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 endedSeptember 30, 20182019
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 Windward Concourse, Suite 250, 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 October 24, 201825, 2019 was 23,528,311.
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 | 30 | ||||
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 |
|
September 30, 2018 | March 31, 2018 | ||||||
(In thousands, except share data) | |||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 32,904 | $ | 39,943 | |||
Accounts receivable, net of allowance for doubtful accounts of $830 and $900, respectively | 18,963 | 16,389 | |||||
Contract assets | 4,696 | — | |||||
Inventories | 1,678 | 1,999 | |||||
Prepaid expenses and other current assets | 5,089 | 5,593 | |||||
Total current assets | 63,330 | 63,924 | |||||
Property and equipment, net | 16,355 | 17,512 | |||||
Goodwill | 19,622 | 19,622 | |||||
Intangible assets, net | 8,461 | 8,484 | |||||
Software development costs, net | 41,159 | 45,181 | |||||
Other non-current assets | 4,699 | 2,484 | |||||
Total assets | $ | 153,626 | $ | 157,207 | |||
LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 7,381 | $ | 8,400 | |||
Contract liabilities | 25,789 | 26,820 | |||||
Accrued liabilities | 9,459 | 9,241 | |||||
Capital lease obligations, current | 72 | 120 | |||||
Total current liabilities | 42,701 | 44,581 | |||||
Deferred income taxes, non-current | 274 | 227 | |||||
Capital lease obligations, non-current | 45 | 57 | |||||
Other non-current liabilities | 3,632 | 3,911 | |||||
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 23,530,629 and 23,324,679 shares outstanding at September 30, 2018 and March 31, 2018, respectively | 9,482 | 9,482 | |||||
Treasury shares, 8,076,202 and 8,282,152 at September 30, 2018 and March 31, 2018, respectively | (2,424 | ) | (2,486 | ) | |||
Capital in excess of stated value | (451 | ) | (1,911 | ) | |||
Retained earnings | 100,687 | 103,601 | |||||
Accumulated other comprehensive loss | (320 | ) | (255 | ) | |||
Total shareholders' equity | 106,974 | 108,431 | |||||
Total liabilities and shareholders' equity | $ | 153,626 | $ | 157,207 |
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 | Six months ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
(In thousands, except share data) | 2018 | 2017 | 2018 | 2017 | |||||||||||
Net revenue: | |||||||||||||||
Products | $ | 8,769 | $ | 7,318 | $ | 17,849 | $ | 17,601 | |||||||
Support, maintenance and subscription services | 18,856 | 17,108 | 36,785 | 33,775 | |||||||||||
Professional services | 6,578 | 5,703 | 13,576 | 12,618 | |||||||||||
Total net revenue | 34,203 | 30,129 | 68,210 | 63,994 | |||||||||||
Cost of goods sold: | |||||||||||||||
Products (inclusive of developed technology amortization) | 7,703 | 5,419 | 14,833 | 13,042 | |||||||||||
Support, maintenance and subscription services | 3,977 | 4,446 | 8,051 | 8,478 | |||||||||||
Professional services | 4,774 | 4,894 | 9,688 | 10,430 | |||||||||||
Total cost of goods sold | 16,454 | 14,759 | 32,572 | 31,950 | |||||||||||
Gross profit | 17,749 | 15,370 | 35,638 | 32,044 | |||||||||||
51.9 | % | 51.0 | % | 52.2 | % | 50.1 | % | ||||||||
Operating expenses: | |||||||||||||||
Product development | 10,151 | 6,812 | 17,240 | 13,438 | |||||||||||
Sales and marketing | 4,393 | 4,207 | 9,146 | 9,337 | |||||||||||
General and administrative | 5,176 | 5,561 | 11,181 | 12,361 | |||||||||||
Depreciation of fixed assets | 676 | 700 | 1,282 | 1,312 | |||||||||||
Amortization of intangibles | 674 | 465 | 1,217 | 950 | |||||||||||
Restructuring, severance and other charges | 448 | 826 | 889 | 863 | |||||||||||
Legal settlements | 35 | — | 126 | — | |||||||||||
Total operating expense | 21,553 | 18,571 | 41,081 | 38,261 | |||||||||||
Operating loss | (3,804 | ) | (3,201 | ) | (5,443 | ) | (6,217 | ) | |||||||
Other expense (income): | |||||||||||||||
Interest (income) | (97 | ) | (23 | ) | (152 | ) | (51 | ) | |||||||
Interest expense | 3 | 2 | 5 | 4 | |||||||||||
Other expense (income), net | 28 | (37 | ) | 228 | (147 | ) | |||||||||
Loss before taxes | (3,738 | ) | (3,143 | ) | (5,524 | ) | (6,023 | ) | |||||||
Income tax expense | 53 | 105 | 4 | 183 | |||||||||||
Net loss | $ | (3,791 | ) | $ | (3,248 | ) | $ | (5,528 | ) | $ | (6,206 | ) | |||
Weighted average shares outstanding | 23,131 | 22,760 | 23,113 | 22,740 | |||||||||||
Loss per share - basic and diluted: | |||||||||||||||
Loss per share | $ | (0.16 | ) | $ | (0.14 | ) | $ | (0.24 | ) | $ | (0.27 | ) | |||
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 | Six months ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
(In thousands) | 2018 | 2017 | 2018 | 2017 | |||||||||||
Net loss | $ | (3,791 | ) | $ | (3,248 | ) | $ | (5,528 | ) | $ | (6,206 | ) | |||
Other comprehensive (loss)/gain, net of tax: | |||||||||||||||
Unrealized foreign currency translation adjustments | (58 | ) | (22 | ) | (66 | ) | 22 | ||||||||
Total comprehensive loss | $ | (3,849 | ) | $ | (3,270 | ) | $ | (5,594 | ) | $ | (6,184 | ) |
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 |
|
Six months ended | |||||||
September 30, | |||||||
(In thousands) | 2018 | 2017 | |||||
Operating activities | |||||||
Net loss | $ | (5,528 | ) | $ | (6,206 | ) | |
Adjustments to reconcile net loss to net cash used in operating activities | |||||||
Net restructuring, severance and other charges | (126 | ) | 19 | ||||
Net legal settlements | 126 | — | |||||
Depreciation | 1,282 | 1,312 | |||||
Amortization | 1,217 | 950 | |||||
Amortization of developed technology | 6,010 | 4,727 | |||||
Deferred income taxes | 54 | 87 | |||||
Share-based compensation | 1,674 | 2,318 | |||||
Change in cash surrender value of company owned life insurance policies | (8 | ) | (6 | ) | |||
Changes in operating assets and liabilities | (7,449 | ) | (4,849 | ) | |||
Net cash used in operating activities | (2,748 | ) | (1,648 | ) | |||
Investing activities | |||||||
Capital expenditures | (1,333 | ) | (3,106 | ) | |||
Capitalized software development costs | (2,189 | ) | (5,477 | ) | |||
Investments in corporate-owned life insurance policies | (2 | ) | (2 | ) | |||
Net cash used in investing activities | (3,524 | ) | (8,585 | ) | |||
Financing activities | |||||||
Repurchase of common shares to satisfy employee tax withholding | (557 | ) | (519 | ) | |||
Principal payments under long-term obligations | (59 | ) | (61 | ) | |||
Net cash used in financing activities | (616 | ) | (580 | ) | |||
Effect of exchange rate changes on cash | (151 | ) | 90 | ||||
Net decrease in cash and cash equivalents | (7,039 | ) | (10,723 | ) | |||
Cash and cash equivalents at beginning of period | $ | 39,943 | $ | 49,255 | |||
Cash and cash equivalents at end of period | $ | 32,904 | $ | 38,532 | |||
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES: | |||||||
Accrued capital expenditures | $ | 74 | $ | 385 | |||
Accrued capitalized software development costs | — | 357 |
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), payment gateway, reservation and tableproperty management property managementsystems (PMS), inventory and procurement, business analytics, document management,payments, and related applications, to manage the entire guest offers management,journey. Agilysys is known for its leadership in hospitality, its broad product offerings and mobile 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 20192020 refers to the fiscal year ending March 31, 2019.
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 Sheet as of September 30, 2018,2019, as well as the Condensed Consolidated Statements of Operations, Condensed Consolidated Statements of Comprehensive Loss, and the Condensed Consolidated Statements of Cash FlowsShareholders' Equity for the three and six months ended September 30, 2019 and 2018, and 2017,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, 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, 2018,2019, included in our Annual Report on Form 10-K. Our accounting policy for revenue recognitionleases changed with the adoption of Accounting Standards Update ("ASU") No. 2014-092016-02 ("Topic 606"842"), as described further below. There have been no other material changes to our significant accounting policies and estimates from those disclosed therein.
8
In August 2018,April 2019, the Financial Accounting Standards Board ("FASB") issued ASU No. 2018-15, 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): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service ContractContract.. ASU 2018-15 addresses the treatment 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 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 ValueIn February 2018, the FASB issued ASU No. 2018-02,
IncomeIn January 2017, the FASB issued ASU No. 2017-01,
In June 2016, the FASB issued ASU No. 2016-13,
Financial Instruments - Credit Losses (Topic 326). 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 allowances 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 losses will be recognized as allowances rather than as reductions in the amortized cost of the securities. The new standard is effective for annual periods, and for interim periods within those annual periods, beginning after December 15, 2019, with early adoption permitted. We are currently reviewing this standard to assess the impact on our future consolidated financial statements.In February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842), whichDisaggregation of Revenue
We derive and report our revenue from the sale of products (software licenses, third party hardware and hardware including server, storage, and point of sale)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, 2018.2019 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. Multiple contracts with a single counterparty entered into at the same time are evaluated to determine if the contracts should be combined and accounted for as a single contract.
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. A majority of our hardware sales involve shipment directlyHardware is purchased from its suppliers and provided to the end-user customers. In these transactions, wecustomers 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 notified by the supplier that the product has been shipped. In certain limited instances, as shipping terms dictate, revenue is recognized upon receipt at the point of destination or upon installation at the customer site.
Support and certain maintenance revenue is derived from providing telephone and on-line technical support services, bug fixes, and unspecified software updates and upgrades to customers on a when-and-if-available basis. Each of these performance obligations provide benefit to the customer on a standalone basis and are distinct in the context of the contract. Each of these distinct performance obligationsThese services represent a stand readystand-ready obligation to provide service to a customer, whichthat is concurrently delivered and has the same pattern of transfer to the customer, which is whycustomer; we account for these support and maintenance services as a single performance obligation recognized over the term of the maintenance agreement.
Our subscription service revenue is comprised of fees for Software as a Service (“SaaS”) contracts that provide customers a right to access our software which we maintain, and host in a data center, for a subscribed period. We do not provide the customer the contractual right to license the software outside of the data center at any time duringoutside of the subscription period under these contracts. The customer can only benefit from the software and software maintenance when combined with the hosting service sinceprovided the right to access is only provided to the software hosted in the data center.software. Accordingly, each of the rights to access the software, the maintenance services, and theany hosting services is not considered a distinct performance obligation in the context of the contract and should be combined into a single performance obligation andto be recognized over the contract period. Typically, we invoice fees monthly.
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 of other promised goods or services in the contract. As a result, professional services are considered distinct in the context of the contract and represent a separate performance obligation. Professional services that are billed on a time and materials basis are recognized over time as the services are performed. For contracts billed on a fixed price basis, revenue is recognized over time using an input method based on labor hours expended to date relative to the total labor hours expected to be required to satisfy the related performance obligation.
10
We use the market estimate approach to drive standalone selling price ("SSP") based onby maximizing observable data points (in the form of recently executed customer contracts) to determine the price at whichcustomers are willing to pay for the performance obligations are sold by considering certain specific factors related to our company together with customer information.goods and services transferred. If the contract contains a single performance obligation, the entire transaction price is allocated to that performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price 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 contract 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 upon contractual billing schedules and accounts receivable are recorded when the right to consideration becomes unconditional. Contract liabilities represent consideration received or consideration which is unconditionally due from customers prior to transferring goods or services to the customer under the terms of the contract.
Revenue recognized during the three and six months ended September 30, 2018 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. Duringmillion 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, 2019, $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, we transferred $0.2 million and $3.2 million to accounts receivable from contract assets recognized at April 1, 2018 because the right to the transaction consideration became unconditional.
Our arrangements are for a period of one year or less. We had approximately $28 million of remainingAs a result, unsatisfied performance obligations as of September 30, 2018, which we expect2019 are expected to recognize overbe satisfied and the next twelve months.
Assets Recognized from Costs to Obtain a Contract
Sales commission expenses paid to internal sales personnel as expenses that are incremental to obtaining customer contracts. We have determined that these commission expenses are in fact incremental and would not have occurred absent the customer contract. Capitalized sales commissionscontracts are amortized onconsidered incremental costs to obtain a straight-line basis over the period the goods or services are expected to be transferred to the customer to which the assets relate, which can range as long as five years.contract. We have determinedelected 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 certain sales incentive programs meet the requirements to be capitalized. We have capitalized $1.9 million of sales incentive costs in prior periods as part of our opening retained earnings adjustmentare renewed monthly based on April 1, 2018. These balances are included in other non-current assets on our condensed consolidated balance sheetan agreement term, we capitalize commission expenses and are amortizedamortize 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 practical 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 sheets. During the three and six months ended September 30, 2019 , we expensed $1.2 million and $2.2 million, respectively, of sales commissions, which included amortization of capitalized amounts of $0.3 million and $0.7 million, respectively. During the comparable periods ending September 30, 2018, we expensed $0.9 million and $1.8 million, respectively, of sales commissions, which included amortization of capitalized amounts of $0.3 million and $0.5 million, respectively. These expenses are included in operating expenses -– sales and marketing in our condensed consolidated statement of operations. All other costs to obtain a contract are not considered incremental and therefore are expensed as incurred.
(In thousands) | March 31, 2018 | Adjustment from Topic 606 | April 1, 2018 | |||
Assets: | ||||||
Accounts receivable, net | 16,389 | 3,124 | 19,513 | |||
Contract assets | — | 4,583 | 4,583 | |||
Prepaid expenses and other current assets | 5,593 | (496 | ) | 5,097 | ||
Other non-current assets | 2,484 | 2,409 | 4,893 | |||
Liabilities: | ||||||
Contract liabilities | 26,820 | 7,006 | 33,826 | |||
Shareholders' equity: | ||||||
Retained earnings | 103,601 | 2,614 | 106,215 |
September 30, 2018 | ||||||
As reported | Balance without adoption of Topic 606 | Effect of Change Higher (Lower) | ||||
(In thousands) | ||||||
Assets: | ||||||
Accounts receivable, net | 18,963 | 18,312 | 651 | |||
Contract assets | 4,696 | — | 4,696 | |||
Prepaid expenses and other current assets | 5,089 | 5,532 | (443 | ) | ||
Other non-current assets | 4,699 | 2,183 | 2,516 | |||
Liabilities: | ||||||
Contract liabilities | 25,789 | 21,120 | 4,669 | |||
Shareholders' equity: | ||||||
Retained earnings | 100,687 | 97,936 | 2,751 |
Three months ended September 30, 2018 | ||||||
As reported | Balance without adoption of Topic 606 | Effect of Change Higher (Lower) | ||||
(In thousands) | ||||||
Net revenue: | ||||||
Products | 8,769 | 8,391 | 378 | |||
Support, maintenance and subscription services | 18,856 | 19,007 | (151 | ) | ||
Professional services | 6,578 | 6,727 | (149 | ) | ||
Total net revenue: | 34,203 | 34,125 | 78 | |||
Operating expenses: | ||||||
Sales and marketing | 4,393 | 4,536 | (143 | ) | ||
Net Loss | (3,791 | ) | (4,012 | ) | 221 |
Six months ended September 30, 2018 | ||||||
As reported | Balance without adoption of Topic 606 | Effect of Change Higher (Lower) | ||||
(In thousands) | ||||||
Net revenue: | ||||||
Products | 17,849 | 17,093 | 756 | |||
Support, maintenance and subscription services | 36,785 | 37,194 | (409 | ) | ||
Professional services | 13,576 | 13,894 | (318 | ) | ||
Total net revenue: | 68,210 | 68,181 | 29 | |||
Operating expenses: | ||||||
Sales and marketing | 9,146 | 9,254 | (108 | ) | ||
Net Loss | (5,528 | ) | (5,665 | ) | 137 |
Balance at | Provisions/Adjustments | Payments | Balance at | |||||||||
(In thousands) | March 31, 2018 | September 30, 2018 | ||||||||||
Fiscal 2018 Restructuring Plan: | ||||||||||||
Restructuring and other employment costs | $ | 198 | $ | — | $ | (178 | ) | $ | 20 | |||
Total restructuring costs | $ | 198 | $ | — | $ | (178 | ) | $ | 20 |
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 |
|
September 30, 2018 | March 31, 2018 | ||||||||||||||||||
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 | 10,398 | (10,398 | ) | — | 10,398 | (10,398 | ) | — | |||||||||||
Trade names | 230 | (169 | ) | 61 | 230 | (146 | ) | 84 | |||||||||||
Patented technology | 80 | (80 | ) | — | 80 | (80 | ) | — | |||||||||||
24,183 | (24,122 | ) | 61 | 24,183 | (24,099 | ) | 84 | ||||||||||||
Unamortized intangible assets: | |||||||||||||||||||
Trade names | 8,400 | N/A | 8,400 | 8,400 | N/A | 8,400 | |||||||||||||
Total intangible assets | $ | 32,583 | $ | (24,122 | ) | $ | 8,461 | $ | 32,583 | $ | (24,099 | ) | $ | 8,484 | |||||
Software development costs | $ | 67,541 | $ | (26,382 | ) | $ | 41,159 | $ | 53,368 | $ | (20,372 | ) | $ | 32,996 | |||||
Project expenditures not yet in use | — | — | — | 12,185 | — | 12,185 | |||||||||||||
Total software development costs | $ | 67,541 | $ | (26,382 | ) | $ | 41,159 | $ | 65,553 | $ | (20,372 | ) | $ | 45,181 |
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, | |||
2019 | $ | 6,615 | |
2020 | 12,599 | ||
2021 | 12,515 | ||
2022 | 5,403 | ||
2023 | 3,399 | ||
2024 | 689 | ||
Total | $ | 41,220 |
Amortization expense for software development costs related to assets to be sold, leased, or otherwise marketed was $3.4$3.1 million and $2.4$3.4 million for the three months ended September 30, 2019 and 2018, and 2017,$6.3 million and $6.0 million and $4.7 million for the six months ended September 30, 20182019 and 2017,2018, respectively. These charges are included as Products costcosts of goods sold within the- products in our condensed consolidated statements of operations. Amortization expense relating to other definite-lived intangible assets was $11,500 for the three months ended September 30, 20182019 and 2017,2018, and $23,000 for the six months ended September 30, 20182019 and 2017.2018. These charges are classified as Amortizationoperating expenses - amortization of intangibles within thein our condensed consolidated statements of operations along with Amortizationamortization expense related to our Capitalized Internal-Use Softwarecapitalized internal-use software that we classify in Property and Equipment,equipment, net within the condensed consolidated balance sheets.
Capitalized software development costs for software internally developed to be sold, leased, or otherwise marketed, are carried on our balance sheet at 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, 2018 due to the current2019. Current active projects which carry a sufficiently short amount of time between achieving technological feasibility and
Additional information related to the condensed 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) | September 30, 2018 | March 31, 2018 | |||||
Accrued liabilities: | |||||||
Salaries, wages, and related benefits | $ | 6,794 | $ | 6,793 | |||
Other taxes payable | 836 | 769 | |||||
Restructuring liabilities | 20 | 198 | |||||
Accrued legal settlements | 126 | — | |||||
Severance liabilities | 169 | — | |||||
Professional fees | 228 | 288 | |||||
Deferred rent | 420 | 407 | |||||
Other | 866 | 786 | |||||
Total | $ | 9,459 | $ | 9,241 | |||
Other non-current liabilities: | |||||||
Uncertain tax positions | $ | 1,442 | $ | 1,519 | |||
Deferred rent | 2,115 | 2,313 | |||||
Other | 75 | 79 | |||||
Total | $ | 3,632 | $ | 3,911 |
6. Leases
We adopted Topic 842 on April 1, 2019 using the current period adjustment method of allowanceadoption to recognize leases with a duration greater than 12 months on the balance sheet. The impact of adoption on April 1, 2019 was recognition of operating lease liabilities of $16.3 million and related Right-of-Use ("ROU") assets of $13.8 million. Prior period financial statements have not been restated and therefore the comparative amounts are not presented below or on the condensed consolidated balance sheet as of March 31, 2019. For operating leases with a term greater than 12 months, we have recorded the lease liability at the present value of lease payments over the remaining lease term and the related ROU asset. The remaining lease term has been determined for doubtful accountseach lease considering factors such as renewal options, termination options, our Company's historical practices in exercising such options, and current business knowledge which may impact lease related decisions. The majority of our leases are comprised of real estate leases for our respective offices around the globe. Our finance leases consist of office equipment. We have no residual value guarantees or restrictions or covenants imposed by, or associated with our active leases. Since our current leases do not provide an implicit rate of return, our incremental borrowing rates used to determine the value of lease payments in implementation are estimated at April 1, 2019, based on collateralized rates for a term similar to each remaining lease term.
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, 2018, respectively. The related allowance for doubtful accounts was $0.8 million2019 Form 10-K and $0.9 millionunder the previous lease accounting standard, future minimum lease payments under non-cancelable leases as of September 30, 2018 and March 31, 2018, respectively.2019 were as follows:
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 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 | Six months ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
(Dollars in thousands) | 2018 | 2017 | 2018 | 2017 | |||||||||||
Income tax expense | $ | 53 | $ | 105 | $ | 4 | $ | 183 | |||||||
Effective tax rate | (1.4 | )% | (3.3 | )% | (0.1 | )% | (3.0 | )% |
For the three and six months ended September 30, 2019 and 2018, the effective tax rate was different than the statutory rate due primarily to the recognition of net operating losses as deferred tax assets which were offset by increases in the valuation allowance, an adjustment to true-up uncertain tax positions,U.S. and certain foreign and state tax effects, and other U.S. permanent book to tax differences.
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. Ameranth 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 a patentpatents 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) 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 | Six months ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
(In thousands, except per share data) | 2018 | 2017 | 2018 | 2017 | |||||||||||
Numerator: | |||||||||||||||
Net loss | $ | (3,791 | ) | $ | (3,248 | ) | $ | (5,528 | ) | $ | (6,206 | ) | |||
Denominator: | |||||||||||||||
Weighted average shares outstanding | 23,131 | 22,760 | 23,113 | 22,740 | |||||||||||
Loss per share - basic and diluted: | |||||||||||||||
Loss per share | $ | (0.16 | ) | $ | (0.14 | ) | $ | (0.24 | ) | $ | (0.27 | ) | |||
Anti-dilutive stock options, SSARs, restricted shares and performance shares | 1,481 | 1,788 | 1,419 | 1,728 |
Basic 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 486,701418,854 and 535,772486,701 of restricted shares at September 30, 20182019 and 2017,2018, respectively, as these shares were issued but were not vested and therefore, not considered outstanding for purposes of computing basic loss per share at the balance sheet dates.
Diluted 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 ("2016 Plan") for up to
2.0 million common shares, plus 957,575 common shares, the number of shares that were remaining for grant under the 2011 Stock Incentive Plan ("2011 Plan") as of the effective date of the 2016 Plan, plus the number of shares remaining for grant under the 2011 Plan that are forfeited, settled in cash, canceled or expired. The maximum aggregate number of restricted shares or restricted share units that may be granted under the 2016 Plan is 1.25 million.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 model, which includes assumptions regarding the risk-free interest rate, dividend yield, life of the award, and the volatility of our common shares.
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 | Six months ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
(In thousands) | 2018 | 2017 | 2018 | 2017 | |||||||||||
Product development | $ | 514 | $ | 105 | $ | 429 | $ | 526 | |||||||
Sales and marketing | 134 | 187 | 199 | 356 | |||||||||||
General and administrative | 617 | 808 | 1,046 | 1,436 | |||||||||||
Total share-based compensation expense | 1,265 | 1,100 | 1,674 | 2,318 |
Stock-Settled 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, Inc.
The following table summarizes the activity during the six months ended September 30, 20182019 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, 2018 | 1,103,160 | $ | 10.60 | |||||||||
Granted | 158,244 | 14.22 | ||||||||||
Exercised | (176,181 | ) | 10.32 | |||||||||
Forfeited | (43,417 | ) | 10.80 | |||||||||
Cancelled/expired | (3,492 | ) | 9.60 | |||||||||
Outstanding at September 30, 2018 | 1,038,314 | $ | 11.19 | 5.4 | $ | 3,035 | ||||||
Exercisable at September 30, 2018 | 529,923 | $ | 10.57 | 4.8 | $ | 3,035 |
As of September 30, 2018,2019, total unrecognized stock basedshare-based compensation expense related to non-vested SSARs was $0.9$0.7 million, which is expected to be recognized over a weighted-average vesting period of 3.02.7 years.
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 six months ended September 30, 20182019 for restricted shares awarded under the 2011 and 2016 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, 2018 | 243,354 | $ | 10.78 | |||
Granted | 238,703 | 14.25 | ||||
Vested | — | — | ||||
Forfeited | (58,647 | ) | 10.54 | |||
Outstanding at September 30, 2018 | 423,410 | $ | 12.77 |
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 September 30, 2018,2019, total unrecognized stock basedshare-based compensation expense related to non-vested restricted stock was $3.4$4.1 million, which is expected to be recognized over a weighted-average vesting period of 2.1 years.
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 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 six months ended September 30, 20182019 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 September 30, | 30,120 |
Based on the performance goals, management estimates a liability of $450,000 to be settled through the vesting of a variable number of the performance shares subsequent to March 31, 2019.2020. As of September 30, 2018,2019, total unrecognized stock basedshare-based compensation expense related to non-vested performance shares was $270,000,$0.3 million, which is expected to be recognized over the remaining vesting period of 6 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 six months ended September 30, 20182019 and 2017.
The following tables present information about our financial assets 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) | September 30, 2018 | (Level 1) | (Level 2) | (Level 3) | |||||||||
Assets: | |||||||||||||
Corporate-owned life insurance — non-current | $ | 863 | — | — | $ | 863 |
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, 2018 | (Level 1) | (Level 2) | (Level 3) | |||||||||
Assets: | |||||||||||||
Corporate-owned life insurance — non-current | $ | 853 | — | — | $ | 853 |
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, 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 |
|
Six months ended | |||||||
September 30, | |||||||
(In thousands) | 2018 | 2017 | |||||
Corporate-owned life insurance: | |||||||
Balance on April 1 | $ | 853 | $ | 809 | |||
Unrealized gain relating to instruments held at reporting date | 8 | 4 | |||||
Purchases, sales, issuances and settlements, net | 2 | 2 | |||||
Balance on September 30 | $ | 863 | $ | 815 |
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), payment gateway, reservation and tableproperty management property managementsystems (PMS), inventory and procurement, business analytics, document management,payments, and related applications, to manage the entire guest offers management,journey. Agilysys is known for its leadership in hospitality, its broad product offerings and mobile 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 statements of operations. In addition to the SEC requirements, we may, at times, also refer to revenue as defined below. The terminology, definitions, and applications of terms we use to describe our revenue may be different from those used by other companies and caution should be used when comparing these financial measures to those of other companies. We use the following terms to describe revenue:
Revenue - We present revenue net of sales returns and allowances
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 20192020 Compared to Second Fiscal Quarter 2018
Net Revenue and Operating Loss
The following table presents our consolidated revenue and operating results for the three months ended September 30, 20182019 and 2017:2018:
|
| 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 | ||||||||||||||
September 30, | Increase (decrease) | |||||||||||||
(Dollars in thousands) | 2018 | 2017 | $ | % | ||||||||||
Net revenue: | ||||||||||||||
Products | $ | 8,769 | $ | 7,318 | $ | 1,451 | 19.8 | % | ||||||
Support, maintenance and subscription services | 18,856 | 17,108 | 1,748 | 10.2 | ||||||||||
Professional services | 6,578 | 5,703 | 875 | 15.3 | ||||||||||
Total net revenue | 34,203 | 30,129 | 4,074 | 13.5 | ||||||||||
Cost of goods sold: | ||||||||||||||
Products (inclusive of developed technology amortization) | 7,703 | 5,419 | 2,284 | 42.1 | ||||||||||
Support, maintenance and subscription services | 3,977 | 4,446 | (469 | ) | (10.5 | ) | ||||||||
Professional services | 4,774 | 4,894 | (120 | ) | (2.5 | ) | ||||||||
Total cost of goods sold | 16,454 | 14,759 | 1,695 | 11.5 | ||||||||||
Gross profit | $ | 17,749 | $ | 15,370 | $ | 2,379 | 15.5 | % | ||||||
Gross profit margin | 51.9 | % | 51.0 | % | ||||||||||
Operating expenses: | ||||||||||||||
Product development | $ | 10,151 | $ | 6,812 | $ | 3,339 | 49.0 | % | ||||||
Sales and marketing | 4,393 | 4,207 | 186 | 4.4 | ||||||||||
General and administrative | 5,176 | 5,561 | (385 | ) | (6.9 | ) | ||||||||
Depreciation of fixed assets | 676 | 700 | (24 | ) | (3.4 | ) | ||||||||
Amortization of intangibles | 674 | 465 | 209 | 44.9 | ||||||||||
Restructuring, severance and other charges | 448 | 826 | (378 | ) | nm | |||||||||
Legal settlements | 35 | — | 35 | nm | ||||||||||
Operating loss | $ | (3,804 | ) | $ | (3,201 | ) | $ | (603 | ) | 18.8 | % | |||
Operating loss percentage | (11.1 | )% | (10.6 | )% |
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 | |||||
September 30, | |||||
2018 | 2017 | ||||
Net revenue: | |||||
Products | 25.6 | % | 24.3 | % | |
Support, maintenance and subscription services | 55.1 | 56.8 | |||
Professional services | 19.3 | 18.9 | |||
Total | 100.0 | % | 100.0 | % | |
Cost of goods sold: | |||||
Products (inclusive of developed technology amortization) | 22.5 | % | 18.0 | % | |
Support, maintenance and subscription services | 11.6 | 14.8 | |||
Professional services | 14.0 | 16.2 | |||
Total | 48.1 | % | 49.0 | % | |
Gross profit | 51.9 | % | 51.0 | % | |
Operating expenses: | |||||
Product development | 29.7 | % | 22.6 | % | |
Sales and marketing | 12.8 | 14.0 | |||
General and administrative | 15.1 | 18.5 | |||
Depreciation of fixed assets | 2.0 | 2.3 | |||
Amortization of intangibles | 2.0 | 1.5 | |||
Restructuring, severance and other charges | 1.3 | 2.7 | |||
Legal settlements | 0.1 | — | |||
Operating loss | (11.1 | )% | (10.6 | )% |
Net revenue.
Total net revenue increasedGross profit and gross profit margin.
Our total gross profit increasedOperating expenses
Operating expenses, excluding the charges for legal settlements, restructuring, severance and other charges, increased $3.3$2.0 million, or 18.7%9.3%, during the second quarter of fiscal 20192020 compared with the second quarter of fiscal 2018.
Product development.
Product development increased22
Sales and marketing. Sales and marketing increased $0.5 million, or 11.3%, in the second quarter of fiscal 2020 compared with the second quarter of fiscal 2019 due primarily to the absencetiming of cost capitalization. The productssales and marketing events.
General and administrative. General and administrative increased by $0.9 million, or 16.7%, in our rGuest platform for which we had capitalized costs
Restructuring, severance, and other charges. Restructuring, severance, and other charges decreased $0.3 million during the second quarter of fiscal 2020 compared to the second quarter of fiscal 2019 due to the relatively short development cycle associated with the agile development of our current active products. We capitalized approximately $2.7 million in total development costs during the three months ended September 30, 2017. Total product development costs, including operating expenses and capitalized amounts, were $10.2 million in the second quarter of fiscal 2019 compared to $9.5 million in the second quarter of fiscal 2018. The $0.7 million increase is mostly due to the continued expansion of the India Development Center.
Legal settlements, net.Restructuring, severance, and other charges. Restructuring, severance, and other charges decreased $0.4 The Company received approximately $0.1 million of settlement funds during the second quarter of fiscal 2019 compared2020 due to the second quarterresolution of fiscal 2018 duean outstanding lawsuit involving a former employee; no further activity is expected related to decreased restructuring charges.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 | ||||||||||||||
September 30, | (Unfavorable) favorable | |||||||||||||
(Dollars in thousands) | 2018 | 2017 | $ | % | ||||||||||
Other expense (income): | ||||||||||||||
Interest (income) | $ | (97 | ) | $ | (23 | ) | $ | 74 | nm | |||||
Interest expense | 3 | 2 | (1 | ) | (50.0 | )% | ||||||||
Other expense (income), net | 28 | (37 | ) | (65 | ) | nm | ||||||||
Total other expense, net | $ | (66 | ) | $ | (58 | ) | $ | 8 | 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 expense.Other expense (income). Other expense (income) consists mainly of the impact of foreign currency due to movement of European and Asian currencies against the US dollar.
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 | |||||||||||||
September 30, | (Unfavorable) favorable | ||||||||||||
(Dollars in thousands) | 2018 | 2017 | $ | % | |||||||||
Income tax expense | $ | 53 | $ | 105 | $ | 52 | nm | ||||||
Effective tax rate | (1.4 | )% | (3.3 | )% |
nm - not meaningful
For the three months ended September 30, 2019 and 2018, the effective tax rate was different than the statutory rate due primarily to the recognition of net operating losses as deferred tax assets, which were offset by increases in the valuation allowance, certain foreign and state tax effects, 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 $0.2 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.
23
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.
Results of Operations
First Half Fiscal 20192020 Compared to First Half Fiscal 2018
Net Revenue and Operating Loss
The following table presents our consolidated revenue and operating results for the six months ended September 30, 20182019 and 2017:2018:
|
| 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 | )% |
|
|
|
|
|
|
|
|
Six months ended | ||||||||||||||
September 30, | Increase (decrease) | |||||||||||||
(Dollars in thousands) | 2018 | 2017 | $ | % | ||||||||||
Net revenue: | ||||||||||||||
Products | $ | 17,849 | $ | 17,601 | $ | 248 | 1.4 | % | ||||||
Support, maintenance and subscription services | 36,785 | 33,775 | 3,010 | 8.9 | ||||||||||
Professional services | 13,576 | 12,618 | 958 | 7.6 | ||||||||||
Total net revenue | 68,210 | 63,994 | 4,216 | 6.6 | ||||||||||
Cost of goods sold: | ||||||||||||||
Products (inclusive of developed technology amortization) | 14,833 | 13,042 | 1,791 | 13.7 | ||||||||||
Support, maintenance and subscription services | 8,051 | 8,478 | (427 | ) | (5.0 | ) | ||||||||
Professional services | 9,688 | 10,430 | (742 | ) | (7.1 | ) | ||||||||
Total cost of goods sold | 32,572 | 31,950 | 622 | 1.9 | ||||||||||
Gross profit | $ | 35,638 | $ | 32,044 | $ | 3,594 | 11.2 | % | ||||||
Gross profit margin | 52.2 | % | 50.1 | % | ||||||||||
Operating expenses: | ||||||||||||||
Product development | $ | 17,240 | $ | 13,438 | $ | 3,802 | 28.3 | % | ||||||
Sales and marketing | 9,146 | 9,337 | (191 | ) | (2.0 | ) | ||||||||
General and administrative | 11,181 | 12,361 | (1,180 | ) | (9.5 | ) | ||||||||
Depreciation of fixed assets | 1,282 | 1,312 | (30 | ) | (2.3 | ) | ||||||||
Amortization of intangibles | 1,217 | 950 | 267 | 28.1 | ||||||||||
Restructuring, severance and other charges | 889 | 863 | 26 | nm | ||||||||||
Legal settlements | 126 | — | 126 | nm | ||||||||||
Operating loss | $ | (5,443 | ) | $ | (6,217 | ) | $ | 774 | (12.4 | )% | ||||
Operating loss percentage | (8.0 | )% | (9.7 | )% |
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 | )% |
Six months ended | |||||
September 30, | |||||
2018 | 2017 | ||||
Net revenue: | |||||
Products | 26.2 | % | 27.5 | % | |
Support, maintenance and subscription services | 53.9 | 52.8 | |||
Professional services | 19.9 | 19.7 | |||
Total | 100.0 | % | 100.0 | % | |
Cost of goods sold: | |||||
Products (inclusive of developed technology amortization) | 21.7 | % | 20.4 | % | |
Support, maintenance and subscription services | 11.7 | 13.2 | |||
Professional services | 14.2 | 16.3 | |||
Total | 47.8 | % | 49.9 | % | |
Gross profit | 52.2 | % | 50.1 | % | |
Operating expenses: | |||||
Product development | 25.4 | % | 21.1 | % | |
Sales and marketing | 13.4 | 14.6 | |||
General and administrative | 16.4 | 19.3 | |||
Depreciation of fixed assets | 1.9 | 2.1 | |||
Amortization of intangibles | 1.8 | 1.5 | |||
Restructuring, severance and other charges | 1.3 | 1.3 | |||
Legal settlements | 0.2 | — | |||
Operating loss | (8.0 | )% | (9.7 | )% |
Net revenue.
Total net revenue increasedGross profit and gross profit margin.
Our total gross profit increasedOperating expenses
Operating expenses, excluding the charges for legal settlements, restructuring, severance and other charges, increased $2.7$4.3 million, or 7.1%10.7%, during the first half of fiscal 20192020 compared with the first half of fiscal 2018.
Product development.
Product development increased25
Sales and marketing. Sales and marketing decreasedincreased slightly by $0.2 million, or 2.0%2.7%, in the first half of fiscal 20192020 compared with the first half of fiscal 2018.2019 due primarily to the increase in sales incentives related to better progress through the first half of the year towards sales teams reaching established quotas.
General and administrative.
General and administrativeRestructuring, severance, and other charges.
Restructuring, severance, and other charges decreased $0.5 million during the first half of fiscalLegal settlements, net. The Company received approximately $0.1 million of settlement funds during the first half of fiscal 2020 due to the resolution of an outstanding lawsuit involving a former employee; no further activity is expected related to 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 |
|
Six months ended | ||||||||||||||
September 30, | (Unfavorable) favorable | |||||||||||||
(Dollars in thousands) | 2018 | 2017 | $ | % | ||||||||||
Other expense (income): | ||||||||||||||
Interest (income) | $ | (152 | ) | $ | (51 | ) | $ | 101 | 198.0 | % | ||||
Interest expense | 5 | 4 | (1 | ) | (25.0 | )% | ||||||||
Other expense (income), net | 228 | (147 | ) | (375 | ) | nm | ||||||||
Total other expense (income), net | $ | 81 | $ | (194 | ) | $ | (275 | ) | 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 expense.Other expense (income). Other expense (income) consists mainly of the impact of foreign currency due to movement of European and Asian currencies against the US dollar.
Income Taxes
|
| Six months ended |
|
|
|
|
|
|
| |||||
|
| September 30, |
|
| (Unfavorable) favorable | |||||||||
(Dollars in thousands) |
| 2019 |
|
| 2018 |
|
| $ |
|
| % | |||
Income tax expense |
| $ | 67 |
|
| $ | 4 |
|
| $ | (63 | ) |
| nm |
Effective tax rate |
|
| (1.5 | )% |
|
| (0.1 | )% |
|
|
|
|
|
|
Six months ended | |||||||||||||
September 30, | (Unfavorable) favorable | ||||||||||||
(Dollars in thousands) | 2018 | 2017 | $ | % | |||||||||
Income tax expense | $ | 4.0 | $ | 183 | $ | 179 | nm | ||||||
Effective tax rate | (0.1 | )% | (3.0 | )% |
nm - not meaningful
For the six months ended September 30, 2019 and 2018, the effective tax rate was different than the statutory rate due primarily to the recognition of net operating losses as deferred tax assets which were offset by increases in the valuation allowance, an
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 $0.2 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.
26
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.
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 $32.9$38.9 million as of September 30, 20182019 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 September 30, 20182019 and March 31, 2018,2019, our total debt was approximately $0.1 million, and $0.2 million, comprised of capitalfinance lease obligations in both periods.
At September 30, 2018,2019, 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 90% 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 | ) |
|
Six months ended | |||||||
September 30, | |||||||
(In thousands) | 2018 | 2017 | |||||
Net cash (used in): | |||||||
Operating activities | $ | (2,748 | ) | $ | (1,648 | ) | |
Investing activities | (3,524 | ) | (8,585 | ) | |||
Financing activities | (616 | ) | (580 | ) | |||
Effect of exchange rate changes on cash | (151 | ) | 90 | ||||
Net decrease in cash and cash equivalents | $ | (7,039 | ) | $ | (10,723 | ) |
Cash flow used in operating activities.
Cash flowCash flow used in investing activities.
Cash flow used in financing activities.
During the firstContractual Obligations
As of September 30, 2018,2019, there were no 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, 2018.2019. There have been no material changes in our significant accounting policies and estimates since March 31, 20182019 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. These statements are not guarantees of future performance and involve risks, uncertainties, and assumptions that are difficult to predict. These statements are based on management’s current expectations, intentions, or beliefs and are subject to a number of factors, assumptions, and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Factors that could cause or contribute to such differences or that might otherwise impact the business include the risk factors set forth in Item 1A in Part II of this Quarterly Report and Item IA of our Annual Report for the fiscal year ended
March 31,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, 20182019 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. | |
32 | ||
101 | The following materials from our quarterly report on Form 10-Q for the quarter ended September 30, |
30 2018.
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 | /s/ Anthony S. Pritchett |
Anthony S. Pritchett | ||
Chief Financial Officer | ||
(Principal Financial Officer and Duly Authorized Officer) |
31