AGILYSYS INC Q3 FY2021 earnings

Agilysys closed fiscal 2021 third quarter with revenue of $36.7 million, down 12.7% from the prior-year quarter. The top line remains under pressure from the pandemic. Products and professional services sales were hit by delayed customer purchasing decisions and customer site restrictions. Recurring revenue was a bright spot at $22.8 million, or 62.3% of total net revenue. Subscription revenue grew 18.1% year over year. That mix shift helped gross profit rise 14.9% to $24.2 million. Gross margin was 66.0%, up 15.8 percentage points. The improvement came from a richer revenue mix and the absence of software development cost amortization.

Profitability is improving but still uneven. The quarter produced an operating loss of $1.8 million, which narrowed from the prior-year quarter. Net loss was $2.1 million, also narrower. Diluted EPS was -$0.11, flat with the prior-year quarter. On a non-GAAP basis, Adjusted EBITDA was $7.6 million, up from $3.2 million. Adjusted diluted EPS was $0.23, up from $0.05. Operating cash flow was $8.4 million, up 109.0% from the prior-year quarter. Free cash flow was $7.8 million, up from $3.0 million. Capital expenditures were $0.6 million, down 43.4%. Deferred revenue rose 11.3% to $39.4 million. The balance sheet remains liquid, and management said strong cash collections strengthened it further.

Year-to-date results show the same mix-driven recovery. Revenue for the nine months was $100.8 million, down 16.7% from the first nine months of fiscal 2020. Gross profit rose 7.5% to $65.9 million. Gross margin was 65.3%, up 14.7 percentage points. Operating income was $3.8 million, swinging to a profit from an operating loss. Net income was $3.3 million, also swinging to a profit. Diluted EPS was $0.05, swinging to a profit. Operating margin was 3.8%, up 9.7 percentage points. Operating cash flow for the nine months was $15.1 million, up 186.1%. Capital expenditures were $1.1 million, down 64.2%. The nine-month period includes cost actions taken earlier in the pandemic, including layoffs, furloughs, temporary salary reductions, and a hiring freeze on non-essential positions.

Guidance points to a stable near-term top line but higher costs. For fiscal 2021 fourth quarter, management expects revenue to remain sequentially flat compared to the third quarter. Adjusted EBITDA is expected to be approximately $7.0 million, down from the third quarter, mainly because of further increases in research and development staffing. The company also said it will discontinue the sequential quarter guidance cadence it adopted during fiscal 2021 and return to annual guidance beginning in fiscal 2022. That suggests management sees the pandemic period as exceptional and wants to move back to a normal reporting rhythm.

Risks remain concentrated in the hospitality end market. Management said the current industry headwinds caused by the pandemic are still challenging. There is significant uncertainty about when the expected recovery will become reality. The company expects the business environment to remain unchanged during the immediate future. Delays in customer contracts, reduced face-to-face meetings, travel restrictions, and limited site access have hurt product sales, implementations, and professional services. Customer delays or slower payments could pressure future results. The company also carries a valuation allowance against substantially all U.S. deferred tax assets, which reflects uncertainty about future taxable income. Preferred stock dividends and related issuance costs affect net income attributable to common shareholders. Even with these risks, Agilysys is using the downturn to expand its cloud-native product set and subscription offerings, betting those investments will position it for the recovery. The fourth quarter will test whether the revenue base has stabilized and whether the higher research and development spending is a temporary drag or a structural cost increase.