UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________ to __________.
Commission file number
AGILYSYS, INC.
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
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(ZIP Code) |
(
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer |
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
Indicate by check mark whether the registrant has filed all documents and reports required to be filed be sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☒ No ☐
The number of Common Shares of the registrant outstanding as of July 28, 2020 was
AGILYSYS, INC.
Index
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Item 1 |
3 |
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Condensed Consolidated Balance Sheets – June 30, 2020 (Unaudited) and March 31, 2020 |
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4 |
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7 |
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Notes to Condensed Consolidated Financial Statements (Unaudited) |
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Item 2 |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3 |
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Item 4 |
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Item 1 |
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Item 1A |
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Item 2 |
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Item 3 |
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Item 4 |
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Item 5 |
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Item 6 |
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2
AGILYSYS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
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June 30, 2020 Unaudited |
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March 31, 2020 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable, net of allowance for expected credit losses of $ |
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Contract assets |
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Inventories |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Operating lease right-of-use assets |
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Goodwill |
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Intangible assets, net |
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Deferred income taxes, non-current |
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Other non-current assets |
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Total assets |
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$ |
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$ |
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LIABILITIES AND SHAREHOLDERS' EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Contract liabilities |
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Accrued liabilities |
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Operating lease liabilities, current |
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Finance lease obligations, current |
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Total current liabilities |
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Deferred income taxes, non-current |
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Operating lease liabilities, non-current |
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Finance lease obligations, non-current |
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Other non-current liabilities |
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Commitments and contingencies (see Note 8) |
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Series A convertible preferred stock, par value |
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— |
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Shareholders' equity: |
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Common shares, without par value, at $ shares authorized; and and March 31, 2020, respectively |
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Treasury shares, and March 31, 2020, respectively |
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Capital in excess of stated value |
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Retained earnings |
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Accumulated other comprehensive income |
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Total shareholders' equity |
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Total liabilities and shareholders' equity |
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$ |
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$ |
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See accompanying notes to unaudited condensed consolidated financial statements.
3
AGILYSYS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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Three Months Ended June 30, |
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2020 |
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2019 |
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Net revenue: |
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Products |
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$ |
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$ |
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Support, maintenance and subscription services |
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Professional services |
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Total net revenue |
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Cost of goods sold: |
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Products (inclusive of developed technology amortization) |
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Support, maintenance and subscription services |
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Professional services |
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Total cost of goods sold |
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Gross profit |
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Gross profit margin |
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% |
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% |
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Operating expenses: |
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Product development |
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Sales and marketing |
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General and administrative |
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Depreciation of fixed assets |
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Amortization of intangibles |
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Severance and other charges |
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Total operating expense |
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Operating loss |
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Other (income) expense: |
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Interest income |
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Interest expense |
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Other expense, net |
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Loss before taxes |
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Income tax expense |
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Net loss |
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$ |
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$ |
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Series A convertible preferred stock issuance costs |
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( |
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- |
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Series A convertible preferred stock dividends |
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( |
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- |
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Net loss available to common shareholders |
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$ |
( |
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$ |
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Weighted average shares outstanding - basic and diluted |
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Net loss per share - basic and diluted: |
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$ |
( |
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$ |
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See accompanying notes to unaudited condensed consolidated financial statements.
4
AGILYSYS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
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Three Months Ended June 30, |
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2020 |
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2019 |
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Net loss |
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$ |
( |
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$ |
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Other comprehensive loss, net of tax: |
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Unrealized foreign currency translation adjustments |
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( |
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( |
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Total comprehensive loss |
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$ |
( |
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$ |
( |
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See accompanying notes to unaudited condensed consolidated financial statements.
5
AGILYSYS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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Three Months Ended June 30, |
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2020 |
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2019 |
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Operating activities |
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Net loss |
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$ |
( |
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$ |
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Adjustments to reconcile loss from operations to net cash used in operating activities |
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Depreciation |
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Amortization of intangibles |
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Amortization of developed technology |
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— |
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Deferred income taxes |
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( |
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Share-based compensation |
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Changes in operating assets and liabilities |
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( |
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( |
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Net cash used in operating activities |
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( |
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( |
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Investing activities |
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Capital expenditures |
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( |
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( |
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Additional investments in corporate-owned life insurance policies |
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( |
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( |
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Net cash used in investing activities |
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( |
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( |
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Financing activities |
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Repurchase of common shares to satisfy employee tax withholding |
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( |
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( |
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Series A convertible preferred stock issuance proceeds, net of issuance costs |
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— |
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Principal payments under long-term obligations |
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( |
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Net cash provided by (used in) financing activities |
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( |
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Effect of exchange rate changes on cash |
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( |
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Net increase (decrease) in cash and cash equivalents |
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( |
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Cash and cash equivalents at beginning of period |
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Cash and cash equivalents at end of period |
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$ |
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$ |
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See accompanying notes to unaudited condensed consolidated financial statements.
6
AGILYSYS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
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Common Shares |
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Capital in |
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Accumulated |
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Issued |
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In Treasury |
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excess of |
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other |
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(In thousands) |
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Shares |
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Stated value |
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Shares |
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Stated value |
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stated value |
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Retained earnings |
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comprehensive loss |
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Total |
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Balance at March 31, 2019 |
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$ |
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( |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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Share-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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Restricted shares issued, net |
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— |
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— |
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( |
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— |
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— |
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— |
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Shares issued upon exercise of SSARs |
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— |
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— |
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( |
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— |
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— |
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— |
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Shares withheld for taxes upon exercise of stock options, SSARs or vesting of restricted shares |
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— |
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— |
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( |
) |
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( |
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( |
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— |
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— |
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( |
) |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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( |
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Unrealized translation adjustments |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Balance at June 30, 2019 |
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$ |
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( |
) |
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$ |
( |
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$ |
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$ |
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$ |
( |
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$ |
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Balance at March 31, 2020 |
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$ |
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( |
) |
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$ |
( |
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$ |
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$ |
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$ |
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$ |
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Share-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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Restricted shares issued, net |
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— |
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— |
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( |
) |
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( |
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— |
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— |
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— |
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Shares issued upon exercise of SSARs |
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— |
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— |
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( |
) |
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— |
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— |
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— |
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Shares withheld for taxes upon exercise of stock options, SSARs or vesting of restricted shares |
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— |
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— |
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( |
) |
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( |
) |
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( |
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— |
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— |
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( |
) |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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( |
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Series A convertible preferred stock issuance costs |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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( |
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Series A convertible preferred stock dividends |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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( |
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Unrealized translation adjustments |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
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Balance at June 30, 2020 |
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$ |
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|
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
See accompanying notes to unaudited condensed consolidated financial statements.
7
AGILYSYS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Table amounts in thousands, except per share data)
1. Nature of Operations and Financial Statement Presentation
Nature of Operations
Agilysys has been a leader in hospitality software for more than 40 years, delivering innovative guest-centric technology solutions for gaming, hotels, resorts and cruise, corporate foodservice management, restaurants, universities, stadia, airport foodservice and healthcare. Agilysys offers the most comprehensive solutions in the industry, including point of sale (POS), property management systems (PMS), inventory and procurement, payments, and related applications, to manage the entire guest journey.
The Company has just one reportable segment serving the global hospitality industry. Agilysys operates across North America, Europe, Asia-Pacific, and India with headquarters located in Alpharetta, GA.
COVID-19 Pandemic
On March 11, 2020, the World Health Organization declared the COVID-19 outbreak a global pandemic. The outbreak has reached all geographic regions in which we do business, and government authorities around the world have implemented extensive measures attempting to contain the spread and mitigate the effects of the virus, including travel bans and restrictions, border closings, quarantines, shelter-in-place orders, closures of non-essential businesses, and social distancing requirements. The global spread of COVID-19 and the actions taken in response have negatively impacted us, our customers, our suppliers and the many communities in which we do business. The overall extent and duration of economic and business disruption is not currently known. In response to these challenges, we quickly adjusted our business policies and practices for employees to work from home and have taken other measures to continue our operations with safety as our priority.
We continuously monitor and assess the impact of the COVID-19 pandemic, including recommendations and orders from government and public health authorities. We are working to help our customers maintain their operations during this difficult time while managing our teams to be prepared for continuously changing demand for our products and services.
See Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview— Recent Developments” of this report for a more detailed discussion of the impact of COVID-19 on our business.
Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements include our accounts consolidated with our wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Our fiscal year ends on March 31st. References to a particular year refer to the fiscal year ending in March of that year. For example, fiscal 2021 refers to the fiscal year ending March 31, 2021.
Our unaudited interim financial statements are prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information, the instructions to the Quarterly Report on Form 10-Q (Quarterly Report) under the Securities Exchange Act of 1934, as amended (the Exchange Act), and Rule 10-01 of Regulation S-X under the Exchange Act. Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations relating to interim financial statements.
The Condensed Consolidated Balance Sheet as of June 30, 2020, as well as the Condensed Consolidated Statements of Operations, Condensed Consolidated Statements of Comprehensive Loss, Condensed Consolidated Statements of Cash Flows and Condensed Consolidated Statements of Shareholders’ Equity for the three months ended June 30, 2020 and 2019, are unaudited. However, these financial statements have been prepared on the same basis as those in the audited annual financial statements, except for the recently adopted accounting pronouncements described below. In the opinion of management, all adjustments of a recurring nature necessary to fairly state the results of operations, financial position, and cash flows have been made.
These unaudited interim financial statements should be read together with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended March 31, 2020, filed with the Securities and Exchange Commission (SEC) on May 22, 2020.
Use of estimates
8
Preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that may affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported periods.
Considering the currently unknown extent and duration of the COVID-19 pandemic, we face a greater degree of uncertainty than normal in making the judgments and estimates needed to apply to certain of our significant accounting policies. We assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to us and the unknown future impacts COVID-19 as of June 30, 2020 and through the date of this report. These estimates may change, as new events occur and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions.
2. Summary of Significant Accounting Policies
A detailed description of our significant accounting policies can be found in the audited financial statements for the fiscal year ended March 31, 2020, included in our Annual Report on Form 10-K. We describe our accounting policy for Series A convertible preferred stock further below. There have been no other material changes to our significant accounting policies from those disclosed therein.
Adopted and Recently Issued Accounting Pronouncements
In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. ASU 2018-15 addresses the treatment of implementation costs incurred in a hosting arrangement that is a service contract. The update does not impact the accounting for the service element of a hosting arrangement that is a service contract. We adopted ASU 2018-15 as of April 1, 2020 with no impact on our condensed consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 addresses the required disclosures around fair value measurement. The disclosure requirements of the reasons for transfers between Level 1 and Level 2, the policy for timing transfers between levels, and the valuation process for Level 3 measurements have been removed. Certain modifications were made to required disclosures and additional requirements were established. We adopted ASU 2018-13 as of April 1, 2020 with no impact on our condensed consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles- Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment. ASU No. 2017-04 eliminates Step 2 of the goodwill impairment test and requires a goodwill impairment to be measured as the amount by which a reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of its goodwill. We adopted ASU 2017-04 as of April 1, 2020 with no impact on our condensed consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments. This new standard requires entities to measure expected credit losses for certain financial assets held at the reporting date using a current expected credit loss model, which is based on historical experience, adjusted for current conditions and reasonable and supportable forecasts. The Company’s financial instruments within the scope of this guidance primarily includes accounts receivable and contract assets. We adopted ASU 2016-13 as of April 1, 2020 under the modified retrospective approach. As a result, comparative information has not been restated and continues to be reported under accounting standards applicable for those periods. The adoption of ASU 2016-13 did not have a material impact on our condensed consolidated financial statements, including accounting policies, given our limited historical write-off activity.
3. Revenue Recognition
Our customary business practice is to enter into legally enforceable written contracts with our customers. The majority of our contracts are governed by a master agreement between us and the customer, which sets forth the general terms and conditions of any individual contract between the parties, which is then supplemented by a customer purchase order to specify the different goods and services, the associated prices, and any additional terms for an individual contract. Performance obligations specific to each individual contract are defined within the terms of each purchase order. Each performance obligation is identified based on the goods and services that will be transferred to our customer that are both capable of being distinct and are distinct within the context of the contract. The transaction price is determined based on the consideration to which we will be entitled and expect to receive in exchange for transferring goods or services to the customer. Typically, our contracts do not provide our customer with any right of return or refund; we do not constrain the contract price as it is probable that there will not be a significant revenue reversal due to a return or refund.
Typically, our customer contracts contain one or more of the following goods or services which constitute performance obligations.
9
Our software licenses typically provide for a perpetual right to use our software. Generally, our contracts do not provide significant services of integration, and customization and installation services are not required to be purchased directly from us. The software is delivered before related services are provided and is functional without professional services, updates and technical support. We have concluded that the software license is distinct as the customer can benefit from the software on its own. Software revenue is typically recognized when the software is delivered or made available for download to the customer.
Revenue for hardware sales is recognized when the product is shipped to the customer and when obligations that affect the customer's final acceptance of the arrangement have been fulfilled. Hardware is purchased from suppliers and provided to the end-user customers via drop-ship or from inventory. We are responsible for negotiating price both with the supplier and the customer, payment to the supplier, establishing payment terms and product returns with the customer, and we bear the credit risk if the customer does not pay for the goods. As the principal contact with the customer, we recognize revenue and cost of goods sold when we are notified by the supplier that the product has been shipped. In certain limited instances, as shipping terms dictate, revenue is recognized upon receipt at the point of destination or upon installation at the customer site.
Support and maintenance revenue is derived from providing telephone and on-line technical support services, bug fixes, and unspecified software updates and upgrades to customers on a when-and-if-available basis. These services represent a stand-ready obligation that is concurrently delivered and has the same pattern of transfer to the customer; we account for these support and maintenance services as a single performance obligation recognized over the term of the maintenance agreement.
Our subscription service revenue is comprised of fees for contracts that provide customers a right to access our software for a subscribed period. We do not provide the customer the contractual right to license the software at any time outside of the subscription period under these contracts. The customer can only benefit from the software and software maintenance when provided the right to access the software. Accordingly, each of the rights to access the software, the maintenance services, and any hosting services is not considered a distinct performance obligation in the context of the contract and should be combined into a single performance obligation to be recognized over the contract period. The Company recognizes subscription revenue over a one-month period based on the typical monthly invoicing and renewal cycle in accordance with our customer agreement terms.
Professional services revenues primarily consist of fees for consulting, installation, integration and training and are generally recognized over time as the customer simultaneously receives and consumes the benefits of the professional services as the services are being performed. Professional services can be provided by internal or external providers, do not significantly affect the customer's ability to access or use other provided goods or services, and provide a measure of benefit beyond that of other promised goods or services in the contract. As a result, professional services are considered distinct in the context of the contract and represent a separate performance obligation. Professional services that are billed on a time and materials basis are recognized over time as the services are performed. For contracts billed on a fixed price basis, revenue is recognized over time using an input method based on labor hours expended to date relative to the total labor hours expected to be required to satisfy the related performance obligation.
We use the market approach to drive standalone selling price ("SSP") by maximizing observable data points (in the form of recently executed customer contracts) to determine the price customers are willing to pay for the goods and services transferred. If the contract contains a single performance obligation, the entire transaction price is allocated to that performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative SSP basis.
Shipping and handling fees billed to customers are recognized as revenue and the related costs are recognized in cost of goods sold. Revenue is recorded net of any applicable taxes collected and remitted to governmental agencies.
Disaggregation of Revenue
We derive and report our revenue from the sale of products (software licenses, third party hardware and operating systems), support, maintenance and subscription services and professional services. Revenue recognized at a point in time (products) totaled $
Contract Balances
Contract assets are rights to consideration in exchange for goods or services that we have transferred to a customer when that right is conditional on something other than the passage of time. The majority of our contract assets represent unbilled amounts related to professional services. We expect billing and collection of our contract assets to occur within the next twelve months. We receive payments from customers based upon contractual billing schedules and accounts receivable are recorded when the right to consideration becomes unconditional. Contract liabilities represent consideration received or consideration which is unconditionally due from customers prior to transferring goods or services to the customer under the terms of the contract.
Revenue recognized from amounts included in contract liabilities at the beginning of the period was $
10
to accounts receivable from contract assets at the beginning of the period, $
Our arrangements are for a period of one year or less. As a result, unsatisfied performance obligations as of June 30, 2020 are expected to be satisfied and the allocated transaction price recognized in revenue within a period of 12 months or less.
Assets Recognized from Costs to Obtain a Contract
Sales commission expenses that would not have occurred absent the customer contracts are considered incremental costs to obtain a contract. We have elected to take the practical expedient available to expense the incremental costs to obtain a contract as incurred when the expected benefit and amortization period is one year or less. For subscription contracts that are renewed monthly based on an agreement term, we capitalize commission expenses and amortize as we satisfy the underlying performance obligations, generally based on the contract terms and anticipated renewals. Other sales commission expenses have a period of benefit of one year or less and are therefore expensed as incurred in line with the practical expedient elected.
We had $
4. Intangible Assets and Software Development Costs
The following table summarizes our intangible assets and software development costs:
|
|
|
June 30 and March 31, 2020 |
|
|||||||||||||
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
Net |
|
||
|
|
|
carrying |
|
|
Accumulated |
|
|
|
|
|
|
carrying |
|
|||
|
(In thousands) |
|
amount |
|
|
amortization |
|
|
Impairment |
|
|
amount |
|
||||
|
Amortized intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
Non-competition agreements |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
Developed technology |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
Trade names |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
Patented technology |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
Trade names |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total software development costs |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
As of March 31, 2020, management determined the net realizable value of the remaining capitalized software development costs for certain solutions within out rGuest suite of products no longer exceeded their carrying value, and as a result, recorded non-cash impairment charges of $
Amortization expense for software development costs related to assets to be sold, leased, or otherwise marketed was $
11
5. Additional Balance Sheet Information
Additional information related to the condensed consolidated balance sheets is as follows:
|
|
|
June 30, 2020 |
|
|
March 31, 2020 |
|
||
|
Accrued liabilities: |
|
|
|
|
|
|
|
|
|
Salaries, wages, and related benefits |
|
$ |
|
|
|
$ |
|
|
|
Other taxes payable |
|
|
|
|
|
|
|
|
|
Severance liabilities |
|
|
|
|
|
|
|
|
|
Professional fees |
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
Other non-current liabilities: |
|
|
|
|
|
|
|
|
|
Uncertain tax positions |
|
$ |
|
|
|
$ |
|
|
|
Asset retirement obligations |
|
|
|
|
|
|
|
|
|
Employee benefit obligations |
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
12
6. Supplemental Disclosures of Cash Flow Information
|
|
|
Three Months Ended June 30, |
|
|||||
|
(In thousands) |
|
|
2020 |
|
|
|
2019 |
|
|
Cash (receipts) for interest, net |
|
|
( |
) |
|
|
( |
) |
|
Cash payments for income tax, net |
|
|
|
|
|
|
|
|
|
Cash payments for operating leases |
|
|
|
|
|
|
|
|
|
Cash payments for finance leases |
|
|
|
|
|
|
|
|
|
Accrued capital expenditures |
|
|
|
|
|
|
|
|
7. Income Taxes
The following table compares our income tax expense and effective tax rates for the three months ended June 30, 2020 and 2019:
|
|
|
Three Months Ended June 30, |
|
|||||
|
(Dollars in thousands) |
|
2020 |
|
|
2019 |
|
||
|
Income tax expense |
|
$ |
|
|
|
$ |
|
|
|
Effective tax rate |
|
|
( |
)% |
|
|
( |
)% |
For the three months ended June 30, 2020 and 2019, the effective tax rate was different than the statutory rate due primarily to the recognition of net operating losses as deferred tax assets in the U.S. and certain foreign jurisdictions, which were offset by increases in the valuation allowance, certain foreign and state tax effects and other U.S. permanent book to tax differences.
Because of our losses in prior periods, we have recorded a valuation allowance offsetting substantially all of our deferred tax assets in the U.S. and certain foreign jurisdictions, as management believes that it is more likely than not that we will not realize the benefits of these deductible differences. The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which those temporary differences are deductible.
8. Commitments and Contingencies
Agilysys is the subject of various threatened or pending legal actions and contingencies in the normal course of conducting its business. We provide for costs related to these matters when a loss is probable, and the amount can be reasonably estimated. The effect of the outcome of these matters on our future results of operations and liquidity cannot be predicted because any such effect depends on future results of operations and the amount or timing of the resolution of such matters. While it is not possible to predict with certainty, management believes that the ultimate resolution of such individual or aggregated matters will not have a material adverse effect on our consolidated financial position, results of operations, or cash flows.
On April 6, 2012, Ameranth, Inc. filed a complaint against us in the U.S. District Court of Southern District of California alleging that certain of our products infringe patents owned by Ameranth directed to configuring and transmitting hospitality menus (e.g. restaurant menus) for display on electronic devices and synchronizing the menu content between the devices. The case against us was consolidated with similar cases brought by Ameranth against more than 30 other defendants. All but one of the patents at issue in the case were invalidated by the U.S. Court of Appeals for the Federal Circuit in 2016. In September 2018, the District Court found the one surviving Ameranth patent invalid and granted summary judgment in favor of the movant co-defendants. In November 2019, the U.S. Court of Appeals for the Federal Circuit affirmed the lower court’s summary judgement with respect to all claims except for two, which were not asserted against Agilysys. In early 2020, the Court of Appeals also denied Ameranth’s request for rehearing. Finally, Ameranth filed for writ of certiorari to the United States Supreme Court. The Supreme Court has not yet responded to the writ.
We were not a party to the appeal, and it is currently unclear what impact the summary judgement ruling or writ of certiorari may have on our case. Ameranth seeks monetary damages, injunctive relief, costs and attorneys' fees from us. At this time, we are not able to predict the outcome of this lawsuit. However, we dispute the allegations of wrongdoing and are vigorously defending ourselves in this matter.
13
9. Loss per Share
The following data shows the amounts used in computing (loss) per share and the effect on earnings and the weighted average number of shares of dilutive potential common shares.
|
|
Three Months Ended June 30, |
|
|||||
|
(In thousands, except per share data) |
2020 |
|
|
2019 |
|
||
|
Numerator: |
|
|
|
|
|
|
|
|
Net loss |
$ |
( |
) |
|
$ |
( |
) |
|
Series A convertible preferred stock issuance costs |
|
( |
) |
|
|
— |
|
|
Series A convertible preferred stock dividends |
|
( |
) |
|
|
— |
|
|
Net loss available to common shareholders |
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
Weighted average shares outstanding - basic and diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share - basic and diluted: |
|
|
|
|
|
|
|
|
Loss per share |
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
Anti-dilutive stock options, SSARs, restricted shares, performance shares and preferred shares |
|
|
|
|
|
|
|
Basic loss per share is computed as net income available to common shareholders divided by the weighted average basic shares outstanding. The outstanding shares used to calculate the weighted average basic shares excludes
Diluted loss per share includes the effect of all potentially dilutive securities on earnings per share. We have stock options, stock-settled appreciation rights ("SSARs"), unvested restricted shares and unvested performance shares that are potentially dilutive securities. When a loss is reported, the denominator of diluted earnings per share cannot be adjusted for the dilutive impact of share-based compensation awards because doing so would be anti-dilutive. Therefore, for all periods presented, basic weighted average shares outstanding were used in calculating the diluted net loss per share.
10. Share-based Compensation
We may grant non-qualified stock options, incentive stock options, SSARs, restricted shares, and restricted share units under our shareholder-approved 2016 Stock Incentive Plan ("2016 Plan") for up to
We may distribute authorized but unissued shares or treasury shares to satisfy share option and appreciation right exercises or restricted share and performance share awards.
We record compensation expense related to stock options, SSARs, restricted shares, and performance shares granted to certain employees and non-employee directors based on the fair value of the awards on the grant date. The fair value of restricted share and performance share awards is based on the closing price of our common shares on the grant date. The fair value of stock option and SSARs awards is estimated on the grant date using the Black-Scholes-Merton option pricing model, which includes assumptions regarding the risk-free interest rate, dividend yield, life of the award, and the volatility of our common shares. During fiscal year 2020, we issued
14
The following table summarizes the share-based compensation expense for options, SSARs, restricted and performance awards included in the condensed consolidated statements of operations:
|
|
|
|
|
|||||
|
|
|
Three Months Ended June 30, |
|
|||||
|
(In thousands) |
|
2020 |
|
|
2019 |
|
||
|
Product development |
|
$ |
|
|
|
$ |
|
|
|
Sales and marketing |
|
|
|
|
|
|
|
|
|
General and administrative |
|
|
|
|
|
|
|
|
|
Total share-based compensation expense |
|
$ |
|
|
|
$ |
|
|
Stock-Settled Appreciation Rights
SSARs are rights granted to an employee to receive value equal to the difference in the price of our common shares on the date of the grant and on the date of exercise. This value is settled in common shares of Agilysys, Inc.
The following table summarizes the activity during the three months ended June 30, 2020 for SSARs awarded under the 2011 and 2016 Plans:
|
|
|
Number of Rights |
|
|
Weighted-Average Exercise Price |
|
|
Remaining Contractual Term |
|
|
Aggregate Intrinsic Value |
|
||||
|
(In thousands, except share and per share data) |
|
|
|
|
|
(per right) |
|
|
(in years) |
|
|
|
|
|
||
|
Outstanding at April 1, 2020 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2020 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
Exercisable at June 30, 2020 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
Vested and expected to vest at June 30, 2020 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
As of June 30, 2020, total unrecognized share-based compensation expense related to non-vested SSARs was $
Restricted Shares
We granted shares to certain of our Directors, executives and key employees, the vesting of which is service-based.
|
|
|
Number of Shares |
|
|
Weighted-Average Grant-Date Fair Value |
|
||
|
(In thousands, except share and per share data) |
|
|
|
|
|
(per share) |
|
|
|
Outstanding at April 1, 2020 |
|
|
|
|
|
$ |
|
|
|
Forfeited |
|
|
( |
) |
|
|
|
|
|
Outstanding at June 30, 2020 |
|
|
|
|
|
$ |
|
|
The weighted-average grant date fair value of the restricted shares is determined based upon the closing price of our common shares on the grant date. As of June 30, 2020, total unrecognized share-based compensation expense related to non-vested restricted stock was $
15
Performance Shares
We awarded certain restricted shares to our Chief Executive Officer, the vesting of which is performance based. The number of shares that vest will be based on relative attainment of a performance metric and any unvested shares will forfeit upon settlement of the bonus.
The following table summarizes the activity during the three months ended June 30, 2020 for the performance shares awarded under the 2016 Plan:
|
(In thousands, except share and per share data) |
|
Number of Shares |
|
|
|
Outstanding at April 1, 2020 |
|
|
|
|
|
Granted |
|
|
— |
|
|
Vested |
|
|
— |
|
|
Forfeited |
|
|
— |
|
|
Outstanding at June 30, 2020 |
|
|
|
|
Based on the performance goals, the Compensation Committee of the board of directors awarded
11. Preferred Stock
Series A Convertible Preferred Stock
On May 22, 2020, we completed the sale of
Accounting Policy
We classify convertible preferred stock as temporary equity in the condensed consolidated balance sheets due to certain contingent redemption clauses that are at the election of the Holders. We increase the carrying value of the convertible preferred stock to its redemption value (described below) for all undeclared dividends using the interest method.
The Convertible Preferred Stock has the following rights, preferences and restrictions (the Certificate of Amendment included as Exhibit 3.1 to our Current Report on Form 8-K, filed on May 26, 2020, defines all terms not otherwise defined below):
Voting
Liquidation Preference
Upon a liquidation, dissolution or winding up of the Company, each share of Convertible Preferred Stock will be entitled to receive an amount per share equal to the greater of (i) the purchase price paid by the Purchaser, plus all accrued and unpaid dividends (the “Liquidation Preference”) and (ii) the amount that the Holder would have been entitled to receive at such time if the Convertible Preferred Stock were converted into common stock.
16
Redemption
On and after the fifth anniversary of the date the Convertible Preferred Stock is initially issued, the Company will have the right, and the Holders will have the right to require the Company, in each case, at the initiating party’s election, to redeem all, but not less than all, of the then-outstanding Convertible Preferred Stock for an amount equal to the Liquidation Preference.
Conversion
Each Holder will have the right, at its option, to convert its Convertible Preferred Stock, in whole or in part, into fully paid and non-assessable shares of common stock at a conversion price equal to $
Subject to certain conditions, the Company may, at its option, require conversion of all of the outstanding shares of Convertible Preferred Stock to common stock if, at any time after
Dividends
The Convertible Preferred Stock ranks senior to the Company’s common stock with respect to dividends and distributions on liquidation, winding-up and dissolution. Upon a liquidation, dissolution or winding up of the Company, each share of Convertible Preferred Stock will be entitled to receive an amount per share equal to the greater of (i) the Liquidation Preference and (ii) the amount that the Holder would have been entitled to receive at such time if the Convertible Preferred Stock were converted into common stock.
Change in Control Events
Standstill Restrictions
The Purchaser and its affiliates are subject to certain customary standstill provisions that restrict them from, among other actions, acquiring additional securities of the Company if such acquisition would result in the Purchaser beneficially owning in excess of
17
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
In “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”), management explains the general financial condition and results of operations for Agilysys and subsidiaries including:
— what factors affect our business;
— what our earnings and costs were;
— why those earnings and costs were different from the year before;
— where the earnings came from;
— how our financial condition was affected; and
— where the cash will come from to fund future operations.
The MD&A analyzes changes in specific line items in the Condensed Consolidated Statements of Operations and Condensed Consolidated Statements of Cash Flows and provides information that management believes is important to assessing and understanding our consolidated financial condition and results of operations. This Quarterly Report on Form 10-Q updates information included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2020, filed with the Securities and Exchange Commission (SEC). This discussion should be read in conjunction with the Condensed Consolidated Financial Statements and related Notes that appear in Item 1 of this Quarterly Report as well as our Annual Report for the year ended March 31, 2020. Information provided in the MD&A may include forward-looking statements that involve risks and uncertainties. Many factors could cause actual results to be materially different from those contained in the forward-looking statements. See “Forward-Looking Information” on page 29 of this Quarterly Report, Item 1A "Risk Factors" in Part II of this Quarterly Report, and Item 1A “Risk Factors” in Part I of our Annual Report for the fiscal year ended March 31, 2020 for additional information concerning these items. Management believes that this information, discussion, and disclosure is important in making decisions about investing in Agilysys.
Overview
Recent Developments
COVID-19 Pandemic
On March 11, 2020, the World Health Organization declared the COVID-19 outbreak a global pandemic. The outbreak has reached all geographic regions in which we do business, and government authorities around the world have implemented extensive measures attempting to contain the spread and mitigate the effects of the virus, including travel bans and restrictions, border closings, quarantines, shelter-in-place orders, closures of non-essential businesses, and social distancing requirements. The global spread of COVID-19 and the actions taken in response have negatively impacted us, our customers, our suppliers and the many communities in which we do business. The overall extent and duration of economic and business disruption is not currently known. In response to these challenges, we quickly adjusted our business policies and practices for employees to work from home and have taken other measures to continue our operations with safety as our priority.
We continuously monitor and assess the impact of the COVID-19 pandemic, including recommendations and orders from government and public health authorities. We are working to help our customers maintain their operations during this difficult time while managing our teams to be prepared for continuously changing demand for our products and services.
During the first quarter, revenue was negatively impacted by delays and reduced spending attributed to the impact of the COVID-19 pandemic on our customers’ operational priorities and as a result of various one-time recurring revenue related and other concessions we have given to customers to help them during this time of need. Due to the pandemic, we have seen a reduction or delay in customer contracts and we have been unable to conduct face-to-face meetings with existing or prospective customers, present in-person demonstrations of our solutions, or host or attend in-person trade shows and conferences. Limitations on access to the facilities of our customers have also impacted our ability to deliver some of our products, complete certain implementations, and provide in-person consulting and training services, negatively impacting our ability to recognize revenue. We continued to experience high recurring revenue renewal rates during the first quarter. We have also begun to offer new software modules of our solutions designed to help our customers address challenges created by the pandemic now and into the future. Despite our strong first quarter recurring renewal rates and new solution offerings, we cannot predict how the pandemic will impact our results in future periods, including to the extent that customers delay or miss payments, customers defer, reduce, or refrain from placing orders or renewing subscriptions or maintenance arrangements, or travel restrictions and site access restrictions remain necessary.
We continue to conduct business with substantial modifications to employee travel, employee work locations, virtualization or cancellation of customer and employee events, and remote sales, implementation, and support activities, among other modifications. These modifications may continue to delay or reduce sales and harm productivity and collaboration. In addition, during the first quarter of our fiscal 2021, we reduced discretionary costs, implemented a hiring freeze on non-essential positions and reduced payroll and
18
related costs through layoffs, employee furloughs, employee retirement benefit limitations, and salary decreases for executive team members and certain other employees of the Company. These actions may have an adverse impact on us, particularly if they remain in place for an extended period.
We may take further actions that alter our business operations as the situation evolves. As a result, the ultimate impact of the COVID-19 pandemic and the effects of the operational alterations we have made in response on our business, financial condition, liquidity, and financial results cannot be predicted at this time.
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (CARES) Act was enacted and signed into U.S. law to provide economic relief to individuals and businesses facing economic hardship as a result of the COVID-19 pandemic. The CARES Act did not have a material impact on our consolidated financial condition or results of operations as of and for the quarter ended June 30, 2020. However, we plan to continue deferring the timing of employer payroll tax payments and accelerating the refund of AMT credits as permitted by the CARES Act.
MAK Capital Investment
In May 2020, we entered into an agreement to sell to MAK Capital One, LLC (“MAK Capital”) $35 million of convertible preferred stock carrying a 5.25% dividend that will be convertible into shares of the Company’s common stock. The transaction resulted in the issuance of 1,735,457 preferred shares which added $35 million in preferred stock to the Company’s balance sheet and increased our cash balance by the $35 million investment less closing costs of $0.9 million. The 5.25% dividends will accumulate and increase the liquidation preference of the preferred stock for any undeclared amounts.
Our Business
Agilysys has been a leader in hospitality software for more than 40 years, delivering innovative guest-centric technology solutions for casinos, hotels, resorts, cruise ships, managed foodservice providers, stadiums and arenas. Agilysys offers the most comprehensive solutions in the industry, including point of sale (POS), property management systems (PMS), inventory and procurement, payment solutions, and related hospitality applications, to manage the entire guest journey. Agilysys is known for its leadership in hospitality, its broad product offerings and its customer-centric service. Some of the largest hospitality companies around the world use Agilysys solutions to help improve guest loyalty, drive revenue growth, increase operational efficiencies and support social distancing. The Company has just one reportable segment serving the global hospitality industry. Agilysys operates across North America, Europe, Asia-Pacific, and India with headquarters located in Alpharetta, Georgia.
We strive to increase shareholder value by improving operating and financial performance and profitably growing the business through superior products and services. To that end, we expect to invest a certain portion of our cash on hand to fund enhancements to existing software products, to develop and market new software products, and to expand our customer breadth, both vertically and geographically.
Our strategic plan specifically focuses on:
|
|
• |
Putting the customer first with world class support and services |
|
|
• |
Accelerating our product development |
|
|
• |
Improving organizational efficiency and teamwork |
|
|
• |
Developing our employees and leaders |
|
|
• |
Growing revenue by improving the breadth and depth of our product set |
|
|
• |
Growing revenue through international expansion |
The primary objective of our ongoing strategic planning process is to create shareholder value by capitalizing on growth opportunities, turning profitable and strengthening our competitive position within the specific technology solutions and end markets we serve. Profitability and industry leading growth will be achieved through tighter management of operating expenses and sharpening the focus of our investments to concentrate on growth opportunities that offer the highest returns.
19
Revenue - Defined
As required by the SEC, we separately present revenue earned as products revenue, support, maintenance and subscription services revenue or professional services revenue in our condensed consolidated statements of operations. In addition to the SEC requirements, we may, at times, also refer to revenue as defined below. The terminology, definitions, and applications of terms we use to describe our revenue may be different from those used by other companies and caution should be used when comparing these financial measures to those of other companies. We use the following terms to describe revenue:
|
|
• |
Revenue - We present revenue net of sales returns and allowances |
|
|
• |
Products revenue – Revenue earned from the sales of software licenses, third party hardware and operating systems. |
|
|
• |
Support, maintenance and subscription services revenue – Revenue earned from the sale of proprietary and remarketed ongoing support, maintenance and subscription services. |
|
|
• |
Professional services revenue – Revenue earned from the delivery of implementation, integration and installation services for proprietary and remarketed products. |
Results of Operations
First Fiscal Quarter 2021 Compared to First Fiscal Quarter 2020
Net Revenue and Operating Loss
The following table presents our consolidated revenue and operating results for the three months ended June 30, 2020 and 2019:
|
|
|
Three months ended |
|
|
|
|
|
|
|
|
|
|||||
|
|
|
June 30, |
|
|
Increase (decrease) |
|
||||||||||
|
|
|
2020 |
|
|
2019 |
|
|
$ |
|
|
% |
|
||||
|
Net revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products |
|
$ |
5,239 |
|
|
$ |
10,869 |
|
|
$ |
(5,630 |
) |
|
|
-51.8 |
% |
|
Support, maintenance and subscription services |
|
|
20,497 |
|
|
|
20,082 |
|
|
|
415 |
|
|
|
2.1 |
|
|
Professional services |
|
|
4,071 |
|
|
|
7,438 |
|
|
|
(3,367 |
) |
|
|
-45.3 |
|
|
Total net revenue |
|
|
29,807 |
|
|
|
38,389 |
|
|
|
(8,582 |
) |
|
|
-22.4 |
|
|
Cost of goods sold: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products (inclusive of developed technology amortization) |
|
|
3,015 |
|
|
|
8,623 |
|
|
|
(5,608 |
) |
|
|
-65.0 |
|
|
Support, maintenance and subscription services |
|
|
4,306 |
|
|
|
4,181 |
|
|
|
125 |
|
|
|
3.0 |
|
|
Professional services |
|
|
3,936 |
|
|
|
5,571 |
|
|
|
(1,635 |
) |
|
|
-29.3 |
|
|
Total cost of goods sold |
|
|
11,257 |
|
|
|
18,375 |
|
|
|
(7,118 |
) |
|
|
-38.7 |
|
|
Gross profit |
|
$ |
18,550 |
|
|
$ |
20,014 |
|
|
$ |
(1,464 |
) |
|
|
-7.3 |
% |
|
Gross profit margin |
|
|
62.2 |
% |
|
|
52.1 |
% |
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product development |
|
$ |
8,266 |
|
|
$ |
10,064 |
|
|
$ |
(1,798 |
) |
|
|
-17.9 |
% |
|
Sales and marketing |
|
|
2,601 |
|
|
|
4,498 |
|
|
|
(1,897 |
) |
|
|
(42.2 |
) |
|
General and administrative |
|
|
5,719 |
|
|
|
5,874 |
|
|
|
(155 |
) |
|
|
-2.6 |
|
|
Depreciation of fixed assets |
|
|
723 |
|
|
|
213 |
|
|
|
510 |
|
|
|
239.4 |
|
|
Amortization of intangibles |
|
|
461 |
|
|
|
678 |
|
|
|
(217 |
) |
|
|
(32.0 |
) |
|
Severance and other charges |
|
|
1,203 |
|
|
|
231 |
|
|
|
972 |
|
|
|
420.8 |
|
|
Operating loss |
|
$ |
(423 |
) |
|
$ |
(1,544 |
) |
|
$ |
1,121 |
|
|
|
(72.6 |
)% |
|
Operating loss percentage |
|
|
(1.4 |
)% |
|
|
(4.0 |
)% |
|
|
|
|
|
|
|
|
nm - not meaningful
20
The following table presents the percentage relationship of our condensed consolidated statement of operations line items to our consolidated net revenues for the periods presented:
|
|
|
Three months ended |
|
|||||
|
|
|
June 30, |
|
|||||
|
|
|
2020 |
|
|
2019 |
|
||
|
Net revenue: |
|
|
|
|
|
|
|
|
|
Products |
|
|
17.6 |
% |
|
|
28.3 |
% |
|
Support, maintenance and subscription services |
|
|
68.8 |
|
|
|
52.3 |
|
|
Professional services |
|
|
13.6 |
|
|
|
19.4 |
|
|
Total net revenue |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
Cost of goods sold: |
|
|
|
|
|
|
|
|
|
Products |
|
|
10.1 |
% |
|
|
22.5 |
% |
|
Support, maintenance and subscription services |
|
|
14.4 |
|
|
|
10.9 |
|
|
Professional services |
|
|
13.3 |
|
|
|
14.5 |
|
|
Total cost of goods sold |
|
|
37.8 |
% |
|
|
47.9 |
% |
|
Gross profit |
|
|
62.2 |
% |
|
|
52.1 |
% |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
Product development |
|
|
27.7 |
% |
|
|
26.2 |
% |
|
Sales and marketing |
|
|
8.7 |
|
|
|
11.7 |
|
|
General and administrative |
|
|
19.2 |
|
|
|
15.3 |
|
|
Depreciation of fixed assets |
|
|
2.5 |
|
|
|
0.5 |
|
|
Amortization of intangibles |
|
|
1.5 |
|
|
|
1.8 |
|
|
Severance and other charges |
|
|
4.0 |
|
|
|
0.6 |
|
|
Operating loss |
|
|
(1.4 |
)% |
|
|
(4.0 |
)% |
Net revenue. Total net revenue decreased $8.6 million, or 22.4%, during the first quarter of fiscal 2021 compared to the first quarter of fiscal 2020. Products revenue decreased $5.6 million, or 51.8%, due to lower sales combined with delayed deliveries resulting from customer restrictions including temporary site closures in response to the COVID-19 pandemic. Support, maintenance and subscription services revenue increased $0.4 million, or 2.1%, compared to the first quarter of fiscal 2020 driven by continued growth in subscription-based service revenue, which increased 8.6% during the first quarter of fiscal 2021 compared to the first quarter of fiscal 2020. The growth rate in our support, maintenance and subscription services is significantly lower than we have reported in recent quarters due to one-time COVID-19 related financial relief we provided to certain customers during the first quarter of fiscal 2021 to help them as they deal with temporary site closures during the period. Professional services revenue decreased $3.4 million, or 45.3%, due to lower sales combined with delayed installations and integration of our software solutions resulting from travel and customer restrictions including temporary site closures in response to the COVID-19 pandemic.
Gross profit and gross profit margin. Our total gross profit decreased $1.5 million, or 7.3%, for the first quarter of fiscal 2021 and total gross profit margin increased from 52.1% to 62.2%. Products gross profit was flat at $2.2 million for the three months ended June 30, 2021 and 2020, respectively. Products gross profit margin increased from 20.7% to 42.5% due to the absence of software development cost amortization during the first quarter of fiscal 2021 following the impairment of our rGuest suite of products during the fourth quarter of fiscal 2020 (see further discussion of the impairment in Note 4 to the condensed consolidated financial statements). Support, maintenance and subscription services gross profit increased $0.3 million and gross profit margin decreased 19 basis points to 79.0%. The margin decrease is the result of the COVID-19 related financial relief we provided to certain customers during the first fiscal quarter of fiscal 2021. Professional services gross profit decreased $1.7 million and gross profit margin decreased from 25.1% to 3.3% due to the drop in demand for professional services due to travel and customer restrictions including temporary site closures in response to the COVID-19 pandemic.
Operating expenses
Operating expenses, excluding legal settlements, severance and other charges, decreased $3.6 million, or 16.7%, during the first quarter of fiscal 2021 compared with the first quarter of fiscal 2020.
Product development. Product development decreased $1.8 million, or 17.9%, in the first quarter of fiscal 2021 due to employee furloughs and layoffs, temporary salary reductions, lower incentive pay and employee benefits, a temporary hiring freeze effectively eliminating recruiting fees, and significantly reduced travel and outside service expenses due to employees working from home.
21
Sales and marketing. Sales and marketing decreased $1.9 million, or 42.2%, in the first quarter of fiscal 2021 compared with the first quarter of fiscal 2020 due to employee furloughs and layoffs, temporary salary reductions, lower incentive pay and employee benefits, significantly reduced travel and the absence of in-person trade shows and conference activity.
General and administrative. General and administrative decreased by $0.2 million, or 2.6%, in the first quarter of fiscal 2021 compared with the first quarter of fiscal 2020 due to employee furloughs and layoffs, temporary salary reductions, lower incentive pay and employee benefits offset by an increase in share-based compensation.
Severance and other charges. Severance, and other charges increased $1.0 million in the first quarter of fiscal 2021 due to severance charges resulting from layoffs.
Other (Income) Expenses
|
|
|
Three months ended |
|
|
|
|
|
|
|
|
|
|||||
|
|
|
June 30, |
|
|
(Unfavorable) favorable |
|
||||||||||
|
(Dollars in thousands) |
|
2020 |
|
|
2019 |
|
|
$ |
|
|
% |
|
||||
|
Other (income) expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
(21 |
) |
|
$ |
(80 |
) |
|
$ |
(59 |
) |
|
|
(73.8 |
)% |
|
Interest expense |
|
|
1 |
|
|
|
1 |
|
|
|
0 |
|
|
nm |
|
|
|
Other expense, net |
|
|
106 |
|
|
|
85 |
|
|
|
(21 |
) |
|
nm |
|
|
|
Total other (income) expense, net |
|
$ |
86 |
|
|
$ |
6 |
|
|
$ |
(80 |
) |
|
nm |
|
|
nm - not meaningful
Interest income. Interest income consists of interest earned on cash equivalents including short-term investments in certificates of deposit, commercial paper, treasury bills and money market funds.
Interest expense. Interest expense consists of costs associated with finance leases.
Other expense. Other expense consists mainly of the impact of foreign currency due to movement of European and Asian currencies against the US dollar.
Income Taxes
|
|
|
Three months ended |
|
|
|
|
|
|
|
|||||
|
|
|
June 30, |
|
|
(Unfavorable) favorable |
|||||||||
|
(Dollars in thousands) |
|
2020 |
|
|
2019 |
|
|
$ |
|
|
% |
|||
|
Income tax expense |
|
$ |
8 |
|
|
$ |
25 |
|
|
$ |
17 |
|
|
nm |
|
Effective tax rate |
|
|
(1.6 |
)% |
|
|
(1.6 |
)% |
|
|
|
|
|
|
nm - not meaningful
For the three months ended June 30, 2020 and 2019, the effective tax rate was different than the statutory rate due primarily to the recognition of net operating losses as deferred tax assets, which were offset by increases in the valuation allowance, certain foreign and state tax effects, and other U.S. permanent book to tax differences.
Although the timing and outcome of tax settlements are uncertain, it is reasonably possible that during the next 12 months an immaterial reduction in unrecognized tax benefits may occur based on the outcome of tax examinations and as a result of the expiration of various statutes of limitations. We are consistently subject to tax audits; due to the nature of examinations in multiple jurisdictions, changes could occur in the amount of gross unrecognized tax benefits during the next 12 months which cannot be estimated at this time.
Because of our losses in prior periods, we have recorded a valuation allowance offsetting substantially all of our deferred tax assets in the U.S. and certain foreign jurisdictions, as management believes that it is more likely than not that we will not realize the benefits of these deductible differences. The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which those temporary differences are deductible.
Liquidity and Capital Resources
Overview
Our operating cash requirements consist primarily of working capital needs, operating expenses, capital expenditures, payments on indebtedness outstanding, which primarily consists of lease obligations and preferred stock dividends.
22
At June 30, 2020, 100% of our cash and cash equivalents, of which 96% were located in the United States, were deposited in bank accounts. We believe credit risk is limited with respect to our cash and cash equivalents balances.
The MAK Capital investment increased our cash balance by $34.1 million after closing costs of $0.9 million. As described above under Recent Developments and further in Note 11 to the condensed consolidated financial statements, the transaction resulted in the issuance of 1,735,457 preferred shares with an annual dividend rate of 5.25%.
Our liquidity could be negatively impacted by a decrease in demand for our products and services, including the impact of changes in customer buying behavior due to circumstances over which we have no control, including, but not limited to, the effects of the COVID-19 pandemic. If we require additional funding, for operating needs, a business acquisition or otherwise, we may need access to more capital, which could involve borrowings under a credit facility.
As of June 30, 2020, and March 31, 2019, our total debt was approximately $0.1 million, comprised of finance lease obligations in both periods.
We believe that cash flow from operating activities, cash on hand of $74.6 million as of June 30, 2020 and access to capital markets will provide adequate funds to meet our short- and long-term liquidity requirements.
Cash Flow
|
|
|
Three Months Ended June 30, |
|
|
|||||
|
(In thousands) |
|
2020 |
|
|
2019 |
|
|
||
|
Net cash provided by (used in): |
|
|
|
|
|
|
|
|
|
|
Operating activities |
|
$ |
(4,929 |
) |
|
$ |
(1,913 |
) |
|
|
Investing activities |
|
|
(245 |
) |
|
|
(573 |
) |
|
|
Financing activities |
|
|
33,123 |
|
|
|
(1,028 |
) |
|
|
Effect of exchange rate changes on cash |
|
|
2 |
|
|
|
(24 |
) |
|
|
Net increase (decrease) in cash and cash equivalents |
|
$ |
27,951 |
|
|
$ |
(3,538 |
) |
|
Cash flow used in operating activities. Cash flow used in operating activities was $4.9 million in the first three months of fiscal 2021. The use of cash was due primarily to the offset of $2.6 million in non-cash expense including depreciation, amortization, and share-based compensation, against our operating loss of $0.5 million and the decrease of $6.9 million in net operating assets and liabilities.
Cash flow used in investing activities. Consists primarily of property and equipment purchases.
Cash flow provided by financing activities. During the first three months of fiscal 2021, the $33.1 million provided by financing activities consisted primarily of $34.1 million in preferred stock issuance proceeds from the MAK Capital investment, net of issuance costs, offset by $0.9 million related to the repurchase of shares to satisfy employee tax withholding on share-based compensation. During the first three months of fiscal 2020, the $1.0 million used in financing activities was primarily related to the repurchase of shares to satisfy employee tax withholding on share-based compensation.
Contractual Obligations
As of June 30, 2020, there were no significant changes to our contractual obligations as presented in our Annual Report for the year ended March 31, 2020.
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements that have had or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.
Critical Accounting Policies
A detailed description of our significant accounting policies is included in our Annual Report for the year ended March 31, 2020. Other than as described in Note 2 to the condensed consolidated financial statements, there have been no material changes in our significant accounting policies and estimates since March 31, 2020.
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Forward-Looking Information
This Quarterly Report and other publicly available documents, including the documents incorporated herein and therein by reference, contain, and our officers and representatives may from time to time make, "forward-looking statements" within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as: "anticipate," "intend," "plan," "goal," "seek," "believe," "project," "estimate," "expect," "strategy," "future," "likely," "may," "should," "will" and similar references to future periods. These statements are not guarantees of future performance and involve risks, uncertainties, and assumptions that are difficult to predict. These statements are based on management’s current expectations, intentions, or beliefs and are subject to a number of factors, assumptions, and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Factors that could cause or contribute to such differences or that might otherwise impact the business include the risk factors set forth in Item 1A in Part II of this Quarterly Report and Item IA of our Annual Report for the fiscal year ended March 31, 2020. We undertake no obligation to update any such factor or to publicly announce the results of any revisions to any forward-looking statements contained herein whether as a result of new information, future events, or otherwise.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
For quantitative and qualitative disclosures about market risk affecting us, see Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” contained in our Annual Report for the fiscal year ended March 31, 2020. There have been no material changes in our market risk exposures since March 31, 2020.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision of and with the participation of our Chief Executive Officer (CEO), Chief Financial Officer (CFO) and Corporate Controller and Treasurer, management evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this Quarterly Report. Based on that evaluation, the CEO, CFO and Corporate Controller and Treasurer concluded that, as of the end of the period covered by this Quarterly Report, our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
There were no changes to our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Securities Exchange Act of 1934, as amended, that occurred during the three months ended June 30, 2020, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Due to the COVID-19 pandemic, a significant number of our employees are now working from home. The design of our financial reporting processes, systems, and controls allows for remote execution with accessibility to secure data.
Inherent Limitations on Effectiveness of Controls
Our management, including our Chief Executive Officer, Chief Financial Officer and Corporate Controller and Treasurer, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system will be achieved. Further, the design of a control system must reflect the impact of resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the possibility that judgments in decision-making can be faulty, and that breakdowns can occur because of simple errors. Additionally, controls can be circumvented by individual acts, by collusion of two or more people, or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all possible future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
24
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
Other than as described below, there have been no material changes in the risk factors included in our Annual Report for the fiscal year ended March 31, 2020 that may materially affect our business, results of operations, or financial condition.
The full extent to which the COVID-19 pandemic will adversely affect our business and results of operations cannot be predicted at this time. See Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview— Recent Developments” of this report for a more detailed discussion of the impact of COVID-19 on our business.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
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Item 6. Exhibits
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31.1 |
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Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer. |
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31.2 |
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Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer. |
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31.3 |
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Rule 13a-14(a)/15d-14(a) Certification of Corporate Controller and Treasurer. |
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101.INS |
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Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. |
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101.SCH |
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Inline XBRL Taxonomy Extension Schema Document |
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101.CAL |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF |
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Inline XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB |
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Inline XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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104 |
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Cover Page Interactive Data File (embedded within the Inline XBRL document) |
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26
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Quarterly Report to be signed on its behalf by the undersigned thereunto duly authorized.
AGILYSYS, INC.
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Date: |
July 31, 2020 |
/s/ William David Wood III |
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William David Wood III |
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Chief Financial Officer |
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(Principal Financial Officer and Duly Authorized Officer) |
27
Exhibit 31.1
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
I, Ramesh Srinivasan, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Agilysys, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: July 31, 2020
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/s/ Ramesh Srinivasan |
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Ramesh Srinivasan |
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President and Chief Executive Officer |
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(Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
I, William David Wood III, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Agilysys, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: July 31, 2020
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/s/ William David Wood III |
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William David Wood III |
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Chief Financial Officer |
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(Principal Financial Officer) |
Exhibit 31.3
CERTIFICATION OF THE CORPORATE CONTROLLER AND TREASURER
I, Chris J. Robertson, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Agilysys, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: July 31, 2020
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By: |
/s/ Chris J. Robertson |
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Chris J. Robertson |
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Corporate Controller and Treasurer |
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(Principal Accounting Officer) |
Exhibit 32
CERTIFICATION
Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Ramesh Srinivasan, the Chief Executive Officer, William David Wood III, the Chief Financial Officer, and Chris J. Robertson, the Corporate Controller and Treasurer, of Agilysys, Inc. (the “Company”), hereby certify, that, to their knowledge:
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1. |
The Quarterly Report on Form 10-Q of the Company for the period ended June 30, 2020 (the “ Report ”) fully complies (1) with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and |
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2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: July 31, 2020
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By: |
/s/ Ramesh Srinivasan |
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Ramesh Srinivasan |
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President and Chief Executive Officer |
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(Principal Executive Officer) |
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/s/ William David Wood III |
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William David Wood III |
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Chief Financial Officer |
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(Principal Financial Officer) |
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/s/ Chris J. Robertson |
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Chris J. Robertson |
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Corporate Controller and Treasurer |
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(Principal Accounting Officer) |
Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands |
Jun. 30, 2020 |
Mar. 31, 2020 |
|---|---|---|
| Allowance for doubtful accounts receivable | $ 1,458 | $ 1,634 |
| Common stock, stated value | $ 0.30 | $ 0.30 |
| Common stock, shares authorized | 80,000,000 | 80,000,000 |
| Common stock, shares issued | 31,606,831 | 31,606,831 |
| Common stock, shares outstanding | 23,612,924 | 23,609,398 |
| Treasury shares | 7,993,907 | 7,997,433 |
| Series A Convertible Preferred Stock [Member] | ||
| Preferred Stock, No Par Value |
Condensed Consolidated Statements of Comprehensive Loss (Unaudited) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Jun. 30, 2020 |
Jun. 30, 2019 |
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| Statement Of Income And Comprehensive Income [Abstract] | ||
| Income (Loss) from Continuing Operations, Net of Tax, Attributable to Parent | $ (517) | $ (1,575) |
| Other comprehensive loss, net of tax: | ||
| Unrealized foreign currency translation adjustments | (25) | (95) |
| Total comprehensive loss | $ (542) | $ (1,670) |
Nature of Operations and Financial Statement Presentation |
3 Months Ended |
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Jun. 30, 2020 | |
| Organization Consolidation And Presentation Of Financial Statements [Abstract] | |
| Nature of Operations and Financial Statement Presentation |
1. Nature of Operations and Financial Statement Presentation Nature of Operations Agilysys has been a leader in hospitality software for more than 40 years, delivering innovative guest-centric technology solutions for gaming, hotels, resorts and cruise, corporate foodservice management, restaurants, universities, stadia, airport foodservice and healthcare. Agilysys offers the most comprehensive solutions in the industry, including point of sale (POS), property management systems (PMS), inventory and procurement, payments, and related applications, to manage the entire guest journey. The Company has just one reportable segment serving the global hospitality industry. Agilysys operates across North America, Europe, Asia-Pacific, and India with headquarters located in Alpharetta, GA. COVID-19 Pandemic On March 11, 2020, the World Health Organization declared the COVID-19 outbreak a global pandemic. The outbreak has reached all geographic regions in which we do business, and government authorities around the world have implemented extensive measures attempting to contain the spread and mitigate the effects of the virus, including travel bans and restrictions, border closings, quarantines, shelter-in-place orders, closures of non-essential businesses, and social distancing requirements. The global spread of COVID-19 and the actions taken in response have negatively impacted us, our customers, our suppliers and the many communities in which we do business. The overall extent and duration of economic and business disruption is not currently known. In response to these challenges, we quickly adjusted our business policies and practices for employees to work from home and have taken other measures to continue our operations with safety as our priority. We continuously monitor and assess the impact of the COVID-19 pandemic, including recommendations and orders from government and public health authorities. We are working to help our customers maintain their operations during this difficult time while managing our teams to be prepared for continuously changing demand for our products and services. See Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview— Recent Developments” of this report for a more detailed discussion of the impact of COVID-19 on our business. Basis of Presentation The accompanying unaudited Condensed Consolidated Financial Statements include our accounts consolidated with our wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Our fiscal year ends on March 31st. References to a particular year refer to the fiscal year ending in March of that year. For example, fiscal 2021 refers to the fiscal year ending March 31, 2021. Our unaudited interim financial statements are prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information, the instructions to the Quarterly Report on Form 10-Q (Quarterly Report) under the Securities Exchange Act of 1934, as amended (the Exchange Act), and Rule 10-01 of Regulation S-X under the Exchange Act. Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations relating to interim financial statements. The Condensed Consolidated Balance Sheet as of June 30, 2020, as well as the Condensed Consolidated Statements of Operations, Condensed Consolidated Statements of Comprehensive Loss, Condensed Consolidated Statements of Cash Flows and Condensed Consolidated Statements of Shareholders’ Equity for the three months ended June 30, 2020 and 2019, are unaudited. However, these financial statements have been prepared on the same basis as those in the audited annual financial statements, except for the recently adopted accounting pronouncements described below. In the opinion of management, all adjustments of a recurring nature necessary to fairly state the results of operations, financial position, and cash flows have been made. These unaudited interim financial statements should be read together with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended March 31, 2020, filed with the Securities and Exchange Commission (SEC) on May 22, 2020. Use of estimates Preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that may affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported periods. Considering the currently unknown extent and duration of the COVID-19 pandemic, we face a greater degree of uncertainty than normal in making the judgments and estimates needed to apply to certain of our significant accounting policies. We assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to us and the unknown future impacts COVID-19 as of June 30, 2020 and through the date of this report. These estimates may change, as new events occur and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions. |
Summary of Significant Accounting Policies |
3 Months Ended |
|---|---|
Jun. 30, 2020 | |
| Accounting Policies [Abstract] | |
| Summary of Significant Accounting Policies |
2. Summary of Significant Accounting Policies A detailed description of our significant accounting policies can be found in the audited financial statements for the fiscal year ended March 31, 2020, included in our Annual Report on Form 10-K. We describe our accounting policy for Series A convertible preferred stock further below. There have been no other material changes to our significant accounting policies from those disclosed therein. Adopted and Recently Issued Accounting Pronouncements In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. ASU 2018-15 addresses the treatment of implementation costs incurred in a hosting arrangement that is a service contract. The update does not impact the accounting for the service element of a hosting arrangement that is a service contract. We adopted ASU 2018-15 as of April 1, 2020 with no impact on our condensed consolidated financial statements. In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 addresses the required disclosures around fair value measurement. The disclosure requirements of the reasons for transfers between Level 1 and Level 2, the policy for timing transfers between levels, and the valuation process for Level 3 measurements have been removed. Certain modifications were made to required disclosures and additional requirements were established. We adopted ASU 2018-13 as of April 1, 2020 with no impact on our condensed consolidated financial statements. In January 2017, the FASB issued ASU No. 2017-04, Intangibles- Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment. ASU No. 2017-04 eliminates Step 2 of the goodwill impairment test and requires a goodwill impairment to be measured as the amount by which a reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of its goodwill. We adopted ASU 2017-04 as of April 1, 2020 with no impact on our condensed consolidated financial statements. In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments. This new standard requires entities to measure expected credit losses for certain financial assets held at the reporting date using a current expected credit loss model, which is based on historical experience, adjusted for current conditions and reasonable and supportable forecasts. The Company’s financial instruments within the scope of this guidance primarily includes accounts receivable and contract assets. We adopted ASU 2016-13 as of April 1, 2020 under the modified retrospective approach. As a result, comparative information has not been restated and continues to be reported under accounting standards applicable for those periods. The adoption of ASU 2016-13 did not have a material impact on our condensed consolidated financial statements, including accounting policies, given our limited historical write-off activity.
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Revenue Recognition |
3 Months Ended |
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Jun. 30, 2020 | |
| Revenue From Contract With Customer [Abstract] | |
| Revenue Recognition |
3. Revenue Recognition Our customary business practice is to enter into legally enforceable written contracts with our customers. The majority of our contracts are governed by a master agreement between us and the customer, which sets forth the general terms and conditions of any individual contract between the parties, which is then supplemented by a customer purchase order to specify the different goods and services, the associated prices, and any additional terms for an individual contract. Performance obligations specific to each individual contract are defined within the terms of each purchase order. Each performance obligation is identified based on the goods and services that will be transferred to our customer that are both capable of being distinct and are distinct within the context of the contract. The transaction price is determined based on the consideration to which we will be entitled and expect to receive in exchange for transferring goods or services to the customer. Typically, our contracts do not provide our customer with any right of return or refund; we do not constrain the contract price as it is probable that there will not be a significant revenue reversal due to a return or refund. Typically, our customer contracts contain one or more of the following goods or services which constitute performance obligations. Our software licenses typically provide for a perpetual right to use our software. Generally, our contracts do not provide significant services of integration, and customization and installation services are not required to be purchased directly from us. The software is delivered before related services are provided and is functional without professional services, updates and technical support. We have concluded that the software license is distinct as the customer can benefit from the software on its own. Software revenue is typically recognized when the software is delivered or made available for download to the customer. Revenue for hardware sales is recognized when the product is shipped to the customer and when obligations that affect the customer's final acceptance of the arrangement have been fulfilled. Hardware is purchased from suppliers and provided to the end-user customers via drop-ship or from inventory. We are responsible for negotiating price both with the supplier and the customer, payment to the supplier, establishing payment terms and product returns with the customer, and we bear the credit risk if the customer does not pay for the goods. As the principal contact with the customer, we recognize revenue and cost of goods sold when we are notified by the supplier that the product has been shipped. In certain limited instances, as shipping terms dictate, revenue is recognized upon receipt at the point of destination or upon installation at the customer site. Support and maintenance revenue is derived from providing telephone and on-line technical support services, bug fixes, and unspecified software updates and upgrades to customers on a when-and-if-available basis. These services represent a stand-ready obligation that is concurrently delivered and has the same pattern of transfer to the customer; we account for these support and maintenance services as a single performance obligation recognized over the term of the maintenance agreement. Our subscription service revenue is comprised of fees for contracts that provide customers a right to access our software for a subscribed period. We do not provide the customer the contractual right to license the software at any time outside of the subscription period under these contracts. The customer can only benefit from the software and software maintenance when provided the right to access the software. Accordingly, each of the rights to access the software, the maintenance services, and any hosting services is not considered a distinct performance obligation in the context of the contract and should be combined into a single performance obligation to be recognized over the contract period. The Company recognizes subscription revenue over a one-month period based on the typical monthly invoicing and renewal cycle in accordance with our customer agreement terms. Professional services revenues primarily consist of fees for consulting, installation, integration and training and are generally recognized over time as the customer simultaneously receives and consumes the benefits of the professional services as the services are being performed. Professional services can be provided by internal or external providers, do not significantly affect the customer's ability to access or use other provided goods or services, and provide a measure of benefit beyond that of other promised goods or services in the contract. As a result, professional services are considered distinct in the context of the contract and represent a separate performance obligation. Professional services that are billed on a time and materials basis are recognized over time as the services are performed. For contracts billed on a fixed price basis, revenue is recognized over time using an input method based on labor hours expended to date relative to the total labor hours expected to be required to satisfy the related performance obligation. We use the market approach to drive standalone selling price ("SSP") by maximizing observable data points (in the form of recently executed customer contracts) to determine the price customers are willing to pay for the goods and services transferred. If the contract contains a single performance obligation, the entire transaction price is allocated to that performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative SSP basis. Shipping and handling fees billed to customers are recognized as revenue and the related costs are recognized in cost of goods sold. Revenue is recorded net of any applicable taxes collected and remitted to governmental agencies. Disaggregation of Revenue We derive and report our revenue from the sale of products (software licenses, third party hardware and operating systems), support, maintenance and subscription services and professional services. Revenue recognized at a point in time (products) totaled $5.2 million and $10.9 million, and over time (support, maintenance and subscription services and professional services) totaled $24.6 million and $27.5 million for the three months ended June 30, 2020 and 2019, respectively. Contract Balances Contract assets are rights to consideration in exchange for goods or services that we have transferred to a customer when that right is conditional on something other than the passage of time. The majority of our contract assets represent unbilled amounts related to professional services. We expect billing and collection of our contract assets to occur within the next twelve months. We receive payments from customers based upon contractual billing schedules and accounts receivable are recorded when the right to consideration becomes unconditional. Contract liabilities represent consideration received or consideration which is unconditionally due from customers prior to transferring goods or services to the customer under the terms of the contract. Revenue recognized from amounts included in contract liabilities at the beginning of the period was $17.5 million and $15.6 million for the three months ended June 30, 2020 and 2019, respectively. Because the right to the transaction became unconditional, we transferred to accounts receivable from contract assets at the beginning of the period, $1.4 million and $2.0 million for the three months ended June 30, 2020 and 2019, respectively. Our arrangements are for a period of one year or less. As a result, unsatisfied performance obligations as of June 30, 2020 are expected to be satisfied and the allocated transaction price recognized in revenue within a period of 12 months or less. Assets Recognized from Costs to Obtain a Contract Sales commission expenses that would not have occurred absent the customer contracts are considered incremental costs to obtain a contract. We have elected to take the practical expedient available to expense the incremental costs to obtain a contract as incurred when the expected benefit and amortization period is one year or less. For subscription contracts that are renewed monthly based on an agreement term, we capitalize commission expenses and amortize as we satisfy the underlying performance obligations, generally based on the contract terms and anticipated renewals. Other sales commission expenses have a period of benefit of one year or less and are therefore expensed as incurred in line with the practical expedient elected. We had $3.2 million and $3.3 million of capitalized sales incentive costs as of June 30, 2020 and 2019, respectively. These balances are included in other non-current assets on our condensed consolidated balance sheets. During the three months ended June 30, 2020 and 2019, we expensed $0.6 million and $1.0 million, respectively, of sales commissions, which included amortization of capitalized amounts of $0.4 million and $0.3 million, respectively. These expenses are included in operating expenses – sales and marketing in our condensed consolidated statement of operations. All other costs to obtain a contract are not considered incremental and therefore are expensed as incurred. |
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| Goodwill And Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Intangible Assets and Software Development Costs |
4. Intangible Assets and Software Development Costs The following table summarizes our intangible assets and software development costs:
As of March 31, 2020, management determined the net realizable value of the remaining capitalized software development costs for certain solutions within out rGuest suite of products no longer exceeded their carrying value, and as a result, recorded non-cash impairment charges of $22.0 million for the year ended March 31, 2020. The impact of the COVID-19 pandemic on the hospitality industry resulted in economic conditions that made it difficult to project future sales and revenue accurately for the related rGuest solutions. After evaluating the Company’s strategy for market development and continued costs to support the software, an impairment charge was required. The amount of impairment recognized during the year ended March 31, 2020 reduced the carry value of capitalized software development costs to zero with no remaining amortization expense to be recognized in future periods.
Amortization expense for software development costs related to assets to be sold, leased, or otherwise marketed was $3.2 million for the three months ended June 30, 2019. These charges are included as costs of goods sold - products in our condensed consolidated statements of operations. |
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Additional Balance Sheet Information |
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| Additional Balance Sheet Information |
5. Additional Balance Sheet Information Additional information related to the condensed consolidated balance sheets is as follows:
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Supplemental Disclosures of Cash Flow Information |
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| Supplemental Disclosures of Cash Flow Information |
6. Supplemental Disclosures of Cash Flow Information
Additional information related to the consolidated statements of cash flows is as follows:
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Income Taxes |
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| Income Taxes |
7. Income Taxes The following table compares our income tax expense and effective tax rates for the three months ended June 30, 2020 and 2019:
For the three months ended June 30, 2020 and 2019, the effective tax rate was different than the statutory rate due primarily to the recognition of net operating losses as deferred tax assets in the U.S. and certain foreign jurisdictions, which were offset by increases in the valuation allowance, certain foreign and state tax effects and other U.S. permanent book to tax differences. Because of our losses in prior periods, we have recorded a valuation allowance offsetting substantially all of our deferred tax assets in the U.S. and certain foreign jurisdictions, as management believes that it is more likely than not that we will not realize the benefits of these deductible differences. The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which those temporary differences are deductible. |
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Commitments and Contingencies |
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Jun. 30, 2020 | |
| Commitments And Contingencies Disclosure [Abstract] | |
| Commitments and Contingencies |
8. Commitments and Contingencies Agilysys is the subject of various threatened or pending legal actions and contingencies in the normal course of conducting its business. We provide for costs related to these matters when a loss is probable, and the amount can be reasonably estimated. The effect of the outcome of these matters on our future results of operations and liquidity cannot be predicted because any such effect depends on future results of operations and the amount or timing of the resolution of such matters. While it is not possible to predict with certainty, management believes that the ultimate resolution of such individual or aggregated matters will not have a material adverse effect on our consolidated financial position, results of operations, or cash flows. On April 6, 2012, Ameranth, Inc. filed a complaint against us in the U.S. District Court of Southern District of California alleging that certain of our products infringe patents owned by Ameranth directed to configuring and transmitting hospitality menus (e.g. restaurant menus) for display on electronic devices and synchronizing the menu content between the devices. The case against us was consolidated with similar cases brought by Ameranth against more than 30 other defendants. All but one of the patents at issue in the case were invalidated by the U.S. Court of Appeals for the Federal Circuit in 2016. In September 2018, the District Court found the one surviving Ameranth patent invalid and granted summary judgment in favor of the movant co-defendants. In November 2019, the U.S. Court of Appeals for the Federal Circuit affirmed the lower court’s summary judgement with respect to all claims except for two, which were not asserted against Agilysys. In early 2020, the Court of Appeals also denied Ameranth’s request for rehearing. Finally, Ameranth filed for writ of certiorari to the United States Supreme Court. The Supreme Court has not yet responded to the writ. We were not a party to the appeal, and it is currently unclear what impact the summary judgement ruling or writ of certiorari may have on our case. Ameranth seeks monetary damages, injunctive relief, costs and attorneys' fees from us. At this time, we are not able to predict the outcome of this lawsuit. However, we dispute the allegations of wrongdoing and are vigorously defending ourselves in this matter. |
Loss Per Share |
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| Loss Per Share |
9. Loss per Share The following data shows the amounts used in computing (loss) per share and the effect on earnings and the weighted average number of shares of dilutive potential common shares.
Basic loss per share is computed as net income available to common shareholders divided by the weighted average basic shares outstanding. The outstanding shares used to calculate the weighted average basic shares excludes 194,587 and 445,829 of restricted shares at June 30, 2020 and 2019, respectively, as these shares were issued but were not vested and therefore, not considered outstanding for purposes of computing basic loss per share at the balance sheet dates. Diluted loss per share includes the effect of all potentially dilutive securities on earnings per share. We have stock options, stock-settled appreciation rights ("SSARs"), unvested restricted shares and unvested performance shares that are potentially dilutive securities. When a loss is reported, the denominator of diluted earnings per share cannot be adjusted for the dilutive impact of share-based compensation awards because doing so would be anti-dilutive. Therefore, for all periods presented, basic weighted average shares outstanding were used in calculating the diluted net loss per share. |
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Share-based Compensation |
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| Share-based Compensation |
10. Share-based Compensation We may grant non-qualified stock options, incentive stock options, SSARs, restricted shares, and restricted share units under our shareholder-approved 2016 Stock Incentive Plan ("2016 Plan") for up to 2.0 million common shares, plus 957,575 common shares, the number of shares that were remaining for grant under the 2011 Stock Incentive Plan ("2011 Plan") as of the effective date of the 2016 Plan, plus the number of shares remaining for grant under the 2011 Plan that are forfeited, settled in cash, canceled or expired. The maximum aggregate number of restricted shares or restricted share units that may be granted under the 2016 Plan is 1.25 million. We may distribute authorized but unissued shares or treasury shares to satisfy share option and appreciation right exercises or restricted share and performance share awards. We record compensation expense related to stock options, SSARs, restricted shares, and performance shares granted to certain employees and non-employee directors based on the fair value of the awards on the grant date. The fair value of restricted share and performance share awards is based on the closing price of our common shares on the grant date. The fair value of stock option and SSARs awards is estimated on the grant date using the Black-Scholes-Merton option pricing model, which includes assumptions regarding the risk-free interest rate, dividend yield, life of the award, and the volatility of our common shares. During fiscal year 2020, we issued 125,000 SSAR awards which are subject to a market condition. The fair value of these awards is estimated using the Lattice option pricing model which utilizes a binary tree and includes multiple assumptions which include volatility and life of the award to determine an appropriate fair value based on the award grant date. The following table summarizes the share-based compensation expense for options, SSARs, restricted and performance awards included in the condensed consolidated statements of operations:
Stock-Settled Appreciation Rights SSARs are rights granted to an employee to receive value equal to the difference in the price of our common shares on the date of the grant and on the date of exercise. This value is settled in common shares of Agilysys, Inc. The following table summarizes the activity during the three months ended June 30, 2020 for SSARs awarded under the 2011 and 2016 Plans:
As of June 30, 2020, total unrecognized share-based compensation expense related to non-vested SSARs was $4.3 million, which is expected to be recognized over a weighted-average vesting period of 2.1 years. Restricted Shares We granted shares to certain of our Directors, executives and key employees, the vesting of which is service-based. The following table summarizes the activity during the three months ended June 30, 2020 for restricted shares awarded under the 2011 and 2016 Plans:
The weighted-average grant date fair value of the restricted shares is determined based upon the closing price of our common shares on the grant date. As of June 30, 2020, total unrecognized share-based compensation expense related to non-vested restricted stock was $1.6 million, which is expected to be recognized over a weighted-average vesting period of 1.7 years. Performance Shares We awarded certain restricted shares to our Chief Executive Officer, the vesting of which is performance based. The number of shares that vest will be based on relative attainment of a performance metric and any unvested shares will forfeit upon settlement of the bonus. The following table summarizes the activity during the three months ended June 30, 2020 for the performance shares awarded under the 2016 Plan:
Based on the performance goals, the Compensation Committee of the board of directors awarded 6,714 of the original 30,120 shares having a value of $0.1 million based on the closing price of the Company’s common stock on July 16, 2020, the date that the Committee made its determination. The remaining 23,406 shares subject to the original annual incentive grant were forfeited and can never be earned by our Chief Executive Officer. |
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Preferred Stock |
3 Months Ended |
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Jun. 30, 2020 | |
| Equity [Abstract] | |
| Preferred Stock |
11. Preferred Stock Series A Convertible Preferred Stock On May 22, 2020, we completed the sale of 1,735,457 shares of our preferred stock, without par value, designated as “Series A Convertible Preferred Stock” (the “Convertible Preferred Stock”) to MAK Capital Fund L.P. and MAK Capital Distressed Debt Fund I, LP (the “Holders”) each, in its capacity as a designee of MAK Capital One LLC (the “Purchaser”), pursuant to the terms of the Investment Agreement, dated as of May 11, 2020, between the Company and the Purchaser, for an aggregate purchase price of $35 million. We incurred issuance costs of $0.9 million. We added all issuance costs that were netted against the proceeds upon issuance of the Convertible Preferred Stock to its redemption value. As disclosed in our Annual Report for the fiscal year ended March 31, 2020, Michael Kaufman, the Chairman of the Company’s Board of Directors, is the Chief Executive Officer of MAK Capital One LLC. Accounting Policy We classify convertible preferred stock as temporary equity in the condensed consolidated balance sheets due to certain contingent redemption clauses that are at the election of the Holders. We increase the carrying value of the convertible preferred stock to its redemption value (described below) for all undeclared dividends using the interest method. The Convertible Preferred Stock has the following rights, preferences and restrictions (the Certificate of Amendment included as Exhibit 3.1 to our Current Report on Form 8-K, filed on May 26, 2020, defines all terms not otherwise defined below): Voting The Holders will be entitled to one vote for each share of Convertible Preferred Stock upon all matters presented to the common shareholders of the Company, and except as otherwise provided by the Amended Articles of Incorporation of the Company or required by law, the Holders and common shareholders will vote together as one class on all matters. Additionally, certain matters specific to the Convertible Preferred Stock will require the approval of two-thirds of the outstanding Convertible Preferred Stock, voting as a separate class. Liquidation Preference Upon a liquidation, dissolution or winding up of the Company, each share of Convertible Preferred Stock will be entitled to receive an amount per share equal to the greater of (i) the purchase price paid by the Purchaser, plus all accrued and unpaid dividends (the “Liquidation Preference”) and (ii) the amount that the Holder would have been entitled to receive at such time if the Convertible Preferred Stock were converted into common stock. Redemption On and after the fifth anniversary of the date the Convertible Preferred Stock is initially issued, the Company will have the right, and the Holders will have the right to require the Company, in each case, at the initiating party’s election, to redeem all, but not less than all, of the then-outstanding Convertible Preferred Stock for an amount equal to the Liquidation Preference. Conversion Each Holder will have the right, at its option, to convert its Convertible Preferred Stock, in whole or in part, into fully paid and non-assessable shares of common stock at a conversion price equal to $20.1676 per share (as may be adjusted from time to time, as described in the Certificate of Amendment). Subject to certain conditions, the Company may, at its option, require conversion of all of the outstanding shares of Convertible Preferred Stock to common stock if, at any time after November 22, 2023, the daily volume-weighted average price of the Company’s common stock is at least 150% of the conversion price for at least 20 trading days during the 30 consecutive trading days immediately preceding the date the Company notifies the Holders of the election to convert. Dividends The Holders are entitled to dividends on the Liquidation Preference at the rate of 5.25% per annum, payable semi-annually either (i) 50% in cash and 50% in kind as an increase in the then-current Liquidation Preference or (ii) 100% in cash, at the option of the Company. The Holders are not entitled to participate in dividends declared or paid on the common stock on an as-converted basis; however, certain anti-dilution adjustments to the Convertible Preferred Stock may be made in the event of such dividends. The Convertible Preferred Stock ranks senior to the Company’s common stock with respect to dividends and distributions on liquidation, winding-up and dissolution. Upon a liquidation, dissolution or winding up of the Company, each share of Convertible Preferred Stock will be entitled to receive an amount per share equal to the greater of (i) the Liquidation Preference and (ii) the amount that the Holder would have been entitled to receive at such time if the Convertible Preferred Stock were converted into common stock. Change in Control Events Upon certain change of control events involving the Company, the Company has the right, and each Holder has the right, in each case, at the initiating party’s election, to require the Company to repurchase all or a portion of its then-outstanding shares of Convertible Preferred Stock for cash consideration equal to (i) 150% of the then-current Liquidation Preference for a change of control occurring prior to the third anniversary of the date the Convertible Preferred Stock is initially issued, (ii) 125% of the then-current Liquidation Preference for a change of control occurring on or following the third anniversary and prior to the fifth anniversary of the date the Convertible Preferred Stock is initially issued and (iii) 100% of the then-current Liquidation Preference for a change of control occurring on or following the fifth anniversary of the date the Convertible Preferred Stock is initially issued. Standstill Restrictions The Purchaser and its affiliates are subject to certain customary standstill provisions that restrict them from, among other actions, acquiring additional securities of the Company if such acquisition would result in the Purchaser beneficially owning in excess of 25% of the outstanding shares of common stock of the Company until the later of the third anniversary of the date the Convertible Preferred Stock is initially issued and the date on which the Purchaser no longer has record or beneficial ownership of common stock and Convertible Preferred Stock that constitute at least 10% of the outstanding common stock. |
Summary of Significant Accounting Policies (Policies) |
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Jun. 30, 2020 | |
| Accounting Policies [Abstract] | |
| Adopted and Recently Issued Accounting Pronouncements |
Adopted and Recently Issued Accounting Pronouncements In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. ASU 2018-15 addresses the treatment of implementation costs incurred in a hosting arrangement that is a service contract. The update does not impact the accounting for the service element of a hosting arrangement that is a service contract. We adopted ASU 2018-15 as of April 1, 2020 with no impact on our condensed consolidated financial statements. In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 addresses the required disclosures around fair value measurement. The disclosure requirements of the reasons for transfers between Level 1 and Level 2, the policy for timing transfers between levels, and the valuation process for Level 3 measurements have been removed. Certain modifications were made to required disclosures and additional requirements were established. We adopted ASU 2018-13 as of April 1, 2020 with no impact on our condensed consolidated financial statements. In January 2017, the FASB issued ASU No. 2017-04, Intangibles- Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment. ASU No. 2017-04 eliminates Step 2 of the goodwill impairment test and requires a goodwill impairment to be measured as the amount by which a reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of its goodwill. We adopted ASU 2017-04 as of April 1, 2020 with no impact on our condensed consolidated financial statements. In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments. This new standard requires entities to measure expected credit losses for certain financial assets held at the reporting date using a current expected credit loss model, which is based on historical experience, adjusted for current conditions and reasonable and supportable forecasts. The Company’s financial instruments within the scope of this guidance primarily includes accounts receivable and contract assets. We adopted ASU 2016-13 as of April 1, 2020 under the modified retrospective approach. As a result, comparative information has not been restated and continues to be reported under accounting standards applicable for those periods. The adoption of ASU 2016-13 did not have a material impact on our condensed consolidated financial statements, including accounting policies, given our limited historical write-off activity.
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Intangible Assets and Software Development Costs (Tables) |
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| Goodwill And Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of intangible assets |
The following table summarizes our intangible assets and software development costs:
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Additional Balance Sheet Information (Tables) |
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| Balance Sheet Related Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Additional information related to the Condensed Consolidated Balance Sheets |
Additional information related to the condensed consolidated balance sheets is as follows:
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Supplemental Disclosures of Cash Flow Information (Tables) |
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| Supplemental Cash Flow Elements [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of supplemental cash flow information | Additional information related to the consolidated statements of cash flows is as follows
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Income Taxes (Tables) |
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| Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||
| Effective tax rates from continuing operations |
The following table compares our income tax expense and effective tax rates for the three months ended June 30, 2020 and 2019:
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Loss per Share (Tables) |
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| Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of amounts used in computing loss per share and the effect on earnings and the weighted average number of shares of dilutive potential common shares |
The following data shows the amounts used in computing (loss) per share and the effect on earnings and the weighted average number of shares of dilutive potential common shares.
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Share-based Compensation (Tables) |
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| Share Based Compensation [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of share-based compensation expense for options |
The following table summarizes the share-based compensation expense for options, SSARs, restricted and performance awards included in the condensed consolidated statements of operations:
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| Activity related SSARs award |
The following table summarizes the activity during the three months ended June 30, 2020 for SSARs awarded under the 2011 and 2016 Plans:
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| Activity related to restricted shares awarded by the Company | The following table summarizes the activity during the three months ended June 30, 2020 for restricted shares awarded under the 2011 and 2016 Plans:
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| Performance shares awarded |
The following table summarizes the activity during the three months ended June 30, 2020 for the performance shares awarded under the 2016 Plan:
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Revenue Recognition - Narrative (Details) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Jun. 30, 2020 |
Jun. 30, 2019 |
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| Disaggregation of Revenue [Line Items] | ||
| Total net revenue | $ 29,807 | $ 38,389 |
| Revenue recognized | 17,500 | 15,600 |
| Transfers to accounts receivable | 1,400 | 2,000 |
| Capitalized contract cost, net | 3,200 | 3,300 |
| Capitalized Contract Cost, Amortization | 400 | 300 |
| Sales Commissions and Fees | 600 | 1,000 |
| Products | ||
| Disaggregation of Revenue [Line Items] | ||
| Total net revenue | 5,239 | 10,869 |
| Support, Maintenance, Subscription Services, And Professional Services [Member] | ||
| Disaggregation of Revenue [Line Items] | ||
| Total net revenue | $ 24,600 | $ 27,500 |
Intangible Assets and Software Development Costs (Details Textual) - USD ($) $ in Thousands |
3 Months Ended | 12 Months Ended |
|---|---|---|
Jun. 30, 2019 |
Mar. 31, 2020 |
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| Goodwill And Intangible Assets Disclosure [Abstract] | ||
| Non-cash impairment charge | $ 22,000 | |
| Amortization of developed technology | $ 3,175 |
Additional Balance Sheet Information (Details) - USD ($) $ in Thousands |
Jun. 30, 2020 |
Mar. 31, 2020 |
|---|---|---|
| Accrued liabilities: | ||
| Salaries, wages, and related benefits | $ 6,811 | $ 6,945 |
| Other taxes payable | 1,512 | 1,649 |
| Severance liabilities | 103 | 32 |
| Professional fees | 104 | 50 |
| Other | 271 | 357 |
| Total | 8,801 | 9,033 |
| Other non-current liabilities: | ||
| Uncertain tax positions | 1,110 | 1,103 |
| Asset retirement obligations | 170 | 170 |
| Employee benefit obligations | 1,429 | 511 |
| Other | 77 | 76 |
| Total | $ 2,786 | $ 1,860 |
Supplemental Disclosures of Cash Flow Information (Details) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Jun. 30, 2020 |
Jun. 30, 2019 |
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| Supplemental Cash Flow Elements [Abstract] | ||
| Cash (receipts) for interest, net | $ (20) | $ (79) |
| Cash payments for income tax, net | 134 | 73 |
| Cash payments for operating leases | 1,642 | 1,014 |
| Cash payments for finance leases | 8 | 8 |
| Accrued capital expenditures | $ 19 | $ 51 |
Income Taxes (Details) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Jun. 30, 2020 |
Jun. 30, 2019 |
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| Income Tax Disclosure [Abstract] | ||
| Income tax expense | $ 8 | $ 25 |
| Effective tax rate | (1.60%) | (1.60%) |
Loss per Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands |
3 Months Ended | |
|---|---|---|
Jun. 30, 2020 |
Jun. 30, 2019 |
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| Numerator: | ||
| Net loss | $ (517) | $ (1,575) |
| Series A convertible preferred stock issuance costs | (937) | |
| Series A convertible preferred stock dividends | (199) | |
| Net loss available to common shareholders | $ (1,653) | $ (1,575) |
| Denominator: | ||
| Weighted average shares outstanding - basic and diluted | 23,405 | 23,212 |
| Loss per share - basic and diluted: | ||
| Loss per share | $ (0.07) | $ (0.07) |
| Earnings Per Share, Diluted [Abstract] | ||
| Anti-dilutive stock options, SSARs, restricted shares, performance shares and preferred shares | 3,560 | 1,273 |
Loss per Share (Details Textual) - shares |
3 Months Ended | |
|---|---|---|
Jun. 30, 2020 |
Jun. 30, 2019 |
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| Earnings Per Share [Abstract] | ||
| Incremental common shares attributable to restricted shares (in shares) | 194,587 | 445,829 |
Share-based Compensation (Details 3) |
3 Months Ended |
|---|---|
|
Jun. 30, 2020
$ / shares
shares
| |
| Restricted Stock [Member] | |
| Activity Related to Restricted Shares Awarded by the Company | |
| Number of Shares Outstanding at Beginning of Period | 178,462 |
| Forfeited, Number of Shares | (13,995) |
| Number of Shares Outstanding at End of Period | 164,467 |
| Weighted Average Grant-Date Fair Value, Outstanding at Beginning of Period | $ / shares | $ 19.89 |
| Forfeited, Weighted Average Grant-Date Fair Value | $ / shares | 18.84 |
| Weighted Average Grant-Date Fair Value, Outstanding at End of Period | $ / shares | $ 19.98 |
| Performance Shares [Member] | |
| Activity Related to Restricted Shares Awarded by the Company | |
| Number of Shares Outstanding at Beginning of Period | 30,120 |
| Number of Shares Outstanding at End of Period | 30,120 |
Preferred Stock - (Details Textual) $ / shares in Units, $ in Millions |
3 Months Ended | |
|---|---|---|
|
May 22, 2020
USD ($)
shares
|
Jun. 30, 2020
Day
$ / shares
|
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| Class Of Stock [Line Items] | ||
| Trading days | Day | 20 | |
| Consecutive trading days | Day | 30 | |
| Minimum percentage of common stock price to conversion price | 150.00% | |
| Debt Instrument, Convertible, Earliest Date | Nov. 22, 2023 | |
| Preferred stock, dividend percentage | 5.25% | |
| Dividends declaration and payment terms | The Holders are entitled to dividends on the Liquidation Preference at the rate of 5.25% per annum, payable semi-annually either (i) 50% in cash and 50% in kind as an increase in the then-current Liquidation Preference or (ii) 100% in cash, at the option of the Company. | |
| Change of Control Event Description | Upon certain change of control events involving the Company, the Company has the right, and each Holder has the right, in each case, at the initiating party’s election, to require the Company to repurchase all or a portion of its then-outstanding shares of Convertible Preferred Stock for cash consideration equal to (i) 150% of the then-current Liquidation Preference for a change of control occurring prior to the third anniversary of the date the Convertible Preferred Stock is initially issued, (ii) 125% of the then-current Liquidation Preference for a change of control occurring on or following the third anniversary and prior to the fifth anniversary of the date the Convertible Preferred Stock is initially issued and (iii) 100% of the then-current Liquidation Preference for a change of control occurring on or following the fifth anniversary of the date the Convertible Preferred Stock is initially issued | |
| Preferred stock convertible percentage of outstanding common stock | 10.00% | |
| Percentage of owning in excess of outstanding share of common stock | 25.00% | |
| Common stock [Member] | ||
| Class Of Stock [Line Items] | ||
| Price per share | $ / shares | $ 20.1676 | |
| Convertible Preferred Stock [Member] | ||
| Class Of Stock [Line Items] | ||
| Voting right description | The Holders will be entitled to one vote for each share of Convertible Preferred Stock upon all matters presented to the common shareholders of the Company | |
| MAK Capital One, LLC [Member] | Convertible Preferred Stock [Member] | ||
| Class Of Stock [Line Items] | ||
| Preferred stock issued | shares | 1,735,457 | |
| Preferred stock issued, value | $ | $ 35.0 | |
| Payments of stock issuance costs | $ | $ 0.9 |