Agilysys in Transition; Revenue Falls Short of Goal

August 18, 2014 Dan Burger

Building revenue growth continues to be a struggle for Agilysys, a developer of enterprise software for the gaming and hospitality markets with large portion of IBM midrange customers. In its most recent financial reporting, the company reported first quarter fiscal 2015 revenue of $23.7 million, which was less than its estimated target of $25.7 million.

Support, maintenance, and subscription revenues brought a 7 percent increase in revenue, however, the transition to subscription-based software and a repositioned sales effort to emphasize new products combined to create a 19 percent decrease in overall product revenue. Proprietary product sales were the primary culprit in revenue decline. But as software as a service revenue grows, it has its negative effect on traditional licensing revenue. Agilysys reported SaaS revenue growth exceeded 8 percent compared to Q1 a year ago. A 17 percent jump in professional services revenue stood out in the report, but company officials attributed that eye-catching increase to the effects of a single large deal late in 2013.

Specific areas of business success that were mentioned by Agilysys president and CEO Jim Dennedy in the financial report included new customers in the commercial and tribal gaming market, which contributes 53 percent of the company’s revenue.

He also noted that 22 percent of the revenue is being generated by the hotel, resort, and cruise ship market, and that business is growing. Food service management is claiming 15 percent of Agilysys revenue. These numbers line up to a large degree with the percentages the company released in February report, except for food service management, which was contributing 29 percent of revenue six months ago.

Dennedy also found time to make a pitch for the cloud, noting that although it takes a bite out of up-front revenue, over time it is expected to produce higher margins than traditional software licenses.

“One of the areas that we are seeing significant up-tick by customers across just about every sector is around cloud-based solutions, including software as a service. Customers continue to show strong demand for SaaS-enabled solutions,” he said during the earnings call webcast. “Given the greater adoption of cloud-based solutions, we have increased our focus around cloud and SaaS solutions to complement our traditional sales and business development efforts across certain sectors. We are expanding and aligning our sales force to sell SaaS services, and even though we are in the early stages of this effort, we are pleased with the results so far.”

Dennedy went on to say he expects the purchase of traditional software licenses will be the norm for some time as opposed to a rush to SaaS. He estimated more than 70 percent of the company’s bookings are tied to traditional software licensing.