Agilysys, Inc. (AGYS) Tops Q4 EPS by 10c; Sees Q1 Revs Down Up to 35%

Agilysys, Inc. (NASDAQ: AGYS) reported Q4 EPS of $0.05, $0.10 better than the analyst estimate of ($0.05). Revenue for the quarter came in at $39.7 million versus the consensus estimate of $39.83 million.

Ramesh Srinivasan, President and CEO of Agilysys, commented, “In spite of the significant pandemic related business challenges during the month of March, fiscal year 2020 was a major positive business momentum shift year for us. Beginning with three consecutive quarters of record revenue levels, Q4 fiscal 2020 was on pace to be a very successful sales quarter, and another record revenue quarter, prior to a disappointing ending shaped by COVID-19. As a result, we ended fiscal 2020 with full year revenue growth of 14.1%, compared to our expectation of 16% growth. The record $160.8 million fiscal 2020 revenue included an $8.2 million year-over-year increase in full year recurring revenue, which was the largest single year improvement in annual recurring revenue in six years signifying a successful year with respect to customer retention and business expansion. The increase in recurring revenue included the second consecutive year with a 24% rise in annual subscription revenue. In addition, the fiscal year-end cash balance grew to $46.7 million, our best cash balance position at the end of a quarter since March 2017.

“We continue to be intensely focused on securing the safety and health of our employees, customers and the communities we serve in. We expect the current April-June fiscal 2021 first quarter to be challenging with a possible 35% year-over-year decline in revenue due to the general anticipated business downturn and as a result of various one-time recurring revenue related and other concessions we have given to customers to help them during this time of need. Providing as much help as possible to customers has been the right thing to do under the circumstances. Given all the cost reduction steps currently in place, even with the possible revenue reductions we face in the first quarter of fiscal 2021, we expect Q1 fiscal 2021 Adjusted EBITDA of approximately break-even for the quarter.

“Thanks to the major increase in the pace of product innovation during the past couple of years, powered by an R&D team which has tripled in resource strength since January calendar 2017, we are well positioned to serve the increased and changing technology demands of the hospitality industry. We are seeing good sales activity during the past few weeks, with an increased need for technology solutions which will help secure the safety and comfort of the guests of our customers. We have every reason to believe that our pace of product innovation coming into the crisis and the strategic decision to keep up R&D velocity through this time, will vastly improve our competitive positioning once the industry begins to recover. We expect many of our newer products to play a major role in the recovery phase and beyond. We expect our business levels to improve from a low point in fiscal 2021 Q1, but we are at this time unable to estimate how steep the recovery will be.

“In order to strengthen our balance sheet and allow us financial flexibility to execute against our R&D and customer service focus strategies, we recently announced a $35 million convertible investment from MAK Capital. Michael Kaufman, the Chairman of our Board of Directors, is the Chief Executive Officer of MAK Capital. The confidence one of our main shareholders, who knows our business well, has placed in us with this recent investment is a good indicator of the business potential we see in front of us. While the short term remains uncertain, we remain positive on our medium and long-term growth prospects.”

GUIDANCE:

Agilysys is closely monitoring the impact of COVID-19 on the hospitality market with our primary focus being the safety of our employees and customers as we manage through these unprecedented times. Given the sudden impact of COVID-19 and the rapidly changing environment, we are not releasing full fiscal year 2021 guidance at this time. However, we expect the global pandemic to have an impact on our revenue in the short term. We are expecting Q1 fiscal 2021 revenue to decrease over the prior year by as much as 35% which we expect would result in Q1 fiscal 2021 Adjusted EBITDA of approximately break-even for the quarter.

Tony Pritchett, Chief Financial Officer, commented, “While we came up short of our revenue guidance for the full fiscal year, annual revenue growth of 14.1%, nearly $20 million, is a metric we are proud of. This caps two years of double-digit percentage top line revenue growth, the first time we have accomplished two sequential years of such growth since we transformed Agilysys into the company it is today back in July 2013. On top of revenue growth, full fiscal 2020 Adjusted EBITDA was $13.0 million, an increase of 27% over fiscal 2019 Adjusted EBITDA of $10.3 million; or a 61% improvement over prior year if the $2.2 million benefit of capitalized software costs in fiscal year 2019 is removed.

“The need to take an impairment charge on most of the previously capitalized software development costs remaining on our balance sheet was based on current economic conditions which make it difficult to project future sales and revenue accurately. It does not reflect a shift in business strategy. It will have no impact on our continuing product and customer service investment plans.

“Our recurring revenue and the mission critical nature of our products, combined with the prudent management of our cost structure, has given us a strong foundation and conviction in our ability to navigate through these tough times. Although we are in a period of great uncertainty, we have taken necessary cost actions, strengthened our balance sheet with additional funding, and remain focused on our customers and products. We are well positioned financially, for the short and long-term, and remain optimistic about our opportunity for long-term success. We are navigating through this crisis from a position of relative strength and expect to come out of it even stronger in terms of competitive differentiation.”

For earnings history and earnings-related data on Agilysys, Inc. (AGYS) click here.

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