Fourth Consecutive Quarter of Record Revenue Includes Record Recurring Revenue of $19.4 Million,
Inclusive of 23% Growth in Subscription Revenue
Fiscal 2019 Net Revenue Increases 10.6% to Record $140.8 Million, Adjusted EBITDA Rises 13% to $10.3 Million and Adjusted Earnings from Operations Improves $10.7 Million to $4.8 Million
Guides to 11% Revenue Growth and a 25% Improvement in Adjusted EBITDA for Fiscal 2020
Alpharetta, GA – May 16, 2019 – Agilysys, Inc. (Nasdaq: AGYS), a global provider of next-generation hospitality software solutions and services, today reported operating results for its fiscal 2019 fourth quarter and full year ended March 31, 2019.
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Summary of Fiscal 2019 Fourth Quarter Financial Results
Total net revenue was a record $36.6 million, compared to total net revenue of $32.1 million in the comparable prior-year period.
Recurring revenues (which are comprised of support, maintenance and subscription services) were a record $19.4 million, or 53% of total net revenue, compared to $18.1 million, or 56% of total net revenue, for the same period in fiscal 2018. Subscription revenues increased 23% year over year and comprised 34% of total recurring revenues, compared to 30% of total recurring revenues in the fourth quarter of fiscal 2018.
Gross margin was 53.5% in the fiscal 2019 fourth quarter, compared to 52.2% in the comparable prior-year period.
Net loss in the fiscal 2019 fourth quarter was $(3.6) million, or $(0.16) per diluted share, compared to a net loss of $(0.2) million, or $(0.01) per diluted share, in the comparable prior-year period, which included an income tax benefit of $1.8 million and a software development costs capitalization benefit of approximately $1.6 million, which did not occur in the fiscal 2019 fourth quarter.
Adjusted EBITDA (non-GAAP) was $2.4 million compared to $3.1 million in the comparable prior-year period. 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 fourth quarter did not have the benefit of capitalizing software development costs. In the fiscal 2018 fourth quarter, $1.6 million of software development costs were capitalized. Assuming no software development costs were capitalized in the fiscal 2018 fourth quarter, Adjusted EBITDA in the fiscal 2019 fourth quarter of $2.4 million would compare to $1.4 million in the fiscal 2018 fourth quarter (see reconciliation below).
Adjusted earnings from operations (“AOE”) (non-GAAP) in the fiscal 2019 fourth quarter was $0.7 million, compared to AOE of $0.6 million in the fiscal 2018 fourth quarter (see reconciliation below). The fiscal 2019 fourth quarter period included approximately $0.9 million in higher cash spent on capital items such as for expansion of the Company’s India Development Center and investments in its SaaS Development Operations IT Infrastructure compared to the fiscal 2018 fourth quarter.
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 fourth quarter. A reconciliation table in the back of this release provides a comparison of the previously reported fiscal 2018 fourth 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, “Our sales momentum continues to be strong, with the fiscal 2019 third and fourth quarters representing two of our strongest ever for overall global sales. Fourth quarter revenue of $36.6 million represented the third consecutive quarter of double-digit year-over-year revenue growth, the fourth consecutive quarter of record revenue and the sixth consecutive quarter of sequential revenue growth.
“Fiscal 2019 revenue growth of 10.6% slightly exceeded our expectations. The $6.4 million year-over-year increase in full year recurring revenue, which included a 24% rise in subscription revenue, was the largest single year improvement in annual recurring revenue in five years. In addition, our year-end cash balance grew slightly for the first time since fiscal 2014 when we made the transformation to an entirely hospitality focused software solutions company. The full year cash balance growth significantly exceeded our original expectation. We also generated positive AOE during each quarter of fiscal 2019, with full year AOE increasing $10.7 million compared to the prior year. Fiscal 2019 Adjusted EBITDA rose approximately 13% to $10.3 million.
“We remain confident that our rapidly improving products, processes, people talent levels and our steadfast attention to world class service and support for a steadily growing hospitality marketplace that is demonstrating an increasing need for greater technology and innovative software solutions, will help drive continued business momentum and produce increasing shareholder value. Reflecting this momentum, we expect revenue growth in fiscal 2020 of approximately 11%, with an increasing level of profitability, as Adjusted EBITDA is expected to increase approximately 25% driving higher positive free cash flow. As demonstrated by our financial results, fiscal 2019 was a good year for Agilysys and given the increasing demand for our products, we expect fiscal 2020 to be even better.”
Fiscal 2020 Outlook
Agilysys today provided an initial forecast for fiscal 2020 full year revenue growth of approximately 11%, compared to fiscal 2019 revenue of approximately $141 million. In addition, the Company expects to record an approximate 25%, improvement in Adjusted EBITDA (non-GAAP measure) in fiscal 2020, compared to fiscal 2019 Adjusted EBITDA of approximately $10 million. Agilysys also expects fiscal 2020 free cash flow will be significantly more than the $1.7 million of free cash flow generated in fiscal 2019.
The Company defines free cash flow as net cash provided by operating activities, less capital expenditures, less capitalized software development costs. Management believes free cash flow is another meaningful measure of the Company’s operating performance.
Tony Pritchett, Chief Financial Officer, commented, “Our recurring revenue and highly predictable professional services revenue, combined with our focus on prudent management of our cost structure, has given us a strong foundation and conviction in our ability to achieve further top line growth at increasing profitability levels. Revenue growth is expected to continue in fiscal 2020 as our guidance contemplates approximately 11% revenue growth this year; and we continue to expect the increase in subscription revenue will outpace the rate of total recurring revenue growth. In addition, the operational leverage in our business will become evident as we expect Adjusted EBITDA to improve to approximately $13 million. We also expect to continue our improvement in our cash position with a focus on free cash flow, which should exceed the amount generated in fiscal 2019. Overall, Agilysys is favorably positioned to leverage our improving product portfolio, refined operating processes, and the focus and commitment of our talented team members to deliver accelerating profitable revenue and to grow shareholder value in fiscal 2020 and beyond.”
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 twelve month periods ended March 31, 2019 reflect this accounting standard. Financial results for the three month and twelve month periods ended March 31, 2018 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 Fourth Quarter Conference Call and Webcast
Agilysys is hosting a conference call and webcast today, May 16, 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 2766558. 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.
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 EBITDA and free cash flow, and statements we make regarding continuing business 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 forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, our ability to achieve operational efficiencies and meet customer demand for products and services and the risks described in the Company’s filings with the Securities and Exchange Commission, including the Company’s reports on Form 10-K and Form 10-Q.
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 EBITDA, Adjusted EBITDA, Adjusted EBITDA less capitalized software development costs, Adjusted Earnings from Operations, product development plus capitalized software development costs, and free cash flow. Management believes that such information can enhance investors’ understanding of the company’s ongoing operations. See the accompanying table below for a definition and reconciliation of these non-GAAP measures to the most closely related GAAP measures.
Agilysys has been a leader in hospitality software for more than 40 years, delivering innovative guest-centric technology solutions for gaming, hotels, resorts and cruise, corporate foodservice management, restaurants, universities, stadia 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, to manage the entire guest journey. Agilysys is known for its leadership in hospitality, its broad product offerings and its customer-centric service. Some of the largest hospitality companies around the world use Agilysys solutions to help improve guest loyalty, drive revenue growth 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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