AGILYSYS INC 10-K

Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities. Market Information Our common shares, without par value, are traded on the NASDAQ Stock Market LLC under the symbol “AGYS”. As of May 14, 2021, there were 1,505 registered holders of our common shares, without par value. Dividends We did not pay dividends in fiscal 2021 or 2020 on our common stock and are unlikely to do so in the foreseeable future. We pay preferred stock dividends as described in Note 14, Preferred Stock , to our Consolidated Financial Statements under Item 8 of this Annual Report. The current policy of the Board of Directors is to retain any available earnings for use in the operations of our business. Shareholder Return Performance Presentation The following chart compares the value of $100 invested in our common shares, including reinvestment of dividends, with a similar investment in the Russell 2000 Index (the “Russell 2000”) and with the companies listed in the SIC Code 7373-Computer Integrated Systems Design for the period March 31, 2016 through March 31, 2021. The stock price performance in this graph is not necessarily indicative of the future performance of our common shares. 21 Comparison of 5 Year Cumulative Total Return INDEXED RETURNS Fiscal Years Ended March 31, Base Period Company Name / Index 2016 2017 2018 2019 2020 2021 Agilysys, Inc. $ 100.00 $ 92.56 $ 116.75 $ 207.35 $ 163.57 $ 469.74 Russell 2000 $ 100.00 $ 126.22 $ 141.10 $ 143.99 $ 109.45 $ 213.26 Peer Group $ 100.00 $ 122.79 $ 141.63 $ 147.27 $ 141.34 $ 187.01 This performance graph shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended or incorporated by reference into any of our filings under the Securities Act of 1933, as amended, of the Exchange Act, except as shall be expressly set forth by specific reference in such filing. 22 Item 7. Managements’ 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 Consolidated Statements of Operations and 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 discussion should be read in conjunction with the Consolidated Financial Statements and related Notes that appear in Item 8 of this Annual Report titled, “Financial Statements and Supplementary Data.” 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 3 of this Annual Report and Item 1A “Risk Factors” in Part I of this Annual Report 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 during the year ended March 31, 2021. 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 customers, partners, and vendors and on the operation of the global markets in general. Because an increasing portion of our business is based on a subscription model, the effect of COVID-19 on our results of operations may also not be fully reflected for some time. We have taken actions to mitigate the impact on our business. We continue to conduct business with substantial modifications to employee travel, employee work locations, virtualization or cancellation of customer and employee events, and remote sales, implementation, and support activities, among other modifications. These modifications may continue to delay or reduce sales and harm productivity and collaboration. The pandemic could have an ongoing adverse impact on demand for our customers’ products and services, which in turn could continue to negatively impact the willingness of our customers to enter into or renew contracts with us. The pandemic has impacted our ability to complete certain implementations, negatively impacting our ability to recognize revenue, and could also negatively impact the ongoing collection of accounts receivable from our customers. During our fiscal 2021, we reduced discretionary costs through actions including hiring freezes on non-essential positions, layoffs, employee furloughs, employee retirement benefit limitations, and salary decreases for executive team members and certain other employees of the Company. While we have eased certain cost reduction measures recently, we may take further actions that alter our business operations as the situation continues to evolve. As a result, the ultimate impact of the COVID-19 pandemic and the effects of the operational alterations we have made in response on our business, financial condition, liquidity, and financial results cannot be predicted at this time. Our Business Agilysys has been a leader in hospitality software for more than 40 years, delivering innovative cloud-native SaaS and on-premise guest-centric technology solutions for gaming, hotels, resorts and cruise, corporate foodservice management, restaurants, universities, stadia and healthcare. Agilysys offers the most comprehensive software solutions in the industry, including point-of-sale (POS), property management (PMS), inventory and procurement, payments, and related applications, to manage the entire guest journey. Agilysys is known for its leadership in hospitality, its broad product offerings and its customer-centric service. Some of the largest hospitality companies around the world use Agilysys solutions to help improve guest loyalty, drive revenue growth and increase operational efficiencies. 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, Georgia. 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 23 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 • Improving our liquidity • 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, turning profitable 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, support, maintenance and subscription services revenue or professional services revenue in our 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 sales of software licenses, third party hardware and operating systems. • Support, maintenance and subscription services revenue – Revenue earned from the sale of proprietary and remarketed ongoing support, maintenance and subscription services. • Professional services revenue – Revenue earned from the delivery of implementation, integration and installation services for proprietary and remarketed products. 24 Results of Operations Fiscal 2021 Compared with Fiscal 2020 Net Revenue and Operating Loss The following table presents our consolidated revenue and operating results for the fiscal years ended March 31, 2021 and 2020: Year ended March 31, Increase (decrease) (Dollars in thousands) 2021 2020 $ % Net revenue: Products $ 26,714 $ 44,230 $ (17,516 ) (39.6 )% Support, maintenance and subscription services 88,565 83,680 4,885 5.8 % Professional services 21,897 32,847 (10,950 ) (33.3 )% Total net revenue 137,176 160,757 (23,581 ) (14.7 )% Cost of goods sold: Products (inclusive of developed technology amortization) 13,506 36,427 (22,921 ) (62.9 )% Support, maintenance and subscription services 17,985 19,248 (1,263 ) (6.6 )% Professional services 16,309 24,130 (7,821 ) (32.4 )% Total cost of goods sold 47,800 79,805 (32,005 ) (40.1 )% Gross profit 89,376 80,952 8,424 10.4 % Gross profit margin 65.2 % 50.4 % Operating expenses: Product development 55,345 41,463 13,882 33.5 % Sales and marketing 14,196 19,864 (5,668 ) (28.5 )% General and administrative 33,273 24,374 8,899 36.5 % Depreciation of fixed assets 2,832 2,574 258 10.0 % Amortization of intangibles 1,959 2,541 (582 ) (22.9 )% Impairments — 23,740 (23,740 ) (100.0 )% Severance and other charges, net 2,529 582 1,947 334.5 % Legal settlements, net 200 (125 ) 325 260.0 % Operating loss $ (20,958 ) $ (34,061 ) $ 13,103 (38.5 )% Operating loss percentage (15.3 )% (21.2 )% 25 The following table presents the percentage relationship of our Consolidated Statement of Operations line items to our consolidated net revenues for the periods presented: Year ended March 31, 2021 2020 Net revenue: Products 19.5 % 27.5 % Support, maintenance and subscription services 64.6 52.1 Professional services 15.9 20.4 Total net revenue 100.0 100.0 Cost of goods sold: Products, inclusive of developed technology amortization 9.8 22.6 Support, maintenance and subscription services 13.1 12.0 Professional services 11.9 15.0 Total net cost of goods sold 34.8 49.6 Gross profit 65.2 50.4 Operating expenses: Product development 40.4 25.8 Sales and marketing 10.3 12.4 General and administrative 24.4 15.2 Depreciation of fixed assets 2.1 1.6 Amortization of intangibles 1.4 1.6 Impairments — 14.8 Severance and other charges, net 1.8 0.4 Legal settlements, net 0.1 (0.1 ) Operating loss (15.3 )% (21.2 )% Net revenue. Total revenue decreased $23.6 million, or 14.7%, in fiscal 2021 compared to fiscal 2020. Products revenue decreased $17.5 million, or 39.6%, due to delayed customer purchasing decisions as the timing of the hospitality recovery from the COVID-19 pandemic remains unclear. Support, maintenance and subscription services revenue increased $4.9 million, or 5.8%, driven by continued growth in subscription-based revenue, which increased 15.5% in fiscal 2021 compared to fiscal 2020. Subscription revenue sales were led by our add on software modules, including modules enabling social distancing and contactless capabilities. Professional services revenue decreased $11.0 million, or 33.3%, due to delays in implementation services due to customer property restrictions, property closures and lower sales from delayed customer purchasing decisions as the timing of the hospitality recovery from the COVID-19 pandemic remains unclear. Gross profit and gross profit margin. Our total gross profit increased $8.4 million, or 10.4%, in fiscal 2021 and total gross profit margin increased from 50.4% to 65.2%. Products gross profit increased $5.4 million and gross profit margin increased from 17.6% to 49.4% driven mostly by the absence of software development cost amortization during fiscal 2021. Support, maintenance and subscription services gross profit increased $6.1 million and gross profit margin increased 269 basis points to 79.7% due to increased subscription revenue on a relatively flat cost base. Professional services gross profit decreased $3.1 million and gross profit margin decreased slightly from 26.5% to 25.5% due to the delay in professional service projects and the fixed costs of maintaining a minimum required professional services team as customers continued to work towards re-opening their locations and accept implementations and installations. Operating expenses Operating expenses, excluding the charges for legal settlements, impairments, severance and other charges, increased $16.8 million, or 18.5%, in fiscal 2021 compared with fiscal 2020. As a percent of total revenue, operating expenses have increased 22.0% in fiscal 2021 compared with fiscal 2020. Product development. Product development includes all expenses associated with research and development. Product development increased $13.9 million, or 33.5%, during fiscal 2021 as compared to fiscal 2020 due to the continued expansion of our R&D teams and significant share-based compensation charges resulting from the accelerated vesting of stock-settled appreciation rights (SSARs) upon their market condition satisfaction in February 2021. 26 Sales and marketing. Sales and marketing de creased $ 5.7 million, or 28.5 %, in fiscal 20 2 1 compared with fiscal 20 20 due to reduced commission expense as a result of lower sales levels, significantly reduced travel, layoffs, temporary reductions in employee benefits, and the absence of in-person trade shows and conference activity . The decrease was slightly offset by an increase in stock-based compensation charges resulting from the accelerated vesting of SSARs . General and administrative. General and administrative increased $9.0 million, or 37.0%, in fiscal 2021 compared to fiscal 2020. The change is due primarily to significant share-based compensation charges resulting from the accelerated vesting of SSARs. Depreciation of fixed assets. Depreciation of fixed assets increased $0.3 million or 10.0% in fiscal 2021 as compared to fiscal 2020 due to an increased level of assets with shorter useful lives. Amortization of intangibles. Amortization of intangibles decreased $0.6 million or 22.9% in fiscal 2021 as compared to fiscal 2020 due to a lower unamortized cost base following the impairment of intangibles in fiscal 2020. Impairments. There were no impairments in fiscal 2021. Impairments totaled $23.7 million in fiscal 2020. The impairments resulted from specific capitalized software development costs supporting certain software applications. The impact of the COVID-19 pandemic on the hospitality industry resulted in economic conditions which made it difficult to project future sales and revenue accurately for the impacted solutions at the time of impairment determination. After evaluating the Company’s strategy for market development and continued costs to support the software, an impairment charge was required. We recorded impairment charges to reduce the net realizable value of the related assets to zero during the 2020 fiscal year. Severance and other charges. Severance and other charges increased $1.9 million due to an increase in non-restructuring severance activity during fiscal 2021 compared to fiscal 2020. Legal settlements. Legal settlements consist of settlements of employment and other business-related matters. Other (Income) Expenses Year ended March 31, (Unfavorable) favorable (Dollars in thousands) 2021 2020 $ % Other (income) expense: Interest (income) $ (107 ) $ (380 ) $ (273 ) 71.8 % Interest expense 20 9 (11 ) nm Other expense, net 338 176 (162 ) (92.0 )% Total other expense (income), net $ 251 $ (195 ) $ (446 ) 228.7 % nm – not meaningful Interest income. Interest income consists of interest earned on short-term investments in certificates of deposit, commercial paper, money market funds, corporate-owned life insurance policies and interest-bearing bank accounts. Interest expense. Interest expense consists of costs associated with finance leases. Other expense, net. Other expense, net consists mainly of the impact of foreign currency due to movement of European and Asian currencies against the US dollar. Income Taxes Year ended March 31, (Unfavorable) favorable (Dollars in thousands) 2021 2020 $ % Income tax expense (benefit) $ (208 ) $ 201 $ 409 203.5 % Effective tax rate 1.0 % (0.6 )% For fiscal 2021, the effective tax rate was different than the statutory rate due primarily to adjustments to deferred tax assets including increases in 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 an immaterial reduction in unrecognized tax benefits may occur 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. 27 Because of our losses in prior periods, we have recorded a valuation allowance offsetting substantially all of our deferred tax assets. 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, management believes that it is more-likely-than-not that we will not realize the benefits of these deductible differences. At March 31, 2021, we had $199.1 million of federal net operating loss carryforwards that expire, if unused, in fiscal years 2031 to 2038, and $46.8 million of federal net operating loss carryforwards that can be carried forward indefinitely. We also had $ 165.6 million of state net operating loss carryforwards that expire, if unused, in fiscal years 2022 through 2041. Fiscal 2020 Compared to Fiscal 2019 Net Revenue and Operating Loss The following table presents our consolidated revenue and operating results for the fiscal years ended March 31, 2020 and 2019: Year ended March 31, Increase (decrease) (Dollars in thousands) 2020 2019 $ % Net revenue: Products $ 44,230 $ 39,003 $ 5,227 13.4 % Support, maintenance and subscription services 83,680 75,496 8,184 10.8 % Professional services 32,847 26,343 6,504 24.7 % Total net revenue 160,757 140,842 19,915 14.1 % Cost of goods sold: Products (inclusive of developed technology amortization) 36,427 31,811 4,616 14.5 % Support, maintenance and subscription services 19,248 15,895 3,353 21.1 % Professional services 24,130 19,256 4,874 25.3 % Total cost of goods sold 79,805 66,962 12,843 19.2 % Gross profit 80,952 73,880 7,072 9.6 % Gross profit margin 50.4 % 52.5 % Operating expenses: Product development 41,463 37,817 3,646 9.6 % Sales and marketing 19,864 19,646 218 1.1 % General and administrative 24,374 23,118 1,256 5.4 % Depreciation of fixed assets 2,574 2,504 70 2.8 % Amortization of intangibles 2,541 2,567 (26 ) (1.0 )% Impairments 23,740 — 23,740 100.0 % Severance and other charges, net 582 1,168 (586 ) (50.2 )% Legal settlements, net (125 ) 141 (266 ) (188.7 )% Operating loss $ (34,061 ) $ (13,081 ) $ (20,980 ) 160.4 % Operating loss percentage (21.2 )% (9.3 )% 28 The following table presents the percentage relationship of our Consolidated Statement of Operations line items to our consolidated net revenues for the periods presented: Year ended March 31, 2020 2019 Net revenue: Products 27.5 % 27.7 % Support, maintenance and subscription services 52.1 53.6 Professional services 20.4 18.7 Total net revenue 100.0 100.0 Cost of goods sold: Products (inclusive of developed technology amortization) 22.6 22.6 Support, maintenance and subscription services 12.0 11.3 Professional services 15.0 13.6 Total cost of goods sold 49.6 47.5 Gross profit 50.4 52.5 Operating expenses: Product development 25.8 26.9 Sales and marketing 12.4 13.9 General and administrative 15.2 16.4 Depreciation of fixed assets 1.6 1.8 Amortization of intangibles 1.6 1.8 Impairments 14.8 — Severance and other charges, net 0.4 0.8 Legal settlements, net (0.1 ) 0.1 Operating loss (21.2 )% (9.3 )% Net revenue. Total revenue increased $19.9 million, or 14.1%, in fiscal 2020 compared to fiscal 2019. Products revenue increased $5.2 million, or 13.4%, due to increased sales in third-party hardware sales including new customers and expansion with existing customers. Support, maintenance and subscription services revenue increased $8.2 million, or 10.8%, driven by continued growth in subscription-based service revenue, which increased 24.3% in fiscal 2020 compared to fiscal 2019. Professional services revenue increased $6.5 million, or 24.7%, due to ongoing installations and integration of our software solutions for our growing customer base. Gross profit and gross profit margin. Our total gross profit increased $7.1 million, or 9.6%, in fiscal 2020 and total gross profit margin decreased from 52.5% to 50.4%. Products gross profit increased $0.6 million and gross profit margin decreased slightly from 18.4% to 17.6% due to a higher mix of third party hardware and software and due to certain allowances established against revenues earned in March 2020 related to products that have been or could be returned from customer locations closed in response to COVID-19 guidelines. Support, maintenance and subscription services gross profit increased $4.8 million and gross profit margin decreased 195 basis points to 77.0% due to increased costs associated with hosting our customers. Professional services gross profit increased $1.6 million and gross profit margin decreased slightly from 26.9% to 26.5% after we established allowances against revenues earned in March 2020 due to uncertainties related to COVID-19 conditions. Operating expenses Operating expenses, excluding the charges for legal settlements, impairments and restructuring, severance and other charges, increased $5.2 million, or 6.0%, in fiscal 2020 compared with fiscal 2019. As a percent of total revenue, operating expenses have decreased 4.3% in fiscal 2020 compared with fiscal 2019. Product development. Product development includes all expenses associated with research and development. Product development increased $3.6 million, or 9.6%, during fiscal 2020 as compared to fiscal 2019 primarily due to the reduction of cost capitalization. Certain software applications for which we had capitalized costs reached general availability by the beginning of the second quarter of fiscal 2019. These products joined our well-established products with the application of agile development practices in a more dynamic development process that involves higher frequency releases of product features and functions. We capitalized $2.0 million of external use software development costs, and $0.3 million of internal use software development costs during fiscal 2019, with the full balance capitalized in Q1 fiscal 2019. We did not capitalize any costs associated with product development during fiscal 2020. Total product development costs, including operating expenses and capitalized amounts, were $41.5 million during fiscal 2020 compared to $40.1 million in fiscal 2019. The $1.4 million increase is mostly due to continued expansion of our R&D teams and infrastructure. 29 Sales and marketing. Sales and marketing increased $0.2 million, or 1.1%, in fiscal 2020 compared with fiscal 2019. The change is due primarily to an increase in our allowance for doubtful accounts due to an increase collection risk of our accounts receivable as of March 31, 2020 as a result of the negative impacts of the COVID-19 pandemic on the operations of our customers, partially offset by a decrease in costs associated with our annual bonus incentive plan that has declined in value due to a significant decrease in target achievements after reduced fourth quarter revenue activity with concentration in March 2020. General and administrative. General and administrative increased $1.3 million, or 5.4%, in fiscal 2020 compared to fiscal 2019. The change is due primarily to software investments in third-party applications to host our network and infrastructure. Depreciation of fixed assets. Depreciation of fixed assets increased $0.1 million or 2.8% in fiscal 2020 as compared to fiscal 2019. Amortization of intangibles. Amortization of intangibles remained consistent in fiscal 2020 as compared to fiscal 2019. Impairments. Impairments totaled $23.7 million in fiscal 2020. There were no impairments in fiscal 2019. The impairments result from specific capitalized software development costs supporting certain software applications. The impact of the COVID-19 pandemic on the hospitality industry resulted in economic conditions which make it difficult to project future sales and revenue accurately for the impacted solutions. After evaluating the Company’s strategy for market development and continued costs to support the software, an impairment charge was required. We have recorded impairment charges to reduce the net realizable value of the related assets to zero. Severance and other charges. Severance, and other charges decreased $0.6 million due to a reduction in non-restructuring severance activity during fiscal 2020 compared to fiscal 2019. Legal settlements, net. Legal settlements consist of settlements of employment and other business-related matters. Other (Income) Expenses Year ended March 31, (Unfavorable) favorable (Dollars in thousands) 2020 2019 $ % Other (income) expenses Interest (income) $ (380 ) $ (339 ) $ 41 12.1 % Interest expense 9 10 — — % Other expense, net 176 191 15 nm Total other (income), net $ (195 ) $ (138 ) $ 57 nm nm – not meaningful Interest income. Interest income consists of interest earned on short-term investments in certificates of deposit, commercial paper, money market funds and corporate-owned life insurance policies. Interest expense. Interest expense consists of costs associated with finance leases. Other expense, net. Other expense, net consists mainly of the impact of foreign currency due to movement of European and Asian currencies against the US dollar. Income Taxes Year ended March 31, (Unfavorable) favorable (Dollars in thousands) 2020 2019 $ % Income tax expense $ 201 $ 221 $ 20 nm Effective tax rate (0.6 )% (1.7 )% nm – not meaningful For fiscal 2020, the effective tax rate was different than the statutory rate due primarily to the recognition of net operating losses as deferred tax assets, which were offset by increases in the valuation allowance, state taxes and other U.S. permanent book to tax differences. 30 Although the timing and outcome of tax settlements are uncertain, it is reasonably possible that during the next 12 months an immaterial reduction in unrecognized tax benefits may occur 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. Because of our losses in prior periods, we have recorded a valuation allowance offsetting substantially all of our deferred tax assets. 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, management believes that it is more-likely-than-not that we will not realize the benefits of these deductible differences. At March 31, 2020, we had $199.1 million of federal net operating loss carryforwards that expire, if unused, in fiscal years 2031 to 2038, and $24.7 million of federal net operating loss carryforwards that can be carried forward indefinitely. We also had $141.6 million of state net operating loss carryforwards that expire, if unused, in fiscal years 2021 through 2040. Liquidity and Capital Resources Overview Our cash requirements consist primarily of working capital needs, capital expenditures, payments of preferred stock dividends, and operating expenses including payments of lease obligations. At March 31, 2021, all $99.2 million of our cash on hand was deposited in bank accounts, of which 96% are located in the United States. We believe there is limited credit risk with respect to our cash balances. While the COVID-19 pandemic has had a significant adverse impact on our results of operations during our entire fiscal 2021, we cannot presently estimate its ongoing financial impact, which will be highly dependent on the severity and duration of the pandemic. As such, due to the ongoing uncertainties associated with the COVID-19 pandemic and the indeterminate length of time it will affect the hospitality industry, we have maintained certain proactive measures to secure our liquidity position to be able to meet our requirements for the foreseeable future. These measures have included strict cost management actions, such as halting and altering our marketing programs, eliminating non-essential expenses including capital expenditures and reducing payroll and related costs through layoffs and furloughs as well as salary and retirement benefit reductions. We believe that cash flow from operating activities, cash on hand of $99.2 million as of March 31, 2021, and access to capital markets will provide adequate funds to meet our short-and long-term liquidity requirements. As of March 31, 2021 and March 31, 2020, our total debt was approximately $0.1 million, comprised of finance lease obligations in both periods. Cash Flow Year ended March 31, (In thousands) 2021 2020 2019 Net cash provided by (used in): Operating activities $ 28,407 $ 10,575 $ 7,241 Investing activities (1,391 ) (3,447 ) (5,534 ) Financing activities 25,316 (1,116 ) (767 ) Effect of exchange rate changes on cash 195 (130 ) (112 ) Increase in cash $ 52,527 $ 5,882 $ 828 Cash flow provided by operating activities. Cash flows provided by operating activities were $28.4 million in fiscal 2021. The provision of cash was due primarily to our operating loss of $21.0 million adjusted for $44.0 million in non-cash expense including depreciation, amortization, and share-based compensation and an increase of approximately $5.4 million from the changes in operating assets and liabilities. Cash flows provided by operating activities were $10.6 million in fiscal 2020. The provision of cash was due primarily to our operating loss of $34.1 million adjusted for $46.2 million in non-cash expense including impairment charges, depreciation, amortization, and share-based compensation and a decrease of approximately $1.5 million in net operating assets and liabilities. Cash flows provided by operating activities were $7.2 million in fiscal 2019. The provision of cash was due primarily to our operating loss of $13.2 million adjusted for $22.4 million in non-cash expense including depreciation, amortization, and share-based compensation and an increase of approximately $2 million in net operating assets and liabilities. 31 Cash flow used in investing activities. Cash flows used in investing activities in fiscal 20 2 1 were $ 1 .4 million due primarily to the purchase of property and equipment, including internal use software. Cash flows used in investing activities in fiscal 2020 were $3.4 million due primarily to the purchase of property and equipment, including internal use software. Cash flows used in investing activities in fiscal 2019 were $5.5 million. This is primarily attributed to $2.2 million in capitalized development costs of proprietary software and $3.3 million for purchase of property and equipment, including internal use software. Cash flow provided by (used in) financing activities. During fiscal 2021, the $25.3 million provided by financing activities consisted primarily of $34.0 million in preferred stock issuance proceeds from the MAK Capital investment, net of issuance costs, offset by $7.5 million for the repurchase of shares to satisfy employee tax withholding on share-based compensation and $1.1 million in preferred stock dividends. Cash flows used in financing activities of $1.1 million and $0.8 million, respectively, in fiscal 2020 and 2019 were primarily comprised of share repurchases to satisfy employee tax withholding on share-based compensation. Investments Investments in Corporate-Owned Life Insurance Policies Agilysys invests in corporate-owned life insurance policies for certain former executives, for which some are endorsement split-dollar life insurance arrangements. We entered into agreements with each of the former executives, whereby we must maintain the life insurance policy for a specified amount and split a portion of the policy benefits with their designated beneficiary. Our investment in these corporate-owned life insurance policies were recorded at their cash surrender value, which approximates fair value at the balance sheet date. In the Consolidated Balance Sheets at the balance sheet date, the cash surrender value of $1.0 million for the remaining policies were held in “Other non-current assets,” and the present value of future proceeds owed to those executives’ designated beneficiary of $0.1 million, which approximates fair value, were recorded within “Other non-current liabilities” in the Consolidated Balance Sheets at the balance sheet date. 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. Contractual Obligations Our contractual obligations consist primarily of operating leases for office space and preferred stock dividends. We disclose our lease obligations in Note 6, Leases, and preferred stock dividends in Note 14, Preferred Stock, to our Consolidated Financial Statements included under Item 8 of this Annual Report. We believe our cash on hand, funds from operations, and access to capital markets will provide adequate funds to finance capital spending and working capital needs and to service our obligations and other commitments arising during the foreseeable future. Critical Accounting Policies Managements’ Discussion and Analysis is based upon our Consolidated Financial Statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenue, and expenses and related disclosure of contingent assets and liabilities. We regularly evaluate our estimates, including those related to bad debts, inventories, investments, intangible assets, income taxes, restructuring, contingencies and litigation. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our most significant accounting policies relate to the sale, purchase, and promotion of our products and services. The policies discussed below are considered by management to be critical to an understanding of our Consolidated Financial Statements because their application places the most significant demands on management’s judgment, with financial reporting results relying on estimation about the effect of matters that are inherently uncertain. Specific risks for these critical accounting policies are described in the following paragraphs. 32 For all of these policies, management cautions that future events rarely develop exactly as forecasted, and the best estimates routinely require adjustment. Revenue recognition. On April 1, 2018, we adopted ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), using the modified retrospective method applied to those contracts that were not completed as of the adoption date. 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 service 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 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 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. 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 the price both with the supplier and the customer, payment to the supplier, establishing payment terms and product returns with the customer, and bearing 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. 33 Allowance for e xpected c redit l osses . We maintain allowances for expected credit losses for estimated losses resulting from the inability or unwillingness of our customers to make required payments. We base our expected credit loss model on historical experience, adjusted for current conditions and reasonable and supportable forecasts . To help mitigate the associated credit risk we perform periodic credit evaluations of our customers. Customer credit allowance . We maintain allowances for estimated customer credits. Credits are typically due to the timing or amount of customer invoices processed for specific services, including professional and subscription, and maintenance coverage. In many cases, there has not been clear or timely communication of the need to adjust coverage or service at a location in advance of when we invoice for the associated coverage or service. We will issue a credit after agreeing to the service or coverage adjustment as requested by the customer within the terms of our contract. During fiscal 2021, we have included allowances for various one-time recurring revenue related and other concessions we have given to customers to help them while they deal with the impact of the COVID-19 pandemic on their operational priorities. Share-based compensation. We have a stock incentive plan under which we may grant non-qualified stock options, incentive stock options, stock-settled stock appreciation rights, time-vested restricted shares, restricted share units, performance-vested restricted shares, and performance shares. Shares issued pursuant to awards under this plan may be made out of treasury or authorized but unissued shares. We record compensation expense related to stock options, stock-settled stock appreciation rights, 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 stock-settled appreciation right 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. The fair value for stock-settled appreciation rights with a market condition are estimated using a Lattice option pricing model which utilizes a binomial tree to forecast option pricing. Forfeitures of awards are recognized as they occur. Additional information regarding the assumptions used to value share-based compensation awards is provided in Note 13, Share-Based Compensation . Adopted and Recently Issued Accounting Pronouncements See Note 2, Summary of Significant Accounting Policies , to our Consolidated Financial Statements included under Item 8 of this Annual Report for additional information about recent accounting pronouncements recently adopted and those not yet effective.