AGILYSYS INC Q1 FY2022 earnings

Agilysys reported fiscal 2022 first quarter revenue of $38.7 million, up 29.9% from the prior-year quarter. Recurring revenue reached a record $23.2 million, or 59.9% of total net revenue. Subscription revenue also set a record at $10.2 million and rose 33.2% from the fiscal 2021 first quarter. Subscription revenue made up 43.7% of total recurring revenue. The company continues to shift its mix toward cloud-native SaaS and on-premise hospitality software. The CEO called it the best April-June quarter for sales success and revenue level, slightly higher than the same quarter two years ago. The MD&A tied the top-line gain to customers re-opening their locations, which lifted product sales and professional services activity.

Gross margin was 64.2%, up 2.0 percentage points from the prior-year quarter. Gross profit was $24.9 million, up 34.1%. Operating income was $2.0 million, a swing to profit from a prior-year loss, and operating margin was 5.3%, up 6.7 percentage points. Net income was $2.0 million, also a swing to profit. Diluted EPS was $0.06, compared with a loss per share in the prior-year quarter. Adjusted EBITDA, a non-GAAP measure, was $6.9 million, up from $3.4 million a year earlier. Adjusted net income was $5.2 million. Adjusted basic EPS was $0.22 and adjusted diluted EPS was $0.21. The profit improvement came even as product development, sales and marketing, and general and administrative expenses rose, according to the MD&A. The company said the higher expenses reflected restored base pay, employee benefits, higher incentive pay, and increased share-based compensation.

Operating cash flow was $8.0 million, up 262.2% from the prior-year quarter. Free cash flow, a non-GAAP measure, was $7.7 million. Capital expenditures were $0.27 million. Deferred revenue was $34.8 million, down 8.9% from the prior-year quarter. The company said its combined product, services and recurring revenue backlog reached record levels even as implementation delays pushed some revenue recognition into later periods. Management also noted that some customers delayed technology decisions, which affected the timing of revenue. The MD&A attributed the operating cash inflow to cash-based earnings and a reduction in net operating assets and liabilities.

Management reiterated full-year fiscal 2022 revenue guidance of $160 million to $170 million and Adjusted EBITDA of slightly better than 15% of revenue. The guidance covers the full fiscal year. The CEO said certain domestic hospitality segments have recovered since around March, but several verticals and international regions remain challenged by the pandemic. The company plans to increase investments in sales, marketing, services and support to accelerate its transformation. Agilysys also said it continues to monitor COVID-19 impacts and will keep employee and customer safety as a priority.

Risks include ongoing COVID-19 disruption, implementation delays, and uncertain customer re-opening timelines. The MD&A points to potential collection issues on accounts receivable and delayed customer contract renewals. Agilysys carries a valuation allowance against substantially all deferred tax assets in the U.S. and certain foreign jurisdictions. Deferred revenue declined year over year, which may reflect billing timing or renewal patterns. The company operates across North America, Europe, the Middle East, Asia-Pacific and India and has one reportable segment serving the global hospitality industry. The MD&A warns that the ultimate impact of the pandemic on financial condition and results cannot be predicted. Despite these risks, the quarter showed solid revenue growth, margin expansion, and positive cash generation as hospitality demand recovered in select markets.