking up to a self-service kiosk, but also providing for a more traditional experience with staff by interacting with a cashier or bar, or having a server come to them. Irrespective of the channel of interaction for the guest, our POS suite provides a single integrated enterprise-grade back-office management system with robust reporting capabilities. This allows our customers to manage menus, price changes, purchasing trends, inventory management and sales reporting from a single integrated source providing for increased efficiency as well as providing a richer guest profile.
Agilysys InfoGenesis® POS is an award-winning point of sale solution that combines a fast, intuitive and highly customizable terminal application with powerful, flexible reporting and configuration capabilities in the back office management portal. The system is easy to set up, and its scalable architecture enables customers to add workstations without having to build out expensive infrastructure. InfoGenesis supports a wide range of POS devices from traditional POS terminals to iPads, Android tablets and mobile phones, allowing customers to seamlessly deploy a mix of POS experiences based upon guest and server requirements. The system’s detailed and high-quality reporting capabilities provide insight into sales data and guest purchasing trends. Engineered for all regions of the world, the InfoGenesis POS solution suite offers a multinational set of features, including language, currency and local fiscal reporting, coupled with a robust enterprise management capability enabling the largest global customers to efficiently run their businesses. With a foundation platform of modern integration APIs, the solution is also capable of integrating with a variety of ancillary applications allowing our customers to keep their entire technology estate. InfoGenesis POS is available as a cloud-based or on-premise solution.
Agilysys IG Flex is a mobility solution that offers full point of sale functionality on a Windows tablet in 6, 8, or 10” form factors. It provides a sleek, modern alternative to traditional point of sale installations and can be used as a slim fixed terminal or as a convertible mobile POS simply by removing the tablet from its base.
Agilysys IG KDS is a digital kitchen management solution that integrates with InfoGenesis, IG Buy® Kiosk and IG OnDemand to deliver staff and customer-originated orders to the kitchen for preparation. Custom attributes such as guest phone number, name, guest location or packaging instructions can be provided on each incoming order so the order can be fulfilled promptly to guests. Guests can optionally be notified of order completion via an order status monitor (OSM) or via text message.
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Agilysys IG Buy is an enterprise-class self-service, customer-facing kiosk point of sale solution for the hospitality industry. It is ideal for food & beverage venues such as buffets, grab ‘n go, corporate cafeterias and food courts. Its flexibility supports a variety of operational workflows, such as “order and pay”, “order only”, “pay at cashier” and “self-check-out,” and integrates with a variety of property management, casino management and loyalty systems. IG Buy Kiosk is currently deployed at more than 270 customer sites across the country, including corporate cafeterias at a top five U.S. bank, a top 40 U.S. law firm, one of the nation’s largest technology manufacturers, and at a national financial services firm.
Agilysys IG Buy’s intuitive guest-facing order and pay experiences transfer the control and convenience to the end user. The self-service components reduce on-site labor needed to manage venue operations, while improving guest throughput, check size, order accuracy, guest experience and satisfaction. The platform-driven and cloud-based solution allows for easy deployments and management at scale resulting in a lowered overall cost of ownership.
Agilysys IG OnDemand provides a visual, interactive food and beverage ordering experience to any mobile device – phone, tablet, laptop – with a browser-based self-service experience. Using a simple, intuitive interface, guests can easily order and reorder from anywhere across the property, driving order velocity and volume.
Agilysys IG OnDemand allows our customers to immediately offer an online ordering platform that is natively integrated with their physical location operations. Menus and price updates can be done in one place and automatically updated across all channels – online web store, digital menus and app ordering as well as POS terminals. Orders placed online are routed automatically to the appropriate kitchen for preparation. Orders placed from all channels are automatically available on the POS terminal at the physical location.
Agilysys IG OnDemand Full Serviceis a complete contactless self-service F&B ordering solution that offers an intuitive guest-facing order and pay experience. IG OnDemand allows guests to place and pay for orders using their own device - phone, tablet, laptop – for pick-up or delivery orders, as well as for a tableside order and pay experience. It supports ordering for multiple guests at a table over the course of a meal using their own devices making the ordering process touchless while freeing up staff to spend more time with guests. The result is dramatically increased revenue opportunities and more chances to enhance guest service.
Agilysys IG Quick Pay allows guests to use their own mobile device, scan a QR code on the InfoGenesis check, review a digital copy of the check, add a tip & initiate payment, maintaining a fully touchless guest payment experience. The product can be sold as a standalone payment solution or can be bundled with IG OnDemand for a complete order and pay experience.
Agilysys IG Smart Menu provides a touchless menu display on a guest’s own mobile device - phone, tablet, laptop. Simply scan a QR code to access a venue menu that is linked directly to the actual items available in the IG OnDemand system, not a pdf or a website link. The product can be sold as a standalone menu solution or can be bundled with IG OnDemand for a complete menu, order and pay experience.
Agilysys IG Digital Menu Board provides large screen menu and image display on commercial television monitors. It will display a venue menu that is linked directly to the actual items available in the IG OnDemand system, not a pdf or a website link, so it can easily reflect the latest items and pricing.
Property Management Systems (PMS):
Agilysys offers the most comprehensive suite of property management applications to serve the needs of our integrated resort and hospitality industriescustomers. Our platforms enable our customers to provide a seamless experience to their guests while driving operational
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efficiencies throughout the value chain. Our PMS suite of applications consists of the core property management system, a commission free booking engine, self-service check in and check out solutions, spa, golf, retail, accounting, sales and catering, service request optimization and condo management applications.
Agilysys LMS™ is an on-premise or hosted, web and mobile-enabled, PMS solution targeting the operator with large, complex operations. It runs 24/7 to automate every aspect of hotel operations in properties from 100 to over 7,000 rooms, and has interfaces to a wide array of industry applications including but not limited to all core casino management systems and leading global distribution systems. Its foundation expands to incorporate modules for activities scheduling, attraction ticketing and more.
Agilysys Visual One® PMS is installed in hotels and resorts ranging from 50-1,500 rooms. It is a complete hospitality solution expanding beyond traditional PMS solutions enabling the resort to run its end-to-end operations, including front desk, housekeeping, maintenance, accounting, and condo owner management, with tight integration to Agilysys Sales & Catering, Spa, Golf, and Activities. Visual One provides an integrated solution with interfaces to leading global distribution systems, casino management systems, hospitality automation and our other products.
Agilysys Stay PMS is the company’s cloud-native SaaS property management system that optimizes operational efficiency, increases revenue and enhances guest service. Agilysys Stay is currently generally available for all hotels and chains, as well as for select service casino hotels. The guest-centric PMS leverages an open architecture with restful APIs to enable richly integrated applications delivered from Agilysys, its partners and customers. Agilysys Stay offers powerful capabilities for multi-property operations, allowing managers to view guest profiles, history and reservations, as well as room availability and operational reports, seamlessly across multiple properties.
Focused on improving revenue and streamlining operations, Agilysys Stay is designed to enable hotels to gather and analyze guest information across properties that can be used to create loyalty-generating offers and increase guest wallet share. In addition, running natively in a browser on both desktop and tablet devices, it delivers real-time operating metrics so that hotels can more accurately forecast demand and scale guest services accordingly.
Virtual Check-in and Check-out Solutions
Today’s hotels cater to guests with high expectations when it comes to technological efficiency. An emerging trend in the hotel industry that has accelerated in the COVID-19 environment where social distancing is often the norm, is the ability for guests to check themselves in or out of their room without interacting with the front desk. To that end, we offer software modules that enable this approach and are fully integrated with our core PMS solutions.
Point of Sale and Property Management Ecosystem Offerings:
The following solutions integrate with and are complementary to our point of sale or property management systems, or both. These solutions, for the most part, can stand alone and do not require POS or PMS to be functional. However, we lead with our core POS and PMS solutions discussed above and focus on selling these complimentary ecosystem solutions into our customer base.
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rGuest Express - Kiosk simplifies check-in and check-out, optimizes staff productivity and enhances the guest experience by enabling a seamless self-service option for guests to use in the hotel lobby at a kiosk. More properties are turning to kiosks to reduce overhead and offer more self-service options. With rGuest Express - Kiosk, it’s easy to elevate service levels without adding front-line staff. rGuest Express - Kiosk provides ID verification to allow for hotels to enforce security standards efficiently and to allow the guest to bypass the front desk and observe social distancing guidelines.
rGuest Express - Mobile simplifies check-in and check-out even further and at the same time allows operators to offer mobile keys, concurrent dining reservations or room upsells, all on a personal mobile device such as a smart phone or tablet. Properties are turning to mobility at an ever-increasing pace to improve efficiency. With rGuest Express - Mobile, it’s easy to reduce wait times and empower guests by putting the power of choice in the palm of their hand. rGuest - Express Mobile allows for digital ID verification before securely delivering the digital room key to the guest phone allowing operators to maintain security standards while allowing the guest to bypass the front desk.
Agilysys Pay payment processing solution is our innovative payment gateway. Agilysys Pay protects guests’ financial data and reduces risk by leveraging point-to-point encryption (P2PE) and tokenization with every credit card transaction. Agilysys Pay Complete leverages one of the first payment gateways in the world to receive official PCI-P2PE validation, allowing us to offer PCI cost and scope reduction that other providers cannot. These security benefits are built on top of a full-featured, enterprise-grade gateway that offers broad support for U.S., Canadian, European and certain Asian countries’ credit card processors and a wide variety of payment device options for every use-case, including countertop, pay-at-table, EMV, mobile tablet, and signature capture scenarios.
Agilysys Pay offers contactless payment options on all markets as well as supporting various wallet payment options like Apple Pay®, Google Pay®, AliPay®, and WeChat®.
Agilysys Spa software covers all aspects of running a spa, from scheduling guests for services to managing staff schedules. With this guest-centric technology, spas have more time to focus on creating personalized experiences in places of quiet tranquility. Agilysys Spa is a single solution that connects effortlessly to our other software solutions. The solution includes real-time integration, simplifies the appointment booking process, enhances the guest experience, and maximizes the value of the spa as a revenue center.
Integrated with our booking engine, rGuest Book, customers can book both their hotel room and their spa appointments from a single place giving operators additional opportunities to upsell and cross sell various amenities that they can offer.
rGuest Golf is a guest centric golf management software that offers golf property managers complete pro shop management with tee time scheduling, member profile/billing, tournament management and Web and e-mail access bundled into one solution. Customers are given the option of using our robust built in retail POS module or they may choose to leverage the power of InfoGenesis. Staff can easily schedule and personalize reservations for guests which then appear on itineraries, confirmations, and folios. Resort operations with multiple amenities can integrate with rGuest Book and allow patrons to book both their resort reservation and their golf tee time simultaneously.
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rGuest Book is a commission-free, easy-to-use reservation system that’s designed to move guests effortlessly through the booking process of hotel rooms, spa appointments and golf tee times for a single guest itinerary. The solution allows booking of one or more rooms and is qualifiedseamlessly connected with our core PMS solutions to provide a flawless experience for guests and hotel operators. rGuest Book is the only booking engine in globalthe market that seamlessly integrates with the core primary gaming system and allows for casino operators to enable their patrons to self-book their entitlements resulting in increased guest satisfaction and reduced operational expenses. The solution also allows operators to capture increased revenue through add-ons and upsells of premium rooms.
rGuest Service is our integrated service optimization platform that allows our customers to provide an integrated hospitality experience for their guests while driving greater operational efficiency by connecting departments across the hotel – front desk, house-keeping, concierge, maintenance, bell desk, food runners, wait staff, etc. The rGuest service platform provides a unified communication and messaging service for guest and staff interaction as well as internal staff interaction. Apart from providing the functionality for managing back of house operations financiallike house-keeping, engineering and maintenance, the rGuest service platform proactively tracks events and exceptions that take place in the hotel or resort and drive targeted action to ensure high level of guest satisfaction at all times.
Agilysys authorize provides support for fully-automated and secure online payments for any room deposits, 3rd party guarantees and folio charges - while eliminating the need for manual credit card authorization forms. Payment is seamlessly authorized and posted appropriately in real-time.
Agilysys’ Eatec® solution provides core purchasing, inventory, recipe, forecasting, production and sales analysis functions and is unique in offering catering, restaurant, buffet management and strategynutrition modules in a single web-enabled solution. Agilysys’ Eatec Mobile is an optional app that can be downloaded from Google Play and capital markets.Apple app stores and provides users with access to Eatec application from any Android® and iOS® device. Users can provide inventory receiving and transfer operations seamlessly from any mobile device even when they are offline using Eatec’s innovative store and forward capabilities.
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Mr. Mutch has served as managing partnerAgilysys Stratton Warren System (SWS) integrates with all leading financial and POS software products. The software manages the entire procurement process via e-commerce, from business development to the management of MV Advisors LLC (“MV Advisors”), a strategic block investment firmenterprise-wide backend systems and daily operations. Agilysys SWS Direct is an add-on module for SWS that provides focused investmenta convenient, efficient and strategic guidanceintuitive shopping cart experience to smallSWS users. SWS Direct streamlines operations, provides enhanced bidding and mid-cap technology companies, since foundingrequest for pricing services, and offers supplier registration tools and self-service maintenance capabilities.
Agilysys DataMagine™ document management solution is a U.S.-patented imaging module and archiving solution that allows users to securely capture and retrieve documents and system-generated information. DataMagine integrates with other Agilysys products, adding functionality and providing seamless workflows that cross functional areas. DataMagine helps drive the firm in December 2005. From December 2008 to January 2014, Mr. Mutch served as President, CEO and ChairmanGo Green initiative at a number of our customer sites by enabling a completely paperless experience through all facets of the Boardcustomers operations – from signature capture at the front desk to automated routing of Directors of BeyondTrust Software,PO’s and requisition orders for approvals. DataMagine provides robust indexing and archiving features to allows easy contextual based document retrieval.
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Agilysys Seat solution is a privately-held security software company. Mr. Mutch has served as Chairmanguest-centric reservation and wait list management solution that helps operators to book any venue. The solution allows operators to manage restaurant, cabana and auditorium reservations. With an innovative doll house view approach, patrons have the ability to select and book a specific seat in a restaurant or a specific cabana on a pool deck online. With built in price yielding capabilities, rGuest Seat allows operators to maximize revenue opportunities for various locations. Using the built-in guest management system, operators can build guest profiles and provide a superior experience while driving repeat guests.
Agilysys Analyze is a cloud-based data analytic platform focused on the needs of the boardhospitality industry. It is a full business intelligence solution that collects data from Agilysys point of directorssale and property management solutions and helps food & beverage and property operators gain critical insight into business operations and performance. Out-of-the-box analysis helps hospitality operators manage costs, minimize loss due to fraud, boost item sales, increase server productivity, occupancy, room revenue, and other profit enhancing capabilities.
Agilysys Digital Marketing provides a flexible hospitality marketing automation solution supporting guest email and SMS marketing communications through event and campaign-based rules. Marketers can segment guests by type or other criteria and send context-related communications at time of Aviat Networks, Inc. (NASDAQ: AVNW),reservation, check-in, check-out or by marketing campaign types. Digital email campaigns allow users an inexpensive way to stay connected to their guest throughout the guest journey. The result is increased return visits and improved revenue from targeted offers based upon guest segment and journey stage.
Agilysys Retail is our basic POS solution to support retail item sales in spas, gift shops or pro-shops that don’t need a global providerfull enterprise POS system. Easily setup and track inventory, sell items as part of microwave networking solutions, since February 2015,other services, and has servedconsolidate it all on the board of directors since January 2015. Previously, Mr. Mutch served on the board of directors of Maxwell Technologies, Inc. (formerly NASDAQ: MXWL),guest folio.
Agilysys Central Reservations provides a manufacturer of energy storagesingle sign-on across multiple customer properties that allows staff to view guest profiles, trips, room availability across properties, make/modify/transfer reservations, scan property offers and power deliver solutions for automotive, heavy transportation, renewable energy, backup power, wireless communicationsrates, and industrialmore. The result is improved central reservations efficiency, increased revenue from cross-property sales and consumer electronics applications, from April 2017 to May 2019, YuMe, Inc. (NYSE: YUME), a provider of digital video brand advertising solutions, from July 2017 to February 2018, at which time the company was acquired by RhythmOne PLC (LON: RTHM), a technology-enabled digital media company,upsells, and Mr. Mutch continued serving as a director on the RhythmOne PLC board of directors until January 2019, and Steel Excel, Inc. (formerly OTCPK:SXCL), a provider of drilling and production services to the oil and gas industry and a provider of event-based sports services and other health-related services, from 2007 to May 2016. superior guest service.
Representative Agilysys clients include:
Mr. Mutch holds a B.S. in Economics from Cornell University and an M.B.A. from the University of Chicago. As a former chief executive officer and board member of many technology companies, Mr. Mutch has extensive experience in the technology industry, restructuring, financial management and strategy, capital markets, sales management, and marketing.
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Mr. Srinivasan has been President and Chief Executive Officer of the Company since January 3, 2017. He also serves on the board of advisors for Symbotic, a supply chain robotics and solutions company. He previously served as CEO of Ooyala, a Silicon Valley based provider of a suite of technology offerings in the online video space, from January 2016 to November 2016. From March 2015 to November 2015, he was President and CEO of Innotrac Corp., an ecommerce fulfillment provider which merged with eBay Enterprise to form Radial Inc. in 2015. Prior to that, Mr. Srinivasan served as President and CEO of Bally Technologies Inc. (NYSE: BYI) from December 2012 to May 2014, and President and COO from April 2011 to December 2012; he started as Executive Vice President of Bally Systems in March 2005. Mr. Srinivasan was with Manhattan Associates from 1998 to 2005, where his last position was Executive Vice-President of Warehouse Management Systems.
Mr. Srinivasan holds a Post-Graduate Diploma in Management (MBA) from the Indian Institute of Management, Bangalore, India, and a degree in Engineering from the Indian Institute of Technology (Banaras Hindu University), Varanasi, India. Mr. Srinivasan has nearly three decades of hands-on enterprise software development, execution and senior technology management leadership and
strategy expertise and accomplishments, including experience and expertise in driving performance at high growth technology companies and helping them scale their business profitably.
EXECUTIVE OFFICERS
The following are biographies for each of our current, non-director executive officers. The biography for Mr. Srinivasan, our President and Chief Executive Officer, and a director, is provided above.
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Catholic Charities |
| The Kessler Collection | |
Chukchansi Gold Resort & Casino | Longwood University | Treehouse – London | |
Compass Group North America | Maryland Live! Casino | Vail Resorts | |
Comanche Nation of Oklahoma | MGM | Valley View Casino & Hotel | |
Costa Pacifica | Oxford Casino | Vanderbilt University | |
The Cosmopolitan of Las Vegas | Palm Garden Hotel | Wendover Resorts | |
CORPORATE GOVERNANCE11
Corporate Governance GuidelinesIndustry and Markets
The Corporate Governance Guidelines (the “Guidelines”) adopted by our board of directorsWe are intendeda technology software solutions company exclusively focused on the hospitality industry. Our products have been enabling mission-critical core hospitality operations for more than four decades. Our software solutions are required to provide a sound framework to assistrun the board of directors in fulfilling its responsibilities to shareholders. Under the Guidelines, the board of directors exercises its role in overseeing the Company by electing qualified and competent officers and by monitoring the performanceoperations of the Company.hospitality business and designed to drive substantial customer benefits through increased revenue, improved operational efficiency, enhanced guest experience and improved employee morale. In addition, many of our solutions enable social distancing capabilities for our customers. Our innovative software solutions described above have been purpose-built to serve the unique needs of the following hospitality verticals: casinos, hotels, resorts, cruise ships, managed foodservice providers, sports and entertainment, and healthcare. We operate across North America, Europe, Asia-Pacific and India with headquarters located in Alpharetta, GA.
Some verticals we serve continue to face uncertainties with the COVID-19 pandemic. As more people receive vaccinations and pandemic-related restrictions continue to ease, the markets we serve are recovering and re-opening to their customers. The Guidelines statelong-term outlook remains strong and we expect the momentum from the three years preceding the pandemic to continue building with a growing focus on social distancing and mobile applications. Prior to COVID-19, we estimated our total addressable market to be approximately $4.8 billion in annual recurring revenue opportunity. While the size of the opportunity might face pressure in an economic downturn, we feel it is still in the billions of dollars and we are only a fraction of that size. We continue to feel good about our opportunity to win market share given our relative competitive strength in the boardindustry.
Customers
Our customers include large, medium-sized and boutique hospitality providers, both owned and franchised, as well as divisions or departments of directorslarge corporations in the hospitality industry. We concentrate on serving the needs of customers in a range of customer-focused settings where brand differentiation is important and guest recruitment is intense. Our customer base is highly fragmented.
Human Capital
As of March 31, 2022, we employed approximately 1,400 employees, with approximately 63%, 30%, 3%, 3%, and 1% of our employees located in India, the United States, APAC, Canada, and EMEA, respectively. We consider our relationship with our employees to be good and a critical factor in our success.
Our senior management team is responsible for developing and executing our human capital strategy. We seek employees who share a passion for technology and its committees exercise oversight of executive officerability to improve our customers’ businesses in hospitality. We believe we offer fair, competitive compensation and director compensation, succession planning, director nominations, corporate governance, financial accountingbenefits that support our employees’ overall well-being and reporting, internal controls, strategicfoster their growth and operational issues,development. We offer our employees pay and benefits packages that we believe are competitive with others throughout our industry, as well as within the local markets in which we operate, and align individual performance with our success.
We are committed to providing our employees with an environment free of discrimination, harassment and workplace violence. We make all benefit and employment-related decisions in compliance with lawsestablished equal employment opportunity statutes and regulations. The Guidelineswithout regard to religion, national origin, age, gender, race, color, ancestry, sexual orientation, disability, marital status, citizenship, pregnancy, medical condition or any other protected class status, as defined by local, state or federal laws. All employees, directors, independent contractors, and other parties who work with Agilysys are expected to create a working environment where everyone is respected, regardless of individual differences. We believe that each of our employees' individual character, virtues, and individual experiences will leverage our ability to attract and retain quality employees, customers, and suppliers.
Seasonality
Occasionally, the timing of large one-time orders, such as those associated with significant remarketed product sales around large customer refresh cycles or significant volume rollouts, creates variability in our quarterly results.
Competition
Our solutions face a highly competitive market. Competition exists with respect to developing and maintaining relationships with customers, pricing for products and solutions, and customer support and service.
We compete with other full-service providers that sell and service bundled POS and PMS solutions comprised of hardware, software, support, subscription and services. These companies, some of which are much larger than we are, include Oracle Corp., Shiji,
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Amadeus IT Group and Infor. We also state the boardcompete with smaller software companies like Maestro. In addition, we compete with PMS systems that are designed and maintained in-house by large hotel chains.
Environmental Matters
We believe we are compliant in all material respects with all applicable environmental laws. Presently, we do not anticipate that such compliance will have a material effect on capital expenditures, earnings or competitive position with respect to any of directors’ policy regarding eligibility for the boardour operations.
Access to Information
Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to these reports are available free of directors, including director independence and qualifications for director candidates, events that require resignation from the board of directors, service on other public company boards of directors, and stock ownership guidelines. The Nominating and Corporate Governance Committee annually reviews the Guidelines and makes recommendations for changescharge through our corporate website, http://www.agilysys.com, as soon as reasonably practicable after such material is electronically filed with, or furnished to, the board of directors.Securities and Exchange Commission (SEC). The Guidelines are availableinformation posted on our website at www.agilysys.com, under Investor Relations.
Code of Business Conduct
The Code of Business Conduct adopted by our board of directors applies to all directors, officers,is not incorporated into this Annual Report. Reports, proxy and employees of the Company, as well as certain third parties, and incorporates additional ethics standards applicable to our Chief Executive Officer, Chief Financial Officer,information statements, and other senior financial officersinformation regarding issuers that file electronically, are maintained on the SEC website, http://www.sec.gov.
Item 1A. Risk Factors.
Risks Relating to Our Business
Markets, Competition, and Operations
Our business is impacted by changes in macroeconomic and/or global conditions.
Because we conduct our business internationally, changes in global, national, or regional economies, governmental policies (including in areas such as trade, travel, immigration, healthcare, and related issues), political unrest, armed conflicts (such as the 2022 Russian invasion of Ukraine), natural disasters, or outbreaks of disease (such as the Company,COVID-19 pandemic) may impact our business. Any general weakening of, and any person performing a similar function. The Code of Business Conduct is reviewed annually by the Audit Committee, and recommendations for change are submitted to the board of directors for approval. The Code of Business Conduct is available on our website at www.agilysys.com, under Investor Relations. The Company has in place a reporting hotline and website available for use by all employees and third parties, as describedrelated declining corporate confidence in, the Code of Business Conduct. Any employeeglobal economy or third-party can anonymously reportthe curtailment in corporate spending could cause current or potential violations of the Code of Business Conduct through the hotlinecustomers to reduce or website, both ofeliminate their information technology budgets and spending, which are managed by an independent third party. Reported violations are promptly reportedcould cause customers to and investigated by the Company. Reported violations are addressed by the Company and, if related to accounting, internal accounting controls,delay, decrease or auditing matters, the Audit Committee. In addition, we intend to post on our website all disclosures that are required by law or NASDAQ listing standards concerning any amendments to, or waivers from, any provision of the Code of Business Conduct.
Audit Committee
The Audit Committee held eight meetings during fiscal year 2021. The Audit Committee reviews, with our independent registered public accounting firm, the proposed scopecancel purchases of our annual auditsproducts and audit results, as well as interim reviews of quarterly reports; reviews the adequacy of internal financial controls; reviews internal audit functions;services; cause customers not to pay us; or to delay payment for previously purchased products and services.
For example, our business is directly responsible for the appointment, determination of compensation, retention,impacted by decreases in travel and general oversight of our independent registered public accounting firm; reviews related person transactions; oversees the Company’s implementation of its Code of Business Conduct; and reviews any concerns identified by either the internal or external auditors. The board of directors determined that all Audit Committee members (Ms. Jones and Messrs. Colvin and Mutch) are financially literate and independent under NASDAQ listing standards for audit committee members. The board of directors also determined that each of Ms. Jones and Messrs. Colvin and Mutch qualify as an “audit committee financial expert” under SEC rules.
Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee (“Nominating Committee”) held three meetings during fiscal year 2021. The board of directors determined that all Nominating Committee members are independent under NASDAQ listing standards. The Nominating Committee assists the board of directorsleisure activities resulting from weak economic conditions, increases in finding and nominating qualified people for election to the board; reviewing shareholder-recommended nominees; assessing and evaluating the board of directors’ effectiveness; and establishing, implementing,
and overseeing our governance programs and policies. The Nominating Committee is responsible for reviewing the qualifications of, and recommending to the board of directors, individuals to be nominated for membership on the board of directors. The Nominating Committee will consider shareholder-recommended nominees for membership on the board of directors. There have been no material changes to the procedures by which shareholders may recommend nominees to the board of directors since those procedures were described in the Company’s proxy statement filed with the SEC on October 23, 2020.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act requires the Company’s directors and certain of its executive officers and persons who beneficially own more than 10% of the Company’s common shares to file reports ofenergy prices and changes in ownershipcurrency values, political instability, heightened travel security measures, travel advisories, disruptions in air travel, and concerns over disease, violence, war, or terrorism. As discussed below under “COVID-19 has adversely impacted our business and may further impact our business, financial results and liquidity for an unknown period of time,” our performance has been affected by these conditions associated with the SEC. Based solely on the Company’s review of copies of SEC filings it has receivedCOVID-19 and could be further materially affected going forward if these conditions continue for an additional extended period or filed, the Company believesin other circumstances that each of its directors, executive officers,we are unable to foresee or mitigate. Even after COVID-19 subsides, our business, markets, growth prospects and beneficial owners of more than 10% of the shares satisfied the Section 16(a) filing requirements during fiscal year 2021, other than: Mr. Badger filed a Form 4 on June 4, 2020, which was 1 day late due to the Company’s delay in calculating shares withheld to satisfy withholding taxes; Mr. Jacks filed a Form 4 on November 13, 2020, which was 1 day late due to his delay reporting the details of the transaction to the Company; Mr. Wood filed a Form 3 on November 23, 2020, which should have been filed by June 3, 2020, due to several failures of the Company during that time to obtain filer codes on Mr. Wood’s behalf, partlybusiness model could be materially impacted or altered as a result of adverse changes of processesin travel and inability to workleisure activities.
Similarly, increases in the office as aenergy prices can result of the in higher ingredient and food costs for our customers with restaurant operations, which may adversely affect demand for our customers’ restaurant businesses, and in turn, our business, financial results and liquidity.
COVID-19 pandemic; and Mr. DeMarinis filed a Form 4 on February 17, 2021, which was 1 day late due to his delay in reporting the details of the transaction to the Company.
Item 11. Executive Compensation.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the Compensation Committee during fiscal year 2021 (Messrs. Jones, Kaufman, Keating, and Mutch) is or has been an officer or employee of the Company or has had any relationship with the Company required to be disclosed as a related person transaction, and none of our executive officers served on the compensation committee (or other committee serving an equivalent function) or board of any company that employed any member of our Compensation Committee or our board of directors during fiscal year 2021.
DIRECTOR COMPENSATION
During fiscal year 2021, the board of directors approved compensation for non-employee directors consisting of the following:
$30,000 annual cash retainer for each non-employee director;
$35,000 annual cash retainer for the chairman of the board;
$15,000 annual cash retainer for the chairman of the Audit Committee;
$12,500 annual cash retainer for the chairman of the Compensation Committee;
$7,500 annual cash retainer for the chairman of the Nominating & Corporate Governance Committee;
$10,000 annual cash retainer for each member of the Audit, Nominating & Corporate Governance, and Compensation Committees, including each chairman; and
An award of restricted shares to each non-employee director valued at $75,000 on the grant date.
As a response to the impact of the COVID-19 pandemic onadversely impacted our business and the hospitality industry, the board reduced the cash retainer amounts set forth above by fifty percent (50%) for the first six months of fiscal year 2021.
We also reimbursemay further impact our directors for reasonable out-of-pocket expenses incurred for attendance at board of directorsbusiness, financial results and committee meetings.
The fiscal year 2021 equity award for each director consisted of 4,388 restricted shares, based on the closing price of the Company’s common stock of $17.09 on the date the grant was approved by the board of directors, and was granted under the 2020 Equity Incentive Plan subject to shareholder approval of the Plan at the 2020 Annual Meeting of Shareholders. The restricted shares vested on March 31, 2021, and provided for pro-rata vesting upon retirement prior to March 31, 2021.
Our directors are subject to share ownership guidelines that require ownership of common stock with a market value of three times the director’s respective annual cash retainer within two years of service and six times the director’s respective annual cash retainer within four years of service. We pay no additional fees for board of director or committee meeting attendance.
Director Compensation for Fiscal Year 2021
Director (1) | Fees Earned or Paid in Cash ($)(2) | Stock Awards ($)(3) | Total ($) |
Donald Colvin | 56,250 | 173,984 | 230,234 |
Dana Jones | 37,500 | 173,984 | 211,484 |
Jerry Jones | 37,500 | 173,984 | 211,484 |
Michael A. Kaufman | 69,375 | 173,984 | 243,359 |
Melvin Keating | 76,875 | 173,984 | 250,859 |
John Mutch | 52,500 | 173,984 | 226,484 |
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COMPENSATION DISCUSSION AND ANALYSIS
This Compensation Discussion and Analysis (the “CD&A”) describes our executive compensation philosophy and programs for our Named Executive Officers during fiscal year 2021, being the year beginning April 1, 2020, and continuing through March 31, 2021. Compensation arrangements with our Named Executive Officers are governed by the Compensation Committee of our board of directors.
Our Named Executive Officers in fiscal year 2021 consisted of our Chief Executive Officer (CEO), our Chief Financial Officer (CFO), our former CFO, and our three other most highly compensated officers during fiscal year 2021, as listed below:
Ramesh Srinivasan, President and CEO
Tony Pritchett, our former Vice President and CFO
Dave Wood, Vice President and CFO
Kyle Badger, Senior Vice President, General Counsel and Secretary
Prabuddha Biswas, Senior Vice President, Chief Technology Officer
Don DeMarinis, Senior Vice President Sales, Americas
Each of the Named Executive Officers other than Mr. Wood were also Named Executive Officers in the prior fiscal year and continued in their positions for fiscal year 2021. Mr. Pritchett resigned as our CFO, and Mr. Wood was promoted to the role of CFO , effective June 1, 2020, during fiscal year 2021.
For fiscal year 2021, Mr. Pritchett earned $49,900 in base salary, based on his compensation level set in the prior fiscal year, was not eligibleliquidity for an annual incentive and received no long-term equity awards. Accordingly, this CD&A omits any discussionunknown period of his compensation for fiscal year 2021. See the Summary Compensation Table and the notes thereto on page 18 for further details on Mr. Pritchett’s compensation in fiscal year 2021.time.
Compensation Focus for Fiscal Year 2021
The global spread and unprecedented impact of COVID-19 had a significant impact onhas resulted in disruption to our business, the hospitality industry and the global economy during fiscal year 2021. In responseeconomy. The COVID-19 pandemic has led government and other authorities around the world to impose measures intended to control its spread, including restrictions on freedom of movement, gatherings of large numbers of people, and business operations such as travel bans, border closings, business closures, quarantines, shelter-in-place orders, and social distancing measures. Even as these restrictions have been relaxed in many parts of the pandemic, we took steps to reduce operating costsworld, including across the United States, they remain effective in other parts of the world and improve efficiency, which included benefit limitations and decreaseshave frequently been re-imposed in salaries that substantially reduced cash compensation for the Named Executive Officers and our other executives and senior employees.
The compensation structure for our Named Executive Officers for fiscal year 2021 was similar to the compensation structure for Named Executive Officers in recent prior years. Our CEO’s compensation includes base salary and an annual incentive based on company financial performance that is settled in sharesmany locations after having been relaxed as a result of common stock. The compensation for our other Named Executive Officers includes base salary, annual cash incentives based on company financial performance, and long-term equity incentives.
additional outbreaks. As part of our response toa result, the COVID-19 pandemic atand its consequences have significantly reduced demand for gaming, hotels, resorts, cruises, corporate foodservice, restaurants, university cafeterias, and stadiums and have had a material detrimental impact on global commercial activity across these hospitality industries that we serve, and in some cases, has caused the beginning of fiscal year 2021, we implemented a six-month reduction in base salary for most senior employees, including a 30% reduction in base salary for executives. Ramesh Srinivasan, our CEO, voluntarily took no base salary for the first 9 months of fiscal year 2021.
After considering the resultsclosure of our recent votescustomers’ businesses. Business closures have resulted in our inability to complete certain implementations and negatively impacted our ability to recognize revenue.
We saw an improvement in the overall business environment and the hospitality market we serve during the second half of our fiscal 2021 (the year ended March 31, 2021) that continued through our fiscal 2022 as our customers re-opened their locations for business and our suppliers resumed operations that had been closed or reduced due to the pandemic. Based on Named Executive Officer compensation,the improved business
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environment and our financial performance, we have resumed certain levels of spending; however, we will continue to assess spending activity as the facts and circumstances surrounding the pandemic evolve. Any resulting cost controls may have an adverse impact on our business, particularly if they remain in place for an extended period. As the pandemic has evolved, we have also adapted our pandemic response based on the conditions of the locations in which confirmedwe and our customers and suppliers operate. We expect to incur additional costs to the Company’s general philosophyextent we further resume business-related travel and objectives relativeour employees return to our executive compensation program,office locations, the Compensation Committee continuedtiming and extent of which remains undetermined at this time. We expect the office activity will vary significantly from region to link executive pay to performanceregion based on factors such as the availability of vaccines and maintained annual incentive opportunities for the Named Executive Officers generally atspread and overall impact of any new virus variants.
Notwithstanding the same level as fiscal year 2021. Annual incentive performance targets for fiscal year 2021 were wellrecovery in the process of being determined atbusiness environment since the onsetearly part of the pandemic, and given the difficulties of predictinguncertainty associated with the pandemic, our ability to predict how it will impact our business, financial condition, liquidity, and financial results in future periods is limited.
Our business may be adversely impacted by international trade disputes.
We depend on third-party manufacturers and suppliers located outside of the pandemicUnited States, including in China, in connection with the supply of certain of our hardware products and related components. Accordingly, our business is subject to risks associated with international supply. For example, in recent years the United States has imposed and extended greater restrictions on international trade and significant increases in tariffs on goods imported into the United States from China and other countries. Increased tariffs, including on goods imported from China, or the institution of additional protectionist trade measures could adversely affect our supply costs, and in turn, our business, financial results and liquidity.
Our future success will depend on our ability to develop new products, product upgrades and services that achieve market acceptance.
Our business is characterized by rapid and continual changes in technology and evolving industry standards. We believe that in order to remain competitive in the future we need to continue to develop new products, product upgrades and services, requiring the investment of significant financial resources. If we fail to accurately anticipate our customer’s needs and technological trends, or are otherwise unable to complete the development of a product or product upgrade on a timely basis, we will be unable to introduce new products or product upgrades into the market that are demanded by our customers and prospective customers on a timely basis, if at thatall, and our business and operating results would be materially and adversely affected.
The development process for most new products and product upgrades is complicated, involves a significant commitment of time and resources and is subject to a number of risks and challenges including:
Our product development activities are costly and recovering our investment in product development may take a significant amount of time, if it occurs at all. We anticipate continuing to make significant investments in software research and development and related product opportunities because we continuedbelieve it is necessary to compete successfully. We cannot estimate with any certainty when we will, if ever, receive significant revenues from these investments.
If we are not successful in managing these risks and challenges, or if our practice of focusing annual incentive performance targets on improvements over fiscal year 2020 results. Asnew products, product upgrades, and services are not technologically competitive or do not achieve market acceptance, our business and operating results could be adversely affected.
We face extensive competition in prior years, the annual incentivemarkets in which we operate, and our failure to compete effectively could result in price reductions and/or decreased demand for our CEO, while basedproducts and services.
Several companies offer products and services similar to ours. The rapid rate of technological change in the hospitality market makes it likely we will face competition from new products designed by companies not currently competing with us. We believe our competitive ability depends on the same company financial measures as the annual incentives for the other Named Executive Officers, was settledour product offerings, our experience in shares of common stock to further align the CEO with shareholder interests and to emphasize long term value creation.
In fiscal year 2021, the Compensation Committee increased the value of long-term equity incentive awards to all participants, including the Named Executive Officers, compared to recent prior years, to bolster retention at a time when it appeared that the hospitality industry, our product development and systems integration capability, and our customer service organization. There is no assurance, however, that we will be able to compete effectively in the hospitality technology market in the future.
We compete for customers based on several factors, including price. The competitive markets in which we operate may oblige us to reduce our prices in order to contend with the pricing models of our competitors. If our competitors discount certain products or
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services, we may have to lower prices on certain products or services in order to attract or retain customers. Any such price modifications would likely reduce margins and could have adverse effects. In addition, if we fail to reduce our prices in order to contend with the pricing models of our competitors, we may not be able to retain customers or grow our business, which could adversely affect our revenues and liquidity.
Our future success depends on our ability to execute on growth or strategic initiatives, properly manage investments in our business and operations, and enhance our existing operations and infrastructure.
Our success also depends on our ability to execute on other growth or strategic initiatives we are pursuing. A key element of our long-term strategy is to continue to invest in and grow our business and operations, both organically and through acquisitions.
Investments in new markets, solutions, and technologies, R&D, infrastructure and systems, geographic expansion, and headcount are critical components for achieving this strategy. In particular, we believe that we must continue to dedicate a significant amount of resources to our research and development efforts to maintain our competitive position. Our investments in research and development may result in products or services that generate less revenue than we anticipate.
However, such investments and efforts present challenges and risks and may not be successful (financially or otherwise), especially in new areas in which we have little or no experience, and even if successful, may negatively impact our profitability in the short-term. To be successful in such efforts, we must be able to properly allocate limited investment funds and other resources, prioritize among opportunities, balance the extent and timing of investments with the associated impact on profitability, balance our focus between new areas and the Companyservicing of our existing customers, capture efficiencies and economies of scale, and compete in the new areas, or with the new solutions, in which we have invested.
Our success also depends on our ability to effectively and efficiently enhance our existing operations. Our existing infrastructure, systems, security, processes, and personnel may not be adequate for our current or future needs. System upgrades or new implementations can be complex, time-consuming, and expensive and we cannot assure you that we will not experience problems during or following such implementations, including among others, potential disruptions in our operations or financial reporting.
If we are unable to properly execute on growth initiatives, manage our investments, and enhance our existing operations and infrastructure, our results of operations and market share may be materially adversely affected.
Our dependence on certain strategic partners makes us vulnerable to the extent we rely on them.
We rely on a concentrated number of suppliers for the majority of our hardware and for certain software and related services needs. We do not have long term agreements with many of these suppliers. If we can no longer obtain these hardware, software or services needs from our major suppliers due to mergers, acquisitions or consolidation within the marketplace, material changes in their partner programs, their refusal to continue to supply to us on reasonable terms or at all, and we cannot find suitable replacement suppliers, it may have a material adverse impact on our future operating results and gross margins.
For certain products and services, including our cloud hosting operations, we rely on third-party providers, which may create significant risk exposure for us.
We maintain relationships with third parties to provide certain services to us or to our customers, including cloud hosting and other cloud-based services. We make contractual obligations to customers based on these relationships and, in some cases, also entrust these providers with both our own sensitive data as well as the sensitive data of our customers (that may include sensitive guest data). If these third-party providers do not perform as expected or encounter service disruptions, cyber-attacks, data breaches, or other difficulties, we or our customers may be materially and adversely affected, including, among other things, by facing increased costs, potential liability to customers, guests, or other third parties, regulatory issues, and reputational harm. If it is necessary to migrate these services to other providers because of poor performance, security considerations, or other financial or operational factors, it could result in service disruptions to our customers and significant time, expense, or exposure to us, any of which could materially adversely impact our business.
We also purchase hardware and technology, in some cases, by or from companies that may compete with us or work with our competitors. While we endeavor to use larger, more established providers wherever possible, in some cases, these providers may be smaller, less established companies, particularly in the case of new or unique technologies that we have not developed internally, or in an effort to benefit our margins.
If any of these providers experience financial, operational, or quality assurance difficulties, or if any cease production, or there is any other disruption in the services we or our customers receive, including as a result of the acquisition of a supplier or partner by a
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competitor, macroeconomic issues like those described above (such as the COVID-19 pandemic or the 2022 Russian invasion of Ukraine), or otherwise, we will be required to locate and migrate to alternative sources or providers, to internally develop the applicable technologies, to redesign our products, or to remove certain features from our products or to reduce our service levels, any of which would likely increase our expenses, create delays, or negatively impact our revenues. Although we strive to establish contractual protections with key providers, such as source code escrows, warranties, and indemnities, we may not be disproportionately impactedsuccessful in obtaining adequate protections, these agreements may be short-term in duration, and the counterparties may be unwilling or unable to stand behind such protections. Moreover, these types of contractual protections offer limited practical benefits to us in the event our relationship with a key provider is interrupted.
If we cannot retain and recruit qualified personnel, or if labor costs continue to rise, our ability to operate and grow our business may be impaired and our financial results may suffer.
We depend on the services of our management and employees to continuously run and grow our business. To grow successfully, we must retain existing employees and attract new qualified employees, including in growth areas we may enter. Retention is an industry challenge given the competitive technology labor market, especially with the remote work options brought on by the COVID-19 pandemic. As discussed below underwe grow, we must also enhance and expand our workforce to execute on new and larger opportunities and challenges. The market for qualified personnel is competitive in the heading Fiscal Year 2021 Compensation,geographies in which we operate and may be limited especially in technology areas. We may be at a disadvantage to larger companies with greater brand recognition or financial resources or to start-ups or other emerging companies in trending market sectors. Remote employment arrangements also come with challenges, including with respect to collaboration, training, and corporate culture, especially at a significant portionscale. If we are unable to attract and retain qualified personnel when and where they are needed or to manage effectively our remote workforce, our ability to operate and grow our business could be impaired. Moreover, if we are not able to properly balance our investments in personnel with revenues, our profitability may be adversely affected.
While the market for talent in our industry has been competitive for many years, in recent quarters, the labor market has become even tighter, increasing the difficulty and lead time in filling open positions with qualified candidates. Ongoing labor shortages or increasing labor costs could negatively impact our financial condition, results of operations, or cash flows, especially if rising costs outpace our revenue growth.
Our international operations have many associated risks.
We continue to strategically manage our presence in international markets, and these efforts require significant management attention and financial resources. We may not be able to successfully penetrate international markets, or, if we do, there can be no assurance that we will grow our business in these markets at the long-term incentives awardedsame rate as in North America. Because of these inherent complexities and challenges, lack of success in international markets could adversely affect our business, results of operations, cash flow, and financial condition.
We have international offices in Canada, the United Kingdom, China, Hong Kong, Malaysia, the Philippines, Singapore, and India. We have committed resources to maintaining and further expanding, where appropriate, our sales offices and sales and support channels in key international markets. However, our efforts may not be successful. International sales are subject to many risks and difficulties, including those arising from the following: building and maintaining a competitive presence in new markets; staffing and managing foreign operations; complying with a variety of foreign laws; producing localized versions of our products; developing integrations between our products and other locally-used products; import and export restrictions and tariffs, enforcing contracts and collecting accounts receivable; unexpected changes in regulatory requirements; reduced protection for intellectual property rights in some countries; potential adverse tax treatment; language and cultural barriers; currency fluctuations; and political and economic instability abroad.
Natural disasters or other catastrophic events affecting our principal facilities could cripple our business.
Natural disasters or other catastrophic events, particularly those affecting employees in our Alpharetta headquarters or India research and development center, may cause damage or disruption to our operations, and thus could have a negative effect on us. Most of our administrative functions are concentrated in our Alpharetta headquarters and most of our software development activity is concentrated in our India research and development center. We maintain crisis management and disaster response plans, and during the COVID-19 pandemic, substantially all of our employees throughout the world have been capable of working from home for months at a time without significantly impacting our business. However, a natural disaster, fire, power shortage, pandemic, act of terrorism or other catastrophic event occurring in either geographic location that prevents or substantially impairs our employees’ ability to work, either in the office or from home, could make it difficult or impossible for us to deliver our products and services to customers.
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Regulatory Matters, Data Privacy, Information Security, and Product Functionality
Cyber-attacks involving our systems and data could expose us to liability or harm our reputation and have a material adverse effect on our business.
We have implemented security measures and controls intended to protect our IT infrastructure, data centers and other systems and data against cyber-attacks. Despite our implementation of security measures and controls, our systems and those of third parties upon whom we rely are vulnerable to attack from numerous threat actors, including sophisticated nation-state and nation-state-supported actors. Threat actors have and may in the future be able to compromise our security measures or otherwise exploit vulnerabilities in our systems, including vulnerabilities that may have been introduced through the actions of our employees or contractors or defects in the design or manufacture of our products and systems or the products and systems that we procure from third parties. Our systems, and those of our third-party providers, have and could in the future become subject to cyber-attacks, including using computer viruses, credential harvesting, dedicated denial of services attacks, malware, social engineering, and other means for obtaining unauthorized access to, or disrupting the operation of, our systems and those of our third-party providers.
The number and scale of cyberattacks have continued to increase and the methods and techniques used by threat actors, including sophisticated “supply-chain” attacks, continue to evolve at a rapid pace. As a result, we may be unable to identify current attacks, anticipate future attacks or implement adequate security measures. We may also experience security breaches that may remain undetected for an extended period and, therefore, have a greater impact on our systems, our products, the proprietary data contained therein, our customers and ultimately, our business.
These events, and any related operational disruptions, unauthorized access, or misappropriation of information (including personally identifiable information or personal data), could create costly litigation, significant financial liability, and a loss of confidence in our ability to serve customers and cause current or potential customers to choose another provider, all of which could have a material adverse effect on our business, financial condition, reputation, and results of operations.
We are subject to laws and regulations governing the protection of personally identifiable information. A failure to comply with applicable privacy or data protection laws could harm our reputation and have a material adverse effect on our business.
We collect, process, transmit, and/or store (on our systems and those of third-party providers) customer transactional data, as well as their and our customers’ and employees’ personally identifiable information and/or other data and information. Personally identifiable information is increasingly subject to legislation and regulations in numerous jurisdictions with regard to privacy and data security such as such as the California Consumer Privacy Act and the European Union’s General Data Protection Regulation. Moreover, what constitutes personally identifiable information and what other data and/or information is subject to the Named Executive Officersprivacy laws varies by jurisdiction and continues to evolve, and the laws that do reference data privacy continue to be interpreted by the courts and their applicability and reach are therefore uncertain. Our failure and/or the failure of our customers, vendors, and service providers to comply with applicable privacy and data protection laws and regulations could damage our reputation, discourage current and/or potential customers from using our products and services, and result in fiscal year 2021fines, governmental investigations and/or enforcement actions, complaints by private individuals, and/or the payment of penalties to consumers.
Actual or perceived security vulnerabilities in our software products may result in reduced sales or liabilities.
Our software may be used in connection with processing personal data and other sensitive data (e.g., credit card numbers). It may be possible for the data to be compromised if our customer does not maintain appropriate security procedures. In those instances, the customer may attempt to seek damages from us. While we believe that all of our current software complies with applicable industry security requirements and that we take appropriate measures to reduce the possibility of breach through our development and implementation processes, we cannot assure that our customers’ systems will not be breached, or that all unauthorized access to our software can be prevented. If a customer, or any other person, seeks redress from us as a result of a security breach of our software, our business could be adversely affected.
We may not be able to enforce or protect our intellectual property rights.
We rely on a combination of copyright, patent, trademark and trade secret laws and restrictions on disclosure to protect our intellectual property rights. We cannot be certain that the steps we have taken will prevent unauthorized use of our technology. Any failure to protect our intellectual property rights would vest only upondiminish or eliminate the attainmentcompetitive advantages that we derive from our proprietary technology.
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We may be subject to claims of more thaninfringement of third-party intellectual property rights.
Third parties may assert claims that our software or technology infringe, misappropriate, or otherwise violate their intellectual property or other proprietary rights. Such claims may be made by our competitors seeking to obtain a 100%competitive advantage or by other parties. The risk of claims may increase as the number of software products that we offer and competitors in our market increase and overlaps occur. Any such claims, regardless of merit, that result in litigation could result in substantial expenses, divert the attention of management, cause significant delays in introducing new or enhanced services or technology, materially disrupt the conduct of our business, and have a material adverse effect on our business, financial condition, and results of operations.
While we do not believe that our products and services infringe any patents or other intellectual property rights, from time to time, we receive claims that we have infringed the intellectual property rights of others. For example, on April 6, 2012, Ameranth, Inc. filed a complaint against us in the market priceU.S. District Court for the Southern District of California, alleging that certain of our products infringe patents owned by Ameranth directed to configuring and transmitting hospitality menus (e.g., restaurant menus) for display on electronic devices, and synchronizing the Company’s common stock. menu content between the devices. Although on May 11, 2022, judgement was entered for us and against Ameranth on all claims in that suit, Ameranth has pending appeals that may affect the judgement.
If we fail to meet our customers’ performance expectations, our reputation may be harmed, and we may be exposed to legal liability.
Our CEO did not receive any long-term equity incentive award in fiscal year 2021 since he receivedability to attract and retain customers depends to a large award uponextent on our relationships with our customers and our reputation for high quality services and solutions. As a result, if a customer is not satisfied with our products and services, our reputation may be damaged. Moreover, if we fail to meet our customers’ performance expectations or if customers experience service disruptions, breaches or other quality issues, we may lose customers and be subject to legal liability, particularly if such failure, service disruptions or breaches adversely impact our customers’ businesses.
In addition, many of our projects are critical to the renewaloperations of his employment agreement atour customers’ businesses. While our contracts typically include provisions designed to limit our exposure to legal claims relating to our products and services, these provisions may not adequately protect us or may not be enforceable in all cases. The general liability insurance coverage that we maintain, including coverage for errors and omissions, is subject to important exclusions and limitations. We cannot be certain that this coverage will continue to be available on reasonable terms or will be available in sufficient amounts to cover one or more large claims, or that the endinsurer will not disclaim coverage as to any future claim. A successful assertion of fiscal year 2020.one or more large claims against us that exceeds our available insurance coverage or changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could adversely affect our profitability.
Risks Relating to the Industries We Serve
Compensation Philosophy, Objectives, and Structure
Our Compensation Committee adopted its pay philosophy, objectives, and structure for Named Executive Officersbusiness depends to achieve financial and business goals and create long-term shareholder value.
Compensation Philosophy and Objectives. For fiscal year 2021, given the potential impact of the pandemica significant degree on the hospitality industry and instability and downturns in the hospitality industry could adversely affect our business and results of operations.
Because our Compensation Committee’s pay philosophy wascustomer base is concentrated in the hospitality industry, our business and sales are largely dependent on the health of that industry, which in turn is dependent on the domestic and international economy. Instabilities or downturns in the hospitality industry, such as those resulting from the impact of COVID-19, as discussed above, could disproportionately impact our revenue, as customers may exit the industry or delay, cancel or reduce planned expenditures for our products. For additional information regarding the potential impact of COVID-19 on our business, see “COVID-19 has adversely impacted our business and may further impact our business, financial results and liquidity for an unknown period of time” above for additional information.
Consolidation in the gaming and other hospitality industries could adversely affect our business.
Customers that we serve may seek to achieve economies of scale and other synergies by combining with or acquiring other companies. The hospitality industry has experienced recent consolidations, including the hotel and gaming sectors of the industry. Although recent consolidations in the hospitality industry have not materially adversely affected our business, there is no assurance that future consolidations will not have such affect. For example, if one of our current customers merges or consolidates with a company that relies on another provider’s products or services, it could decide to reduce cash compensation and emphasize long-term performance-based compensationor cease its purchases of products or services from us, which could have an adverse effect on our business.
Insolvencies in the formhospitality industry could adversely affect our business.
Customers that we serve may be or become insolvent. Most of long-term equity incentives. The Compensation Committee’s objective wasour customers have been significantly affected by the COVID-19 pandemic. Loss of revenue and other operating challenges may cause some of our customers to establish an overall compensation package to:declare bankruptcy or cause their
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Tie
lenders to declare a default, accelerate the related debt, or foreclose on their property. Customers in bankruptcy may not have sufficient assets to pay us unpaid fees or reimbursements we are owed under their agreements with us. If a significant portionnumber of compensationcustomers file for bankruptcy or otherwise fail to pay amounts owed to us, our revenues and liquidity could be adversely affected.
Risks Relating to Our Finances and Capital Structure
If we acquire new businesses, we may not be able to successfully integrate them or attain the long-term performanceanticipated benefits.
As part of our common shares;
Rewardoperating history and growth strategy, we have acquired other businesses. In the achievementfuture, we may continue to seek acquisitions. We can provide no assurance that we will be able to identify and acquire targeted businesses or obtain financing for such acquisitions on satisfactory terms. The process of business objectives approved byintegrating acquired businesses into our boardoperations may result in unforeseen difficulties and may require a disproportionate amount of directors;
Provide a rational, consistent,resources and competitive executive compensation program thatmanagement attention. If integration of our acquired businesses is well understood by thosenot successful, we may not realize the potential benefits of an acquisition or suffer other adverse effects.
We may have exposure to whom it applies;greater than anticipated tax liabilities.
Some of our products and
Retain, services may be subject to sales taxes in states where we have not collected and motivate executives who could significantly contribute to our success.
Compensation Structure. Our compensation structure is comprised of:
Base Salary— Base salary provides fixed pay levels aimed to attract and retain executive talent. Variations in salary levels among Named Executive Officers are based on each executive’s roles and responsibilities, experience, functional expertise, relation to peer pay levels, competitive assessments, individual performance, and changes in salaries in the overall general market and for all employees of the Company. Salaries are reviewed annually by our Compensation Committee, and changes in salary are based on these factors and inputremitted such taxes from our CEO, other thancustomers. We have reserves for himself. None of the factors are weighted according to any specific formula. Salaries for new executive officers are generallycertain state sales tax contingencies based on the Compensation Committee’s discretionlikelihood of obligation. These contingencies are included in “Other non-current liabilities” in our Consolidated Balance Sheets. We believe we have appropriately accrued for these contingencies. In the event that actual results differ from these reserves, we may need to make adjustments, which could materially impact our financial condition and judgment butresults of operations.
We may be basedincur goodwill and intangible asset impairment charges that adversely affect our operating results.
As of March 31, 2022, we had $32.8 million and $20.2 million of goodwill and intangible assets, net, respectively, on anyour Consolidated Balance Sheets. We review our goodwill and intangible assets for impairment on at least an annual basis. As of March 31, 2020, we determined the above-mentioned relevant factors.
Annual Incentives— Annual incentives provide cash variable paynet realizable value of intangible assets consisting of capitalized software development costs for achievementcertain solutions within our rGuest suite of the Company’s financial goals, with target incentives setproducts no longer exceeded their carrying value, and as a percentageresult, recorded non-cash impairment charges of salary, and are designed to reward achievement of goals with an annual cash payment. At the end of each fiscal year, the Compensation Committee considers the aggregate compensation of each Named Executive Officer and may adjust the annual incentive payment otherwise earned if the aggregate compensation is deemed deficient or excessive in the opinion and discretion of the Compensation Committee. Annual incentives for our CEO are settled in shares of common stock, instead of cash.
Long-Term Incentives— Long-term incentives are variable, equity incentives designed to drive improvements in performance that build wealth and create long-term shareholder value by tying the value of earned incentives to the long-term performance of our common shares. Target long-term incentives are also set as a percentage of salary.
Compensation Key Considerations
Annual Goal Setting. Annual goals for our Named Executive Officers may be tied to our financial, strategic, and operational goals and may include business specific financial targets relating to our goals. For fiscal year 2021, the Compensation Committee linked annual incentive goals to financial targets emphasizing both growth and profitability. Annual incentives were based on revenue growth, but payment was conditioned upon the achievement of a minimum adjusted EBITDA and a minimum end of year cash balance.
Variable Pay at Risk. Our compensation philosophy drives the provision of greater at-risk pay to our Named Executive Officers, and variable pay at risk comprised between 50% and 69% of target annual compensation for the Named Executive Officers. Our Named Executive Officers have significant opportunities for long-term, equity-based incentive compensation, as our philosophy is to tie a significant portion of compensation to the long-term performance of our common shares. Thus, significant emphasis is placed on long-term shareholder value creation, thereby we believe minimizing excessive risk taking by our executives.
$22.0 million. The Compensation Committee, in consultation with management, evaluates our incentive plans to determine if the plans’ measures or goals encourage inappropriate risk-taking by our employees. As part of its evaluation, the Compensation Committee determined that the performance measures and goals were tied to our business, financial, and strategic objectives. As such, the incentive plans are believed not to encourage risk-taking outside of the range of risks contemplated by the Company’s business plan.
Compensation Consultants and Competitive Market Assessments. The Compensation Committee did not engage a compensation consultant and did not rely on any market assessment of compensation in setting compensation for fiscal year 2021.
Tally Sheets. Our Compensation Committee analyzed tally sheets at the beginning of the fiscal year to review overall compensation and pay mix for each Named Executive Officer. Tally sheets included a three-year look-back of total compensation, including annual cash compensation, long-term incentive awards granted and earned, and benefits and perquisites. Tally sheets also included a cumulative inventory of equity grants by fiscal year, including the value of outstanding equity at the Company’s then current stock price and the value received for prior vesting and exercises of equity. The tally sheets brought together, in one place, all elements of Named Executive
Officers’ actual compensation and information about wealth accumulation so that our Compensation Committee could analyze the individual elements, the mix of compensation and the aggregate total amount of annual and accumulated compensation. Tally sheets were also used by the Committee to evaluate internal pay equity among the Named Executive Officers and to determine the impact of employment termination or change of control events. In support of the philosophy of rewarding performance, tally sheets are used by the Compensation Committee to review compensation as compared to expectations, and our Compensation Committee determined that annual compensation set for our Named Executive Officers for fiscal year 2021 was consistent with expectations and with the established compensation philosophy and pay mix guidelines driven by that philosophy.
Fiscal Year 2021 Compensation
Base Salary. For fiscal year 2021, stated base salary for the Named Executive Officers did not change from fiscal year 2020, and in order to conserve cash during the COVID-19 pandemic, the base salary of each of the Named Executive Officers was reduced by 30% for the first six months of the fiscal year. Mr. Srinivasan voluntarily agreed to accept no base salary for the first nine months of the fiscal year.
Mr. Wood was appointed CFO in fiscal year 2021, and the Committee set his annual base salary at $240,000, subject to the 30% reduction discussed above, which was the level the Committee believed to be competitive for his position and necessary to retain him in his role. The Committee based their assessments on the recommendation of the CEO and their own experience and judgement.
Annual Incentives.
Annual Incentive Targets. The Compensation Committee set fiscal year 2021 annual incentive goals at the beginning of the fiscal year when the impact of the COVID-19 pandemic on our business was difficult to predict. As previously discussed, the Committee linked the annual incentive goals of the Named Executive Officers to revenue, Adjusted EBITDA and cash balance. All the Named Executive Officers were subject to the same annual incentive structure:
100% of target annual incentives were based on the Company’s achievement of a fiscal year 2021 revenue target of $165 million;
provided that Adjusted EBITDA after payment of annual incentives was not less than $14M;
provided, further, that the Company’s balance of cash and cash equivalents at the end of fiscal year 2021, was at least $40 million, exclusive of any offering proceeds or borrowings.
Component | Weighting (%) | Threshold | Target | Maximum | |||
Amount | Payout (% of target incentive) | Amount | Payout (% of target incentive) | Amount | Payout (% of target incentive) | ||
Revenue | 100 | $155M | 30 | $165M | 100 | $185M | 150 |
Achievement would be scaled between the threshold level and the target level and between the target level and the maximum level. Payouts were capped at 150% of target incentives. If either the Adjusted EBITDA or cash balance conditions were not achieved, then the annual incentives would not be earned. Due to the uncertain impact of the COVID-19 pandemic at the beginning of the fiscal year, the Committee also allowed for up to 30% achievement, in their discretion, if the threshold level of revenue was not met, provided that the Adjusted EBITDA and cash balance conditions were met.
For fiscal year 2021, the Committee continued to believe that revenue growth was most accretive to shareholder value. The Committee imposed the Adjusted EBITDA and cash balance conditions in order to encourage disciplined management of Company expenses and profitable growth.
Given the potential impact of the COVID-19 pandemic on the hospitality industry resulted in significantly lower sales and cash flow projections for the related rGuest solutions after evaluating the Company’s strategy for market development and continued costs to support the software. As a result, we recorded impairment charges to reduce the net realizable value of the related assets to zero. Our future operating results and the market price of our common stock could be materially adversely affected if we are required to write down the carrying value of goodwill or other intangible assets in the future.
We have incurred losses in recent years, and we may continue to incur losses in the future.
We have incurred operating losses in recent years, and we may continue to incur losses in the future as we continue to invest in our products. Our lack of consistent profitability limits the resources available to us to invest in developing new products, product upgrades and services and otherwise in improving business operations.
Our stock has been volatile and we expect that it will continue to be volatile.
Our stock price has been volatile, and we expect it will continue to be volatile. For example, during the Compensation Committee believed thatyear ended March 31, 2022, the plan involved performance that was extraordinarily difficult attrading price of our common stock ranged from a high close of $58.45 to a low close of $35.31. The market price for our common stock could be subject to wide fluctuations in response to many risk factors listed in this section, and others beyond our control. Factors affecting the target levels and at the maximum level being achievable only iftrading price of our common stock may include:
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On May 22, 2020, we sold $35 million of preferred stock with a 5.25% cumulative dividend and convertible into common stock at a conversion price of $20.1676 per share. Dilution upon the conversion of the preferred stock in the future may negatively impact the price of our common stock.
Additionally, our ownership base has been and may continue to be concentrated in a few shareholders, which could increase the volatility of our common share price over time.
We may encounter risks associated with maintaining large cash balances.
While we have attempted to invest our cash balances in investments we considered to be relatively safe, we nevertheless confront credit and liquidity risks. Bank failures could result in reduced liquidity or the actual loss of money held in deposit accounts in excess of federally insured amounts, if any.
Other Risk Factors
We are subject to litigation, which may be costly.
As a company that does business with many customers, employees and suppliers, we are subject to litigation. The results of such litigation are difficult to predict, and we may incur significant legal expenses if any such claim were filed. While we generally take steps to reduce the likelihood that disputes will result in litigation, litigation is very commonplace and could have an adverse impact on our business.
If we fail to maintain an effective system of internal controls, we may not be able to detect fraud, which could have a material adverse impact on our business.
While we believe our internal control over financial reporting is effective, a controls system cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that control issues and instances of fraud, if any, within our company have been detected.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
Our corporate headquarters are located in Alpharetta, Georgia where we lease approximately 33,000 square feet of office space. In addition, we lease approximately 33,000 square feet of office space in Las Vegas, Nevada, 30,000 square feet of office space in Bellevue, Washington, of which we sublease 22,000 square feet to a third party, 5,000 square feet of office space in Santa Barbara, California, and 6,000 square feet of warehouse space in Roswell, Georgia. Internationally, we lease approximately 101,000 square feet of office space in Chennai, India, 7,000 square feet in Toronto, Canada, and lease several other smaller office locations throughout Europe and Asia. Our major leases contain renewal options for periods of up to 10 years. We believe that our current facilities and office space are sufficient to meet our needs and do not anticipate any difficulty securing additional space as needed.
Item 3. Legal Proceedings.
We are involved in legal actions that arise in the ordinary course of business. It is the opinion of management that the resolution of any current pending litigation will not have a material adverse effect on our financial position or results of operations.
On April 6, 2012, Ameranth, Inc. filed a complaint against us in the U.S. District Court for the Southern District of California alleging that certain of our products infringe patents owned by Ameranth directed to configuring and transmitting hospitality menus (e.g., restaurant menus) for display on electronic devices, and synchronizing the menu content between devices. The case against us was consolidated with similar cases brought by Ameranth against more than 30 other defendants. All but one of the patents at issue in the case were invalidated by the U.S. Court of Appeals for the Federal Circuit in 2016. In September 2018, the District Court found the one surviving Ameranth patent invalid and granted summary judgment in favor of the movant co-defendants. This judgment was affirmed by the U.S. Court of Appeals for the Federal Circuit in November 2019 with respect to all claims except for two, which were not asserted against Agilysys, and Ameranth’s writ of certiorari to the United States Supreme Court was denied in October 2020. In December 2021, the District Court denied Ameranth’s motion to assert additional claims against the defendants. In March 2022, the District Court granted summary judgment in favor of the defendants still facing the remaining claims. Subsequently, Ameranth
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appealed the grant of summary judgment with the U.S. Court of Appeals for the Federal Circuit. Although on May 11, 2022, judgement was entered for us and against Ameranth on all claims in that suit, Ameranth has pending appeals that may affect the judgement.
At this time, we are not able to predict the outcome of Ameranth’s pending appeal on their claims against us, or any possible monetary exposure associated with the lawsuit. However, we dispute the allegations of wrongdoing and are vigorously defending ourselves in this matter.
Item 4. Mine Safety Disclosures.
Not applicable.
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Part II
Item 5. Market for Registrant’s Common Equity,Related Shareholder Matters and IssuerPurchases of Equity Securities.
Market Information
Our common shares, without par value, are traded on the NASDAQ Stock Market LLC under the symbol “AGYS”. As of May 13, 2022, there were 1,343 registered holders of our common shares, without par value.
Dividends
We did not pay dividends in fiscal 2022 or 2021 on our common stock and are unlikely to do so in the foreseeable future. We pay preferred stock dividends as described in Note 14, Preferred Stock, to our Consolidated Financial Statements under Item 8 of this Annual IncentiveReport. The current practice of the Board of Directors is to retain any available earnings for use in the operations and growth of our business, both organically and through acquisitions.
Shareholder Return Performance Presentation
The following chart compares the value of $100 invested in our common shares, including reinvestment of dividends, with a similar investment in the Russell 2000 Index (the “Russell 2000”) and with the companies listed in the SIC Code 7373-Computer Integrated Systems Design for the period March 31, 2017 through March 31, 2022. The stock price performance in this graph is not necessarily indicative of the future performance of our common shares.
Comparison of 5 Year Cumulative Total Return
INDEXED RETURNS
22
|
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| Fiscal Years Ended March 31, |
| ||||||||||||||||||
|
| Base Period |
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| ||||||
Company Name / Index |
| 2017 |
|
| 2018 |
|
| 2019 |
|
| 2020 |
|
| 2021 |
|
| 2022 |
| ||||||
Agilysys, Inc. |
| $ | 100.00 |
|
| $ | 126.14 |
|
| $ | 224.02 |
|
| $ | 176.72 |
|
| $ | 507.51 |
|
| $ | 422.01 |
|
Russell 2000 |
| $ | 100.00 |
|
| $ | 111.79 |
|
| $ | 114.09 |
|
| $ | 86.72 |
|
| $ | 168.96 |
|
| $ | 159.19 |
|
Peer Group |
| $ | 100.00 |
|
| $ | 115.62 |
|
| $ | 120.30 |
|
| $ | 115.48 |
|
| $ | 151.21 |
|
| $ | 164.88 |
|
This performance graph shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended or incorporated by reference into any of our filings under the Securities Act of 1933, as amended, of the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
Item 6. [Reserved]
23
Item 7. Managements’ Discussion and Analysis of Financial Condition and Results of Operations.
In “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”), management explains the general financial condition and results of operations for Agilysys and subsidiaries including:
— what factors affect our business;
— what our earnings and costs were;
— why those earnings and costs were different from the year before;
— where the earnings came from;
— how our financial condition was affected; and
— where the cash will come from to fund future operations.
The MD&A analyzes changes in specific line items in the Consolidated Statements of Operations and Consolidated Statements of Cash Flows and provides information that management believes is important to assessing and understanding our consolidated financial condition and results of operations. This discussion should be read in conjunction with the Consolidated Financial Statements and related Notes that appear in Item 8 of this Annual Report titled, “Financial Statements and Supplementary Data.” Information provided in the MD&A may include forward-looking statements that involve risks and uncertainties. Many factors could cause actual results to be materially different from those contained in the forward-looking statements. See “Forward-Looking Information” on page 3 of this Annual Report and Item 1A “Risk Factors” in Part I of this Annual Report for additional information concerning these items. Management believes that this information, discussion, and disclosure is important in making decisions about investing in Agilysys.
Overview
Recent Developments
COVID-19 Pandemic
The World Health Organization declared COVID-19 a pandemic on March 11, 2020. COVID-19 has had a significant impact on our business during the year ended March 31, 2022. The extent to which COVID-19 will continue impacting our financial condition and results of operations remains uncertain and depends on various factors, including the ongoing or recurring impact on our customers, partners, and suppliers and on the operation of the global markets in general. Because an increasing portion of our business is based on a subscription model, the effect of COVID-19 on our results of operations may also not be fully reflected for some time.
While we have previously taken certain cost reduction measures, we may take further actions that alter our business operations in response to changes in the global environment. As a result, the ultimate impact of the COVID-19 pandemic and the effects of the operational alterations we have made in response on our business, financial condition, liquidity, and financial results cannot be predicted at this time.
Our Business
Agilysys has been a leader in hospitality software for more than 40 years, delivering innovative cloud-native SaaS and on-premise guest-centric technology solutions for gaming, hotels, resorts and cruise, corporate foodservice management, restaurants, universities, stadiums and healthcare. Agilysys offers the most comprehensive software solutions in the industry, including point-of-sale (POS), property management (PMS), inventory and procurement, payments, and related applications, to manage the entire guest journey. Agilysys is also known for its world class customer-centric service. During recent years, Agilysys has made major investments in R&D and has successfully modernized virtually all its longstanding trusted software solutions. Some of the largest hospitality companies around the world use Agilysys solutions to help improve guest loyalty, drive revenue growth and increase operational efficiencies.
The Company has just one reportable segment serving the global hospitality industry. Agilysys operates across North America, Europe, Asia-Pacific, and India with headquarters located in Alpharetta, Georgia.
Our top priority is increasing shareholder value by improving operating and financial performance and profitably growing the business through superior products and services. To that end, we expect to invest a certain portion of our cash on hand to fund enhancements to existing software products, to develop and market new software products, and to expand our customer breadth, both vertically and geographically.
Our strategic plan specifically focuses on:
24
The primary objective of our ongoing strategic planning process is to create shareholder value by capitalizing on growth opportunities, increasing profitability and strengthening our competitive position within the specific technology solutions and end markets we serve. Profitability and industry leading growth will be achieved through tighter management of operating expenses and sharpening the focus of our investments to concentrate on growth opportunities that offer the highest returns.
Revenue – Defined
As required by the SEC, we separately present revenue earned as products revenue, support, maintenance and subscription services revenue or professional services revenue in our Consolidated Statements of Operations. In addition to the SEC requirements, we may, at times, also refer to revenue as defined below. The terminology, definitions, and applications of terms we use to describe our revenue may be different from those used by other companies and caution should be used when comparing these financial measures to those of other companies. We use the following terms to describe revenue:
25
Results of Operations
Fiscal2022Compared with Fiscal2021
Net Revenue and Operating Income (Loss)
The following table presents our consolidated revenue and operating results for the fiscal years ended March 31, 2022 and 2021:
|
| Year ended March 31, |
|
| Increase (decrease) |
| ||||||||||
(Dollars in thousands) |
| 2022 |
|
| 2021 |
|
| $ |
|
| % |
| ||||
Net revenue: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Products |
| $ | 35,956 |
|
| $ | 26,714 |
|
| $ | 9,242 |
|
|
| 34.6 | % |
Support, maintenance and subscription services |
|
| 98,958 |
|
|
| 88,565 |
|
|
| 10,393 |
|
|
| 11.7 | % |
Professional services |
|
| 27,722 |
|
|
| 21,897 |
|
|
| 5,825 |
|
|
| 26.6 | % |
Total net revenue |
|
| 162,636 |
|
|
| 137,176 |
|
|
| 25,460 |
|
|
| 18.6 | % |
Cost of goods sold: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Products |
|
| 19,251 |
|
|
| 13,506 |
|
|
| 5,745 |
|
|
| 42.5 | % |
Support, maintenance and subscription services |
|
| 21,141 |
|
|
| 17,985 |
|
|
| 3,156 |
|
|
| 17.5 | % |
Professional services |
|
| 20,712 |
|
|
| 16,309 |
|
|
| 4,403 |
|
|
| 27.0 | % |
Total cost of goods sold |
|
| 61,104 |
|
|
| 47,800 |
|
|
| 13,304 |
|
|
| 27.8 | % |
Gross profit |
| $ | 101,532 |
|
| $ | 89,376 |
|
| $ | 12,156 |
|
|
| 13.6 | % |
Gross profit margin |
|
| 62.4 | % |
|
| 65.2 | % |
|
|
|
|
|
| ||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Product development |
| $ | 46,332 |
|
| $ | 55,345 |
|
| $ | (9,013 | ) |
|
| (16.3 | )% |
Sales and marketing |
|
| 14,730 |
|
|
| 14,196 |
|
|
| 534 |
|
|
| 3.8 | % |
General and administrative |
|
| 27,734 |
|
|
| 33,273 |
|
|
| (5,539 | ) |
|
| (16.6 | )% |
Depreciation of fixed assets |
|
| 2,210 |
|
|
| 2,832 |
|
|
| (622 | ) |
|
| (22.0 | )% |
Amortization of internal-use software and intangibles |
|
| 1,654 |
|
|
| 1,959 |
|
|
| (305 | ) |
|
| (15.6 | )% |
Severance and other charges |
|
| 1,584 |
|
|
| 2,529 |
|
|
| (945 | ) |
|
| (37.4 | )% |
Legal settlements |
|
| 969 |
|
|
| 200 |
|
|
| 769 |
|
| nm |
| |
Operating income (loss) |
| $ | 6,319 |
|
| $ | (20,958 | ) |
| $ | 27,277 |
|
| nm |
| |
Operating income (loss) percentage |
|
| 3.9 | % |
|
| (15.3 | )% |
|
|
|
|
|
|
nm - not meaningful
26
The following table presents the percentage relationship of our Consolidated Statement of Operations line items to our consolidated net revenues for the periods presented:
|
| Year ended March 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Net revenue: |
|
|
|
|
|
| ||
Products |
|
| 22.1 | % |
|
| 19.5 | % |
Support, maintenance and subscription services |
|
| 60.8 |
|
|
| 64.6 |
|
Professional services |
|
| 17.1 |
|
|
| 15.9 |
|
Total net revenue |
|
| 100.0 | % |
|
| 100.0 | % |
Cost of goods sold: |
|
|
|
|
|
| ||
Products |
|
| 11.8 | % |
|
| 9.8 | % |
Support, maintenance and subscription services |
|
| 13.0 |
|
|
| 13.1 |
|
Professional services |
|
| 12.8 |
|
|
| 11.9 |
|
Total net cost of goods sold |
|
| 37.6 | % |
|
| 34.8 | % |
Gross profit |
|
| 62.4 | % |
|
| 65.2 | % |
Operating expenses: |
|
|
|
|
|
| ||
Product development |
|
| 28.4 | % |
|
| 40.4 | % |
Sales and marketing |
|
| 9.1 |
|
|
| 10.3 |
|
General and administrative |
|
| 17.1 |
|
|
| 24.4 |
|
Depreciation of fixed assets |
|
| 1.4 |
|
|
| 2.1 |
|
Amortization of internal-use software and intangibles |
|
| 1.0 |
|
|
| 1.4 |
|
Severance and other charges |
|
| 1.0 |
|
|
| 1.8 |
|
Legal settlements |
|
| 0.5 |
|
|
| 0.1 |
|
Operating income (loss) |
|
| 3.9 | % |
|
| (15.3 | )% |
Net revenue. Total revenue increased $25.5 million, or 18.6%, in fiscal 2022 compared to fiscal 2021. Products revenue increased $9.2 million, or 34.6%, due to higher sales and deliveries as our customers re-open their locations for business. Support, maintenance and subscription services revenue increased $10.4 million, or 11.7%, driven by continued growth in subscription-based revenue, which increased 28.0% in fiscal 2022 compared to fiscal 2021. Professional services revenue increased $5.8 million, or 26.6%, due to higher sales and service activity as our customers shift their focus to implementing technology to improve their operations.
Gross profit and gross profit margin. Our total gross profit increased $12.2 million, or 13.6%, in fiscal 2022 and total gross profit margin decreased from 65.2% to 62.4%. Products gross profit increased $3.5 million and gross profit margin decreased from 49.4% to 46.5% due to a higher proportion of third-party products over proprietary software revenue. Support, maintenance and subscription services gross profit increased $7.2 million and gross profit margin decreased from 79.7% to 78.6% as certain variable costs increased ahead of related revenue. Professional services gross profit increased $1.4 million and gross profit margin decreased slightly from 25.5% to 25.3% due to continued hiring and training of new staff to meet increasing project backlogs from ongoing sales activity and certain project delays.
Operating expenses
Operating expenses, excluding the charges for legal settlements, severance and other charges, decreased $14.9 million, or 13.9%, in fiscal 2022 compared with fiscal 2021. As a percent of total revenue, operating expenses have decreased 21.5% in fiscal 2022 compared with fiscal 2021.
Product development. Product development includes all expenses associated with research and development. Product development decreased $9.0 million, or 16.3%, during fiscal 2022 as compared to fiscal 2021 due to an increase of $4.4 million in payroll and other operating expenses as we continue to manage market compensation pressures offset by a decrease in share-based compensation expense of $13.4 million due to significant charges resulting from accelerated vesting of stock-settled appreciation rights (SSARs) upon their market condition satisfaction in February 2021.
27
Sales and marketing. Sales and marketing increased $0.5 million, or 3.8%, in fiscal 2022 compared with fiscal 2021 due to an increase of $3.4 million in payroll, travel, advertising, promotion and other operating expenses as we invest in our sales and marketing teams and return to travel for in-person selling and increased marketing event and trade show activity offset by a decrease in share-based compensation expense of $2.9 million due to significant charges resulting from the accelerated vesting of SSARs upon their market condition satisfaction in February 2021.
General and administrative. General and administrative decreased $5.5 million, or 16.6%, in fiscal 2022 compared to fiscal 2021 due to an increase of $3.7 million in payroll and other expenses after restoring base pay, employee benefits and various operational activities offset by a decrease in share-based compensation expense of $9.2 million due to significant charges resulting from the accelerated vesting of SSARs upon their market condition satisfaction in February 2021.
Depreciation of fixed assets. Depreciation of fixed assets decreased $0.6 million or 22.0% in fiscal 2022 as compared to fiscal 2021 due to an increased level of assets with shorter useful lives.
Amortization of internal-use software and intangibles. Amortization of internal-use software and intangibles decreased $0.3 million or 15.6% in fiscal 2022 as compared to fiscal 2021 due to a lower unamortized cost base following the impairment of intangibles in fiscal 2020.
Severance and other charges. Severance and other charges decreased $0.9 million due to a significant reduction in employee terminations during fiscal 2022 compared to fiscal 2021.
Legal settlements. Legal settlements increased $0.8 million during fiscal 2022 compared to fiscal 2021 due to an increase in settlements of employment and other business-related matters.
Other (Income) Expenses
|
| Year ended March 31, |
|
| (Unfavorable) favorable |
| ||||||||||
(Dollars in thousands) |
| 2022 |
|
| 2021 |
|
| $ |
|
| % |
| ||||
Other (income) expense: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest (income) |
| $ | (59 | ) |
| $ | (107 | ) |
| $ | (48 | ) |
|
| 44.9 | % |
Interest expense |
|
| 12 |
|
|
| 20 |
|
|
| 8 |
|
|
| 40.0 | % |
Other (income) expense, net |
|
| (145 | ) |
|
| 338 |
|
|
| 483 |
|
| nm |
| |
Total other (income) expense, net |
| $ | (192 | ) |
| $ | 251 |
|
| $ | 443 |
|
| nm |
|
nm – not meaningful
Interest income. Interest income consists of interest earned on cash equivalents including short-term investments in commercial paper, treasury bills and money market funds.
Interest expense. Interest expense consists of costs associated with finance leases.
Other expense, net. Other expense, net consists mainly of the impact of foreign currency due to movement of European and Asian currencies against the US dollar.
Income Taxes
|
| Year ended March 31, |
|
| (Unfavorable) favorable | |||||||||
(Dollars in thousands) |
| 2022 |
|
| 2021 |
|
| $ |
|
| % | |||
Income tax expense (benefit) |
| $ | 33 |
|
| $ | (208 | ) |
| $ | (241 | ) |
| nm |
Effective tax rate |
|
| 0.5 | % |
|
| 1.0 | % |
|
|
|
|
|
nm – not meaningful
For fiscal 2022, the effective tax rate was different than the statutory rate due primarily to adjustments to deferred tax assets including increases in valuation allowances that reduce deferred tax assets and to the recording of net operating losses in a number of foreign jurisdictions offset by current year expense in other foreign jurisdictions.
28
Although the timing and outcome of tax settlements are uncertain, it is reasonably possible that during the next 12 months an immaterial reduction in unrecognized tax benefits may occur as a result of the expiration of various statutes of limitations. We are consistently subject to tax audits; due to the nature of examinations in multiple jurisdictions, changes could occur in the amount of gross unrecognized tax benefits during the next 12 months which cannot be estimated at this time.
The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which those temporary differences are deductible. Because of our losses in prior periods, management believes that it is more-likely-than-not that we will not realize the benefits of these deductible differences and have recorded a valuation allowance substantially offsetting our deferred tax assets. At March 31, 2022, we had $196.3 million of federal net operating loss carryforwards that expire, if unused, in fiscal years 2031 to 2038, and $42.8 million of federal net operating loss carryforwards that can be carried forward indefinitely. We also had $166.8 million of state net operating loss carryforwards that expire, if unused, in fiscal years 2023 through 2041.
Fiscal2021Compared to Fiscal2020
Net Revenue and Operating Loss
The following table presents our consolidated revenue and operating results for the fiscal years ended March 31, 2021 and 2020:
|
| Year ended March 31, |
|
| Increase (decrease) |
| ||||||||||
(Dollars in thousands) |
| 2021 |
|
| 2020 |
|
| $ |
|
| % |
| ||||
Net revenue: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Products |
| $ | 26,714 |
|
| $ | 44,230 |
|
| $ | (17,516 | ) |
|
| (39.6 | )% |
Support, maintenance and subscription services |
|
| 88,565 |
|
|
| 83,680 |
|
|
| 4,885 |
|
|
| 5.8 | % |
Professional services |
|
| 21,897 |
|
|
| 32,847 |
|
|
| (10,950 | ) |
|
| (33.3 | )% |
Total net revenue |
|
| 137,176 |
|
|
| 160,757 |
|
|
| (23,581 | ) |
|
| (14.7 | )% |
Cost of goods sold: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Products, inclusive of developed technology amortization |
|
| 13,506 |
|
|
| 36,427 |
|
|
| (22,921 | ) |
|
| (62.9 | )% |
Support, maintenance and subscription services |
|
| 17,985 |
|
|
| 19,248 |
|
|
| (1,263 | ) |
|
| (6.6 | )% |
Professional services |
|
| 16,309 |
|
|
| 24,130 |
|
|
| (7,821 | ) |
|
| (32.4 | )% |
Total cost of goods sold |
|
| 47,800 |
|
|
| 79,805 |
|
|
| (32,005 | ) |
|
| (40.1 | )% |
Gross profit |
| $ | 89,376 |
|
| $ | 80,952 |
|
| $ | 8,424 |
|
|
| 10.4 | % |
Gross profit margin |
|
| 65.2 | % |
|
| 50.4 | % |
|
|
|
|
|
| ||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Product development |
| $ | 55,345 |
|
| $ | 41,463 |
|
| $ | 13,882 |
|
|
| 33.5 | % |
Sales and marketing |
|
| 14,196 |
|
|
| 19,864 |
|
|
| (5,668 | ) |
|
| (28.5 | )% |
General and administrative |
|
| 33,273 |
|
|
| 24,374 |
|
|
| 8,899 |
|
|
| 36.5 | % |
Depreciation of fixed assets |
|
| 2,832 |
|
|
| 2,574 |
|
|
| 258 |
|
|
| 10.0 | % |
Amortization of internal-use software and intangibles |
|
| 1,959 |
|
|
| 2,541 |
|
|
| (582 | ) |
|
| (22.9 | )% |
Impairments |
|
| — |
|
|
| 23,740 |
|
|
| (23,740 | ) |
|
| (100.0 | )% |
Severance and other charges |
|
| 2,529 |
|
|
| 582 |
|
|
| 1,947 |
|
|
| 334.5 | % |
Legal settlements |
|
| 200 |
|
|
| (125 | ) |
|
| 325 |
|
|
| (260.0 | )% |
Operating loss |
| $ | (20,958 | ) |
| $ | (34,061 | ) |
| $ | 13,103 |
|
|
| (38.5 | )% |
Operating loss percentage |
|
| (15.3 | )% |
|
| (21.2 | )% |
|
|
|
|
|
|
29
The following table presents the percentage relationship of our Consolidated Statement of Operations line items to our consolidated net revenues for the periods presented:
|
| Year ended March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Net revenue: |
|
|
|
|
|
| ||
Products |
|
| 19.5 | % |
|
| 27.5 | % |
Support, maintenance and subscription services |
|
| 64.6 |
|
|
| 52.1 |
|
Professional services |
|
| 15.9 |
|
|
| 20.4 |
|
Total net revenue |
|
| 100.0 | % |
|
| 100.0 | % |
Cost of goods sold: |
|
|
|
|
|
| ||
Products, inclusive of developed technology amortization |
|
| 9.8 | % |
|
| 22.6 | % |
Support, maintenance and subscription services |
|
| 13.1 |
|
|
| 12.0 |
|
Professional services |
|
| 11.9 |
|
|
| 15.0 |
|
Total cost of goods sold |
|
| 34.8 | % |
|
| 49.6 | % |
Gross profit |
|
| 65.2 | % |
|
| 50.4 | % |
Operating expenses: |
|
|
|
|
|
| ||
Product development |
|
| 40.4 | % |
|
| 25.8 | % |
Sales and marketing |
|
| 10.3 |
|
|
| 12.4 |
|
General and administrative |
|
| 24.4 |
|
|
| 15.2 |
|
Depreciation of fixed assets |
|
| 2.1 |
|
|
| 1.6 |
|
Amortization of internal-use software and intangibles |
|
| 1.4 |
|
|
| 1.6 |
|
Severance and other charges |
|
| 1.8 |
|
|
| 0.4 |
|
Legal settlements |
|
| 0.1 |
|
|
| (0.1 | ) |
Operating loss |
|
| (15.3 | )% |
|
| (21.2 | )% |
Net revenue.Total revenue decreased $23.6 million, or 14.7%, in fiscal 2021 compared to fiscal 2020. Fiscal yearProducts revenue decreased $17.5 million, or 39.6%, due to delayed customer purchasing decisions as the timing of the hospitality recovery from the COVID-19 pandemic remained unclear during fiscal 2021. Support, maintenance and subscription services revenue increased $4.9 million, or 5.8%, driven by continued growth in subscription-based revenue, which increased 15.5% in fiscal 2021 revenue was $137.2 million, compared to 160.6fiscal 2020. Subscription revenue sales were led by our add on software modules, including modules enabling social distancing and contactless capabilities. Professional services revenue decreased $11.0 million, or 33.3%, due to delays in implementation services due to customer property restrictions, property closures and lower sales from delayed customer purchasing decisions as the timing of the hospitality recovery from the COVID-19 pandemic remained unclear.
Gross profit and gross profit margin.Our total gross profit increased $8.4 million, or 10.4%, in fiscal 2021 and total gross profit margin increased from 50.4% to 65.2%. Products gross profit increased $5.4 million and gross profit margin increased from 17.6% to 49.4% driven mostly by the absence of software development cost amortization during fiscal 2021. Support, maintenance and subscription services gross profit increased $6.1 million and gross profit margin increased 269 basis points to 79.7% due to increased subscription revenue on a relatively flat cost base. Professional services gross profit decreased $3.1 million and gross profit margin decreased slightly from 26.5% to 25.5% due to the delay in professional service projects and the fixed costs of maintaining a minimum required professional services team as customers continued to work towards re-opening their locations and accept implementations and installations.
Operating expenses
Operating expenses, excluding the charges for legal settlements, impairments, severance and other charges, increased $16.8 million, or 18.5%, in fiscal 2021 compared with fiscal 2020. As a percent of total revenue, operating expenses have increased 22.0% in fiscal 2021 compared with fiscal 2020.
Product development.Product development includes all expenses associated with research and development. Product development increased $13.9 million, or 33.5%, during fiscal 2021 as compared to fiscal 2020 due to the continued expansion of our R&D teams and significant share-based compensation charges resulting from the accelerated vesting of stock-settled appreciation rights (SSARs) upon their market condition satisfaction in February 2021.
30
Sales and marketing. Sales and marketing decreased $5.7 million, or 28.5%, in fiscal 2021 compared with fiscal 2020 due to reduced commission expense as a result of lower sales levels, significantly reduced travel, layoffs, temporary reductions in employee benefits, and the absence of in-person trade shows and conference activity. The decrease was slightly offset by an increase in stock-based compensation charges resulting from the accelerated vesting of SSARs.
General and administrative. General and administrative increased $9.0 million, or 37.0%, in fiscal 2021 compared to fiscal 2020. The change is due primarily to significant share-based compensation charges resulting from the accelerated vesting of SSARs.
Depreciation of fixed assets. Depreciation of fixed assets increased $0.3 million or 10.0% in fiscal 2021 as compared to fiscal 2020 due to an increased level of assets with shorter useful lives.
Amortization of internal-use software and intangibles. Amortization of internal-use software and intangibles decreased $0.6 million or 22.9% in fiscal 2021 as compared to fiscal 2020 due to a lower unamortized cost base following the impairment of intangibles in fiscal 2020.
Impairments. There were no impairments in fiscal 2021. Impairments totaled $23.7 million in fiscal year 2020, and well below the $155 million threshold level for annual incentive achievement. Notwithstanding the failure to achieve the threshold revenue target, the Committee believed the Company had significantly exceeded expectations with respect to growing Adjusted EBITDA and cash balance despite the challenges of the COVID-19 pandemic. Adjusted EBITDA grew 105% over fiscal year 2020, and cash balance grew 40% over fiscal year 2020, excluding the proceeds of the offering of Convertible Preferred Stock. Accordingly, the Committee used its discretion to certify 30% achievement of annual incentive targets.
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CEO Annual Incentive. Mr. Srinivasan was eligible for an annual incentive for fiscal year 2021 based on the Company financial performance metrics described above, with any such earned incentive to be settled in shares of common stock. Pursuant to his employment agreement, Mr. Srinivasan’s target annual incentive for fiscal year 2021 was set at 100% of his base salary, or $600,000, with a maximum potential incentive of $900,000 (150% of his base salary), payable upon achievement of 150% of the annual incentive goals, and a threshold potential incentive of $300,000 (50% of his target annual incentive), payable upon achievement of 50% of the annual incentive goals.
Based on the fiscal year 2021 results discussed above, Mr. Srinivasan earned 30%, or $180,000, of his annual incentive target. Accordingly, the Compensation Committee awarded Mr. Srinivasan 3,403 shares of common stock, being the number of shares having a value of $180,000 based on the closing price of the Company’s common stock on May 26, 2021, the date that the Committee made its determination.
Annual Incentives for the Other Named Executive Officers. Fiscal year 2021 target annual incentives for the other Named Executive Officers other than Mr. DeMarinis, were set as 50% of the executive’s base salary. Mr. DeMarinis’ annual incentive was set as 60% of his base salary, and he was also eligible for target annual incentives of $150,000 for commissions and other sales-related incentives due to his role as head of our Americas Sales teams.
Annual incentives comprised 18% to 31% of total fiscal year 2021 target compensation for these Named Executive Officers.
Officer |
Target Annual Incentive |
Target Annual Incentives ($) | Target Annual Incentive as % of FY21 Total Target Compensation |
Dave Wood | 50% | 120,000 | 18% |
Kyle Badger | 50% | 140,000 | 18% |
Prabuddha Biswas | 50% | 135,000 | 18% |
Don DeMarinis | 100% | 250,000 | 31% |
Additional detail about target and maximum incentives are disclosed in the Grants of Plan-Based Awards for Fiscal Year 2021 table below.
Based on the fiscal year 2021 results discussed above, each of the Named Executive Officers earned 30% of their target annual incentives subject to the annual incentive plan described above. Mr. DeMarinis earned an additional $75,350 of his target $150,000 sales incentives based on the net gross profit of eligible sales.
Officer | Annual Incentive Plan Target ($) | Achievement (%) | Annual Incentive Plan Payout ($) | Annual Sales Incentive Payout ($) | Total Annual Incentives Payouts ($) |
Dave Wood | 120,000 | 30 | 36,000 | — | 36,000 |
Kyle Badger | 140,000 | 30 | 42,000 | — | 42,000 |
Prabuddha Biswas | 135,000 | 30 | 40,500 | — | 40,500 |
Don DeMarinis | 150,000 | 30 | 45,000 | 75,350 | 120,350 |
Long-Term Incentives. As with the annual cash incentives, the Compensation Committee approved fiscal year 2021 long-term incentive (“LTI”) awards for the Named Executive Officers other than Mr. Srinivasan at the beginning of the year when the2020. The impairments resulted from specific capitalized software development costs supporting certain software applications. The impact of the COVID-19 pandemic and the outcome for the fiscal year were substantially uncertain. LTI awards to these Named Executive Officers consisted of stock-settled appreciation rights (“SSARs”) and restricted shares. Mr. Srinivasan did not receive any long-term equity incentive award in fiscal year 2021 since he received a large award upon the renewal of his employment agreement at the end of fiscal year 2020.
In fiscal year 2021, the Compensation Committee increased the value of long-term equity incentive awards to all participants, including the Named Executive Officers, compared to recent prior years, to bolster retention at a time when it appeared thaton the hospitality industry resulted in economic conditions that made it difficult to project future sales and revenue accurately for the impacted solutions at the time of impairment determination. After evaluating the Company’s strategy for market development and continued costs to support the software, an impairment charge was required. We recorded impairment charges to reduce the net realizable value of the related assets to zero during the 2020 fiscal year.
Severance and other charges. Severance and other charges increased $1.9 million due to an increase in non-restructuring severance activity during fiscal 2021 compared to fiscal 2020.
Legal settlements. Legal settlements consist of settlements of employment and other business-related matters.
Other (Income) Expenses
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| Year ended March 31, |
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| (Unfavorable) favorable |
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(Dollars in thousands) |
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| 2021 |
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| 2020 |
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Other (income) expense: |
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Interest (income) |
| $ | (107 | ) |
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| (380 | ) |
| $ | (273 | ) |
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| (71.8 | )% |
Interest expense |
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| 20 |
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| 9 |
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| $ | (11 | ) |
| nm |
| |
Other expense, net |
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| 338 |
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| 176 |
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| (92.0 | )% |
Total other expense (income), net |
| $ | 251 |
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| $ | (195 | ) |
| $ | (446 | ) |
| nm |
|
nm – not meaningful
Interest income. Interest income consists of interest earned on short-term investments in commercial paper, money market funds and interest-bearing bank accounts.
Interest expense. Interest expense consists of costs associated with finance leases.
Other expense, net. Other expense, net consists mainly of the impact of foreign currency due to movement of European and Asian currencies against the US dollar.
Income Taxes
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| Year ended March 31, |
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| (Unfavorable) favorable | |||||||||
(Dollars in thousands) |
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| 2021 |
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|
| 2020 |
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| $ |
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| % | |
Income tax (benefit) expense |
| $ | (208 | ) |
| $ | 201 |
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| $ | 409 |
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| nm |
Effective tax rate |
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| 1.0 | % |
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| (0.6 | )% |
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nm – not meaningful
31
For fiscal 2021, the effective tax rate was different than the statutory rate due primarily to adjustments to deferred tax assets including increases in valuation allowances that reduce deferred tax assets and to the recording of net operating losses in a number of foreign jurisdictions offset by current year expense in other foreign jurisdictions.
Because of our losses in prior periods, we have recorded a valuation allowance offsetting substantially all of our deferred tax assets. The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which those temporary differences are deductible. Because of our losses in prior periods, management believes that it is more-likely-than-not that we will not realize the benefits of these deductible differences. At March 31, 2021, we had $199.1 million of federal net operating loss carryforwards that expire, if unused, in fiscal years 2031 to 2038, and $46.8 million of federal net operating loss carryforwards that can be carried forward indefinitely. We also had $165.6 million of state net operating loss carryforwards that expire, if unused, in fiscal years 2022 through 2041.
Liquidity and Capital Resources
Overview
Our cash requirements consist primarily of working capital needs, capital expenditures, payments of preferred stock dividends, and operating expenses including payments of lease obligations. Our contractual obligations consist primarily of operating leases for office space and preferred stock dividends. We disclose our lease obligations in Note 6, Leases, and preferred stock dividends in Note 14, Preferred Stock, to our Consolidated Financial Statements included under Item 8 of this Annual Report.
At March 31, 2022, all $97.0 million of our cash on hand was deposited in bank accounts, of which 93% are located in the United States. We believe there is limited credit risk with respect to our cash balances.
We believe that cash flow from operating activities, cash on hand of $97.0 million as of March 31, 2022, and access to capital markets will provide adequate funds to meet our short-and long-term liquidity requirements.
Cash Flow
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| Year ended March 31, |
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(In thousands) |
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| 2022 |
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| 2021 |
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| 2020 |
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Net cash provided by (used in): |
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Operating activities |
| $ | 28,475 |
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| $ | 28,407 |
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| $ | 10,575 |
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Investing activities |
|
| (25,679 | ) |
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| (1,391 | ) |
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| (3,447 | ) |
Financing activities |
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| (4,901 | ) |
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| 25,316 |
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| (1,116 | ) |
Effect of exchange rate changes on cash |
|
| (104 | ) |
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| 195 |
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| (130 | ) |
(Decrease) increase in cash |
| $ | (2,209 | ) |
| $ | 52,527 |
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| $ | 5,882 |
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Cash flow provided by operating activities. Cash flows provided by operating activities were $28.5 million in fiscal 2022. The provision of cash was due primarily to our net income of $6.5 million adjusted for $17.7 million in non-cash expense including depreciation, amortization, and share-based compensation and an increase of $4.3 million from the changes in operating assets and liabilities.
Cash flows provided by operating activities were $28.4 million in fiscal 2021. The provision of cash was due primarily to our operating loss of $21.0 million adjusted for $44.0 million in non-cash expense including depreciation, amortization, and share-based compensation and an increase of approximately $5.4 million from the changes in operating assets and liabilities.
Cash flows provided by operating activities were $10.6 million in fiscal 2020. The provision of cash was due primarily to our operating loss of $34.1 million adjusted for $46.2 million in non-cash expense including impairment charges, depreciation, amortization, and share-based compensation and a decrease of approximately $1.5 million in net operating assets and liabilities.
Cash flow used in investing activities. Cash flows used in investing activities in fiscal 2022 were $25.7 million due to $24.5 million in cash paid for business combinations, net of cash acquired, and $1.2 million in purchases of property and equipment, including internal use software.
Cash flows used in investing activities in fiscal 2021 were $1.4 million due primarily to the purchase of property and equipment, including internal use software.
32
Cash flows used in investing activities in fiscal 2020 were $3.4 million due primarily to the purchase of property and equipment, including internal use software.
Cash flow provided by (used in) financing activities. Cash flows used in financing activities in fiscal 2022 were $4.9 million and primarily comprised of share repurchases of $3.0 million to satisfy employee tax withholding on share-based compensation and $1.8 million in preferred stock dividends.
During fiscal 2021, the $25.3 million provided by financing activities consisted primarily of $34.0 million in preferred stock issuance proceeds from the MAK Capital investment, net of issuance costs, offset by $7.5 million for the repurchase of shares to satisfy employee tax withholding on share-based compensation and $1.1 million in preferred stock dividends.
Cash flows used in financing activities in fiscal 2020 were $1.1 million and primarily comprised of share repurchases to satisfy employee tax withholding on share-based compensation.
Investments
Investments in Corporate-Owned Life Insurance Policies
Agilysys invests in corporate-owned life insurance policies for certain former executives, for which some are endorsement split-dollar life insurance arrangements. We entered into agreements with each of the former executives, whereby we must maintain the life insurance policy for a specified amount and split a portion of the policy benefits with their designated beneficiary. Our investment in these corporate-owned life insurance policies were recorded at their cash surrender value, which approximates fair value at the balance sheet date. In the Consolidated Balance Sheets at the balance sheet date, the cash surrender value of $1.0 million for the remaining policies were held in “Other non-current assets,” and the Company wouldpresent value of future proceeds owed to those executives’ designated beneficiary of $0.1 million, which approximates fair value, were recorded within “Other non-current liabilities” in the Consolidated Balance Sheets at the balance sheet date.
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements that have had or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.
Critical Accounting Policies
Managements’ Discussion and Analysis is based upon our Consolidated Financial Statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenue, and expenses and related disclosure of contingent assets and liabilities. We regularly evaluate our estimates, including those related to bad debts, inventories, investments, intangible assets, income taxes, restructuring, contingencies and litigation. We base our estimates on historical experience and on various other assumptions that we believe to be disproportionately impactedreasonable 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 most significant accounting policies relate to the sale, purchase, and promotion of our products and services. The policies discussed below are considered by management to be critical to an understanding of our Consolidated Financial Statements because their application places the most significant demands on management’s judgment, with financial reporting results relying on estimation about the effect of matters that are inherently uncertain. Specific risks for these critical accounting policies are described in the following paragraphs.
For all these policies, management cautions that future events rarely develop exactly as forecasted, and the best estimates routinely require adjustment.
Revenue recognition. Our customary business practice is to enter into legally enforceable written contracts with our customers. The majority of our contracts are governed by a master service agreement between us and the customer, which sets forth the general terms and conditions of any individual contract between the parties, which is then supplemented by a customer order to specify the different goods and services, the associated prices, and any additional terms for an individual contract. Performance obligations specific to each individual contract are defined within the terms of each order. Each performance obligation is identified based on the goods and services that will be transferred to our customer that are both capable of being distinct and are distinct within the context of the contract. The transaction price is determined based on the consideration to which we will be entitled and expect to receive in exchange
33
for transferring goods or services to the customer. Typically, our contracts do not provide our customer with any right of return or refund; we do not constrain the contract price as it is probable that there will not be a significant revenue reversal due to a return or refund.
Typically our customer contracts contain one or more of the following goods or services which constitute performance obligations.
Our software licenses typically provide for a perpetual right to use our software. Generally, our contracts do not provide significant services of integration and customization and installation services are not required to be purchased directly from us. The software is delivered before related services are provided and is functional without professional services, updates and technical support. We have concluded that the software license is distinct as the customer can benefit from the software on its own. Software revenue is typically recognized when the software is delivered or made available for download to the customer.
Revenue for hardware sales is recognized when the product is shipped to the customer and when obligations that affect the customer’s final acceptance of the arrangement have been fulfilled. Hardware is purchased from suppliers and provided to the end-user customers via drop-ship or from inventory. We are responsible for negotiating the price both with the supplier and the customer, payment to the supplier, establishing payment terms and product returns with the customer, and bearing the credit risk if the customer does not pay for the goods. As the principal contact with the customer, we recognize revenue and cost of goods sold when we are notified by the COVID-19 pandemic.supplier that the product has been shipped. In certain limited instances, as shipping terms dictate, revenue is recognized upon receipt at the point of destination or upon installation at the customer site.
Support and maintenance revenue is derived from providing telephone and on-line technical support services, bug fixes, and unspecified software updates and upgrades to customers on a when-and-if-available basis. These services represent a stand-ready obligation that is concurrently delivered and has the same pattern of transfer to the customer; we account for these support and maintenance services as a single performance obligation recognized over the term of the maintenance agreement.
Our subscription service revenue is comprised of fees for contracts that provide customers a right to access our software for a subscribed period. We do not provide the customer the contractual right to license the software at any time outside of the subscription period under these contracts. The customer can only benefit from the software and software maintenance when provided the right to access the software. Accordingly, each of the rights to access the software, the maintenance services, and any hosting services is not considered a distinct performance obligation in the context of the contract and should be combined into a single performance obligation to be recognized over the contract period. The Company recognizes subscription revenue over a one-month period based on the typical monthly invoicing and renewal cycle in accordance with our customer agreement terms.
Professional services revenues primarily consist of fees for consulting, installation, integration and training and are generally recognized over time as the customer simultaneously receives and consumes the benefits of the professional services as the services are being performed. Professional services can be provided by internal or external providers, do not significantly affect the customer’s ability to access or use other provided goods or services, and provide a measure of benefit beyond that of other promised goods or services in the contract. As a result, there were insufficient shares remaining underprofessional services are considered distinct in the Company’s shareholder-approved 2016 Stock Incentive Plan to complete the proposed grants, and the grants were
made by the Committee subject to approval by the shareholderscontext of the Company’s 2020 Equity Incentive Plan. The 2020 Equity Incentive Plan was approved by shareholders atcontract and represent a separate performance obligation. Professional services that are billed on a time and materials basis are recognized over time as the 2020 Annual Meeting of Shareholdersservices are performed. For contracts billed on November 19, 2020.
With respecta fixed price basis, revenue is recognized over time using an input method based on labor hours expended to date relative to the LTI awards,total labor hours expected to be required to satisfy the Committee considered various alternatives. While annual incentives target specificrelated performance goals,obligation.
We use the Committee’s focus with LTI awards has beenmarket approach to link compensation directlydrive standalone selling price (“SSP”) by maximizing observable data points (in the form of recently executed customer contracts) to shareholder gains. SSARs provideddetermine the direct link between compensationprice customers are willing to pay for the goods and shareholder gains inservices transferred. If the contract contains a less dilutive manner than traditionalsingle performance obligation, the entire transaction price is allocated to that performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative SSP basis.
Share-based compensation. We have an equity incentive plan under which we may grant non-qualified stock options. In addition,options, incentive stock options, stock-settled stock appreciation rights, time-vested restricted shares, tierestricted share units, performance-vested restricted shares, and performance shares. Shares issued pursuant to awards under this plan may be made out of treasury or authorized but unissued shares.
We record compensation expense related to shareholder gainsstock-settled stock appreciation rights, restricted shares, and highly bolster retention overperformance shares granted to certain employees and non-employee directors based on the three-year vesting period.
The Committee had awarded Mr. Srinivasan a grant of 600,000 SSARs at the time his employment agreement with the Company was extended in February 2020, near the end of fiscal year 2020, which included 125,000 SSARs that would best upon the closing pricefair value of the Company’s common stock attaining $45 per share. In June 2020, during the annual compensation review, the Committee desired to give the other Named Executive Officers a meaningful number of SSARs with the same equity performance target as Mr. Srinivasan in order to focus the entire management teamawards on the goal of increasing shareholder value.grant date. The Committee believed the $45 target share price continued to be appropriate especially since the Company’s closing stock price had dropped from a then all-time high of $36.85 on February 13, 2020, near the outset of the COVID-19 pandemic, to average less than $20 per share from February 24, 2020, through June 2, 2020, when the grants were awarded. In order to achieve the target, the closing price must have averaged at least $45 per share over a 10 consecutive trading day period. This target was achieved on February 11, 2021.
In setting LTI awards for the Named Executive Officers, the Committee received input and recommendations from our CEO, and at his recommendation set LTI awards for the Named Executive Officers at 125% of their base salaries, with thefair value of 25% of base salary being allocatedrestricted share grants subject only to restricted common stock vesting in even amounts over three years, the value of 50% of base salary being allocated to SSARs vesting in even amounts over three years, and the value of 50% of base salary being allocated to SSARs vesting upon the closing price of the Company’s common stock attaining $45 per share for ten consecutive trading days prior to June 30, 2023.
Awards of restricted common stock werea service condition is based on the closing price of our common stock on June 2, 2020, the date the Committee granted the awards subject to shareholder approval, $20.02, awards of time vesting SSARs were basedshares on the Black-Scholesgrant date. For stock option and stock-settled appreciation right (SSAR) grants subject only to a service condition, we estimate the fair value on the grant date using the Black-Scholes-Merton option pricing valuemodel with inputs including the closing market price at grant date, exercise price and assumptions regarding the risk-free interest rate, expected volatility of our common stock on June 2, 2020, $7.12, and awards of the performance vesting SSARs wereshares based on historical volatility, and expected
34
term as estimated using the Latticesimplified method. For restricted share and SSAR grants subject to a market condition, we estimate the fair value on the grant date through a lattice option pricing model that utilizes a binomial treeMonte Carlo analysis with inputs including the closing market price at grant date, share price threshold and assumptions regarding the risk-free interest rate and expected volatility of our common shares based on historical volatility. Inputs for SSAR grants subject to forecast option pricinga market condition also include exercise price, remaining contractual term, and suboptimal exercise factor. Forfeitures of awards are recognized as they occur. Additional information regarding the assumptions used to value share-based compensation awards is provided in Note 13, Share-Based Compensation, to our Consolidated Financial Statements.
Adopted and Recently Issued Accounting Pronouncements
See Note 2, Summary of Significant Accounting Policies, to our Consolidated Financial Statements included under Item 8 of this Annual Report for additional information about recent accounting pronouncements recently adopted and those not yet effective.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
We have assets, liabilities, and cash flows in foreign currencies creating foreign exchange risk. We sell products and services internationally and enter into transactions denominated in foreign currencies. As a result, we are subject to the variability that arises from exchange rate movements. For the fiscal years 2022, 2021 and 2020, revenue from international operations was 7%, 8% and 9%, respectively of total revenue. The effects of foreign currency on operating results did not have a material impact on our results of operations for the 2022, 2021 and 2020 fiscal years. Fluctuations in the value of other currencies could materially impact our revenue, expenses, operating profit and net income.
35
Item 8. Financial Statements and Supplementary Data.
Agilysys, Inc. and Subsidiaries
ANNUAL REPORT ON FORM 10-K
Year EndedMarch 31, 2022
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
36
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
Agilysys, Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of Agilysys, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of JuneMarch 31, 2022 and 2021, the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity, and cash flows for each of the three years in the period ended March 31, 2022, and the related notes and financial statement schedule(s) included under Item 15(a) (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended March 31, 2022, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of March 31, 2022, based on criteria established in the 2013 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated May 23, 2022 expressed an unqualified opinion.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical audit matters
The critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2016.
Atlanta, Georgia
May 23, 2022
37
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
Agilysys, Inc.
Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of Agilysys, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of March 31, 2022, based on criteria established in the 2013 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of March 31, 2022, based on criteria established in the 2013 Internal Control-Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended March 31, 2022, and our report dated May 23, 2022 expressed an unqualified opinion on those financial statements.
Basis for opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Our audit of, and opinion on, the Company’s internal control over financial reporting does not include the internal control over financial reporting of ResortSuite, Inc., a wholly-owned subsidiary, whose financial statements reflect total assets and revenues constituting one percent and less than one percent, respectively, of the related consolidated financial statement amounts as of and for the year ended March 31, 2022. As indicated in Management’s Report, ResortSuite, Inc. was acquired during 2022. Management’s assertion on the effectiveness of the Company’s internal control over financial reporting excluded internal control over financial reporting of ResortSuite, Inc.
38
Definition and limitations of internal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally\ accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ GRANT THORNTON LLP
Atlanta, Georgia
May 23, 2022
39
AGILYSYS, INC.
CONSOLIDATED BALANCE SHEETS
|
| As of March 31, |
| |||||
(In thousands, except share data) |
| 2022 |
|
| 2021 |
| ||
ASSETS |
|
|
|
|
|
| ||
Current assets: |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 96,971 |
|
| $ | 99,180 |
|
Accounts receivable, net of allowance for expected credit losses |
|
| 25,175 |
|
|
| 25,732 |
|
Contract assets |
|
| 1,669 |
|
|
| 2,364 |
|
Inventories |
|
| 6,940 |
|
|
| 1,177 |
|
Prepaid expenses and other current assets |
|
| 5,418 |
|
|
| 4,797 |
|
Total current assets |
|
| 136,173 |
|
|
| 133,250 |
|
Property and equipment, net |
|
| 6,345 |
|
|
| 8,789 |
|
Operating lease right-of-use assets |
|
| 9,889 |
|
|
| 12,210 |
|
Goodwill |
|
| 32,759 |
|
|
| 19,622 |
|
Intangible assets, net |
|
| 20,178 |
|
|
| 8,400 |
|
Deferred income taxes, non-current |
|
| 2,664 |
|
|
| 1,802 |
|
Other non-current assets |
|
| 6,154 |
|
|
| 5,800 |
|
Total assets |
| $ | 214,162 |
|
| $ | 189,873 |
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
|
| ||
Accounts payable |
| $ | 9,766 |
|
| $ | 6,346 |
|
Contract liabilities |
|
| 46,095 |
|
|
| 38,394 |
|
Accrued liabilities |
|
| 10,552 |
|
|
| 11,387 |
|
Operating lease liabilities, current |
|
| 5,049 |
|
|
| 5,009 |
|
Finance lease obligations, current |
|
| 4 |
|
|
| 19 |
|
Total current liabilities |
|
| 71,466 |
|
|
| 61,155 |
|
Deferred income taxes, non-current |
|
| 938 |
|
|
| 923 |
|
Operating lease liabilities, non-current |
|
| 5,649 |
|
|
| 8,597 |
|
Finance lease obligations, non-current |
|
| 2 |
|
|
| 6 |
|
Other non-current liabilities |
|
| 3,304 |
|
|
| 3,857 |
|
Commitments and contingencies (see Note 11) |
|
|
|
|
|
| ||
Series A convertible preferred stock, no par value |
|
| 35,459 |
|
|
| 35,459 |
|
Shareholders' equity: |
|
|
|
|
|
| ||
Common shares, without par value, at $0.30 stated value; 80,000,000 |
|
| 9,482 |
|
|
| 9,482 |
|
Treasury shares, 6,878,299 and 7,596,104 at March 31, 2022 |
|
| (2,063 | ) |
|
| (2,278 | ) |
Capital in excess of stated value |
|
| 49,963 |
|
|
| 37,257 |
|
Retained earnings |
|
| 40,018 |
|
|
| 35,376 |
|
Accumulated other comprehensive (loss) income |
|
| (56 | ) |
|
| 39 |
|
Total shareholders' equity |
|
| 97,344 |
|
|
| 79,876 |
|
Total liabilities and shareholders' equity |
| $ | 214,162 |
|
| $ | 189,873 |
|
See accompanying notes to consolidated financial statements.
40
AGILYSYS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
|
| Year ended |
| |||||||||
|
|
|
| |||||||||
(In thousands, except per share data) |
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
Net revenue: |
|
|
|
|
|
|
|
|
| |||
Products |
| $ | 35,956 |
|
| $ | 26,714 |
|
| $ | 44,230 |
|
Support, maintenance and subscription services |
|
| 98,958 |
|
|
| 88,565 |
|
|
| 83,680 |
|
Professional services |
|
| 27,722 |
|
|
| 21,897 |
|
|
| 32,847 |
|
Total net revenue |
|
| 162,636 |
|
|
| 137,176 |
|
|
| 160,757 |
|
Cost of goods sold: |
|
|
|
|
|
|
|
|
| |||
Products, inclusive of developed technology amortization |
|
| 19,251 |
|
|
| 13,506 |
|
|
| 36,427 |
|
Support, maintenance and subscription services |
|
| 21,141 |
|
|
| 17,985 |
|
|
| 19,248 |
|
Professional services |
|
| 20,712 |
|
|
| 16,309 |
|
|
| 24,130 |
|
Total cost of goods sold |
|
| 61,104 |
|
|
| 47,800 |
|
|
| 79,805 |
|
Gross profit |
|
| 101,532 |
|
|
| 89,376 |
|
|
| 80,952 |
|
Gross profit margin |
|
| 62.4 | % |
|
| 65.2 | % |
|
| 50.4 | % |
Operating expenses: |
|
|
|
|
|
|
|
|
| |||
Product development |
|
| 46,332 |
|
|
| 55,345 |
|
|
| 41,463 |
|
Sales and marketing |
|
| 14,730 |
|
|
| 14,196 |
|
|
| 19,864 |
|
General and administrative |
|
| 27,734 |
|
|
| 33,273 |
|
|
| 24,374 |
|
Depreciation of fixed assets |
|
| 2,210 |
|
|
| 2,832 |
|
|
| 2,574 |
|
Amortization of internal-use software and intangibles |
|
| 1,654 |
|
|
| 1,959 |
|
|
| 2,541 |
|
Impairments |
|
| — |
|
|
| — |
|
|
| 23,740 |
|
Severance and other charges |
|
| 1,584 |
|
|
| 2,529 |
|
|
| 582 |
|
Legal settlements |
|
| 969 |
|
|
| 200 |
|
|
| (125 | ) |
Total operating expense |
|
| 95,213 |
|
|
| 110,334 |
|
|
| 115,013 |
|
Operating income (loss) |
|
| 6,319 |
|
|
| (20,958 | ) |
|
| (34,061 | ) |
Other (income) expense: |
|
|
|
|
|
|
|
|
| |||
Interest income |
|
| (59 | ) |
|
| (107 | ) |
|
| (380 | ) |
Interest expense |
|
| 12 |
|
|
| 20 |
|
|
| 9 |
|
Other (income) expense, net |
|
| (145 | ) |
|
| 338 |
|
|
| 176 |
|
Income (loss) before taxes |
|
| 6,511 |
|
|
| (21,209 | ) |
|
| (33,866 | ) |
Income tax expense (benefit) |
|
| 33 |
|
|
| (208 | ) |
|
| 201 |
|
Net income (loss) |
| $ | 6,478 |
|
| $ | (21,001 | ) |
| $ | (34,067 | ) |
Series A convertible preferred stock issuance costs |
|
| — |
|
|
| (1,031 | ) |
|
| — |
|
Series A convertible preferred stock dividends |
|
| (1,836 | ) |
|
| (1,576 | ) |
|
| — |
|
Net income (loss) attributable to common shareholders |
| $ | 4,642 |
|
| $ | (23,608 | ) |
| $ | (34,067 | ) |
|
|
|
|
|
|
|
|
|
| |||
Weighted average shares outstanding - basic |
|
| 24,357 |
|
|
| 23,458 |
|
|
| 23,233 |
|
|
|
|
|
|
|
|
|
|
| |||
Net income (loss) per share - basic: |
| $ | 0.19 |
|
| $ | (1.01 | ) |
| $ | (1.47 | ) |
|
|
|
|
|
|
|
|
|
| |||
Weighted average shares outstanding - diluted |
|
| 25,483 |
|
|
| 23,458 |
|
|
| 23,233 |
|
|
|
|
|
|
|
|
|
|
| |||
Net income (loss) per share - diluted: |
| $ | 0.18 |
|
| $ | (1.01 | ) |
| $ | (1.47 | ) |
See accompanying notes to consolidated financial statements.
41
AGILYSYS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
|
| Year Ended |
| |||||||||
|
| March 31, |
| |||||||||
(In thousands) |
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
Net income (loss) |
| $ | 6,478 |
|
| $ | (21,001 | ) |
| $ | (34,067 | ) |
Other comprehensive (loss) income, net of tax: |
|
|
|
|
|
|
|
|
| |||
Unrealized foreign currency translation adjustments |
|
| (95 | ) |
|
| (162 | ) |
|
| 460 |
|
Total comprehensive income (loss) |
| $ | 6,383 |
|
| $ | (21,163 | ) |
| $ | (33,607 | ) |
See accompanying notes to consolidated financial statements.
42
AGILYSYS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
| Year Ended |
| |||||||||
|
| March 31, |
| |||||||||
(In thousands) |
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
|
|
|
|
|
|
|
|
|
| |||
Operating activities |
|
|
|
|
|
|
|
|
| |||
Net income (loss) |
| $ | 6,478 |
|
| $ | (21,001 | ) |
| $ | (34,067 | ) |
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
| |||
Impairments |
|
| 0 |
|
|
| 0 |
|
|
| 23,740 |
|
Loss (gain) on disposal of property & equipment |
|
| 195 |
|
|
| 44 |
|
|
| (5 | ) |
Depreciation of fixed assets |
|
| 2,210 |
|
|
| 2,832 |
|
|
| 2,574 |
|
Amortization of internal-use software and intangibles |
|
| 1,654 |
|
|
| 1,959 |
|
|
| 2,541 |
|
Amortization of developed technology |
|
| 0 |
|
|
| 0 |
|
|
| 12,561 |
|
Deferred income taxes |
|
| (925 | ) |
|
| (959 | ) |
|
| (356 | ) |
Share-based compensation |
|
| 14,549 |
|
|
| 40,093 |
|
|
| 5,205 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
| |||
Accounts receivable |
|
| 2,551 |
|
|
| 10,363 |
|
|
| (8,974 | ) |
Contract assets |
|
| 684 |
|
|
| (228 | ) |
|
| 794 |
|
Inventories |
|
| (5,764 | ) |
|
| 2,746 |
|
|
| (1,830 | ) |
Prepaid expense and other current assets |
|
| (484 | ) |
|
| (201 | ) |
|
| 1,545 |
|
Accounts payable |
|
| 3,417 |
|
|
| (7,016 | ) |
|
| 8,585 |
|
Contract liabilities |
|
| 4,902 |
|
|
| (3,971 | ) |
|
| 3,563 |
|
Accrued liabilities |
|
| 146 |
|
|
| 1,187 |
|
|
| (4,227 | ) |
Income taxes payable |
|
| 50 |
|
|
| 340 |
|
|
| (153 | ) |
Other changes, net |
|
| (1,188 | ) |
|
| 2,219 |
|
|
| (921 | ) |
Net cash provided by operating activities |
|
| 28,475 |
|
|
| 28,407 |
|
|
| 10,575 |
|
Investing activities |
|
|
|
|
|
|
|
|
| |||
Capital expenditures |
|
| (1,197 | ) |
|
| (1,389 | ) |
|
| (3,420 | ) |
Cash paid for business combinations, net of cash acquired |
|
| (24,455 | ) |
|
| 0 |
|
|
| 0 |
|
Additional investments in corporate-owned life insurance policies |
|
| (27 | ) |
|
| (2 | ) |
|
| (27 | ) |
Net cash used in investing activities |
|
| (25,679 | ) |
|
| (1,391 | ) |
|
| (3,447 | ) |
Financing activities |
|
|
|
|
|
|
|
|
| |||
Preferred stock issuance proceeds, net of issuance costs |
|
| 0 |
|
|
| 33,969 |
|
|
| 0 |
|
Payment of preferred stock dividends |
|
| (1,836 | ) |
|
| (1,117 | ) |
|
| 0 |
|
Repurchase of common shares to satisfy employee tax withholding |
|
| (3,046 | ) |
|
| (7,512 | ) |
|
| (1,092 | ) |
Principal payments under long-term obligations |
|
| (19 | ) |
|
| (24 | ) |
|
| (24 | ) |
Net cash (used in) provided by financing activities |
|
| (4,901 | ) |
|
| 25,316 |
|
|
| (1,116 | ) |
Effect of exchange rate changes on cash |
|
| (104 | ) |
|
| 195 |
|
|
| (130 | ) |
Net (decrease) increase in cash and cash equivalents |
|
| (2,209 | ) |
|
| 52,527 |
|
|
| 5,882 |
|
Cash and cash equivalents at beginning of period |
|
| 99,180 |
|
|
| 46,653 |
|
|
| 40,771 |
|
Cash and cash equivalents at end of period |
| $ | 96,971 |
|
| $ | 99,180 |
|
| $ | 46,653 |
|
See accompanying notes to consolidated financial statements.
43
AGILYSYS, INC.
|
| Common Shares |
|
| Capital in |
|
|
|
|
| Accumulated |
|
|
|
| |||||||||||||||||
|
| Issued |
|
| In Treasury |
|
| excess of |
|
|
|
|
| other |
|
|
|
| ||||||||||||||
(In thousands, except share data) |
| Shares |
|
| Stated |
|
| Shares |
|
| Stated |
|
| Stated |
|
| Retained |
|
| comprehensive |
|
| Total |
| ||||||||
Balance at March 31, 2019 |
|
| 31,607 |
|
| $ | 9,482 |
|
|
| (8,105 | ) |
| $ | (2,433 | ) |
| $ | 781 |
|
| $ | 93,051 |
|
| $ | (259 | ) |
| $ | 100,622 |
|
Share-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5,682 |
|
|
| — |
|
|
| — |
|
|
| 5,682 |
|
Restricted shares issued, net |
|
| — |
|
|
| — |
|
|
| 140 |
|
|
| 41 |
|
|
| (41 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Shares issued upon exercise of SSARs |
|
| — |
|
|
| — |
|
|
| 21 |
|
|
| 6 |
|
|
| (6 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Shares withheld for taxes upon |
|
| — |
|
|
| — |
|
|
| (53 | ) |
|
| (15 | ) |
|
| (925 | ) |
|
| — |
|
|
| — |
|
|
| (940 | ) |
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (34,067 | ) |
|
| — |
|
|
| (34,067 | ) |
Unrealized translation adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 460 |
|
|
| 460 |
|
Balance at March 31, 2020 |
|
| 31,607 |
|
| $ | 9,482 |
|
|
| (7,997 | ) |
| $ | (2,401 | ) |
| $ | 5,491 |
|
| $ | 58,984 |
|
| $ | 201 |
|
| $ | 71,757 |
|
Share-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 40,066 |
|
|
| — |
|
|
| — |
|
|
| 40,066 |
|
Restricted shares issued, net |
|
| — |
|
|
| — |
|
|
| 90 |
|
|
| 28 |
|
|
| (28 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Shares issued upon exercise of SSARs |
|
| — |
|
|
| — |
|
|
| 467 |
|
|
| 141 |
|
|
| (141 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Shares withheld for taxes upon |
|
| — |
|
|
| — |
|
|
| (156 | ) |
|
| (46 | ) |
|
| (8,131 | ) |
|
| — |
|
|
| — |
|
|
| (8,177 | ) |
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (21,001 | ) |
|
| — |
|
|
| (21,001 | ) |
Series A convertible preferred stock issuance costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1,031 | ) |
|
|
|
|
| (1,031 | ) | ||||||
Series A convertible preferred stock dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1,576 | ) |
|
|
|
|
| (1,576 | ) | ||||||
Unrealized translation adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (162 | ) |
|
| (162 | ) |
Balance at March 31, 2021 |
|
| 31,607 |
|
| $ | 9,482 |
|
|
| (7,596 | ) |
| $ | (2,278 | ) |
| $ | 37,257 |
|
| $ | 35,376 |
|
| $ | 39 |
|
| $ | 79,876 |
|
Share-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 14,549 |
|
|
| — |
|
|
| — |
|
|
| 14,549 |
|
Restricted shares issued, net |
|
| — |
|
|
| — |
|
|
| 113 |
|
|
| 34 |
|
|
| (34 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Shares issued upon exercise of SSARs |
|
| — |
|
|
| — |
|
|
| 636 |
|
|
| 190 |
|
|
| (190 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Shares withheld for taxes upon |
|
| — |
|
|
| — |
|
|
| (32 | ) |
|
| (9 | ) |
|
| (1,619 | ) |
|
| — |
|
|
| — |
|
|
| (1,628 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,478 |
|
|
| — |
|
|
| 6,478 |
|
Series A convertible preferred stock dividends |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,836 | ) |
|
| — |
|
|
| (1,836 | ) |
Unrealized translation adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (95 | ) |
|
| (95 | ) |
Balance at March 31, 2022 |
|
| 31,607 |
|
| $ | 9,482 |
|
|
| (6,879 | ) |
| $ | (2,063 | ) |
| $ | 49,963 |
|
| $ | 40,018 |
|
| $ | (56 | ) |
| $ | 97,344 |
|
See accompanying notes to consolidated financial statements.
44
Agilysys, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Table amounts in thousands, except per share data)
1. Nature of Operations
Agilysys has been driving hospitality software innovations for more than 40 years, delivering cloud-native SaaS and on-premise ready guest-centric technology solutions for gaming, hotels, resorts and cruise lines, corporate foodservice management, restaurants, universities, stadiums and healthcare. Agilysys offers the most comprehensive software solutions in the hospitality industry, including point-of-sale (POS), property management (PMS), inventory and procurement, payments, and related applications, to manage the entire guest journey. Agilysys is also known for its world class customer-centric service and recent investments in research and development, having modernized virtually all its longstanding trusted software solutions. Some of the largest hospitality companies around the world use Agilysys solutions to help improve guest loyalty, drive revenue growth and increase operational efficiencies. Agilysys operates across North America, Europe, the Middle East, Asia-Pacific and India with headquarters located in Alpharetta, GA.
The Company has just one reportable segment serving the global hospitality industry.
Reference herein to any particular year or quarter refers to periods within the fiscal year ended March 31. For example, fiscal 2022 refers to the fiscal year ended March 31, 2022.
COVID-19 Pandemic
The World Health Organization declared novel coronavirus (“COVID-19”) a pandemic on March 11, 2020. The pandemic has created significant economic challenges as organizations and governmental authorities around the world have implemented numerous measures attempting to contain the spread of COVID-19, including travel restrictions, border closings, shelter-in-place orders, and social distancing requirements. Our customers and vendors have closed or have otherwise applied restrictions at certain sites in response to the pandemic. Similarly, we have provided remote working arrangements for our employees, limited business travel, and canceled or shifted various events to virtual attendance. We have localized our pandemic response to the countries and specific locations in which we, our customers and our vendors operate.
2. Summary of Significant Accounting Policies
Principles of consolidation. The consolidated financial statements include the accounts of Agilysys, Inc. and subsidiaries. Investments in affiliated companies are accounted for by the equity or cost method, as appropriate. All inter-company accounts have been eliminated.
Use of estimates. Preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported periods. Actual results could differ from those estimates due to uncertainties, including the impact of COVID-19.
Cash and cash equivalents. We consider all highly liquid investments purchased with an original maturity from date of acquisition of three months or less to be cash equivalents. Other highly liquid investments considered cash equivalents with no established maturity date are fully redeemable on demand (without penalty) with settlement of principal and accrued interest on the following business day after instruction to redeem. Cash equivalent investments are readily convertible to cash with no penalty and can include certificates of deposit, commercial paper, treasury bills, money market funds and other investments. As of March 31, 2022, commercial paper cash equivalents totaled $15 million. We held 0 commercial paper as of March 31, 2021 or 2020. We determine the fair value of commercial paper using significant other observable inputs (level 2) based on pricing from independent sources that use quoted prices in active markets for identical assets or other observable inputs including benchmark yields and interest rates.
Allowance for expected credit losses. We maintain allowances for expected credit losses for estimated losses resulting from the inability or unwillingness of our customers to make required payments. We base our expected credit loss model on historical experience, adjusted for current conditions and reasonable and supportable forecasts. To help mitigate the associated credit risk we perform periodic credit evaluations of our customers.
45
Customer credit allowance. We maintain allowances for estimated customer credits. Credits are typically due to the timing or amount of customer invoices processed for specific services, including professional and subscription, and maintenance coverage. In many cases, there has not been clear or timely communication of the need to adjust coverage or service at a location in advance of when we invoice for the associated coverage or service. We will issue a credit after agreeing to the service or coverage adjustment as requested by the customer within the terms of our contract.
Inventories. Our inventories are comprised of finished goods. Inventories are stated at the lower of cost or net realizable value, net of related reserves. The cost of inventory is computed using a weighted-average method. Our inventory is monitored to ensure appropriate valuation. Adjustments of inventories to the lower of cost or net realizable value, if necessary, are based upon contractual provisions such as turnover and assumptions about future demand and market conditions. If assumptions about future demand change and/or actual market conditions are less favorable than those projected by management, additional adjustments to inventory valuations may be required. We provide a reserve for obsolescence, which is calculated based on several factors, including an analysis of historical sales of products and the age of the inventory. Actual amounts could be different from those estimated.
Leases. We determine if an arrangement is or contains a lease at inception. Operating leases are presented as Right-of-Use (“ROU”) assets and the corresponding lease liabilities are included in operating lease liabilities – current and operating lease liabilities – non-current on our Consolidated Balance Sheet. Finance leases are included in property and equipment, net and corresponding liabilities are included in finance lease obligations – current and non-current on our Consolidated Balance Sheet. ROU assets represent our right to use the underlying asset, and lease liabilities represent our obligation for lease payments in exchange for the ability to use the asset for the duration of the lease term.
ROU assets and lease liabilities are recognized at commencement date and determined using the present value of the remaining lease payments over the lease term. We use an incremental borrowing rate based on estimated rate of interest for collateralized borrowing since our leases do not include an implicit interest rate. The estimated incremental borrowing rate considers market data, actual lease economic environment, and actual lease term at commencement date. The lease term may include options to extend when it is reasonably certain that we will exercise that option. ROU assets include lease payments made in advance, and excludes any incentives received or initial direct costs incurred. We recognize lease expense on a straight-line basis over the lease term and sublease income on a straight-line basis over the sublease term.
We have lease agreements with lease and non-lease components which we account for as a single lease component. We also have leases which include variable lease payments, which are expensed as incurred. Our variable lease payments are not based on an index or rate and therefore are excluded from the calculation of lease liabilities. We have elected to not recognize short term leases that have a term of twelve months or less as ROU assets or lease liabilities. Our short-term leases are not material and do not have a material impact on our ROU assets or lease liabilities. Additionally, we do not have any covenants, residual value guarantees, or related party transactions associated with our lease agreements.
Goodwill and other indefinite-lived intangible assets. Goodwill represents the excess purchase price paid over the fair value of the net assets of acquired companies. As of March 31, 2022 and 2021, the carrying amount of goodwill was $32.8 million and $19.6 million, respectively. Goodwill is tested for impairment on an annual basis, or in interim periods if indicators of potential impairment exist, based on our one reporting unit. The Company evaluates whether goodwill is impaired by comparing its market capitalization based on its closing stock price (Level 1 input) to the book value of its equity on the annual evaluation date. Based on testing performed, the Company concluded that 0 impairment of its goodwill has occurred for the years ended March 31, 2022, 2021 and 2020.
The Company is also required to compare the fair values of other indefinite-lived intangible assets to their carrying amounts at least annually, or when current events and circumstances require an interim assessment. If the carrying amount of an indefinite-lived intangible asset exceeds its fair value, an impairment loss is recognized.
Acquired intangible assets. Acquired intangible assets include identifiable customer relationships, non-competition agreements, developed technology, and trade names. We amortize the cost of finite-lived identifiable intangible assets over their estimated useful lives, which are periods of 15 years or less, primarily on a straight-line basis, which we believe approximates the pattern in which the assets are utilized. The fair values assigned to identifiable intangible assets acquired in business combinations are determined primarily by using the income approach, which discounts expected future cash flows attributable to these assets to present value using estimates and assumptions determined by management.
Long-lived assets. Property and equipment are recorded at cost. Major renewals and improvements are capitalized. Minor replacements, maintenance, repairs, and reengineering costs are expensed as incurred. When assets are sold or otherwise disposed of, the cost and related accumulated depreciation are eliminated from the accounts and any resulting gain or loss is recognized.
Depreciation and amortization are provided in amounts sufficient to amortize the cost of the assets, including assets recorded under finance leases, which make up less than 1 percent of total assets, over their estimated useful lives using the straight-line method.
46
The estimated useful lives for depreciation and amortization are as follows: buildings and building improvements – 7 to 30 years; furniture – 7 to 10 years; equipment – 3 to 10 years; software – 3 to 10 years; and leasehold improvements over the shorter of the economic life or the lease term. Internal use software costs are expensed or capitalized depending on the project stage. Amounts capitalized are amortized over the estimated useful lives of the software, ranging from 3 to 10 years, beginning with the project’s completion. Depreciation for capitalized project expenditures does not begin until the underlying project is completed.
We evaluate the recoverability of our long-lived assets whenever changes in circumstances or events may indicate that the carrying amounts may not be recoverable. An impairment loss is recognized in the event the carrying value of the assets exceeds the future undiscounted cash flows attributable to such assets. Our long-lived assets and impairments considerations are discussed further in Note 4, Property and Equipment, Net.
Foreign currency translation. The financial statements of our foreign operations are translated into U.S. dollars for financial reporting purposes. The assets and liabilities of foreign operations whose functional currencies are not in U.S. dollars are translated at the period-end exchange rates, while revenue and expenses are translated at weighted-average exchange rates during the fiscal year. The cumulative translation effects are reflected as a component of “Accumulated other comprehensive income (loss)” within shareholders’ equity in the Consolidated Balance Sheets. Gains and losses on monetary transactions denominated in other than the functional currency of an operation are reflected within “Other (income) expenses, net” in the Consolidated Statements of Operations. Foreign currency gains and losses from changes in exchange rates have not been material to our consolidated operating results.
Revenue recognition. We derive revenue from the sale of products (i.e., software, third party hardware and operating systems), support, maintenance and subscription services and professional services. For the fiscal years 2022, 2021 and 2020, revenue from international operations was 7%, 8% and 9%, respectively of total revenue. Our customer base is highly fragmented.
Our customary business practice is to enter into legally enforceable written contracts with our customers. The majority of our contracts are governed by a master service agreement between us and the customer, which sets forth the general terms and conditions of any individual contract between the parties, which is then supplemented by a customer order to specify the different goods and services, the associated prices, and any additional terms for an individual contract. Performance obligations specific to each individual contract are defined within the terms of each order. Each performance obligation is identified based on the goods and services that will be transferred to our customer that are both capable of being distinct and are distinct within the context of the contract. The transaction price is determined based on the consideration to which we will be entitled and expect to receive in exchange for transferring goods or services to the customer. Typically, our contracts do not provide our customer with any right of return or refund; we do not constrain the contract price as it is probable that there will not be a significant revenue reversal due to a return or refund.
Typically, our customer contracts contain one or more of the following goods or services which constitute performance obligations.
Our software licenses typically provide for a perpetual right to use our software. Generally, our contracts do not provide significant services of integration and customization and installation services are not required to be purchased directly from us. The software is delivered before related services are provided and is functional without professional services, updates and technical support. We have concluded that the software license is distinct as the customer can benefit from the software on its own. Software revenue is typically recognized when the software is delivered or made available for download to the customer.
Revenue for hardware sales is recognized when the product is shipped to the customer and when obligations that affect the customer’s final acceptance of the arrangement have been fulfilled. Hardware is purchased from suppliers and provided to the end-user customers via drop-ship or from inventory. We are responsible for negotiating price both with the supplier and the customer, payment to the supplier, establishing payment terms and product returns with the customer, and we bear the credit risk if the customer does not pay for the goods. As the principal contact with the customer, we recognize revenue and cost of goods sold when we ship or are notified by the supplier that the product has been shipped. In certain limited instances, as shipping terms dictate, revenue is recognized upon receipt at the point of destination or upon installation at the customer site.
Support and maintenance revenue is derived from providing telephone and on-line technical support services, bug fixes, and unspecified software updates and upgrades to customers on a when-and-if-available basis. These services represent a stand-ready obligation that is concurrently delivered and has the same pattern of transfer to the customer; we account for these support and maintenance services as a single performance obligation recognized over the term of the maintenance agreement.
Our subscription service revenue is comprised of fees for contracts that provide customers a right to access our software for a subscribed period. We do not provide the customer the contractual right to license the software at any time outside of the subscription period under these contracts. The customer can only benefit from the software and software maintenance when provided the right to access the software. Accordingly, each of the rights to access the software, the maintenance services, and any hosting services is not considered a distinct performance obligation in the context of the contract and should be combined into a single performance
47
obligation to be recognized over the contract period. The Company recognizes subscription revenue over a one-month period based on the typical monthly invoicing and renewal cycle in accordance with our customer agreement terms.
Professional services revenues primarily consist of fees for consulting, installation, integration and training and are generally recognized over time as the customer simultaneously receives and consumes the benefits of the professional services as the services are being performed. Professional services can be provided by internal or external providers, do not significantly affect the customer’s ability to access or use other provided goods or services, and provide a measure of benefit beyond that of other promised goods or services in the contract. As a result, professional services are considered distinct in the context of the contract and represent a separate performance obligation. Professional services that are billed on a time and materials basis are recognized over time as the services are performed. For contracts billed on a fixed price basis, revenue is recognized over time using an input method based on labor hours expended to date relative to the total labor hours expected to be required to satisfy the related performance obligation.
We use the market approach to derive standalone selling price (“SSP”) by maximizing observable data points (in the form of recently executed customer contracts) to determine the price customers are willing to pay for the goods and services transferred. If the contract contains a single performance obligation, the entire transaction price is allocated to that performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative SSP basis.
Shipping and handling fees billed to customers are recognized as revenue and the related costs are recognized in cost of goods sold. Revenue is recorded net of any applicable taxes collected and remitted to governmental agencies.
Comprehensive income (loss). Comprehensive income (loss) is the total of net income (loss), as currently reported under GAAP, plus other comprehensive income (loss). Other comprehensive income (loss) considers the effects of additional transactions and economic events that are not required to be recorded in determining net income (loss), but rather are reported as a separate statement of comprehensive income (loss).
Fair value measurements. We measure the fair value of financial assets and liabilities on a recurring or non-recurring basis. Financial assets and liabilities measured on a recurring basis are those that are adjusted to fair value each time a financial statement is prepared. Financial assets and liabilities measured on a non-recurring basis are those that are adjusted to fair value when a significant event occurs. In determining fair value of financial assets and liabilities, we use various valuation techniques.
Investments in corporate-owned life insurance policies. Agilysys invests in corporate-owned life insurance policies, for which some are endorsement split-dollar life insurance arrangements. We entered into agreements with certain former executives, whereby we must maintain the life insurance policy for a specified amount and split a portion of the policy benefits with their respective designated beneficiary. Our investment in these corporate-owned life insurance policies were recorded at their cash surrender value, which approximates fair value at the balance sheet date. In the Consolidated Balance Sheets at the balance sheet date, the cash surrender value of $1.0 million for the remaining policies were held in “Other non-current assets,” and the present value of future proceeds owed to those executives’ designated beneficiary of $0.1 million, which approximates fair value, were recorded within “Other non-current liabilities.” Additional information regarding the investments in corporate-owned life insurance policies is provided in Note 10, Employee Benefit Plans.
Income Taxes. Income tax expense includes U.S. and foreign income taxes and is based on reported income before income taxes. We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities. The deferred tax assets and liabilities are determined based on the enacted tax rates expected to apply in the periods in which the deferred tax assets or liabilities are anticipated to be settled or realized.
We regularly review our deferred tax assets for recoverability and establish a valuation allowance if it is more likely than not that some portion, or all, of a deferred tax asset will not be realized. The determination as to whether a deferred tax asset will be realized is made on a jurisdictional basis and is based on the evaluation of positive and negative evidence. This evidence includes historical taxable income, projected future taxable income, the expected timing of the reversal of existing temporary differences and the implementation of tax planning strategies.
We recognize the tax benefit from uncertain tax positions only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized from uncertain tax positions are measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. No tax benefits are recognized for positions that do not meet this threshold. Interest related to uncertain tax positions is recognized as part of the provision for income taxes and is accrued beginning in the period that such interest would be applicable under relevant tax law until such time that the related tax benefits are recognized. Our income taxes are described further in Note 9, Income Taxes.
Advertising and Promotion Expense. We expense advertising and promotion expense as incurred. Advertising and promotion expense was $2.6 million, $0.4 million and $2.7 million in fiscal 2022, 2021 and 2020, respectively.
48
Reclassification. Certain prior year balances have been reclassed to conform to the current year presentation. Specifically, we reclassed certain employee benefit obligations from non-current to current liabilities.
Adopted and Recently Issued Accounting Pronouncements
In October 2021, the FASB issued ASU No. 2021-08, Accounting for Contract Assets and Contract Liabilities From Contracts With Customers (ASU No. 2021-08), which amends Accounting Standards Codification (ASC) 805 to require acquiring entities to apply ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) to recognize and measure contract assets and contract liabilities in a business combination. The ASU is intended to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to the recognition of an acquired contract liability as well as the payment terms and their impact on subsequent revenue recognized by the acquirer. The new standard will be effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. We adopted ASU 2021-08 during the three months ended March 31, 2022 – see Note 15, Business Combination.
In August 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for convertible instruments by eliminating the requirement to separate embedded conversion features from the host contract when the conversion features are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in capital. By removing the separation model, a convertible debt instrument will be reported as a single liability instrument with no separate accounting for embedded conversion features. This new standard also removes certain settlement conditions that are required for contracts to qualify for equity classification and simplifies the diluted earnings per share calculations by requiring that an entity use the if-converted method and that the effect of potential share settlement be included in diluted earnings per share calculations. The new standard will be effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. We adopted ASU 2020-06 as of April 1, 2021 with no impact on our condensed consolidated financial statements.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which affects general principles within Topic 740, Income Taxes, and is meant to simplify and reduce the cost of accounting for income taxes. The new standard is effectivefor fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. We adopted ASU 2019-12 as of April 1, 2021 with no material impact on our condensed consolidated financial statements.
Management continually evaluates the potential impact, if any, of all recent accounting pronouncements on our consolidated financial statements or related disclosures and, if significant, makes the appropriate disclosures required by such new accounting pronouncements.
3. Revenue Recognition
For in depth discussion regarding our revenue recognition procedures for our revenue streams, see Note 2, 2020, $3.07.Summary of Significant Accounting Policies.
Disaggregation of Revenue
We derive and report our revenue from the sale of products (software licenses, third party hardware and operating systems), support, maintenance and subscription services and professional services. Revenue recognized at a point in time (products) totaled $36.0 million, $26.7 million, and $44.2 million during fiscal 2022, 2021 and 2020. Revenue recognized over time (support, maintenance and subscription services and professional services) totaled $126.7 million, $110.5 million, and $116.5 million during fiscal 2022, 2021, and 2020.
Contract Balances
Contract assets are rights to consideration in exchange for goods or services that we have transferred to a customer when that right is conditional on something other than the passage of time. The majority of our contract assets represent unbilled amounts related to products and professional services. We expect billing and collection of our contract assets to occur within the next twelve months. We receive payments from customers based upon contractual billing schedules and accounts receivable are recorded when the right to
49
consideration becomes unconditional. Contract liabilities represent consideration received or consideration which is unconditionally due from customers prior to transferring goods or services to the customer under the terms of the contract.
Revenue recognized from amounts included in contract liabilities at the beginning of the period was $38.1 million and $40.9 million during fiscal 2022 and 2021. During fiscal 2022 and 2021, we transferred from contract assets at the beginning of the period, $2.4 million and $2.0 million, respectively, to accounts receivable because the right to the transaction became unconditional.
Our arrangements are for a period of one year or less. As a result, unsatisfied performance obligations as of March 31, 2022 are expected to be satisfied and the allocated transaction price recognized in revenue within a period of 12 months or less.
Assets Recognized from Costs to Obtain a Contract
Sales commission expenses that would not have occurred absent the customer contracts are considered incremental costs to obtain a contract. We have elected to take the practical expedient available to expense the incremental costs to obtain a contract as incurred when the expected benefit and amortization period is one year or less. For subscription contracts that are renewed monthly based on an agreement term, we capitalize commission expenses and amortize as we satisfy the underlying performance obligations, generally based on the contract terms and anticipated renewals. For first year support and maintenance service contracts, commission expenses are immaterial and therefore expenses as incurred. Other sales commission expenses are not material or have a period of benefit of one year or less, and are therefore expensed as incurred in line with the practical expedient elected.
We had $3.3 million and $2.9 million of capitalized sales incentive costs as of March 31, 2022 and 2021, respectively. These balances are included in other non-current assets on our Consolidated Balance Sheets. During fiscal 2022 and 2021, we expensed $2.5 million and $2.8 million, respectively, of sales commissions, which included amortization of capitalized amounts of $1.2 million and $1.4 million, respectively. These expenses are included in operating expenses – sales and marketing in our Consolidated Statement of Operations. All other costs to obtain a contract are not considered incremental and therefore are expensed as incurred.
4. Property and Equipment, Net
Officer | LTI Award | LTI Value ($)* | Shares Subject to Award (#) |
Dave Wood | Restricted Stock | 60,000 | 2,997 |
| Time-Vesting SSARs | 120,000 | 16,835 |
| Performance SSARs | 120,000 | 39,087 |
| Total | 300,000 |
|
Kyle Badger | Restricted Stock | 70,000 | 3,496 |
| Time-Vesting SSARs | 140,000 | 19,662 |
| Performance SSARs | 140,000 | 45,602 |
| Total | 350,000 |
|
Prabuddha Biswas | Restricted Stock | 67,500 | 3,371 |
| Time-Vesting SSARs | 135,000 | 18,960 |
| Performance SSARs | 135,000 | 43,973 |
| Total | 337,500 |
|
Don DeMarinis | Restricted Stock | 62,500 | 3,121 |
| Time-Vesting SSARs | 125,000 | 17,556 |
| Performance SSARs | 125,000 | 40,716 |
| Total | 312,500 |
|
*LTI ValueProperty and equipment at March 31, 2022 and 2021 is as of June 2,follows:
|
| Year ended March 31, |
| |||||
(In thousands) |
|
| 2022 |
|
|
| 2021 |
|
Furniture and equipment |
| $ | 14,632 |
|
| $ | 14,899 |
|
Software |
|
| 16,338 |
|
|
| 16,891 |
|
Leasehold improvements |
|
| 7,123 |
|
|
| 7,097 |
|
Project expenditures not yet in use |
|
| 17 |
|
|
| 210 |
|
|
|
| 38,110 |
|
|
| 39,097 |
|
Accumulated depreciation and amortization |
|
| (31,765 | ) |
|
| (30,308 | ) |
Property and equipment, net |
| $ | 6,345 |
|
| $ | 8,789 |
|
Total depreciation expense on property and equipment was $2.2 million, $2.8 million, and $2.6 million during fiscal 2022, 2021 and 2020, respectively.
The Company capitalizes internal-use software, including software used exclusively in providing services or that is only made available to customers as a software service, as property and equipment under ASC 350-40, Internal-Use Software. Total amortization expense on capitalized internal-use software was $1.3 million, $2.0 million and $2.5 million during fiscal 2022, 2021, and 2020, respectively.
Assets under financing leases are included in property and equipment categories above and further disclosed with Note 6. Leases.
50
5. Intangible Assets and Software Development Costs
The following table summarizes our intangible assets and software development costs at March 31, 2022, and 2021:
|
| March 31, 2022 |
|
| March 31, 2021 |
| ||||||||||||||||||||||||||
|
| Gross |
|
|
|
|
|
|
|
| Net |
|
| Gross |
|
|
|
|
|
|
|
| Net |
| ||||||||
|
| carrying |
|
| Accumulated |
|
| Accumulated |
|
| carrying |
|
| carrying |
|
| Accumulated |
|
| Accumulated |
|
| carrying |
| ||||||||
(In thousands) |
| amount |
|
| amortization |
|
| Impairment |
|
| amount |
|
| amount |
|
| amortization |
|
| impairment |
|
| amount |
| ||||||||
Finite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Customer relationships |
| $ | 20,391 |
|
| $ | (10,938 | ) |
| $ | — |
|
| $ | 9,453 |
|
| $ | 10,775 |
|
| $ | (10,775 | ) |
| $ | — |
|
| $ | — |
|
Non-competition agreements |
|
| 3,547 |
|
|
| (2,808 | ) |
|
| — |
|
|
| 739 |
|
|
| 2,700 |
|
|
| (2,700 | ) |
|
| — |
|
|
| — |
|
Developed technology |
|
| 11,224 |
|
|
| (10,440 | ) |
|
| — |
|
|
| 784 |
|
|
| 10,398 |
|
|
| (10,398 | ) |
|
| — |
|
|
| — |
|
Trade names |
|
| 1,075 |
|
|
| (273 | ) |
|
| — |
|
|
| 802 |
|
|
| 230 |
|
|
| (230 | ) |
|
| — |
|
|
| — |
|
Patented technology |
|
| 80 |
|
|
| (80 | ) |
|
| — |
|
|
| — |
|
|
| 80 |
|
|
| (80 | ) |
|
| — |
|
|
| — |
|
|
|
| 36,317 |
|
|
| (24,539 | ) |
|
| — |
|
|
| 11,778 |
|
|
| 24,183 |
|
|
| (24,183 | ) |
|
| — |
|
|
| — |
|
Indefinite-lived trade names |
|
| 8,400 |
|
| N/A |
|
|
| — |
|
|
| 8,400 |
|
|
| 8,400 |
|
| N/A |
|
|
| — |
|
|
| 8,400 |
| ||
Total intangible assets |
| $ | 44,717 |
|
| $ | (24,539 | ) |
| $ | — |
|
| $ | 20,178 |
|
| $ | 32,583 |
|
| $ | (24,183 | ) |
| $ | — |
|
| $ | 8,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Software development costs |
| $ | 67,541 |
|
| $ | (45,535 | ) |
| $ | (22,006 | ) |
| $ | — |
|
| $ | 67,541 |
|
| $ | (45,535 | ) |
| $ | (22,006 | ) |
| $ | — |
|
Total amortization expense for finite-lived intangible assets was $0.4 million for the date awarded byyear ended March 31, 2022 and 0 for the Compensation Committee. Due to rounding down to avoid fractional shares, the actual values of LTI awards received were less than the amounts stated in this table.
LTI awards comprised between 38% and 45% of total fiscal year 2021 target compensation for these Named Executive Officers.
The restricted shares vest in annual one-third increments onyears ended March 31, 2021, and 2022 and the remainder in equal quarterly increments on each of June 30, 2022, September 30, 2022, December 31, 2022, and March 31, 2023. The time-vesting SSARs vest in 20% increments on March 31, 2021, and 2022 and in 15% increments on each of June 30, 2022, September 30, 2022, December 31, 2022, and March 31, 2023. All of the SSARs have seven-year terms, are settled in common shares upon exercise, and were granted at an exercise price of $20.02, the closing price of the common shares2020, respectively. See Note 15, Business Combination, for more information on the date awarded by the Committee.acquisition of finite-lived intangible assets.
Estimated future amortization expense on finite-lived intangible assets is as follows:
(In thousands) |
| Estimated Amortization Expense |
| |
Fiscal year ending March 31, |
|
|
| |
2023 |
| $ | 1,398 |
|
2024 |
|
| 1,293 |
|
2025 |
|
| 975 |
|
2026 |
|
| 975 |
|
2027 |
|
| 892 |
|
Thereafter |
|
| 6,245 |
|
Total |
| $ | 11,778 |
|
Because the awards were subject to shareholder approvalIndefinite-lived intangible assets, comprised of our 2020 Equity Incentive Plan, the value of the awards for purposes of stock compensation expense was determined on November 19, 2020, the date that shareholder approval was obtained. The closing price of our common stock on November 19, 2020, was $39.65, a 98% increase in value over the $20.02 closing price of our common stock on
June 2, 2020, which had the effect of significantly increasing the recorded stock compensation expense for the LTI awards over the expected compensation expense as of the date the awards were granted on June 2, 2020. See the Summary Compensation Table on page 18 for the values expensed.
Additional Compensation – Executive Benefits. We provide executive benefits to our Named Executive Officers including additional life and long-term disability insurance plans. From time to time, Named Executive Officers also may participate in supplier sponsored events. Executive benefits are further described in the Summary Compensation Table. We believe these benefits enhance the competitiveness of our overall executive compensation package. We have, however, limited executive benefits offered to reduce compensation costs. Additionally, welfare benefits offered to our Named Executive Officers are the same level of benefits offered to all Company employees.
Employment Agreements and Change of Control
The material termination and change of control provisions of various agreements are summarized below for each Named Executive Officer and are covered in more detail in the Termination and Change of Control table and accompanying discussion.
Employment Agreements. The Company has entered into employment agreements with each of the Named Executive Officers.
In accordance with his employment agreement, Mr. Srinivasan will serve as CEO and President for a three-year initial term beginning on January 1, 2020. The term of employment will automatically extend for successive periods of one year unless either the Company or Mr. Srinivasan provides written notice of non-renewal at least 90 days before the end of the then-current employment term. If the employment agreement is terminated by the Company without cause or by Mr. Srinivasan for good reason, then subject to his execution of a release of claims, Mr. Srinivasan will be entitled to receive severance equal to two years’ then-current base salary and two times the value of his target annual bonus performance shares, which will be paid during regular pay intervals over the course of two years. In addition, he will also receive (a) a lump sum payment in cash, on the 60th day after the termination date, equal to the total after-tax premiums required to pay for 24 months of COBRA continuation coverage under the Company’s medical, dental and vision insurance plans; (b) a lump sum payment in cash of his pro-rated bonus for the year of termination based on actual performance with no negative discretion by the Board; and (c) twelve (12) months of accelerated vesting of all equity compensation awards that are subject to time or service-based vesting and were unvested and outstanding on the termination date. However, if notice of non-renewal is given within the last 12 months of the initial three-year employment term severance will only be paid for a 12-month period. If such termination occurs within three months before or 24 months after a change in control, Mr. Srinivasan will receive two times the sum of his then-current base salary and target annual bonus, two times the COBRA payment and 100% release of any post-closing restrictions related to equity awards that were deemed vested as a result of the change of control. In addition, upon any termination of employment, Mr. Srinivasan will receive accrued but unpaid base salary and payment for any unused vacation and unreimbursed expenses.
The Company entered into employment agreements with each of the other Named Executive Officers on July 27, 2020, other than Mr. Pritchett, whose employment with the Company had terminated prior to this date. Under the employment agreements for these Named Executive Officers, upon termination without cause, we must pay severance equal to 12 months’ salary and reimbursement of the executive’s total premium for 12 months of COBRA continuation coverage under the Company’s health benefit plans. If the executive’s compensation is reduced by more than 10%, other than a general reduction that affects all similarly situated executives, or if at any time prior to a change in control the executive no longer reports to the CEO, the executive may terminate his employment if the Company fails to materially cure such condition within 30 days following notice of such condition by the executive, and the termination will be deemed to be a termination without cause and the executive is entitled to his or her severance benefits. In the event that any of these Named Executive Officers are terminated without cause or by the executive for good reason in the 24 months following a change of control of the Company, the executive is entitled to severance pay equal to 12 months’ salary and a pro rata portion of target annual incentive and reimbursement of the executive’s total premium for 12 months of COBRA continuation coverage under the Company’s health benefit. None of the Named Executive Officers is entitled to excise tax gross-up payments.
In consideration of the severance benefits, Mr. Srinivasan is subject to 24-month post-termination confidentiality and non-disclosure requirements, as well as non-competition and non-solicitation obligations, except that if the term of his employment agreement expires at the end of the initial three-year term, the non-competition provisions will only apply for 12 months following termination. Each other employment agreement contains a 12-month post-termination non-solicitation provision, an indefinite confidentiality provision, and a 12-month post-termination non-compete provision.
Our Compensation Committee believes that the terms of these employment agreements enhance our ability to retain our executives and contain severance costs by providing reasonable severance benefits competitive with market practice. Severance costs are contained by limiting pay to one year in the absence of a change of control, limiting personal benefits, not providing accelerated vesting for awards under the agreements, and narrowly defining a voluntary termination that triggers severance benefits. Severance payments in the event of a change of control are subject to a double trigger such that severance benefits are provided only upon a combination of a change of control and a qualified termination. Additionally, the Company benefits greatly from the non-competition, non-disclosure, and non-solicitation clauses contained in the employment agreements.
Accelerated Vesting. Except as described above for our CEO, none of the employment agreements provide for accelerated vesting of equity. Under our 2020 and 2016 Stock Incentive Plans, vesting is accelerated upon the actual occurrence of a change of control for all SSARs and restricted shares (including performance shares). The Compensation Committee believed that during a change of control situation, a stable business environment is in the shareholders’ best interests, and accelerated vesting provisions provide stability. The accelerated vesting provisions are applicable to all employees who receive equity awards, not just executive management.
The equity incentive awards granted to the Named Executive Officers for fiscal year 2021 are subject to a holding period of one year following a change of control. Under this provision, all unvested SSARs and restricted shares granted for fiscal year 2021 accelerate upon the actual occurrence of a change of control but remain subject to restrictions on exercise and transfer until the earlier of one year after the change of control or the executive’s qualified termination. The Committee believed that this further restriction during a change of control situation further promotes a stable business environment and is in the shareholders’ best interests.
CEO Pay Ratio Disclosure
The following is a reasonable estimate, prepared under applicable SEC rules, of the ratio of the annual total compensation of our CEO to the median of the annual total compensation of our other employees. We determined our median employee in 2020 based on base salary (annualized in the case of full- and part-time employees who joined the company during fiscal year 2020) of each of our employees (excluding the CEO),purchased trade name InfoGenesis as of March 31, 2021. The annual total compensation2022 and 2021 are tested for impairment upon identification of our median employee (other than the CEO) for 2021 was $33,774. As disclosed in the Summary Compensation Table appearing on page 18, our CEO’s annual total compensation for fiscal year 2021 was $348,447. Based on the foregoing, our estimate of the ratio of the annual total compensation of our CEO to the median of the annual total compensation of all other employees was 10 to 1. Given the different methodologies that various public companies will use to determine an estimate of their pay ratio, the estimated ratio reported above should not be used as a basis for comparison between companies. The pay ratio this year was positively impacted by a significant decline in our CEO’s annual compensation since he voluntarily did not accept a base salary for 9 months of the fiscal year as a response to the COVID-19 pandemic, whereas the median employee’s salary does not reflect any pandemic related adjustments.
Additional Compensation Policies
Clawback – Recoupment of Bonuses, Incentives, and Gains. Under the Company’s “clawback” policy,impairment indicators or at least annually. An impairment loss is recognized if the board of directors determines that our financial statements are restated due directly or indirectly to fraud, ethical misconduct, intentional misconduct, orcarrying amount is greater than fair value. The InfoGenesis indefinite-lived purchased trade name impairment testing resulted in a breach of fiduciary duty by one or more executive officers or vice presidents, thenfair value exceeding the board of directors will have the sole discretion to cancel any stock-based awards granted and to take such action, as permitted by law, as it deems necessary to recover all or a portion of any bonus or incentive compensation paid and recoup any gains realized in respect of equity-based awards, provided recoveries cannot extend back more than three years. Additionally, under Section 304 of the Sarbanes-Oxley Act, if we are required to restate our financial statements due to material noncompliance with any financial reporting requirements as a result of misconduct, our CEO and CFO must reimburse us for any bonus or other incentive-based or equity-based compensation received during the 12 months following the first public issuance of the non-complying document, and any profits realized from the sale of our securities during those 12 months.
Stock Ownership Guidelines. To underscore the importance of strong alignment between the interests of management and shareholders, the board of directors approved stock ownership guidelines for directors and executives, with our CEO and directors having the highest ownership requirements. Director and executive compensation are designed to provide a significant opportunity to tie individual rewards to long-term Company performance. The objective of our stock ownership guidelines is to support this overall philosophy of alignment and to send a positive message to our shareholders, customers, suppliers, and employees of our commitment to shareholder value. Each director and executive officer is expected to maintain minimum share ownership of shares with a value based on a multiple of base salary or director annual retainer listed below:
| ||
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| |
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|
|
|
|
|
|
|
Stock ownership that is included toward attainment of the guidelines includes (i) shares owned directly (including through open market purchases, through the Company’s Employee Stock Purchase Plan or acquired and held upon vesting of Company equity awards); (ii) shares owned either jointly with, or separately by, his or her immediate family members residing in the same household; (iii) shares held in trustcarrying amount for the benefit of the individual, or his or her immediate family members;years ending March 31, 2022, 2021 and (iv) in-the-money value of vested but unexercised stock options and stock appreciation rights.2020.
Directors and executives are expected to attain the specified target ownership levels within both two and four years from the later of the effective date of this policy or becoming a director or an executive and remain at or above that level until retirement. Annually, the Compensation Committee of the board of directors reviews progress toward achieving these ownership levels, and at its meeting in May 20201, the Compensation Committee determined that all of the directors and executives met the prescribed ownership levels.
Until a director or executive has satisfied the stock ownership guidelines, such director or executive is required to retain fifty percent (50%) of the net shares of common stock received from the Company as compensation after deducting any shares withheld by the Company or sold by the director or executive, if any, for the purpose of satisfying the exercise price and tax liabilities and related feesAmortization expense related to the settlement event. Once an individual achieves hissoftware development costs related to assets to be sold, leased, or her stock ownership goal, these retention restrictions no longer will apply unless a disposition would cause the individual's stock ownership to fall below his or her goal.
Impact of Tax Considerations. Section 162(m) of the Internal Revenue Code, through December 31, 2017, limited the tax deduction of public companies for compensation in excess of $1.0otherwise marketed was $12.6 million paid to their CEO and the three most highly compensated executive officers (other than the CFO) at the end of any fiscal year unless the compensation qualified as “performance-based compensation” Under applicable IRS regulations. For tax years after December 31, 2017, the Tax Cuts and Jobs Act of 2017 amended Section 162(m) to expand the $1.0 million deduction limitation described above to a larger group of employees and to eliminate the “performance-based” exception. The employees (referred to as “covered employees”) to whom the deduction limitation applies include the CEO and CFO (in each case, whether or not serving as executive officers as of the end of the fiscal year) and the three other most highly compensated executive officers. In addition, once considered a “covered employee” for a given year, the individual will be treated as a “covered employee” for all subsequent years.
The Compensation Committee has considered the effect of Section 162(m) on the Company’s executive compensation program. The Compensation Committee exercises discretion in setting base salaries, structuring incentive and long-term compensation awards and in determining payments in relation to levels of achievement of performance goals. The Compensation Committee believes that the total compensation program for Named Executive Officers should be managed in accordance with the objectives outlined in the Committee’s compensation philosophy and in the best overall interests of the Company’s shareholders. Accordingly, compensation paid by the Company may not be deductible because such compensation exceeds the limitations for deductibility under Section 162(m).
COMPENSATION COMMITTEE REPORT
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with the Company’s management. Based on that review and discussion, the Compensation Committee recommended to the board of directors that the Compensation Discussion and Analysis be incorporated in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2020. These charges are included as Products cost of goods sold within the Consolidated Statements of Operations.
6. Leases
The majority of our leases are comprised of real estate leases for our respective offices around the globe. Our finance leases consist of office equipment. We have no residual value guarantees or restrictions or covenants imposed by or associated with our active leases.
As of March 31, 2022, we have an additional operating lease that has not yet commenced of approximately $11.7 million. This operating lease will commence in fiscal year 2023 with a lease term of approximately eleven years. We do not have any related party leases. We have variable payments for expenses such as common area maintenance and taxes. We do not have variable payments that
51
are based on an index or rate. As a result, we do not include variable payments in the calculation of the lease liability. Any variable costs are expensed as incurred.
We sublease one of our office leases located in Bellevue, Washington with a lease term that will expire during fiscal year 2024.
The components of lease expenses, which are included in operating expenses in our Consolidated Statements of Operations, were as follows:
|
| Year ended March 31, |
| |||||
(In thousands) |
| 2022 |
|
| 2021 |
| ||
Operating leases expense |
| $ | 4,752 |
|
| $ | 4,440 |
|
Finance lease expense: |
|
|
|
|
|
| ||
Amortization of ROU assets |
|
| 17 |
|
|
| 26 |
|
Interest on lease liabilities |
|
| 2 |
|
|
| 5 |
|
Total finance lease expense |
|
| 19 |
|
|
| 31 |
|
Variable lease costs |
|
| 463 |
|
|
| 443 |
|
Short term lease expense |
|
| 140 |
|
|
| 120 |
|
Sublease income |
|
| (782 | ) |
|
| (129 | ) |
Total lease expense |
| $ | 4,592 |
|
| $ | 4,905 |
|
Other information related to leases for fiscal 2022 and 2021 was as follows:
|
| Year ended March 31, |
| |||||
Supplemental cash flow information |
| 2022 |
|
| 2021 |
| ||
Cash paid for amounts included in the measurement of lease liabilities |
|
|
|
|
|
| ||
Operating cash flows for operating leases |
| $ | 5,536 |
|
| $ | 5,987 |
|
Operating cash flows for finance leases |
|
| 23 |
|
|
| 30 |
|
Financing cash flows for finance leases |
|
| 19 |
|
|
| 24 |
|
ROU assets obtained in exchange for lease obligations (in thousands): |
|
|
|
|
|
| ||
Operating leases |
| $ | 1,314 |
|
| $ | 1,573 |
|
Weighted average remaining lease terms |
|
|
|
|
|
| ||
Operating leases |
|
| 3.08 |
|
|
| 4.39 |
|
Finance leases |
|
| 1.43 |
|
|
| 1.44 |
|
Weighted average discount rates |
|
|
|
|
|
| ||
Operating leases |
|
| 7.62 | % |
|
| 10.51 | % |
Finance leases |
|
| 4.50 | % |
|
| 4.46 | % |
The table below reconciles the undiscounted future minimum lease payments (displayed by year and in the aggregate) under non-cancelable leases with terms of more than one year to the total lease liabilities recognized on the Consolidated Balance Sheet as of March 31, 2022:
(In thousands) |
| Operating leases (1) |
|
| Finance leases |
| ||
Fiscal year ending March 31, |
|
|
|
|
|
| ||
2023 |
|
| 5,222 |
|
|
| 5 |
|
2024 |
|
| 2,939 |
|
|
| 2 |
|
2025 |
|
| 1,846 |
|
|
| — |
|
2026 |
|
| 1,319 |
|
|
| — |
|
2027 |
|
| 880 |
|
|
| — |
|
Thereafter |
|
| — |
|
|
| — |
|
Total undiscounted future minimum lease payments |
|
| 12,206 |
|
|
| 7 |
|
Less: difference between undiscounted lease payments and discounted lease |
|
| (1,508 | ) |
|
| (1 | ) |
Total lease liabilities |
| $ | 10,698 |
|
| $ | 6 |
|
52
7. Supplemental Disclosures of Cash Flow Information
Additional information related to the Consolidated Statements of Cash Flows is as follows:
|
| Year ended March 31, |
| |||||||||
(In thousands) |
|
| 2022 |
|
|
| 2021 |
|
|
| 2020 |
|
Cash (receipts) for interest, net |
| $ | (47 | ) |
| $ | (87 | ) |
| $ | (371 | ) |
Cash payments for income tax, net |
|
| 787 |
|
|
| 459 |
|
|
| 694 |
|
Accrued capital expenditures |
|
| 89 |
|
|
| 103 |
|
|
| 187 |
|
8. Additional Balance Sheet Information
Additional information related to the Consolidated Balance Sheets is as follows:
(In thousands) |
| March 31, 2022 |
|
| March 31, 2021 |
| ||
Accrued liabilities: |
|
|
|
|
|
| ||
Salaries, wages, and related benefits |
| $ | 7,870 |
|
| $ | 8,608 |
|
Other taxes payable |
|
| 1,994 |
|
|
| 1,796 |
|
Accrued legal settlements |
|
| — |
|
|
| 200 |
|
Severance liabilities |
|
| 24 |
|
|
| 79 |
|
Professional fees |
|
| 373 |
|
|
| 97 |
|
Other |
|
| 291 |
|
|
| 607 |
|
Total |
| $ | 10,552 |
|
| $ | 11,387 |
|
Other non-current liabilities: |
|
|
|
|
|
| ||
Uncertain tax positions |
| $ | 1,154 |
|
| $ | 1,129 |
|
Deferred rent and asset retirement obligations |
|
| 43 |
|
|
| 170 |
|
Employee benefit obligations |
|
| 2,037 |
|
|
| 2,485 |
|
Other |
|
| 70 |
|
|
| 73 |
|
Total |
| $ | 3,304 |
|
| $ | 3,857 |
|
9. Income Taxes
For the year ended March 31, income (loss) before income taxes consisted of the following:
(In thousands) |
|
| 2022 |
|
|
| 2021 |
|
|
| 2020 |
|
Income (loss) before income taxes |
|
|
|
|
|
|
|
|
| |||
United States |
| $ | 1,598 |
|
| $ | (26,272 | ) |
| $ | (36,373 | ) |
Foreign |
|
| 4,913 |
|
|
| 5,063 |
|
|
| 2,507 |
|
Total income (loss) before income taxes |
| $ | 6,511 |
|
| $ | (21,209 | ) |
| $ | (33,866 | ) |
For the year ended March 31, income tax expense (benefit) consisted of the following:
(In thousands) |
|
| 2022 |
|
|
| 2021 |
|
|
| 2020 |
|
Income tax expense (benefit) |
|
|
|
|
|
|
|
|
| |||
Current: |
|
|
|
|
|
|
|
|
| |||
Federal |
| $ | 62 |
|
| $ | 9 |
|
| $ | 59 |
|
State and local |
|
| 21 |
|
|
| 30 |
|
|
| 21 |
|
Foreign |
|
| 853 |
|
|
| 731 |
|
|
| 463 |
|
Deferred: |
|
|
|
|
|
|
|
|
| |||
Federal |
|
| 12 |
|
|
| 12 |
|
|
| 11 |
|
State and local |
|
| 7 |
|
|
| 32 |
|
|
| 7 |
|
Foreign |
|
| (922 | ) |
|
| (1,022 | ) |
|
| (360 | ) |
Total income tax expense (benefit) |
| $ | 33 |
|
| $ | (208 | ) |
| $ | 201 |
|
53
The following table presents the principal components of the difference between the effective tax rate and the U.S. federal statutory income tax rate for the years ended March 31:
(In thousands) |
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
Income tax expense (benefit) at the US Federal statutory rate |
| $ | 1,368 |
|
| $ | (4,454 | ) |
| $ | (7,112 | ) |
Benefit for state taxes |
|
| (65 | ) |
|
| (803 | ) |
|
| (856 | ) |
Impact of foreign operations |
|
| (819 | ) |
|
| (841 | ) |
|
| (514 | ) |
Indefinite life assets |
|
| 19 |
|
|
| 43 |
|
|
| 19 |
|
Change in valuation allowance |
|
| (2,623 | ) |
|
| 7,271 |
|
|
| 8,406 |
|
Change in liability for unrecognized tax benefits |
|
| 25 |
|
|
| 26 |
|
|
| 22 |
|
Share-based compensation |
|
| (2,018 | ) |
|
| (2,232 | ) |
|
| (312 | ) |
Global intangible low-taxed income |
|
| 971 |
|
|
| 985 |
|
|
| 460 |
|
Deferred adjustments |
|
| (260 | ) |
|
| (478 | ) |
|
| — |
|
Provision to return |
|
| 3,438 |
|
|
| 278 |
|
|
| (35 | ) |
Other |
|
| (3 | ) |
|
| (3 | ) |
|
| 123 |
|
Total income tax expense (benefit) |
| $ | 33 |
|
| $ | (208 | ) |
| $ | 201 |
|
We have elected to account for global intangible low-taxed income (GILTI) inclusions in the period in which they are incurred.
Our tax provision includes a provision for income taxes in certain foreign jurisdictions where subsidiaries are profitable, but only a minimal benefit is reflected related to U.S. and certain foreign tax losses due to the uncertainty of the ultimate realization of future benefits from these losses. The fiscal 2022 tax provision results primarily from foreign tax benefit. The fiscal 2022 tax provision differs from the statutory rate primarily due to adjustments to deferred tax assets and the recording of net operating losses in a number of foreign jurisdictions offset by current year expense in other foreign jurisdictions.
The fiscal 2021 tax provision results primarily from foreign tax benefit. The fiscal 2021 tax provision differs from the statutory rate primarily due to adjustments to deferred tax assets and the recording of net operating losses in a number of foreign jurisdictions offset by current year expense in other foreign jurisdictions.
Deferred tax assets and liabilities as of March 31, are as follows:
(In thousands) |
| 2022 |
|
| 2021 |
| ||
Deferred tax assets: |
|
|
|
|
|
| ||
Accrued liabilities |
| $ | 7,574 |
|
| $ | 9,141 |
|
Allowance for expected credit losses and doubtful accounts |
|
| 83 |
|
|
| 279 |
|
Federal losses and credit carryforwards |
|
| 50,612 |
|
|
| 51,856 |
|
Foreign losses and credit carryforwards |
|
| 2,793 |
|
|
| 2,103 |
|
State losses and credit carryforwards |
|
| 11,179 |
|
|
| 11,642 |
|
Deferred revenue |
|
| 193 |
|
|
| 464 |
|
Property and equipment and software amortization |
|
| 416 |
|
|
| 171 |
|
Operating lease liabilities |
|
| 1,489 |
|
|
| 2,694 |
|
Goodwill and other intangible assets |
|
| 607 |
|
|
| 1,889 |
|
Other |
|
| 163 |
|
|
| 90 |
|
|
|
| 75,109 |
|
|
| 80,329 |
|
Less: valuation allowance |
|
| (69,515 | ) |
|
| (74,631 | ) |
Total |
|
| 5,594 |
|
|
| 5,698 |
|
|
|
|
|
|
|
| ||
Deferred tax liabilities: |
|
|
|
|
|
| ||
Operating lease right-of-use assets |
|
| (1,269 | ) |
|
| (2,312 | ) |
Goodwill and other intangible assets |
|
| (2,575 | ) |
|
| (2,514 | ) |
Other |
|
| (15 | ) |
|
| 7 |
|
Total |
|
| (3,859 | ) |
|
| (4,819 | ) |
Total deferred tax assets, net |
| $ | 1,735 |
|
| $ | 879 |
|
At March 31, 2022, we had $196.3 million of federal net operating loss carryforwards that expire, if unused, in fiscal years 2031 to 2038, and $42.8 million of federal net operating loss carryforwards that can be carried forward indefinitely. Our Hong Kong, Malaysia, Singapore and Australia subsidiaries have $0.4 million, $0.1 million, $0.2 million and $0.1 million of net operating loss carryforwards, respectively. The losses for Hong Kong, Malaysia, Singapore and Australia can be carried forward indefinitely. Our
54
India subsidiary operates in a “Special Economic Zone (“SEZ”)”. One of the benefits associated with the SEZ is that the India subsidiary is not subject to regular India income taxes during its first 5 years of operations which includes fiscal 2018 through fiscal 2022. The India subsidiary is then subject to 50% of regular India income taxes during the second five years of operations which includes fiscal 2023 through fiscal 2027. The aggregate value of the benefit of the SEZ during the current fiscal year is $2.6 million as of March 31, 2022. The Company has paid minimum alternative taxes during the period of regular tax relief resulting in a credit of $2.0 million as of March 31, 2022.
At March 31, 2022 we also had $166.8 million of state net operating loss carryforwards that expire, if unused, in fiscal years 2023 through 2041.
We recorded valuation allowances related to certain deferred income tax assets due to the uncertainty of the ultimate realization of the future benefits from those assets. At March 31, 2022, the total valuation allowance against deferred tax assets of $69.5 million was comprised of $68.6 million for federal and state deferred tax assets, and $0.9 million associated with deferred tax assets in Hong Kong, Malaysia, Singapore, the Philippines and Australia. In assessing the realizability of deferred tax assets, management considers whether it is more-likely-than-not that some, or all, of the deferred tax assets will not be realized. We have recorded a valuation allowance offsetting substantially all of our deferred tax assets. The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which those temporary differences are deductible. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carryforward periods), projected taxable income, and tax planning strategies in making this assessment. In order to fully realize the deferred tax assets, we will need to generate future taxable income before the expiration of the deferred tax assets governed by the tax code. Because of our losses in recent periods, management believes that it is more-likely-than-not that we will not realize the benefits of these deductible differences. The amount of the valuation allowance, however, could be reduced in the near term. The exact timing will be based on the level of profitability that we are able to achieve and our visibility into future results. Our recorded tax rate may increase in subsequent periods following a valuation release. Any valuation allowance release will not affect the amount of cash paid for income taxes.
The undistributed earnings of our foreign subsidiaries are not subject to U.S. federal and state income taxes unless such earnings are distributed in the form of dividends or otherwise to the extent of current and accumulated earnings and profits. The undistributed earnings of foreign subsidiaries are permanently reinvested and totaled $17.1 million and $8.4 million as of March 31, 2022 and 2021, Annual Meetingrespectively. We made the determination of Shareholders.permanent reinvestment on the basis of sufficient evidence that demonstrates we will invest the undistributed earnings overseas indefinitely for use in working capital, as well as foreign acquisitions and expansion. The determination of the amount of the unrecognized deferred U.S. income tax liability related to the undistributed earnings is not practicable.
We recorded a liability for uncertain tax positions. The aggregate changes in the balance of our uncertain tax positions were as follows for the years ended March 31:
(In thousands) |
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
Balance at April 1 |
| $ | 575 |
|
| $ | 575 |
|
| $ | 580 |
|
Reductions relating to lapse in statute |
|
| 0 |
|
|
| 0 |
|
|
| (5 | ) |
Balance at March 31 |
| $ | 575 |
|
| $ | 575 |
|
| $ | 575 |
|
As of March 31, 2022, we had a liability of $0.6 million related to uncertain tax positions, the recognition of which would affect our effective income tax rate.
Although the timing and outcome of tax settlements are uncertain, it is reasonably possible that during the next 12 months an immaterial reduction in unrecognized tax benefits may occur as a result of the expiration of various statutes of limitations. We are consistently subject to tax audits; due to the nature of examinations in multiple jurisdictions, changes could occur in the amount of gross unrecognized tax benefits during the next 12 months which cannot be estimated at this time.
We recognize interest accrued on any uncertain tax positions as a component of income tax expense. Penalties are recognized as a component of general and administrative expenses. We recognized interest and penalty expense of less than $0.1 million for the years ended March 31, 2022, 2021 and 2020. As of March 31, 2022 and 2021, we had approximately $1.2 million and $1.0 million, respectively, of interest and penalties accrued in other non-current liabilities on our Consolidated Balance Sheets.
In the U.S. we file consolidated federal and state income tax returns where statutes of limitations generally range from three to five years. Although we have resolved examinations with the IRS through tax year ended March 31, 2010, U.S. federal tax years are open from 2006 forward due to attribute carryforwards. The statute of limitations is open from fiscal year 2015 forward in certain state
55
jurisdictions. We also file income tax returns in international jurisdictions where statutes of limitations generally range from three to seven years. Years beginning after 2011 are open for examination by certain foreign taxing authorities.
The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”)
The CARES Act provides, among other provisions, for the deferral of the employer-paid portion of social security taxes through the end of 2020, with 50% of the deferred amount due December 31, 2022.
10. Employee Benefit Plans
Defined Contribution Plans
We maintain 401(k) plans for employees located in the United States meeting certain service requirements. Generally, the plans allow eligible employees to contribute a portion of their compensation, and we match 100% of the first 1% of the employee's pre-tax contributions and 50% of the next 5% of the employee's pre-tax contributions. We may also make discretionary contributions each year for the benefit of all eligible employees under the plans. Agilysys matching contributions were $1.4 million, $0.1 million, and $1.8 million in fiscal 2022, 2021, and 2020, respectively.
We also maintain defined contribution retirement plans for employees located in the United Kingdom and in the Asia Pacific region in accordance with local statutory requirements and business practices.
Defined Benefit Plan
We maintain a defined benefit retirement plan (the “Gratuity Plan”) covering eligible employees of our India subsidiary in accordance with local statutory requirements and business practices. The Gratuity Plan provides a lump-sum payment to vested employees at retirement, death, incapacitation, or termination of employment, of an amount based on the respective employee’s salary and the tenure of employment with the Company. The Gratuity Plan is unfunded with obligation amounts recorded in the Consolidated Balance Sheets as “Employee benefit obligations” within “Other non-current liabilities” and "Salaries, wages, and related benefits" within "Accrued liabilities".
Endorsement Split-Dollar Life Insurance
Agilysys provides certain former executives with life insurance benefits through endorsement split-dollar life insurance arrangements. We entered into agreements with each of the former executives, whereby we must maintain the life insurance policy for a specified amount and split a portion of the policy benefits with their designated beneficiary.
Our investment in these corporate-owned life insurance policies were recorded at their cash surrender value, which approximates fair value at the balance sheet date. In the Consolidated Balance Sheets as of March 31, 2022 and 2021, the cash surrender value of $1.0 million for the remaining policies were held in “Other non-current assets,” and the present value of future proceeds owed to those executives' designated beneficiaries of $0.1 million, which approximates fair value, were recorded within "Other non-current liabilities."
Changes in the cash surrender value of these policies related to gains and losses incurred on these investments are classified within “Other (income) expenses, net” in the accompanying Consolidated Statements of Operations. We recorded a gain of $13,000, $31,000 and $14,000 in fiscal 2022, 2021, and 2020, respectively, related to the corporate-owned life insurance policies.
11. Commitments and Contingencies
Legal Contingencies
We are involved in legal actions that arise in the ordinary course of business. It is the opinion of management that the resolution of any current pending litigation will not have a material adverse effect on our financial position or results of operations.
On April 6, 2012, Ameranth, Inc. filed a complaint against us in the U.S. District Court for the Southern District of California alleging that certain of our products infringe patents owned by Ameranth directed to configuring and transmitting hospitality menus (e.g., restaurant menus) for display on electronic devices, and synchronizing the menu content between devices. The case against us was consolidated with similar cases brought by Ameranth against more than 30 other defendants. All but one of the patents at issue in the case were invalidated by the U.S. Court of Appeals for the Federal Circuit in 2016. In September 2018, the District Court found the
56
one surviving Ameranth patent invalid and granted summary judgment in favor of the movant co-defendants. This judgment was affirmed by the U.S. Court of Appeals for the Federal Circuit in November 2019 with respect to all claims except for two, which were not asserted against Agilysys, and Ameranth’s writ of certiorari to the United States Supreme Court was denied in October 2020. In December 2021, the District Court denied Ameranth’s motion to assert additional claims against the defendants. In March 2022, the District Court granted summary judgment in favor of the defendants still facing the remaining claims. Subsequently, Ameranth appealed the grant of summary judgment with the U.S. Court of Appeals for the Federal Circuit. On May 11, 2022, in accordance with its prior rulings, the District Court entered judgment in favor of us and against Ameranth on all claims asserted against us.
At this time, we are not able to predict the outcome of Ameranth’s pending appeal on their claims against us, or any possible monetary exposure associated with the lawsuit. However, we dispute the allegations of wrongdoing and are vigorously defending ourselves in this matter.
12. Earnings per Share
The following data shows the amounts used in computing earnings per share and the effect on earnings and the weighted average number of shares of dilutive potential common shares.
| Year Ended March 31, |
| |||||||||
(In thousands, except per share data) | 2022 |
|
| 2021 |
|
| 2020 |
| |||
Numerator: |
|
|
|
|
|
|
|
| |||
Net income (loss) | $ | 6,478 |
|
| $ | (21,001 | ) |
| $ | (34,067 | ) |
Series A convertible preferred stock issuance costs |
| — |
|
|
| (1,031 | ) |
|
| — |
|
Series A convertible preferred stock dividends |
| (1,836 | ) |
|
| (1,576 | ) |
|
| — |
|
Net income (loss) attributable to common shareholders | $ | 4,642 |
|
| $ | (23,608 | ) |
| $ | (34,067 | ) |
|
|
|
|
|
|
|
|
| |||
Denominator: |
|
|
|
|
|
|
|
| |||
Weighted average shares outstanding - basic |
| 24,357 |
|
|
| 23,458 |
|
|
| 23,233 |
|
Dilutive SSARs |
| 1,063 |
|
|
| — |
|
|
| — |
|
Dilutive unvested restricted shares |
| 63 |
|
|
| — |
|
|
| — |
|
Weighted average shares outstanding - diluted |
| 25,483 |
|
|
| 23,458 |
|
|
| 23,233 |
|
|
|
|
|
|
|
|
|
| |||
Income (loss) per share - basic: | $ | 0.19 |
|
| $ | (1.01 | ) |
| $ | (1.47 | ) |
Income (loss) per share - diluted: | $ | 0.18 |
|
| $ | (1.01 | ) |
| $ | (1.47 | ) |
|
|
|
|
|
|
|
|
| |||
Anti-dilutive stock options, SSARs, restricted shares, |
| 1,736 |
|
|
| 4,228 |
|
|
| 1,510 |
|
Basic income (loss) per share is computed as net income available to common shareholders divided by the weighted average basic shares outstanding. The outstanding shares used to calculate the weighted average basic shares excludes 147,973, 132,198 and 208,581 of restricted shares and performance shares at March 31, 2022, 2021 and 2020, respectively, as these shares were issued but were not vested and, therefore, not considered outstanding for purposes of computing basic earnings per share at the balance sheet dates.
Diluted income (loss) per share includes the effect of all potentially dilutive securities on earnings per share. We have stock-settled appreciation rights ("SSARs") and unvested restricted shares that are potentially dilutive securities. When a loss is reported, the denominator of diluted earnings per share cannot be adjusted for the dilutive impact of share-based compensation awards because doing so would be anti-dilutive.
13. Share-based Compensation
We may grant incentive stock options, non-qualified stock options, SSARs, restricted shares, and performance shares under our shareholder-approved 2020 Stock Incentive Plan (the 2020 Plan) for up to 2.25 million common shares, plus 868,864 common shares, the number of shares that were remaining for grant under the 2016 Stock Incentive Plan (the 2016 Plan) as of the effective date of the 2020 Plan, plus the number of shares remaining for grant under the 2016 Plan that are forfeited, settled in cash, canceled or expired. The maximum aggregate number of restricted shares or restricted share units that may be granted under the 2020 Plan is 3.1 million.
57
We may distribute authorized but unissued shares or treasury shares to satisfy share option and SSAR exercises or restricted share and performance share grants.
For SSARs, the exercise price must be set at least equal to the closing market price of our common shares on the date of grant. The maximum term of SSARs is seven years from the date of grant. The Compensation Committee of the Board of Directors
Melvin Keating, Chairman
Michael A. Kaufman
Jerry Jones
John Mutch
EXECUTIVE COMPENSATION
The following table and related notes provide information regarding fiscal year 2021 compensation for our Named Executive Officers, including our CEO and CFO, establishes the period over which SSARs subject to a service condition vest and the vesting criteria for SSARs subject to a market condition.
Restricted shares, whether time-vested or performance-based, may be issued at no cost or at a purchase price that may be below their fair market value, but are subject to forfeiture and restrictions on their sale or other three most highly compensated executive officers whose totaltransfer. Performance-based grants may be conditioned upon the attainment of specified performance objectives and other conditions, restrictions, and contingencies. Restricted shares have the right to receive dividends, if any, upon vesting, subject to the same forfeiture provisions that apply to the underlying grants.
We record compensation exceeded $100,000 for fiscal year 2021.
Summary Compensation Table for Fiscal Year 2021
Name and Principal Position | Year | Salary ($) | Bonus ($)(1) | Stock Awards ($)(2) | Option Awards ($)(2) | Non-Equity Incentive Plan Compen-sation ($)(3) | All Other Compen- sation ($)(4) | Total ($) | |||||||
President and Chief Executive Officer | FY21 | 163,846 |
| — |
| 180,000 |
| — |
| — |
| 4,601 |
| 348,447 |
|
FY20 | 600,000 |
| — |
| 450,000 |
| 6,277,246 |
| — |
| 24,888 |
| 7,352,134 |
| |
FY19 | 600,000 |
| — |
| 450,000 |
| — |
| — |
| 16,039 |
| 1,066,039 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tony Pritchett Former Vice President and Chief Financial Officer | FY21 | 49,900 |
| — |
| — |
| — |
| — |
| 50,631 |
| 100,531 |
|
FY20 | 260,000 |
| — |
| 64,989 |
| 64,997 |
| 44,200 |
| 22,462 |
| 456,648 |
| |
FY19 | 254,923 |
| — | 65,000 |
| 64,998 |
| 154,076 |
| 16,581 |
| 555,578 |
| ||
|
|
|
|
|
|
|
|
| |||||||
Dave Wood Vice President and Chief Financial Officer | FY21 | 202,133 |
| 36,000 |
| 118,831 |
| 1,144,574 |
| — |
| 2,996 |
| 1,504,534 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| |||||||
Kyle Badger Senior Vice President, General Counsel and Secretary | FY21 | 238,000 |
| 42,000 | 138,616 |
| 1,335,350 |
| — |
| 5,007 |
| 1,758,973 |
| |
FY20 | 280,000 |
| — | 69,986 |
| 69,995 |
| 47,600 |
| 29,172 |
| 496,753 |
| ||
FY19 | 276,615 |
| — | 69,991 |
| 69,995 |
| 165,928 |
| 18,465 |
| 600,994 |
| ||
|
|
|
|
|
|
|
|
| |||||||
Prabuddha Biswas Senior Vice President and Chief Technology Officer | FY21 | 229,500 |
| 40,500 |
| 133,660 |
| 1,287,657 |
| — |
| 5,555 |
| 1,696,872 |
|
FY20 | 270,000 |
| — |
| 67,449 |
| 67,449 |
| 45,900 |
| 23,116 |
| 473,964 |
| |
FY19 | 256,500 |
| — | 539,990 |
| 149,9999 |
| 160,002 |
| 13,223 |
| 1,119,714 |
| ||
|
|
|
|
|
|
|
|
| |||||||
Don DeMarinis Senior Vice President Sales, Americas | FY21 | 212,500 |
| 120,350
| 123,290 |
| 1,192,290 |
| — |
| 2,389 |
| 1,651,276 |
| |
FY20 | 250,000
|
| 11,679 | 90,492
|
| 62,494
|
| 42,500
|
| 27,466
|
| 584,630
|
| ||
FY19 | 250,000 |
| 96,779 | 62,497 |
| 62,497 |
| 118,520 |
| 16,941 |
| 607,234 |
|
|
|
|
|
|
|
|
|
All Other Compensation for Fiscal Year 2021
Name | 401(k) Company Match ($) | Executive Life Insurance ($) |
| Executive Long Term Disability ($) |
| All Other ($)(a) |
| Total ($) |
| |
R. Srinivasan | 808 |
| — |
| 3,793 |
| — |
| 4,601 |
|
T. Pritchett |
|
| 99 |
| 384 |
| 50,148 |
| 50,631 |
|
D. Wood | 497 |
| 393 |
| 906 |
| 1,200 |
| 2,996 |
|
K. Badger | 641 |
| 1,935 |
| 2,432 |
| — |
| 5,007 |
|
P. Biswas | 618 |
| — |
| 3,7,37 |
| 1,200 |
| 5,555 |
|
D. DeMarinis | 1,189 |
| — |
| — |
| 1,200 |
| 2,389 |
|
|
|
Grants of Plan-Based Awards
The following table and related notes summarize grants of equity and non-equity incentive compensation awards to our Named Executive Officers for fiscal year 2021. All equity awards were made under the Company’s 2020 Equity Incentive Plan.
Grants of Plan-Based Awards for Fiscal Year 2021
Grant Date | Award Date (2) | Estimated Future Payouts | All Other | All Other Option Awards: Number of Securities Underlying Options (#)(4) | Exercise Option Awards ($/share) | Grant Date Fair Value of Stock and Option Awards ($)(5) | |||||
Threshold ($) | Target ($) | Maximum ($) | |||||||||
Dave Wood | 5/11/2020 |
| — | 130,000 | 195,000 |
|
|
|
| ||
| 11/19/2020 | 6/2/2020 |
|
|
| 2,997 |
|
| 118,831 | ||
| 11/19/2020 | 6/2/2020 |
|
|
|
| 16,853 | 20.02 | 380,423 | ||
| 11/19/2020 | 6/2/2020 |
|
|
|
| 39,087 | 20.02 | 764,151 | ||
|
|
|
|
|
|
|
|
|
|
| |
Kyle Badger | 5/11/2020 |
| — | 140,000 | 210,000 |
|
|
|
| ||
11/19/2020 | 6/2/2020 |
|
|
| 3,469 |
|
| 138,616 | |||
11/19/2020 | 6/2/2020 |
|
|
|
| 19,662 | 20.02 | 443,831 | |||
11/19/2020 | 6/2/2020 |
|
|
|
| 45,602 | 20.02 | 891,519 | |||
|
|
|
|
|
|
|
|
|
| ||
Prabuddha Biswas | 5/11/2020 |
| — | 135,000 | 202,500 |
|
|
|
| ||
| 11/19/2020 | 6/2/2020 |
|
|
| 3,371 |
|
| 133,660 | ||
| 11/19/2020 | 6/2/2020 |
|
|
|
| 18,960 | 20.02 | 427,984 | ||
| 11/19/2020 | 6/2/2020 |
|
|
|
| 43,973 | 20.02 | 859,672 | ||
|
|
|
|
|
|
|
|
|
| ||
Don DeMarinis | 5/11/2020 |
| — | 125,000 | 187,500 |
|
|
|
| ||
| 11/19/2020 | 6/2/2020 |
|
|
| 3,121 |
|
| 123,748 | ||
| 11/19/2020 | 6/2/2020 |
|
|
|
| 17,556 | 20.02 | 396,292 | ||
| 11/19/2020 | 6/2/2020 |
|
|
|
| 40,716 | 20.02 | 795,998 |
|
|
|
|
|
|
|
|
|
|
|
Outstanding Equity Awards
The following table and related notes summarize the outstanding equity awards held by the Named Executive Officers as of March 31, 2021.
Outstanding Equity Awards at 2021 Fiscal Year-End
Name | Grant | Option Awards | Stock Awards | |||||||
Number of Securities Underlying | Option | Option Expiration Date | Number of of Stock | Market | ||||||
Exercisable | Unexercisable (1) | |||||||||
Ramesh Srinivasan | 2/10/2020 | 296,522 |
| 303,478 (a) | 36.60 |
| 8/10/2024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dave Wood | 8/11/2015 | 5,434 |
|
| 9.60 |
| 8/11/2022 |
|
|
|
| 11/3/2017 | 4,640 |
|
| 11.96 |
| 11/3/2024 |
|
|
|
| 5/31/2018 | 997 |
|
| 14.22 |
| 5/31/2025 |
|
|
|
| 6/20/2019 |
|
|
|
|
|
| 872 (b) | 41,821 |
|
| 11/19/2020 | 42,457 |
| 13,483 (b) | 20.02 |
| 6/2/2027 | 2,008 (b) | 96,304 |
|
|
|
|
|
|
|
|
|
|
|
|
Kyle Badger | 6/2/2015 | 28,387 |
|
| 9.12 |
| 6/2/2022 |
|
|
|
| 6/30/2016 | 17,598 |
|
| 10.47 |
| 6/30/2023 |
|
|
|
| 7/6/2017 | 16,250 |
|
| 10.20 |
| 7/6/2024 |
|
|
|
| 5/31/2018 | 14,860 |
|
| 14.22 |
| 5/31/2025 |
|
|
|
| 6/20/2019 | 6,656 |
| 3,329 (c) | 22.41 |
| 6/20/2026 | 1,041 (c) | 49,926 |
|
| 11/19/2020 | 49,534 |
| 15,730 (c) | 20.02 |
| 6/2/2027 | 2,343 (c) | 112,370 |
|
|
|
|
|
|
|
|
| |||
Prabuddha Biswas | 5/31/2018 | 10,616
|
|
| 14.22
|
| 5/31/2025 |
|
|
|
| 6/20/2019 | 3,210 |
| 3,210 (d) | 22.41 |
| 6/20/2026 | 1,004 (d) | 48,152 |
|
| 11/19/2020 | 3,792 |
| 15,168 (d) | 20.02 |
| 6/2/2027 | 2,259 (d) | 108,342 |
|
|
|
|
|
|
|
|
|
|
|
|
Don DeMarinis | 5/31/2018 | 4,423 |
|
| 14.22 |
| 5/31/2025 |
|
|
|
| 6/20/2019 | 2,972 |
| 2,972 (e) | 22.41 |
| 6/20/2026 | 1,346 (e) | 64,554 |
|
| 11/19/2020 | 36,044 |
| 14,045 (e) | 20.02 |
| 6/2/2027 | 2,092 (e) | 100,332 |
|
(1)As of March 31, 2021, the vesting schedules for the SSARs were as follows:
|
|
|
|
|
|
|
|
|
|
(2)As of March 31, 2021, the vesting schedules for the stock awards were as follows:
|
|
|
|
|
|
|
|
(3)Calculated based on the closing price of theour common shares on March 31, 2021,the grant date. For stock option and SSAR grants subject only to a service condition, we estimate the fair value on the grant date using the Black-Scholes-Merton option pricing model with inputs including the closing market price at grant date, exercise price and assumptions regarding the risk-free interest rate, expected volatility of $47.96 per share.our common shares based on historical volatility, and expected term as estimated using the simplified method. For restricted share and SSAR grants subject to a market condition, we estimate the fair value on the grant date through a lattice option pricing model that utilizes a Monte Carlo analysis with inputs including the closing market price at grant date, share price threshold and assumptions regarding the risk-free interest rate and expected volatility of our common shares based on historical volatility. Inputs for SSAR grants subject to a market condition also include exercise price, remaining contractual term, and suboptimal exercise factor.
Option ExercisesWe record compensation expense for restricted shares and Stock VestedSSAR grants subject to a service condition using the graded vesting method. We record compensation expense for Fiscal Year 2021
SSAR grants subject only to a market condition over the derived service period, which is an output of the lattice option pricing model. Under the 2020 Plan, the fair value of performance shares is based on the closing price of our common shares on the settlement date of the performance award, for which we record compensation expense over the service period consistent with our annual bonus incentive plan as approved by the Compensation Committee of the Board of Directors.
Name | Option Awards | Stock Awards | |||||||
Number of Shares Exercise (#) | Value Realized on | Number of Shares Vesting (#) | Value | ||||||
Ramesh Srinivasan | — |
| — |
| — |
| — | - | |
Dave Wood | — |
| — |
| 2,962 |
| 142,058 |
| |
Kyle Badger | 4,347 |
| 87,513
|
| 3,835
|
| 183,927
|
| |
Prabuddha Biswas | 46,048 |
| 2,589,930 |
| 14,774 |
| 708,561
|
| |
Don DeMarinis | 13,637 |
| 771,006 | 74,666 | 3,840 |
| 184,166 |
|
|
|
Termination and Change of Control
The following table summarizes the share-based compensation expense for SSARs, restricted and discussion summarize certainperformance awards included in the Consolidated Statements of Operations for fiscal 2022, 2021 and 2020:
| Year Ended March 31, |
| |||||||||
(In thousands) | 2022 |
|
| 2021 |
|
| 2020 |
| |||
Product development |
| 8,186 |
|
|
| 21,634 |
|
|
| 2,241 |
|
Sales and marketing |
| 1,355 |
|
|
| 4,254 |
|
|
| 321 |
|
General and administrative |
| 5,008 |
|
|
| 14,206 |
|
|
| 2,643 |
|
Total share-based compensation expense |
| 14,549 |
|
|
| 40,093 |
|
|
| 5,205 |
|
Stock-Settled Stock Appreciation Rights
SSARs are rights granted to an employee to receive value equal to the difference between the price of our common shares on the date of exercise and the exercise price. The value is settled in common shares of Agilysys, Inc.
We use a Black-Scholes-Merton option pricing model to estimate the fair value of service condition SSARs. There were no service condition SSARs granted in fiscal 2022. The following table summarizes the principal assumptions utilized in valuing service condition SSARs granted in fiscal 2021 and 2020:
|
| 2021 |
|
| 2020 |
| ||
Risk-free interest rate |
|
| 0.31 | % |
| 1.38%-1.74% |
| |
Expected life (in years) |
| 4 |
|
| 4.5-5 |
| ||
Expected volatility |
|
| 42.99 | % |
| 31.7%-32.42% |
| |
Weighted-average grant date fair value |
| $ | 22.57 |
|
| $ | 10.01 |
|
The risk-free interest rate is based on the yield of a zero coupon U.S. Treasury bond whose maturity period approximates the expected life of the SSARs. The expected life is estimated using historical data representing the period of time the awards are expected to be
58
outstanding. The estimated fair value of the SSARs granted is recognized over the vesting period of the awards utilizing the graded vesting method. Under this method, the compensation cost related to unvested amounts begins to be recognized as of the grant date.
We use a Lattice option pricing model to estimate the fair value of market condition SSARs. There were no market condition SSARs granted in fiscal 2022. The following table summarizes the principal valuation assumptions utilized and the resulting fair value of market condition SSARs granted in fiscal 2021 and 2020:
|
| 2021 |
|
| 2020 |
| ||
Risk-free interest rate over contractual term |
|
| 0.60 | % |
|
| 1.40 | % |
Expected volatility |
|
| 40.00 | % |
|
| 31.70 | % |
Suboptimal exercise factor |
| 2.50x |
|
| 3.0x |
| ||
Weighted-average grant date fair value |
| $ | 19.55 |
|
| $ | 9.60 |
|
The following table summarizes the activity during fiscal 2022 for SSARs awarded under the 2020 and 2016 Plans:
(In thousands, except share and per share data) |
| Number |
|
| Weighted- |
|
| Remaining |
|
| Aggregate |
| ||||
|
|
|
|
| (per right) |
|
| (in years) |
|
|
|
| ||||
Outstanding at April 1, 2021 |
|
| 3,068,253 |
|
| $ | 20.90 |
|
|
|
|
|
|
| ||
Granted |
|
| 0 |
|
|
| 0 |
|
|
|
|
|
|
| ||
Exercised |
|
| (839,068 | ) |
|
| 12.86 |
|
|
|
|
|
|
| ||
Forfeited |
|
| (55,599 | ) |
|
| 20.02 |
|
|
|
|
|
|
| ||
Cancelled/expired |
|
| (647 | ) |
|
| 14.22 |
|
|
|
|
|
|
| ||
Outstanding at March 31, 2022 |
|
| 2,172,939 |
|
| $ | 24.02 |
|
|
| 4.4 |
|
| $ | 34,454 |
|
Exercisable at March 31, 2022 |
|
| 1,462,262 |
|
| $ | 23.75 |
|
|
| 4.3 |
|
| $ | 23,590 |
|
Vested and expected to vest at March 31, 2022 |
|
| 2,172,939 |
|
| $ | 24.02 |
|
|
| 4.4 |
|
| $ | 34,454 |
|
The following table presents additional information related to SSARs activity during fiscal 2022, 2021 and 2020:
(In thousands) |
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
Compensation expense |
| $ | 10,030 |
|
| $ | 35,808 |
|
| $ | 1,666 |
|
Total intrinsic value of SSARs exercised |
| $ | 34,437 |
|
| $ | 25,153 |
|
| $ | 519 |
|
Total fair value of SSARs vesting |
| $ | 6,439 |
|
| $ | 31,380 |
|
| $ | 1,328 |
|
As of March 31, 2022, total unrecognized share-based compensation expense related to non-vested service condition SSARs was $3.8 million, which is expected to be recognized over the weighted-average vesting period of 1.0 years.
A total potential paymentsof 636,238 shares, net of 31,513 shares withheld to cover the employee’s minimum applicable income taxes, were issued from treasury shares to settle SSARs exercised during the twelve months ended March 31, 2022. The shares withheld were returned to treasury shares.
Restricted Shares
We use a Lattice option pricing model to estimate the fair value of restricted shares subject to a market condition. There were no restricted shares subject to a market condition granted in fiscal 2021 or 2020. The following table summarizes the principal valuation assumptions utilized and the resulting fair value of restricted shares subject to a market condition granted in fiscal 2022:
2022 | ||
Risk-free interest rate over contractual term | 0.5% - 0.9% | |
Expected volatility | 54.0% - 56.0% | |
Weighted-average grant date fair value | $24.77 - $39.12 |
59
We granted shares to certain of our Directors, executives and key employees, the vesting of which would have been madeis service-based. Certain restricted shares are also subject to a market condition. The following table summarizes the Named Executive Officersactivity during the twelve months ended March 31, 2022 for restricted shares awarded under the 2020 and 2016 Plans:
|
| Number |
|
| Weighted- |
| ||
|
|
|
|
| (per share) |
| ||
Outstanding at April 1, 2021 |
|
| 132,198 |
|
| $ | 37.67 |
|
Granted |
|
| 123,543 |
|
|
| 43.69 |
|
Vested |
|
| (96,214 | ) |
|
| 36.74 |
|
Forfeited |
|
| (10,614 | ) |
|
| 38.92 |
|
Outstanding at March 31, 2022 |
|
| 148,913 |
|
| $ | 43.56 |
|
The weighted-average grant date fair value of the restricted shares includes grants subject only to a service condition and certain grants subject to both a service condition and a market condition. During fiscal 2022, a total of 147,900 shares were issued from treasury.
The following table presents additional information related to restricted share activity during fiscal years 2022, 2021, and 2020:
(In thousands) |
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
Compensation expense |
| $ | 4,339 |
|
| $ | 4,105 |
|
| $ | 3,232 |
|
Total fair value of restricted share vesting |
| $ | 3,297 |
|
| $ | 7,554 |
|
| $ | 3,491 |
|
As of March 31, 2022, total unrecognized share-based compensation expense related to non-vested restricted shares was $4.5 million, which is expected to be recognized over a weighted-average vesting period of 2.2 years. We do not include restricted shares in the eventcalculation of terminationearnings per share until the shares are vested.
Performance Shares
Upon approval of their employmentthe Compensation Committee of our Board of Directors, after achieving the performance conditions associated with our annual bonus plan, we grant common shares to our Chief Executive Officer that vest immediately. Once attainment of the Company, including inperformance conditions becomes probable, we recognize compensation expense related to performance shares ratably over the eventperformance period. The number of performance shares granted will be based on the closing price of our common shares on the grant date and settlement date, which are the same under the 2020 plan.
Based on the performance conditions achieved as they relate to our annual bonus plan, management estimates a changeliability of control, effective$0.2 million as of March 31, 2021,2022, to be settled through the last business daygranting and vesting of fiscal year 2021, assuming that the current employment agreements withperformance shares after March 31, 2022. We recognized compensation expense related to performance shares of $0.2 million in each of the fiscal years ending March 31, 2022, 2021, and 2020, respectively.
14. Preferred Stock
Series A Convertible Preferred Stock
On May 22, 2020, we completed the sale of 1,735,457 shares of our Named Executive Officers had beenpreferred stock, without par value, designated as “Series A Convertible Preferred Stock” (the “Convertible Preferred Stock”) to MAK Capital Fund L.P. and MAK Capital Distressed Debt Fund I, LP (the “Holders”) each, in effect at such time.
Mr. Pritchett resignedits capacity as Chief Financial Officera designee of the Company effective June 1, 2020, and resigned as an employee of the Company effective June 30, 2020. On July 2, 2020, the Company and Mr. Pritchett entered into a post-employment restrictive covenants agreement. UnderMAK Capital One LLC (the “Purchaser”), pursuant to the terms of the agreement,Investment Agreement, dated as of May 11, 2020, between the Company paid Mr. Pritchett a lump sum cash paymentand the Purchaser, for an aggregate purchase price of $44,200, and Mr. Pritchett agreed$35 million. We incurred issuance costs of $1.0 million. We added all issuance costs that were netted against the proceeds upon issuance of the Convertible Preferred Stock to its redemption value. As disclosed in our Annual Report for a period of onethe fiscal year after June 30,ended March 31, 2020, not to hire or retain, or have any other person or firm hire or retain, anyMichael Kaufman, the Chairman of the Company’s employees, and not to contribute his knowledge, directly or indirectly,Board of Directors, is the Chief Executive Officer of MAK Capital One LLC.
Accounting Policy
60
We classify convertible preferred stock as an employee, owner, director, officer or other similar capacities to any entity engagedtemporary equity in the same or similar business asconsolidated balance sheets due to certain contingent redemption clauses that are at the Company. Mr. Pritchett also agreed to maintain the confidentialityelection of the Company’s confidential information.Holders. We increase the carrying value of the convertible preferred stock to its redemption value (described below) for all undeclared dividends using the interest method.
The Convertible Preferred Stock has the following rights, preferences and restrictions (the Certificate of Designation included as Exhibit 3.3 to our Current Report on Form 8-K on February 9, 2022, which superseded the Certificate of Amendment included as Exhibit 3.1 to our Current Report on Form 8-K, filed on May 26, 2020, when we converted to a Delaware corporation in February 2022, defines all terms not otherwise defined below):
Employment Agreements. Voting
The Named Executive Officers other than Mr. PritchettHolders are entitled to one vote for each a partyshare of Convertible Preferred Stock upon all matters presented to an employment agreement with the Company.
If Mr. Srinivasan’s employment agreement is terminatedcommon shareholders of the Company, and except as otherwise provided by the Certificate of Incorporation of the Company without cause or required by Mr. Srinivasan for good reason, then subjectlaw, the Holders and common shareholders will vote together as one class on all matters. Additionally, certain matters specific to his executionthe Convertible Preferred Stock will require the approval of two-thirds of the outstanding Convertible Preferred Stock, voting as a releaseseparate class.
Liquidation Preference
Upon a liquidation, dissolution or winding up of claims, Mr. Srinivasanthe Company, each share of Convertible Preferred Stock will be entitled to receive severance equal to two years’ then-current base salary and two times the value of his target annual bonus performance shares, which will be paid during regular pay intervals over the course of two years. In addition, he will also receive (a) a lump sum payment in cash, on the 60th day after the termination date,an amount per share equal to the total after-tax premiums required to pay for 24 monthsgreater of COBRA continuation coverage under(i) the Company’s medical, dental and vision insurance plans; (b) a lump sum payment in cash of his pro-rated bonus for the year of termination based on actual performance with no negative discretionpurchase price paid by the Board;Purchaser, plus all accrued and (c) twelve (12) monthsunpaid dividends (the “Liquidation Preference”) and (ii) the amount that the Holder would have been entitled to receive at such time if the Convertible Preferred Stock were converted into common stock.
Redemption
On and after the fifth anniversary of accelerated vestingthe date the Convertible Preferred Stock was initially issued, the Company will have the right, and the Holders will have the right to require the Company, in each case, at the initiating party’s election, to redeem all, but not less than all, of the then-outstanding Convertible Preferred Stock for an amount equal to the Liquidation Preference.
Conversion
Each Holder has the right, at its option, to convert its Convertible Preferred Stock, in whole or in part, into fully paid and non-assessable shares of common stock at a conversion price equal to $20.1676 per share (as may be adjusted from time to time, as described in the Certificate of Designation).
Subject to certain conditions, the Company may, at its option, require conversion of all equity compensation awards that are subject to time or service-based vesting and were unvested and outstanding on the termination date. However, if notice of non-renewal is given within the last 12 months of the initial three-year employment term severance will only be paid for a 12-month period. If such termination occurs within three months before or 24 months after a change in control, Mr. Srinivasan will receive two times the sumoutstanding shares of his then-current base salary and target annual bonus, two times the COBRA payment and 100% release of any post-closing restrictions relatedConvertible Preferred Stock to equity awards that were deemed vested as a result of the change of control. In addition, upon any termination of employment, Mr. Srinivasan will receive accrued but unpaid base salary and payment for any unused vacation and unreimbursed expenses.
For Mr. Srinivasan, good reason means (i) a reduction in his base salary or target bonus opportunity, (ii) a material diminution in his authority, duties or responsibilities (including, without limitation, his no longer being the CEO of a publicly-traded company or the requirement that he report to anyone other than the Company’s board of directors or following a change in control he is not made the
chief executive officer of the ultimate parent of the resulting entity), (iii) his removal as a member of the board of directors (other than by his voluntary resignation), (iv) any other action that constitutes a willful and material breach by the Company of a material provision of his employment agreement, (v) a material reduction in the benefits provided to him that is not part of a broader reduction of benefits applicable to substantially all other officers of the Company, or (vi) a material breach of the agreement by the Company (including a failure to pay current compensation or benefits when due), and the Company fails to materially cure such condition within 30 days of notice of the breach. For the other Named Executive Officers, good reason is limited to where the Company changes the Named Executive Officer’s position such that his compensation or responsibilities are substantially lessened, and the Company fails to cure such situation within 30 days after notice.
If the Company terminates the employment of any of the other Named Executive Officers without cause, we must pay severance equal to 12 month’s salary and reimbursement of the executive’s total premium for 12 months of COBRA continuation coverage under the Company’s health benefit plans. If the executive’s compensation is reduced by more than 10%, other than a general reduction that affects all similarly situated executives, orcommon stock if, at any time priorafter November 22, 2023, the daily volume-weighted average price of the Company’s common stock is at least 150% of the conversion price for at least 20 trading days during the 30 consecutive trading days immediately preceding the date the Company notifies the Holders of the election to a changeconvert.
Dividends
The Holders are entitled to dividends on the Liquidation Preference at the rate of 5.25% per annum, payable semi-annually either (i) 50% in controlcash and 50% in kind as an increase in the executive no longer reportsthen-current Liquidation Preference or (ii) 100% in cash, at the option of the Company. The Holders are not entitled to participate in dividends declared or paid on the common stock on an as-converted basis; however, certain anti-dilution adjustments to the CEO,Convertible Preferred Stock may be made in the executive may terminate his employmentevent of such dividends.
The Convertible Preferred Stock ranks senior to the Company’s common stock with respect to dividends and distributions on liquidation, winding-up and dissolution. Upon a liquidation, dissolution or winding up of the Company, each share of Convertible Preferred Stock will be entitled to receive an amount per share equal to the greater of (i) the Liquidation Preference and (ii) the amount that the Holder would have been entitled to receive at such time if the Convertible Preferred Stock were converted into common stock.
Change in Control Events
Upon certain change of control events involving the Company, failsthe Company has the right, and each Holder has the right, in each case, at the initiating party’s election, to materially cure such condition within 30 days following noticerequire the Company to repurchase all or a portion of such condition byits then-outstanding shares of Convertible
61
Preferred Stock for cash consideration equal to (i) 150% of the executive, and the termination will be deemed to be a termination without cause and the executive is entitled to his or her severance benefits. In the event that any of these Named Executive Officers are terminated without cause or by the executivethen-current Liquidation Preference for good reason in the 24 months following a change of control occurring prior to the third anniversary of the date the Convertible Preferred Stock is initially issued, (ii) 125% of the then-current Liquidation Preference for a change of control occurring on or following the third anniversary and prior to the fifth anniversary of the date the Convertible Preferred Stock is initially issued and (iii) 100% of the then-current Liquidation Preference for a change of control occurring on or following the fifth anniversary of the date the Convertible Preferred Stock is initially issued.
Standstill Restrictions
The Purchaser and its affiliates are subject to certain customary standstill provisions that restrict them from, among other actions, acquiring additional securities of the Company if such acquisition would result in the executive is entitled to severance pay equal to 12 months’ salary and a pro rata portionPurchaser beneficially owning in excess of target annual incentive and reimbursement25% of the executive’s total premiumoutstanding shares of common stock of the Company until the later of the third anniversary of the date the Convertible Preferred
Stock is initially issued and the date on which the Purchaser no longer has record or beneficial ownership of common stock and Convertible Preferred Stock that constitute at least 10% of the outstanding common stock.
15. Business Combination
On January 5, 2022 (the acquisition date), we acquired all the issued and outstanding shares of ResortSuite Inc. (“ResortSuite”), a Canada-based fully integrated property management solutions provider focused on the complex multi-amenity and resort market. The consolidated financial statements include the results of ResortSuite’s operations since the acquisition date. The acquisition extends our solutions to customers in the complex multi-amenity and resort market.
The purchase price consisted of $22.6 million of cash paid at closing, funded from cash on hand, partially offset by $0.3 million of ResortSuite’s cash received in the acquisition, and $2.2 million of cash paid in March for 12 months’certain ResortSuite tax liabilities resulting in net cash consideration of COBRA continuation coverage under$24.5 million. We allocated the Company’s health benefit.
During the term of his employment andpurchase price for 24 months thereafter, Mr. Srinivasan is subjectResortSuite to the Company’s standard confidentialityintangible and non-disclosure requirements,certain tangible assets acquired and certain liabilities assumed based on their estimated fair values on the acquisition date, with the remaining unallocated purchase price recorded as wellgoodwill. We determined the fair values assigned to identifiable intangible assets acquired primarily by using the income approach, which discounts the expected future cash flows to present value using estimates and assumptions determined by management.
In accordance with ASU No. 2021-08, we applied Topic 606 to record certain customer accounts receivable and the contract liabilities assumed in the acquisition, which consisted of undelivered performance obligations under customer contracts. We adopted ASU 2021-08 early as non-competitionpermitted. As a result, in allocating the purchase price, we recorded $2.8 million of contract liabilities, representing the revenue that will be recognized as the underlying performance obligations are delivered.
The following table sets forth the components and non-solicitation obligations, except that if the termallocation of the employment agreement expires atpurchase price for our acquisition of ResortSuite:
(In thousands) |
| Total |
| |
Components of Purchase Price: |
|
|
| |
Cash |
| $ | 24,800 |
|
Total purchase price |
| $ | 24,800 |
|
|
|
|
| |
Allocation of Purchase Price: |
|
|
| |
Net tangible assets (liabilities): |
|
|
| |
Accounts receivable, net |
| $ | 2,025 |
|
Other current assets, including cash acquired |
|
| 519 |
|
Other assets |
|
| 567 |
|
Current and other liabilities |
|
| (768 | ) |
Contract liabilities |
|
| (2,835 | ) |
Net tangible assets (liabilities) |
|
| (492 | ) |
Identifiable intangible assets: |
|
|
| |
Customer relationships |
|
| 9,634 |
|
Non-competition agreements |
|
| 848 |
|
Developed technology |
|
| 827 |
|
Trade names |
|
| 846 |
|
Total identifiable intangible assets |
|
| 12,155 |
|
Goodwill |
|
| 13,137 |
|
Total purchase price allocation |
| $ | 24,800 |
|
62
We assigned the endacquired customer relationships, non-competition agreements, developed technology, and trade names estimated useful lives of 15 years, two years, five years, and five years, respectively, the weighted average of which is approximately 12.7 years. The acquired identifiable intangible assets are being amortized on a straight-line basis, which we believe approximates the pattern in which the assets are utilized, over their estimated useful lives.
The goodwill recognized in the ResortSuite purchase price allocation is attributable to synergies in products and technologies to serve a broader customer base, and the addition of a skilled, assembled workforce. The acquisition resulted in the recognition of $13.1 million of goodwill, which is expected to be deductible for income tax purposes.
The Company recognized acquisition costs of $0.5 million related to the acquisition of ResortSuite, consisting primarily of professional fees, during the year ended March 31, 2022. The consolidated statement of operations includes these costs in severance and other charges.
Revenue attributable to ResortSuite included in our consolidated statement of operations for the year ended March 31, 2022 was $1.3 million. Net income (loss) was not material. The pro forma impact of the initial three-year term,business combination during the non-competition provisions will only applytwo years ended March 31, 2022 was not material to our historical consolidated operating results and is therefore not presented.
We have prepared the purchase price allocation for 12 months following termination. FollowingResortSuite on a terminationpreliminary basis. Changes to the allocation may occur as additional information becomes available during the measurement period (up to one year from the acquisition date).
Effective April 1, 2022, ResortSuite became Agilysys Canada, Inc. a wholly-owned subsidiary of employmentAgilysys, Inc.
16. Subsequent Events
None.
17. Related Party Transaction
See Note 14. Preferred Stock, for description of any other Named Executive Officer for any reason, such Named Executive Officer is prohibited for a 12 month period following termination from being employed by, owning, operating, controlling, or being connected with certain businesses that compete withthe MAK Capital investment in the Company. Each other Named Executive Officer’s agreement also contains an indefinite non-disclosure provision forMichael Kaufman, the protectionChairman of the Company’s confidential information and a 12 month non-solicitation of Company employees.
Termination and Change of Control
Voluntary Termination or Termination for Cause ($)(1) | Ramesh Srinivasan | Dave Wood | Kyle Badger | Prabuddha Biswas | Don DeMarinis | ||||
Base Salary and Incentive | — | — | — | — | — | ||||
Accelerated Vesting | — | — | — | — | — | ||||
Termination without Cause or by | |||||||||
Base Salary and Incentive | 3,000,000 | 240,000 | 280,000 | 270,000 | 250,000 | ||||
Health Insurance (3) | 51,486 | 21,682 | 26,072 | 21,746 | 22,103 | ||||
Accelerated Vesting | 1,798,663 | — | — | — | — | ||||
Total | 4,850,149 | 261,682 | 306,072 | 291,746 | 272,103 | ||||
Change of Control ($)(4) | |||||||||
Base Salary and Incentive | 2,400,000 | 360,000 | 420,000 | 405,000 | 400,000 | ||||
Health Insurance | 102,972 | 21,682 | 26,072 | 21,746 | 22,103 | ||||
Accelerated Vesting/SSARs | 3,447,510 | 376,715 | 524,552 | 503,079 | 468,352 | ||||
Accelerated Vesting/Stock | — | 138,125 | 162,297 | 156,493 | 164,886 | ||||
Total | 5,950,483 | 896,522 | 1,132,921 | 1,086,319 | 1,055,341 | ||||
Death or Disability ($)(5) | |||||||||
Accelerated Vesting/SSARs | 3,447,510 | 376,715 | 524,552 | 503,079 | 468,352 | ||||
Accelerated Vesting/Stock | — — | — — | — | — | — | ||||
Total | 3,447,510 | 376,715 | 524,552 | 503,079 | 468,352 |
(1) A “voluntary termination” includes death, disability, or legal incompetence.
(2) For Mr. Srinivasan, “cause” is defined as (i) conviction of a crime involving misappropriation of money or other property or conviction of a felony, or a guilty plea or plea of nolo contendere with respect to a felony, (ii) conduct that is Prohibited Activity under the non-competition section of his employment agreement, (iii) conduct that breaches his duty of loyalty to the Company or his willful misconduct, any of which materially injures the Company, (iv) a willful and material breach of his material obligations under any agreement entered into between him and the Company that materially injures the Company, or (v) failure to substantially
perform his reasonable duties with the Company (other than by reason of his disability) that materially injures the Company. For the other Named Executive Officers, “cause” is defined as (i) breach of employment agreement or any other duty to the Company, (ii) dishonesty, fraud, or failure to abide by the published ethical standards, conflicts of interest, or material breach of Company policy, (iii) conviction of a felony crime or crime involving misappropriation of money or other Company property, or (iv) misconduct, malfeasance, or insubordination. For Mr. Srinivasan, good reason means (i) a reduction in base salary or target bonus opportunity, (ii) a material diminution in authority, duties or responsibilities (including, without limitation, no longer being the CEO of a publicly-traded company or the requirement that he report to anyone other than the Company’s Board of Directors, or following a is the Chief Executive Officer of MAK Capital.
Schedule II - Valuation and Qualifying Accounts Years ended March 31, 2022, 2021 and 2020
(In thousands) |
| Balance at |
|
| Charged to |
|
| Deductions |
|
| Balance at |
| ||||
2022 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Deferred tax valuation allowance |
| $ | 74,631 |
|
| $ | — |
|
| $ | (5,116 | ) |
| $ | 69,515 |
|
Allowance for expected credit losses |
| $ | 1,220 |
|
| $ | 117 |
|
| $ | (1,019 | ) |
| $ | 318 |
|
2021 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Deferred tax valuation allowance |
| $ | 66,819 |
|
| $ | 7,812 |
|
| $ | — |
|
| $ | 74,631 |
|
Allowance for doubtful accounts |
| $ | 1,634 |
|
| $ | 508 |
|
| $ | (922 | ) |
| $ | 1,220 |
|
2020 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Deferred tax valuation allowance |
| $ | 57,852 |
|
| $ | 8,967 |
|
| $ | — |
|
| $ | 66,819 |
|
Allowance for doubtful accounts |
| $ | 788 |
|
| $ | 1,434 |
|
| $ | (588 | ) |
| $ | 1,634 |
|
63
Item 9. Change in Control he is not madeand Disagreements WithAccountants on Accounting and FinancialDisclosures.
None.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, with the chief executive officerparticipation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluated the effectiveness of our disclosure controls and procedures as of the ultimate parentend of the resulting entity), (iii) removalperiod covered by this report. Based on that evaluation, the CEO and CFO concluded that our disclosure controls and procedures as a member of the Boardend of the period covered by this report are effective to ensure that information required to be disclosed by us in reports filed under the Exchange Act of 1934 is (i) recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms and (ii) is accumulated and communicated to our management, including the CEO and CFO, as appropriate to allow for timely decisions regarding required disclosure. A controls system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.
Management's Report on Internal Control Over Financial Reporting
The management of Agilysys, under the supervision of the CEO and CFO, is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision of our CEO and CFO, management conducted an evaluation of the effectiveness of our internal control over financial reporting as of March 31, 2022 based on the framework in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In performing the evaluation of the effectiveness of our internal control over financial reporting, because we acquired ResortSuite Inc. (“ResortSuite”) in a business combination on January 5, 2022 as described in Part II, Item 8, Note 15, Business Combination, to our consolidated financial statements, our management has excluded the operations of ResortSuite in accordance with the SEC’s general guidance that an assessment of a recently acquired business may be omitted from the scope of the evaluation for a period of up to one year following the acquisition. Total assets (excluding goodwill and intangible assets acquired) and revenue subject to ResortSuite’s internal control over financial reporting represented approximately 1% and less than 1% of our consolidated total assets and revenue, respectively, as of and for the year ended March 31, 2022. Based on the evaluation, management concluded that Agilysys maintained effective internal control over financial reporting as of March 31, 2022.
Grant Thornton LLP, our independent registered public accounting firm, issued their report regarding Agilysys' internal control over financial reporting as of March 31, 2022, which is included elsewhere in this annual report.
Change in Internal Control over Financial Reporting
No changes in our internal control over financial reporting occurred during the last quarter of fiscal 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. In response to the COVID-19 pandemic, significant portions of our global workforce continued to operate primarily in a work from home environment for the quarter ended March 31, 2022. While we continue to adapt our work model in response to the ongoing global pandemic, we believe our internal controls over financial reporting continue to be effective.
Item 9B. Other Information
The Company currently plans to hold its 2022 Annual Meeting of Stockholders on August 26, 2022. Pursuant to the provisions of the Company’s Bylaws, for any stockholder to propose business (other than by voluntary resignation),pursuant to and in compliance with Exchange Act Rule 14a-8) or failure to be appointedmake a nomination before the annual meeting, the stockholder must deliver written notice to the board of directors of the ultimate parent of any resulting entity following a change in control, (iv) any other action that constitutes a willful and material breach by Agilysys of a material provision of his employment agreement, (v) a material reduction in the benefits provided to him that is not part of a broader reduction of benefits applicable to substantially all other officersSecretary of the Company at the principal executive offices of the Company and received by the secretary not less than 90 nor more than 120 days prior to the first anniversary of the preceding year’s annual meeting; provided, however, that in the event that the date of the annual meeting is advanced by more than 30 days or (vii)delayed by more than 30 days from such anniversary date, notice by the stockholder to be timely must be so received not later than the close of business on the later of the ninetieth (90th) day prior to such annual meeting or the tenth (10th) calendar day following the day on which public disclosure of the date of such annual meeting is first made. The 2022 annual meeting date is more than 30 days in advance of the anniversary of the date of the Company’s 2021 annual meeting, which was held on November 18, 2021. Accordingly, the Company has determined that the date by which stockholders must deliver such notice for the purposes of the 2022 Annual Meeting of Stockholders is June 2, 2022, which is 10 days after the filing of this Annual Report on Form 10-K. Pursuant to Rule 14a-8, for a material breachstockholder to submit a proposal for inclusion in the Company’s proxy materials for the 2022 Annual Meeting of his employment agreementStockholders, the stockholder must comply with the requirements set forth in Rule 14a-8 including with
64
respect to the subject matter of such proposal and must deliver the proposal and all required documentation to the Company a reasonable time before the Company begins to print and send its proxy materials for the meeting. For the purposes of the 2022 Annual Meeting of Stockholders, the Company has determined that June 17, 2022 is a reasonable time before the Company plans to begin printing and mailing its proxy materials. The public announcement of an adjournment or postponement of the 2022 Annual Meeting date will not commence a new time period (or extend any time period) for giving such notice under the Company’s Bylaws or submitting a proposal pursuant to Rule 14a-8.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
65
Part III
Item 10. Directors, Executive Officers andCorporate Governance.
Information required by this Item as to the Directors of Agilysys, Executive Officers, the Audit Committee, Agilysys' Code of Business Conduct, and the procedures by which shareholders may recommend nominations appearing under the headings “Election of Directors,” “Executive Officers” and “Corporate Governance” in our Proxy Statement to be used in connection with Agilysys' 2022 Annual Meeting of Shareholders (the “2022 Proxy Statement”) is incorporated herein by reference. Information with respect to compliance with Section 16(a) of the Securities Exchange Act of 1934 by our Directors, executive officers, and holders of more than five percent of Agilysys' equity securities will be set forth in the 2022 Proxy Statement under the heading “Section 16(a) Beneficial Ownership Reporting Compliance.”
We adopted a Code of Business Conduct that applies to all Directors and employees of Agilysys, including the failure to pay his current compensation or benefits when due. For the other Named Executive Officers, good reason means (i) a reduction in base salary or target bonus eligibility by more than 10% from its then current level, other than a general reduction in base salary or target bonus eligibility that affects all similarly situated executives in substantially the same proportions, or (ii) at any time prior to a change in control of the Company, the NamedChief Executive Officer no longer reports toand Chief Financial Officer. The Code is available on our website at http://www.agilysys.com.
Item 11. Executive Compensation.
The information required by this Item is set forth in our 2022 Proxy Statement under the CEO,headings, “Executive Compensation,” “Director Compensation,” “Compensation Committee Report,” and the Company fails to cure any such situation within 30 days after notice.“Corporate Governance,” which is incorporated herein by reference.
(3) Health Insurance consists of health care and dental care benefits. The amount reflects reimbursement of COBRA benefits for the applicable period.
(4) Severance payments in the event of a change of control are subject to a double trigger such that severance benefits are provided only upon a combination of a change of control and a qualified termination. SSARs and restricted shares vest upon a change of control. For SSARs the value of accelerated vesting is calculated using the closing price of $47.96 per share on March 31, 2021, less the exercise price per share for the total number of SSARs accelerated. The value of restricted shares upon vesting reflects that same $47.96 closing price. Values represent potential vesting under a hypothetical change of control situation on March 31, 2021.
(5) All SSARs vest upon death or disability.
Item 12. Security Ownership of CertainBeneficial Owners and Management and RelatedShareholder Matters.
The information required by this Item is set forth in our 2022 Proxy Statement under the headings “Beneficial Ownership of Common Shares,” and “Equity Compensation Plan Information,” which information is incorporated herein by reference.
The following table shows the number of common shares beneficially owned as of June 30, 2021, by (i) each current director; (ii) our Named Executive Officers employed with the Company on June 30, 2021; (iii) all directors and executive officers as a group; and (iv) each person who is known by us to beneficially own more than 5% of our common shares. Percent of common shares are calculated based on 26,303,671 shares of common stock, consisting of 24,568,214 shares of common stock outstanding on June 23, 2021, and 1,735,457 shares of common stock into which 1,735,457 shares Series A Convertible Preferred Stock outstanding on June 23, 2021, are now convertible.
Name |
Common Shares | Common Shares Subject to Exercisable Options |
Restricted Common Shares | Total Common Shares Beneficially Owned (1) |
Percent of Class | Series A Convertible Preferred Shares (2) |
Percent of Class | ||||
Directors and Nominees |
|
|
|
|
|
|
| ||||
Donald Colvin | 29,432 |
| — |
| 1,435 |
| 30,867 |
| * | — | * |
Dana Jones | 10,506 |
| — |
| 1,435 |
| 11,941 |
| * | — | * |
Jerry Jones | 54,372 |
| — |
| 1,435 |
| 55,807 |
| * | — | * |
Michael A. Kaufman (3) | 4,138,379 |
| — |
| 1,435 |
| 4,139,814 |
| 15.7 | 1,735,457 | 100 |
Melvin Keating | 36,276 |
| — |
| 1,435 |
| 37,711 |
| * | — | * |
John Mutch | 38,666 |
| — |
| 1,435 |
| 40,101 |
| * | — | * |
Named Executive Officers |
|
|
|
|
|
|
| ||||
Ramesh Srinivasan | 681,199 |
| 336,104 |
| — |
| 1,017,303 |
| 3.8 | — | * |
Tony Pritchett | 274 |
| — |
| — |
| 274 |
| * | — | * |
Dave Wood | 18,839 |
| 53,528 |
| 2,880 |
| 75,247 |
| * | — | * |
Kyle Badger | 107,775 |
| 133,285 |
| 3,383 |
| 244,443 |
| * | — | * |
Prabuddha Biswas | 65,869 |
| 17,618 |
| 3,263 |
| 86,750 |
| * | — | * |
Don DeMarinis | 15,507 |
| 43,439 |
| 3,438 |
| 62,384 |
| * | — | * |
All current directors and executive officers (16 persons) | 5,264,642 |
| 757,293 |
| 33,168 |
| 6,055,103 |
| 22.38 | 1,735,457 | 100 |
Other Beneficial Owners |
|
|
|
|
|
|
| ||||
MAK Capital One LLC et al 590 Madison Avenue, 9th Floor New York, New York 10022 | 3,952,064 (3) |
|
|
| 15.04 | — | * | ||||
BlackRock, Inc. 55 East 52nd Street New York, New York 10055 | 2,986,869 (4) |
|
|
| 11.4 | — | * | ||||
Nine Ten Capital Management LLC 1603 Orrington Ave, Ste 1650 Evanston, IL 60201 | 1,699,920 (5) |
|
|
| 6.5 | — | * | ||||
The Vanguard Group, Inc. PO Box 2600 V26 Valley Forge, PA 19482-2600 | 1,562,203(6) |
|
|
| 5.9 | — | * |
1
* Less than 1%.
|
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|
EQUITY COMPENSATION PLAN INFORMATION
The following table provides certain information with respect to all of the Company’s equity compensation plans in effect as of March 31, 2021.
|
| Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights |
| Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights |
| Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans |
Equity compensation plans approved by shareholders (2011 and 2016 Stock Incentive Plans and 2020 Equity Incentive Plan) |
| 1,644,888 |
| 21.06 |
| 1,903,935 |
|
|
|
| |||
Equity compensation plans not approved by shareholders |
| — |
| — |
| — |
Total |
| 1,644,888 |
| 21.06 |
| 1,903,935 |
Item 13. Certain Relationships and RelatedTransactions, and DirectorIndependence.
RELATED PERSON TRANSACTIONS
All related person transactions with the Company require the prior approval or ratificationThe information required by our Audit Committee. The board of directors adopted Related Person Transaction Procedures to formalize the procedures by which our Audit Committee reviews and approves or ratifies related person transactions. The proceduresthis item is set forth in our 2022 Proxy Statement under the scope of transactions covered, the process for reporting such transactions,headings “Corporate Governance” and the review process. Covered transactions include any transaction, arrangement, or relationship with the Company in“Related Person Transactions,” which any director, executive officer, or other related person has a direct or indirect material interest, except for business travel and expense payments, share ownership, and executive compensation approvedinformation is incorporated herein by the board of directors. Transactions are reportable to the Company’s General Counsel, who will oversee the initial review of the reported transaction and notify the Audit Committee of transactions within the scope of the procedures, and the Audit Committee will determine whether to approve or ratify the transaction. Through our Nominating and Corporate Governance Committee, we make a formal yearly inquiry of all of our executive officers and directors for purposes of disclosure of related person transactions, and any such newly revealed related person transactions are conveyed to the Audit Committee. All officers and directors are charged with updating this information with our internal legal counsel.reference.
DIRECTOR INDEPENDENCE
NASDAQ listing standards provide that at least a majority of the members of the board of directors must be independent, meaning free of any material relationship with the Company, other than his or her relationship as a director. The Guidelines state that the board of directors should consist of a substantial majority of independent directors. A director is not independent if he or she fails to satisfy the standards for director independence under NASDAQ listing standards, the rules of the SEC, and any other applicable laws, rules, and regulations. During the board of directors’ annual review of director independence, the board of directors considers transactions, relationships, and arrangements, if any, between each director or a director’s immediate family members and the Company or its management. In May 2021, the board of directors performed its annual director independence review and, as a result, determined that each of Donald Colvin, Dana Jones, Jerry Jones, Michael A. Kaufman, Melvin Keating, and John Mutch qualify as independent directors. Ramesh Srinivasan is not independent because of his service as President and CEO of the Company.
Item 14. Principal Accountant Fees andServices.
The Audit Committee reviewed the fees of Grant Thornton LLP, our Independent Accountant for fiscal year 2021. Fees for services renderedinformation required by Grant Thornton for fiscal years 2021 and 2020 were:
Fiscal Year |
Audit Fees ($) | Audit-Related Fees ($) |
Tax Fees ($) |
All Other Fees ($) |
2021 | 667,383 | — | — | — |
2020 | 660,565 | 10,993 | 2,561 | — |
“Audit Fees” consist of fees billed for professional services provided for the annual audit of our financial statements, annual audit of internal control over financial reporting, review of the interim financial statements included in quarterly reports, and services that are normally provided in connection with statutory and regulatory filings. “Audit- Related Fees” relate to professional services that are reasonably related to the performance of the audit or review of our financial statements. “Tax Fees” include tax compliance and tax consulting services. “All Other Fees” relate to professional services not included in the foregoing categories, including services related to other regulatory reporting requirements.
The Audit Committee adopted an Audit and Non-Audit Services Pre-Approval Policy to ensure compliance with SEC and other rules and regulations relating to auditor independence, with the goal of safeguarding the continued independence of our Independent Accountant. The Pre-Approval Policy sets forth the procedures and conditions pursuant to which audit, review, and attest services and non-audit services to be provided to the Company by our Independent Accountant may be pre-approved. The Audit Committeethis Item is required to pre-approve the audit and non- audit services performed by our Independent Accountant to assure that the provision of such services does not impair independence. Unless a type of service to be provided has received pre-approval as set forth in our 2022 Proxy Statement under the Pre-Approval Policy, it will require separate pre-approvalheading “Ratification of Appointment of Independent Registered Public Accounting Firm,” which information is incorporated herein by the Audit Committee before commencement of the engagement. Any proposed service that has received pre-approval but which will exceed pre-approved cost limits will require separate pre-approval by the Audit Committee. All audit, non-audit, and tax services were pre-approved by the Audit Committee during fiscal years 2021 and 2020.reference.
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Item 15. Exhibits and Financial StatementSchedules.
(a)(1) Financial statements. The following consolidated financial statements are included herein and are incorporated by reference in Part II, Item 8 of this Annual Report:
Report of Grant Thornton LLP, Independent Registered Public Accounting Firm*Firm
Consolidated Balance Sheets as of March 31, 20212022 and 2020*2021
Consolidated Statements of Operations for the years ended March 31, 2022, 2021, 2020, and 2019*2020
Consolidated Statements of Comprehensive LossIncome (Loss) for the years ended March 31, 2022, 2021, 2020, and 2019*2020
Consolidated Statements of Cash Flows for the years ended March 31, 2022, 2021, 2020, and 2019*2020
Consolidated Statements of Shareholders' Equity for the years ended March 31, 2022, 2021, 2020, and 2019*2020
Notes to Consolidated Financial Statements*Statements
(a)(2) Financial statement schedule. The following financial statement schedule is included herein and is incorporated by reference in Part II, Item 8 of this Annual Report:
Schedule II - Valuation and Qualifying Accounts*Accounts
All other schedules have been omitted since they are not applicable or the required information is included in the consolidated financial statements or notes thereto.
(a)(3) Exhibits. Exhibits included herein and those incorporated by reference are listed in the Exhibit Index of this Annual Report.]
* Previously filed with the Annual Report onItem 16. Form 10-K filed with the SEC on May 21, 2021, which is being amended hereby.Summary.
None.
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Agilysys, Inc.
Exhibit Index
|
| ||
| Description | ||
2.1 | |||
3.1 | |||
3.2 | |||
| |||
3.4 | |||
3.5 | |||
3.6 | |||
3.7 | |||
4 | |||
*10.1 | |||
*10.2 | |||
*10.3 | |||
*10.4 | |||
*10.5 | |||
*10.6 | |||
*10.7 | |||
*10.8 | |||
*10.9 | |||
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*10.10 | ||
*10.11 | ||
*10.12 | ||
*10.13 | ||
*10.14 | ||
*10.15 | ||
*10.16 | ||
*10.17 |
| ||
*10.18 | ||
*10.19 | ||
*10.20 | ||
**21 | ||
**23.1 | ||
**24.1 | ||
**31.1 | Certification of Chief Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002. | |
**31.2 | Certification of Chief Financial Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002. | |
**31.3 | ||
** |
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| Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. |
| Inline XBRL Taxonomy Extension Schema Document | |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| Inline XBRL Taxonomy Extension Label Linkbase Document | |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | |
| ||
* | Denotes a management contract or compensatory plan or arrangement. | |
** |
| |
| Filed herewith |
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Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Agilysys, Inc.the registrant has duly caused this Annual Report on Form 10-K/Areport to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Alpharetta, State of Georgia, on July 28, 2021.May 23, 2022.
AGILYSYS, INC. | ||
/s/ Ramesh Srinivasan | ||
Ramesh Srinivasan | ||
President, Chief Executive Officer and Director |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on July 28, 2021.May 23, 2022.
Signature |
| Title |
|
|
|
/s/ Ramesh Srinivasan |
| President, Chief Executive Officer and Director |
Ramesh Srinivasan |
| (Principal Executive Officer) |
|
|
|
/s/ William David Wood III |
| Chief Financial Officer, |
William David Wood III |
| (Principal Financial Officer) |
|
|
|
/s/ Chris J. Robertson |
| Corporate Controller and Treasurer |
Chris J. Robertson |
| (Principal Accounting Officer) |
|
|
|
/s/ Michael A. Kaufman |
| Chairman and Director |
Michael A. Kaufman |
|
|
|
|
|
/s/ Donald A. Colvin |
| Director |
Donald A. Colvin |
|
|
|
|
|
/s/ Gerald C. Jones |
| Director |
Gerald C. Jones |
|
|
|
|
|
/s/ John Mutch |
| Director |
John Mutch |
|
|
|
|
|
/s/ Melvin L. Keating |
| Director |
Melvin L. Keating |
|
|
|
|
|
/s/ Dana Jones |
| Director |
Dana Jones |
|
|
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