10-Q 1 agys-20240630.htm 10-Q 10-Q
false0000078749Q1--03-3120240000078749agys:ProfessionalServicesMember2024-04-012024-06-300000078749us-gaap:StockAppreciationRightsSARSMember2024-04-012024-06-300000078749us-gaap:CommonStockMembersrt:MaximumMemberagys:TwoThousandAndTwentyEquityIncentivePlanMember2024-06-300000078749us-gaap:RetainedEarningsMember2024-03-3100000787492023-04-012023-06-300000078749us-gaap:PerformanceSharesMembersrt:ChiefExecutiveOfficerMember2024-04-012024-06-300000078749us-gaap:RestrictedStockUnitsRSUMember2024-04-012024-06-300000078749us-gaap:CommonStockMembersrt:MaximumMemberagys:TwoThousandAndTwentyEquityIncentivePlanMember2024-04-012024-06-300000078749us-gaap:AdditionalPaidInCapitalMember2024-06-300000078749us-gaap:SellingAndMarketingExpenseMember2023-04-012023-06-3000000787492023-06-300000078749us-gaap:RestrictedStockMember2024-04-012024-06-300000078749us-gaap:RestrictedStockUnitsRSUMember2024-03-310000078749us-gaap:AdditionalPaidInCapitalMember2023-04-012023-06-3000000787492024-06-300000078749us-gaap:SellingAndMarketingExpenseMember2024-04-012024-06-3000000787492024-04-012024-06-300000078749us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-03-310000078749us-gaap:CommonStockMember2023-03-310000078749us-gaap:RetainedEarningsMember2023-04-012023-06-3000000787492023-04-012023-12-310000078749us-gaap:EmployeeStockMember2024-04-012024-06-300000078749us-gaap:ProductMember2024-04-012024-06-300000078749us-gaap:RestrictedStockUnitsRSUMember2024-06-300000078749us-gaap:AdditionalPaidInCapitalMember2024-03-310000078749us-gaap:SeriesAPreferredStockMember2024-06-300000078749us-gaap:GeneralAndAdministrativeExpenseMember2023-04-012023-06-300000078749us-gaap:GeneralAndAdministrativeExpenseMember2024-04-012024-06-300000078749us-gaap:TreasuryStockCommonMember2023-04-012023-06-300000078749agys:TwoThousandAndTwentyEquityIncentivePlanMember2024-06-300000078749us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-06-300000078749us-gaap:AdditionalPaidInCapitalMember2023-03-310000078749us-gaap:CommonStockMember2023-06-300000078749us-gaap:PerformanceSharesMembersrt:ChiefExecutiveOfficerMember2024-06-300000078749agys:ProductDevelopmentMember2023-04-012023-06-300000078749us-gaap:RetainedEarningsMember2023-06-300000078749us-gaap:CommonStockMember2024-06-300000078749us-gaap:TreasuryStockCommonMember2024-03-310000078749us-gaap:RetainedEarningsMember2023-03-310000078749us-gaap:TreasuryStockCommonMember2023-03-310000078749us-gaap:AdditionalPaidInCapitalMember2024-04-012024-06-300000078749us-gaap:RestrictedStockMember2024-06-300000078749us-gaap:RestrictedStockMember2024-03-310000078749us-gaap:AccumulatedOtherComprehensiveIncomeMember2024-03-310000078749us-gaap:CommonStockMember2024-03-310000078749agys:SupportMaintenanceSubscriptionServicesAndProfessionalServicesMember2024-04-012024-06-300000078749agys:ProductDevelopmentMember2024-04-012024-06-300000078749us-gaap:RetainedEarningsMember2024-06-300000078749us-gaap:StockAppreciationRightsSARSMember2024-06-300000078749us-gaap:ConvertiblePreferredStockMemberus-gaap:MajorityShareholderMember2020-05-222020-05-220000078749us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-04-012023-06-3000000787492024-03-310000078749us-gaap:RetainedEarningsMember2024-04-012024-06-300000078749us-gaap:AccumulatedOtherComprehensiveIncomeMember2024-04-012024-06-300000078749us-gaap:StockAppreciationRightsSARSMember2024-03-310000078749us-gaap:AccumulatedOtherComprehensiveIncomeMember2024-06-3000000787492023-03-310000078749us-gaap:CommonStockMemberagys:TwoThousandAndSixteenStockIncentivePlanMember2024-06-300000078749agys:SubscriptionAndMaintenanceMember2023-04-012023-06-300000078749agys:ProfessionalServicesMember2023-04-012023-06-300000078749us-gaap:TreasuryStockCommonMember2023-06-3000000787492024-07-190000078749us-gaap:AdditionalPaidInCapitalMember2023-06-300000078749us-gaap:TreasuryStockCommonMember2024-04-012024-06-300000078749us-gaap:EmployeeStockMember2024-06-300000078749us-gaap:EmployeeStockMember2024-06-302024-06-300000078749agys:SubscriptionAndMaintenanceMember2024-04-012024-06-300000078749us-gaap:ProductMember2023-04-012023-06-300000078749agys:SupportMaintenanceSubscriptionServicesAndProfessionalServicesMember2023-04-012023-06-300000078749us-gaap:TreasuryStockCommonMember2024-06-30xbrli:pureiso4217:USDxbrli:sharesxbrli:sharesiso4217:USD

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission File Number: 000-5734

 

AGILYSYS, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

34-0907152

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

3655 Brookside Parkway, Suite 300

Alpharetta, Georgia

30022

(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:

 


Title of each class

 

Trading

Symbol(s)

 


Name of each exchange on which registered

Common Stock, without par value

 

AGYS

 

Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated filer

 

 

Accelerated filer

 

Non-Accelerated filer

 

 

Smaller reporting company

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

As of July 19, 2024, the registrant had 27,881,838 shares of common stock outstanding.

 

 

1


 

AGILYSYS, INC.

TABLE OF CONTENTS

 

 

 

 

 

Part I. Financial Information

 

 

Item 1

Financial Statements (Unaudited)

3

 

 

 

 

 

 

Condensed Consolidated Balance Sheets – June 30, 2024 (Unaudited) and March 31, 2024

3

 

 

 

 

 

 

Condensed Consolidated Statements of Operations (Unaudited) – Three Months Ended June 30, 2024 and June 30, 2023

4

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income (Unaudited) – Three Months Ended June 30, 2024 and June 30, 2023

5

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows (Unaudited) – Three Months Ended June 30, 2024 and June 30, 2024

6

 

 

 

 

 

 

Condensed Consolidated Statements of Shareholders' Equity (Unaudited) – Three Months Ended June 30, 2024 and June 30, 2023

7

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

8

 

 

 

 

 

Item 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

17

 

 

 

 

 

Item 3

Quantitative and Qualitative Disclosures About Market Risk

23

 

 

 

 

 

Item 4

Controls and Procedures

23

 

 

 

 

Part II. Other Information

 

 

 

 

 

 

Item 1

Legal Proceedings

24

 

 

 

 

 

Item 1A

Risk Factors

24

 

 

 

 

 

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

24

 

 

 

 

 

Item 3

Defaults Upon Senior Securities

24

 

 

 

 

 

Item 4

Mine Safety Disclosures

24

 

 

 

 

 

Item 5

Other Information

24

 

 

 

 

 

Item 6

Exhibits

25

 

 

 

 

Signatures

 

 

26

 

2


 

AGILYSYS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

 

June 30, 2024 (Unaudited)

 

 

March 31,
2024

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

144,111

 

 

$

144,891

 

Accounts receivable, net of allowance for expected credit losses
   of $
944 and $974, respectively

 

 

27,308

 

 

 

29,441

 

Contract assets

 

 

3,523

 

 

 

2,287

 

Inventories

 

 

5,300

 

 

 

4,587

 

Prepaid expenses and other current assets

 

 

6,523

 

 

 

7,731

 

Total current assets

 

 

186,765

 

 

 

188,937

 

Property and equipment, net

 

 

17,663

 

 

 

17,930

 

Operating lease right-of-use assets

 

 

17,843

 

 

 

18,384

 

Goodwill

 

 

32,659

 

 

 

32,791

 

Intangible assets, net

 

 

16,706

 

 

 

16,952

 

Deferred income taxes, non-current

 

 

76,237

 

 

 

67,373

 

Other non-current assets

 

 

7,825

 

 

 

8,063

 

Total assets

 

$

355,698

 

 

$

350,430

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

10,085

 

 

$

9,422

 

Contract liabilities

 

 

49,200

 

 

 

56,148

 

Accrued liabilities

 

 

13,127

 

 

 

19,522

 

Operating lease liabilities, current

 

 

4,992

 

 

 

4,279

 

Total current liabilities

 

 

77,404

 

 

 

89,371

 

Deferred income taxes, non-current

 

 

549

 

 

 

554

 

Operating lease liabilities, non-current

 

 

18,903

 

 

 

19,613

 

Other non-current liabilities

 

 

4,671

 

 

 

4,415

 

Commitments and contingencies

 

 

 

 

 

 

Shareholders' equity:

 

 

 

 

 

 

Common shares, without par value, at $0.30 stated value; 80,000,000
   shares authorized;
33,342,288 shares issued; and 27,872,345
   and
27,376,862 shares outstanding at June 30, 2024
   and March 31, 2024, respectively

 

 

10,003

 

 

 

10,003

 

Treasury shares, 5,469,903 and 5,965,426 at June 30, 2024
   and March 31, 2024, respectively

 

 

(1,642

)

 

 

(1,791

)

Capital in excess of stated value

 

 

98,277

 

 

 

94,680

 

Retained earnings

 

 

151,861

 

 

 

137,755

 

Accumulated other comprehensive loss

 

 

(4,328

)

 

 

(4,170

)

Total shareholders' equity

 

 

254,171

 

 

 

236,477

 

Total liabilities and shareholders' equity

 

$

355,698

 

 

$

350,430

 

See accompanying notes to unaudited condensed consolidated financial statements.

3


 

AGILYSYS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

Three months ended
June 30,

 

(In thousands, except per share data)

 

2024

 

 

2023

 

Net revenue:

 

 

 

 

 

 

Products

 

$

9,874

 

 

$

12,781

 

Subscription and maintenance

 

 

38,043

 

 

 

32,125

 

Professional services

 

 

15,595

 

 

 

11,153

 

Total net revenue

 

 

63,512

 

 

 

56,059

 

Cost of goods sold:

 

 

 

 

 

 

Products

 

 

5,226

 

 

 

6,565

 

Subscription and maintenance

 

 

8,108

 

 

 

7,637

 

Professional services

 

 

10,310

 

 

 

8,800

 

Total cost of goods sold

 

 

23,644

 

 

 

23,002

 

Gross profit

 

 

39,868

 

 

 

33,057

 

Gross profit margin

 

 

62.8

%

 

 

59.0

%

Operating expenses:

 

 

 

 

 

 

Product development

 

 

14,720

 

 

 

13,321

 

Sales and marketing

 

 

7,014

 

 

 

7,301

 

General and administrative

 

 

10,483

 

 

 

9,365

 

Depreciation of fixed assets

 

 

838

 

 

 

923

 

Amortization of internal-use software and intangibles

 

 

251

 

 

 

430

 

Other charges, net

 

 

550

 

 

 

759

 

Legal settlements

 

 

265

 

 

 

 

Total operating expense

 

 

34,121

 

 

 

32,099

 

Operating income

 

 

5,747

 

 

 

958

 

Other income (expense):

 

 

 

 

 

 

Interest income

 

 

1,782

 

 

 

1,101

 

Other (expense), net

 

 

(157

)

 

 

(159

)

Income before taxes

 

 

7,372

 

 

 

1,900

 

Income tax (benefit) provision

 

 

(6,734

)

 

 

352

 

Net income

 

$

14,106

 

 

$

1,548

 

Series A convertible preferred stock dividends

 

 

 

 

 

(459

)

Net income attributable to common shareholders

 

$

14,106

 

 

$

1,089

 

 

 

 

 

 

 

 

Weighted average shares outstanding - basic

 

 

27,134

 

 

 

24,936

 

 

 

 

 

 

 

 

Net income per share - basic:

 

$

0.52

 

 

$

0.04

 

 

 

 

 

 

 

 

Weighted average shares outstanding - diluted

 

 

28,127

 

 

 

26,177

 

 

 

 

 

 

 

 

Net income per share - diluted:

 

$

0.50

 

 

$

0.04

 

See accompanying notes to unaudited condensed consolidated financial statements.

4


 

AGILYSYS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

 

Three months ended
June 30,

 

(In thousands)

 

2024

 

 

2023

 

Net income

 

 

14,106

 

 

$

1,548

 

Other comprehensive income (loss):

 

 

 

 

 

 

Unrealized foreign currency translation adjustments

 

 

(158

)

 

 

523

 

Total comprehensive income

 

$

13,948

 

 

$

2,071

 

See accompanying notes to unaudited condensed consolidated financial statements.

5


 

AGILYSYS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

Three Months Ended

 

 

 

June 30,

 

(In thousands)

 

2024

 

 

2023

 

 

 

 

 

 

 

 

Operating activities

 

 

 

 

 

 

Net income

 

$

14,106

 

 

$

1,548

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation of fixed assets

 

 

838

 

 

 

923

 

Amortization of internal-use software and intangibles

 

 

251

 

 

 

430

 

Deferred income taxes

 

 

(8,861

)

 

 

(129

)

Share-based compensation

 

 

4,429

 

 

 

3,167

 

Changes in operating assets and liabilities

 

 

(9,665

)

 

 

(5,917

)

Net cash provided by operating activities

 

 

1,098

 

 

 

22

 

Investing activities

 

 

 

 

 

 

Capital expenditures

 

 

(869

)

 

 

(3,065

)

Additional investments in corporate-owned life insurance policies

 

 

 

 

 

(2

)

Net cash used in investing activities

 

 

(869

)

 

 

(3,067

)

Financing activities

 

 

 

 

 

 

Payment of preferred stock dividends

 

 

 

 

 

(918

)

Repurchase of common shares to satisfy employee tax withholding

 

 

(925

)

 

 

(1,783

)

Principal payments under long-term obligations

 

 

 

 

 

(1

)

Net cash used in financing activities

 

 

(925

)

 

 

(2,702

)

Effect of exchange rate changes on cash

 

 

(84

)

 

 

(2

)

Net decrease in cash and cash equivalents

 

 

(780

)

 

 

(5,749

)

Cash and cash equivalents at beginning of period

 

 

144,891

 

 

 

112,842

 

Cash and cash equivalents at end of period

 

$

144,111

 

 

$

107,093

 

See accompanying notes to unaudited condensed consolidated financial statements.

6


 

AGILYSYS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(Unaudited)

 

 

Three Months Ended June 30, 2024

 

 

 

Common Shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issued

 

 

In Treasury

 

 

Capital in
excess of

 

 

 

 

 

Accumulated
other

 

 

 

 

(In thousands, except share data)

 

Shares

 

 

Stated
value

 

 

Shares

 

 

Stated
value

 

 

Stated
value

 

 

Retained
earnings

 

 

comprehensive
income (loss)

 

 

Total

 

Balance at March 31, 2024

 

 

33,342

 

 

$

10,003

 

 

 

(5,965

)

 

$

(1,791

)

 

$

94,680

 

 

$

137,755

 

 

$

(4,170

)

 

$

236,477

 

Share-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,850

 

 

 

 

 

 

 

 

 

4,850

 

Restricted shares issued, net

 

 

 

 

 

 

 

 

11

 

 

 

3

 

 

 

(3

)

 

 

 

 

 

 

 

 

 

Shares issued upon exercise of SSARs

 

 

 

 

 

 

 

 

498

 

 

 

150

 

 

 

(150

)

 

 

 

 

 

 

 

 

 

Shares withheld for taxes upon
   exercise of SSARs or vesting
   of restricted shares

 

 

 

 

 

 

 

 

(14

)

 

 

(4

)

 

 

(1,100

)

 

 

 

 

 

 

 

 

(1,104

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

14,106

 

 

 

 

 

 

14,106

 

Unrealized translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(158

)

 

 

(158

)

Balance at June 30, 2024

 

 

33,342

 

 

$

10,003

 

 

 

(5,470

)

 

$

(1,642

)

 

$

98,277

 

 

$

151,861

 

 

$

(4,328

)

 

$

254,171

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 2023

 

 

 

Common Shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issued

 

 

In Treasury

 

 

Capital in
excess of

 

 

 

 

 

Accumulated
other

 

 

 

 

(In thousands, except share data)

 

Shares

 

 

Stated
value

 

 

Shares

 

 

Stated
value

 

 

Stated
value

 

 

Retained
earnings

 

 

comprehensive
income (loss)

 

 

Total

 

Balance at March 31, 2023

 

 

31,607

 

 

$

9,482

 

 

 

(6,280

)

 

$

(1,884

)

 

$

52,978

 

 

$

52,764

 

 

$

(4,030

)

 

$

109,310

 

Share-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,377

 

 

 

 

 

 

 

 

 

3,377

 

Restricted shares issued, net

 

 

 

 

 

 

 

 

12

 

 

 

3

 

 

 

(3

)

 

 

 

 

 

 

 

 

 

Shares issued upon exercise of SSARs

 

 

 

 

 

 

 

 

50

 

 

 

15

 

 

 

(15

)

 

 

 

 

 

 

 

 

 

Shares withheld for taxes upon
   exercise of SSARs or vesting
   of restricted shares

 

 

 

 

 

 

 

 

(37

)

 

 

(11

)

 

 

(2,602

)

 

 

 

 

 

 

 

 

(2,613

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,548

 

 

 

 

 

 

1,548

 

Series A convertible preferred stock dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(459

)

 

 

 

 

 

(459

)

Unrealized translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

523

 

 

 

523

 

Balance at June 30, 2023

 

 

31,607

 

 

$

9,482

 

 

 

(6,255

)

 

$

(1,877

)

 

$

53,735

 

 

$

53,853

 

 

$

(3,507

)

 

$

111,686

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

7


 

AGILYSYS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1. Nature of Operations and Financial Statement Presentation

Nature of Operations

Agilysys has been a leader in hospitality software for more than 45 years, delivering innovative cloud-native SaaS and on-premise solutions for hotels, resorts and cruise lines, casinos, corporate foodservice management, restaurants, universities, stadiums, and healthcare. The Company’s software solutions include point-of-sale (POS), property management (PMS), inventory and procurement, payments, and related applications that manage and enhance the entire guest journey. Agilysys also is known for its world-class customer-centric service. Many of the top hospitality companies around the world use Agilysys solutions to improve guest loyalty, drive revenue growth, and increase operational efficiencies. Agilysys operates across North America, Europe, the Middle East, Asia-Pacific, and India, with headquarters in Alpharetta, GA.

The Company has just one reportable segment serving the global hospitality industry.

Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements include our accounts consolidated with our wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Our fiscal year ends on March 31st. References to a particular year refer to the fiscal year ending in March of that year. For example, fiscal 2025 refers to the fiscal year ending March 31, 2025.

Our unaudited interim financial statements are prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information, the instructions to the Quarterly Report on Form 10-Q (Quarterly Report) under the Securities Exchange Act of 1934, as amended (the Exchange Act), and Rule 10-01 of Regulation S-X under the Exchange Act. Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations relating to interim financial statements.

The Condensed Consolidated Balance Sheet as of June 30, 2024, as well as the Condensed Consolidated Statements of Operations, Condensed Consolidated Statements of Comprehensive Income, Condensed Consolidated Statements of Cash Flows, and Condensed Consolidated Statements of Shareholders’ Equity for the three months ended June 30, 2024 and 2023, are unaudited. However, these financial statements have been prepared on the same basis as those in the audited annual financial statements. In the opinion of management, all adjustments of a recurring nature necessary to fairly state the results of operations, financial position, and cash flows have been made.

These unaudited interim financial statements should be read together with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended March 31, 2024, filed with the Securities and Exchange Commission (SEC) on May 22, 2024.

Use of estimates

Preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that may affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported periods. Actual results could differ from those estimates.

2. Summary of Significant Accounting Policies

A detailed description of our significant accounting policies can be found in the audited financial statements for the fiscal year ended March 31, 2024, included in our Annual Report on Form 10-K. There have been no material changes to our significant accounting policies from those disclosed therein.

Recently Issued Accounting Pronouncements

In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-09 Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”) to update income tax

8


 

disclosure requirements primarily by requiring specific categories and greater disaggregation within the rate reconciliation and disaggregation of income taxes paid by jurisdiction. The amendments in the ASU also remove disclosures related to certain unrecognized tax benefits and deferred taxes. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, or our fiscal 2026. The amendments may be applied prospectively or retrospectively with early adoption is permitted. We are currently assessing the impact of the requirements on our consolidated financial statements and disclosures.

In November 2023, the FASB issued ASU No. 2023-07 Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”) to expand reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The amendments in the ASU require that a public entity disclose, on an annual and interim basis, significant segment expenses that are regularly provided to an entity's chief operating decision maker (“CODM”), a description of other segment items by reportable segment, and any additional measures of a segment's profit or loss used by the CODM when deciding how to allocate resources. ASU 2023-07 applies to entities with a single reportable segment. Annual disclosures are required for fiscal years beginning after December 15, 2023 or our fiscal 2025. Interim disclosures are required for periods within fiscal years beginning after December 15, 2024, or our fiscal 2026. Retrospective application is required for all prior periods presented with early adoption is permitted. We are currently assessing the impact of the requirements on our consolidated financial statements and disclosures.

3. Revenue Recognition

Our customary business practice is to enter into legally enforceable written contracts with our customers. The majority of our contracts are governed by a master service agreement between us and the customer, which sets forth the general terms and conditions of any individual contract between the parties, which is then supplemented by a customer order to specify the different goods and services, the associated prices, and any additional terms for an individual contract. Performance obligations specific to each individual contract are defined within the terms of each order. Each performance obligation is identified based on the goods and services that will be transferred to our customer that are both capable of being distinct and are distinct within the context of the contract. The transaction price is determined based on the consideration to which we will be entitled and expect to receive in exchange for transferring goods or services to the customer. Typically, our contracts do not provide our customer with any right of return or refund; we do not constrain the contract price as it is probable that there will not be a significant revenue reversal due to a return or refund.

Typically, our customer contracts contain one or more of the following goods or services which constitute performance obligations.

Our proprietary software licenses typically provide for a perpetual right to use our software. Generally, our contracts do not provide significant services of integration and customization and installation services are not required to be purchased directly from us. The software is delivered before related services are provided and is functional without professional services, updates and technical support. We have concluded that the software license is distinct as the customer can benefit from the software on its own. Software revenue is typically recognized when the software is delivered or made available for download to the customer.

We recognize revenue for hardware sales when the product is shipped to the customer and when obligations that affect the customer’s final acceptance of the arrangement have been fulfilled. Hardware is purchased from suppliers and provided to the end-user customers via drop-ship or from inventory. We are responsible for negotiating price both with the supplier and the customer, payment to the supplier, establishing payment terms and product returns with the customer, and we bear the credit risk if the customer does not pay for the goods. As the principal contact with the customer, we recognize revenue and cost of goods sold when we ship or are notified by the supplier that the product has been shipped. In certain limited instances, as shipping terms dictate, revenue is recognized upon receipt at the point of destination or upon installation at the customer site.

Our subscription service revenue is comprised of fees for contracts that provide customers a right to access our software for a subscribed period. We do not provide the customer the contractual right to license the software at any time outside of the subscription period under these contracts. Our subscription service revenue is primarily based on rates per location, including rates per points of sale and per room. We recognize certain subscription service revenue on a per-transaction basis. The customer can only benefit from the software and software maintenance when provided the right to access the software. Accordingly, each of the rights to access the software, the maintenance services, any hosting services, and any transaction-based services is not considered a distinct performance obligation in the context of the contract and should be combined into a single performance obligation to be recognized over the contract period. The Company recognizes subscription revenue over a one-month period based on the typical monthly invoicing and renewal cycle in accordance with our customer agreement terms.

We derive maintenance service revenue from providing unspecified updates, upgrades, bug fixes, and technical support services for our proprietary software. These services represent a stand-ready obligation that is concurrently delivered and

9


 

has the same pattern of transfer to the customer; we account for these maintenance services as a single performance obligation. Maintenance revenue includes the same services provided by third-parties for remarketed software. We recognize substantially all maintenance revenue over the contract period of the maintenance agreement. We also recognize certain maintenance service revenue based on the volume of payment transactions processed by third parties through access to our software.

Professional services revenues primarily consist of fees for consulting, implementation, installation, integration, development and training and are generally recognized over time as the customer simultaneously receives and consumes the benefits of the professional services as the services are being performed. Certain professional development services are recognized upon delivery of the developed solutions to the customer. At the end of each reporting period, we recognize the most likely amount of variable consideration on any contract holdbacks we expect to bill for development services delivered. Professional services can be provided by internal or external providers, do not significantly affect the customer’s ability to access or use other provided goods or services, and provide a measure of benefit beyond that of other promised goods or services in the contract. As a result, professional services are considered distinct in the context of the contract and represent a separate performance obligation. Professional services that are billed on a time and materials basis are recognized over time as the services are performed. For contracts billed on a fixed price basis, revenue is recognized over time using an input method based on labor hours expended to date relative to the total labor hours expected to be required to satisfy the related performance obligation.

We use the market approach to derive standalone selling price (“SSP”) by maximizing observable data points (in the form of recently executed customer contracts) to determine the price customers are willing to pay for the goods and services transferred. If the contract contains a single performance obligation, the entire transaction price is allocated to that performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative SSP basis.

Shipping and handling fees billed to customers are recognized as revenue and the related costs are recognized in cost of goods sold. Revenue is recorded net of any applicable taxes collected and remitted to governmental agencies.

Disaggregation of Revenue

We derive and report our revenue from the sale of products (proprietary software licenses, third party hardware and operating systems), subscription and maintenance, and professional services. Products revenue recognized at a point in time totaled $9.9 million and $12.8 million for the three months ended June 30, 2024 and 2023, respectively. Subscription, maintenance, and substantially all professional services revenue recognized over time totaled $53.6 million and $43.3 million for the three months ended June 30, 2024 and 2023, respectively.

Contract Balances

Contract assets are rights to consideration in exchange for goods or services that we have transferred to a customer when that right is conditional on something other than the passage of time. The majority of our contract assets represent unbilled amounts related to products and professional services. We expect billing and collection of our contract assets to occur within the next twelve months. We receive payments from customers based upon contractual billing schedules and accounts receivable are recorded when the right to consideration becomes unconditional. Contract liabilities represent consideration received or consideration which is unconditionally due from customers prior to transferring goods or services to the customer under the terms of the contract.

Revenue recognized from amounts included in contract liabilities at the beginning of the period was $26.8 million and $22.1 million for the three months ended June 30, 2024 and 2023, respectively. Because the right to the transaction became unconditional, we transferred to accounts receivable from contract assets at the beginning of the period, $1.9 million and $1.6 million for the three months ended June 30, 2024 and 2023, respectively.

Our arrangements are for a period of one year or less. As a result, unsatisfied performance obligations as of June 30, 2024 are expected to be satisfied and the allocated transaction price recognized in revenue within a period of 12 months or less.

Assets Recognized from Costs to Obtain a Contract

Sales commission expenses that would not have occurred absent the customer contracts are considered incremental costs to obtain a contract. We expense the incremental costs to obtain a contract as incurred when the expected benefit and amortization period is one year or less. For subscription contracts that are renewed monthly based on an agreement term, we capitalize commission expenses and amortize as we satisfy the underlying performance obligations, generally based on the contract terms and anticipated renewals. Other sales commission expenses have a period of benefit of one year or less and are therefore expensed as incurred in line with the practical expedient elected.

10


 

We had $4.8 million and $4.0 million of capitalized sales incentive costs as of June 30, 2024 and 2023, respectively. These balances are included in other non-current assets on our condensed consolidated balance sheets. During the three months ended June 30, 2024 and 2023, we expensed $0.9 million and $0.9 million, respectively, of sales commissions, which included amortization of capitalized amounts of $0.4 million and $0.4 million, respectively. These expenses are included in operating expenses – sales and marketing in our condensed consolidated statement of operations. All other costs to obtain a contract are not considered incremental and therefore are expensed as incurred.

4. Additional Balance Sheet Information

Additional information related to the condensed consolidated balance sheets is as follows:

 

(In thousands)

 

June 30, 2024

 

 

March 31, 2024

 

Accrued liabilities:

 

 

 

 

 

 

Salaries, wages, employee benefits, and payroll taxes

 

$

7,744

 

 

$

16,264

 

Income and indirect taxes payable

 

 

4,264

 

 

 

1,684

 

Other

 

 

1,119

 

 

 

1,574

 

Total

 

$

13,127

 

 

$

19,522

 

Other non-current liabilities:

 

 

 

 

 

 

Employee benefit obligations

 

 

4,571

 

 

 

4,315

 

Other

 

 

100

 

 

 

100

 

Total

 

$

4,671

 

 

$

4,415

 

 

5. Supplemental Disclosures of Cash Flow Information

 

Additional information related to the condensed consolidated statements of cash flows is as follows:

 

 

 

Three months ended
June 30,

 

(In thousands)

 

 

2024

 

 

 

2023

 

Cash receipts for interest, net

 

$

1,424

 

 

$

893

 

Cash payments for income tax, net

 

 

578

 

 

 

376

 

Cash payments for operating leases

 

 

912

 

 

 

1,425

 

Cash payments for finance leases

 

 

 

 

 

2

 

Accrued capital expenditures

 

 

181

 

 

 

320

 

 

6. Income Taxes

The following table compares our income tax provision and effective tax rates for the three months ended June 30, 2024 and 2023:

 

 

 

Three months ended
June 30,

 

(Dollars in thousands)

 

2024

 

 

2023

 

Income tax (benefit) provision

 

$

(6,734

)

 

$

352

 

Effective tax rate

 

nm

 

 

 

18.5

%

nm - not meaningful

For the three months ended June 30, 2023, income tax provision and the effective tax rate were primarily driven by activity within the foreign jurisdictions in which the company operates as valuation allowances were recorded against deferred tax assets in the U.S. and Canada. We released valuation allowances recorded against Canadian, U.S. Federal and certain state deferred tax assets in the period ending December 31, 2023.

For the three months ended June 30, 2024, income tax (benefit) and the effective tax rate were primarily driven by the impact of discrete excess tax benefits associated with Share-Based Compensation.

11


 

Our India subsidiary operates in a “Special Economic Zone (“SEZ”)”. One of the benefits associated with the SEZ is that the India subsidiary is not subject to regular India income taxes during its first five years of operations, which included fiscal 2018 through fiscal 2022. The India subsidiary is subject to 50% of regular India income taxes during its second five years of operations, which includes fiscal 2023 through fiscal 2027.

We have recorded and maintain valuation allowances offsetting the Company’s deferred tax assets in certain U.S. States and foreign jurisdictions. The ultimate realization of deferred tax assets depends on various factors including the generation of future taxable income in the periods in which the underlying temporary differences are deductible. We maintain valuation allowances for deferred tax assets until we have sufficient evidence to support the reversal of all or some portion of the allowances.

7. Commitments and Contingencies

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.

8. Earnings per Share

The following data shows the amounts used in computing earnings per share and the effect on earnings and the weighted average number of shares of dilutive potential common shares.

 

 

Three months ended
June 30,

 

(In thousands, except per share data)

2024

 

 

2023

 

Numerator:

 

 

 

 

 

Net income

$

14,106

 

 

$

1,548

 

Series A convertible preferred stock dividends

 

 

 

 

(459

)

Net income attributable to common shareholders

$

14,106

 

 

$

1,089

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

Weighted average shares outstanding - basic

 

27,134

 

 

 

24,936

 

Dilutive SSARs

 

710

 

 

 

1,008

 

Dilutive unvested restricted shares

 

270

 

 

 

231

 

Dilutive unvested restricted stock units

 

13

 

 

 

2

 

Weighted average shares outstanding - diluted

 

28,127

 

 

 

26,177

 

 

 

 

 

 

 

Income per share - basic:

$

0.52

 

 

$

0.04

 

Income per share - diluted:

$

0.50

 

 

$

0.04

 

 

 

 

 

 

 

Anti-dilutive SSARs, restricted shares,
   performance shares and preferred shares

 

7

 

 

 

1,735

 

Basic income per share is computed as net income attributable to common shareholders divided by the weighted average basic shares outstanding. The outstanding shares used to calculate the weighted average basic shares excludes 367,271 and 339,956 of restricted shares at June 30, 2024 and 2023, respectively, as these shares were issued but were not vested and therefore, not considered outstanding for purposes of computing basic income per share at the balance sheet dates.

Diluted income per share includes the impact of all potentially dilutive securities on earnings per share. We have stock-settled appreciation rights (SSARs), restricted shares, restricted stock units, and preferred shares that are potentially dilutive securities.

9. Share-based Compensation

We may grant incentive stock options, non-qualified stock options, SSARs, restricted shares, restricted stock units, and performance shares under our shareholder-approved 2020 Stock Incentive Plan (the 2020 Plan) for up to 2.25 million common shares, plus 868,864 common shares, the number of shares that were remaining for grant under the 2016 Stock

12


 

Incentive Plan (the 2016 Plan) as of the effective date of the 2020 Plan, plus the number of shares remaining for grant under the 2016 Plan that are forfeited, settled in cash, canceled or expired. The maximum aggregate number of restricted shares or restricted stock units that may be granted under the 2020 Plan is 3.1 million. We may also grant shares under our shareholder-approved Employee Stock Purchase Plan (the ESPP) for up to 500,000 common shares.

We may distribute authorized but unissued shares or treasury shares to satisfy share option and SSAR exercises or grants of restricted shares, restricted stock units, performance shares, or ESPP shares.

For SSARs, the exercise price must be set at least equal to the closing market price of our common shares on the date of grant. The maximum term of SSARs is seven years from the date of grant. The Compensation Committee of the Board of Directors establishes the period over which SSARs subject to a service condition vest and the vesting criteria for SSARs subject to a market condition.

Restricted shares and restricted stock units, whether time-vested or performance-based, may be issued at no cost or at a purchase price that may be below their fair market value, but are subject to forfeiture and restrictions on their sale or other transfer. Performance-based grants may be conditioned upon the attainment of specified performance objectives and other conditions, restrictions, and contingencies. Restricted shares have the right to receive dividends, if any, upon vesting, subject to the same forfeiture provisions that apply to the underlying grants.

We record compensation expense related to SSARs, restricted shares, restricted stock units, performance shares, and ESPP 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 stock unit and restricted share grants subject only to a service condition is based on the closing price of our common shares on the grant date. For stock option and SSAR grants subject only to a service condition, we estimate the fair value on the grant date using the Black-Scholes-Merton option pricing model with inputs including the closing market price at grant date, exercise price and assumptions regarding the risk-free interest rate, expected volatility of our common shares based on historical volatility, and expected term as estimated using the simplified method. We use the simplified method for SSAR grants because we believe historical exercise data does not provide a reasonable basis upon which to estimate the expected term. For restricted stock unit, restricted share, and SSAR grants subject to a market condition, we estimate the fair value on the grant date through a lattice option pricing model that utilizes a Monte Carlo analysis with inputs including the closing market price at grant date, share price threshold, performance period term and assumptions regarding the risk-free interest rate and expected volatility of our common shares based on historical volatility. Inputs for SSAR grants subject to a market condition also include exercise price, remaining contractual term, and suboptimal exercise factor.

We record compensation expense for restricted stock units, restricted shares, and SSAR grants subject to a service condition using the graded vesting method. We record compensation expense for ESPP shares on a straight-line basis over the applicable offering period. We record compensation expense for SSAR grants subject only to a market condition over the derived service period, which is an output of the lattice option pricing model. Under the 2020 Plan, the fair value of performance shares is based on the closing price of our common shares on the settlement date of the performance award, for which we record compensation expense over the service period consistent with our annual bonus incentive plan as approved by the Compensation Committee of the Board of Directors.

The following table summarizes the share-based compensation expense for restricted and performance grants included in the condensed consolidated statements of operations:

 

Three months ended
June 30,

 

(In thousands)

2024

 

 

2023

 

Product development

 

2,636

 

 

 

1,625

 

Sales and marketing

 

331

 

 

 

166

 

General and administrative

 

1,462

 

 

 

1,376

 

Total share-based compensation expense

 

4,429

 

 

 

3,167

 

Stock-Settled Appreciation Rights

SSARs are rights granted to an employee to receive value equal to the difference between the price of our common shares on the date of exercise and the exercise price. The value is settled in common shares of Agilysys, Inc.

13


 

We use a Black-Scholes-Merton option pricing model to estimate the fair value of service condition SSARs and a lattice option pricing model to estimate the fair value of market condition SSARs. There were no SSARs granted during the three months ended June 30, 2024 and 2023.

The following table summarizes the activity during the three months ended June 30, 2024 for SSARs awarded under the 2020 and 2016 Plans:

(In thousands, except share and per share data)

 

Number of
Rights

 

 

Weighted-Average Exercise Price

 

 

Remaining
Contractual
Term

 

 

Aggregate
Intrinsic
Value

 

 

 

 

 

 

(per right)

 

 

(in years)

 

 

 

 

Outstanding at April 1, 2024

 

 

1,297,339

 

 

$

27.63

 

 

 

 

 

 

 

Granted

 

 

 

 

 

 

 

 

 

 

 

 

Exercised

 

 

(737,136

)

 

 

33.48

 

 

 

 

 

 

 

Forfeited

 

 

 

 

 

 

 

 

 

 

 

 

Expired

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at June 30, 2024

 

 

560,203

 

 

$

19.94

 

 

 

3.3

 

 

$

47,169

 

Exercisable at June 30, 2024

 

 

560,203

 

 

$

19.94

 

 

 

3.3

 

 

$

47,169

 

Vested and expected to vest at June 30, 2024

 

 

560,203

 

 

$

19.94

 

 

 

3.3

 

 

$

47,169

 

 

As of June 30, 2024, there was no unrecognized share-based compensation expense related to SSARs.

Restricted Shares

We granted shares to certain of our Directors, executives and key employees, the vesting of which is service-based. Certain restricted shares are also subject to a market condition. The following table summarizes the activity during the three months ended June 30, 2024 for restricted shares awarded under the 2020 Plan:

 

 

Number of Shares

 

 

Weighted-Average
Grant-Date
Fair Value

 

 

 

 

 

 

(per share)

 

Outstanding at April 1, 2024

 

 

436,177

 

 

$

65.52

 

Granted

 

 

13,149

 

 

 

103.30

 

Vested

 

 

(79,792

)

 

 

53.51

 

Forfeited

 

 

(2,263

)

 

 

70.58

 

Outstanding at June 30, 2024

 

 

367,271

 

 

$

68.05

 

 

The weighted-average grant date fair value of the restricted shares includes grants subject only to a service condition and certain grants subject to both a service condition and a market condition. As of June 30, 2024, total unrecognized share-based compensation expense related to unvested restricted shares was $12.9 million, which is expected to be recognized over a weighted-average vesting period of 2.0 years.

Restricted Stock Units

We granted restricted stock units to our Chief Executive Officer, the vesting of which is service-based. Certain restricted stock units are also subject to a market condition. The following table summarizes the activity during three months ended June 30, 2024 for restricted stock units awarded under the 2020 Plan:

 

 

 

Number of Shares

 

 

Weighted-Average Grant-Date Fair Value

 

 

 

 

 

 

(per share)

 

Outstanding at April 1, 2024

 

 

56,547

 

 

$

70.03

 

Granted

 

 

 

 

 

Vested

 

 

 

 

 

 

Forfeited

 

 

 

 

 

 

Outstanding at June 30, 2024

 

 

56,547

 

 

$

70.03

 

As of June 30, 2024, total unrecognized share-based compensation expense related to non-vested restricted stock units was $2.0 million, which is expected to be recognized over the weighted-average vesting period of 1.8 years.

14


 

Performance Shares

Upon approval of the Compensation Committee of our Board of Directors, after achieving the performance conditions associated with our annual bonus plan, we granted 6,098 common shares to our Chief Executive Officer in May 2024 that vested immediately for a total value of $0.6 million.

Employee Stock Purchase Plan Shares

The ESPP permits participants to purchase common stock through regular payroll deductions, up to a specified percentage of their eligible compensation. The ESPP is compensatory because, among other provisions, it currently allows participants to purchase stock at up to a 15% discount from the lower of the closing price of a share of our common stock on the first or last trading day of the ESPP offering period. We measure share-based compensation expense for the ESPP based on the fair value of the ESPP grant at the beginning of the offering period. The fair value includes the value of the discount and the value associated with the call and put options that take advantage of the variability in the common stock price during the offering period. We estimate the value of the call and put options using the Black-Scholes-Merton option pricing model with inputs including the closing market price of our common stock on the first date of the offering period and assumptions regarding the risk-free interest rate, expected term, and expected volatility of our common shares over the offering period based on historical volatility.

 

 

Offering Period Ended

 

 

 

June 30, 2024

 

Grant date fair value

 

$

81.60

 

Risk-free interest rate over contractual term

 

 

5.36

%

Expected term (in years)

 

 

0.41

 

Expected volatility

 

 

47.41

%

The risk-free interest rate is based on the yield of a zero coupon U.S. Treasury bond whose maturity period approximates the expected term of the ESPP shares. The expected term is the offering period, which is typically six months.

We record amounts withheld from participants during each offering period in accrued salaries, wages and related benefits in the consolidated balance sheets until such shares are purchased. Amounts withheld from participants for the offering period ended June 30, 2024 totaled $0.5 million as of June 30, 2024.

As of June 30, 2024, there was no unrecognized share-based compensation expense related of the offering period ending June 30, 2024.

10. Preferred Stock

Series A Convertible Preferred Stock

On May 22, 2020, we completed the sale of 1,735,457 shares of our preferred stock, without par value, designated as “Series A Convertible Preferred Stock” (the “Convertible Preferred Stock”) to MAK Capital Fund L.P. and MAK Capital Distressed Debt Fund I, LP (the “Holders”) each, in its capacity as a designee of MAK Capital One LLC (the “Purchaser”), pursuant to the terms of the Investment Agreement, dated as of May 11, 2020, between the Company and the Purchaser, for an aggregate purchase price of $35 million. We incurred issuance costs of $1.0 million. We added all issuance costs that were netted against the proceeds upon issuance of the Convertible Preferred Stock to its redemption value. As disclosed in our Annual Report for the fiscal year ended March 31, 2021, Michael Kaufman, the Chairman of the Company’s Board of Directors, is the Chief Executive Officer of MAK Capital One LLC.

Conversion

On November 24, 2023, at our option, we required conversion of all the outstanding shares of Convertible Preferred Stock to common stock. On November 27, 2023, we filed a Certificate of Elimination with the Secretary of State of the State of Delaware with respect to the Convertible Preferred Stock pursuant to which the Convertible Preferred Stock was eliminated and returned to the status of authorized and unissued preferred shares of the Company. Following the mandatory conversion of the outstanding shares of the Convertible Preferred Stock on November 24, 2023, there were no outstanding shares of the Convertible Preferred Stock. Accordingly, we removed the Series A convertible preferred stock, no par value from temporary equity on our consolidated balance sheet and recorded the associated increase of common shares at

15


 

$0.30 stated value and capital in excess of stated value further reflected in our consolidated statement of shareholders' equity.

Dividends

Prior to the conversion on November 24, 2023, the Holders were entitled to dividends on the Liquidation Preference at the rate of 5.25% per annum, payable semi-annually either (i) 50% in cash and 50% in kind as an increase in the then-current Liquidation Preference or (ii) 100% in cash, at the option of the Company. We paid dividends in the same period as declared by the Company’s Board of Directors.

Accounting Policy

Prior to the conversion on November 24, 2023, we classified convertible preferred stock as temporary equity in the consolidated balance sheets due to certain contingent redemption clauses that were at the election of the Holders. We increased the carrying value of the convertible preferred stock to its redemption value for all undeclared dividends using the interest method.
 

16


 

Item 2. Management's 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 Condensed Consolidated Statements of Operations and Condensed 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 Quarterly Report on Form 10-Q updates information included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2024, filed with the Securities and Exchange Commission (SEC). This discussion should be read in conjunction with the Condensed Consolidated Financial Statements and related Notes that appear in Item 1 of this Quarterly Report as well as our Annual Report for the year ended March 31, 2024. 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 23 of this Quarterly Report, Item 1A "Risk Factors" in Part II of this Quarterly Report, and Item 1A “Risk Factors” in Part I of our Annual Report for the fiscal year ended March 31, 2024 for additional information concerning these items. Management believes that this information, discussion, and disclosure is important in making decisions about investing in Agilysys.

Overview

Recent Developments

Macroeconomic Conditions