Agilysys, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended March 31, 2021, with comparisons to fiscal 2020 and fiscal 2019. The supplied filing is not a 2019 Q4 filing. Agilysys is a single-segment hospitality software company serving casinos, hotels, resorts, cruise ships, foodservice, sports and entertainment, and healthcare customers globally. Its offerings include point-of-sale, property management, inventory and procurement, payment, subscription, support, and professional services.
Key Financial Metrics
| Metric | Fiscal 2021 | Fiscal 2020 | Change |
|---|---|---|---|
| Total revenue | $137.2 million | $160.8 million | Down 14.7% |
| Products revenue | $26.7 million | $44.2 million | Down 39.6% |
| Support, maintenance and subscription revenue | $88.6 million | $83.7 million | Up 5.8% |
| Professional services revenue | $21.9 million | $32.8 million | Down 33.3% |
| Gross profit | $89.4 million | $81.0 million | Up 10.4% |
| Gross margin | 65.2% | 50.4% | Up 1,480 basis points |
| Operating loss | $21.0 million | $34.1 million | Improved by $13.1 million |
| Net loss | $21.0 million | $34.1 million | Improved by $13.1 million |
| Net loss attributable to common shareholders | $23.6 million | $34.1 million | Includes preferred issuance costs and dividends in 2021 |
| Basic and diluted loss per share | $1.01 loss | $1.47 loss | Improved |
| Operating cash flow | $28.4 million | $10.6 million | Up $17.8 million |
| Capital expenditures and other investing cash flow | $1.4 million used | $3.4 million used | Lower use of cash |
| Cash and cash equivalents at March 31 | $99.2 million | $46.7 million | Up $52.5 million |
| Total debt | Approximately $0.1 million | Approximately $0.1 million | Essentially unchanged |
Revenue and Margin Profile
- Subscription revenue increased 15.5% during fiscal 2021, supporting the company’s strategy to shift toward recurring revenue, cloud applications, support and maintenance, and professional services.
- Support, maintenance and subscription services represented 64.6% of fiscal 2021 revenue, compared with 52.1% in fiscal 2020.
- Gross margin expanded primarily because of the favorable mix toward higher-margin recurring services and the absence of developed-technology amortization recorded in fiscal 2020.
- The company remained unprofitable. Fiscal 2021 operating expenses included $40.1 million of share-based compensation, substantially higher than $5.2 million in fiscal 2020, including accelerated vesting of stock-settled appreciation rights.
Material Changes Versus the Prior Comparable Period
- COVID-19 materially reduced customer demand, delayed purchasing decisions, restricted property access, and postponed implementations across the hospitality industry.
- Products revenue declined $17.5 million and professional services revenue declined $11.0 million, while recurring support, maintenance and subscription revenue increased $4.9 million.
- Gross profit increased despite lower revenue. Products gross margin increased to 49.4% from 17.6%, largely reflecting the absence of developed-technology amortization.
- Product development expense rose 33.5% to $55.3 million as the company expanded research and development and recorded significant share-based compensation.
- Sales and marketing expense declined 28.5% because of lower sales commissions, reduced travel, layoffs, lower benefits costs, and the absence of in-person events. General and administrative expense increased 36.5%, primarily from share-based compensation.
- Fiscal 2020 included $23.7 million of impairment charges, including approximately $22.0 million related to capitalized software development costs for certain rGuest solutions and $1.7 million related to rGuest Seat. No impairment charges were recorded in fiscal 2021.
- Operating cash flow increased to $28.4 million, aided by $44.0 million of non-cash expenses, including $40.1 million of share-based compensation, and working-capital changes.
- On May 22, 2020, the company issued $35.0 million of Series A convertible preferred stock, receiving $34.0 million net of issuance costs. The preferred stock carries a 5.25% cumulative dividend and is convertible at $20.1676 per common share.
Liquidity, Capital Structure and Cash Flow
- Cash and cash equivalents were $99.2 million at March 31, 2021, with approximately 96% held in the United States.
- Management believes operating cash flow, cash on hand, and access to capital markets will fund short- and long-term liquidity requirements.
- Finance lease obligations were approximately $0.1 million. The company also had operating lease liabilities of $13.6 million.
- Preferred stock was recorded at $35.5 million at March 31, 2021. It ranks senior to common stock for dividends and liquidation distributions and may require redemption under specified conditions, including certain change-of-control events.
- The company did not pay common-stock dividends in fiscal 2021 or 2020 and expects to retain earnings for operations.
- Fiscal 2021 financing cash flow of $25.3 million primarily reflected preferred-stock proceeds, offset by $7.5 million of common-share repurchases to satisfy employee tax withholding and $1.1 million of preferred dividends.
Outlook, Management Commentary and Risks
Management reported initial signs of hospitality recovery as vaccinations increased and pandemic restrictions began to ease, while maintaining that the timing and durability of recovery remained uncertain. The company expects long-term demand for hospitality technology to remain substantial and views contactless, mobile, cloud-native, and integrated solutions as growth opportunities. No specific fiscal 2022 revenue, earnings, margin, or cash-flow guidance is provided in the filing text.
- COVID-19 may continue to reduce customer demand, delay implementations, impair collections, and cause customers to defer or cancel technology projects.
- Hospitality customer insolvencies or bankruptcies could reduce revenue and liquidity and increase credit losses.
- The company has incurred operating losses in each of the last several years and may continue to incur losses while investing in product development.
- Competitive pressure from Oracle, Shiji, Amadeus, Infor, smaller software providers, and internally developed hotel systems could pressure pricing, margins, and market share.
- Cybersecurity, privacy, data protection, service interruptions, and third-party hosting failures could result in litigation, liability, reputational harm, and customer losses.
- Future impairment charges remain possible. Goodwill was $19.6 million and net intangible assets were $8.4 million at March 31, 2021.
- The company furloughed approximately 24% of employees in the United States, APAC, and EMEA during fiscal 2021; fewer than 10 employees remained on furlough as of May 17, 2021.
- An Ameranth patent litigation matter remains pending. Agilysys cannot predict the outcome or potential monetary exposure, although management disputes the allegations and is defending the case.
- Approximately $199.1 million of federal net operating losses expiring in fiscal years 2031 through 2038, $46.8 million of federal losses with indefinite carryforward periods, and $165.6 million of state net operating losses were reported at March 31, 2021. A $74.6 million valuation allowance covered most deferred tax assets.
Important Facts for Investors to Verify
- Confirm the reporting period: this filing covers fiscal 2021 ended March 31, 2021, not 2019 Q4.
- Assess whether recurring revenue growth and the higher gross margin can continue as hospitality customers recover.
- Separate underlying operating performance from the substantial $40.1 million share-based compensation expense and the absence of prior-year impairment charges.
- Review the terms, dividend burden, conversion mechanics, redemption rights, and potential dilution associated with the Series A convertible preferred stock.
- Evaluate cash generation quality, particularly the contribution from working-capital changes and non-cash compensation.
- Monitor COVID-19 recovery trends, customer credit quality, implementation activity, and hospitality capital spending.
- Review the pending Ameranth litigation and any developments that could create financial exposure.
- Verify the company’s ability to reduce operating losses while continuing significant research and development investment.