UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended December 31, 2017
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _______________ to __________.
Commission file number
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 | |
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:
| Trading |
| ||
Common Stock, without par value | ||||
AGYS | ||||
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
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
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 | ☐ | |||||
Non-Accelerated filer | ☐ | ||||||||
Smaller reporting company | ☐ | ||||||||
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
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 asSecurities 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.
1
AGILYSYS, INC.
Table of Contents
Item 1 | |||
7 | |||
Notes to Condensed Consolidated Financial Statements (Unaudited) | 8 | ||
Item 2 | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 17 | |
Item 3 | 26 | ||
Item 4 | 26 | ||
Item 1 | 27 | ||
Item 1A | 27 | ||
Item 2 | 27 | ||
Item 3 | 27 | ||
Item 4 | 27 | ||
Item 5 | 27 | ||
Item 6 | 28 | ||
29 |
2
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, |
| ||
ASSETS |
|
|
|
|
|
| ||
Current assets: |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 105,818 |
|
| $ | 96,971 |
|
Accounts receivable, net of allowance for expected credit losses |
|
| 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 |
|
| 9,482 |
|
|
| 9,482 |
|
Treasury shares, 6,422,104 and 6,878,299 at December 31, 2022 |
|
| (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.
3
AGILYSYS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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 |
|
| Nine Months Ended |
| ||||||||||
(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.
4
AGILYSYS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
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 |
|
| Nine months ended |
| ||||||||||
(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.
5
AGILYSYS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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.
6
AGILYSYS, INC.
(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 |
|
| Shares |
|
| Stated |
|
| Stated |
|
| Retained |
|
| comprehensive |
|
| 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 |
|
| — |
|
|
| — |
|
|
| (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 |
|
| Shares |
|
| Stated |
|
| Stated |
|
| Retained |
|
| comprehensive |
|
| 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 |
|
| — |
|
|
| — |
|
|
| (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 |
|
| Shares |
|
| Stated |
|
| Stated |
|
| Retained |
|
| comprehensive |
|
| 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 |
|
| — |
|
|
| — |
|
|
| (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 |
|
| Shares |
|
| Stated |
|
| Stated |
|
| Retained |
|
| comprehensive |
|
| 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 |
|
| — |
|
|
| — |
|
|
| (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.
7
AGILYSYS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Nature of Operations and Financial Statement Presentation
Nature of Operations
Agilysys ishas been a leading technology company that providesleader 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 forsolutions include point-of-sale (POS), reservation and table management, property management (PMS), inventory and procurement, workforce management, analytics, document management,payments, and mobilerelated applications that manage and wirelessenhance 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.
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 20182023 refers to the fiscal year ending March 31, 2018.
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 SheetsSheet as of December 31, 2017 and 2016,2022, as well as the Condensed Consolidated Statements of Operations, Condensed Consolidated Statements of Comprehensive Loss, and theIncome, Condensed Consolidated Statements of Cash FlowShareholders’ Equity for the three and nine months ended December 31, 20172022 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,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 31,8
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 conformfulfilled. 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 reclassifiedbear 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 costsfor a subscribed period. We do not provide the customer the contractual right to propertylicense the software at any time outside of the subscription period under these contracts. The customer can only benefit from the software and equipment duringsoftware maintenance when provided the year ended March 31, 2017, which impactedright to access the Condensed Consolidated Statementsoftware. Accordingly, each of Cash Flowsthe 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.
9
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, 20162022 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.
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 reviewat the impacts of adopting ASU No. 2014-09 to our consolidated financial statements and these preliminary assessmentsbeginning 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.
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 |
Our arrangements are classifiedfor 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.
Assets Recognized from Costs to Obtain a Contract
Sales commission expenses that would not have occurred absent the customer contracts are carriedconsidered 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 duringsheets. During the three and nine months ended December 31, 2017 and 2016, and $6.52022, we expensed $1.1 million and $8.9$2.6 million, duringrespectively, 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.
10
4. Additional Balance Sheet Information
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 |
|
During the nine months ended December 31, 20172022, an operating lease commenced with a lease term of approximately eleven years. Accordingly, we reported the net lease obligation in operating lease liabilities and 2016, respectively.the associated operating lease right-of-use asset in the condensed consolidated balance sheet as of December 31, 2022.
5. Additional Balance SheetSupplemental Disclosures of Cash Flow Information
Additional information related to the Condensed Consolidated Balance Sheetscondensed 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 |
|
(In thousands) | December 31, 2017 | March 31, 2017 | |||||
Accrued liabilities: | |||||||
Salaries, wages, and related benefits | $ | 7,352 | $ | 6,473 | |||
Other taxes payable | 819 | 750 | |||||
Accrued legal settlements | 150 | — | |||||
Restructuring liabilities | 203 | — | |||||
Severance liabilities | 16 | 11 | |||||
Professional fees | 510 | 221 | |||||
Deferred rent | 420 | 433 | |||||
Other | 373 | 443 | |||||
Total | $ | 9,843 | $ | 8,331 | |||
Other non-current liabilities: | |||||||
Uncertain tax positions | $ | 1,508 | $ | 1,479 | |||
Deferred rent | 2,399 | 2,444 | |||||
Other | 78 | 79 | |||||
Total | $ | 3,985 | $ | 4,002 |
6. Income Taxes
The following table compares our income tax (benefit) expense and effective tax rates for the three and sixnine months ended December 31, 20172022 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 fromadjustments 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,
Because of our losses in prior periods, we have recorded and other U.S. permanent book to tax differences.
11
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 StatesU.S. District Court for theof Southern District of California. The complaint alleges, among other things,California alleging that point-of-sale and property management and other hospitality information technologycertain of our products software, components and/or systems sold by us infringe patents owned by Ameranth purportingdirected to cover generationconfiguring and synchronizationtransmitting 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 synchronizationgranted summary judgment in favor of hospitality informationthe 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, wirelessAmeranth’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. LossEarnings per Share
The following data shows the amounts used in computing lossearnings 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, |
| 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 availableattributable to common shareholders divided by the weighted average basic shares outstanding. The outstanding shares used to calculate the weighted average basic shares excludes 530,138459,306 and 595,625231,199 of restricted shares at December 31, 20172022 and 2016,2021, respectively, as these shares were issued but were not vested and therefore, not considered outstanding for purposes of computing basic (loss) earningsincome per share at the balance sheet dates.
12
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 performancepreferred 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 awardsgrants 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-qualifiedincentive stock options, incentivenon-qualified stock options, SSARs, restricted shares, and restricted share unitsperformance shares under our shareholder-approved 2016 Stock2020 Equity Incentive Plan (the 2016 Plan)("2020 Plan") for up to
We may distribute authorized but unissued shares or treasury shares to satisfy share option and appreciation rightSSAR exercises or restricted share and performance share awards.
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 awardsgrants subject only to a service condition is based on the closing price of our common shares on the grant date. The fair value ofFor stock option and SSARs awards is estimatedSSAR grants subject only to a service condition, we estimate the fair value on the grant date using the Black-Scholes-Merton option pricing
We record compensation expense for restricted shares and SSAR grants subject to a service condition using the graded vesting method. We record compensation expense for SSAR grants subject only to a market condition over the derived service period, which is an output of the lattice option pricing model. Under the 2020 Plan, the fair value of performance shares is based on the closing price of our common shares on the settlement date of the performance award, for which we record compensation expense over the service period consistent with our annual bonus incentive plan as approved by the Compensation Committee of the Board of Directors.
The following table summarizes the share-based compensation expense for options, SSARs, restricted and performance awardsgrants included in the Condensed Consolidated Statementscondensed consolidated statements of 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. Thisexercise price. The value is settled in common shares of Agilysys.
13
The following table summarizes the activity during the nine months ended December 31, 20172022 for SSARs awarded under the 20112020 and 2016 Plans:
(In thousands, except share and per share data) |
| Number of |
|
| Weighted-Average Exercise Price |
|
| Remaining |
|
| Aggregate |
| ||||
|
|
|
|
| (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 basedshare-based compensation expense related to non-vested service condition SSARs was
Restricted Shares
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, 20172022 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 basedshare-based compensation expense related to non-vestedunvested restricted stockshares was
Performance Shares
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 vestingsale 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.
14
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 numberacquired 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.
15
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 willa skilled, assembled workforce. The acquisition resulted in the recognition of $13.9 million of goodwill, which is expected to be based ondeductible for income tax purposes. During the stock pricethree 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 attainmentto 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.
Revenue attributable to ResortSuite included in our consolidated statement of operations for the performance shares awarded under the 2016 Plan:
Effective April 1, 2022, ResortSuite became Agilysys Canada, Inc. a recurring basis and indicate the fair value hierarchywholly-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 |
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 |
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 | $ | — | $ | — | |||
16
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 management
believes 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,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 leadingwell known for its long heritage of hospitality-focused technology companyinnovation. 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 softwareare both personal and servicesprofitable. 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), inventorypoint-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 wirelessreal-time insights to improve decisions. Core solutions exclusivelyand 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.
17
Our top priority is to increaseincreasing 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:
The primary objective of our ongoing strategic planning process is to create shareholder value by capitalizing on growth opportunities, turning profitableincreasing profitability and strengthening our competitive position within the specific technology solutions and end markets we serve. Profitability and industry leadingindustry-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 Statementscondensed 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:
18
Results of Operations
Third Fiscal Quarter 2018 2023Compared to Third Fiscal Quarter 2017
Net Revenue and Operating Loss
The following table presents our consolidated revenue and operating results for the three months ended December 31, 20172022 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 | )% |
|
| 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
19
The following table presents the percentage relationship of our Condensed Consolidated Statementcondensed consolidated statement of Operationsoperations 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 revenueGross profit and gross profit margin.
Our total gross profitOperating 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.
Product development.
Product development increasedSales and marketing.
Sales and marketingGeneral and administrative.
General and administrative increased20
Other charges. Other charges consist of former executives. Furthermore, during the third quarterseverance costs, infrequent settlements of fiscal 2018 there was an increase of $0.5 million in professional fees related to legal, accountingcustomer 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.
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.
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 inInterest expense.
Interest expense consists of costs associated withOther (income) expense, net. Other (income) expense, net mainly consists mainly of the impactmovement 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 fromadjustments 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, recognitionrecording of net operating losses as deferred tax assets, which werein a number of foreign jurisdictions offset by increasescurrent year expense in the valuation allowance, certainother 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.
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.
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-notmore likely than not that we will not realize the benefits of these deductible differences.
21
Results of Operations
First Nine Months of Fiscal 2018 2023Compared to First Nine Months of Fiscal 2017
Net Revenue and Operating Loss
The following table presents our consolidated revenue and operating results for the nine months ended December 31, 20172022 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 | % |
|
| 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
The following table presents the percentage relationship of our Condensed Consolidated Statementcondensed consolidated statement of Operationsoperations line items to our consolidated net revenues for the periods presented:
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 | )% |
22
|
| 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 revenueGross 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 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.
Product development.
Product developmentSales and marketing.
Sales and marketingGeneral and administrative.
General and administrative increasedOther charges. Other charges consist of former executives. In addition, there was an increaseseverance costs, infrequent settlements of $0.9 million in salariescustomer 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.
23
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
Interest income.
Interest income consists of interest earned on cash equivalents including short-term investments inInterest expense.
Interest expense consists of costs associated withOther (income) expense, net. Other (income) expense, net mainly consists mainly of the impactmovement of foreign currency due to movement of European, Indian and Asian currencies against the US dollar.
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 fromadjustments 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, recognitionrecording of net operating losses as deferred tax assets, which werein a number of foreign jurisdictions offset by increasescurrent year expense in the valuation allowance, certainother 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.
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.
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 handand cash equivalents of $37.6$105.8 million as of December 31, 20172022, and access to capital markets will provide adequate funds to meet our short- and long-term liquidity requirements in the next 12 months.
24
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 wasCash flow used in investing activities.
Cash flow used in financing activities.
During the first nine months of fiscalContractual Obligations
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
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,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-lookingThese statements are neither historical facts nor assurancesnot guarantees of future performance. Instead, they are based only on our current beliefs, expectationsperformance and assumptions regarding the future of our business, future plansinvolve 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 predictpredict. These statements are based on management’s current expectations, intentions, or beliefs and manyare subject to a number of which are outside of our control. Our actual resultsfactors, 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 factorsuncertainties that could cause our actual results and financial condition to differ materially from those indicateddescribed in the forward-looking statementsstatements. 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.
25
Item 3. Quantitative and QualitativeQualitative 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,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.
Changes in Internal Control over Financial Reporting
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.
26
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, 20172022 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.
27
Item 6. Exhibits
31.1 | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer. |
31.2 | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer. |
31.3 | Rule 13a-14(a)/15d-14(a) Certification of Corporate Controller and Treasurer. |
32 |
101.INS | Inline XBRL Instance Document – the | ||
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 | ||
* | Denotes a management contract or compensatory plan or arrangement. |
28
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, | /s/ |
William David Wood III | ||
Chief Financial Officer | ||
(Principal Financial Officer and Duly Authorized Officer) |
29