SECURITIES AND EXCHANGE COMMISSION

~~Washington, D.C.~~

WASHINGTON, DC 20549

File Number: 000-5734

AGILYSYS, INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware

34-0907152

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

1000 Windward Concourse, Suite 250

Alpharetta, Georgia

30005

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (770) 810-7800

Securities registered pursuant to Section 12(b) of the Act:



~~Ohio~~ Title of each class	~~34-0907152~~ Trading Symbol(s)		Name of each exchange on which registered
~~(State or other jurisdiction of~~ ~~incorporation or organization)~~ Common Stock, without par value	~~(I.R.S. Employer~~ ~~Identification No.)~~
AGYS
~~1000 Winward Concourse, Suite 250,~~ ~~Alpharetta, Georgia~~		~~30005~~
~~(Address of principal executive offices)~~		~~(ZIP Code)~~

~~(770) 810-7800~~
~~(Registrant’s telephone number, including area code)~~

~~N/A~~
~~(Former name, former address and former fiscal year, if changed since last report)~~ NASDAQ Global Market

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 x☒ No ¨

☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ such files). Yes x☒ No ¨

☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, ~~or a~~ smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” ~~and~~ “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. ~~(Check one):~~



Large ~~accelerated filer~~	¨		Accelerated filer	x	☒	Accelerated filer	☐
Non-Accelerated filer		☐
~~Non-accelerated filer~~	¨	~~(Do not check if a smaller reporting company)~~	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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No x

~~The number of Common Shares~~☒

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the ~~registrant outstanding as~~Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☒ No ☐

As of January ~~22, 2018 was 23,313,156.~~

20, 2023, the registrant had 25,208,598 shares of common stock outstanding.

AGILYSYS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

December 31,
2017 March 31,
2017
(In thousands, except share data)

ASSETS
Current assets:
Cash and cash equivalents $ 37,615
$ 49,255
Accounts receivable, net of allowance for doubtful accounts of $751 and $509, respectively 14,746
15,598
Inventories 2,131
2,211
Prepaid expenses and other current assets 6,849
6,456
Total current assets 61,341
73,520
Property and equipment, net 17,760
16,000
Goodwill 19,622
19,622
Intangible assets, net 8,496
8,530
Software development costs, net 46,086
46,999
Other non-current assets 2,613
2,634
Total assets $ 155,918
$ 167,305
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 8,175
$ 8,702
Deferred revenue 23,433
29,183
Accrued liabilities 9,843
8,331
Capital lease obligations, current 113
121
Total current liabilities 41,564
46,337
Deferred income taxes, non-current 2,105
3,181
Capital lease obligations, non-current 50
116
Other non-current liabilities 3,985
4,002
Commitments and contingencies (see Note 6)

Shareholders' equity:
Common shares, without par value, at $0.30 stated value; 80,000,000 shares authorized; 31,606,831 shares issued; and 23,402,512 and 23,210,682 shares outstanding at December 31, 2017 and March 31, 2017, respectively 9,482
9,482
Treasury shares, 8,204,319 and 8,396,149 at December 31, 2017 and March 31, 2017, respectively (2,463 ) (2,519 )
Capital in excess of stated value (2,418 ) (5,782 )
Retained earnings 103,812
112,692
Accumulated other comprehensive loss (199 ) (204 )
Total shareholders' equity 108,214
113,669
Total liabilities and shareholders' equity $ 155,918
$ 167,305


(In thousands, except share data)	December 31, 2022 (Unaudited)			March 31, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	105,818		$	96,971
Accounts receivable, net of allowance for expected credit losses of $655 and $318, respectively		31,953			25,175
Contract assets		2,531			1,669
Inventories		10,349			6,940
Prepaid expenses and other current assets		8,432			5,418
Total current assets		159,083			136,173
Property and equipment, net		9,696			6,345
Operating lease right-of-use assets		14,823			9,889
Goodwill		33,569			32,759
Intangible assets, net		19,165			20,178
Deferred income taxes, non-current		2,380			2,664
Other non-current assets		7,445			6,154
Total assets	$	246,161		$	214,162
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	9,752		$	9,766
Contract liabilities		55,915			46,095
Accrued liabilities		11,728			10,552
Operating lease liabilities, current		3,734			5,049
Finance lease obligations, current		3			4
Total current liabilities		81,132			71,466
Deferred income taxes, non-current		1,679			938
Operating lease liabilities, non-current		12,509			5,649
Finance lease obligations, non-current		—			2
Other non-current liabilities		3,929			3,304
Commitments and contingencies
Series A convertible preferred stock, no par value		35,000			35,459
Shareholders' equity:
Common shares, without par value, at $0.30 stated value; 80,000,000 shares authorized; 31,606,831 shares issued; and 25,184,727 and 24,728,532 shares outstanding at December 31, 2022 and March 31, 2022, respectively		9,482			9,482
Treasury shares, 6,422,104 and 6,878,299 at December 31, 2022 and March 31, 2022, respectively		(1,926	)		(2,063	)
Capital in excess of stated value		56,166			49,963
Retained earnings		49,148			40,018
Accumulated other comprehensive loss		(958	)		(56	)
Total shareholders' equity		111,912			97,344
Total liabilities and shareholders' equity	$	246,161		$	214,162

See accompanying notes to unaudited condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three months ended Nine months ended
December 31, December 31,
(In thousands, except share data) 2017 2016 2017 2016
Net revenue:
Products $ 8,156
$ 10,006
$ 25,758
$ 30,257
Support, maintenance and subscription services 17,215
16,234
50,990
47,087
Professional services 5,939
7,208
18,557
19,732
Total net revenue 31,310
33,448
95,305
97,076
Cost of goods sold:
Products (inclusive of developed technology amortization) 6,820
7,530
19,862
22,217
Support, maintenance and subscription services 4,132
4,464
12,610
12,714
Professional services 4,730
5,213
15,160
13,835
Total cost of goods sold 15,682
17,207
47,632
48,766
Gross profit 15,628
16,241
47,673
48,310
49.9 % 48.6 % 50.0 % 49.8 %
Operating expenses:
Product development 7,269
6,847
20,708
20,647
Sales and marketing 4,278
5,000
13,616
15,746
General and administrative 6,114
3,678
18,475
13,692
Depreciation of fixed assets 581
598
1,892
1,791
Amortization of intangibles 471
353
1,421
1,031
Restructuring, severance and other charges 378
1,394
1,241
1,484
Legal settlements 150
—
150
85
Operating loss (3,613 ) (1,629 ) (9,830 ) (6,166 )
Other (income) expense:
Interest income (13 ) (86 ) (64 ) (135 )
Interest expense 3
3
7
11
Other expense, net (46 ) 62
(196 ) 140
Loss before taxes (3,557 ) (1,608 ) (9,577 ) (6,182 )
Income tax (benefit) expense (1,623 ) 129
(1,439 ) 252
Net loss $ (1,934 ) $ (1,737 ) $ (8,138 ) $ (6,434 )

Weighted average shares outstanding 22,851
22,611
22,777
22,605
Loss per share - basic and diluted:
Loss per share $ (0.08 ) $ (0.08 ) $ (0.36 ) $ (0.28 )


	Three months ended December 31,						Nine Months Ended December 31,
(In thousands, except per share data)	2022			2021			2022			2021
Net revenue:
Products	$	10,697		$	8,101		$	32,291		$	24,244
Subscription and maintenance		30,154			25,136			86,917			72,371
Professional services		9,069			6,223			25,960			19,463
Total net revenue		49,920			39,460			145,168			116,078
Cost of goods sold:
Products		5,368			4,400			16,682			12,420
Subscription and maintenance		6,767			5,421			19,223			15,184
Professional services		7,009			4,923			20,627			14,634
Total cost of goods sold		19,144			14,744			56,532			42,238
Gross profit		30,776			24,716			88,636			73,840
Gross profit margin		61.7	%		62.6	%		61.1	%		63.6	%
Operating expenses:
Product development		12,416			11,210			36,550			34,074
Sales and marketing		5,886			3,943			16,619			10,418
General and administrative		7,928			6,804			22,850			20,330
Depreciation of fixed assets		437			495			1,371			1,609
Amortization of internal-use software and intangibles		430			267			1,326			1,077
Other charges		93			381			374			1,187
Legal settlements		104			4			104			371
Total operating expense		27,294			23,104			79,194			69,066
Operating income		3,482			1,612			9,442			4,774
Other (income) expense:
Interest income		(704	)		(10	)		(1,186	)		(45	)
Interest expense		—			4			—			5
Other (income) expense, net		(384	)		52			(799	)		53
Income before taxes		4,570			1,566			11,427			4,761
Income tax expense		678			24			920			265
Net income	$	3,892		$	1,542		$	10,507		$	4,496
Series A convertible preferred stock dividends		(459	)		(459	)		(1,377	)		(1,377	)
Net income attributable to common shareholders	$	3,433		$	1,083		$	9,130		$	3,119

Weighted average shares outstanding - basic		24,703			24,477			24,651			24,315

Net income per share - basic:	$	0.14		$	0.04		$	0.37		$	0.13

Weighted average shares outstanding - diluted		26,070			25,392			25,780			25,327

Net income per share - diluted:	$	0.13		$	0.04		$	0.35		$	0.12

See accompanying notes to unaudited condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE ~~LOSS~~

Three months ended Nine months ended
December 31, December 31,
(In thousands) 2017 2016 2017 2016
Net loss $ (1,934 ) $ (1,737 ) $ (8,138 ) $ (6,434 )
Other comprehensive gain/(loss), net of tax:
Unrealized foreign currency translation adjustments (17 ) (5 ) 5
(12 )
Total comprehensive loss $ (1,951 ) $ (1,742 ) $ (8,133 ) $ (6,446 )


	Three months ended December 31,					Nine months ended December 31,
(In thousands)	2022			2021		2022			2021
Net income		3,892		$	1,542		10,507		$	4,496
Other comprehensive (loss) income, net of tax:
Unrealized foreign currency translation adjustments		(248	)		11		(902	)		29
Total comprehensive income	$	3,644		$	1,553	$	9,605		$	4,525

See accompanying notes to unaudited condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine months ended
December 31,
(In thousands) 2017 2016
Operating activities
Net loss $ (8,138 ) $ (6,434 )
Adjustments to reconcile net loss to net cash used in operating activities
Net restructuring, severance and other charges 262
819
Net legal settlements 150
(100 )
Loss on disposal of property & equipment —
5
Depreciation 1,892
1,791
Amortization 1,421
1,031
Amortization of developed technology 7,371
5,705
Deferred income taxes (1,214 ) 105
Share-based compensation 3,776
782
Change in cash surrender value of company owned life insurance policies 11
—
Changes in operating assets and liabilities:
Accounts receivable 903
6,668
Inventories 87
597
Prepaid expense and other current assets 460
1,306
Accounts payable 5
714
Deferred revenue (5,787 ) (4,601 )
Accrued liabilities 1,681
(2,558 )
Income taxes payable (503 ) 104
Other changes, net (279 ) (541 )
Net cash provided by operating activities 2,098
5,393
Investing activities
Capital expenditures (5,289 ) (3,327 )
Capitalized software development costs (7,272 ) (9,174 )
Investments in corporate-owned life insurance policies (27 ) (1 )
Net cash used in investing activities (12,588 ) (12,502 )
Financing activities
Payments to settle contingent consideration arising from business acquisition —
(197 )
Repurchase of common shares to satisfy employee tax withholding (1,190 ) (404 )
Principal payments under long-term obligations (92 ) (86 )
Net cash used in financing activities (1,282 ) (687 )
Effect of exchange rate changes on cash 132
(99 )
Net decrease in cash and cash equivalents (11,640 ) (7,895 )
Cash and cash equivalents at beginning of period $ 49,255
$ 60,608
Cash and cash equivalents at end of period $ 37,615
$ 52,713

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES:
Accrued capital expenditures $ 81
$ 293
Accrued capitalized software development costs 107
684


	Nine Months Ended
	December 31,
(In thousands)	2022			2021

Operating activities
Net income	$	10,507		$	4,496
Adjustments to reconcile net income to net cash provided by operating activities:
Loss on disposal of property & equipment		—			123
Depreciation of fixed assets		1,371			1,609
Amortization of internal-use software and intangibles		1,326			1,077
Deferred income taxes		(378	)		(491	)
Share-based compensation		9,410			10,802
Changes in operating assets and liabilities		(4,556	)		4,199
Net cash provided by operating activities		17,680			21,815
Investing activities
Capital expenditures		(3,616	)		(1,078	)
Additional investments in corporate-owned life insurance policies		(27	)		(3	)
Net cash used in investing activities		(3,643	)		(1,081	)
Financing activities
Payment of preferred stock dividends		(1,836	)		(1,836	)
Repurchase of common shares to satisfy employee tax withholding		(2,924	)		(2,902	)
Principal payments under long-term obligations		(3	)		(16	)
Net cash used in financing activities		(4,763	)		(4,754	)
Effect of exchange rate changes on cash		(427	)		(38	)
Net increase in cash and cash equivalents		8,847			15,942
Cash and cash equivalents at beginning of period		96,971			99,180
Cash and cash equivalents at end of period	$	105,818		$	115,122

See accompanying notes to unaudited condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(Unaudited)


	Three Months Ended December 31, 2022
	Common Shares										Capital in						Accumulated
	Issued				In Treasury						excess of						other
(In thousands, except share data)	Shares		Stated value		Shares			Stated value			Stated value			Retained earnings			comprehensive income (loss)			Total
Balance at September 30, 2022		31,607	$	9,482		(6,550	)	$	(1,965	)	$	54,072		$	45,715		$	(710	)	$	106,594
Share-based compensation		—		—		—			—			3,323			—			—			3,323
Restricted shares issued, net		—		—		86			26			(26	)		—			—			—
Shares issued upon exercise of SSARs		—		—		58			18			(18	)		—			—			—
Shares withheld for taxes upon exercise of SSARs or vesting of restricted shares		—		—		(16	)		(5	)		(1,185	)		—			—			(1,190	)
Net income		—		—		—			—			—			3,892			—			3,892
Series A convertible preferred stock dividends		—		—		—			—			—			(459	)		—			(459	)
Unrealized translation adjustments		—		—		—			—			—			—			(248	)		(248	)
Balance at December 31, 2022		31,607	$	9,482		(6,422	)	$	(1,926	)	$	56,166		$	49,148		$	(958	)	$	111,912

	Three Months Ended December 31, 2021
	Common Shares										Capital in						Accumulated
	Issued				In Treasury						excess of						other
(In thousands, except share data)	Shares		Stated value		Shares			Stated value			Stated value			Retained earnings			comprehensive income (loss)			Total
Balance at September 30, 2021		31,607	$	9,482		(7,000	)	$	(2,100	)	$	42,867		$	37,412		$	57		$	87,718
Share-based compensation		—		—		—			—			3,794			—			—			3,794
Restricted shares issued, net		—		—		92			28			(28	)		—			—			—
Shares issued upon exercise of SSARs		—		—		17			5			(5	)		—			—			—
Shares withheld for taxes upon exercise of SSARs or vesting of restricted shares		—		—		(4	)		(1	)		(192	)		—			—			(193	)
Net income		—		—		—			—			—			1,542			—			1,542
Series A convertible preferred stock dividends		—		—		—			—			—			(459	)		—			(459	)
Unrealized translation adjustments		—		—		—			—			—			—			11			11
Balance at December 31, 2021		31,607	$	9,482		(6,895	)	$	(2,068	)	$	46,436		$	38,495		$	68		$	92,413

	Nine Months Ended December 31, 2022
	Common Shares										Capital in						Accumulated
	Issued				In Treasury						excess of						other
(In thousands, except share data)	Shares		Stated value		Shares			Stated value			Stated value			Retained earnings			comprehensive income (loss)			Total
Balance at March 31, 2022		31,607	$	9,482		(6,879	)	$	(2,063	)	$	49,963		$	40,018		$	(56	)	$	97,344
Share-based compensation		—		—		—			—			9,342			—			—			9,342
Restricted shares issued, net		—		—		331			99			(99	)		—			—			—
Shares issued upon exercise of SSARs		—		—		181			55			(55	)		—			—			—
Shares withheld for taxes upon exercise of SSARs or vesting of restricted shares		—		—		(55	)		(17	)		(2,985	)		—			—			(3,002	)
Net income		—		—		—			—			—			10,507			—			10,507
Series A convertible preferred stock dividends		—		—		—			—			—			(1,377	)		—			(1,377	)
Unrealized translation adjustments		—		—		—			—			—			—			(902	)		(902	)
Balance at December 31, 2022		31,607	$	9,482		(6,422	)	$	(1,926	)	$	56,166		$	49,148		$	(958	)	$	111,912

	Nine Months Ended December 31, 2021
	Common Shares										Capital in						Accumulated
	Issued				In Treasury						excess of						other
(In thousands, except share data)	Shares		Stated value		Shares			Stated value			Stated value			Retained earnings			comprehensive income (loss)			Total
Balance at March 31, 2021		31,607	$	9,482		(7,596	)	$	(2,278	)	$	37,257		$	35,376		$	39		$	79,876
Share-based compensation		—		—		—			—			10,847			—			—			10,847
Restricted shares issued, net		—		—		103			31			(31	)		—			—			—
Shares issued upon exercise of SSARs		—		—		626			187			(187	)		—			—			—
Shares withheld for taxes upon exercise of SSARs or vesting of restricted shares		—		—		(28	)		(8	)		(1,450	)		—			—			(1,458	)
Net income		—		—		—			—			—			4,496			—			4,496
Series A convertible preferred stock dividends		—		—		—			—			—			(1,377	)		—			(1,377	)
Unrealized translation adjustments		—		—		—			—			—			—			29			29
Balance at December 31, 2021		31,607	$	9,482		(6,895	)	$	(2,068	)	$	46,436		$	38,495		$	68		$	92,413

See accompanying notes to unaudited condensed consolidated financial statements.

AGILYSYS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~(Table amounts in thousands, except per share data)~~

1. Nature of Operations and Financial Statement Presentation

Nature of Operations

Agilysys ishas been a ~~leading technology company that provides~~leader in hospitality software for more than 40 years, delivering innovative cloud-native SaaS and on-premise solutions for hotels, resorts and cruise lines, casinos, corporate foodservice management, restaurants, universities, stadiums, and healthcare. The Company’s software ~~and services for~~solutions include point-of-sale (POS), ~~reservation and table management,~~ property management (PMS), inventory and procurement, ~~workforce management, analytics, document management,~~payments, and ~~mobile~~related applications that manage and ~~wireless~~enhance the entire guest journey. Agilysys also is known for its world-class customer-centric service. Many of the top hospitality companies around the world use Agilysys solutions ~~exclusively~~ to ~~the hospitality industry. Our products and services allow operators to streamline operations,~~ improve ~~efficiency and understand customer needs across their properties to deliver a superior overall guest experience. The result is improved~~ guest loyalty, drive revenue growth, ~~in wallet share~~ and increased revenue as they connect and transact with their guests based upon a single integrated view of individual preferences and interactions. We serve four major market sectors: Gaming, both corporate and tribal; Hotels, Resorts and Cruise; Corporate Foodservice Management; and Restaurants, Universities, Stadia and Healthcare. A significant portion of our consolidated revenue is derived from contract support, maintenance and subscription services.

increase operational efficiencies. Agilysys operates across North America, Europe, the Middle East, Asia-Pacific, and India, with headquarters ~~located~~ in Alpharetta, GA. ~~For more information, visit www.agilysys.com.~~

The Company has just one reportable segment serving the global hospitality industry.

Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements include our accounts consolidated with our wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Our fiscal year ends on March 31st. References to a particular year refer to the fiscal year ending in March of that year. For example, fiscal ~~2018~~2023 refers to the fiscal year ending March 31, ~~2018.~~

2023.

Our unaudited interim financial statements are prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information, the instructions to the Quarterly Report on Form 10-Q (Quarterly Report) under the Securities Exchange Act of 1934, as amended (the Exchange Act), and Rule 10-01 of Regulation S-X under the Exchange Act. Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations relating to interim financial statements.

The Condensed Consolidated Balance ~~Sheets~~Sheet as of December 31, ~~2017 and 2016,~~2022, as well as the Condensed Consolidated Statements of Operations, Condensed Consolidated Statements of Comprehensive ~~Loss, and the~~Income, Condensed Consolidated Statements of ~~Cash Flow~~Shareholders’ Equity for the three and nine months ended December 31, ~~2017~~2022 and ~~2016,~~2021, and the Condensed Consolidated Statements of Cash Flows for the nine months ended December 31, 2022 and 2021, are unaudited. However, these financial statements have been prepared on the same basis as those in the audited annual financial statements. In the opinion of management, all adjustments of a recurring nature necessary to fairly state the results of operations, financial position, and cash flows have been made.

These unaudited interim financial statements should be read together with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended March 31, ~~2017~~,2022, filed with the Securities and Exchange Commission (SEC) on ~~June 2, 2017.~~May 23, 2022.

Use of estimates

Preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that may 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.

2. Summary of Significant Accounting Policies

A detailed description of our significant accounting policies can be found in the audited financial statements for the fiscal year ended March 31, ~~2017~~,2022, included in our Annual Report on Form 10-K. ~~Our accounting policy for share-based compensation changed with the adoption of Accounting Standards Update ("ASU") No. 2016-09, as described further below.~~ There have been no ~~other~~ material changes to our significant accounting policies ~~and estimates~~ from those disclosed therein.

~~Reclassification -~~ ~~Certain prior year balances~~

3. 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 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 purchase 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 purchase 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 proprietary 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.

We recognize revenue for hardware sales when the product is shipped to the customer and when obligations that affect the customer's final acceptance of the arrangement have been ~~reclassified to conform~~fulfilled. Hardware is purchased from suppliers and provided to the ~~current year presentation. Specifically,~~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 ~~reclassified~~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 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.

Our subscription service revenue is comprised of fees for contracts that provide customers a right to access our software ~~development costs~~for a subscribed period. We do not provide the customer the contractual right to ~~property~~license the software at any time outside of the subscription period under these contracts. The customer can only benefit from the software and ~~equipment during~~software maintenance when provided the ~~year ended March 31, 2017, which impacted~~right to access the ~~Condensed Consolidated Statement~~software. Accordingly, each of ~~Cash Flows~~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.

We derive maintenance service revenue from providing unspecified updates, upgrades, bug fixes, and technical support services for our proprietary software. 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 maintenance services as a single performance obligation. Maintenance revenue includes the same services provided by third-parties for remarketed software. We recognize substantially all maintenance revenue over the contract period of the maintenance agreement. We also recognize certain maintenance service revenue based on the volume of payment transactions processed by third parties through access to our software.

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 drive 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.

Disaggregation of Revenue

We derive and report our revenue from the sale of products (software licenses, third party hardware and operating systems), subscription and maintenance and professional services. Revenue recognized at a point in time (products) totaled $10.7 million and $32.3 million, and $8.1 million and $24.2 million for the three and nine months ended December 31, ~~2016~~2022 and 2021, respectively. Revenue recognized over time (subscription and maintenance and professional services) totaled $39.2 million and $112.9 million, and $31.4 million and $91.8 million for the three and nine months ended December 31, 2022 and 2021, respectively.

Contract Balances

Contract assets are rights to consideration in ~~the amount of $1.1 million.~~

~~Adopted and Recently Issued Accounting Pronouncements~~

In January 2017, the Financial Accounting Standards Board ("FASB") issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, and ASU No. 2017-04, Intangibles- Goodwill and Other (Topic 350) - Simplifying the Testexchange for Goodwill Impairment. ASU No. 2017-01 clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The guidance is effective for annual periods beginning after December 15, 2017, including interim periods within those periods. ASU No. 2017-04 eliminates Step 2 of the goodwill impairment test and requires a goodwill impairment to be measured as the amount by which a reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of its goodwill. The ASU is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. While we are still assessing the impact of this standard, we do not believe that the adoption of this guidance will have a material impact on our consolidated financial statements.

In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory, which requires entities to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The new guidance is effective for annual reporting periods beginning after December 15, 2017. Early adoption is permitted as of the beginning of an annual reporting period. The new standard must be adopted using a modified retrospective transition method, with the cumulative effect recognized as of the date of initial adoption. We do not believe that the adoption of this guidance will have a material impact on our consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation (Topic 718), which amends the accounting for stock-based compensation. The guidance requires excess tax benefits and deficiencies to be recognized as a component of income tax expense rather than of stockholders’ equity and also allows an entity to make an accounting policy election to either estimate expected forfeitures or to account for them as they occur. ASU No. 2016-09 is effective for annual reporting periods beginning after December 15, 2016. The Company adopted the ASU in the quarter ended June 30, 2017, which is the first quarter for our annual period beginning April 1, 2017. The following summarizes the effects of the adoption on the Company's unaudited condensed consolidated financial statements:

~~Income taxes~~ - In the first quarter of 2018, we did not recognize the discrete benefit related to $4.4 million of tax deductions in excess of recorded windfall tax benefits associated with stock-based compensation due to the Company’s full valuation allowance on its U.S. federal net operating losses.

~~Forfeitures~~ - Prior to adoption, the Company recognized share-based compensation expense net of estimated forfeitures based on a rate management updated at least annually to reflect expected forfeitures over the vesting period. Upon adoption, the Company will no longer apply a forfeiture rate and instead will account for forfeitures as they occur. The Company applied the modified retrospective adoption approach and recorded a cumulative-

~~effect adjustment of approximately $0.7 million to opening retained earnings. Prior periods have not been adjusted.~~

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which will require lessees to recognize assets and liabilities for leases with lease terms of more than 12 months. Consistent with current GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. However, unlike current GAAP, which requires only capital leases to be recognized on the balance sheet, the new guidance will require both types of leases to be recognized on the balance sheet. The new guidance is effective for all periods beginning after December 15, 2018 and we are currently evaluating the effects that the adoption of ASU No. 2016-02 will have on our consolidated financial statements, but anticipate that the new guidance will materially impact our consolidated financial statements given the significance of our leases.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). ASU No. 2014-09 supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific revenue recognition guidance throughout the Industry Topics of the Accounting Standards Codification. Additionally, this update supersedes some cost guidance included in Subtopic 605-35, Revenue Recognition-Construction-Type and Production-Type Contracts. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services that we have transferred to ~~customers in an amount~~a customer when that ~~reflects~~right is conditional on something other than the ~~consideration~~passage of time. The majority of our contract assets represent unbilled amounts related to ~~which the entity expects to be entitled in exchange for those goods or~~professional services. As originally issued, this guidance was effective for interim and annual reporting periods beginning after December 15, 2016, and early adoption was not permitted. In July 2015, the FASB deferred the effective date by one year, to interim and annual reporting periods beginning after December 15, 2017. The standard allows entities to apply the standard retrospectively to each prior reporting period presented (“full retrospective adoption”) or retrospectively with the cumulative effect of initially applying the standard recognized at the date of initial application (“modified retrospective adoption”). We plan to adopt ASU No. 2014-09 on its effective date for us beginning April 1, 2018 and we are still evaluating both options and their effect on our financial statements and business.

We expect ~~to identify similar performance obligations under Topic 606 as compared with deliverables~~billing and ~~separate units of account previously identified. As a result, we expect the timing~~collection of our ~~revenue~~contract assets to occur ~~in similar periods but we are still evaluating this theory especially with respect to multiple service contracts.~~within the next twelve months. We are assessing the new standard’s requirement to apply a single method to measure progress towards satisfaction of performance obligations recognized over time in our contracts that contain multiple services. We are evaluating our multiple service contracts to determine if the services are a single performance obligation under this new standard requiring a single method of measurement. We are assessing the new standards requirement to allocate the transaction prices of our contractsreceive payments from customers based on the relative stand-alone selling price of each our performance obligations. We are evaluating the stand-alone selling prices for our performance obligations. We are also assessing the new standard’s requirement to capitalize costs associated with obtaining customer contracts, including commission payments, which are currently expensed as incurred for all commissions earned subsequent to the year ended March 31, 2016. We are evaluating the period over which to amortize these capitalized costsupon contractual billing schedules and the applicability of the practical expediency exception which permits the continuation of expensing these costs for amortization periods of one year or less. In addition, for sales transactions that have been billed, but for which the recognition of revenue has been deferred and the related account receivable has not been collected, we currently do not recognize deferred revenue or the related accounts receivable ~~on our consolidated balance sheet. Under the new standard, we will record accounts receivable and related contract liabilities for non-cancelable contracts with customers~~are recorded when the right to consideration becomes unconditional. Contract liabilities represent consideration received or consideration which is ~~unconditional, which we currently expect will result~~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 ~~increases in accounts receivable and~~ contract liabilities ~~(currently presented as deferred revenue) on our consolidated balance sheet, compared to our current presentation. We are continuing to review~~at the ~~impacts of adopting ASU No. 2014-09 to our consolidated financial statements and these preliminary assessments~~beginning of the ~~impacts to our consolidated financial statements are subject to change. We expect to conclude our assessments of the impacts of adoption sometime during our fourth quarter ending March 31, 2018.~~

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. Restructuring Charges~~

We recognize restructuring charges when a plan that materially changes the scope of our business or the manner in which that business is conducted is adopted and communicated to the impacted parties, and the expenses have been incurred or are reasonably estimable.

~~Fiscal 2018 Restructuring Activity~~

Q3 - In the third quarter of fiscal 2018, we recorded $0.2 million in restructuring charges related to our ongoing efforts to better allocate resources to our crucial revenue growth areas while increasing internal efficiencies in other non-revenue generating areas.

~~As of December 31, 2017, we had a remaining liability of approximately $0.2 million recorded for the Q3 fiscal 2018 restructuring activity.~~

~~Following is a reconciliation of the beginning and ending balances of the restructuring liability:~~

Balance at Balance at
March 31, Provision/ December 31,
(in thousands) 2017 Adjustments Payments 2017
Fiscal 2018 Restructuring Plan:
Restructuring and other employment costs $ —
$ 1,024
$ (821 ) $ 203

Total restructuring costs $ —
$ 1,024
$ (821 ) $ 203

~~4. Intangible Assets and Software Development Costs~~

~~The following table summarizes our intangible assets and software development costs:~~

December 31, 2017 March 31, 2017
Gross Net Gross Net
carrying Accumulated carrying carrying Accumulated carrying
(In thousands) amount amortization amount amount amortization amount
Amortized intangible assets:
Customer relationships $ 10,775
$ (10,775 ) $ —
$ 10,775
$ (10,775 ) $ —
Non-competition agreements 2,700
(2,700 ) —
2,700
(2,700 ) —
Developed technology 10,055
(10,055 ) —
10,055
(10,055 ) —
Trade names 230
(134 ) 96
230
(100 ) 130
Patented technology 80
(80 ) —
80
(80 ) —
23,840
(23,744 ) 96
23,840
(23,710 ) 130
Unamortized intangible assets:
Trade names 8,400
N/A
8,400
8,400
N/A
8,400
Total intangible assets $ 32,240
$ (23,744 ) $ 8,496

$ 32,240
$ (23,710 ) $ 8,530

Software development costs $ 53,368
$ (17,727 ) $ 35,641
$ 46,598
$ (10,356 ) $ 36,242
Project expenditures not yet in use 10,445
—
10,445
10,757
—
10,757
Total software development costs $ 63,813
$ (17,727 ) $ 46,086
$ 57,355
$ (10,356 ) $ 46,999

~~The following table summarizes our remaining estimated amortization expense relating to in service intangible assets and software development costs.~~

Estimated
Amortization
(In thousands) Expense
Fiscal year ending March 31,
2018 $ 2,657
2019 10,504
2020 9,765
2021 9,680
2022 2,568
2023 563
Total $ 35,737

~~Amortization expense for software development costs related to assets to be sold, leased, or otherwise marketed~~period was ~~$2.6~~$9.4 million and ~~$2.3~~$7.5 million for the three months ended December 31, ~~2017~~2022 and ~~2016,~~2021, respectively, and ~~$7.3~~$44.2 million and ~~$5.7~~$36.9 million for the nine months ended December 31, ~~2017~~2022 and ~~2016,~~2021, respectively. ~~These charges are included as Products cost~~Because the right to the transaction became unconditional, we transferred to accounts receivable from contract assets at the beginning of ~~goods sold within~~ the ~~Condensed Consolidated Statements of Operations.~~

~~Amortization expense relating to other definite-lived intangible assets was $11,500~~period, $0.1 million and $0.1 million for the three months ended December 31, ~~2017~~2022 and ~~2016,~~2021, respectively, and ~~$34,500~~$1.7 million and $2.3 million for the nine months ended December 31, ~~2017~~2022 and ~~2016. These charges~~2021, respectively.

Our arrangements are ~~classified~~for a period of one year or less. As a result, unsatisfied performance obligations as ~~Amortization~~ of intangibles within the Condensed Consolidated Statements of Operations along with Amortization expense related to our Capitalized Internal-Use Software that we classify in Property and Equipment, net within the Consolidated Balance Sheets.

~~Capitalized software development costs for software internally developed~~December 31, 2022 are expected to be ~~sold, leased,~~satisfied and the allocated transaction price recognized in revenue within a period of 12 months or ~~otherwise marketed,~~less.

Assets Recognized from Costs to Obtain a Contract

Sales commission expenses that would not have occurred absent the customer contracts are ~~carried~~considered incremental costs to obtain a contract. We 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. Other sales commission expenses 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 $3.7 million and $3.1 million of capitalized sales incentive costs as of December 31, 2022 and 2021, respectively. These balances are included in other non-current assets on our condensed consolidated balance ~~sheet at net carrying value, net of accumulated amortization. We capitalized approximately $1.6 million and $3.0 million during~~sheets. During the three and nine months ended December 31, ~~2017 and 2016, and $6.5~~2022, we expensed $1.1 million and ~~$8.9~~$2.6 million, ~~during~~respectively, of sales commissions, which included amortization of capitalized amounts of $0.3 million and $0.9 million, respectively. During the comparable periods ending December 31, 2021, we expensed $0.6 million and $1.8 million, respectively, of sales commissions, which included amortization of capitalized amounts of $0.3 million and $0.9 million, respectively. These expenses are included in operating expenses – sales and marketing in our condensed consolidated statement of operations. All other costs to obtain a contract are not considered incremental and therefore are expensed as incurred.

Additional information related to the condensed consolidated balance sheets is as follows:


(In thousands)	December 31, 2022		March 31, 2022
Accrued liabilities:
Salaries, wages, and related benefits	$	7,877	$	7,870
Other taxes payable		2,894		1,994
Professional fees		546		373
Other		411		315
Total	$	11,728	$	10,552
Other non-current liabilities:
Uncertain tax positions	$	1,173	$	1,154
Employee benefit obligations		2,641		2,037
Other		115		113
Total	$	3,929	$	3,304

5. ~~Additional Balance Sheet~~Supplemental Disclosures of Cash Flow Information

Additional information related to the ~~Condensed Consolidated Balance Sheets~~condensed consolidated statements of cash flows is as follows:


	Nine Months Ended December 31,
(In thousands)		2022			2021
Cash (receipts) for interest, net	$	(1,046	)	$	(6	)
Cash payments for income tax, net		912			631
Cash payments for operating leases		4,207			3,676
Cash payments for finance leases		4			15
Accrued capital expenditures		332			1

~~Accounts Receivable, net~~

~~Accounts receivable, net of allowance for doubtful accounts was~~ ~~$14.7 million~~ ~~and~~ ~~$15.6 million~~ ~~as of December 31, 2017 and March 31, 2017, respectively. The related allowance for doubtful accounts was~~ ~~$0.8 million~~ ~~and~~ ~~$0.5 million~~ ~~as of December 31, 2017 and March 31, 2017, respectively.~~

In January of 2015, Caesars Entertainment Operating Company, Inc. and certain of its affiliates (Caesars) entered bankruptcy under Chapter 11 of the U.S. Bankruptcy Code. We filed a proof of claim with the Bankruptcy Court identifying approximately $0.7 million of pre-petition claims. Caesars emerged from bankruptcy in October 2017. As of December 31, 2017, we have collected on all of the $0.7 million of pre-petition claims that were outstanding.

The following table compares our income tax ~~(benefit)~~ expense and effective tax rates for the three and ~~six~~nine months ended December 31, ~~2017~~2022 and ~~2016:~~2021:


	Three Months Ended December 31,						Nine Months Ended December 31,
(Dollars in thousands)	2022			2021			2022			2021
Income tax expense	$	678		$	24		$	920		$	265
Effective tax rate		14.8	%		1.5	%		8.1	%		5.6	%

Three months ended Nine months ended
December 31, December 31,
(Dollars in thousands) 2017 2016 2017 2016
Income tax (benefit) expense $ (1,623 )
$ 129
$ (1,439 ) $ 252
Effective tax rate 45.6 %
(8.0 )% 15.0 % (4.1 )%

For the three and nine months ended December 31, ~~2017,~~2022 and 2021, respectively, the effective tax rate was different than the statutory rate due primarily to ~~a $1.3 million benefit resulting from~~adjustments to deferred tax assets and to valuation allowances that reduce deferred tax assets and to the ~~effect of a reduction in the deferred rate due to federal tax reform,~~

~~recognition~~recording of net operating losses ~~as deferred tax assets, which were~~in a number of foreign jurisdictions offset by ~~increases~~current year expense in other foreign jurisdictions. Our India subsidiary operates in a “Special Economic Zone (“SEZ”)”. One of the ~~valuation allowance, certain foreign and state tax effects including a benefit of $0.4 million related to a settlement~~benefits associated with the ~~California Franchise Tax Board~~SEZ is that the India subsidiary is not subject to regular India income taxes during its first five years of operations, which included fiscal 2018 through fiscal 2022. The India subsidiary is subject to 50% of regular India income taxes during its second five years of operations, which includes fiscal 2023 through fiscal 2027.

Because of our losses in prior periods, we have recorded and ~~other U.S. permanent book to tax differences.~~

For the three and nine months ended December 31, 2016, the effective tax rate was different than the statutory rate due primarily to the recognition of net operating losses as deferred tax assets, which were offset by increases in the valuation allowance, certain foreign and state tax effects, and other U.S. permanent book to tax differences.

~~We have recorded~~maintain a valuation allowance offsetting substantially all of our deferred tax ~~assets.~~assets in the U.S. and certain foreign jurisdictions, as management believes that it is more likely than not that we will not realize the benefits of these deductible differences. 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.~~

On December 22, 2017, the President of the United States of America signed into law the Tax Cuts and Jobs Act (the "Tax Act"). The Tax Act contains significant changes to corporate taxes, including a permanent reduction of the corporate tax rate from 35% to 21% effective January 1, 2018. The reduction in the corporate rate requires a one-time revaluation of certain tax-related assets and liabilities. As a result of the revaluation of our deferred tax assets and liabilities at December 31, 2017, we recorded a one-time tax benefit of approximately $1.3 million. This tax benefit was primarily the result of applying new lower income tax rates to the Company’s net long term deferred tax liabilities recorded on its condensed consolidated balance sheet, which are not netted with deferred tax assets or subject to the valuation allowance.

7. Commitments and Contingencies

Agilysys is the subject of various threatened or pending legal actions and contingencies in the normal course of conducting its business. We provide for costs related to these matters when a loss is probable, and the amount can be reasonably estimated. The effect of the outcome of these matters on our future results of operations and liquidity cannot be predicted because any such effect depends on future results of operations and the amount or timing of the resolution of such matters. While it is not possible to predict with certainty, management believes that the ultimate resolution of such individual or aggregated matters will not have a material adverse effect on our consolidated financial position, results of operations, or cash flows.

On April 6, 2012, Ameranth, Inc. filed a complaint against us ~~for patent infringement~~ in the ~~United States~~U.S. District Court ~~for the~~of Southern District of ~~California. The complaint alleges, among other things,~~California alleging that ~~point-of-sale and property management and other hospitality information technology~~certain of our products ~~software, components and/or systems sold by us~~ infringe patents owned by Ameranth ~~purporting~~directed to ~~cover generation~~configuring and ~~synchronization~~transmitting hospitality menus (e.g., restaurant menus) for display on electronic devices and synchronizing the menu content between the devices. The case against us was consolidated with similar cases brought by Ameranth against more than 30 other defendants. All but one of ~~menus, including restaurant menus, event tickets,~~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 ~~other products across fixed, wireless and/or internet platforms as well as synchronization~~granted summary judgment in favor of ~~hospitality information~~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 ~~hospitality software applications across fixed, wireless~~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 ~~internet platforms. The complaint seeks monetary damages, injunctive relief, costs and attorneys' fees.~~against Ameranth on all claims asserted against us, however, Ameranth's appeal remains pending. At this time, we are not able to predict the outcome of this ~~lawsuit, or any possible monetary exposure associated with the~~ lawsuit. However, we dispute the allegations of wrongdoing and are vigorously defending ourselves in this matter.

8. ~~Loss~~Earnings per Share

The following data shows the amounts used in computing ~~loss~~earnings per share and the effect on earnings and the weighted average number of shares of dilutive potential common shares.


	Three Months Ended December 31,						Nine Months Ended December 31,
(In thousands, except per share data)	2022			2021			2022			2021
Numerator:												��
Net income	$	3,892		$	1,542		$	10,507		$	4,496
Series A convertible preferred stock dividends		(459	)		(459	)		(1,377	)		(1,377	)
Net income attributable to common shareholders	$	3,433		$	1,083		$	9,130		$	3,119

Denominator:
Weighted average shares outstanding - basic		24,703			24,477			24,651			24,315
Dilutive SSARs		1,149			826			996			943
Dilutive unvested restricted shares		218			89			133			69
Weighted average shares outstanding - diluted		26,070			25,392			25,780			25,327

Income per share - basic:	$	0.14		$	0.04		$	0.37		$	0.13
Income per share - diluted:	$	0.13		$	0.04		$	0.35		$	0.12

Anti-dilutive SSARs, restricted shares, performance shares and preferred shares		1,736			1,764			1,751			1,736

Three months ended Nine months ended
December 31, December 31,
(In thousands, except per share data) 2017 2016 2017 2016
Numerator:
Net loss $ (1,934 ) $ (1,737 ) $ (8,138 ) $ (6,434 )

Denominator:
Weighted average shares outstanding 22,851
22,611
22,777
22,605

Loss per share - basic and diluted:
Loss per share $ (0.08 ) $ (0.08 ) $ (0.36 ) $ (0.28 )

Anti-dilutive stock options, SSARs, restricted shares and performance shares 1,658
1,471
1,705
1,399

Basic ~~earnings (loss)~~income per share is computed as net income ~~available~~attributable to common shareholders divided by the weighted average basic shares outstanding. The outstanding shares used to calculate the weighted average basic shares excludes ~~530,138~~459,306 and ~~595,625~~231,199 of restricted shares at December 31, ~~2017~~2022 and ~~2016,~~2021, respectively, as these shares were issued but were not vested and therefore, not considered outstanding for purposes of computing basic ~~(loss) earnings~~income per share at the balance sheet dates.

Diluted ~~earnings (loss)~~income per share includes the effect of all potentially dilutive securities on earnings per share. We have ~~stock options,~~ stock-settled appreciation rights ("SSARs"), unvested restricted shares, and ~~unvested performance~~preferred 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~~grants because doing so would be anti-dilutive. ~~Therefore, for all periods presented, basic weighted-average shares outstanding were used in calculating the diluted net loss per share.~~

9. Share-based Compensation

We may grant ~~non-qualified~~incentive stock options, ~~incentive~~non-qualified stock options, SSARs, restricted shares, and ~~restricted share units~~performance shares under our shareholder-approved ~~2016 Stock~~2020 Equity Incentive Plan ~~(the 2016 Plan)~~("2020 Plan") for up to ~~2.0~~2.25 million common shares, plus ~~957,575~~868,864 common shares, the number of shares that were remaining for grant under the ~~2011~~2016 Stock Incentive Plan ~~(the 2011 Plan)~~("2016 Plan") as of the effective date of the ~~2016~~2020 Plan, plus the number of shares remaining for grant under the ~~2011~~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 ~~2016~~2020 Plan is ~~1.25~~3.1 million. With respect to awards that are intended to qualify for the performance-based exception to the deductibility limitations of Section 162(m) of the Internal Revenue Code, the maximum number of shares subject to stock options or SSARs that may be granted to an individual in a calendar year is 800,000 shares, and the maximum number of shares subject to restricted shares or restricted share units that may be granted to an individual in a calendar year is 400,000 shares.

~~We have a shareholder-approved 2006 Stock Incentive Plan (the 2006 Plan) that still has vested awards outstanding. Awards are no longer being granted from this incentive plan.~~

We may distribute authorized but unissued shares or treasury shares to satisfy share option and ~~appreciation right~~SSAR exercises or restricted share and performance share ~~awards.~~

grants.

We record compensation expense related to ~~stock options,~~ SSARs, restricted shares, and performance shares granted to certain employees and non-employee directors based on the fair value of the awards on the grant date. The fair value of restricted share ~~and performance share awards~~grants subject only to a service condition is based on the closing price of our common shares on the grant date. ~~The fair value of~~For stock option and ~~SSARs awards is estimated~~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 ~~which includes~~with inputs including the closing market price at grant date, exercise price and assumptions regarding the risk-free interest rate, ~~dividend yield, life of the award, and the~~expected volatility of our common ~~shares.~~

The following table summarizes the share-based compensation expense for ~~options,~~ SSARs, restricted and performance ~~awards~~grants included in the ~~Condensed Consolidated Statements~~condensed consolidated statements of ~~Operations:~~

operations:


	Three Months Ended December 31,				Nine Months Ended December 31,
(In thousands)	2022		2021		2022		2021
Product development		2,108		2,217		5,770		6,033
Sales and marketing		257		345		822		1,011
General and administrative		1,101		1,277		2,818		3,758
Total share-based compensation expense		3,466		3,839		9,410		10,802

Three months ended Nine months ended
December 31, December 31,
(In thousands) 2017 2016 2017 2016
Product development $ 456
$ 498
$ 982
$ 826
Sales and marketing 173
124
529
177
General and administrative 829
(680 ) 2,265
(221 )
Total share-based compensation expense 1,458
(58 ) 3,776
782

Stock-Settled ~~Stock~~ Appreciation Rights

SSARs are rights granted to an employee to receive value equal to the difference inbetween the price of our common shares on the date of exercise and the ~~grant and on the date of exercise. This~~exercise price. The value is settled in common shares of ~~Agilysys.~~

The following table summarizes the activity during the nine months ended December 31, ~~2017~~2022 for SSARs awarded under the ~~2011~~2020 and 2016 Plans:


(In thousands, except share and per share data)	Number of Rights			Weighted-Average Exercise Price		Remaining Contractual Term		Aggregate Intrinsic Value
				(per right)		(in years)
Outstanding at April 1, 2022		2,172,939		$	24.02
Granted		—			—
Exercised		(285,909	)		18.40
Forfeited		(27,463	)		20.02
Expired		—			—
Outstanding at December 31, 2022		1,859,567		$	24.95		3.6	$	100,773
Exercisable at December 31, 2022		1,712,468		$	25.12		3.6	$	92,514
Vested and expected to vest at December 31, 2022		1,859,567		$	24.95		3.6	$	100,773

Number
of Rights Weighted-
Average
Exercise
Price Remaining
Contractual
Term Aggregate
Intrinsic
Value
(In thousands, except share and per share data) (per right) (in years)
Outstanding at April 1, 2017 1,094,978
$ 10.44

Granted 204,213
10.56

Exercised (41,691 ) 9.14

Forfeited (55,530 ) 9.98

Cancelled/expired (54,679 ) 9.56

Outstanding at December 31, 2017 1,147,291
$ 10.58
5.4 $ 2,038
Exercisable at December 31, 2017 245,064
$ 10.26
3.4 $ 574

As of December 31, ~~2017,~~2022, total unrecognized ~~stock based~~share-based compensation expense related to non-vested service condition SSARs was $~~1.2~~0.3 million,, which is expected to be recognized over a weighted-average vesting period of ~~2.0~~0.2 years.

We granted shares to certain of our Directors, executives and key employees, the vesting of which is service-based. Certain restricted shares are also subject to a market condition. The following table summarizes the activity during the nine months ended December 31, ~~2017~~2022 for restricted shares awarded under the 2020 and 2016 ~~and 2011~~ Plans:


	Number of Shares			Weighted-Average Grant-Date Fair Value
				(per share)
Outstanding at April 1, 2022		147,973		$	43.56
Granted		342,642			48.76
Vested		(20,048	)		44.00
Forfeited		(11,261	)		44.81
Outstanding at December 31, 2022		459,306		$	47.41

Number
of Shares Weighted-
Average
Grant-
Date Fair
Value
(In thousands, except share and per share data) (per share)
Outstanding at April 1, 2017 490,355
$ 10.72
Granted 251,010
11.02
Vested (221,897 ) 11.29
Forfeited (80,793 ) 10.72
Outstanding at December 31, 2017 438,675
$ 10.60

The weighted-average grant date fair value of the restricted shares ~~is determined based upon the closing price of our common shares on the grant date.~~includes grants subject only to a service condition and certain grants subject to both a service condition and a market condition. As of December 31, ~~2017,~~2022, total unrecognized ~~stock based~~share-based compensation expense related to ~~non-vested~~unvested restricted ~~stock~~shares was $~~2.7~~14.2 million,, which is expected to be recognized over a weighted-average vesting period of ~~1.9~~2.5 years.

Performance Shares

~~We awarded certain restricted~~

Upon approval of the Compensation Committee of our Board of Directors, after achieving the performance conditions associated with our annual bonus plan, we granted 5,384 common shares to our Chief Executive Officer in May 2022 that vested immediately for a total value of $0.2 million.

10. Preferred Stock

On May 22, 2020, we completed the ~~vesting~~sale of 1,735,457 shares of our preferred 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 its capacity as a designee of MAK Capital One LLC (the “Purchaser”), pursuant to the terms of the Investment Agreement, dated as of May 11, 2020, between the Company and the Purchaser, for an aggregate purchase price of $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 the fiscal year ended March 31, 2021, Michael Kaufman, the Chairman of the Company’s Board of Directors, is the Chief Executive Officer of MAK Capital One LLC.

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 cash and 50% in kind as an increase in the then-current Liquidation Preference or (ii) 100% in cash, at the option of the Company. We pay dividends in the same period as declared by the Company’s Board of Directors.

11. 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 condensed 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, $2.2 million of cash paid in March for certain ResortSuite tax liabilities, and $0.4 million in cash received in January 2023 upon release of escrow funds resulting in net cash consideration of $24.1 million. We allocated the purchase price for ResortSuite to the intangible and 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 goodwill. 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 Accounting Standards Update (ASU) No. 2021-08, we applied Accounting Standards Codification 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 permitted. 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 the allocation of the purchase price for our acquisition of ResortSuite:


(In thousands)	Total
Components of Purchase Price:
Cash	$	24,405
Total purchase price	$	24,405

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	)
Deferred income taxes, non-current		(1,204	)
Net tangible assets (liabilities)		(1,696	)
Identifiable intangible assets:
Customer relationships		9,634
Non-competition agreements		848
Developed technology		827
Trade names		846
Total identifiable intangible assets		12,155
Goodwill		13,946
Total purchase price allocation	$	24,405

We assigned the acquired 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 ~~performance based.~~approximately 12.7 years. The ~~number~~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 ~~shares that vest will~~a skilled, assembled workforce. The acquisition resulted in the recognition of $13.9 million of goodwill, which is expected to be ~~based on~~deductible for income tax purposes. During the ~~stock price~~three months ended December 31, 2022, we increased goodwill by $0.8 million to record deferred income tax liabilities identified during the measurement period related to Canada tax treatment of certain intangible assets and ~~relative attainment~~to record final working capital adjustments related to the purchase price.

The Company recognized acquisition costs of ~~performance metric, and any unvested shares will forfeit upon settlement~~$0.2 million related to the acquisition of ~~the bonus.~~

~~The following table summarizes the activity~~ResortSuite, consisting primarily of professional fees, during the nine months ended December 31, ~~2017~~2022. The condensed consolidated statement of operations includes these costs in other charges.

Revenue attributable to ResortSuite included in our consolidated statement of operations for the ~~performance shares awarded under the 2016 Plan:~~



	~~Number~~ of ~~Shares~~

~~Outstanding at April 1, 2017~~	—
~~Granted~~	~~91,463~~
~~Vested~~	—
~~Outstanding at December 31, 2017~~	~~91,463~~

Based on the performance goals, management estimates a liability of $225,000 to be settled through the vesting of a variable number of the performance shares subsequent to March 31, 2018. As of December 31, 2017, total unrecognized stock based compensation expense related to non-vested performance shares was $67,500, which is expected to be recognized over the remaining vesting period of 3 months.

~~10. Fair Value Measurements~~

~~We estimate the fair value of financial instruments using available market information~~three and generally accepted valuation methodologies. We assess the inputs used to measure fair value using a three-tier hierarchy. The hierarchy indicates the extent to which pricing inputs used in measuring fair value are observable in the market. Level 1 inputs include unadjusted quoted prices for identical assets or liabilities and are the most observable. Level 2 inputs include unadjusted quoted prices for similar assets and liabilities that are either directly or indirectly observable, or other observable inputs such as interest rates, foreign currency exchange rates, commodity rates, and yield curves. Level 3 inputs are not observable in the market and include our own judgments about the assumptions market participants would use in pricing the asset or liability. The use of observable and unobservable inputs is reflected in the hierarchy assessment disclosed in the tables below.

~~There were no significant transfers between Levels 1, 2, and 3 during the~~ nine months ended December 31, ~~2017~~2022, respectively, was $1.4 million and ~~2016.~~

~~The following tables present information about our financial assets and liabilities measured at fair value on~~$4.0 million.

Effective April 1, 2022, ResortSuite became Agilysys Canada, Inc. a ~~recurring basis and indicate the fair value hierarchy~~wholly-owned subsidiary of ~~the valuation techniques utilized to determine such fair value:~~Agilysys, Inc.

Fair value measurement used
Recorded
value
as of Active
markets
for
identical
assets or
liabilities Quoted
prices in
similar
instruments
and
observable
inputs Active
markets for
unobservable
inputs
(In thousands) December 31, 2017 (Level 1) (Level 2) (Level 3)
Assets:
Corporate-owned life insurance — non-current $ 825
—
—
$ 825

Fair value measurement used
Recorded
value
as of Active
markets
for
identical
assets or
liabilities Quoted
prices in
similar
instruments
and
observable
inputs Active
markets for
unobservable
inputs
(In thousands) March 31, 2017 (Level 1) (Level 2) (Level 3)
Assets:
Corporate-owned life insurance — non-current $ 809
—
—
$ 809

The recorded value of the corporate-owned life insurance policies is adjusted to the cash surrender value of the policies obtained from the third party life insurance providers, which are not observable in the market, and therefore, are classified within Level 3 of the fair value hierarchy. Changes in the cash surrender value of these policies are recorded within “Other expenses (income), net” in the Condensed Consolidated Statements of Operations.

~~The following table presents a summary of changes in the fair value of the Level 3 assets:~~

Nine months ended
December 31,
(In thousands) 2017 2016
Corporate-owned life insurance:
Balance on April 1 $ 809
$ 3,122
Unrealized gain relating to instruments held at reporting date (11 ) 16
Purchases, sales, issuances and settlements, net 27
1
Balance on December 31 $ 825
$ 3,139

~~The following tables present a summary of changes in the fair value of the Level 3 liabilities:~~

Nine months ended
December 31,
(In thousands) 2017 2016
Contingent consideration
Balance on April 1 $ —
$ 197
Activity, payments and other charges (net) —
(197 )
Balance on December 31 $ —
$ —

Item 2. Management's 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 Condensed Consolidated Statements of Operations and Condensed Consolidated Statements of Cash Flows and provides information that managementbelieves is important to assessing and understanding our consolidated financial condition and results of operations. This Quarterly Report on Form 10-Q updates information included in our Annual Report on Form 10-K for the fiscal year endedMarch 31, ~~2017,~~2022, filed with the Securities and Exchange Commission (SEC). This discussion should be read in conjunction with the Condensed Consolidated Financial Statements and related Notes that appear in Item 1 of this Quarterly Report as well as our Annual Report for the year endedMarch 31, ~~2017.~~2022. Information provided in the MD&A may includeforward-looking statements that involve risks and uncertainties. Many factors couldcause actual results to be materially different from those contained in the forward-lookingstatements. See “Forward-Looking Information” on page 3025 of this Quarterly Report, Item 1A "Risk Factors" in Part II of this Quarterly Report, and Item 1A “Risk Factors”in Part I of our Annual Report for the fiscal year endedMarch 31, ~~2017~~ 2022for additional informationconcerning 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 since that time. 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 suppliers 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 suppliers operate.

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 business and on the operation of the global markets in general. We continue to monitor and evaluate the operational impact and may take further actions that alter our business operations that we believe are in the best interests of our employees, customers, partners, suppliers, shareholders, and other stakeholders.

Our Business

Agilysys is ~~a leading~~well known for its long heritage of hospitality-focused technology ~~company~~innovation. The Company delivers modular and integrated software solutions and expertise to businesses seeking to maximize Return on Experience (ROE) through hospitality encounters that ~~provides innovative software~~are both personal and ~~services~~profitable. Over time, customers achieve High Return Hospitality by consistently delighting guests, retaining staff and growing margins. Customers around the world include: branded and independent hotels; multi-amenity resort properties; casinos; property, hotel and resort management companies; cruise lines; corporate dining providers; higher education campus dining providers; food service management companies; hospitals; lifestyle communities; senior living facilities; stadiums; and theme parks. The Agilysys Hospitality Cloud™ combines core operational systems for ~~point-of-sale (POS), reservation and table management,~~ property management (PMS), ~~inventory~~point-of-sale (POS) and ~~procurement, workforce management, analytics, document management,~~Inventory and Procurement (I&P) with Experience Enhancers™ that meaningfully improve interactions for guests and for employees across dimensions such as digital access, mobile convenience, self-service control, personal choice, payment options, service coverage and ~~wireless~~real-time insights to improve decisions. Core solutions ~~exclusively~~and Experience Enhancers are selectively combined in Hospitality Solution Studios™ tailored to specific hospitality settings and business needs.

The Company has just one reportable segment serving the global hospitality industry. Our products and services allow operators to streamline operations, improve efficiency and understand customer needs across their properties to deliver a superior overall guest experience. The result is improved guest loyalty, growth in wallet share and increased revenue as they connect and transact with their guests based upon a single integrated view of individual preferences and interactions. We serve four major market sectors: Gaming, both corporate and tribal; Hotels, Resorts and Cruise; Corporate Foodservice Management; and Restaurants, Universities, Stadia and Healthcare. A significant portion of our consolidated revenue is derived from contract support, maintenance and subscription services.

Agilysys operates across North America, Europe, the Middle East, Asia-Pacific and India with headquarters located in Alpharetta, ~~GA. For more information, visit www.agilysys.com.~~

Georgia.

Our top priority is ~~to increase~~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:

•

Putting the customer first

~~Accelerating~~•

Focusing on product innovation and development

•

Improving our ~~product development~~liquidity

~~Improving~~•

Increasing organizational efficiency and teamwork

•

Developing our employees and leaders

•

Growing revenue by improving the breadth and depth of our product set across both ~~our well established products~~point-of-sale and ~~our newer rGuest platform~~property management applications

•

Growing revenue through international expansion

The primary objective of our ongoing strategic planning process is to create shareholder value by capitalizing on growth opportunities, ~~turning profitable~~increasing profitability and strengthening our competitive position within the specific technology solutions and end markets we serve. Profitability and ~~industry leading~~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,~~subscription and maintenance ~~and subscription services~~ revenue or professional services revenue in our ~~Condensed Consolidated Statements~~condensed consolidated statements of ~~Operations.~~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:

•

• Revenue – We present revenue net of sales returns and allowances.

•

Products revenue – Revenue earned from the ~~sales~~delivery of software licenses, third party hardware ~~equipment~~ and ~~proprietary~~operating systems.

•

Subscription and ~~remarketed software.~~

~~Support,~~ maintenance ~~and subscription services~~ revenue – Revenue earned from the ~~sale~~ongoing delivery of software updates, upgrades, bug fixes and technical support over the period covered by subscription or maintenance agreements with our customers for both proprietary and remarketed ~~ongoing support, maintenance and subscription or hosting services.~~solutions.

•

Professional services revenue – Revenue earned from the delivery of implementation, integration and installation services for proprietary and remarketed ~~products.~~solutions.

Results of Operations

Third Fiscal Quarter ~~2018~~ 2023Compared to Third Fiscal Quarter ~~2017~~

2022

Net Revenue and Operating ~~Loss~~

Income

The following table presents our consolidated revenue and operating results for the three months ended December 31, ~~2017~~2022 and ~~2016:~~

Three months ended
December 31,   Increase (decrease)
(Dollars in thousands) 2017 2016 $ %
Net revenue:
Products $ 8,156
$ 10,006
$ (1,850 ) (18.5 )%
Support, maintenance and subscription services 17,215
16,234
981
6.0
Professional services 5,939
7,208
(1,269 ) (17.6 )
Total net revenue 31,310
33,448
(2,138 ) (6.4 )
Cost of goods sold:
Products (inclusive of developed technology amortization) 6,820
7,530
(710 ) (9.4 )
Support, maintenance and subscription services 4,132
4,464
(332 ) (7.4 )
Professional services 4,730
5,213
(483 ) (9.3 )
Total cost of goods sold 15,682
17,207
(1,525 ) (8.9 )
Gross profit 15,628
16,241
(613 ) (3.8 )
Gross profit margin 49.9 % 48.6 %
Operating expenses:
Product development 7,269
6,847
422
6.2
Sales and marketing 4,278
5,000
(722 ) (14.4 )
General and administrative 6,114
3,678
2,436
66.2
Depreciation of fixed assets 581
598
(17 ) (2.8 )
Amortization of intangibles 471
353
118
33.4
Restructuring, severance and other charges 378
1,394
(1,016 )           nm
Legal settlements 150
—
150
          nm
Operating loss $ (3,613 ) $ (1,629 ) $ (1,984 ) 121.8 %
Operating loss percentage (11.5 )% (4.9 )%

2021:


	Three Months Ended December 31,						Increase (decrease)
(Dollars in thousands)	2022			2021			$			%
Net revenue:
Products	$	10,697		$	8,101		$	2,596			32.0	%
Subscription and maintenance		30,154			25,136			5,018			20.0	%
Professional services		9,069			6,223			2,846			45.7	%
Total net revenue		49,920			39,460			10,460			26.5	%
Cost of goods sold:
Products		5,368			4,400			968			22.0	%
Subscription and maintenance		6,767			5,421			1,346			24.8	%
Professional services		7,009			4,923			2,086			42.4	%
Total cost of goods sold		19,144			14,744			4,400			29.8	%
Gross profit	$	30,776		$	24,716		$	6,060			24.5	%
Gross profit margin		61.7	%		62.6	%
Operating expenses:
Product development	$	12,416		$	11,210		$	1,206			10.8	%
Sales and marketing		5,886			3,943			1,943			49.3	%
General and administrative		7,928			6,804			1,124			16.5	%
Depreciation of fixed assets		437			495			(58	)		(11.7	)%
Amortization of internal-use software and intangibles		430			267			163			61.0	%
Other charges		93			381			(288	)	nm
Legal settlements		104			4			100		nm
Operating income	$	3,482		$	1,612		$	1,870			116.0	%
Operating income percentage		7.0	%		4.1	%

nm - not meaningful

The following table presents the percentage relationship of our ~~Condensed Consolidated Statement~~condensed consolidated statement of ~~Operations~~operations line items to our consolidated net revenues for the periods presented:

Three months ended
December 31,
2017 2016
Net revenue:
Products 26.0 % 30.0 %
Support, maintenance and subscription services 55.0
48.5
Professional services 19.0
21.5
Total 100.0 % 100.0 %
Cost of goods sold:
Products (inclusive of developed technology amortization) 21.8 % 22.5 %
Support, maintenance and subscription services 13.2
13.3
Professional services 15.1
15.6
Total 50.1 % 51.4 %
Gross profit 49.9 % 48.6 %
Operating expenses:
Product development 23.2 % 20.5 %
Sales and marketing 13.7
14.9
General and administrative 19.5
11.0
Depreciation of fixed assets 1.9
1.8
Amortization of intangibles 1.5
1.1
Restructuring, severance and other charges 1.2
4.2
Legal settlements 0.5
—
Operating loss (11.5 )% (4.9 )%


	Three Months Ended December 31,
	2022			2021
Net revenue:
Products		21.4	%		20.5	%
Subscription and maintenance		60.4			63.7
Professional services		18.2			15.8
Total net revenue		100.0	%		100.0	%
Cost of goods sold:
Products		10.7	%		11.2	%
Subscription and maintenance		13.6			13.7
Professional services		14.0			12.5
Total net cost of goods sold		38.3	%		37.4	%
Gross profit		61.7	%		62.6	%
Operating expenses:
Product development		24.8	%		28.4	%
Sales and marketing		11.8			10.0
General and administrative		15.9			17.2
Depreciation of fixed assets		0.9			1.2
Amortization of internal-use software and intangibles		0.9			0.7
Other charges		0.2			1.0
Legal settlements		0.2			0.0
Operating income		7.0	%		4.1	%

Net revenue. Total net revenue ~~decreased $2.1~~increased $10.5 million, or ~~6.4%~~26.5%, during the third quarter of fiscal ~~2018~~2023 compared to the third quarter of fiscal ~~2017.~~2022. Products revenue ~~decreased $1.9~~increased $2.6 million, or ~~18.5%~~32.0%, due ~~primarily~~ to ~~decreased hardware sales. Support,~~higher sales and deliveries to new customers and expansion with existing customers. Subscription and maintenance ~~and subscription services~~ revenue increased ~~$1.0~~$5.0 million, or ~~6.0%~~20.0%, compared to the third quarter of fiscal ~~2017~~2022 driven ~~mostly~~ by ~~subscription based~~continued growth in subscription-based service revenue, which increased ~~approximately 26.2%~~28.8% during the third quarter of fiscal ~~2018~~2023 compared to the third quarter of fiscal ~~2017.~~2022. Professional services revenue ~~decreased $1.3~~increased $2.8 million, or ~~17.6%~~45.7%, as a result of $1.1 million in services revenue recognized in Q3 of fiscal 2017 for services provided in quarters prior to that, where contractual commitments precluded revenue recognition until that quarter and $0.2 million due to ~~timing of customer installation~~higher sales and ~~implementation projects.~~

service activity as our new and existing customers continue implementing technology to improve their operations.

Gross profit and gross profit margin. Our total gross profit ~~decreased $0.6~~increased $6.1 million, or 3.8%, for the third quarter of fiscal 2018 and total gross profit margin increased 1.3% to 49.9% from 48.6%. Products gross profit decreased $1.1 million and gross profit margin decreased 8.3% to 16.4% primarily as a result of lower product revenue coupled with higher amortization of developed technology by $0.3 million, related to the previously announced general availability of the latest version of our rGuest Buy point of sale solution and the $6.8 million of related software development costs that was placed into service in September of 2017. Support, maintenance and subscription services gross profit increased $1.3 million and gross margin increased 3.5% to 76.0% due to the scalable nature of our infrastructure supporting and hosting customers. Professional services gross profit decreased $0.8 million and gross profit margin decreased 7.3% to 20.4% due to lower quarterly professional services revenues on a higher cost structure following a recent alignment toward enabling the Company to provide more customer-centric services going forward.

~~Operating expenses~~

~~Operating expenses, excluding the charges for asset write-offs and other fair value adjustments, legal settlements, and restructuring, severance and other charges, increased $2.2 million, or 13.6%~~24.5%, during the third quarter of fiscal ~~2018~~2023 and total gross profit margin decreased from 62.6% to 61.7% compared to the third quarter of fiscal 2022 driven by changes in the composition of revenue by category. Products gross profit increased $1.6 million, or 44.0%, and products gross profit margin increased from 45.7% to 49.8% due to a higher proportion of proprietary software deliveries. Subscription and maintenance gross profit increased $3.7 million, or 18.6%, and gross profit margin decreased from 78.4% to 77.6% as certain variable costs increased ahead of related revenue. Professional services gross profit margin increased from 20.9% to 22.7% reflecting improved utilization rates from efficiency gains on multi-solution implementations.

Operating expenses

Operating expenses, excluding other charges and legal settlements, increased $4.4 million, or 19.3%, during the third quarter of fiscal 2023 compared with the third quarter of fiscal ~~2017.~~

2022.

Product development. Product development increased ~~$0.4~~$1.2 million, or ~~6.2%~~10.8%, in the third quarter of fiscal ~~2018 primarily related~~2023 compared with the third quarter of fiscal 2022 due to ~~an increase of internal R&D headcount offset by a decrease in contract labor. We capitalized approximately $2.1 million~~hiring and ~~$3.6 million in total~~increased salary and incentive rates across our development ~~costs during the three months ended December 31, 2017 and 2016, respectively.~~

teams.

Sales and marketing. Sales and marketing ~~decreased $0.7~~increased $1.9 million, or ~~14.4%~~49.3%, in the third quarter of fiscal ~~2018~~2023 compared with the third quarter of fiscal ~~2017. The change is~~2022 due ~~primarily~~ to ~~a decrease~~various sales and marketing investments including several key hires, higher levels of ~~$0.3 million in payroll related expenses~~marketing event and ~~$0.3 million in advertising~~trade show activity and ~~promotion related expenses.~~

increased commission expense on higher sales activity.

General and administrative. General and administrative increased ~~$2.4~~$1.1 million, or ~~66.2%~~16.5%, in the third quarter of fiscal ~~2018~~2023 compared with the third quarter of fiscal 2017 due primarily to increases of $1.5 million in stock compensation expense related to executive stock grants and the impact of removing forfeiture rates as a result of adopting ASU No. 2016-09 in the current year, coupled with forfeitures in the prior year2022 due to ~~the departure~~hiring and increased salary and incentive rates across our administrative teams, higher rent, and higher subscription charges for cloud computing arrangements.

Other charges. Other charges consist of ~~former executives. Furthermore, during the third quarter~~severance costs, infrequent settlements of ~~fiscal 2018 there was an increase of $0.5 million in professional fees related to legal, accounting~~customer disputes and ~~tax fees and other ongoing initiatives, and $0.3 million in increased bonus expense related to the forfeitures in the prior year due to the departure of former executives.~~

~~Restructuring, severance, and other charges.~~ Restructuring, severance, and other charges decreased $1.0 million during the third quarter of fiscal 2018 compared to the third quarter of fiscal 2017. In the third quarter of fiscal 2018 we had $0.2 million in restructuring expense and $0.2 million in severanceacquisition costs related to ~~our ongoing efforts to better allocate resources to our crucial revenue growth areas while increasing internal efficiencies in~~business combinations.

Legal settlements. Legal settlements consist of settlements of employment and other ~~non-revenue generating areas. In the third quarter of fiscal 2017 we had $1.4 million in one-time charges related to the severance of our former CEO.~~

~~Legal Settlements.~~ ~~During the third quarter of fiscal 2018, we recorded $0.2 million in legal settlements.~~

business-related matters.

Other (Income) Expenses ~~(Income)~~

Three months ended
December 31, (Unfavorable) favorable
(Dollars in thousands) 2017 2016 $ %
Other (income) expense:
Interest income $ (13 ) $ (86 ) $ (73 ) (84.9 )%
Interest expense 3
3
—
— %
Other (income) expense, net (46 ) 62
108
nm
Total other (income) expense, net $ (56 ) $ (21 ) $ 35
nm


	Three Months Ended December 31,						(Unfavorable) favorable
(Dollars in thousands)	2022			2021			$		%
Other (income) expense:
Interest income	$	(704	)	$	(10	)	$	694	nm
Interest expense		—			4			4	nm
Other (income) expense, net		(384	)		52			436	nm
Total other (income) expense, net	$	(1,088	)	$	46		$	1,134	nm

nm - not meaningful

Interest income. Interest income consists of interest earned on cash equivalents including short-term investments in ~~certificates of deposit,~~ commercial paper, ~~corporate bonds,~~treasury bills and ~~corporate-owned life insurance policies.~~

money market funds.

Interest expense. Interest expense consists of costs associated with ~~capital~~finance leases.

~~Other (income) expense.~~

Other (income) expense, net. Other (income) expense, net mainly consists ~~mainly~~ of ~~the impact~~movement of foreign ~~currency due to movement of European, Indian and Asian~~ currencies against the US dollar.

Income Taxes

Three months ended
December 31, (Unfavorable) favorable
(Dollars in thousands) 2017 2016 $ %
Income tax (benefit) expense $ (1,623 ) $ 129
$ 1,752
nm
Effective tax rate 45.6 % (8.0 )%


	Three Months Ended December 31,						(Unfavorable) favorable
(Dollars in thousands)	2022			2021			$			%
Income tax expense	$	678		$	24		$	(654	)	nm
Effective tax rate		14.8	%		1.5	%

nm - not meaningful

For the three months ended December 31, ~~2017,~~2022 and 2021, respectively, the effective tax rate was different than the statutory rate due primarily to ~~a $1.3 million benefit resulting from~~adjustments to deferred tax assets and to valuation allowances that reduce deferred tax assets and to the ~~effect of a reduction in the deferred rate due to passage of the Tax Act, recognition~~recording of net operating losses ~~as deferred tax assets, which were~~in a number of foreign jurisdictions offset by ~~increases~~current year expense in ~~the valuation allowance, certain~~other foreign ~~and state tax effects including a benefit of $0.4 million related to a settlement with the California Franchise Tax Board and other U.S. permanent book to tax differences.~~

For the three months ended December 31, 2016, the effective tax rate was different than the statutory rate due primarily to the recognition of net operating losses as deferred tax assets, which were offset by increases in the valuation allowance, certain foreign and state tax effects, and other U.S. permanent book to tax differences.

jurisdictions.

Although the timing and outcome of tax settlements are uncertain, it is reasonably possible that during the next 12 months a reduction in unrecognized tax benefits may occur ~~in the range of zero to $0.1 million of tax and zero to $0.1 million of interest~~ based on the outcome of tax examinations and as a result of the expiration of various statutes of limitations. We are ~~routinely audited;~~consistently subject to tax audits; due to the ~~ongoing~~ nature of ~~current~~ examinations in multiple jurisdictions, ~~other~~ changes could occur in the amount of gross unrecognized tax benefits during the next 12 months which cannot be estimated at this time. ~~Additionally, we recognized a tax benefit in the amount of $0.4 million during the quarter as a result of a settlement with the California Franchise Tax Board regarding disputed tax matters.~~

~~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, we have recorded a valuation allowance offsetting substantially all of our deferred tax assets in the U.S. and certain foreign jurisdictions, as management believes that it is ~~more-likely-than-not~~more likely than not that we will not realize the benefits of these deductible differences.

Results of Operations

First Nine Months of Fiscal ~~2018~~ 2023Compared to First Nine Months of Fiscal ~~2017~~

2022

Net Revenue and Operating ~~Loss~~

Income

The following table presents our consolidated revenue and operating results for the nine months ended December 31, ~~2017~~2022 and ~~2016:~~

Nine months ended
December 31, Increase (decrease)
(Dollars in thousands) 2017 2016 $ %
Net revenue:
Products $ 25,758
$ 30,257
$ (4,499 ) (14.9 )%
Support, maintenance and subscription services 50,990
47,087
3,903
8.3
Professional services 18,557
19,732
(1,175 ) (6.0 )
Total net revenue 95,305
97,076
(1,771 ) (1.8 )
Cost of goods sold:
Products (inclusive of developed technology amortization) 19,862
22,217
(2,355 ) (10.6 )
Support, maintenance and subscription services 12,610
12,714
(104 ) (0.8 )
Professional services 15,160
13,835
1,325
9.6
Total cost of goods sold 47,632
48,766
(1,134 ) (2.3 )
Gross profit 47,673
48,310
(637 ) (1.3 )
Gross profit margin 50.0 % 49.8 %
Operating expenses:
Product development 20,708
20,647
61
0.3
Sales and marketing 13,616
15,746
(2,130 ) (13.5 )
General and administrative 18,475
13,692
4,783
34.9
Depreciation of fixed assets 1,892
1,791
101
5.6
Amortization of intangibles 1,421
1,031
390
37.8
Restructuring, severance and other charges 1,241
1,484
(243 ) (16.4 )
Legal settlements 150
85
65
76.5
Operating loss $ (9,830 ) $ (6,166 ) $ (3,664 ) 59.4 %

2021:


	Nine Months Ended December 31,						Increase (decrease)
(Dollars in thousands)	2022			2021			$			%
Net revenue:
Products	$	32,291		$	24,244		$	8,047			33.2	%
Subscription and maintenance		86,917			72,371			14,546			20.1	%
Professional services		25,960			19,463			6,497			33.4	%
Total net revenue		145,168			116,078			29,090			25.1	%
Cost of goods sold:
Products		16,682			12,420			4,262			34.3	%
Subscription and maintenance		19,223			15,184			4,039			26.6	%
Professional services		20,627			14,634			5,993			41.0	%
Total cost of goods sold		56,532			42,238			14,294			33.8	%
Gross profit	$	88,636		$	73,840		$	14,796			20.0	%
Gross profit margin		61.1	%		63.6	%
Operating expenses:
Product development	$	36,550		$	34,074		$	2,476			7.3	%
Sales and marketing		16,619			10,418			6,201			59.5	%
General and administrative		22,850			20,330			2,520			12.4	%
Depreciation of fixed assets		1,371			1,609			(238	)		(14.8	)%
Amortization of internal-use software and intangibles		1,326			1,077			249			23.1	%
Other charges		374			1,187			(813	)		(68.5	)%
Legal settlements		104			371			(267	)	nm
Operating income	$	9,442		$	4,774		$	4,668			97.8	%
Operating income percentage		6.5	%		4.1	%

nm - not meaningful

Nine months ended
December 31,
2017 2016
Net revenue:
Products 27.0 % 31.2 %
Support, maintenance and subscription services 53.5
48.5
Professional services 19.5
20.3
Total 100.0 % 100.0 %
Cost of goods sold:
Products (inclusive of developed technology amortization) 20.8 % 22.9 %
Support, maintenance and subscription services 13.2
13.0
Professional services 15.9
14.3
Total 50.0 % 50.2 %
Gross profit 50.0 % 49.8 %
Operating expenses:
Product development 21.7 % 21.4 %
Sales and marketing 14.3
16.2
General and administrative 19.4
14.1
Depreciation of fixed assets 2.0
1.8
Amortization of intangibles 1.5
1.1
Restructuring, severance and other charges 1.3
1.5
Legal settlements 0.2
0.1
Operating loss (10.3 )% (6.4 )%


	Nine Months Ended December 31,
	2022			2021
Net revenue:
Products		22.2	%		20.9	%
Subscription and maintenance		59.9			62.3
Professional services		17.9			16.8
Total net revenue		100.0	%		100.0	%
Cost of goods sold:
Products		11.5	%		10.7	%
Subscription and maintenance		13.2			13.1
Professional services		14.2			12.6
Total net cost of goods sold		38.9	%		36.4	%
Gross profit		61.1	%		63.6	%
Operating expenses:
Product development		25.2	%		29.4	%
Sales and marketing		11.5			9.0
General and administrative		15.7			17.5
Depreciation of fixed assets		0.9			1.4
Amortization of internal-use software and intangibles		0.9			0.9
Other charges		0.3			1.0
Legal settlements		0.1			0.3
Operating income		6.5	%		4.1	%

Net revenue. Total net revenue ~~decreased $1.8~~increased $29.1 million, or ~~1.8%~~25.1%, during the first nine months of fiscal ~~2018~~2023 compared to the first nine months of fiscal ~~2017.~~2022. Products revenue ~~decreased $4.5~~increased $8.0 million, or ~~14.9%~~33.2%, ~~during the first nine months of fiscal 2018 as compared~~due to ~~the first nine months of fiscal 2017 due primarily~~higher sales and deliveries to ~~decreased hardware sales. Support,~~new customers and expansion with existing customers. Subscription and maintenance ~~and subscription services~~ revenue increased ~~$3.9~~$14.5 million, or ~~8.3%~~20.1%, compared to the first nine months of fiscal ~~2017~~2022 driven ~~primarily~~ by continued ~~increases~~growth in ~~subscription based~~subscription-based service revenue, which increased ~~36.0%~~28.9% during the first nine months of fiscal ~~2018. Professional services revenue decreased $1.2 million, or 6.0% as a result of decreased volume of customer installation and implementation projects related~~2023 compared to ~~the sale of on premise and subscription based solutions.~~

~~Gross profit and gross profit margin.~~ ~~Our total gross profit decreased $0.6 million, or 1.3%, for~~ the first nine months of fiscal ~~2018~~2022. Professional services revenue increased $6.5 million, or 33.4%, due to higher sales and service activity as our new and existing customers continue implementing technology to improve their operations.

Gross profit and gross profit margin. Our total gross profit ~~margin~~ increased 0.2% to 50.0%, from 49.8%. Products gross profit decreased $2.1 million and gross profit margin decreased 3.7% to 22.9% from 26.6% primarily as a result of an increase of $1.6 million of developed technology amortization related to our rGuest solutions. Support, maintenance and subscription services gross profit increased $4.0$14.8 million, or 11.7% and gross profit margin increased 2.3% to 75.3% due to the scalable nature of our infrastructure supporting and hosting customers. Professional services gross profit decreased $2.5 million and gross profit margin decreased 11.6% to 18.3% as a re-deployment of internal resources that were previously not billable were converted into billable functions as a part of restructuring our professional services workforce into teams responsible for named customer accounts.

~~Operating expenses~~

~~Operating expenses, excluding the charges for asset write-offs and other fair value adjustments, legal settlements, and restructuring, severance and other charges, increased $3.2 million, or 6.1%~~20.0%, during the first nine months of fiscal ~~2018~~2023 and total gross profit margin decreased from 63.6% to 61.1% compared to the first nine months of fiscal 2022 driven by changes in the composition of revenue by category. Products gross profit increased $3.8 million, or 32.0%, and products gross profit margin decreased from 48.8% to 48.3% due to the composition of hardware products delivered. Subscription and maintenance gross profit increased $10.5 million, or 18.4%, and gross profit margin decreased from 79.0% to 77.9% as certain variable costs increased ahead of related revenue. Professional services gross profit margin decreased from 24.8% to 20.5% reflecting lower utilization rates due to higher non-billable hours on new, more complex solution implementations over the comparable nine-month periods.

Operating expenses

Operating expenses, excluding other charges and legal settlements, increased $11.2 million, or 16.6%, during the first nine months of fiscal 2023 compared with the first nine months of fiscal ~~2017.~~

2022.

Product development. Product development ~~remained relatively flat~~increased $2.5 million, or 7.3%, in the first nine months of fiscal ~~2018~~2023 compared with the first nine months of fiscal ~~2017 which includes an increase of internal R&D headcount offset by a decrease in contract labor.~~

2022 due to hiring and increased salary and incentive rates across our development teams.

Sales and marketing. Sales and marketing ~~decreased $2.1~~increased $6.2 million, or ~~13.5%~~59.5%, in the first nine months of fiscal ~~2018~~2023 compared with the first nine months of fiscal ~~2017. The change is~~2022 due ~~primarily~~ to ~~a decrease~~various sales and marketing investments including several key hires, significantly higher levels of ~~$1.9 million in incentive commissions related to the revision of our~~marketing event and trade show activity and increased commission ~~plan from total contract value to annual contract value, and $0.3 million decrease in advertising and promotion.~~

expense on higher sales activity.

General and administrative. General and administrative increased ~~$4.8~~$2.5 million, or ~~34.9%~~12.4%, in the first nine months of fiscal ~~2018~~2023 compared with the first nine months of fiscal 2017 due primarily to increases of $2.5 million in stock compensation expense related to executive stock grants and the impact of removing forfeiture rates as a result of adopting ASU No. 2016-09, coupled with forfeitures in the prior year2022 due to ~~the departure~~investments in our information security and information technology infrastructure along with hiring and increased salary and incentive rates across our administrative teams, higher rent, and higher subscription charges for cloud computing arrangements.

Other charges. Other charges consist of ~~former executives. In addition, there was an increase~~severance costs, infrequent settlements of ~~$0.9 million in salaries~~customer disputes and wages as a result of additional headcount that included several key new hires, and an increase of $0.8 million in professional fees related to legal, accounting and tax fees and other ongoing initiatives.

~~Restructuring, severance, and other charges.~~ Restructuring, severance, and other charges decreased $0.2 million during the first nine months of fiscal 2018 compared to the first nine months of fiscal 2017. In the first nine months of fiscal 2018 we had $1.0 million in restructuring expense and $0.2 million in severanceacquisition costs related to our ongoing efforts to better allocate resources to our crucial revenue growth areas while increasing internal efficiencies in other non-revenue generating areas. In the first nine months of fiscal 2017 we had $1.4 million in one-time charges related primarily to the severance of our former CEO. The restructuring initiative will result in annual savings of $2.7 million across all of our operating expense categories.

~~Legal Settlements.~~ ~~During the first nine months of fiscal 2018, we recorded $0.2 million in legal settlements.~~

business combinations.

Other (Income) Expenses ~~(Income)~~

Nine months ended
December 31, (Unfavorable) favorable
(Dollars in thousands) 2017 2016 $ %
Other (income) expense:
Interest income $ (64 ) $ (135 ) $ (71 ) (52.6 )%
Interest expense 7
11
$ 4
36.4 %
Other (income) expense, net (196 ) 140
336
240.0 %
Total other expense (income), net $ (253 ) $ 16
$ 269
nm


	Nine Months Ended December 31,						(Unfavorable) favorable
(Dollars in thousands)	2022			2021			$		%
Other (income) expense:
Interest income	$	(1,186	)	$	(45	)	$	1,141	nm
Interest expense		0			5			5	nm
Other (income) expense, net		(799	)		53			852	nm
Total other (income) expense, net	$	(1,985	)	$	13		$	1,998	nm

nm - not meaningful

money market funds.

Interest expense. Interest expense consists of costs associated with ~~capital~~finance leases.

~~Other (income) expense.~~

Income Taxes

Nine months ended
December 31, (Unfavorable) favorable
(Dollars in thousands) 2017 2016 $ %
Income tax (benefit) expense $ (1,439 ) $ 252
$ 1,691
nm
Effective tax rate 15.0 % (4.1 )%


	Nine Months Ended December 31,						(Unfavorable) favorable
(Dollars in thousands)	2022			2021			$			%
Income tax expense	$	920		$	265		$	(655	)	nm
Effective tax rate		8.1	%		5.6	%

nm - not meaningful

For the nine months ended December 31, ~~2017,~~2022 and 2021, respectively, the effective tax rate was different than the statutory rate due primarily to ~~a $1.3 million benefit resulting from~~adjustments to deferred tax assets and to valuation allowances that reduce deferred tax assets and to the ~~effect of a reduction in the deferred rate due to passage of the Tax Act, recognition~~recording of net operating losses ~~as deferred tax assets, which were~~in a number of foreign jurisdictions offset by ~~increases~~current year expense in ~~the valuation allowance, certain~~other foreign ~~and state tax effects including a benefit of $0.4 million related to a settlement with the California Franchise Tax Board and other U.S. permanent book to tax differences.~~

For the nine months ended December 31, 2016, the effective tax rate was different than the statutory rate due primarily to the recognition of net operating losses as deferred tax assets, which were offset by increases in the valuation allowance, certain foreign and state taxes, and other U.S. permanent book to tax differences.

jurisdictions.

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.

Liquidity and Capital Resources

Overview

Our ~~operating~~ cash requirements consist primarily of working capital needs, capital expenditures and payments of contractual obligations. Our contractual obligations consist primarily of operating ~~expenses,~~leases for office space and ~~capital expenditures.~~ preferred stock dividends.

At December 31, 2022, 100% of our cash and cash equivalents, of which 92% were located in the United States, were deposited in bank accounts or invested in highly liquid investments including commercial paper and treasury bills with original maturity from the date of acquisition of three months or less and money market funds. We determine the fair value of commercial paper using significant other observable inputs 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. We believe credit risk is limited with respect to our cash and cash equivalents.

We believe that cash flow from operating activities, cash ~~on hand~~and cash equivalents of ~~$37.6~~$105.8 million as of December 31, ~~2017~~2022, and access to capital markets will provide adequate funds to meet our short- and long-term liquidity ~~requirements in the next 12 months.~~

~~As of December 31, 2017 and March 31, 2017, our total debt was approximately $0.2 million, comprised of capital lease obligations in both periods.~~

At December 31, 2017, 100% of our cash and cash equivalents were deposited in bank accounts or invested in highly liquid investments with original maturities of three months or less. We maintain approximately 92% of our cash and cash equivalents in the United States. Therefore, we believe that credit risk is limited with respect to our cash and cash equivalents.

requirements.

Cash Flow

Nine months ended
December 31,
(In thousands) 2017 2016
Net cash provided by (used in):
Operating activities $ 2,098
$ 5,393
Investing activities (12,588 ) (12,502 )
Financing activities (1,282 ) (687 )
Effect of exchange rate changes on cash 132
(99 )
Net decrease in cash and cash equivalents $ (11,640 ) $ (7,895 )


	Nine Months Ended December 31,
(In thousands)		2022			2021
Net cash provided by (used in):
Operating activities	$	17,680		$	21,815
Investing activities		(3,643	)		(1,081	)
Financing activities		(4,763	)		(4,754	)
Effect of exchange rate changes on cash		(427	)		(38	)
Increase in cash	$	8,847		$	15,942

Cash flow provided by operating activities. Cash flow provided by operating activities was ~~$2.1~~$17.7 million in the first nine months of fiscal ~~2018. Operating~~2023. The provision of cash was due to cash-based earnings of $22.3 million and a decrease of $4.6 million due to changes in net operating assets and ~~liabilities decreased $3.4~~liabilities. Cash-based earnings is net income of $10.5 million ~~due mainly to the timing~~plus $11.8 million of ~~collections and operating loss of $8.1 million were offset by~~ non-cash ~~charges of $10.7 million in~~expenses including depreciation, ~~and~~ amortization, and ~~$3.8 million in~~ share-based compensation. ~~Total share-based compensation increased $3.0 million for the nine months ended December 31, 2017 due to higher value executive stock grants and the impact of removing forfeiture rates.~~

Cash flow used in investing activities. ~~For the first nine months of fiscal 2018, the $12.6 million in cash used in investing activities was~~ Consists primarily ~~comprised of $7.3 million for the development of proprietary software and $5.3 million for purchase~~ of property and equipment ~~and internal use software development.~~

purchases.

Cash flow used in financing activities. During the first nine months of fiscal ~~2018,~~2023, the ~~$1.3~~$4.8 million used in financing activities ~~was~~consisted primarily ~~comprised~~ of ~~$1.2~~$2.9 million related to the repurchase of shares to satisfy employee tax ~~withholding.~~

withholding on share-based compensation and $1.8 million in preferred stock dividends.

Contractual Obligations

In December 2017, the Company entered into a new lease for an office in Singapore. The lease term commenced in December 2017 upon possession by the Company. The total commitment for this lease is approximately $1.0 million over a 36-month period.

In December 2017, the Company entered into a new lease for an inventory warehouse in Roswell, GA. The lease term commenced in January 2018 upon possession by the Company. The total commitment for this lease is approximately $0.2 million over a 62-month period.

As of December 31, ~~2017,~~2022, there were no ~~other~~ significant changes to our contractual obligations as presented in our Annual Report for the year ended March 31, ~~2017~~.

2022, other than the operating lease that commenced during the nine months ended December 31, 2022, as described in Note 4, Additional Balance Sheet Information, to the condensed consolidated financial statements.

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

A detailed description of our significant accounting policies is included in our Annual Report for the year ended March 31, ~~2017~~.2022. There have been no material changes in our significant accounting policies and estimates since March 31, ~~2017~~ ~~except as noted in Note 2,~~ ~~Summary of Significant Accounting Policies~~.

2022.

Forward-Looking Information

This Quarterly Report and other 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. 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~~These statements are ~~neither historical facts nor assurances~~not guarantees of future ~~performance. Instead, they are based only on our current beliefs, expectations~~performance and ~~assumptions regarding the future of our business, future plans~~involve risks, uncertainties, and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstancesassumptions that are difficult to ~~predict~~predict. These statements are based on management’s current expectations, intentions, or beliefs and ~~many~~are subject to a number of ~~which are outside of our control. Our actual results~~factors, assumptions, and ~~financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors~~uncertainties that could cause ~~our~~ actual results ~~and financial condition~~ to differ materially from those ~~indicated~~described in the forward-looking ~~statements~~statements. Factors that could cause or contribute to such differences or that might otherwise impact the business include ~~among others, our ability to achieve operational efficiencies and meet customer demand for products and services and~~ the risk factors set forth in Item 1A in Part II of this Quarterly Report and Item IA of our Annual Report for the fiscal year ended March 31, ~~2017. Any forward-looking statement made by us in this Quarterly Report is based only on information currently available to us and speaks only as of the date on which it is made.~~2022. We undertake no obligation to ~~publicly~~ update any such factor or to publicly announce the results of any revisions to any forward-looking ~~statement made in this Quarterly Report or any other forward-looking statement that may be made from time to time, whether written or oral,~~statements contained herein whether as a result of new information, future events, or otherwise.

Item 3. Quantitative and ~~Qualitative~~Qualitative Disclosures About Market Risk

For quantitative and qualitative disclosures about market risk affecting us, see Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” contained in our Annual Report for the fiscal year ended March 31, ~~2017~~.2022. There have been no material changes in our market risk exposures since March 31, ~~2017~~.

2022.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision of and with the participation of our Chief Executive Officer (CEO), Chief Financial Officer (CFO) and Corporate Controller and Treasurer, management evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this Quarterly Report. Based on that evaluation, the CEO, CFO and Corporate Controller and Treasurer concluded that, as of the end of the period covered by this Quarterly Report, our disclosure controls and procedures were effective.

~~Change~~

Changes in Internal Control over Financial Reporting

~~None.~~

No changes in our internal control over financial reporting occurred during the nine months ended December 31, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Significant portions of our global workforce continued to operate primarily in a work from home environment for the quarter ended December 31, 2022. The design of our financial reporting processes, systems, and controls allows for remote operation with access to secure data.

Inherent Limitations on Effectiveness of Controls

Our management, including our Chief Executive Officer, Chief Financial Officer and Corporate Controller and Treasurer, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system will be achieved. Further, the design of a control system must reflect the impact of resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the possibility that judgments in decision-making can be faulty, and that breakdowns can occur because of simple errors. Additionally, controls can be circumvented by individual acts, by collusion of two or more people, or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all possible future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

There have been no material changes in the risk factors included in our Annual Report for the fiscal year ended March 31, ~~2017~~2022 that may materially affect our business, results of operations, or financial condition.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits


~~31.1~~


31.1			Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.


~~31.2~~
31.2			Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.


~~31.3~~
31.3			Rule 13a-14(a)/15d-14(a) Certification of Corporate Controller and Treasurer.


32
32			Certification of Chief Executive Officer, Chief Financial Officer and Corporate Controller and Treasurer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002.


~~101~~	~~The following materials from our quarterly report on Form 10-Q for~~
101.INS		Inline XBRL Instance Document – the ~~quarter ended December 31, 2017, formatted~~instance document does not appear in the Interactive Data File because XBRL ~~(Extensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets at December 31, 2017 and March 31, 2017, (ii) Condensed Consolidated Statements of Operations for~~tags are embedded within the ~~three and nine months ended December 31, 2017 and 2016, (iii) Condensed Consolidated Statements of Comprehensive Loss for~~Inline XBRL document.

101.SCH		Inline XBRL Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

104		Cover Page Interactive Data File (embedded within the three and nine months ended December 31, 2017 and 2016, (iv) Condensed Consolidated Statements of Cash Flows for the nine months ended December 31, 2017 and 2016, and (v) Notes to Condensed Consolidated Financial Statements for the three and nine months ended December 31, 2017.Inline XBRL document)

*		Denotes a management contract or compensatory plan or arrangement.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Quarterly Report to be signed on its behalf by the undersigned thereunto duly authorized.

AGILYSYS, INC.



Date:	January 26, ~~2018~~2023	/s/ ~~Anthony S. Pritchett~~William David Wood III
		~~Anthony S. Pritchett~~ William David Wood III
		Chief Financial Officer
		(Principal Financial Officer and Duly Authorized Officer)


x ☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


¨ ☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934




Part I. Financial Information
	Item 1	Financial Statements (Unaudited)	3

		Condensed Consolidated Balance Sheets ~~(Unaudited) -~~– December 31, ~~2017~~2022 (Unaudited) and March 31, ~~2017~~2022	3

		Condensed Consolidated Statements of Operations (Unaudited) - Three and Nine Months Ended December 31, ~~2017~~2022 and December 31, ~~2016~~2021	4

		Condensed Consolidated Statements of Comprehensive ~~Loss~~Income (Unaudited) - Three and Nine Months Ended December 31, ~~2017~~2022 and December 31, ~~2016~~2021	5

		Condensed Consolidated Statements of Cash Flows (Unaudited) -– Nine Months Ended December 31, ~~2017~~2022 and December 31, ~~2016~~2021	6

		Condensed Consolidated Statements of Shareholders' Equity (Unaudited) - Three and Nine Months Ended December 31, 2022 and December 31, 2021	7

		Notes to Condensed Consolidated Financial Statements (Unaudited)	7 8

	Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19 17

	Item 3	Quantitative and Qualitative Disclosures About Market Risk	29 26

	Item 4	Controls and Procedures	29 26

Part II. Other Information

	Item 1	Legal Proceedings	30 27

	Item 1A	Risk Factors	30 27

	Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	30 27

	Item 3	Defaults Upon Senior Securities	30 27

	Item 4	Mine Safety Disclosures	30 27

	Item 5	Other Information	30 27

	Item 6	Exhibits	30 28

Signatures			29



	December 31, 2017			March 31, 2017
(In thousands, except share data)
ASSETS
Current assets:
Cash and cash equivalents	$	37,615		$	49,255
Accounts receivable, net of allowance for doubtful accounts of $751 and $509, respectively	14,746			15,598
Inventories	2,131			2,211
Prepaid expenses and other current assets	6,849			6,456
Total current assets	61,341			73,520
Property and equipment, net	17,760			16,000
Goodwill	19,622			19,622
Intangible assets, net	8,496			8,530
Software development costs, net	46,086			46,999
Other non-current assets	2,613			2,634
Total assets	$	155,918		$	167,305
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	8,175		$	8,702
Deferred revenue	23,433			29,183
Accrued liabilities	9,843			8,331
Capital lease obligations, current	113			121
Total current liabilities	41,564			46,337
Deferred income taxes, non-current	2,105			3,181
Capital lease obligations, non-current	50			116
Other non-current liabilities	3,985			4,002
Commitments and contingencies (see Note 6)
Shareholders' equity:
Common shares, without par value, at $0.30 stated value; 80,000,000 shares authorized; 31,606,831 shares issued; and 23,402,512 and 23,210,682 shares outstanding at December 31, 2017 and March 31, 2017, respectively	9,482			9,482
Treasury shares, 8,204,319 and 8,396,149 at December 31, 2017 and March 31, 2017, respectively	(2,463		)	(2,519		)
Capital in excess of stated value	(2,418		)	(5,782		)
Retained earnings	103,812			112,692
Accumulated other comprehensive loss	(199		)	(204		)
Total shareholders' equity	108,214			113,669
Total liabilities and shareholders' equity	$	155,918		$	167,305



	Three months ended						Nine months ended
	December 31,						December 31,
(In thousands, except share data)	2017			2016			2017			2016
Net revenue:
Products	$	8,156		$	10,006		$	25,758		$	30,257
Support, maintenance and subscription services	17,215			16,234			50,990			47,087
Professional services	5,939			7,208			18,557			19,732
Total net revenue	31,310			33,448			95,305			97,076
Cost of goods sold:
Products (inclusive of developed technology amortization)	6,820			7,530			19,862			22,217
Support, maintenance and subscription services	4,132			4,464			12,610			12,714
Professional services	4,730			5,213			15,160			13,835
Total cost of goods sold	15,682			17,207			47,632			48,766
Gross profit	15,628			16,241			47,673			48,310
	49.9		%	48.6		%	50.0		%	49.8		%
Operating expenses:
Product development	7,269			6,847			20,708			20,647
Sales and marketing	4,278			5,000			13,616			15,746
General and administrative	6,114			3,678			18,475			13,692
Depreciation of fixed assets	581			598			1,892			1,791
Amortization of intangibles	471			353			1,421			1,031
Restructuring, severance and other charges	378			1,394			1,241			1,484
Legal settlements	150			—			150			85
Operating loss	(3,613		)	(1,629		)	(9,830		)	(6,166		)
Other (income) expense:
Interest income	(13		)	(86		)	(64		)	(135		)
Interest expense	3			3			7			11
Other expense, net	(46		)	62			(196		)	140
Loss before taxes	(3,557		)	(1,608		)	(9,577		)	(6,182		)
Income tax (benefit) expense	(1,623		)	129			(1,439		)	252
Net loss	$	(1,934	)	$	(1,737	)	$	(8,138	)	$	(6,434	)

Weighted average shares outstanding	22,851			22,611			22,777			22,605
Loss per share - basic and diluted:
Loss per share	$	(0.08	)	$	(0.08	)	$	(0.36	)	$	(0.28	)



	Balance at							Balance at
	March 31,		Provision/					December 31,
(in thousands)	2017		Adjustments		Payments			2017
Fiscal 2018 Restructuring Plan:
Restructuring and other employment costs	$	—	$	1,024	$	(821	)	$	203

Total restructuring costs	$	—	$	1,024	$	(821	)	$	203



	December 31, 2017							March 31, 2017
	Gross					Net		Gross					Net
	carrying		Accumulated			carrying		carrying		Accumulated			carrying
(In thousands)	amount		amortization			amount		amount		amortization			amount
Amortized intangible assets:
Customer relationships	$	10,775	$	(10,775	)	$	—	$	10,775	$	(10,775	)	$	—
Non-competition agreements	2,700		(2,700		)	—		2,700		(2,700		)	—
Developed technology	10,055		(10,055		)	—		10,055		(10,055		)	—
Trade names	230		(134		)	96		230		(100		)	130
Patented technology	80		(80		)	—		80		(80		)	—
	23,840		(23,744		)	96		23,840		(23,710		)	130
Unamortized intangible assets:
Trade names	8,400		N/A			8,400		8,400		N/A			8,400
Total intangible assets	$	32,240	$	(23,744	)	$	8,496	$	32,240	$	(23,710	)	$	8,530

Software development costs	$	53,368	$	(17,727	)	$	35,641	$	46,598	$	(10,356	)	$	36,242
Project expenditures not yet in use	10,445		—			10,445		10,757		—			10,757
Total software development costs	$	63,813	$	(17,727	)	$	46,086	$	57,355	$	(10,356	)	$	46,999



	Estimated
	Amortization
(In thousands)	Expense
Fiscal year ending March 31,
2018	$	2,657
2019	10,504
2020	9,765
2021	9,680
2022	2,568
2023	563
Total	$	35,737



	Number of Rights		Weighted- Average Exercise Price		Remaining Contractual Term	Aggregate Intrinsic Value
(In thousands, except share and per share data)			(per right)		(in years)
Outstanding at April 1, 2017	1,094,978		$	10.44
Granted	204,213		10.56
Exercised	(41,691	)	9.14
Forfeited	(55,530	)	9.98
Cancelled/expired	(54,679	)	9.56
Outstanding at December 31, 2017	1,147,291		$	10.58	5.4	$	2,038
Exercisable at December 31, 2017	245,064		$	10.26	3.4	$	574



	Number of Shares		Weighted- Average Grant- Date Fair Value
(In thousands, except share and per share data)			(per share)
Outstanding at April 1, 2017	490,355		$	10.72
Granted	251,010		11.02
Vested	(221,897	)	11.29
Forfeited	(80,793	)	10.72
Outstanding at December 31, 2017	438,675		$	10.60