New Software License Sales Stall At Agilysys

September 4, 2012 Timothy Prickett Morgan

Retailers and hotel and casino operators are on the leading edge of the economy, and when people get nervous about spending money on non-essentials, they are often the first ones to feel it. Sometimes, it is an overreaction to news. Sometimes it is just a reaction. Let’s hope for all our sakes that the downturn in software licensing in the June quarter for Agilysys is just a hiccup and not a spreading flu.

Agilysys, which last July got out of the remaining part of its hardware business that it had not already sold off to Arrow Electronics five and a half years ago, saw product sales, dominated by new software licenses, fall by 13.7 percent to $24.1 million. Luckily, support, maintenance, and subscription services sales were on the rise, climbing 5.2 percent to $18.4 million, and professional services (all that consultant and integration engagement stuff) rose by 27.8 percent to $9.1 million. But these boosts were not enough to fill in the gap in new software license sales, and thus overall revenues in the first quarter of fiscal 2013 ended June 30 were down 1.8 percent to $51.6 million.

The good news is that Agilysys was able to dial back research and development costs, shrinking its operating loss to $1.4 million, down significantly from the $8.4 million operating loss it had in the year-ago period when it was still peddling low-margin systems hardware. Net losses in the first fiscal quarter piled up to $1.6 million, down from a net loss of $6.2 million in the first quarter of fiscal 2012. On a non-GAAP basis excluding the various costs associated with the winding down of the Technology Solutions hardware and services businesses that have been part of OnX Enterprise Solutions since July 2011, Agilysys actually brought $700,000 to the bottom line compared to a non-GAAP loss of $2.9 million in the year-ago period.

“Entering fiscal 2013, we continued to make significant progress transitioning our business model to higher-quality and recurring revenue streams to produce more consistent and sustainable growth,” said James Dennedy, president and chief executive officer at Agilysys in a statement accompanying the financial results. “We remain keenly focused on high-quality revenue opportunities in the high-end segments of the markets we serve. Over time, our focus on high-quality products, services, markets and revenue will result in a growing, profitable business that will outperform the market.”

In the first fiscal quarter, Agilysys had $22.4 million in sales from its Hotel Solutions Group, which peddles software to manage hotels and casinos, and had an operating gain of $3.2 million. Its Retail Solutions Group, which peddles to peddlers, had $29.3 million in revenues and had an operating income of $1.7 million. The $6.6 million loss was pegged into the “Other” column and laid almost entirely on the Technology Solutions unit.

Agilysys exited the quarter with $80.3 million in cash, and has burned $17.3 million since the end of March. The company is not worried about burning a little cash and reaffirmed its revenue guidance for the fiscal 2013 year, saying it expected for sales to come in between $208 million and $211 million. Operating incomes, adjusted for the Technology Solutions sale and other restructuring charges, are expected to be in the range of $3.5 million to $4.5 million, which is a big reversal from the $7.9 million non-GAAP loss for fiscal 2012. That puts adjust net earnings per share at somewhere between a 16 cent and 21 cent gain, compared to a 39 cent loss in the prior fiscal year.

A little pickup in new software license sales would go a long way here, and given the choppiness of both the retail and hospitality sectors when it comes to quarterly sales, it is perfectly possible for there to be a big upswing as companies calm down in the wake of whatever was making them nervous in the June quarter. All business is tough business. That’s all I know.