(Former name, former address and former fiscal year, if changed since last report)

CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30, 2020 Unaudited			March 31, 2020
ASSETS
Current assets:
Cash and cash equivalents	$	85,706		$	46,653
Accounts receivable, net of allowance for expected credit losses of $1,209 and for doubtful accounts of $1,634, respectively		20,173			35,869
Contract assets		2,475			2,125
Inventories		2,174			3,887
Prepaid expenses and other current assets		5,016			4,874
Total current assets		115,544			93,408
Property and equipment, net		10,108			12,230
Operating lease right-of-use assets		13,023			13,829
Goodwill		19,622			19,622
Intangible assets, net		8,400			8,400
Deferred income taxes, non-current		1,040			764
Other non-current assets		5,977			6,309
Total assets	$	173,714		$	154,562
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	3,176		$	13,403
Contract liabilities		30,755			42,244
Accrued liabilities		7,185			9,033
Operating lease liabilities, current		4,638			4,719
Finance lease obligations, current		23			24
Total current liabilities		45,777			69,423
Deferred income taxes, non-current		889			880
Operating lease liabilities, non-current		9,923			10,617
Finance lease obligations, non-current		14			25
Other non-current liabilities		3,728			1,860
Commitments and contingencies (see Note 8)
Series A convertible preferred stock, no par value		35,459			—
Shareholders' equity:
Common shares, without par value, at $0.30 stated value; 80,000,000 shares authorized; 31,606,831 shares issued; and 23,588,178 and 23,609,398 shares outstanding at September 30, 2020 and March 31, 2020, respectively		9,482			9,482
Treasury shares, 8,018,653 and 7,997,433 at September 30, 2020 and March 31, 2020, respectively		(2,406	)		(2,401	)
Capital in excess of stated value		8,151			5,491
Retained earnings		62,645			58,984
Accumulated other comprehensive income		52			201
Total shareholders' equity		77,924			71,757
Total liabilities and shareholders' equity	$	173,714		$	154,562

~~(Unaudited)~~

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

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

AGILYSYS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three Months Ended September 30,						Six Months Ended September 30,
	2020			2019			2020			2019
Net revenue:
Products	$	6,559		$	11,873		$	11,798		$	22,742
Support, maintenance and subscription services		22,304			20,329			42,801			40,411
Professional services		5,497			8,520			9,567			15,958
Total net revenue		34,360			40,722			64,166			79,111
Cost of goods sold:
Products (inclusive of developed technology amortization)		2,950			9,794			5,965			18,417
Support, maintenance and subscription services		4,555			4,654			8,860			8,834
Professional services		3,701			6,057			7,638			11,628
Total cost of goods sold		11,206			20,505			22,463			38,879
Gross profit		23,154			20,217			41,703			40,232
Gross profit margin		67.4	%		49.6	%		65.0	%		50.9	%
Operating expenses:
Product development		8,257			10,778			16,524			20,842
Sales and marketing		2,350			4,890			4,951			9,389
General and administrative		5,217			6,038			10,936			11,911
Depreciation of fixed assets		715			707			1,438			920
Amortization of intangibles		508			614			968			1,292
Severance and other charges		7			190			1,210			421
Legal settlements, net		50			(119	)		50			(119	)
Total operating expense		17,104			23,098			36,077			44,656
Operating income (loss)		6,050			(2,881	)		5,626			(4,424	)
Other (income) expense:
Interest income		(28	)		(114	)		(49	)		(194	)
Interest expense		2			2			3			3
Other expense, net		88			108			194			193
Income (loss) before taxes		5,988			(2,877	)		5,478			(4,426	)
Income tax expense		121			41			128			67
Net income (loss)	$	5,867		$	(2,918	)	$	5,350		$	(4,493	)
Series A convertible preferred stock issuance costs		(94	)		-			(1,031	)		-
Series A convertible preferred stock dividends		(459	)		-			(658	)		-
Net income (loss) attributable to common shareholders	$	5,314		$	(2,918	)	$	3,661		$	(4,493	)

Weighted average shares outstanding - basic		23,424			23,238			23,415			23,225

Net income (loss) per share - basic:	$	0.23		$	(0.13	)	$	0.16		$	(0.19	)

Weighted average shares outstanding - diluted		23,866			23,238			23,849			23,225

Net income (loss) per share - diluted:	$	0.22		$	(0.13	)	$	0.15		$	(0.19	)

~~(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 )

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

AGILYSYS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE ~~LOSS~~INCOME (LOSS)

(Unaudited)

	Three Months Ended September 30,						Six Months Ended September 30,
	2020			2019			2020			2019
Net income (loss)	$	5,867		$	(2,918	)	$	5,350		$	(4,493	)
Other comprehensive income (loss), net of tax:
Unrealized foreign currency translation adjustments		(124	)		156			(149	)		61
Total comprehensive income (loss)	$	5,743		$	(2,762	)	$	5,201		$	(4,432	)

~~(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 )

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

AGILYSYS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months Ended September 30,
	2020			2019
Operating activities
Net income (loss)	$	5,350		$	(4,493	)
Adjustments to reconcile income (loss) from operations to net cash provided by operating activities
Depreciation		1,438			920
Amortization of intangibles		968			1,292
Amortization of developed technology		—			6,303
Deferred income taxes		(269	)		(239	)
Share-based compensation		2,682			1,827
Changes in operating assets and liabilities		(3,527	)		(4,376	)
Net cash provided by operating activities		6,642			1,234
Investing activities
Capital expenditures		(471	)		(1,940	)
Additional investments in corporate-owned life insurance policies		(2	)		(2	)
Net cash used in investing activities		(473	)		(1,942	)
Financing activities
Repurchase of common shares to satisfy employee tax withholding		(959	)		(1,053	)
Series A convertible preferred stock issuance proceeds, net of issuance costs		33,969			—
Payment of preferred stock dividends		(199	)		—
Principal payments under long-term obligations		(12	)		(12	)
Net cash provided by (used in) financing activities		32,799			(1,065	)
Effect of exchange rate changes on cash		85			(83	)
Net increase (decrease) in cash and cash equivalents		39,053			(1,856	)
Cash and cash equivalents at beginning of period		46,653			40,771
Cash and cash equivalents at end of period	$	85,706		$	38,915

~~(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

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

AGILYSYS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(Unaudited)

	Three Months Ended September 30, 2020
	Common Shares										Capital in						Accumulated
	Issued				In Treasury						excess of						other
(In thousands)	Shares		Stated value		Shares			Stated value			stated value			Retained earnings			comprehensive income (loss)			Total
Balance at June 30, 2020		31,607	$	9,482		(7,994	)	$	(2,399	)	$	6,760		$	57,331		$	176		$	71,350
Share-based compensation		—		—		—			—			1,409			—			—			1,409
Restricted shares issued, net		—		—		(27	)		(8	)		8			—			—			—
Shares issued upon exercise of SSARs		—		—		3			1			(1	)		—			—			—
Shares withheld for taxes upon exercise of stock options, SSARs or vesting of restricted shares		—		—		(1	)		—			(25	)		—			—			(25	)
Net income		—		—		—			—			—			5,867			—			5,867
Series A convertible preferred stock issuance costs		—		—		—			—			—			(94	)		—			(94	)
Series A convertible preferred stock dividends		—		—		—			—			—			(459	)		—			(459	)
Unrealized translation adjustments		—		—		—			—			—			—			(124	)		(124	)
Balance at September 30, 2020		31,607	$	9,482		(8,019	)	$	(2,406	)	$	8,151		$	62,645		$	52		$	77,924

	Three Months Ended September 30, 2019
	Common Shares										Capital in						Accumulated
	Issued				In Treasury						excess of						other
(In thousands)	Shares		Stated value		Shares			Stated value			stated value			Retained earnings			comprehensive income (loss)			Total
Balance at June 30, 2019		31,607	$	9,482		(7,927	)	$	(2,379	)	$	1,698		$	91,476		$	(354	)	$	99,923
Share-based compensation		—		—		—			—			1,228			—			—			1,228
Restricted shares issued, net		—		—		(24	)		(8	)		8			—			—			—
Shares issued upon exercise of SSARs		—		—		3			1			(1	)		—			—			—
Shares withheld for taxes upon exercise of stock options, SSARs or vesting of restricted shares		—		—		(1	)		—			(24	)		—			—			(24	)
Net loss		—		—		—			—			—			(2,918	)		—			(2,918	)
Unrealized translation adjustments		—		—		—			—			—			—			156			156
Balance at September 30, 2019		31,607	$	9,482		(7,949	)	$	(2,386	)	$	2,909		$	88,558		$	(198	)	$	98,365

	Six Months Ended September 30, 2020
	Common Shares										Capital in						Accumulated
	Issued				In Treasury						excess of						other
(In thousands)	Shares		Stated value		Shares			Stated value			stated value			Retained earnings			comprehensive income (loss)			Total
Balance at March 31, 2020		31,607	$	9,482		(7,997	)	$	(2,401	)	$	5,491		$	58,984		$	201		$	71,757
Share-based compensation		—		—		—			—			2,835			—			—			2,835
Restricted shares issued, net		—		—		(41	)		(12	)		12			—			—			—
Shares issued upon exercise of SSARs		—		—		28			9			(9	)		—			—			—
Shares withheld for taxes upon exercise of stock options, SSARs or vesting of restricted shares		—		—		(9	)		(2	)		(178	)		—			—			(180	)
Net income		—		—		—			—			—			5,350			—			5,350
Series A convertible preferred stock issuance costs		—		—		—			—			—			(1,031	)		—			(1,031	)
Series A convertible preferred stock dividends		—		—		—			—			—			(658	)		—			(658	)
Unrealized translation adjustments		—		—		—			—			—			—			(149	)		(149	)
Balance at September 30, 2020		31,607	$	9,482		(8,019	)	$	(2,406	)	$	8,151		$	62,645		$	52		$	77,924

	Six Months Ended September 30, 2019
	Common Shares										Capital in						Accumulated
	Issued				In Treasury						excess of						other
(In thousands)	Shares		Stated value		Shares			Stated value			stated value			Retained earnings			comprehensive income (loss)			Total
Balance at March 31, 2019		31,607	$	9,482		(8,105	)	$	(2,433	)	$	781		$	93,051		$	(259	)	$	100,622
Share-based compensation		—		—		—			—			2,295			—			—			2,295
Restricted shares issued, net		—		—		144			43			(43	)		—			—			—
Shares issued upon exercise of SSARs		—		—		17			5			(5	)		—			—			—
Shares withheld for taxes upon exercise of stock options, SSARs or vesting of restricted shares		—		—		(5	)		(1	)		(119	)		—			—			(120	)
Net loss		—		—		—			—			—			(4,493	)		—			(4,493	)
Unrealized translation adjustments		—		—		—			—			—			—			61			61
Balance at September 30, 2019		31,607	$	9,482		(7,949	)	$	(2,386	)	$	2,909		$	88,558		$	(198	)	$	98,365

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

AGILYSYS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Table amounts in thousands, except per share data)

1. Nature of Operations and Financial Statement Presentation

Nature of Operations

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

Agilysys operates across North America, Europe, Asia-Pacific, and India with headquarters located in Alpharetta, GA. ~~For~~

COVID-19 Pandemic

On March 11, 2020, the World Health Organization declared the COVID-19 outbreak a global pandemic. The outbreak has reached all geographic regions in which we do business, and government authorities around the world have implemented extensive measures attempting to contain the spread and mitigate the effects of the virus, including travel bans and restrictions, border closings, quarantines, shelter-in-place orders, closures of non-essential businesses, and social distancing requirements. The global spread of COVID-19 and the actions taken in response have negatively impacted us, our customers, our suppliers and the many communities in which we do business. The overall extent and duration of economic and business disruption is not currently known. In response to these challenges, we quickly adjusted our business policies and practices for employees to work from home and have taken other measures to continue our operations with safety as our priority.

We continuously monitor and assess the impact of the COVID-19 pandemic, including recommendations and orders from government and public health authorities. We are working to help our customers maintain their operations during this difficult time while managing our teams to be prepared for continuously changing demand for our products and services.

See Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview— Recent Developments” of this report for a more ~~information, visit www.agilysys.com.~~

detailed discussion of the impact of COVID-19 on our business.

Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements include our accounts consolidated with our wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Our fiscal year ends on March 31st. References to a particular year refer to the fiscal year ending in March of that year. For example, fiscal ~~2018~~2021 refers to the fiscal year ending March 31, ~~2018.~~

2021.

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

The Condensed Consolidated Balance ~~Sheets~~Sheet as of ~~December 31, 2017 and 2016,~~September 30, 2020, as well as the Condensed Consolidated Statements of Operations, Condensed Consolidated Statements of Comprehensive ~~Loss,~~Income (Loss), Condensed Consolidated Statements of Shareholders’ Equity for the three months and ~~the~~six months ended September 30, 2020 and 2019, and Condensed Consolidated Statements of Cash ~~Flow~~Flows for the ~~three and nine~~six months ended ~~December 31, 2017~~September 30, 2020 and ~~2016,~~2019, are unaudited. However, these financial statements have been prepared on the same basis as those in the audited annual financial ~~statements.~~statements, except for the recently adopted accounting pronouncements described below. In the opinion of management, all adjustments of a recurring nature necessary to fairly state the results of operations, financial position, and cash flows have been made.

These unaudited interim financial statements should be read together with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended March 31, ~~2017~~,2020, filed with the Securities and Exchange Commission (SEC) on ~~June 2, 2017.~~

May 22, 2020.

Table of Contents

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.

Considering the currently unknown extent and duration of the COVID-19 pandemic, we face a greater degree of uncertainty than normal in making the judgments and estimates needed to apply to certain of our significant accounting policies. We assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to us and the unknown future impacts COVID-19 as of September 30, 2020 and through the date of this report. These estimates may change, as new events occur and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions.

2. Summary of Significant Accounting Policies

A detailed description of our significant accounting policies can be found in the audited financial statements for the fiscal year ended March 31, ~~2017~~,2020, included in our Annual Report on Form 10-K. ~~Our~~We describe our accounting policy for ~~share-based compensation changed with the adoption of Accounting Standards Update ("ASU") No. 2016-09, as described~~Series A convertible preferred stock further below. There have been no other material changes to our significant accounting policies ~~and estimates~~ from those disclosed therein.

~~Reclassification -~~ Certain prior year balances have been reclassified to conform to the current year presentation. Specifically, we reclassified certain software development costs to property and equipment during the year ended March 31, 2017, which impacted the Condensed Consolidated Statement of Cash Flows for the nine months ended December 31, 2016 in the amount of $1.1 million.

Adopted and Recently Issued Accounting Pronouncements

In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for convertible instruments by eliminating the requirement to separate embedded conversion features from the host contract when the conversion features are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in capital. By removing the separation model, a convertible debt instrument will be reported as a single liability instrument with no separate accounting for embedded conversion features. This new standard also removes certain settlement conditions that are required for contracts to qualify for equity classification and simplifies the diluted earnings per share calculations by requiring that an entity use the if-converted method and that the effect of potential share settlement be included in diluted earnings per share calculations. The new standard will be effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. We are currently assessing the impact of adopting this standard on our consolidated financial statements.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which affects general principles within Topic 740, Income Taxes, and is meant to simplify and reduce the cost of accounting for income taxes. The new standard will be effectivefor fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. We are currently reviewing this standard but do not expect it will have a material impact on our consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. ASU 2018-15 addresses the treatment of implementation costs incurred in a hosting arrangement that is a service contract. The update does not impact the accounting for the service element of a hosting arrangement that is a service contract.We adopted ASU 2018-15 as of April 1, 2020 with no impact on our condensed consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 addresses the required disclosures around fair value measurement. The disclosure requirements of the reasons for transfers between Level 1 and Level 2, the policy for timing transfers between levels, and the valuation process for Level 3 measurements have been removed. Certain modifications were made to required disclosures and additional requirements were established. We adopted ASU 2018-13 as of April 1, 2020 with no impact on our condensed consolidated financial statements.

In January 2017, the ~~Financial Accounting Standards Board ("FASB")~~FASB issued ASU No. ~~2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, and ASU No.~~ 2017-04, Intangibles- Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment. ASU No. 2017-01 clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The guidance is effective for annual periods beginning after December 15, 2017, including interim periods within those periods.Impairment. ASU No. 2017-04 eliminates Step 2 of the goodwill impairment test and requires a goodwill impairment to be measured as the amount by which a reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of its goodwill. We adopted ASU 2017-04 as of April 1, 2020 with no impact on our condensed consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments. This new standard requires entities to measure expected credit losses for certain financial assets held at the reporting date using a current expected credit loss model, which is based on historical experience, adjusted for current conditions and

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reasonable and supportable forecasts. The ~~ASU is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. While we are still assessing~~Company’s financial instruments within the ~~impact of this standard, we do not believe that the adoption~~scope of this guidance ~~will~~primarily includes accounts receivable and contract assets. We adopted ASU 2016-13 as of April 1, 2020 under the modified retrospective approach. As a result, comparative information has not been restated and continues to be reported under accounting standards applicable for those periods. The adoption of ASU 2016-13 did not have a material impact on our condensed consolidated financial ~~statements.~~

~~In October 2016,~~statements, including accounting policies, given our limited historical write-off activity.

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 ~~FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers~~customer, which sets forth the general terms and conditions of ~~Assets Other Than Inventory,~~any individual contract between the parties, which ~~requires entities~~is then supplemented by a customer purchase order to ~~recognize~~specify the ~~income tax consequences~~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 ~~an intra-entity transfer~~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 ~~an asset other than inventory~~being distinct and are distinct within the context of the contract. The transaction price is determined based on the consideration to which we will be entitled and expect to receive in exchange for transferring goods or services to the customer. Typically, our contracts do not provide our customer with any right of return or refund; we do not constrain the contract price as it is probable that there will not be a significant revenue reversal due to a return or refund.

Typically, our customer contracts contain one or more of the following goods or services which constitute performance obligations.

Our software licenses typically provide for a perpetual right to use our software. Generally, our contracts do not provide significant services of integration, and customization and installation services are not required to be purchased directly from us. The software is delivered before related services are provided and is functional without professional services, updates and technical support. We have concluded that the software license is distinct as the customer can benefit from the software on its own. Software revenue is typically recognized when the ~~transfer occurs. The new guidance~~software is ~~effective~~delivered or made available for ~~annual reporting periods beginning after December 15, 2017. Early adoption~~download to the customer.

Revenue for hardware sales is ~~permitted as~~recognized when the product is shipped to the customer and when obligations that affect the customer's final acceptance of the ~~beginning of an annual reporting period. The new standard must be adopted using a modified retrospective transition method,~~arrangement have been fulfilled. Hardware is purchased from suppliers and provided to the end-user customers via drop-ship or from inventory. We are responsible for negotiating price both with the ~~cumulative effect~~supplier and the customer, payment to the supplier, establishing payment terms and product returns with the customer, and we bear the credit risk if the customer does not pay for the goods. As the principal contact with the customer, we recognize revenue and cost of goods sold when we are notified by the supplier that the product has been shipped. In certain limited instances, as shipping terms dictate, revenue is recognized upon receipt at the point of destination or upon installation at the customer site.

Support and maintenance revenue is derived from providing telephone and on-line technical support services, bug fixes, and unspecified software updates and upgrades to customers on a when-and-if-available basis. These services represent a stand-ready obligation that is concurrently delivered and has the same pattern of transfer to the customer; we account for these support and maintenance services as a single performance obligation recognized over the term of the ~~date~~maintenance agreement.

Our subscription service revenue is comprised of ~~initial adoption.~~fees for contracts that provide customers a right to access our software for a subscribed period. We do not ~~believe that~~provide the ~~adoption~~customer the contractual right to license the software at any time outside of ~~this guidance will have~~the subscription period under these contracts. The customer can only benefit from the software and software maintenance when provided the right to access the software. Accordingly, each of the rights to access the software, the maintenance services, and any hosting services is not considered a ~~material impact on our consolidated financial statements.~~

~~In March 2016,~~distinct performance obligation in the ~~FASB issued ASU No. 2016-09, Compensation-Stock Compensation (Topic 718), which amends~~context of the ~~accounting for stock-based compensation. The guidance requires excess tax benefits~~contract and ~~deficiencies~~should be combined into a single performance obligation to be recognized as a component of income tax expense rather than of stockholders’ equity and also allows an entity to make an accounting policy election to either estimate expected forfeitures or to account for them as they occur. ASU No. 2016-09 is effective for annual reporting periods beginning after December 15, 2016.over the contract period. The Company ~~adopted~~recognizes subscription revenue over a one-month period based on the ~~ASU~~typical monthly invoicing and renewal cycle in accordance with our customer agreement terms.

Professional services revenues primarily consist of fees for consulting, installation, integration and training and are generally recognized over time as the ~~quarter ended June 30, 2017, which is~~customer simultaneously receives and consumes the ~~first quarter for our annual period beginning April 1, 2017. The following summarizes the effects~~benefits of the ~~adoption on~~professional services as the ~~Company's unaudited condensed consolidated financial statements:~~

~~Income taxes~~ ~~- In~~services are being performed. Professional services can be provided by internal or external providers, do not significantly affect the ~~first quarter~~customer's ability to access or use other provided goods or services, and provide a measure of ~~2018, we did not recognize the discrete~~ benefit ~~related to $4.4 million~~beyond that of ~~tax deductions in excess of recorded windfall tax benefits associated with stock-based compensation due to the Company’s full valuation allowance on its U.S. federal net operating losses.~~

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

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

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

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

~~We expect to identify similar performance obligations under Topic 606 as compared with deliverables and separate units of account previously identified.~~contract. As a result, ~~we expect~~professional services are considered distinct in the ~~timing~~context of ~~our revenue to occur in similar periods but we~~the contract and represent a separate performance obligation. Professional services that are ~~still evaluating this theory especially with respect to multiple service contracts. We~~billed on a time and materials basis are ~~assessing the new standard’s requirement to apply a single method to measure progress towards satisfaction of performance obligations~~ recognized over time ~~in our~~as the services are performed. For contracts ~~that contain multiple services.~~ 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.

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We ~~are evaluating our multiple service contracts~~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 if the price customers are willing to pay for the goods and services ~~are~~transferred. If the contract contains a single performance obligation, ~~under this new standard requiring a single method~~the entire transaction price is allocated to that performance obligation. Contracts that contain multiple performance obligations require an allocation of ~~measurement. We are assessing the new standards requirement to allocate~~ the transaction ~~prices~~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), support, maintenance and subscription services and professional services. Revenue recognized at a point in time (products) totaled $6.6 million and $11.8 million, and $11.9 million and $22.7 million for the first three and six months ended September 30, 2020 and 2019. Revenue recognized over time (support, maintenance and subscription services and professional services) totaled $27.8 million and $52.4 million, and $28.8 million and $56.4 million for the three and six months ended September 30, 2020 and 2019, respectively.

Contract Balances

Contract assets are rights to consideration in exchange for goods or services that we have transferred to a customer when that right is conditional on something other than the passage of time. The majority of our ~~contracts~~contract assets represent unbilled amounts related to professional services. We expect billing and collection of our contract assets to occur within the next twelve months. We receive payments from customers based onupon contractual billing schedules and accounts receivable are recorded when the relative stand-alone selling price of each our performance obligations. We are evaluating the stand-alone selling prices for our performance obligations. We are also assessing the new standard’s requirementright to ~~capitalize costs associated with obtaining customer contracts, including commission payments,~~consideration becomes unconditional. Contract liabilities represent consideration received or consideration which ~~are currently expensed as incurred for all commissions earned subsequent~~is unconditionally due from customers prior to transferring goods or services to the ~~year ended March 31, 2016. We are evaluating~~customer under the terms of the contract.

Revenue recognized from amounts included in contract liabilities at the beginning of the period ~~over which~~was $12.1 million and $10.5 million for the three months ended September 30, 2020 and 2019, respectively, and $30.5 million and $26.0 million for the six months ended September 30, 2020 and 2019, respectively. Because the right to ~~amortize these capitalized costs and~~ the ~~applicability~~transaction became unconditional, we transferred to accounts receivable from contract assets at the beginning of the ~~practical expediency exception which permits~~period, $0.2 million and $0.4 million for the ~~continuation of expensing these costs~~three months ended September 30, 2020 and 2019, respectively, and $1.7 million and $2.4 million for ~~amortization periods~~the six months ended September 30, 2020 and 2019, respectively.

Our arrangements are for a period of one year or less. ~~In addition, for sales transactions that have been billed, but for which the recognition~~As a result, unsatisfied performance obligations as of ~~revenue has been deferred~~September 30, 2020 are expected to be satisfied and the ~~related account receivable has~~allocated transaction price recognized in revenue within a period of 12 months or less.

Assets Recognized from Costs to Obtain a Contract

Sales commission expenses that would not ~~been collected,~~have occurred absent the customer contracts are considered incremental costs to obtain a contract. We have elected to take the practical expedient available to expense the incremental costs to obtain a contract as incurred when the expected benefit and amortization period is one year or less. For subscription contracts that are renewed monthly based on an agreement term, we ~~currently do not recognize deferred revenue~~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 ~~related accounts receivable~~practical expedient elected.

We had $3.1 million and $3.4 million of capitalized sales incentive costs as of September 30, 2020 and 2019, respectively. These balances are included in other non-current assets on our condensed consolidated balance ~~sheet. Under~~sheets. During the ~~new standard,~~three and six months ended September 30, 2020, we ~~will record accounts receivable~~expensed $0.7 million and ~~related~~$1.3 million, respectively, of sales commissions, which included amortization of capitalized amounts of $0.4 million and $0.7 million, respectively. During the comparable periods ending September 30, 2019, we expensed $1.2 million and $2.2 million, respectively, of sales commissions, which included amortization of capitalized amounts of $0.3 million and $0.7 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 ~~liabilities for non-cancelable contracts with customers when the right to consideration is unconditional, which we currently expect will result in increases in accounts receivable~~are not considered incremental and ~~contract liabilities (currently presented~~therefore are expensed as ~~deferred revenue) on our consolidated balance sheet, compared to our current presentation. We are continuing to review the impacts~~incurred.

Table of adopting ASU No. 2014-09 to our consolidated financial statements and these preliminary assessments of the impacts to our consolidated financial statements are subject to change. We expect to conclude our assessments of the impacts of adoption sometime during our fourth quarter ending March 31, 2018.

Management continually evaluates the potential impact, if any, of all recent accounting pronouncements on our consolidated financial statements or related disclosures and, if significant, makes the appropriate disclosures required by such new accounting pronouncements.

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~~3. Restructuring Charges~~

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

~~Fiscal 2018 Restructuring Activity~~

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

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

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

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

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

4. Intangible Assets and Software Development Costs

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

	September 30 and March 31, 2020
	Gross								Net
	carrying		Accumulated			Accumulated			carrying
(In thousands)	amount		amortization			Impairment			amount
Amortized intangible assets:
Customer relationships	$	10,775	$	(10,775	)	$	0		$	0
Non-competition agreements		2,700		(2,700	)		0			0
Developed technology		10,398		(10,398	)		0			0
Trade names		230		(230	)		0			0
Patented technology		80		(80	)		0			0
		24,183		(24,183	)		0			0
Trade names		8,400	N/A				0			8,400
Total intangible assets	$	32,583	$	(24,183	)	$	0		$	8,400
(In thousands)
Software development costs	$	67,541	$	(45,535	)	$	(22,006	)	$	0

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

As of March 31, 2020, management determined the net realizable value of the remaining capitalized software development costs for certain solutions within our rGuest suite of products no longer exceeded their carrying value, and as a result, recorded non-cash impairment charges of $22.0 million for the year ended March 31, 2020. The ~~following table summarizes our~~impact of the COVID-19 pandemic on the hospitality industry resulted in economic conditions that made it difficult to project future sales and revenue accurately for the related rGuest solutions. After evaluating the Company’s strategy for market development and continued costs to support the software, an impairment charge was required. The amount of impairment recognized during the year ended March 31, 2020 reduced the carry value of capitalized software development costs to zero with no remaining ~~estimated~~ amortization expense ~~relating~~ to be recognized in ~~service intangible assets and software development costs.~~

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

future periods.

Amortization expense for software development costs related to assets to be sold, leased, or otherwise marketed was ~~$2.6~~$3.1 million and ~~$2.3~~$6.3 million for the three and six months ended ~~December 31, 2017 and 2016, and $7.3 million and $5.7 million for the nine months ended December 31, 2017 and 2016, respectively.~~September 30, 2019. These charges are included as ~~Products cost~~costs of goods sold ~~within the Condensed Consolidated Statements~~- products in our condensed consolidated statements of ~~Operations.~~

Amortization expense relating to other definite-lived intangible assets was $11,500 for the three months ended December 31, 2017 and 2016, and $34,500 for the nine months ended December 31, 2017 and 2016. These charges are classified as Amortization of intangibles within the Condensed Consolidated Statements of Operations along with Amortization expense related to our Capitalized Internal-Use Software that we classify in Property and Equipment, net within the Consolidated Balance Sheets.

Capitalized software development costs for software internally developed to be sold, leased, or otherwise marketed, are carried on our balance sheet at net carrying value, net of accumulated amortization. We capitalized approximately $1.6 million and $3.0 million during the three months ended December 31, 2017 and 2016, and $6.5 million and $8.9 million during the nine months ended December 31, 2017 and 2016, respectively.

operations.

5. Additional Balance Sheet Information

Additional information related to the ~~Condensed Consolidated Balance Sheets~~condensed consolidated balance sheets is as follows:

	September 30, 2020		March 31, 2020
Accrued liabilities:
Salaries, wages, and related benefits	$	4,793	$	6,945
Other taxes payable		1,835		1,649
Accrued legal settlements		50		—
Severance liabilities		100		32
Professional fees		93		50
Other		314		357
Total	$	7,185	$	9,033
Other non-current liabilities:
Uncertain tax positions	$	1,116	$	1,103
Asset retirement obligations		170		170
Payroll taxes deferred under CARES Act		1,287		—
Employee benefit obligations		1,081		511
Other		74		76
Total	$	3,728	$	1,860

(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

~~Accounts Receivable, net~~

~~Accounts receivable, net~~

Table of ~~allowance for doubtful accounts was~~ ~~$14.7 million~~ ~~and~~ ~~$15.6 million~~Contents

6. Supplemental Disclosures of Cash Flow Information

Additional information related to the consolidated statements of cash flows is as ~~of December 31, 2017 and March 31, 2017, respectively. The related allowance for doubtful accounts was~~ ~~$0.8 million~~ ~~and~~ ~~$0.5 million~~ ~~as of December 31, 2017 and March 31, 2017, respectively.~~follows:

	Six Months Ended September 30,
(In thousands)		2020			2019
Cash (receipts) for interest, net	$	(46	)	$	(191	)
Cash payments for income taxes, net		167			247
Cash payments for operating leases		3,002			2,210
Cash payments for finance leases		14			18
Accrued capital expenditures		12			125

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

7. Income Taxes

The following table compares our income tax ~~(benefit)~~ expense and effective tax rates for the three and six months ended ~~December 31, 2017~~September 30, 2020 and ~~2016:~~2019:

	Three Months Ended September 30,						Six Months Ended September 30,
(Dollars in thousands)	2020			2019			2020			2019

Income tax expense	$	121		$	41		$	128		$	67
Effective tax rate		2.0	%		(1.4	)%		2.3	%		(1.5	)%

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~~six months ended ~~December 31, 2017,~~September 30, 2020, the effective tax rate was different than the statutory tax rate due primarily to ~~a $1.3 million benefit resulting from~~ the ~~effect of a reduction in the deferred rate due to federal tax reform,~~

~~recognition~~utilization of net operating losses ~~as deferred tax assets, which~~that were offset by ~~increases~~decreases in the valuation ~~allowance,~~allowances in the U.S, certain foreign and state tax effects ~~including a benefit of $0.4 million related to a settlement with the California Franchise Tax Board~~ and other U.S. permanent book to tax differences.

For the three and ~~nine~~six months ended ~~December 31, 2016,~~September 30, 2019, the effective tax rate was different than the statutory rate due primarily to the recognition of net operating losses as deferred tax assets in the U.S. and certain foreign jurisdictions, which were offset by increases in the valuation allowance, certain foreign and state tax effects and other U.S. permanent book to tax differences.

Because of our losses in prior periods, we have recorded and maintain a valuation allowance offsetting substantially all of our deferred tax ~~assets.~~assets in the U.S. and certain foreign jurisdictions, as management believes that it is more likely than not that we will not realize the benefits of these deductible differences. The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which those temporary differences are deductible. ~~Because of our losses in prior periods, management believes that it is more-likely-than-not that we will not realize the benefits of these deductible differences.~~

On ~~December 22, 2017, the~~March 27, 2020, President ~~of the United States of America~~Trump signed into law the ~~Tax Cuts~~Coronavirus Aid, Relief, and ~~Jobs~~Economic Security Act ~~(the "Tax Act"~~(“CARES Act”). The ~~Tax~~CARES Act ~~contains significant changes to corporate taxes, including a permanent reduction~~provides, among other provisions, for the deferral of the ~~corporate tax rate from 35% to 21% effective January 1, 2018. The reduction in~~employer-paid portion of social security taxes through the ~~corporate rate requires a one-time revaluation~~end of ~~certain tax-related assets and liabilities. As a result~~2020, with 50% of the ~~revaluation of our~~ deferred ~~tax assets and liabilities at~~amount due December 31, ~~2017, we recorded a one-time tax benefit of approximately $1.3 million. This tax benefit was primarily~~2021 and the result of applying new lower income tax rates to the Company’s net long term deferred tax liabilities recorded on its condensed consolidated balance sheet, which are not netted with deferred tax assets or subject to the valuation allowance.

7.remaining 50% due December 31, 2022.

8. Commitments and Contingencies

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

On April 6, 2012, Ameranth, Inc. filed a complaint against us ~~for patent infringement~~ in the ~~United States~~U.S. District Court ~~for the~~of Southern District of ~~California. The complaint alleges, among other things,~~California alleging that ~~point-of-sale and property management and other hospitality information technology~~certain of our products ~~software, components and/or systems sold by us~~ infringe patents owned by Ameranth ~~purporting~~directed to ~~cover generation~~configuring and ~~synchronization~~transmitting hospitality menus (e.g. restaurant menus) for display on electronic devices and synchronizing the menu content between the devices. The case against us was consolidated with similar cases brought by Ameranth against more than 30 other defendants. All but one of ~~menus, including restaurant menus, event tickets,~~the patents at issue in the case were invalidated by the U.S. Court of Appeals for the Federal Circuit in 2016. In September 2018, the District Court found the one surviving Ameranth patent invalid and ~~other products across fixed, wireless and/or internet platforms as well as synchronization~~granted summary judgment in favor of ~~hospitality information~~the movant co-defendants. In November 2019, the U.S. Court of Appeals for the Federal Circuit affirmed the lower court’s summary judgement with respect to all claims except for two, which were not asserted against Agilysys. Ameranth’s writ of certiorari to the United States Supreme Court was denied in October 2020. Subsequently, Ameranth filed further pleading amendments and ~~hospitality software applications across fixed, wireless~~discovery requests with the District Court, which were opposed by the defendants.

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We were not a party to the appeal, and ~~internet platforms. The complaint~~it is currently unclear what impact the summary judgement ruling may have on our case. Ameranth seeks monetary damages, injunctive relief, costs and attorneys' ~~fees.~~fees from us. At this time, we are not able to predict the outcome of this ~~lawsuit, or any possible monetary exposure associated with the~~ lawsuit. However, we dispute the allegations of wrongdoing and are vigorously defending ourselves in this matter.

~~8. Loss~~

9. Income (Loss) per Share

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

	Three Months Ended September 30,						Six Months Ended September 30,
(In thousands, except per share data)	2020			2019			2020			2019
Numerator:
Net income (loss)	$	5,867		$	(2,918	)	$	5,350		$	(4,493	)
Series A convertible preferred stock issuance costs		(94	)		—			(1,031	)		—
Series A convertible preferred stock dividends		(459	)		—			(658	)		—
Net income (loss) attributable to common shareholders	$	5,314		$	(2,918	)	$	3,661		$	(4,493	)

Denominator:
Weighted average shares outstanding - basic		23,424			23,238			23,415			23,225
Dilutive SSARs		342			—			329			—
Dilutive unvested restricted shares		100			—			105			—
Weighted average shares outstanding - diluted		23,866			23,238			23,849			23,225

Income (loss) per share - basic:	$	0.23		$	(0.13	)	$	0.16		$	(0.19	)
Income (loss) per share - diluted:	$	0.22		$	(0.13	)	$	0.15		$	(0.19	)

Anti-dilutive stock options, SSARs, restricted shares, performance shares and preferred shares		2,415			1,494			2,418			1,386

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~~income (loss) per share is computed as net income ~~available~~(loss) attributable to common shareholders divided by the weighted average basic shares outstanding. The outstanding shares used to calculate the weighted average basic shares excludes ~~530,138~~161,042 and ~~595,625~~418,854 of restricted shares at ~~December 31, 2017~~September 30, 2020 and ~~2016,~~2019, respectively, as these shares were issued but were not vested and therefore, not considered outstanding for purposes of computing basic income (loss) ~~earnings~~ per share at the balance sheet dates.

Diluted ~~earnings~~income (loss) per share includes the effect of all potentially dilutive securities on earnings per share. We have ~~stock options,~~ stock-settled appreciation rights ("SSARs"), unvested restricted shares, ~~and~~ unvested performance shares, and preferred shares that are potentially dilutive securities. When a loss is reported, the denominator of diluted earnings per share cannot be adjusted for the dilutive impact of share-based compensation awards 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.~~

10. Share-based Compensation

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

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

We may distribute authorized but unissued shares or treasury shares to satisfy share option and appreciation right 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 awards is based on the closing price of our common shares on the grant date. The fair value of stock option and SSARs awards is estimated on the grant date using the Black-Scholes-Merton option pricing

model, which includes assumptions regarding the risk-free interest rate, dividend yield, life of the award, and the volatility of our common shares.

During fiscal year 2020, we issued 125,000 SSAR awards which are subject to a market condition. The fair value of these awards is estimated using the Lattice

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option pricing model which utilizes a binary tree and includes multiple assumptions which include volatility and life of the award to determine an appropriate fair value based on the award grant date.

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

	Three Months Ended September 30,				Six Months Ended September 30,
(In thousands)	2020		2019		2020		2019
Product development	$	239	$	672	$	411	$	940
Sales and marketing		34		51		70		113
General and administrative		983		622		2,201		774
Total share-based compensation expense	$	1,256	$	1,345	$	2,682	$	1,827

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 in the price of our common shares on the date of the grant and on the date of exercise. This value is settled in common shares of ~~Agilysys.~~

Agilysys, Inc.

The following table summarizes the activity during the ~~nine~~six months ended ~~December 31, 2017~~September 30, 2020 for SSARs awarded under the 2011 and 2016 Plans:

	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, 2020		1,644,888		$	21.07
Exercised		(63,872	)		11.64
Forfeited		(11,430	)		18.65
Expired		(1,522	)		14.22
Outstanding at September 30, 2020		1,568,064		$	21.48		4.4	$	11,674
Exercisable at September 30, 2020		973,110		$	13.82		3.7	$	11,214
Vested and expected to vest at September 30, 2020		1,568,064		$	21.48		4.4	$	11,674

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,~~September 30, 2020, total unrecognized ~~stock based~~share-based compensation expense related to ~~non-vested~~unvested SSARs was ~~$1.2~~$3.4 million,, which is expected to be recognized over a weighted-average vesting period of 2.0 years.

Restricted Shares

We granted shares to certain of our Directors, executives and key employees, the vesting of which is service-based. The following table summarizes the activity during the ~~nine~~six months ended ~~December 31, 2017~~September 30, 2020 for restricted shares awarded under the 2011 and 2016 ~~and 2011~~ Plans:

	Number of Shares			Weighted-Average Grant-Date Fair Value
(In thousands, except share and per share data)				(per share)
Outstanding at April 1, 2020		178,462		$	19.89
Forfeited		(17,420	)		19.03
Outstanding at September 30, 2020		161,042		$	19.98

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. As of ~~December 31, 2017,~~September 30, 2020, total unrecognized ~~stock based~~share-based compensation expense related to ~~non-vested~~unvested restricted stock was ~~$2.7~~$1.2 million,, which is expected to be recognized over a weighted-average vesting period of ~~1.9~~1.4 years.

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Performance Shares

We awarded certain restricted shares to our Chief Executive Officer, the vesting of which is performance based. The number of shares that ~~vest will be~~vested were based on ~~the stock price and~~ relative attainment of a performance metric and any unvested shares ~~will forfeit~~were forfeited upon settlement of the bonus.

The following table summarizes the activity during the ~~nine~~six months ended ~~December 31, 2017~~September 30, 2020 for the performance shares awarded under the 2016 Plan:

(In thousands, except share and per share data)		Number of Shares

	~~Number~~ of ~~Shares~~

Outstanding at April 1, ~~2017~~2020	—		30,120
Granted	~~91,463~~		—
Vested	—		(6,714	)
Forfeited			(23,406	)
Outstanding at ~~December 31, 2017~~September 30, 2020	~~91,463~~		—

~~Based on~~

11. Preferred Stock

Series A Convertible Preferred Stock

On May 22, 2020, we completed the ~~performance goals, management estimates~~sale of 1,735,457 shares of our preferred stock, without par value, designated as “Series A Convertible Preferred Stock” (the “Convertible Preferred Stock”) to MAK Capital Fund L.P. and MAK Capital Distressed Debt Fund I, LP (the “Holders”) each, in its capacity as a ~~liability~~designee of ~~$225,000~~MAK Capital One LLC (the “Purchaser”), pursuant to ~~be settled through~~ the ~~vesting of a variable number~~terms of the ~~performance shares subsequent~~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, ~~2018. As~~2020, Michael Kaufman, the Chairman of ~~December 31, 2017, total unrecognized~~the Company’s Board of Directors, is the Chief Executive Officer of MAK Capital One LLC.

Accounting Policy

We classify convertible preferred stock ~~based compensation expense related to non-vested performance shares was $67,500, which is expected to be recognized over the remaining vesting period of 3 months.~~

~~10. Fair Value Measurements~~

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

~~There were no significant transfers between Levels 1, 2, and 3 during the nine months ended December 31, 2017 and 2016.~~

~~The following tables present information about our financial assets and liabilities measured at fair value on a recurring basis and indicate the fair value hierarchy~~election of the ~~valuation techniques utilized to determine such fair value:~~

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

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

~~The recorded~~Holders. We increase the carrying value of the ~~corporate-owned life insurance policies is adjusted~~convertible preferred stock to its redemption value (described below) for all undeclared dividends using the interest method.

The Convertible Preferred Stock has the following rights, preferences and restrictions (the Certificate of Amendment included as Exhibit 3.1 to our Current Report on Form 8-K, filed on May 26, 2020, defines all terms not otherwise defined below):

Voting

The Holders will be entitled to one vote for each share of Convertible Preferred Stock upon all matters presented to the ~~cash surrender value~~common shareholders of the ~~policies obtained~~Company, and except as otherwise provided by the Amended Articles of Incorporation of the Company or required by law, the Holders and common shareholders will vote together as one class on all matters. Additionally, certain matters specific to the Convertible Preferred Stock will require the approval of two-thirds of the outstanding Convertible Preferred Stock, voting as a separate class.

Liquidation Preference

Upon a liquidation, dissolution or winding up of the Company, each share of Convertible Preferred Stock will be entitled to receive an amount per share equal to the greater of (i) the purchase price paid by the Purchaser, plus all accrued and unpaid dividends (the “Liquidation Preference”) and (ii) the amount that the Holder would have been entitled to receive at such time if the Convertible Preferred Stock were converted into common stock.

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Redemption

On and after the fifth anniversary of the date the Convertible Preferred Stock is initially issued, the Company will have the right, and the Holders will have the right to require the Company, in each case, at the initiating party’s election, to redeem all, but not less than all, of the then-outstanding Convertible Preferred Stock for an amount equal to the Liquidation Preference.

Conversion

Each Holder will have the right, at its option, to convert its Convertible Preferred Stock, in whole or in part, into fully paid and non-assessable shares of common stock at a conversion price equal to $20.1676 per share (as may be adjusted from time to time, as described in the Certificate of Amendment).

Subject to certain conditions, the Company may, at its option, require conversion of all of the outstanding shares of Convertible Preferred Stock to common stock if, at any time after November 22, 2023, the daily volume-weighted average price of the Company’s common stock is at least 150% of the conversion price for at least 20 trading days during the 30 consecutive trading days immediately preceding the date the Company notifies the Holders of the election to convert.

Dividends

The Holders are entitled to dividends on the Liquidation Preference at the rate of 5.25% per annum, payable semi-annually either (i) 50% in 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. The Holders are not entitled to participate in dividends declared or paid on the common stock on an as-converted basis; however, certain anti-dilution adjustments to the Convertible Preferred Stock may be made in the event of such dividends.

The Convertible Preferred Stock ranks senior to the Company’s common stock with respect to dividends and distributions on liquidation, winding-up and dissolution. Upon a liquidation, dissolution or winding up of the Company, each share of Convertible Preferred Stock will be entitled to receive an amount per share equal to the greater of (i) the Liquidation Preference and (ii) the amount that the Holder would have been entitled to receive at such time if the Convertible Preferred Stock were converted into common stock.

Change in Control Events

Upon certain change of control events involving the Company, the Company has the right, and each Holder has the right, in each case, at the initiating party’s election, to require the Company to repurchase all or a portion of its then-outstanding shares of Convertible Preferred Stock for cash consideration equal to (i) 150% of the then-current Liquidation Preference for a change of control occurring prior to the third ~~party life insurance providers, which~~anniversary of the date the Convertible Preferred Stock is initially issued, (ii) 125% of the then-current Liquidation Preference for a change of control occurring on or following the third anniversary and prior to the fifth anniversary of the date the Convertible Preferred Stock is initially issued and (iii) 100% of the then-current Liquidation Preference for a change of control occurring on or following the fifth anniversary of the date the Convertible Preferred Stock is initially issued.

Standstill Restrictions

The Purchaser and its affiliates are ~~not observable~~subject to certain customary standstill provisions that restrict them from, among other actions, acquiring additional securities of the Company if such acquisition would result in the ~~market, and therefore, are classified within Level 3~~Purchaser beneficially owning in excess of 25% of the ~~fair value hierarchy. Changes in the cash surrender value~~outstanding shares of ~~these policies are recorded within “Other expenses (income), net” in the Condensed Consolidated Statements of Operations.~~

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

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

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

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

third anniversary of the date the Convertible Preferred Stock is initially issued and the date on which the Purchaser no longer has record or beneficial ownership of common stock and Convertible Preferred Stock that constitute at least 10% of the outstanding common stock.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

In “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”), management explains the general financial condition and results of operations for Agilysys and subsidiaries including:

— what factors affect our business;

— what our earnings and costs were;

— why those earnings and costs were different from the year before;

— where the earnings came from;

— how our financial condition was affected; and

— where the cash will come from to fund future operations.

The MD&A analyzes changes in specific line items in the Condensed Consolidated Statements of Operations and Condensed Consolidated Statements of Cash Flows and provides information that managementbelieves is important to assessing and understanding our consolidated financial condition and results of operations. This Quarterly Report on Form 10-Q updates information included in our Annual Report on Form 10-K for the fiscal year endedMarch 31, ~~2017,~~2020, filed with the Securities and Exchange Commission (SEC). This discussion should be read in conjunction with the Condensed Consolidated Financial Statements and related Notes that appear in Item 1 of this Quarterly Report as well as our Annual Report for the year endedMarch 31, ~~2017.~~2020. Information provided in the MD&A may includeforward-looking statements that involve risks and uncertainties. Many factors couldcause actual results to be materially different from those contained in the forward-lookingstatements. See “Forward-Looking Information” on page 3029 of this Quarterly Report, Item 1A "Risk Factors" in Part II of this Quarterly Report, and Item 1A “Risk Factors”in Part I of our Annual Report for the fiscal year endedMarch 31, ~~2017~~ 2020for additional informationconcerning these items. Management believes that this information, discussion, and disclosure is important in making decisions about investing in Agilysys.

Overview

Recent Developments

COVID-19 Pandemic

During the first half of our fiscal 2021, revenue was negatively impacted by delays and reduced spending attributed to the impact of the COVID-19 pandemic on our customers’ operational priorities and as a result of various one-time recurring revenue related and other concessions we have given to customers to help them during this time of need. Due to the pandemic, we have seen a reduction or delay in customer contracts, and we have been unable to conduct face-to-face meetings with existing or prospective customers, present in-person demonstrations of our solutions, or host or attend in-person trade shows and conferences. Limitations on access to the facilities of our customers have also impacted our ability to deliver some of our products, complete certain implementations, and provide in-person consulting and training services, negatively impacting our ability to recognize revenue. We continued to experience high recurring revenue renewal rates during the first half of the fiscal year. We also have an expanded product base that includes new products which allow for contactless capabilities and other features which help promote social distancing and guest safety. Despite our strong first half recurring renewal rates and new solution offerings, we cannot predict how the pandemic will impact our results in future periods, including to the extent that customers delay or miss payments, customers defer, reduce, or refrain from placing orders or renewing subscriptions or maintenance arrangements, or travel restrictions and site access restrictions remain necessary.

We continue to conduct business with substantial modifications to employee travel, employee work locations, virtualization or cancellation of customer and employee events, and remote sales, implementation, and support activities, among other modifications. These modifications may continue to delay or reduce sales and harm productivity and collaboration. In addition, during the first half of our fiscal 2021, we reduced discretionary costs, implemented a hiring freeze on non-essential positions and reduced payroll and related

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costs through layoffs, employee furloughs, employee retirement benefit limitations, and salary decreases for executive team members and certain other employees of the Company. Such actions may have an adverse impact on us, particularly those actions that remain in place for an extended period.

We may take further actions that alter our business operations as the situation evolves. As a result, the ultimate impact of the COVID-19 pandemic and the effects of the operational alterations we have made in response on our business, financial condition, liquidity, and financial results cannot be predicted at this time.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (CARES) Act was enacted and signed into U.S. law to provide economic relief to individuals and businesses facing economic hardship as a result of the COVID-19 pandemic. We plan to continue deferring the timing of employer payroll tax payments as permitted by the CARES Act. We deferred $1.3 million in employer payroll tax payments under the CARES Act as of September 30, 2020. The CARES Act did not have a material impact on our consolidated results of operations as of and for the six months ended September 30, 2020.

MAK Capital Investment

In May 2020, we entered into an agreement to sell to MAK Capital One, LLC (“MAK Capital”) $35 million of convertible preferred stock carrying a 5.25% dividend that will be convertible into shares of the Company’s common stock. The transaction resulted in the issuance of 1,735,457 preferred shares which added $35 million in preferred stock to the Company’s balance sheet and increased our cash balance by the $35 million investment less closing costs of $1.0 million. The 5.25% dividends will accumulate and increase the liquidation preference of the preferred stock for any undeclared amounts.

Our Business

Agilysys ishas been a ~~leading~~leader in hospitality software for more than 40 years, delivering innovative guest-centric technology ~~company that provides innovative software~~solutions for gaming, hotels, resorts and ~~services for point-of-sale~~cruise, corporate foodservice management, restaurants, universities, stadia, airport foodservice and healthcare. Agilysys offers the most comprehensive solutions in the industry, including point of sale (POS), ~~reservation and table~~property management ~~property management~~systems (PMS), inventory and procurement, ~~workforce management, analytics, document management,~~payments, and ~~mobile~~related applications, to manage the entire guest journey. Agilysys is known for its leadership in hospitality, its broad product offerings and ~~wireless~~its customer-centric service. Some of the largest hospitality companies around the world use Agilysys solutions ~~exclusively~~ to help improve guest loyalty, drive revenue growth, increase operational efficiencies and support social distancing. The Company has just one reportable segment serving the global hospitality industry. Our products and services allow operators to streamline operations, improve efficiency and understand customer needs across their properties to deliver a superior overall guest experience. The result is improved guest loyalty, growth in wallet share and increased revenue as they connect and transact with their guests based upon a single integrated view of individual preferences and interactions. We serve four major market sectors: Gaming, both corporate and tribal; Hotels, Resorts and Cruise; Corporate Foodservice Management; and Restaurants, Universities, Stadia and Healthcare. A significant portion of our consolidated revenue is derived from contract support, maintenance and subscription services.

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

~~Our top priority is~~Georgia.

We strive to increase shareholder value by improving operating and financial performance and profitably growing the business through superior products and services. To that end, we expect to invest a certain portion of our cash on hand to fund enhancements to existing software products, to develop and market new software products, and to expand our customer breadth, both vertically and geographically.

Our strategic plan specifically focuses on:

•

Putting the customer first with world class support and services

•

Accelerating our product development

~~Putting the customer first~~

•

Improving organizational efficiency and teamwork

~~Accelerating our product development~~

•

Developing our employees and leaders

~~Improving organizational efficiency and teamwork~~

•

Growing revenue by improving the breadth and depth of our product set

~~Developing our employees and leaders~~

•

Growing revenue through international expansion

~~Growing revenue by improving the breadth and depth of our product set across both our well established products and our newer rGuest platform~~

~~Growing revenue through international expansion~~

The primary objective of our ongoing strategic planning process is to create shareholder value by capitalizing on growth opportunities, turning profitable and strengthening our competitive position within the specific technology solutions and end markets we serve. Profitability and industry leading growth will be achieved through tighter management of operating expenses and sharpening the focus of our investments to concentrate on growth opportunities that offer the highest returns.

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Revenue - Defined

As required by the SEC, we separately present revenue earned as products revenue, support, maintenance and subscription services revenue or professional services revenue in our ~~Condensed Consolidated Statements~~condensed consolidated statements of ~~Operations.~~operations. In addition to the SEC requirements, we may, at times, also refer to revenue as defined below. The terminology, definitions, and applications of terms we use to describe our revenue may be different from those used by other companies and caution should be used when comparing these financial measures to those of other companies. We use the following terms to describe revenue:

•

Revenue - We present revenue net of sales returns and allowances.

•

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

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

•

Support, maintenance and subscription services revenue – Revenue earned from the sale of proprietary and remarketed ongoing support, maintenance and subscription services.

~~Products revenue – Revenue earned from the sales of hardware equipment and proprietary and remarketed software.~~

•

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

~~Support, maintenance and subscription services revenue – Revenue earned from the sale of proprietary and remarketed ongoing support, maintenance and subscription or hosting services.~~

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

Results of Operations

~~Third~~

SecondFiscal Quarter ~~2018~~ 2021Compared to ~~Third~~ SecondFiscal Quarter ~~2017~~

2020

Net Revenue and Operating ~~Loss~~

Income (Loss)

The following table presents our consolidated revenue and operating results for the three months ended ~~December 31, 2017~~September 30, 2020 and ~~2016:~~2019:

	Three months ended
	September 30,							Increase (decrease)
	2020			2019				$			%
Net revenue:
Products	$	6,559		$	11,873			$	(5,314	)		(44.8	)%
Support, maintenance and subscription services		22,304			20,329				1,975			9.7
Professional services		5,497			8,520		��		(3,023	)		(35.5	)
Total net revenue		34,360			40,722				(6,362	)		(15.6	)
Cost of goods sold:
Products (inclusive of developed technology amortization)		2,950			9,794				(6,844	)		(69.9	)
Support, maintenance and subscription services		4,555			4,654				(99	)		(2.1	)
Professional services		3,701			6,057				(2,356	)		(38.9	)
Total cost of goods sold		11,206			20,505				(9,299	)		(45.3	)
Gross profit	$	23,154		$	20,217			$	2,937			14.5	%
Gross profit margin		67.4	%		49.6	%
Operating expenses:
Product development	$	8,257		$	10,778			$	(2,521	)		(23.4	)%
Sales and marketing		2,350			4,890				(2,540	)		(51.9	)
General and administrative		5,217			6,038				(821	)		(13.6	)
Depreciation of fixed assets		715			707				8			1.1
Amortization of intangibles		508			614				(106	)		(17.3	)
Severance and other charges		7			190				(183	)		(96.3	)
Legal settlements, net		50			(119	)			169		nm
Operating income (loss)	$	6,050		$	(2,881	)		$	8,931			310.0	%
Operating income (loss) percentage		17.6	%		(7.1	)%

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 )%

nm - not meaningful

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

	Three months ended
	September 30,
	2020			2019
Net revenue:
Products		19.1	%		29.2	%
Support, maintenance and subscription services		64.9			49.9
Professional services		16.0			20.9
Total net revenue		100.0	%		100.0	%
Cost of goods sold:
Products		8.6	%		24.1	%
Support, maintenance and subscription services		13.3			11.4
Professional services		10.7			14.9
Total cost of goods sold		32.6	%		50.4	%
Gross profit		67.4	%		49.6	%
Operating expenses:
Product development		24.0	%		26.5	%
Sales and marketing		6.8			12.0
General and administrative		15.2			14.8
Depreciation of fixed assets		2.2			1.7
Amortization of intangibles		1.5			1.5
Severance and other charges		0.0			0.5
Legal settlements, net		0.1			(0.3	)
Operating income (loss)		17.6	%		(7.1	)%

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 )%

Net revenue. Total net revenue decreased ~~$2.1~~$6.4 million, or ~~6.4%~~15.6%, during the ~~third~~second quarter of fiscal ~~2018~~2021 compared to the ~~third~~second quarter of fiscal ~~2017.~~2020. Products revenue decreased ~~$1.9~~$5.3 million, or ~~18.5%~~44.8%, due ~~primarily~~ to ~~decreased hardware sales.~~lower sales combined with delayed deliveries resulting from customer restrictions including temporary site closures in response to the COVID-19 pandemic. Support, maintenance and subscription services revenue increased ~~$1.0~~$2.0 million, or ~~6.0%~~9.7%, compared to the ~~third~~second quarter of fiscal ~~2017~~2020 driven ~~mostly~~ by ~~subscription based~~continued growth in subscription-based service revenue, which increased ~~approximately 26.2%~~23.9% during the ~~third~~second quarter of fiscal ~~2018~~2021 compared to the ~~third~~second quarter of fiscal ~~2017.~~2020. Professional services revenue decreased ~~$1.3~~$3.0 million, or ~~17.6%~~35.5%, as a result of $1.1 million in services revenue recognized in Q3 of fiscal 2017 for services provided in quarters prior to that, where contractual commitments precluded revenue recognition until that quarter and $0.2 million due to ~~timing~~lower sales combined with delayed installations and integration of our software solutions resulting from travel and customer ~~installation and implementation projects.~~

restrictions including temporary site closures in response to the COVID-19 pandemic.

Gross profit and gross profit margin. Our total gross profit ~~decreased $0.6~~increased $2.9 million, or ~~3.8%~~14.5%, for the ~~third~~second quarter of fiscal ~~2018~~2021 and total gross profit margin increased ~~1.3%~~from 49.6% to ~~49.9% from 48.6%.~~67.4% driven by changes in the composition of revenue by category. Products gross profit ~~decreased $1.1~~increased $1.5 million, or 73.6%, compared to the second quarter of fiscal 2020 and products gross profit margin ~~decreased 8.3%~~increased from 17.5% to ~~16.4% primarily as a result of lower product revenue coupled with higher amortization of developed technology by $0.3 million, related~~55.0% due to the ~~previously announced general availability~~absence of ~~the latest version of our rGuest Buy point of sale solution and the $6.8 million of related~~ software development ~~costs that was placed into service in September~~cost amortization during the second quarter of ~~2017.~~fiscal 2021 and a higher proportion of proprietary software sales over third party products. Support, maintenance and subscription services gross profit increased ~~$1.3~~$2.1 million and gross profit margin increased ~~3.5%~~247 basis points to ~~76.0% due to~~79.6%. The margin increase is the ~~scalable nature~~result of ~~our infrastructure supporting and hosting customers.~~increased revenue on a relatively flat cost base. Professional services gross profit decreased ~~$0.8~~$0.7 million ~~and~~due to the drop in demand for professional services while gross profit margin ~~decreased 7.3%~~increased from 28.9% to ~~20.4%~~32.7% due to ~~lower quarterly~~a slightly larger decrease in the percentage of professional services ~~revenues on a higher cost structure following a recent alignment toward enabling the Company~~costs compared to ~~provide more customer-centric~~professional services ~~going forward.~~

~~Operating expenses~~

Operating expenses, excluding the charges for asset write-offs and other fair value adjustments, legal settlements, and restructuring, severance and other charges, increased $2.2 million, or 13.6%, during the third quarter of fiscal 2018 compared with the third quarter of fiscal 2017.

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

~~Sales and marketing.~~ Sales and marketing decreased $0.7 million, or 14.4%, in the third quarter of fiscal 2018 compared with the third quarter of fiscal 2017. The change is due primarily to a decrease of $0.3 million in payroll related expenses and $0.3 million in advertising and promotion related expenses.

~~General and administrative.~~ General and administrative increased $2.4 million, or 66.2%, in the third quarter of fiscal 2018 compared with the third quarter of fiscal 2017 due primarily to increases of $1.5 million in stock compensation expense related to executive stock grants and the impact of removing forfeiture ratesrevenue as a result of adopting ASU No. 2016-09 in the current year, coupled with forfeitures in the prior year due to the departure of former executives. Furthermore, during the third quarter of fiscal 2018 there was an increase of $0.5 million in professional fees related toemployee furloughs and layoffs, temporary salary reductions, lower incentive pay and employee benefits.

Operating expenses

Operating expenses, excluding legal ~~accounting and tax fees and other ongoing initiatives, and $0.3 million in increased bonus expense related to the forfeitures in the prior year due to the departure of former executives.~~

~~Restructuring, severance, and other charges.~~ ~~Restructuring,~~settlements, severance and other charges, decreased ~~$1.0~~$6.0 million, or 26.0%, during the ~~third~~second quarter of fiscal ~~2018~~2021 compared towith the ~~third~~second quarter of fiscal ~~2017. In~~2020.

Product development. Product development decreased $2.5 million, or 23.4%, in the ~~third~~second quarter of fiscal ~~2018 we had~~2021 due to employee furloughs, temporary salary reductions, lower incentive pay and employee benefits, lower recruiting fees, and significantly reduced travel and outside service expenses due to employees working from home.

Sales and marketing. Sales and marketing decreased $2.5 million, or 51.9%, in the second quarter of fiscal 2021 compared with the second quarter of fiscal 2020 due to temporary reductions in salaries and employee benefits, furloughs, and reduced commission expense

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due to lower sales levels. The decrease also includes the impact of significantly reduced travel, the absence of in-person trade shows and conference activity, and the ability to conduct more business remotely.

General and administrative. General and administrative decreased by $0.8 million, or 13.6%, in the second quarter of fiscal 2021 compared with the second quarter of fiscal 2020 due to employee furloughs, temporary salary reductions, lower incentive pay and employee benefits offset by an increase in share-based compensation.

Severance and other charges. Severance, and other charges decreased $0.2 million in restructuring expense and $0.2 million in severance costs related to our ongoing efforts to better allocate resources to our crucial revenue growth areas while increasing internal efficiencies in other non-revenue generating areas. In the ~~third~~second quarter of fiscal ~~2017 we had $1.4 million in one-time charges related~~2021 due to ~~the~~reduced severance ~~of our former CEO.~~

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

activity.

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

	Three months ended
	September 30,						(Unfavorable) favorable
(Dollars in thousands)	2020			2019			$			%
Other (income) expense:
Interest income	$	(28	)	$	(114	)	$	(86	)		(75.4	)%
Interest expense		2			2			0		nm
Other expense, net		88			108			20		nm
Total other (income) expense, net	$	62		$	(4	)	$	(66	)	nm

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

nm - not meaningful

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

money market funds.

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

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

Income Taxes

	Three months ended
	September 30,						(Unfavorable) favorable
(Dollars in thousands)	2020			2019			$			%
Income tax expense	$	121		$	41		$	(80	)	nm
Effective tax rate		2.0	%		(1.4	)%

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 )%

nm - not meaningful

For the three months ended ~~December 31, 2017,~~September 30, 2020, the effective tax rate was different than the statutory tax rate due primarily to ~~a $1.3 million benefit resulting from~~ the ~~effect of a reduction in the deferred rate due to passage of the Tax Act, recognition~~utilization of net operating losses ~~as deferred tax assets, which~~that were offset by ~~increases~~decreases in the valuation ~~allowance,~~allowances in the U.S, certain foreign and state tax effects ~~including a benefit of $0.4 million related to a settlement with the California Franchise Tax Board~~ and other U.S. permanent book to tax differences.

For the three months ended ~~December 31, 2016,~~September 30, 2019, the effective tax rate was different than the statutory rate due primarily to the recognition of net operating losses as deferred tax assets in the U.S. and certain foreign jurisdictions, which were offset by increases in the valuation allowance, certain foreign and state tax effects 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 aan immaterial 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,~~

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Because of our losses in prior periods, we ~~recognized a tax benefit in the amount of $0.4 million during the quarter as a result of a settlement with the California Franchise Tax Board regarding disputed tax matters.~~

We have recorded a valuation allowance offsetting substantially all of our deferred tax ~~assets.~~assets in the U.S. and certain foreign jurisdictions, as management believes that it is more likely than not that we will not realize the benefits of these deductible differences. The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which those temporary differences are deductible. ~~Because of our losses in prior periods, management believes that it is more-likely-than-not that we will not realize the benefits of these deductible differences.~~

Results of Operations

First ~~Nine Months~~Half Fiscal ~~2018~~ 2021Compared toFirst ~~Nine Months~~Half Fiscal ~~2017~~

2020

Net Revenue and Operating ~~Loss~~

Income (Loss)

The following table presents our consolidated revenue and operating results for the ~~nine~~six months ended ~~December 31, 2017~~September 30, 2020 and ~~2016:~~2019:


	Six Months Ended September 30,						Increase (decrease)
	2020			2019			$			%
Net revenue:
Products	$	11,798		$	22,742		$	(10,944	)		(48.1	)%
Support, maintenance and subscription services		42,801			40,411			2,390			5.9
Professional services		9,567			15,958			(6,391	)		(40.0	)
Total net revenue		64,166			79,111			(14,945	)		(18.9	)
Cost of goods sold:
Products		5,965			18,417			(12,452	)		(67.6	)
Support, maintenance and subscription services		8,860			8,834			26			0.3
Professional services		7,638			11,628			(3,990	)		(34.3	)
Total cost of goods sold		22,463			38,879			(16,416	)		(42.2	)
Gross profit	$	41,703		$	40,232		$	1,471			3.7	%
Gross profit margin		65.0	%		50.9	%
Operating expenses:
Product development	$	16,524		$	20,842		$	(4,318	)		(20.7	)%
Sales and marketing		4,951			9,389			(4,438	)		(47.3	)
General and administrative		10,936			11,911			(975	)		(8.2	)
Depreciation of fixed assets		1,438			920			518			56.3
Amortization of intangibles		968			1,292			(324	)		(25.1	)
Restructuring, severance and other charges		1,210			421			789			187.4
Legal settlements, net		50			(119	)		169		nm
Operating income (loss)	$	5,626		$	(4,424	)	$	10,050			227.2	%
Operating income (loss) percentage		8.8	%		(5.6	)%

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 %

nm - not meaningful

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	Six Months Ended
	September 30,
Net revenue:	2020			2019
Products		18.4	%		28.7	%
Support, maintenance and subscription services		66.7			51.1
Professional services		14.9			20.2
Total net revenue		100.0	%		100.0	%
Cost of goods sold:
Products		9.3	%		23.3	%
Support, maintenance and subscription services		13.8			11.1
Professional services		11.9			14.7
Total cost of goods sold		35.0	%		49.1	%
Gross profit		65.0	%		50.9	%
Operating expenses:
Product development		25.8	%		26.4	%
Sales and marketing		7.7			11.9
General and administrative		17.0			15.1
Depreciation of fixed assets		2.2			1.2
Amortization of intangibles		1.5			1.6
Restructuring, severance and other charges		1.9			0.5
Legal settlements, net		0.1			(0.2	)
Operating income (loss)		8.8	%		(5.6	)%

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 )%

Net revenue. Total net revenue decreased ~~$1.8~~$14.9 million, or ~~1.8%~~18.9%, during the first ~~nine months~~half of fiscal ~~2018~~2021 compared to the first ~~nine months~~half of fiscal ~~2017.~~2020. Products revenue decreased ~~$4.5~~$10.9 million, or ~~14.9%~~48.1%, ~~during the first nine months of fiscal 2018 as compared~~due to lower sales combined with delayed deliveries resulting from customer restrictions including temporary site closures in response to the ~~first nine months of fiscal 2017 due primarily to decreased hardware sales.~~COVID-19 pandemic. Support, maintenance and subscription services revenue increased ~~$3.9~~$2.4 million, or ~~8.3%~~5.9%, compared to the first ~~nine months~~half of fiscal ~~2017~~2020 driven ~~primarily~~ by continued ~~increases~~growth in ~~subscription based~~subscription-based service revenue, which increased ~~36.0%~~16.4% during the first ~~nine months~~half of fiscal ~~2018.~~2021 compared to the first half of fiscal 2020. The growth rate in our support, maintenance and subscription services is significantly lower than we have reported in recent periods due to one-time COVID-19 related financial relief we provided to certain customers during the first half of fiscal 2021 to help them as they deal with temporary site closures during the period. Professional services revenue decreased ~~$1.2~~$6.4 million, or ~~6.0% as a result~~40.0%, due to lower sales combined with delayed installations and integration of ~~decreased volume of~~our software solutions resulting from travel and customer ~~installation and implementation projects related~~restrictions including temporary site closures in response to the ~~sale of on premise and subscription based solutions.~~

COVID-19 pandemic.

Gross profit and gross profit margin. Our total gross profit ~~decreased $0.6~~increased $1.5 million, or ~~1.3%~~3.7%, for the first ~~nine months~~half of fiscal ~~2018~~2021 and total gross profit margin increased ~~0.2%~~from 50.9% to ~~50.0%, from 49.8%.~~65.0% driven by changes in the composition of revenue by category. Products gross profit ~~decreased $2.1~~increased $1.5 million, or 34.9%, compared to the second half of fiscal 2020 and products gross profit margin ~~decreased 3.7%~~increased from 19.0% to ~~22.9% from 26.6% primarily as~~49.4% due to the absence of software development cost amortization during the first half of fiscal 2021 along with a ~~result~~higher proportion of ~~an increase of $1.6 million of developed technology amortization related to our rGuest solutions.~~proprietary software sales over third party products. Support, maintenance and subscription services gross profit increased ~~$4.0~~$2.4 million ~~or 11.7%~~ and gross profit margin increased ~~2.3%~~116 basis points to ~~75.3% due to~~79.3%. The margin increase is the ~~scalable nature~~result of ~~our infrastructure supporting and hosting customers.~~increased revenue on a relatively flat cost base. Professional services gross profit decreased ~~$2.5~~$2.4 million and gross profit margin decreased ~~11.6%~~from 27.1% 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~~20.2% due to the drop in demand for professional services ~~workforce into teams responsible for named~~resulting from travel and customer ~~accounts.~~

restrictions including temporary site closures in response to the COVID-19 pandemic.

Operating expenses

Operating expenses, excluding ~~the charges for asset write-offs and other fair value adjustments,~~ legal settlements, ~~and restructuring, severance and other charges, increased $3.2 million, or 6.1% during the first nine months of fiscal 2018 compared with the first nine months of fiscal 2017.~~

~~Product development.~~ Product development remained relatively flat in the first nine months of fiscal 2018 compared with the first nine months of fiscal 2017 which includes an increase of internal R&D headcount offset by a decrease in contract labor.

~~Sales and marketing.~~ Sales and marketing decreased $2.1 million, or 13.5%, in the first nine months of fiscal 2018 compared with the first nine months of fiscal 2017. The change is due primarily to a decrease of $1.9 million in incentive commissions related to the revision of our commission plan from total contract value to annual contract value, and $0.3 million decrease in advertising and promotion.

~~General and administrative.~~ General and administrative increased $4.8 million, or 34.9%, in the first nine months of fiscal 2018 compared with the first nine months of fiscal 2017 due primarily to increases of $2.5 million in stock compensation expense related to executive stock grants and the impact of removing forfeiture rates as a result of adopting ASU No. 2016-09, coupled with forfeitures in the prior year due to the departure of former executives. In addition, there was an increase of $0.9 million in salaries and wages as a result of additional headcount that included several key new hires, and an increase of $0.8 million in professional fees related to legal, accounting and tax fees and other ongoing initiatives.

~~Restructuring, severance, and other charges.~~ ~~Restructuring,~~ severance and other charges, decreased ~~$0.2~~$9.5 million, or 21.5%, during the first ~~nine months~~half of fiscal ~~2018~~2021 compared towith the first ~~nine months~~half of fiscal ~~2017. In~~2020.

Product development. Product development decreased $4.3 million, or 20.7%, in the first ~~nine months~~half of fiscal ~~2018 we had~~2021 due to employee furloughs and layoffs, temporary salary reductions, lower incentive pay and employee benefits, lower recruiting fees, and significantly reduced travel and outside service expenses due to employees working from home.

Sales and marketing. Sales and marketing decreased $4.4 million, or 47.3%, in the first half of fiscal 2021 compared with the first half of fiscal 2020 due to temporary reductions in salaries and employee benefits, furloughs, layoffs, and reduced commission expense due to lower sales levels. The decrease also includes the impact of significantly reduced travel, the absence of in-person trade shows and conference activity, and the ability to conduct more business remotely.

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General and administrative. General and administrative decreased by $1.0 million, or 8.2%, in ~~restructuring expense~~the first half of fiscal 2021 compared with the first half of fiscal 2020 due to employee furloughs and ~~$0.2~~layoffs, temporary salary reductions, lower incentive pay and employee benefits offset by an increase in share-based compensation.

Severance and other charges. Severance, and other charges increased $0.8 million in ~~severance costs related to our ongoing efforts to better allocate resources to our crucial revenue growth areas while increasing internal efficiencies in other non-revenue generating areas. In~~ the first ~~nine months~~half of fiscal ~~2017 we had $1.4 million in one-time~~2021 due to severance charges ~~related primarily to the severance of our former CEO. The restructuring initiative will result in annual savings of $2.7 million across all of our operating expense categories.~~

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

resulting from layoffs.

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


	Six Months Ended September 30,						(Unfavorable) favorable
(Dollars in thousands)	2020			2019			$			%
Other (income) expense:
Interest income	$	(49	)	$	(194	)	$	(145	)		(74.7	)%
Interest expense		3			3			0		nm
Other expense, net		194			193			(1	)	nm
Total other expense, net	$	148		$	2		$	(146	)	nm

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

nm - not meaningful

money market funds.

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

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

Income Taxes

	Six months ended
	September 30,						(Unfavorable) favorable
(Dollars in thousands)	2020			2019			$			%
Income tax expense	$	128		$	67		$	(61	)	nm
Effective tax rate		2.3	%		(1.5	)%

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 )%

nm - not meaningful

For the ~~nine~~six months ended ~~December 31, 2017,~~September 30, 2020, the effective tax rate was different than the statutory tax rate due primarily to ~~a $1.3 million benefit resulting from~~ the ~~effect of a reduction in the deferred rate due to passage of the Tax Act, recognition~~utilization of net operating losses ~~as deferred tax assets, which~~that were offset by ~~increases~~decreases in the valuation ~~allowance,~~allowances in the U.S, certain foreign and state tax effects ~~including a benefit of $0.4 million related to a settlement with the California Franchise Tax Board~~ and other U.S. permanent book to tax differences.

For the ~~nine~~six months ended ~~December 31, 2016,~~September 30, 2019, the effective tax rate was different than the statutory rate due primarily to the recognition of net operating losses as deferred tax assets in the U.S. and certain foreign jurisdictions, which were offset by increases in the valuation allowance, certain foreign and state ~~taxes,~~tax effects and other U.S. permanent book to tax differences.

We have recorded a valuation allowance offsetting substantially all of our deferred tax assets. The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which those temporary differences are deductible. Because of our losses in prior periods, management believes that it is more-likely-than-not that we will not realize the benefits of these deductible differences.

Liquidity and Capital Resources

Overview

Our operating cash requirements consist primarily of working capital needs, operating expenses, capital expenditures, payments on indebtedness outstanding, which primarily consists of lease obligations and preferred stock dividends.

At September 30, 2020, 100% of our cash and cash equivalents, of which 97% were located in the United States, were deposited in bank accounts. We believe credit risk is limited with respect to our cash and cash equivalents balances.

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The MAK Capital investment increased our cash balance by $34.0 million after closing costs of $1.0 million. As described above under Recent Developments and further in Note 11 to the condensed consolidated financial statements, the transaction resulted in the issuance of 1,735,457 preferred shares with an annual dividend rate of 5.25%.

Our liquidity could be negatively impacted by a decrease in demand for our products and services, including the impact of changes in customer buying behavior due to circumstances over which we have no control, including, but not limited to, the effects of the COVID-19 pandemic. If we require additional funding, for operating needs, a business acquisition or otherwise, we may need access to more capital, ~~expenditures.~~ which could involve borrowings under a credit facility.

As of September 30, 2020, and March 31, 2020, our total debt was approximately $0.1 million, comprised of finance lease obligations in both periods.

We believe that cash flow from operating activities, cash on hand of ~~$37.6~~$85.7 million as of ~~December 31, 2017~~September 30, 2020 and access to capital markets will provide adequate funds to meet our short- and long-term liquidity ~~requirements in the next 12 months.~~

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

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

requirements.

Cash Flow

	Six Months Ended September 30,
(In thousands)	2020			2019

Net cash provided by (used in):
Operating activities	$	6,642		$	1,234
Investing activities		(473	)		(1,942	)
Financing activities		32,799			(1,065	)
Effect of exchange rate changes on cash		85			(83	)
Net increase (decrease) in cash and cash equivalents	$	39,053		$	(1,856	)

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 )

Cash flow provided by operating activities. Cash flow provided by operating activities was ~~$2.1~~$6.6 million in the first ~~nine~~six months of fiscal ~~2018. Operating~~2021. The provision of cash was due primarily to the addition of $4.7 million in non-cash expense including depreciation, amortization, and share-based compensation, to our operating income of $5.4 million offset by a decrease of $3.5 million in net operating assets and liabilities decreased $3.4 million due mainly to the timing of collections and operating loss of $8.1 million were offset by non-cash charges of $10.7 million in depreciation and amortization and $3.8 million in share-based compensation. Total share-based compensation increased $3.0 million for the nine months ended December 31, 2017 due to higher value executive stock grants and the impact of removing forfeiture rates.

liabilities.

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

purchases.

Cash flow ~~used in~~provided by (used in) financing activities. During the first ~~nine~~six months of fiscal ~~2018,~~2021, the ~~$1.3~~$32.8 million ~~used in~~provided by financing activities ~~was~~consisted primarily ~~comprised~~ of ~~$1.2~~$34.0 million in preferred stock issuance proceeds from the MAK Capital investment, net of issuance costs, offset by $1.0 million related to the repurchase of shares to satisfy employee tax ~~withholding.~~

~~Contractual Obligations~~

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

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

in preferred stock dividends. During the first six months of fiscal 2020, the $1.1 million used in financing activities was primarily related to the repurchase of shares to satisfy employee tax withholding on share-based compensation.

Contractual Obligations

As of ~~December 31, 2017,~~September 30, 2020, there were no ~~other~~ significant changes to our contractual obligations as presented in our Annual Report for the year ended March 31, ~~2017~~.

2020.

Off-Balance Sheet Arrangements

We have not entered into any off-balance sheet arrangements that have had or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.

Critical Accounting Policies

A detailed description of our significant accounting policies is included in our Annual Report for the year ended March 31, ~~2017. There~~2020. Other than as described in Note 2 to the condensed consolidated financial statements, there have been no material changes in our significant accounting policies and estimates since March 31, ~~2017~~ ~~except as noted in Note 2,~~ ~~Summary~~2020.

Table of ~~Significant Accounting Policies~~.

Contents

Forward-Looking Information

This Quarterly Report and other publicly available documents, including the documents incorporated herein and therein by reference, contain, and our officers and representatives may from time to time make, "forward-looking statements" within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as: "anticipate," "intend," "plan," "goal," "seek," "believe," "project," "estimate," "expect," "strategy," "future," "likely," "may," "should," "will" and similar references to future periods. ~~Forward-looking~~These statements are ~~neither historical facts nor assurances~~not guarantees of future ~~performance. Instead, they are based only on our current beliefs, expectations~~performance and ~~assumptions regarding the future of our business, future plans~~involve risks, uncertainties, and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstancesassumptions that are difficult to ~~predict~~predict. These statements are based on management’s current expectations, intentions, or beliefs and ~~many~~are subject to a number of ~~which are outside of our control. Our actual results~~factors, assumptions, and ~~financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors~~uncertainties that could cause ~~our~~ actual results ~~and financial condition~~ to differ materially from those ~~indicated~~described in the forward-looking ~~statements~~statements. Factors that could cause or contribute to such differences or that might otherwise impact the business include ~~among others, our ability to achieve operational efficiencies and meet customer demand for products and services and~~ the risk factors set forth in Item 1A in Part II of this Quarterly Report and Item IA of our Annual Report for the fiscal year ended March 31, ~~2017. Any forward-looking statement made by us in this Quarterly Report is based only on information currently available to us and speaks only as of the date on which it is made.~~2020. We undertake no obligation to ~~publicly~~ update any such factor or to publicly announce the results of any revisions to any forward-looking ~~statement made in this Quarterly Report or any other forward-looking statement that may be made from time to time, whether written or oral,~~statements contained herein whether as a result of new information, future events, or otherwise.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

For quantitative and qualitative disclosures about market risk affecting us, see Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” contained in our Annual Report for the fiscal year ended March 31, ~~2017~~.2020. There have been no material changes in our market risk exposures since March 31, ~~2017~~.

2020.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

~~Change~~

Changes in Internal Control over Financial Reporting

~~None.~~

There were no changes to our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Securities Exchange Act of 1934, as amended, that occurred during the six months ended September 30, 2020, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Due to the COVID-19 pandemic, a significant number of our employees are now working from home. The design of our financial reporting processes, systems, and controls allows for remote execution with accessibility 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.

Table of Contents

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

~~There~~

Other than as described below, there have been no material changes in the risk factors included in our Annual Report for the fiscal year ended March 31, ~~2017~~2020 that may materially affect our business, results of operations, or financial condition.

The full extent to which the COVID-19 pandemic will adversely affect our business and results of operations cannot be predicted at this time. See Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview— Recent Developments” of this report for a more detailed discussion of the impact of COVID-19 on our business.

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.

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Item 6. Exhibits


~~31.1~~

3.1			Amended Code of Regulations of Agilysys, Inc., effective as of October 9, 2020.

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


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


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


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


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

101.SCH		Inline XBRL Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

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

Table of Contents

SIGNATURE

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

AGILYSYS, INC.



~~Date:~~			~~January 26, 2018~~	~~/s/ Anthony S. Pritchett~~
		~~Anthony S. Pritchett~~
Date:	October 28, 2020	/s/ William David Wood III
		William David Wood III
		Chief Financial Officer
		(Principal Financial Officer and Duly Authorized Officer)



~~Ohio~~		~~34-0907152~~
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1000 ~~Winward~~Windward Concourse, Suite 250, Alpharetta, Georgia	30005
(Address of principal executive offices)	(ZIP Code)

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Shares, without par value	AGYS
~~(770) 810-7800~~
~~(Registrant’s telephone number, including area code)~~

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



Large accelerated filer	¨ ☐		Accelerated filer	x ☒

Non-accelerated filer	¨ ☐	~~(Do not check if a smaller reporting company)~~	Smaller reporting company	¨ ☐

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

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




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

		Condensed Consolidated Balance Sheets – September 30, 2020 (Unaudited) ~~- December 31, 2017~~ and March 31, ~~2017~~2020	3

		Condensed Consolidated Statements of Operations (Unaudited) - Three and ~~Nine~~Six Months Ended ~~December 31, 2017~~September 30, 2020 and ~~December 31, 2016~~September 30, 2019	4

		Condensed Consolidated Statements of Comprehensive ~~Loss~~Income (Loss) (Unaudited) - Three and ~~Nine~~Six Months Ended ~~December 31, 2017~~September 30, 2020 and ~~December 31, 2016~~September 30, 2019	5

		Condensed Consolidated Statements of Cash Flows (Unaudited) ~~- Nine~~– Six Months Ended ~~December 31, 2017~~September 30, 2020 and ~~December 31, 2016~~September 30, 2019	6

		Condensed Consolidated Statements of Shareholders' Equity (Unaudited) - Three and Six Months Ended September 30, 2020 and September 30, 2019	7

		Notes to Condensed Consolidated Financial Statements (Unaudited)	7 8

	Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19 18

	Item 3	Quantitative and Qualitative Disclosures About Market Risk	29 27

	Item 4	Controls and Procedures	29 27

Part II. Other Information

	Item 1	Legal Proceedings	30 28

	Item 1A	Risk Factors	30 28

	Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	30 28

	Item 3	Defaults Upon Senior Securities	30 28

	Item 4	Mine Safety Disclosures	30 28

	Item 5	Other Information	30 28

	Item 6	Exhibits	30 29

Signatures			30



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



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

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



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

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



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

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



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



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



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

Ohio		34-0907152