Agilysys (NASDAQ:AGYS) Q3: Beats On Revenue, Gross Margin Improves

Jabin Bastian /
2024/01/22 4:10 pm EST

Hospitality industry software provider Agilysys (NASDAQ:AGYS) reported Q3 FY2024 results exceeding Wall Street analysts' expectations, with revenue up 21.3% year on year to $60.57 million. The company expects the full year's revenue to be around $236.5 million, in line with analysts' estimates. It made a non-GAAP profit of $0.35 per share, improving from its profit of $0.13 per share in the same quarter last year.

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Agilysys (AGYS) Q3 FY2024 Highlights:

  • Market Capitalization: $2.07 billion
  • Revenue: $60.57 million vs analyst estimates of $60.07 million (0.8% beat)
  • EPS (non-GAAP): $0.35 vs analyst estimates of $0.26 (37.3% beat)
  • The company reconfirmed its revenue guidance for the full year of $236.5 million at the midpoint
  • Free Cash Flow of $11.25 million, up from $2.51 million in the previous quarter
  • Gross Margin (GAAP): 62.5%, up from 61.7% 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.

Hospitality & Restaurant Software

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 strong over the last two years, growing from $39.46 million in Q3 FY2022 to $60.57 million this quarter.

Agilysys Total Revenue

This quarter, Agilysys's quarterly revenue was once again up a very solid 21.3% year on year. However, its growth did slow down compared to last quarter as the company's revenue increased by just $1.95 million in Q3 compared to $2.56 million in Q2 2024. While we'd like to see revenue increase by a greater amount each quarter, a one-off fluctuation is usually not concerning.

Looking ahead, analysts covering the company were expecting sales to grow 17.2% over the next 12 months before the earnings results announcement.

While most things went back to how they were before the pandemic, a few consumer habits fundamentally changed. One founder-led company is benefiting massively from this shift and is set to beat the market for years to come. The business has grown astonishingly fast, with 40%+ free cash flow margins, and its fundamentals are undoubtedly best-in-class. Still, its total addressable market is so big that the company has room to grow many times in size. You can find it on our platform for free.

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's free cash flow came in at $11.25 million in Q3, roughly the same as last year.

Agilysys Free Cash Flow

Agilysys has generated $23.88 million in free cash flow over the last 12 months, a solid 10.6% 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 Q3 Results

We were impressed by Agilysys's strong gross margin improvement this quarter, which helped it blow past analysts' EPS and adjusted EBITDA estimates. We were also glad the company raised its full-year adjusted EBITDA margin guidance to 15% of revenue, driven by its higher operational efficiency. That stood out as a positive in these results. On the other hand, its free cash flow missed Wall Street's expectations. Zooming out, we think this was still a decent, albeit mixed, quarter, showing that the company is staying on track. The stock is flat after reporting and currently trades at $87 per share.

So should you invest in Agilysys right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.

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