See accompanying notes to unaudited condensed consolidated financial statements.
See accompanying notes to unaudited condensed consolidated financial statements.
See accompanying notes to unaudited condensed consolidated financial statements.
See accompanying notes to unaudited condensed consolidated financial statements.
See accompanying notes to unaudited condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Table amounts in thousands, except per share data)
1. Nature of Operations and Financial Statement Presentation
Nature of Operations
Agilysys has been a leader in hospitality software for more than 40 years, delivering innovative guest-centric technology solutions for gaming, hotels, resorts and cruise, corporate foodservice management, restaurants, universities, stadia, airport foodservice and healthcare. Agilysys offers the most comprehensive solutions in the industry, including point of sale (POS), property management systems (PMS), inventory and procurement, payments, and related applications, to manage the entire guest journey.
The Company has just one reportable segment serving the global hospitality industry. Agilysys operates across North America, Europe, Asia-Pacific, and India with headquarters located in Alpharetta, GA.
COVID-19 Pandemic
On March 11, 2020, the World Health Organization declared the COVID-19 outbreak a global pandemic. The outbreak has reached all geographic regions in which we do business, and government authorities around the world have implemented extensive measures attempting to contain the spread and mitigate the effects of the virus, including travel bans and restrictions, border closings, quarantines, shelter-in-place orders, closures of non-essential businesses, and social distancing requirements. The global spread of COVID-19 and the actions taken in response have negatively impacted us, our customers, our suppliers and the many communities in which we do business. The overall extent and duration of economic and business disruption is not currently known. In response to these challenges, we quickly adjusted our business policies and practices for employees to work from home and have taken other measures to continue our operations with safety as our priority.
We continuously monitor and assess the impact of the COVID-19 pandemic, including recommendations and orders from government and public health authorities. We are working to help our customers maintain their operations during this difficult time while managing our teams to be prepared for continuously changing demand for our products and services.
See Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview— Recent Developments” of this report for a more detailed discussion of the impact of COVID-19 on our business.
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 2021 refers to the fiscal year ending March 31, 2021.
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, 2020, as well as the Condensed Consolidated Statements of Operations, Condensed Consolidated Statements of Comprehensive Loss, Condensed Consolidated Statements of Cash Flows and Condensed Consolidated Statements of Shareholders’ Equity for the three months ended June 30, 2020 and 2019, are unaudited. However, these financial statements have been prepared on the same basis as those in the audited annual financial statements, except for the recently adopted accounting pronouncements described below. 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, 2020, filed with the Securities and Exchange Commission (SEC) on May 22, 2020.
Use of estimates
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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.
Considering the currently unknown extent and duration of the COVID-19 pandemic, we face a greater degree of uncertainty than normal in making the judgments and estimates needed to apply to certain of our significant accounting policies. We assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to us and the unknown future impacts COVID-19 as of June 30, 2020 and through the date of this report. These estimates may change, as new events occur and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions.
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, 2020, included in our Annual Report on Form 10-K. We describe our accounting policy for Series A convertible preferred stock further below. There have been no other material changes to our significant accounting policies from those disclosed therein.
Adopted and Recently Issued Accounting Pronouncements
In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. ASU 2018-15 addresses the treatment of implementation costs incurred in a hosting arrangement that is a service contract. The update does not impact the accounting for the service element of a hosting arrangement that is a service contract. We adopted ASU 2018-15 as of April 1, 2020 with no impact on our condensed consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 addresses the required disclosures around fair value measurement. The disclosure requirements of the reasons for transfers between Level 1 and Level 2, the policy for timing transfers between levels, and the valuation process for Level 3 measurements have been removed. Certain modifications were made to required disclosures and additional requirements were established. We adopted ASU 2018-13 as of April 1, 2020 with no impact on our condensed consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles- Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment. ASU No. 2017-04 eliminates Step 2 of the goodwill impairment test and requires a goodwill impairment to be measured as the amount by which a reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of its goodwill. We adopted ASU 2017-04 as of April 1, 2020 with no impact on our condensed consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments. This new standard requires entities to measure expected credit losses for certain financial assets held at the reporting date using a current expected credit loss model, which is based on historical experience, adjusted for current conditions and reasonable and supportable forecasts. The Company’s financial instruments within the scope of this guidance primarily includes accounts receivable and contract assets. We adopted ASU 2016-13 as of April 1, 2020 under the modified retrospective approach. As a result, comparative information has not been restated and continues to be reported under accounting standards applicable for those periods. The adoption of ASU 2016-13 did not have a material impact on our condensed consolidated financial statements, including accounting policies, given our limited historical write-off activity.
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 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 purchase 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 purchase 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.
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Our 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.
Revenue for hardware sales is recognized 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 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.
Support and maintenance revenue is derived from providing telephone and on-line technical support services, bug fixes, and unspecified software updates and upgrades to customers on a when-and-if-available basis. These services represent a stand-ready obligation that is concurrently delivered and has the same pattern of transfer to the customer; we account for these support and maintenance services as a single performance obligation recognized over the term of the maintenance agreement.
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. 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, and any hosting 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.
Professional services revenues primarily consist of fees for consulting, installation, integration 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. 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 drive 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 (software licenses, third party hardware and operating systems), support, maintenance and subscription services and professional services. Revenue recognized at a point in time (products) totaled $5.2 million and $10.9 million, and over time (support, maintenance and subscription services and professional services) totaled $24.6 million and $27.5 million for the three months ended June 30, 2020 and 2019, 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 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 $17.5 million and $15.6 million for the three months ended June 30, 2020 and 2019, respectively. Because the right to the transaction became unconditional, we transferred
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to accounts receivable from contract assets at the beginning of the period, $1.4 million and $2.0 million for the three months ended June 30, 2020 and 2019, respectively.
Our arrangements are for a period of one year or less. As a result, unsatisfied performance obligations as of June 30, 2020 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 have elected to take the practical expedient available to 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.
We had $3.2 million and $3.3 million of capitalized sales incentive costs as of June 30, 2020 and 2019, respectively. These balances are included in other non-current assets on our condensed consolidated balance sheets. During the three months ended June 30, 2020 and 2019, we expensed $0.6 million and $1.0 million, respectively, of sales commissions, which included amortization of capitalized amounts of $0.4 million and $0.3 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. Intangible Assets and Software Development Costs
The following table summarizes our intangible assets and software development costs:
|
|
June 30 and March 31, 2020
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
carrying
|
|
|
Accumulated
|
|
|
|
|
|
|
carrying
|
|
(In thousands)
|
|
amount
|
|
|
amortization
|
|
|
Impairment
|
|
|
amount
|
|
Amortized intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
10,775
|
|
|
$
|
(10,775
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
Non-competition agreements
|
|
|
2,700
|
|
|
|
(2,700
|
)
|
|
|
—
|
|
|
|
—
|
|
Developed technology
|
|
|
10,398
|
|
|
|
(10,398
|
)
|
|
|
—
|
|
|
|
—
|
|
Trade names
|
|
|
230
|
|
|
|
(230
|
)
|
|
|
—
|
|
|
|
—
|
|
Patented technology
|
|
|
80
|
|
|
|
(80
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
24,183
|
|
|
|
(24,183
|
)
|
|
|
—
|
|
|
|
—
|
|
Trade names
|
|
|
8,400
|
|
|
N/A
|
|
|
|
—
|
|
|
|
8,400
|
|
Total intangible assets
|
|
$
|
32,583
|
|
|
$
|
(24,183
|
)
|
|
$
|
—
|
|
|
$
|
8,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total software development costs
|
|
$
|
67,541
|
|
|
$
|
(45,535
|
)
|
|
$
|
(22,006
|
)
|
|
$
|
—
|
|
As of March 31, 2020, management determined the net realizable value of the remaining capitalized software development costs for certain solutions within out rGuest suite of products no longer exceeded their carrying value, and as a result, recorded non-cash impairment charges of $22.0 million for the year ended March 31, 2020. The impact of the COVID-19 pandemic on the hospitality industry resulted in economic conditions that made it difficult to project future sales and revenue accurately for the related rGuest solutions. After evaluating the Company’s strategy for market development and continued costs to support the software, an impairment charge was required. The amount of impairment recognized during the year ended March 31, 2020 reduced the carry value of capitalized software development costs to zero with no remaining amortization expense to be recognized in future periods.
Amortization expense for software development costs related to assets to be sold, leased, or otherwise marketed was $3.2 million for the three months ended June 30, 2019. These charges are included as costs of goods sold - products in our condensed consolidated statements of operations.
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5. Additional Balance Sheet Information
Additional information related to the condensed consolidated balance sheets is as follows:
|
|
June 30,
2020
|
|
|
March 31,
2020
|
|
Accrued liabilities:
|
|
|
|
|
|
|
|
|
Salaries, wages, and related benefits
|
|
$
|
6,811
|
|
|
$
|
6,945
|
|
Other taxes payable
|
|
|
1,512
|
|
|
|
1,649
|
|
Severance liabilities
|
|
|
103
|
|
|
|
32
|
|
Professional fees
|
|
|
104
|
|
|
|
50
|
|
Other
|
|
|
271
|
|
|
|
357
|
|
Total
|
|
$
|
8,801
|
|
|
$
|
9,033
|
|
Other non-current liabilities:
|
|
|
|
|
|
|
|
|
Uncertain tax positions
|
|
$
|
1,110
|
|
|
$
|
1,103
|
|
Asset retirement obligations
|
|
|
170
|
|
|
|
170
|
|
Employee benefit obligations
|
|
|
1,429
|
|
|
|
511
|
|
Other
|
|
|
77
|
|
|
|
76
|
|
Total
|
|
$
|
2,786
|
|
|
$
|
1,860
|
|
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6. Supplemental Disclosures of Cash Flow Information
Additional information related to the consolidated statements of cash flows is as follows:
|
|
Three Months Ended June 30,
|
|
(In thousands)
|
|
|
2020
|
|
|
|
2019
|
|
Cash (receipts) for interest, net
|
|
|
(20
|
)
|
|
|
(79
|
)
|
Cash payments for income tax, net
|
|
|
134
|
|
|
|
73
|
|
Cash payments for operating leases
|
|
|
1,642
|
|
|
|
1,014
|
|
Cash payments for finance leases
|
|
|
8
|
|
|
|
8
|
|
Accrued capital expenditures
|
|
|
19
|
|
|
|
51
|
|
7. Income Taxes
The following table compares our income tax expense and effective tax rates for the three months ended June 30, 2020 and 2019:
|
|
Three Months Ended
June 30,
|
|
(Dollars in thousands)
|
|
2020
|
|
|
2019
|
|
Income tax expense
|
|
$
|
8
|
|
|
$
|
25
|
|
Effective tax rate
|
|
|
(1.6
|
)%
|
|
|
(1.6
|
)%
|
For the three months ended June 30, 2020 and 2019, the effective tax rate was different than the statutory rate due primarily to the recognition of net operating losses as deferred tax assets in the U.S. and certain foreign jurisdictions, which were offset by increases in the valuation allowance, certain foreign and state tax effects and other U.S. permanent book to tax differences.
Because of our losses in prior periods, we have recorded a valuation allowance offsetting substantially all of our deferred tax assets in the U.S. and certain foreign jurisdictions, as management believes that it is more likely than not that we will not realize the benefits of these deductible differences. The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which those temporary differences are deductible.
8. Commitments and Contingencies
Agilysys is the subject of various threatened or pending legal actions and contingencies in the normal course of conducting its business. We provide for costs related to these matters when a loss is probable, and the amount can be reasonably estimated. The effect of the outcome of these matters on our future results of operations and liquidity cannot be predicted because any such effect depends on future results of operations and the amount or timing of the resolution of such matters. While it is not possible to predict with certainty, management believes that the ultimate resolution of such individual or aggregated matters will not have a material adverse effect on our consolidated financial position, results of operations, or cash flows.
On April 6, 2012, Ameranth, Inc. filed a complaint against us in the U.S. District Court of Southern District of California alleging that certain of our products infringe patents owned by Ameranth directed to configuring and transmitting hospitality menus (e.g. restaurant menus) for display on electronic devices and synchronizing the menu content between the devices. The case against us was consolidated with similar cases brought by Ameranth against more than 30 other defendants. All but one of the patents at issue in the case were invalidated by the U.S. Court of Appeals for the Federal Circuit in 2016. In September 2018, the District Court found the one surviving Ameranth patent invalid and granted summary judgment in favor of the movant co-defendants. In November 2019, the U.S. Court of Appeals for the Federal Circuit affirmed the lower court’s summary judgement with respect to all claims except for two, which were not asserted against Agilysys. In early 2020, the Court of Appeals also denied Ameranth’s request for rehearing. Finally, Ameranth filed for writ of certiorari to the United States Supreme Court. The Supreme Court has not yet responded to the writ.
We were not a party to the appeal, and it is currently unclear what impact the summary judgement ruling or writ of certiorari may have on our case. Ameranth seeks monetary damages, injunctive relief, costs and attorneys' fees from us. At this time, we are not able to predict the outcome of this lawsuit. However, we dispute the allegations of wrongdoing and are vigorously defending ourselves in this matter.
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9. Loss per Share
The following data shows the amounts used in computing (loss) 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)
|
2020
|
|
|
2019
|
|
Numerator:
|
|
|
|
|
|
|
|
Net loss
|
$
|
(517
|
)
|
|
$
|
(1,575
|
)
|
Series A convertible preferred stock issuance costs
|
|
(937
|
)
|
|
|
—
|
|
Series A convertible preferred stock dividends
|
|
(199
|
)
|
|
|
—
|
|
Net loss available to common shareholders
|
$
|
(1,653
|
)
|
|
$
|
(1,575
|
)
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
Weighted average shares outstanding - basic and diluted
|
|
23,405
|
|
|
|
23,212
|
|
|
|
|
|
|
|
|
|
Loss per share - basic and diluted:
|
|
|
|
|
|
|
|
Loss per share
|
$
|
(0.07
|
)
|
|
$
|
(0.07
|
)
|
|
|
|
|
|
|
|
|
Anti-dilutive stock options, SSARs, restricted shares,
performance shares and preferred shares
|
|
3,560
|
|
|
|
1,273
|
|
Basic loss per share is computed as net income available to common shareholders divided by the weighted average basic shares outstanding. The outstanding shares used to calculate the weighted average basic shares excludes 194,587 and 445,829 of restricted shares at June 30, 2020 and 2019, respectively, as these shares were issued but were not vested and therefore, not considered outstanding for purposes of computing basic loss per share at the balance sheet dates.
Diluted loss per share includes the effect of all potentially dilutive securities on earnings per share. We have stock options, stock-settled appreciation rights ("SSARs"), unvested restricted shares and unvested performance shares that are potentially dilutive securities. When a loss is reported, the denominator of diluted earnings per share cannot be adjusted for the dilutive impact of share-based compensation awards because doing so would be anti-dilutive. Therefore, for all periods presented, basic weighted average shares outstanding were used in calculating the diluted net loss per share.
10. Share-based Compensation
We may grant non-qualified stock options, incentive stock options, SSARs, restricted shares, and restricted share units under our shareholder-approved 2016 Stock Incentive Plan ("2016 Plan") for up to 2.0 million common shares, plus 957,575 common shares, the number of shares that were remaining for grant under the 2011 Stock Incentive Plan ("2011 Plan") as of the effective date of the 2016 Plan, plus the number of shares remaining for grant under the 2011 Plan that are forfeited, settled in cash, canceled or expired. The maximum aggregate number of restricted shares or restricted share units that may be granted under the 2016 Plan is 1.25 million.
We may distribute authorized but unissued shares or treasury shares to satisfy share option and appreciation right exercises or restricted share and performance share awards.
We record compensation expense related to stock options, SSARs, restricted shares, and performance 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 share and performance share awards is based on the closing price of our common shares on the grant date. The fair value of stock option and SSARs awards is estimated on the grant date using the Black-Scholes-Merton option pricing model, which includes assumptions regarding the risk-free interest rate, dividend yield, life of the award, and the volatility of our common shares. During fiscal year 2020, we issued 125,000 SSAR awards which are subject to a market condition. The fair value of these awards is estimated using the Lattice option pricing model which utilizes a binary tree and includes multiple assumptions which include volatility and life of the award to determine an appropriate fair value based on the award grant date.
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The following table summarizes the share-based compensation expense for options, SSARs, restricted and performance awards included in the condensed consolidated statements of operations:
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
(In thousands)
|
|
2020
|
|
|
2019
|
|
Product development
|
|
$
|
172
|
|
|
$
|
268
|
|
Sales and marketing
|
|
|
36
|
|
|
|
62
|
|
General and administrative
|
|
|
1,218
|
|
|
|
152
|
|
Total share-based compensation expense
|
|
$
|
1,426
|
|
|
$
|
482
|
|
Stock-Settled Appreciation Rights
SSARs are rights granted to an employee to receive value equal to the difference in the price of our common shares on the date of the grant and on the date of exercise. This value is settled in common shares of Agilysys, Inc.
The following table summarizes the activity during the three months ended June 30, 2020 for SSARs awarded under the 2011 and 2016 Plans:
|
|
Number of
Rights
|
|
|
Weighted-Average Exercise Price
|
|
|
Remaining
Contractual Term
|
|
|
Aggregate
Intrinsic Value
|
|
(In thousands, except share and per share data)
|
|
|
|
|
|
(per right)
|
|
|
(in years)
|
|
|
|
|
|
Outstanding at April 1, 2020
|
|
|
1,644,888
|
|
|
$
|
21.07
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(56,226
|
)
|
|
|
11.16
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(11,276
|
)
|
|
|
18.71
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(88
|
)
|
|
|
14.22
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2020
|
|
|
1,577,298
|
|
|
$
|
21.44
|
|
|
|
4.7
|
|
|
$
|
6,028
|
|
Exercisable at June 30, 2020
|
|
|
942,608
|
|
|
$
|
12.87
|
|
|
|
3.8
|
|
|
$
|
5,887
|
|
Vested and expected to vest at June 30, 2020
|
|
|
1,577,298
|
|
|
$
|
21.44
|
|
|
|
4.7
|
|
|
$
|
6,028
|
|
As of June 30, 2020, total unrecognized share-based compensation expense related to non-vested SSARs was $4.3 million, which is expected to be recognized over a weighted-average vesting period of 2.1 years.
Restricted Shares
We granted shares to certain of our Directors, executives and key employees, the vesting of which is service-based. The following table summarizes the activity during the three months ended June 30, 2020 for restricted shares awarded under the 2011 and 2016 Plans:
|
|
Number of Shares
|
|
|
Weighted-Average Grant-Date Fair Value
|
|
(In thousands, except share and per share data)
|
|
|
|
|
|
(per share)
|
|
Outstanding at April 1, 2020
|
|
|
178,462
|
|
|
$
|
19.89
|
|
Forfeited
|
|
|
(13,995
|
)
|
|
|
18.84
|
|
Outstanding at June 30, 2020
|
|
|
164,467
|
|
|
$
|
19.98
|
|
The weighted-average grant date fair value of the restricted shares is determined based upon the closing price of our common shares on the grant date. As of June 30, 2020, total unrecognized share-based compensation expense related to non-vested restricted stock was $1.6 million, which is expected to be recognized over a weighted-average vesting period of 1.7 years.
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Performance Shares
We awarded certain restricted shares to our Chief Executive Officer, the vesting of which is performance based. The number of shares that vest will be based on relative attainment of a performance metric and any unvested shares will forfeit upon settlement of the bonus.
The following table summarizes the activity during the three months ended June 30, 2020 for the performance shares awarded under the 2016 Plan:
(In thousands, except share and per share data)
|
|
Number of Shares
|
|
Outstanding at April 1, 2020
|
|
|
30,120
|
|
Granted
|
|
|
—
|
|
Vested
|
|
|
—
|
|
Forfeited
|
|
|
—
|
|
Outstanding at June 30, 2020
|
|
|
30,120
|
|
Based on the performance goals, the Compensation Committee of the board of directors awarded 6,714 of the original 30,120 shares having a value of $0.1 million based on the closing price of the Company’s common stock on July 16, 2020, the date that the Committee made its determination. The remaining 23,406 shares subject to the original annual incentive grant were forfeited and can never be earned by our Chief Executive Officer.
11. 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 $0.9 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, 2020, Michael Kaufman, the Chairman of the Company’s Board of Directors, is the Chief Executive Officer of MAK Capital One LLC.
Accounting Policy
We classify convertible preferred stock as temporary equity in the condensed consolidated balance sheets due to certain contingent redemption clauses that are at the election of the Holders. We increase the carrying value of the convertible preferred stock to its redemption value (described below) for all undeclared dividends using the interest method.
The Convertible Preferred Stock has the following rights, preferences and restrictions (the Certificate of Amendment included as Exhibit 3.1 to our Current Report on Form 8-K, filed on May 26, 2020, defines all terms not otherwise defined below):
Voting
The Holders will be entitled to one vote for each share of Convertible Preferred Stock upon all matters presented to the common shareholders of the Company, and except as otherwise provided by the Amended Articles of Incorporation of the Company or required by law, the Holders and common shareholders will vote together as one class on all matters. Additionally, certain matters specific to the Convertible Preferred Stock will require the approval of two-thirds of the outstanding Convertible Preferred Stock, voting as a separate class.
Liquidation Preference
Upon a liquidation, dissolution or winding up of the Company, each share of Convertible Preferred Stock will be entitled to receive an amount per share equal to the greater of (i) the purchase price paid by the Purchaser, plus all accrued and unpaid dividends (the “Liquidation Preference”) and (ii) the amount that the Holder would have been entitled to receive at such time if the Convertible Preferred Stock were converted into common stock.
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Redemption
On and after the fifth anniversary of the date the Convertible Preferred Stock is initially issued, the Company will have the right, and the Holders will have the right to require the Company, in each case, at the initiating party’s election, to redeem all, but not less than all, of the then-outstanding Convertible Preferred Stock for an amount equal to the Liquidation Preference.
Conversion
Each Holder will have the right, at its option, to convert its Convertible Preferred Stock, in whole or in part, into fully paid and non-assessable shares of common stock at a conversion price equal to $20.1676 per share (as may be adjusted from time to time, as described in the Certificate of Amendment).
Subject to certain conditions, the Company may, at its option, require conversion of all of the outstanding shares of Convertible Preferred Stock to common stock if, at any time after November 22, 2023, the daily volume-weighted average price of the Company’s common stock is at least 150% of the conversion price for at least 20 trading days during the 30 consecutive trading days immediately preceding the date the Company notifies the Holders of the election to convert.
Dividends
The Holders are 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. The Holders are not entitled to participate in dividends declared or paid on the common stock on an as-converted basis; however, certain anti-dilution adjustments to the Convertible Preferred Stock may be made in the event of such dividends.
The Convertible Preferred Stock ranks senior to the Company’s common stock with respect to dividends and distributions on liquidation, winding-up and dissolution. Upon a liquidation, dissolution or winding up of the Company, each share of Convertible Preferred Stock will be entitled to receive an amount per share equal to the greater of (i) the Liquidation Preference and (ii) the amount that the Holder would have been entitled to receive at such time if the Convertible Preferred Stock were converted into common stock.
Change in Control Events
Upon certain change of control events involving the Company, the Company has the right, and each Holder has the right, in each case, at the initiating party’s election, to require the Company to repurchase all or a portion of its then-outstanding shares of Convertible Preferred Stock for cash consideration equal to (i) 150% of the then-current Liquidation Preference for a change of control occurring prior to the third anniversary of the date the Convertible Preferred Stock is initially issued, (ii) 125% of the then-current Liquidation Preference for a change of control occurring on or following the third anniversary and prior to the fifth anniversary of the date the Convertible Preferred Stock is initially issued and (iii) 100% of the then-current Liquidation Preference for a change of control occurring on or following the fifth anniversary of the date the Convertible Preferred Stock is initially issued.
Standstill Restrictions
The Purchaser and its affiliates are subject to certain customary standstill provisions that restrict them from, among other actions, acquiring additional securities of the Company if such acquisition would result in the Purchaser beneficially owning in excess of 25% of the outstanding shares of common stock of the Company until the later of the third anniversary of the date the Convertible Preferred Stock is initially issued and the date on which the Purchaser no longer has record or beneficial ownership of common stock and Convertible Preferred Stock that constitute at least 10% of the outstanding common stock.
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