Agilysys, Inc. Fiscal 2013 Form 10-K Summary
Reporting period: The supplied filing is Agilysys’s Form 10-K for the fiscal year ended March 31, 2013, filed June 14, 2013. The request metadata references “2011 Q4,” which does not match the filing period. All figures below are for fiscal 2013 unless otherwise noted and are generally presented in thousands.
Business Context
Agilysys develops and markets enterprise software, hardware, support, maintenance, subscription and professional services for the hospitality and retail industries. Its reportable segments were Hospitality Solutions Group (HSG) and Retail Solutions Group (RSG). Products include point-of-sale, property management, inventory and procurement, mobile and wireless solutions, hosting and subscription offerings.
The company had 765 employees as of May 31, 2013. International revenue represented approximately 4% of fiscal 2013 revenue, and one RSG customer represented 12.7% of consolidated revenue.
Key Financial Metrics
| Metric | Fiscal 2013 | Fiscal 2012 | Change |
|---|---|---|---|
| Net revenue | $236.1 million | $208.9 million | Up 13.0% |
| Gross profit | $90.2 million | $79.8 million | Up 12.9% |
| Gross margin | 38.2% | 38.2% | Flat |
| Operating loss | $(1.1) million | $(41.2) million | Improved by $40.1 million |
| Loss from continuing operations | $(1.3) million | $(34.2) million | Improved by $32.9 million |
| Net loss | $(1.3) million | $(22.8) million | Improved by $21.5 million |
| Basic and diluted net loss per share | $(0.06) | $(1.02) | Improved |
| Cash flow from continuing operations | $(14.7) million | $50.2 million | Declined by $64.9 million |
Revenue by category was $123.8 million from products, $77.1 million from support, maintenance and subscription services, and $35.2 million from professional services. Support, maintenance and subscription services generally carry higher margins than product revenue.
HSG revenue increased 13.8% to $98.3 million, with a 64.3% gross margin and $14.4 million of operating income. RSG revenue increased 12.5% to $137.8 million, with a 19.5% gross margin and $10.8 million of operating income. Corporate and other costs produced a $26.4 million operating loss.
At March 31, 2013, cash and cash equivalents were $82.9 million, working capital was $72.1 million, total assets were $197.0 million and shareholders’ equity was $113.9 million. Total debt was $0.7 million, consisting primarily of capital lease obligations. The former $50 million revolving credit facility was terminated in July 2011.
Material Changes Versus the Prior Comparable Period
- Revenue increased 13.0%, led by product revenue growth of 17.2%, professional services growth of 15.1% and support, maintenance and subscription services growth of 6.1%.
- Operating performance improved substantially as fiscal 2012 included $9.7 million of asset impairment charges and $15.9 million of restructuring, severance and other charges. Fiscal 2013 included $0.1 million of asset impairment charges, $1.7 million of legal settlements and $1.5 million of restructuring-related charges.
- Operating expenses excluding impairment, legal settlement and restructuring charges declined $7.5 million, or 7.8%, primarily due to restructuring savings and lower sales, marketing, general and administrative and depreciation costs.
- Cash flow from continuing operations turned negative, primarily because of $13.2 million of non-recurring payments, including $6.3 million for benefit plans and $6.9 million of restructuring payments, as well as a $13.3 million increase in accounts receivable.
- Cash declined from $97.6 million to $82.9 million. Fiscal 2012 cash flow benefited from $55.8 million of net proceeds from the sale of the Technology Solutions Group.
- The company recorded a $0.6 million unfavorable out-of-period correction in the first quarter of fiscal 2013 related to previously omitted revenue, restructuring costs and development costs. Management concluded the error was immaterial to prior-period and full-year financial statements.
Guidance, Outlook and Management Commentary
Management did not provide a specific numerical revenue, earnings or cash-flow forecast in the supplied filing. Its stated strategy was to increase proprietary products, support and maintenance, subscription and cloud offerings, professional services, customer diversification and investment in emerging technologies. Management expected cash on hand, operating cash flow and access to capital markets to fund foreseeable working capital, capital spending and other obligations.
On May 31, 2013, Agilysys agreed to sell RSG to an affiliate of Clearlake Capital Group for $34.6 million in cash, subject to customary closing conditions and working-capital adjustment. Management expected to recognize a gain and use existing net operating losses against the gain. RSG represented approximately 58.4% of fiscal 2013 revenue, so completion would materially reduce consolidated revenue and leave the company focused exclusively on hospitality.
The RSG transaction had not closed when the filing was issued. Under specified termination circumstances, Agilysys could owe a $2.0 million termination fee and up to $1.3 million of reimbursed expenses. On June 10, 2013, the company acquired the assets of TimeManagement Corporation, a hospitality workforce-management software and services provider; purchase consideration was not provided in the filing text.
Risks, Contingencies and Unusual Items
- The proposed RSG sale could fail to close, incur transaction costs and liabilities, or leave Agilysys with substantially lower revenue if completed.
- Agilysys faces intense competition, pricing pressure, rapid technological change and execution risks associated with cloud, hosted and mobile solutions.
- Security breaches, system outages or performance failures involving customer or hosted data could result in liability, reputational harm and lost sales.
- Ameranth, Inc. filed a patent-infringement lawsuit alleging that certain hospitality products infringe three patents. The company disputed the allegations, but stated that the outcome and potential exposure could not be predicted.
- A tentative settlement of a California wage-and-hour putative class action was proposed for $1.5 million; preliminary approval was requested after year-end.
- Agilysys had $168.8 million of federal and $176.6 million of state net operating loss carryforwards, but recorded a $79.2 million valuation allowance against deferred tax assets because realization was uncertain.
- Unrecognized tax positions totaled $4.2 million at March 31, 2013. The company stated that a reduction of up to approximately $0.4 million could occur during the following 12 months, although other changes were not estimable.
- Contractual obligations totaled $15.2 million, including $13.1 million of operating leases, $0.8 million of capital leases, $0.6 million of restructuring liabilities and $0.7 million of asset-retirement obligations.
- The company had no off-balance-sheet arrangements that were expected to materially affect its financial condition or results.
Most Important Facts for an Investor to Verify
- Whether the RSG sale closed on the expected timeline, the final cash proceeds and working-capital adjustment, and the resulting gain or loss.
- Post-transaction revenue, margins, customer concentration and recurring-revenue growth for the hospitality-focused company.
- Whether operating cash flow returns to positive levels after non-recurring benefit-plan and restructuring payments.
- The status, settlement terms and ultimate exposure from the Ameranth patent litigation and California wage-and-hour matter.
- The purchase price, integration progress and financial contribution of the TimeManagement Corporation acquisition.
- The recoverability of deferred tax assets and the potential use of net operating losses.
- Future impairment, restructuring, legal settlement and other unusual charges, particularly given the company’s continuing net losses.