Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
In “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”), management explains the general financial condition and results of operations for Agilysys and subsidiaries including:
— what factors affect our business;
— what our earnings and costs were;
— why those earnings and costs were different from the year before;
— where the earnings came from;
— how our financial condition was affected; and
— where the cash will come from to fund future operations.
The MD&A analyzes changes in specific line items in the Condensed Consolidated Statements of Operations and Condensed Consolidated Statements of Cash Flows and provides information that management believes is important to assessing and understanding our consolidated financial condition and results of operations. This Quarterly Report on Form 10-Q updates information included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2022, filed with the Securities and Exchange Commission (SEC). This discussion should be read in conjunction with the Condensed Consolidated Financial Statements and related Notes that appear in Item 1 of this Quarterly Report as well as our Annual Report for the year ended March 31, 2022. Information provided in the MD&A may include forward-looking statements that involve risks and uncertainties. Many factors could cause actual results to be materially different from those contained in the forward-looking statements. See “Forward-Looking Information” on page 25 of this Quarterly Report, Item 1A "Risk Factors" in Part II of this Quarterly Report, and Item 1A “Risk Factors” in Part I of our Annual Report for the fiscal year ended March 31, 2022 for additional information concerning these items. Management believes that this information, discussion, and disclosure is important in making decisions about investing in Agilysys.
Overview
Recent Developments
COVID-19 Pandemic
The World Health Organization declared COVID-19 a pandemic on March 11, 2020. COVID-19 has had a significant impact on our business since that time. The pandemic has created significant economic challenges as organizations and governmental authorities around the world have implemented numerous measures attempting to contain the spread of COVID-19, including travel restrictions, border closings, shelter-in-place orders, and social distancing requirements. Our customers and suppliers have closed or have otherwise applied restrictions at certain sites in response to the pandemic. Similarly, we have provided remote working arrangements for our employees, limited business travel, and canceled or shifted various events to virtual attendance. We have localized our pandemic response to the countries and specific locations in which we, our customers and our suppliers operate.
The extent to which COVID-19 will continue impacting our financial condition and results of operations remains uncertain and depends on various factors, including the ongoing or recurring impact on our business and on the operation of the global markets in general. We continue to monitor and evaluate the operational impact and may take further actions that alter our business operations that we believe are in the best interests of our employees, customers, partners, suppliers, shareholders, and other stakeholders.
Our Business
Agilysys is well known for its long heritage of hospitality-focused technology innovation. The Company delivers modular and integrated software solutions and expertise to businesses seeking to maximize Return on Experience (ROE) through hospitality encounters that are both personal and profitable. Over time, customers achieve High Return Hospitality by consistently delighting guests, retaining staff and growing margins. Customers around the world include: branded and independent hotels; multi-amenity resort properties; casinos; property, hotel and resort management companies; cruise lines; corporate dining providers; higher education campus dining providers; food service management companies; hospitals; lifestyle communities; senior living facilities; stadiums; and theme parks. The Agilysys Hospitality Cloud combines core operational systems for property management (PMS), point-of-sale (POS) and Inventory and Procurement (I&P) with Experience Enhancers that meaningfully improve interactions for guests and for employees across dimensions such as digital access, mobile convenience, self-service control, personal choice, payment options, service coverage and real-time insights to improve decisions. Core solutions and Experience Enhancers are selectively combined in Hospitality Solution Studios tailored to specific hospitality settings and business needs.
The Company has just one reportable segment serving the global hospitality industry. Agilysys operates across North America, Europe, the Middle East, Asia-Pacific and India with headquarters located in Alpharetta, Georgia.
17
Our top priority is increasing shareholder value by improving operating and financial performance and profitably growing the business through superior products and services. To that end, we expect to invest a certain portion of our cash on hand to fund enhancements to existing software products, to develop and market new software products, and to expand our customer breadth, both vertically and geographically.
Our strategic plan specifically focuses on:
•Putting the customer first
•Focusing on product innovation and development
•Increasing organizational efficiency and teamwork
•Developing our employees and leaders
•Growing revenue by improving the breadth and depth of our product set across both point-of-sale and property management applications
•Growing revenue through international expansion
The primary objective of our ongoing strategic planning process is to create shareholder value by capitalizing on growth opportunities, increasing profitability and strengthening our competitive position within the specific technology solutions and end markets we serve. Profitability and industry-leading growth will be achieved through tighter management of operating expenses and sharpening the focus of our investments to concentrate on growth opportunities that offer the highest returns.
Revenue - Defined
As required by the SEC, we separately present revenue earned as products revenue, subscription and maintenance revenue or professional services revenue in our condensed consolidated statements of operations. In addition to the SEC requirements, we may, at times, also refer to revenue as defined below. The terminology, definitions, and applications of terms we use to describe our revenue may be different from those used by other companies and caution should be used when comparing these financial measures to those of other companies. We use the following terms to describe revenue:
•Revenue – We present revenue net of sales returns and allowances.
•Products revenue – Revenue earned from the delivery of software licenses, third party hardware and operating systems.
•Subscription and maintenance revenue – Revenue earned from the ongoing delivery of software updates, upgrades, bug fixes and technical support over the period covered by subscription or maintenance agreements with our customers for both proprietary and remarketed solutions.
•Professional services revenue – Revenue earned from the delivery of implementation, integration and installation services for proprietary and remarketed solutions.
18
Results of Operations
Third Fiscal Quarter 2023 Compared to Third Fiscal Quarter 2022
Net Revenue and Operating Income
The following table presents our consolidated revenue and operating results for the three months ended December 31, 2022 and 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, |
|
|
Increase (decrease) |
|
(Dollars in thousands) |
|
2022 |
|
|
2021 |
|
|
$ |
|
|
% |
|
Net revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
Products |
|
$ |
10,697 |
|
|
$ |
8,101 |
|
|
$ |
2,596 |
|
|
|
32.0 |
% |
Subscription and maintenance |
|
|
30,154 |
|
|
|
25,136 |
|
|
|
5,018 |
|
|
|
20.0 |
% |
Professional services |
|
|
9,069 |
|
|
|
6,223 |
|
|
|
2,846 |
|
|
|
45.7 |
% |
Total net revenue |
|
|
49,920 |
|
|
|
39,460 |
|
|
|
10,460 |
|
|
|
26.5 |
% |
Cost of goods sold: |
|
|
|
|
|
|
|
|
|
|
|
|
Products |
|
|
5,368 |
|
|
|
4,400 |
|
|
|
968 |
|
|
|
22.0 |
% |
Subscription and maintenance |
|
|
6,767 |
|
|
|
5,421 |
|
|
|
1,346 |
|
|
|
24.8 |
% |
Professional services |
|
|
7,009 |
|
|
|
4,923 |
|
|
|
2,086 |
|
|
|
42.4 |
% |
Total cost of goods sold |
|
|
19,144 |
|
|
|
14,744 |
|
|
|
4,400 |
|
|
|
29.8 |
% |
Gross profit |
|
$ |
30,776 |
|
|
$ |
24,716 |
|
|
$ |
6,060 |
|
|
|
24.5 |
% |
Gross profit margin |
|
|
61.7 |
% |
|
|
62.6 |
% |
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Product development |
|
$ |
12,416 |
|
|
$ |
11,210 |
|
|
$ |
1,206 |
|
|
|
10.8 |
% |
Sales and marketing |
|
|
5,886 |
|
|
|
3,943 |
|
|
|
1,943 |
|
|
|
49.3 |
% |
General and administrative |
|
|
7,928 |
|
|
|
6,804 |
|
|
|
1,124 |
|
|
|
16.5 |
% |
Depreciation of fixed assets |
|
|
437 |
|
|
|
495 |
|
|
|
(58 |
) |
|
|
(11.7 |
)% |
Amortization of internal-use software and intangibles |
|
|
430 |
|
|
|
267 |
|
|
|
163 |
|
|
|
61.0 |
% |
Other charges |
|
|
93 |
|
|
|
381 |
|
|
|
(288 |
) |
|
nm |
|
Legal settlements |
|
|
104 |
|
|
|
4 |
|
|
|
100 |
|
|
nm |
|
Operating income |
|
$ |
3,482 |
|
|
$ |
1,612 |
|
|
$ |
1,870 |
|
|
|
116.0 |
% |
Operating income percentage |
|
|
7.0 |
% |
|
|
4.1 |
% |
|
|
|
|
|
|
nm - not meaningful
19
The following table presents the percentage relationship of our condensed consolidated statement of operations line items to our consolidated net revenues for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, |
|
|
|
2022 |
|
|
2021 |
|
Net revenue: |
|
|
|
|
|
|
Products |
|
|
21.4 |
% |
|
|
20.5 |
% |
Subscription and maintenance |
|
|
60.4 |
|
|
|
63.7 |
|
Professional services |
|
|
18.2 |
|
|
|
15.8 |
|
Total net revenue |
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost of goods sold: |
|
|
|
|
|
|
Products |
|
|
10.7 |
% |
|
|
11.2 |
% |
Subscription and maintenance |
|
|
13.6 |
|
|
|
13.7 |
|
Professional services |
|
|
14.0 |
|
|
|
12.5 |
|
Total net cost of goods sold |
|
|
38.3 |
% |
|
|
37.4 |
% |
Gross profit |
|
|
61.7 |
% |
|
|
62.6 |
% |
Operating expenses: |
|
|
|
|
|
|
Product development |
|
|
24.8 |
% |
|
|
28.4 |
% |
Sales and marketing |
|
|
11.8 |
|
|
|
10.0 |
|
General and administrative |
|
|
15.9 |
|
|
|
17.2 |
|
Depreciation of fixed assets |
|
|
0.9 |
|
|
|
1.2 |
|
Amortization of internal-use software and intangibles |
|
|
0.9 |
|
|
|
0.7 |
|
Other charges |
|
|
0.2 |
|
|
|
1.0 |
|
Legal settlements |
|
|
0.2 |
|
|
|
0.0 |
|
Operating income |
|
|
7.0 |
% |
|
|
4.1 |
% |
Net revenue. Total net revenue increased $10.5 million, or 26.5%, during the third quarter of fiscal 2023 compared to the third quarter of fiscal 2022. Products revenue increased $2.6 million, or 32.0%, due to higher sales and deliveries to new customers and expansion with existing customers. Subscription and maintenance revenue increased $5.0 million, or 20.0%, compared to the third quarter of fiscal 2022 driven by continued growth in subscription-based service revenue, which increased 28.8% during the third quarter of fiscal 2023 compared to the third quarter of fiscal 2022. Professional services revenue increased $2.8 million, or 45.7%, due to higher sales and service activity as our new and existing customers continue implementing technology to improve their operations.
Gross profit and gross profit margin. Our total gross profit increased $6.1 million, or 24.5%, during the third quarter of fiscal 2023 and total gross profit margin decreased from 62.6% to 61.7% compared to the third quarter of fiscal 2022 driven by changes in the composition of revenue by category. Products gross profit increased $1.6 million, or 44.0%, and products gross profit margin increased from 45.7% to 49.8% due to a higher proportion of proprietary software deliveries. Subscription and maintenance gross profit increased $3.7 million, or 18.6%, and gross profit margin decreased from 78.4% to 77.6% as certain variable costs increased ahead of related revenue. Professional services gross profit margin increased from 20.9% to 22.7% reflecting improved utilization rates from efficiency gains on multi-solution implementations.
Operating expenses
Operating expenses, excluding other charges and legal settlements, increased $4.4 million, or 19.3%, during the third quarter of fiscal 2023 compared with the third quarter of fiscal 2022.
Product development. Product development increased $1.2 million, or 10.8%, in the third quarter of fiscal 2023 compared with the third quarter of fiscal 2022 due to hiring and increased salary and incentive rates across our development teams.
Sales and marketing. Sales and marketing increased $1.9 million, or 49.3%, in the third quarter of fiscal 2023 compared with the third quarter of fiscal 2022 due to various sales and marketing investments including several key hires, higher levels of marketing event and trade show activity and increased commission expense on higher sales activity.
General and administrative. General and administrative increased $1.1 million, or 16.5%, in the third quarter of fiscal 2023 compared with the third quarter of fiscal 2022 due to hiring and increased salary and incentive rates across our administrative teams, higher rent, and higher subscription charges for cloud computing arrangements.
20
Other charges. Other charges consist of severance costs, infrequent settlements of customer disputes and acquisition costs related to business combinations.
Legal settlements. Legal settlements consist of settlements of employment and other business-related matters.
Other (Income) Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, |
|
|
(Unfavorable) favorable |
(Dollars in thousands) |
|
2022 |
|
|
2021 |
|
|
$ |
|
|
% |
Other (income) expense: |
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
(704 |
) |
|
$ |
(10 |
) |
|
$ |
694 |
|
|
nm |
Interest expense |
|
|
— |
|
|
|
4 |
|
|
|
4 |
|
|
nm |
Other (income) expense, net |
|
|
(384 |
) |
|
|
52 |
|
|
|
436 |
|
|
nm |
Total other (income) expense, net |
|
$ |
(1,088 |
) |
|
$ |
46 |
|
|
$ |
1,134 |
|
|
nm |
nm - not meaningful
Interest income. Interest income consists of interest earned on cash equivalents including short-term investments in commercial paper, treasury bills and money market funds.
Interest expense. Interest expense consists of costs associated with finance leases.
Other (income) expense, net. Other (income) expense, net mainly consists of movement of foreign currencies against the US dollar.
Income Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, |
|
|
(Unfavorable) favorable |
(Dollars in thousands) |
|
2022 |
|
|
2021 |
|
|
$ |
|
|
% |
Income tax expense |
|
$ |
678 |
|
|
$ |
24 |
|
|
$ |
(654 |
) |
|
nm |
Effective tax rate |
|
|
14.8 |
% |
|
|
1.5 |
% |
|
|
|
|
|
nm - not meaningful
For the three months ended December 31, 2022 and 2021, respectively, the effective tax rate was different than the statutory rate due primarily to adjustments to deferred tax assets and to valuation allowances that reduce deferred tax assets and to the recording of net operating losses in a number of foreign jurisdictions offset by current year expense in other foreign jurisdictions.
Although the timing and outcome of tax settlements are uncertain, it is reasonably possible that during the next 12 months a reduction in unrecognized tax benefits may occur based on the outcome of tax examinations and as a result of the expiration of various statutes of limitations. We are consistently subject to tax audits; due to the nature of examinations in multiple jurisdictions, changes could occur in the amount of gross unrecognized tax benefits during the next 12 months which cannot be estimated at this time.
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. 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.
21
Results of Operations
First Nine Months of Fiscal 2023 Compared to First Nine Months of Fiscal 2022
Net Revenue and Operating Income
The following table presents our consolidated revenue and operating results for the nine months ended December 31, 2022 and 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended December 31, |
|
|
Increase (decrease) |
|
(Dollars in thousands) |
|
2022 |
|
|
2021 |
|
|
$ |
|
|
% |
|
Net revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
Products |
|
$ |
32,291 |
|
|
$ |
24,244 |
|
|
$ |
8,047 |
|
|
|
33.2 |
% |
Subscription and maintenance |
|
|
86,917 |
|
|
|
72,371 |
|
|
|
14,546 |
|
|
|
20.1 |
% |
Professional services |
|
|
25,960 |
|
|
|
19,463 |
|
|
|
6,497 |
|
|
|
33.4 |
% |
Total net revenue |
|
|
145,168 |
|
|
|
116,078 |
|
|
|
29,090 |
|
|
|
25.1 |
% |
Cost of goods sold: |
|
|
|
|
|
|
|
|
|
|
|
|
Products |
|
|
16,682 |
|
|
|
12,420 |
|
|
|
4,262 |
|
|
|
34.3 |
% |
Subscription and maintenance |
|
|
19,223 |
|
|
|
15,184 |
|
|
|
4,039 |
|
|
|
26.6 |
% |
Professional services |
|
|
20,627 |
|
|
|
14,634 |
|
|
|
5,993 |
|
|
|
41.0 |
% |
Total cost of goods sold |
|
|
56,532 |
|
|
|
42,238 |
|
|
|
14,294 |
|
|
|
33.8 |
% |
Gross profit |
|
$ |
88,636 |
|
|
$ |
73,840 |
|
|
$ |
14,796 |
|
|
|
20.0 |
% |
Gross profit margin |
|
|
61.1 |
% |
|
|
63.6 |
% |
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Product development |
|
$ |
36,550 |
|
|
$ |
34,074 |
|
|
$ |
2,476 |
|
|
|
7.3 |
% |
Sales and marketing |
|
|
16,619 |
|
|
|
10,418 |
|
|
|
6,201 |
|
|
|
59.5 |
% |
General and administrative |
|
|
22,850 |
|
|
|
20,330 |
|
|
|
2,520 |
|
|
|
12.4 |
% |
Depreciation of fixed assets |
|
|
1,371 |
|
|
|
1,609 |
|
|
|
(238 |
) |
|
|
(14.8 |
)% |
Amortization of internal-use software and intangibles |
|
|
1,326 |
|
|
|
1,077 |
|
|
|
249 |
|
|
|
23.1 |
% |
Other charges |
|
|
374 |
|
|
|
1,187 |
|
|
|
(813 |
) |
|
|
(68.5 |
)% |
Legal settlements |
|
|
104 |
|
|
|
371 |
|
|
|
(267 |
) |
|
nm |
|
Operating income |
|
$ |
9,442 |
|
|
$ |
4,774 |
|
|
$ |
4,668 |
|
|
|
97.8 |
% |
Operating income percentage |
|
|
6.5 |
% |
|
|
4.1 |
% |
|
|
|
|
|
|
nm - not meaningful
The following table presents the percentage relationship of our condensed consolidated statement of operations line items to our consolidated net revenues for the periods presented:
22
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended December 31, |
|
|
|
2022 |
|
|
2021 |
|
Net revenue: |
|
|
|
|
|
|
Products |
|
|
22.2 |
% |
|
|
20.9 |
% |
Subscription and maintenance |
|
|
59.9 |
|
|
|
62.3 |
|
Professional services |
|
|
17.9 |
|
|
|
16.8 |
|
Total net revenue |
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost of goods sold: |
|
|
|
|
|
|
Products |
|
|
11.5 |
% |
|
|
10.7 |
% |
Subscription and maintenance |
|
|
13.2 |
|
|
|
13.1 |
|
Professional services |
|
|
14.2 |
|
|
|
12.6 |
|
Total net cost of goods sold |
|
|
38.9 |
% |
|
|
36.4 |
% |
Gross profit |
|
|
61.1 |
% |
|
|
63.6 |
% |
Operating expenses: |
|
|
|
|
|
|
Product development |
|
|
25.2 |
% |
|
|
29.4 |
% |
Sales and marketing |
|
|
11.5 |
|
|
|
9.0 |
|
General and administrative |
|
|
15.7 |
|
|
|
17.5 |
|
Depreciation of fixed assets |
|
|
0.9 |
|
|
|
1.4 |
|
Amortization of internal-use software and intangibles |
|
|
0.9 |
|
|
|
0.9 |
|
Other charges |
|
|
0.3 |
|
|
|
1.0 |
|
Legal settlements |
|
|
0.1 |
|
|
|
0.3 |
|
Operating income |
|
|
6.5 |
% |
|
|
4.1 |
% |
Net revenue. Total net revenue increased $29.1 million, or 25.1%, during the first nine months of fiscal 2023 compared to the first nine months of fiscal 2022. Products revenue increased $8.0 million, or 33.2%, due to higher sales and deliveries to new customers and expansion with existing customers. Subscription and maintenance revenue increased $14.5 million, or 20.1%, compared to the first nine months of fiscal 2022 driven by continued growth in subscription-based service revenue, which increased 28.9% during the first nine months of fiscal 2023 compared to the first nine months of fiscal 2022. Professional services revenue increased $6.5 million, or 33.4%, due to higher sales and service activity as our new and existing customers continue implementing technology to improve their operations.
Gross profit and gross profit margin. Our total gross profit increased $14.8 million, or 20.0%, during the first nine months of fiscal 2023 and total gross profit margin decreased from 63.6% to 61.1% compared to the first nine months of fiscal 2022 driven by changes in the composition of revenue by category. Products gross profit increased $3.8 million, or 32.0%, and products gross profit margin decreased from 48.8% to 48.3% due to the composition of hardware products delivered. Subscription and maintenance gross profit increased $10.5 million, or 18.4%, and gross profit margin decreased from 79.0% to 77.9% as certain variable costs increased ahead of related revenue. Professional services gross profit margin decreased from 24.8% to 20.5% reflecting lower utilization rates due to higher non-billable hours on new, more complex solution implementations over the comparable nine-month periods.
Operating expenses
Operating expenses, excluding other charges and legal settlements, increased $11.2 million, or 16.6%, during the first nine months of fiscal 2023 compared with the first nine months of fiscal 2022.
Product development. Product development increased $2.5 million, or 7.3%, in the first nine months of fiscal 2023 compared with the first nine months of fiscal 2022 due to hiring and increased salary and incentive rates across our development teams.
Sales and marketing. Sales and marketing increased $6.2 million, or 59.5%, in the first nine months of fiscal 2023 compared with the first nine months of fiscal 2022 due to various sales and marketing investments including several key hires, significantly higher levels of marketing event and trade show activity and increased commission expense on higher sales activity.
General and administrative. General and administrative increased $2.5 million, or 12.4%, in the first nine months of fiscal 2023 compared with the first nine months of fiscal 2022 due to investments in our information security and information technology infrastructure along with hiring and increased salary and incentive rates across our administrative teams, higher rent, and higher subscription charges for cloud computing arrangements.
Other charges. Other charges consist of severance costs, infrequent settlements of customer disputes and acquisition costs related to business combinations.
23
Other (Income) Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended December 31, |
|
|
(Unfavorable) favorable |
(Dollars in thousands) |
|
2022 |
|
|
2021 |
|
|
$ |
|
|
% |
Other (income) expense: |
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
(1,186 |
) |
|
$ |
(45 |
) |
|
$ |
1,141 |
|
|
nm |
Interest expense |
|
|
0 |
|
|
|
5 |
|
|
|
5 |
|
|
nm |
Other (income) expense, net |
|
|
(799 |
) |
|
|
53 |
|
|
|
852 |
|
|
nm |
Total other (income) expense, net |
|
$ |
(1,985 |
) |
|
$ |
13 |
|
|
$ |
1,998 |
|
|
nm |
nm - not meaningful
Interest income. Interest income consists of interest earned on cash equivalents including short-term investments in commercial paper, treasury bills and money market funds.
Interest expense. Interest expense consists of costs associated with finance leases.
Other (income) expense, net. Other (income) expense, net mainly consists of movement of foreign currencies against the US dollar.
Income Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended December 31, |
|
|
(Unfavorable) favorable |
(Dollars in thousands) |
|
2022 |
|
|
2021 |
|
|
$ |
|
|
% |
Income tax expense |
|
$ |
920 |
|
|
$ |
265 |
|
|
$ |
(655 |
) |
|
nm |
Effective tax rate |
|
|
8.1 |
% |
|
|
5.6 |
% |
|
|
|
|
|
nm - not meaningful
For the nine months ended December 31, 2022 and 2021, respectively, the effective tax rate was different than the statutory rate due primarily to adjustments to deferred tax assets and to valuation allowances that reduce deferred tax assets and to the recording of net operating losses in a number of foreign jurisdictions offset by current year expense in other foreign jurisdictions.
Although the timing and outcome of tax settlements are uncertain, it is reasonably possible that during the next 12 months a reduction in unrecognized tax benefits may occur based on the outcome of tax examinations and as a result of the expiration of various statutes of limitations. We are consistently subject to tax audits; due to the nature of examinations in multiple jurisdictions, changes could occur in the amount of gross unrecognized tax benefits during the next 12 months which cannot be estimated at this time.
Liquidity and Capital Resources
Overview
Our cash requirements consist primarily of working capital needs, capital expenditures and payments of contractual obligations. Our contractual obligations consist primarily of operating leases for office space and preferred stock dividends.
At December 31, 2022, 100% of our cash and cash equivalents, of which 92% were located in the United States, were deposited in bank accounts or invested in highly liquid investments including commercial paper and treasury bills with original maturity from the date of acquisition of three months or less and money market funds. We determine the fair value of commercial paper using significant other observable inputs based on pricing from independent sources that use quoted prices in active markets for identical assets or other observable inputs including benchmark yields and interest rates. We believe credit risk is limited with respect to our cash and cash equivalents.
We believe that cash flow from operating activities, cash and cash equivalents of $105.8 million as of December 31, 2022, and access to capital markets will provide adequate funds to meet our short- and long-term liquidity requirements.
24
Cash Flow
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended December 31, |
|
(In thousands) |
|
|
2022 |
|
|
|
2021 |
|
Net cash provided by (used in): |
|
|
|
|
|
|
Operating activities |
|
$ |
17,680 |
|
|
$ |
21,815 |
|
Investing activities |
|
|
(3,643 |
) |
|
|
(1,081 |
) |
Financing activities |
|
|
(4,763 |
) |
|
|
(4,754 |
) |
Effect of exchange rate changes on cash |
|
|
(427 |
) |
|
|
(38 |
) |
Increase in cash |
|
$ |
8,847 |
|
|
$ |
15,942 |
|
Cash flow provided by operating activities. Cash flow provided by operating activities was $17.7 million in the first nine months of fiscal 2023. The provision of cash was due to cash-based earnings of $22.3 million and a decrease of $4.6 million due to changes in net operating assets and liabilities. Cash-based earnings is net income of $10.5 million plus $11.8 million of non-cash expenses including depreciation, amortization, and share-based compensation.
Cash flow used in investing activities. Consists primarily of property and equipment purchases.
Cash flow used in financing activities. During the first nine months of fiscal 2023, the $4.8 million used in financing activities consisted primarily of $2.9 million related to the repurchase of shares to satisfy employee tax withholding on share-based compensation and $1.8 million in preferred stock dividends.
Contractual Obligations
As of December 31, 2022, there were no significant changes to our contractual obligations as presented in our Annual Report for the year ended March 31, 2022, other than the operating lease that commenced during the nine months ended December 31, 2022, as described in Note 4, Additional Balance Sheet Information, to the condensed consolidated financial statements.
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements that have had or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.
Critical Accounting Policies
A detailed description of our significant accounting policies is included in our Annual Report for the year ended March 31, 2022. There have been no material changes in our significant accounting policies and estimates since March 31, 2022.
Forward-Looking Information
This Quarterly Report and other publicly available documents, including the documents incorporated herein and therein by reference, contain, and our officers and representatives may from time to time make, "forward-looking statements" within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as: "anticipate," "intend," "plan," "goal," "seek," "believe," "project," "estimate," "expect," "strategy," "future," "likely," "may," "should," "will" and similar references to future periods. These statements are not guarantees of future performance and involve risks, uncertainties, and assumptions that are difficult to predict. These statements are based on management’s current expectations, intentions, or beliefs and are subject to a number of factors, assumptions, and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Factors that could cause or contribute to such differences or that might otherwise impact the business include the risk factors set forth in Item 1A in Part II of this Quarterly Report and Item IA of our Annual Report for the fiscal year ended March 31, 2022. We undertake no obligation to update any such factor or to publicly announce the results of any revisions to any forward-looking statements contained herein whether as a result of new information, future events, or otherwise.
25