Third Consecutive Quarter of Record Revenue Includes Recurring Revenue Increase of 12.4% to Record $19.3 Million, Inclusive of 25% Growth in Subscription Revenue
 
Fourth Consecutive Quarter of Positive Adjusted Earnings From Operations

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Alpharetta, GA – January 24, 2019 – Agilysys, Inc. (Nasdaq: AGYS), a global provider of next-generation hospitality software solutions and services, today reported operating results for its fiscal 2019 third quarter ended December 31, 2018. 
 
Summary of Fiscal 2019 Third Quarter Financial Results • Total net revenue was a record $36.0 million, compared to total net revenue of $31.3 million in the comparable prior-year period. 
 
• Recurring revenues (which are comprised of support, maintenance and subscription services) were a record $19.3 million, or 54% of total net revenue, compared to $17.2 million, or 55% of total net revenue, for the same period in fiscal 2018. Subscription revenues increased 25% year over year and comprised 32% of total recurring revenues, compared to 29% of total recurring revenues in the third quarter of fiscal 2018.
 
• Gross margin was 51.8% in the fiscal 2019 third quarter, compared to 49.9% in the prior-year period.  
 
• Net loss in the fiscal 2019 third quarter was $(4.0) million, or $(0.18) per diluted share, compared to a net loss of $(1.9) million, or $(0.08) per diluted share, in the prior-year period, which included an income tax benefit of $1.6 million and a software development costs capitalization benefit of approximately $1.8 million, which did not occur in the fiscal 2019 third quarter.   
 
• Adjusted EBITDA (non-GAAP) was $2.1 million in both the fiscal 2019 and fiscal 2018 third quarter periods.  As described below, due to a change in software development and deployment practices that went into effect in the fiscal 2019 second quarter, the fiscal 2019 third quarter did not have the benefit of capitalizing software development costs. In the fiscal 2018 third quarter, $1.8 million of software development costs were capitalized. Assuming no software development costs were capitalized in the fiscal 2018 third quarter as well, Adjusted EBITDA in the fiscal 2019 third quarter of $2.1 million would compare to $0.3 million in the fiscal 2018 third quarter (see reconciliation below).
 
• Adjusted earnings from operations (“AOE”) (non-GAAP) in the fiscal 2019 third quarter was $1.9 million, compared to a loss in the fiscal 2018 third quarter of $(1.9) million (see reconciliation below). 
 
As previously reported, earlier in fiscal 2019 the Company adopted agile development and deployment practices across all of its products, allowing for significantly reduced time between the design of new products and their distribution in the market. The result of this change increased the amount of product development costs included in operating expenses and as a result there were no product development costs capitalized in the fiscal 2019 third quarter.  A reconciliation table on the last page of this release provides a comparison of the previously reported fiscal 2018 third quarter Adjusted EBITDA to a presentation that incorporates all software development costs as if they were not capitalized in both periods. 
 
Ramesh Srinivasan, President and CEO of Agilysys, commented, “The fiscal 2019 third quarter results reflect our ongoing positive business momentum as we generated record total revenue and record recurring revenue, marking our third consecutive quarter of record revenue and fifth consecutive quarter of sequential revenue growth, as well as our second consecutive quarter of record recurring revenue. Our revenue growth continues to be driven by growth in subscriptionbased revenue, which rose 25% compared to the prior-year period. The fiscal 2019 third quarter was also one of our best-ever sales bookings quarters globally across the Americas, Europe and Asia regions, which positions us well for continued revenue and profitability growth. In addition, through the first nine months of fiscal 2019, our combined recurring revenue and highly predictable services revenue is up more than 9% compared to the comparable prior-year period. These revenues accounted for more than 70% of total revenue, providing us with strong revenue visibility.  

 
“In addition, our continuing focus on efficiency across our operations is helping us to deliver profitable revenue growth. AOE in the fiscal 2019 third quarter was $1.9 million and through the first nine months of fiscal 2019 was $4.1 million, a $10.6 million improvement over the same period in fiscal 2018 on an $8.9 million revenue improvement.
 
“We entered fiscal 2019 with the goal of building on the turnaround we effected in the business throughout fiscal 2018 to deliver growing top-line results and a significant improvement in AOE. Our financial results to date offer clear evidence that we are achieving these goals and that we have a solid foundation to achieve consistent growth as our business momentum accelerates further. Notwithstanding flat revenue in Q1, due to the revenue acceleration we achieved in Q2 and Q3, we are on track to achieve our expectation for full year revenue growth of approximately 10%, with Q4 expected to be another record revenue quarter. We also now expect that full year AOE and our year-end cash balance will significantly exceed our prior guidance target levels.
 
“We are well positioned with growing momentum in the market place, as we continue to better address the growing need for world-class software technology solutions in the hospitality industry that help improve guest experiences and loyalty. As a result, we expect to continue to achieve double-digit quarterly revenue growth, continued profitability and improving cash flow levels.”
 
Fiscal 2019 Outlook Agilysys today reiterated its forecast for fiscal 2019 full year revenue growth of approximately 10%, compared to fiscal 2018 revenue of approximately $127 million. In addition, the Company now expects that it will record Adjusted Earnings from Operations (non-GAAP measure) of $3.5 million to $4.5 million in fiscal 2019, compared to the loss of approximately $6.0 million for this metric in fiscal 2018. Agilysys also expects fiscal 2019 year-end cash and cash equivalents to be flat to a decline of approximately $3 million, compared to the fiscal 2018 year-end balance of $39.9 million, a significant improvement from the over $9 million decline in fiscal 2018 from the fiscal 2017 year-end balance.
 
The Company defines adjusted earnings from operations as adjusted EBITDA, less capital expenditures and capitalized software development costs, which management believes is a meaningful measure of earnings and provides insight to investors on the Company’s overall profitability and cash generation from core operations. Adjusted earnings from operations include costs for capitalized efforts while minimizing the seasonality of the Company’s cash flows due to the timing of billing.
 
Tony Pritchett, Chief Financial Officer, commented, “We are encouraged by our financial performance through the first nine months of fiscal 2019, as demonstrated by our ability to achieve consistent profitable revenue growth. We remain on track for revenue growth of approximately 10% this year, as we expect the fiscal 2019 fourth quarter will be another record quarterly revenue period. In addition, we now expect full year AOE will be approximately $3.5 million to $4.5 million, which is above our prior expectation for break-even to slightly positive AOE this year, and which would represent full year AOE growth of approximately $9.5 million to $10.5 million. This higher AOE for fiscal 2019 will occur even as we now plan to accelerate capital expenditures in the fiscal 2019 fourth quarter for the previously announced expansion of our India Development Center and improvements to our SaaS IT infrastructure. With respect to cash and cash equivalents, our current expectation is to end the year with cash on hand of $37 million to $40 million. Our consistent revenue growth and AOE and cash flow guidance improvements offer solid evidence that we are well positioned to generate continuing growth in shareholder value.”    
 
New Revenue Recognition Standard On April 1, 2018, Agilysys adopted accounting standard update No. 2014-09 (“ASC 606”), the Financial Accounting Standards Board’s new revenue recognition standard. Financial results for the three month and nine month periods ended December 31, 2018 reflect this accounting standard. Financial results for the three month and nine month periods ended December 31, 2017 have not been restated and are reported under the accounting standards in effect during that period. The impact on revenue, net loss, Adjusted EBITDA, and Adjusted Earnings from Operations (“AOE”) from the adoption of ASC 606 was immaterial.

 
2019 Third Quarter Conference Call and Webcast Agilysys is hosting a conference call and webcast today, January 24, 2019, at 4:30 p.m. ET.  Both the call and the webcast are open to the public. The conference call number is 224-357-2393 (domestic or international); and the conference ID number is 8676216. Please call five minutes prior to the presentation to ensure that you are connected.  
 
Interested parties may also access the conference call live on the Internet at Agilysys Events & Presentations. Approximately two hours after the call has concluded, an archived version of the webcast will be available for replay at the same location.
 
Forward-Looking Language This press release contains “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as: “anticipate,” “intend,” “plan,” “goal,” “seek,” “believe,” “project,” “estimate,” “expect,” “strategy,” “future,” “likely,” “may,” “should,” “will” and similar references to future periods. Examples of forward-looking statements include, among others, our guidance relating to revenue, adjusted earnings from operations and cash and cash equivalent balance, and statements we make regarding continuing business and revenue momentum and improvements in financial results and shareholder value.
 
Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forwardlooking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, our ability to achieve operational efficiencies and meet customer demand for products and services and the risks described in the Company’s filings with the Securities and Exchange Commission, including the Company’s reports on Form 10-K and Form 10-Q.
 
Any forward-looking statement made by us in this press release is based only on information currently available to us and speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking statement that may be made from time to time, whether written or oral, whether as a result of new information, future developments or otherwise.
 
Use of Non-GAAP Financial Information To supplement the unaudited condensed consolidated financial statements presented in accordance with U.S. GAAP in this press release, certain non-GAAP financial measures as defined by the SEC rules are used. These non-GAAP financial measures include adjusted EBITDA and adjusted earnings from operations. Management believes that such information can enhance investors’ understanding of the company’s ongoing operations. See the accompanying table below for a reconciliation of adjusted EBITDA and adjusted earnings from operations to the most closely related GAAP measure. 
 

About Agilysys
Agilysys has been a leader in hospitality software for more than 40 years, delivering innovative cloud-native SaaS and on-premise guest-centric technology solutions for gaming, hotels, resorts and cruise, corporate foodservice management, restaurants, universities, stadia and healthcare. Agilysys offers the most comprehensive software solutions in the industry, including point-of-sale (POS), property management (PMS), inventory and procurement, payments, and related applications, based on modern SaaS-Cloud-native and on-prem ready technology to manage the entire guest journey. Agilysys is known for its leadership in hospitality, its broad product offerings and its world class customer-centric service. Some of the largest hospitality companies around the world use Agilysys solutions to help improve guest loyalty, drive revenue growth and increase operational efficiencies. Agilysys operates across North America, Europe, Asia-Pacific, and India with headquarters located in Alpharetta, GA. 

For more information visit Agilysys.com.

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Investor Contact: Tony Pritchett Chief Financial Officer Agilysys, Inc. 770-810-7941 or investorrelations@agilysys.com

 
Richard Land, Norberto Aja, Jim Leahy JCIR 212-835-8500 or agys@jcir.com