AGILYSYS INC Q1 FY2021 earnings

Agilysys reported fiscal 2021 first quarter revenue of $29.8 million, a 22.4% decrease from $38.4 million in the prior-year quarter. Gross profit was $18.55 million, down 7.3% from $20.01 million. Gross margin rose to 62.2% from 52.1%. The operating loss narrowed to $0.42 million from $1.54 million, and the net loss narrowed to $0.52 million from $1.58 million. Diluted EPS was -$0.07. Operating margin improved to -1.4% from -4.0%. The CEO called it likely the toughest quarter ever for the hospitality industry and for the company. Customer site closures, travel restrictions, and delayed installations hurt products and professional services. Recurring revenue held up better but was reduced by one-time COVID-19 related financial relief given to customers. Management expects that relief to affect future quarters of this fiscal year, though to a lesser extent. Services revenue was also affected by sales incentives for a new online ordering F&B application.

Capital spending and cash generation weakened. Operating cash flow was -$4.93 million, down from -$1.91 million in the prior-year quarter. Capital expenditures were $243,000, down 57.4% from the prior-year quarter. Deferred revenue was $38.15 million, up 7.2% from $35.59 million. Free cash flow, a non-GAAP measure, was -$5.2 million compared with -$2.5 million. In May 2020, Agilysys sold $35 million of convertible preferred stock to MAK Capital. The preferred stock carries a 5.25% dividend and closing costs were $0.9 million. The transaction added $35 million in preferred stock to the balance sheet and increased the cash balance by the investment less closing costs. Management said the cash balance was strong, but the quarter still consumed cash.

Non-GAAP profitability stayed positive. Adjusted EBITDA was $3.4 million, compared with $3.2 million in the prior-year quarter. Adjusted diluted EPS was $0.08, compared with $0.08. Recurring revenues were 68.8% of total net revenue, compared with 52.3% for the same period in fiscal 2020, and subscription revenues increased 8.6% year over year and comprised 37.2% of total recurring revenues, compared with 34.9% in the first quarter of fiscal 2020. The company did not release full fiscal year 2021 guidance. For the fiscal 2021 second quarter, it expects revenue to increase 15% over fiscal 2021 first quarter results and Adjusted EBITDA to increase 25% over the same period. Agilysys plans to guide one quarter at a time for the rest of fiscal 2021 and switch to annual guidance in fiscal 2022. Management remains bullish about long-term growth and profitability improvement prospects.

The main risk is the pandemic and its duration. Management cited significant marketplace uncertainties, possible customer payment delays, deferred or reduced orders, and continued site access restrictions. The company cut discretionary costs, froze hiring for non-essential positions, and reduced payroll through layoffs, furloughs, retirement benefit limits, and salary decreases for executives and certain other employees. Those moves lowered product development, sales and marketing, and general and administrative expenses. They may hurt the business if they remain in place for an extended period. Management also said sales deals won in value terms improved month over month after an April bottom. The company continued product development at a strong pace, launched an online ordering F&B application, and remains cautiously optimistic near term. It also said it did not compromise product innovation or customer service levels during the quarter. The CEO said the current velocity of product improvements and innovation is the best it has ever been and has helped create expanded market opportunities.