UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ | |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended December 31, 2017September 30, 2019
or
☐ | |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________ to __________.
Commission file number
0-5734AGILYSYS, INC.
(Exact name of registrant as specified in its charter)
Ohio | 34-0907152 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||
1000 Alpharetta, Georgia | 30005 | |||
(Address of principal executive offices) | (ZIP Code) |
(770) 810-7800
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Shares, without par value | AGYS | |||
The NASDAQ Stock Market LLC |
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 ☒x No ☐¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒x No ☐¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ☐ | Accelerated filer | ☒ | |
Non-accelerated filer | ☐ | (Do not check if a smaller reporting company) | Smaller reporting company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐¨ No ☒x
The number of Common Shares of the registrant outstanding as of January 22, 2018October 25, 2019 was 23,313,156.
Index
Item 1 | |||||
7 | |||||
Notes to Condensed Consolidated Financial Statements (Unaudited) | 8 | ||||
Item 2 | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 20 | |||
Item 3 | 28 | ||||
Item 4 | 28 | ||||
Item 1 | 29 | ||||
Item 1A | 29 | ||||
Item 2 | 29 | ||||
Item 3 | 29 | ||||
Item 4 | 29 | ||||
Item 5 | 29 | ||||
Item 6 | |||||
31 |
CONDENSED CONSOLIDATED BALANCE SHEETS
|
| September 30, 2019 |
|
| March 31, 2019 |
| ||
|
| (Unaudited) |
|
|
|
|
| |
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 38,915 |
|
| $ | 40,771 |
|
Accounts receivable, net of allowance for doubtful accounts of $632 and $788, respectively |
|
| 23,117 |
|
|
| 27,000 |
|
Contract assets |
|
| 3,906 |
|
|
| 2,921 |
|
Inventories |
|
| 954 |
|
|
| 2,044 |
|
Prepaid expenses and other current assets |
|
| 5,501 |
|
|
| 6,272 |
|
Total current assets |
|
| 72,393 |
|
|
| 79,008 |
|
Property and equipment, net |
|
| 15,290 |
|
|
| 15,838 |
|
Operating lease right-of-use assets |
|
| 12,717 |
|
|
| — |
|
Goodwill |
|
| 19,622 |
|
|
| 19,622 |
|
Intangible assets, net |
|
| 8,415 |
|
|
| 8,438 |
|
Software development costs, net |
|
| 28,264 |
|
|
| 34,567 |
|
Deferred income taxes, non-current |
|
| 678 |
|
|
| 443 |
|
Other non-current assets |
|
| 6,416 |
|
|
| 5,675 |
|
Total assets |
| $ | 163,795 |
|
| $ | 163,591 |
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 8,836 |
|
| $ | 4,718 |
|
Contract liabilities |
|
| 29,541 |
|
|
| 38,669 |
|
Accrued liabilities |
|
| 9,984 |
|
|
| 14,892 |
|
Operating lease liabilities, current |
|
| 4,201 |
|
|
| — |
|
Finance lease obligations, current |
|
| 23 |
|
|
| 22 |
|
Total current liabilities |
|
| 52,585 |
|
|
| 58,301 |
|
Deferred income taxes, non-current |
|
| 870 |
|
|
| 861 |
|
Operating lease liabilities, non-current |
|
| 10,609 |
|
|
| — |
|
Finance lease obligations, non-current |
|
| 28 |
|
|
| 35 |
|
Other non-current liabilities |
|
| 1,338 |
|
|
| 3,772 |
|
Commitments and contingencies (see Note 8) |
|
|
|
|
|
|
|
|
Shareholders' equity: |
|
|
|
|
|
|
|
|
Common shares, without par value, at $0.30 stated value; 80,000,000 shares authorized; 31,606,831 shares issued; and 23,658,529 and 23,501,193 shares outstanding at September 30, 2019 and March 31, 2019, respectively |
|
| 9,482 |
|
|
| 9,482 |
|
Treasury shares, 7,948,302 and 8,105,638 at September 30, 2019 and March 31, 2019, respectively |
|
| (2,386 | ) |
|
| (2,433 | ) |
Capital in excess of stated value |
|
| 2,909 |
|
|
| 781 |
|
Retained earnings |
|
| 88,558 |
|
|
| 93,051 |
|
Accumulated other comprehensive loss |
|
| (198 | ) |
|
| (259 | ) |
Total shareholders' equity |
|
| 98,365 |
|
|
| 100,622 |
|
Total liabilities and shareholders' equity |
| $ | 163,795 |
|
| $ | 163,591 |
|
December 31, 2017 | March 31, 2017 | ||||||
(In thousands, except share data) | |||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 37,615 | $ | 49,255 | |||
Accounts receivable, net of allowance for doubtful accounts of $751 and $509, respectively | 14,746 | 15,598 | |||||
Inventories | 2,131 | 2,211 | |||||
Prepaid expenses and other current assets | 6,849 | 6,456 | |||||
Total current assets | 61,341 | 73,520 | |||||
Property and equipment, net | 17,760 | 16,000 | |||||
Goodwill | 19,622 | 19,622 | |||||
Intangible assets, net | 8,496 | 8,530 | |||||
Software development costs, net | 46,086 | 46,999 | |||||
Other non-current assets | 2,613 | 2,634 | |||||
Total assets | $ | 155,918 | $ | 167,305 | |||
LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 8,175 | $ | 8,702 | |||
Deferred revenue | 23,433 | 29,183 | |||||
Accrued liabilities | 9,843 | 8,331 | |||||
Capital lease obligations, current | 113 | 121 | |||||
Total current liabilities | 41,564 | 46,337 | |||||
Deferred income taxes, non-current | 2,105 | 3,181 | |||||
Capital lease obligations, non-current | 50 | 116 | |||||
Other non-current liabilities | 3,985 | 4,002 | |||||
Commitments and contingencies (see Note 6) | |||||||
Shareholders' equity: | |||||||
Common shares, without par value, at $0.30 stated value; 80,000,000 shares authorized; 31,606,831 shares issued; and 23,402,512 and 23,210,682 shares outstanding at December 31, 2017 and March 31, 2017, respectively | 9,482 | 9,482 | |||||
Treasury shares, 8,204,319 and 8,396,149 at December 31, 2017 and March 31, 2017, respectively | (2,463 | ) | (2,519 | ) | |||
Capital in excess of stated value | (2,418 | ) | (5,782 | ) | |||
Retained earnings | 103,812 | 112,692 | |||||
Accumulated other comprehensive loss | (199 | ) | (204 | ) | |||
Total shareholders' equity | 108,214 | 113,669 | |||||
Total liabilities and shareholders' equity | $ | 155,918 | $ | 167,305 |
See accompanying notes to unaudited condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
| Three Months Ended September 30, |
|
| Six Months Ended September 30, |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||
Net revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products |
| $ | 11,873 |
|
| $ | 8,769 |
|
| $ | 22,742 |
|
| $ | 17,849 |
|
Support, maintenance and subscription services |
|
| 20,329 |
|
|
| 18,856 |
|
|
| 40,411 |
|
|
| 36,785 |
|
Professional services |
|
| 8,520 |
|
|
| 6,578 |
|
|
| 15,958 |
|
|
| 13,576 |
|
Total net revenue |
|
| 40,722 |
|
|
| 34,203 |
|
|
| 79,111 |
|
|
| 68,210 |
|
Cost of goods sold: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products (inclusive of developed technology amortization) |
|
| 9,794 |
|
|
| 7,703 |
|
|
| 18,417 |
|
|
| 14,833 |
|
Support, maintenance and subscription services |
|
| 4,654 |
|
|
| 3,977 |
|
|
| 8,834 |
|
|
| 8,051 |
|
Professional services |
|
| 6,057 |
|
|
| 4,774 |
|
|
| 11,628 |
|
|
| 9,688 |
|
Total cost of goods sold |
|
| 20,505 |
|
|
| 16,454 |
|
|
| 38,879 |
|
|
| 32,572 |
|
Gross profit |
|
| 20,217 |
|
|
| 17,749 |
|
|
| 40,232 |
|
|
| 35,638 |
|
Gross profit margin |
|
| 49.6 | % |
|
| 51.9 | % |
|
| 50.9 | % |
|
| 52.2 | % |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product development |
|
| 10,778 |
|
|
| 10,151 |
|
|
| 20,842 |
|
|
| 17,240 |
|
Sales and marketing |
|
| 4,890 |
|
|
| 4,393 |
|
|
| 9,389 |
|
|
| 9,146 |
|
General and administrative |
|
| 6,038 |
|
|
| 5,176 |
|
|
| 11,911 |
|
|
| 11,181 |
|
Depreciation of fixed assets |
|
| 707 |
|
|
| 676 |
|
|
| 920 |
|
|
| 1,282 |
|
Amortization of intangibles |
|
| 614 |
|
|
| 674 |
|
|
| 1,292 |
|
|
| 1,217 |
|
Restructuring, severance and other charges |
|
| 190 |
|
|
| 448 |
|
|
| 421 |
|
|
| 889 |
|
Legal settlements, net |
|
| (119 | ) |
|
| 35 |
|
|
| (119 | ) |
|
| 126 |
|
Total operating expense |
|
| 23,098 |
|
|
| 21,553 |
|
|
| 44,656 |
|
|
| 41,081 |
|
Operating loss |
|
| (2,881 | ) |
|
| (3,804 | ) |
|
| (4,424 | ) |
|
| (5,443 | ) |
Other (income) expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
| (114 | ) |
|
| (97 | ) |
|
| (194 | ) |
|
| (152 | ) |
Interest expense |
|
| 2 |
|
|
| 3 |
|
|
| 3 |
|
|
| 5 |
|
Other expense, net |
|
| 108 |
|
|
| 28 |
|
|
| 193 |
|
|
| 228 |
|
Loss before taxes |
|
| (2,877 | ) |
|
| (3,738 | ) |
|
| (4,426 | ) |
|
| (5,524 | ) |
Income tax expense |
|
| 41 |
|
|
| 53 |
|
|
| 67 |
|
|
| 4 |
|
Net loss |
| $ | (2,918 | ) |
| $ | (3,791 | ) |
| $ | (4,493 | ) |
| $ | (5,528 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
| 23,238 |
|
|
| 23,131 |
|
|
| 23,225 |
|
|
| 23,113 |
|
Loss per share - basic and diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share |
| $ | (0.13 | ) |
| $ | (0.16 | ) |
| $ | (0.19 | ) |
| $ | (0.24 | ) |
Three months ended | Nine months ended | ||||||||||||||
December 31, | December 31, | ||||||||||||||
(In thousands, except share data) | 2017 | 2016 | 2017 | 2016 | |||||||||||
Net revenue: | |||||||||||||||
Products | $ | 8,156 | $ | 10,006 | $ | 25,758 | $ | 30,257 | |||||||
Support, maintenance and subscription services | 17,215 | 16,234 | 50,990 | 47,087 | |||||||||||
Professional services | 5,939 | 7,208 | 18,557 | 19,732 | |||||||||||
Total net revenue | 31,310 | 33,448 | 95,305 | 97,076 | |||||||||||
Cost of goods sold: | |||||||||||||||
Products (inclusive of developed technology amortization) | 6,820 | 7,530 | 19,862 | 22,217 | |||||||||||
Support, maintenance and subscription services | 4,132 | 4,464 | 12,610 | 12,714 | |||||||||||
Professional services | 4,730 | 5,213 | 15,160 | 13,835 | |||||||||||
Total cost of goods sold | 15,682 | 17,207 | 47,632 | 48,766 | |||||||||||
Gross profit | 15,628 | 16,241 | 47,673 | 48,310 | |||||||||||
49.9 | % | 48.6 | % | 50.0 | % | 49.8 | % | ||||||||
Operating expenses: | |||||||||||||||
Product development | 7,269 | 6,847 | 20,708 | 20,647 | |||||||||||
Sales and marketing | 4,278 | 5,000 | 13,616 | 15,746 | |||||||||||
General and administrative | 6,114 | 3,678 | 18,475 | 13,692 | |||||||||||
Depreciation of fixed assets | 581 | 598 | 1,892 | 1,791 | |||||||||||
Amortization of intangibles | 471 | 353 | 1,421 | 1,031 | |||||||||||
Restructuring, severance and other charges | 378 | 1,394 | 1,241 | 1,484 | |||||||||||
Legal settlements | 150 | — | 150 | 85 | |||||||||||
Operating loss | (3,613 | ) | (1,629 | ) | (9,830 | ) | (6,166 | ) | |||||||
Other (income) expense: | |||||||||||||||
Interest income | (13 | ) | (86 | ) | (64 | ) | (135 | ) | |||||||
Interest expense | 3 | 3 | 7 | 11 | |||||||||||
Other expense, net | (46 | ) | 62 | (196 | ) | 140 | |||||||||
Loss before taxes | (3,557 | ) | (1,608 | ) | (9,577 | ) | (6,182 | ) | |||||||
Income tax (benefit) expense | (1,623 | ) | 129 | (1,439 | ) | 252 | |||||||||
Net loss | $ | (1,934 | ) | $ | (1,737 | ) | $ | (8,138 | ) | $ | (6,434 | ) | |||
Weighted average shares outstanding | 22,851 | 22,611 | 22,777 | 22,605 | |||||||||||
Loss per share - basic and diluted: | |||||||||||||||
Loss per share | $ | (0.08 | ) | $ | (0.08 | ) | $ | (0.36 | ) | $ | (0.28 | ) | |||
See accompanying notes to unaudited condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
|
| Three Months Ended September 30, |
|
| Six Months Ended September 30, |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||
Net loss |
| $ | (2,918 | ) |
| $ | (3,791 | ) |
| $ | (4,493 | ) |
| $ | (5,528 | ) |
Other comprehensive loss, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized foreign currency translation adjustments |
|
| 156 |
|
|
| (58 | ) |
|
| 61 |
|
|
| (66 | ) |
Total comprehensive loss |
| $ | (2,762 | ) |
| $ | (3,849 | ) |
| $ | (4,432 | ) |
| $ | (5,594 | ) |
Three months ended | Nine months ended | ||||||||||||||
December 31, | December 31, | ||||||||||||||
(In thousands) | 2017 | 2016 | 2017 | 2016 | |||||||||||
Net loss | $ | (1,934 | ) | $ | (1,737 | ) | $ | (8,138 | ) | $ | (6,434 | ) | |||
Other comprehensive gain/(loss), net of tax: | |||||||||||||||
Unrealized foreign currency translation adjustments | (17 | ) | (5 | ) | 5 | (12 | ) | ||||||||
Total comprehensive loss | $ | (1,951 | ) | $ | (1,742 | ) | $ | (8,133 | ) | $ | (6,446 | ) |
See accompanying notes to unaudited condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
| Six Months Ended September 30, |
| |||||
|
| 2019 |
|
| 2018 |
| ||
Operating activities |
|
|
|
|
|
|
|
|
Net loss |
| $ | (4,493 | ) |
| $ | (5,528 | ) |
Adjustments to reconcile loss from operations to net cash provided by (used in) operating activities |
|
|
|
|
|
|
|
|
Net restructuring, severance and other charges |
|
| 85 |
|
|
| (126 | ) |
Net legal settlements |
|
| (15 | ) |
|
| 126 |
|
Loss on disposal of property & equipment |
|
| 4 |
|
|
| — |
|
Depreciation |
|
| 920 |
|
|
| 1,282 |
|
Amortization |
|
| 1,292 |
|
|
| 1,217 |
|
Amortization of developed technology |
|
| 6,303 |
|
|
| 6,010 |
|
Deferred income taxes |
|
| (239 | ) |
|
| 54 |
|
Share-based compensation |
|
| 1,827 |
|
|
| 1,674 |
|
Change in cash surrender value of company owned life insurance policies |
|
| (7 | ) |
|
| (8 | ) |
Changes in operating assets and liabilities: |
|
| (4,443 | ) |
|
| (7,449 | ) |
Net cash provided by (used in) operating activities |
|
| 1,234 |
|
|
| (2,748 | ) |
Investing activities |
|
|
|
|
|
|
|
|
Capital expenditures |
|
| (1,940 | ) |
|
| (1,333 | ) |
Capitalized software development costs |
|
| — |
|
|
| (2,189 | ) |
Investments in corporate-owned life insurance policies |
|
| (2 | ) |
|
| (2 | ) |
Net cash used in investing activities |
|
| (1,942 | ) |
|
| (3,524 | ) |
Financing activities |
|
|
|
|
|
|
|
|
Repurchase of common shares to satisfy employee tax withholding |
|
| (1,053 | ) |
|
| (557 | ) |
Principal payments under long-term obligations |
|
| (12 | ) |
|
| (59 | ) |
Net cash used in financing activities |
|
| (1,065 | ) |
|
| (616 | ) |
Effect of exchange rate changes on cash |
|
| (83 | ) |
|
| (151 | ) |
Net decrease in cash and cash equivalents |
|
| (1,856 | ) |
|
| (7,039 | ) |
Cash and cash equivalents at beginning of period |
| $ | 40,771 |
|
| $ | 39,943 |
|
Cash and cash equivalents at end of period |
| $ | 38,915 |
|
| $ | 32,904 |
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Accrued capital expenditures |
| $ | 125 |
|
| $ | 74 |
|
Nine months ended | |||||||
December 31, | |||||||
(In thousands) | 2017 | 2016 | |||||
Operating activities | |||||||
Net loss | $ | (8,138 | ) | $ | (6,434 | ) | |
Adjustments to reconcile net loss to net cash used in operating activities | |||||||
Net restructuring, severance and other charges | 262 | 819 | |||||
Net legal settlements | 150 | (100 | ) | ||||
Loss on disposal of property & equipment | — | 5 | |||||
Depreciation | 1,892 | 1,791 | |||||
Amortization | 1,421 | 1,031 | |||||
Amortization of developed technology | 7,371 | 5,705 | |||||
Deferred income taxes | (1,214 | ) | 105 | ||||
Share-based compensation | 3,776 | 782 | |||||
Change in cash surrender value of company owned life insurance policies | 11 | — | |||||
Changes in operating assets and liabilities: | |||||||
Accounts receivable | 903 | 6,668 | |||||
Inventories | 87 | 597 | |||||
Prepaid expense and other current assets | 460 | 1,306 | |||||
Accounts payable | 5 | 714 | |||||
Deferred revenue | (5,787 | ) | (4,601 | ) | |||
Accrued liabilities | 1,681 | (2,558 | ) | ||||
Income taxes payable | (503 | ) | 104 | ||||
Other changes, net | (279 | ) | (541 | ) | |||
Net cash provided by operating activities | 2,098 | 5,393 | |||||
Investing activities | |||||||
Capital expenditures | (5,289 | ) | (3,327 | ) | |||
Capitalized software development costs | (7,272 | ) | (9,174 | ) | |||
Investments in corporate-owned life insurance policies | (27 | ) | (1 | ) | |||
Net cash used in investing activities | (12,588 | ) | (12,502 | ) | |||
Financing activities | |||||||
Payments to settle contingent consideration arising from business acquisition | — | (197 | ) | ||||
Repurchase of common shares to satisfy employee tax withholding | (1,190 | ) | (404 | ) | |||
Principal payments under long-term obligations | (92 | ) | (86 | ) | |||
Net cash used in financing activities | (1,282 | ) | (687 | ) | |||
Effect of exchange rate changes on cash | 132 | (99 | ) | ||||
Net decrease in cash and cash equivalents | (11,640 | ) | (7,895 | ) | |||
Cash and cash equivalents at beginning of period | $ | 49,255 | $ | 60,608 | |||
Cash and cash equivalents at end of period | $ | 37,615 | $ | 52,713 | |||
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES: | |||||||
Accrued capital expenditures | $ | 81 | $ | 293 | |||
Accrued capitalized software development costs | 107 | 684 |
See accompanying notes to unaudited condensed consolidated financial statements.
6
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
|
| Three Months Ended September 30, 2019 |
| |||||||||||||||||||||||||||||
|
| Common Shares |
|
| Capital in |
|
|
|
|
|
| Accumulated |
|
|
|
|
| |||||||||||||||
|
| Issued |
|
| In Treasury |
|
| excess of |
|
|
|
|
|
| other |
|
|
|
|
| ||||||||||||
(In thousands) |
| Shares |
|
| Stated value |
|
| Shares |
|
| Stated value |
|
| stated value |
|
| Retained earnings |
|
| comprehensive loss |
|
| Total |
| ||||||||
Balance at June 30, 2019 |
|
| 31,607 |
|
| $ | 9,482 |
|
|
| (7,927 | ) |
| $ | (2,379 | ) |
| $ | 1,698 |
|
| $ | 91,476 |
|
| $ | (354 | ) |
| $ | 99,923 |
|
Share-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,228 |
|
|
| — |
|
|
| — |
|
|
| 1,228 |
|
Restricted shares issued, net |
|
| — |
|
|
| — |
|
|
| (24 | ) |
|
| (8 | ) |
|
| 8 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Shares issued upon exercise of SSARs |
|
| — |
|
|
| — |
|
|
| 3 |
|
|
| 1 |
|
|
| (1 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Shares withheld for taxes upon exercise of stock options, SSARs or vesting of restricted shares |
|
| — |
|
|
| — |
|
|
| (1 | ) |
|
| 0 |
|
|
| (24 | ) |
|
| — |
|
|
| — |
|
|
| (24 | ) |
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,918 | ) |
|
| — |
|
|
| (2,918 | ) |
Unrealized translation adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 156 |
|
|
| 156 |
|
Balance at September 30, 2019 |
|
| 31,607 |
|
| $ | 9,482 |
|
|
| (7,949 | ) |
| $ | (2,386 | ) |
| $ | 2,909 |
|
| $ | 88,558 |
|
| $ | (198 | ) |
| $ | 98,365 |
|
|
| Three Months Ended September 30, 2018 |
| |||||||||||||||||||||||||||||
|
| Common Shares |
|
| Capital in |
|
|
|
|
|
| Accumulated |
|
|
|
|
| |||||||||||||||
|
| Issued |
|
| In Treasury |
|
| excess of |
|
|
|
|
|
| other |
|
|
|
|
| ||||||||||||
|
| Shares |
|
| Stated value |
|
| Shares |
|
| Stated value |
|
| stated value |
|
| Retained earnings |
|
| comprehensive loss |
|
| Total |
| ||||||||
Balance at June 30, 2018 |
|
| 31,607 |
|
| $ | 9,482 |
|
|
| (8,080 | ) |
| $ | (2,425 | ) |
| $ | (1,524 | ) |
| $ | 104,478 |
|
| $ | (262 | ) |
| $ | 109,749 |
|
Share-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,129 |
|
|
| — |
|
|
| — |
|
|
| 1,129 |
|
Restricted shares issued, net |
|
| — |
|
|
| — |
|
|
| (4 | ) |
|
| (1 | ) |
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Shares issued upon exercise of SSARs |
|
| — |
|
|
| — |
|
|
| 10 |
|
|
| 3 |
|
|
| (3 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Shares withheld for taxes upon exercise of stock options, SSARs or vesting of restricted shares |
|
| — |
|
|
| — |
|
|
| (3 | ) |
|
| (1 | ) |
|
| (54 | ) |
|
| — |
|
|
| — |
|
|
| (55 | ) |
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,791 | ) |
|
| — |
|
|
| (3,791 | ) |
Unrealized translation adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (58 | ) |
|
| (58 | ) |
Balance at September 30, 2018 |
|
| 31,607 |
|
| $ | 9,482 |
|
|
| (8,077 | ) |
| $ | (2,424 | ) |
| $ | (451 | ) |
| $ | 100,687 |
|
| $ | (320 | ) |
| $ | 106,974 |
|
|
| Six Months Ended September 30, 2019 |
| |||||||||||||||||||||||||||||
|
| Common Shares |
|
| Capital in |
|
|
|
|
|
| Accumulated |
|
|
|
|
| |||||||||||||||
|
| Issued |
|
| In Treasury |
|
| excess of |
|
|
|
|
|
| other |
|
|
|
|
| ||||||||||||
|
| Shares |
|
| Stated value |
|
| Shares |
|
| Stated value |
|
| stated value |
|
| Retained earnings |
|
| comprehensive loss |
|
| Total |
| ||||||||
Balance at March 31, 2019 |
|
| 31,607 |
|
| $ | 9,482 |
|
|
| (8,105 | ) |
| $ | (2,433 | ) |
| $ | 781 |
|
| $ | 93,051 |
|
| $ | (259 | ) |
| $ | 100,622 |
|
Share-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,295 |
|
|
| — |
|
|
| — |
|
|
| 2,295 |
|
Restricted shares issued, net |
|
| — |
|
|
| — |
|
|
| 144 |
|
|
| 43 |
|
|
| (43 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Shares issued upon exercise of SSARs |
|
| — |
|
|
| — |
|
|
| 17 |
|
|
| 5 |
|
|
| (5 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Shares withheld for taxes upon exercise of stock options, SSARs or vesting of restricted shares |
|
| — |
|
|
| — |
|
|
| (5 | ) |
|
| (1 | ) |
|
| (119 | ) |
|
| — |
|
|
| — |
|
|
| (120 | ) |
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (4,493 | ) |
|
| — |
|
|
| (4,493 | ) |
Unrealized translation adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 61 |
|
|
| 61 |
|
Balance at September 30, 2019 |
|
| 31,607 |
|
| $ | 9,482 |
|
|
| (7,949 | ) |
| $ | (2,386 | ) |
| $ | 2,909 |
|
| $ | 88,558 |
|
| $ | (198 | ) |
| $ | 98,365 |
|
|
| Six Months Ended September 30, 2018 |
| |||||||||||||||||||||||||||||
|
| Common Shares |
|
| Capital in |
|
|
|
|
|
| Accumulated |
|
|
|
|
| |||||||||||||||
|
| Issued |
|
| In Treasury |
|
| excess of |
|
|
|
|
|
| other |
|
|
|
|
| ||||||||||||
|
| Shares |
|
| Stated value |
|
| Shares |
|
| Stated value |
|
| stated value |
|
| Retained earnings |
|
| comprehensive loss |
|
| Total |
| ||||||||
Balance at March 31, 2018 |
|
| 31,607 |
|
|
| 9,482 |
|
|
| (8,283 | ) |
|
| (2,486 | ) |
|
| (1,911 | ) |
|
| 103,601 |
|
|
| (255 | ) |
| $ | 108,431 |
|
Cumulative effect of change in accounting policy |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,614 |
|
|
| — |
|
|
| 2,614 |
|
Share-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,721 |
|
|
| — |
|
|
| — |
|
|
| 1,721 |
|
Restricted shares issued, net |
|
| — |
|
|
| — |
|
|
| 168 |
|
|
| 51 |
|
|
| (51 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Shares issued upon exercise of SSARs |
|
| — |
|
|
| — |
|
|
| 51 |
|
|
| 15 |
|
|
| (15 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Shares withheld for taxes upon exercise of stock options, SSARs or vesting of restricted shares |
|
| — |
|
|
| — |
|
|
| (13 | ) |
|
| (4 | ) |
|
| (195 | ) |
|
| — |
|
|
| — |
|
|
| (199 | ) |
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (5,528 | ) |
|
| — |
|
|
| (5,528 | ) |
Unrealized translation adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (65 | ) |
|
| (65 | ) |
Balance at September 30, 2018 |
|
| 31,607 |
|
| $ | 9,482 |
|
|
| (8,077 | ) |
| $ | (2,424 | ) |
| $ | (451 | ) |
| $ | 100,687 |
|
| $ | (320 | ) |
| $ | 106,974 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Table amounts in thousands, except per share data)
1. Nature of Operations and Financial Statement Presentation
Nature of Operations
Agilysys ishas been a leadingleader in hospitality software for more than 40 years, delivering innovative guest-centric technology company that provides innovative softwaresolutions for gaming, hotels, resorts and services for point-of-salecruise, corporate foodservice management, restaurants, universities, stadia and healthcare. Agilysys offers the most comprehensive solutions in the industry, including point of sale (POS), reservation and tableproperty management property managementsystems (PMS), inventory and procurement, workforce management, analytics, document management,payments, and mobilerelated applications, to manage the entire guest journey. Agilysys is known for its leadership in hospitality, its broad product offerings and wirelessits customer-centric service. Some of the largest hospitality companies around the world use Agilysys solutions exclusively to the hospitality industry. Our products and services allow operators to streamline operations,help improve efficiency and understand customer needs across their properties to deliver a superior overall guest experience. The result is improved guest loyalty, drive revenue growth in wallet share and increased revenue as they connect and transact with their guests based upon a single integrated view of individual preferences and interactions. increase operational efficiencies.
We serve four major market sectors: Gaming, both corporate and tribal; Hotels, Resorts and Cruise; Corporate Foodservice Management; and Restaurants, Universities, StadiaHealthcare, and Healthcare.Sports and Entertainment. A significant portion of our consolidated revenue is derived from contract support, maintenance and subscription services.
Agilysys operates across North America,the Americas, Europe, the Middle East, Africa, Asia-Pacific, and India with headquarters located in Alpharetta, GA. For more information, visit www.agilysys.com.
Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements include our accounts consolidated with our wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Our fiscal year ends on March 31st. References to a particular year refer to the fiscal year ending in March of that year. For example, fiscal 20182020 refers to the fiscal year ending March 31, 2018.
Our unaudited interim financial statements are prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information, the instructions to the Quarterly Report on Form 10-Q (Quarterly Report) under the Securities Exchange Act of 1934, as amended (the Exchange Act), and Rule 10-01 of Regulation S-X under the Exchange Act. Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations relating to interim financial statements.
The Condensed Consolidated Balance SheetsSheet as of December 31, 2017 and 2016,September 30, 2019, as well as the Condensed Consolidated Statements of Operations, Condensed Consolidated Statements of Comprehensive Loss, and the Condensed Consolidated Statements of Cash FlowShareholders' Equity for the three and ninesix months ended December 31, 2017September 30, 2019 and 2016,2018, and Condensed Consolidated Statements of Cash Flows for the six months ended September 30, 2019, are unaudited. However, these financial statements have been prepared on the same basis as those in the audited annual financial statements.statements, except for the recently adopted accounting pronouncements described below. In the opinion of management, all adjustments of a recurring nature necessary to fairly state the results of operations, financial position, and cash flows have been made.
These unaudited interim financial statements should be read together with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended
March 31,2. Summary of Significant Accounting Policies
A detailed description of our significant accounting policies can be found in the audited financial statements for the fiscal year ended
March 31,8
Table of Cash Flows for the nine months ended December 31, 2016 in the amount of $1.1 million.
In January 2017,April 2019, the Financial Accounting Standards Board ("FASB") issued ASU No. 2017-01, Business Combinations (Topic 805)2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. ASU 2019-04 provides corrections, updates and clarifications to the previously issued updates ASU 2016-13, ASU 2017-12 and ASU 2016-01. Various areas of the codification were impacted from the update. The standard follows the effective dates of the previously issued ASUs, unless an entity has already early adopted the previous ASUs, in which case the effective date will vary according to each specific ASU adoption. Consistent with the documentation below, we are still assessing the impact of the adoption of ASU 2016-13, and the other two ASUs affected by ASU 2019-04 are not applicable to us. We are currently reviewing this standard to assess the impact on our future consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): ClarifyingCustomer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. ASU 2018-15 addresses the Definitiontreatment of implementation costs incurred in a hosting arrangement that is a service contract. The update does not impact the accounting for the service element of a Business,hosting arrangement that is a service contract. The update is effective for annual periods beginning after December 15, 2019, including interim periods within those annual periods, with early adoption (including early adoption in any interim period) permitted. We do not believe the adoption of this guidance will have a material impact on our consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 addresses the required disclosures around fair value measurement. The disclosure requirements of the reasons for transfers between Level 1 and Level 2, the policy for timing transfers between levels, and the valuation process for Level 3 measurements have been removed. Certain modifications were made to required disclosures and additional requirements were established. The standard is effective for annual periods beginning after December 15, 2019, including interim periods within those annual periods. Early adoption is permitted. We do not believe the adoption of this guidance will have a material impact on our consolidated financial statements.
In February 2018, the FASB issued ASU No. 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220). ASU 2018-02 addresses the effect of the change in the U.S. federal corporate tax rate on items within accumulated other comprehensive income or loss due to the enactment of the Tax Act on December 22, 2017. The new standard is effective for annual periods, and for interim periods within those annual periods beginning after December 15, 2018, with early adoption permitted. We have adopted this standard as of April 1, 2019; the adoption had no impact on our condensed consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles- Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment. ASU No. 2017-01 clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The guidance is effective for annual periods beginning after December 15, 2017, including interim periods within those periods.Impairment. ASU No. 2017-04 eliminates Step 2 of the goodwill impairment test and requires a goodwill impairment to be measured as the amount by which a reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of its goodwill. The ASU is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. While we are still assessing the impact of this standard, we do not believe that the adoption of this guidance will have a material impact on our consolidated financial statements.
In OctoberJune 2016, the FASB issued ASU No. 2016-16, Income Taxes2016-13, Financial Instruments - Credit Losses (Topic 740): Intra-Entity Transfers326). This new standard changes the impairment model for most financial assets and certain other instruments. Entities will be required to use a model that will result in the earlier recognition of Assets Other Than Inventory, which requires entities to recognizeallowances for losses for trade and other receivables, held-to-maturity debt securities, loans, and other instruments. For available-for-sale debt securities with unrealized losses, the income tax consequenceslosses will be recognized as allowances rather than as reductions in the amortized cost of an intra-entity transfer of an asset other than inventory when the transfer occurs.securities. The new guidancestandard is effective for annual reportingperiods, and for interim periods within those annual periods, beginning after December 15, 2017. Early2019, with early adoption is permitted as ofpermitted. We are currently reviewing this standard to assess the beginning of an annual reporting period. The new standard must be adopted using a modified retrospective transition method, with the cumulative effect recognized as of the date of initial adoption. We do not believe that the adoption of this guidance will have a material impact on our future consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which will requirerequires lessees to recognize assets and liabilities for leases with lease terms of more than 12 months. Consistent with current GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. However, unlike current GAAP,Unlike Accounting Standard Codification Topic 840 ("Topic 840"), which requires only capital leases to be recognized on the balance sheet, the new guidance will requirerequires both types of leases to be recognized on the balance sheet. The new guidancemost prominent change for leasees is effectivethe requirement to recognize both Right-of-Use (ROU) assets and lease liabilities for all periods beginning after December 15,leases classified as operating leases under Topic 840. We adopted Topic 842 as of April 1, 2019 using the current period adjustment method of adoption. Please refer to Note 6, Leases for further details.
9
Disaggregation of Revenue
We derive and report our revenue from the sale of products (software licenses, third party hardware and operating systems), support, maintenance and subscription services and professional services. Revenue recognized at a point in time (products) totaled $11.9 million and $22.7 million, and $8.8 million and $17.8 million for the three and six months ended September 30, 2019 and 2018. Revenue recognized over time (support, maintenance and subscription services and professional services) totaled $28.8 million and $56.4 million, and $25.4 million and $50.4 million for the three and six months ended September 30, 2019 and 2018, respectively. See Nature of Goods and Services section below for additional information regarding revenue recognition procedures for our revenue streams.
Nature of Goods and Services
Our customary business practice is to enter into legally enforceable written contracts with our customers. The majority of our contracts are governed by a master agreement between us and the customer, which sets forth the general terms and conditions of any individual contract between the parties, which is then supplemented by a customer purchase order to specify the different goods and services, the associated prices, and any additional terms for an individual contract. Performance obligations specific to each individual contract are defined within the terms of each purchase order. Each performance obligation is identified based on the goods and services that will be transferred to our customer that are both capable of being distinct and are distinct within the context of the contract. The transaction price is determined based on the consideration to which we will be entitled and expect to receive in exchange for transferring goods or services to the customer. Typically, our contracts do not provide our customer with any right of return or refund; we do not constrain the contract price as it is probable that there will not be a significant revenue reversal due to a return or a refund.
Typically, our customer contracts contain one or more of the following goods or services which constitute performance obligations.
Our software licenses typically provide for a perpetual right to use our software. Generally, our contracts do not provide significant services of integration, and customization and installation services are not required to be purchased directly from us. The software is delivered before related services are provided and is functional without professional services, updates and technical support. We have concluded that the software license is distinct as the customer can benefit from the software on its own. Software revenue is typically recognized when the software is delivered or made available for download to the customer.
Revenue for hardware sales is recognized when the product is shipped to the customer and when obligations that affect the customer's final acceptance of the arrangement have been fulfilled. Hardware is purchased from suppliers and provided to the end-user customers via drop-ship or from inventory. We are the primary obligor as we are responsible for negotiating price both with the supplier and the customer, payment to the supplier, establishing payment terms and product returns with the customer, and we bear the credit risk if the customer does not pay for the goods. As the principal contact with the customer, we recognize revenue and cost of goods sold when we are currently evaluatingnotified by the effectssupplier that the adoptionproduct has been shipped. In certain limited instances, as shipping terms dictate, revenue is recognized upon receipt at the point of ASU No. 2016-02 will havedestination or upon installation at the customer site.
Support and maintenance revenue is derived from providing telephone and on-line technical support services, bug fixes, and unspecified software updates and upgrades to customers on our consolidated financial statements, but anticipatea when-and-if-available basis. These services represent a stand-ready obligation that is concurrently delivered and has the new guidance will materially impact our consolidated financial statements givensame pattern of transfer to the significance of our leases.
Our subscription service revenue is comprised of fees for contracts that provide customers a right to access our software for a subscribed period. We do not provide the customer the contractual right to license the software at any time outside of the guidancesubscription period under these contracts. The customer can only benefit from the software and software maintenance when provided the right to access the software. Accordingly, each of the rights to access the software, the maintenance services, and any hosting services is not considered a distinct performance obligation in the context of the contract and should be combined into a single performance obligation to be recognized over the contract period. The Company recognizes subscription revenue over a one-month period based on the typical monthly invoicing and renewal cycle in accordance with our customer agreement terms.
Professional services revenues primarily consist of fees for consulting, installation, integration and training and are generally recognized over time as the customer simultaneously receives and consumes the benefits of the professional services as the services are being performed. Professional services can be provided by internal or external providers, do not significantly affect the customer's ability to access or use other provided goods or services, and provide a measure of benefit beyond that an entity should recognize revenue to depict the transfer of other promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. As originally issued, this guidance was effective for interim and annual reporting periods beginning after December 15, 2016, and early adoption was not permitted. In July 2015, the FASB deferred the effective date by one year, to interim and annual reporting periods beginning after December 15, 2017. The standard allows entities to apply the standard retrospectively to each prior reporting period presented (“full retrospective adoption”) or retrospectively with the cumulative effect of initially applying the standard recognized at the date of initial application (“modified retrospective adoption”). We plan to adopt ASU No. 2014-09 on its effective date for us beginning April 1, 2018 and we are still evaluating both options and their effect on our financial statements and business.
10
We are evaluating our multiple service contractsuse the market estimate approach to drive standalone selling price ("SSP") by maximizing observable data points (in the form of recently executed customer contracts) to determine if the price customers are willing to pay for the goods and services aretransferred. If the contract contains a single performance obligation, under this new standard requiring a single methodthe entire transaction price is allocated to that performance obligation. Contracts that contain multiple performance obligations require an allocation of measurement. We are assessing the new standards requirement to allocate the transaction pricesprice to each performance obligation based on a relative SSP basis.
Shipping and handling fees billed to customers are recognized as revenue and the related costs are recognized in cost of goods sold. Revenue is recorded net of any applicable taxes collected and remitted to governmental agencies.
Contract Balances
Contract assets are rights to consideration in exchange for goods or services that we have transferred to a customer when that right is conditional on something other than the passage of time. The majority of our contractscontract assets represent unbilled amounts related to professional services. We expect billing and collection of our contract assets to occur within the next twelve months. We receive payments from customers based onupon contractual billing schedules and accounts receivable are recorded when the relative stand-alone selling price of each our performance obligations. We are evaluating the stand-alone selling prices for our performance obligations. We are also assessing the new standard’s requirementright to capitalize costs associated with obtaining customer contracts, including commission payments,consideration becomes unconditional. Contract liabilities represent consideration received or consideration which are currently expensed as incurred for all commissions earned subsequentis unconditionally due from customers prior to transferring goods or services to the yearcustomer under the terms of the contract.
Revenue recognized from amounts included in contract liabilities at the beginning of the period was $10.5 million and $8.2 million for the three months ended September 30, 2019 and 2018, respectively, and $26.0 million and $19.8 million for the six months ended September 30, 2019 and 2018, respectively. Because the right to the transaction became unconditional, we transferred to accounts receivable from contract assets recognized at March 31, 2016. We2019, $0.4 million and $2.4 million during the three and six months ended September 30, 2019, respectively, and from contract assets recognized at April 1, 2018, $0.2 million and $3.2 million during the three and six months ended September 30, 2018, respectively.
Our arrangements are evaluating thefor a period over which to amortize these capitalized costs and the applicability of the practical expediency exception which permits the continuation of expensing these costs for amortization periods of one year or less. In addition, for sales transactions that have been billed, but for which the recognitionAs a result, unsatisfied performance obligations as of revenue has been deferredSeptember 30, 2019 are expected to be satisfied and the related account receivable hasallocated transaction price recognized in revenue within a period of 12 months or less.
Assets Recognized from Costs to Obtain a Contract
Sales commission expenses that would not been collected,have occurred absent the customer contracts are considered incremental costs to obtain a contract. We have elected to take the practical expedient available to expense the incremental costs to obtain a contract as incurred when the expected benefit and amortization period is one year or less. For subscription contracts that are renewed monthly based on an agreement term, we currently do not recognize deferred revenuecapitalize commission expenses and amortize as we satisfy the underlying performance obligations, generally based on the contract terms and anticipated renewals. Other sales commission expenses have a period of benefit of one year or less and are therefore expensed as incurred in line with the related accounts receivablepractical expedient elected.
As of September 30, 2019, we had $3.4 million of capitalized sales incentive costs. These balances are included in other non-current assets on our condensed consolidated balance sheet. Undersheets. During the new standard,three and six months ended September 30, 2019 , we will record accounts receivableexpensed $1.2 million and related contract liabilities for non-cancelable contracts with customers when$2.2 million, respectively, of sales commissions, which included amortization of capitalized amounts of $0.3 million and $0.7 million, respectively. During the right to consideration is unconditional, which we currently expect will result in increases in accounts receivable and contract liabilities (currently presented as deferred revenue) on our consolidated balance sheet, compared to our current presentation. We are continuing to review the impacts of adopting ASU No. 2014-09 to our consolidated financial statements and these preliminary assessments of the impacts to our consolidated financial statements are subject to change. We expect to conclude our assessments of the impacts of adoption sometime during our fourth quartercomparable periods ending March 31, 2018.
11
Balance at | Balance at | |||||||||||
March 31, | Provision/ | December 31, | ||||||||||
(in thousands) | 2017 | Adjustments | Payments | 2017 | ||||||||
Fiscal 2018 Restructuring Plan: | ||||||||||||
Restructuring and other employment costs | $ | — | $ | 1,024 | $ | (821 | ) | $ | 203 | |||
Total restructuring costs | $ | — | $ | 1,024 | $ | (821 | ) | $ | 203 |
The following table summarizes our intangible assets and software development costs:
|
| September 30, 2019 |
|
| March 31, 2019 |
| ||||||||||||||||||
|
| Gross |
|
|
|
|
|
| Net |
|
| Gross |
|
|
|
|
|
| Net |
| ||||
|
| carrying |
|
| Accumulated |
|
| carrying |
|
| carrying |
|
| Accumulated |
|
| carrying |
| ||||||
Intangible assets (In thousands) |
| amount |
|
| amortization |
|
| amount |
|
| amount |
|
| amortization |
|
| amount |
| ||||||
Amortized intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships |
| $ | 10,775 |
|
| $ | (10,775 | ) |
| $ | — |
|
| $ | 10,775 |
|
| $ | (10,775 | ) |
| $ | — |
|
Non-competition agreements |
|
| 2,700 |
|
|
| (2,700 | ) |
|
| — |
|
|
| 2,700 |
|
|
| (2,700 | ) |
|
| — |
|
Developed technology |
|
| 10,398 |
|
|
| (10,398 | ) |
|
| — |
|
|
| 10,398 |
|
|
| (10,398 | ) |
|
| — |
|
Trade names |
|
| 230 |
|
|
| (215 | ) |
|
| 15 |
|
|
| 230 |
|
|
| (192 | ) |
|
| 38 |
|
Patented technology |
|
| 80 |
|
|
| (80 | ) |
|
| — |
|
|
| 80 |
|
|
| (80 | ) |
|
| — |
|
|
|
| 24,183 |
|
|
| (24,168 | ) |
|
| 15 |
|
|
| 24,183 |
|
|
| (24,145 | ) |
|
| 38 |
|
Unamortized intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names |
|
| 8,400 |
|
| N/A |
|
|
| 8,400 |
|
|
| 8,400 |
|
| N/A |
|
|
| 8,400 |
| ||
Total intangible assets |
| $ | 32,583 |
|
| $ | (24,168 | ) |
| $ | 8,415 |
|
| $ | 32,583 |
|
| $ | (24,145 | ) |
| $ | 8,438 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software development costs (In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total software development costs |
| $ | 67,541 |
|
| $ | (39,277 | ) |
| $ | 28,264 |
|
| $ | 67,541 |
|
| $ | (32,974 | ) |
| $ | 34,567 |
|
December 31, 2017 | March 31, 2017 | ||||||||||||||||||
Gross | Net | Gross | Net | ||||||||||||||||
carrying | Accumulated | carrying | carrying | Accumulated | carrying | ||||||||||||||
(In thousands) | amount | amortization | amount | amount | amortization | amount | |||||||||||||
Amortized intangible assets: | |||||||||||||||||||
Customer relationships | $ | 10,775 | $ | (10,775 | ) | $ | — | $ | 10,775 | $ | (10,775 | ) | $ | — | |||||
Non-competition agreements | 2,700 | (2,700 | ) | — | 2,700 | (2,700 | ) | — | |||||||||||
Developed technology | 10,055 | (10,055 | ) | — | 10,055 | (10,055 | ) | — | |||||||||||
Trade names | 230 | (134 | ) | 96 | 230 | (100 | ) | 130 | |||||||||||
Patented technology | 80 | (80 | ) | — | 80 | (80 | ) | — | |||||||||||
23,840 | (23,744 | ) | 96 | 23,840 | (23,710 | ) | 130 | ||||||||||||
Unamortized intangible assets: | |||||||||||||||||||
Trade names | 8,400 | N/A | 8,400 | 8,400 | N/A | 8,400 | |||||||||||||
Total intangible assets | $ | 32,240 | $ | (23,744 | ) | $ | 8,496 | $ | 32,240 | $ | (23,710 | ) | $ | 8,530 | |||||
Software development costs | $ | 53,368 | $ | (17,727 | ) | $ | 35,641 | $ | 46,598 | $ | (10,356 | ) | $ | 36,242 | |||||
Project expenditures not yet in use | 10,445 | — | 10,445 | 10,757 | — | 10,757 | |||||||||||||
Total software development costs | $ | 63,813 | $ | (17,727 | ) | $ | 46,086 | $ | 57,355 | $ | (10,356 | ) | $ | 46,999 |
The following table summarizes our remaining estimated amortization expense relating to in service intangible assets and software development costs.
|
| Remaining |
| |
|
| Amortization |
| |
(In thousands) |
| Expense |
| |
Fiscal year ending March 31, |
|
|
|
|
2020 |
| $ | 6,273 |
|
2021 |
|
| 12,515 |
|
2022 |
|
| 5,403 |
|
2023 |
|
| 3,399 |
|
2024 |
|
| 689 |
|
Total |
| $ | 28,279 |
|
Estimated | |||
Amortization | |||
(In thousands) | Expense | ||
Fiscal year ending March 31, | |||
2018 | $ | 2,657 | |
2019 | 10,504 | ||
2020 | 9,765 | ||
2021 | 9,680 | ||
2022 | 2,568 | ||
2023 | 563 | ||
Total | $ | 35,737 |
Amortization expense for software development costs related to assets to be sold, leased, or otherwise marketed was $2.6$3.1 million and $2.3$3.4 million for the three months ended December 31, 2017September 30, 2019 and 2016,2018, and $7.3$6.3 million and $5.7$6.0 million for the ninesix months ended December 31, 2017September 30, 2019 and 2016,2018, respectively. These charges are included as Products costcosts of goods sold within the Condensed Consolidated Statements- products in our condensed consolidated statements of Operations.
Capitalized software development costs for software internally developed to be sold, leased, or otherwise marketed, are carried on our balance sheet at net carrying value, net of accumulated amortization. The Company did not capitalize any amounts for external-use software development costs during the three and six months ended September 30, 2019. Current active projects which carry a sufficiently short amount of time between achieving technological feasibility and reaching general availability to preclude capitalization. We capitalized approximately $1.6 million and $3.0$2.0 million during the threesix months ended December 31, 2017 and 2016, and $6.5 million and $8.9 million during the nine months ended December 31, 2017 and 2016, respectively.
Additional information related to the Condensed Consolidated Balance Sheetscondensed consolidated balance sheets is as follows:
|
| September 30, 2019 |
|
| March 31, 2019 |
| ||
Accrued liabilities: |
|
|
|
|
|
|
|
|
Salaries, wages, and related benefits |
| $ | 8,269 |
|
| $ | 12,929 |
|
Other taxes payable |
|
| 957 |
|
|
| 1,041 |
|
Accrued legal settlements |
|
| — |
|
|
| 15 |
|
Severance liabilities |
|
| 146 |
|
|
| 46 |
|
Professional fees |
|
| 131 |
|
|
| 67 |
|
Deferred rent |
|
| — |
|
|
| 273 |
|
Other |
|
| 481 |
|
|
| 521 |
|
Total |
| $ | 9,984 |
|
| $ | 14,892 |
|
Other non-current liabilities: |
|
|
|
|
|
|
|
|
Uncertain tax positions |
| $ | 1,096 |
|
| $ | 1,083 |
|
Deferred rent and asset retirement obligations |
|
| 165 |
|
|
| 2,613 |
|
Other |
|
| 77 |
|
|
| 76 |
|
Total |
| $ | 1,338 |
|
| $ | 3,772 |
|
(In thousands) | December 31, 2017 | March 31, 2017 | |||||
Accrued liabilities: | |||||||
Salaries, wages, and related benefits | $ | 7,352 | $ | 6,473 | |||
Other taxes payable | 819 | 750 | |||||
Accrued legal settlements | 150 | — | |||||
Restructuring liabilities | 203 | — | |||||
Severance liabilities | 16 | 11 | |||||
Professional fees | 510 | 221 | |||||
Deferred rent | 420 | 433 | |||||
Other | 373 | 443 | |||||
Total | $ | 9,843 | $ | 8,331 | |||
Other non-current liabilities: | |||||||
Uncertain tax positions | $ | 1,508 | $ | 1,479 | |||
Deferred rent | 2,399 | 2,444 | |||||
Other | 78 | 79 | |||||
Total | $ | 3,985 | $ | 4,002 |
6. Leases
We adopted Topic 842 on April 1, 2019 using the current period adjustment method of allowance for doubtful accountsadoption to recognize leases with a duration greater than 12 months on the balance sheet. The impact of adoption on April 1, 2019 was
We have elected the package of practical expedients permitted under the transition guidance which includes the ability to carryforward the previously determined lease classification (operating or financing), forgo the assessment whether active contracts contain a lease, and whether capitalized costs associated with a lease meet the definition of "initial direct costs" as defined within Topic 842. In the event that any of our leases contain nonlease components, we have elected the practical expedient to account for each separate lease component and the associated nonlease component(s) as a single lease component. We have also elected the accounting policy to forgo applying the guidance of Topic 842 to short term leases (defined as a term of 12 month or less, without a purchase option which we are reasonably certain to exercise).
As of September 30, 2019, we have no leases which have not yet commenced. In addition, we do not have any related party leases or sublease arrangements. We have variable payments for expenses such as common area maintenance and taxes. We do not have variable payments that are based on an index or rate. As a result, we do not include variable payments in the calculation of the lease liability. Any variable lease costs are expensed as incurred.
13
The components of lease expenses for the three and six months ended September 30, 2019 were as follows:
|
| Three Months Ended |
|
| Six Months Ended |
| ||
(in thousands) |
| September 30, 2019 |
| |||||
Operating leases expense |
| $ | 1,003 |
|
| $ | 2,016 |
|
Finance lease expense: |
|
|
|
|
|
|
|
|
Amortization of ROU assets |
|
| 5 |
|
|
| 11 |
|
Interest on lease liabilities |
|
| 1 |
|
|
| 3 |
|
Total finance lease expense |
|
| 6 |
|
|
| 14 |
|
Variable lease costs |
|
| 69 |
|
|
| 137 |
|
Short term lease expense |
|
| 36 |
|
|
| 50 |
|
Total lease expense |
| $ | 1,114 |
|
| $ | 2,217 |
|
Other information related to leases for the six months ended September 30, 2019 was
|
| Six Months Ended |
| |
Supplemental cash flow information |
| September 30, 2019 |
| |
Cash paid for amounts included in the measurement of lease liabilities (in thousands): |
|
|
|
|
Operating cash flows for operating leases |
| $ | 2,210 |
|
Operating cash flows for finance leases |
|
| 6 |
|
Financing cash flows for finance leases |
|
| 12 |
|
ROU assets obtained in exchange for lease obligations (in thousands): |
|
|
|
|
Operating leases |
| $ | 185 |
|
Finance leases |
|
| 6 |
|
Weighted average remaining lease terms |
|
|
|
|
Operating leases |
|
| 5.40 |
|
Finance leases |
|
| 2.22 |
|
Weighted average discount rates |
|
|
|
|
Operating leases |
|
| 9.93 | % |
Finance leases |
|
| 4.30 | % |
The table below reconciles the undiscounted future minimum lease payments (displayed by year and
(in thousands) |
| Operating leases |
|
| Finance leases |
| ||
2020 (excluding the six months ended September 30, 2019) |
| $ | 2,163 |
|
| $ | 14 |
|
2021 |
|
| 4,391 |
|
|
| 25 |
|
2022 |
|
| 3,630 |
|
|
| 17 |
|
2023 |
|
| 2,252 |
|
|
| 1 |
|
2024 |
|
| 2,057 |
|
|
| — |
|
Thereafter |
|
| 5,763 |
|
|
| — |
|
Total undiscounted future minimum lease payments |
|
| 20,256 |
|
|
| 57 |
|
Less: difference between undiscounted lease payments and discounted lease liabilities |
|
| (5,446 | ) |
|
| (6 | ) |
Total lease liabilities |
| $ | 14,810 |
|
| $ | 51 |
|
14
As previously disclosed on our March 31, 2017, respectively.
Year ending (in thousands) |
| Operating leases |
|
| Finance leases |
| ||
2020 |
| $ | 4,143 |
|
| $ | 27 |
|
2021 |
|
| 3,945 |
|
|
| 23 |
|
2022 |
|
| 3,166 |
|
|
| 15 |
|
2023 |
|
| 1,916 |
|
|
| — |
|
2024 |
|
| 1,770 |
|
|
| — |
|
Thereafter |
|
| 4,497 |
|
|
| — |
|
Total lease payments |
|
| 19,437 |
|
|
| 65 |
|
Less: Amounts representing interest |
|
| — |
|
|
| (8 | ) |
Present value of lease liabilities |
| $ | 19,437 |
|
| $ | 57 |
|
7. Income Taxes
The following table compares our income tax (benefit) expense and effective tax rates for the three and six months ended December 31, 2017September 30, 2019 and 2016:2018:
|
| Three Months Ended September 30, |
|
| Six Months Ended September 30, |
| ||||||||||
(Dollars in thousands) |
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||
Income tax expense |
| $ | 41 |
|
| $ | 53 |
|
| $ | 67 |
|
| $ | 4 |
|
Effective tax rate |
|
| (1.4 | )% |
|
| (1.4 | )% |
|
| (1.5 | )% |
|
| (0.1 | )% |
Three months ended | Nine months ended | ||||||||||||||
December 31, | December 31, | ||||||||||||||
(Dollars in thousands) | 2017 | 2016 | 2017 | 2016 | |||||||||||
Income tax (benefit) expense | $ | (1,623 | ) | $ | 129 | $ | (1,439 | ) | $ | 252 | |||||
Effective tax rate | 45.6 | % | (8.0 | )% | 15.0 | % | (4.1 | )% |
For the three and ninesix months ended December 31, 2017, the effective tax rate was different than the statutory rate due primarily to a $1.3 million benefit resulting from the effect of a reduction in the deferred rate due to federal tax reform,
Because of our losses in prior periods, we have recorded a valuation allowance offsetting substantially all of our deferred tax assets.assets in the U.S. and certain foreign jurisdictions, as management believes that it is more likely than not that we will not realize the benefits of these deductible differences. The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which those temporary differences are deductible. Because of our losses in prior periods, management believes that it is more-likely-than-not that we will not realize the benefits of these deductible differences.
8. Commitments and Contingencies
Agilysys is the subject of various threatened or pending legal actions and contingencies in the normal course of conducting its business. We provide for costs related to these matters when a loss is probable and the amount can be reasonably estimated. The effect of the outcome of these matters on our future results of operations and liquidity cannot be predicted because any such effect depends on future results of operations and the amount or timing of the resolution of such matters. While it is not possible to predict with certainty, management believes that the ultimate resolution of such individual or aggregated matters will not have a material adverse effect on our consolidated financial position, results of operations, or cash flows.
On April 6, 2012, Ameranth, Inc. filed a complaint against us for patent infringement in the United StatesU.S. District Court for theof Southern District of California. The complaint alleges, among other things,California alleging that point-of-sale and property management and other hospitality information technologycertain of our products software, components and/or systems sold by us infringe patents owned by Ameranth purportingdirected to cover generationconfiguring and synchronizationtransmitting hospitality menus (e.g. restaurant menus) for display on electronic devices, and synchronizing the menu content between the devices. The case against us was consolidated with similar cases brought by Ameranth against more than 30 other defendants. Most of menus, including restaurant menus, event tickets,the patents at issue in the case were invalidated by the U.S. Court of Appeals for the Federal Circuit in 2016. Cases against us and other products across fixed, wireless and/our co-defendants remained pending in the District Court with respect to one surviving Ameranth patent. In September 2018, the District Court found that patent invalid, and granted summary judgment in favor of the movant co-defendants. In early 2019, Ameranth appealed the District Court's summary judgment ruling to the U.S. Court of Appeals for the Federal Circuit. We are not a party to the appeal, and it is currently unclear what impact the summary judgment ruling or internet platforms as well as synchronization of hospitality information and hospitality software applications across fixed, wireless and internet platforms. The complaintappeal may have on our case. Ameranth seeks monetary damages, injunctive relief, costs and attorneys' fees.fees from us. At this time, we are not able to predict the outcome of this lawsuit, or any possible monetary exposure associated with the lawsuit. However, we dispute the allegations of wrongdoing and are vigorously defending ourselves in this matter.
The following data shows the amounts used in computing loss(loss) per share and the effect on earnings and the weighted average number of shares of dilutive potential common shares.
| Three Months Ended September 30, |
|
| Six Months Ended September 30, |
| ||||||||||
(In thousands, except per share data) | 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss | $ | (2,918 | ) |
| $ | (3,791 | ) |
| $ | (4,493 | ) |
| $ | (5,528 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
| 23,238 |
|
|
| 23,131 |
|
|
| 23,225 |
|
|
| 23,113 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share - basic and diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share | $ | (0.13 | ) |
| $ | (0.16 | ) |
| $ | (0.19 | ) |
| $ | (0.24 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive stock options, SSARs, restricted shares and performance shares |
| 1,494 |
|
|
| 1,481 |
|
|
| 1,386 |
|
|
| 1,419 |
|
Three months ended | Nine months ended | ||||||||||||||
December 31, | December 31, | ||||||||||||||
(In thousands, except per share data) | 2017 | 2016 | 2017 | 2016 | |||||||||||
Numerator: | |||||||||||||||
Net loss | $ | (1,934 | ) | $ | (1,737 | ) | $ | (8,138 | ) | $ | (6,434 | ) | |||
Denominator: | |||||||||||||||
Weighted average shares outstanding | 22,851 | 22,611 | 22,777 | 22,605 | |||||||||||
Loss per share - basic and diluted: | |||||||||||||||
Loss per share | $ | (0.08 | ) | $ | (0.08 | ) | $ | (0.36 | ) | $ | (0.28 | ) | |||
Anti-dilutive stock options, SSARs, restricted shares and performance shares | 1,658 | 1,471 | 1,705 | 1,399 |
Basic earnings (loss)loss per share is computed as net income available to common shareholders divided by the weighted average basic shares outstanding. The outstanding shares used to calculate the weighted average basic shares excludes 530,138418,854 and 595,625486,701 of restricted shares at December 31, 2017September 30, 2019 and 2016,2018, respectively, as these shares were issued but were not vested and therefore, not considered outstanding for purposes of computing basic (loss) earningsloss per share at the balance sheet dates.
Diluted earnings (loss)loss per share includes the effect of all potentially dilutive securities on earnings per share. We have stock options, stock-settled appreciation rights ("SSARs"), unvested restricted shares and unvested performance shares that are potentially dilutive securities. When a loss is reported, the denominator of diluted earnings per share cannot be adjusted for the dilutive impact of share-based compensation awards because doing so would be anti-dilutive. Therefore, for all periods presented, basic weighted-average shares outstanding were used in calculating the diluted net loss per share.
10. Share-based Compensation
We may grant non-qualified stock options, incentive stock options, SSARs, restricted shares, and restricted share units under our shareholder-approved 2016 Stock Incentive Plan (the ("2016 Plan)Plan") for up to
We may distribute authorized but unissued shares or treasury shares to satisfy share option and appreciation right exercises or restricted share and performance share awards.
We record compensation expense related to stock options, 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 awards is based on the closing price of our common shares on the grant date. The fair value of stock option and SSARs awards is estimated on the grant date using the Black-Scholes-Merton option pricing
16
The following table summarizes the share-based compensation expense for options, SSARs, restricted and performance awards included in the Condensed Consolidated Statementscondensed consolidated statements of Operations:operations:
|
| Three Months Ended September 30, |
|
| Six Months Ended September 30, |
| ||||||||||
(In thousands) |
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||
Product development |
| $ | 672 |
|
| $ | 514 |
|
| $ | 940 |
|
| $ | 429 |
|
Sales and marketing |
|
| 51 |
|
|
| 134 |
|
|
| 113 |
|
|
| 199 |
|
General and administrative |
|
| 622 |
|
|
| 617 |
|
|
| 774 |
|
|
| 1,046 |
|
Total share-based compensation expense |
| $ | 1,345 |
|
| $ | 1,265 |
|
| $ | 1,827 |
|
| $ | 1,674 |
|
Three months ended | Nine months ended | ||||||||||||||
December 31, | December 31, | ||||||||||||||
(In thousands) | 2017 | 2016 | 2017 | 2016 | |||||||||||
Product development | $ | 456 | $ | 498 | $ | 982 | $ | 826 | |||||||
Sales and marketing | 173 | 124 | 529 | 177 | |||||||||||
General and administrative | 829 | (680 | ) | 2,265 | (221 | ) | |||||||||
Total share-based compensation expense | 1,458 | (58 | ) | 3,776 | 782 |
Stock-Settled Stock Appreciation Rights
SSARs are rights granted to an employee to receive value equal to the difference in the price of our common shares on the date of the grant and on the date of exercise. This value is settled in common shares of Agilysys.
The following table summarizes the activity during the ninesix months ended December 31, 2017September 30, 2019 for SSARs awarded under the 2011 and 2016 Plans:
|
| Number of Rights |
|
| Weighted-Average Exercise Price |
|
| Remaining Contractual Term |
|
| Aggregate Intrinsic Value |
| ||||
(In thousands, except share and per share data) |
|
|
|
|
| (per right) |
|
| (in years) |
|
|
|
|
| ||
Outstanding at April 1, 2019 |
|
| 1,016,643 |
|
| $ | 11.22 |
|
|
|
|
|
|
|
|
|
Granted |
|
| 91,364 |
|
|
| 22.41 |
|
|
|
|
|
|
|
|
|
Exercised |
|
| (30,430 | ) |
|
| 9.47 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
| (14,706 | ) |
|
| 18.39 |
|
|
|
|
|
|
|
|
|
Expired |
|
| (8,937 | ) |
|
| 10.27 |
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2019 |
|
| 1,053,934 |
|
| $ | 12.15 |
|
|
| 4.5 |
|
| $ | 14,183 |
|
Exercisable at September 30, 2019 |
|
| 773,583 |
|
| $ | 10.98 |
|
|
| 4.2 |
|
| $ | 11,321 |
|
Number of Rights | Weighted- Average Exercise Price | Remaining Contractual Term | Aggregate Intrinsic Value | |||||||||
(In thousands, except share and per share data) | (per right) | (in years) | ||||||||||
Outstanding at April 1, 2017 | 1,094,978 | $ | 10.44 | |||||||||
Granted | 204,213 | 10.56 | ||||||||||
Exercised | (41,691 | ) | 9.14 | |||||||||
Forfeited | (55,530 | ) | 9.98 | |||||||||
Cancelled/expired | (54,679 | ) | 9.56 | |||||||||
Outstanding at December 31, 2017 | 1,147,291 | $ | 10.58 | 5.4 | $ | 2,038 | ||||||
Exercisable at December 31, 2017 | 245,064 | $ | 10.26 | 3.4 | $ | 574 |
As of December 31, 2017,September 30, 2019, total unrecognized stock basedshare-based compensation expense related to non-vested SSARs was
Restricted Shares
We granted shares to certain of our Directors, executives and key employees, the vesting of which is service-based. The following table summarizes the activity during the ninesix months ended December 31, 2017September 30, 2019 for restricted shares awarded under the 2011 and 2016 and 2011 Plans:
|
| Number of Shares |
|
| Weighted-Average Grant-Date Fair Value |
| ||
(In thousands, except share and per share data) |
|
|
|
|
| (per share) |
| |
Outstanding at April 1, 2019 |
|
| 237,146 |
|
| $ | 13.46 |
|
Granted |
|
| 190,042 |
|
|
| 22.49 |
|
Vested |
|
| (2,757 | ) |
|
| 22.67 |
|
Forfeited |
|
| (35,696 | ) |
|
| 16.81 |
|
Outstanding at September 30, 2019 |
|
| 388,735 |
|
| $ | 17.49 |
|
Number of Shares | Weighted- Average Grant- Date Fair Value | |||||
(In thousands, except share and per share data) | (per share) | |||||
Outstanding at April 1, 2017 | 490,355 | $ | 10.72 | |||
Granted | 251,010 | 11.02 | ||||
Vested | (221,897 | ) | 11.29 | |||
Forfeited | (80,793 | ) | 10.72 | |||
Outstanding at December 31, 2017 | 438,675 | $ | 10.60 |
The weighted-average grant date fair value of the restricted shares is determined based upon the closing price of our common shares on the grant date. As of December 31, 2017,September 30, 2019, total unrecognized stock basedshare-based compensation expense related to non-vested restricted stock was
17
We awarded certain restricted shares to our Chief Executive Officer, the vesting of which is performance based. The number of shares that vest will be based on the stock price and relative attainment of a performance metric and any unvested shares will forfeit upon settlement of the bonus.
The following table summarizes the activity during the ninesix months ended December 31, 2017September 30, 2019 for the performance shares awarded under the 2016 Plan:
(In thousands, except share and per share data) | Number of Shares | |||
Outstanding at April 1, | 63,291 | |||
Granted | 30,120 | |||
Vested | (23,526 | ) | ||
Forfeited | (39,765 | ) | ||
Outstanding at | 30,120 |
Based on the performance goals, management estimates a liability of $225,000$450,000 to be settled through the vesting of a variable number of the performance shares subsequent to March 31, 2018.2020. As of December 31, 2017,September 30, 2019, total unrecognized stock basedshare-based compensation expense related to non-vested performance shares was $67,500,$0.3 million, which is expected to be recognized over the remaining vesting period of 36 months.
11. Fair Value Measurements
We estimate the fair value of financial instruments using available market information and generally accepted valuation methodologies. We assess the inputs used to measure fair value using a three-tier hierarchy. The hierarchy indicates the extent to which pricing inputs used in measuring fair value are observable in the market. Level 1 inputs include unadjusted quoted prices for identical assets or liabilities and are the most observable. Level 2 inputs include unadjusted quoted prices for similar assets and liabilities that are either directly or indirectly observable, or other observable inputs such as interest rates, foreign currency exchange rates, commodity rates, and yield curves. Level 3 inputs are not observable in the market and include our own judgments about the assumptions market participants would use in pricing the asset or liability. The use of observable and unobservable inputs is reflected in the hierarchy assessment disclosed in the tables below.
There were no significant transfers between Levels 1, 2, and 3 during the ninesix months ended December 31, 2017September 30, 2019 and 2016.
The following tables present information about our financial assets and liabilities measured at fair value on a recurring basis and indicate the fair value hierarchy of the valuation techniques utilized to determine such fair value:
(In thousands) |
| Recorded value as of September 30, 2019 |
|
| Active markets for identical asset or liabilities (Level 1) |
|
| Quoted prices in similar instruments and observable inputs (Level 2) |
|
| Active markets for unobservable inputs (Level 3) |
| ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate-owned life insurance — non-current |
| $ | 904 |
|
|
| - |
|
|
| - |
|
| $ | 904 |
|
(In thousands) |
| Recorded value as of March 31, 2019 |
|
| Active markets for identical asset or liabilities (Level 1) |
|
| Quoted prices in similar instruments and observable inputs (Level 2) |
|
| Active markets for unobservable inputs (Level 3) |
| ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate-owned life insurance — non-current |
| $ | 895 |
|
|
| - |
|
|
| - |
|
| $ | 895 |
|
Fair value measurement used | |||||||||||||
Recorded value as of | Active markets for identical assets or liabilities | Quoted prices in similar instruments and observable inputs | Active markets for unobservable inputs | ||||||||||
(In thousands) | December 31, 2017 | (Level 1) | (Level 2) | (Level 3) | |||||||||
Assets: | |||||||||||||
Corporate-owned life insurance — non-current | $ | 825 | — | — | $ | 825 |
Fair value measurement used | |||||||||||||
Recorded value as of | Active markets for identical assets or liabilities | Quoted prices in similar instruments and observable inputs | Active markets for unobservable inputs | ||||||||||
(In thousands) | March 31, 2017 | (Level 1) | (Level 2) | (Level 3) | |||||||||
Assets: | |||||||||||||
Corporate-owned life insurance — non-current | $ | 809 | — | — | $ | 809 |
18
The recorded value of the corporate-owned life insurance policies is adjusted to the cash surrender value of the policies obtained from the third party life insurance providers, which are not observable in the market, and therefore, are classified within Level 3 of the fair value hierarchy. Changes in the cash surrender value of these policies are recorded within “Other (income) expenses, (income), net” in the Condensed Consolidated Statementscondensed consolidated statements of Operations.
The following table presents a summary of changes in the fair value of the Level 3 assets:
|
| Six Months Ended September 30, |
| |||||
(In thousands) |
| 2019 |
|
| 2018 |
| ||
Corporate-owned life insurance: |
|
|
|
|
|
|
|
|
Balance on April 1 |
| $ | 895 |
|
| $ | 853 |
|
Unrealized (loss) gain relating to instruments held at reporting date |
|
| 7 |
|
|
| 8 |
|
Purchases, sales, issuances and settlements, net |
|
| 2 |
|
|
| 2 |
|
Balance on September 30 |
| $ | 904 |
|
| $ | 863 |
|
Nine months ended | |||||||
December 31, | |||||||
(In thousands) | 2017 | 2016 | |||||
Corporate-owned life insurance: | |||||||
Balance on April 1 | $ | 809 | $ | 3,122 | |||
Unrealized gain relating to instruments held at reporting date | (11 | ) | 16 | ||||
Purchases, sales, issuances and settlements, net | 27 | 1 | |||||
Balance on December 31 | $ | 825 | $ | 3,139 |
19
Table of changes in the fair value of the Level 3 liabilities:
Nine months ended | |||||||
December 31, | |||||||
(In thousands) | 2017 | 2016 | |||||
Contingent consideration | |||||||
Balance on April 1 | $ | — | $ | 197 | |||
Activity, payments and other charges (net) | — | (197 | ) | ||||
Balance on December 31 | $ | — | $ | — | |||
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
In “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”), management explains the general financial condition and results of operations for Agilysys and subsidiaries including:
— what factors affect our business;
— what our earnings and costs were;
— why those earnings and costs were different from the year before;
— where the earnings came from;
— how our financial condition was affected; and
— where the cash will come from to fund future operations.
The MD&A analyzes changes in specific line items in the Condensed Consolidated Statements of Operations and Condensed Consolidated Statements of Cash Flows and provides information that management
believes is important to assessing and understanding our consolidated financial condition and results of operations. This Quarterly Report on Form 10-Q updates information included in our Annual Report on Form 10-K for the fiscal year ended March 31,Overview
Agilysys ishas been a leadingleader in hospitality software for more than 40 years, delivering innovative guest-centric technology company that provides innovative softwaresolutions for gaming, hotels, resorts and services for point-of-salecruise, corporate foodservice management and restaurants, universities, healthcare, and sports and entertainment. Agilysys offers the most comprehensive solutions in the industry, including point of sale (POS), reservation and tableproperty management property managementsystems (PMS), inventory and procurement, workforce management, analytics, document management,payments, and mobilerelated applications, to manage the entire guest journey. Agilysys is known for its leadership in hospitality, its broad product offerings and wirelessits customer-centric service. Some of the largest hospitality companies around the world use Agilysys solutions exclusively to the hospitality industry. Our products and services allow operators to streamline operations,help improve efficiency and understand customer needs across their properties to deliver a superior overall guest experience. The result is improved guest loyalty, drive revenue growth in wallet share and increased revenue as they connect and transact with their guests based upon a single integrated view of individual preferences and interactions. We serve four major market sectors: Gaming, both corporate and tribal; Hotels, Resorts and Cruise; Corporate Foodservice Management; and Restaurants, Universities, Stadia and Healthcare. A significant portion of our consolidated revenue is derived from contract support, maintenance and subscription services.
Agilysys operates across North America,the Americas, Europe, the Middle East, Africa, Asia-Pacific, and India with headquarters located in Alpharetta, GA. For more information, visit www.agilysys.com.
Our top priority is to increase 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
Accelerating our product development
Improving organizational efficiency and teamwork
Developing our employees and leaders
Growing revenue by improving the breadth and depth of our product set across both our well established products and our newer rGuest platform
Growing revenue through international expansion
The primary objective of our ongoing strategic planning process is to create shareholder value by capitalizing on growth opportunities, turning profitable and strengthening our competitive position within the specific technology solutions and end markets we serve. Profitability and industry leading growth will be achieved through tighter management of operating expenses and sharpening the focus of our investments to concentrate on growth opportunities that offer the highest returns.
Revenue - Defined
We separately present revenue earned as products revenue, support, maintenance and subscription services revenue or professional services revenue in our Condensed Consolidated Statementscondensed consolidated statements of Operations.operations. In addition to the SEC requirements, we may, at times, also refer to revenue as defined below. The terminology, definitions, and applications of terms we use to describe our revenue may be different from those used by other companies and caution should be used when comparing these financial measures to those of other companies. We use the following terms to describe revenue:
Revenue –- We present revenue net of sales returns and allowances.allowances
Products revenue – Revenue earned from the sales of software licenses, third party hardware equipment and proprietary and remarketed software.operating systems.
20
• | Support, maintenance and subscription services revenue – Revenue earned from the sale of proprietary and remarketed ongoing support, maintenance and subscription services. |
Professional services revenue – Revenue earned from the delivery of implementation, integration and installation services for proprietary and remarketed products.
Results of Operations
Second Fiscal Quarter 20182020 Compared to ThirdSecond Fiscal Quarter 2017
Net Revenue and Operating Loss
The following table presents our consolidated revenue and operating results for the three months ended December 31, 2017September 30, 2019 and 2016:2018:
|
| Three months ended |
|
|
|
|
|
|
|
|
| |||||
|
| September 30, |
|
| Increase (decrease) |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| $ |
|
| % |
| ||||
Net revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products |
| $ | 11,873 |
|
| $ | 8,769 |
|
| $ | 3,104 |
|
|
| 35.4 | % |
Support, maintenance and subscription services |
|
| 20,329 |
|
|
| 18,856 |
|
|
| 1,473 |
|
|
| 7.8 |
|
Professional services |
|
| 8,520 |
|
|
| 6,578 |
|
|
| 1,942 |
|
|
| 29.5 |
|
Total net revenue |
|
| 40,722 |
|
|
| 34,203 |
|
|
| 6,519 |
|
|
| 19.1 |
|
Cost of goods sold: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products (inclusive of developed technology amortization) |
|
| 9,794 |
|
|
| 7,703 |
|
|
| 2,091 |
|
|
| 27.1 |
|
Support, maintenance and subscription services |
|
| 4,654 |
|
|
| 3,977 |
|
|
| 677 |
|
|
| 17.0 |
|
Professional services |
|
| 6,057 |
|
|
| 4,774 |
|
|
| 1,283 |
|
|
| 26.9 |
|
Total cost of goods sold |
|
| 20,505 |
|
|
| 16,454 |
|
|
| 4,051 |
|
|
| 24.6 |
|
Gross profit |
| $ | 20,217 |
|
| $ | 17,749 |
|
| $ | 2,468 |
|
|
| 13.9 | % |
Gross profit margin |
|
| 49.6 | % |
|
| 51.9 | % |
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product development |
| $ | 10,778 |
|
| $ | 10,151 |
|
| $ | 627 |
|
|
| 6.2 | % |
Sales and marketing |
|
| 4,890 |
|
|
| 4,393 |
|
|
| 497 |
|
|
| 11.3 |
|
General and administrative |
|
| 6,038 |
|
|
| 5,176 |
|
|
| 862 |
|
|
| 16.7 |
|
Depreciation of fixed assets |
|
| 707 |
|
|
| 676 |
|
|
| 31 |
|
|
| 4.6 |
|
Amortization of intangibles |
|
| 614 |
|
|
| 674 |
|
|
| (60 | ) |
|
| (8.9 | ) |
Restructuring, severance and other charges |
|
| 190 |
|
|
| 448 |
|
|
| (258 | ) |
|
| (57.6 | ) |
Legal settlements, net |
|
| (119 | ) |
|
| 35 |
|
|
| (154 | ) |
| nm |
| |
Operating loss |
| $ | (2,881 | ) |
| $ | (3,804 | ) |
| $ | 923 |
|
|
| (24.3 | )% |
Operating loss percentage |
|
| (7.1 | )% |
|
| (11.1 | )% |
|
|
|
|
|
|
|
|
Three months ended | ||||||||||||||
December 31, | Increase (decrease) | |||||||||||||
(Dollars in thousands) | 2017 | 2016 | $ | % | ||||||||||
Net revenue: | ||||||||||||||
Products | $ | 8,156 | $ | 10,006 | $ | (1,850 | ) | (18.5 | )% | |||||
Support, maintenance and subscription services | 17,215 | 16,234 | 981 | 6.0 | ||||||||||
Professional services | 5,939 | 7,208 | (1,269 | ) | (17.6 | ) | ||||||||
Total net revenue | 31,310 | 33,448 | (2,138 | ) | (6.4 | ) | ||||||||
Cost of goods sold: | ||||||||||||||
Products (inclusive of developed technology amortization) | 6,820 | 7,530 | (710 | ) | (9.4 | ) | ||||||||
Support, maintenance and subscription services | 4,132 | 4,464 | (332 | ) | (7.4 | ) | ||||||||
Professional services | 4,730 | 5,213 | (483 | ) | (9.3 | ) | ||||||||
Total cost of goods sold | 15,682 | 17,207 | (1,525 | ) | (8.9 | ) | ||||||||
Gross profit | 15,628 | 16,241 | (613 | ) | (3.8 | ) | ||||||||
Gross profit margin | 49.9 | % | 48.6 | % | ||||||||||
Operating expenses: | ||||||||||||||
Product development | 7,269 | 6,847 | 422 | 6.2 | ||||||||||
Sales and marketing | 4,278 | 5,000 | (722 | ) | (14.4 | ) | ||||||||
General and administrative | 6,114 | 3,678 | 2,436 | 66.2 | ||||||||||
Depreciation of fixed assets | 581 | 598 | (17 | ) | (2.8 | ) | ||||||||
Amortization of intangibles | 471 | 353 | 118 | 33.4 | ||||||||||
Restructuring, severance and other charges | 378 | 1,394 | (1,016 | ) | nm | |||||||||
Legal settlements | 150 | — | 150 | nm | ||||||||||
Operating loss | $ | (3,613 | ) | $ | (1,629 | ) | $ | (1,984 | ) | 121.8 | % | |||
Operating loss percentage | (11.5 | )% | (4.9 | )% |
nm - not meaningful
21
The following table presents the percentage relationship of our Condensed Consolidated Statementcondensed consolidated statement of Operationsoperations line items to our consolidated net revenues for the periods presented:
|
| Three months ended |
| |||||
|
| September 30, |
| |||||
|
| 2019 |
|
| 2018 |
| ||
Net revenue: |
| �� |
|
|
|
|
|
|
Products |
|
| 29.2 | % |
|
| 25.6 | % |
Support, maintenance and subscription services |
|
| 49.9 |
|
|
| 55.1 |
|
Professional services |
|
| 20.9 |
|
|
| 19.3 |
|
Total net revenue |
|
| 100.0 | % |
|
| 100.0 | % |
Cost of goods sold: |
|
|
|
|
|
|
|
|
Products |
|
| 24.1 | % |
|
| 22.5 | % |
Support, maintenance and subscription services |
|
| 11.4 |
|
|
| 11.6 |
|
Professional services |
|
| 14.9 |
|
|
| 14.0 |
|
Total cost of goods sold |
|
| 50.4 | % |
|
| 48.1 | % |
Gross profit |
|
| 49.6 | % |
|
| 51.9 | % |
Operating expenses: |
|
|
|
|
|
|
|
|
Product development |
|
| 26.5 | % |
|
| 29.7 | % |
Sales and marketing |
|
| 12.0 |
|
|
| 12.8 |
|
General and administrative |
|
| 14.8 |
|
|
| 15.1 |
|
Depreciation of fixed assets |
|
| 1.7 |
|
|
| 2.0 |
|
Amortization of intangibles |
|
| 1.5 |
|
|
| 2.0 |
|
Restructuring, severance and other charges |
|
| 0.5 |
|
|
| 1.3 |
|
Legal settlements, net |
|
| (0.3 | ) |
|
| 0.1 |
|
Operating loss |
|
| (7.1 | )% |
|
| (11.1 | )% |
Three months ended | |||||
December 31, | |||||
2017 | 2016 | ||||
Net revenue: | |||||
Products | 26.0 | % | 30.0 | % | |
Support, maintenance and subscription services | 55.0 | 48.5 | |||
Professional services | 19.0 | 21.5 | |||
Total | 100.0 | % | 100.0 | % | |
Cost of goods sold: | |||||
Products (inclusive of developed technology amortization) | 21.8 | % | 22.5 | % | |
Support, maintenance and subscription services | 13.2 | 13.3 | |||
Professional services | 15.1 | 15.6 | |||
Total | 50.1 | % | 51.4 | % | |
Gross profit | 49.9 | % | 48.6 | % | |
Operating expenses: | |||||
Product development | 23.2 | % | 20.5 | % | |
Sales and marketing | 13.7 | 14.9 | |||
General and administrative | 19.5 | 11.0 | |||
Depreciation of fixed assets | 1.9 | 1.8 | |||
Amortization of intangibles | 1.5 | 1.1 | |||
Restructuring, severance and other charges | 1.2 | 4.2 | |||
Legal settlements | 0.5 | — | |||
Operating loss | (11.5 | )% | (4.9 | )% |
Net revenue.
Total net revenueGross profit and gross profit margin.
Our total gross profitOperating expenses
Operating expenses, excluding the charges for asset write-offs and other fair value adjustments, legal settlements, and restructuring, severance and other charges, increased $2.2$2.0 million, or 13.6%9.3%, during the thirdsecond quarter of fiscal 20182020 compared with the thirdsecond quarter of fiscal 2017.
Product development.
Product development increased22
Sales and marketing. Sales and marketing decreased $0.7increased $0.5 million, or 14.4%11.3%, in the thirdsecond quarter of fiscal 20182020 compared with the thirdsecond quarter of fiscal 2017. The change is2019 due primarily to a decreasethe timing of $0.3 million in payroll related expensessales and $0.3 million in advertising and promotion related expenses.marketing events.
General and administrative.
General and administrative increasedRestructuring, severance, and other charges.
Restructuring, severance, and other charges decreasedLegal settlements, net. The Company received approximately $0.1 million of settlement funds during the thirdsecond quarter of fiscal 2018 we had $0.2 million in restructuring expense and $0.2 million in severance costs2020 due to the resolution of an outstanding lawsuit involving a former employee; no further activity is expected related to our ongoing efforts to better allocate resources to our crucial revenue growth areas while increasing internal efficiencies in other non-revenue generating areas. In the third quarter of fiscal 2017 we had $1.4 million in one-time charges related to the severance of our former CEO.this matter.
Other Expenses (Income)
|
| Three months ended |
|
|
|
|
|
|
|
|
| |||||
|
| September 30, |
|
| (Unfavorable) favorable |
| ||||||||||
(Dollars in thousands) |
| 2019 |
|
| 2018 |
|
| $ |
|
| % |
| ||||
Other expense (income): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest (income) |
| $ | (114 | ) |
| $ | (97 | ) |
| $ | (17 | ) |
|
| 17.5 | % |
Interest expense |
|
| 2 |
|
|
| 3 |
|
|
| (1 | ) |
| nm |
| |
Other expense, net |
|
| 108 |
|
|
| 28 |
|
|
| 80 |
|
| nm |
| |
Total other expense (income), net |
| $ | (4 | ) |
| $ | (66 | ) |
| $ | 62 |
|
| nm |
|
Three months ended | ||||||||||||||
December 31, | (Unfavorable) favorable | |||||||||||||
(Dollars in thousands) | 2017 | 2016 | $ | % | ||||||||||
Other (income) expense: | ||||||||||||||
Interest income | $ | (13 | ) | $ | (86 | ) | $ | (73 | ) | (84.9 | )% | |||
Interest expense | 3 | 3 | — | — | % | |||||||||
Other (income) expense, net | (46 | ) | 62 | 108 | nm | |||||||||
Total other (income) expense, net | $ | (56 | ) | $ | (21 | ) | $ | 35 | nm |
nm - not meaningful
Interest income.
Interest income consists of interest earned on cash equivalents including short-term investments inInterest expense.
Interest expense consists of costs associated withOther (income) expense.
Income Taxes
|
| Three months ended |
|
|
|
|
|
|
| |||||
|
| September 30, |
|
| (Unfavorable) favorable | |||||||||
(Dollars in thousands) |
| 2019 |
|
| 2018 |
|
| $ |
|
| % | |||
Income tax expense |
| $ | 41 |
|
| $ | 53 |
|
| $ | 12 |
|
| nm |
Effective tax rate |
|
| (1.4 | )% |
|
| (1.4 | )% |
|
|
|
|
|
|
Three months ended | |||||||||||||
December 31, | (Unfavorable) favorable | ||||||||||||
(Dollars in thousands) | 2017 | 2016 | $ | % | |||||||||
Income tax (benefit) expense | $ | (1,623 | ) | $ | 129 | $ | 1,752 | nm | |||||
Effective tax rate | 45.6 | % | (8.0 | )% |
nm - not meaningful
For the three months ended December 31, 2017, the effective tax rate was different than the statutory rate due primarily to a $1.3 million benefit resulting from the effect of a reduction in the deferred rate due to passage of the Tax Act, recognition of net operating losses as deferred tax assets, which were offset by increases in the valuation allowance, certain foreignSeptember 30, 2019 and state tax effects including a benefit of $0.4 million related to a settlement with the California Franchise Tax Board and other U.S. permanent book to tax differences.
Although the timing and outcome of tax settlements are uncertain, it is reasonably possible that during the next 12 months aan immaterial reduction in unrecognized tax benefits may occur in the range of zero to $0.1 million of tax and zero to $0.1 million of interest based on the outcome of tax examinations and as a result of the expiration of various statutes of limitations. We are routinely audited; due to the ongoing nature of current examinations in multiple jurisdictions, other changes could occur in the amount of gross unrecognized tax benefits during the next 12 months which cannot be estimated at this time. Additionally,
23
Because of our losses in prior periods, we recognized a tax benefit in the amount of $0.4 million during the quarter as a result of a settlement with the California Franchise Tax Board regarding disputed tax matters.
Results of Operations
First Nine MonthsHalf Fiscal 20182020 Compared to First Nine MonthsHalf Fiscal 2017
Net Revenue and Operating Loss
The following table presents our consolidated revenue and operating results for the ninesix months ended December 31, 2017September 30, 2019 and 2016:2018:
|
| Six months ended |
|
|
|
|
|
|
|
|
| |||||
|
| September 30, |
|
| Increase (decrease) |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| $ |
|
| % |
| ||||
Net revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products |
| $ | 22,742 |
|
| $ | 17,849 |
|
| $ | 4,893 |
|
|
| 27.4 | % |
Support, maintenance and subscription services |
|
| 40,411 |
|
|
| 36,785 |
|
|
| 3,626 |
|
|
| 9.9 |
|
Professional services |
|
| 15,958 |
|
|
| 13,576 |
|
|
| 2,382 |
|
|
| 17.5 |
|
Total net revenue |
|
| 79,111 |
|
|
| 68,210 |
|
|
| 10,901 |
|
|
| 16.0 |
|
Cost of goods sold: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products |
|
| 18,417 |
|
|
| 14,833 |
|
|
| 3,584 |
|
|
| 24.2 |
|
Support, maintenance and subscription services |
|
| 8,834 |
|
|
| 8,051 |
|
|
| 783 |
|
|
| 9.7 |
|
Professional services |
|
| 11,628 |
|
|
| 9,688 |
|
|
| 1,940 |
|
|
| 20.0 |
|
Total cost of goods sold |
|
| 38,879 |
|
|
| 32,572 |
|
|
| 6,307 |
|
|
| 19.4 |
|
Gross profit |
| $ | 40,232 |
|
| $ | 35,638 |
|
| $ | 4,594 |
|
|
| 12.9 | % |
Gross profit margin |
|
| 50.9 | % |
|
| 52.2 | % |
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product development |
| $ | 20,842 |
|
| $ | 17,240 |
|
| $ | 3,602 |
|
|
| 20.9 | % |
Sales and marketing |
|
| 9,389 |
|
|
| 9,146 |
|
|
| 243 |
|
|
| 2.7 |
|
General and administrative |
|
| 11,911 |
|
|
| 11,181 |
|
|
| 730 |
|
|
| 6.5 |
|
Depreciation of fixed assets |
|
| 920 |
|
|
| 1,282 |
|
|
| (362 | ) |
|
| (28.2 | ) |
Amortization of intangibles |
|
| 1,292 |
|
|
| 1,217 |
|
|
| 75 |
|
|
| 6.2 |
|
Restructuring, severance and other charges |
|
| 421 |
|
|
| 889 |
|
|
| (468 | ) |
|
| (52.6 | ) |
Legal settlements, net |
|
| (119 | ) |
|
| 126 |
|
|
| (245 | ) |
| nm |
| |
Operating Loss |
| $ | (4,424 | ) |
| $ | (5,443 | ) |
| $ | 1,019 |
|
|
| (18.7 | )% |
Operating loss percentage |
|
| (5.6 | )% |
|
| (8.0 | )% |
|
|
|
|
|
|
|
|
Nine months ended | ||||||||||||||
December 31, | Increase (decrease) | |||||||||||||
(Dollars in thousands) | 2017 | 2016 | $ | % | ||||||||||
Net revenue: | ||||||||||||||
Products | $ | 25,758 | $ | 30,257 | $ | (4,499 | ) | (14.9 | )% | |||||
Support, maintenance and subscription services | 50,990 | 47,087 | 3,903 | 8.3 | ||||||||||
Professional services | 18,557 | 19,732 | (1,175 | ) | (6.0 | ) | ||||||||
Total net revenue | 95,305 | 97,076 | (1,771 | ) | (1.8 | ) | ||||||||
Cost of goods sold: | ||||||||||||||
Products (inclusive of developed technology amortization) | 19,862 | 22,217 | (2,355 | ) | (10.6 | ) | ||||||||
Support, maintenance and subscription services | 12,610 | 12,714 | (104 | ) | (0.8 | ) | ||||||||
Professional services | 15,160 | 13,835 | 1,325 | 9.6 | ||||||||||
Total cost of goods sold | 47,632 | 48,766 | (1,134 | ) | (2.3 | ) | ||||||||
Gross profit | 47,673 | 48,310 | (637 | ) | (1.3 | ) | ||||||||
Gross profit margin | 50.0 | % | 49.8 | % | ||||||||||
Operating expenses: | ||||||||||||||
Product development | 20,708 | 20,647 | 61 | 0.3 | ||||||||||
Sales and marketing | 13,616 | 15,746 | (2,130 | ) | (13.5 | ) | ||||||||
General and administrative | 18,475 | 13,692 | 4,783 | 34.9 | ||||||||||
Depreciation of fixed assets | 1,892 | 1,791 | 101 | 5.6 | ||||||||||
Amortization of intangibles | 1,421 | 1,031 | 390 | 37.8 | ||||||||||
Restructuring, severance and other charges | 1,241 | 1,484 | (243 | ) | (16.4 | ) | ||||||||
Legal settlements | 150 | 85 | 65 | 76.5 | ||||||||||
Operating loss | $ | (9,830 | ) | $ | (6,166 | ) | $ | (3,664 | ) | 59.4 | % |
24
The following table presents the percentage relationship of our Condensed Consolidated Statementcondensed consolidated statement of Operationsoperations line items to our consolidated net revenues for the periods presented:
|
| Six months ended |
| |||||
|
| September 30, |
| |||||
Net revenue: |
| 2019 |
|
| 2018 |
| ||
Products |
|
| 28.7 | % |
|
| 26.2 | % |
Support, maintenance and subscription services |
|
| 51.1 |
|
|
| 53.9 |
|
Professional services |
|
| 20.2 |
|
|
| 19.9 |
|
Total net revenue |
|
| 100.0 | % |
|
| 100.0 | % |
Cost of goods sold: |
|
|
|
|
|
|
|
|
Products |
|
| 23.3 | % |
|
| 21.7 | % |
Support, maintenance and subscription services |
|
| 11.1 |
|
|
| 11.7 |
|
Professional services |
|
| 14.7 |
|
|
| 14.2 |
|
Total cost of goods sold |
|
| 49.1 | % |
|
| 47.8 | % |
Gross profit |
|
| 50.9 | % |
|
| 52.2 | % |
Operating expenses: |
|
|
|
|
|
|
|
|
Product development |
|
| 26.4 | % |
|
| 25.4 | % |
Sales and marketing |
|
| 11.9 |
|
|
| 13.4 |
|
General and administrative |
|
| 15.1 |
|
|
| 16.4 |
|
Depreciation of fixed assets |
|
| 1.2 |
|
|
| 1.9 |
|
Amortization of intangibles |
|
| 1.6 |
|
|
| 1.8 |
|
Restructuring, severance and other charges |
|
| 0.5 |
|
|
| 1.3 |
|
Legal settlements, net |
|
| (0.2 | ) |
|
| 0.2 |
|
Operating loss |
|
| (5.6 | )% |
|
| (8.0 | )% |
Nine months ended | |||||
December 31, | |||||
2017 | 2016 | ||||
Net revenue: | |||||
Products | 27.0 | % | 31.2 | % | |
Support, maintenance and subscription services | 53.5 | 48.5 | |||
Professional services | 19.5 | 20.3 | |||
Total | 100.0 | % | 100.0 | % | |
Cost of goods sold: | |||||
Products (inclusive of developed technology amortization) | 20.8 | % | 22.9 | % | |
Support, maintenance and subscription services | 13.2 | 13.0 | |||
Professional services | 15.9 | 14.3 | |||
Total | 50.0 | % | 50.2 | % | |
Gross profit | 50.0 | % | 49.8 | % | |
Operating expenses: | |||||
Product development | 21.7 | % | 21.4 | % | |
Sales and marketing | 14.3 | 16.2 | |||
General and administrative | 19.4 | 14.1 | |||
Depreciation of fixed assets | 2.0 | 1.8 | |||
Amortization of intangibles | 1.5 | 1.1 | |||
Restructuring, severance and other charges | 1.3 | 1.5 | |||
Legal settlements | 0.2 | 0.1 | |||
Operating loss | (10.3 | )% | (6.4 | )% |
Net revenue.
Total net revenueGross profit and gross profit margin.
Our total gross profitOperating expenses
Operating expenses, excluding the charges for asset write-offs and other fair value adjustments, legal settlements, and restructuring, severance and other charges, increased $3.2$4.3 million, or 6.1%10.7%, during the first nine monthshalf of fiscal 20182020 compared with the first nine monthshalf of fiscal 2017.
Product development.
Product development25
Sales and marketing. Sales and marketing decreased $2.1increased slightly by $0.2 million, or 13.5%2.7%, in the first nine monthshalf of fiscal 20182020 compared with the first nine monthshalf of fiscal 2017. The change is2019 due primarily to a decrease of $1.9 millionthe increase in incentive commissionssales incentives related to better progress through the revisionfirst half of our commission plan from total contract value to annual contract value, and $0.3 million decrease in advertising and promotion.the year towards sales teams reaching established quotas.
General and administrative.
General and administrative increasedRestructuring, severance, and other charges.
Restructuring, severance, and other charges decreasedLegal settlements, net. The Company received approximately $0.1 million of settlement funds during the first nine monthshalf of fiscal 2018 we had $1.0 million in restructuring expense and $0.2 million in severance costs2020 due to the resolution of an outstanding lawsuit involving a former employee; no further activity is expected related to our ongoing efforts to better allocate resources to our crucial revenue growth areas while increasing internal efficiencies in other non-revenue generating areas. In the first nine months of fiscal 2017 we had $1.4 million in one-time charges related primarily to the severance of our former CEO. The restructuring initiative will result in annual savings of $2.7 million across all of our operating expense categories.this matter.
Other Expenses (Income)
|
| Six months ended |
|
|
|
|
|
|
|
|
| |||||
|
| September 30, |
|
| (Unfavorable) favorable |
| ||||||||||
(Dollars in thousands) |
| 2019 |
|
| 2018 |
|
| $ |
|
| % |
| ||||
Other expense (income): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest (income) |
| $ | (194 | ) |
| $ | (152 | ) |
| $ | (42 | ) |
|
| 27.6 | % |
Interest expense |
|
| 3 |
|
|
| 5 |
|
|
| (2 | ) |
| nm |
| |
Other expense, net |
|
| 193 |
|
|
| 228 |
|
|
| (35 | ) |
|
| (15.4 | )% |
Total other expense, net |
| $ | 2 |
|
| $ | 81 |
|
| $ | (79 | ) |
| nm |
|
Nine months ended | ||||||||||||||
December 31, | (Unfavorable) favorable | |||||||||||||
(Dollars in thousands) | 2017 | 2016 | $ | % | ||||||||||
Other (income) expense: | ||||||||||||||
Interest income | $ | (64 | ) | $ | (135 | ) | $ | (71 | ) | (52.6 | )% | |||
Interest expense | 7 | 11 | $ | 4 | 36.4 | % | ||||||||
Other (income) expense, net | (196 | ) | 140 | 336 | 240.0 | % | ||||||||
Total other expense (income), net | $ | (253 | ) | $ | 16 | $ | 269 | nm |
nm - not meaningful
Interest income.
Interest income consists of interest earned on cash equivalents including short-term investments inInterest expense.
Interest expense consists of costs associated withOther (income) expense.
Income Taxes
|
| Six months ended |
|
|
|
|
|
|
| |||||
|
| September 30, |
|
| (Unfavorable) favorable | |||||||||
(Dollars in thousands) |
| 2019 |
|
| 2018 |
|
| $ |
|
| % | |||
Income tax expense |
| $ | 67 |
|
| $ | 4 |
|
| $ | (63 | ) |
| nm |
Effective tax rate |
|
| (1.5 | )% |
|
| (0.1 | )% |
|
|
|
|
|
|
Nine months ended | |||||||||||||
December 31, | (Unfavorable) favorable | ||||||||||||
(Dollars in thousands) | 2017 | 2016 | $ | % | |||||||||
Income tax (benefit) expense | $ | (1,439 | ) | $ | 252 | $ | 1,691 | nm | |||||
Effective tax rate | 15.0 | % | (4.1 | )% |
nm - not meaningful
For the ninesix months ended December 31, 2017, the effective tax rate was different than the statutory rate due primarily to a $1.3 million benefit resulting from the effect of a reduction in the deferred rate due to passage of the Tax Act, recognition of net operating losses as deferred tax assets, which were offset by increases in the valuation allowance, certain foreignSeptember 30, 2019 and state tax effects including a benefit of $0.4 million related to a settlement with the California Franchise Tax Board and other U.S. permanent book to tax differences.
Although the timing and outcome of tax settlements are uncertain, it is reasonably possible that during the next 12 months aan immaterial reduction in unrecognized tax benefits may occur in the range of zero to $0.1 million of tax and zero to $0.1 million of interest based on the outcome of tax examinations and as a result of the expiration of various statutes of limitations. We are routinely audited; due to the ongoing nature of current examinations in multiple jurisdictions, other changes could occur in the amount of gross unrecognized tax benefits during the next 12 months which cannot be estimated at this time. Additionally,
26
Because of our losses in prior periods, we recognized a tax benefit in the amount of $0.4 million during the quarter as a result of a settlement with the California Franchise Tax Board regarding disputed tax matters.
Liquidity and Capital Resources
Overview
Our operating cash requirements consist primarily of working capital needs, operating expenses, capital expenditures, and capital expenditures.payments of principal and interest on indebtedness outstanding, which primarily consists of finance lease and obligations at September 30, 2019. We believe that cash flow from operating activities, cash on hand of $37.6$38.9 million as of December 31, 2017September 30, 2019 and access to capital markets will provide adequate funds to meet our short- and long-term liquidity requirements in the next 12 months.
As of December 31, 2017September 30, 2019 and March 31, 2017,2019, our total debt was approximately $0.2$0.1 million, comprised of capitalfinance lease obligations in both periods.
At December 31, 2017,September 30, 2019, 100% of our cash and cash equivalents of which 92% is located in the United States, were deposited in bank accounts or invested in highly liquid investments with original maturitiesmaturity from the date of acquisition of three months or less. We maintain approximately 92% of our cashless, including investments in treasury bills and cash equivalents in the United States.commercial paper. Therefore, we believe that credit risk is limited with respect to our cash and cash equivalents.
Cash Flow
|
| Six Months Ended September 30, |
|
| |||||
(In thousands) |
| 2019 |
|
| 2018 |
|
| ||
Net cash provided by (used in): |
|
|
|
|
|
|
|
|
|
Operating activities |
| $ | 1,234 |
|
| $ | (2,748 | ) |
|
Investing activities |
|
| (1,942 | ) |
|
| (3,524 | ) |
|
Financing activities |
|
| (1,065 | ) |
|
| (616 | ) |
|
Effect of exchange rate changes on cash |
|
| (83 | ) |
|
| (151 | ) |
|
Net decrease in cash and cash equivalents |
| $ | (1,856 | ) |
| $ | (7,039 | ) |
|
Nine months ended | |||||||
December 31, | |||||||
(In thousands) | 2017 | 2016 | |||||
Net cash provided by (used in): | |||||||
Operating activities | $ | 2,098 | $ | 5,393 | |||
Investing activities | (12,588 | ) | (12,502 | ) | |||
Financing activities | (1,282 | ) | (687 | ) | |||
Effect of exchange rate changes on cash | 132 | (99 | ) | ||||
Net decrease in cash and cash equivalents | $ | (11,640 | ) | $ | (7,895 | ) |
Cash flow provided byused in operating activities.
Cash flow used in investing activities.
Cash flow used in financing activities.
During the firstContractual Obligations
As of December 31, 2017,September 30, 2019, there were no other significant changes to our contractual obligations as presented in our Annual Report for the year ended
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements that have had or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.
A detailed description of our significant accounting policies is included in our Annual Report for the year ended March 31, 2017.2019. There have been no material changes in our significant accounting policies and estimates since March 31, 20172019 except as noted in Note 2, Summary of Significant Accounting Policies.
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. Forward-lookingThese statements are neither historical facts nor assurancesnot guarantees of future performance. Instead, they are based only on our current beliefs, expectationsperformance and assumptions regarding the future of our business, future plansinvolve risks, uncertainties, and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstancesassumptions that are difficult to predictpredict. These statements are based on management’s current expectations, intentions, or beliefs and manyare subject to a number of which are outside of our control. Our actual resultsfactors, assumptions, and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factorsuncertainties that could cause our actual results and financial condition to differ materially from those indicateddescribed in the forward-looking statementsstatements. Factors that could cause or contribute to such differences or that might otherwise impact the business include among others, our ability to achieve operational efficiencies and meet customer demand for products and services and the risk factors set forth in Item 1A in Part II of this Quarterly Report and Item IA of our Annual Report for the fiscal year ended March 31, 2017. Any forward-looking statement made by us in this Quarterly Report is based only on information currently available to us and speaks only as of the date on which it is made.2019. We undertake no obligation to publicly update any such factor or to publicly announce the results of any revisions to any forward-looking statement made in this Quarterly Report or any other forward-looking statement that may be made from time to time, whether written or oral,statements contained herein whether as a result of new information, future events, or otherwise.
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,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.
Change in Internal Control over Financial Reporting
In connection with the adoption of Topic 842, we assessed the impact to our internal controls over financial reporting and noted no material changes during the period ended September 30, 2019.
28
None.
There have been no material changes in the risk factors included in our Annual Report for the fiscal year ended March 31, 20172019 that may materially affect our business, results of operations, or financial condition.
None.
None.
Not applicable.
None.
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. |
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101 | The following materials from our quarterly report on Form 10-Q for the quarter ended |
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: | October 29, 2019 | /s/ Anthony S. Pritchett |
Anthony S. Pritchett | ||
Chief Financial Officer | ||
(Principal Financial Officer and Duly Authorized Officer) |