Agilysys Adjusts Annual Revenue Growth Downward

February 10, 2014 Dan Burger

The third quarter financial report from Agilysys showed pretty much as-expected results with a growth in recurring support revenue not being strong enough to combat an overall reduction in revenue. Management painted the outcome as demonstrating growth in higher-margin recurring revenue while continuing to focus on solutions and customer support to clients across the hospitality industry, but it also revised the company’s fiscal 2014 outlook to predict lower than expected annual growth.

Agilysys officials attributed the steep decline in product revenue to a decrease in “lower-margin, remarketed product sales in the third quarter of fiscal 2013 that did not repeat in the current year period.”

In its Q2 financial report in November, Agilysys noted several project installations were pushed from Q2 into Q3, which resulted in a 9 percent decrease in year-over-year revenue in Q2.

Agilysys software is recognized in the IBM midrange community for its dominance in the hospitality and gaming markets. The company derives 50 percent of its revenue from the gaming industry. The remaining segments are managed food services, which accounts for 29 percent of revenue; hotels and resorts, which represent 17 percent of revenue; and cruise, which contributes 4 percent.

Looking at the Q3 report card, total net revenue decreased from one year ago by $2.2 million, bringing in $26 million this quarter compared to $28.2 million in Q3 2012. Product sales, which traditionally account for 50 percent of revenue, decreased 30 percent, dropping from $12.4 million to $8.6 million, while revenue from support, maintenance and subscription services grew 10 percent, from $12.2 million to $13.6 million. This figure represents more than 52 percent of total revenue, which is an increase from 43 percent a year ago. Revenue from professional services inched upward from $3.4 million to $3.7 million, a 6 percent increase.

A comparison of Agilysys’ numbers in the first nine months of fiscal 2013 shows product revenue down marginally from $26.7 million to $26.2 million. Support, maintenance and subscription services grew from $37.1 million to $39.9 million, an increase of 7 percent. Professional services dips from $10.9 million to $10.8 million.

On the topic of downward annual growth, Agilysys CFO Janine Seebeck described it as an issue of timing, which will correct itself over time.

“We are revising our revenue outlook primarily as a result of the timing associated with certain customer-driven contracted opportunities, where revenue cannot be fully recognized in the period in which the bookings occurred. We now expect our reported growth rate to be in line with or slightly below the expected annual growth for the industry of 5 percent to 7 percent. We are, however, reaffirming our expectations of generating positive adjusted operating income from continuing operations for fiscal 2014. As we move ahead, we are excited with our planned investments around further leveraging our existing client base, expanding our penetration in the end markets we serve and building our product portfolio. We remain confident in our business and our ability to continue making improvement in our operations,” the CFO said during the earnings call.