Industry Overview - The Zacks Computer – Integrated Systems industry includes companies like Seagate Technology, Agilysys, and PAR Technology, benefiting from trends such as advancements in data management, a shift to integrated systems, and increased demand for modern application development [1][2] - Companies are investing in data modernization, cybersecurity, remote work enablement, and supply chain modernization to accelerate digital transformation for enterprise customers [2] Industry Trends - There is a surge in demand for integrated solutions driven by investments in IoT, big data analytics, AI, and blockchain, with opportunities in business analytics, cloud computing, and security solutions [3] - The multi-cloud model is being adopted robustly, allowing enterprises to optimize resource utilization and scalability, with emerging economies expected to drive future growth [4] Challenges - The industry faces supply chain bottlenecks, softening demand for servers, and delays in customer acceptance, leading to significant order backlogs [5] - The ongoing semiconductor chip shortage is impacting the industry, complicating the transition to cloud computing and affecting spending on datacenter systems [6] Market Performance - The Zacks Computer – Integrated Systems industry ranks 79, placing it in the top 32% of over 250 Zacks industries, indicating potential outperformance in the near term [7][8] - The industry's earnings estimate for 2024 has increased by 14.9% since November 30, 2023, reflecting a positive earnings outlook [9] Stock Performance - The industry has underperformed compared to the broader Computer and Technology sector and the S&P 500, returning 25.3% over the past year, while the S&P 500 and sector returned 30% and 32%, respectively [11] - The industry is currently trading at a trailing 12-month P/S ratio of 4.01X, below the S&P 500's 5.63X and the sector's 7.59X [13] Company Highlights - **Seagate Technology**: Positioned as a leader in mass-capacity storage solutions, benefiting from growth in data storage demands driven by AI and cloud computing, with a 14.6% return year to date [14][17] - **Agilysys**: A leading provider of hospitality and retail software solutions, achieving record-high service revenues and a 45.2% return year to date [19][23] - **PAR Technology**: Focused on cloud-based restaurant management solutions, with significant market presence and a 72.1% return year to date [25][27]

Core Viewpoint - Agilysys (AGYS) has been upgraded to a Zacks Rank 1 (Strong Buy), indicating a positive outlook on its earnings estimates, which significantly influence stock prices [1][3]. Earnings Estimates and Stock Performance - The Zacks rating system emphasizes the correlation between changes in earnings estimates and stock price movements, suggesting that upward revisions can lead to higher stock valuations [4][6]. - Agilysys is projected to earn $1.31 per share for the fiscal year ending March 2025, reflecting a year-over-year increase of 19.1% [8]. - Over the past three months, the Zacks Consensus Estimate for Agilysys has risen by 31.5%, indicating a strong upward trend in earnings expectations [8]. Zacks Rating System - The Zacks Rank system categorizes stocks into five groups based on earnings estimates, with Zacks Rank 1 stocks historically generating an average annual return of +25% since 1988 [7]. - Only the top 5% of Zacks-covered stocks receive a 'Strong Buy' rating, highlighting Agilysys' superior earnings estimate revision feature [9][10].

Financial Data and Key Metrics Changes - Fiscal 2025 Q2 revenue reached a record $68.3 million, a 16.5% increase from $58.6 million in the prior year [27][40] - Recurring revenue grew 21% year-over-year to a record $41.4 million, with subscription revenue increasing 36.6% to $25.1 million [28][44] - Adjusted EBITDA for Q2 was $12.2 million, compared to $8.1 million in the previous year, representing 17.9% of revenue [47] Business Line Data and Key Metrics Changes - Sales in property management systems (PMS) and related products nearly doubled year-over-year, with significant growth in the PMS category [18][20] - Book4Time acquisition added $2.2 million in revenue, increasing the number of customer properties using Agilysys products by 30% [27][52] - Professional services revenue reached a record $16.3 million, up 39.2% from the prior year [36][42] Market Data and Key Metrics Changes - Sales in the U.S. gaming casinos, resorts, and hotel verticals were strong, while the U.S. food service management vertical continued to underperform [17][20] - APAC faced challenges following a strong Q1, impacting overall sales performance [17][20] - The company noted low market share in most sales verticals, indicating significant growth potential [21] Company Strategy and Development Direction - The company aims to expand its ecosystem of hospitality-focused products, leveraging cloud-native technology [21][54] - Increased investments in sales and marketing are planned to enhance market presence and drive growth [21][53] - The integration of Book4Time is expected to enhance competitive positioning within the hospitality sector [12][52] Management Comments on Operating Environment and Future Outlook - Management expressed confidence that external factors like economic conditions would increase the demand for technology that enhances operational efficiency [23] - The company anticipates continued growth in subscription revenue and has raised its full-year revenue guidance to $280 million to $285 million [49][38] - Management remains optimistic about the POS business recovering from previous challenges [51][59] Other Important Information - The company added 18 new customers in Q2, with an average of 5.4 products sold per deal, indicating strong cross-selling opportunities [24][26] - Cash and marketable securities decreased to $54.9 million due to the Book4Time acquisition, with a current debt balance of $38 million [48][49] Q&A Session Summary Question: Clarification on subscription revenue guidance - Management indicated that approximately $10 million of the subscription revenue guidance increase is attributed to Book4Time, with over 25% being organic growth [56] Question: Margins and operating leverage - Management expects margins to remain consistent, with product revenue impacting overall gross margins [58][59] Question: Market size and opportunities from Book4Time - Management highlighted significant opportunities to sell additional products to Book4Time's existing customer base, with a focus on the spa market [62][66] Question: Integration of sales forces post-acquisition - The company plans to unify the sales forces of Agilysys and Book4Time over the next six months to leverage the combined product ecosystem [83][84] Question: Services capacity and backlog management - Management is confident in their services capacity, having increased personnel by 20% and continuing to hire [86][89] Question: EBITDA guidance and Book4Time's impact - Book4Time is expected to be EBITDA accretive, with profitability levels similar to Agilysys [92] Question: Organic subscription revenue expectations - Management noted that the slowdown in POS sales and transformation challenges have impacted organic subscription revenue expectations [95][96]

Core Insights - Agilysys reported revenue of $68.28 million for the quarter ended September 2024, marking a year-over-year increase of 16.5% and exceeding the Zacks Consensus Estimate by 2.44% [1] - The company's EPS for the same period was $0.34, up from $0.25 a year ago, representing a surprise of 30.77% over the consensus estimate of $0.26 [1] Revenue Breakdown - Net revenue from Products was $10.53 million, slightly above the average estimate of $10.42 million, but reflecting a year-over-year decline of 16.7% [3] - Subscription and maintenance revenue reached $41.43 million, surpassing the two-analyst average estimate of $39.60 million, with a year-over-year increase of 21% [3] - Professional services revenue was reported at $16.32 million, in line with the average estimate of $16.31 million, showing a significant year-over-year growth of 39.2% [3] Stock Performance - Over the past month, Agilysys shares have returned +2.1%, slightly outperforming the Zacks S&P 500 composite's +2% change [4] - The stock currently holds a Zacks Rank 3 (Hold), indicating expected performance in line with the broader market in the near term [4]

Group 1: Earnings Performance - Agilysys reported quarterly earnings of $0.34 per share, exceeding the Zacks Consensus Estimate of $0.26 per share, and up from $0.25 per share a year ago, representing an earnings surprise of 30.77% [1] - The company has surpassed consensus EPS estimates in all four of the last quarters [2] - Agilysys posted revenues of $68.28 million for the quarter ended September 2024, surpassing the Zacks Consensus Estimate by 2.44%, compared to $58.62 million in the same quarter last year [2] Group 2: Stock Performance and Outlook - Agilysys shares have increased approximately 29.9% since the beginning of the year, outperforming the S&P 500's gain of 21.8% [3] - The future performance of the stock will depend on management's commentary during the earnings call and the earnings outlook [3][4] - The current consensus EPS estimate for the upcoming quarter is $0.33 on revenues of $70.57 million, and for the current fiscal year, it is $1.20 on revenues of $275.02 million [7] Group 3: Industry Context - The Computer - Integrated Systems industry, to which Agilysys belongs, is currently ranked in the top 35% of over 250 Zacks industries, indicating a favorable outlook [8] - Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can impact stock performance [5][8]

Financial Performance - Total net revenue for the six months ended September 30, 2024, was $131.791 million, an increase of 14.9% compared to $114.676 million for the same period in 2023[9] - Subscription and maintenance revenue increased to $79.474 million for the six months ended September 30, 2024, up 19.8% from $66.373 million in the prior year[9] - Gross profit margin improved to 63.0% for the six months ended September 30, 2024, compared to 59.4% for the same period in 2023[9] - Net income for the six months ended September 30, 2024, was $15.470 million, a significant increase from $6.093 million in the same period of 2023[9] - Operating income for the six months ended September 30, 2024, was $9.874 million, compared to $4.521 million in the same period of 2023[9] - The company reported a gross profit of $83.082 million for the six months ended September 30, 2024, up from $68.154 million in the prior year[9] - Total revenue for the six months ended September 30, 2024, was $111.4 million, compared to $89.3 million for the same period in 2023, reflecting a growth of approximately 24.8%[37] - Total net income for the six months ended September 30, 2024, was $15,470,000, compared to $6,093,000 for the same period in 2023, reflecting an increase of 154.5%[53] Cash and Assets - Cash and cash equivalents decreased to $54.888 million as of September 30, 2024, down from $144.891 million as of March 31, 2024[6] - Total assets increased to $442.010 million as of September 30, 2024, compared to $350.430 million as of March 31, 2024[6] - Total current liabilities increased to $95.889 million as of September 30, 2024, compared to $89.371 million as of March 31, 2024[6] - The company reported a net cash used in investing activities of $146,465,000 for the six months ended September 30, 2024, compared to $6,004,000 in the prior year[12] - The company’s retained earnings increased to $153,225,000 as of September 30, 2024, from $137,755,000 as of March 31, 2024[6] Share-Based Compensation - Share-based compensation for the six months ended September 30, 2024, was $8,438,000, compared to $5,851,000 in the same period of 2023, an increase of 44%[12] - Total share-based compensation expense for the three months ended September 30, 2024, was $4,009,000, an increase of 49.3% from $2,684,000 in the same period of 2023[62] - The company recorded a total of $11.6 million in unrecognized share-based compensation expense related to unvested restricted shares, expected to be recognized over a weighted-average vesting period of 2.0 years[65] Tax and Liabilities - The effective tax rate for the three months ended September 30, 2024, was 6.1%, compared to 9.6% for the same period in 2023, indicating a decrease of approximately 36.5%[46] - Total accrued liabilities as of September 30, 2024, were $22.315 million, compared to $19.522 million as of March 31, 2024, indicating an increase of approximately 14.5%[44] Business Operations - The company operates in a single reportable segment serving the global hospitality industry, providing cloud-native SaaS and on-premise solutions[17][18] - Agilysys has been a leader in hospitality software for over 45 years, focusing on enhancing the guest journey through various software solutions[17] Acquisition and Revenue Recognition - The acquisition of Book4Time was completed for a total cash consideration of $147.2 million, resulting in net cash consideration of $144.9 million after accounting for cash acquired[78] - Revenue attributable to Book4Time for the three months ended September 30, 2024, was $2.2 million, with net income (loss) not material[84] - The company recognized acquisition costs of $2.0 million related to the acquisition of Book4Time during the three months ended September 30, 2024[84] - Pro forma revenue for the three months ended September 30, 2024, was $70.8 million, compared to $62.5 million for the same period in 2023, reflecting a year-over-year increase of approximately 20.5%[86] Debt and Financing - The company entered into a revolving credit facility with an initial maximum principal amount of $75 million, drawing $50 million to fund a business combination[71] - The revolving credit facility matures on August 16, 2027, with no repayments required before that date[72] - The initial revolving loan bears interest at the SOFR Daily Floating Rate plus an initial margin of 1.625%[74]

Financial Performance - Total net revenue for Q2 fiscal 2025 reached a record $68.3 million, a 16.5% increase from $58.6 million in the same period last year[3]. - Recurring revenue was a record $41.4 million, accounting for 60.7% of total net revenue, with subscription revenue growing 36.6% year over year[3]. - Gross margin improved to 63.3% in Q2 fiscal 2025, up from 59.9% in the prior year[3]. - Net income attributable to common shareholders was $1.4 million, or $0.05 per diluted share, compared to $4.1 million, or $0.16 per diluted share, in the same quarter last year[3]. - Adjusted EBITDA for Q2 fiscal 2025 was $12.2 million, representing 17.9% of revenue, compared to $8.1 million in the prior year[3][4]. - Total net revenue for the three months ended September 30, 2024, was $68,279,000, an increase of 16.5% compared to $58,616,000 for the same period in 2023[18]. - Subscription and maintenance revenue rose to $41,432,000, up 21% from $34,248,000 year-over-year[18]. - Operating income increased to $4,126,000, reflecting a 15.8% rise from $3,562,000 in the prior year[18]. - Net income for the six months ended September 30, 2024, was $15,470,000, significantly higher than $6,093,000 for the same period in 2023[20]. - Net income for the three months ended September 2024 was $1,364,000, a decrease of 66.6% compared to $4,086,000 for the same period in 2023[22]. - Adjusted net income for the six months ended September 2024 was $17,860,000, a 59.5% increase from $11,232,000 for the same period in 2023[22]. Cash Flow and Balance Sheet - Free cash flow for Q2 fiscal 2025 was $5.9 million, up from $2.5 million in the same quarter last year[3]. - Ending cash balance was $54.9 million, down from $144.9 million at the end of fiscal 2024, influenced by the cash paid for the Book4Time acquisition[3]. - Cash and cash equivalents decreased to $54,888,000 as of September 30, 2024, down from $144,891,000 at the beginning of the period[19]. - The company reported a net cash provided by operating activities of $7,688,000 for the six months ended September 30, 2024, compared to $5,470,000 in the prior year[20]. - The company incurred $144,945,000 in cash paid for business combinations during the six months ended September 30, 2024[20]. Guidance and Future Outlook - The company raised its full-year fiscal 2025 revenue guidance to $280 million to $285 million, with at least 38% year-over-year subscription revenue growth expected[5][6]. - The acquisition of Book4Time is anticipated to expand the customer base and enhance the company's product ecosystem within the hospitality sector[7]. Expenses and Shareholder Metrics - Total operating expenses for the three months ended September 30, 2024, were $39,088,000, up from $31,534,000 in the same period last year[18]. - Share-based compensation expenses increased to $4,009,000 for the three months ended September 2024, up from $2,684,000 in the same period last year, reflecting a 49.3% rise[22]. - Basic weighted average shares outstanding increased to 27,533,000 for the three months ended September 2024, compared to 25,022,000 for the same period in 2023[22]. Earnings Per Share - Adjusted diluted EPS for Q2 fiscal 2025 was $0.34 per share, compared to $0.25 per share in the same quarter last year[3]. - Adjusted diluted earnings per share for the three months ended September 2024 was $0.34, up from $0.25 in the same period last year, reflecting a 36% increase[22].

Core Viewpoint - Wall Street analysts forecast a quarterly earnings per share (EPS) of $0.26 for Agilysys, indicating a year-over-year increase of 4% and anticipated revenues of $66.66 million, reflecting a 13.7% increase compared to the previous year [1] Group 1: Earnings and Revenue Estimates - The consensus EPS estimate has remained unchanged over the last 30 days, indicating a collective reevaluation by analysts [1] - Analysts project 'Net revenue- Products' to be $10.42 million, suggesting a year-over-year decline of 17.6% [2] - The estimate for 'Net revenue- Subscription and maintenance' is $39.60 million, indicating a year-over-year increase of 15.6% [2] - 'Net revenue- Professional services' is estimated at $16.31 million, reflecting a significant year-over-year increase of 39.1% [2] Group 2: Stock Performance and Market Position - Over the past month, Agilysys shares have recorded a return of +0.9%, compared to the Zacks S&P 500 composite's +2.7% change [2] - Agilysys holds a Zacks Rank 3 (Hold), suggesting that its performance is likely to align with the overall market in the upcoming period [2]

Industry Overview - The Zacks Computer – Integrated Systems industry is facing persistent supply-chain bottlenecks and a challenging macroeconomic climate characterized by rising inflation and higher interest rates, leading to significant order backlogs [1][5] - Companies are ramping up investments in data modernization, cybersecurity, remote work enablement, and supply chain modernization to accelerate digital transformation services for enterprise customers [2] Industry Trends - There is a surge in demand for integrated solutions driven by investments in IoT, big data analytics, AI, and blockchain, with opportunities in business analytics, cloud computing, and security solutions [3] - The multi-cloud model is being robustly adopted as enterprises seek better scalability and resource optimization, with emerging economies expected to play a crucial role in driving future growth [4] Challenges - The industry is grappling with supply constraints, softening demand for servers, and delays in customer acceptance, contributing to consistent backlog levels [5] - The ongoing semiconductor chip shortage is posing significant challenges, affecting spending across datacenter systems and leading to operational complexities [6] Industry Performance - The Zacks Computer – Integrated Systems industry ranks 194, placing it in the bottom 23% of over 250 Zacks industries, indicating underperformance in the near term [7][8] - The industry's earnings estimate for 2024 has decreased by 6.1% since March 31, 2023, reflecting a negative earnings outlook [8] Stock Performance - The industry has returned 25.4% over the past year, underperforming the S&P 500 and the broader Computer and Technology sector, which returned 27% and 36.5% respectively [9] - The industry is currently trading at a trailing 12-month P/S ratio of 2.06X, below the S&P 500's 5.56X and the sector's 7.5X [10] Key Companies - **International Business Machines (IBM)**: Experiencing solid net sales growth in the software segment, with a focus on hybrid cloud adoption and a recent acquisition of HashiCorp for $6.4 billion to enhance its hybrid cloud platform [11][12][13] - **Hewlett Packard Enterprise (HPE)**: Benefiting from strong execution in clearing backlogs and a multi-billion-dollar investment plan to expand networking capabilities, with a focus on AI and distributed computing [15][16] - **Agilysys**: Seeing steady demand for cloud-native products and record high service revenues, with a focus on vertical markets like retail and hospitality [18]

Financial Performance - Total net revenue for the three months ended June 30, 2024, was $63,512,000, representing an increase of 13.0% compared to $56,059,000 for the same period in 2023[11] - Gross profit for the same period was $39,868,000, with a gross profit margin of 62.8%, up from 59.0% in the prior year[11] - Net income for the three months ended June 30, 2024, was $14,106,000, significantly higher than $1,548,000 in the same period last year[13] - The company reported a basic net income per share of $0.52 for the three months ended June 30, 2024, compared to $0.04 for the same period in 2023[11] - Operating income for the three months ended June 30, 2024, was $5,747,000, compared to $958,000 in the same period last year[11] - For the three months ended June 30, 2024, net income was $14.106 million, compared to $1.548 million for the same period in 2023, representing an increase of 810%[18] - Total comprehensive income for the same period in 2024 was $13,948,000, compared to $2,071,000 in 2023, indicating a year-over-year increase of 573%[13] - Basic income per share rose to $0.52 for Q2 2024, compared to $0.04 in Q2 2023, indicating a substantial increase of 1,200%[57] Revenue Breakdown - The company experienced a decrease in product revenue to $9,874,000 from $12,781,000 year-over-year, while subscription and maintenance revenue increased to $38,043,000 from $32,125,000[11] - Revenue from product sales for the three months ended June 30, 2024, was $9.9 million, a decrease of 22.5% from $12.8 million in the same period of 2023[42] - Subscription and maintenance revenue increased to $53.6 million for the three months ended June 30, 2024, up 23.5% from $43.3 million in 2023[42] - Revenue recognized from contract liabilities at the beginning of the period was $26.8 million for Q2 2024, compared to $22.1 million in Q2 2023, reflecting a growth of 21.2%[44] - Subscription, maintenance, and professional services revenue recognized over time amounted to $53.6 million for the three months ended June 30, 2024, up from $43.3 million in 2023, representing a growth of approximately 24.5%[42] Assets and Equity - Cash and cash equivalents at the end of the period were $144,111,000, slightly down from $144,891,000 at the end of the previous quarter[9] - Total assets increased to $355,698,000 as of June 30, 2024, compared to $350,430,000 as of March 31, 2024[9] - Total shareholders' equity rose to $254,171,000, up from $236,477,000 in the previous quarter[9] - The total shareholders' equity as of June 30, 2024, was $254.171 million, up from $111.686 million as of June 30, 2023, indicating a year-over-year increase of 127.6%[18] Operating Expenses - Operating expenses totaled $34,121,000 for the three months ended June 30, 2024, compared to $32,099,000 for the same period in 2023[11] - Total share-based compensation expense for the three months ended June 30, 2024, was $4.4 million, an increase of 39.9% from $3.2 million in 2023[66] - Share-based compensation for the three months ended June 30, 2024, amounted to $4,850,000, compared to $3,377,000 in the same period of 2023, representing a 43.7% increase[18] Cash Flow and Liquidity - Cash receipts for interest, net, were $1.4 million for Q2 2024, compared to $893,000 in Q2 2023, reflecting a growth of 59.4%[49] - Net cash provided by operating activities for the three months ended June 30, 2024, was $1,098,000, compared to $22,000 in the same period of 2023[16] - The company reported a net decrease in cash and cash equivalents of $(780,000) for the three months ended June 30, 2024, compared to $(5,749,000) in the same period of 2023[16] - Total current liabilities decreased to $77.4 million from $89.4 million, indicating improved liquidity[9] Company Overview - Agilysys operates in the global hospitality industry, providing software solutions for hotels, resorts, casinos, and other sectors, with a focus on enhancing guest experiences and operational efficiencies[21] - The company has been a leader in hospitality software for over 45 years, emphasizing cloud-native SaaS and on-premise solutions[21] - Agilysys has a single reportable segment serving the global hospitality industry, consolidating accounts with wholly-owned subsidiaries[22] - The fiscal year for Agilysys ends on March 31, with references to specific years indicating the fiscal year ending in March of that year[23] Stock and Compensation - The company issued 498 shares upon exercise of stock-settled stock appreciation rights (SSARs) during the three months ended June 30, 2024[18] - The balance of common shares issued increased from 31,607 thousand shares at March 31, 2023, to 33,342 thousand shares at June 30, 2024[18] - The company granted 6,098 performance shares to the CEO in May 2024, which vested immediately for a total value of $0.6 million[72] - The Employee Stock Purchase Plan (ESPP) allows participants to purchase stock at a discount of up to 15%, with a fair value of $81.60 per share as of June 30, 2024[74] - The outstanding Stock-Settled Appreciation Rights (SSARs) as of June 30, 2024, were 560,203 with an average exercise price of $19.94 and an intrinsic value of $47.169 million[68] Other Financial Metrics - The effective tax rate for the three months ended June 30, 2024, was not meaningful due to the impact of discrete excess tax benefits associated with Share-Based Compensation[50] - Capitalized sales incentive costs as of June 30, 2024, were $4.8 million, up from $4.0 million in 2023, representing a 20% increase[47] - Total accrued liabilities decreased from $19.5 million as of March 31, 2024, to $13.1 million as of June 30, 2024, a reduction of approximately 32.8%[48]