UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ | |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period endedDecember 31, 20172021
or
☐ | |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________ to __________.
Commission file number
0-5734AGILYSYS, INC.
(Exact name of registrant as specified in its charter)
Ohio | 34-0907152 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||
1000 Alpharetta, Georgia | 30005 | |||
(Address of principal executive offices) | (ZIP Code) |
(770) 810-7800
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Shares, without par value | AGYS | |||
NASDAQ |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ☐ | Accelerated filer | ☒ | |
Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
Indicate by check mark whether the registrant has filed all documents and reports required to be filed be sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☒ No ☐
The number of Common Shares of the registrant outstanding as of January 22, 201821, 2022 was 23,313,156.
Index
Item 1 | |||||
7 | |||||
Notes to Condensed Consolidated Financial Statements (Unaudited) | 8 | ||||
Item 2 | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 16 | |||
Item 3 | 25 | ||||
Item 4 | 25 | ||||
Item 1 | 26 | ||||
Item 1A | 26 | ||||
Item 2 | 26 | ||||
Item 3 | 26 | ||||
Item 4 | 26 | ||||
Item 5 | 26 | ||||
Item 6 | 27 | ||||
28 |
AGILYSYS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data) |
| December 31, 2021 (Unaudited) |
|
| March 31, 2021 |
| ||
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 115,122 |
|
| $ | 99,180 |
|
Accounts receivable, net of allowance for expected credit losses of $717 and $1,220, respectively |
|
| 24,957 |
|
|
| 25,732 |
|
Contract assets |
|
| 1,628 |
|
|
| 2,364 |
|
Inventories |
|
| 3,256 |
|
|
| 1,177 |
|
Prepaid expenses and other current assets |
|
| 4,651 |
|
|
| 4,797 |
|
Total current assets |
|
| 149,614 |
|
|
| 133,250 |
|
Property and equipment, net |
|
| 6,788 |
|
|
| 8,789 |
|
Operating lease right-of-use assets |
|
| 9,681 |
|
|
| 12,210 |
|
Goodwill |
|
| 19,622 |
|
|
| 19,622 |
|
Intangible assets, net |
|
| 8,400 |
|
|
| 8,400 |
|
Deferred income taxes, non-current |
|
| 2,281 |
|
|
| 1,802 |
|
Other non-current assets |
|
| 5,952 |
|
|
| 5,800 |
|
Total assets |
| $ | 202,338 |
|
| $ | 189,873 |
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 8,035 |
|
| $ | 6,346 |
|
Contract liabilities |
|
| 43,193 |
|
|
| 38,394 |
|
Accrued liabilities |
|
| 8,385 |
|
|
| 11,233 |
|
Operating lease liabilities, current |
|
| 4,531 |
|
|
| 5,009 |
|
Finance lease obligations, current |
|
| 7 |
|
|
| 19 |
|
Total current liabilities |
|
| 64,151 |
|
|
| 61,001 |
|
Deferred income taxes, non-current |
|
| 937 |
|
|
| 923 |
|
Operating lease liabilities, non-current |
|
| 6,187 |
|
|
| 8,597 |
|
Finance lease obligations, non-current |
|
| 3 |
|
|
| 6 |
|
Other non-current liabilities |
|
| 3,647 |
|
|
| 4,011 |
|
Commitments and contingencies (see Note 7) |
|
|
|
|
|
|
|
|
Series A convertible preferred stock, no par value |
|
| 35,000 |
|
|
| 35,459 |
|
Shareholders' equity: |
|
|
|
|
|
|
|
|
Common shares, without par value, at $0.30 stated value; 80,000,000 shares authorized; 31,606,831 shares issued; and 24,712,343 and 24,010,727 shares outstanding at December 31, 2021 and March 31, 2021, respectively |
|
| 9,482 |
|
|
| 9,482 |
|
Treasury shares, 6,894,488 and 7,596,104 at December 31, 2021 and March 31, 2021, respectively |
|
| (2,068 | ) |
|
| (2,278 | ) |
Capital in excess of stated value |
|
| 46,436 |
|
|
| 37,257 |
|
Retained earnings |
|
| 38,495 |
|
|
| 35,376 |
|
Accumulated other comprehensive income |
|
| 68 |
|
|
| 39 |
|
Total shareholders' equity |
|
| 92,413 |
|
|
| 79,876 |
|
Total liabilities and shareholders' equity |
| $ | 202,338 |
|
| $ | 189,873 |
|
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.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
| Three Months Ended December 31, |
|
| Nine Months Ended December 31, |
| ||||||||||
(In thousands, except share data) |
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Net revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products |
| $ | 8,101 |
|
| $ | 7,599 |
|
| $ | 24,244 |
|
| $ | 19,396 |
|
Support, maintenance and subscription services |
|
| 25,136 |
|
|
| 22,846 |
|
|
| 72,371 |
|
|
| 65,647 |
|
Professional services |
|
| 6,223 |
|
|
| 6,230 |
|
|
| 19,463 |
|
|
| 15,797 |
|
Total net revenue |
|
| 39,460 |
|
|
| 36,675 |
|
|
| 116,078 |
|
|
| 100,840 |
|
Cost of goods sold: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products |
|
| 4,400 |
|
|
| 3,660 |
|
|
| 12,420 |
|
|
| 9,625 |
|
Support, maintenance and subscription services |
|
| 5,421 |
|
|
| 4,655 |
|
|
| 15,184 |
|
|
| 13,515 |
|
Professional services |
|
| 4,923 |
|
|
| 4,164 |
|
|
| 14,634 |
|
|
| 11,802 |
|
Total cost of goods sold |
|
| 14,744 |
|
|
| 12,479 |
|
|
| 42,238 |
|
|
| 34,942 |
|
Gross profit |
|
| 24,716 |
|
|
| 24,196 |
|
|
| 73,840 |
|
|
| 65,898 |
|
Gross profit margin |
|
| 62.6 | % |
|
| 66.0 | % |
|
| 63.6 | % |
|
| 65.3 | % |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product development |
|
| 11,210 |
|
|
| 12,376 |
|
|
| 34,074 |
|
|
| 28,900 |
|
Sales and marketing |
|
| 3,943 |
|
|
| 3,327 |
|
|
| 10,418 |
|
|
| 8,278 |
|
General and administrative |
|
| 6,804 |
|
|
| 7,509 |
|
|
| 20,330 |
|
|
| 18,446 |
|
Depreciation of fixed assets |
|
| 495 |
|
|
| 722 |
|
|
| 1,609 |
|
|
| 2,160 |
|
Amortization of internal-use software |
|
| 267 |
|
|
| 521 |
|
|
| 1,077 |
|
|
| 1,490 |
|
Severance and other charges |
|
| 381 |
|
|
| 1,552 |
|
|
| 1,187 |
|
|
| 2,762 |
|
Legal settlements, net |
|
| 4 |
|
|
| - |
|
|
| 371 |
|
|
| 50 |
|
Total operating expense |
|
| 23,104 |
|
|
| 26,007 |
|
|
| 69,066 |
|
|
| 62,086 |
|
Operating income (loss) |
|
| 1,612 |
|
|
| (1,811 | ) |
|
| 4,774 |
|
|
| 3,812 |
|
Other (income) expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
| (10 | ) |
|
| (27 | ) |
|
| (45 | ) |
|
| (76 | ) |
Interest expense |
|
| 4 |
|
|
| 9 |
|
|
| 5 |
|
|
| 13 |
|
Other expense, net |
|
| 52 |
|
|
| 95 |
|
|
| 53 |
|
|
| 284 |
|
Income (loss) before taxes |
|
| 1,566 |
|
|
| (1,888 | ) |
|
| 4,761 |
|
|
| 3,591 |
|
Income tax expense |
|
| 24 |
|
|
| 182 |
|
|
| 265 |
|
|
| 311 |
|
Net income (loss) |
| $ | 1,542 |
|
| $ | (2,070 | ) |
| $ | 4,496 |
|
| $ | 3,280 |
|
Series A convertible preferred stock issuance costs |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (1,031 | ) |
Series A convertible preferred stock dividends |
|
| (459 | ) |
|
| (459 | ) |
|
| (1,377 | ) |
|
| (1,117 | ) |
Net income (loss) attributable to common shareholders |
| $ | 1,083 |
|
| $ | (2,529 | ) |
| $ | 3,119 |
|
| $ | 1,132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding - basic |
|
| 24,477 |
|
|
| 23,429 |
|
|
| 24,315 |
|
|
| 23,419 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share - basic: |
| $ | 0.04 |
|
| $ | (0.11 | ) |
| $ | 0.13 |
|
| $ | 0.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding - diluted |
|
| 25,392 |
|
|
| 23,429 |
|
|
| 25,327 |
|
|
| 23,903 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share - diluted: |
| $ | 0.04 |
|
| $ | (0.11 | ) |
| $ | 0.12 |
|
| $ | 0.05 |
|
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.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSINCOME (LOSS)
(Unaudited)
|
| Three Months Ended December 31, |
|
| Nine Months Ended December 31, |
| ||||||||||
(In thousands) |
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Net income (loss) |
| $ | 1,542 |
|
| $ | (2,070 | ) |
| $ | 4,496 |
|
| $ | 3,280 |
|
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized foreign currency translation adjustments |
|
| 11 |
|
|
| (64 | ) |
|
| 29 |
|
|
| (213 | ) |
Total comprehensive income (loss) |
| $ | 1,553 |
|
| $ | (2,134 | ) |
| $ | 4,525 |
|
| $ | 3,067 |
|
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.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
| Nine Months Ended December 31, |
| |||||
(In thousands) |
| 2021 |
|
| 2020 |
| ||
Operating activities |
|
|
|
|
|
|
|
|
Net income |
| $ | 4,496 |
|
| $ | 3,280 |
|
Adjustments to reconcile net income to net cash provided by operating activities |
|
|
|
|
|
|
|
|
Loss on disposal of property & equipment |
|
| 123 |
|
|
| — |
|
Depreciation |
|
| 1,609 |
|
|
| 2,160 |
|
Amortization of internal-use software |
|
| 1,077 |
|
|
| 1,490 |
|
Deferred income taxes |
|
| (491 | ) |
|
| (499 | ) |
Share-based compensation |
|
| 10,802 |
|
|
| 9,312 |
|
Changes in operating assets and liabilities |
|
| 4,199 |
|
|
| (659 | ) |
Net cash provided by operating activities |
|
| 21,815 |
|
|
| 15,084 |
|
Investing activities |
|
|
|
|
|
|
|
|
Capital expenditures |
|
| (1,078 | ) |
|
| (1,076 | ) |
Additional investments in corporate-owned life insurance policies |
|
| (3 | ) |
|
| (2 | ) |
Net cash used in investing activities |
|
| (1,081 | ) |
|
| (1,078 | ) |
Financing activities |
|
|
|
|
|
|
|
|
Repurchase of common shares to satisfy employee tax withholding |
|
| (2,902 | ) |
|
| (1,069 | ) |
Series A convertible preferred stock issuance proceeds, net of issuance costs |
|
| — |
|
|
| 33,969 |
|
Payment of preferred stock dividends |
|
| (1,836 | ) |
|
| (1,117 | ) |
Principal payments under long-term obligations |
|
| (16 | ) |
|
| (18 | ) |
Net cash (used in) provided by financing activities |
|
| (4,754 | ) |
|
| 31,765 |
|
Effect of exchange rate changes on cash |
|
| (38 | ) |
|
| 184 |
|
Net increase in cash and cash equivalents |
|
| 15,942 |
|
|
| 45,955 |
|
Cash and cash equivalents at beginning of period |
|
| 99,180 |
|
|
| 46,653 |
|
Cash and cash equivalents at end of period |
| $ | 115,122 |
|
| $ | 92,608 |
|
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.
6
AGILYSYS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
|
| Three Months Ended December 31, 2021 |
| |||||||||||||||||||||||||||||
|
| 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 |
|
| Total |
| ||||||||
Balance at September 30, 2021 |
|
| 31,607 |
|
| $ | 9,482 |
|
|
| (7,000 | ) |
| $ | (2,100 | ) |
| $ | 42,867 |
|
| $ | 37,412 |
|
| $ | 57 |
|
| $ | 87,718 |
|
Share-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,794 |
|
|
| — |
|
|
| — |
|
|
| 3,794 |
|
Restricted shares issued, net |
|
| — |
|
|
| — |
|
|
| 92 |
|
|
| 28 |
|
|
| (28 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Shares issued upon exercise of SSARs |
|
| — |
|
|
| — |
|
|
| 17 |
|
|
| 5 |
|
|
| (5 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Shares withheld for taxes upon exercise of stock options, SSARs or vesting of restricted shares |
|
| — |
|
|
| — |
|
|
| (4 | ) |
|
| (1 | ) |
|
| (192 | ) |
|
| — |
|
|
| — |
|
|
| (193 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,542 |
|
|
| — |
|
|
| 1,542 |
|
Series A convertible preferred stock dividends |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (459 | ) |
|
| — |
|
|
| (459 | ) |
Unrealized translation adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 11 |
|
|
| 11 |
|
Balance at December 31, 2021 |
|
| 31,607 |
|
| $ | 9,482 |
|
|
| (6,895 | ) |
| $ | (2,068 | ) |
| $ | 46,436 |
|
| $ | 38,495 |
|
| $ | 68 |
|
| $ | 92,413 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended December 31, 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 |
|
| Total |
| ||||||||
Balance at September 30, 2020 |
|
| 31,607 |
|
| $ | 9,482 |
|
|
| (8,019 | ) |
| $ | (2,406 | ) |
| $ | 8,151 |
|
| $ | 62,645 |
|
| $ | 52 |
|
| $ | 77,924 |
|
Share-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,558 |
|
|
| — |
|
|
| — |
|
|
| 6,558 |
|
Restricted shares issued, net |
|
| — |
|
|
| — |
|
|
| 43 |
|
|
| 13 |
|
|
| (13 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Shares issued upon exercise of SSARs |
|
| — |
|
|
| — |
|
|
| 10 |
|
|
| 3 |
|
|
| (3 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Shares withheld for taxes upon exercise of stock options, SSARs or vesting of restricted shares |
|
| — |
|
|
| — |
|
|
| (3 | ) |
|
| (1 | ) |
|
| (109 | ) |
|
| — |
|
|
| — |
|
|
| (110 | ) |
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,070 | ) |
|
| — |
|
|
| (2,070 | ) |
Series A convertible preferred stock dividends |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (459 | ) |
|
| — |
|
|
| (459 | ) |
Unrealized translation adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (64 | ) |
|
| (64 | ) |
Balance at December 31, 2020 |
|
| 31,607 |
|
| $ | 9,482 |
|
|
| (7,969 | ) |
| $ | (2,391 | ) |
| $ | 14,584 |
|
| $ | 60,116 |
|
| $ | (12 | ) |
| $ | 81,779 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nine Months Ended December 31, 2021 |
| |||||||||||||||||||||||||||||
|
| 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 |
|
| Total |
| ||||||||
Balance at March 31, 2021 |
|
| 31,607 |
|
| $ | 9,482 |
|
|
| (7,596 | ) |
| $ | (2,278 | ) |
| $ | 37,257 |
|
| $ | 35,376 |
|
| $ | 39 |
|
| $ | 79,876 |
|
Share-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 10,847 |
|
|
| — |
|
|
| — |
|
|
| 10,847 |
|
Restricted shares issued, net |
|
| — |
|
|
| — |
|
|
| 103 |
|
|
| 31 |
|
|
| (31 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Shares issued upon exercise of SSARs |
|
| — |
|
|
| — |
|
|
| 626 |
|
|
| 187 |
|
|
| (187 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Shares withheld for taxes upon exercise of stock options, SSARs or vesting of restricted shares |
|
| — |
|
|
| — |
|
|
| (28 | ) |
|
| (8 | ) |
|
| (1,450 | ) |
|
| — |
|
|
| — |
|
|
| (1,458 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,496 |
|
|
| — |
|
|
| 4,496 |
|
Series A convertible preferred stock dividends |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,377 | ) |
|
| — |
|
|
| (1,377 | ) |
Unrealized translation adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 29 |
|
|
| 29 |
|
Balance at December 31, 2021 |
|
| 31,607 |
|
| $ | 9,482 |
|
|
| (6,895 | ) |
| $ | (2,068 | ) |
| $ | 46,436 |
|
| $ | 38,495 |
|
| $ | 68 |
|
| $ | 92,413 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nine Months Ended December 31, 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 |
|
| Total |
| ||||||||
Balance at March 31, 2020 |
|
| 31,607 |
|
| $ | 9,482 |
|
|
| (7,997 | ) |
| $ | (2,401 | ) |
| $ | 5,491 |
|
| $ | 58,984 |
|
| $ | 201 |
|
| $ | 71,757 |
|
Share-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 9,393 |
|
|
| — |
|
|
| — |
|
|
| 9,393 |
|
Restricted shares issued, net |
|
| — |
|
|
| — |
|
|
| 2 |
|
|
| 1 |
|
|
| (1 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Shares issued upon exercise of SSARs |
|
| — |
|
|
| — |
|
|
| 38 |
|
|
| 12 |
|
|
| (12 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Shares withheld for taxes upon exercise of stock options, SSARs or vesting of restricted shares |
|
| — |
|
|
| — |
|
|
| (12 | ) |
|
| (3 | ) |
|
| (287 | ) |
|
| — |
|
|
| — |
|
|
| (290 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,280 |
|
|
| — |
|
|
| 3,280 |
|
Series A convertible preferred stock issuance costs |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,031 | ) |
|
| — |
|
|
| (1,031 | ) |
Series A convertible preferred stock dividends |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,117 | ) |
|
| — |
|
|
| (1,117 | ) |
Unrealized translation adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (213 | ) |
|
| (213 | ) |
Balance at December 31, 2020 |
|
| 31,607 |
|
| $ | 9,482 |
|
|
| (7,969 | ) |
| $ | (2,391 | ) |
| $ | 14,584 |
|
| $ | 60,116 |
|
| $ | (12 | ) |
| $ | 81,779 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
7
AGILYSYS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Nature of Operations and Financial Statement Presentation
Nature of Operations
Agilysys ishas been a leadingleader in hospitality software for more than 40 years, delivering innovative cloud native SaaS and on-premise guest-centric technology company that provides innovativesolutions for gaming, hotels, resorts and cruise, corporate foodservice management, restaurants, universities, stadia and healthcare. Agilysys offers the most comprehensive software and services forsolutions in the industry, including point-of-sale (POS), reservation and table management, property management (PMS), inventory and procurement, workforce management, analytics, document management,payments, and mobile and wireless solutions exclusivelyrelated applications, to manage the entire guest journey.
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.
COVID-19 Pandemic
The World Health Organization declared COVID-19 a pandemic on March 11, 2020. COVID-19 has had a significant impact on our business since that time. The extent to which COVID-19 will continue impacting our financial condition and results of operations remains uncertain and depends on various factors, including the ongoing or recurring impact on our customers, partners, and vendors and on the operation of the global markets in general. Because an increasing portion of our business is based on a subscription model, the effect of COVID-19 on our results of operations may also not be fully reflected for some time.
See Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview— Recent Developments” of this report for more information, visit www.agilysys.com.
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 20182022 refers to the fiscal year ending March 31, 2018.
Our unaudited interim financial statements are prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information, the instructions to the Quarterly Report on Form 10-Q (Quarterly Report) under the Securities Exchange Act of 1934, as amended (the Exchange Act), and Rule 10-01 of Regulation S-X under the Exchange Act. Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations relating to interim financial statements.
The Condensed Consolidated Balance SheetsSheet as of December 31, 2017 and 2016,2021, as well as the Condensed Consolidated Statements of Operations, Condensed Consolidated Statements of Comprehensive Loss, and theIncome, Condensed Consolidated Statements of Cash FlowShareholders’ Equity for the three and nine months ended December 31, 20172021 and 2016,2020, and the Condensed Consolidated Statements of Cash Flows for the nine months ended December 31, 2021 and 2020 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,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
8
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 December 31, 2021 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,Adopted and Recently Issued Accounting Pronouncements
In January 2017,October 2021, the Financial Accounting Standards Board ("FASB")FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business,2021-08, Accounting for Contract Assets and ASU No. 2017-04, Intangibles- GoodwillContract Liabilities From Contracts With Customers, which amends Accounting Standards Codification (ASC) 805 to require acquiring entities to apply Topic 606 to recognize and Other (Topic 350) - Simplifying the Test for Goodwill Impairment. ASU No. 2017-01 clarifies the definition ofmeasure contract assets and contract liabilities in a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The guidance is effective for annual periods beginning after December 15, 2017, including interim periods within those periods. ASU No. 2017-04 eliminates Step 2 of the goodwill impairment test and requires a goodwill impairment to be measured as the amount by which a reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of its goodwill.combination. The ASU is intended to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to the recognition of an acquired contract liability as well as the payment terms and their impact on subsequent revenue recognized by the acquirer. The new standard will be effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. While we2022, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. We intend to adopt ASU 2021-08 during the three months ending March 31, 2022 – see Note 11, Business Combination.
In August 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for convertible instruments by eliminating the requirement to separate embedded conversion features from the host contract when the conversion features are still assessing the impact of this standard, wenot required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not believeresult in substantial premiums accounted for as paid-in capital. By removing the separation model, a convertible debt instrument will be reported as a single liability instrument with no separate accounting for embedded conversion features. This new standard also removes certain settlement conditions that are required for contracts to qualify for equity classification and simplifies the diluted earnings per share calculations by requiring that an entity use the if-converted method and that the effect of potential share settlement be included in diluted earnings per share calculations. The new standard will be effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. We adopted ASU 2020-06 as of this guidance will have a materialApril 1, 2021 with no impact on our condensed consolidated financial statements.
In October 2016,December 2019, the FASB issued ASU No. 2016-16, 2019-12, Income Taxes (Topic 740): Intra-Entity TransfersSimplifying the Accounting for Income Taxes, which affects general principles within Topic 740, Income Taxes, and is meant to simplify and reduce the cost of Assets Other Than Inventory, which requires entities to recognize theaccounting for income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The new guidance is effective for annual reporting periods beginning after December 15, 2017. Early adoption is permitted as of the beginning of an annual reporting period. taxes. The new standard mustwill be effectivefor fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. We adopted using a modified retrospective transition method, with the cumulative effect recognizedASU 2019-12 as of the date of initial adoption. We do not believe that the adoption of this guidance will have aApril 1, 2021 with no material impact on our condensed consolidated financial statements.
3. Revenue Recognition
Our customary business practice is to enter into legally enforceable written contracts with our customers. The majority of our contracts are governed by a master agreement between us and the customer, which sets forth the general terms and conditions of any individual contract between the parties, which is then supplemented by a customer purchase order to specify the different goods and services, the associated prices, and any additional terms for an individual contract. Performance obligations specific to each individual contract are defined within the terms of each purchase order. Each performance obligation is identified based on the goods and services that will be transferred to our customer that are both capable of being distinct and are distinct within the context of the contract. The transaction price is determined based on the consideration to which we will be entitled and expect to receive in exchange for transferring goods or services to the customer. Typically, our contracts do not provide our customer with any right of return or refund; we do not constrain the contract price as it is probable that there will not be a significant revenue reversal due to a return or refund.
Typically, our customer contracts contain one or more of the following goods or services which constitute performance obligations.
Our software licenses typically provide for a perpetual right to use our software. Generally, our contracts do not provide significant services of integration, and customization and installation services are not required to be purchased directly from us. The software is delivered before related services are provided and is functional without professional services, updates and technical support. We have concluded that the software license is distinct as the customer can benefit from the software on its own. Software revenue is typically recognized when the software is delivered or made available for download to the customer.
9
Revenue for hardware sales is recognized when the product is shipped to the customer and when obligations that affect the customer's final acceptance of the arrangement have been fulfilled. Hardware is purchased from suppliers and provided to the end-user customers via drop-ship or from inventory. We are responsible for negotiating price both with the supplier and the customer, payment to the supplier, establishing payment terms and product returns with the customer, and we bear the credit risk if the customer does not pay for the goods. As the principal contact with the customer, we recognize revenue and cost of goods sold when we are notified by the supplier that the product has been shipped. In March 2016,certain limited instances, as shipping terms dictate, revenue is recognized upon receipt at the FASB issued ASU No. 2016-09, Compensation-Stock Compensation (Topic 718), which amendspoint of destination or upon installation at the accountingcustomer 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 stock-based compensation.these support and maintenance services as a single performance obligation recognized over the term of the maintenance agreement.
Our subscription service revenue is comprised of fees for contracts that provide customers a right to access our software for a subscribed period. We do not provide the customer the contractual right to license the software at any time outside of the subscription period under these contracts. The guidance requires excess tax benefitscustomer can only benefit from the software and deficienciessoftware maintenance when provided the right to access the software. Accordingly, each of the rights to access the software, the maintenance services, and any hosting services is not considered a distinct performance obligation in the context of the contract and should be combined into a single performance obligation to be recognized 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 adoptedrecognizes subscription revenue over a one-month period based on the ASUtypical 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 iscustomer simultaneously receives and consumes the first quarter for our annual period beginning April 1, 2017. The following summarizes the effectsbenefits of the adoption onprofessional services as the Company's unaudited condensed consolidated financial statements:
We are evaluating our multiple service contractsuse 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 aretransferred. If the contract contains a single performance obligation, under this new standard requiring a single methodthe 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 of our contractsprice to each performance obligation based on thea relative stand-alone selling price of each our performance obligations. WeSSP basis.
Shipping and handling fees billed to customers are evaluating the stand-alone selling prices for our performance obligations. We are also assessing the new standard’s requirement to capitalize costs associated with obtaining customer contracts, including commission payments, which are currently expensedrecognized as incurred for all commissions earned subsequent to the year ended March 31, 2016. We are evaluating the period over which to amortize these capitalized costs and the applicability of the practical expediency exception which permits the continuation of expensing these costs for amortization periods of one year or less. In addition, for sales transactions that have been billed, but for which the recognition of revenue has been deferred and the related account receivable has not beencosts 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 $8.1 million and $24.2 million, and $7.6 million and $19.4 million for the three and nine months ended December 31, 2021 and 2020. Revenue recognized over time (support, maintenance and subscription services and professional services) totaled $31.4 million and $91.8 million, and $29.1 million and $81.4 million for the three and nine months ended December 31, 2021 and 2020, respectively.
Contract Balances
Contract assets are rights to consideration in exchange for goods or services that we currently do not recognize deferred revenue orhave transferred to a customer when that right is conditional on something other than the passage of time. The majority of our contract assets represent unbilled amounts related to professional services. We expect billing and collection of our contract assets to occur within the next twelve months. We receive payments from customers based upon contractual billing schedules and accounts receivable on our consolidated balance sheet. Under the new standard, we will record accounts receivable and related contract liabilities for non-cancelable contracts with customersare recorded when the right to consideration becomes unconditional. Contract liabilities represent consideration received or consideration which is unconditional, which we currently expect will resultunconditionally due from customers prior to transferring goods or services to the customer under the terms of the contract.
Revenue recognized from amounts included in increases in accounts receivable and contract liabilities (currently presented as deferred revenue) on our consolidated balance sheet, compared to our current presentation. We are continuing to reviewat the impacts of adopting ASU No. 2014-09 to our consolidated financial statements and these preliminary assessmentsbeginning of the impacts to our consolidated financial statements are subject to change. We expect to conclude our assessments of the impacts of adoption sometime during our fourth quarter ending March 31, 2018.
Balance at | Balance at | |||||||||||
March 31, | Provision/ | December 31, | ||||||||||
(in thousands) | 2017 | Adjustments | Payments | 2017 | ||||||||
Fiscal 2018 Restructuring Plan: | ||||||||||||
Restructuring and other employment costs | $ | — | $ | 1,024 | $ | (821 | ) | $ | 203 | |||
Total restructuring costs | $ | — | $ | 1,024 | $ | (821 | ) | $ | 203 |
December 31, 2017 | March 31, 2017 | ||||||||||||||||||
Gross | Net | Gross | Net | ||||||||||||||||
carrying | Accumulated | carrying | carrying | Accumulated | carrying | ||||||||||||||
(In thousands) | amount | amortization | amount | amount | amortization | amount | |||||||||||||
Amortized intangible assets: | |||||||||||||||||||
Customer relationships | $ | 10,775 | $ | (10,775 | ) | $ | — | $ | 10,775 | $ | (10,775 | ) | $ | — | |||||
Non-competition agreements | 2,700 | (2,700 | ) | — | 2,700 | (2,700 | ) | — | |||||||||||
Developed technology | 10,055 | (10,055 | ) | — | 10,055 | (10,055 | ) | — | |||||||||||
Trade names | 230 | (134 | ) | 96 | 230 | (100 | ) | 130 | |||||||||||
Patented technology | 80 | (80 | ) | — | 80 | (80 | ) | — | |||||||||||
23,840 | (23,744 | ) | 96 | 23,840 | (23,710 | ) | 130 | ||||||||||||
Unamortized intangible assets: | |||||||||||||||||||
Trade names | 8,400 | N/A | 8,400 | 8,400 | N/A | 8,400 | |||||||||||||
Total intangible assets | $ | 32,240 | $ | (23,744 | ) | $ | 8,496 | $ | 32,240 | $ | (23,710 | ) | $ | 8,530 | |||||
Software development costs | $ | 53,368 | $ | (17,727 | ) | $ | 35,641 | $ | 46,598 | $ | (10,356 | ) | $ | 36,242 | |||||
Project expenditures not yet in use | 10,445 | — | 10,445 | 10,757 | — | 10,757 | |||||||||||||
Total software development costs | $ | 63,813 | $ | (17,727 | ) | $ | 46,086 | $ | 57,355 | $ | (10,356 | ) | $ | 46,999 |
Estimated | |||
Amortization | |||
(In thousands) | Expense | ||
Fiscal year ending March 31, | |||
2018 | $ | 2,657 | |
2019 | 10,504 | ||
2020 | 9,765 | ||
2021 | 9,680 | ||
2022 | 2,568 | ||
2023 | 563 | ||
Total | $ | 35,737 |
10
Our arrangements are classifiedfor a period of one year or less. As a result, unsatisfied performance obligations as Amortization of intangibles within the Condensed Consolidated Statements of Operations along with Amortization expense related to our Capitalized Internal-Use Software that we classify in Property and Equipment, net within the Consolidated Balance Sheets.
Assets Recognized from Costs to Obtain a Contract
Sales commission expenses that would not have occurred absent the customer contracts are carriedconsidered incremental costs to obtain a contract. We expense the incremental costs to obtain a contract as incurred when the expected benefit and amortization period is one year or less. For subscription contracts that are renewed monthly based on an agreement term, we capitalize commission expenses and amortize as we satisfy the underlying performance obligations, generally based on the contract terms and anticipated renewals. Other sales commission expenses have a period of benefit of one year or less and are therefore expensed as incurred in line with the practical expedient elected.
We had $3.1 million and $2.9 million of capitalized sales incentive costs as of December 31, 2021 and March 31, 2021, respectively. These balances are included in other non-current assets on our condensed consolidated balance sheet at net carrying value, net of accumulated amortization. We capitalized approximately $1.6 million and $3.0 million duringsheets. During the three months ended December 31, 2017 and 2016, and $6.5 million and $8.9 million during the nine months ended December 31, 20172021, we expensed $0.6 million and 2016,$1.8 million, respectively, of sales commissions, which included amortization of capitalized amounts of $0.3 million and $0.9 million, respectively.
4. Additional Balance Sheet Information
Additional information related to the Condensed Consolidated Balance Sheetscondensed consolidated balance sheets is as follows:
(In thousands) |
| December 31, 2021 |
|
| March 31, 2021 |
| ||
Accrued liabilities: |
|
|
|
|
|
|
|
|
Salaries, wages, and related benefits |
| $ | 5,687 |
|
| $ | 8,454 |
|
Other taxes payable |
|
| 1,989 |
|
|
| 1,796 |
|
Accrued legal settlements |
|
| — |
|
|
| 200 |
|
Severance liabilities |
|
| 7 |
|
|
| 79 |
|
Professional fees |
|
| 428 |
|
|
| 97 |
|
Other |
|
| 274 |
|
|
| 607 |
|
Total |
| $ | 8,385 |
|
| $ | 11,233 |
|
Other non-current liabilities: |
|
|
|
|
|
|
|
|
Uncertain tax positions |
| $ | 1,148 |
|
| $ | 1,129 |
|
Asset retirement obligations |
|
| 43 |
|
|
| 170 |
|
Employee benefit obligations |
|
| 2,386 |
|
|
| 2,639 |
|
Other |
|
| 70 |
|
|
| 73 |
|
Total |
| $ | 3,647 |
|
| $ | 4,011 |
|
(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 |
5. Supplemental Disclosures of allowance for doubtful accounts was
Additional information related to the condensed consolidated statements of cash flows is as follows:
|
| Nine Months Ended December 31, |
| |||||
(In thousands) |
|
| 2021 |
|
|
| 2020 |
|
Cash receipts for interest, net |
| $ | (6 | ) |
| $ | (63 | ) |
Cash payments for income taxes, net |
|
| 631 |
|
|
| 195 |
|
Cash payments for operating leases |
|
| 3,676 |
|
|
| 4,039 |
|
Cash payments for finance leases |
|
| 15 |
|
|
| 21 |
|
Accrued capital expenditures |
|
| 1 |
|
|
| 64 |
|
11
6. Income Taxes
The following table compares our income tax (benefit) expense and effective tax rates for the three and sixnine months ended December 31, 20172021 and 2016:2020:
|
| Three Months Ended December 31, |
|
| Nine Months Ended December 31, |
| ||||||||||
(Dollars in thousands) |
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Income tax expense |
| $ | 24 |
|
| $ | 182 |
|
| $ | 265 |
|
| $ | 311 |
|
Effective tax rate |
|
| 1.5 | % |
|
| (9.6 | )% |
|
| 5.6 | % |
|
| 8.7 | % |
Three months ended | Nine months ended | ||||||||||||||
December 31, | December 31, | ||||||||||||||
(Dollars in thousands) | 2017 | 2016 | 2017 | 2016 | |||||||||||
Income tax (benefit) expense | $ | (1,623 | ) | $ | 129 | $ | (1,439 | ) | $ | 252 | |||||
Effective tax rate | 45.6 | % | (8.0 | )% | 15.0 | % | (4.1 | )% |
For the three and nine months ended December 31, 2017, the effective tax rate was different than the statutory 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,
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, theMarch 27, 2020, President of the United States of AmericaTrump signed into law the Tax CutsCoronavirus Aid, Relief, and JobsEconomic Security Act (the "Tax Act"(“CARES Act”). The TaxCARES Act contains significant changes to corporate taxes, including a permanent reductionprovides, among other provisions, for the deferral of the corporate tax rate from 35% to 21% effective January 1, 2018. The reduction inemployer-paid portion of social security taxes through the corporate rate requires a one-time revaluationend of certain tax-related assets and liabilities. As a result2020, with 50% of the revaluation of our deferred tax assets and liabilities atamount due December 31, 2017, we recorded a one-time tax benefit of approximately $1.3 million. This tax benefit was primarily2021 and the result of applying new lower income tax rates to the Company’s net long termremaining 50% due December 31, 2022. The company paid $0.9 million in deferred tax liabilities recorded on its condensed consolidated balance sheet, which are not netted with deferred tax assets or subject to the valuation allowance.
7. Commitments and Contingencies
Agilysys is the subject of various threatened or pending legal actions and contingencies in the normal course of conducting its business. We provide for costs related to these matters when a loss is probable, and the amount can be reasonably estimated. The effect of the outcome of these matters on our future results of operations and liquidity cannot be predicted because any such effect depends on future results of operations and the amount or timing of the resolution of such matters. While it is not possible to predict with certainty, management believes that the ultimate resolution of such individual or aggregated matters will not have a material adverse effect on our consolidated financial position, results of operations, or cash flows.
On April 6, 2012, Ameranth, Inc. filed a complaint against us for patent infringement in the United StatesU.S. District Court for theof Southern District of California. The complaint alleges, among other things,California alleging that point-of-sale and property management and other hospitality information technologycertain of our products software, components and/or systems sold by us infringe patents owned by Ameranth purportingdirected to cover generationconfiguring and synchronizationtransmitting hospitality menus (e.g., restaurant menus) for display on electronic devices and synchronizing the menu content between the devices. The case against us was consolidated with similar cases brought by Ameranth against more than 30 other defendants. All but one of menus, including restaurant menus, event tickets,the patents at issue in the case were invalidated by the U.S. Court of Appeals for the Federal Circuit in 2016. In September 2018, the District Court found the one surviving Ameranth patent invalid and other products across fixed, wireless and/or internet platforms as well as synchronizationgranted summary judgment in favor of hospitality informationthe movant co-defendants. 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, wirelessdiscovery requests with the District Court, which were opposed by the defendants.
We were not a party to the appeal, and internet platforms. The complaintit 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.
As of December 31, 2021, we have an additional operating lease that has not yet commenced of approximately $11.7 million. This operating lease will commence in fiscal year 2023 with a lease term of approximately eleven years.
12
8. LossEarnings per Share
The following data shows the amounts used in computing lossearnings per share and the effect on earnings and the weighted average number of shares of dilutive potential common shares.
| Three Months Ended December 31, |
|
| Nine Months Ended December 31, |
| ||||||||||
(In thousands, except per share data) | 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) | $ | 1,542 |
|
| $ | (2,070 | ) |
| $ | 4,496 |
|
| $ | 3,280 |
|
Series A convertible preferred stock issuance costs |
| — |
|
|
| — |
|
|
| — |
|
|
| (1,031 | ) |
Series A convertible preferred stock dividends |
| (459 | ) |
|
| (459 | ) |
|
| (1,377 | ) |
|
| (1,117 | ) |
Net income (loss) attributable to common shareholders | $ | 1,083 |
|
| $ | (2,529 | ) |
| $ | 3,119 |
|
| $ | 1,132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding - basic |
| 24,477 |
|
|
| 23,429 |
|
|
| 24,315 |
|
|
| 23,419 |
|
Dilutive SSARs |
| 826 |
|
|
| — |
|
|
| 943 |
|
|
| 377 |
|
Dilutive unvested restricted shares |
| 89 |
|
|
| — |
|
|
| 69 |
|
|
| 107 |
|
Weighted average shares outstanding - diluted |
| 25,392 |
|
|
| 23,429 |
|
|
| 25,327 |
|
|
| 23,903 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) per share - basic: | $ | 0.04 |
|
| $ | (0.11 | ) |
| $ | 0.13 |
|
| $ | 0.05 |
|
Income (loss) per share - diluted: | $ | 0.04 |
|
| $ | (0.11 | ) |
| $ | 0.12 |
|
| $ | 0.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive SSARs, restricted shares and preferred shares |
| 1,764 |
|
|
| 4,513 |
|
|
| 1,736 |
|
|
| 2,692 |
|
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 earningsincome (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 530,138231,199 and 595,625204,009 of restricted shares at December 31, 20172021 and 2016,2020, 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 (loss)income per share includes the effect of all potentially dilutive securities on earnings per share. We have stock options, stock-settled appreciation rights ("SSARs"), unvested restricted shares, and unvested performancepreferred shares that are potentially dilutive securities. When a loss is reported, the denominator of diluted earnings per share cannot be adjusted for the dilutive impact of share-based compensation awardsgrants because doing so would be anti-dilutive. Therefore, for all periods presented, basic weighted-average shares outstanding were used in calculating the diluted net loss per share.
9. Share-based Compensation
We may grant non-qualifiedincentive stock options, incentivenon-qualified stock options, SSARs, restricted shares, and restricted share unitsperformance shares under our shareholder-approved 2016 Stock2020 Equity Incentive Plan (the 2016 Plan)("2020 Plan") for up to
We may distribute authorized but unissued shares or treasury shares to satisfy share option and appreciation rightSSAR exercises or restricted share and performance share awards.
The fair value of restricted share grants subject only to a service condition and performance share awardsgrants is based on the closing price of our common shares on the grant date. The fair value ofFor stock option and SSARs awards is estimatedSSAR grants subject only to a service condition, we estimate the fair value on the grant date using the Black-Scholes-Merton option pricing
13
The following table summarizes the share-based compensation expense for options, SSARs, restricted and performance awardsgrants included in the Condensed Consolidated Statementscondensed consolidated statements of Operations:
|
| Three Months Ended December 31, |
|
| Nine Months Ended December 31, |
| ||||||||||
(In thousands) |
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Product development |
| $ | 2,217 |
|
| $ | 3,362 |
|
| $ | 6,033 |
|
| $ | 3,773 |
|
Sales and marketing |
|
| 345 |
|
|
| 666 |
|
|
| 1,011 |
|
|
| 735 |
|
General and administrative |
|
| 1,277 |
|
|
| 2,602 |
|
|
| 3,758 |
|
|
| 4,804 |
|
Total share-based compensation expense |
| $ | 3,839 |
|
| $ | 6,630 |
|
| $ | 10,802 |
|
| $ | 9,312 |
|
Three months ended | Nine months ended | ||||||||||||||
December 31, | December 31, | ||||||||||||||
(In thousands) | 2017 | 2016 | 2017 | 2016 | |||||||||||
Product development | $ | 456 | $ | 498 | $ | 982 | $ | 826 | |||||||
Sales and marketing | 173 | 124 | 529 | 177 | |||||||||||
General and administrative | 829 | (680 | ) | 2,265 | (221 | ) | |||||||||
Total share-based compensation expense | 1,458 | (58 | ) | 3,776 | 782 |
Stock-Settled Stock Appreciation Rights
SSARs are rights granted to an employee to receive value equal to the difference inbetween the price of our common shares on the date of exercise and the grant and on the date of exercise. Thisexercise price. The value is settled in common shares of Agilysys.
The following table summarizes the activity during the nine months ended December 31, 20172021 for SSARs awarded under the 20112020 and 2016 Plans:
|
| Number of Rights |
|
| Weighted-Average Exercise Price |
|
| Remaining Contractual Term |
|
| Aggregate Intrinsic Value |
| ||||
|
|
|
|
|
| (per right) |
|
| (in years) |
|
| (in thousands) |
| |||
Outstanding at April 1, 2021 |
|
| 3,068,253 |
|
| $ | 20.90 |
|
|
|
|
|
|
|
|
|
Exercised |
|
| (820,341 | ) |
|
| 12.72 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
| (49,750 | ) |
|
| 20.02 |
|
|
|
|
|
|
|
|
|
Expired |
|
| (246 | ) |
|
| 14.22 |
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2021 |
|
| 2,197,916 |
|
| $ | 23.97 |
|
|
| 4.9 |
|
| $ | 45,041 |
|
Exercisable at December 31, 2021 |
|
| 1,262,704 |
|
| $ | 23.54 |
|
|
| 4.7 |
|
| $ | 26,421 |
|
Vested and expected to vest at December 31, 2021 |
|
| 2,197,916 |
|
| $ | 23.97 |
|
|
| 4.9 |
|
| $ | 45,041 |
|
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, 2017,2021, total unrecognized stock basedshare-based compensation expense related to non-vested service condition SSARs was
As of December 31, 2021, there was 0 unrecognized share-based compensation expense related to non-vested market condition SSARs.
Restricted Shares
We granted shares to certain of our Directors, executives and key employees, the vesting of which is service-based. Certain restricted shares are also subject to a market condition. The following table summarizes the activity during the nine months ended December 31, 20172021 for restricted shares awarded under the 2020 and 2016 and 2011 Plans:
|
| Number of Shares |
|
| Weighted-Average Grant-Date Fair Value |
| ||
|
|
|
|
|
| (per share) |
| |
Outstanding at April 1, 2021 |
|
| 132,198 |
|
| $ | 37.67 |
|
Granted |
|
| 108,473 |
|
|
| 43.77 |
|
Vested |
|
| (1,056 | ) |
|
| 52.29 |
|
Forfeited |
|
| (8,416 | ) |
|
| 37.66 |
|
Outstanding at December 31, 2021 |
|
| 231,199 |
|
| $ | 40.34 |
|
Number of Shares | Weighted- Average Grant- Date Fair Value | |||||
(In thousands, except share and per share data) | (per share) | |||||
Outstanding at April 1, 2017 | 490,355 | $ | 10.72 | |||
Granted | 251,010 | 11.02 | ||||
Vested | (221,897 | ) | 11.29 | |||
Forfeited | (80,793 | ) | 10.72 | |||
Outstanding at December 31, 2017 | 438,675 | $ | 10.60 |
The weighted-average grant date fair value of the restricted shares is determined based upon the closing price of our common shares on the grant date.includes grants subject only to a service condition and certain grants subject to both a service condition and a market condition. As of December 31, 2017,2021, total unrecognized stock basedshare-based compensation expense related to non-vestedunvested restricted stock was
Upon approval of the Compensation Committee of our Board of Directors, after achieving the performance conditions associated with our annual bonus plan, we granted 3,403 common shares to our Chief Executive Officer in May 2021 that vested immediately for a total value of $0.2 million.
10. Preferred Stock
On May 22, 2020, we completed the vestingsale of which1,735,457 shares of our preferred stock, without par value, designated as “Series A Convertible Preferred Stock” (the “Convertible Preferred Stock”) to MAK Capital Fund L.P. and MAK Capital Distressed Debt Fund I, LP (the “Holders”) each, in its capacity as a designee of MAK Capital One LLC (the “Purchaser”), pursuant to the terms of the Investment Agreement, dated as of May 11, 2020, between the Company and the Purchaser, for an aggregate purchase price of $35 million. We incurred issuance costs of $1.0 million. We added all issuance costs that were netted against the proceeds upon issuance of the Convertible Preferred Stock to its redemption value. As disclosed in our Annual Report for the fiscal year ended March 31, 2021, Michael Kaufman, the Chairman of the Company’s Board of Directors, is performance based. the Chief Executive Officer of MAK Capital One LLC.
The number of shares that vest will be basedHolders are entitled to dividends on the stock priceLiquidation Preference at the rate of 5.25% per annum, payable semi-annually either (i) 50% in cash and relative attainment of performance metric, and any unvested shares will forfeit upon settlement50% in kind as an increase in the then-current Liquidation Preference or (ii) 100% in cash, at the option of the bonus.
11. Business Combination
In December 2021, the Company entered into a definitive agreement to acquire ResortSuite Inc. (“ResortSuite”), a Canada-based fully integrated property management solutions provider focused on the complex multi-amenity and resort market. The following table summarizesacquisition extends our solutions to customers in the activity duringcomplex multi-amenity and resort market. Under the nineterms of the agreement, the Company agreed to pay approximately $25 million in cash consideration for all the issued and outstanding shares of ResortSuite. The Company is funding the consideration with cash on the Company’s balance sheet. The acquisition closed on January 5, 2022, with a closing payment of $22.7 million. The Company expects to record a total purchase price of approximately $25 million after payment of certain pre-closing tax liabilities. As a result of the acquisition, ResortSuite has become a wholly-owned subsidiary of Agilysys, Inc. During the three months ended December 31, 20172021, we incurred immaterial acquisition-related expenses associated with the acquisition of ResortSuite, which were recorded in severance and other charges. The initial accounting for this acquisition is not complete due to the performance shares awarded under the 2016 Plan:
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 |
15
Nine months ended | |||||||
December 31, | |||||||
(In thousands) | 2017 | 2016 | |||||
Corporate-owned life insurance: | |||||||
Balance on April 1 | $ | 809 | $ | 3,122 | |||
Unrealized gain relating to instruments held at reporting date | (11 | ) | 16 | ||||
Purchases, sales, issuances and settlements, net | 27 | 1 | |||||
Balance on December 31 | $ | 825 | $ | 3,139 |
Nine months ended | |||||||
December 31, | |||||||
(In thousands) | 2017 | 2016 | |||||
Contingent consideration | |||||||
Balance on April 1 | $ | — | $ | 197 | |||
Activity, payments and other charges (net) | — | (197 | ) | ||||
Balance on December 31 | $ | — | $ | — | |||
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
In “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”), management explains the general financial condition and results of operations for Agilysys and subsidiaries including:
— what factors affect our business;
— what our earnings and costs were;
— why those earnings and costs were different from the year before;
— where the earnings came from;
— how our financial condition was affected; and
— where the cash will come from to fund future operations.
The MD&A analyzes changes in specific line items in the Condensed Consolidated Statements of Operations and Condensed Consolidated Statements of Cash Flows and provides information that management
believes is important to assessing and understanding our consolidated financial condition and results of operations. This Quarterly Report on Form 10-Q updates information included in our Annual Report on Form 10-K for the fiscal year endedMarch 31,Overview
Recent Developments
COVID-19 Pandemic
The World Health Organization declared COVID-19 a pandemic on March 11, 2020. COVID-19 has had a significant impact on our business since that time. The extent to which COVID-19 will continue impacting our financial condition and results of operations remains uncertain and depends on various factors, including the ongoing or recurring impact on our customers, partners, and vendors and on the operation of the global markets in general. Because an increasing portion of our business is based on a leading technology company that provides innovative softwaresubscription model, the effect of COVID-19 on our results of operations may also not be fully reflected for some time.
We have taken actions to mitigate the impact on our business. We continue to conduct business with substantial modifications to employee travel, employee work locations, virtualization of customer and employee events, and partially remote sales, implementation, and support activities, among other modifications. These modifications may continue to delay or reduce sales and harm productivity and collaboration. The pandemic could have an ongoing adverse impact on demand for our customers’ products and services, which in turn could negatively impact the willingness of our customers to enter into or renew contracts with us. The pandemic has impacted our ability to complete certain implementations timely, which negatively impacts our ability to recognize revenue.
While we have previously taken certain cost reduction measures, we may take further actions that alter our business operations in response to changes in the global environment. As a result, the ultimate impact of the COVID-19 pandemic and the effects of the operational alterations we have made in response on our business, financial condition, liquidity, and financial results cannot be predicted at this time.
Our Business
Agilysys has been a leader in hospitality software for more than 40 years, delivering innovative modern cloud native SaaS and on-premise guest-centric technology solutions for gaming, hotels, resorts and cruise, corporate foodservice management, restaurants, universities, stadia and healthcare. Agilysys offers the most comprehensive software solutions in the hospitality industry, including point-of-sale (POS), reservation and table management, property management (PMS), inventory and procurement, workforce management, analytics, document management,payments, and mobilerelated applications, to manage the entire guest journey. Agilysys is also known for its world class customer-centric service.During recent years, Agilysys has made major R&D investments and wirelesshas successfully modernized virtually all its longstanding trusted software solutions. Some of the largest hospitality companies around the world use Agilysys solutions exclusively to help improve guest loyalty, drive revenue growth and increase operational efficiencies.
16
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.
Our top priority is to increaseincreasing shareholder value by improving operating and financial performance and profitably growing the business through superior products and services. To that end, we expect to invest a certain portion of our cash on hand to fund enhancements to existing software products, to develop and market new software products, and to expand our customer breadth, both vertically and geographically.
Our strategic plan specifically focuses on:
• | Putting the customer first |
• | Focusing on product innovation and development |
• | Growing revenue through increased investments in sales and marketing initiatives |
• | Increasing organizational efficiency and teamwork |
• | Developing our employees and leaders |
• | Growing revenue by improving the breadth and depth of our product set across both point-of-sale and property management applications |
• | Growing revenue through international expansion |
The primary objective of our ongoing strategic planning process is to create shareholder value by capitalizing on growth opportunities, turningremaining 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 tightereffective management of operating expenses and sharpening the focus of our investments to concentrate on growth opportunities that offer the highest returns.
Revenue - Defined
As required by the SEC, we separately present revenue earned as products revenue, support, maintenance and subscription services revenue or professional services revenue in our Condensed Consolidated Statementscondensed consolidated statements of Operations.operations. In addition to the SEC requirements, we may, at times, also refer to revenue as defined below. The terminology, definitions, and applications of terms we use to describe our revenue may be different from those used by other companies and caution should be used when comparing these financial measures to those of other companies. We use the following terms to describe revenue:
• | 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. |
• | Support, maintenance and subscription services revenue – Revenue earned from the sale of proprietary and remarketed ongoing support, maintenance and subscription services. |
• | Professional services revenue – Revenue earned from the delivery of implementation, integration and installation services for proprietary and remarketed products. |
17
Results of Operations
ThirdFiscal Quarter2022Compared toThird Fiscal Quarter 2018 Compared to Third Fiscal Quarter 2017
Net Revenue and Operating Loss
The following table presents our consolidated revenue and operating results for the three months ended December 31, 20172021 and 2016:2020:
|
| Three months ended |
|
|
|
|
|
|
|
|
| |||||
|
| December 31, |
|
| Increase (decrease) |
| ||||||||||
(Dollars in thousands) |
| 2021 |
|
| 2020 |
|
| $ |
|
| % |
| ||||
Net revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products |
| $ | 8,101 |
|
| $ | 7,599 |
|
| $ | 502 |
|
|
| 6.6 | % |
Support, maintenance and subscription services |
|
| 25,136 |
|
|
| 22,846 |
|
|
| 2,290 |
|
|
| 10.0 |
|
Professional services |
|
| 6,223 |
|
|
| 6,230 |
|
|
| (7 | ) |
| nm |
| |
Total net revenue |
|
| 39,460 |
|
|
| 36,675 |
|
|
| 2,785 |
|
|
| 7.6 |
|
Cost of goods sold: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products |
|
| 4,400 |
|
|
| 3,660 |
|
|
| 740 |
|
|
| 20.2 |
|
Support, maintenance and subscription services |
|
| 5,421 |
|
|
| 4,655 |
|
|
| 766 |
|
|
| 16.5 |
|
Professional services |
|
| 4,923 |
|
|
| 4,164 |
|
|
| 759 |
|
|
| 18.2 |
|
Total cost of goods sold |
|
| 14,744 |
|
|
| 12,479 |
|
|
| 2,265 |
|
|
| 18.2 |
|
Gross profit |
| $ | 24,716 |
|
| $ | 24,196 |
|
| $ | 520 |
|
|
| 2.1 | % |
Gross profit margin |
|
| 62.6 | % |
|
| 66.0 | % |
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product development |
| $ | 11,210 |
|
| $ | 12,376 |
|
| $ | (1,166 | ) |
|
| (9.4 | )% |
Sales and marketing |
|
| 3,943 |
|
|
| 3,327 |
|
|
| 616 |
|
|
| 18.5 |
|
General and administrative |
|
| 6,804 |
|
|
| 7,509 |
|
|
| (705 | ) |
|
| (9.4 | ) |
Depreciation of fixed assets |
|
| 495 |
|
|
| 722 |
|
|
| (227 | ) |
|
| (31.4 | ) |
Amortization of internal-use software |
|
| 267 |
|
|
| 521 |
|
|
| (254 | ) |
|
| (48.8 | ) |
Severance and other charges |
|
| 381 |
|
|
| 1,552 |
|
|
| (1,171 | ) |
|
| (75.5 | ) |
Legal settlements, net |
|
| 4 |
|
|
| - |
|
|
| 4 |
|
| nm |
| |
Operating income (loss) |
| $ | 1,612 |
|
| $ | (1,811 | ) |
| $ | 3,423 |
|
|
| 189.0 | % |
Operating income (loss) percentage |
|
| 4.1 | % |
|
| (4.9 | )% |
|
|
|
|
|
|
|
|
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
18
The following table presents the percentage relationship of our Condensed Consolidated Statementcondensed consolidated statement of Operationsoperations line items to our consolidated net revenues for the periods presented:
|
| Three months ended |
| |||||
|
| December 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Net revenue: |
|
|
|
|
|
|
|
|
Products |
|
| 20.5 | % |
|
| 20.7 | % |
Support, maintenance and subscription services |
|
| 63.7 |
|
|
| 62.3 |
|
Professional services |
|
| 15.8 |
|
|
| 17.0 |
|
Total net revenue |
|
| 100.0 | % |
|
| 100.0 | % |
Cost of goods sold: |
|
|
|
|
|
|
|
|
Products |
|
| 11.2 | % |
|
| 10.0 | % |
Support, maintenance and subscription services |
|
| 13.7 |
|
|
| 12.7 |
|
Professional services |
|
| 12.5 |
|
|
| 11.3 |
|
Total cost of goods sold |
|
| 37.4 | % |
|
| 34.0 | % |
Gross profit |
|
| 62.6 | % |
|
| 66.0 | % |
Operating expenses: |
|
|
|
|
|
|
|
|
Product development |
|
| 28.4 | % |
|
| 33.7 | % |
Sales and marketing |
|
| 10.0 |
|
|
| 9.1 |
|
General and administrative |
|
| 17.2 |
|
|
| 20.5 |
|
Depreciation of fixed assets |
|
| 1.2 |
|
|
| 2.0 |
|
Amortization of internal-use software |
|
| 0.7 |
|
|
| 1.4 |
|
Severance and other charges |
|
| 1.0 |
|
|
| 4.2 |
|
Legal settlements, net |
|
| 0.0 |
|
|
| — |
|
Operating income (loss) |
|
| 4.1 | % |
|
| (4.9 | )% |
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 | )% |
nm - not meaningful
Net revenue.
Total net revenueGross profit and gross profit margin.
Our total gross profitOperating expenses
Operating expenses, excluding the charges for asset write-offs and other fair value adjustments, legal settlements, and restructuring, severance and other charges, increased $2.2decreased $1.7 million, or 13.6%7.1%, during the third quarter of fiscal 20182022 compared with the third quarter of fiscal 2017.
Product development.
Product development19
Sales and marketing.
Sales and marketingGeneral and administrative.
General and administrativeSeverance and other charges. Severance, and other charges decreased $1.2 million, or 75.5%, in the third quarter of fiscal 2018 there was an increase of $0.5 million in professional fees related to 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.
Other (Income) Expenses (Income)
|
| Three Months Ended |
|
|
|
|
|
|
|
|
| |||||
|
| December 31, |
|
| (Unfavorable) favorable |
| ||||||||||
(Dollars in thousands) |
| 2021 |
|
| 2020 |
|
| $ |
|
| % |
| ||||
Other expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
| $ | (10 | ) |
| $ | (27 | ) |
| $ | (17 | ) |
|
| (63.0 | )% |
Interest expense |
|
| 4 |
|
|
| 9 |
|
|
| 5 |
|
| nm |
| |
Other expense, net |
|
| 52 |
|
|
| 95 |
|
|
| 43 |
|
|
| (45.3 | ) |
Total other expense, net |
| $ | 46 |
|
| $ | 77 |
|
| $ | 31 |
|
|
| (40.3 | )% |
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 through interest-bearing bank accounts and on cash equivalents including short-term investments inInterest expense.
Interest expense consists of costs associated withOther (income) expense.
Income Taxes
|
| Three Months Ended |
|
|
|
|
|
|
| |||||
|
| December 31, |
|
| (Unfavorable) favorable | |||||||||
(Dollars in thousands) |
| 2021 |
|
| 2020 |
|
| $ |
|
| % | |||
Income tax expense |
| $ | 24 |
|
| $ | 182 |
|
| $ | 158 |
|
| nm |
Effective tax rate |
|
| 1.5 | % |
|
| (9.6 | )% |
|
|
|
|
|
|
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, the effective tax rate was different than the statutory 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 of net operating losses as deferred tax assets, which were offset by increases in the valuation allowance, 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.
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,
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.
20
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 of Fiscal 2018 2022Compared toFirst Nine Months of Fiscal 2017
Net Revenue and Operating Loss
The following table presents our consolidated revenue and operating results for the ninethree months ended December 31, 20172021 and 2016:2020:
|
| Nine months ended |
|
|
|
|
|
|
|
|
| |||||
|
| December 31, |
|
| Increase (decrease) |
| ||||||||||
(Dollars in thousands) |
| 2021 |
|
| 2020 |
|
| $ |
|
| % |
| ||||
Net revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products |
| $ | 24,244 |
|
| $ | 19,396 |
|
| $ | 4,848 |
|
|
| 25.0 | % |
Support, maintenance and subscription services |
|
| 72,371 |
|
|
| 65,647 |
|
|
| 6,724 |
|
|
| 10.2 |
|
Professional services |
|
| 19,463 |
|
|
| 15,797 |
|
|
| 3,666 |
|
|
| 23.2 |
|
Total net revenue |
|
| 116,078 |
|
|
| 100,840 |
|
|
| 15,238 |
|
|
| 15.1 |
|
Cost of goods sold: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products |
|
| 12,420 |
|
|
| 9,625 |
|
|
| 2,795 |
|
|
| 29.0 |
|
Support, maintenance and subscription services |
|
| 15,184 |
|
|
| 13,515 |
|
|
| 1,669 |
|
|
| 12.3 |
|
Professional services |
|
| 14,634 |
|
|
| 11,802 |
|
|
| 2,832 |
|
|
| 24.0 |
|
Total cost of goods sold |
|
| 42,238 |
|
|
| 34,942 |
|
|
| 7,296 |
|
|
| 20.9 |
|
Gross profit |
| $ | 73,840 |
|
| $ | 65,898 |
|
| $ | 7,942 |
|
|
| 12.1 | % |
Gross profit margin |
|
| 63.6 | % |
|
| 65.3 | % |
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product development |
| $ | 34,074 |
|
| $ | 28,900 |
|
| $ | 5,174 |
|
|
| 17.9 | % |
Sales and marketing |
|
| 10,418 |
|
|
| 8,278 |
|
|
| 2,140 |
|
|
| 25.9 |
|
General and administrative |
|
| 20,330 |
|
|
| 18,446 |
|
|
| 1,884 |
|
|
| 10.2 |
|
Depreciation of fixed assets |
|
| 1,609 |
|
|
| 2,160 |
|
|
| (551 | ) |
|
| (25.5 | ) |
Amortization of intangibles |
|
| 1,077 |
|
|
| 1,490 |
|
|
| (413 | ) |
|
| (27.7 | ) |
Severance and other charges |
|
| 1,187 |
|
|
| 2,762 |
|
|
| (1,575 | ) |
|
| (57.0 | ) |
Legal settlements, net |
|
| 371 |
|
|
| 50 |
|
|
| 321 |
|
| nm |
| |
Operating income |
| $ | 4,774 |
|
| $ | 3,812 |
|
| $ | 962 |
|
|
| (25.2 | )% |
Operating income percentage |
|
| 4.1 | % |
|
| 3.8 | % |
|
|
|
|
|
|
|
|
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
21
The following table presents the percentage relationship of our Condensed Consolidated Statementcondensed consolidated statement of Operationsoperations line items to our consolidated net revenues for the periods presented:
|
| Nine months ended |
| |||||
|
| December 31, |
| |||||
Net revenue: |
| 2021 |
|
| 2020 |
| ||
Products |
|
| 20.9 | % |
|
| 19.2 | % |
Support, maintenance and subscription services |
|
| 62.3 |
|
|
| 65.1 |
|
Professional services |
|
| 16.8 |
|
|
| 15.7 |
|
Total net revenue |
|
| 100.0 | % |
|
| 100.0 | % |
Cost of goods sold: |
|
|
|
|
|
|
|
|
Products |
|
| 10.7 | % |
|
| 9.5 | % |
Support, maintenance and subscription services |
|
| 13.1 |
|
|
| 13.5 |
|
Professional services |
|
| 12.6 |
|
|
| 11.7 |
|
Total cost of goods sold |
|
| 36.4 | % |
|
| 34.7 | % |
Gross profit |
|
| 63.6 | % |
|
| 65.3 | % |
Operating expenses: |
|
|
|
|
|
|
|
|
Product development |
|
| 29.4 | % |
|
| 28.7 | % |
Sales and marketing |
|
| 9.0 |
|
|
| 8.2 |
|
General and administrative |
|
| 17.5 |
|
|
| 18.3 |
|
Depreciation of fixed assets |
|
| 1.4 |
|
|
| 2.1 |
|
Amortization of intangibles |
|
| 0.9 |
|
|
| 1.5 |
|
Severance and other charges |
|
| 1.0 |
|
|
| 2.7 |
|
Legal settlements, net |
|
| 0.3 |
|
|
| 0.0 |
|
Operating income |
|
| 4.1 | % |
|
| 3.8 | % |
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 revenueGross profit and gross profit margin.
Our total gross profitOperating 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$8.2 million, or 6.1%13.9%, during the first nine months of fiscal 20182022 compared with the first nine months of fiscal 2017.
Product development.
Product developmentSales and marketing. Sales and marketing increased $2.1 million, or 25.9%, in the first nine months of fiscal 2022 compared with the first nine months of fiscal 2017 which includes an increase2021 due to restored base pay and employee benefits, increased share-based compensation, a return of internal R&D headcount offsetsome travel costs due to increased in-person selling activity, and higher advertising and promotions costs due to increased marketing event and trade show activity.
General and administrative. General and administrative increased by a decrease in contract labor.
22
Severance and other charges. Severance, and other charges decreased $1.6 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.
Legal settlements, net. Legal settlements, net increased $0.3 million in the first nine months of fiscal 2022 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 year2021 due to the departuresettlement of a lawsuit involving a 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.
Other (Income) Expenses (Income)
|
| Nine Months Ended December 31, |
|
| (Unfavorable) favorable |
| ||||||||||
(Dollars in thousands) |
| 2021 |
|
| 2020 |
|
| $ |
|
| % |
| ||||
Other expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
| $ | (45 | ) |
| $ | (76 | ) |
| $ | (31 | ) |
|
| (40.8 | )% |
Interest expense |
|
| 5 |
|
|
| 13 |
|
|
| 8 |
|
| nm |
| |
Other expense, net |
|
| 53 |
|
|
| 284 |
|
|
| 231 |
|
| nm |
| |
Total other expense, net |
| $ | 13 |
|
| $ | 221 |
|
| $ | 208 |
|
| 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
Interest income.
Interest income consists of interest earned on cash equivalents including short-term investments in certificates of deposit, commercial paper,Interest expense.
Interest expense consists of costs associated withOther (income) expense.
Income Taxes
|
| Nine Months Ended |
|
|
|
|
|
|
| |||||
|
| December 31, |
|
| (Unfavorable) favorable | |||||||||
(Dollars in thousands) |
| 2021 |
|
| 2020 |
|
| $ |
|
| % | |||
Income tax expense |
| $ | 265 |
|
| $ | 311 |
|
| $ | 46 |
|
| nm |
Effective tax rate |
|
| 5.6 | % |
|
| 8.7 | % |
|
|
|
|
|
|
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 months ended December 31, 2017,2021, 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 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 including a benefit of $0.4 million related to a settlement with the California Franchise Tax Board and other U.S. permanent book to tax differences.
Although the timing and outcome of tax settlements are uncertain, it is reasonably possible that during the next 12 months 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, we recognized a tax benefit in the amount of $0.4 million during the quarter as a result of a settlement with the California Franchise Tax Board regarding disputed tax matters.
Liquidity and Capital Resources
Overview
Our operating cash requirements consist primarily of working capital needs, operating expenses, capital expenditures and capital expenditures. payments on indebtedness outstanding, which primarily consists of lease obligations and preferred stock dividends.
At December 31, 2021, 100% of our cash and cash equivalents, of which 95% were located in the United States, were deposited in bank accounts or invested in highly liquid investments including money market funds and commercial paper with original maturity
23
from the date of acquisition of three months or less. We believe credit risk is limited with respect to our cash and cash equivalents balances.
As of December 31, 2021, and March 31, 2021, 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$115.1 million as of December 31, 20172021 and access to capital markets will provide adequate funds to meet our short- and long-term liquidity requirements including the acquisition of ResortSuite, which is expected to total approximately $25 million of which Agilysys paid $22.7 million in the next 12 months.
Cash Flow
|
| Nine Months Ended December 31, |
| |||||
(In thousands) |
| 2021 |
|
| 2020 |
| ||
Net cash provided by (used in): |
|
|
|
|
|
|
|
|
Operating activities |
| $ | 21,815 |
|
| $ | 15,084 |
|
Investing activities |
|
| (1,081 | ) |
|
| (1,078 | ) |
Financing activities |
|
| (4,754 | ) |
|
| 31,765 |
|
Effect of exchange rate changes on cash |
|
| (38 | ) |
|
| 184 |
|
Net increase in cash and cash equivalents |
| $ | 15,942 |
|
| $ | 45,955 |
|
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 wasCash flow used in investing activities.
Cash flow used in(used in) provided by financing activities.
Contractual Obligations
As of December 31, 2017,2021, there were no other significant changes to our contractual obligations as presented in our Annual Report for the year ended
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements that have had or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.
Critical Accounting Policies
A detailed description of our significant accounting policies is included in our Annual Report for the year ended
March 31,Forward-Looking Information
This Quarterly Report and other publicly available documents, including the documents incorporated herein and therein by reference, contain, and our officers and representatives may from time to time make, "forward-looking statements" within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as: "anticipate," "intend," "plan," "goal," "seek," "believe," "project," "estimate," "expect," "strategy," "future," "likely," "may,
24
"may," "should," "will" and similar references to future periods. Forward-lookingThese statements are neither historical facts nor assurancesnot guarantees of future performance. Instead, they are based only on our current beliefs, expectationsperformance and assumptions regarding the future of our business, future plansinvolve risks, uncertainties, and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstancesassumptions that are difficult to predictpredict. These statements are based on management’s current expectations, intentions, or beliefs and manyare subject to a number of which are outside of our control. Our actual resultsfactors, assumptions, and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factorsuncertainties that could cause our actual results and financial condition to differ materially from those indicateddescribed in the forward-looking statementsstatements. Factors that could cause or contribute to such differences or that might otherwise impact the business include among others, our ability to achieve operational efficiencies and meet customer demand for products and services and the risk factors set forth in Item 1A in Part II of this Quarterly Report and Item IA of our Annual Report for the fiscal year ended March 31, 2017. Any forward-looking statement made by us in this Quarterly Report is based only on information currently available to us and speaks only as of the date on which it is made.2021. 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,Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision of and with the participation of our Chief Executive Officer (CEO), Chief Financial Officer (CFO) and Corporate Controller and Treasurer, management evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this Quarterly Report. Based on that evaluation, the CEO, CFO and Corporate Controller and Treasurer concluded that, as of the end of the period covered by this Quarterly Report, our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
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 nine months ended December 31, 2021, 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.
25
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
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, 20172021 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.
Item 6. Exhibits
31.1 | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer. |
31.2 | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer. |
31.3 | Rule 13a-14(a)/15d-14(a) Certification of Corporate Controller and Treasurer. |
32 |
101.INS | Inline XBRL Instance Document – the | ||
101.SCH | Inline XBRL Taxonomy Extension Schema Document | ||
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | ||
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | ||
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | ||
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | ||
104 | Cover Page Interactive Data File (embedded within the | ||
* | Denotes a management contract or compensatory plan or arrangement. |
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 27, 2022 | /s/ William David Wood III | ||
William David Wood III | ||||
Chief Financial Officer | ||||
(Principal Financial Officer and Duly Authorized Officer) |
28