UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2020
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For transition period from to
Commission file number 0-5734
AGILYSYS, INC.
(Exact name of registrant as specified in its charter)
Ohio
State or other jurisdiction of incorporation or organization
1000 Windward Concourse, Suite 250, Alpharetta, Georgia
(Address of principal executive offices)
34-0907152
(I.R.S. Employer Identification No.)
30005
(Zip Code)
Registrant's telephone number, including area code: (770) 810-7800
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Shares, without par value
Trading Symbol
AGYS
Name of each exchange on which
registered
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☑
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑
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. Yes ☑ No ☐
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). Yes ☑ No ☐
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.
Large accelerated filer ☐
Emerging growth company ☐
Smaller reporting company ☐
Non-accelerated filer ☐
Accelerated filer ☑
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 has filed a report on and attestation to its management’s assessment of effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that
prepared or issued its audit report. Yes ☑ No ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑
The aggregate market value of Common Shares held by non-affiliates as of May 20, 2020 was $375,276,893.
As of May 20, 2020, 23,400,816 shares of the registrant's common stock were outstanding.
Portions of the registrant's definitive Proxy Statement to be used in connection with its 2020 Annual Meeting of Shareholders are incorporated by
reference into Part III of this Form 10-K.
DOCUMENTS INCORPORATED BY REFERENCE
AGILYSYS, INC.
Annual Report on Form 10-K
Year Ended March 31, 2020
Table of Contents
PART I
ITEM 1.
ITEM 1A.
ITEM 1B.
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 7A.
ITEM 8.
ITEM 9.
ITEM 9A.
ITEM 9B.
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART II
Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity
Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
PART III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
ITEM 15.
Exhibits and Financial Statement Schedules
SIGNATURES
PART IV
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2
Forward Looking Information
This Annual 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. These statements include, but are not limited to,
statements related to our current expectations, the performance of our business, our financial results, our liquidity and capital
resources and other non-historical statements. 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. 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 in
many cases, 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 manage the direct and indirect impact of the novel coronavirus (“COVID-19”) pandemic on our business,
operations, and customer demand for our products and services, our ability to achieve operational efficiencies and meet customer
demand for products and services as well as the other risks identified in the risk factors set forth in Item 1A of this Annual Report.
Any forward-looking statement made by us in this Annual Report is based only on information currently available to us and speaks
only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking statement made in this
Annual Report or any other forward-looking statement that may be made from time to time, whether written or oral, whether as a
result of new information, future events, or otherwise.
3
Part I
Item 1. Business.
Overview
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, sports and entertainment, and healthcare. Agilysys offers the
most comprehensive solutions in the industry, including point-of-sale (POS), property management (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, GA.
Our principal executive offices and corporate services are located at 1000 Windward Concourse, Suite 250, Alpharetta, Georgia,
30005.
Reference herein to any particular year or quarter refers to periods within our fiscal year ended March 31. For example, fiscal 2020
refers to the fiscal year ended March 31, 2020.
History and Significant Events
Organized in 1963 as Pioneer-Standard Electronics, Inc., an Ohio corporation, we began operations as a distributor of electronic
components and, later, enterprise computer solutions. Exiting the former business in fiscal 2003 with the sale of our Industrial
Electronic Division, we used the proceeds to reduce debt and fund growth of our enterprise solutions business. This included acquiring
businesses focused on higher-margin and more specialized solutions for the hospitality and retail industries. At the same time, we
changed our name to Agilysys, Inc.
In fiscal 2004, we acquired Inter-American Data, Inc., which allowed us to become the leading developer and provider of technology
solutions for hotel property management and inventory management in the casino and resort industries.
In fiscal 2007, we exited the enterprise computer distribution business. We used the proceeds from that sale to return cash to
shareholders and fund a number of acquisitions that broadened our solutions and capabilities portfolios. We acquired InfoGenesis,
Inc., Visual One Systems Corp. and Eatec Corporation in fiscal 2008, significantly expanding our specialized offerings to the
hospitality industry through enterprise-class POS, PMS and inventory and procurement software solutions tailored for a variety of
applications in cruise, golf, spa, gaming, lodging, resort and catering. These offerings feature highly intuitive, secure and robust
solutions, easily scalable across multiple departments or property locations.
In fiscal 2012, we sold our IT solutions business and restructured our business model to focus on higher-margin, profitable growth
opportunities in the hospitality and retail sectors. We also reduced our real-estate footprint and lowered overhead costs by relocating
corporate services from Solon, Ohio to Alpharetta, Georgia, thus moving our senior management team closer to our remaining
operating units.
In fiscal 2014, we sold our retail solutions and services business to Kyrus Solutions, Inc. (Kyrus), an affiliate of Clearlake Capital
Group, L.P. Following completion of the transaction, our business focused exclusively on hospitality solutions and the growth
opportunities in the hospitality market.
In fiscal 2018, we opened a software development center in Chennai, India, to supplement our product development efforts.
Today, we are focused on providing state-of-the-art, end-to-end solutions that enhance guest experiences and allow our customers to
promote their brands. We help our customers win the guest recruitment battle and, in turn, grow revenue, reduce costs and increase
efficiency. This is accomplished by developing and deploying innovative solutions that increase data speed and accuracy, integrate
with other enterprise systems and create a common infrastructure for managing guest data thereby enabling more effective
management, intelligent upselling, reduced shrinkage, improved brand recognition and better control of the guest relationship.
Our strategy is to increase the proportion of revenue we derive from ongoing support and maintenance agreements, subscription
services, cloud applications and professional services.
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Products, Support and Professional Services
We are a leading developer and marketer of software enabled solutions and services to the hospitality industry, including software
solutions fully integrated with third party hardware and operating systems; support, maintenance and subscription services; and,
professional services. Areas of specialization are point of sale, property management, and a broad range of solutions that support the
ecosystem of these core solutions.
We present revenue and costs of goods sold in three categories:
•
•
•
Products (hardware and software)
Support, maintenance and subscription services
Professional services
Total revenue for these three specific areas is as follows:
(In thousands)
Products
Support, maintenance and subscription services
Professional services
Total
2020
Year ended March 31,
2019
2018
$
$
44,230 $
83,680
32,847
160,757 $
39,003 $
75,496
26,343
140,842 $
33,699
69,068
24,593
127,360
Products: Products revenue is comprised of revenue from the sale of software along with third party hardware and operating systems.
Software sales include up front revenue for licensing our solutions on a perpetual basis. Software sales are driven by our solutions'
ability to help customers meet the demands of their guests and improve operating efficiencies. Our software revenue is also driven by
the ability of our customers to configure our solutions for their specific needs and the robust catalog of integrations we offer to third
party solutions. Our software solutions require varying form factors of third party hardware and operating systems to operate, such as
staff facing terminals, kiosk solutions, mobile tablets or servers. Third party hardware and operating system revenue is typically driven
by new customer wins and existing customer hardware refresh purchases.
Support, Maintenance and Subscription Services: Technical software support, software maintenance and software subscription
services are a significant portion of our consolidated revenue and typically generate higher profit margins than products revenue.
Growth has been driven by a strategic focus on developing and promoting these offerings while market demand for maintenance
services and updates that enhance reliability, as well as the desire for flexibility in purchasing options, continue to reinforce this trend.
Our commitment to exceptional service has enabled us to become a trusted partner with customers who wish to optimize the level of
service they provide to their guests and maximize commerce opportunities both on premise and in the cloud.
Professional Services: We have industry-leading expertise in designing, implementing, integrating and installing customized solutions
into both traditional and newly created platforms. For existing enterprises, we seamlessly integrate new systems and for start-ups and
fast-growing customers, we become a partner that can manage large-scale rollouts and tight construction schedules. Our extensive
experience ranges from staging equipment to phased rollouts as well as training staff to provide operational expertise to help achieve
maximum effectiveness and efficiencies in a manner that saves our customers time and money.
Our portfolio of hospitality software solutions:
The hospitality industry has long been focused on operating end-to-end businesses, but the technology vendors that service the
industry have been focused on product-centric solutions that make use of a high number of software modules and operating silos. To
resolve this disconnect and more effectively align with the business operations of our customers, we have evolved our approach to be
focused on delivering integrated “platform-centric” solutions for Lodging and Food & Beverage functions, including the applications
necessary to support this ecosystem.
Our technology platform is aimed at transitioning our product and services offerings to better address the needs of hospitality
operators as they focus on building better connections with guests before, during and post-visit. We offer an end-to-end solution that
helps our customers improve the guest experience, increase top-line performance and reduce operating costs, which leads to
opportunities for higher profitability. Our integrated yet modular products allow hospitality operators to recruit and retain customers
into their facilities, increase their wallet share from each guest and improve the overall experience throughout the entire guest journey
- from the initial customer touch point through post-visit interactions.
5
With our omni-channel suite of software products, we are uniquely positioned to offer solutions that allow our customers to adhere to
social distancing guidelines and offer contactless solutions at every point of the guest journey for our hospitality operators while
maximizing operational efficiency.
Point of Sale (POS) Solutions:
Agilysys POS solution suite allows our customers to provide their guests with an omni-channel experience within their property.
Guests are empowered to create their own experiences through ordering from a mobile device or walking up to a self-service kiosk,
but also providing for a more traditional experience with staff by interacting with a cashier or bar, or having a server come to them.
Irrespective of the channel of interaction for the guest, our POS suite provides a single integrated enterprise grade back office
management system with robust reporting capabilities. This allows our customers to manage menus, price changes, purchasing trends,
inventory management and sales reporting from a single integrated source providing for increased efficiency as well as providing a
richer guest profile.
Agilysys InfoGenesis® POS is an award-winning point of sale solution that combines a fast, intuitive and highly customizable
terminal application with powerful, flexible reporting and configuration capabilities in the back office management portal. The system
is easy to set up, and its scalable architecture enables customers to add workstations without having to build out expensive
infrastructure. The system's detailed and high-quality reporting capabilities provide insight into sales data and guest purchasing trends.
Engineered for all regions of the world, the InfoGensis POS solution suite offers a multinational set of features, including language,
currency and fiscal technology, coupled with a robust enterprise management capability enabling the largest global customers to run
their business efficiently. With a modern integration platform of APIs, the solution is also capable of integrating with a variety of
ancillary applications allowing our customers to keep their entire technology estate. InfoGenesis POS is available as a cloud-based or
on-premise solution.
Agilysys InfoGenesis Flex is a mobility solution that offers full point of sale functionality on a Windows tablet in 6, 8, or 10" form
factors. It provides a sleek, modern alternative to traditional point of sale installations and can be used as a slim fixed terminal or as a
convertible mobile POS simply by removing the tablet from its base.
Agilysys InfoGenesis KDS is a digital kitchen management solution that integrates with InfoGenesis, rGuest Buy® Kiosk and rGuest
Buy OnDemand to deliver staff and customer originated orders to the kitchen for preparation. Custom attributes such as guest phone
number, name, guest location or packaging instructions can be provided on each incoming order so the order can be fulfilled promptly
to guests. Guests can optionally be notified of order completion via an order status monitor (OSM) or via text message.
rGuest Buy Kiosk is an enterprise-class self-service, customer-facing point of sale solution for the hospitality industry. It is ideal for
food & beverage venues such as buffets, grab 'n go, corporate cafeterias and food courts. Its flexibility supports a variety of
operational workflows, such as "order and pay", "order only", "pay at cashier" and “self check-out,” and integrates with a variety of
property management, casino management and loyalty systems. rGuest Buy Kiosk is currently deployed at more than 270 customer
sites across the country, including corporate cafeterias at a top five U.S. bank, a top 40 U.S. law firm, one of the nation's largest
technology manufacturers, and at a national financial services firm.
rGuest Buy Kiosk’s intuitive guest-facing order and pay experiences transfer the control and convenience to the end user. The
self-service components reduce on-site labor needed to manage venue operations, while improving guest throughput, check size, order
accuracy, guest experience and satisfaction. The platform-driven and cloud-based solution allows for easy deployments and
management at scale resulting in a lowered overall cost of ownership.
6
rGuest Buy OnDemand provides a visual, interactive food and beverage ordering experience to any mobile device - phone, tablet,
laptop - with a browser-based self-service experience. Using a simple, intuitive interface, guests can easily order and reorder from
anywhere across the property, driving order velocity and volume.
rGuest Buy OnDemand allows our customers to immediately offer an online ordering platform that is natively integrated with their
physical location operations. Menus and price updates can be done in one place and automatically updated across all channels – online
web store, digital menus and app ordering as well as POS terminals. Orders placed online are routed automatically to the appropriate
kitchen for preparation. Orders placed from all channels are automatically available on the POS terminal at the physical location.
Property Management Systems (PMS):
Agilysys offers the most comprehensive suite of property management applications to serve the needs of our integrated resort and
hospitality customers. Our platforms enable our customers to provide a seamless experience to their guests while driving operational
efficiencies throughout the value chain. Our PMS suite of applications consists of the core property management system, a
commission free booking engine, self-service check in and check out solutions, spa, golf, retail, accounting, sales and catering, service
request optimization and condo management applications.
Agilysys Lodging Management System® (LMS™) is an on-premise or hosted, web and mobile-enabled, PMS solution targeting the
operator with large, complex operations. It runs 24/7 to automate every aspect of hotel operations in properties from 100 to over 7,000
rooms, and has interfaces to a wide array of industry applications including but not limited to all core casino management systems and
leading global distribution systems. Its foundation expands to incorporate modules for activities scheduling, attraction ticketing and
more.
Agilysys Visual One® PMS is installed in hotels and resorts ranging from 50-1,500 rooms. It is a complete hospitality solution
expanding beyond traditional PMS solutions enabling the resort to run its end-to-end operations, including front desk, housekeeping,
sales & catering, maintenance, accounting, condo owner management, golf, retail POS, and activities. Visual One provides an
integrated solution with interfaces to leading global distribution systems, casino management systems, hospitality automation and our
other products.
rGuest® Stay PMS is the company’s cloud-based property management system that optimizes operational efficiency, increases
revenue and enhances guest service. rGuest Stay is currently generally available for select-service hotels and chains, as well as for
limited-service casino hotels. The guest-centric PMS leverages the rGuest standards-based platform on an open architecture with
public APIs to enable richly integrated applications delivered from Agilysys, its partners and customers. rGuest Stay offers powerful
capabilities for multi-property operations, allowing managers to view guest profiles, history and reservations, as well as room
availability and operational reports, seamlessly across multiple properties.
Focused on improving revenue and streamlining operations, rGuest Stay is designed to enable hotels to gather and analyze guest
information across properties that can be used to create loyalty-generating offers and increase guest wallet share. In addition, running
natively in a browser on both desktop and tablet devices, it delivers real-time operating metrics so that hotels can more accurately
forecast demand and scale guest services accordingly.
Virtual Check-in and Check-out Solutions
Today’s hotels cater to guests with high expectations when it comes to technological efficiency. An emerging trend in the hotel
industry that has accelerated in the COVID-19 environment, where social distancing is now the norm, is the ability for guests to check
themselves in or out of their room without interacting with the front desk. To that end, we offer software modules that enable this
approach and are fully integrated with our core PMS solutions.
7
rGuest Express Kiosk simplifies check-in and check-out, optimizes staff productivity and enhances the guest experience by enabling a
seamless self-service option for guests to use in the hotel lobby at a kiosk. More properties are turning to kiosks to reduce overhead
and offer more self-service options. With rGuest Express Kiosk, it’s easy to elevate service levels without adding front-line staff.
rGuest Express Kiosk provides ID verification to allow for hotels to enforce security standards efficiently and to allow the guest to
bypass the front desk and observe social distancing guidelines.
rGuest Express Mobile simplifies check-in and check-out even further and at the same time allows operators to offer mobile keys,
concurrent dining reservations or room upsells, all on a personal mobile device such as a smart phone or tablet. Properties are turning
to mobility at an ever-increasing pace to improve efficiency. With rGuest Express Mobile, it’s easy to reduce wait times and empower
guests by putting the power of choice in the palm of their hand. rGuest Express Mobile allows for digital ID verification before
securely delivering the digital room key to the guest phone allowing operators to maintain security standards while allowing the guest
to bypass the front desk.
Point of Sale and Property Management Ecosystem Offerings:
The following solutions integrate with and are complementary to our point of sale or property management systems, or both. These
solutions, for the most part, can stand alone and do not require POS or PMS to be functional. However, we lead with our core POS
and PMS solutions discussed above and focus on selling these complimentary ecosystem solutions into our customer base.
rGuest® Pay payment processing solution is our innovative payment gateway. rGuest Pay protects guests’ financial data and reduces
risk by leveraging point-to-point encryption (P2PE) and tokenization with every credit card transaction. rGuest Pay Gateway leverages
one of the first payment gateways in the world to receive official PCI-P2PE validation, allowing us to offer PCI cost and scope
reduction that other providers cannot. These security benefits are built on top of a full-featured, enterprise-grade gateway that offers
broad support for U.S., Canadian, European and certain Asian countries’ credit card processors and a wide variety of payment device
options for every use-case, including countertop, pay-at-table, EMV, mobile tablet, and signature capture scenarios.
rGuest Pay offers contactless payment options on all markets as well as supporting various wallet payment options like Apple Pay®,
Google Pay®, AliPay®, and WeChat®.
rGuest Spa software covers all aspects of running a spa, from scheduling guests for services to managing staff schedules. With this
guest-centric technology, spas have more time to focus on creating personalized experiences in places of quiet tranquility. rGuest Spa
is a single solution that connects effortlessly to our other software solutions. The solution includes real-time integration, simplifies the
appointment booking process, enhances the guest experience, and maximizes the value of the spa as a revenue center.
Integrated with our booking engine, rGuest Book, customers can book both their hotel room and their spa appointments from a single
place giving operators additional opportunities to upsell and cross sell various amenities that they can offer.
rGuest Golf is a guest centric golf management software that offers golf property managers complete pro shop management with tee
time scheduling, member profile/billing, tournament management and Web and e-mail access bundled into one solution. Customers
are given the option of using our robust built in retail POS module or they may choose to leverage the power of InfoGenesis. Staff can
easily schedule and personalize reservations for guests which then appear on itineraries, confirmations, and folios. Resort operations
with multiple amenities can integrate with rGuest Book and allow patrons to book both their resort reservation and their golf tee time
simultaneously.
8
rGuest Book is a commission-free, easy-to-use reservation system that’s designed to move guests effortlessly through the booking
process of hotel rooms, spa appointments and golf tee times. The solution allows booking of one or more rooms and is seamlessly
connected with our core PMS solutions to provide a flawless experience for guests and hotel operators. rGuest Book is the only
booking engine in the market that seamlessly integrates with the core primary gaming system and allows for casino operators to enable
their patrons to self-book their entitlements resulting in increased guest satisfaction and reduced operational expenses. The solution
also allows operators to capture increased revenue through add-ons and upsells of premium rooms.
rGuest Service is our new integrated service optimization platform that allows our customers to provide an integrated hospitality
experience for their guests while driving greater operational efficiency by connecting departments across the hotel - front desk,
house-keeping, concierge, maintenance, bell desk, food runners, wait staff, etc. The rGuest service platform provides a unified
communication and messaging service for guest and staff interaction as well as internal staff interaction. Apart from providing the
functionality for managing back of house operations like house-keeping, engineering and maintenance, the rGuest service platform
proactively tracks events and exceptions that take place in the hotel or resort and drive targeted action to ensure high level of guest
satisfaction at all times.
Agilysys’ Eatec® solution provides core purchasing, inventory, recipe, forecasting, production and sales analysis functions and is
unique in offering catering, restaurant, buffet management and nutrition modules in a single web-enabled solution. Agilysys’ Eatec
Mobile is an optional app that can be downloaded from Google Play and Apple app stores and provides users with access to Eatec
application from any Android® and iOS® device. Users can provide inventory receiving and transfer operations seamlessly from any
mobile device even when they are offline using Eatec’s innovative store and forward capabilities.
Agilysys Stratton Warren System (SWS) integrates with all leading financial and POS software products. The software manages the
entire procurement process via e-commerce, from business development to the management of enterprise-wide backend systems and
daily operations. Agilysys SWS Direct is an add-on module for SWS that provides a convenient, efficient and intuitive shopping cart
experience to SWS users. SWS Direct streamlines operations, provides enhanced bidding and request for pricing services, and offers
supplier registration tools and self-service maintenance capabilities.
Agilysys DataMagine™ document management solution is a U.S.-patented imaging module and archiving solution that allows users
to securely capture and retrieve documents and system-generated information. DataMagine integrates with other Agilysys products,
adding functionality and providing seamless workflows that cross functional areas. DataMagine helps drive the Go Green initiative at
a number of our customer sites by enabling a completely paperless experience through all facets of the customers operations - from
signature capture at the front desk to automated routing of PO’s and requisition orders for approvals. DataMagine provides robust
indexing and archiving features to allows easy contextual based document retrieval.
rGuest® Seat solution is a guest-centric reservation and wait list management solution that helps operators to book any location. The
solution allows operators to manage restaurant, cabana and auditorium reservations. With an innovative doll house view approach,
patrons have the ability to select and book a specific seat in a restaurant or a specific cabana on a pool deck online. With built in price
yielding capabilities, rGuest Seat allows operators to maximize revenue opportunities for various locations. Using the built-in guest
management system, operators can build guest profiles and provide a superior experience while driving repeat guests.
9
rGuest Analyze is a cloud-based data analytic platform focused on the needs of the hospitality industry. It is a full business
intelligence solution that collects data from Agilysys point of sale and property management solutions and helps food & beverage and
property operators gain critical insight into business operations and performance. Out-of-the-box analysis helps hospitality operators
manage costs, minimize loss due to fraud, boost item sales, increase server productivity, occupancy, room revenue, and other profit
enhancing capabilities.
Representative Agilysys clients include:
7 Cedars Casino
AVI Foodsystems, Inc.
Banner Health
Boyd Gaming Corporation
Caesars Entertainment
Cal Dining at UC Berkeley
Camelback Lodge & Waterpark
Carnival UK
Cartoon Network Hotel
Casino del Sol Resort
Catholic Charities
Chukchansi Gold Resort & Casino
Compass Group North America
Comanche Nation of Oklahoma
Copper Mountain
Costa Pacifica
The Cosmopolitan of Las Vegas
Crystal Springs Resort
Industry and Markets
Drive Shack
Dickies Arena
Drury Hotels
Ellis Island Hotel, Casino and Brewery
Golden Nugget Lake Charles
Grand Central Hotel in Belfast
Grand Sierra Resort and Casino
Hialeah Park
Hilton Worldwide
Intercontinental Hotel Group
Kiawah
Kimpton Hotels
Longwood University
Maryland Live! Casino
MGM
Oxford Casino
Palm Garden Hotel
Pinehurst Resort
Pinnacle Entertainment
Prairie Band Casino & Resort
Rosewood Castiglion Del Bosco
Resorts World Bimini
Rosen Hotels & Resorts
Royal Caribbean International
Royal Lahaina Resort
Seaport District – NYC
Spooky Nook Sports
Stations Casino
The Venetian Resort Hotel Casino
The Kessler Collection
Treehouse - London
Vail Resorts
Valley View Casino & Hotel
Vanderbilt University
Wendover Resorts
Yale University
We are a technology software solutions company exclusively focused on the hospitality industry for more than 4 decades. Our
solutions are mission critical to core hospitality operations. Our software solutions are required to run the operations of the hospitality
business and designed to drive substantial customer benefits through increased revenue, improved operational efficiency, enhanced
guest experience and improved employee morale. In addition, many of our solutions enable social distancing capabilities for our
customers. Our innovative software solutions described above have been purpose-built to serve the unique needs of the following
hospitality sectors: casinos, hotels, resorts, cruise ships, managed foodservice providers, sports and entertainment, and healthcare. We
operate across North America, Europe, Asia-Pacific and India with headquarters located in Alpharetta, GA.
The sectors we serve are going through unprecedented and uncertain times with the COVID-19 pandemic. While the near-term
outlook is hard to predict with closures and travel restrictions, these market sectors will recover. The long-term outlook remains strong
and we expect the momentum from the last three years to eventually pick back up with a focus on social distancing and mobile
applications. Prior to COVID-19, we estimated our total addressable market to be approximately $4.8 billion in annual recurring
revenue opportunity. While the size of the opportunity might face pressure in an economic downturn, we feel it is still in the billions
of dollars and we are only a fraction of that size. We continue to feel good about our opportunity to win market share given our
relative competitive strength in the industry.
Customers
Our customers include large, medium-sized and boutique hospitality providers, both owned and franchised, as well as divisions or
departments of large corporations in the hospitality industry. We concentrate on serving the needs of customers in a range of
customer-focused settings where brand differentiation is important and guest recruitment is intense. Our customer base is highly
fragmented.
10
Seasonality
Occasionally, the timing of large one-time orders, such as those associated with significant remarketed product sales around large
customer refresh cycles or significant volume rollouts, creates variability in our quarterly results.
Competition
Our solutions face a highly competitive market. Competition exists with respect to developing and maintaining relationships with
customers, pricing for products and solutions, and customer support and service.
We compete with other full-service providers that sell and service bundled POS and PMS solutions comprised of hardware, software,
support and services. These companies, some of which are much larger than we are, include Oracle Corp., NCR, Constellation
Software, Inc., Amadeus IT Group and Infor. We also compete with smaller software companies like POSitouch, Northwind and
Appetize Technologies. In addition, we compete with PMS systems that are designed and maintained in-house by large hotel chains.
Environmental Matters
We believe we are compliant in all material respects with all applicable environmental laws. Presently, we do not anticipate that such
compliance will have a material effect on capital expenditures, earnings or competitive position with respect to any of our operations.
Employees
As of March 31, 2020, we had 1,275 employees. We are not a party to any collective bargaining agreements, have had no strikes or
work stoppages and consider our employee relations to be good.
Access to Information
Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to these reports
are available free of charge through our corporate website, http://www.agilysys.com, as soon as reasonably practicable after such
material is electronically filed with, or furnished to, the Securities and Exchange Commission (SEC). The information posted on our
website is not incorporated into this Annual Report. Reports, proxy and information statements, and other information regarding
issuers that file electronically, are maintained on the SEC website, http://www.sec.gov.
Item 1A. Risk Factors.
Risks Relating to Our Business
COVID-19 has adversely impacted our business and may further impact our business, financial results and liquidity for an
unknown period of time.
The global spread and unprecedented impact of COVID-19 is complex and rapidly evolving and has resulted in disruption to our
business, the hospitality industry and the global economy. The COVID-19 pandemic has led government and other authorities around
the world to impose measures intended to control its spread, including restrictions on freedom of movement, gatherings of large
numbers of people, and business operations such as travel bans, border closings, business closures, quarantines, shelter-in-place
orders, and social distancing measures. As a result, the COVID-19 pandemic and its consequences have significantly reduced demand
for gaming, hotels, resorts, cruises, corporate foodservice, restaurants, university cafeterias, and stadia and have had a material
detrimental impact on global commercial activity across these hospitality industries that we serve, and in some cases, has caused the
closure of our customers’ businesses. Business closures have resulted in our inability to complete certain implementations and
negatively impacted our ability to recognize revenue. We have also taken impairments on certain of our rGuest solutions based upon
the impacts of COVID-19 on our business.
The extent to which COVID-19 continues to adversely impact our business, operations, and financial results significantly depends on
the effect upon the demand for our customers’ hospitality services, which may be affected by, among other things, the duration and
scope of COVID-19 (including whether and to what extent a resurgence of the virus could occur after the pandemic initially subsides);
the negative impact it has on global regional economies and economic activity, including its impact on unemployment rates and
consumer confidence and discretionary spending; its short and longer-term impact on the demand for hospitality businesses; the ability
of our customers to successfully navigate the impacts of COVID-19; actions governments, businesses and individuals take in response
to the pandemic; and how quickly economies, travel activity, businesses, universities and demand for lodging, destination resorts,
cruises and stadia events recovers after the pandemic subsides. To the extent that our hospitality customers’ businesses continue to be
impacted, it may have the following effects on our business:
• Effect on Revenue and Liquidity: If our hospitality customers continue to have a material decline in their revenues, they could
be unable to continue to pay for our services, and potentially even go out of business. If our customers are unable or
unwilling to continue to pay for our services on a timely basis or at all, our revenue and liquidity would be adversely affected.
• Effect on Growth: As a result of the material decline in our hospitality customers’ revenue, our customers and prospective
customers have substantially curtailed new technology purchases. Customers may also have difficulty obtaining new
11
financing or drawing on existing credit facilities, resulting in them having diminished capital to spend on new technology
purchases. Finally, customers or prospective customers may delay, terminate or not go forward with projects in development,
for which we may have sold or software.
Additionally, in response to COVID-19, we have taken steps to reduce operating costs and improve efficiency, including furloughing
approximately 24% of our employees in the United States, APAC and EMEA. Such steps, and further changes we may make in the
future to reduce our costs, may negatively impact our ability to attract and retain employees, including furloughed employees
potentially not returning to work with us when the COVID-19 public health emergency subsidies. If this were to occur, we may
experience operational challenges that result in a negative impact on our customer services and ultimately, loss of market share, which
could limit our ability to grow and expand our business.
Our business is impacted by changes in macroeconomic and/or global conditions.
We conduct our business internationally, changes in global, national, or regional economies, governmental policies (including in areas
such as trade, travel, immigration, healthcare, and related issues), geopolitical conditions (such as political unrest and armed conflicts),
natural disasters, or outbreaks of disease (such as COVID-19 pandemic) may impact our business. Any general weakening of, and
related declining corporate confidence in, the global economy or the curtailment in corporate spending could cause current or potential
customers to reduce or eliminate their information technology budgets and spending, which could cause customers to delay, decrease
or cancel purchases of our products and services; cause customers not to pay us; or to delay payment for previously purchased
products and services.
For example, our business is impacted by decreases in travel and leisure activities resulting from weak economic conditions, increases
in energy prices and changes in currency values, political instability, heightened travel security measures, travel advisories, disruptions
in air travel, and concerns over disease, violence, war, or terrorism. As discussed above under “COVID-19 has adversely impacted our
business and may further impact our business, financial results and liquidity for an unknown period of time,” our performance has
been affected by these conditions associated with COVID-19 and could be materially affected going forward if these conditions
worsen or continue for an extended period or in other circumstances that we are unable to foresee or mitigate. Even after COVID-19
subsides, our business, markets, growth prospects and business model could be materially impacted or altered as a result of adverse
changes in travel and leisure activities.
Similarly, increases in energy prices can result in higher ingredient and food costs for our customers with restaurant operations, which
may adversely affect demand for our customers’ restaurant businesses, and in turn, our business, financial results and liquidity.
Our business may be adversely impacted by international trade disputes.
We depend on third-party manufacturers and suppliers located outside of the United States, including in China, in connection with the
supply of certain of our hardware products and related components. Accordingly, our business is subject to risks associated with
international supply. For example, the Trump Administration has called for substantial changes to U.S. foreign trade policy, including
imposing greater restrictions on international trade and significant increases in tariffs on goods imported into the United States from
China and other countries. Increased tariffs, including on goods imported from China, or the institution of additional protectionist
trade measures could adversely affect our supply costs, and in turn, our business, financial results and liquidity.
Our future success will depend on our ability to develop new products, product upgrades and services that achieve market
acceptance.
Our business is characterized by rapid and continual changes in technology and evolving industry standards. We believe that in order
to remain competitive in the future we will need to continue to develop new products, product upgrades and services, requiring the
investment of significant financial resources. If we fail to accurately anticipate our customer's needs and technological trends, or are
otherwise unable to complete the development of a product or product upgrade on a timely basis, we will be unable to introduce new
products or product upgrades into the market that are demanded by our customers and prospective customers on a timely basis, if at
all, and our business and operating results would be materially and adversely affected.
The development process for most new products and product upgrades is complicated, involves a significant commitment of time and
resources and is subject to a number of risks and challenges including:
• Managing the length of the development cycle for new products and product enhancements;
• Adapting to emerging and evolving industry standards and to technological developments by our competitors and customers;
and
• Extending the operation of our products and services to new and evolving platforms, operating systems and hardware
products, such as mobile devices.
Our product development activities are costly and recovering our investment in product development may take a significant amount of
time, if it occurs at all. We anticipate continuing to make significant investments in software research and development and related
product opportunities because we believe it is necessary to compete successfully. We cannot estimate with any certainty when we will,
if ever, receive significant revenues from these investments.
12
If we are not successful in managing these risks and challenges, or if our new products, product upgrades, and services are not
technologically competitive or do not achieve market acceptance, our business and operating results could be adversely affected.
If we fail to meet our customers' performance expectations, our reputation may be harmed, and we may be exposed to legal
liability.
Our ability to attract and retain customers depends to a large extent on our relationships with our customers and our reputation for high
quality services and solutions. As a result, if a customer is not satisfied with our products and services, our reputation may be
damaged. Moreover, if we fail to meet our customers' performance expectations or if customers experience service disruptions,
breaches or other quality issues, we may lose customers and be subject to legal liability, particularly if such failure, service disruptions
or breaches adversely impact our customers' businesses.
In addition, many of our projects are critical to the operations of our customers' businesses. While our contracts typically include
provisions designed to limit our exposure to legal claims relating to our products and services, these provisions may not adequately
protect us or may not be enforceable in all cases. The general liability insurance coverage that we maintain, including coverage for
errors and omissions, is subject to important exclusions and limitations. We cannot be certain that this coverage will continue to be
available on reasonable terms or will be available in sufficient amounts to cover one or more large claims, or that the insurer will not
disclaim coverage as to any future claim. A successful assertion of one or more large claims against us that exceeds our available
insurance coverage or changes in our insurance policies, including premium increases or the imposition of large deductible or
co-insurance requirements, could adversely affect our profitability.
We face extensive competition in the markets in which we operate, and our failure to compete effectively could result in price
reductions and/or decreased demand for our products and services.
Several companies offer products and services similar to ours. The rapid rate of technological change in the hospitality market makes
it likely we will face competition from new products designed by companies not currently competing with us. We believe our
competitive ability depends on our product offerings, our experience in the hospitality industry, our product development and systems
integration capability, and our customer service organization. There is no assurance, however, that we will be able to compete
effectively in the hospitality technology market in the future.
We compete for customers based on several factors, including price. The competitive markets in which we operate may oblige us to
reduce our prices in order to contend with the pricing models of our competitors. If our competitors discount certain products or
services, we may have to lower prices on certain products or services in order to attract or retain customers. Any such price
modifications would likely reduce margins and could have adverse effects. In addition, if we fail to reduce our prices in order to
contend with the pricing models of our competitors, we may not be able to retain customers or grow our business, which could
adversely affect our revenues and liquidity.
We are subject to laws and regulations governing the protection of personally identifiable information; we are also subject to
cyber-attacks. A failure to comply with applicable privacy or data protection laws or the occurrence of a cyber-attack could harm
our reputation and have a material adverse effect on our business.
We collect, process, transmit, and/or store (on our systems and those of third-party providers) customer transactional data, as well as
their and our customers’ and employees’ personally identifiable information and/or other data and information. Personally identifiable
information is increasingly subject to legislation and regulations in numerous jurisdictions with regard to privacy and data security
such as such as the California Consumer Privacy Act and the European Union’s General Data Protection Regulation. Moreover, what
constitutes personally identifiable information and what other data and/or information is subject to the privacy laws varies by
jurisdiction and continues to evolve, and the laws that do reference data privacy continue to be interpreted by the courts and their
applicability and reach are therefore uncertain. Our failure and/or the failure of our customers, vendors, and service providers to
comply with applicable privacy and data protection laws and regulations could damage our reputation, discourage current and/or
potential customers from using our products and services, and result in fines, governmental investigations and/or enforcement actions,
complaints by private individuals, and/or the payment of penalties to consumers.
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We have established practices and procedures intended to protect our systems and information against cyber-attacks. However, there
can be no assurance that such measures will prevent all cyber-attacks from impacting our systems and information. Our systems, and
those of our third-party providers, have and could in the future become subject to cyber-attacks, including using computer viruses,
credential harvesting, dedicated denial of services attacks, malware, social engineering, and other means for obtaining unauthorized
access to, or disrupting the operation of, our systems and those of our third-party providers. Any operational disruptions, unauthorized
access, or misappropriation of information (including personally identifiable information or personal data) could harm our relationship
with our customers and could have a material adverse effect on our business, financial condition, reputation, and results of operations.
Actual or perceived security vulnerabilities in our software products may result in reduced sales or liabilities.
Our software may be used in connection with processing sensitive data (e.g., credit card numbers). It may be possible for the data to
be compromised if our customer does not maintain appropriate security procedures. In those instances, the customer may attempt to
seek damages from us. While we believe that all of our current software complies with applicable industry security requirements and
that we take appropriate security measures to reduce the possibility of breach through our support and other systems, we cannot assure
that our customers' systems will not be breached, or that all unauthorized access can be prevented. If a customer, or other person, seeks
redress from us as a result of a security breach, our business could be adversely affected.
We have incurred losses in each of the last several years, and we may continue to incur losses in the future.
We have incurred operating losses in each of the last several years, including the year ended March 31, 2020, and we may continue to
incur losses in the future as we continue to invest in our products. Our lack of profitability limits the resources available to us to invest
in developing new products, product upgrades and services and otherwise in improving business operations.
We may incur goodwill and intangible asset impairment charges that adversely affect our operating results.
As of March 31, 2020, we had $19.6 million and $8.4 million of goodwill and intangible assets (including capitalized software
development costs), net, respectively, on our Consolidated Balance Sheet. We review our goodwill and intangible assets for
impairment on at least an annual basis. As of March 31, 2020, we determined the net realizable value of intangible assets consisting of
capitalized software development costs for certain solutions within our rGuest suite of products no longer exceeded their carrying
value, and as a result, recorded non-cash impairment charges of $22.0 million. The impact of the COVID-19 pandemic on the
hospitality industry resulted in significantly lower sales and cash flow projections for the related rGuest solutions after evaluating the
Company’s strategy for market development and continued costs to support the software. As a result, we recorded impairment charges
to reduce the net realizable value of the related assets to zero. Our future operating results and the market price of our common stock
could be materially adversely affected if we are required to write down the carrying value of goodwill or other intangible assets in the
future.
If we fail to attract, retain and motivate key employees, our business may be harmed.
Our success depends on the skill, experience and dedication of our employees. There can be no assurance that we will be able to
successfully attract, retain and motivate the personnel that we need. If we are unable to attract, retain and motivate sufficiently
experienced and capable personnel, especially in product development, customer services and support, operations, sales and
management, our business and financial results may suffer. For example, if we are unable to attract and retain a sufficient number of
skilled technical personnel, our ability to develop high quality products and provide high quality customer service may be impaired.
Experienced and capable personnel in the technology industry remain in high demand, and there is continual competition for their
talents. Although we believe our compensation, benefits and other employment amenities are competitive in the markets in which we
compete for talent, we may have difficulty attracting sufficiently experienced and capable personnel or retaining and motivating
talented employees, and in such events our business may suffer.
Additionally, in response to COVID-19, we furloughed approximately 24% of our employees to reduce operating costs and improve
efficiency. If this action negatively impacts our ability to attract employees or if employees do not resume their employment at the end
of the furlough, we may experience operational challenges that result in a negative impact on our customer services and ultimately,
loss of market share, which could limit our ability to grow and expand our business. See “COVID-19 has adversely impacted our
business and may further impact our business, financial results and liquidity for an unknown period of time” above for additional
information regarding this risk.
Our international operations have many associated risks.
We continue to strategically manage our presence in international markets, and these efforts require significant management attention
and financial resources. We may not be able to successfully penetrate international markets, or, if we do, there can be no assurance
that we will grow our business in these markets at the same rate as in North America. Because of these inherent complexities and
14
challenges, lack of success in international markets could adversely affect our business, results of operations, cash flow, and financial
condition.
We have international offices in the United Kingdom, China, Malaysia, the Philippines, Singapore, and India. We have committed
resources to maintaining and further expanding, where appropriate, our sales offices and sales and support channels in key
international markets. However, our efforts may not be successful. International sales are subject to many risks and difficulties,
including those arising from the following: building and maintaining a competitive presence in new markets; staffing and managing
foreign operations; complying with a variety of foreign laws; producing localized versions of our products; developing integrations
between our products and other locally-used products; import and export restrictions and tariffs, enforcing contracts and collecting
accounts receivable; unexpected changes in regulatory requirements; reduced protection for intellectual property rights in some
countries; potential adverse tax treatment; language and cultural barriers; currency fluctuations; and political and economic instability
abroad.
Natural disasters or other catastrophic events affecting our principal facilities could cripple our business.
Natural disasters or other catastrophic events, particularly those affecting employees in our Alpharetta headquarters or India research
and development center, may cause damage or disruption to our operations, and thus could have a negative effect on us. Most of our
administrative functions are concentrated in our Alpharetta headquarters and most of our software development activity is
concentrated in our India research and development center. Although we maintain crisis management and disaster response plans, a
natural disaster, fire, power shortage, pandemic, act of terrorism or other catastrophic event occurring in either geographic location
that prevents or substantially impairs our employees’ ability to work could make it difficult or impossible for us to deliver our
products and services to customers.
We may not be able to enforce or protect our intellectual property rights.
We rely on a combination of copyright, patent, trademark and trade secret laws and restrictions on disclosure to protect our intellectual
property rights. We cannot be certain that the steps we have taken will prevent unauthorized use of our technology. Any failure to
protect our intellectual property rights would diminish or eliminate the competitive advantages that we derive from our proprietary
technology.
We may be subject to claims of infringement of third-party intellectual property rights.
Third parties may assert claims that our software or technology infringe, misappropriate, or otherwise violate their intellectual
property or other proprietary rights. Such claims may be made by our competitors seeking to obtain a competitive advantage or by
other parties. The risk of claims may increase as the number of software products that we offer and competitors in our market increase
and overlaps occur. Any such claims, regardless of merit, that result in litigation could result in substantial expenses, divert the
attention of management, cause significant delays in introducing new or enhanced services or technology, materially disrupt the
conduct of our business, and have a material adverse effect on our business, financial condition, and results of operations.
While we do not believe that our products and services infringe any patents or other intellectual property rights, from time to time, we
receive claims that we have infringed the intellectual property rights of others. For example, on April 6, 2012, Ameranth, Inc. filed a
complaint against us in the U.S. District Court for the 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. This lawsuit remains pending.
If we fail to maintain our data centers and other systems, the demand for our subscription services and our ability to operate our
business efficiently could diminish, which could have a material adverse effect on our business.
We currently utilize data center hosting facilities, some of which are managed by third-parties, to provide cloud-based products and
hosting services to our customers and to support our internal business operations. If these data center facilities fail or encounter any
damage, it could result in interruptions in services to our customers or disruption of our business operations. This could result in
unanticipated downtime for our customers, and in turn, our reputation and business could be adversely affected. Similarly any
significant disruption or deficiency in the operation of our internal systems could have a material adverse effect on our ability to fulfill
and invoice customer orders, apply cash receipts, place purchase orders with suppliers, and make cash disbursements, which may have
a material adverse effect on our business, financial condition, or results of operations.
If we fail to maintain an effective system of internal controls, we may not be able to detect fraud, which could have a material
adverse impact on our business.
While we believe our internal control over financial reporting is effective, a controls system cannot provide absolute assurance that the
objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that control issues and
instances of fraud, if any, within our company have been detected.
15
We have encountered risks associated with maintaining large cash balances.
While we have attempted to invest our cash balances in investments we considered to be relatively safe, we nevertheless confront
credit and liquidity risks. Bank failures could result in reduced liquidity or the actual loss of money held in deposit accounts in excess
of federally insured amounts, if any.
If we acquire new businesses, we may not be able to successfully integrate them or attain the anticipated benefits.
As part of our operating history and growth strategy, we have acquired other businesses. In the future, we may continue to seek
acquisitions. We can provide no assurance that we will be able to identify and acquire targeted businesses or obtain financing for such
acquisitions on satisfactory terms. The process of integrating acquired businesses into our operations may result in unforeseen
difficulties and may require a disproportionate amount of resources and management attention. If integration of our acquired
businesses is not successful, we may not realize the potential benefits of an acquisition or suffer other adverse effects.
We may have exposure to greater than anticipated tax liabilities.
Some of our products and services may be subject to sales taxes in states where we have not collected and remitted such taxes from
our customers. We have reserves for certain state sales tax contingencies based on the likelihood of obligation. These contingencies
are included in “Other non-current liabilities” in our Consolidated Balance Sheets. We believe we have appropriately accrued for these
contingencies. In the event that actual results differ from these reserves, we may need to make adjustments, which could materially
impact our financial condition and results of operations.
We are subject to litigation, which may be costly.
As a company that does business with many customers, employees and suppliers, we are subject to litigation. The results of such
litigation are difficult to predict, and we may incur significant legal expenses if any such claim were filed. While we generally take
steps to reduce the likelihood that disputes will result in litigation, litigation is very commonplace and could have an adverse impact
on our business.
Our dependence on certain strategic partners makes us vulnerable to the extent we rely on them.
We rely on a concentrated number of vendors for the majority of our hardware and for certain software and related services needs. We
do not have long term agreements with many of these vendors. If we can no longer obtain these hardware, software or services needs
from our major suppliers due to mergers, acquisitions or consolidation within the marketplace, material changes in their partner
programs, their refusal to continue to supply to us on reasonable terms or at all, and we cannot find suitable replacement suppliers, it
may have a material adverse impact on our future operating results and gross margins.
Risks Relating to the Industries We Serve
Our business depends to a significant degree on the hospitality industry and a weakening could adversely affect our business and
results of operations.
Because our customer base is concentrated in the hospitality industry, our business is largely dependent on the health of that industry.
Our sales are dependent in large part on the health of the hospitality industry, which in turn is dependent on the domestic and
international economy. Instabilities or downturns in the hospitality industry, such as those resulting from the impact of COVID-19, as
discussed above, could disproportionately impact our revenue, as customers may exit the industry or delay, cancel or reduce planned
expenditures for our products. For additional information regarding the potential impact of COVID-19 on our business, see
“COVID-19 has adversely impacted our business and may further impact our business, financial results and liquidity for an unknown
period of time” above for additional information.
Consolidation in the gaming and other hospitality industries could adversely affect our business.
Customers that we serve may seek to achieve economies of scale and other synergies by combining with or acquiring other
companies. The hospitality industry has experienced recent consolidations, including the hotel and gaming sectors of the industry.
Although recent consolidations in the hospitality industry have not materially adversely affected our business, there is no assurance
that future consolidations will not have such affect. For example, if one of our current customers merges or consolidates with a
company that relies on another provider's products or services, it could decide to reduce or cease its purchases of products or services
from us, which could have an adverse effect our business.
16
Insolvencies in the hospitality industry could adversely affect our business.
Customers that we serve may be or become insolvent. Most of our customers have been significantly affected by the COVID-19
pandemic. Loss of revenue and other operating challenges may cause some of our customers to declare bankruptcy or cause their
lenders to declare a default, accelerate the related debt, or foreclose on their property. Customers in bankruptcy may not have
sufficient assets to pay us unpaid fees or reimbursements we are owed under their agreements with us. If a significant number of
customers file for bankruptcy or otherwise fail to pay amounts owed to us, our revenues and liquidity could be adversely affected.
Our stock has been volatile and we expect that it will continue to be volatile.
Risks Relating to Our Stock
Our stock price has been volatile, and we expect it will continue to be volatile. For example, during the year ended March 31, 2020,
the trading price of our common stock ranged from a high close of $36.85 to a low close of $13.00. The market price for our common
stock could be subject to wide fluctuations in response to many risk factors listed in this section, and others beyond our control.
Factors affecting the trading price of our common stock may include:
•
•
•
•
•
•
uncertainties the COVID-19 pandemic has caused for the global economy;
economic news or other events generally causing volatility in the trading markets;
our operating results failing to meet the expectation of securities analysts or investors in a particular period or failure of
securities analysts to publish reports about us or our business;
announcements by us or our competitors of acquisitions, new offerings or improvements, significant contracts, commercial
relationships or capital commitments;
our ability to market new and enhanced solutions on a timely basis;
any major change in our board or management; general economic and political conditions such as recessions, interest rates,
fuel prices, international currency fluctuations and acts of war or terrorism.
On May 11, 2020, we entered into an agreement to sell $35 million of preferred stock with a 5.25% cumulative dividend and
convertible into common stock at a conversion price of $20.1676 per share. Until converted, the preferred stock may impede stock
price increases above the conversion price.
Additionally, our ownership base has been and may continue to be concentrated in a few shareholders, which could increase the
volatility of our common share price over time.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
Our corporate headquarters are located in Alpharetta, Georgia where we lease approximately 33,000 square feet of office space. In
addition, we lease approximately 33,000 square feet of office space in Las Vegas, Nevada, 12,000 square feet of office space in
Bellevue, Washington, 12,000 square feet of office space in Santa Barbara, California, and 6,000 square feet of warehouse space in
Roswell, Georgia. Internationally, we lease approximately 104,000 square feet of office space in Chennai, India and lease several
other smaller office locations throughout Europe and Asia. Our major leases contain renewal options for periods of up to 10 years. We
believe that our current facilities and office space are sufficient to meet our needs and do not anticipate any difficulty securing
additional space as needed.
Item 3. Legal Proceedings.
We are involved in legal actions that arise in the ordinary course of business. It is the opinion of management that the resolution of
any current pending litigation will not have a material adverse effect on our financial position or results of operations.
On April 6, 2012, Ameranth, Inc. filed a complaint against us in the U.S. District Court for the 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 devices. The case against us was
consolidated with similar cases brought by Ameranth against more than 30 other defendants. Most of the patents at issue in the case
were invalidated by the U.S. Court of Appeals for the Federal Circuit in 2016. Cases against us and our co-defendants remained
pending in the District Court with respect to one surviving Ameranth patent. In September 2018, the District Court found that patent
invalid, and granted summary judgment in favor of the movant co-defendants. In early 2019, Ameranth appealed the District Court's
summary judgment ruling to the U.S. Court of Appeals for the Federal Circuit. In November 2019, the U.S. Court of Appeals for the
17
Federal Circuit affirmed the lower court’s summary judgement with respect to all claims except for two, which were not asserted
against Agilysys. Shortly thereafter, Ameranth moved for a rehearing en banc, which was denied in February 2020. 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 judgment 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 the remaining claims in the lawsuit, or any possible monetary exposure associated with the lawsuit. However,
we dispute the allegations of wrongdoing and are vigorously defending ourselves in this matter.
Item 4. Mine Safety Disclosures.
Not applicable.
18
Part II
Item 5. Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities.
Market Information
Our common shares, without par value, are traded on the NASDAQ Stock Market LLC under the symbol “AGYS”. As of May 20,
2020, there were 1,551 registered holders of our common shares, without par value.
Dividends
We did not pay dividends in fiscal 2020 or 2019 on our common stock and are unlikely to do so in the foreseeable future. The current
policy of the Board of Directors is to retain any available earnings for use in the operations of our business.
Shareholder Return Performance Presentation
The following chart compares the value of $100 invested in our common shares, including reinvestment of dividends, with a similar
investment in the Russell 2000 Index (the “Russell 2000”) and with the companies listed in the SIC Code 7373-Computer Integrated
Systems Design for the period March 31, 2015 through March 31, 2020. The stock price performance in this graph is not necessarily
indicative of the future performance of our common shares.
19
Comparison of 5 Year Cumulative Total Return
$250
$200
$150
$100
$50
$0
2015
2016
2017
2018
2019
2020
Agilysys, Inc.
Russell 2000
7373 - Computer Integrated Systems Design
INDEXED RETURNS
Base Period
Fiscal Years Ended March 31,
Company Name / Index
Agilysys, Inc.
Russell 2000
Peer Group
2015
2016
2017
2018
2019
2020
$
$
$
100.00 $
100.00 $
100.00 $
103.76 $
90.24 $
87.03 $
96.04 $
113.90 $
106.85 $
121.44 $
127.33 $
123.24 $
215.14 $
129.94 $
128.15 $
169.72
98.77
122.52
This performance graph shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended or
incorporated by reference into any of our filings under the Securities Act of 1933, as amended, of the Exchange Act, except as shall be
expressly set forth by specific reference in such filing.
20
Item 6. Selected Financial Data.
The following selected consolidated financial and operating data was derived from our audited consolidated financial statements. The
selected financial data should be read in conjunction with the Consolidated Financial Statements and Notes thereto, and Item 7
contained in Part II of this Annual Report.
(In thousands, except per share data)
Operating results
Net revenue
Gross profit
Operating loss
Operating loss, net of taxes
Net loss
Per share data (1)
Basic and diluted
Net loss
$
Weighted-average shares outstanding - basic and diluted
$
2020
Year ended March 31,
2018
2017
2019
2016
$ 160,757 $ 140,842 $ 127,360 $ 127,678 $ 120,366
68,106
(4,313 )
(3,765 )
(3,765 )
80,952
(34,061 )
(34,067 )
(34,067 ) $
64,417
(12,080 )
(8,350 )
(8,350 ) $
73,880
(13,081 )
(13,164 )
(13,164 ) $
63,785
(11,408 )
(11,721 )
(11,721 ) $
(1.47 ) $
23,233
(0.57 ) $
23,037
(0.37 ) $
22,801
(0.52 ) $
22,615
(0.17 )
22,483
Balance sheet data at year end
Cash and cash equivalents
Working capital
Total assets
Total debt
Total shareholders’ equity
$
40,771 $
21,193
46,653 $
23,985
60,608
41,401
154,562 163,591 157,207 167,305 185,157
333
71,757 100,622 108,431 113,669 123,473
39,943 $
19,343
49,255 $
27,183
177
237
49
57
(1) 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. In addition, when a loss from continuing operations is reported,
adjusting the denominator of diluted earnings per share would also be anti-dilutive to the loss per share, even if the entity has net
income after adjusting for a discontinued operation. Therefore, for all periods presented, basic weighted-average shares
outstanding were used in calculating the diluted net loss per share.
21
Item 7. Managements’ 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 Consolidated Statements of Operations and 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 discussion should be read in conjunction with the Consolidated Financial
Statements and related Notes that appear in Item 8 of this Annual Report titled, "Financial Statements and Supplementary Data."
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 3 of this Annual Report and Item 1A “Risk Factors” in Part I of this Annual Report 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
During the fourth quarter ended March 31, 2020, concerns related to the spread of COVID-19 began to create global business
disruptions as well as disruptions in our operations and to cause negative impacts on our revenues and other financial results.
COVID-19 was declared a pandemic by the World Health Organization on March 11, 2020. The extent to which COVID-19 will
impact our financial condition or results of operations is currently uncertain and depends on various factors, including the impact on
our customers, partners, and vendors and on the operation of the global markets in general. Because an increasing portion of our
business is based on a subscription model, the effect of COVID-19 on our results of operations may also not be fully reflected for
some time.
We have taken actions to mitigate the impact on our business. We are currently conducting 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 delay or reduce sales and harm
productivity and collaboration. We have observed other organizations making similar alterations to their normal business operations,
including restrictions imposed by our customers on our ability to access their sites for implementations and support. The pandemic
could have an adverse impact on demand for our customers’ products and services, which in turn could negatively impact the
willingness of our customers to enter into or renew contracts with us. The pandemic has impacted our ability to complete certain
implementations, negatively impacting our ability to recognize revenue, and could also negatively impact the payment of accounts
receivable and collections.
In addition, during the first quarter of our fiscal 2021, we have reduced discretionary costs, implemented a hiring freeze on
non-essential positions and reduced payroll and related costs through layoffs, employee furloughs, employee retirement benefit
limitations, and salary decreases for executive team members and certain other employees of the Company.
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.
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, sports and entertainment, and healthcare. Agilysys offers the
most comprehensive software solutions in the industry, including point-of-sale (POS), property management (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.
22
Our top priority is increasing 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
•
• Accelerating our product development
•
•
• Developing our employees and leaders
• Growing revenue by improving the breadth and depth of our product set across both our well-established products and our
Improving our liquidity
Increasing organizational efficiency and teamwork
newer rGuest platform
• 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.
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 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.
•
23
Results of Operations
Fiscal 2020 Compared with Fiscal 2019
Net Revenue and Operating Loss
The following table presents our consolidated revenue and operating results for the fiscal years ended March 31, 2020 and 2019:
(Dollars in thousands)
Net revenue:
Products
Support, maintenance and subscription services
Professional services
Total net revenue
Cost of goods sold:
Products (inclusive of developed technology amortization)
Support, maintenance and subscription services
Professional services
Total cost of goods sold
Gross profit
Gross profit margin
Operating expenses:
Product development
Sales and marketing
General and administrative
Depreciation of fixed assets
Amortization of intangibles
Impairments
Restructuring, severance and other charges
Legal settlements, net
Operating loss
Operating loss percentage
Year ended March 31,
2019
2020
Increase (decrease)
%
$
$
44,230 $
83,680
32,847
160,757
39,003 $
75,496
26,343
140,842
36,427
19,248
24,130
79,805
80,952
50.4 %
41,463
19,864
24,374
2,574
2,541
23,740
582
(125 )
(34,061 )
$
(21.2 )%
31,811
15,895
19,256
66,962
73,880
52.5 %
37,817
19,646
23,118
2,504
2,567
—
1,168
141
$
(9.3 )%
(13,081 )
$
5,227
8,184
6,504
19,915
4,616
3,353
4,874
12,843
7,072
3,646
218
1,256
70
(26 )
23,740
(586 )
(266 )
(20,980 )
13.4 %
10.8 %
24.7 %
14.1 %
14.5 %
21.1 %
25.3 %
19.2 %
9.6 %
9.6 %
1.1 %
5.4 %
2.8 %
(1.0 )%
100.0 %
(50.2 )%
(188.7 )%
160.4 %
24
The following table presents the percentage relationship of our Consolidated Statement of Operations line items to our consolidated
net revenues for the periods presented:
Net revenue:
Products
Support, maintenance and subscription services
Professional services
Total net revenue
Cost of goods sold:
Products, inclusive of developed technology amortization
Support, maintenance and subscription services
Professional services
Total net cost of goods sold
Gross profit
Operating expenses:
Product development
Sales and marketing
General and administrative
Depreciation of fixed assets
Amortization of intangibles
Impairments
Restructuring, severance and other charges
Legal settlements, net
Operating loss
Year ended March 31,
2020
2019
27.5 %
52.1
20.4
100.0
22.6
12.0
15.0
49.6
50.4
25.8
12.4
15.2
1.6
1.6
14.8
0.4
(0.1 )
(21.2 )%
27.7 %
53.6
18.7
100.0
22.6
11.3
13.6
47.5
52.5
26.9
13.9
16.4
1.8
1.8
0.0
0.8
0.1
(9.3 )%
Net revenue. Total revenue increased $19.9 million, or 14.1%, in fiscal 2020 compared to fiscal 2019. Products revenue increased $5.2
million, or 13.4%, due to increased sales in third-party hardware sales including new customers and expansion with existing
customers. Support, maintenance and subscription services revenue increased $8.2 million, or 10.8%, driven by continued growth in
subscription-based service revenue, which increased 24.3% in fiscal 2020 compared to fiscal 2019. Professional services revenue
increased $6.5 million, or 24.7%, due to ongoing installations and integration of our software solutions for our growing customer base.
Gross profit and gross profit margin. Our total gross profit increased $7.1 million, or 9.6%, in fiscal 2020 and total gross profit margin
decreased from 52.5% to 50.4%. Products gross profit increased $0.6 million and gross profit margin decreased slightly from 18.4% to
17.6% due to a higher mix of third party hardware and software and due to certain allowances established against revenues earned in
March 2020 related to products that have been or could be returned from customer locations closed in response to COVID-19
guidelines. Support, maintenance and subscription services gross profit increased $4.8 million and gross profit margin decreased 195
basis points to 77.0% due to increased costs associated with hosting our customers. Professional services gross profit increased $1.6
million and gross profit margin decreased slightly from 26.9% to 26.5% after we established allowances against revenues earned in
March 2020 due to uncertainties related to COVID-19 conditions.
Operating expenses
Operating expenses, excluding the charges for legal settlements, impairments and restructuring, severance and other charges,
increased $5.2 million, or 6.0%, in fiscal 2020 compared with fiscal 2019. As a percent of total revenue, operating expenses have
decreased 4.3% in fiscal 2020 compared with fiscal 2019.
Product development. Product development includes all expenses associated with research and development. Product development
increased $3.6 million, or 9.6%, during fiscal 2020 as compared to fiscal 2019 primarily due to the reduction of cost capitalization.
The products in our rGuest platform for which we had capitalized costs reached general availability by the beginning of the second
quarter of fiscal 2019. These products joined our well-established products with the application of agile development practices in a
more dynamic development process that involves higher frequency releases of product features and functions. We capitalized $2.0
million of external use software development costs, and $0.3 million of internal use software development costs during fiscal 2019,
with the full balance capitalized in Q1 fiscal 2019. We did not capitalize any costs associated with product development during fiscal
2020. Total product development costs, including operating expenses and capitalized amounts, were $41.5 million during fiscal 2020
compared to $40.1 million in fiscal 2019. The $1.4 million increase is mostly due to continued expansion of our R&D teams and
infrastructure.
25
Sales and marketing. Sales and marketing increased $0.2 million, or 1.1%, in fiscal 2020 compared with fiscal 2019. The change is
due primarily to an increase in our allowance for doubtful accounts due to an increase collection risk of our accounts receivable as of
March 31, 2020 as a result of the negative impacts of the COVID-19 pandemic on the operations of our customers, partially offset by
a decrease in costs associated with our annual bonus incentive plan that has declined in value due to a significant decrease in target
achievements after reduced fourth quarter revenue activity with concentration in March 2020.
General and administrative. General and administrative increased $1.3 million, or 5.4%, in fiscal 2020 compared to fiscal 2019. The
change is due primarily to software investments in third-party applications to host our network and infrastructure.
Depreciation of fixed assets. Depreciation of fixed assets increased $0.1 million or 2.8% in fiscal 2020 as compared to fiscal 2019.
Amortization of intangibles. Amortization of intangibles remained consistent in fiscal 2020 as compared to fiscal 2019.
Impairments. Impairments totaled $23.7 million in fiscal 2020. There were no impairments in fiscal 2019. The impairments result
from specific capitalized software development costs supporting our rGuest solutions. The impact of the COVID-19 pandemic on the
hospitality industry resulted in economic conditions which make 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. We have recorded impairment charges to reduce the net realizable value of the related assets to
zero.
Restructuring, severance and other charges. Restructuring, severance, and other charges decreased $0.6 million due to a reduction in
non-restructuring severance activity during fiscal 2020 compared to fiscal 2019.
Legal settlements. Legal settlements consist of settlements of employment and other business-related matters.
Other (Income) Expenses
(Dollars in thousands)
Other (income) expense:
Interest (income)
Interest expense
Other expense, net
Total other (income), net
Year ended March 31,
2019
2020
(Unfavorable) favorable
$
%
$
$
(380 ) $
9
176
(195 ) $
(339 ) $
10
191
(138 ) $
41
1
15
57
(12.1 )%
10.0 %
7.9 %
(41.3 )%
Interest income. Interest income consists of interest earned on short-term investments in certificates of deposit, commercial paper,
money market funds and corporate-owned life insurance policies.
Interest expense. Interest expense consists of costs associated with finance leases.
Other expense, net. Other expense, net consists mainly of the impact of foreign currency due to movement of European and Asian
currencies against the US dollar.
Income Taxes
(Dollars in thousands)
Income tax expense
Effective tax rate
Year ended March 31,
2019
2020
(Unfavorable) favorable
$
%
20
9.0 %
$
201
$
(0.6 )%
221 $
(1.7 )%
For fiscal 2020, 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, state taxes 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 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.
26
Because of our losses in prior periods, we have recorded a valuation allowance offsetting substantially all of our deferred tax assets.
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. Because of our losses in prior periods, management believes that it is more-likely-than-not that
we will not realize the benefits of these deductible differences. At March 31, 2020, we had $199.1 million of federal net operating loss
carryforwards that expire, if unused, in fiscal years 2031 to 2038, and $24.7 million of federal net operating loss carryforwards that
can be carried forward indefinitely. We also had $141.6 million of state net operating loss carryforwards that expire, if unused, in
fiscal years 2021 through 2040.
Fiscal 2019 Compared to Fiscal 2018
Net Revenue and Operating Loss
The following table presents our consolidated revenue and operating results for the fiscal years ended March 31, 2019 and 2018:
(Dollars in thousands)
Net revenue:
Products
Support, maintenance and subscription services
Professional services
Total net revenue
Cost of goods sold:
Products (inclusive of developed technology amortization)
Support, maintenance and subscription services
Professional services
Total cost of goods sold
Gross profit
Gross profit margin
Operating expenses:
Product development
Sales and marketing
General and administrative
Depreciation of fixed assets
Amortization of intangibles
Restructuring, severance and other charges
Legal settlements, net
Operating loss
Operating loss percentage
Year ended March 31,
2018
2019
Increase (decrease)
%
$
15.7 %
9.3 %
7.1 %
10.6 %
20.6 %
(4.8 )%
(3.1 )%
6.4 %
14.7 %
35.4 %
8.7 %
(3.8 )%
(4.8 )%
36.6 %
(35.0 )%
(6.0 )%
8.3 %
$
39,003 $
75,496
26,343
140,842
33,699 $
69,068
24,593
127,360
5,304
6,428
1,750
13,482
31,811
15,895
19,256
66,962
73,880
52.5 %
37,817
19,646
23,118
2,504
2,567
1,168
141
$
(9.3 )%
(13,081 )
26,381
16,688
19,874
62,943
64,417
50.6 %
27,936
18,075
24,028
2,631
1,879
1,798
150
$
(12,080 )
(9.5 )%
5,430
(793 )
(618 )
4,019
9,463
9,881
1,571
(910 )
(127 )
688
(630 )
(9 )
(1,001 )
$
27
The following table presents the percentage relationship of our Consolidated Statement of Operations line items to our consolidated
net revenues for the periods presented:
Net revenue:
Products
Support, maintenance and subscription services
Professional services
Total net revenue
Cost of goods sold:
Products (inclusive of developed technology amortization)
Support, maintenance and subscription services
Professional services
Total cost of goods sold
Gross profit
Operating expenses:
Product development
Sales and marketing
General and administrative
Depreciation of fixed assets
Amortization of intangibles
Restructuring, severance and other charges
Legal settlements, net
Operating loss
Year ended March 31,
2019
2018
27.7 %
53.6
18.7
100.0
22.6
11.3
13.6
47.5
52.5
26.9
13.9
16.4
1.8
1.8
0.8
0.1
(9.3 )%
26.5 %
54.2
19.3
100.0
20.7
13.1
15.6
49.4
50.6
21.9
14.2
18.9
2.1
1.5
1.4
0.1
(9.5 )%
Net revenue. Total revenue increased $13.5 million, or 10.6% in fiscal 2019 compared to fiscal 2018. Products revenue increased $5.3
million or 15.7%, due to growth in third-party hardware sales and in on premise software sales, which grew more than 20% compared
to the prior year. Support, maintenance and subscription services revenue increased $6.4 million, or 9.3%, driven by growth in
customers using our on premise software products that require the payment of support and maintenance along with continued
increases in subscription based revenue, which increased 23.5% in fiscal 2019 compared to fiscal 2018. Subscription based revenue
comprised 17.7% of total consolidated revenues in 2019 compared to 15.8% in 2018. Professional services revenue increased $1.8
million, or 7.1%, as a result of growth in our customer based including installations of our traditional on premise and subscription
based software solutions and increased responses to customer service requests.
Gross profit and gross profit margin. Our total gross profit increased $9.5 million, or 14.7%, in fiscal 2019 and total gross margin
increased from 50.6% to 52.5%. Products gross profit decreased $0.1 million and gross profit margin decreased 3.3% to 18.4%
primarily as a result of increased developed technology amortization. Support, maintenance and subscription services gross profit
increased $7.2 million and gross profit margin increased 310 basis points to 78.9% due to the scalable nature of our infrastructure
supporting and hosting customers. Professional services gross profit increased $2.4 million and gross profit margin increased 7.7% to
26.9% due to increased revenue with lower costs from the restructuring of our professional services workforce during the first quarter
of 2018 into a more efficient operating structure with limited use of contract labor.
Operating expenses
Operating expenses, excluding legal settlements and restructuring, severance and other charges, increased $11.1 million, or 14.9%, in
fiscal 2019 compared with fiscal 2018. As a percent of total revenue, operating expenses have increased 2.3% in fiscal 2019 compared
with fiscal 2018.
Product development. Product development includes all expenses associated with research and development. Product development
increased $9.9 million, or 35.4%, during fiscal 2019 as compared to fiscal 2018 primarily due to the reduction of cost capitalization.
The products in our rGuest platform for which we had capitalized costs reached general availability by the beginning of the second
quarter of fiscal 2019. These products join our well-established products with the application of agile development practices in a more
dynamic development process that involves higher frequency releases of products features and functions. We capitalized $2.0 million
of external use software development costs, and $0.3 million of internal use software development costs during fiscal 2019, with the
full balance capitalized in Q1 fiscal 2019. We capitalized approximately $8.9 million in total development costs during fiscal 2018.
Total product development costs, including operating expenses and capitalized amount, were $40.1 million during fiscal 2019
compared to $38.4 million in fiscal 2018. The $1.7 million increase is mostly due to continued expansion of our R&D teams and
increased compensation expense as a result of bonus earnings.
28
Sales and marketing. Sales and marketing increased $1.6 million, or 8.7%, in fiscal 2019 compared with fiscal 2018. The change is
due primarily to an increase of $1.6 million in incentive compensation related to an increase in sales, revenue and profitability during
fiscal 2019.
General and administrative. General and administrative decreased $0.9 million, or 3.8%, in fiscal 2019 compared to fiscal 2018. The
change is due primarily to reduced outside professional costs for legal and accounting services.
Depreciation of fixed assets. Depreciation of fixed assets decreased $0.1 million or 5.0% in fiscal 2019 as compared to fiscal 2018.
Amortization of intangibles. Amortization of intangibles increased $0.7 million, or 36.6%, in fiscal 2019 as compared to fiscal 2018
due to our remaining rGuest suite of products being placed into service on June 30, 2018.
Restructuring, severance and other charges. Restructuring, severance, and other charges decreased $1.8 million due to non-recurring
2018 restructuring activities while charges for non-restructuring severance increased $1.2 million, resulting in a net decrease of $0.6
million during fiscal 2019.
Legal settlements. Legal settlements consist of settlements of employment and other business-related matters.
Other (Income) Expenses
(Dollars in thousands)
Other (income) expenses
Interest (income)
Interest expense
Other expense (income), net
Total other (income), net
nm - not meaningful
Year ended March 31,
2018
2019
(Unfavorable) favorable
$
%
$
$
(339 ) $
10
191
(138 ) $
(98 ) $
10
(391 )
(479 ) $
241
—
(582 )
(341 )
245.9 %
— %
nm
nm
Interest income. Interest income consists of interest earned on short-term investments in certificates of deposit, commercial paper,
corporate bonds and corporate-owned life insurance policies.
Interest expense. Interest expense consists of costs associated with finance leases.
Other (income) expense, net. Other (income) expense, net consists mainly of the impact of foreign currency due to movement of
European and Asian currencies against the US dollar.
Income Taxes
(Dollars in thousands)
Income tax expense (benefit)
Effective tax rate
nm - not meaningful
Year ended March 31,
2018
2019
$
221 $
(1.7 )%
(3,251 )
$
(28.0 )%
(Unfavorable) favorable
$
(3,472 )
%
nm
For fiscal 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 taxes and other U.S. permanent
book to tax differences.
The 2018 tax provision results primarily from a reduction in the deferred rate and the ability to offset indefinite lived deferred tax
liabilities with certain deferred tax assets due to the passage of the Tax Cuts and Jobs Act ("Tax Act"). The 2018 effective tax rate was
different than the statutory rate due primarily to the impact of the Tax Act, recognition of net operating losses as deferred tax assets,
which were offset by increases in the valuation allowance, certain foreign and state tax effects including a benefit of $0.4 million
related to a settlement with the California Franchise Tax Board and other U.S. permanent book to tax differences.
29
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 routinely audited; due to the ongoing nature of current examinations in multiple
jurisdictions, other 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.
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. Because of our losses in prior periods, management believes that it is more-likely-than-not that
we will not realize the benefits of these deductible differences. At March 31, 2019, we had $210.6 million of federal net operating loss
carryforwards of which $199.1 million will expire, if unused, in fiscal years 2031 to 2038.
Liquidity and Capital Resources
Overview
Our operating cash requirements consist primarily of working capital needs, operating expenses, capital expenditures, and payments of
principal and interest on indebtedness outstanding, which primarily consists of lease and rental obligations at March 31, 2020.
At March 31, 2020, all $46.7 million of our cash on hand was deposited in bank accounts, of which 93% are located in the United
States. We believe there is limited credit risk with respect to our cash balances.
While we expect the COVID-19 pandemic will have a significant adverse impact on our results of operations, we cannot presently
estimate its financial impact, which we expect will be highly dependent on the severity and duration of the pandemic. As such, due to
the uncertainties associated with the COVID-19 pandemic and the indeterminate length of time it will affect the hospitality industry,
we have taken certain proactive measures to secure our liquidity position to be able to meet our requirements for the foreseeable
future. These measures have included implementing strict cost management measures, such as temporarily halting marketing
programs, temporarily eliminating non-essential expenses, including capital expenditures and reducing payroll and related costs
through layoffs and furloughs as well as salary and retirement benefit reductions.
In addition, we recently 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 at a price of $20.1676
per share. The transaction is subject to customary closing conditions and is anticipated to close during May 2020. The close of the
transaction will add $35 million in preferred stock to the Company’s balance sheet and increase our cash balance by the $35 million
investment less estimated closing costs of approximately $1 million.
We believe that cash flow from operating activities, cash on hand of $46.7 million as of March 31, 2020, the additional $34 million in
net proceeds from the preferred stock sales and access to capital markets will provide adequate funds to meet our short-and long-term
liquidity requirements.
As of March 31, 2020 and March 31, 2019, our total debt was approximately $0.1 million, comprised of finance lease obligations in
both periods.
Cash Flow
(In thousands)
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
Effect of exchange rate changes on cash
Cash flows provided by (used in) operations
2020
Year ended March 31,
2019
2018
$
$
10,575 $
(3,447 )
(1,116 )
(130 )
5,882 $
7,241 $
(5,534 )
(767 )
(112 )
828 $
6,874
(15,085 )
(1,295 )
194
(9,312 )
Cash flow provided by operating activities. Cash flows provided by operating activities were $10.6 million in fiscal 2020. The
provision of cash was due primarily to our operating loss of $34.1 million adjusted for $46.2 million in non-cash expense including
impairment charges, depreciation, amortization, and share based compensation and a decrease of approximately $1.5 million in net
operating assets and liabilities.
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Cash flows provided by operating activities were $7.2 million in fiscal 2019. The provision of cash was due primarily to our operating
loss of $13.2 million adjusted for $22.4 million in non-cash expense including depreciation, amortization, and share based
compensation and an increase of approximately $2 million in net operating assets and liabilities.
Cash flows provided by operating activities were $6.9 million in fiscal 2018. The provision of cash was due primarily to our operating
loss of $12.1 million adjusted for $19.2 million in non-cash expense including depreciation, amortization, and share based
compensation.
Cash flow used in investing activities. Cash flows used in investing activities in fiscal 2020 were $3.4 million due primarily to the
purchase of property and equipment, including internal use software.
Cash flows used in investing activities in fiscal 2019 were $5.5 million. This is primarily attributed to $2.2 million in capitalized
development costs of proprietary software and $3.3 million for purchase of property and equipment, including internal use software.
Cash flows used in investing activities in fiscal 2018 were $15.1 million. This is primarily attributed to $8.9 million in capitalized
development costs of proprietary software and $6.1 million for purchase of property and equipment, including internal use software.
Cash flow used in financing activities. Respectively, in fiscal 2020, 2019, and 2018, the $1.1 million, $0.8 million, and $1.3 million
cash flows used in financing activities were primarily comprised of the repurchase of shares to satisfy employee tax withholding and
to cover the exercise price of the options.
Investments
Investments in Corporate-Owned Life Insurance Policies
Agilysys invests in corporate-owned life insurance policies for certain former executives, for which some are endorsement split-dollar
life insurance arrangements. We entered into agreements with each of the former executives, whereby we must maintain the life
insurance policy for a specified amount and split a portion of the policy benefits with their designated beneficiary. Our investment in
these corporate-owned life insurance policies were recorded at their cash surrender value, which approximates fair value at the balance
sheet date. In the Consolidated Balance Sheets at the balance sheet date, the cash surrender value of $0.9 million for the remaining
policies were held in “Other non-current assets,” and the present value of future proceeds owed to those executives' designated
beneficiary of $0.1 million, which approximates fair value, were recorded within "Other non-current liabilities" in the Consolidated
Balance Sheets at the balance sheet date.
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.
Contractual Obligations
The following table provides aggregate information regarding our contractual obligations as of March 31, 2020.
(In thousands)
Operating leases (1)
Finance leases
Asset retirement obligation
Total contractual obligations (2)
Total
$
2021
20,658 $
57
170
20,885 $
$
2022-2023 2024-2025 Thereafter
3,901
—
14
3,915
7,062 $
26
25
7,113 $
4,768 $
2
—
4,770 $
4,927 $
29
131
5,087 $
(1) Operating lease obligations are presented net of contractually binding sub-lease arrangements. Additional information regarding
our operating lease obligations is contained in Note 6, Leases.
(2) At March 31, 2020, we had a $0.6 million liability reserve for unrecognized income tax positions which is not reflected in the table
above. The timing of potential cash outflows related to the unrecognized tax positions is not reasonably determinable and therefore,
is not scheduled. Substantially all of this reserve is included in Other non-current liabilities. Additional information regarding
unrecognized tax positions is provided in Note 9, Income Taxes.
We believe that cash on hand, funds from operations, and access to capital markets will provide adequate funds to finance capital
spending and working capital needs and to service our obligations and other commitments arising during the foreseeable future.
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Critical Accounting Policies
MD&A is based upon our Consolidated Financial Statements, which have been prepared in accordance with U.S. generally accepted
accounting principles. The preparation of these financial statements requires us to make significant estimates and judgments that affect
the reported amounts of assets, liabilities, revenue, and expenses and related disclosure of contingent assets and liabilities. We
regularly evaluate our estimates, including those related to bad debts, inventories, investments, intangible assets, income taxes,
restructuring, contingencies and litigation. We base our estimates on historical experience and on various other assumptions that we
believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Our most significant accounting policies relate to the sale, purchase, and promotion of our products and services. The policies
discussed below are considered by management to be critical to an understanding of our Consolidated Financial Statements because
their application places the most significant demands on management's judgment, with financial reporting results relying on estimation
about the effect of matters that are inherently uncertain. Specific risks for these critical accounting policies are described in the
following paragraphs.
For all of these policies, management cautions that future events rarely develop exactly as forecasted, and the best estimates routinely
require adjustment.
Reclassification. Certain prior year balances have been reclassed to conform to the current year presentation. Specifically, we
reclassed certain employee benefit obligations from current to non-current liabilities.
Revenue recognition. On April 1, 2018, we adopted ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), using
the modified retrospective method applied to those contracts that were not completed as of the adoption date. Results for reporting
periods beginning after the adoption date are presented under Topic 606, while prior period amounts are not adjusted and continue to
be reported in accordance with our historic accounting under prior guidance.
Revenue recognition under Topic 606
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 service 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 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 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 the price both with the supplier and the customer, payment to the
supplier, establishing payment terms and product returns with the customer, and bearing 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.
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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.
Allowance for Doubtful Accounts. We maintain allowances for doubtful accounts for estimated losses resulting from the inability or
unwillingness of our customers to make required payments. These allowances are based on both recent trends of certain customers
estimated to be a greater credit risk, as well as historic trends of the entire customer pool. If the financial condition of our customers
were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. To mitigate
this credit risk we perform periodic credit evaluations of our customers.
Customer credit allowance. We maintain allowances for estimated customer credits. Credits are typically due to the timing or amount
of customer invoices processed for specific services, including professional and subscription, and maintenance coverage. In many
cases, there has not been clear or timely communication of the need to adjust coverage or service at a location in advance of when we
invoice for the associated coverage or service. We will issue a credit after agreeing to the service or coverage adjustment as requested
by the customer within the terms of our contract.
Inventories. Our inventories are comprised of finished goods. Inventories are stated at the lower of cost or market, net of related
reserves. The cost of inventory is computed using a weighted-average method. Our inventory is monitored to ensure appropriate
valuation. Adjustments of inventories to the lower of cost or market, if necessary, are based upon contractual provisions such as
turnover and assumptions about future demand and market conditions. If assumptions about future demand change and/or actual
market conditions are less favorable than those projected by management, additional adjustments to inventory valuations may be
required. We provide a reserve for obsolescence, which is calculated based on several factors including an analysis of historical sales
of products and the age of the inventory. Actual amounts could be different from those estimated.
Income Taxes. Income tax expense includes U.S. and foreign income taxes and is based on reported income before income taxes. We
recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax
basis of assets and liabilities. The deferred tax assets and liabilities are determined based on the enacted tax rates expected to apply in
the periods in which the deferred tax assets or liabilities are anticipated to be settled or realized.
We regularly review our deferred tax assets for recoverability and establish a valuation allowance if it is more likely than not that
some portion, or all, of a deferred tax asset will not be realized. The determination as to whether a deferred tax asset will be realized is
made on a jurisdictional basis and is based on the evaluation of positive and negative evidence. This evidence includes historical
taxable income, projected future taxable income, the expected timing of the reversal of existing temporary differences and the
implementation of tax planning strategies.
We recorded a valuation allowance of $66.8 million as of March 31, 2020 and $57.9 million as of March 31, 2019, related to
substantially all of our deferred income tax assets in jurisdictions where there is uncertainty as to the ultimate realization of a benefit
from those assets. In the event that we determine that we would be able to realize our deferred tax assets in the future in excess of our
33
net recorded amount, an adjustment to the tax valuation allowance would decrease tax expense in the period such determination was
made.
We recognize the tax benefit from uncertain tax positions only if it is more likely than not that the tax position will be sustained on
examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized from uncertain tax
positions are measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate
settlement. No tax benefits are recognized for positions that do not meet this threshold. Interest related to uncertain tax positions is
recognized as part of the provision for income taxes and is accrued beginning in the period that such interest would be applicable
under relevant tax law until such time that the related tax benefits are recognized. Our income taxes are described further in Note 9,
Income Taxes.
Leases. We determine if an arrangement is or contains a lease at inception. Operating leases are presented as Right-of-Use (“ROU”)
assets and the corresponding lease liabilities are included in operating lease liabilities – current and operating lease liabilities –
non-current on our Consolidated Balance Sheet. Finance leases are included in property and equipment, net and corresponding
liabilities are included in finance lease obligations – current and non-current on our Consolidated Balance Sheet. ROU assets represent
our right to use the underlying asset and lease liabilities represent our obligation for lease payments in exchange for the ability to use
the asset for the duration of the lease term.
ROU assets and lease liabilities are recognized at commencement date and determined suing the present value of the remaining lease
payments over the lease term. We use an incremental borrowing rate based on estimated rate of interest for collateralized borrowing
since our leases do not include an implicit interest rate. The estimated incremental borrowing rate considers market data, actual lease
economic environment, and actual lease term at commencement date. The lease term may include options to extend when it is
reasonably certain that we will exercise that option. ROU assets include lease payments made, and excludes any incentives received or
initial direct costs incurred. Lease expense is recognized on a straight-line basis over the lease term.
We have lease agreements with lease and non-lease components which we account for as a single lease component. We also have
leases which include variable lease payments, which are expensed as incurred. Our variable lease payments are not based on an index
or rate and therefore are exclude from the calculation of lease liabilities. We have elected to not recognize short term leases that have a
term of twelve months or less as ROU assets or lease liabilities. Our short-term leases are not material and do not have a material
impact on our ROU assets or lease liabilities. Additionally, we do not have any covenants, residual value guarantees, or related party
transactions associated with our lease agreements.
Goodwill and Other Indefinite-Lived Intangible Assets. Goodwill represents the excess purchase price paid over the fair value of the
net assets of acquired companies. Goodwill is tested for impairment on an annual basis, or in interim periods if indicators of potential
impairment exist. The Company is also required to compare the fair values of other indefinite-lived intangible assets to their carrying
amounts at least annually, or when current events and circumstances require an interim assessment. If the carrying amount of an
indefinite-lived intangible asset exceeds its fair value, an impairment loss is recognized.
Restructuring Charges. We recognize restructuring charges when a plan that materially changes the scope of our business, or the
manner in which that business is conducted, is adopted and communicated to the impacted parties, and the expenses have been
incurred or are reasonably estimable. Our restructuring reserves principally include estimates related to employee separation costs and
the consolidation and impairment of facilities that will no longer be used in continuing operations. Actual amounts could be different
from those estimated. Facility reserves are calculated using a present value of future minimum lease payments, offset by an estimate
for future sublease income provided by external brokers. Present value is calculated using a credit-adjusted risk-free rate with a
maturity equivalent to the lease term.
Share-Based Compensation. We have a stock incentive plan under which we may grant non-qualified stock options, incentive stock
options, stock-settled stock appreciation rights, time-vested restricted shares, restricted share units, performance-vested restricted
shares, and performance shares. Shares issued pursuant to awards under this plan may be made out of treasury or authorized but
unissued shares.
We record compensation expense related to stock options, stock-settled stock appreciation rights, 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 stock-settled appreciation right 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. The fair value for stock-settled appreciation right awards tied to a market condition are estimated using the
Lattice option pricing model which utilizes a binomial tree to forecast option pricing. Forfeitures of awards are recognized as they
occur. Additional information regarding the assumptions used to value share-based compensation awards is provided in Note 13,
Share-Based Compensation.
Capitalized Software Development Costs. The capitalization of software development cost for external use begins when a product’s
technological feasibility has been established. Capitalization ends when the resulting product is available for general market release.
Amortization of the capitalized software is classified within products cost of goods sold in the Consolidated Statements of Operations.
34
For each capitalized software product, the annual amortization is equal to the greater of: (i) the amount computed using the ratio that
the software product’s current fiscal year gross revenue bears to the total current fiscal year and anticipated future gross revenues for
that product or (ii) the amount computed based on straight-line method over the remaining estimated economic life of the product,
which is a range between three and eight years. The amount by which unamortized software costs exceeds the net realizable value, if
any, is recognized as a charge to income in the period it is determined. We did not capitalize any software development costs during
fiscal 2020. We capitalized approximately $2.0 million and $8.2 million during fiscal 2019 and 2018, respectively. Amortization of
developed capitalized software was $12.6 million, $12.6 million and $10.0 million during fiscal 2020, 2019 and 2018, respectively.
During the fourth quarter of fiscal 2020, the world pandemic related to COVID-19 and the resulting global economic environment
impacted the expected growth of revenue related to our rGuest suite of products. The unamortized costs exceeded the net realizable
value resulting in a charge to income during the fiscal year. Additional information regarding our intangible assets is provided in Note
5, Intangible Assets and Software Development Costs.
Adopted and Recently Issued Accounting Pronouncements
In March 2020, the Financial Accounting Standards Board ("FASB") issued ASU No. 2020-03, Codification Improvements to
Financial Instruments. ASU 2020-03 provides clarifications for questions and comments received regarding how changes to specific
guidance related to financial instruments as a result of ASU No. 2016-13 interacts with other areas of the codification. The guidance
was effective upon issuance of the ASU and correlates to the adoption of each of the applicable ASUs. Consistent with the
documentation below, we are still assessing the impact of the adoption of ASU 2016-13 and will apply applicable changes from ASU
2020-03 in the period of adoption.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes. ASU
2019-12 removes certain exceptions previously allowed in the standard and simplifies the accounting for income taxes by providing
additional guidance for certain tax situations. The update is effective for annual periods beginning after December 15, 2020, including
interim periods within those annual periods, with early adoption (including early adoption in any interim period) permitted. We do not
believe the adoption of this guidance will have a material impact on our consolidated financial statements.
In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses,
Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. ASU 2019-04 provides corrections, updates and
clarifications to the previously issued updates ASU 2016-13, ASU 2017-12 and ASU 2016-01. Various areas of the codification were
impacted from the update. The standard follows the effective dates of the previously issued ASUs, unless an entity has already early
adopted the previous ASUs, in which case the effective date will vary according to each specific ASU adoption. Consistent with the
documentation below, we are still assessing the impact of the adoption of ASU 2016-13, and the other two ASUs affected by ASU
2019-04 are not applicable to us. We are currently reviewing this standard to assess the impact on our future consolidated financial
statements.
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. The update is effective for annual
periods beginning after December 15, 2019, including interim periods within those annual periods, with early adoption (including
early adoption in any interim period) permitted. We do not believe the adoption of this guidance will have a material impact on our
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. The standard is effective for annual periods beginning after December 15,
2019, including interim periods within those annual periods. Early adoption is permitted. We do not believe the adoption of this
guidance will have a material impact on our consolidated financial statements.
In February 2018, the FASB issued ASU No. 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220). ASU
2018-02 addresses the effect of the change in the U.S. federal corporate tax rate on items within accumulated other comprehensive
income or loss due to the enactment of the Tax Act on December 22, 2017. The new standard is effective for annual periods, and for
interim periods within those annual periods, beginning after December 15, 2018, with early adoption permitted. We have adopted this
standard as of April 1, 2019. While we have elected to reclassify any amount out of other comprehensive income, we do not have any
amounts to reclassify and therefore the adoption had no impact on our 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 goodwill impairment to be measured as
35
the amount by which a reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of its goodwill. The
ASU is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. While we are
still assessing the impact of this standard, we do not believe the adoption of this guidance will have a material impact on our
consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326). This new standard changes the
impairment model for most financial assets and certain other instruments. Entities will be required to use a model that will result in the
earlier recognition of allowances for losses for trade and other receivables, held-to-maturity debt securities, loans, and other
instruments. For available-for-sale debt securities with unrealized losses, the losses will be recognized as allowances rather than as
reductions in the amortized cost of the securities. The new standard is effective for annual periods, and for interim periods within
those annual periods, beginning after December 15, 2019, with early adoption permitted. We are currently reviewing this standard to
assess the impact on our future consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires lessees to recognize assets and liabilities
for leases with lease terms of more than 12 months. Unlike Accounting Standard Codification Topic 840 (“Topic 840”), which
requires only capital leases to be recognized on the balance sheet, the new guidance requires both types of leases to be recognized on
the balance sheet. The most prominent change for lessees is the requirement to recognize both Right-of-Use (ROU) assets and lease
liabilities for leases classified as operating leases under Topic 840. We adopted Topic 842 as of April 1, 2019 using the current period
adjustment method of adoption. Refer to Note 6, Leases for further details.
Management continually evaluates the potential impact, if any, of all recent accounting pronouncements on our consolidated financial
statements or related disclosures and, if significant, makes the appropriate disclosures required by such new accounting
pronouncements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
We have assets, liabilities, and cash flows in foreign currencies creating foreign exchange risk. We sell products and services
internationally and enter into transactions denominated in foreign currencies. As a result, we are subject to the variability that arises
from exchange rate movements. For the fiscal years 2020, 2019 and 2018, revenue from international operations was 9%, 9% and 8%,
respectively of total revenue. The effects of foreign currency on operating results did not have a material impact on our results of
operations for the 2020, 2019 and 2018 fiscal years. Fluctuations in the value of other currencies, particularly the Indian Rupee, could
materially impact our revenue, expenses, operating profit and net income.
36
Item 8. Financial Statements and Supplementary Data.
Agilysys, Inc. and Subsidiaries
ANNUAL REPORT ON FORM 10-K
Year Ended March 31, 2020
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Reports of Independent Registered Public Accounting Firm - Grant Thornton LLP
Consolidated Balance Sheets as of March 31, 2020 and 2019
Consolidated Statements of Operations for the years ended March 31, 2020, 2019, and 2018
Consolidated Statements of Comprehensive Loss for the years ended March 31, 2020, 2019, and 2018
Consolidated Statements of Cash Flows for the years ended March 31, 2020, 2019 and 2018
Consolidated Statements of Shareholders' Equity for the years ended March 31, 2020, 2019, and 2018
Notes to Consolidated Financial Statements
Schedule II - Valuation and Qualifying Accounts for the years ended March 31, 2020, 2019, and 2018
Page
38
40
41
42
43
44
45
64
37
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
Agilysys, Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of Agilysys, Inc. (an Ohio corporation) and subsidiaries (the
“Company”) as of March 31, 2020 and 2019, the related consolidated statements of operations, comprehensive loss, shareholders’
equity, and cash flows for each of the three years in the period ended March 31, 2020, and the related notes and financial statement
schedule included under Item 15(a) (collectively referred to as the “financial statements”). In our opinion, the financial statements
present fairly, in all material respects, the financial position of the Company as of March 31, 2020 and 2019, and the results of its
operations and its cash flows for each of the three years in the period ended March 31, 2020, in conformity with accounting principles
generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(“PCAOB”), the Company’s internal control over financial reporting as of March 31, 2020, based on criteria established in the 2013
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(“COSO”), and our report dated May 22, 2020 expressed an unqualified opinion.
Change in Accounting Principle
As discussed in Note 2 to the financial statements, the Company has changed its method of accounting for leases as of April 1, 2019
due to the adoption of Accounting Standards Codification Topic 842, Leases.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to
be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe
that our audits provide a reasonable basis for our opinion.
/s/ GRANT THORNTON LLP
We have served as the Company's auditor since 2016.
Atlanta, Georgia
May 22, 2020
38
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
Agilysys, Inc.
Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of Agilysys, Inc. (an Ohio corporation) and subsidiaries (the “Company”)
as of March 31, 2020, based on criteria established in the 2013 Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of March 31, 2020, based on criteria established in the 2013 Internal
Control-Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(“PCAOB”), the consolidated financial statements of the Company as of and for the year ended March 31, 2020, and our report dated
May 22, 2020 expressed an unqualified opinion on those financial statements.
Basis for opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control
over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based
on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such
other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our
opinion.
Definition and limitations of internal control over financial reporting
A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect
on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ GRANT THORNTON LLP
Atlanta, Georgia
May 22, 2020
39
AGILYSYS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable, net of allowance for doubtful accounts of $1,634
and $788, respectively
Contract assets
Inventories
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Operating lease right-of-use assets
Goodwill
Intangible assets, net
Software development costs, net
Deferred income taxes, non-current
Other non-current assets
Total assets
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable
Contract liabilities
Accrued liabilities
Operating lease liabilities, current
Finance lease obligations, current
Total current liabilities
Deferred income taxes, non-current
Operating lease liabilities, non-current
Finance lease obligations, non-current
Other non-current liabilities
Commitments and contingencies (see Note 11)
Shareholders' equity:
Common shares, without par value, at $0.30 stated value; 80,000,000
shares authorized; 31,606,831 shares issued; and 23,609,398
and 23,501,193 shares outstanding at March 31, 2020
and March 31, 2019, respectively
Treasury shares, 7,997,433 and 8,105,638 at March 31, 2020
and March 31, 2019, respectively
Capital in excess of stated value
Retained earnings
Accumulated other comprehensive income (loss)
Total shareholders' equity
Total liabilities and shareholders' equity
As of March 31,
2020
2019
$
46,653 $
40,771
35,869
2,125
3,887
4,874
93,408
12,230
13,829
19,622
8,400
—
764
6,309
154,562 $
13,403 $
42,244
9,033
4,719
24
69,423
880
10,617
25
1,860
27,000
2,921
2,044
6,272
79,008
15,838
—
19,622
8,438
34,567
443
5,675
163,591
4,718
38,669
14,406
—
22
57,815
861
—
35
4,258
9,482
9,482
(2,401 )
5,491
58,984
201
71,757
154,562 $
(2,433 )
781
93,051
(259 )
100,622
163,591
$
$
$
See accompanying notes to consolidated financial statements.
40
AGILYSYS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Net revenue:
Products
Support, maintenance and subscription services
Professional services
Total net revenue
Cost of goods sold:
Products (inclusive of developed technology amortization)
Support, maintenance and subscription services
Professional services
Total cost of goods sold
Gross profit
Gross profit margin
Operating expenses:
Product development
Sales and marketing
General and administrative
Depreciation of fixed assets
Amortization of intangibles
Impairments
Restructuring, severance and other charges
Legal settlements, net
Total operating expense
Operating loss
Other (income) expense:
Interest income
Interest expense
Other expense (income), net
Loss before taxes
Income tax expense (benefit)
Net loss
Year Ended
March 31,
2019
2018
2020
$
44,230 $
83,680
32,847
160,757
39,003 $
75,496
26,343
140,842
33,699
69,068
24,593
127,360
36,427
19,248
24,130
79,805
80,952
50.4 %
41,463
19,864
24,374
2,574
2,541
23,740
582
(125 )
115,013
(34,061 )
(380 )
9
176
(33,866 )
201
(34,067 ) $
31,811
15,895
19,256
66,962
73,880
52.5 %
37,817
19,646
23,118
2,504
2,567
-
1,168
141
86,961
(13,081 )
(339 )
10
191
(12,943 )
221
(13,164 ) $
26,381
16,688
19,874
62,943
64,417
50.6 %
27,936
18,075
24,028
2,631
1,879
-
1,798
150
76,497
(12,080 )
(98 )
10
(391 )
(11,601 )
(3,251 )
(8,350 )
$
Weighted average shares outstanding - basic and diluted
23,233
23,037
22,801
Net loss per share - basic and diluted:
$
(1.47 ) $
(0.57 ) $
(0.37 )
See accompanying notes to consolidated financial statements.
41
AGILYSYS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
Net loss
Other comprehensive income (loss), net of tax:
Unrealized foreign currency translation adjustments
Total comprehensive loss
Year Ended
March 31,
2019
2020
2018
$
(34,067 ) $
(13,164 ) $
(8,350 )
$
460
(33,607 ) $
(4 )
(13,168 ) $
(51 )
(8,401 )
See accompanying notes to consolidated financial statements.
42
AGILYSYS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Operating activities
Net loss
Adjustments to reconcile net loss to net cash provided by operating activities:
Year Ended
March 31,
2019
2020
2018
$
(34,067 ) $
(13,164 ) $
(8,350 )
Impairments
(Gain) loss on disposal of property & equipment
Depreciation
Amortization of intangibles
Amortization of developed technology
Deferred income taxes
Share-based compensation
Accounts receivable
Contract assets
Inventories
Prepaid expense and other current assets
Accounts payable
Contract liabilities
Accrued liabilities
Income taxes payable
Other changes, net
Net cash provided by operating activities
Investing activities
Capital expenditures
Capitalized software development costs
Additional (investments in) corporate-owned life insurance policies
Net cash used in investing activities
Financing activities
Repurchase of common shares to satisfy employee tax withholding
Principal payments under long-term obligations
Net cash used in financing activities
Effect of exchange rate changes on cash
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
$
23,740
(5 )
2,574
2,541
12,561
(356 )
5,205
(8,974 )
794
(1,830 )
1,545
8,585
3,563
(4,227 )
(153 )
(921 )
10,575
(3,420 )
—
(27 )
(3,447 )
(1,092 )
(24 )
(1,116 )
(130 )
5,882
40,771
46,653 $
—
17
2,504
2,567
12,602
309
4,376
(7,536 )
1,662
(50 )
(1,158 )
(3,512 )
4,845
5,029
(564 )
(686 )
7,241
(3,318 )
(2,189 )
(27 )
(5,534 )
(647 )
(120 )
(767 )
(112 )
828
39,943
40,771 $
—
—
2,631
1,879
10,016
(3,085 )
4,688
(719 )
—
229
1,485
130
(2,448 )
653
(19 )
(216 )
6,874
(6,140 )
(8,918 )
(27 )
(15,085 )
(1,171 )
(124 )
(1,295 )
194
(9,312 )
49,255
39,943
See accompanying notes to consolidated financial statements.
43
AGILYSYS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except share data)
Balance at March 31, 2017
Cumulative effect of change in
accounting policy
Share based compensation
Restricted shares issued, net
Shares issued upon exercise of
stock options and SSARs
Shares withheld for taxes upon
exercise of stock options, SSARs
or vesting of restricted shares
Net loss
Unrealized translation adjustment
Balance at March 31, 2018
Cumulative effect of change in
accounting policy
Share based compensation
Restricted shares issued, net
Shares issued upon exercise of
stock options and SSARs
Shares withheld for taxes upon
exercise of stock options, SSARs
or vesting of restricted shares
Net loss
Unrealized translation adjustments
Balance at March 31, 2019
Share based compensation
Restricted shares issued, net
Shares issued upon exercise of
stock options and SSARs
Shares withheld for taxes upon
exercise of stock options, SSARs
or vesting of restricted shares
Net loss
Unrealized translation adjustments
Balance at March 31, 2020
Common Shares
Issued
In Treasury
Stated
Stated
value
value Shares
Shares
31,607 $ 9,482 (8,397 ) $ (2,519 ) $
Retained
earnings
(5,782 ) $ 112,692 $
Capital in
excess of
stated
value
Accumulated
other
comprehensive
income (loss) Total
—
—
—
—
—
—
—
—
213
—
—
64
741
4,463
(64 )
(741 )
—
—
(204 ) $ 113,669
—
—
— 4,463
—
—
—
—
8
2
(2 )
—
—
—
—
—
—
(33 )
—
—
31,607 $ 9,482 (8,283 ) $ (2,486 ) $
(107 )
—
—
—
—
—
(1,267 )
—
—
—
(8,350 )
—
(1,911 ) $ 103,601 $
—
—
—
—
—
—
—
—
180
—
—
54
—
3,971
(54 )
2,614
—
—
— (1,300 )
— (8,350 )
(51 )
(51 )
(255 ) $ 108,431
— 2,614
— 3,971
—
—
—
—
60
18
(18 )
—
—
—
—
—
—
—
—
—
(19 )
—
—
31,607 $ 9,482 (8,105 ) $ (2,433 ) $
—
41
(62 )
—
—
—
140
—
—
—
—
(1,207 )
—
—
781 $
5,682
(41 )
—
(13,164 )
—
93,051 $
—
—
— (1,226 )
— (13,164 )
(4 )
(4 )
(259 ) $ 100,622
— 5,682
—
—
—
—
21
6
(6 )
—
—
—
—
—
—
(15 )
—
—
31,607 $ 9,482 (7,997 ) $ (2,401 ) $
(53 )
—
—
—
—
—
(925 )
—
—
5,491 $
—
(34,067 )
—
58,984 $
—
(940 )
— (34,067 )
460
460
201 $ 71,757
See accompanying notes to consolidated financial statements.
44
Agilysys, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Table amounts in thousands, except per share data)
1. 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.
Reference herein to any particular year or quarter refers to periods within the fiscal year ended March 31. For example, fiscal 2020
refers to the fiscal year ended March 31, 2020.
COVID-19 Pandemic
During the fourth quarter ended March 31, 2020, concerns related to the spread of novel coronavirus (“COVID-19”) began to create
global business disruptions as well as disruptions in our operations and cause potential negative impacts on our revenues and other
financial results. COVID-19 was declared a pandemic by the World Health Organization on March 11, 2020. The extent to which
COVID-19 will impact our financial condition or results of operations is currently uncertain and depends on various factors, including
the impact on our customers, partners, and vendors and on the operation of the global markets in general. Because an increasing
portion of our business is based on a subscription model, the effect of COVID-19 on our results of operations may also not be fully
reflected for some time. The COVID-19 pandemic had a significant impact on our business as of March 31, 2020, and the twelve
month period then ended. As a result, we recorded impairments of our capitalized software development costs and certain internal use
software as of the balance sheet date due to triggering events identified as of year-end. We also increased our allowance for doubtful
accounts and our customer credit allowance due to the direct negative impact on our customers as of year-end.
2. Summary of Significant Accounting Policies
Principles of consolidation. The consolidated financial statements include the accounts of Agilysys, Inc. and subsidiaries. Investments
in affiliated companies are accounted for by the equity or cost method, as appropriate. All inter-company accounts have been
eliminated.
Use of estimates. Preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles
(“GAAP”) requires management to make estimates and assumptions. These estimates and assumptions 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. Actual results could differ from those estimates. In particular, the economic disruption related to the COVID-19 pandemic
had a material adverse impact on our results for the year ended March 31, 2020, and we expect it to continue to have a material
adverse impact on our results. As such, this annual period, as well as upcoming interim periods, are unlikely to be comparable to past
performance or indicative of future performance.
Cash and cash equivalents. We consider all highly liquid investments purchased with an original maturity from date of acquisition of
three months or less to be cash equivalents. Other highly liquid investments considered cash equivalents with no established maturity
date are fully redeemable on demand (without penalty) with settlement of principal and accrued interest on the following business day
after instruction to redeem. Such investments are readily convertible to cash with no penalty and can include certificates of deposit,
commercial paper, treasury bills, money market funds and other investments.
Allowance for doubtful accounts. We maintain allowances for doubtful accounts for estimated losses resulting from the inability or
unwillingness of our customers to make required payments. These allowances are based on both recent trends of certain customers
estimated to be a greater credit risk as well as historic trends of the entire customer pool. If the financial condition of our customers
were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. To mitigate
this credit risk we perform periodic credit evaluations of our customers.
Customer credit allowance. We maintain allowances for estimated customer credits. Credits are typically due to the timing or amount
of customer invoices processed for specific services, including professional and subscription, and maintenance coverage. In many
cases, there has not been clear or timely communication of the need to adjust coverage or service at a location in advance of when we
45
invoice for the associated coverage or service. We will issue a credit after agreeing to the service or coverage adjustment as requested
by the customer within the terms of our contract.
Inventories. Our inventories are comprised of finished goods. Inventories are stated at the lower of cost or net realizable value, net of
related reserves. The cost of inventory is computed using a weighted-average method. Our inventory is monitored to ensure
appropriate valuation. Adjustments of inventories to the lower of cost or net realizable value, if necessary, are based upon contractual
provisions such as turnover and assumptions about future demand and market conditions. If assumptions about future demand change
and/or actual market conditions are less favorable than those projected by management, additional adjustments to inventory valuations
may be required. We provide a reserve for obsolescence, which is calculated based on several factors, including an analysis of
historical sales of products and the age of the inventory. Actual amounts could be different from those estimated.
Leases. We determine if an arrangement is or contains a lease at inception. Operating leases are presented as Right-of-Use (“ROU”)
assets and the corresponding lease liabilities are included in operating lease liabilities – current and operating lease liabilities –
non-current on our Consolidated Balance Sheet. Finance leases are included in property and equipment, net and corresponding
liabilities are included in finance lease obligations – current and non-current on our Consolidated Balance Sheet. ROU assets represent
our right to use the underlying asset, and lease liabilities represent our obligation for lease payments in exchange for the ability to use
the asset for the duration of the lease term.
ROU assets and lease liabilities are recognized at commencement date and determined using the present value of the remaining lease
payments over the lease term. We use an incremental borrowing rate based on estimated rate of interest for collateralized borrowing
since our leases do not include an implicit interest rate. The estimated incremental borrowing rate considers market data, actual lease
economic environment, and actual lease term at commencement date. The lease term may include options to extend when it is
reasonably certain that we will exercise that option. ROU assets include lease payments made in advance, and excludes any incentives
received or initial direct costs incurred. Lease expense is recognized on a straight-line basis over the lease term.
We have lease agreements with lease and non-lease components which we account for as a single lease component. We also have
leases which include variable lease payments, which are expensed as incurred. Our variable lease payments are not based on an index
or rate and therefore are excluded from the calculation of lease liabilities. We have elected to not recognize short term leases that have
a term of twelve months or less as ROU assets or lease liabilities. Our short-term leases are not material and do not have a material
impact on our ROU assets or lease liabilities. Additionally, we do not have any covenants, residual value guarantees, or related party
transactions associated with our lease agreements.
Goodwill and Other Indefinite-Lived Intangible Assets. Goodwill represents the excess purchase price paid over the fair value of the
net assets of acquired companies. The carrying amount of goodwill was $19.6 million as of March 31, 2020 and 2019. Goodwill is
tested for impairment on an annual basis, or in interim periods if indicators of potential impairment exist. The Company evaluates
whether goodwill is impaired by comparing its market capitalization based on its closing stock price (Level 1 input) to the book value
of its equity on the annual evaluation date. Based on testing performed, the Company concluded that no impairment of its goodwill
has occurred for the years ended March 31, 2020, 2019 and 2018.
The Company is also required to compare the fair values of other indefinite-lived intangible assets to their carrying amounts at least
annually, or when current events and circumstances require an interim assessment. If the carrying amount of an indefinite-lived
intangible asset exceeds its fair value, an impairment loss is recognized.
Intangible assets. Purchased intangible assets with finite lives are primarily amortized using the straight-line method over the
estimated economic lives of the assets. Our finite-lived intangible assets are amortized over periods between two and eight years.
Customer relationships are amortized over estimated useful lives between two and seven years; non-competition agreements are
amortized over estimated useful lives between two and eight years; developed technology is amortized over estimated useful lives
between three and eight years; supplier relationships are amortized over estimated useful lives between two and eight years.
Long-lived assets. Property and equipment are recorded at cost. Major renewals and improvements are capitalized. Minor
replacements, maintenance, repairs, and reengineering costs are expensed as incurred. When assets are sold or otherwise disposed of,
the cost and related accumulated depreciation are eliminated from the accounts and any resulting gain or loss is recognized.
Depreciation and amortization are provided in amounts sufficient to amortize the cost of the assets, including assets recorded under
finance leases, which make up less than one percent of total assets, over their estimated useful lives using the straight-line method.
The estimated useful lives for depreciation and amortization are as follows: buildings and building improvements - 7 to 30 years;
furniture - 7 to 10 years; equipment - 3 to 10 years; software - 3 to 10 years; and leasehold improvements over the shorter of the
economic life or the lease term. Internal use software costs are expensed or capitalized depending on the project stage. Amounts
capitalized are amortized over the estimated useful lives of the software, ranging from 3 to 10 years, beginning with the project's
completion. Depreciation for capitalized project expenditures does not begin until the underlying project is completed.
46
We evaluate the recoverability of our long-lived assets whenever changes in circumstances or events may indicate that the carrying
amounts may not be recoverable. An impairment loss is recognized in the event the carrying value of the assets exceeds the future
undiscounted cash flows attributable to such assets. Our long-lived assets and impairments considerations are discussed further in
Note 4, Property and Equipment, net.
Foreign currency translation. The financial statements of our foreign operations are translated into U.S. dollars for financial reporting
purposes. The assets and liabilities of foreign operations whose functional currencies are not in U.S. dollars are translated at the
period-end exchange rates, while revenue and expenses are translated at weighted-average exchange rates during the fiscal year. The
cumulative translation effects are reflected as a component of “Accumulated other comprehensive loss” within shareholders' equity in
the Consolidated Balance Sheets. Gains and losses on monetary transactions denominated in other than the functional currency of an
operation are reflected within “Other (income) expenses, net” in the Consolidated Statements of Operations. Foreign currency gains
and losses from changes in exchange rates have not been material to our consolidated operating results.
Revenue recognition. We derive revenue from the sale of products (i.e., software, third party hardware and operating systems),
support, maintenance and subscription services and professional services. For the fiscal years 2020, 2019 and 2018, revenue from
international operations was 9%, 9% and 8%, respectively of total revenue. Our customer base is highly fragmented.
On April 1, 2018, we adopted ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), using the modified
retrospective method applied to those contracts that were not completed as of the adoption date. Results for reporting periods
beginning after the adoption date are presented under Topic 606, while prior period amounts are not adjusted and continue to be
reported in accordance with our historic accounting under prior guidance.
Revenue recognition under Topic 606
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 service 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 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 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 ship or 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
47
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 derive 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.
Comprehensive (loss) income. Comprehensive (loss) income is the total of net (loss) income, as currently reported under GAAP, plus
other comprehensive (loss) income. Other comprehensive (loss) income considers the effects of additional transactions and economic
events that are not required to be recorded in determining net (loss) income, but rather are reported as a separate statement of
comprehensive (loss) income.
Fair value measurements. We measure the fair value of financial assets and liabilities on a recurring or non-recurring basis. Financial
assets and liabilities measured on a recurring basis are those that are adjusted to fair value each time a financial statement is prepared.
Financial assets and liabilities measured on a non-recurring basis are those that are adjusted to fair value when a significant event
occurs. In determining fair value of financial assets and liabilities, we use various valuation techniques. Additional information
regarding fair value measurements is provided in Note 14, Fair Value Measurements.
Investments in corporate-owned life insurance policies. Agilysys invests in corporate-owned life insurance policies, for which some
are endorsement split-dollar life insurance arrangements. We entered into agreements with certain former executives, whereby we
must maintain the life insurance policy for a specified amount and split a portion of the policy benefits with their respective designated
beneficiary. Our investment in these corporate-owned life insurance policies were recorded at their cash surrender value, which
approximates fair value at the balance sheet date. In the Consolidated Balance Sheets at the balance sheet date, the cash surrender
value of $0.9 million for the remaining policies were held in “Other non-current assets,” and the present value of future proceeds owed
to those executives' designated beneficiary of $0.1 million, which approximates fair value, were recorded within "Other non-current
liabilities." Additional information regarding the investments in corporate-owned life insurance policies is provided in Note 10,
Employee Benefit Plans.
Income Taxes. Income tax expense includes U.S. and foreign income taxes and is based on reported income before income taxes. We
recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax
basis of assets and liabilities. The deferred tax assets and liabilities are determined based on the enacted tax rates expected to apply in
the periods in which the deferred tax assets or liabilities are anticipated to be settled or realized.
We regularly review our deferred tax assets for recoverability and establish a valuation allowance if it is more likely than not that
some portion, or all, of a deferred tax asset will not be realized. The determination as to whether a deferred tax asset will be realized is
made on a jurisdictional basis and is based on the evaluation of positive and negative evidence. This evidence includes historical
taxable income, projected future taxable income, the expected timing of the reversal of existing temporary differences and the
implementation of tax planning strategies.
We recognize the tax benefit from uncertain tax positions only if it is more likely than not that the tax position will be sustained on
examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized from uncertain tax
positions are measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate
settlement. No tax benefits are recognized for positions that do not meet this threshold. Interest related to uncertain tax positions is
recognized as part of the provision for income taxes and is accrued beginning in the period that such interest would be applicable
under relevant tax law until such time that the related tax benefits are recognized. Our income taxes are described further in Note 9,
Income Taxes.
Capitalized Software Development Costs. The capitalization of software development cost for external use begins when a product’s
technological feasibility has been established. Capitalization ends when the resulting product is available for general market release.
Amortization of the capitalized software is classified within products cost of goods sold in the Consolidated Statements of Operations.
For each capitalized software product, the annual amortization is equal to the greater of: (i) the amount computed using the ratio that
48
the software product’s current fiscal year gross revenue bears to the total current fiscal year and anticipated future gross revenues for
that product or (ii) the amount computed based on straight-line method over the remaining estimated economic life of the product,
which is a range between three and eight years. Annually, or more frequent as required by triggering events, an analysis of the net
realizable value of the capitalized software is completed and the amount by which unamortized software costs exceeds the net
realizable value, if any, is recognized as a charge to income in the period it is determined. See further discussion regarding our
capitalized software development costs in Note 5, Intangible Assets and Software Development Costs.
Advertising and Promotion Expense. We expense advertising and promotion expense as incurred. Advertising and promotion expense
was $2.7 million, $2.0 million and $2.7 million in fiscal 2020, 2019 and 2018, respectively.
Reclassification. Certain prior year balances have been reclassed to conform to the current year presentation. Specifically, we
reclassed certain employee benefit obligations from current to non-current liabilities.
Adopted and Recently Issued Accounting Pronouncements
In March 2020, the Financial Accounting Standards Board ("FASB") issued ASU No. 2020-03, Codification Improvements to
Financial Instruments. ASU 2020-03 provides clarifications for questions and comments received regarding how changes to specific
guidance related to financial instruments as a result of ASU No. 2016-13 interacts with other areas of the codification. The guidance
was effective upon issuance of the ASU and correlates to the adoption of each of the applicable ASUs. Consistent with the
documentation below, we are still assessing the impact of the adoption of ASU 2016-13 and will apply applicable changes from ASU
2020-03 in the period of adoption.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes. ASU
2019-12 removes certain exceptions previously allowed in the standard and simplifies the accounting for income taxes by providing
additional guidance for certain tax situations. The update is effective for annual periods beginning after December 15, 2020, including
interim periods within those annual periods, with early adoption (including early adoption in any interim period) permitted. We do not
believe the adoption of this guidance will have a material impact on our consolidated financial statements.
In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses,
Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. ASU 2019-04 provides corrections, updates and
clarifications to the previously issued updates ASU 2016-13, ASU 2017-12 and ASU 2016-01. Various areas of the codification were
impacted from the update. The standard follows the effective dates of the previously issued ASUs, unless an entity has already early
adopted the previous ASUs, in which case the effective date will vary according to each specific ASU adoption. Consistent with the
documentation below, we are still assessing the impact of the adoption of ASU 2016-13, and the other two ASUs affected by ASU
2019-04 are not applicable to us. We are currently reviewing this standard to assess the impact on our future consolidated financial
statements.
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. The update is effective for annual
periods beginning after December 15, 2019, including interim periods within those annual periods, with early adoption (including
early adoption in any interim period) permitted. We do not believe the adoption of this guidance will have a material impact on our
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. The standard is effective for annual periods beginning after December 15,
2019, including interim periods within those annual periods. Early adoption is permitted. We do not believe the adoption of this
guidance will have a material impact on our consolidated financial statements.
In February 2018, the FASB issued ASU No. 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220). ASU
2018-02 addresses the effect of the change in the U.S. federal corporate tax rate on items within accumulated other comprehensive
income or loss due to the enactment of the Tax Act on December 22, 2017. The new standard is effective for annual periods, and for
interim periods within those annual periods, beginning after December 15, 2018, with early adoption permitted. We have adopted this
standard as of April 1, 2019. While we have elected to reclassify any amount out of other comprehensive income, we do not have any
amounts to reclassify and therefore the adoption had no impact on our 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 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. The
ASU is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. While we are
49
still assessing the impact of this standard, we do not believe the adoption of this guidance will have a material impact on our
consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326). This new standard changes the
impairment model for most financial assets and certain other instruments. Entities will be required to use a model that will result in the
earlier recognition of allowances for losses for trade and other receivables, held-to-maturity debt securities, loans, and other
instruments. For available-for-sale debt securities with unrealized losses, the losses will be recognized as allowances rather than as
reductions in the amortized cost of the securities. The new standard is effective for annual periods, and for interim periods within
those annual periods, beginning after December 15, 2019, with early adoption permitted. We are currently reviewing this standard to
assess the impact on our future consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires lessees to recognize assets and liabilities
for leases with lease terms of more than 12 months. Unlike Accounting Standard Codification Topic 840 (“Topic 840”), which
requires only capital leases to be recognized on the balance sheet, the new guidance requires both types of leases to be recognized on
the balance sheet. The most prominent change for lessees is the requirement to recognize both Right-of-Use (ROU) assets and lease
liabilities for leases classified as operating leases under Topic 840. We adopted Topic 842 as of April 1, 2019 using the current period
adjustment method of adoption. Refer to Note 6, Leases for further details.
Management continually evaluates the potential impact, if any, of all recent accounting pronouncements on our consolidated financial
statements or related disclosures and, if significant, makes the appropriate disclosures required by such new accounting
pronouncements.
3. Revenue Recognition
On April 1, 2018, we adopted ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), using the modified
retrospective method applied to those contracts that were not completed as of the adoption date. Results for reporting periods
beginning after the adoption date are presented under Topic 606, while prior period amounts are not adjusted and continue to be
reported in accordance with our historic accounting under prior guidance. For in depth discussion regarding our revenue recognition
procedures for our revenue streams, see Note 2, Summary of Significant Accounting Policies.
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 $44.2
million, $39.0 million, and $33.7 million during fiscal 2020, 2019 and 2018. Revenue recognized over time (support, maintenance and
subscription services and professional services) totaled $116.5 million, $101.8 million, and $93.7 million during fiscal 2020, 2019 and
2018.
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 $37.0 million and $33.1 million
during fiscal 2020 and 2019. During fiscal 2020 and 2019, we transferred from contract assets at the beginning of the period, $2.8
million and $4.6 million, respectively, to accounts receivable because the right to the transaction became unconditional.
Our arrangements are for a period of one year or less. As a result, unsatisfied performance obligations as of March 31, 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. For first year support and maintenance service contracts, commission expenses
50
are immaterial and therefore expenses as incurred. Other sales commission expenses are not material or have a period of benefit of one
year or less, and are therefore expensed as incurred in line with the practical expedient elected.
As part of our 606 transition adjustments, we capitalized $1.9 million of sales incentive costs incurred in prior periods as of April 1,
2018. We had $3.2 million and $3.3 million of capitalized sales incentive costs as of March 31, 2020 and 2019, respectively. These
balances are included in other non-current assets on our Consolidated Balance Sheet. During fiscal 2020 and 2019, we expensed $4.7
million and $4.5 million, respectively, of sales commission, which included amortization of capitalized amounts of $1.4 million and
$1.1 million, respectively. These expenses are included in operating expenses – sales and marketing in our Consolidated Statement of
Operations. All other costs to obtain a contract are not considered incremental and therefore are expensed as incurred.
Financial Statement Impact of Adoption on Previously Reported Results
We adopted Topic 606 using the modified retrospective method beginning fiscal 2019. The cumulative impact of applying the new
guidance to all contracts with customers that were not completed as of April 1, 2018 was recorded as an adjustment to retained
earnings as of the adoption date. As a result of applying the modified retrospective method to adopt the new standard, we also
impacted accounts receivable, net, contract assets, prepaid expenses and other current assets, other non-current assets, contract
liabilities and retained earnings on our Consolidated Balance Sheet as of April 1, 2018.
The acceleration of revenue that was deferred under prior guidance as of the adoption date was primarily attributable to the
requirement of Topic 606 to allocate the transaction price to the performance obligations in the contract on a relative basis using SSP
rather than allocating under the residual method, which allocates the entire arrangement discount to the delivered performance
obligations.
Due to the Company's full valuation allowance as of the adoption date, there was no tax impact associated with the adoption of Topic
606.
We made certain presentation changes to our Consolidated Balance Sheet on April 1, 2018 to comply with Topic 606. Prior to
adoption of the new standard, we offset accounts receivable and contract liabilities (previously presented as deferred revenue on our
Consolidated Balance Sheet) for unpaid deferred performance obligations included in contract liabilities. Under the new standard, we
record accounts receivable and related contract liabilities for non-cancelable contracts with customers when the right to consideration
is unconditional. Upon adoption, the right to consideration in exchange for goods or services that have been transferred to a customer
when that right is conditional on something other than the passage of time were reclassified from accounts receivable to contract
assets.
4. Property and Equipment, Net
Property and equipment at March 31, 2020 and 2019 is as follows:
(In thousands)
Furniture and equipment
Software
Leasehold improvements
Project expenditures not yet in use
Accumulated depreciation and amortization
Impairments
Property and equipment, net
Year ended March 31,
2020
2019
$
$
14,358 $
17,136
7,012
50
38,556
(24,592 )
(1,734 )
12,230 $
11,604
16,427
6,981
1,014
36,026
(20,188 )
—
15,838
51
Total depreciation expense on property and equipment was $2.6 million, $2.5 million, and $2.6 million during fiscal 2020, 2019 and
2018, respectively.
The Company capitalizes internal-use software, including software used exclusively in providing services or that is only made
available to customers as a software service, as property and equipment under ASC 350-40, Internal-Use Software. Total amortization
expense on capitalized internal-use software was $2.5 million, $2.5 million and $1.8 million during fiscal 2020, 2019, and 2018,
respectively. The global economic impact of the COVID-19 pandemic triggered management to review property and equipment held
by the Company for indicators of impairment. The carrying value of our capitalized costs for internal-use software related to our
rGuest Seat solution did not exceed the estimated undiscounted cash flows, and utilizing a market approach, was determined to be
fully impaired, resulting in $1.7 million of asset impairment charges in the Consolidated Statement of Operations during the fiscal
year ended March 31, 2020.
Assets under financing leases are included in property and equipment categories above and further disclosed with Note 6. Leases.
5. Intangible Assets and Software Development Costs
The following table summarizes our intangible assets and software development costs at March 31, 2020, and 2019:
2020
2019
(In thousands)
Amortized intangible assets:
Customer relationships
Non-competition agreements
Developed technology
Trade names
Patented technology
Trade names
Total intangible assets
(In thousands)
Software development costs
Net
Gross
carrying carrying Accumulated carrying
carrying Accumulated
amount amortization Impairment amount amount amortization amount
Gross
Net
$ 10,775 $
2,700
10,398
230
80
24,183
8,400
$ 32,583 $
(10,775 ) $
(2,700 )
(10,398 )
(230 )
(80 )
(24,183 )
N/A
(24,183 ) $
- $
—
—
—
—
—
—
- $
- $ 10,775 $
—
2,700
— 10,398
—
230
—
80
— 24,183
8,400
8,400
8,400 $ 32,583 $
(10,775 ) $
(2,700 )
(10,398 )
(192 )
(80 )
(24,145 )
N/A
(24,145 ) $
-
—
—
38
—
38
8,400
8,438
$ 67,541 $
(45,535 ) $
(22,006 ) $
- $ 67,541 $
(32,974 ) $ 34,567
Indefinite-lived intangible assets, comprised of our purchased trade name InfoGenesis™ as of March 31, 2020 and 2019 are tested for
impairment upon identification of impairment indicators or at least annually. An impairment loss is recognized if the carrying amount
is greater than fair value. The InfoGenesis™ indefinite-lived purchased trade name impairment testing resulted in a fair value
exceeding the carrying amount for the years ending March 31, 2020, 2019 and 2018.
Management compares the unamortized capitalized software development costs for each external use product to its net realizable
value by analyzing critical inputs such as costs necessary to bring the software to market, costs necessary to maintain the software, life
of the software, and market capacity. 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. The impact of the COVID-19 pandemic on the
hospitality industry resulted in economic conditions which make 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 period reduced the carry value of capitalized
software development costs to zero with no remaining amortization expense to be recognized in future periods.
Amortization expense related to software development costs related to assets to be sold, leased, or otherwise marketed was $12.6
million, $12.6 million and $10.0 million for the fiscal years ended March 31, 2020, 2019 and 2018, respectively. These charges are
included as Products cost of goods sold within the Consolidated Statements of Operations. Amortization expense relating to other
definite-lived intangible assets was $38,000 for the fiscal year end March 31, 2020 and $46,000 for the fiscal years ended March 31,
2019 and 2018. These charges are classified as operating expenses within the Consolidated Statements of Operations.
Capitalized software development costs are carried on our balance sheets at net realizable value, net of accumulated amortization. We
did not capitalize any software development costs during fiscal 2020. We capitalized approximately $2.0 million and $8.2 million
during fiscal 2019 and 2018, respectively.
52
6. Leases
We adopted Topic 842 on April 1, 2019 using the current period adjustment method of adoption to recognize leases with a duration
greater than 12 months on the balance sheet. The impact of adoption on April 1, 2019 was recognition of operating lease liabilities of
$16.3 million and related Right-of-Use (“ROU”) assets of $13.8 million. Prior period financial statements have not been restated and
therefore the comparative amounts are not presented below or on the Consolidated Balance Sheets as of March 31, 2019. For
operating leases with a term greater than 12 months, we have recorded the lease liability at the present value of lease payments over
the remaining lease term and the related ROU asset. The remaining lease term has been determined for each lease considering factors
such as renewal options, termination options, our Company’s historical practices in exercising such options, and current business
knowledge which may impact lease related decisions. The majority of our leases are comprised of real estate leases for our respective
offices around the globe. Our finance leases consist of office equipment. We have no residual value guarantees or restrictions or
covenants imposed by, or associated with our active leases. Since our current leases do not provide an implicit rate of return, our
incremental borrowing rates used to determine the value of lease payments in implementation are estimated as of April 1, 2019, based
on collateralized rates for a term similar to each remaining lease term.
We have elected the package of practical expedients permitted under the transition guidance which includes the ability to carryforward
the previously determined lease classification (operating or finance), forgo the assessment whether active contracts contain a lease,
and whether capitalized costs associated with a lease meet the definition of “initial direct costs” as defined within Topic 842. In the
event that any of our leases contain nonlease components, we have elected the practical expedient to account for each separate lease
component and the associated nonlease component(s) as a single lease component. We have also elected the accounting policy to
forgo applying the guidance of Topic 842 to short term leases (defined as a term of 12 months or less, without a purchase option
which we are reasonably certain to exercise).
As of March 31, 2020, we do not have any leases which have not yet commenced. We do not have any related party leases or sublease
arrangements. We have variable payments for expenses such as common area maintenance and taxes. We do not have variable
payments that are based on an index or rate. As a result, we do not include variable payments in the calculation of the lease liability.
Any variable costs are expensed as incurred.
The components of lease expenses for the fiscal 2020 period were as follows:
(in thousands)
Operating leases expense
Finance lease expense:
Amortization of ROU assets
Interest on lease liabilities
Total finance lease expense
Variable lease costs
Short term lease expense
Total lease expense
Year Ended
March 31, 2020
$
$
4,193
23
6
29
271
88
4,581
53
Other information related to leases for fiscal 2020 was as follows:
Supplemental cash flow information
Cash paid for amounts included in the measurement of lease liabilities
(in thousands):
Operating cash flows for operating leases
Operating cash flows for finance leases
Financing cash flows for finance leases
ROU assets obtained in exchange for lease obligations (in thousands):
Operating leases
Finance leases
Weighted average remaining lease terms
Operating leases
Finance leases
Weighted average discount rates
Operating leases
Finance leases
Year Ended
March 31, 2020
$
$
4,873
8
24
2,734
17
5.04
2.16
10.37 %
4.38 %
The table below reconciles the undiscounted future minimum lease payments (displayed by year and in the aggregate) under
non-cancelable leases with terms of more than one year to the total lease liabilities recognized on the Consolidated Balance Sheet as of
March 31, 2020:
Year ending (in thousands)
2021
2022
2023
2024
2025
Thereafter
Total undiscounted future minimum lease payments
Less: difference between undiscounted lease payments and discounted lease
liabilities
Total lease liabilities
Operating leases Finance leases
4,927 $
$
4,207
2,855
2,685
2,083
3,901
20,658
29
21
5
2
—
—
57
$
(5,322 )
15,336 $
(8 )
49
As previously disclosed on our March 31, 2019 Form 10-K and under the previous lease accounting standard, future minimum lease
payments under non-cancelable leases as of March 31, 2019 were as follows:
Operating leases Finance leases
4,143 $
$
3,945
3,166
1,916
1,770
4,497
19,437
—
19,437 $
27
23
15
—
—
—
65
(8 )
57
$
Year ending (in thousands)
2020
2021
2022
2023
2024
Thereafter
Total lease payments
Less: Amounts representing interest
Present value of lease liabilities
54
7. Supplemental Disclosures of Cash Flow Information
Additional information related to the Consolidated Statements of Cash Flows is as follows:
(In thousands)
Cash (receipts) for interest, net
Cash payments (receipts) for income tax, net
Acquisition of property and equipment under lease obligations
Accrued capital expenditures
Accrued capitalized software development costs
Leasehold improvements acquired under operating lease arrangement
8. Additional Balance Sheet Information
$
2020
Year ended March 31,
2019
2018
(371 ) $
694
17
187
—
—
(329 ) $
409
—
56
—
62
(88 )
(227 )
64
83
201
95
Additional information related to the Consolidated Balance Sheets is as follows:
(In thousands)
Accrued liabilities:
Salaries, wages, and related benefits
Other taxes payable
Accrued legal settlements
Severance liabilities
Professional fees
Deferred rent
Other
Total
Other non-current liabilities:
Uncertain tax positions
Deferred rent and asset retirement obligations
Employee benefit obligations
Other
Total
9. Income Taxes
March 31, 2020
March 31, 2019
$
$
$
$
6,945 $
1,649
—
32
50
—
357
9,033 $
1,103 $
170
511
76
1,860 $
12,443
1,041
15
46
67
273
521
14,406
1,083
2,613
486
76
4,258
For the year ended March 31, loss before income taxes consisted of the following:
(In thousands)
(Loss) before income taxes
United States
Foreign
Total loss before income taxes
2020
2019
2018
$
$
(36,373 ) $
2,507
(33,866 ) $
(13,621 ) $
678
(12,943 ) $
(11,926 )
325
(11,601 )
For the year ended March 31, income tax expense (benefit) consisted of the following:
(In thousands)
Income tax expense (benefit)
Current:
Federal
State and local
Foreign
Deferred:
Federal
State and local
Foreign
Total income tax expense (benefit)
2020
2019
2018
$
$
59 $
21
463
11
7
(360 )
201 $
54 $
(383 )
514
79
277
(320 )
221 $
66
(446 )
73
(2,985 )
41
—
(3,251 )
55
The following table presents the principal components of the difference between the effective tax rate to the U.S. federal statutory
income tax rate for the years ended March 31:
(In thousands)
Income tax benefit at the US Federal statutory rate
Benefit for state taxes
Impact of foreign operations
Indefinite life assets
Change in valuation allowance
Change in liability for unrecognized tax benefits
Impact of Tax Act, net
Share-based compensation
Global intangible low-taxed income
Other
Total income tax expense (benefit)
2020
2019
2018
(7,112 ) $
(856 )
(514 )
19
8,406
22
—
(312 )
460
88
201 $
(2,718 ) $
(304 )
(310 )
130
3,302
(400 )
226
2
94
199
221 $
(3,654 )
(642 )
38
335
3,328
40
(3,287 )
476
—
115
(3,251 )
$
$
We have elected to account for global intangible low-taxed income (GILTI) inclusions in the period in which they are incurred.
Our tax provision includes a provision for income taxes in certain foreign jurisdictions where subsidiaries are profitable, but only a
minimal benefit is reflected related to U.S. and certain foreign tax losses due to the uncertainty of the ultimate realization of future
benefits from these losses. The fiscal 2020 tax provision results primarily from foreign tax expense. The fiscal 2020 tax provision
differs from the statutory rate primarily due to the recognition of net operating losses as deferred tax assets, which were offset by
increases in the valuation allowance, state taxes and other U.S. permanent book to tax differences.
The fiscal 2019 tax provision primarily results from foreign tax expense, the reversal of reserves for uncertain tax positions and the
completion of our accounting for the Tax Act. The fiscal 2019 effective rate differs from the statutory rate primarily due to the impact
of the Tax Act, recognition of net operating losses as deferred tax assets, which were offset by increases in the valuation allowance,
certain foreign and state tax effects.
Deferred tax assets and liabilities as of March 31, are as follows:
(In thousands)
Deferred tax assets:
Accrued liabilities
Allowance for doubtful accounts
Inventory valuation reserve
Federal losses and credit carryforwards
Foreign losses and credit carryforwards
State losses and credit carryforwards
Deferred revenue
Property and equipment and software amortization
Operating lease liabilities
Goodwill and other intangible assets
Other
Less: valuation allowance
Total
Deferred tax liabilities:
Operating lease right-of-use assets
Property and equipment and software amortization
Goodwill and other intangible assets
Other
Total
Total deferred tax liabilities
56
2020
2019
$
$
3,059 $
331
—
47,218
1,523
10,911
582
163
1,297
4,914
88
70,086
(66,819 )
3,267
(948 )
—
(2,426 )
(9 )
(3,383 )
(116 ) $
3,944
120
41
44,811
1,146
9,886
488
—
—
—
65
60,501
(57,852 )
2,649
—
(361 )
(2,706 )
—
(3,067 )
(418 )
At March 31, 2020, we had $199.1 million of federal net operating loss carryforwards that expire, if unused, in fiscal years 2031 to
2038, and $24.7 million of federal net operating loss carryforwards that can be carried forward indefinitely. Our Hong Kong,
Malaysia, and Singapore subsidiaries have $0.4 million, $0.1 million, and $0.3 million of net operating loss carryforwards,
respectively. The losses for Hong Kong, Malaysia and Singapore can be carried forward indefinitely. At March 31, 2020, our India
subsidiary had $0.8 million of minimum alternative tax credits reported as other noncurrent assets on our Consolidated Balance Sheet.
Our India subsidiary operates in a “Special Economic Zone (“SEZ”)”. One of the benefits associated with the SEZ is that the India
subsidiary is not subject to regular India income taxes during its first 5 years of operations which includes fiscal 2018 through fiscal
2022. The India subsidiary is then subject to 50% of regular India income taxes during the second five years of operations which
includes fiscal 2023 through fiscal 2027. The aggregate value of the benefit of the SEZ during the current fiscal year is $0.8 million.
At March 31, 2020 we also had $141.6 million of state net operating loss carryforwards that expire, if unused, in fiscal years 2021
through 2040.
We recorded valuation allowances related to certain deferred income tax assets due to the uncertainty of the ultimate realization of the
future benefits from those assets. At March 31, 2020, the total valuation allowance against deferred tax assets of $66.8 million was
comprised of $65.9 million for federal and state deferred tax assets, and $0.9 million associated with deferred tax assets in Hong
Kong, Malaysia, Singapore and the Philippines. In assessing the realizability of deferred tax assets, management considers whether it
is more-likely-than-not that some, or all, of the deferred tax assets will not be realized. We have recorded a valuation allowance
offsetting substantially all of our deferred tax assets. 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. Management considers the scheduled reversal
of deferred tax liabilities (including the impact of available carryback and carryforward periods), projected taxable income, and tax
planning strategies in making this assessment. In order to fully realize the deferred tax assets, we will need to generate future taxable
income before the expiration of the deferred tax assets governed by the tax code. Because of our losses in current and prior periods,
management believes that it is more-likely-than-not that we will not realize the benefits of these deductible differences. The amount of
the valuation allowance, however, could be reduced in the near term. The exact timing will be based on the level of profitability that
we are able to achieve and our visibility into future results. Our recorded tax rate may increase in subsequent periods following a
valuation release. Any valuation allowance release will not affect the amount of cash paid for income taxes.
The undistributed earnings of our foreign subsidiaries are not subject to U.S. federal and state income taxes unless such earnings are
distributed in the form of dividends or otherwise to the extent of current and accumulated earnings and profits. The undistributed
earnings of foreign subsidiaries are permanently reinvested and totaled $6.3 million and $3.1 million as of March 31, 2020 and 2019,
respectively. We made the determination of permanent reinvestment on the basis of sufficient evidence that demonstrates we will
invest the undistributed earnings overseas indefinitely for use in working capital, as well as foreign acquisitions and expansion. The
determination of the amount of the unrecognized deferred U.S. income tax liability related to the undistributed earnings is not
practicable.
We recorded a liability for unrecognized tax positions. The aggregate changes in the balance of our gross unrecognized tax benefits
were as follows for the years ended March 31:
(In thousands)
Balance at April 1
Reductions:
Relating to positions taken during prior year
Relating to lapse in statute
Balance at March 31
2020
2019
2018
$
580 $
687 $
988
—
(5 )
575 $
—
(107 )
580 $
(300 )
(1 )
687
$
As of March 31, 2020, we had a liability of $0.6 million related to uncertain tax positions, the recognition of which would affect our
effective income tax rate.
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 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.
We recognize interest accrued on any unrecognized tax benefits as a component of income tax expense. Penalties are recognized as a
component of general and administrative expenses. We recognized interest and penalty expense of less than $0.1 million for the years
ended March 31, 2020, 2019 and 2018. As of March 31, 2020 and 2019, we had approximately $0.5 million and $0.5 million,
respectively, of interest and penalties accrued in other non-current liabilities on our Consolidated Balance Sheets.
In the U.S. we file consolidated federal and state income tax returns where statutes of limitations generally range from three to five
years. Although we have resolved examinations with the IRS through tax year ended March 31, 2010, U.S. federal tax years are open
from 2006 forward due to attribute carryforwards. The statute of limitations is open from fiscal year 2013 forward in certain state
jurisdictions. We also file income tax returns in international jurisdictions where statutes of limitations generally range from three to
seven years. Years beginning after 2009 are open for examination by certain foreign taxing authorities.
57
The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”)
On March 27, 2020, President Trump signed into law the CARES Act. The CARES Act includes provisions addressing the carryback
of net operating losses for specific periods, refunds of alternative minimum tax credits, temporary modification to the limitation placed
on the tax deductibility of net interest expenses, and technical amendments for qualified improvement property. Additionally, the
CARES Act provides, among other provisions, for the deferral of the employer-paid portion of social security taxes through the end of
2020, with 50% of the deferred amount due December 31, 2021 and the remaining 50% due December 31, 2022; the CARES Act also
provides for certain employee retention tax credits.
As of March 31, 2020, these provisions are expected to provide us with approximately $0.1 million of additional liquidity during the
current year due to the ability to accelerate outstanding alternative minimum tax credit refunds. Due to the net loss position of the
Company, we do not anticipate impacts from net loss carryback or deductibility provisions. We are currently deferring the
employer-paid portion of social security taxes but do not currently anticipate qualifying for employee retention tax credits at this time.
Separate from the CARES Act, the IRS extended the dates for estimated tax payments for the first and second calendar quarters of
2020 to July 15, 2020. Further, many states are offering similar deferrals of various classes of tax payments. Due to the net loss
position of the Company, we do not anticipate material federal or state tax payment deferrals.
Significant uncertainty exists regarding the magnitude and duration of the impact of the COVID-19 pandemic; therefore, we cannot
predict at this time the ultimate extent of its impact on our business operations, financial results and resulting effects to income taxes
in future periods. See Part II, Item 1A. of this Annual Report for further discussion regarding risks associated with the COVID-19
pandemic.
10. Employee Benefit Plans
Defined Contribution Plans
We maintain 401(k) plans for employees located in the United States meeting certain service requirements. Generally, the plans allow
eligible employees to contribute a portion of their compensation, and we match 100% of the first 1% of the employee's pre-tax
contributions and 50% of the next 5% of the employee's pre-tax contributions. We may also make discretionary contributions each
year for the benefit of all eligible employees under the plans. Agilysys matching contributions were $1.8 million, $1.6 million, and
$1.7 million in fiscal 2020, 2019, and 2018, respectively.
We also maintain defined contribution retirement plans for employees located in the United Kingdom and in the Asia Pacific region in
accordance with local statutory requirements and business practices.
Defined Benefit Plan
We maintain a defined benefit retirement plan (the “Gratuity Plan”) covering eligible employees of our India subsidiary in accordance
with local statutory requirements and business practices. The Gratuity Plan provides a lump-sum payment to vested employees at
retirement, death, incapacitation, or termination of employment, of an amount based on the respective employee’s salary and the
tenure of employment with the Company. The Gratuity Plan is unfunded with obligation amounts recorded in the Consolidated
Balance Sheets as “Employee benefit obligations” within “Other non-current liabilities.”
Endorsement Split-Dollar Life Insurance
Agilysys provides certain former executives with life insurance benefits through endorsement split-dollar life insurance arrangements.
We entered into agreements with each of the former executives, whereby we must maintain the life insurance policy for a specified
amount and split a portion of the policy benefits with their designated beneficiary.
Our investment in these corporate-owned life insurance policies were recorded at their cash surrender value, which approximates fair
value at the balance sheet date. In the Consolidated Balance Sheets as of March 31, 2020 and 2019, the cash surrender value of $0.9
million for the remaining policies were held in “Other non-current assets,” and the present value of future proceeds owed to those
executives' designated beneficiaries of $0.1 million, which approximates fair value, were recorded within "Other non-current
liabilities."
Changes in the cash surrender value of these policies related to gains and losses incurred on these investments are classified within
“Other (income) expenses, net” in the accompanying Consolidated Statements of Operations. We recorded a gain of $14,000, $15,000
and $17,000 in fiscal 2020, 2019, and 2018, respectively, related to the corporate-owned life insurance policies.
58
11. Commitments and Contingencies
Legal 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 for the 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. Most of the patents at issue in the case
were invalidated by the U.S. Court of Appeals for the Federal Circuit in 2016. Cases against us and our co-defendants remained
pending in the District Court with respect to one surviving Ameranth patent. In September 2018, the District Court found that patent
invalid, and granted summary judgment in favor of the movant co-defendants. In early 2019, Ameranth appealed the District Court's
summary judgment ruling to the U.S. Court of Appeals for the Federal Circuit. 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. Shortly thereafter, Ameranth moved for a rehearing en banc, which was denied in February 2020. 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 judgment 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.
12. 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.
(In thousands, except per share data)
Numerator:
Net loss
Denominator:
2020
Year ended March 31,
2019
2018
$
(34,067 ) $
(13,164 ) $
(8,350 )
Weighted average shares outstanding - basic and diluted
23,233
23,037
22,801
Loss per share - basic and diluted:
Net loss per share-basic and diluted
$
(1.47 ) $
(0.57 ) $
(0.37 )
Anti-dilutive stock options, SSARs, restricted shares and performance shares
1,510
1,433
756
Basic earnings (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 208,581, 300,437 and
334,817 of restricted shares and performance shares at March 31, 2020, 2019 and 2018, respectively, as these shares were issued but
were not vested and, therefore, not considered outstanding for purposes of computing basic earnings per share at the balance sheet
dates.
Diluted earnings (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. In addition, when a net loss is reported, adjusting the
denominator of diluted earnings per share would also be anti-dilutive to the loss per share, even if the entity has net income after
adjusting for a discontinued operation. Therefore, for all periods presented, basic weighted-average shares outstanding were used in
calculating the diluted net loss per share.
59
13. 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 (the 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 (the 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.
For stock options and SSARs, the exercise price must be set at least equal to the closing market price of our common shares on the
date of grant. The maximum term of stock option and SSAR awards is seven years from the date of grant. Stock option and SSARs
awards vest over a period established by the Compensation Committee of the Board of Directors. SSARs may be granted in
conjunction with, or independently from, stock option grants. SSARs granted in connection with a stock option are exercisable only to
the extent that the stock option to which it relates is exercisable and the SSARs terminate upon the termination or exercise of the
related stock option grants.
Restricted shares and restricted share units, whether time-vested or performance-based, may be issued at no cost or at a purchase price
that may be below their fair market value, but are subject to forfeiture and restrictions on their sale or other transfer.
Performance-based awards may be conditioned upon the attainment of specified performance objectives and other conditions,
restrictions, and contingencies. Restricted shares and restricted share units have the right to receive dividends, or dividend equivalents
in the case of restricted share units, if any, upon vesting, subject to the same forfeiture provisions that apply to the underlying awards.
Subject to certain exceptions set forth in the 2016 Plan, for awards to employees, no performance-based restricted shares or restricted
share units shall be based on a restriction period of less than one year, and any time-based restricted shares or restricted share units
shall have a minimum restriction period of three years.
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
SSAR 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 Consolidated Statements of Operations for fiscal 2020, 2019 and 2018:
(In thousands)
Product development
Sales and marketing
General and administrative
Total share-based compensation expense
Stock-Settled Stock Appreciation Rights
Year Ended March 31,
2020
2019
2018
2,241
321
2,643
5,205
1,478
469
2,429
4,376
1,306
371
3,011
4,688
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 only in common shares of Agilysys.
We use a Black-Scholes-Merton or a Lattice option pricing model to estimate the fair value of SSARs. The following table
summarizes the principal assumptions utilized in valuing SSARs granted in fiscal 2020, 2019 and 2018:
Risk-free interest rate
Expected life (in years)
Expected volatility
Weighted-average grant date fair value
2020
1.38%-1.74%
4.5-5
31.7%-32.42%
$
10.01
$
2019
2018
2.68 %
5
1.74%-1.94%
5
32.42 % 32.42% - 32.84%
3.36
4.72 $
60
The risk-free interest rate is based on the yield of a zero coupon U.S. Treasury bond whose maturity period approximates the expected
life of the SSARs. The expected life is estimated using historical data representing the period of time the awards are expected to be
outstanding. The estimated fair value of the SSARs granted is recognized over the vesting period of the awards utilizing the graded
vesting method. Under this method, the compensation cost related to unvested amounts begins to be recognized as of the grant date.
The following table summarizes the activity during fiscal 2020 for SSARs awarded under the 2016 and 2011 Plans:
(In thousands, except share and per share data)
Outstanding at April 1, 2019
Granted
Exercised
Forfeited
Cancelled/expired
Outstanding at March 31, 2020
Exercisable at March 31, 2020
Vested and expected to vest at March 31, 2020
Number
of Rights
Weighted-
Average
Exercise
Price
(per right)
Remaining
Contractual
Term
(in years)
Aggregate
Intrinsic
Value
1,016,643 $
691,364
(37,506 )
(15,838 )
(9,775 )
1,644,888 $
959,340 $
1,644,888 $
11.22
34.72
10.02
18.09
10.61
21.07
11.79
21.07
4.9 $
3.9 $
4.9 $
5,236
5,130
5,236
The following table presents additional information related to SSARs activity during fiscal 2020, 2019 and 2018:
(In thousands)
Compensation expense
Total intrinsic value of SSARs exercised
Total fair value of SSARs vesting
2020
2019
2018
$
$
$
1,666 $
519 $
1,328 $
943 $
907 $
1,165 $
1,869
88
1,325
As of March 31, 2020, total unrecognized share based compensation expense related to non-vested SSARs was $5.6 million, which is
expected to be recognized over the weighted-average vesting period of 2.3 years.
A total of 21,494 shares, net of 6,712 shares withheld to cover the employee’s minimum applicable income taxes, were issued from
treasury shares to settle SSARs exercised during the twelve months ended March 31, 2020. The shares withheld were returned to
treasury shares.
Restricted Shares
We granted shares to certain of our Directors, executives and key employees under the 2016 and 2011 Plans, the vesting of which is
service-based. The following table summarizes the activity during the twelve months ended March 31, 2020 for restricted shares
awarded under the 2016 and 2011 Plans:
Outstanding at April 1, 2019
Granted
Vested
Forfeited
Outstanding at March 31, 2020
Number
of Shares
Weighted-
Average
Grant-
Date Fair
Value
(per share)
237,146 $
223,404
(231,677 )
(50,411 )
178,462 $
13.46
22.72
16.60
17.34
19.89
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. During fiscal 2020, a total of 208,151 shares, net of 46,656 shares withheld from the vested restricted shares to cover
the employee's minimum applicable income taxes, were issued from treasury. The shares withheld were returned to treasury shares.
61
The following table presents additional information related to restricted stock activity during fiscal years 2020, 2019, and 2018:
(In thousands)
Compensation expense
Total fair value of restricted share vesting
2020
2019
2018
$
$
3,385 $
4,004 $
2,803 $
4,383 $
2,594
4,315
As of March 31, 2020, total unrecognized share based compensation expense related to non-vested restricted stock was $2.1 million,
which is expected to be recognized over a weighted-average vesting period of 1.9 years. We do not include restricted stock in the
calculation of earnings per share until the shares are vested.
Performance Shares
The following table summarizes the activity during fiscal 2020 for performance shares awarded under the 2016 Plan:
Outstanding at April 1, 2019
Granted
Vested
Forfeited
Outstanding at March 31, 2020
Number
of
Shares
Weighted-
Average
Grant-
Date Fair
Value
(per share)
63,291 $
30,120
(23,526 )
(39,765 )
30,120 $
14.22
22.41
22.67
14.22
22.41
Based on the performance goals, management estimates a liability of $153,000 to be settled through the vesting of a variable number
of the performance shares subsequent to March 31, 2020. As of March 31, 2020, total share based compensation expense related to
performance shares has been fully recognized.
The following table presents additional information related to performance share activity during fiscal 2020, 2019 and 2018:
(In thousands)
Compensation expense
Total fair value of performance share vesting
2020
2019
2018
$
$
153 $
513 $
630 $
243
225
—
Once attainment of the performance goals becomes probable, compensation expense related to performance share awards is
recognized ratably over the vesting period based upon the closing market price of our common shares on the grant date.
14. Fair Value Measurements
We estimate the fair value of financial instruments using available market information and generally accepted valuation
methodologies. We assess the inputs used to measure fair value using a three-tier hierarchy. The hierarchy indicates the extent to
which pricing inputs used in measuring fair value are observable in the market. Level 1 inputs include unadjusted quoted prices for
identical assets or liabilities and are the most observable. Level 2 inputs include unadjusted quoted prices for similar assets and
liabilities that are either directly or indirectly observable, or other observable inputs such as interest rates, foreign currency exchange
rates, commodity rates, and yield curves. Level 3 inputs are not observable in the market and include our own judgments about the
assumptions market participants would use in pricing the asset or liability. The use of observable and unobservable inputs is reflected
in the hierarchy assessment disclosed in the tables below.
There were no significant transfers between Levels 1, 2, and 3 during the twelve months ended March 31, 2020.
The following tables present information about our financial assets and liabilities measured at fair value on a recurring basis and
indicate the fair value hierarchy of the valuation techniques utilized to determine such fair value:
(In thousands)
Assets:
Corporate-owned life insurance — non-current
31-Mar-20 (Level 1)
(Level 2)
(Level 3)
$
936
—
— $
936
62
(In thousands)
Assets:
Corporate-owned life insurance — non-current
31-Mar-19 (Level 1)
(Level 2)
(Level 3)
$
895
—
— $
895
The recorded value of the corporate-owned life insurance policies is adjusted to the cash surrender value of the policies obtained from
the third party life insurance providers, which are not observable in the market, and therefore, are classified within Level 3 of the fair
value hierarchy. Changes in the cash surrender value of these policies are recorded within “Other expenses (income), net” in the
Consolidated Statements of Operations.
The following table presents a summary of changes in the fair value of the corporate-owned life insurance Level 3 asset for the fiscal
years ended March 31, 2020 and 2019:
(In thousands)
Corporate-owned life insurance:
Balance on April 1
Unrealized gain relating to instruments held at reporting date
Purchases, sales, issuances and settlements, net
Balance on March 31
15. Quarterly Results (Unaudited)
March 31,
March 31,
2020
2019
$
$
895 $
14
27
936 $
853
15
27
895
Because quarterly reporting of per share data is used independently for each reporting period, the sum of per share amounts for the
four quarters in the fiscal year will not necessarily equal annual per share amounts. GAAP prohibits retroactive adjustment of
quarterly per share amounts so that the sum of those amounts equals amounts for the full year.
Occasionally, the timing of large one-time orders, such as those associated with significant remarketed product sales around large
customer refresh cycles or significant volume rollouts, creates variability in our quarterly results.
(In thousands except per share data)
Net revenue
Gross profit
Restructuring, severance and other charges
Legal settlements, net
Net loss
First
Quarter
$
Year ended March 31, 2020
Second
Quarter
Quarter
Third
Fourth
Quarter
38,389 $
20,014
231
—
(1,575 ) $
40,722 $
20,217
190
(125 )
(2,918 ) $
41,987 $
21,064
11
—
(2,582 ) $
39,659 $
19,657
150
—
(26,992 ) $
$
Year
160,757
80,952
582
(125 )
(34,067 )
Net loss Per share data-basic and diluted
$
(0.07 ) $
(0.13 ) $
(0.11 ) $
(1.16 ) $
(1.47 )
(In thousands except per share data)
Net revenue
Gross profit
Restructuring, severance and other charges
Legal settlements
Net loss
First
Quarter
Second
Quarter
Year ended March 31, 2019
Third
Quarter
Fourth
Quarter
$
$
34,007 $
17,889
440
91
(1,736 ) $
34,203 $
17,749
448
35
(3,791 ) $
36,014 $
18,647
58
—
(4,048 ) $
36,618 $
19,595
222
15
(3,589 ) $
Year
140,842
73,880
1,168
141
(13,164 )
Net loss Per share data-basic and diluted
$
(0.08 ) $
(0.16 ) $
(0.18 ) $
(0.15 ) $
(0.57 )
63
16. Subsequent Events
COVID-19 has had a significant impact on our business as of and subsequent to our March 31, 2020 fiscal year-end as the travel and
hospitality industries including our customers’ businesses suffered an abrupt and steep decline in activity due to property closures,
cancelled voyages, cancelled sporting and entertainment events, and many other business operations curtailments. The change in the
business environment for our customers resulted in project delays for our professional service teams, our inability to deliver products
to closed property locations and a general reduction in sales activity.
We have taken actions to mitigate the impact on our business. During the first quarter of our fiscal 2021, we have reduced
discretionary costs, implemented a hiring freeze on non-essential positions and reduced payroll and related costs through layoffs,
employee furloughs, employee retirement benefit limitations, and salary decreases for executive team members and certain other
employees of the Company.
The extent COVID-19 will impact our business including operations and financial results cannot be reasonably estimated at this time.
Many factors will continue to influence the COVID-19 pandemic’s impact on us including its ultimate severity, future government
actions in response to COVID-19, and how quickly and to what extent economic conditions return to levels before COVID-19.
In May 2020, the Company announced a $35 million investment from MAK Capital One, LLC (“MAK Capital”), a leading
investment management firm who has been a major shareholder of the Company since 2007. MAK Capital will purchase $35 million
of convertible preferred stock carrying a 5.25% dividend that will be convertible into shares of the Company’s common stock at a
price of $20.1676 per share. The transaction is subject to customary closing conditions and is anticipated to finalize during May 2020.
The close of the transaction will add $35 million in preferred stock to the Company’s balance sheet and increase our cash balance by
the $35 million investment less estimated closing costs of approximately $1 million.
17. Related Party Transaction
See Note 16. Subsequent Events, for description of the MAK Capital investment in the Company announced in May 2020. Michael
Kaufman, the Chairman of the Company’s Board of Directors, is the Chief Executive Officer of MAK Capital.
Schedule II - Valuation and Qualifying Accounts Years ended March 31, 2020, 2019 and 2018
(In thousands)
2020
Deferred tax valuation allowance
Allowance for doubtful accounts
2019
Deferred tax valuation allowance
Allowance for doubtful accounts
2018
Deferred tax valuation allowance
Allowance for doubtful accounts
Balance at
beginning of
year
Charged to
costs and
expenses
Deductions
Balance at
end of
year
$
$
$
$
$
$
57,852 $
788 $
8,967 $
1,434 $
— $
(588 ) $
66,819
1,634
54,260 $
900 $
3,592 $
539 $
— $
(651 ) $
57,852
788
80,013 $
509 $
(25,753 ) $
1,063 $
— $
(672 ) $
54,260
900
64
Item 9. Change in and Disagreements With Accountants on Accounting and Financial Disclosures.
None.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluated the
effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the
CEO and CFO concluded that our disclosure controls and procedures as of the end of the period covered by this report are effective to
ensure that information required to be disclosed by us in reports filed under the Exchange Act of 1934 is (i) recorded, processed,
summarized, and reported within the time periods specified in the SEC's rules and forms and (ii) is accumulated and communicated to
our management, including the CEO and CFO, as appropriate to allow for timely decisions regarding required disclosure. A controls
system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls
can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.
Management's Report on Internal Control Over Financial Reporting
The management of Agilysys, under the supervision of the CEO and CFO, is responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the
supervision of our CEO and CFO, management conducted an evaluation of the effectiveness of our internal control over financial
reporting as of March 31, 2020 based on the framework in Internal Control - Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on that evaluation, management concluded that Agilysys
maintained effective internal control over financial reporting as of March 31, 2020.
Grant Thornton LLP, our independent registered public accounting firm, issued their report regarding Agilysys' internal control over
financial reporting as of March 31, 2020, which is included elsewhere in this annual report.
Change in Internal Control over Financial Reporting
No changes in our internal control over financial reporting occurred during the last quarter of fiscal 2020 that has materially affected,
or is reasonably likely to materially affect, our internal control over financial reporting. In response to the COVID-19 pandemic, our
workforce began working remotely in March 2020. Our established internal controls continued to operate as they have historically,
and the change in the work environment for our employees did not have a material adverse effect on our internal control over financial
reporting during the quarter ended March 31, 2020.
Item 9B. Other Information
None.
65
Part III
Item 10. Directors, Executive Officers and Corporate Governance.
Information required by this Item as to the Directors of Agilysys, Executive Officers, the Audit Committee, Agilysys' Code of
Business Conduct, and the procedures by which shareholders may recommend nominations appearing under the headings “Election of
Directors,” “Executive Officers” and “Corporate Governance” in our Proxy Statement to be used in connection with Agilysys' 2020
Annual Meeting of Shareholders (the “ 2020 Proxy Statement”) is incorporated herein by reference. Information with respect to
compliance with Section 16(a) of the Securities Exchange Act of 1934 by our Directors, executive officers, and holders of more than
five percent of Agilysys' equity securities will be set forth in the 2020 Proxy Statement under the heading “Section 16(a) Beneficial
Ownership Reporting Compliance.”
We adopted a Code of Business Conduct that applies to all Directors and employees of Agilysys, including the Chief Executive
Officer and Chief Financial Officer. The Code is available on our website at http://www.agilysys.com .
Item 11. Executive Compensation.
The information required by this Item is set forth in our 2020 Proxy Statement under the headings, “Executive Compensation,”
“Director Compensation,” “Compensation Committee Report,” and “Corporate Governance,” which is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters.
The information required by this Item is set forth in our 2020 Proxy Statement under the headings “Beneficial Ownership of Common
Shares,” and “Equity Compensation Plan Information,” which information is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this item is set forth in our 2020 Proxy Statement under the headings “Corporate Governance” and
“Related Person Transactions,” which information is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services.
The information required by this Item is set forth in our 2020 Proxy Statement under the heading “Ratification of Appointment of
Independent Registered Public Accounting Firm,” which information is incorporated herein by reference.
66
PART IV
Item 15. Exhibits and Financial Statement Schedules.
(a)(1) Financial statements. The following consolidated financial statements are included herein and are incorporated by reference in
Part II, Item 8 of this Annual Report:
Report of Grant Thornton LLP, Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of March 31, 2020 and 2019
Consolidated Statements of Operations for the years ended March 31, 2020, 2019, and 2018
Consolidated Statements of Comprehensive Loss for the years ended March 31, 2020, 2019, and 2018
Consolidated Statements of Cash Flows for the years ended March 31, 2020, 2019, and 2018
Consolidated Statements of Shareholders' Equity for the years ended March 31, 2020, 2019, and 2018
Notes to Consolidated Financial Statements
(a)(2) Financial statement schedule. The following financial statement schedule is included herein and is incorporated by reference in
Part II, Item 8 of this Annual Report:
Schedule II - Valuation and Qualifying Accounts
All other schedules have been omitted since they are not applicable or the required information is included in the consolidated
financial statements or notes thereto.
(a)(3) Exhibits. Exhibits included herein and those incorporated by reference are listed in the Exhibit Index of this Annual Report.
Item 16. Form 10-K Summary.
None.
67
Agilysys, Inc.
Exhibit Index
Exhibit No.
**3.1
Amended Articles of Incorporation of Agilysys, Inc.
Description
3.2
**4.1
*10.1
*10.2
*10.3
*10.4
*10.5
*10.6
*10.7
*10.8
*10.9
*10.10
**10.11
**21
**23.1
**31.1
**31.2
**31.3
**32
101
*
**
Amended Code of Regulations of Agilysys, Inc., which is incorporated by reference to Exhibit 3.2 to Agilysys, Inc.'s
Current Report on Form 8-K filed August 14, 2019 (File No. 000-05734).
Description of Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934.
The Company's Annual Incentive Plan, which is incorporated herein by reference to Exhibit 10(b) to Agilysys, Inc.'s
Definitive Proxy Statement on Schedule 14A filed June 28, 2011 (File No. 000-05734).
Indemnification Agreement entered into by and between Agilysys, Inc. and each of its Directors, which is incorporated
herein by reference to Exhibit 10(e) to Agilysys, Inc.'s Annual Report on Form 10-K for the year ended March 31, 2018
(File No. 000-05734).
Agilysys, Inc. 2011 Stock Incentive Plan, which is incorporated herein by reference to Exhibit 10(a) to Agilysys, Inc.'s
Definitive Proxy Statement on Schedule 14A filed June 28, 2011 (File No. 000-05734).
Agilysys, Inc. 2016 Stock Incentive Plan, which is incorporated herein by reference to Appendix B to Agilysys, Inc.'s
Definitive Proxy Statement on Schedule 14A filed August 15, 2016 (File No. 000-05734).
Form of Stock Appreciation Right Agreement, which is incorporated herein by reference to Exhibit 10.3 to Agilysys,
Inc.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 2018 (File No. 000-05734).
Form of Directors Restricted Stock Award Agreement, which is incorporated herein by reference to Exhibit 10.1 to
Agilysys, Inc.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 2018 (File No. 000-05734).
Form of Restricted Stock Award Agreement, which is incorporated herein by reference to Exhibit 10.2 to Agilysys, Inc.'s
Quarterly Report on Form 10-Q for the quarter ended September 30, 2018 (File No. 000-05734).
Form of Executive Employment Agreement, which is incorporated herein by reference to Exhibit 10.1 to Agilysys, Inc.'s
Current Report on Form 8-K filed January 31, 2018 (File No. 000-05734).
Employment Agreement dated February 10, 2020 by and between Agilysys, Inc. and Ramesh Srinivasan, which is
incorporated by reference to Exhibit 10.1 to Agilysys, Inc.’s Current Report on Form 8-K filed February 13, 2020 (File
No. 000-05734).
SSAR Agreement dated January 3, 2017, by and between Agilysys, Inc. and Ramesh Srinivasan, which is incorporated
herein by reference to Exhibit 10(s) to Agilysys, Inc.'s. Annual Report on Form 10-K for the year ended March 31, 2017
(File No. 000-05734).
SSAR Agreement dated February 10, 2020, by and between Agilysys, Inc. and Ramesh Srinivasan.
Subsidiaries of the Registrant.
Consent of Independent Registered Public Accounting Firm.
Certification of Chief Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
Certification of Corporate Controller and Treasurer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
Certification of Chief Executive Officer, Chief Financial Officer and Corporate Controller and Treasurer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002.
The following materials from our annual report on Form 10-K for the year ended March 31, 2020, formatted in XBRL
(Extensible Business Reporting Language): (i) Consolidated Balance Sheets at March 31, 2020 and 2019, (ii)
Consolidated Statements of Operations for the twelve months ended March 31, 2020, 2019 and 2018, (iii) Consolidated
Statements of Comprehensive Income (Loss) for the twelve months ended March 31, 2020, 2019 and 2018, (iv)
Consolidated Statements of Cash Flows for the twelve months ended March 31, 2020, 2019 and 2018, and (v) Notes to
the Consolidated Financial Statements for the twelve months ended March 31, 2020.
Denotes a management contract or compensatory plan or arrangement.
Filed herewith
68
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Alpharetta, State of Georgia, on May 22, 2020.
AGILYSYS, INC.
/s/ Ramesh Srinivasan
Ramesh Srinivasan
President, Chief Executive Officer and
Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities indicated on May 22, 2020.
Signature
Title
/s/ Ramesh Srinivasan
Ramesh Srinivasan
/s/ Anthony S. Pritchett
Anthony S. Pritchett
/s/ Chris J. Robertson
Chris J. Robertson
/s/ Michael A. Kaufman
Michael A. Kaufman
/s/ Donald A. Colvin
Donald A. Colvin
/s/ Gerald C. Jones
Gerald C. Jones
/s/ John Mutch
John Mutch
/s/ Melvin L. Keating
Melvin L. Keating
/s/ Dana Jones
Dana Jones
President, Chief Executive Officer and Director
(Principal Executive Officer)
Chief Financial Officer,
(Principal Financial Officer)
Corporate Controller and Treasurer
(Principal Accounting Officer)
Chairman and Director
Director
Director
Director
Director
Director
69