Agilysys's (NASDAQ:AGYS) Q3 Sales Top Estimates, Gross Margin Improves

Full Report / January 22, 2024

Hospitality industry software provider Agilysys (NASDAQ:AGYS) reported Q3 FY2024 results topping 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.

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.

Overall, the operations of a hospitality provider can be complex and fast-moving given the constant ebb and flow of guests and the products and services to address guest needs (they can be pretty demanding!). As consumers increasingly use an omnichannel approach to shop for, book, and alter their reservations, hospitality providers also need to digitize their operations to meet their customers and to increase speed and efficiency.

Agilysys’ key product, the Agilysys Hospitality Solutions Suite, addresses these challenges in hospitality. The platform helps manage reservations, check-ins, point-of-sale, and inventory. It can also automate workflows such as updating room availability on a hotel’s website, which means better inventory turnover and fewer human errors. Lastly, the analytics capabilities native to the Agilysys Hospitality Solutions Suite mean that customers can make data-driven decisions for better outcomes such as higher customer satisfaction.

Agilysys’ key customers include hotels, resorts, restaurants, and other hospitality businesses. The company generates revenue by selling software licenses and also charges customers for support and professional services such as implementation that can improve customer time to value and success.

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.

Competitors offering hospitality software solutions include Oracle (NYSE:ORCL) Hospitality OPERA Property Management System and private companies SkyTouch Technology and Maestro PMS.

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.


What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. Agilysys's gross profit margin, an important metric measuring how much money there's left after paying for servers, licenses, technical support, and other necessary running expenses, was 62.5% in Q3.

Agilysys Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.62 left to spend on developing new products, sales and marketing, and general administrative overhead. While its gross margin has improved significantly since the previous quarter, Agilysys's gross margin is still poor for a SaaS business. It's vital that the company continues to improve this key metric.

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.

Is Now The Time?

When considering an investment in Agilysys, investors should take into account its valuation and business qualities as well as what's happened in the latest quarter.

Although we have other favorites, we understand the arguments that Agilysys isn't a bad business. We'd expect growth rates to moderate from here, but its revenue growth has been solid over the last two years. And while its gross margins show its business model is much less lucrative than the best software businesses, the good news is its very efficient customer acquisition hints at the potential for strong profitability.

The market is certainly expecting long-term growth from Agilysys given its price-to-sales ratio based on the next 12 months is 8.7x. We don't really see a big opportunity in the stock at the moment, but in the end beauty is in the eye of the beholder. And if you like the company, it seems that Agilysys doesn't trade at a completely unreasonable price point.

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