Financial Data and Key Metrics Changes - Q1 fiscal 2025 revenue reached a record $63.5 million, a 13.3% increase from $56.1 million in the prior year [26] - Recurring revenue grew to $38 million, an 18.4% increase year-over-year, driven by a 32% increase in subscription revenue [21][28] - Operating income for Q1 was $5.7 million, net income was $14.1 million, and adjusted net income was $8.3 million, all showing significant improvement from the previous year [30] Business Line Data and Key Metrics Changes - Sales for Property Management System (PMS) and related modules were the best in the company's history for Q1, marking the fourth consecutive quarter of growth [8] - Add-on experience enhancer software modules saw sales more than double compared to Q1 last year, indicating strong demand [10] - Professional services revenue increased by 39.8% year-over-year to a record $15.6 million [27] Market Data and Key Metrics Changes - The Americas hotels and resorts sales vertical had its second-highest sales quarter ever, with multiple significant contracts signed [11] - The gaming casino sales vertical continued to lead sales levels, achieving close to peak levels in Q1 [12] - The Asia-Pacific region saw its third-best quarter for sales since the pandemic, highlighted by a significant win at Hamilton Island, Australia [12] Company Strategy and Development Direction - The company has successfully transformed its core products into cloud-native solutions, providing a competitive advantage in the hospitality software market [9][10] - The focus on subscription-based revenue models is expected to continue, with a shift away from perpetual software licenses [15][21] - The company aims to expand its market share in the Americas hotels and resorts vertical, leveraging improved solutions and targeted marketing efforts [11] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving at least 27% year-over-year growth in subscription revenue for the full fiscal year [25] - The company anticipates a rebound in POS sales during the second half of the fiscal year as implementation challenges are resolved [33][50] - Management noted that the competitive landscape is becoming more aggressive, particularly with pricing strategies from competitors [79] Other Important Information - The company has a strong sales pipeline, with a 30% increase in global quota-carrying sales personnel compared to the previous year [36] - The backlog for recurring revenue decreased slightly due to increased implementation velocity, but overall product and services backlog improved [24] Q&A Session Summary Question: Outlook on subscription revenue growth and profitability - Management acknowledged strong subscription growth but indicated potential deceleration in the latter part of the year due to product mix and competitive pressures [38][39] Question: Challenges in international markets - Management highlighted the need to establish new product versions in international markets and the competitive pricing pressures faced [41][43] Question: POS business struggles and turnaround expectations - Management explained that the POS transformation has been complex but expects improvements as new customers adopt modern versions [46][49] Question: Progress on PMS product adoption - Management noted broad-based success in PMS sales, with significant momentum and a strong pipeline [50][56] Question: Implementation challenges and sales strategy - Management clarified that recent implementation challenges were primarily software-related, and emphasized targeted marketing efforts to enhance sales [64][67]

Core Insights - Agilysys reported revenue of $63.51 million for the quarter ended June 2024, reflecting a 13.3% increase year-over-year, with EPS at $0.30 compared to $0.18 in the same quarter last year [1] - The revenue fell short of the Zacks Consensus Estimate of $64.57 million by 1.64%, while the EPS exceeded the consensus estimate of $0.22 by 36.36% [1] Revenue Breakdown - Net revenue from Products was $9.87 million, which is 22.7% lower than the year-ago quarter and below the average estimate of $11.17 million [2] - Net revenue from Subscription and Maintenance was $38.04 million, slightly below the average estimate of $38.06 million, but represents an 18.4% increase year-over-year [2] - Net revenue from Professional Services was $15.60 million, exceeding the average estimate of $15.35 million, with a significant year-over-year increase of 39.8% [2] Stock Performance - Agilysys shares have returned 9.6% over the past month, outperforming the Zacks S&P 500 composite, which saw a 0.4% change [2] - The stock currently holds a Zacks Rank 4 (Sell), indicating potential underperformance relative to the broader market in the near term [2]

Revenue Performance - Agilysys reported record revenue of $63.5 million for Q1 fiscal 2025, a 13.3% increase year-over-year from $56.1 million[4]. - Subscription revenue grew by 32.0% year-over-year, contributing $22.1 million, which is 58.1% of total recurring revenue[8]. - Recurring revenue, which includes subscription and maintenance charges, reached a record $38.0 million, or 59.9% of total net revenue[8]. - The company expects full-year fiscal 2025 revenue to be between $275 million and $280 million, with subscription revenue growth projected to exceed 27% year-over-year[7]. Profitability Metrics - Adjusted EBITDA for the quarter was $12.1 million, representing 19% of total revenue, slightly above expectations[4]. - Net income attributable to common shareholders was $14.1 million, or $0.50 per diluted share, compared to $1.1 million, or $0.04 per diluted share in the prior year[8]. - Adjusted EBITDA for the same period was $12,118,000, up from $6,276,000 in 2023, indicating a year-over-year increase of 93%[27]. - Net income for the three months ended June 30, 2024, was $14,106,000, a significant increase from $1,548,000 in the same period last year, representing a growth of 810%[26]. Cash Flow and Capital Expenditures - Free cash flow for Q1 fiscal 2025 was $0.2 million, a significant improvement from $(3.0) million in Q1 fiscal 2024[8]. - Free cash flow for the three months ended June 30, 2024, was $229,000, compared to a negative free cash flow of $(3,043,000) in 2023, showing a turnaround in cash generation[29]. - Capital expenditures for the quarter were $869,000, down from $3,065,000 in the prior year, indicating a reduction of 71.6%[29]. Balance Sheet Highlights - Total assets increased to $355,698,000 as of June 30, 2024, compared to $350,430,000 at the end of March 2024, reflecting a growth of 1%[24]. - Total shareholders' equity rose to $254,171,000, up from $236,477,000 in the previous quarter, marking an increase of 7.5%[24]. - Cash and cash equivalents at the end of the period were $144,111,000, slightly down from $144,891,000 at the end of March 2024, a decrease of 0.5%[26]. - The company reported a net cash provided by operating activities of $1,098,000 for the quarter, a substantial increase from $22,000 in the same quarter last year[29]. - The company’s retained earnings increased to $151,861,000 as of June 30, 2024, compared to $137,755,000 at the end of March 2024, an increase of 10.2%[24]. Shareholder Information - The diluted weighted average shares outstanding increased to 28,127,000 from 26,177,000 in the previous year, reflecting a growth of 7.5%[28]. Business Outlook and Challenges - The company continues to face challenges with product revenue due to a shift in customer preference towards subscription licenses[5]. - Agilysys aims to maintain and improve its business momentum throughout the fiscal year, supported by strong subscription and services revenue growth[6].

Core Thesis - Agilysys, Inc. is focusing on cloud-based hospitality software products for future growth, but faces recurring challenges despite strong financial performance and strategic initiatives [1] Company Overview - Agilysys, Inc. (NASDAQ:AGYS) is a leading supplier of hospitality system software, providing cloud-based applications for hotels, resorts, and gaming establishments, emphasizing customer service and innovation [2] Financial Performance - Agilysys has achieved record revenue growth, increasing from $52.9 million in March 2023 to $62.2 million in March 2024, a rise of 17.6% driven by software subscriptions and professional services [4] - Gross profit rose from $32.2 million to $38.3 million, indicating effective cost management despite higher expenses [4] - The company experienced a fluctuating operating margin, peaking at 11.27% in December 2023, influenced by increased sales and controlled SG&A expenses [4] Opportunities - The launch of an improved product subscription service aims to expand the platform with new cloud-based software, particularly through collaboration with Marriott for POS solutions, which is expected to enhance subscription revenue [5] - The Americas Hotels and Resorts line saw a 16% sales increase, providing opportunities for new clients through advanced property management system (PMS) products [5] - The total worldwide hotel management system market is projected to reach $10.5 billion by 2025, with Agilysys potentially generating an additional $525 million in income by capturing 5% of the market [5] Challenges - Agilysys faces competitive pressure in global markets, particularly in APAC and EMEA regions, despite a 45% sales increase in Asia Pacific [6] - The transition from service to product revenue poses challenges, as hardware sales decline while software subscriptions become more critical [6] - Dependence on a few major customers, such as Marriott, raises risks for financial projections, necessitating a broader customer base for sustainable growth [6] Valuation - Agilysys boasts a gross margin of 60.75%, significantly above the sector median of 49.19%, indicating strong cost management and pricing power [7] - The company has a P/S ratio of 11.13 and a P/E ratio of 32.48, both exceeding industry medians, reflecting investor confidence in its growth potential [7] - Projected revenue growth rate of 19.35% and earnings growth rate of 33.08% suggest potential for improved valuations as profits increase [7] Conclusion - Agilysys Inc. shows promising prospects due to its strategic focus on cloud computing solutions and strong financial performance, despite competitive pressures and revenue fluctuations [8]

Industry Overview - The Zacks Computer – Integrated Systems industry includes companies like IBM, HPE, Agilysys, and PAR Technology, benefiting from trends such as advancements in data management, integrated deployment techniques, and 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 expectations of recovering global IT spending [3] - The multi-cloud model is being robustly adopted, allowing enterprises to optimize resource utilization and scalability, with emerging economies playing a crucial role in future growth [4] Challenges - Industry participants face 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 across Data-Center Systems [6] Performance Metrics - The Zacks Computer – Integrated Systems industry ranks 77, placing it in the top 31% of over 250 Zacks industries, indicating a positive earnings outlook [7] - The industry has underperformed compared to the broader Computer and Technology sector and the S&P 500, returning 17.9% over the past year compared to 23.3% and 32.4% respectively [8] Valuation - The industry is currently trading at a trailing 12-month Price-to-Sales (P/S) ratio of 1.82X, below the S&P 500's 4.04X and the sector's 5.25X [9] Company Highlights - **PAR Technology**: Focuses on microprocessor-based transaction processing systems, with a growing software business and recent acquisitions to expand its offerings [10][11] - **IBM**: Experiencing growth in its software segment due to hybrid cloud adoption, with significant acquisitions to enhance its capabilities [13][14][15] - **Hewlett Packard Enterprise (HPE)**: Benefiting from backlog clearance and investments in networking capabilities, with a strategic acquisition of Juniper Networks [17][18] - **Agilysys**: Gaining from demand for cloud-native products and record high services revenues, although shares have declined year to date [20]

Revenue Growth - Total net revenue increased by $39.4 million, or 19.9%, in fiscal 2024 compared to fiscal 2023, reaching $237.5 million[200] - Subscription and maintenance revenue grew by $19.8 million, or 16.7%, driven by a 29.6% increase in subscription-based revenue[200] - Professional services revenue surged by $14.2 million, or 39.2%, due to higher sales and service activity[200] - Total net revenue increased by $35.4 million, or 21.8%, in fiscal 2023 compared to fiscal 2022, reaching $198.1 million[216] - Subscription and maintenance revenue grew by $19.3 million, or 19.5%, driven by a 27.5% increase in subscription-based revenue[217] Profitability - Gross profit increased by $23.4 million, or 19.4%, with a gross profit margin slightly decreasing from 61.0% to 60.7%[201] - Operating income rose by $2.9 million, or 22.4%, reaching $15.8 million, with an operating income percentage of 6.6%[198] - Gross profit increased by $19.3 million, or 19.0%, with a gross profit margin decreasing from 62.4% to 61.0%[218] - Operating income increased to $12.9 million in fiscal 2023, with an operating income percentage of 6.5% compared to 3.9% in fiscal 2022[216] Expenses - Product development expenses increased by $6.5 million, or 12.9%, due to hiring and increased compensation rates[203] - Sales and marketing expenses rose by $5.7 million, or 25.2%, reflecting hiring and expanded marketing activities[204] - Operating expenses, excluding legal settlements and other charges, rose by $14.5 million, or 15.6%, in fiscal 2023 compared to fiscal 2022[219] - Sales and marketing expenses surged by $8.0 million, or 54.2%, due to increased investments in marketing activities and key hires[221] Cash Flow and Financial Position - Cash flows provided by operating activities were $48.2 million in fiscal 2024, up from $34.5 million in fiscal 2023[237] - As of March 31, 2024, the company had cash on hand of $144.9 million, with 95% held in the United States[236] - Cash flows used in financing activities in fiscal 2024 were $8.6 million, including share repurchases of $6.9 million and $1.7 million in preferred stock dividends[242] - Cash flows used in financing activities in fiscal 2023 were $11.1 million, with share repurchases of $9.3 million and $1.8 million in preferred stock dividends[243] - Cash flows used in financing activities in fiscal 2022 were $4.9 million, primarily from share repurchases of $3.0 million and $1.8 million in preferred stock dividends[243] Taxation - The effective tax rate for fiscal 2024 was not meaningful due to the release of valuation allowances against deferred tax assets[212] - The effective tax rate for fiscal 2023 was 7.5%, significantly higher than 0.5% in fiscal 2022, due to adjustments to deferred tax assets[230] - The company anticipates a potential release of valuation allowances on deferred tax assets, which could result in significant income tax benefits[233] Revenue Recognition - The company recognizes subscription service revenue over a one-month period based on typical monthly invoicing and renewal cycles[254] - The company recognizes revenue for hardware sales when the product is shipped to the customer, fulfilling obligations affecting customer acceptance[253] - The company utilizes the market approach to determine standalone selling price by maximizing observable data points from recently executed customer contracts[257] International Operations - Revenue from international operations constituted 6% of total revenue in fiscal 2024, down from 7% in both fiscal 2023 and 2022[262] Other Financial Information - The cash surrender value of corporate-owned life insurance policies was recorded at $1.0 million, with future proceeds owed to beneficiaries approximating $0.1 million[244] - The company has not entered into any off-balance sheet arrangements that could affect its financial condition or results of operations[245]

Financial Data and Key Metrics Changes - Fiscal 2024 fourth quarter revenue reached a record $62.2 million, a 17.6% increase from $52.9 million in the prior year quarter [14] - Full fiscal year 2024 revenue was a record $237.5 million, up 19.9% from the previous year [11][15] - Adjusted EBITDA for Q4 was $11 million, compared to $8.1 million in the prior year quarter, with full fiscal year adjusted EBITDA at $37.1 million [18] Business Line Data and Key Metrics Changes - Subscription software and services sales in fiscal 2024 were both records, growing by 29.6% and 39.2% respectively from the previous year [11][15] - Professional services revenue increased by 43.9% year-over-year to a record $14.7 million in Q4 [16] - The average number of products per customer property increased to 2.2 from 2.0 in FY23 [15] Market Data and Key Metrics Changes - Sales to gaming casinos in the US remained the top vertical, while sales in the Americas Hotels and Resorts vertical grew by 16% over fiscal 2023 [7] - APAC sales were about 45% higher than the previous year, although not yet at record levels [7] - Subscription revenue from PMS and related modules increased by more than 90% over the past two years [12] Company Strategy and Development Direction - The company has completed the modernization of core products and is focused on creating high value for customers through integrated solutions [6] - The company aims to expand its market share in international regions and establish itself as a modern provider [28] - The management emphasized the importance of building reference customers to drive growth in international markets [28] Management Comments on Operating Environment and Future Outlook - Management expects fiscal 2025 revenue to grow between 16% and 18%, driven by subscription revenue growth of at least 27% [13] - The company is optimistic about its competitive position and the potential for future revenue growth due to ongoing investments [21] - Management noted that the turnaround phase is over, and the company is entering a new growth phase [21] Other Important Information - The company reported a cash and marketable securities balance of $144.9 million as of March 31, 2024, compared to $112.8 million a year earlier [19] - Free cash flow for the full fiscal year was $40.1 million, up from $27.2 million in the prior year [19] Q&A Session Summary Question: Margin trajectory outlook for the coming year - Management expects margins to remain similar to FY24, with slight increases anticipated [24] Question: Investments in APAC and Europe - The company has established a full sales team in APAC and is focused on building its reputation and reference customers [28] Question: Property management side pipeline and deal sizes - The company has multiple avenues for growth, with increasing deal sizes and a focus on establishing more marquee implementations [30] Question: Sustainability of service margins - Management indicated that service margins are expected to stabilize in the high 20s, with potential for improvement as product quality increases [39][40] Question: Success of the ResortSuite acquisition - The acquisition has been successful, retaining and growing recurring revenue while integrating valuable personnel into the company [54]

Company Performance - Agilysys reported quarterly earnings of $0.32 per share, exceeding the Zacks Consensus Estimate of $0.24 per share, and up from $0.26 per share a year ago, representing an earnings surprise of 33.33% [1] - The company achieved revenues of $62.22 million for the quarter ended March 2024, surpassing the Zacks Consensus Estimate by 0.62% and increasing from $52.9 million year-over-year [1] - Over the last four quarters, Agilysys has consistently surpassed consensus EPS and revenue estimates [1] Market Performance - Agilysys shares have declined approximately 3.6% since the beginning of the year, while the S&P 500 has gained 9.5% [2] - The stock currently holds a Zacks Rank 3 (Hold), indicating it is expected to perform in line with the market in the near future [3] Future Outlook - The current consensus EPS estimate for the upcoming quarter is $0.23 on revenues of $65.91 million, and for the current fiscal year, it is $0.99 on revenues of $278.44 million [4] - The Computer - Integrated Systems industry, to which Agilysys belongs, is currently ranked in the top 33% of over 250 Zacks industries, suggesting a favorable outlook compared to lower-ranked industries [4]

Revenue Growth - Total net revenue for fiscal 2024 increased 19.9% to a record $237.5 million compared to $198.1 million in fiscal 2023[4] - Recurring revenue reached a record $138.1 million, accounting for 58.1% of total net revenue, with subscription revenue growing 29.6% year over year[4] - The company expects fiscal 2025 revenue to be between $275 million and $280 million, with subscription revenue growth exceeding 27%[8] - Total net revenue for the three months ended March 31, 2024, was $62,221,000, a 17.5% increase from $52,897,000 in the same period of 2023[22] Profitability Metrics - Adjusted EBITDA for fiscal 2024 was a record $37.1 million, compared to $30.3 million in the prior year[4] - Net income attributable to common shareholders for fiscal 2024 was $85.0 million, or $3.17 per diluted share, compared to $12.7 million, or $0.49 per diluted share, in fiscal 2023[4] - Operating income for the year ended March 31, 2024, was $15,753,000, representing a 22.5% increase from $12,875,000 in 2023[22] - Adjusted EBITDA for the year ended March 31, 2024, was $37,069,000, an increase from $30,291,000 in 2023[28] Cash Flow and Liquidity - Free cash flow for fiscal 2024 was $40.1 million, up from $27.2 million in fiscal 2023[4] - The company reported a net cash provided by operating activities of $48,186,000 for the year ended March 31, 2024, compared to $34,463,000 in 2023[26] - Net cash provided by operating activities for the three months ended March 31, 2024, was $29,807,000, compared to $16,783,000 in 2023, indicating a 77.7% increase[30] - Free cash flow for the twelve months ended March 31, 2024, was $40,059,000, up from $27,225,000 in 2023, marking a 47.0% increase[30] Margins - Gross margin for fiscal 2024 was 60.7%, slightly down from 61.0% in the prior year[4] - The company reported a gross margin of 61.5% in Q4 2024, compared to 60.8% in the same quarter of the previous year[4] - Gross profit margin improved to 61.5% for the three months ended March 31, 2024, compared to 60.8% in the same period of 2023[22] Shareholder Metrics - Adjusted diluted earnings per share for the twelve months ended March 31, 2024, was $1.10, up from $0.97 in 2023, reflecting a 13.4% growth[29] - The basic weighted average shares outstanding increased to 26,913,000 for the three months ended March 31, 2024, from 24,825,000 in 2023, a growth of 8.4%[29] - The company reported a net income attributable to common shareholders of $2,961,000 for the three months ended March 31, 2024, down from $3,616,000 in 2023, a decrease of 18.1%[29] Expenses and Investments - Total operating expenses for the year ended March 31, 2024, were $128,503,000, up from $107,944,000 in 2023[22] - Capital expenditures for the twelve months ended March 31, 2024, totaled $8,127,000, compared to $7,238,000 in 2023, reflecting an increase of 12.3%[30] - Share-based compensation increased to $4,622,000 for the three months ended March 31, 2024, compared to $3,548,000 in 2023, a rise of 30.3%[29] Asset Growth - Cash and cash equivalents increased to $144,891,000 as of March 31, 2024, compared to $112,842,000 in 2023[24] - Total assets grew to $350,430,000 as of March 31, 2024, up from $243,036,000 in 2023[24] Tax and Amortization - The company experienced a significant tax event adjustment of $(69,067,000) for the twelve months ended March 31, 2024[29] - Amortization of internal-use software and intangibles decreased to $1,366,000 for the twelve months ended March 31, 2024, from $1,743,000 in 2023, a decline of 21.6%[29] Subscription Revenue - Subscription revenue comprised 57.0% of total recurring revenue in Q4 2024, up from 50.6% in Q4 2023[4] - Subscription and maintenance revenue increased to $36,588,000 for the three months ended March 31, 2024, up 16.5% from $31,368,000 in 2023[22] - Significant growth in subscription and services revenue indicates a strong competitive position in the hospitality software market[7]

Core Viewpoint - Agilysys (AGYS) is expected to report a quarterly earnings per share (EPS) of $0.24, reflecting a year-over-year decline of 7.7%, while revenues are anticipated to increase by 16.9% to $61.84 million [1] Group 1: Earnings and Revenue Estimates - Analysts have maintained the consensus EPS estimate for the upcoming quarter over the last 30 days, indicating a reevaluation of initial projections [1] - The 'Net revenue- Subscription and maintenance' is projected to reach $36.78 million, representing a year-over-year increase of 17.2% [2] - The 'Net revenue- Professional services' is estimated at $13.48 million, suggesting a significant year-over-year growth of 32.3% [2] - 'Net revenue- Products' is forecasted to be $11.60 million, indicating a modest increase of 2.2% from the prior-year quarter [2] Group 2: Stock Performance and Market Position - Agilysys shares have decreased by 4.6% over the past month, contrasting with the Zacks S&P 500 composite's decline of 0.2% [3] - With a Zacks Rank of 3 (Hold), AGYS is expected to closely follow the overall market performance in the near term [3]