Agilysys, Inc. (Nasdaq: AGYS), a global provider of
next-generation hospitality software solutions and services, today
reported operating results for its fiscal 2019 fourth quarter and full
year ended March 31, 2019.
Summary of Fiscal 2019 Fourth Quarter Financial Results
-
Total net revenue was a record $36.6 million, compared to total net
revenue of $32.1 million in the comparable prior-year period. -
Recurring revenues (which are comprised of support, maintenance and
subscription services) were a record $19.4 million, or 53% of total
net revenue, compared to $18.1 million, or 56% of total net revenue,
for the same period in fiscal 2018. Subscription revenues increased
23% year over year and comprised 34% of total recurring revenues,
compared to 30% of total recurring revenues in the fourth quarter of
fiscal 2018. -
Gross margin was 53.5% in the fiscal 2019 fourth quarter, compared to
52.2% in the comparable prior-year period. -
Net loss in the fiscal 2019 fourth quarter was $(3.6) million, or
$(0.16) per diluted share, compared to a net loss of $(0.2) million,
or $(0.01) per diluted share, in the comparable prior-year period,
which included an income tax benefit of $1.8 million and a software
development costs capitalization benefit of approximately $1.6
million, which did not occur in the fiscal 2019 fourth quarter. -
Adjusted EBITDA (non-GAAP) was $2.4 million compared to $3.1 million
in the comparable prior-year period. As described below, due to a
change in software development and deployment practices that went into
effect in the fiscal 2019 second quarter, the fiscal 2019 fourth
quarter did not have the benefit of capitalizing software development
costs. In the fiscal 2018 fourth quarter, $1.6 million of software
development costs were capitalized. Assuming no software development
costs were capitalized in the fiscal 2018 fourth quarter, Adjusted
EBITDA in the fiscal 2019 fourth quarter of $2.4 million would compare
to $1.4 million in the fiscal 2018 fourth quarter (see reconciliation
below). -
Adjusted earnings from operations (“AOE”) (non-GAAP) in the fiscal
2019 fourth quarter was $0.7 million, compared to AOE of $0.6 million
in the fiscal 2018 fourth quarter (see reconciliation below). The
fiscal 2019 fourth quarter period included approximately $0.9 million
in higher cash spent on capital items such as for expansion of the
Company’s India Development Center and investments in its SaaS
Development Operations IT Infrastructure compared to the fiscal 2018
fourth quarter.
As previously reported, earlier in fiscal 2019 the Company adopted agile
development and deployment practices across all of its products,
allowing for significantly reduced time between the design of new
products and their distribution in the market. The result of this change
increased the amount of product development costs included in operating
expenses and as a result there were no product development costs
capitalized in the fiscal 2019 fourth quarter. A reconciliation table in
the back of this release provides a comparison of the previously
reported fiscal 2018 fourth quarter Adjusted EBITDA to a presentation
that incorporates all software development costs as if they were not
capitalized in both periods.
Ramesh Srinivasan, President and CEO of Agilysys, commented, “Our sales
momentum continues to be strong, with the fiscal 2019 third and fourth
quarters representing two of our strongest ever for overall global
sales. Fourth quarter revenue of $36.6 million represented the third
consecutive quarter of double-digit year-over-year revenue growth, the
fourth consecutive quarter of record revenue and the sixth consecutive
quarter of sequential revenue growth.
“Fiscal 2019 revenue growth of 10.6% slightly exceeded our expectations.
The $6.4 million year-over-year increase in full year recurring revenue,
which included a 24% rise in subscription revenue, was the largest
single year improvement in annual recurring revenue in five years. In
addition, our year-end cash balance grew slightly for the first time
since fiscal 2014 when we made the transformation to an entirely
hospitality focused software solutions company. The full year cash
balance growth significantly exceeded our original expectation. We also
generated positive AOE during each quarter of fiscal 2019, with full
year AOE increasing $10.7 million compared to the prior year. Fiscal
2019 Adjusted EBITDA rose approximately 13% to $10.3 million.
“We remain confident that our rapidly improving products, processes,
people talent levels and our steadfast attention to world class service
and support for a steadily growing hospitality marketplace that is
demonstrating an increasing need for greater technology and innovative
software solutions, will help drive continued business momentum and
produce increasing shareholder value. Reflecting this momentum, we
expect revenue growth in fiscal 2020 of approximately 11%, with an
increasing level of profitability, as Adjusted EBITDA is expected to
increase approximately 25% driving higher positive free cash flow. As
demonstrated by our financial results, fiscal 2019 was a good year for
Agilysys and given the increasing demand for our products, we expect
fiscal 2020 to be even better.”
Fiscal 2020 Outlook
Agilysys today provided an initial forecast for fiscal 2020 full year
revenue growth of approximately 11%, compared to fiscal 2019 revenue of
approximately $141 million. In addition, the Company expects to record
an approximate 25%, improvement in Adjusted EBITDA (non-GAAP measure) in
fiscal 2020, compared to fiscal 2019 Adjusted EBITDA of approximately
$10 million. Agilysys also expects fiscal 2020 free cash flow will be
significantly more than the $1.7 million of free cash flow generated in
fiscal 2019.
The Company defines free cash flow as net cash provided by operating
activities, less capital expenditures, less capitalized software
development costs. Management believes free cash flow is another
meaningful measure of the Company’s operating performance.
Tony Pritchett, Chief Financial Officer, commented, “Our recurring
revenue and highly predictable professional services revenue, combined
with our focus on prudent management of our cost structure, has given us
a strong foundation and conviction in our ability to achieve further top
line growth at increasing profitability levels. Revenue growth is
expected to continue in fiscal 2020 as our guidance contemplates
approximately 11% revenue growth this year; and we continue to expect
the increase in subscription revenue will outpace the rate of total
recurring revenue growth. In addition, the operational leverage in our
business will become evident as we expect Adjusted EBITDA to improve to
approximately $13 million. We also expect to continue our improvement in
our cash position with a focus on free cash flow, which should exceed
the amount generated in fiscal 2019. Overall, Agilysys is favorably
positioned to leverage our improving product portfolio, refined
operating processes, and the focus and commitment of our talented team
members to deliver accelerating profitable revenue and to grow
shareholder value in fiscal 2020 and beyond.”
New Revenue Recognition Standard
On April 1, 2018, Agilysys adopted accounting standard update No.
2014-09 (“ASC 606”), the Financial Accounting Standards Board’s new
revenue recognition standard. Financial results for the three month and
twelve month periods ended March 31, 2019 reflect this accounting
standard. Financial results for the three month and twelve month periods
ended March 31, 2018 have not been restated and are reported under the
accounting standards in effect during that period. The impact on
revenue, net loss, Adjusted EBITDA, and Adjusted Earnings from
Operations (“AOE”) from the adoption of ASC 606 was immaterial.
2019 Fourth Quarter Conference Call and Webcast
Agilysys is hosting a conference call and webcast today, May 16, 2019,
at 4:30 p.m. ET. Both the call and the webcast are open to the public.
The conference call number is 224-357-2393 (domestic or international);
and the conference ID number is 2766558. Please call five minutes prior
to the presentation to ensure that you are connected.
Interested parties may also access the conference call live on the
Internet at Agilysys
Events & Presentations. Approximately two hours after the call
has concluded, an archived version of the webcast will be available for
replay at the same location.
Forward-Looking Language
This press release contains “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. Examples of forward-looking statements include, among
others, our guidance relating to revenue, Adjusted EBITDA and free cash
flow, and statements we make regarding continuing business momentum and
improvements in financial results and shareholder value.
Forward-looking statements are neither historical facts nor assurances
of future performance. Instead, they are based only on our current
beliefs, expectations and assumptions regarding the future of our
business, future plans and strategies, projections, anticipated events
and trends, the economy and other future conditions. Because
forward-looking statements relate to the future, they are subject to
inherent uncertainties, risks and changes in circumstances that are
difficult to predict and many of which are outside of our control. Our
actual results and financial condition may differ materially from those
indicated in the forward-looking statements. Therefore, you should not
rely on any of these forward-looking statements. Important factors that
could cause our actual results and financial condition to differ
materially from those indicated in the forward-looking statements
include, among others, our ability to achieve operational efficiencies
and meet customer demand for products and services and the risks
described in the Company’s filings with the Securities and Exchange
Commission, including the Company’s reports on Form 10-K and Form 10-Q.
Any forward-looking statement made by us in this press release is based
only on information currently available to us and speaks only as of the
date on which it is made. We undertake no obligation to publicly update
any forward-looking statement that may be made from time to time,
whether written or oral, whether as a result of new information, future
developments or otherwise.
Use of Non-GAAP Financial Information
To supplement the unaudited condensed consolidated financial statements
presented in accordance with U.S. GAAP in this press release, certain
non-GAAP financial measures as defined by the SEC rules are used. These
non-GAAP financial measures include EBITDA, Adjusted EBITDA, Adjusted
EBITDA less capitalized software development costs, Adjusted Earnings
from Operations, product development plus capitalized software
development costs, and free cash flow. Management believes that such
information can enhance investors’ understanding of the company’s
ongoing operations. See the accompanying table below for a definition
and reconciliation of these non-GAAP measures to the most closely
related GAAP measures.
About Agilysys
Agilysys has been a leader in hospitality software for more than 40
years, delivering innovative guest-centric technology solutions for
gaming, hotels, resorts and cruise, corporate foodservice management,
restaurants, universities, stadia and healthcare. Agilysys offers the
most comprehensive software solutions in the industry, including point-of-sale
(POS), property
management (PMS), inventory
and procurement, payments,
and related applications, to manage the entire guest journey. Agilysys
is known for its leadership in hospitality, its broad product offerings
and its customer-centric service. Some of the largest hospitality
companies around the world use Agilysys solutions to help improve guest
loyalty, drive revenue growth and increase operational efficiencies.
Agilysys operates across North America, Europe, Asia-Pacific, and India
with headquarters located in Alpharetta, GA. For more information visit Agilysys.com.
– Financial tables follow –
| AGILYSYS, INC. | |||||||||||||||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||||||||||||||||
| (UNAUDITED) | |||||||||||||||||||||
| (In thousands, except per share data) | Three Months Ended | Twelve Months Ended | |||||||||||||||||||
| March 31, | March 31, | ||||||||||||||||||||
| 2019 | 2018 | 2019 | 2018 | ||||||||||||||||||
| Net revenue: | |||||||||||||||||||||
| Products | $ | 10,922 | $ | 7,942 | $ | 39,003 | $ | 33,699 | |||||||||||||
| Support, maintenance and subscription services | 19,366 | 18,078 | 75,496 | 69,068 | |||||||||||||||||
| Professional services | 6,330 | 6,036 | 26,343 | 24,593 | |||||||||||||||||
| Total net revenue | 36,618 | 32,056 | 140,842 | 127,360 | |||||||||||||||||
| Cost of goods sold: | |||||||||||||||||||||
| Products (inclusive of developed technology amortization) | 8,608 | 6,515 | 31,811 | 26,381 | |||||||||||||||||
| Support, maintenance and subscription services | 3,935 | 4,078 | 15,895 | 16,688 | |||||||||||||||||
| Professional services | 4,480 | 4,714 | 19,256 | 19,874 | |||||||||||||||||
| Total cost of goods sold | 17,023 | 15,307 | 66,962 | 62,943 | |||||||||||||||||
| Gross profit | 19,595 | 16,749 | 73,880 | 64,417 | |||||||||||||||||
| Gross profit margin | 53.5 | % | 52.2 | % | 52.5 | % | 50.6 | % | |||||||||||||
| Operating expenses: | |||||||||||||||||||||
| Product development | 10,525 | 7,233 | 37,817 | 27,936 | |||||||||||||||||
| Sales and marketing | 5,282 | 4,459 | 19,646 | 18,075 | |||||||||||||||||
| General and administrative | 6,061 | 5,553 | 23,118 | 24,028 | |||||||||||||||||
| Depreciation of fixed assets | 571 | 739 | 2,504 | 2,631 | |||||||||||||||||
| Amortization of intangibles | 675 | 457 | 2,567 | 1,879 | |||||||||||||||||
| Restructuring, severance and other charges | 222 | 557 | 1,168 | 1,798 | |||||||||||||||||
| Legal settlements | 15 | – | 141 | 150 | |||||||||||||||||
| Total operating expense | 23,351 | 18,998 | 86,961 | 76,497 | |||||||||||||||||
| Operating loss | (3,756 | ) | (2,249 | ) | (13,081 | ) | (12,080 | ) | |||||||||||||
| Other (income) expense: | |||||||||||||||||||||
| Interest (income) | (104 | ) | (33 | ) | (339 | ) | (98 | ) | |||||||||||||
| Interest expense | 2 | 3 | 10 | 10 | |||||||||||||||||
| Other (income) expense, net | (100 | ) | (197 | ) | 191 | (391 | ) | ||||||||||||||
| Loss before taxes | (3,554 | ) | (2,022 | ) | (12,943 | ) | (11,601 | ) | |||||||||||||
| Income tax expense (benefit) | 35 | (1,812 | ) | 221 | (3,251 | ) | |||||||||||||||
| Net loss | $ | (3,589 | ) | $ | (210 | ) | $ | (13,164 | ) | $ | (8,350 | ) | |||||||||
| Weighted average shares outstanding | 23,055 | 22,872 | 23,037 | 22,801 | |||||||||||||||||
| Loss per share – basic and diluted: | |||||||||||||||||||||
| Loss per share | $ | (0.16 | ) | $ | (0.01 | ) | $ | (0.57 | ) | $ | (0.37 | ) | |||||||||
|
AGILYSYS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) |
|||||||||
| (In thousands, except share data) | March 31, | March 31, | |||||||
| 2019 | 2018 | ||||||||
| ASSETS | |||||||||
| Current assets: | |||||||||
| Cash and cash equivalents | $ | 40,771 | $ | 39,943 | |||||
|
Accounts receivable, net of allowance for doubtful accounts of $788 and $900, respectively |
27,000 | 16,389 | |||||||
| Contract assets | 2,921 | – | |||||||
| Inventories | 2,044 | 1,999 | |||||||
| Prepaid expenses and other current assets | 6,272 | 5,593 | |||||||
| Total current assets | 79,008 | 63,924 | |||||||
| Property and equipment, net | 15,838 | 17,512 | |||||||
| Goodwill | 19,622 | 19,622 | |||||||
| Intangible assets, net | 8,438 | 8,484 | |||||||
| Software development costs, net | 34,567 | 45,181 | |||||||
| Other non-current assets | 6,118 | 2,484 | |||||||
| Total assets | $ | 163,591 | $ | 157,207 | |||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||
| Current liabilities: | |||||||||
| Accounts payable | $ | 4,718 | $ | 8,400 | |||||
| Contract liabilities | 38,669 | 26,820 | |||||||
| Accrued liabilities | 14,892 | 9,241 | |||||||
| Capital lease obligations, current | 22 | 120 | |||||||
| Total current liabilities | 58,301 | 44,581 | |||||||
| Deferred income taxes, non-current | 861 | 227 | |||||||
| Capital lease obligations, non-current | 35 | 57 | |||||||
| Other non-current liabilities | 3,772 | 3,911 | |||||||
| Shareholders’ equity: | |||||||||
|
Common shares, without par value, at $0.30 stated value; |
9,482 | 9,482 | |||||||
|
Treasury shares, 8,105,638 and 8,282,152 at March 31, 2019 and March 31, 2018, respectively |
(2,433 | ) | (2,486 | ) | |||||
| Capital in excess of stated value | 781 | (1,911 | ) | ||||||
| Retained earnings | 93,051 | 103,601 | |||||||
| Accumulated other comprehensive loss | (259 | ) | (255 | ) | |||||
| Total shareholders’ equity | 100,622 | 108,431 | |||||||
| Total liabilities and shareholders’ equity | $ | 163,591 | $ | 157,207 | |||||
|
AGILYSYS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) |
|||||||||||
| Twelve Months Ended | |||||||||||
| (In thousands) | March 31, | ||||||||||
| 2019 | 2018 | ||||||||||
| Operating activities | |||||||||||
| Net loss | $ | (13,164 | ) | $ | (8,350 | ) | |||||
|
Adjustments to reconcile net loss to net cash provided by operating activities |
|||||||||||
| Net restructuring, severance and other charges | (156 | ) | 227 | ||||||||
| Net legal settlements | 15 | – | |||||||||
| Loss on disposal of property & equipment | 17 | – | |||||||||
| Depreciation | 2,504 | 2,631 | |||||||||
| Amortization | 2,567 | 1,879 | |||||||||
| Amortization of developed technology | 12,602 | 10,016 | |||||||||
| Deferred income taxes | 309 | (3,085 | ) | ||||||||
| Share-based compensation | 4,376 | 4,688 | |||||||||
|
Change in cash surrender value of company owned life insurance policies |
(15 | ) | (17 | ) | |||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | (7,536 | ) | (719 | ) | |||||||
| Contract assets | 1,662 | – | |||||||||
| Inventories | (50 | ) | 229 | ||||||||
| Prepaid expense and other current assets | (1,158 | ) | 1,485 | ||||||||
| Accounts payable | (3,512 | ) | 130 | ||||||||
| Contract liabilities | 4,845 | (2,448 | ) | ||||||||
| Accrued liabilities | 5,029 | 653 | |||||||||
| Income taxes payable, net | (564 | ) | (19 | ) | |||||||
| Other changes, net | (530 | ) | (426 | ) | |||||||
| Net cash provided by operating activities | 7,241 | 6,874 | |||||||||
| Investing activities | |||||||||||
| Capital expenditures | (3,318 | ) | (6,140 | ) | |||||||
| Capitalized software development costs | (2,189 | ) | (8,918 | ) | |||||||
| Investments in corporate-owned life insurance policies | (27 | ) | (27 | ) | |||||||
| Net cash used in investing activities | (5,534 | ) | (15,085 | ) | |||||||
| Financing activities | |||||||||||
| Repurchase of common shares to satisfy employee tax withholding | (647 | ) | (1,171 | ) | |||||||
| Principal payments under long-term obligations | (120 | ) | (124 | ) | |||||||
| Net cash used in financing activities | (767 | ) | (1,295 | ) | |||||||
| Effect of exchange rate changes on cash | (112 | ) | 194 | ||||||||
| Net increase (decrease) in cash and cash equivalents | 828 | (9,312 | ) | ||||||||
| Cash and cash equivalents at beginning of period | 39,943 | 49,255 | |||||||||
| Cash and cash equivalents at end of period | $ | 40,771 | $ | 39,943 | |||||||
| SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES: | |||||||||||
| Accrued capital expenditures | $ | 56 | $ | 83 | |||||||
| Accrued capitalized software development costs | – | 201 | |||||||||
| Leasehold improvements acquired under operating lease arrangement | 62 | 95 | |||||||||
|
AGILYSYS, INC.
RECONCILIATION OF NET LOSS TO ADJUSTED EBITDA AND ADJUSTED (UNAUDITED) |
|||||||||||||||||||||
| Three Months Ended | Twelve Months Ended | ||||||||||||||||||||
| (In thousands) | March 31, | March 31, | |||||||||||||||||||
| 2019 | 2018 | 2019 | 2018 | ||||||||||||||||||
| Net loss | $ | (3,589 | ) | $ | (210 | ) | $ | (13,164 | ) | $ | (8,350 | ) | |||||||||
| Income tax expense (benefit) | 35 | (1,812 | ) | 221 | (3,251 | ) | |||||||||||||||
| Loss before taxes | (3,554 | ) | (2,022 | ) | (12,943 | ) | (11,601 | ) | |||||||||||||
| Depreciation of fixed assets | 571 | 739 | 2,504 | 2,631 | |||||||||||||||||
| Amortization of intangibles | 675 | 457 | 2,567 | 1,879 | |||||||||||||||||
| Amortization of developed technology | 3,245 | 2,645 | 12,602 | 10,016 | |||||||||||||||||
| Interest (income) | (102 | ) | (30 | ) | (329 | ) | (88 | ) | |||||||||||||
| EBITDA (a) | 835 | 1,789 | 4,401 | 2,837 | |||||||||||||||||
| Share-based compensation | 1,420 | 912 | 4,376 | 4,688 | |||||||||||||||||
| Restructuring, severance and other charges | 222 | 557 | 1,168 | 1,798 | |||||||||||||||||
| Other non-operating (income) expense | (100 | ) | (197 | ) | 191 | (391 | ) | ||||||||||||||
| Legal settlements | 15 | – | 141 | 150 | |||||||||||||||||
| Adjusted EBITDA (b) | 2,392 | 3,061 | 10,277 | 9,082 | |||||||||||||||||
| Capitalized software development costs | – | (1,646 | ) | (2,189 | ) | (8,918 | ) | ||||||||||||||
| Adjusted EBITDA less capitalized software development costs (c) | 2,392 | 1,415 | 8,088 | 164 | |||||||||||||||||
| Capital expenditures | (1,708 | ) | (851 | ) | (3,318 | ) | (6,140 | ) | |||||||||||||
| Adjusted Earnings from Operations (d) | $ | 684 | $ | 564 | $ | 4,770 | $ | (5,976 | ) | ||||||||||||
| Product development (operating expenses) | $ | 10,525 | $ | 7,233 | $ | 37,817 | $ | 27,936 | |||||||||||||
| Capitalized software development costs | – | 1,646 | 2,189 | 8,918 | |||||||||||||||||
|
Product development plus capitalized software development costs (e) |
$ | 10,525 | $ | 8,879 | $ | 40,006 | $ | 36,854 | |||||||||||||
|
(a) EBITDA, a non-GAAP financial measure, is defined as net income before income taxes, interest expense, depreciation and amortization |
|
(b) Adjusted EBITDA, a non-GAAP financial measure, is defined |
|
|
|
(c) Adjusted EBITDA less capitalized software development |
|
|
|
(d) Adjusted Earnings from Operations, a non-GAAP financial |
|
(e) Product development plus capitalized software development |
|
|
|
AGILYSYS, INC.
RECONCILIATION OF NET CASH PROVIDED BY OPERATING ACTIVITIES TO (UNAUDITED) |
|||||||||||||||||||||
| Three Months Ended | Twelve Months Ended | ||||||||||||||||||||
| (In thousands) | March 31, | March 31, | |||||||||||||||||||
| 2019 | 2018 | 2019 | 2018 | ||||||||||||||||||
| Net cash provided by operating activities | $ | 5,583 | $ | 4,776 | $ | 7,241 | $ | 6,874 | |||||||||||||
| Capital expenditures | (1,708 | ) | (851 | ) | (3,318 | ) | (6,140 | ) | |||||||||||||
| Capitalized software development costs | – | (1,646 | ) | (2,189 | ) | (8,918 | ) | ||||||||||||||
| Free cash flow (a) | $ | 3,875 | $ | 2,279 | $ | 1,734 | $ | (8,184 | ) | ||||||||||||
|
(a) Free cash flow, a non-GAAP financial measure, is defined as |
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