AGILYSYS INC
For the period ended Jun 30, 2024. Filed Jul 26, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 30, 2024 · Filed Jul 26, 2024
AGYS$121.09+1.1%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2023-12-31; filed 2024-01-25.
0000950170-24-007518
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-06-30; filed 2024-07-26.
0000950170-24-086879
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 92 previous paragraphs and 72 current paragraphs.
48 unchanged; 17 reworded; 7 added; 19 removed; 8 previous and 0 current paragraphs rearranged.
Tables are not compared: 9 previous and 5 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (7)
Current report
Agilysys has been a leader in hospitality software for more than 45 years, delivering innovative cloud-native SaaS and on-premise solutions for hotels, resorts and cruise lines, casinos, corporate foodservice management, restaurants, universities, stadiums, and healthcare. The Company’s software solutions include point-of-sale (POS), property management (PMS), inventory and procurement, payments, and related applications that manage and enhance the entire guest journey. Agilysys also is known for its world-class customer-centric service. Many of the top hospitality companies around the world use Agilysys solutions to improve guest loyalty, drive revenue growth, and increase operational efficiencies.
Current report
Depreciation of fixed assets. Depreciation of fixed assets decreased $0.1 million, or 9.2%, in the first quarter of fiscal 2025 compared with the first quarter of fiscal 2024 due to the timing of assets reaching their useful life.
Current report
Amortization of internal-use software and intangibles. Amortization of internal-use software and intangibles decreased $0.2 million, or 41.6%, in the first quarter of fiscal 2025 compared with the first quarter of fiscal 2024 due to the full amortization of certain intangible assets.
Current report
For the three months ended June 30, 2023, income tax provision and the effective tax rate were primarily driven by activity within the foreign jurisdictions in which the company operates as valuation allowances were recorded against deferred tax assets in the U.S. and Canada. We released valuation allowances recorded against Canadian, U.S. Federal and certain state deferred tax assets in the period ending December 31, 2023.
Current report
For the three months ended June 30, 2024, income tax (benefit) and the effective tax rate were primarily driven by the impact of discrete excess tax benefits associated with Share-Based Compensation.
Current report
We are consistently subject to tax audits. Due to the nature of examinations in multiple jurisdictions, changes could occur in the amount of gross unrecognized tax benefits during the next 12 months that we cannot anticipate.
Current report
We have recorded and maintain valuation allowances offsetting the Company’s deferred tax assets in certain U.S. States and foreign jurisdictions. The ultimate realization of deferred tax assets depends on various factors including the generation of future taxable income in the periods in which the underlying temporary differences are deductible. We maintain valuation allowances for deferred tax assets until we have sufficient evidence to support the reversal of all or some portion of the allowances.
Removed paragraphs (19)
Previous report
Agilysys exclusively delivers state-of-the-art software solutions and services that help organizations achieve High Return Hospitality™ by maximizing Return on Experience (ROE) through interactions that make ‘personal’ profitable. Customers around the world use Agilysys Property Management Systems (PMS), Point-of-Sale (POS) and F&B Inventory and Procurement (I&P) solutions to consistently delight guests, retain staff and grow margins. Agilysys’ 100% hospitality customer base includes branded and independent hotels; multi-amenity resorts; casinos; property, hotel and resort management companies; cruise lines; corporate dining providers; higher education campus dining providers; food service management companies; hospitals; lifestyle communities; senior living facilities; stadiums; and theme parks.
Previous report
Since the end of fiscal 2009, we have recorded valuation allowances offsetting substantially all the Company’s deferred income tax assets due to the uncertainty of the ultimate realization of the future benefits from those assets. During the third quarter of fiscal 2024, we determined that it was more likely than not that the Company would be able to realize the benefit of substantially all of its deferred tax assets in the United States. In reaching this determination, we considered our growing trend of profitability over recent years, our expectations regarding the generation of future taxable income as well as the overall improvement in the Company’s business and its current market position. As a result, during the three months ended December 31, 2023, the Company recognized a discrete tax benefit related to the release of approximately $65.1 million in valuation allowance against its deferred tax assets in the United States and Canada that are expected to be realized in future years, which caused our effective tax rate to differ from the statutory rate. At December 31, 2023, the Company continued to provide a valuation allowance of $2.8 million primarily against certain state and foreign net operating losses (“NOLs”).
Previous report
For the three months ended December 31, 2023, the Company recorded an income tax benefit of $68.0 million. Excluding the release of $65.1 million in valuation allowance and the release of $1.0 million in uncertain tax positions and related accrued interest due to expiration of various US state statutes of limitations, the Company recorded excess tax benefits of $5.6 million related to share-based compensation, income tax benefit of $2.4 million for R&D credits and deferred income tax expense of $6.1 million.
Previous report
For the three months ended December 31, 2022, the Company recorded income tax provision of $0.7 million, primarily related to income tax in states where NOL usage is statutorily limited.
Previous report
For the three months ended December 31, 2022, the effective tax rate was different than the statutory rate due primarily to adjustments to deferred tax assets and to valuation allowances that reduce deferred tax assets and to the recording of net operating losses in several foreign jurisdictions offset by current year expense in other foreign jurisdictions. Our India subsidiary operates in a “Special Economic Zone (“SEZ”)”. One of the benefits associated with the SEZ is that the India subsidiary is not subject to regular India income taxes during its first five years of operations, which included fiscal 2018 through fiscal 2022. The India subsidiary is subject to 50% of regular India income taxes during its second five years of operations, which includes fiscal 2023 through fiscal 2027.
Previous report
Results of Operations
Previous report
First Nine Months of Fiscal 2024 Compared to First Nine Months of Fiscal 2023
Previous report
Net Revenue and Operating Income
Previous report
Operating expenses
Previous report
Operating expenses, excluding other (gains) and charges, net and legal settlements increased $14.9 million, or 19.0%, during the first nine months of fiscal 2024 compared with the first nine months of fiscal 2023.
Previous report
Product development. Product development increased $5.9 million, or 16.2%, in the first nine months of fiscal 2024 compared with the first nine months of fiscal 2023 due to hiring and increased compensation rates across our development teams, and higher rent.
Previous report
Sales and marketing. Sales and marketing increased $3.2 million, or 19.4%, in the first nine months of fiscal 2024 compared with the first nine months of fiscal 2023 due to hiring and increased salary, incentive and employee benefits rates across our sales and marketing teams, and continued expansion of marketing event and trade show activity.
Previous report
General and administrative. General and administrative increased $4.4 million, or 19.1%, in the first nine months of fiscal 2024 compared with the first nine months of fiscal 2023 due to investments in our information security infrastructure along with hiring and increased compensation rates across our administrative teams, and higher subscription charges for cloud computing arrangements.
Previous report
Other income (expense)
Previous report
Income Taxes
Previous report
Since the end of fiscal 2009, we have recorded valuation allowances offsetting substantially all the Company’s deferred income tax assets due to the uncertainty of the ultimate realization of the future benefits from those assets. During the third quarter of fiscal 2024, we determined that it was more likely than not that the Company would be able to realize the benefit of substantially all of its deferred tax assets in the United States. In reaching this determination, we considered our growing trend of profitability over recent years, our expectations regarding the generation of future taxable income as well as the overall improvement in the Company’s business and its current market position. As a result, during the nine months ended December 31, 2023, the Company recognized a discrete tax benefit related to the release of approximately $65.1 million in valuation allowance against its deferred tax assets in the United States and Canada that are expected to be realized in future years, which caused our effective tax rate to differ from the statutory rate. At December 31, 2023, the Company continued to provide a valuation allowance of $2.8 million primarily against certain state and foreign net operating losses (“NOLs”).
Previous report
For the nine months ended December 31, 2023, the Company recorded an income tax benefit of $67.4 million. Excluding the release of $65.1 million in valuation allowance and the release of $1.0 million in uncertain tax positions and related accrued interest due to expiration of various US state statutes of limitations, the Company recorded excess tax benefits of $5.6 million related to share-based compensation, income tax benefit of $2.4 million for R&D credits and deferred income tax expense of $6.7 million.
Previous report
For the nine months ended December 31, 2022, the Company recorded income tax provision of $0.9 million, primarily related to income tax in states where NOL usage is statutorily limited.
Previous report
For the nine months ended December 31, 2022, the effective tax rate was different than the statutory rate due primarily to adjustments to deferred tax assets and to valuation allowances that reduce deferred tax assets and to the recording of net operating losses in several foreign jurisdictions offset by current year expense in other foreign jurisdictions. Our India subsidiary operates in a “Special Economic Zone (“SEZ”)”. One of the benefits associated with the SEZ is that the India subsidiary is not subject to regular India income taxes during its first five years of operations, which included fiscal 2018 through fiscal 2022. The India subsidiary is subject to 50% of regular India income taxes during its second five years of operations, which includes fiscal 2023 through fiscal 2027.
Reworded paragraphs (17)
Previous wording
During the three and nine months ended December 31, 2023, global macroeconomic conditions were, and continue to be, impacted by a number of circumstances, including, but not limited to, the Israel-Hamas and Russia-Ukraine wars, labor shortages, supply chain inconsistencies, inflation, and the volatility of foreign currency exchange rates against the U.S. dollar. We believe such conditions continue to influence customer spending and provider pricing decisions resulting in decreased demand, increased costs, and reduced margins particularly in areas outside of the United States.
Current wording
During the three months ended June 30, 2024, global macroeconomic conditions were, and continue to be, influenced by a number of factors, including, but not limited to, political unrest, armed conflicts, labor shortages and natural disasters. We believe such conditions are impacting customer spending and provider pricing decisions resulting in decreased demand, increased costs, and reduced margins particularly in areas outside of the United States.
Previous wording
Our top priority is increasing shareholder value by improving operating and financial performance and profitably growing the business through superior products and services. To that end, we will continue enhancing existing software products while developing and marketing new software products and expanding our customer breadth, both vertically and geographically.
Current wording
Our top priority is increasing 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.
Previous wording
Professional services revenue – Revenue earned from the delivery of implementation, integration and installation services for proprietary and remarketed products.
Current wording
Professional services revenue – Revenue earned from the delivery of implementation, integration, development and installation services for proprietary and remarketed products.
Previous wording
Third Fiscal Quarter 2024 Compared to Third Fiscal Quarter 2023
Current wording
First Fiscal Quarter 2025 Compared to First Fiscal Quarter 2024
Previous wording
Net revenue. Total net revenue increased $10.6 million, or 21.3%, during the third quarter of fiscal 2024 compared to the third quarter of fiscal 2023. Products revenue increased $2.0 million, or 18.5%, due to higher sales and deliveries to new customers and expansion with existing customers. Subscription and maintenance revenue increased $5.0 million, or 16.4%, compared to the third quarter of fiscal 2023 driven by continued growth in subscription-based service revenue, which increased 29.9% during the third quarter of fiscal 2024 compared to the third quarter of fiscal 2023. Professional services revenue increased $3.7 million, or 40.9%, due to higher sales and service activity as our new and existing customers continue implementing technology to improve their operations.
Current wording
Net revenue. Total net revenue increased $7.5 million, or 13.3%, during the first quarter of fiscal 2025 compared to the first quarter of fiscal 2024. Products revenue decreased $2.9 million, or 22.7%, due to increasing customer preference for subscription-based software licenses instead of perpetual software licenses and to their decreasing need for hardware due to improvements we have made to our technology enabling more support for consumer grade devices our customers can source elsewhere. Subscription and maintenance revenue increased $5.9 million, or 18.4%, compared to the first quarter of fiscal 2024 driven by continued growth in subscription-based service revenue, which increased 32.0% during the first quarter of fiscal 2025 compared to the first quarter of fiscal 2024. Professional services revenue increased $4.4 million, or 39.8%, due to higher sales and service activity as our new and existing customers continue implementing technology to improve their operations.
Previous wording
Gross profit and gross profit margin. Our total gross profit increased $7.0 million, or 22.9%, during the third quarter of fiscal 2024 and total gross profit margin increased from 61.7% to 62.5% compared to the third quarter of fiscal 2023 driven by changes in the composition of revenue by category. Products gross profit increased $0.6 million, or 12.0%, and products gross profit margin decreased from 49.8% to 47.1% due to the composition of hardware products delivered. Subscription and maintenance gross profit increased $4.3 million, or 18.6%, and gross profit margin increased from 77.6% to 79.0% as revenue increases outpaced variable costs as a result of certain cost control initiatives. Professional services gross profit increased $2.1 million, or 99.9%, and gross profit margin increased from 22.7% to 32.2% reflecting improved utilization rates from efficiency gains on multi-solution implementations.
Current wording
Gross profit and gross profit margin. Our total gross profit increased $6.8 million, or 20.6%, during the first quarter of fiscal 2025 and total gross profit margin increased from 59.0% to 62.8% compared to the first quarter of fiscal 2024 driven by changes in the composition of revenue by category. Products gross profit decreased $1.6 million, or 25.2%, and products gross profit margin decreased from 48.6% to 47.1% due to the composition of hardware and proprietary software products delivered. Subscription and maintenance gross profit increased $5.4 million, or 22.2%, and gross profit margin increased from 76.2% to 78.7% as revenue increases outpaced variable costs as a result of certain cost control initiatives. Professional services gross profit increased $2.9 million, or 124.6%, and gross profit margin increased from 21.1% to 33.9% reflecting improved utilization rates from efficiency gains on multi-solution implementations and revenue associated with a large development service contract.
Previous wording
Operating expenses, excluding other (gains) and charges, net and legal settlements, increased $3.9 million, or 14.4%, during the third quarter of fiscal 2024 compared with the third quarter of fiscal 2023.
Current wording
Operating expenses, excluding other charges, net and legal settlements, increased $2.0 million, or 6.3%, during the first quarter of fiscal 2025 compared with the first quarter of fiscal 2024.
Previous wording
Product development. Product development increased $2.1 million, or 17.2%, in the third quarter of fiscal 2024 compared with the third quarter of fiscal 2023 due to hiring and increased salary, incentive and employee benefits rates across our development teams, and higher rent.
Current wording
Product development. Product development increased $1.4 million, or 10.5%, in the first quarter of fiscal 2025 compared with the first quarter of fiscal 2024 due to hiring and increased salary, incentive and employee benefits rates across our development teams.
Previous wording
Sales and marketing. Sales and marketing increased $0.3 million, or 4.3%, in the third quarter of fiscal 2024 compared with the third quarter of fiscal 2023 due to hiring and increased salary, incentive and employee benefits rates across our sales and marketing teams, and continued expansion of marketing event and trade show activity.
Current wording
Sales and marketing. Sales and marketing decreased $0.3 million, or 3.9%, in the first quarter of fiscal 2025 compared with the first quarter of fiscal 2024 due to timing of marketing event and trade show activity.
Previous wording
General and administrative. General and administrative increased $1.1 million, or 14.2%, in the third quarter of fiscal 2024 compared with the third quarter of fiscal 2023 due to hiring and increased compensation rates across our administrative teams.
Current wording
General and administrative. General and administrative increased $1.1 million, or 11.9%, in the first quarter of fiscal 2025 compared with the first quarter of fiscal 2024 due to increased compensation rates across our administrative teams and payroll taxes associated with certain exercises of stock-settled appreciation rights during the quarter.
Previous wording
Other (gains) and charges, net. Other (gains) and charges, net consist of (gains) losses on asset disposals, severance costs, infrequent settlements of customer disputes and acquisition costs related to business combinations.
Current wording
Other charges, net. Other charges, net consist of losses on asset disposals, severance costs and acquisition costs related to business combinations.
Previous wording
Other income (expense), net. Other income (expense), net mainly consists of movement of foreign currencies against the US dollar.
Current wording
Other (expense), net. Other (expense), net mainly consists of movement of foreign currencies against the US dollar.
Previous wording
At December 31, 2023, 100% of our cash and cash equivalents, of which 94% were located in the United States, were deposited in bank accounts or invested in highly liquid investments including commercial paper and treasury bills with original maturity from the date of acquisition of three months or less and money market funds. We determine the fair value of commercial paper using significant other observable inputs based on pricing from independent sources that use quoted prices in active markets for identical assets or other observable inputs including benchmark yields and interest rates. We believe credit risk is limited with respect to our cash and cash equivalents.
Current wording
At June 30, 2024, 100% of our cash and cash equivalents, of which 96% were located in the United States, were deposited in bank accounts or invested in highly liquid investments including commercial paper and treasury bills with original maturity from the date of acquisition of three months or less and money market funds. We determine the fair value of commercial paper using significant other observable inputs based on pricing from independent sources that use quoted prices in active markets for identical assets or other observable inputs including benchmark yields and interest rates. We believe credit risk is limited with respect to our cash and cash equivalents.
Previous wording
We believe that cash flow from operating activities, cash on hand of $116.2 million as of December 31, 2023, and access to capital markets will provide adequate funds to meet our short- and long-term liquidity requirements.
Current wording
We believe that cash flow from operating activities, cash on hand of $144.1 million as of June 30, 2024, and access to capital markets will provide adequate funds to meet our short- and long-term liquidity requirements.
Previous wording
Cash flow provided by operating activities. Cash flow provided by operating activities was $18.4 million in the first nine months of fiscal 2024. The provision of cash was due to cash-based earnings of $29.2 million and a decrease of $10.8 million due to changes in net operating assets and liabilities. Cash-based earnings is net income of $83.2 million less $54 million of non-cash adjustments.
Current wording
Cash flow provided by operating activities. Cash flow provided by operating activities was $1.1 million in the first three months of fiscal 2025. The provision of cash was due to cash-based earnings of $10.8 million and a decrease of $9.7 million due to changes in net operating assets and liabilities. Cash-based earnings is net income of $14.1 million and $3.3 million of non-cash adjustments.
Previous wording
Cash flow used in investing activities. Consists primarily of property and equipment purchases, which increased during the nine months ended December 31, 2023 compared to the nine months ended December 31, 2022 due to leasehold improvements and equipment purchases for our new office lease at our development center in Chennai, India.
Current wording
Cash flow used in investing activities. Consists primarily of property and equipment purchases, which decreased during the three months ended June 30, 2024 compared to the three months ended June 30, 2023 due to leasehold improvements and equipment purchases for our new office lease in Las Vegas, Nevada during the three months ended June 30, 2023.
Previous wording
Cash flow used in financing activities. During the first nine months of fiscal 2024, the $7.4 million used in financing activities consisted of $5.7 million related to the repurchase of shares to satisfy employee tax withholding on share-based compensation and $1.7 million in preferred stock dividends.
Current wording
Cash flow used in financing activities. Cash flow used in financing activities decreased during the three months ended June 30, 2024 compared to the three months ended June 30, 2023 due to a reduction from $1.8 million to $0.9 million in the repurchase of shares to satisfy employee tax withholding on share-based compensation and a reduction from $0.9 million to zero in preferred stock dividend payments during the respective periods.
Rearranged previous paragraphs (8)
Previous report — wording carried elsewhere
The following table presents our consolidated revenue and operating results for the nine months ended December 31, 2023 and 2022:
Previous report — wording carried elsewhere
The following table presents the percentage relationship of our condensed consolidated statement of operations line items to our consolidated net revenues for the periods presented:
Previous report — wording carried elsewhere
Net revenue. Total net revenue increased $30.1 million, or 20.7%, during the first nine months of fiscal 2024 compared to the first nine months of fiscal 2023. Products revenue increased $5.8 million, or 18.0%, due to higher sales and deliveries to new customers and expansion with existing customers. Subscription and maintenance revenue increased $14.6 million, or 16.8%, compared to the first nine months of fiscal 2023 driven by continued growth in subscription-based service revenue, which increased 28.9% during the first nine months of fiscal 2024 compared to the first nine months of fiscal 2023. Professional services revenue increased $9.7 million, or 37.4%, due to higher sales and service activity as our new and existing customers continue implementing technology to improve their operations.
Previous report — wording carried elsewhere
Gross profit and gross profit margin. Our total gross profit increased $17.3 million, or 19.6%, during the first nine months of fiscal 2024 and total gross profit margin decreased from 61.1% to 60.5% compared to the first nine months of fiscal 2023 driven by changes in the composition of revenue by category. Products gross profit increased $2.5 million, or 15.8%, and products gross profit margin decreased from 48.3% to 47.4% due to the composition of hardware products delivered. Subscription and maintenance gross profit increased $11.0 million, or 16.2%, and gross profit margin decreased from 77.9% to 77.5% as certain variable cost increases remained ahead of related revenue growth during the comparable nine months. Professional services gross profit margin increased from 20.5% to 25.9% reflecting improved utilization rates from efficiency gains on multi-solution implementations.
Previous report — wording carried elsewhere
Other (gains) and charges, net. Other (gains) and charges, net consist of (gains) losses on asset disposals, severance costs, infrequent settlements of customer disputes and acquisition costs related to business combinations.
Previous report — wording carried elsewhere
Legal settlements. Legal settlements consist of settlements of employment and other business-related matters.
Previous report — wording carried elsewhere
Interest income. Interest income consists of interest earned on cash equivalents including short-term investments in commercial paper, treasury bills and money market funds.
Previous report — wording carried elsewhere
Other income (expense), net. Other income (expense), net mainly consists of movement of foreign currencies against the US dollar.