(Exact ~~name~~Name of ~~registrant~~Registrant as ~~specified~~Specified in its ~~charter)~~Charter)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒No ☐

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐No ☒

Indicate by check mark whether the registrant has filed all documents and reports required to be filed ~~be sections~~by 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~~As of ~~Common Shares of~~July 22, 2022, the registrant ~~outstanding as~~had 25,032,567 shares of ~~October 22, 2021 was 24,611,233.~~common stock outstanding.

See accompanying notes to unaudited condensed consolidated financial statements.

	Three Months Ended September 30,						Six Months Ended September 30,
(In thousands, except share data)	2021			2020			2021			2020
													Three months ended June 30,
(In thousands, except per share data)													2022			2021
Net revenue:
Products	$	7,299		$	6,559		$	16,143		$	11,798		$	11,046		$	8,844
Support, maintenance and subscription services		24,027			22,304			47,234			42,801
Subscription and maintenance														27,727			23,207
Professional services		6,566			5,497			13,240			9,567			8,733			6,674
Total net revenue		37,892			34,360			76,617			64,166			47,506			38,725
Cost of goods sold:
Products		3,660			2,950			8,020			5,965			5,879			4,360
Support, maintenance and subscription services		5,019			4,555			9,763			8,860
Subscription and maintenance														6,286			4,744
Professional services		4,958			3,701			9,711			7,638			6,846			4,754
Total cost of goods sold		13,637			11,206			27,494			22,463			19,011			13,858
Gross profit		24,255			23,154			49,123			41,703			28,495			24,867
Gross profit margin		64.0	%		67.4	%		64.1	%		65.0	%		60.0	%		64.2	%
Operating expenses:
Product development		11,379			8,257			22,864			16,524			11,556			11,485
Sales and marketing		3,423			2,350			6,475			4,951			5,413			3,052
General and administrative		6,523			5,217			13,526			10,936			7,353			7,003
Depreciation of fixed assets		548			715			1,114			1,438			473			566
Amortization of internal-use software		345			508			810			968
Severance and other charges		580			7			805			1,210
Legal settlements, net		337			50			367			50
Amortization of internal-use software and intangibles														453			465
Other charges														214			225
Legal settlements														0			30
Total operating expense		23,135			17,104			45,961			36,077			25,462			22,826
Operating income		1,120			6,050			3,162			5,626			3,033			2,041
Other (income) expense:
Interest income		(14	)		(28	)		(35	)		(49	)		(101	)		(22	)
Interest expense		1			2			2			3			1			1
Other expense, net		103			88			-			194
Other (income) expense, net														(304	)		(103	)
Income before taxes		1,030			5,988			3,195			5,478			3,437			2,165
Income tax expense		48			121			241			128			398			193
Net income	$	982		$	5,867		$	2,954		$	5,350		$	3,039		$	1,972
Series A convertible preferred stock issuance costs		-			(94	)		-			(1,031	)
Series A convertible preferred stock dividends		(459	)		(459	)		(918	)		(658	)		(459	)		(459	)
Net income attributable to common shareholders	$	523		$	5,314		$	2,036		$	3,661		$	2,580		$	1,513

Weighted average shares outstanding - basic		24,451			23,424			24,233			23,415			24,598			24,014

Net income per share - basic:	$	0.02		$	0.23		$	0.08		$	0.16		$	0.10		$	0.06

Weighted average shares outstanding - diluted		25,409			23,866			25,296			23,849			25,370			25,178

Net income per share - diluted:	$	0.02		$	0.22		$	0.08		$	0.15		$	0.10		$	0.06

See accompanying notes to unaudited condensed consolidated financial statements.

	Three Months Ended September 30, 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 June 30, 2021		31,607	$	9,482		(7,038	)	$	(2,111	)	$	40,190		$	36,889		$	37		$	84,487
Share-based compensation		—		—		—			—			3,327			—			—			3,327
Restricted shares issued, net		—		—		1			—			—			—			—			—
Shares issued upon exercise of SSARs		—		—		51			15			(15	)		—			—			—
Shares withheld for taxes upon exercise of stock options, SSARs or vesting of restricted shares		—		—		(14	)		(4	)		(635	)		—			—			(639	)
Net income		—		—		—			—			—			982			—			982
Series A convertible preferred stock dividends		—		—		—			—			—			(459	)		—			(459	)
Unrealized translation adjustments		—		—		—			—			—			—			20			20
Balance at September 30, 2021		31,607	$	9,482		(7,000	)	$	(2,100	)	$	42,867		$	37,412		$	57		$	87,718

	Three Months Ended September 30, 2020																						Three Months Ended June 30, 2022
	Common Shares										Capital in						Accumulated						Common Shares										Capital in						Accumulated
	Issued				In Treasury						excess of						other						Issued				In Treasury						excess of						other
(In thousands)	Shares		Stated value		Shares			Stated value			stated value			Retained earnings			comprehensive income			Total
Balance at June 30, 2020		31,607	$	9,482		(7,994	)	$	(2,399	)	$	6,760		$	57,331		$	176		$	71,350
(In thousands, except share data)																							Shares		Stated value		Shares			Stated value			Stated value			Retained earnings			comprehensive income (loss)			Total
Balance at March 31, 2022																								31,607	$	9,482		(6,879	)	$	(2,063	)	$	49,963		$	40,018		$	(56	)	$	97,344
Share-based compensation		—		—		—			—			1,409			—			—			1,409			—		—		—			—			2,623			—			—			2,623
Restricted shares issued, net		—		—		(27	)		(8	)		8			—			—			—			—		—		250			75			(75	)		—			—			—
Shares issued upon exercise of SSARs		—		—		3			1			(1	)		—			—			—			—		—		69			21			(21	)		—			—			—
Shares withheld for taxes upon exercise of stock options, SSARs or vesting of restricted shares		—		—		(1	)		—			(25	)		—			—			(25	)
Shares withheld for taxes upon exercise of SSARs or vesting of restricted shares																								—		—		(22	)		(7	)		(866	)		—			—			(873	)
Net income		—		—		—			—			—			5,867			—			5,867			—		—		—			—			—			3,039			—			3,039
Series A convertible preferred stock issuance costs		—		—		—			—			—			(94	)		—			(94	)
Series A convertible preferred stock dividends		—		—		—			—			—			(459	)		—			(459	)		—		—		—			—			—			(459	)		—			(459	)
Unrealized translation adjustments		—		—		—			—			—			—			(124	)		(124	)		—		—		—			—			—			—			(398	)		(398	)
Balance at September 30, 2020		31,607	$	9,482		(8,019	)	$	(2,406	)	$	8,151		$	62,645		$	52		$	77,924
Balance at June 30, 2022																								31,607	$	9,482		(6,582	)	$	(1,974	)	$	51,624		$	42,598		$	(454	)	$	101,276

	Six Months Ended September 30, 2021																						Three Months Ended June 30, 2021
	Common Shares										Capital in						Accumulated						Common Shares										Capital in						Accumulated
	Issued				In Treasury						excess of						other						Issued				In Treasury						excess of						other
(In thousands)	Shares		Stated value		Shares			Stated value			stated value			Retained earnings			comprehensive income			Total
(In thousands, except share data)																							Shares		Stated value		Shares			Stated value			Stated value			Retained earnings			comprehensive income (loss)			Total
Balance at March 31, 2021		31,607	$	9,482		(7,596	)	$	(2,278	)	$	37,257		$	35,376		$	39		$	79,876			31,607	$	9,482		(7,596	)	$	(2,278	)	$	37,257		$	35,376		$	39		$	79,876
Share-based compensation		—		—		—			—			7,053			—			—			7,053			—		—		—			—			3,726			—			—			3,726
Restricted shares issued, net		—		—		11			3			(3	)		—			—			—			—		—		10			3			(3	)		—			—			—
Shares issued upon exercise of SSARs		—		—		609			182			(182	)		—			—			—			—		—		558			167			(167	)		—			—			—
Shares withheld for taxes upon exercise of stock options, SSARs or vesting of restricted shares		—		—		(24	)		(7	)		(1,258	)		—			—			(1,265	)
Shares withheld for taxes upon exercise of SSARs or vesting of restricted shares																								—		—		(10	)		(3	)		(623	)		—			—			(626	)
Net income		—		—		—			—			—			2,954			—			2,954			—		—		—			—			—			1,972			—			1,972
Series A convertible preferred stock dividends		—		—		—			—			—			(918	)		—			(918	)		—		—		—			—			—			(459	)		—			(459	)
Unrealized translation adjustments		—		—		—			—			—			—			18			18			—		—		—			—			—			—			(2	)		(2	)
Balance at September 30, 2021		31,607	$	9,482		(7,000	)	$	(2,100	)	$	42,867		$	37,412		$	57		$	87,718

	Six Months Ended September 30, 2020
	Common Shares										Capital in						Accumulated
	Issued				In Treasury						excess of						other
(In thousands)	Shares		Stated value		Shares			Stated value			stated value			Retained earnings			comprehensive income			Total
Balance at March 31, 2020		31,607	$	9,482		(7,997	)	$	(2,401	)	$	5,491		$	58,984		$	201		$	71,757
Share-based compensation		—		—		—			—			2,835			—			—			2,835
Restricted shares issued, net		—		—		(41	)		(12	)		12			—			—			—
Shares issued upon exercise of SSARs		—		—		28			9			(9	)		—			—			—
Shares withheld for taxes upon exercise of stock options, SSARs or vesting of restricted shares		—		—		(9	)		(2	)		(178	)		—			—			(180	)
Net income		—		—		—			—			—			5,350			—			5,350
Series A convertible preferred stock issuance costs		—		—		—			—			—			(1,031	)		—			(1,031	)
Series A convertible preferred stock dividends		—		—		—			—			—			(658	)		—			(658	)
Unrealized translation adjustments		—		—		—			—			—			—			(149	)		(149	)
Balance at September 30, 2020		31,607	$	9,482		(8,019	)	$	(2,406	)	$	8,151		$	62,645		$	52		$	77,924
Balance at June 30, 2021																								31,607	$	9,482		(7,038	)	$	(2,111	)	$	40,190		$	36,889		$	37		$	84,487

See accompanying notes to unaudited condensed consolidated financial statements.

9. Share-based Compensation

We may grant incentive stock options, non-qualified stock options, SSARs, restricted shares, and performance shares under our shareholder-approved 2020 Equity Incentive Plan ("2020 Plan") for up to 2.25 million common shares, plus 868,864 common shares, the number of shares that were remaining for grant under the 2016 Stock Incentive Plan ("2016 Plan") as of the effective date of the 2020 Plan, plus the number of shares remaining for grant under the 2016 Plan that are forfeited, settled in cash, canceled or expired. The aggregate number of shares that may be granted under the 2020 Plan is 3.1 million.

We may distribute authorized but unissued shares or treasury shares to satisfy share option and SSAR exercises or restricted share and performance share grants.

We record compensation expense related to SSARs, restricted shares, and performance shares granted to certain employees and non-employee directors based on the fair value of the awards on the grant date. The fair value of restricted share ~~and performance share~~ grants subject only to a service condition is based on the closing price of our common shares on the grant date. For stock option and SSAR grants subject only to a service condition, we estimate the fair value on the grant date using the Black-Scholes-Merton option pricing model with inputs including the closing market price at grant date, exercise price and assumptions regarding the risk-free interest rate, expected volatility of our common shares based on historical volatility, and expected term as estimated using the simplified method. ~~We record compensation expense for~~For restricted ~~shares~~share and ~~SSAR grants subject to a service condition utilizing the graded vesting method. For~~ SSAR grants subject to a market condition, we estimate the fair value on the grant date through a lattice option pricing model that utilizes a Monte Carlo analysis with inputs including the closing market price at grant date, ~~exercise price,~~ share price threshold ~~remaining contractual term~~ and assumptions regarding the risk-free interest rate ~~suboptimal exercise factor,~~ and expected volatility of our common shares based on historical volatility. Inputs for SSAR grants subject to a market condition also include exercise price, remaining contractual term, and suboptimal exercise factor.

We record compensation expense for restricted shares and SSAR grants subject to a service condition using the graded vesting method. We record compensation expense for SSAR grants subject only to a market condition over the derived service period, which is an output of the lattice option pricing model.

~~Table~~ Under the 2020 Plan, the fair value of ~~Contents~~performance shares is based on the closing price of our common shares on the settlement date of the performance award, for which we record compensation expense over the service period consistent with our annual bonus incentive plan as approved by the Compensation Committee of the Board of Directors.

The following table summarizes the share-based compensation expense for SSARs, restricted and performance grants included in the condensed consolidated statements of operations:


	Three Months Ended September 30,				Six Months Ended September 30,				Three Months Ended June 30,
(In thousands)	2021		2020		2021		2020		2022		2021
Product development	$	1,751	$	239	$	3,816	$	411		1,521		2,065
Sales and marketing		335		34		666		70		275		331
General and administrative		1,256		983		2,481		2,201		692		1,225
Total share-based compensation expense	$	3,342	$	1,256	$	6,963	$	2,682		2,488		3,621

Stock-Settled Appreciation Rights

SSARs are rights granted to an employee to receive value equal to the difference between the price of our common shares on the date of exercise and the exercise price. The value is settled in common shares of Agilysys, Inc.

The following table summarizes the activity during the ~~six~~three months ended ~~September~~June 30, ~~2021~~2022 for SSARs awarded under the 2020 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

(791,549
)

12.47

Forfeited

(44,736
)

20.02

Expired

(246
)

14.22

Outstanding at September 30, 2021

2,231,722

$
23.90

5.2

$
63,509

Exercisable at September 30, 2021

1,234,892

$
22.85

4.9

$
36,448

Vested and expected to vest at September 30, 2021

2,231,722

$
23.90

5.2

$
63,509


(In thousands, except share and per share data)	Number of Rights			Weighted-Average Exercise Price		Remaining Contractual Term		Aggregate Intrinsic Value
				(per right)		(in years)
Outstanding at April 1, 2022		2,172,939		$	24.02
Granted		0			0
Exercised		(114,360	)		16.04
Forfeited		(19,171	)		20.02
Expired		0			0
Outstanding at June 30, 2022		2,039,408		$	24.51		4.2	$	46,419
Exercisable at June 30, 2022		1,528,171		$	24.50		4.1	$	34,802
Vested and expected to vest at June 30, 2022		2,039,408		$	24.51		4.2	$	46,419

As of ~~September~~June 30, ~~2021,~~2022, total unrecognized share-based compensation expense related to non-vested service condition SSARs was ~~$8.9~~$2.1 million, which is expected to be recognized over a weighted-average vesting period of ~~1.5~~0.8 years.

~~As of September 30, 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 ~~six~~three months ended ~~September~~June 30, ~~2021~~2022 for restricted shares awarded under the 2020 and 2016 Plans:


	Number of Shares			Weighted-Average Grant-Date Fair Value
				(per share)
Outstanding at April 1, 2022		147,973		$	43.56
Granted		252,707			42.91
Vested		(7,434	)		36.68
Forfeited		(2,885	)		45.76
Outstanding at June 30, 2022		390,361		$	43.25

Number of Shares

Weighted-Average Grant-Date Fair Value

(per share)

Outstanding at April 1, 2021

132,198

$
37.67

Granted

11,249

52.77

Vested

(216
)

53.32

Forfeited

(3,899
)

27.25

Outstanding at September 30, 2021

139,332

$
39.14

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 ~~September~~June 30, ~~2021,~~2022, total unrecognized share-based compensation expense related to unvested restricted stock was ~~$2.8~~$13.8 million, which is expected to be recognized over a weighted-average vesting period of ~~1.4~~2.7 years.

~~Table of Contents~~

Subsequent to September 30, 2021, we granted approximately 29,000 shares with a grant date fair value of $1.6 million, the vesting of which is service-based, and approximately 45,000 shares with a grant date fair value of $1.8 million, the vesting of which is service-based with a market condition.

Performance Shares

Upon approval of the Compensation Committee of our Board of Directors, after achieving the performance conditions associated with our annual bonus plan, we granted ~~3,403~~5,384 common shares to our Chief Executive Officer in May ~~2021~~2022 that vested immediately for a total value of ~~$0.2~~$0.2 million.

10. Preferred Stock

On May 22, 2020, we completed the sale of 1,735,457 shares of our preferred stock, without par value, designated as “Series A Convertible Preferred Stock” (the “Convertible Preferred Stock”) to MAK Capital Fund L.P. and MAK Capital Distressed Debt Fund I, LP (the “Holders”) each, in its capacity as a designee of MAK Capital One LLC (the “Purchaser”), pursuant to the terms of the Investment Agreement, dated as of May 11, 2020, between the Company and the Purchaser, for an aggregate purchase price of ~~$35~~$35 million. We incurred issuance costs of ~~$1.0~~$1.0 million. We added all issuance costs that were netted against the proceeds upon issuance of the Convertible Preferred Stock to its redemption value. As disclosed in our Annual Report for the fiscal year ended March 31, 2021, Michael Kaufman, the Chairman of the Company’s Board of Directors, is the Chief Executive Officer of MAK Capital One LLC.

The Holders are entitled to dividends on the Liquidation Preference at the rate of ~~5.25%~~5.25% per annum, payable semi-annually either (i) 50% in cash and 50% in kind as an increase in the then-current Liquidation Preference or (ii) 100% in cash, at the option of the Company. We pay dividends in the same period as declared by the Company’s Board of Directors.

11. Business Combination

On January 5, 2022 (the acquisition date), we acquired all the issued and outstanding shares of ResortSuite Inc. (“ResortSuite”), a Canada-based fully integrated property management solutions provider focused on the complex multi-amenity and resort market. The condensed consolidated financial statements include the results of ResortSuite’s operations since the acquisition date. The acquisition extends our solutions to customers in the complex multi-amenity and resort market.

The purchase price consisted of $22.6 million of cash paid at closing, funded from cash on hand, partially offset by $0.3 million of ResortSuite’s cash received in the acquisition, and $2.2 million of cash paid in March for certain ResortSuite tax liabilities resulting in net cash consideration of $24.5 million. We allocated the purchase price for ResortSuite to the intangible and certain tangible assets acquired and certain liabilities assumed based on their estimated fair values on the acquisition date, with the remaining unallocated purchase price recorded as goodwill. We determined the fair values assigned to identifiable intangible assets acquired primarily by using the income approach, which discounts the expected future cash flows to present value using estimates and assumptions determined by management.

In accordance with Accounting Standards Update (ASU) No. 2021-08, we applied Accounting Standards Codification Topic 606 to record certain customer accounts receivable and the contract liabilities assumed in the acquisition, which consisted of undelivered performance obligations under customer contracts. We adopted ASU 2021-08 early as permitted. As a result, in allocating the purchase price, we recorded $2.8 million of contract liabilities, representing the revenue that will be recognized as the underlying performance obligations are delivered.

The following table sets forth the components and the allocation of the purchase price for our acquisition of ResortSuite:


(In thousands)	Total
Components of Purchase Price:
Cash	$	24,800
Total purchase price	$	24,800

Allocation of Purchase Price:
Net tangible assets (liabilities):
Accounts receivable, net	$	2,025
Other current assets, including cash acquired		519
Other assets		567
Current and other liabilities		(768	)
Contract liabilities		(2,835	)
Net tangible assets (liabilities)		(492	)
Identifiable intangible assets:
Customer relationships		9,634
Non-competition agreements		848
Developed technology		827
Trade names		846
Total identifiable intangible assets		12,155
Goodwill		13,137
Total purchase price allocation	$	24,800

We assigned the acquired customer relationships, non-competition agreements, developed technology, and trade names estimated useful lives of 15 years, two years, five years, and five years, respectively, the weighted average of which is approximately 12.7 years. The acquired identifiable intangible assets are being amortized on a straight-line basis, which we believe approximates the pattern in which the assets are utilized, over their estimated useful lives.

The goodwill recognized in the ResortSuite purchase price allocation is attributable to synergies in products and technologies to serve a broader customer base, and the addition of a skilled, assembled workforce. The acquisition resulted in the recognition of $13.1 million of goodwill, which is expected to be deductible for income tax purposes.

~~Table~~

The Company recognized acquisition costs of ~~Contents~~$0.1 million related to the acquisition of ResortSuite, consisting primarily of professional fees, during the three months ended June 30, 2022. The condensed consolidated statement of operations includes these costs in other charges.

Revenue attributable to ResortSuite included in our consolidated statement of operations for the three months ended June 30, 2022 was $1.3 million. Net income was not material.

We have prepared the purchase price allocation for ResortSuite on a preliminary basis. Changes to the allocation may occur as additional information becomes available during the measurement period (up to one year from the acquisition date).

Effective April 1, 2022, ResortSuite became Agilysys Canada, Inc. a wholly-owned subsidiary of Agilysys, Inc.

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 ended March 31, ~~2021,~~2022, filed with the Securities and Exchange Commission (SEC). This discussion should be read in conjunction with the Condensed Consolidated Financial Statements and related Notes that appear in Item 1 of this Quarterly Report as well as our Annual Report for the year ended March 31, ~~2021.~~2022. Information provided in the MD&A may include forward-looking statements that involve risks and uncertainties. Many factors could cause actual results to be materially different from those contained in the forward-looking statements. See “Forward-Looking Information” on page 24 of this Quarterly Report, Item 1A "Risk Factors" in Part II of this Quarterly Report, and Item 1A “Risk Factors” in Part I of our Annual Report for the fiscal year ended March 31, ~~2021~~2022 for additional information concerning these items. Management believes that this information, discussion, and disclosure is important in making decisions about investing in Agilysys.

Overview

Recent Developments

COVID-19 Pandemic

The World Health Organization declared COVID-19 a pandemic on March 11, 2020. COVID-19 has had a significant impact on our business 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.

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 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, negatively impacting our ability to recognize revenue, and could also negatively impact the ongoing collection of accounts receivable from our customers.

While we have ~~eased~~previously taken certain cost reduction measures, we may take further actions that alter our business operations asin response to changes in the ~~situation continues to evolve.~~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 technology~~cloud-native SaaS and on-premise ~~guest-centric technology~~ solutions for ~~gaming,~~ hotels, resorts and cruise lines, casinos, corporate foodservice management, restaurants, universities, ~~stadia~~stadiums, and healthcare. ~~Agilysys offers the most comprehensive~~The Company’s software solutions ~~in the hospitality industry, including~~include point-of-sale (POS), property management (PMS), inventory and procurement, payments, and related applications tothat manage and enhance the entire guest journey. Agilysys also is ~~also~~ known for its ~~world class~~world-class customer-centric service.~~During recent years, Agilysys has made major R&D investments and has successfully modernized virtually all its longstanding trusted software solutions. Some~~ Many of the ~~largest~~top hospitality companies around the world use Agilysys solutions to ~~help~~ improve guest loyalty, drive revenue growth, and increase operational efficiencies.

~~Table of Contents~~

The Company has just one reportable segment serving the global hospitality industry. Agilysys operates across North America, Europe, the Middle East, Asia-Pacific and India with headquarters located in Alpharetta, Georgia.

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

Our strategic plan specifically focuses on:

•

Putting the customer first

•

Focusing on product innovation and development

•

Improving our liquidity

•

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

•

~~Putting the customer first~~

•

~~Focusing on product innovation and development~~

•

~~Improving our liquidity~~

•

~~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, ~~remaining profitable~~increasing profitability and strengthening our competitive position within the specific technology solutions and end markets we serve. Profitability and industry leading growth will be achieved through tighter management of operating expenses and sharpening the focus of our investments to concentrate on growth opportunities that offer the highest returns.

Revenue - Defined

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

•

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

•

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.~~

•

Products revenue – Revenue earned from the delivery 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.~~

•

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

•

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

•

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

1718

~~Table of Contents~~

Results of Operations

~~Second~~First Fiscal Quarter ~~2022~~2023 Compared to ~~Second~~First Fiscal Quarter ~~2021~~2022

Net Revenue and Operating Income

The following table presents our consolidated revenue and operating results for the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020:~~2021:

	Three months ended
	September 30,						Increase (decrease)						Three Months Ended June 30,						Increase (decrease)
(Dollars in thousands)	2021			2020			$			%			2022			2021			$			%
Net revenue:
Products	$	7,299		$	6,559		$	740			11.3	%	$	11,046		$	8,844		$	2,202			24.9	%
Support, maintenance and subscription services		24,027			22,304			1,723			7.7
Subscription and maintenance														27,727			23,207			4,520			19.5	%
Professional services		6,566			5,497			1,069			19.4			8,733			6,674			2,059			30.9	%
Total net revenue		37,892			34,360			3,532			10.3			47,506			38,725			8,781			22.7	%
Cost of goods sold:
Products		3,660			2,950			710			24.1			5,879			4,360			1,519			34.8	%
Support, maintenance and subscription services		5,019			4,555			464			10.2
Subscription and maintenance														6,286			4,744			1,542			32.5	%
Professional services		4,958			3,701			1,257			34.0			6,846			4,754			2,092			44.0	%
Total cost of goods sold		13,637			11,206			2,431			21.7			19,011			13,858			5,153			37.2	%
Gross profit	$	24,255		$	23,154		$	1,101			4.8	%	$	28,495		$	24,867		$	3,628			14.6	%
Gross profit margin		64.0	%		67.4	%								60.0	%		64.2	%
Operating expenses:
Product development	$	11,379		$	8,257		$	3,122			37.8	%	$	11,556		$	11,485		$	71			0.6	%
Sales and marketing		3,423			2,350			1,073			45.7			5,413			3,052			2,361			77.4	%
General and administrative		6,523			5,217			1,306			25.0			7,353			7,003			350			5.0	%
Depreciation of fixed assets		548			715			(167	)		(23.4	)		473			566			(93	)		(16.4	)%
Amortization of internal-use software		345			508			(163	)		(32.1	)
Severance and other charges		580			7			573		nm
Legal settlements, net		337			50			287		nm
Amortization of internal-use software and intangibles														453			465			(12	)		(2.6	)%
Other charges														214			225			(11	)	nm
Legal settlements														0			30			(30	)	nm
Operating income	$	1,120		$	6,050		$	(4,930	)		81.5	%	$	3,033		$	2,041		$	992			48.6	%
Operating income percentage		3.0	%		17.6	%								6.4	%		5.3	%

nm - not meaningful

1819

~~Table of Contents~~

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

	Three months ended
	September 30,						Three Months Ended June 30,
	2021			2020			2022			2021
Net revenue:
Products		19.3	%		19.1	%		23.2	%		22.8	%
Support, maintenance and subscription services		63.4			64.9
Subscription and maintenance								58.4			59.9
Professional services		17.3			16.0			18.4			17.3
Total net revenue		100.0	%		100.0	%		100.0	%		100.0	%
Cost of goods sold:
Products		9.7	%		8.6	%		12.4	%		11.3	%
Support, maintenance and subscription services		13.2			13.3
Subscription and maintenance								13.2			12.3
Professional services		13.1			10.7			14.4			12.2
Total cost of goods sold		36.0	%		32.6	%
Total net cost of goods sold								40.0	%		35.8	%
Gross profit		64.0	%		67.4	%		60.0	%		64.2	%
Operating expenses:
Product development		30.0	%		24.0	%		24.3	%		29.7	%
Sales and marketing		9.0			6.8			11.4			7.9
General and administrative		17.2			15.2			15.5			18.1
Depreciation of fixed assets		1.5			2.2			1.0			1.3
Amortization of internal-use software		0.9			1.5
Severance and other charges		1.5			0.0
Legal settlements, net		0.9			0.1
Amortization of internal-use software and intangibles								0.9			1.2
Other charges								0.5			0.6
Legal settlements								0.0			0.1
Operating income		3.0	%		17.6	%		6.4	%		5.3	%

nm - not meaningful

Net revenue. Total net revenue increased ~~$3.5~~$8.8 million, or ~~10.3%~~22.7%, during the ~~second~~first quarter of fiscal ~~2022~~2023 compared to the ~~second~~first quarter of fiscal ~~2021.~~2022. Products revenue increased ~~$0.7~~$2.2 million, or ~~11.3%~~24.9%, due to higher sales and deliveries ~~as our~~to new customers ~~re-open their locations for business. Support,~~and expansion with existing customers. Subscription and maintenance ~~and subscription services~~ revenue increased ~~$1.7~~$4.5 million, or ~~7.7%~~19.5%, compared to the ~~second~~first quarter of fiscal ~~2021~~2022 driven by continued growth in subscription-based service revenue, which increased ~~21.7%~~29.5% during the ~~second~~first quarter of fiscal ~~2022~~2023 compared to the ~~second~~first quarter of fiscal ~~2021. The increase in subscription revenue is due to the re-opening of customer sites and increased sales and implementations of our newer add-on modules.~~2022. Professional services revenue increased ~~$1.1~~$2.1 million, or ~~19.4%~~30.9%, due to higher sales and service activity as our new and existing customers ~~re-open~~continue implementing technology to improve their ~~locations for business.~~operations.

Gross profit and gross profit margin. Our total gross profit increased ~~$1.1~~$3.6 million, or ~~4.8%~~14.6%, ~~for~~during the ~~second~~first quarter of fiscal ~~2022~~2023 and total gross profit margin decreased from ~~67.4%~~64.2% to ~~64.0%~~60.0% driven by changes in the composition of revenue by category. Products gross profit ~~was consistent with the second quarter of fiscal 2021~~increased $0.7 million, or 15.2%, and products gross profit margin decreased from ~~55.0%~~50.7% to ~~49.9%~~46.8% due to a higher proportion of third-party products over proprietary software ~~sales. Support,~~revenue. Subscription and maintenance ~~and subscription services~~ gross profit increased ~~$1.3~~$3.0 million, or ~~7.1%~~16.1%, and gross profit margin ~~was consistent with the second quarter of fiscal 2021~~decreased from 79.6% to 77.3% as certain variable costs increased ~~proportionately with~~ahead of related revenue. Professional services gross profit margin decreased ~~$0.2 million due~~from 28.8% to ~~delays~~21.6% as we continue to invest in ~~certain professional~~and train new service ~~projects with a decrease in gross profit margin from 32.7%~~team members to ~~24.5% due to an increase in fixed costs as our~~meet the growing installation and implementation ~~teams are fully staffed while projects are delayed.~~activity.

Operating expenses

Operating expenses, excluding other charges and legal settlements, ~~severance and other charges,~~ increased ~~$5.2~~$2.7 million, or ~~30.3%~~11.9%, during the ~~second~~first quarter of fiscal 2023 compared with the first quarter of fiscal 2022.

Product development. Product development increased $0.1 million, or 0.6%, in the first quarter of fiscal 2023 compared with the first quarter of fiscal 2022 due to increases in salary rates across our development teams.

Sales and marketing. Sales and marketing increased $2.4 million, or 77.4%, in the first quarter of fiscal 2023 compared with the ~~second quarter of fiscal 2021.~~

~~Product development.~~ ~~Product development increased $3.1 million, or 37.8%, in the second~~first quarter of fiscal 2022 ~~compared with the second quarter of fiscal 2021~~ due to ~~restored base pay and employee benefits as well as higher share-based compensation.~~

~~Sales and marketing.~~ ~~Sales~~various sales and marketing ~~increased $1.1 million, or 45.7%, in the second quarter~~investments including several key hires and significantly higher levels of fiscal 2022 compared with the second quarter of fiscal 2021 due to restored base pay and employee benefits, increased share-based compensation, return of some travel costs, and higher advertising and promotional costs due to increased marketing event and trade show activity.

~~Table of Contents~~

General and administrative. General and administrative increased ~~by $1.3~~$0.4 million, or ~~25.0%~~5.0%, in the ~~second~~first quarter of fiscal 2023 compared with the first quarter of fiscal 2022 ~~compared with the second quarter of fiscal 2021~~ due to ~~restored base pay~~investments in our information security and ~~employee benefits, increased share-based compensation,~~information technology infrastructure.

Other charges. Other charges consist of severance costs, infrequent settlements of customer disputes and ~~higher internal system subscription costs.~~

~~Severance and other charges.~~ Severance, and other charges increased $0.6 million in the second quarter of fiscal 2022 compared with the second quarter of fiscal 2021 due to one-time payment of certain service provider charges and modified business taxes on share-based compensationacquisition costs related to ~~the exercise of stock-settled appreciation rights granted to our Chief Executive Officer in connection with his initial employment agreement with the Company in December 2016.~~business combinations.

~~Legal settlements, net.~~ Legal settlements, net increased $0.3 million in the second quarter of fiscal 2022 compared with the second quarter of fiscal 2021 due to settlement of a lawsuit involving a former employee; no further activity is expected on this matter.

Other (Income) Expenses

	Three Months Ended
	September 30,						(Unfavorable) favorable						Three Months Ended June 30,						(Unfavorable) favorable
(Dollars in thousands)	2021			2020			$			%			2022			2021			$		%
Other expense:
Other (income) expense:
Interest income	$	(14	)	$	(28	)	$	(14	)		(50.0	)%	$	(101	)	$	(22	)	$	79	nm
Interest expense		1			2			1		nm				1			1			—	nm
Other expense, net		103			88			(15	)		17.0
Total other expense, net	$	90		$	62		$	(28	)		45.2	%
Other income, net														(304	)		(103	)		201	nm
Total other (income) expense, net													$	(404	)	$	(124	)	$	280	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 in commercial paper, treasury bills and money market funds.

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

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

Income Taxes

	Three Months Ended
	September 30,						(Unfavorable) favorable			Three Months Ended June 30,						(Unfavorable) favorable
(Dollars in thousands)	2021			2020			$		%	2022			2021			$			%
Income tax expense	$	48		$	121		$	73	nm
Income tax expense (benefit)										$	398		$	193		$	(205	)		(106.2	)%
Effective tax rate		4.7	%		2.0	%					11.6	%		8.9	%

nm - not meaningful

For the three months ended ~~September~~June 30, 2022 and 2021, respectively, the effective tax rate was different than the statutory rate due primarily to adjustments to deferred tax assets and to valuation allowances that reduce deferred tax assets and to the ~~recognition~~recording of net operating losses ~~as deferred tax assets~~ in ~~the U.S. and certain~~a number of foreign jurisdictions ~~which were~~ offset by ~~increases~~current year expense in ~~the valuation allowance, certain~~other foreign and state tax effects and other U.S. permanent book to tax differences. For the three months ended September 30, 2020, the effective tax rate was different than the statutory tax rate due primarily to the utilization of net operating losses that were offset by decreases in the valuation allowances in the U.S, certain foreign and state tax effects and other U.S. permanent book to tax differences.jurisdictions.

Although the timing and outcome of tax settlements are uncertain, it is reasonably possible that during the next 12 months an immaterial reduction in unrecognized tax benefits may occur based on the outcome of tax examinations and as a result of the expiration of various statutes of limitations. We are consistently subject to tax audits; due to the nature of examinations in multiple jurisdictions, changes could occur in the amount of gross unrecognized tax benefits during the next 12 months which cannot be estimated at this time.

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

~~Table of Contents~~

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.~~

~~Results of Operations~~

~~First Half Fiscal2022Compared toFirst Half Fiscal2021~~

~~Net Revenue and Operating Income~~

~~The following table presents our consolidated revenue and operating results for the three months ended September 30, 2021 and 2020:~~

Six months ended

September 30,

Increase (decrease)

(Dollars in thousands)

2021

2020

$

%

Net revenue:

Products

$
16,143

$
11,798

$
4,345

36.8
%
Support, maintenance and subscription services

47,234

42,801

4,433

10.4

Professional services

13,240

9,567

3,673

38.4

Total net revenue

76,617

64,166

12,451

19.4

Cost of goods sold:

Products

8,020

5,965

2,055

34.5

Support, maintenance and subscription services

9,763

8,860

903

10.2

Professional services

9,711

7,638

2,073

27.1

Total cost of goods sold

27,494

22,463

5,031

22.4

Gross profit

$
49,123

$
41,703

$
7,420

17.8
%
Gross profit margin

64.1
%

65.0
%

Operating expenses:

Product development

$
22,864

$
16,524

$
6,340

38.4
%
Sales and marketing

6,475

4,951

1,524

30.8

General and administrative

13,526

10,936

2,590

23.7

Depreciation of fixed assets

1,114

1,438

(324
)

(22.5
)
Amortization of intangibles

810

968

(158
)

(16.3
)
Severance and other charges

805

1,210

(405
)

nm

Legal settlements, net

367

50

317

nm

Operating income

$
3,162

$
5,626

$
(2,464
)

43.8
%
Operating income percentage

4.1
%

8.8
%

~~nm - not meaningful~~

~~Table of Contents~~

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

Six months ended

September 30,

Net revenue:

2021

2020

Products

21.1
%

18.4
%
Support, maintenance and subscription services

61.6

66.7

Professional services

17.3

14.9

Total net revenue

100.0
%

100.0
%
Cost of goods sold:

Products

10.5
%

9.3
%
Support, maintenance and subscription services

12.7

13.8

Professional services

12.7

11.9

Total cost of goods sold

35.9
%

35.0
%
Gross profit

64.1
%

65.0
%
Operating expenses:

Product development

29.8
%

25.8
%
Sales and marketing

8.5

7.7

General and administrative

17.7

17.0

Depreciation of fixed assets

1.3

2.2

Amortization of intangibles

1.1

1.5

Severance and other charges

1.1

1.9

Legal settlements, net

0.5

0.1

Operating income

4.1
%

8.8
%

~~Net revenue.~~ Total net revenue increased $12.5 million, or 19.4%, during the first half of fiscal 2022 compared to the first half of fiscal 2021. Products revenue increased $4.3 million, or 36.8%, due to higher sales and deliveries as our customers re-open their locations for business. Support, maintenance and subscription services revenue increased $4.4 million, or 10.4%, compared to the first half of fiscal 2021 driven by continued growth in subscription-based service revenue, which increased 26.9% during the first half of fiscal 2022 compared to the first half of fiscal 2021. Professional services revenue increased $3.7 million, or 38.4%, due to higher sales and service activity as our customers re-open their locations for business.

~~Gross profit and gross profit margin.~~ Our total gross profit increased $7.4 million, or 17.8%, for the first half of fiscal 2022 and total gross profit margin decreased from 65.0% to 64.1% driven by changes in the composition of revenue by category. Products gross profit increased $2.3 million, or 39.3%, compared to the first half of fiscal 2021 and products gross profit margin increased from 49.4% to 50.3% due to an increase in proprietary software revenue and a higher gross profit margin on the mix of third party products. Support, maintenance and subscription services gross profit increased $3.5 million, or 10.4%, and gross profit margin was consistent with the first half of fiscal 2021 at 79.3% as certain variable costs increased proportionately with revenue. Professional services gross profit increased $1.6 million, or 82.9%, due to the increase in professional service projects as customers continue to re-open their locations. Professional services gross profit margin increased from 20.2% to 26.7% due to improved utilization rates.

~~Operating expenses~~

~~Operating expenses, excluding legal settlements, severance and other charges, increased $10.0 million, or 28.6%, during the first half of fiscal 2022 compared with the first half of fiscal 2021.~~

~~Product development.~~ ~~Product development increased $6.3 million, or 38.4%, in the first half of fiscal 2022 due to restored base pay and employee benefits as well as higher share-based compensation.~~

~~Sales and marketing.~~ Sales and marketing increased $1.5 million, or 30.8%, in the first half of fiscal 2022 compared with the first half of fiscal 2021 due to restored base pay and employee benefits, increased share-based compensation, a return of some travel costs, and higher advertising and promotional costs due to increased marketing event and trade show activity.

~~General and administrative.~~ General and administrative increased by $2.6 million, or 23.7%, in the first half of fiscal 2022 compared with the first half of fiscal 2021 due to restored base pay and employee benefits, increased share-based compensation, and higher internal system subscription costs.

~~Table of Contents~~

~~Severance and other charges.~~ Severance, and other charges decreased $0.4 million in the first half of fiscal 2022 due to layoffs and other employee terminations during the first quarter of fiscal 2021 at the beginning of the COVID-19 pandemic which did not re-occur during the first half of fiscal 2022.

~~Legal settlements, net.~~ Legal settlements, net increased $0.3 million in the first half of fiscal 2022 compared with the first half of fiscal 2021 due to settlement of a lawsuit involving a former employee; no further activity is expected on this matter.

~~Other (Income) Expenses~~

Six Months Ended
September 30,

(Unfavorable) favorable

(Dollars in thousands)

2021

2020

$

%

Other expense:

Interest income

$
(35
)

$
(49
)

$
(14
)

(28.6
)%
Interest expense

2

3

1

nm

Other expense, net

—

194

194

nm

Total other expense, net

$
(33
)

$
148

$
181

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, treasury bills and money market funds.~~

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

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

~~Income Taxes~~

Six Months Ended

September 30,

(Unfavorable) favorable
(Dollars in thousands)

2021

2020

$

%
Income tax expense

$
241

$
128

$
(113
)

nm
Effective tax rate

7.5
%

2.3
%

~~nm - not meaningful~~

For the six months ended September 30, 2021, the effective tax rate was different than the statutory tax rate due primarily to the recognition of net operating losses as deferred tax assets in the U.S. and certain foreign jurisdictions, which were offset by increases in the valuation allowance, certain foreign and state tax effects and other U.S. permanent book to tax differences. For the six months ended September 30, 2020, the effective tax rate was different than the statutory tax rate due primarily to the utilization of net operating losses that were offset by decreases in the valuation allowances in the U.S, certain foreign and state tax effects and other U.S. permanent book to tax differences.

Liquidity and Capital Resources

Overview

Our ~~operating~~ cash requirements consist primarily of working capital needs, ~~operating expenses,~~ capital expenditures, payments ~~on indebtedness outstanding, which primarily consists~~of preferred stock dividends, and operating expenses including payments of lease obligations. Our contractual obligations consist primarily of operating leases for office space and preferred stock dividends.

At ~~September~~June 30, ~~2021,~~2022, 100% of our cash and cash equivalents, of which ~~96%~~93% were located in the United States, were deposited in bank accounts or invested in highly liquid investments including commercial paper and treasury bills with original maturity from the date of acquisition of three months or less and money market funds. We determine the fair value of commercial paper using significant other observable inputs based on pricing from independent sources that use quoted prices in active markets for identical assets or other

observable inputs including ~~investments in commercial paper.~~benchmark yields and interest rates. We believe credit risk is limited with respect to our cash and cash ~~equivalents balances.~~

~~Table of Contents~~equivalents.

~~As of September 30, 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~~and cash equivalents of ~~$106.4~~$94.9 million as of ~~September~~June 30, ~~2021~~2022, and access to capital markets will provide adequate funds to meet our short- and long-term liquidity requirements.

Cash Flow


	Six Months Ended September 30,						Three Months Ended June 30,
(In thousands)	2021			2020				2022			2021
Net cash provided by (used in):
Operating activities	$	11,673		$	6,642		$	101		$	7,995
Investing activities		(788	)		(473	)		(105	)		(276	)
Financing activities		(3,638	)		32,799			(1,739	)		(2,994	)
Effect of exchange rate changes on cash		(38	)		85			(331	)		6
Net increase in cash and cash equivalents	$	7,209		$	39,053
(Decrease) increase in cash							$	(2,074	)	$	4,731

Cash flow provided by operating activities. Cash flow provided by operating activities was ~~$11.7~~$0.1 million in the first ~~six~~three months of fiscal ~~2022.~~2023. The provision of cash was due to cash-based earnings of ~~$11.7~~$3.0 million, adjusted for non-cash expenses of ~~$8.7~~$3.3 million including ~~loss on disposal of property & equipment,~~ depreciation, amortization, and share-based ~~compensation.~~compensation, and a decrease of $6.2 million in net operating assets and liabilities.

Cash flow used in investing activities. Consists primarily of property and equipment purchases.

Cash flow ~~(used in) provided by~~used in financing activities. During the first ~~six~~three months of fiscal ~~2022,~~2023, the ~~$3.6~~$1.7 million used in financing activities consisted primarily of ~~$2.7~~$0.8 million related to the repurchase of shares to satisfy employee tax withholding on share-based compensation and $0.9 million in preferred stock dividends. During the first six months of fiscal 2021, the $32.8 million provided by financing activities consisted primarily of $34.0 million in preferred stock issuance proceeds from the MAK Capital investment, net of issuance costs, offset by $1.0 million related to the repurchase of shares to satisfy employee tax withholding on share-based compensation and $0.2 million in preferred stock dividends.

Contractual Obligations

As of ~~September~~June 30, ~~2021,~~2022, there were no significant changes to our contractual obligations as presented in our Annual Report for the year ended March 31, ~~2021.~~2022.

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, ~~2021. Other than as described in Note 2 to the condensed consolidated financial statements, there~~2022. There have been no material changes in our significant accounting policies and estimates since March 31, ~~2021.~~2022.

Forward-Looking Information

This Quarterly Report and other publicly available documents, including the documents incorporated herein and therein by reference, contain, and our officers and representatives may from time to time make, "forward-looking statements" within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as: "anticipate," "intend," "plan," "goal," "seek," "believe," "project," "estimate," "expect," "strategy," "future," "likely," "may," "should," "will" and similar references to future periods. These statements are not guarantees of future performance and involve risks, uncertainties, and assumptions that are difficult to predict. These statements are based on management’s current expectations, intentions, or beliefs and are subject to a number of factors, assumptions, and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Factors that could cause or contribute to such differences or that might otherwise impact the business include the risk factors set forth in Item 1A in Part II of this Quarterly Report and Item IA

~~Table of Contents~~

of our Annual Report for the fiscal year ended March 31, ~~2021.~~2022. We undertake no obligation to update any such factor or to publicly announce the results of any revisions to any forward-looking statements contained herein whether as a result of new information, future events, or otherwise.

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

For quantitative and qualitative disclosures about market risk affecting us, see Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” contained in our Annual Report for the fiscal year ended March 31, ~~2021.~~2022. There have been no material changes in our market risk exposures since March 31, ~~2021.~~2022.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

Changes in Internal Control over Financial Reporting

~~There were no~~No changes toin our internal control over financial reporting ~~as defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Securities Exchange Act of 1934, as amended, that~~ occurred during the ~~six months ended September 30, 2021,~~first quarter of fiscal 2023 that has materially affected, or ~~are~~is reasonably likely to materially affect, our internal control over financial reporting.

~~Due~~ In response to the COVID-19 pandemic, a significant ~~number~~portions of our ~~employees are now working~~global workforce continued to operate primarily in a work from ~~home.~~home environment for the quarter ended June 30, 2022. The design of our financial reporting processes, systems, and controls allows for remote ~~execution~~operation with ~~accessibility~~access to secure data.

Inherent Limitations on Effectiveness of Controls

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

2523

~~Table of Contents~~

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

~~Other than as described below, there~~There have been no material changes in the risk factors included in our Annual Report for the fiscal year ended March 31, ~~2021~~2022 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.

2624

~~Table of Contents~~

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

101.INS			Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.

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 Inline XBRL document)

*			Denotes a management contract or compensatory plan or arrangement.

2725

~~Table of Contents~~

SIGNATURE

~~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:	July 29, 2022
~~Date:~~	~~October 28, 2021~~	/s/ William David Wood III
		William David Wood III
		Chief Financial Officer
		(Principal Financial Officer and Duly Authorized Officer)


~~Ohio~~Delaware		34-0907152
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
1000 Windward Concourse, Suite 250 Alpharetta, Georgia		30005
~~1000 Windward Concourse, Suite 250, Alpharetta, Georgia~~		~~30005~~
(Address of principal executive offices)		(~~ZIP~~Zip Code)


Title of each class	~~Trading Symbol(s)~~	Trading Symbol(s)	Name of each exchange on which registered
Common ~~Shares,~~Stock, without par value	~~AGYS~~	AGYS	NASDAQ Global Market


(In thousands, except share data)	September 30, 2021 (Unaudited)			March 31, 2021			June 30, 2022 Unaudited			March 31, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	106,389		$	99,180		$	94,897		$	96,971
Accounts receivable, net of allowance for expected credit losses of $666 and $1,220, respectively		19,269			25,732
Accounts receivable, net of allowance for expected credit losses of $496 and $318, respectively								22,901			25,175
Contract assets		1,846			2,364			2,661			1,669
Inventories		1,881			1,177			7,246			6,940
Prepaid expenses and other current assets		4,838			4,797			4,435			5,418
Total current assets		134,223			133,250			132,140			136,173
Property and equipment, net		7,372			8,789			5,896			6,345
Operating lease right-of-use assets		10,495			12,210			9,277			9,889
Goodwill		19,622			19,622			32,759			32,759
Intangible assets, net		8,400			8,400			19,831			20,178
Deferred income taxes, non-current		2,090			1,802			2,677			2,664
Other non-current assets		5,898			5,800			6,179			6,154
Total assets	$	188,100		$	189,873		$	208,759		$	214,162
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	9,009		$	6,346		$	8,185		$	9,766
Contract liabilities		30,640			38,394			41,989			46,095
Accrued liabilities		8,215			11,233			7,870			10,552
Operating lease liabilities, current		4,325			5,009			4,729			5,049
Finance lease obligations, current		10			19			4			4
Total current liabilities		52,199			61,001			62,777			71,466
Deferred income taxes, non-current		933			923			943			938
Operating lease liabilities, non-current		7,331			8,597			4,970			5,649
Finance lease obligations, non-current		4			6			1			2
Other non-current liabilities		4,456			4,011			3,792			3,304
Commitments and contingencies (see Note 7)
Commitments and contingencies
Series A convertible preferred stock, no par value		35,459			35,459			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 24,607,173 and 24,010,727 shares outstanding at September 30, 2021 and March 31, 2021, respectively		9,482			9,482
Treasury shares, 6,999,658 and 7,596,104 at September 30, 2021 and March 31, 2021, respectively		(2,100	)		(2,278	)
Common shares, without par value, at $0.30 stated value; 80,000,000 shares authorized; 31,606,831 shares issued; and 25,025,983 and 24,728,532 shares outstanding at June 30, 2022 and March 31, 2022, respectively								9,482			9,482
Treasury shares, 6,580,848 and 6,878,299 at June 30, 2022 and March 31, 2022, respectively								(1,974	)		(2,063	)
Capital in excess of stated value		42,867			37,257			51,624			49,963
Retained earnings		37,412			35,376			42,598			40,018
Accumulated other comprehensive income		57			39
Accumulated other comprehensive loss								(454	)		(56	)
Total shareholders' equity		87,718			79,876			101,276			97,344
Total liabilities and shareholders' equity	$	188,100		$	189,873		$	208,759		$	214,162


(In thousands)	September 30, 2021		March 31, 2021		June 30, 2022		March 31, 2022
Accrued liabilities:
Salaries, wages, and related benefits	$	6,207	$	8,454	$	5,170	$	7,870
Other taxes payable		1,510		1,796		2,164		1,994
Accrued legal settlements		—		200
Severance liabilities		63		79
Professional fees		81		97		144		373
Other		354		607		392		315
Total	$	8,215	$	11,233	$	7,870	$	10,552
Other non-current liabilities:
Uncertain tax positions	$	1,141	$	1,129	$	1,160	$	1,154
Asset retirement obligations		170		170
Deferred rent and asset retirement obligations						43		43
Employee benefit obligations		3,072		2,639		2,517		2,037
Other		73		73		72		70
Total	$	4,456	$	4,011	$	3,792	$	3,304


	Six Months Ended September 30,						Three Months Ended June, 30
(In thousands)		2021			2020			2022			2021
Cash (receipts) for interest, net	$	(13	)	$	(46	)	$	(100	)	$	(21	)
Cash payments for income taxes, net		439			167
Cash payments for income tax, net								332			192
Cash payments for operating leases		2,308			3,002			1,468			969
Cash payments for finance leases		10			14			2			5
Accrued capital expenditures		45			12			158			24


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


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


Large ~~accelerated~~Accelerated filer	☐	☒	~~Accelerated filer~~	☒Accelerated filer	☐
Non-Accelerated filer		☐		Smaller reporting company	☐
~~Non-accelerated filer~~	☐		~~Smaller reporting company~~	☐



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

		Condensed Consolidated Balance Sheets – ~~September~~June 30, ~~2021~~2022 (Unaudited) and March 31, ~~2021~~2022	3

		Condensed Consolidated Statements of Operations (Unaudited) - Three ~~and Six~~ Months Ended ~~September~~June 30, ~~2021~~2022 and ~~September~~June 30, ~~2020~~2021	4

		Condensed Consolidated Statements of Comprehensive Income (Unaudited) - Three ~~and Six~~ Months Ended ~~September~~June 30, ~~2021~~2022 and ~~September~~June 30, ~~2020~~2021	5

		Condensed Consolidated Statements of Cash Flows (Unaudited) – ~~Six~~Three Months Ended ~~September~~June 30, ~~2021~~2022 and ~~September~~June 30, ~~2020~~2021	6

		Condensed Consolidated Statements of Shareholders' Equity (Unaudited) - Three ~~and Six~~ Months Ended ~~September~~June 30, ~~2021~~2022 and ~~September~~June 30, ~~2020~~2021	7

		Notes to Condensed Consolidated Financial Statements (Unaudited)	8

	Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1617

	Item 3	Quantitative and Qualitative Disclosures About Market Risk	2523

	Item 4	Controls and Procedures	2523

Part II. Other Information

	Item 1	Legal Proceedings	2624

	Item 1A	Risk Factors	2624

	Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	2624

	Item 3	Defaults Upon Senior Securities	2624

	Item 4	Mine Safety Disclosures	2624

	Item 5	Other Information	2624

	Item 6	Exhibits	2725

Signatures			2826


							Three Months Ended
	Six Months Ended September 30,						June 30,
(In thousands)	2021			2020			2022			2021

Operating activities
Net income	$	2,954		$	5,350		$	3,039		$	1,972
Adjustments to reconcile net income to net cash provided by operating activities
Adjustments to reconcile net income to net cash provided by operating activities:
Loss on disposal of property & equipment		123			—			0			123
Depreciation		1,114			1,438
Amortization of internal-use software		810			968
Depreciation of fixed assets								473			566
Amortization of internal-use software and intangibles								453			465
Deferred income taxes		(303	)		(269	)		(116	)		(108	)
Share-based compensation		6,963			2,682			2,488			3,621
Changes in operating assets and liabilities		12			(3,527	)		(6,236	)		1,356
Net cash provided by operating activities		11,673			6,642			101			7,995
Investing activities
Capital expenditures		(786	)		(471	)		(98	)		(274	)
Additional investments in corporate-owned life insurance policies		(2	)		(2	)		(7	)		(2	)
Net cash used in investing activities		(788	)		(473	)		(105	)		(276	)
Financing activities
Payment of preferred stock dividends								(918	)		(918	)
Repurchase of common shares to satisfy employee tax withholding		(2,709	)		(959	)		(820	)		(2,070	)
Series A convertible preferred stock issuance proceeds, net of issuance costs		—			33,969
Payment of preferred stock dividends		(918	)		(199	)
Principal payments under long-term obligations		(11	)		(12	)		(1	)		(6	)
Net cash (used in) provided by financing activities		(3,638	)		32,799
Net cash used in financing activities								(1,739	)		(2,994	)
Effect of exchange rate changes on cash		(38	)		85			(331	)		6
Net increase in cash and cash equivalents		7,209			39,053
Net (decrease) increase in cash and cash equivalents								(2,074	)		4,731
Cash and cash equivalents at beginning of period		99,180			46,653			96,971			99,180
Cash and cash equivalents at end of period	$	106,389		$	85,706		$	94,897		$	103,911

	Six months ended
	September 30,						Increase (decrease)
(Dollars in thousands)	2021			2020			$			%
Net revenue:
Products	$	16,143		$	11,798		$	4,345			36.8	%
Support, maintenance and subscription services		47,234			42,801			4,433			10.4
Professional services		13,240			9,567			3,673			38.4
Total net revenue		76,617			64,166			12,451			19.4
Cost of goods sold:
Products		8,020			5,965			2,055			34.5
Support, maintenance and subscription services		9,763			8,860			903			10.2
Professional services		9,711			7,638			2,073			27.1
Total cost of goods sold		27,494			22,463			5,031			22.4
Gross profit	$	49,123		$	41,703		$	7,420			17.8	%
Gross profit margin		64.1	%		65.0	%
Operating expenses:
Product development	$	22,864		$	16,524		$	6,340			38.4	%
Sales and marketing		6,475			4,951			1,524			30.8
General and administrative		13,526			10,936			2,590			23.7
Depreciation of fixed assets		1,114			1,438			(324	)		(22.5	)
Amortization of intangibles		810			968			(158	)		(16.3	)
Severance and other charges		805			1,210			(405	)	nm
Legal settlements, net		367			50			317		nm
Operating income	$	3,162		$	5,626		$	(2,464	)		43.8	%
Operating income percentage		4.1	%		8.8	%