Agilysys (NASDAQ:AGYS) Beats Q1 Sales Targets But Gross Margin Drops

Jabin Bastian /
2023/07/24 4:22 pm EDT

Hospitality industry software provider Agilysys (NASDAQ:AGYS) reported Q1 FY2024 results beating Wall Street analysts' expectations, with revenue up 18% year on year to $56.1 million. The company's outlook for the full year was also close to analysts' estimates with revenue guided to $232.5 million at the midpoint. Agilysys made a GAAP profit of $1.55 million, down from its profit of $3.04 million in the same quarter last year.

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Agilysys (AGYS) Q1 FY2024 Highlights:

  • Revenue: $56.1 million vs analyst estimates of $54.9 million (2.13% beat)
  • EPS (non-GAAP): $0.18 vs analyst estimates of $0.14 (28.6% beat)
  • The company reconfirmed revenue guidance for the full year of $232.5 million at the midpoint
  • Free cash flow was -$3.04 million, down from $13.2 million in the previous quarter
  • Gross Margin (GAAP): 59%, down from 60% in the same quarter last year

Originally a subsidiary of Pioneer-Standard Electronics that distributed electronic components, Agilysys (NASDAQ:AGYS) offers a software-as-service platform that helps hotels, resorts, restaurants, and other hospitality businesses manage their operations and workflows.

Enterprise resource planning (ERP) and customer relationship management (CRM) are two of the largest software categories dominated by the likes of Microsoft, Oracle, and Salesforce.com. Today, the secular trend of mass customization is driving vertical software that customizes ERP and CRM functions for specific industry requirements. Restaurants are a prime example where a set of customized software providers have sprung up in recent years to create unique operating systems that blend tax and accounting software, order management and delivery, along with supply chain management. Hotels and other hospitality providers are another example.

Sales Growth

As you can see below, Agilysys's revenue growth has been over the last two years, growing from $38.7 million in Q1 FY2022 to $56.1 million this quarter.

Agilysys Total Revenue

This quarter, Agilysys's quarterly revenue was once again up 18% year on year. We can see that Agilysys's revenue increased by $3.16 million in Q1, up from $2.98 million in Q4 2023. While we've no doubt some investors were looking for higher growth, it's good to see that quarterly revenue is re-accelerating.

Ahead of the earnings results announcement, the analysts covering the company were expecting sales to grow 16.5% over the next 12 months.

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Cash Is King

If you've followed StockStory for a while, you know that we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills. Agilysys burned through $3.04 million of cash in Q1 despite being cash flow positive last year.

Agilysys Free Cash Flow

Agilysys has generated $24.2 million in free cash flow over the last 12 months, a solid 12% of revenue. This strong FCF margin stems from its asset-lite business model, giving it optionality and plenty of cash to reinvest in its business.

Key Takeaways from Agilysys's Q1 Results

Sporting a market capitalization of $1.7 billion, Agilysys is among smaller companies, but its more than $107.1 million in cash on hand and positive free cash flow over the last 12 months puts it in an attractive position to invest in growth.

It was good to see Agilysys beat analysts' revenue and adjusted EBITDA expectations this quarter. That really stood out as a positive in these results. On the other hand, its deteriorating gross margin is troubling and its full-year revenue guidance slightly missed Wall Street's expectations. Free cash flow also missed. Overall, this was a mediocre quarter for Agilysys. The stock is flat after reporting and currently trades at $67.82 per share.

Agilysys may have had a tough quarter, but does that actually create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, and what's happened in the latest quarter. We cover this and more in our full company report, and it's free.

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The author has no position in any of the stocks mentioned in this report.