SaaS Helps Lift Hospitality Software Maker Agilysys

November 10, 2014 Timothy Prickett Morgan

Like every other software company in the world that grew up selling software licenses, professional services to customize and install the code, and technical support to support it out into the future, Agilysys is making inroads selling its hospitality applications as a service. But the transition is causes disruptions to the financials over the short term.

In the company’s second quarter of fiscal 2015, which ended on September 30, the results were tweaked to take out the revenues from the prior quarter for its business in the United Kingdom to Verteda Limited, which has taken over the operations that span EMEA as of the end of March. Under the deal, Verteda has taken over the distribution of Agilysys software in Europe, the Middle East, and Africa. Specifically, Verteda is reselling the InfoGenesis POS software, the Eatec inventory and procurement system, and the Workforce Management Solution exclusively in the UK and will have exclusivity in the stadium and arena market internationally. The company said that in the nine months prior to the deal, the EMEA and international stadium and arena market represented less than 10 percent of Agilysys sales. Revenues for the current quarter include OEM sales to Verteda, but Agilysys did not break this out separately. It is clearly enough to make the numbers wiggle.

In the September quarter, Agilysys had $7.65 million in product revenues, down 10.9 percent. Support, maintenance and subscription services, however, rose by 6.9 percent to $13.78 million. Janine Seebeck, chief financial officer at Agilysys, said in a call with Wall Street analysts that through the first half of fiscal 2015 that recurring revenues were up 7 percent, and that included an 11 percent bump up in SaaS revenues for its various software products. Jim Dennedy, the company’s president and CEO, said on the call that SaaS revenues were up 14 percent in the current quarter.

The InfoGenesis product was just refreshed at the end of September, and interestingly has been available in both on on-premise and SaaS editions for 14 years. The company has also put out its rGuest Pay payment gateway for property management and POS applications, which is used to securely encrypt credit card data. (Everyone is a little jumpy about that these days.) Dennedy said that Agilysys was working on modules for the rGuest Pay gateway that would add rewards engines, store value payments, mobile payments, and payment analytics, so stay tuned for that. The company also enhanced its rGuest seating software with rGuest Seat, a table management package that runs in a Web browser or an iOS app. This solution has over 100 customers already. The company’s rGuest Buy, the next generation of its POS software, is in beta testing and will be generally available in the spring of 2015.

Professional services revenues rose by a stunning 44.8 percent to $4.89 million in the September quarter, filling in some of the gap caused by a drop in product revenues. However, base costs were up across all product fronts and even with a big reduction in research, development, sales, and marketing costs, those increased base costs pushed Agilysys into the red ink to the tune of $1.13 million, which was about the same as the $1.15 million operating loss it had in the year-ago quarter but still a loss nonetheless. In the year-ago period Agilysys booked a $21.76 million gain on the sale of discontinued business lines, which helped it to book a net income of $20.45 million in the September 2013 quarter (which was the second quarter of its fiscal 2014 year).

For the six months of this fiscal 2015 year, Agilysys has $50.06 million in sales and has booked a loss of $3.36 million. The company has $67.2 million in cash and another $10.1 million in securities, so it is not in bad shape financially. But it has burned around $22.3 million of its cash in the past six months.

This is one note that did not make me happy: Seebeck said that the increase in traditional support, up 4 percent, and SaaS subscriptions, up 14 percent, was offset by an 11 percent drop (about $900,000) that were “the result of reductions in proprietary product sales.” That sounds like sales on the IBM i platform to me.

Dennedy said that about 54 percent of Agilysys revenues come from the gaming industry, with 21 percent coming from the hotel, resort, and cruise sector. The gaming industry generates around $40 billion in revenues, while the hotel, resort, and cruise industry generates about $163 billion. (There is a lot more competition in the latter than in the former, obviously.) The food service sector makes up about 15 percent of Agilysys sales; Dennedy did not give a size for this market.