Agilysys(AGYS) - 2021 Q2 - Quarterly Report

Part I. Financial Information Item 1. Financial Statements (Unaudited) Unaudited Q2 and H1 FY2021 financials show increased cash, revenue decline due to COVID-19, and a shift to net income from improved margins Condensed Consolidated Balance Sheets Balance sheet as of September 30, 2020, reflects increased cash to $85.7 million due to preferred stock issuance, strengthening assets and equity Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2020 (Unaudited) | Mar 31, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $85,706 | $46,653 | | Accounts receivable, net | $20,173 | $35,869 | | Total current assets | $115,544 | $93,408 | | Total assets | $173,714 | $154,562 | | Liabilities & Equity | | | | Total current liabilities | $45,777 | $69,423 | | Series A convertible preferred stock | $35,459 | $— | | Total shareholders' equity | $77,924 | $71,757 | | Total liabilities and shareholders' equity | $173,714 | $154,562 | Condensed Consolidated Statements of Operations Q2 and H1 FY2021 operations show revenue decline but a shift to net income, driven by improved gross margin and reduced operating expenses Statement of Operations Summary (in thousands, except per share data) | Metric | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Six Months Ended Sep 30, 2020 | Six Months Ended Sep 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Total net revenue | $34,360 | $40,722 | $64,166 | $79,111 | | Gross profit | $23,154 | $20,217 | $41,703 | $40,232 | | Gross profit margin | 67.4% | 49.6% | 65.0% | 50.9% | | Operating income (loss) | $6,050 | $(2,881) | $5,626 | $(4,424) | | Net income (loss) | $5,867 | $(2,918) | $5,350 | $(4,493) | | Net income (loss) per share - basic | $0.23 | $(0.13) | $0.16 | $(0.19) | Condensed Consolidated Statements of Cash Flows Cash flow for H1 FY2021 shows $6.6 million from operations and $32.8 million from financing, increasing cash to $85.7 million Cash Flow Summary (in thousands) | Activity | Six Months Ended Sep 30, 2020 | Six Months Ended Sep 30, 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $6,642 | $1,234 | | Net cash used in investing activities | $(473) | $(1,942) | | Net cash provided by (used in) financing activities | $32,799 | $(1,065) | | Net increase (decrease) in cash | $39,053 | $(1,856) | | Cash and cash equivalents at end of period | $85,706 | $38,915 | Notes to Condensed Consolidated Financial Statements Notes detail operations in hospitality software, COVID-19 impact, revenue disaggregation, $35 million preferred stock issuance, and accounting policies - The company operates as a single reportable segment serving the global hospitality industry, offering solutions like POS, PMS, and inventory management[16][17] - Revenue recognized from products (point in time) totaled $6.6 million for the three months and $11.9 million for the six months ended Sep 30, 2020, a decrease from the prior year[45] - Revenue from services (over time) was $27.8 million and $52.4 million for the same periods, respectively[45] - On May 22, 2020, the company sold 1,735,457 shares of Series A Convertible Preferred Stock to MAK Capital for an aggregate price of $35 million[72] - The stock carries a 5.25% dividend per annum[72] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses H1 FY2021 revenue decline due to COVID-19, improved profitability from cost reductions, and strengthened liquidity from a $35 million investment Overview and Recent Developments COVID-19 impacted H1 FY2021 revenue, leading to cost-saving measures and a $35 million investment from MAK Capital boosting cash - First half fiscal 2021 revenue was negatively impacted by delays and reduced spending attributed to the COVID-19 pandemic, though recurring revenue renewal rates remained high[88] - The company implemented cost-saving measures including reduced discretionary costs, a hiring freeze, layoffs, furloughs, and salary decreases for executives and certain employees[89][90] - In May 2020, the company sold $35 million of convertible preferred stock to MAK Capital One, LLC, increasing the cash balance by $34 million after costs[93] Results of Operations - Q2 FY2021 vs Q2 FY2020 Q2 FY2021 saw a 15.6% revenue decrease but a shift to $6.1 million operating income, driven by increased gross profit and 26.0% lower operating expenses Q2 FY2021 vs Q2 FY2020 Performance (in thousands) | Metric | Q2 FY2021 (ended Sep 30, 2020) | Q2 FY2020 (ended Sep 30, 2019) | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total net revenue | $34,360 | $40,722 | $(6,362) | (15.6)% | | Gross profit | $23,154 | $20,217 | $2,937 | 14.5% | | Operating income (loss) | $6,050 | $(2,881) | $8,931 | 310.0% | - Subscription-based service revenue grew 23.9% in Q2 FY2021 compared to the prior-year quarter[100] - Operating expenses (excluding certain items) decreased by $6.0 million or 26.0%, driven by reductions in product development (-23.4%), sales and marketing (-51.9%), and G&A (-13.6%)[102][103][104] Results of Operations - First Half FY2021 vs First Half FY2020 H1 FY2021 saw an 18.9% revenue decrease but a shift to $5.6 million operating income, driven by increased gross profit and 21.5% lower operating expenses First Half FY2021 vs First Half FY2020 Performance (in thousands) | Metric | H1 FY2021 (ended Sep 30, 2020) | H1 FY2020 (ended Sep 30, 2019) | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total net revenue | $64,166 | $79,111 | $(14,945) | (18.9)% | | Gross profit | $41,703 | $40,232 | $1,471 | 3.7% | | Operating income (loss) | $5,626 | $(4,424) | $10,050 | 227.2% | - The growth rate in support, maintenance, and subscription services was lower than in recent periods due to one-time COVID-19 related financial relief provided to certain customers[116] Liquidity and Capital Resources Liquidity is strong with $85.7 million cash, boosted by $34.0 million from MAK Capital investment, and $6.6 million cash flow from operations - Cash on hand was $85.7 million as of September 30, 2020[129] - The MAK Capital investment increased the cash balance by $34.0 million after closing costs[127] Six-Month Cash Flow Summary (in thousands) | Activity | Six Months Ended Sep 30, 2020 | Six Months Ended Sep 30, 2019 | | :--- | :--- | :--- | | Operating activities | $6,642 | $1,234 | | Investing activities | $(473) | $(1,942) | | Financing activities | $32,799 | $(1,065) | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company reports no material changes in its market risk exposures since March 31, 2020 - There have been no material changes in the company's market risk exposures since the fiscal year ended March 31, 2020[138] Item 4. Controls and Procedures Management concluded disclosure controls and procedures were effective as of September 30, 2020, with no material changes to internal control over financial reporting - Management concluded that as of the end of the period covered by the report, the company's disclosure controls and procedures were effective[139] - No changes occurred during the six months ended September 30, 2020, that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[140] Part II. Other Information Item 1. Legal Proceedings The company reports no new or material legal proceedings for the period - The company reported no legal proceedings under this item[143] Item 1A. Risk Factors No material changes to risk factors were reported, except for the ongoing unpredictable adverse effects of the COVID-19 pandemic - No material changes in risk factors are reported, except for the ongoing uncertainty related to the full impact of the COVID-19 pandemic[143][144] Item 6. Exhibits This section lists exhibits filed with Form 10-Q, including certifications and Inline XBRL data files - Exhibits filed include certifications by the Chief Executive Officer and Chief Financial Officer as required by the Sarbanes-Oxley Act of 2002[147][148]