AGYS-3.31.2015-10K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the fiscal year ended March 31, 2015 |
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)
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Ohio | 34-0907152 |
State or other jurisdiction of incorporation or organization | (I.R.S. Employer Identification No.) |
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425 Walnut Street, Suite 1800, Cincinnati, Ohio | 45,202 |
(Address of principal executive offices) | (Zip Code) |
Registrant's telephone number, including area code: (770) 810-7800
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | Name of each exchange on which registered |
Common Shares, without par value | 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 þ
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 þ
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 þ No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes ¨ No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¨ Accelerated filer þ Non-accelerated filer ¨ Smaller reporting company ¨
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No þ
The aggregate market value of Common Shares held by non-affiliates as of June 30, 2014 was $208,096,430.
As of May 29, 2015, 22,770,057 shares of the registrant's common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement to be used in connection with its 2015 Annual Meeting of Shareholders are incorporated by reference into Part III of this Form 10-K.
AGILYSYS, INC.
Annual Report on Form 10-K
Year Ended March 31, 2015
Table of Contents
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| PART I | |
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ITEM 1. | Business | |
ITEM 1A. | Risk Factors | |
ITEM 1B. | Unresolved Staff Comments | |
ITEM 2. | Properties | |
ITEM 3. | Legal Proceedings | |
ITEM 4. | Mine Safety Disclosures | |
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| PART II | |
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ITEM 5. | Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities | |
ITEM 6. | Selected Financial Data | |
ITEM 7. | Management's Discussion and Analysis of Financial Condition and Results of Operations | |
ITEM 7A. | Quantitative and Qualitative Disclosures about Market Risk | |
ITEM 8. | Financial Statements and Supplementary Data | |
ITEM 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | |
ITEM 9A. | Controls and Procedures | |
ITEM 9B. | Other Information | |
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| PART III | |
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ITEM 10. | Directors, Executive Officers and Corporate Governance | |
ITEM 11. | Executive Compensation | |
ITEM 12. | Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters | |
ITEM 13. | Certain Relationships and Related Transactions, and Director Independence | |
ITEM 14. | Principal Accountant Fees and Services | |
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| PART IV | |
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ITEM 15. | Exhibits and Financial Statements | |
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SIGNATURES | | |
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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. Forward-looking statements can be identified by words such as: "anticipate," "intend," "plan," "goal," "seek," "believe," "project," "estimate," "expect," "strategy," "future," "likely," "may," "should," "will" and similar references to future periods. These statements are not guarantees of future performance and involve risks, uncertainties, and assumptions that are difficult to predict. These statements are based on management's current expectations, intentions, or beliefs and are subject to a number of factors, assumptions, and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Factors that could cause or contribute to such differences or that might otherwise impact the business include the risk factors set forth in Item 1A of this Annual Report. We undertake no obligation to update any such factor or to publicly announce the results of any revisions to any forward-looking statements contained herein whether as a result of new information, future events, or otherwise.
Part I
Item 1. Business.
Overview
Agilysys is a leading technology company that provides innovative software for point-of-sale (POS), property management, inventory and procurement, workforce management, analytics, document management and mobile and wireless solutions and services to the hospitality industry. Our solutions and services allow property managers to better connect, interact and transact with their customers and enhance their customer relationships by streamlining operations, improving efficiency, increasing guest recruitment and wallet share, and enhancing the overall guest experience. We serve four major market sectors: Gaming, both corporate and tribal; Hotels, Resorts and Cruise; Foodservice Management; and Restaurants, Universities, Stadia and Healthcare. A significant portion of our consolidated revenue is derived from contract support, maintenance and subscription services.
We operate throughout North America, Europe and Asia, with corporate services located in Alpharetta, GA, and offices in Singapore, Hong Kong and Malaysia.
The sales of our RSG business and UK entity each represented a disposal of a component of an entity. As such, the operating results of RSG and the UK entity have been reported as a component of discontinued operations in the Condensed Consolidated Statement of Operations and the Condensed Consolidated Statement of Cash Flows for the twelve months ended March 31, 2014 and 2013.
Our principal executive offices are located at 425 Walnut Street, Suite 1800, Cincinnati, Ohio, 45202 and our 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 2015 refers to the fiscal year ended March 31, 2015.
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 in fiscal 2003 with the sale of our Industrial Electronic Division, we used the proceeds to reduce debt, fund growth of our enterprise solutions business and acquire 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 Kyrus Corporation and became the leading provider of IBM retail solutions and services in the supermarket, chain drug, general retail, and hospitality segments. In that same year, the acquisition of Inter-American Data, Inc. allowed us to become the leading developer and provider of technology solutions for property and inventory management in the casino and resort industries.
In calendar 2007, we divested KeyLink Systems and 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 and Visual One Systems Corp. in calendar 2007, significantly expanding our specialized offerings to the hospitality industry through enterprise-class, POS and 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 2008, we began reporting three primary operating segments: Hospitality Solutions Group (HSG), Retail Solutions Group (RSG) and Technology Solutions Group (TSG).
In fiscal 2012, we sold our TSG segment 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 operating units.
On June 10, 2013, we acquired the assets of TimeManagement Corporation, a privately-owned Minneapolis-based provider of enterprise-wide software and service solutions that streamline workforce management environments for hospitality operators.
On July 1, 2013, we completed the sale of our RSG 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.
On March 31, 2014, we completed the sale of our United Kingdom business entity (UK entity) to Verteda Limited (Verteda), led by the Company’s former European management team. In connection with the sale, we have entered into a multi-year distribution agreement, whereby Verteda distributes certain Agilysys products within the U.K. marketplace. We continue to manage all property management system accounts as well as key global accounts in the EMEA market.
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 respective 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 intuitive solutions that increase speed and accuracy, thereby enabling more effective management, intelligent upselling, reduced shrinkage, improved brand recognition and better control of the customer relationship. Our strategy is to increase the proportion of revenue we derive from ongoing support and maintenance agreements, software as a subscription services, cloud applications and professional services.
Products, Support and Professional Services
We are a leading developer and marketer of software enabled solutions and services to the hospitality industry, including: hardware and software products; support, maintenance and subscription services; and, professional services. Areas of specialization are POS, property management, inventory and procurement, workforce management, and mobile and wireless solutions designed to streamline operations, improve efficiency and enhance the guest experience.
We present revenue and costs of goods sold in three categories:
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• | Products (hardware and software) |
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• | Support, maintenance and subscription services |
Total revenue from continuing operations for these three specific areas is as follows:
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| Year ended March 31, |
(In thousands) | 2015 | 2014 | 2013 |
Products | $ | 31,846 |
| $ | 34,629 |
| $ | 31,030 |
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Support, maintenance and subscription services | 56,013 |
| 53,169 |
| 49,110 |
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Professional services | 15,655 |
| 13,463 |
| 13,868 |
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Total | $ | 103,514 |
| $ | 101,261 |
| $ | 94,008 |
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Products:
The hospitality industry has long been focused on operating an end-to-end business, but the technology vendors that serviced the industry have been focused on product-centric solutions that make use of a high number of software modules and operating silos. We have evolved our approach to the industry to an integrated "platform" centric solutions for Lodging, Food & Beverage and Payments applications that looks to leverage the entire business, by investing in the development of an web services oriented architecture enterprise platform. Our rGuest™ 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, pre-, during and post-visit. The rGuest platform facilitates an end-to-end solution that helps our customers improve guest services, increase top-line performance and reduce operating costs, which leads to opportunities for higher profitability. Our next-generation of products and services are aimed at helping hospitality operators recruit customers into their facilities, increase their wallet share from each customer and improve the overall guest experience from the initial customer touch point through the post-visit experience.
Our proprietary product suite is comprised of:
The rGuest platform underlies our industry leading hospitality solutions that are being introduced to operators of all sizes and with varying needs. The rGuest platform is designed to run as a Software as a Service (“SaaS”)-based platform on the public cloud, private cloud, on-premise, or in a hybrid configuration where the infrastructure may be above premise but the data resides on premise. rGuest’s architecture seamlessly functions as well for a multi-property customer as it does for a single property.
The rGuest enterprise platform helps operators more efficiently manage their business and grow their sales by:
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• | Identifying and tracking guest profile and behavior so that it may be used to create effective loyalty programs and the right promotions and offers to ensure the best guest experience while ensuring the property extracts the maximum wallet share from each customer; |
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• | Enabling historical analysis of data; |
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• | Allowing for real-time management through mobile and web interfaces for immediate remediation of business and guest related issues; |
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• | Creating a framework for core services for the delivery of business applications faster with the critical benefit of having fewer moving parts to manage; |
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• | Ensuring that all new rGuest modules will be written on top of the rGuest platform to create a common look/feel, functions and usage paradigms and reduce the overhead of managing and learning multiple systems, and, |
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• | Providing for easy integration with other hospitality management systems; |
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• | Incorporating key infrastructure design elements such as global and multi-language support, regulatory compliance and security, including authentication, authorization, encryption, tokenization, handling of payment & PII information and overall application data and user security. |
Our rGuest product suite is designed to maximize the insight and value available in “big data” by:
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• | Identifying the right data and determining how to best use it; |
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• | Empowering users to be capable of both working with new technologies and of interpreting the data to find meaningful business insights; |
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• | Creating data access and connectivity across the majority of customer touch points; |
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• | Providing an IT platform that can adapt to changes in the landscape in an efficient manner; |
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• | Working across functions organizational challenges and finding ways of collaborating across functions and businesses; and, |
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• | Implementing the highest levels of security to ensure data protection |
The rGuest platform currently includes the following in-market solutions:
Currently available in limited release, rGuest Stay is a guest-centric property management system that will help operators create a superior guest experience. Easy to learn and use, it’s built for the way operators want to run your business. rGuest Stay gathers everything operators need to manage critical property operations in one place-including reservations, front desk, guest services, housekeeping, and more. The net result is increased staff productivity, reduced operational cost and improved guest satisfaction.
rGuest Stay offers:
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• | Group room block management |
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• | Flexible rate management |
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• | Reservations, including interfaces that accept reservations from online travel agencies and the hotel’s own website |
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• | Guest service management, including check-in, check-out and in-house experience management |
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• | Upselling and upgrades of reservations during check-in |
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• | Guest, company and travel agent profile management |
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• | Folio management and charge routing |
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• | Integrated credit card processing using tokenization and validated Point-to-Point Encryption (P2PE) technology |
rGuest Seat is a guest centric table, reservation and wait list management solution that helps restaurants increase revenue by retaining repeat customers and providing a superior guest experience. Online dining reservations enable restaurants to increase bookings by allowing diners to reserve a table through the restaurant’s website or mobile app. Wait list management optimizes the restaurant’s use of tables and resources, helping staff estimate wait times more accurately and avoiding lost or dissatisfied customers.
rGuest Seat offers:
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• | Streamlined online reservations increase guest bookings without tying staff up on the phone |
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• | Wait list automation to accurately predict wait times and meet guest expectations |
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• | Two way text communications with waiting guests |
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• | Toggle between restaurants within peer group to get a complete view of the reservation or wait list status |
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• | Accessibility of guest data based on their previous dining experiences to provide a much high level of guest service |
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• | Library of reconfigurable reports can be accessed in real time or received through email at a scheduled delivery time |
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• | Integrated POS automatically updates the status of the guest experience and imports valuable data about the guest |
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• | Real-time table status visibility to minimize table turn times and keep restaurant operations and reservations running smoothly |
rGuest Pay is our innovative payments 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. 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:
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• | A full suite of credit card processing services |
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• | Industry-leading payment security through tokenization and P2PE |
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• | Future-proofed hardware capable of supporting EMV and NFC transactions |
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• | Integration with 3rd Party application through a simple-to-use API |
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• | Consolidated transaction reporting |
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• | Comprehensive payment processor support |
rGuest Analyze is a platform-based subscription data analysis service focused on the needs of the hospitality industry. It is a full business intelligence solution that is delivered through the cloud (SaaS). rGuest Analyze 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.
rGuest Analyze offers:
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• | Cross-enterprise and centralized reporting across sites, venues and profit centers |
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• | Slice-and-dice reporting without the need for IT/DBA resources immediately drives insight into food & beverage as well as lodging operations |
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• | Out-of-the-box customizable reports provide insight into sales, revenue, server/cashier activity, discounts, tenders, ADR, RevPAR, and Occupancy |
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• | Easy to learn, web-based reporting tool with simple drag-and-drop capabilities for fast data exploration and report generation |
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• | Design, publish and disseminate executive level dashboards as easily as creating a word document with both web and mobile views |
Going forward, Agilysys plans to introduce additional modules for the rGuest platform, including rGuest Buy.
As we move forward with a focus on selling the rGuest platform and modules, we are committed to providing our customers an upgrade and/or migration path from previously purchased Agilysys products to the new rGuest application.
Agilysys’ additional in market offerings for property management, point-of-sale, inventory procurement, workforce management, document management and activity booking product and services include:
Property Management Systems (“PMS”)
Agilysys Lodging Management System® (LMS) is web-enabled and runs 24/7 to automate every aspect of hotel operations in properties of 1,000 rooms or more. Its foundation expands to incorporate modules for sales and catering, activities scheduling, attraction ticketing and more.
Agilysys Visual One™ PMS is installed in hotels ranging from 50-1,500 rooms. For complex resorts that require an enterprise-wide system, Visual One provides an integrated solution with interfaces to leading global distribution systems (GDSs) and our other products.
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• | Agilysys Insight™ Mobile Manager is a mobile dashboard application that enables hotel managers to quickly view key property information - including arrivals and departures, VIPs, total guests, housekeeping, revenue and groups - from a mobile device. It is supported by iPad®, iPad mini and iPhone® mobile devices and integrates fully with the Agilysys LMS property management solution. |
Point-of Sale
Agilysys InfoGenesis®™ POS is award-winning point-of-sale software that combines powerful reporting and configuration capabilities in the back office with a fast, intuitive and easy-to-use terminal application. The flexible 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 give insight into sales data and guest purchasing trends. Other features include packages and prix fixe menus, signature capture and multi-language capability. InfoGenesis POS is available as an on-premise solution or through a subscription service.
Agilysys InfoGenesis Flex is a mobility solution that offers full POS functionality on a Windows tablet, such as the Dell Venue 8 Pro. It provides a sleek, modern alternative to traditional POS installations and can be used as a slim fixed terminal or as a convertible simply by removing the tablet from its base.
Agilysys InfoGenesis®™ Mobile is a mobile POS solution that seamlessly integrates with Agilysys InfoGenesis POS software. The application is reliable and easy to learn, with a user interface that's simple to use and configure. Users can tap, drag or swipe using an intuitive multi-touch interface to create and tender checks. Orders are automatically sent to the kitchen, enabling faster service and increased table turns. InfoGenesis Mobile is a flexible, cost-effective tool that helps service teams become more efficient and productive. Simplified ordering and faster guest service provides a competitive edge in a crowded marketplace.
Agilysys MPOS is a handheld point-of-sale solution that integrates with InfoGenesis POS to enable guest service in any location.
Agilysys eMenu is an online ordering application that enables our customers to capitalize on the popularity of Web and kiosk ordering while maintaining their existing company brand and workflow.
Agilysys eCash takes traditional cashless payment and stored value card capabilities and integrates them directly with InfoGenesis POS, increasing consumers' payment options.
InfoGenesis POS, eMenu and eCash are available through traditional software licensing or via subscription.
Inventory and Procurement
Agilysys Eatec® 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 EatecTouch is an optional software applet that operates on any MicroSoft®Windows®-based POS terminal, providing users with access to the Eatec application from any terminal location.
Agilysys EatecPocket is a Microsoft Windows Mobile compatible application designed to work on a handheld wireless device, enabling users to perform inventory transactions. The software incorporates barcode scanner functionality for mobile updates of the database.
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.
Eatec and Stratton Warren System solutions are available through traditional software licensing or via subscription.
Workforce Management
The Agilysys Workforce Management Solution™ (WMx®™) is a comprehensive enterprise-level labor management solution that helps hospitality organizations improve the efficiency and productivity of their workforce. WMx offers tools for performance-based scheduling, dynamic labor forecasting, embedded workflow for employee hiring, employee self-service, multiple time capture solutions and seamless integration to numerous POS, PMS, inventory and payroll systems.
Document Management
Agilysys DataMagine™ 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 all of our products, adding functionality and increasing benefit to customers.
Activities
Agilysys GolfPro is a module 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.
Agilysys Spa Management software covers all aspects of running a spa business, from scheduling guests for services to managing staff schedules. The software also integrates with our PMS solutions.
Agilysys LMS ARTS® interfaces with hotel guest data, allowing reservationists to pre-plan activities when booking a guest's room. The application also places canceled activities back into inventory for resale, resulting in optimum property utilization and profitability.
Agilysys Visual One Activities software streamlines the management of all of the amenities and activities a property has to offer. Staff can easily schedule and personalize reservations for guests; activities then appear on itinerary/confirmations.
Products revenue also includes remarketed hardware and proprietary and remarketed software that is deployed as an integral component of the solutions we provide.
Support, Maintenance and Subscription Services: Contracted technical support, maintenance and 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- and off-premise.
Professional Services: We have industry-leading expertise in designing, implementing, integrating and installing customized solutions into both legacy 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 in a manner that saves our customers time and money.
Representative Agilysys clients include:
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AVI Foodsystems, Inc. | Copper Mountain | Resorts World Bimini |
Banner Health | The Cosmopolitan of Las Vegas | Rosen Hotels & Resorts |
Benchmarc Restaurants | CSU Fullerton Auxiliary Services Corporation | Royal Caribbean International |
Black Rock Resort | Farmers Restaurant Group | Royal Lahaina Resort |
Boyd Gaming Corporation | Golden Nugget Lake Charles | Sands Casino Resort Bethlehem |
BR Guest Hospitality | Harbor Winds Hotel | SAVOR |
The Breakers Palm Beach | Hialeah Park | The Sea Pines Resort |
The Broadmoor's Ranch at Emerald Valley | Ho-Chunk Gaming | Spooky Nook Sports |
Caesars Entertainment | Malana Hotels & Suites | Sugar Factory |
Cal Dining at UC Berkeley | Maryland Live! Casino | SUNY Cobleskill |
Camanche Nation of Oklahoma | Norwegian Cruise Line | The Venetian Resort Hotel Casino |
Camelback Lodge & Waterpark | Oxford Casino | University of Akron |
Compass Group North America | Palm Garden Hotel | Vail Resorts |
Casa Ybel Resort | Pinehurst Resort | Valley View Casino & Hotel |
Cask & Barrel | Pinnacle Entertainment | Vanderbilt University |
Casino del Sol | Prairie Band Casino & Resort | Yale University |
Industry and Markets
We offer specific solutions for customers of varying sizes across four major market sectors: Gaming, both corporate and tribal; Hotels, Resorts and Cruise; Foodservice Management; and Restaurants, Universities, Stadia and Healthcare.
The hospitality industry encompasses a wide variety of market sectors and customers. We operate throughout North America, Europe and Asia, with corporate services located in Alpharetta, GA, and offices in Singapore, Hong Kong and Malaysia. Sales to customers outside of the United States represent approximately 5% of total sales.
The hospitality industry is highly fragmented and composed by a number of defined markets including lodging, casinos, cruise ships, resorts and spas, franchise operators, restaurant chains, stadiums, and arenas, among others. For example, in the lodging segment, no single hotel brand accounts for more than 4% of all hotel rooms in the United States. According to Smith Travel Research, the U.S. lodging industry generated approximately $133 billion in room revenue in calendar 2014, with an average of approximately 64.4% of approximately 4.9 million available rooms occupied. This compares with 62.3% in 2013 and eclipses the prior market-cycle peak occupancy rate of 63.1% in 2006. Travelers booked a record 1.2 billion U.S. room nights in 2014, up approximately 4% from 2013.
The hospitality business is sensitive to the strength of domestic and global economic and credit conditions. Business and destination resort travel are highly correlated with the economic conditions in their respective markets. Competition is intense for consumer spending, and hospitality industry participants are seeking ways to increase their visibility and appeal as well as enhance the experience of their guests. Our products and solutions are meant to leverage the opportunity these challenges create by providing our customers with higher degree of guest connectivity and added engagement tools that will enable them to capitalize on their brand equity better and more profitably manage their operations, and grow their business. In addition to bespoke product solutions that are designed and customized to meet unique facility or multi-facility needs, we also provide an array of support and subscription options geared towards maintaining systems and professional services for implementation and rollouts.
We have a significant customer base in the commercial casino and gaming sector. According to the American Gaming Association, over 30% of the U.S. adult population visited a casino at least once in 2012. Amenities in contemporary casinos extend well beyond gaming to include a variety of entertainment and leisure options as well as modern convention centers and meeting facilities to attract the corporate market. International gaming markets are growing rapidly both in size and new jurisdictions. Asian gaming markets continue to generate robust growth. Gross gaming revenue in Macau exceeds that of the Las Vegas Strip, with a number of the current and planned properties in the region operated by U.S.-based companies. As the market share leader in providing PMS systems to casinos on the Las Vegas Strip, we are well positioned to benefit from these strong and long-standing relationships as our customer base expands into international markets. Additionally, as gaming operators migrate toward cashless operations and digital track-and-log of unique guest behavior, we are able to provide the requisite technologies and expertise to satisfy their needs.
We also have expertise in serving the unique needs of Cruise ship operators. Guests and potential customers are expecting an experience that reflects their unique tastes, preferences and travel habits and cruise operators have seen the need to adequately support the increasing level of personalization and detail required to capture the highest level of guest satisfaction. Our products and services can best help them to deliver on this critical part of their business. According to the Cruise Lines International Association and Cruise Market Watch, cruise lines continued the growth trends of recent years in 2014. The worldwide cruise ship fleet currently stands at 298 ships and the current order book, covering 2015-2020, includes 55 new builds. The industry carried over 21.5 million passengers in 2014, up from nearly 21 million passengers in 2013.
Customers
Our customers include large, medium-sized and boutique companies, and 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, particularly in the lodging, casino, destination resort, cruise line, foodservice industries where competition for guest recruitment is intense. Our current customer base is highly fragmented, with no single customer representing more than 10% of consolidated revenue from continuing operations.
Seasonality
We have traditionally experienced seasonal revenue weakness during our fiscal first quarter ending June 30. Additionally, 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, occasionally creates volatility 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 MICROS Systems, Inc., NCR, Par Technology and Infor. We also compete with software companies like IDeaS Revenue Solutions, POSitouch, Northwind and Xpient Solutions. In addition, we compete with PMS systems that are designed and maintained in-house by large hotel chains.
Environmental Matters
We believe we are in compliance 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 May 22, 2015, we had 504 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 on Form 10-K (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
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 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, which has frequently been longer than we originally expected; |
| |
• | 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. |
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.
Continuing challenging global economic conditions could adversely affect our business and financial results.
Global economic conditions continue to be challenging. Our revenue and profitability depend significantly on general economic conditions and the level of capital available to our customers. Our business trends and revenue growth continue to be affected by the challenging economic climate. These difficult economic conditions and the uncertainty about future economic conditions may adversely affect our customers' level of spending, ability to obtain financing for purchases, ability to make timely payments to us and adoption of new technologies, which could require us to increase our allowance for doubtful accounts, negatively impact our days sales outstanding, lead to increased price competition and adversely affect our results of operations.
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. In some cases, we may have to reduce our pricing to obtain business. If we are not able to maintain favorable pricing for our products and services, our profit margin and our profitability could suffer.
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 professional services and integrity. As a result, if a customer is not satisfied with our services or solutions, our reputation may be damaged. Moreover, if we fail to meet our clients' performance expectations, we may lose clients and be subject to legal liability, particularly if such failure adversely impacts our clients' 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.
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.
Our cloud-based solutions present execution and competitive risks.
Our solutions offered in the cloud accessible via the web without hardware installation or software downloads present new and difficult technology challenges. These offerings depend on integration of third-party hardware, software and cloud hosting vendors working together with our products. As a result, we may be subject to claims if customers experience service disruptions, breaches or other quality issues related to our cloud-based solutions.
Cloud-based platform and software applications presents increased security risks.
As we expand our cloud-based platform and software hosting capabilities, including our rGuest products, and offer more of our software applications to our customers on a cloud-based basis, our responsibility for data and system security with respect to data held in our hosting centers increases significantly. While we believe that our current platform, software applications and data centers comply with applicable laws and industry security requirements, and while we believe that we use appropriate security measures to reduce the possibility of unauthorized access or misuse of data in the data centers, we cannot provide absolute assurance that our cloud-based applications will not be breached, or that all unauthorized access can be prevented. If a security breach were to occur, a customer, regulatory agency, or other person could seek redress from us, which could adversely affect our business.
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.
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. On April 6, 2012, Ameranth, Inc. filed a complaint against us for patent infringement in the United States District Court for the Southern District of California alleging that point-of-sale and property management and other hospitality information technology products sold by us infringe three patents owned by Ameranth.
This lawsuit and any other such claim, with or without merit, could result in costly litigation and distract management from day-to-day operations. If we are found liable, we could be obligated to pay significant damages or enter into license agreements.
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 effect 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.
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.
If we fail to retain key employees, our business may be harmed.
Our success depends on the skill, experience and dedication of our employees. If we are unable to retain and attract sufficiently experienced and capable personnel, especially in product development, sales and management, our business and financial results may suffer. For example, if we are unable to retain and attract 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. When talented employees leave, we may have difficulty replacing them, and our business may suffer. There can be no assurance that we will be able to successfully retain and attract the personnel that we need.
We may incur goodwill, intangible asset and capitalized software development impairment charges that adversely affect our operating results.
We review our goodwill, intangible assets and capitalized software development costs for impairment on at least an annual basis. During the fourth quarter of fiscal 2015, we recorded $2.0 million in asset impairment charges related to an indefinite lived purchased trade name that was determined to be finite life and the determination that certain capitalized software development costs would no longer yield significant future cash flows. Our future operating results and the market price of our common stock could be materially adversely affected if we are required to further write down the carrying value of goodwill, intangible assets or capitalized software development in the future.
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 effect 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.
We have encountered risks associated with maintaining large cash balances.
While we have attempted to invest our cash balances in investments generally 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.
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 “Accrued 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.
Our business may be impacted by the recent bankruptcy filing of Caesars Entertainment Operating Company, Inc.
On January 12, 2015, an involuntary bankruptcy petition was filed against Caesars Entertainment Operating Company, Inc. (Caesars) under Chapter 11 of the U.S. Bankruptcy Code. On January 15, 2015, Caesars and certain of its affiliates filed a voluntary bankruptcy petition under Chapter 11. Those cases have been consolidated in the United States Bankruptcy Court for the Northern District of Illinois. At March 31, 2015, our accounts receivables owing by Caesars and its affiliates who have filed a bankruptcy petition totaled approximately $3.2 million, including both pre- and post-petition claims. The total amount owed as of March 31, 2015 represents approximately 13% of our outstanding accounts receivable as of March 31, 2015. As of May 26, 2015, we filed a proof of claim with the Bankruptcy Court identifying approximately $0.7 million of pre-petition claims still outstanding. Caesars entertainment properties have continued to operate in the ordinary course following the bankruptcy filing, and we have continued to do business with Caesars in the ordinary course. Our business with Caesars is subject to a number of risks, including our ability to collect outstanding accounts receivable, as well as the risks that Caesars’ bankruptcy restructuring may not be successful, or that Caesars ceases normal operations or seeks to renegotiate its existing obligations through bankruptcy protection or otherwise.
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 could disproportionately impact our revenue, as clients may exit the industry or delay, cancel or reduce planned expenditures for our products. A general downturn in the hospitality industry could disproportionately impact our revenue, as clients may exit the industry or delay, cancel or reduce planned expenditures for our products.
Higher oil and gas prices worldwide could have a material adverse impact on the hospitality industry, and indirectly, on our business.
Material increases in oil and gas prices tend to reduce discretionary spending by consumers, such as on travel and dining, as well as on retail spending generally. Reductions in discretionary spending by consumers adversely affect our customers and, indirectly, our business. Moreover, increases in oil and gas prices also directly adversely affect our customer base in other ways. For example, oil and gas price increases can result in higher ingredient and food costs for our restaurant customers.
Consolidation in the hospitality industry 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 casino 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.
Risks Relating to Our Stock
Our stock has been volatile and we expect that it will continue to be volatile.
Our stock price has been volatile, and we expect it will continue to be volatile. For example, during the year ended March 31, 2015, the trading price of our common stock ranged from a high of $15.02 to a low of $9.39. The volatility of our stock price may be due to factors other than those specific to our business, such as economic news or other events generally affecting the trading markets. 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.
Our largest shareholder, MAK Capital, currently holds approximately 31% of our common shares, which could impact corporate policy and strategy, and MAK Capital's interests may differ from those of other shareholders.
Pursuant to the approval by shareholders of a control share acquisition proposal, MAK Capital holds approximately 31% of our outstanding common shares. As a significant shareholder whose responses could potentially affect the interests of Agilysys and the other shareholders, our Board may consider MAK Capital's potential response to a particular decision of the Board in considering the range of possible corporate policies and strategies in the future, potentially influencing corporate policy and strategic planning.
MAK entered into a Voting Trust Agreement with Computershare, as trustee, which provides that, for both strategic and other transactions requiring at least two-thirds of the voting power to approve, the trustee will vote a certain percentage of MAK Capital's shares in favor of, against, or abstaining from voting in the same proportion as all other shares voted by shareholders (including MAK Capital's shares not being voted by the trustee). If the Voting Trust Agreement, as amended, that MAK entered into with Computershare were to terminate for any reason, MAK Capital would have a level of control that would highly influence the approval or disapproval of transactions requiring under Ohio law the approval of two-thirds of the outstanding common shares, such as a business combination, or majority share acquisition involving the issuance of common shares entitling the holders to exercise one-sixth or more of the voting power of our common shares, each of which requires approval by two-thirds of the outstanding common shares. MAK Capital might also be able to initiate or substantially assist any such transaction. Even with the limitations on MAK Capital's voting power imposed by the Voting Trust Agreement, as amended, it would be more difficult for the other shareholders to approve such a transaction if MAK Capital opposed it, and MAK Capital's interests may differ from those of other shareholders.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
Our corporate services are located in Alpharetta, Georgia where we lease approximately 23,000 square feet of office space. In addition, we lease approximately 34,000 square feet of office space in Las Vegas, Nevada and 10,895 square feet of office space in Bellevue, Washington. 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 for patent infringement in the United States District Court for the Southern District of California. The complaint alleges, among other things, that point-of-sale and property management and other hospitality information technology products, software, components and/or systems sold by us infringe three patents owned by Ameranth purporting to cover generation and synchronization of menus, including restaurant menus, event tickets, and other products across fixed, wireless and/or internet platforms as well as synchronization of hospitality information and hospitality software applications across fixed, wireless and internet platforms. The complaint seeks monetary damages, injunctive relief, costs and attorneys’ fees. At this time, we are not able to predict the outcome of this 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.
On July 9, 2012, a putative class action lawsuit was filed against us in the United States District Court for the Northern District of California alleging violations of federal and state wage and hour laws, rules and regulations pertaining primarily to pay for missed meals and rest periods and failure to reimburse business expenses. On May 19 2014, the court approved a settlement of the lawsuit pursuant to which we paid a gross settlement in the amount of approximately $1.5 million, which was included in "Accrued Liabilities" on our Consolidated Balance Sheets, and the lawsuit was dismissed.
Item 4. Mine Safety Disclosures.
Not applicable.
Part II
Item 5. Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities.
Our common shares, without par value, are traded on the NASDAQ Stock Market LLC under the symbol “AGYS”. The high and low sales prices for the common shares for each quarter during the past two fiscal years are presented in the table below.
|
| | | | | | | |
2015 | High | | Low |
Fourth quarter | $ | 12.54 |
| | $ | 9.39 |
|
Third quarter | $ | 12.74 |
| | $ | 10.35 |
|
Second quarter | $ | 14.52 |
| | $ | 11.58 |
|
First quarter | $ | 15.02 |
| | $ | 11.89 |
|
| | | |
2014 | High | | Low |
Fourth quarter | $ | 15.50 |
| | $ | 12.00 |
|
Third quarter | $ | 14.06 |
| | $ | 10.74 |
|
Second quarter | $ | 12.65 |
| | $ | 10.84 |
|
First quarter | $ | 14.24 |
| | $ | 9.83 |
|
The closing price of the common shares on May 28, 2015, was $9.67 per share. There were 1,787 active shareholders of record.
We did not pay dividends in fiscal 2015 or 2014 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, 2010 through March 31, 2015. The stock price performance in this graph is not necessarily indicative of the future performance of our common shares.
Comparison of 5 Year Cumulative Total Return |
| | | | | | | | | | | | | | | | | | |
INDEXED RETURNS |
| | Fiscal Years Ended March 31, |
| Base Period | | | | | |
Company Name / Index | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 |
Agilysys, Inc. | $ | 100.00 |
| $ | 51.39 |
| $ | 80.48 |
| $ | 88.99 |
| $ | 119.96 |
| $ | 88.09 |
|
Russell 2000 | $ | 100.00 |
| $ | 125.79 |
| $ | 125.56 |
| $ | 146.03 |
| $ | 182.39 |
| $ | 197.37 |
|
Peer Group | $ | 100.00 |
| $ | 110.81 |
| $ | 103.16 |
| $ | 127.54 |
| $ | 170.82 |
| $ | 200.76 |
|
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.
Item 6. Selected Financial Data.
The following selected consolidated financial and operating data was derived from our audited consolidated financial statements and the current and prior period operating results of our UK entity, RSG and TSG have been classified within discontinued operations for all periods presented as discussed in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. 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. |
| | | | | | | | | | | | | | | |
| Year ended March 31, |
(In thousands, except per share data) | 2015 | 2014 | 2013 | 2012 | 2011 |
Operating results | | | | | |
Net revenue | $ | 103,514 |
| $ | 101,261 |
| $ | 94,008 |
| $ | 82,051 |
| $ | 88,085 |
|
Gross profit | 60,081 |
| 64,040 |
| 57,619 |
| 49,626 |
| 51,484 |
|
Operating loss | (12,467 | ) | (6,188 | ) | (9,307 | ) | (45,840 | ) | (21,989 | ) |
Loss from continuing operations, net of taxes | (11,497 | ) | (2,895 | ) | (6,214 | ) | (37,493 | ) | (23,558 | ) |
Income (loss) from discontinued operations, net of taxes | — |
| 19,992 |
| 4,916 |
| 14,710 |
| (31,917 | ) |
Net (loss) income | $ | (11,497 | ) | $ | 17,097 |
| $ | (1,298 | ) | $ | (22,783 | ) | $ | (55,475 | ) |
| | | | | |
Per share data (1) | | | | | |
Basic and diluted | | | | | |
Loss from continuing operations | $ | (0.51 | ) | $ | (0.13 | ) | $ | (0.28 | ) | $ | (1.67 | ) | $ | (1.03 | ) |
Income (loss) from discontinued operations | — |
| 0.90 |
| 0.22 |
| 0.65 |
| (1.41 | ) |
Net (loss) income | $ | (0.51 | ) | $ | 0.77 |
| $ | (0.06 | ) | $ | (1.02 | ) | $ | (2.44 | ) |
| | | | | |
Weighted-average shares outstanding - basic and diluted | 22,338 |
| 22,135 |
| 21,880 |
| 22,432 |
| 22,785 |
|
| | | | | |
Balance sheet data at year end | | | | | |
Cash and cash equivalents | $ | 75,067 |
| $ | 99,566 |
| $ | 82,444 |
| $ | 95,511 |
| $ | 73,202 |
|
Working capital | 54,407 |
| 81,711 |
| 72,122 |
| 76,286 |
| 83,005 |
|
Total assets (2) | 181,525 |
| 190,895 |
| 197,498 |
| 204,464 |
| 312,398 |
|
Total debt | 189 |
| 335 |
| 86 |
| 384 |
| 1,211 |
|
Total shareholders’ equity | 124,188 |
| 132,873 |
| 113,856 |
| 114,438 |
| 148,104 |
|
(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.
(2) The decrease in assets from fiscal 2011 to 2012 is due to the sale of TSG.
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 15 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
Agilysys is a leading technology company that provides innovative software for point-of-sale (POS), property management, inventory and procurement, workforce management, analytics, document management and mobile and wireless solutions and services to the hospitality industry. Our solutions and services allow property managers to better connect, interact and transact with their customers and enhance their customer relationships by streamlining operations, improving efficiency, increasing guest recruitment and wallet share, and enhancing the overall guest experience. Agilysys serves four major market sectors: Gaming, both corporate and tribal; Hotels, Resorts and Cruise; Foodservice Management; and Restaurants, Universities, Stadia and Healthcare. A significant portion of our consolidated revenue is derived from contract support, maintenance and subscription services.
Agilysys operates extensively throughout North America, Europe and Asia, with corporate services located in Alpharetta, GA, and offices in Singapore, Hong Kong and Malaysia. Agilysys is comprised of a single operating segment and operates as a pure play software-driven solutions provider to the hospitality industry.
Following the divestiture of the Technology Solutions Group (TSG) in August 2011, the Retail Solutions Group (RSG) in July 2013 and our United Kingdom business entity (UK entity) in March 2014, Agilysys operates as one operating segment and as a pure play software-driven solutions provider to the hospitality industry. The sale of TSG, RSG and the UK entity each represented the disposal of a component of an entity. As such, the operating results of TSG, RSG and the UK entity have been reported as a component of discontinued operations in the Consolidated Financial Statements for the periods presented (see Note 4).
Our top priority is increasing shareholder value by improving operating and financial performance and profitability growing the business through superior products and services. To that end, we expect to invest a certain portion of our cash on hand to develop and market new software products, to fund enhancements to existing software products, to expand our customer breadth, both vertically and geographically, and to make select acquisitions.
The primary objective of our ongoing strategic planning process is to create shareholder value by exploiting growth opportunities and strengthening our competitive position within the specific technology solutions and in the end markets we service. The plan builds on our existing strengths and targets industry leading growth and peer beating financial and operating results driven by new technology trends and market opportunities. Industry leading growth and peer beating financial and operational results will be achieved through tighter coupling and management of operating expenses of the business and sharpening the focus of our investments to concentrate on growth opportunities with the highest return by seeking the highest margin revenue opportunities in the markets in which we compete.
Our strategic plan specifically focuses on:
• Strong customer focus, with clear and realistic service commitments.
| |
• | Growing sales of our proprietary offerings: products, support, maintenance and subscription services and professional services. |
• Diversifying our customer base across industries and geographies.
• Capitalizing on our intellectual property and emerging technology trends.
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 hardware equipment and proprietary and remarketed software. |
| |
• | Support, maintenance and subscription services revenue – Revenue earned from the sale of proprietary and remarketed ongoing support, maintenance and subscription or hosting services. |
| |
• | Professional services revenue – Revenue earned from the delivery of implementation, integration and installation services for proprietary and remarketed products. |
Matters Affecting Comparability
On August 1, 2011, we completed the sale of TSG to OnX Enterprise Solutions Limited and its subsidiary OnX Acquisition LLC (together OnX). For financial reporting purposes, TSG’s operating results for all periods presented were classified within discontinued operations.
On July 1, 2013 we completed the sale of RSG to Kyrus Solutions, Inc. (Kyrus), an affiliate of Clearlake Capital Group, L.P. For financial reporting purposes, RSG’s operating results for all periods presented were classified within discontinued operations.
On March 31, 2014, we completed the sale of our UK entity to Verteda Limited (Verteda), a U.K. based company. In connection with the sale, we have entered into a multi-year distribution agreement, whereby Verteda will distribute certain of our products within the U.K. marketplace. We will continue to manage all property management system accounts as well as key global accounts in the EMEA market. For financial reporting purposes, the UK entity operating results for all period presented were classified within discontinued operations.
Accordingly, the discussion and analysis presented below, reflects our continuing business of.
Results of Operations
Fiscal 2015 Compared with Fiscal 2014
Net Revenue and Operating Loss
The following table presents our consolidated revenue and operating results for the fiscal years ended March 31, 2015 and 2014:
|
| | | | | | | | | | | | | | |
| Year ended March 31, | | Increase (decrease) |
(Dollars in thousands) | 2015 | | 2014 | | $ | | % |
Net revenue: | | | | | | | |
Products | $ | 31,846 |
| | $ | 34,629 |
| | $ | (2,783 | ) | | (8.0 | )% |
Support, maintenance and subscription services | 56,013 |
| | 53,169 |
| | 2,844 |
| | 5.3 | % |
Professional services | 15,655 |
| | 13,463 |
| | 2,192 |
| | 16.3 | % |
Total net revenue | 103,514 |
| | 101,261 |
| | 2,253 |
| | 2.2 | % |
Cost of goods sold: | | | | | | | |
Products, inclusive of developed technology amortization | 18,732 |
| | 17,027 |
| | 1,705 |
| | 10.0 | % |
Support, maintenance and subscription services | 12,461 |
| | 10,786 |
| | 1,675 |
| | 15.5 | % |
Professional services | 12,240 |
| | 9,408 |
| | 2,832 |
| | 30.1 | % |
Total cost of goods sold | 43,433 |
| | 37,221 |
| | 6,212 |
| | 16.7 | % |
Gross profit | 60,081 |
| | 64,040 |
| | (3,959 | ) | | (6.2 | )% |
Gross profit margin | 58.0 | % | | 63.2 | % | | | | |
Operating expenses: | | | | | | | |
Product development | 25,316 |
| | 25,212 |
| | 104 |
| | 0.4 | % |
Sales and marketing | 16,357 |
| | 14,059 |
| | 2,298 |
| | 16.3 | % |
General and administrative | 21,668 |
| | 20,750 |
| | 918 |
| | 4.4 | % |
Depreciation of fixed assets | 2,225 |
| | 2,074 |
| | 151 |
| | 7.3 | % |
Amortization of intangibles | 3,461 |
| | 6,414 |
| | (2,953 | ) | | (46.0 | )% |
Asset write-offs and other fair value adjustments | 1,836 |
| | 327 |
| | 1,509 |
| | nm |
|
Restructuring, severance, and other charges | 1,482 |
| | 1,392 |
| | 90 |
| | nm |
|
Legal settlements | 203 |
| | — |
| | 203 |
| | 100.0 | % |
Operating loss | $ | (12,467 | ) | | $ | (6,188 | ) | | $ | (6,279 | ) | | 101.5 | % |
Operating loss percentage | (12.0 | )% | | (6.1 | )% | | | | |
nm - not meaningful
The following table presents the percentage relationship of our Consolidated Statement of Operations line items to our consolidated net revenues for the periods presented:
|
| | | | | |
| Year ended March 31, |
| 2015 | | 2014 |
Net revenue: | | | |
Products | 30.8 | % | | 34.2 | % |
Support, maintenance and subscription services | 54.1 |
| | 52.5 |
|
Professional services | 15.1 |
| | 13.3 |
|
Total net revenue | 100.0 |
| | 100.0 |
|
Cost of goods sold: | | | |
Products, inclusive of developed technology amortization | 18.1 |
| | 16.8 |
|
Support, maintenance and subscription services | 12.0 |
| | 10.7 |
|
Professional services | 11.9 |
| | 9.3 |
|
Total net cost of goods sold | 42.0 |
| | 36.8 |
|
Gross profit | 58.0 |
| | 63.2 |
|
Operating expenses: | | | |
Product development | 24.5 |
| | 24.9 |
|
Sales and marketing | 15.8 |
| | 13.9 |
|
General and administrative | 20.9 |
| | 20.5 |
|
Depreciation of fixed assets | 2.1 |
| | 2.0 |
|
Amortization of intangibles | 3.3 |
| | 6.3 |
|
Asset write-offs and other fair value adjustments | 1.8 |
| | 0.3 |
|
Restructuring, severance and other charges | 1.4 |
| | 1.4 |
|
Legal settlements | 0.2 |
| | — |
|
Operating loss | (12.0 | )% | | (6.1 | )% |
Net revenue. Total revenue increased $2.3 million, or 2.2%, in fiscal 2015 compared to fiscal 2014. Products revenue decreased $2.8 million, or 8.0%, primarily as a result of a slowing in product sales in line with our strategic initiatives to emphasize subscription based service revenue and new logo business. Support, maintenance and subscription services revenue increased $2.8 million, or 5.3%, as a result of continued focus on selling hosted perpetual and subscription based service revenue which was an increase of 11.3% year over year, and ongoing support from our proprietary product sales. Hosted perpetual and subscription based service revenue comprised 8% of total recurring revenues in 2015 compared to 7% in 2014. Professional services revenue increased $2.2 million, or 16.3%, due to the timing of customer installations including two large service projects during fiscal 2015 that resulted in approximately $1.9 million in revenue.
Gross profit and gross profit margin. Our total gross profit decreased $4.0 million, or 6.2%, in fiscal 2015 and total gross profit margin decreased 520 basis points to 58.0%. Products gross profit decreased $4.5 million and gross profit margin decreased 960 basis points to 41.2% mainly as a result of lower sales of higher margin proprietary software sales which made up a smaller portion of total product sales during fiscal 2015 as compared to fiscal 2014. Also impacting gross profit margin was $1.0 million in incremental amortization expense of software products that were recently placed into service. Support, maintenance and subscription services gross profit increased $1.2 million and gross profit margin decreased 190 basis points to 77.8% due to a change in the mix of labor resources needed for maintenance of our products. Professional services gross profit decreased $0.6 million and gross profit margin decreased 830 basis points to 21.8% as a result of higher cost of labor required in the third and fourth quarter to meet a customer commitment.
Operating expenses
Operating expenses, excluding the charges for asset write-offs and other fair value adjustments, legal settlements and restructuring, severance and other charges, increased $0.5, or 0.7%, in fiscal 2015 compared with fiscal 2014.
Product development. Product development includes all expenses associated with research and development. Product development remained consistent during fiscal 2015 as compared to fiscal 2014. Increases in labor costs as we continue investing in engineering resources to help achieve our planned milestones were offset by the increased capitalization year over year as certain research and
development costs are capitalized as software development costs upon achieving specific milestones in the development life-cycle. We capitalized approximately $17.6 million and $13.7 million during fiscal 2015 and 2014, respectively.
Sales and marketing. Sales and marketing increased $2.3 million, or 16.3%, in fiscal 2015 compared with fiscal 2014. The increase is due mainly to the timing of our sales reorganization as we continue to align and ramp our sales force to better serve our customers and our long term strategy and increased marketing activities surrounding the launch of our next generation product rGuest™.
General and administrative. General and administrative increased $0.9 million, or 4.4%, in fiscal 2015 compared to fiscal 2014. as a result of $1.5 million of increased spend during the first half of fiscal 2015 surrounding the ongoing effort to streamline and rationalize our back-office processes, including the cost of resources involved in an ERP replacement project. This was offset by $0.6 million related to certain software licenses fees incurred in the third quarter of fiscal 2014 that did not recur in the current fiscal year.
Depreciation of fixed assets. Depreciation of fixed assets increased $0.2 million, or 7.3%, in fiscal 2015 as compared to fiscal 2014 due to the timing of asset purchases.
Amortization of intangibles. Amortization of intangibles decreased $3.0 million, or 46.0%, in fiscal 2015 as compared to fiscal 2014. In October 2013, we initiated an internal ERP replacement project and determined that amortization of our existing ERP system should be accelerated resulting in $3.2 million of additional amortization expense in fiscal 2014.
Asset write-offs and other fair value adjustments. Asset write-offs and other fair value adjustments increased $1.5 million in fiscal 2015 as compared to fiscal 2014. The net change was driven by the following factors:
| |
• | Internal use asset write-off. During the fourth quarter of fiscal 2015, a shift in customer preference for next generation offerings with more features and compatibility as compared to our Elevate™ POS hosted subscription solution, resulted in a write-off in the amount of $1.5 million. In fiscal 2014, we wrote off approximately $0.3 million related to certain internal use software in connection with the ERP system replacement project. |
| |
• | Intangible write-off (Developed Technology and Trade Name). As of March 31, 2015, determined that the remaining net book value of our InfoGenesis Mobile (IG Mobile) software exceeded its net realizable value resulting in an impairment charge of $1.4 million. This was driven primarily by customer preference for InfoGenesis Flex (IG Flex), another one of our InfoGenesis POS mobility solutions. In addition, during the fourth quarter of fiscal 2015, certain restructuring activities incurred to better align product development, sales and marketing and general and administrative functions impacted the expected remaining useful life of the products under the Eatec® trade name. The trade name was determined to have a finite life and subsequently written down to its fair value to be amortized over five years. The fair value of this trade name was calculated based on future cash flows over the remaining useful life resulting in an impairment charge of $0.6 million as of March 31, 2015. |
| |
• | Contingent consideration fair value adjustment. The fiscal 2015 write-offs were offset by a gain of $1.6 million recorded in fiscal 2015 to adjust the carrying value of the TimeManagement Corporate (TMC) contingent consideration to fair value. This adjustment was recorded as a result of a decrease in expected revenues associated with the contingent consideration. |
Restructuring, severance and other charges. In the fourth quarter of fiscal 2015, we announced additional restructuring actions designed to continue the effort to better align product development, sales and marketing and general and administrative functions with our company strategy and to reduce operating costs. To date, we have recorded $0.5 million in restructuring charges related to the Q4 fiscal 2015 restructuring activity, comprised of severance and other employee related benefits. As of March 31, 2015, we had a remaining liability of approximately $0.5 million recorded for the Q4 fiscal 2015 restructuring activity.
In the second quarter of fiscal 2015, we implemented restructuring actions to better align product development, sales and marketing and general and administrative functions and to reduce operating costs and recorded $0.2 million in restructuring charges during the first half of fiscal 2015, comprised of severance and other employee related benefits. As of March 31, 2015, there was no remaining liability related to the Q2 fiscal 2015 activity.
In fiscal 2014, following the sale of RSG, we recorded restructuring charges for severance and related employee benefits for a restructuring plan of approximately $0.7 million in order to better align corporate functions with our HSG operating unit and to reduce costs. We also initiated a sales and marketing restructuring plan in order to maximize sales effectiveness and more closely align sales and marketing efforts for targeted vertical growth, new product launches, and marketing alliances. We recorded restructuring charges for severance and related employee benefits of approximately $0.6 million related to the sales and marketing restructuring. During fiscal 2015, we recorded an additional $0.4 million related to the 2014 restructuring activity. As of March 31, 2015, there was no remaining liability related to the fiscal 2014 restructuring.
Our restructuring actions are discussed further in Note 5, Restructuring Charges.
Legal settlements. During fiscal 2015, we recorded $0.2 million in legal settlements to finalize legal disputes originally estimated and recorded in the current fiscal year.
Other (Income) Expenses
|
| | | | | | | | | | | | | | |
| Year ended March 31, | | (Unfavorable) favorable |
(Dollars in thousands) | 2015 | | 2014 | | $ | | % |
Other (income) expenses: | | | | | | | |
Interest income | $ | (110 | ) | | $ | (123 | ) | | $ | (13 | ) | | nm |
|
Interest expense | 48 |
| | 184 |
| | 136 |
| | 73.9 | % |
Other expense (income), net | 146 |
| | (863 | ) | | (1,009 | ) | | nm |
|
Total other expense (income), net | $ | 84 |
| | $ | (802 | ) | | $ | (886 | ) | | nm |
|
nm - not meaningful
Interest income. Interest income remained relatively consistent during fiscal 2015 as compared to fiscal 2014.
Interest expense. Interest expense consists of costs associated with capital leases and loans on corporate-owned life insurance policies. Interest expense decreased in fiscal 2015 compared to fiscal 2014 due to expiration and non-renewal of certain capital leases.
Other income, net. Other income decreased in fiscal 2015 compared to fiscal 2014 primarily due to the gain on the redemption of a company owned life insurance policy of approximately $0.6 million in 2014. This was offset by the impact of foreign currency movement against the US dollar.
Income Taxes
|
| | | | | | | | | | | | | |
| Year ended March 31, | | (Unfavorable) favorable |
(Dollars in thousands) | 2015 | | 2014 | | $ | | % |
Income tax benefit | $ | (1,054 | ) | | $ | (2,491 | ) | | $ | (1,437 | ) | | nm |
Effective tax rate | 8.4 | % | | 46.2 | % | | | | |
nm - not meaningful
For fiscal 2015, 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, a decrease in unrecognized tax benefits attributable to expiration of statute of limitations, state taxes and other U.S. permanent book to tax differences.
For fiscal 2014, the effective tax rate was different than the statutory rate due primarily to the intra-period tax allocation rules associated with the discontinued operations, the expiration of statute of limitations for unrecognized tax positions and recognition of net operating losses as deferred tax assets, which were offset by increases in the valuation allowance. Other items affecting the rate include 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 a reduction in unrecognized tax benefits may occur in the range of zero to less than $0.1 million as a result of the expiration of various statutes of limitations. We are routinely audited and the outcome of tax examinations could also result in a reduction in unrecognized tax benefits. Other changes could occur in the amount of gross unrecognized tax benefits during the next 12 months which cannot be estimated at this time.
Fiscal 2014 Compared to Fiscal 2013
Net Revenue and Operating Loss
The following table presents our consolidated revenue and operating results for the fiscal years ended March 31, 2014 and 2013:
|
| | | | | | | | | | | | | | |
| Year ended March 31, | | Increase (decrease) |
(Dollars in thousands) | 2014 | | 2013 | | $ | | % |
Net revenue: | | | | | | | |
Products | $ | 34,629 |
| | $ | 31,030 |
| | $ | 3,599 |
| | 11.6 | % |
Support, maintenance and subscription services | 53,169 |
| | 49,110 |
| | 4,059 |
| | 8.3 | % |
Professional services | 13,463 |
| | 13,868 |
| | (405 | ) | | (2.9 | )% |
Total net revenue | 101,261 |
| | 94,008 |
| | 7,253 |
| | 7.7 | % |
Cost of goods sold: | | | | | | | |
Products, inclusive of developed technology amortization | 17,027 |
| | 17,109 |
| | (82 | ) | | (0.5 | )% |
Support, maintenance and subscription services | 10,786 |
| | 10,326 |
| | 460 |
| | 4.5 | % |
Professional services | 9,408 |
| | 8,954 |
| | 454 |
| | 5.1 | % |
Total cost of goods sold | 37,221 |
| | 36,389 |
| | 832 |
| | 2.3 | % |
Gross profit | 64,040 |
| | 57,619 |
| | 6,421 |
| | 11.1 | % |
Gross profit margin | 63.2 | % | | 61.3 | % | | | | |
Operating expenses: | | | | | | | |
Product development | 25,212 |
| | 23,892 |
| | 1,320 |
| | 5.5 | % |
Sales and marketing | 14,059 |
| | 13,350 |
| | 709 |
| | 5.3 | % |
General and administrative | 20,750 |
| | 20,984 |
| | (234 | ) | | (1.1 | )% |
Depreciation of fixed assets | 2,074 |
| | 2,137 |
| | (63 | ) | | (2.9 | )% |
Amortization of intangibles | 6,414 |
| | 3,284 |
| | 3,130 |
| | 95.3 | % |
Asset write-offs and other fair value adjustments | 327 |
| | 120 |
| | 207 |
| | nm |
|
Restructuring, severance, and other charges | 1,392 |
| | 1,495 |
| | (103 | ) | | (6.9 | )% |
Legal settlements | — |
| | 1,664 |
| | (1,664 | ) | | nm |
|
Operating loss | $ | (6,188 | ) | | $ | (9,307 | ) | | $ | 3,119 |
| | (33.5 | )% |
Operating loss percentage | (6.1 | )% | | (9.9 | )% | | | | |
nm - not meaningful
The following table presents the percentage relationship of our Consolidated Statement of Operations line items to our consolidated net revenues for the periods presented:
|
| | | | | |
| Year ended March 31, |
| 2014 | | 2013 |
Net revenue: | | | |
Products | 34.2 | % | | 33.0 | % |
Support, maintenance and subscription services | 52.5 |
| | 52.2 |
|
Professional services | 13.3 |
| | 14.8 |
|
Total net revenue | 100.0 |
| | 100.0 |
|
Cost of goods sold: | | | |
Products, inclusive of developed technology amortization | 16.8 |
| | 18.2 |
|
Support, maintenance and subscription services | 10.7 |
| | 11.0 |
|
Professional services | 9.3 |
| | 9.5 |
|
Total cost of goods sold | 36.8 |
| | 38.7 |
|
Gross profit | 63.2 |
| | 61.3 |
|
Operating expenses: | | | |
Product development | 24.9 |
| | 25.4 |
|
Sales and marketing | 13.9 |
| | 14.2 |
|
General and administrative | 20.5 |
| | 22.3 |
|
Depreciation of fixed assets | 2.0 |
| | 2.3 |
|
Amortization of intangibles | 6.3 |
| | 3.5 |
|
Asset write-offs and other fair value adjustments | 0.3 |
| | 0.1 |
|
Restructuring, severance, and other charges | 1.4 |
| | 1.6 |
|
Legal settlements | — |
| | 1.8 |
|
Operating loss | (6.1 | )% | | (9.9 | )% |
Net revenue. Total revenue increased $7.3 million, or 7.7%, in fiscal 2014 compared to fiscal 2013. Products revenue increased $3.6 million, or 11.6%, as a result of continued organic growth in our proprietary software licenses and remarketed product revenue. Support, maintenance and subscription services revenue increased $4.1 million, or 8.3%, as a result of continued focus on selling subscription based hosting revenue, and ongoing support from our growing proprietary product sales. This is offset by a reduction in remarketed support revenue due to a strategic change in one of our third party providers that lowered our costs and the costs to our customers in fiscal 2014. Professional services revenue remained relatively flat.
Gross profit and gross profit margin. Our total gross profit increased $6.4 million, or 11.1%, in fiscal 2014 and total gross profit margin increased 190 basis points to 63.2%. Products gross profit increased $3.7 million and gross profit margin increased 600 basis points to 50.8% mainly as a result of certain developed technology amortization reaching its useful life during fiscal 2013 and the continued focus on higher margin proprietary software sales which made up a larger portion of total product sales in fiscal 2014 compared to fiscal 2013. Developed technology amortization was $0.3 million and $0.8 million in fiscals 2014 and 2013, respectively. Support, maintenance and subscription services gross profit increased $3.6 million and gross profit margin increased 70 basis points to 79.7% due to economies of scale. Professional services gross profit decreased $0.9 million and gross profit margin decreased 530 basis points to 30.1% as a result of higher cost of labor required to meet the needs of certain customer installations.
Operating expenses
Operating expenses, excluding the charges for asset write-offs and other fair value adjustments, legal settlements and restructuring, severance and other charges, increased $4.9 million, or 7.6%, in fiscal 2014 compared with fiscal 2013.
Product development. Product development increased $1.3 million, or 5.5% in fiscal 2014 compared with fiscal 2013. This increase is driven by the continued investment in internal and third party resources to enhance the existing products as well as the early stage development of our future platforms. Certain research and development costs are capitalized as software development costs for future use. We capitalized approximately $13.7 million and $4.9 million during fiscal 2014 and 2013, respectively.
Sales and marketing. Sales and marketing increased $0.7 million, or 5.3%, in fiscal 2014 compared with fiscal 2013. The increase is due to continued investment in domestic sales resources and incremental incentive compensation expense incurred in fiscal 2014 to finalize fiscal 2013 compensation plans.
General and administrative. General and administrative decreased $0.2 million, or 1.1%, in fiscal 2014 compared to fiscal 2013. This is a result of initiatives implemented with the sale of RSG, which resulted in lower employee related costs and certain efficiencies in back-office processes, offset by certain software license fees incurred in the third quarter of fiscal 2014 that are not expected to recur.
Depreciation of fixed assets. Depreciation of fixed assets was relatively flat for fiscal 2014 compared to fiscal 2013.
Amortization of intangibles. In October 2013, we initiated an internal enterprise resource planning (ERP) system replacement project and determined that amortization for our existing ERP system should be accelerated. We recorded approximately $3.2 million in fiscal 2014 of additional amortization in connection with this acceleration. The existing ERP system will be fully amortized as of June 30, 2014. Excluding the accelerated portion, amortization of intangibles remained relatively flat.
Asset write-off and other fair value adjustments. During the third quarter of fiscal 2014, in connection with the ERP system replacement project, we determined that certain internal use developed software would not be continued. As a result, we wrote off the entire asset in the amount of $0.3. During fiscal 2013, we recorded $0.1 million of additional write-offs from the fiscal 2012 related to other developed technologies.
Legal settlements. During the fourth quarter of fiscal 2013, we recorded $1.7 million in legal settlements related to pending lawsuits.
Restructuring, severance and other charges. In fiscal 2014, following the sale of RSG, we recorded restructuring charges for severance and related employee benefits for a restructuring plan of approximately $0.7 million in order to better align corporate functions with our HSG operating unit and to reduce costs. We also initiated a sales and marketing restructuring plan in order to maximize sales effectiveness and more closely align sales and marketing efforts for targeted vertical growth, new product launches, and marketing alliances. We recorded restructuring charges for severance and related employee benefits of approximately $0.6 million related to the sales and marketing restructuring.
In fiscal 2013, we recorded additional expense of $1.1 million for severance and benefits related to the fiscal 2012 restructuring activity. In addition, we recorded $0.3 million in severance costs during the second quarter of fiscal 2013.
Our restructuring activities are expected to be completed in the first half of fiscal 2015 and should total less the $1.0 million. Our restructuring actions are discussed further in Note 5, Restructuring Charges.
Other (Income) Expenses
|
| | | | | | | | | | | | | | |
| Year ended March 31, | | (Unfavorable) favorable |
(Dollars in thousands) | 2014 | | 2013 | | $ | | % |
Other (income) expenses | | | | | | | |
Interest income | $ | (123 | ) | | $ | (13 | ) | | $ | 110 |
| | nm |
|
Interest expense | 184 |
| | 266 |
| | 82 |
| | 30.8 | % |
Other expense (income), net | (863 | ) | | (228 | ) | | 635 |
| | nm |
|
Total other (income) expense, net | $ | (802 | ) | | $ | 25 |
| | $ | 827 |
| | nm |
|
nm - not meaningful
Interest income. Interest income increased during fiscal 2014 compared to fiscal 2013 as a result of higher interest earned in fiscal 2014 from our interest bearing cash accounts and interest received from the redemption of a company owned life insurance policy.
Interest expense. Interest expense consists of costs associated with capital leases and loans on corporate-owned life insurance policies. Interest expense decreased in fiscal 2014 compared to fiscal 2013 due to expiration and non-renewal of certain capital leases.
Other income, net. Other income increased in fiscal 2014 compared to fiscal 2013 primarily due to the gain on the redemption of a company owned life insurance policy of approximately $0.6 million.
Income Taxes
|
| | | | | | | | | | | | | |
| Year ended March 31, | | (Unfavorable) favorable |
(Dollars in thousands) | 2014 | | 2013 | | $ | | % |
Income tax benefit | $ | (2,491 | ) | | $ | (3,118 | ) | | $ | (627 | ) | | nm |
Effective tax rate | 46.2 | % | | 33.4 | % | | | | |
nm - not meaningful
For fiscal 2014 and 2013, the effective tax rate was different than the statutory rate due primarily to the intra-period tax allocation rules associated with the discontinued operations and recognition of net operating losses as deferred tax assets, which were offset by increases in the valuation allowance. Other items affecting the rate include a decrease in unrecognized tax benefits attributable to the expiration of statute of limitations, foreign and state taxes and other U.S. permanent book to tax differences.
Acquisitions
Purchase of assets from Dining Ventures - Fiscal 2015
On July 3, 2014 we purchased certain assets from Dining Ventures, Inc. The acquired assets are the base for our rGuest Seat product, a dining reservations and table management application. The purchase consideration consisted of approximately $3.8 million and was funded with cash on hand. Management concluded that this acquisition was not a material acquisition under the provisions of ASC 805, Business Combinations (ASC 805). The results derived from this purchased asset have been included in our Condensed Consolidated Financial Statements from the date of acquisition and did not have a material impact on our condensed consolidated financial statements or related disclosures.
Purchase of TimeManagement Corporation - Fiscal 2014
On June 10, 2013, we purchased certain assets and assumed certain liabilities of TimeManagement Corporation (TMC), a privately-owned Minneapolis-based technology provider with solutions that streamline workforce management environments for hospitality operators. This technology based acquisition is consistent with the core value we provide to the industry and integrates with our point-of-sale, inventory and procurement systems, including InfoGenesis™ point of sale system and Eatec® inventory and procurement solution. The purchase consideration consisted of $1.8 million in cash paid and $1.8 million of contingent consideration. The fair value of the contingent consideration was estimated to be $1.8 million at the date of acquisition and is expected to be paid out over the next five years. Payments could vary based on actual revenue during that time. The fair value of the contingent consideration was determined by calculating the probability-weighted earn-out payments based on the assessment of the likelihood that certain milestones would be achieved. As of March 31, 2015, we recorded a gain of $1.6 million to adjust the carrying value of the TMC contingent consideration to fair value. This adjustment was recorded as a result of a decrease in expected revenues associated with the contingent consideration. The gain was recorded within "Asset write-offs and other fair value adjustments" in the Consolidated Statements of Operations.
The acquisition was funded with cash on hand. Management concluded that this acquisition was not a material acquisition under the provisions of ASC 805, Business Combinations. The operations of the purchased business have been included in our Consolidated Financial Statements from the date of acquisition and did not have a material impact on our Consolidated Financial Statements or related disclosures.
Additional information regarding the acquisitions are provided in Note 3 to the Consolidated Financial Statements titled, Acquisitions.
Discontinued Operations
UK Entity – Fiscal 2014
In March 2014, we completed the sale of our UK entity to Verteda Limited (Verteda), a U.K. based company, for total consideration of approximately $0.6 million, comprised of $0.7 million in cash and a receivable due to us from Verteda of $0.8 million, net of cash on hand of $0.9 million. During fiscal 2015 we received full payment of the amount due to us from Verteda. In connection with the sale, we have entered into a multi-year distribution agreement whereby Verteda will distribute certain of our products within the U.K. We will continue to manage all property management system accounts as well as key global accounts in the EMEA market. The sale of our UK entity represented a disposal of a component of an entity. As such, the operating results of the UK entity have been reported as a component of discontinued operations in the Consolidated Statements of Operations for the periods presented. In addition, the assets and liabilities of the UK entity are classified as discontinued operations in our Consolidated Balance Sheets for the periods presented.
RSG – Fiscal 2014
In July 2013, we completed the sale of our RSG business to Kyrus Solutions, Inc. (Kyrus), an affiliate of Clearlake Capital Group, L.P., for total consideration of approximately $37.6 million in cash, including a working capital adjustment of $3.1 million. Upon the close of the transaction, the aggregate purchase price was reduced by fees of approximately $1.6 million for transaction related costs, resulting in net proceeds received of approximately $36.0 million. In addition to the purchase agreement, we entered into a transition services agreement with Kyrus, under which we provided certain transitional administrative and support services to Kyrus through January 31, 2014. The sale of RSG represented a disposal of a component of an entity. As such, the operating results of RSG have been reported as a component of discontinued operations in the Consolidated Statements of Operations for the periods presented.
Additional information regarding the discontinued operations are provided in Note 4 to the Consolidated Financial Statements titled, Discontinued Operations.
Restructuring and Related 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. In addition, we assess the property and equipment associated with the related facilities for impairment. The remaining useful lives of property and equipment associated with the related operations are re-evaluated based on the respective restructuring plan, resulting in the acceleration of depreciation and amortization of certain assets.
Fiscal 2015 Restructuring Activity
Q2 - In the second quarter of fiscal 2015, we implemented restructuring actions to better align product development, sales and marketing and general and administrative functions with our company strategy and to reduce operating costs. To date, we have recorded $0.2 million in restructuring charges related to the Q2 fiscal 2015 restructuring activity, comprised of severance and other employee related benefits. As of March 31, 2015, there was no further liability for the Q2 fiscal 2015 restructuring activity.
Q4 - In the fourth quarter of fiscal 2015, we announced additional restructuring actions designed to continue the effort to better align product development, sales and marketing and general and administrative functions with our company strategy and to reduce operating costs. To date, we have recorded $0.5 million in restructuring charges related to the Q4 fiscal 2015 restructuring activity, comprised of severance and other employee related benefits. As of March 31, 2015, we had a remaining liability of approximately $0.5 million recorded for the Q4 fiscal 2015 restructuring activity.
Fiscal 2014 Restructuring Activity
Q1 - In the first quarter of fiscal 2014, we announced restructuring actions to better align corporate functions and to reduce operating costs, following the sale of RSG. These restructuring activities were completed in fiscal 2014. We recorded $0.7 million in restructuring charges during fiscal 2014, comprised of severance and other employee related benefits. As of March 31, 2014, there was no further liability for the Q1 fiscal 2014 restructuring activity.
Q4 - In the fourth quarter of fiscal 2014, we initiated a restructuring plan to maximize sales effectiveness and more closely align sales and marketing efforts for targeted vertical growth, new product launches, and marketing alliances, and to shift development resources to the next generation products. We recorded approximately $0.6 million in restructuring charges during fiscal 2014, comprised of severance and other employee related benefits. As of March 31, 2014, we had a remaining liability of approximately $0.5 million recorded for the Q4 fiscal 2014 restructuring activity.
Fiscal 2012 Restructuring Activity
In the first quarter of fiscal 2012, we announced restructuring actions, including the relocation of our corporate services from Solon, Ohio to Alpharetta, Georgia, designed to better align those services with our operating units and reduce costs following the sale of TSG. These restructuring actions were mostly completed by March 31, 2012 and impacted approximately 130 employees. To date, we have recorded $12.1 million in restructuring charges. These charges were primarily comprised of severance and related benefits. As of March 31, 2015, there was no further liability for fiscal 2012 restructuring activity.
Additional information regarding restructuring charges is provided in Note 5 to the Consolidated Financial Statements titled, Restructuring Charges.
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, 2015. We believe that cash flow from operating activities, cash on hand of $75.1 million as of March 31, 2015, and access to capital markets will provide adequate funds to meet our short-and long-term liquidity requirements.
As of March 31, 2015 and March 31, 2014, our total debt was approximately $0.2 million and $0.3 million, respectively, comprised of capital lease obligations in both periods.
At March 31, 2015, 100% of our cash and cash equivalents were deposited in bank accounts or invested in highly liquid investments with original maturity from date of acquisition of three months or less, including investments in commercial paper, of which 88% is located in the United States. Therefore, we believe that credit risk is limited with respect to our cash and cash equivalents balances.
Cash Flow
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| Year ended March 31, |
(In thousands) | 2015 | | 2014 | | 2013 |
Net cash (used in) provided by continuing operations: | | | | | |
Operating activities | $ | (2,186 | ) | | $ | 1,384 |
| | $ | (13,050 | ) |
Investing activities | (21,632 | ) | | 17,724 |
| | (2,199 | ) |
Financing activities | (401 | ) | | (883 | ) | | (500 | ) |
Effect of exchange rate changes on cash | (280 | ) | | (44 | ) | | (21 | ) |
Cash flows (used in) provided by continuing operations | (24,499 | ) | | 18,181 |
| | (15,770 | ) |
Cash flows (used in) provided by discontinued operations | — |
| | (1,546 | ) | | 1,114 |
|
Net (decrease) increase in cash and cash equivalents | $ | (24,499 | ) | | $ | 16,635 |
| | $ | (14,656 | ) |
Cash flow (used in) provided by operating activities from continuing operations. Cash flows used in operating activities were $2.2 million in fiscal 2015. This was mainly the result of our net loss after adding back certain non-cash items, including $2.2 million of depreciation, $4.8 million in amortization, and $1.8 million of asset write-offs and other fair value adjustments, offset by an overall net use in other operating assets and liabilities of $0.8 million. Change in operating assets and liabilities was driven primarily by increases in accounts receivable and prepaids of $2.5 million, offset by increase in accounts payable and accrued expenses of $1.7 million.
Cash flows provided by operating activities were $1.4 million in fiscal 2014. This was mainly the result of our income after adding back certain non-cash items, including $10.9 million in depreciation, amortization which includes $3.2 million of accelerated amortization for the sun setting of our current ERP system, and stock-based compensation. This is offset by a $7.8 million increase in accounts receivable and a $2.7 million impact of the tax provision on taxes payable.
Cash flows used in operating activities were $13.1 million in fiscal 2013. The use of cash included $11.2 million of non-recurring payments; $4.5 million for BEP and SERP payments and $6.7 million in restructuring, severance and other charges. Also contributing to the use of cash is the decrease in deferred revenue of $5.1 million and a $3.0 million impact of the tax provision on taxes payable. This is offset by the increase in adjustments to net loss of $9.5 million related to legal settlements, depreciation and amortization and stock based compensation. Additional offsets to the use of cash include an increase in accounts payable of $1.6 million related to the purchase of products to support the large remarketed product sales.
Cash flow provided by (used in) investing activities from continuing operations. Cash flows used in investing activities in fiscal 2015 were $21.6 million. This is primarily attributed to $15.8 million of capitalized software development costs, $4.7 million of fixed asset purchases, $3.8 million for the acquisition of developed technology for our rGuest Seat product, offset by $2.0 million and $0.8 million for proceeds from company owned life insurance policies and sale of the UK business unit, respectively.
In fiscal 2014, the $17.7 million in cash flows provided by investing activities were primarily comprised of $35.8 million net proceeds from the sale of RSG and our UK entity, offset by $1.8 million paid for the acquisition of TMC, $12.2 million was used for the development of proprietary software and $4.0 million for the enhancement of internal use software and the purchase of property and equipment.
In fiscal 2013, the $2.2 million in cash used in investing activities was primarily comprised of $3.9 million used for the development of proprietary software and $2.5 million used for the purchase of property and equipment, offset by $4.3 million in funds from the sale of marketable securities (Rabbi Trust). The funds from the Rabbi Trust were used to settle employee benefit obligations.
Cash flow used in financing activities from continuing operations. In fiscal 2015, the $0.4 million cash flows used in financing activities were primarily comprised of the repurchase of shares to satisfy employee tax withholding and exercise costs related to equity awards and payments of capital lease obligations.
In fiscal 2014, the $0.9 million cash flows used in financing activities were primarily comprised of the repurchase of shares to satisfy employee tax withholding and exercise costs related to equity awards and payments of capital lease obligations.
In fiscal 2013, the $0.5 million used in financing activities was primarily comprised of payments on capital lease obligations and the repurchase of shares to satisfy employee tax withholding related to equity awards.
Investments
Investments in Corporate-Owned Life Insurance Policies and Marketable Securities
Our invests in corporate-owned life insurance policies and marketable securities primarily to satisfy future obligations of certain employee benefit plans. Our investment in corporate-owned life insurance policies was recorded at their cash surrender value, which approximates fair value, at the balance sheet date. During fiscal 2015, we received cash proceeds of $2.0 million related to the death benefit due to us on redemption of one of these policies. The cash surrender value of $2.5 million for the remaining policies were held in “Other non-current assets” at the balance sheet date. In additions, certain of these corporate-owned life insurance policies are endorsement split-dollar life insurance arrangements. We entered into a separate agreement with each of the former executives covered by these arrangements whereby we split a portion of the policy benefits with the former executive's designated beneficiary.
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, 2015.
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(In thousands) | Total | 2016 | 2017-2018 | 2019-2020 | Thereafter |
Operating leases (1) | $ | 11,973 |
| $ | 2,285 |
| $ | 4,057 |
| $ | 3,032 |
| $ | 2,599 |
|
Contingent consideration | 112 |
| 8 |
| 16 |
| 16 |
| 72 |
|
Restructuring liabilities | 450 |
| 450 |
| — |
| — |
| — |
|
Capital leases | 196 |
| 147 |
| 49 |
| — |
| — |
|
Asset retirement obligation | 435 |
| 35 |
| 150 |
| — |
| 250 |
|
Total contractual obligations (2) | $ | 13,166 |
| $ | 2,925 |
| $ | 4,272 |
| $ | 3,048 |
| $ | 2,921 |
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(1) | Operating lease obligations are presented net of contractually binding sub-lease arrangements. Additional information regarding our operating lease obligations is contained in Note 13, Commitments and Contingencies. |
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(2) | At March 31, 2015, we had a $1.8 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 11 to the Consolidated Financial Statements titled, Income Taxes.
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We believe that cash on hand, funds from continuing 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.
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.
Revenue recognition. We derive revenue from the sale of products (i.e., server, storage, and point of sale hardware, and software), support, maintenance and subscription services and professional services. Revenue is recorded in the period in which the goods are delivered or services are rendered and when the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the sales price to the customer is fixed or determinable, and collection is reasonably assured. We reduce revenue for estimated discounts, sales incentives, estimated customer returns, and other allowances. Discounts are offered based on the volume of products and services purchased by customers. 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.
We frequently enter into multiple-element arrangements with customers including hardware, software, professional consulting services and maintenance support services. For arrangements involving multiple deliverables, when deliverables include software and non-software products and services, we evaluate and separate each deliverable to determine whether it represents a separate unit of accounting based on the following criteria: (a) the delivered item has value to the customer on a stand-alone basis; and (b) if the
contract includes a general right of return relative to the delivered item, delivery or performance of the undelivered items is considered probable and substantially in our control.
Consideration is allocated to each unit of accounting based on the unit's relative selling prices. In such circumstances, we use a hierarchy to determine the selling price to be used for allocating revenue to each deliverable: (i) vendor-specific objective evidence of selling price (VSOE), (ii) third-party evidence of selling price (TPE), and (iii) best estimate of selling price (BESP). VSOE generally exists only when we sell the deliverable separately and is the price actually charged by us for that deliverable. VSOE is established for our software maintenance services and we use TPE or BESP to establish selling prices for our non-software related services. BESP is primarily used for elements that are not consistently priced within a narrow range or TPE is not available. We determine BESP for a deliverable by considering multiple factors including product class, geography, average discount, and management's historical pricing practices. Amounts allocated to the delivered hardware and software elements are recognized at the time of sale provided the other conditions for revenue recognition have been met. Amounts allocated to the undelivered maintenance and other services elements are recognized as the services are provided or on a straight-line basis over the service period. In certain instances, customer acceptance is required prior to the passage of title and risk of loss of the delivered products. In such cases, revenue is not recognized until the customer acceptance is obtained. Delivery and acceptance generally occur in the same reporting period.
In situations where our solutions contain software that is more than incidental, revenue related to the software and software-related elements is recognized in accordance with authoritative guidance on software revenue recognition. For the software and software-related elements of such transactions, revenue is allocated based on the relative fair value of each element, and fair value is determined by VSOE. If we cannot objectively determine the fair value of any undelivered element included in such multiple-element arrangements, we defer revenue until all elements are delivered and services have been performed, or until fair value can objectively be determined for any remaining undelivered elements. When the fair value of a delivered element has not been established, but fair value exists for the undelivered elements, we use the residual method to recognize revenue. Under the residual method, the fair value of the undelivered elements is deferred and the remaining portion of the arrangement fee is allocated to the delivered elements and is recognized as revenue.
Revenue recognition for complex contractual arrangements, especially those with multiple elements, requires a significant level of judgment and is based upon a review of specific contracts, past experience, the selling price of undelivered elements when sold separately, creditworthiness of customers, international laws and other factors. Changes in judgments about these factors could impact the timing and amount of revenue recognized between periods.
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. A majority of our hardware sales involves shipment directly from its suppliers to the end-user customers. In these transactions, we are responsible for negotiating price both with the supplier and the customer, payment to the supplier, establishing payment terms and product returns with the customer, and we bear the credit risk if the customer does not pay for the goods. As the principal contact with the customer, we recognize revenue and cost of goods sold when we are notified by the supplier that the product has been shipped. In certain limited instances, as shipping terms dictate, revenue is recognized upon receipt at the point of destination or upon installation at the customer site.
We offer proprietary software as well as remarketed software for sale to our customers. We offer our customers the right to license the software under a variety of models. Our customers can license our software under a perpetual model for an upfront fee or a subscription model. For subscription arrangements, we allow customers the right to use software, receive unspecified products as well as unspecified upgrades and enhancements and entitle the customer to receive hosting services for a specified term. The subscription revenue is generally recognized ratably over the term of the arrangement, typically three to five years. Revenue from subscription service arrangements is included in Support, maintenance and subscription services in the Consolidated Statements of Operations. A majority of our software sales do not require significant production, modification, or customization at the time of shipment (physically or electronically) to the customer. Substantially all of our software license arrangements do not include acceptance provisions. As such, revenue from both proprietary and remarketed software sales is typically recognized when the software has been shipped. For software delivered electronically, delivery is considered to have occurred when the customer either takes possession of the software via downloading or has been provided with the requisite codes that allow for immediate access to the software based on the U.S. Eastern time zone time stamp.
We also offer proprietary and third-party services to our customers. Proprietary services generally include: consulting, installation, integration and training. Many of our software arrangements include consulting services sold separately under consulting engagement contracts. When the arrangements qualify as service transactions, consulting revenue from these arrangements are accounted for separately from the software revenue. The significant factors considered in determining whether the revenue should be accounted for separately include the nature of the services (i.e., consideration of whether the services are essential to the functionality of the software), degree of risk, availability of services from other vendors, timing of payments, and the impact of milestones or other customer acceptance criteria on revenue realization. If there is significant uncertainty about the project completion or receipt of payment for consulting services, the revenue is deferred until the uncertainty is resolved.
For certain long-term proprietary service contracts with fixed or “not to exceed” fee arrangements, we estimate proportional performance using the hours incurred as a percentage of total estimated hours to complete the project consistent with the percentage-of-completion method of accounting. Accordingly, revenue for these contracts is recognized based on the proportion of the work performed on the contract. If there is no sufficient basis to measure progress toward completion, the revenue is recognized when final customer acceptance is received. Adjustments to contract price and estimated service hours are made periodically, and losses expected to be incurred on contracts in progress are charged to operations in the period such losses are determined. The aggregate of collections on uncompleted contracts in excess of related revenue is shown as a current liability.
If an arrangement does not qualify for separate accounting of the software and consulting services, then the software revenue is recognized together with the consulting services using the percentage-of-completion or completed contract method of accounting. Contract accounting is applied to arrangements that include: milestones or customer-specific acceptance criteria that may affect the collection of revenue, significant modification or customization of the software, or provisions that tie the payment for the software to the performance of consulting services.
We also offer proprietary and third-party support to our customers. Support generally includes: support and maintenance of software and hardware products and subscription services. Revenue relating to proprietary support services is recognized evenly over the coverage period of the underlying agreement within support, maintenance and subscription revenue. In instances where we offer third-party support contracts to our customer, and the supplier is determined to be the primary obligor in the transaction, we report revenue at the time of the sale, only in the amount of the “commission” (equal to the selling price less the cost of sale) received rather than reporting revenue in the full amount of the selling price with separate reporting of the cost of sale.
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 historical 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.
Inventories. Inventories are stated at the lower of cost or market, net of related reserves. The cost of inventory is computed using a weighted-average costing method. Our inventory is monitored to ensure appropriate valuation. Adjustments of inventories to lower of cost or market, if necessary, are based upon contractual provisions governing 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 $76.4 million as of March 31, 2015 and $73.0 million as of March 31, 2014, 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 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 11 to Consolidated Financial Statements titled, Income Taxes.
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 subject to impairment testing at least annually, unless it is determined after a qualitative assessment that it is more likely than not that the fair value of the reporting unit is greater than its carrying amount. Goodwill is measured 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.
For fiscal 2015 and 2014, we conducted a qualitative assessment (Step Zero Analysis) to determine whether it would be necessary to perform step one of the two-step goodwill impairment test. It was determined based on the Step Zero Analysis that it is more likely than not that the fair value exceeded the carrying amount as of February 1, 2015. Additional information regarding our goodwill and impairment analyses is provided in Note 7, Goodwill and Intangible Assets.
We had two indefinite-lived intangible assets relating to purchased trade names. During the fourth quarter of fiscal 2015, one of the two trade names was determined to have a finite life and subsequently written down to its fair value to be amortized over five years. The remaining indefinite-lived intangible asset is not amortized; rather, it is tested for impairment at least annually by comparing the carrying amount of the asset with the fair value. An impairment loss is recognized if the carrying amount is greater than fair value. The income approach using “the relief from royalty method” was used to value the trade names as of February 1, 2015. Additional information regarding our intangible assets and impairment analyses is provided in Note 7, Goodwill and Intangible Assets.
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. Our restructuring charges are described further in Note 5 to Consolidated Financial Statements titled, Restructuring Charges.
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. Additional information regarding the assumptions used to value share-based compensation awards is provided in Note 15 to the accompanying Consolidated Financial Statements titled, Share-Based Compensation.
Capitalized Software Development Costs. We capitalize certain costs related to the development of computer software. Capitalization of these costs begins when a detail program design or working model has been produced as evidenced by the completion of design, planning, coding and testing, such that the product meets its design specifications and has thereby established technological feasibility. Capitalization of these costs ends when the resulting product is available for general release to the public. 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 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 capitalized approximately $17.2 million, $13.7 million and $4.9 million during fiscal 2015, 2014 and 2013, respectively. Amortization of non-acquired developed capitalized software was $1.2 million, $0.2 million and $0.1 million during fiscal 2015, 2014 and 2013, respectively.
Adopted and Recently Issued Accounting Pronouncements.
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers, which converges the FASB and the International Accounting Standards Board standard on revenue
recognition. Areas of revenue recognition that will be affected include, but are not limited to, transfer of control, variable consideration, allocation of transfer pricing, licenses, time value of money, contract costs and disclosures. This is effective for the fiscal years and interim reporting periods beginning after December 15, 2016. In April 2015, the FASB voted for a one-year deferral of the effective date of the new revenue recognition standard. Transition to the new guidance may be done using either a full or modified retrospective method. We are currently evaluating the impact that the adoption of ASU 2014-09 will have on our consolidated financial statements or related disclosures.
In April 2014, FASB issued ASU No. 2014-08, Presentation of Financial Statements and Property, Plant and Equipment: Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, which requires only disposals representing a strategic shift in operations that have a major effect on operations and financial results to be presented as discontinued operations. The guidance also requires expanded financial disclosures about discontinued operations and significant disposals that do not qualify as discontinued operations. This is effective for the fiscal years and interim reporting periods beginning after December 15, 2014. The adoption of the ASU did not have any impact on our financial statements.
In July 2013, FASB issued ASU No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. ASU 2013-11 clarifies guidance and eliminates diversity in practice on the presentation of unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists at the reporting date. This new guidance is effective on a prospective basis for fiscal years and interim reporting periods within those years, beginning after December 15, 2013. We adopted the provisions of ASU 2013-11 beginning April 1, 2014. The adoption of the ASU did not have any impact on our financial statements.
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 2015, 2014 and 2013, revenue from international operations was 5%, 5% and 6%, 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 2015, 2014 and 2013 fiscal years. At March 31, 2015, a hypothetical 10% weakening of the U.S. dollar would not materially affect our financial statements.
We believe that inflation has had a nominal effect on our results of operations in fiscal years 2015, 2014 and 2013 and do not expect inflation to be a significant factor in fiscal 2015.
Item 8. Financial Statements and Supplementary Data.
Agilysys, Inc. and Subsidiaries
ANNUAL REPORT ON FORM 10-K
Year Ended March 31, 2015
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
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Report of Independent Registered Public Accounting Firm - PricewaterhouseCoopers LLP | |
Consolidated Balance Sheets as of March 31, 2015 and 2014 | |
Consolidated Statements of Operations for the years ended March 31, 2015, 2014, and 2013 | |
Consolidated Statements of Comprehensive Loss for the years ended March 31, 2015, 2014, and 2013 | |
Consolidated Statements of Cash Flows for the years ended March 31, 2015, 2015 and 2013 | |
Consolidated Statements of Shareholders' Equity for the years ended March 31, 2015, 2014, and 2013 | |
Notes to Consolidated Financial Statements | |
Schedule II - Valuation and Qualifying Accounts for the years ended March 31, 2015, 2014, and 2013 | |
Report of Independent Registered Public Accounting Firm
To Board of Directors and Shareholders
of Agilysys, Inc. and Subsidiaries:
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, comprehensive income (loss), cash flows and shareholders' equity listed in the accompanying index present fairly, in all material respects, the financial position of Agilysys, Inc. and its subsidiaries at March 31, 2015 and March 31, 2014, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2015 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of March 31, 2015, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
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 (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) 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 (iii) 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/ PricewaterhouseCoopers LLP
Atlanta, Georgia
June 5, 2015
AGILYSYS, INC.
CONSOLIDATED BALANCE SHEETS |
| | | | | | | |
| As of March 31, |
(In thousands, except share data) | 2015 | | 2014 |
| | | |
ASSETS | | | |
| | | |
Cash and cash equivalents | $ | 75,067 |
| | $ | 99,566 |
|
Accounts receivable, net of allowance for doubtful accounts of $888 and $1,101, respectively | 25,481 |
| | 23,615 |
|
Inventories | 641 |
| | 481 |
|
Prepaid expenses | 3,820 |
| | 3,300 |
|
Other current assets | 8 |
| | 2,892 |
|
Total current assets | 105,017 |
| | 129,854 |
|
Property and equipment, net | 11,929 |
| | 12,251 |
|
Goodwill | 19,622 |
| | 17,158 |
|
Intangible assets, net | 9,006 |
| | 10,626 |
|
Software development costs, net | 31,818 |
| | 17,221 |
|
Other non-current assets | 4,133 |
| | 3,785 |
|
Total assets | $ | 181,525 |
| | $ | 190,895 |
|
| | | |
LIABILITIES AND SHAREHOLDERS' EQUITY | | | |
Current liabilities: | | | |
Accounts payable | $ | 16,586 |
| | $ | 11,073 |
|
Deferred revenue | 23,881 |
| | 22,795 |
|
Accrued liabilities | 10,001 |
| | 14,232 |
|
Capital lease obligations, current | 142 |
| | 43 |
|
Total current liabilities | 50,610 |
| | 48,143 |
|
Deferred income taxes, non-current | 3,053 |
| | 3,422 |
|
Capital lease obligations, non-current | 47 |
| | 292 |
|
Other non-current liabilities | 3,627 |
| | 6,165 |
|
Commitments and contingencies (see Note 13) |
| |
|
Shareholders' equity: | | | |
Common shares, without par value, at $0.30 stated value; 80,000,000 shares authorized; 31,606,831 shares issued; and 22,789,355 and 22,467,970 shares outstanding at March 31, 2015 and 2014, respectively | 9,482 |
| | 9,482 |
|
Treasury shares, 8,817,477 and 9,138,861 at March 31, 2015 and 2014, respectively | (2,646 | ) | | (2,741 | ) |
Capital in excess of stated value | (10,675 | ) | | (13,409 | ) |
Retained earnings | 128,178 |
| | 139,675 |
|
Accumulated other comprehensive loss | (151 | ) | | (134 | ) |
Total shareholders' equity | 124,188 |
| | 132,873 |
|
Total liabilities and shareholders' equity | $ | 181,525 |
| | $ | 190,895 |
|
See accompanying notes to consolidated financial statements.
AGILYSYS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
|
| | | | | | | | | | | |
| Year ended March 31, |
(In thousands, except per share data) | 2015 | | 2014 | | 2013 |
Net revenue: | | | | | |
Products | $ | 31,846 |
| | $ | 34,629 |
| | $ | 31,030 |
|
Support, maintenance and subscription services | 56,013 |
| | 53,169 |
| | 49,110 |
|
Professional services | 15,655 |
| | 13,463 |
| | 13,868 |
|
Total net revenue | 103,514 |
| | 101,261 |
| | 94,008 |
|
Cost of goods sold: | | | | | |
Products, inclusive of developed technology amortization | 18,732 |
| | 17,027 |
| | 17,109 |
|
Support, maintenance and subscription services | 12,461 |
| | 10,786 |
| | 10,326 |
|
Professional services | 12,240 |
| | 9,408 |
| | 8,954 |
|
Total cost of goods sold | 43,433 |
| | 37,221 |
| | 36,389 |
|
Gross profit | 60,081 |
| | 64,040 |
| | 57,619 |
|
Gross profit margin | 58.0 | % | | 63.2 | % | | 61.3 | % |
Operating expenses: | | | | | |
Product development | 25,316 |
| | 25,212 |
| | 23,892 |
|
Sales and marketing | 16,357 |
| | 14,059 |
| | 13,350 |
|
General and administrative | 21,668 |
| | 20,750 |
| | 20,984 |
|
Depreciation of fixed assets | 2,225 |
| | 2,074 |
| | 2,137 |
|
Amortization of intangibles | 3,461 |
| | 6,414 |
| | 3,284 |
|
Asset write-offs and other fair value adjustments | 1,836 |
| | 327 |
| | 120 |
|
Restructuring, severance, and other charges | 1,482 |
| | 1,392 |
| | 1,495 |
|
Legal settlements | 203 |
| | — |
| | 1,664 |
|
Operating loss | (12,467 | ) | | (6,188 | ) | | (9,307 | ) |
Other (income) expenses: | | | | | |
Interest income | (110 | ) | | (123 | ) | | (13 | ) |
Interest expense | 48 |
| | 184 |
| | 266 |
|
Other expense (income), net | 146 |
| | (863 | ) | | (228 | ) |
Loss before income taxes | (12,551 | ) | | (5,386 | ) | | (9,332 | ) |
Income tax benefit | (1,054 | ) | | (2,491 | ) | | (3,118 | ) |
Loss from continuing operations | (11,497 | ) | | (2,895 | ) | | (6,214 | ) |
Income from discontinued operations, net of taxes | — |
| | 19,992 |
| | 4,916 |
|
Net (loss) income | $ | (11,497 | ) | | $ | 17,097 |
| | $ | (1,298 | ) |
| | | | | |
Weighted average shares outstanding - basic and diluted | 22,338 |
| | 22,135 |
| | 21,880 |
|
| | | | | |
Net (loss) income per share - basic and diluted: | | | | | |
Loss from continuing operations | $ | (0.51 | ) | | $ | (0.13 | ) | | $ | (0.28 | ) |
Income from discontinued operations | — |
| | 0.90 |
| | 0.22 |
|
Net (loss) income per share | $ | (0.51 | ) | | $ | 0.77 |
| | $ | (0.06 | ) |
See accompanying notes to consolidated financial statements.
AGILYSYS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
|
| | | | | | | | | | | | |
| Year ended March 31, |
(In thousands) | | 2015 | | 2014 | | 2013 |
Net (loss) income | | $ | (11,497 | ) | | $ | 17,097 |
| | $ | (1,298 | ) |
Other comprehensive (loss) income, net of tax: | | | | | | |
Unrealized foreign currency translation adjustments | | (9 | ) | | 220 |
| | (1,126 | ) |
Reclassification of foreign currency translation adjustments included in net income (loss) | |
|
| | 745 |
| | — |
|
Unrealized loss on sale of securities | | (8 | ) | | — |
| | (4 | ) |
Total comprehensive (loss) income | | $ | (11,514 | ) | | $ | 18,062 |
| | $ | (2,428 | ) |
See accompanying notes to consolidated financial statements.
AGILYSYS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS |
| | | | | | | | | | | |
(In thousands) | Year ended March 31, |
| 2015 | | 2014 | | 2013 |
Operating activities | | | | | |
Net income (loss) | $ | (11,497 | ) | | $ | 17,097 |
| | $ | (1,298 | ) |
Less: Income from discontinued operations | — |
| | 19,992 |
| | 4,916 |
|
Loss from continuing operations | (11,497 | ) | | (2,895 | ) | | (6,214 | ) |
Adjustments to reconcile loss from continuing operations to net cash used in operating activities: | | | | | |
Restructuring, severance and other charges | 1,482 |
| | 1,392 |
| | 1,495 |
|
Payments for restructuring, severance and other charges | (1,348 | ) | | (1,741 | ) | | (6,673 | ) |
Legal settlements | 203 |
| | — |
| | 1,664 |
|
Payments for legal settlements | (1,714 | ) | | (110 | ) | | — |
|
Asset write-offs | 3,454 |
| | 327 |
| | 120 |
|
Depreciation | 2,225 |
| | 2,074 |
| | 2,137 |
|
Amortization | 4,755 |
| | 6,726 |
| | 4,089 |
|
Share-based compensation | 3,140 |
| | 2,119 |
| | 1,638 |
|
Contingent consideration adjustment | (1,619 | ) | | — |
| | — |
|
Deferred income taxes | (371 | ) | | (178 | ) | | (244 | ) |
Change in cash surrender value of company owned life insurance policies | (57 | ) | | (600 | ) | | (107 | ) |
Excess tax benefit from equity awards | (14 | ) | | (37 | ) | | — |
|
Changes in operating assets and liabilities: | | | | | |
Accounts receivable | (1,935 | ) | | (7,846 | ) | | (741 | ) |
Inventories | (171 | ) | | 380 |
| | 426 |
|
Prepaid expense | (526 | ) | | (498 | ) | | (801 | ) |
Accounts payable | 5,528 |
| | 1,073 |
| | 1,595 |
|
Deferred revenue | 1,146 |
| | 2,784 |
| | (5,046 | ) |
Accrued liabilities | (3,868 | ) | | 1,624 |
| | (3,170 | ) |
Income taxes receivable | (823 | ) | | (2,702 | ) | | (2,960 | ) |
Other changes, net | (176 | ) | | (508 | ) | | (258 | ) |
Net cash provided by (used in) operating activities from continuing operations | (2,186 | ) | | 1,384 |
| | (13,050 | ) |
Net cash (used in) provided by operating activities from discontinued operations | — |
| | (1,311 | ) | | 2,345 |
|
Net cash provided by (used in) operating activities | (2,186 | ) | | 73 |
| | (10,705 | ) |
Investing activities | | | | | |
Proceeds from sale of business units | 809 |
| | 35,846 |
| | — |
|
Cash paid for acquisitions, net | (3,750 | ) | | (1,812 | ) | | — |
|
Investment in marketable securities | (10,240 | ) | | — |
| | — |
|
Proceeds from sale of marketable securities | 10,107 |
| | — |
| | 4,347 |
|
Capital expenditures | (4,650 | ) | | (4,023 | ) | | (2,532 | ) |
Capitalized software development costs | (15,813 | ) | | (12,200 | ) | | (3,906 | ) |
Additional (investments in) proceeds from corporate-owned life insurance policies | 1,905 |
| | (87 | ) | | (108 | ) |
Net cash provided by (used in) investing activities from continuing operations | (21,632 | ) | | 17,724 |
| | (2,199 | ) |
Net cash used in investing activities from discontinued operations | — |
| | (155 | ) | | (854 | ) |
Net cash provided by (used in) investing activities | (21,632 | ) | | 17,569 |
| | (3,053 | ) |
Financing activities | | | | | |
Principal payments under long-term obligations | (144 | ) | | (177 | ) | | (289 | ) |
Exercise of employee stock options | 102 |
| | 169 |
| | 67 |
|
Repurchase of common shares to satisfy employee tax withholding and option price | (373 | ) | | (912 | ) | | (278 | ) |
Excess tax benefit from equity awards | 14 |
| | 37 |
| | — |
|
Net cash used in financing activities from continuing operations | (401 | ) | | (883 | ) | | (500 | ) |
Net cash used in financing activities from discontinued operations | — |
| | (80 | ) | | (377 | ) |
Net cash used in financing activities | (401 | ) | | (963 | ) | | (877 | ) |
Effect of exchange rate changes on cash | (280 | ) | | (44 | ) | | (21 | ) |
Cash flows provided by (used in) continuing operations | (24,499 | ) | | 18,181 |
| | (15,770 | ) |
Cash flows (used in) provided by discontinued operations | — |
| | (1,546 | ) | | 1,114 |
|
Net increase (decrease) in cash and cash equivalents | (24,499 | ) | | 16,635 |
| | (14,656 | ) |
Cash and cash equivalents at beginning of period | 99,566 |
| | 82,931 |
| | 97,587 |
|
Cash and cash equivalents at end of period | $ | 75,067 |
| | $ | 99,566 |
| | $ | 82,931 |
|
Less cash presented in current assets of discontinued operations on balance sheet | — |
| | — |
| | 487 |
|
Cash and cash equivalents at end of period - continuing operations | $ | 75,067 |
| | $ | 99,566 |
| | $ | 82,444 |
|
See accompanying notes to consolidated financial statements.
AGILYSYS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
|
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | Capital in | | Accumulated | |
| Common Shares | excess of | | other | |
| Issued | In Treasury | stated | Retained | comprehensive | |
(In thousands, except share data) | Shares | Stated value | Shares | Stated value | value | earnings | loss | Total |
Balance at March 31, 2012 | 31,607 |
| $ | 9,482 |
| (9,731 | ) | $ | (2,919 | ) | $ | (16,032 | ) | $ | 123,876 |
| $ | 31 |
| $ | 114,438 |
|
Non-cash share based compensation expense | — |
| |