Document

Ramesh Srinivasan, President and CEO of Agilysys, commented, “We ended fiscal 2018 with growing momentum, particularly in sales, as fiscal 2018 fourth quarter revenue rose sequentially for the second consecutive quarter, driven by an 11% year-over-year increase in recurring revenue to a quarterly record $18.1 million, inclusive of a 32% increase in SaaS subscription revenue. For fiscal 2018, our recurring revenue grew by $5.8M, which is our largest single year increase since fiscal 2014, the year we transformed our business into a pure-play software provider to the hospitality industry. In addition, full year fiscal 2018 SaaS subscription revenue grew by 35%. While overall fiscal 2018 revenue level was flat compared to fiscal 2017, we achieved a much better revenue mix and higher margins, with higher SaaS and other recurring revenue contributions offsetting the decline in hardware revenue. Currently our recurring revenue is approximately 56% of overall revenue and our predictable services revenue is another 19% of overall revenue. As such, our revenue base continues to be increasingly more predictable. Importantly, without the impact of reselling low margin servers and associated maintenance which is now mostly out of our revenue, our revenue mix is now significantly more favorable for achieving profitable growth moving forward.

“We are pleased that we achieved positive adjusted earnings from operations (AOE) in the fiscal 2018 fourth quarter, our first such quarter since we transformed the Company in fiscal 2014. The $4.3 million year-over-year quarterly improvement in AOE, as well as the 48% full fiscal year improvement, clearly demonstrates that the various strategic initiatives we have been working on are positioning Agilysys for sustainable and consistent medium and long-term growth and profitability.

focused on executing our growth plans. During the past few months, we have implemented a more disciplined and process-oriented sales structure reinforced with a significantly higher level of accountability across all departments. We are currently in the process of enhancing our marketing efforts including brand awareness programs along with a new analytical approach that we expect will lead to increased effectiveness and drive stronger demand generation. We are also making good strides with respect to transforming our Company’s culture as we continue to make progress with establishing Agilysys as an obsessively customer focused organization that is engineering and innovation driven, dedicated to supporting all our products across all the markets we serve with world class zeal, excellence in quality standards, commitment and relentless focus.

“We expect we will build on our current momentum and have a successful fiscal 2019 reflecting growth during the year driven by multiple opportunities including additional gains from certain large strategic accounts and a growing SaaS subscription and annual maintenance recurring revenue base. We are entering fiscal 2019 with sales momentum that has increased over the last several months and expect to generate full year revenue growth of approximately 10%. In addition, we expect our improving operational efficiency will help us achieve a full year adjusted earnings from operations improvement of approximately $4 million to $6 million, compared to fiscal 2018. Overall, we are pleased with our current position in the marketplace and believe we are well poised to be a sought out employer of world-class talent, a responsive fast-moving and reliable partner for our customers and vendors, and a growing profitable hospitality software solutions business unit that unlocks considerable value for our shareholders.”

Agilysys today provided an initial forecast for fiscal 2019 full year revenue growth of approximately 10% compared to fiscal 2018 revenue of approximately $127 million. In addition, the Company expects to record a $4 million to $6 million improvement in Adjusted Earnings from Operations (non-GAAP measure) in fiscal 2019, from the loss of approximately $6.0 million for this metric in fiscal 2018. Agilysys also expects fiscal 2019 year-end cash and cash equivalents to reflect a decline of approximately $3 million to $5 million from the fiscal 2018 year-end balance of $39.9 million, a significant improvement from the over $9 million decline in fiscal 2018.

The Company defines adjusted earnings from operations as adjusted EBITDA, less capital expenditures and capitalized software development costs, which management believes is a meaningful measure of earnings and provides insight to investors on the Company’s overall profitability and cash generation from core operations. Adjusted earnings from operations includes costs for capitalized efforts while minimizing the seasonality of the Company’s cash flows due to the timing of billing.

Tony Pritchett, Chief Financial Officer, commented, “The strong progress we made against our strategic initiatives during fiscal 2018 has established a solid foundation for growth. We expect sales momentum will continue in fiscal 2019, including our expectation for SaaS revenue to continue to outpace the rate of total recurring revenue growth. Our focus on prudent management of our cost structure will help drive adjusted earnings from operations improvement this year, which would represent continued significant improvement towards profitability. We also expect a meaningful reduction in cash usage compared to fiscal 2018. Overall, Agilysys now has the people, processes and increasing level of products in place to generate profitable growth going forward.”

This press release contains "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. Examples of forward-looking statements include, among others, our guidance relating to revenue, adjusted earnings from operations and cash and cash equivalent balance, and statements we make regarding continuing sales momentum, our ability to achieve revenue and profitability growth, greater innovation, product development velocity, and improvements in financial results and shareholder value.

Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, our ability to achieve operational efficiencies and meet customer demand for products and services and the risks described in the Company's filings with the Securities and Exchange Commission, including the Company's reports on Form 10-K and Form 10-Q.

To supplement the unaudited condensed consolidated financial statements presented in accordance with U.S. GAAP in this press release, certain non-GAAP financial measures as defined by the SEC rules are used. These non-GAAP financial measures include adjusted EBITDA and adjusted earnings from operations. Management believes that such information can enhance investors' understanding of the company's ongoing operations. See the accompanying table below for a reconciliation of adjusted EBITDA and adjusted earnings from operations to the most closely related GAAP measure.

Agilysys is a leading technology company that provides innovative software and services for point-of-sale (POS), property management (PMS), reservation and table management, inventory and procurement, workforce management, analytics, document management, and mobile and wireless solutions exclusively to the hospitality industry. Our products and services allow operators to streamline operations, improve efficiency and understand customer needs across their properties to deliver a superior overall guest experience. The result is improved guest loyalty, growth in wallet share and increased revenue as they connect and transact with their guests based upon a single integrated view of individual preferences and interactions. We serve four major market sectors: Gaming, both corporate and tribal; Hotels, Resorts and Cruise; Corporate Foodservice Management; and Restaurants, Universities, Stadia and Healthcare.



(In thousands, except per share data)	Three Months Ended						Twelve Months Ended
	March 31,						March 31,
	2018			2017			2018			2017

Net revenue:
Products	$	7,942		$	8,082		$	33,699		$	38,339
Support, maintenance and subscription services	18,078			16,221			69,068			63,308
Professional services	6,036			6,299			24,593			26,031
Total net revenue	32,056			30,602			127,360			127,678
Cost of goods sold:
Products, inclusive of developed technology amortization	6,515			6,027			26,381			28,244
Support, maintenance and subscription services	4,078			4,251			16,688			16,965
Professional services	4,714			4,849			19,874			18,684
Total cost of goods sold	15,307			15,127			62,943			63,893
Gross profit	16,749			15,475			64,417			63,785
Gross profit margin	52.2		%	50.6		%	50.6		%	50.0		%
Operating expenses:
Product development	7,233			8,401			27,936			29,048
Sales and marketing	4,459			5,077			18,075			20,823
General and administrative	5,553			6,183			24,028			19,875
Depreciation of fixed assets	739			618			2,631			2,409
Amortization of intangibles	457			361			1,879			1,392
Restructuring, severance and other charges	557			77			1,798			1,561
Legal settlements	—			—			150			85
Total operating expense	18,998			20,717			76,497			75,193
Operating loss	(2,249		)	(5,242		)	(12,080		)	(11,408		)
Other (income) expense:
Interest income	(33		)	(27		)	(98		)	(162		)
Interest expense	3			3			10			15
Other (income) expense, net	(197		)	85			(391		)	224
Loss before taxes	(2,022		)	(5,303		)	(11,601		)	(11,485		)
Income tax expense (benefit)	(1,812		)	(16		)	(3,251		)	236
Net loss	$	(210	)	$	(5,287	)	$	(8,350	)	$	(11,721	)

Weighted average shares outstanding	22,872			22,643			22,801			22,615

Loss per share - basic and diluted:
Loss per share	$	(0.01	)	$	(0.23	)	$	(0.37	)	$	(0.52	)

Weighted average shares outstanding - diluted	22,872			22,643			22,801			22,615

Net income (loss) per share - diluted:
Net income (loss) per share	$	(0.01	)	$	(0.23	)	$	(0.37	)	$	(0.52	)



(In thousands, except share data)	March 31,			March 31,
	2018			2017
ASSETS
Current assets:
Cash and cash equivalents	$	39,943		$	49,255
Accounts receivable, net of allowance for doubtful accounts of $900 and $509, respectively	16,389			15,598
Inventories	1,999			2,211
Prepaid expenses and other current assets	5,593			6,456
Total current assets	63,924			73,520
Property and equipment, net	17,512			16,000
Goodwill	19,622			19,622
Intangible assets, net	8,484			8,530
Software development costs, net	45,181			46,999
Other non-current assets	2,484			2,634
Total assets	$	157,207		$	167,305

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	8,400		$	8,702
Deferred revenue	26,820			29,183
Accrued liabilities	9,241			8,331
Capital lease obligations, current	120			121
Total current liabilities	44,581			46,337
Deferred income taxes, non-current	227			3,181
Capital lease obligations, non-current	57			116
Other non-current liabilities	3,911			4,002
Shareholders' equity:
Common shares, without par value, at $0.30 stated value; 80,000,000 shares authorized; 31,606,831 shares issued; and 23,324,679 and 23,210,682 shares outstanding at March 31, 2018 and March 31, 2017, respectively	9,482			9,482
Treasury shares, 8,282,152 and 8,396,149 at March 31, 2018 and March 31, 2017, respectively	(2,486		)	(2,519		)
Capital in excess of stated value	(1,911		)	(5,782		)
Retained earnings	103,601			112,692
Accumulated other comprehensive loss	(255		)	(204		)
Total shareholders' equity	108,431			113,669
Total liabilities and shareholders' equity	$	157,207		$	167,305



	Twelve Months Ended
(In thousands)	March 31,
	2018			2017
Operating activities
Net loss	$	(8,350	)	$	(11,721	)
Adjustments to reconcile net loss to net cash used in operating activities
Net restructuring, severance and other charges	474			(224		)
Net legal settlements	—			(100)
Loss on disposal of property & equipment	—			70
Depreciation	2,631			2,409
Amortization	1,879			1,392
Amortization of developed technology	10,016			8,012
Deferred income taxes	(3,085		)	142
Share-based compensation	4,688			2,427
Change in cash surrender value of company owned life insurance policies	(17)			(18		)
Changes in operating assets and liabilities:
Accounts receivable	(719		)	6,372
Inventories	229			476
Prepaid expense	1,485			1,946
Accounts payable	130			554
Deferred revenue	(2,448		)	(4,034		)
Accrued liabilities	406			(4,250		)
Income taxes payable	(19		)	45
Other changes, net	(426		)	(65		)
Net cash provided by operating activities	6,874			3,433

Investing activities
Capital expenditures	(6,140		)	(4,158		)
Capitalized software development costs	(8,918		)	(11,888		)
Net change from Company-owned life insurance policies	(27		)	2,181
Net cash used in investing activities	(15,085		)	(13,865		)

Financing activities
Payments to settle contingent consideration arising from business acquisition	—			(197)
Repurchase of common shares to satisfy employee tax withholding	(1,171		)	(533		)
Principal payments under long-term obligations	(124		)	(117		)
Net cash used in financing activities	(1,295		)	(847		)
Effect of exchange rate changes on cash	194			(74		)
Net decrease in cash and cash equivalents	(9,312		)	(11,353		)
Cash and cash equivalents at beginning of period	49,255			60,608
Cash and cash equivalents at end of period	$	39,943		$	49,255

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES:
Accrued capital expenditures	$	83		$	411
Accrued capitalized software development costs	201			921
Leasehold improvements acquired under operating lease arrangement	95			35



	Three Months Ended						Twelve Months Ended
(In thousands)	March 31,						March 31,
	2018			2017			2018			2017

Net loss	$	(210	)	$	(5,287	)	$	(8,350	)	$	(11,721	)
Income tax expense (benefit)	(1,812		)	(16		)	(3,251		)	236
Loss before taxes	(2,022		)	(5,303		)	(11,601		)	(11,485		)
Depreciation of fixed assets	739			618			2,631			2,409
Amortization of intangibles	457			361			1,879			1,392
Amortization of developed technology	2,645			2,307			10,016			8,012
Interest (income) expense	(30		)	(24		)	(88		)	(147		)
EBITDA (b)	1,789			(2,041		)	2,837			181
Share-based compensation	912			1,645			4,688			2,427
Restructuring, severance and other charges	557			77			1,798			1,561
Other non-operating (income) expense	(197		)	85			(391		)	224
Legal settlements	—			—			150			85
Adjusted EBITDA (a)	$	3,061		$	(234	)	$	9,082		$	4,478
Capital expenditures	(851		)	(831		)	(6,140		)	(4,158		)
Capitalized software development costs	(1,646		)	(2,714		)	(8,918		)	(11,888		)
Adjusted Operating Earnings (Loss) (c)	$	564		$	(3,779	)	$	(5,976	)	$	(11,568	)

(a) Adjusted EBITDA, a non-GAAP financial measure, is defined as income before income taxes, interest expense (net of interest income), depreciation and amortization (including amortization of developed technology), and excluding charges relating to i) legal settlements, ii) restructuring, severance, and other charges, iii) asset write-offs and other fair value adjustments, iv) share-based compensation, and v) other non-operating (income) expense


•	Total net revenue was $32.1 million, compared to total net revenue of $30.6 million in the comparable prior-year period.


•	Gross margin was 52.2% in the fiscal 2018 fourth quarter, compared to 50.6% in the prior-year period.


•	Net loss in the fiscal 2018 fourth quarter was $(0.2) million, or $(0.01) per diluted share, compared to a net loss of $(5.3) million, or $(0.23) per diluted share, in the prior-year period.


•	Adjusted EBITDA (non-GAAP) was $3.1 million, compared to an Adjusted EBITDA loss of $(0.2) million in the same period last year (see reconciliation below).


•	Adjusted earnings from operations (non-GAAP) in the fiscal 2018 fourth quarter was $0.6 million, compared to Adjusted loss from operations in the fiscal 2017 fourth quarter of $(3.8) million (see reconciliation below).