10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2019

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________.

Commission file number 0-5734

AGILYSYS, INC.

(Exact name of registrant as specified in its charter)

Ohio	34-0907152
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1000 Windward Concourse, Suite 250, Alpharetta, Georgia	30005
(Address of principal executive offices)	(ZIP Code)

(770) 810-7800

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Shares, without par value	AGYS	The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☐

Emerging growth company             ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate by check mark whether the registrant has filed all documents and reports required to be filed be sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☒ No ☐

The number of Common Shares of the registrant outstanding as of January 24, 2020 was 23,656,917.

AGILYSYS, INC.

Index

Part I. Financial Information
	Item 1	Financial Statements (Unaudited)	3
		Condensed Consolidated Balance Sheets – December 31, 2019 (Unaudited) and March 31, 2019	3
		Condensed Consolidated Statements of Operations (Unaudited) - Three and Nine Months Ended December 31, 2019 and December 31, 2018	4
		Condensed Consolidated Statements of Comprehensive Loss (Unaudited) - Three and Nine Months Ended December 31, 2019 and December 31, 2018	5
		Condensed Consolidated Statements of Cash Flows (Unaudited) – Nine Months Ended December 31, 2019 and December 31, 2018	6
		Condensed Consolidated Statements of Shareholders' Equity (Unaudited) - Three and Nine Months Ended December 31, 2019 and December 31, 2018	7
		Notes to Condensed Consolidated Financial Statements (Unaudited)	8
	Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
	Item 3	Quantitative and Qualitative Disclosures About Market Risk	28
	Item 4	Controls and Procedures	28
Part II. Other Information
	Item 1	Legal Proceedings	29
	Item 1A	Risk Factors	29
	Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	29
	Item 3	Defaults Upon Senior Securities	29
	Item 4	Mine Safety Disclosures	29
	Item 5	Other Information	29
	Item 6	Exhibits	30
Signatures			31

2

AGILYSYS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

	December 31, 2019			March 31, 2019
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	41,905		$	40,771
Accounts receivable, net of allowance for doubtful accounts    of $593 and $788, respectively		29,794			27,000
Contract assets		3,962			2,921
Inventories		1,856			2,044
Prepaid expenses and other current assets		6,796			6,272
Total current assets		84,313			79,008
Property and equipment, net		14,849			15,838
Operating lease right-of-use assets		12,044			—
Goodwill		19,622			19,622
Intangible assets, net		8,404			8,438
Software development costs, net		25,135			34,567
Deferred income taxes, non-current		753			443
Other non-current assets		6,708			5,675
Total assets	$	171,828		$	163,591
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	10,454		$	4,718
Contract liabilities		35,374			38,669
Accrued liabilities		12,482			14,718
Operating lease liabilities, current		4,235			—
Finance lease obligations, current		24			22
Total current liabilities		62,569			58,127
Deferred income taxes, non-current		875			861
Operating lease liabilities, non-current		9,800			—
Finance lease obligations, non-current		31			35
Other non-current liabilities		1,617			3,946
Commitments and contingencies (see Note 8)
Shareholders' equity:
Common shares, without par value, at $0.30 stated value; 80,000,000    shares authorized; 31,606,831 shares issued; and 23,656,891    and 23,501,450 shares outstanding at December 31, 2019 and    March 31, 2019, respectively		9,482			9,482
Treasury shares, 7,949,940 and 8,105,381 at December 31, 2019 and    March 31, 2019, respectively		(2,387	)		(2,433	)
Capital in excess of stated value		4,094			781
Retained earnings		85,976			93,051
Accumulated other comprehensive loss		(229	)		(259	)
Total shareholders' equity		96,936			100,622
Total liabilities and shareholders' equity	$	171,828		$	163,591

See accompanying notes to unaudited condensed consolidated financial statements.

3

AGILYSYS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended December 31,						Nine Months Ended December 31,
	2019			2018			2019			2018
Net revenue:
Products	$	12,126		$	10,232		$	34,868		$	28,081
Support, maintenance and subscription services		20,965			19,345			61,377			56,130
Professional services		8,896			6,437			24,854			20,013
Total net revenue		41,987			36,014			121,099			104,224
Cost of goods sold:
Products (inclusive of developed technology amortization)		9,639			8,371			28,056			23,204
Support, maintenance and subscription services		4,841			3,909			13,676			11,960
Professional services		6,443			5,087			18,071			14,775
Total cost of goods sold		20,923			17,367			59,803			49,939
Gross profit		21,064			18,647			61,296			54,285
Gross profit margin		50.2	%		51.8	%		50.6	%		52.1	%
Operating expenses:
Product development		11,285			10,059			32,127			27,299
Sales and marketing		4,918			5,217			14,307			14,363
General and administrative		6,084			5,865			17,998			17,047
Depreciation of fixed assets		854			651			1,774			1,933
Amortization of intangibles		608			675			1,900			1,892
Restructuring, severance and other charges		11			58			438			948
Legal settlements, net		—			—			(125	)		126
Total operating expense		23,760			22,525			68,419			63,608
Operating loss		(2,696	)		(3,878	)		(7,123	)		(9,323	)
Other (income) expense:
Interest income		(92	)		(83	)		(287	)		(235	)
Interest expense		25			3			28			8
Other (income) expense, net		(142	)		68			50			293
Loss before taxes		(2,487	)		(3,866	)		(6,914	)		(9,389	)
Income tax expense		95			182			161			186
Net loss	$	(2,582	)	$	(4,048	)	$	(7,075	)	$	(9,575	)
Weighted average shares outstanding		23,240			23,048			23,230			23,030
Loss per share - basic and diluted:
Loss per share	$	(0.11	)	$	(0.18	)	$	(0.30	)	$	(0.42	)

See accompanying notes to unaudited condensed consolidated financial statements.

4

AGILYSYS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

	Three Months Ended December 31,						Nine Months Ended December 31,
	2019			2018			2019			2018
Net loss	$	(2,582	)	$	(4,048	)	$	(7,075	)	$	(9,575	)
Other comprehensive loss, net of tax:
Unrealized foreign currency translation adjustments		(31	)		87			30			21
Total comprehensive loss	$	(2,613	)	$	(3,961	)	$	(7,045	)	$	(9,554	)

See accompanying notes to unaudited condensed consolidated financial statements.

5

AGILYSYS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine Months Ended December 31,
	2019			2018
Operating activities
Net loss	$	(7,075	)	$	(9,575	)
Adjustments to reconcile loss from operations to net cash provided by operating activities
Net restructuring, severance and other charges		40			(268	)
Net legal settlements		(15	)		—
Loss on disposal of property & equipment		(5	)		—
Depreciation		1,774			1,933
Amortization of intangibles		1,900			1,892
Amortization of developed technology		9,432			9,357
Deferred income taxes		(313	)		44
Share-based compensation		3,156			2,956
Change in cash surrender value of company owned life insurance policies		11			12
Changes in operating assets and liabilities:		(3,632	)		(4,632	)
Net cash provided by operating activities		5,273			1,719
Investing activities
Capital expenditures		(3,009	)		(1,610	)
Capitalized software development costs		—			(2,189	)
Investments in corporate-owned life insurance policies		(26	)		(27	)
Net cash used in investing activities		(3,035	)		(3,826	)
Financing activities
Repurchase of common shares to satisfy employee tax withholding		(1,053	)		(612	)
Principal payments under long-term obligations		(18	)		(90	)
Net cash used in financing activities		(1,071	)		(702	)
Effect of exchange rate changes on cash		(33	)		(139	)
Net increase (decrease) in cash and cash equivalents		1,134			(2,948	)
Cash and cash equivalents at beginning of period	$	40,771		$	39,943
Cash and cash equivalents at end of period	$	41,905		$	36,995
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES:
Accrued capital expenditures	$	48		$	31

See accompanying notes to unaudited condensed consolidated financial statements.

6

AGILYSYS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(Unaudited)

	Three Months Ended December 31, 2019
	Common Shares										Capital in						Accumulated
	Issued				In Treasury						excess of						other
(In thousands)	Shares		Stated value		Shares			Stated value			stated value			Retained earnings			comprehensive loss			Total
Balance at September 30, 2019		31,607	$	9,482		(7,949	)	$	(2,386	)	$	2,909		$	88,558		$	(198	)	$	98,365
Share-based compensation		—		—		—			—			1,184			—			—			1,184
Restricted shares issued, net		—		—		(1	)		(1	)		1			—			—			—
Shares issued upon exercise of SSARs		—		—		—			—			—			—			—			—
Shares withheld for taxes upon exercise of stock    options, SSARs or vesting of restricted shares		—		—		—			—			—			—			—			—
Net loss		—		—		—			—			—			(2,582	)		—			(2,582	)
Unrealized translation adjustments		—		—		—			—			—			—			(31	)		(31	)
Balance at December 31, 2019		31,607	$	9,482		(7,950	)	$	(2,387	)	$	4,094		$	85,976		$	(229	)	$	96,936
	Three Months Ended December 31, 2018
	Common Shares										Capital in						Accumulated
	Issued				In Treasury						excess of						other
	Shares		Stated value		Shares			Stated value			stated value			Retained earnings			comprehensive loss			Total
Balance at September 30, 2018		31,607	$	9,482		(8,077	)	$	(2,424	)	$	(451	)	$	100,688		$	(321	)	$	106,974
Share-based compensation		—		—		—			—			1,147			—			—			1,147
Restricted shares issued, net		—		—		7			2			(2	)		—			—			—
Shares issued upon exercise of SSARs		—		—		2			1			(1	)		—			—			—
Shares withheld for taxes upon exercise of stock    options, SSARs or vesting of restricted shares		—		—		(3	)		(1	)		(54	)		—			—			(55	)
Net loss		—		—		—			—			—			(4,048	)		—			(4,048	)
Unrealized translation adjustments		—		—		—			—			—			—			87			87
Balance at December 31, 2018		31,607	$	9,482		(8,071	)	$	(2,422	)	$	639		$	96,640		$	(234	)	$	104,105
	Nine Months Ended December 31, 2019
	Common Shares										Capital in						Accumulated
	Issued				In Treasury						excess of						other
	Shares		Stated value		Shares			Stated value			stated value			Retained earnings			comprehensive loss			Total
Balance at March 31, 2019		31,607	$	9,482		(8,105	)	$	(2,433	)	$	781		$	93,051		$	(259	)	$	100,622
Share-based compensation		—		—		—			—			3,479			—			—			3,479
Restricted shares issued, net		—		—		143			42			(42	)		—			—			—
Shares issued upon exercise of SSARs		—		—		17			5			(5	)		—			—			—
Shares withheld for taxes upon exercise of stock    options, SSARs or vesting of restricted shares		—		—		(5	)		(1	)		(119	)		—			—			(120	)
Net loss		—		—		—			—			—			(7,075	)		—			(7,075	)
Unrealized translation adjustments		—		—		—			—			—			—			30			30
Balance at December 31, 2019		31,607	$	9,482		(7,950	)	$	(2,387	)	$	4,094		$	85,976		$	(229	)	$	96,936
	Nine Months Ended December 31, 2018
	Common Shares										Capital in						Accumulated
	Issued				In Treasury						excess of						other
	Shares		Stated value		Shares			Stated value			stated value			Retained earnings			comprehensive loss			Total
Balance at March 31, 2018		31,607	$	9,482		(8,283	)	$	(2,486	)	$	(1,911	)	$	103,601		$	(255	)	$	108,431
Cumulative effect of change in accounting policy		—		—		—			—			—			2,614			—			2,614
Share-based compensation		—		—		—			—			2,868			—			—			2,868
Restricted shares issued, net		—		—		175			52			(52	)		—			—			—
Shares issued upon exercise of SSARs		—		—		53			16			(16	)		—			—			—
Shares withheld for taxes upon exercise of stock    options, SSARs or vesting of restricted shares		—		—		(16	)		(4	)		(250	)		—			—			(254	)
Net loss		—		—		—			—			—			(9,575	)		—			(9,575	)
Unrealized translation adjustments		—		—		—			—			—			—			21			21
Balance at December 31, 2018		31,607	$	9,482		(8,071	)	$	(2,422	)	$	639		$	96,640		$	(234	)	$	104,105

See accompanying notes to unaudited condensed consolidated financial statements.

7

AGILYSYS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Table amounts in thousands, except per share data)

1. Nature of Operations and Financial Statement Presentation

Nature of Operations

We serve five major market sectors: Gaming, both corporate and tribal; Hotels and Resorts; Cruise; Managed Foodservice, and Sports and Entertainment. A significant portion of our consolidated revenue is derived from contract support, maintenance and subscription services.

Agilysys operates across the Americas, Europe, the Middle East, Africa, Asia-Pacific, and India with headquarters located in Alpharetta, GA. For more information, visit www.agilysys.com.

Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements include our accounts consolidated with our wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Our fiscal year ends on March 31st. References to a particular year refer to the fiscal year ending in March of that year. For example, fiscal 2020 refers to the fiscal year ending March 31, 2020.

Our unaudited interim financial statements are prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information, the instructions to the Quarterly Report on Form 10-Q (Quarterly Report) under the Securities Exchange Act of 1934, as amended (the Exchange Act), and Rule 10-01 of Regulation S-X under the Exchange Act. Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations relating to interim financial statements.

The Condensed Consolidated Balance Sheet as of December 31, 2019, as well as the Condensed Consolidated Statements of Operations, Condensed Consolidated Statements of Comprehensive Loss, and the Condensed Consolidated Statements of Shareholders' Equity for the three and nine months ended December 31, 2019 and 2018, and Condensed Consolidated Statements of Cash Flows for the nine months ended December 31, 2019, are unaudited. However, these financial statements have been prepared on the same basis as those in the audited annual financial statements, except for the recently adopted accounting pronouncements described below. In the opinion of management, all adjustments of a recurring nature necessary to fairly state the results of operations, financial position, and cash flows have been made.

These unaudited interim financial statements should be read together with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended March 31, 2019, filed with the Securities and Exchange Commission (SEC) on May 24, 2019.

2. Summary of Significant Accounting Policies

A detailed description of our significant accounting policies can be found in the audited financial statements for the fiscal year ended March 31, 2019, included in our Annual Report on Form 10-K. Our accounting policy for leases changed with the adoption of Accounting Standards Update ("ASU") No. 2016-02 ("Topic 842"), as described further below. There have been no other material changes to our significant accounting policies and estimates from those disclosed therein.

Reclassification – Certain prior year balances have been reclassed to conform to the current year presentation. Specifically, we reclassed certain employee benefit obligations from current to non-current liabilities.

8

Adopted and Recently Issued Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board ("FASB") issued ASU No. 2019-12, Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes. ASU 2019-12 removes certain exceptions previously allowed in the standard and simplifies the accounting for income taxes by providing additional guidance for certain tax situations. The update is effective for annual periods beginning after December 15, 2020, including interim periods within those annual periods, with early adoption (including early adoption in any interim period) permitted. We do not believe the adoption of this guidance will have a material impact on our consolidated financial statements.

In April 2019, the Financial Accounting Standards Board ("FASB") issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. ASU 2019-04 provides corrections, updates and clarifications to the previously issued updates ASU 2016-13, ASU 2017-12 and ASU 2016-01. Various areas of the codification were impacted from the update. The standard follows the effective dates of the previously issued ASUs, unless an entity has already early adopted the previous ASUs, in which case the effective date will vary according to each specific ASU adoption. Consistent with the documentation below, we are still assessing the impact of the adoption of ASU 2016-13, and the other two ASUs affected by ASU 2019-04 are not applicable to us. We are currently reviewing this standard to assess the impact on our future consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. ASU 2018-15 addresses the treatment of implementation costs incurred in a hosting arrangement that is a service contract. The update does not impact the accounting for the service element of a hosting arrangement that is a service contract. The update is effective for annual periods beginning after December 15, 2019, including interim periods within those annual periods, with early adoption (including early adoption in any interim period) permitted. We do not believe the adoption of this guidance will have a material impact on our consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 addresses the required disclosures around fair value measurement. The disclosure requirements of the reasons for transfers between Level 1 and Level 2, the policy for timing transfers between levels, and the valuation process for Level 3 measurements have been removed. Certain modifications were made to required disclosures and additional requirements were established. The standard is effective for annual periods beginning after December 15, 2019, including interim periods within those annual periods. Early adoption is permitted. We do not believe the adoption of this guidance will have a material impact on our consolidated financial statements.

In February 2018, the FASB issued ASU No. 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220). ASU 2018-02 addresses the effect of the change in the U.S. federal corporate tax rate on items within accumulated other comprehensive income or loss due to the enactment of the Tax Act on December 22, 2017. The new standard is effective for annual periods, and for interim periods within those annual periods beginning after December 15, 2018, with early adoption permitted. We have adopted this standard as of April 1, 2019; the adoption had no impact on our condensed consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles- Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment. ASU No. 2017-04 eliminates Step 2 of the goodwill impairment test and requires a goodwill impairment to be measured as the amount by which a reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of its goodwill. The ASU is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. While we are still assessing the impact of this standard, we do not believe that the adoption of this guidance will have a material impact on our consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326). This new standard changes the impairment model for most financial assets and certain other instruments. Entities will be required to use a model that will result in the earlier recognition of allowances for losses for trade and other receivables, held-to-maturity debt securities, loans, and other instruments. For available-for-sale debt securities with unrealized losses, the losses will be recognized as allowances rather than as reductions in the amortized cost of the securities. The new standard is effective for annual periods, and for interim periods within those annual periods, beginning after December 15, 2019, with early adoption permitted. We are currently reviewing this standard to assess the impact on our future consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires lessees to recognize assets and liabilities for leases with lease terms of more than 12 months. Unlike Accounting Standard Codification Topic 840 ("Topic 840"), which requires only capital leases to be recognized on the balance sheet, the new guidance requires both types of leases to be recognized on the balance sheet. The most prominent change for leasees is the requirement to recognize both Right-of-Use (ROU) assets and lease liabilities for leases

9

classified as operating leases under Topic 840. We adopted Topic 842 as of April 1, 2019 using the current period adjustment method of adoption. Please refer to Note 6, Leases for further details.

3. Revenue Recognition

Disaggregation of Revenue

We derive and report our revenue from the sale of products (software licenses, third party hardware and operating systems), support, maintenance and subscription services and professional services. Revenue recognized at a point in time (products) totaled $12.1 million and $34.9 million, and $10.2 million and $28.1 million for the three and nine months ended December 31, 2019 and 2018. Revenue recognized over time (support, maintenance and subscription services and professional services) totaled $29.9 million and $86.2 million, and $25.8 million and $76.1 million for the three and nine months ended December 31, 2019 and 2018, respectively. See Nature of Goods and Services section below for additional information regarding revenue recognition procedures for our revenue streams.

Nature of Goods and Services

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 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 purchase 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 purchase 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 a 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 price both with the supplier and the customer, payment to the supplier, establishing payment terms and product returns with the customer, and we bear 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.

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We use the market estimate 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.

Shipping and handling fees billed to customers are recognized as revenue and the related costs are recognized in cost of goods sold. Revenue is recorded net of any applicable taxes collected and remitted to governmental agencies.

Contract Balances

Contract assets are rights to consideration in exchange for goods or services that we have transferred to a customer when that right is conditional on something other than the passage of time. The majority of our contract assets represent unbilled amounts related to professional services. We expect billing and collection of our contract assets to occur within the next twelve months. We receive payments from customers based upon contractual billing schedules and accounts receivable are recorded when the right to consideration becomes unconditional. Contract liabilities represent consideration received or consideration which is unconditionally due from customers prior to transferring goods or services to the customer under the terms of the contract.

Revenue recognized from amounts included in contract liabilities at the beginning of the period was $8.6 million and $7.6 million for the three months ended December 31, 2019 and 2018, respectively, and $34.6 million and $28.1 million for the nine months ended December 31, 2019 and 2018, respectively. Because the right to the transaction became unconditional, we transferred to accounts receivable from contract assets at the beginning of the period, $0.2 million and $0.4 million for the three months ended December 31, 2019 and 2018, respectively, and $2.7 million and $3.8 million during the nine months ended December 31, 2019 and 2018, respectively.

Our arrangements are for a period of one year or less. As a result, unsatisfied performance obligations as of December 31, 2019 are expected to be satisfied and the allocated transaction price recognized in revenue within a period of 12 months or less.

Assets Recognized from Costs to Obtain a Contract

Sales commission expenses that would not have occurred absent the customer contracts are considered incremental costs to obtain a contract. We have elected to take the practical expedient available to expense the incremental costs to obtain a contract as incurred when the expected benefit and amortization period is one year or less. For subscription contracts that are renewed monthly based on an agreement term, we capitalize commission expenses and amortize as we satisfy the underlying performance obligations, generally based on the contract terms and anticipated renewals. Other sales commission expenses have a period of benefit of one year or less and are therefore expensed as incurred in line with the practical expedient elected.

As of December 31, 2019, we had $3.3 million of capitalized sales incentive costs. These balances are included in other non-current assets on our condensed consolidated balance sheets. During the three and nine months ended December 31, 2019, we expensed $1.3 million and $3.5 million, respectively, of sales commissions, which included amortization of capitalized amounts of $0.3 million and $1.0 million, respectively. During the comparable periods ending December 31, 2018, we expensed $1.3 million and $3.1 million, respectively, of sales commissions, which included amortization of capitalized amounts of $0.3 million and $0.8 million, respectively. These expenses are included in operating expenses – sales and marketing in our condensed consolidated statement of operations. All other costs to obtain a contract are not considered incremental and therefore are expensed as incurred.

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4. Intangible Assets and Software Development Costs

The following table summarizes our intangible assets and software development costs:

	December 31, 2019							March 31, 2019
	Gross					Net		Gross					Net
	carrying		Accumulated			carrying		carrying		Accumulated			carrying
Intangible assets (In thousands)	amount		amortization			amount		amount		amortization			amount
Amortized intangible assets:
Customer relationships	$	10,775	$	(10,775	)	$	—	$	10,775	$	(10,775	)	$	—
Non-competition agreements		2,700		(2,700	)		—		2,700		(2,700	)		—
Developed technology		10,398		(10,398	)		—		10,398		(10,398	)		—
Trade names		230		(226	)		4		230		(192	)		38
Patented technology		80		(80	)		—		80		(80	)		—
		24,183		(24,179	)		4		24,183		(24,145	)		38
Unamortized intangible assets:
Trade names		8,400	N/A				8,400		8,400	N/A				8,400
Total intangible assets	$	32,583	$	(24,179	)	$	8,404	$	32,583	$	(24,145	)	$	8,438
Software development costs (In thousands)
Total software development costs	$	67,541	$	(42,406	)	$	25,135	$	67,541	$	(32,974	)	$	34,567

The following table summarizes our remaining amortization expense relating to in service intangible assets and software development costs.

	Remaining
	Amortization
(In thousands)	Expense
Fiscal year ending March 31,
2020	$	3,132
2021		12,515
2022		5,403
2023		3,399
2024		690
Total	$	25,139

Amortization expense for software development costs related to assets to be sold, leased, or otherwise marketed was $3.1 million and $3.4 million for the three months ended December 31, 2019 and 2018, and $9.4 million and $9.4 million for the nine months ended December 31, 2019 and 2018, respectively. These charges are included as costs of goods sold - products in our condensed consolidated statements of operations. Amortization expense relating to other definite-lived intangible assets was $11,500 for the three months ended December 31, 2019 and 2018, and $34,500 for the nine months ended December 31, 2019 and 2018. These charges are classified as operating expenses - amortization of intangibles in our condensed consolidated statements of operations along with amortization expense related to our capitalized internal-use software that we classify in Property and equipment, net within the condensed consolidated balance sheets.

Capitalized software development costs for software internally developed to be sold, leased, or otherwise marketed, are carried on our balance sheet at carrying value, net of accumulated amortization. The Company did not capitalize any amounts for external-use software development costs during the three and nine months ended December 31, 2019 due to the current active projects, which carry a sufficiently short amount of time between achieving technological feasibility and reaching general availability to preclude capitalization. We capitalized approximately $2.0 million during the nine months ended December 31, 2018.

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5. Additional Balance Sheet Information

Additional information related to the condensed consolidated balance sheets is as follows:

	December 31, 2019		March 31, 2019
Accrued liabilities:
Salaries, wages, and related benefits	$	10,438	$	12,755
Other taxes payable		1,231		1,041
Accrued legal settlements		—		15
Severance liabilities		86		46
Professional fees		127		67
Deferred rent		—		273
Other		600		521
Total	$	12,482	$	14,718
Other non-current liabilities:
Uncertain tax positions	$	1,097	$	1,083
Deferred rent and asset retirement obligations		165		2,613
Employee benefit obligations		279		174
Other		76		76
Total	$	1,617	$	3,946

6. Leases

We adopted Topic 842 on April 1, 2019 using the current period adjustment method of adoption to recognize leases with a duration greater than 12 months on the balance sheet. The impact of adoption on April 1, 2019 was recognition of operating lease liabilities of $16.3 million and related Right-of-Use ("ROU") assets of $13.8 million. Prior period financial statements have not been restated and therefore the comparative amounts are not presented below or on the condensed consolidated balance sheet as of March 31, 2019. For operating leases with a term greater than 12 months, we have recorded the lease liability at the present value of lease payments over the remaining lease term and the related ROU asset. The remaining lease term has been determined for each lease considering factors such as renewal options, termination options, our Company's historical practices in exercising such options, and current business knowledge which may impact lease related decisions. The majority of our leases are comprised of real estate leases for our respective offices around the globe. Our finance leases consist of office equipment. We have no residual value guarantees or restrictions or covenants imposed by, or associated with our active leases. Since our current leases do not provide an implicit rate of return, our incremental borrowing rates used to determine the value of lease payments in implementation are estimated at April 1, 2019, based on collateralized rates for a term similar to each remaining lease term.

We have elected the package of practical expedients permitted under the transition guidance which includes the ability to carryforward the previously determined lease classification (operating or financing), forgo the assessment whether active contracts contain a lease, and whether capitalized costs associated with a lease meet the definition of "initial direct costs" as defined within Topic 842. In the event that any of our leases contain nonlease components, we have elected the practical expedient to account for each separate lease component and the associated nonlease component(s) as a single lease component. We have also elected the accounting policy to forgo applying the guidance of Topic 842 to short term leases (defined as a term of 12 month or less, without a purchase option which we are reasonably certain to exercise).

As of December 31, 2019, we have one additional operating lease for the extension of the office space at our India Development Center which has not yet commenced. In relation to this lease, we anticipate approximately $2.5 million and $2.5 million of ROU assets and lease liabilities, respectively. The operating lease commences during January 2020. We do not have any related party leases or sublease arrangements. We have variable payments for expenses such as common area maintenance and taxes. We do not have variable payments that are based on an index or rate. As a result, we do not include variable payments in the calculation of the lease liability. Any variable lease costs are expensed as incurred.

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The components of lease expenses for the three and nine months ended December 31, 2019 were as follows:

	Three Months Ended		Nine Months Ended
(in thousands)	December 31, 2019
Operating leases expense	$	1,001	$	3,017
Finance lease expense:
Amortization of ROU assets		6		17
Interest on lease liabilities		2		4
Total finance lease expense		8		21
Variable lease costs		60		197
Short term lease expense		22		72
Total lease expense	$	1,091	$	3,307

Other information related to leases for the nine months ended December 31, 2019 was as follows:

	Nine Months Ended
Supplemental cash flow information	December 31, 2019
Cash paid for amounts included in the measurement of lease    liabilities (in thousands):
Operating cash flows for operating leases	$	3,560
Operating cash flows for finance leases		9
Financing cash flows for finance leases		18
ROU assets obtained in exchange for lease obligations (in thousands):
Operating leases	$	185
Finance leases		11
Weighted average remaining lease terms
Operating leases		5.26
Finance leases		2.37
Weighted average discount rates
Operating leases		10.04	%
Finance leases		4.37	%

The table below reconciles the undiscounted future minimum lease payments (displayed by year and in the aggregate) under non-cancelable leases with terms of more than one year to the total lease liabilities recognized on the condensed consolidated balance sheet as of December 31, 2019:

(in thousands)	Operating leases			Finance leases
2020 (excluding the nine months ended December 31, 2019)	$	1,086		$	7
2021		4,390			29
2022		3,623			21
2023		2,244			5
2024		2,049			3
Thereafter		5,719			—
Total undiscounted future minimum lease payments		19,111			65
Less: difference between undiscounted lease payments and discounted lease liabilities		(5,076	)		(10	)
Total lease liabilities	$	14,035		$	55

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As previously disclosed on our March 31, 2019 Form 10-K and under the previous lease accounting standard, future minimum lease payments under non-cancelable leases as of March 31, 2019 were as follows:

Year ending (in thousands)	Operating leases		Finance leases
2020	$	4,143	$	27
2021		3,945		23
2022		3,166		15
2023		1,916		—
2024		1,770		—
Thereafter		4,497		—
Total lease payments		19,437		65
Less: Amounts representing interest		—		(8	)
Present value of lease liabilities	$	19,437	$	57

7. Income Taxes

The following table compares our income tax expense and effective tax rates for the three and nine months ended December 31, 2019 and 2018:

	Three Months Ended December 31,						Nine Months Ended December 31,
(Dollars in thousands)	2019			2018			2019			2018
Income tax expense	$	95		$	182		$	161		$	186
Effective tax rate		(3.8	)%		(4.7	)%		(2.3	)%		(2.0	)%

For the three and nine months ended December 31, 2019 and 2018, the effective tax rate was different than the statutory rate due primarily to the recognition of net operating losses as deferred tax assets in the U.S. and certain foreign jurisdictions, which were offset by increases in the valuation allowance, certain foreign and state tax effects and other U.S. permanent book to tax differences.

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. 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.

8. Commitments and Contingencies

Agilysys is the subject of various threatened or pending legal actions and contingencies in the normal course of conducting its business. We provide for costs related to these matters when a loss is probable, and the amount can be reasonably estimated. The effect of the outcome of these matters on our future results of operations and liquidity cannot be predicted because any such effect depends on future results of operations and the amount or timing of the resolution of such matters. While it is not possible to predict with certainty, management believes that the ultimate resolution of such individual or aggregated matters will not have a material adverse effect on our consolidated financial position, results of operations, or cash flows.

On April 6, 2012, Ameranth, Inc. filed a complaint against us in the U.S. District Court of Southern District of California alleging that certain of our products infringe patents owned by Ameranth directed to configuring and transmitting hospitality menus (e.g. restaurant menus) for display on electronic devices and synchronizing the menu content between the devices. The case against us was consolidated with similar cases brought by Ameranth against more than 30 other defendants. All but one of the patents at issue in the case were invalidated by the U.S. Court of Appeals for the Federal Circuit in 2016. In September 2018, the District Court found the one surviving Ameranth patent invalid and granted summary judgment in favor of the movant co-defendants. In November 2019, the District Court's ruling was upheld on appeal by the Court of Appeals for the Federal Circuit. In early 2020, the Court of Appeals also denied Ameranth’s request for rehearing. It is currently unclear what impact the summary judgment ruling or the denial of Ameranth’s appeal may have on our case. Ameranth seeks monetary damages, injunctive relief, costs and attorneys' fees from us. At this time, we are not able to predict the outcome of this lawsuit. However, we dispute the allegations of wrongdoing and are vigorously defending ourselves in this matter.

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9. Loss per Share

The following data shows the amounts used in computing (loss) per share and the effect on earnings and the weighted average number of shares of dilutive potential common shares.

	Three Months Ended December 31,						Nine Months Ended December 31,
(In thousands, except per share data)	2019			2018			2019			2018
Numerator:
Net loss	$	(2,582	)	$	(4,048	)	$	(7,075	)	$	(9,575	)
Denominator:
Weighted average shares outstanding		23,240			23,048			23,230			23,030
Loss per share - basic and diluted:
Loss per share	$	(0.11	)	$	(0.18	)	$	(0.30	)	$	(0.42	)
Anti-dilutive stock options, SSARs, restricted shares and    performance shares		1,469			1,471			1,414			1,443

Basic loss per share is computed as net income available to common shareholders divided by the weighted average basic shares outstanding. The outstanding shares used to calculate the weighted average basic shares excludes 416,960 and 482,846 of restricted shares at December 31, 2019 and 2018, respectively, as these shares were issued but were not vested and therefore, not considered outstanding for purposes of computing basic loss per share at the balance sheet dates.

Diluted loss per share includes the effect of all potentially dilutive securities on earnings per share. We have stock options, stock-settled appreciation rights ("SSARs"), unvested restricted shares and unvested performance shares that are potentially dilutive securities. When a loss is reported, the denominator of diluted earnings per share cannot be adjusted for the dilutive impact of share-based compensation awards because doing so would be anti-dilutive. Therefore, for all periods presented, basic weighted average shares outstanding were used in calculating the diluted net loss per share.

10. Share-based Compensation

We may grant non-qualified stock options, incentive stock options, SSARs, restricted shares, and restricted share units under our shareholder-approved 2016 Stock Incentive Plan ("2016 Plan") for up to 2.0 million common shares, plus 957,575 common shares, the number of shares that were remaining for grant under the 2011 Stock Incentive Plan ("2011 Plan") as of the effective date of the 2016 Plan, plus the number of shares remaining for grant under the 2011 Plan that are forfeited, settled in cash, canceled or expired. The maximum aggregate number of restricted shares or restricted share units that may be granted under the 2016 Plan is 1.25 million.

We may distribute authorized but unissued shares or treasury shares to satisfy share option and appreciation right exercises or restricted share and performance share awards.

We record compensation expense related to stock options, SSARs, 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 SSARs 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.

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The following table summarizes the share-based compensation expense for options, SSARs, restricted and performance awards included in the condensed consolidated statements of operations:

	Three Months Ended December 31,				Nine Months Ended December 31,
(In thousands)	2019		2018		2019		2018
Product development	$	639	$	509	$	1,579	$	938
Sales and marketing		104		136		217		335
General and administrative		586		637		1,360		1,683
Total share-based compensation expense	$	1,329	$	1,282	$	3,156	$	2,956

Stock-Settled Appreciation Rights

SSARs are rights granted to an employee to receive value equal to the difference in the price of our common shares on the date of the grant and on the date of exercise. This value is settled in common shares of Agilysys, Inc.

The following table summarizes the activity during the nine months ended December 31, 2019 for SSARs awarded under the 2011 and 2016 Plans:

	Number of Rights			Weighted-Average Exercise Price		Remaining Contractual Term		Aggregate Intrinsic Value
(In thousands, except share and per share data)				(per right)		(in years)
Outstanding at April 1, 2019		1,016,643		$	11.22
Granted		91,364			22.41
Exercised		(30,430	)		9.47
Forfeited		(15,704	)		18.13
Expired		(9,112	)		10.35
Outstanding at December 31, 2019		1,052,761		$	12.15		4.3	$	13,959
Exercisable at December 31, 2019		825,908		$	10.96		3.9	$	11,931

As of December 31, 2019, total unrecognized share-based compensation expense related to non-vested SSARs was $0.5 million, which is expected to be recognized over a weighted-average vesting period of 2.6 years.

Restricted Shares

We granted shares to certain of our Directors, executives and key employees, the vesting of which is service-based. The following table summarizes the activity during the nine months ended December 31, 2019 for restricted shares awarded under the 2011 and 2016 Plans:

	Number of Shares			Weighted-Average Grant-Date Fair Value
(In thousands, except share and per share data)				(per share)
Outstanding at April 1, 2019		237,146		$	13.46
Granted		197,460			22.57
Vested		(2,757	)		22.67
Forfeited		(45,009	)		17.01
Outstanding at December 31, 2019		386,840		$	17.63

The weighted-average grant date fair value of the restricted shares is determined based upon the closing price of our common shares on the grant date. As of December 31, 2019, total unrecognized share-based compensation expense related to non-vested restricted stock was $3.1 million, which is expected to be recognized over a weighted-average vesting period of 2.0 years.

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Performance Shares

We awarded certain restricted shares to our Chief Executive Officer, the vesting of which is performance based. The number of shares that vest will be based on relative attainment of a performance metric and any unvested shares will forfeit upon settlement of the bonus.

The following table summarizes the activity during the nine months ended December 31, 2019 for the performance shares awarded under the 2016 Plan:

(In thousands, except share and per share data)	Number of Shares
Outstanding at April 1, 2019		63,291
Granted		30,120
Vested		(23,526	)
Forfeited		(39,765	)
Outstanding at December 31, 2019		30,120

Based on the performance goals, management estimates a liability of approximately $450,000 to be settled through the vesting of a variable number of the performance shares subsequent to March 31, 2020. As of December 31, 2019, total unrecognized share-based compensation expense related to non-vested performance shares was $0.1 million, which is expected to be recognized over the remaining vesting period of 3 months.

11. Fair Value Measurements

We estimate the fair value of financial instruments using available market information and generally accepted valuation methodologies. We assess the inputs used to measure fair value using a three-tier hierarchy. The hierarchy indicates the extent to which pricing inputs used in measuring fair value are observable in the market. Level 1 inputs include unadjusted quoted prices for identical assets or liabilities and are the most observable. Level 2 inputs include unadjusted quoted prices for similar assets and liabilities that are either directly or indirectly observable, or other observable inputs such as interest rates, foreign currency exchange rates, commodity rates, and yield curves. Level 3 inputs are not observable in the market and include our own judgments about the assumptions market participants would use in pricing the asset or liability. The use of observable and unobservable inputs is reflected in the hierarchy assessment disclosed in the tables below.

There were no transfers between Levels 1, 2, and 3 during the nine months ended December 31, 2019 and 2018.

The following tables present information about our financial assets measured at fair value on a recurring basis and indicate the fair value hierarchy of the valuation techniques utilized to determine such fair value:

(In thousands)	Recorded value as of December 31, 2019		Active markets for identical asset or liabilities (Level 1)		Quoted prices in similar instruments and observable inputs (Level 2)		Active markets for unobservable inputs (Level 3)
Assets:
Corporate-owned life insurance — non-current	$	910		-		-	$	910

(In thousands)	Recorded value as of March 31, 2019		Active markets for identical asset or liabilities (Level 1)		Quoted prices in similar instruments and observable inputs (Level 2)		Active markets for unobservable inputs (Level 3)
Assets:
Corporate-owned life insurance — non-current	$	895		-		-	$	895

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The recorded value of the corporate-owned life insurance policies is adjusted to the cash surrender value of the policies obtained from the third party life insurance providers, which are not observable in the market, and therefore, are classified within Level 3 of the fair value hierarchy. Changes in the cash surrender value of these policies are recorded within “Other (income) expenses, net” in the condensed consolidated statements of operations.

The following table presents a summary of changes in the fair value of the Level 3 assets:

	Nine Months Ended December 31,
(In thousands)	2019			2018
Corporate-owned life insurance:
Balance on April 1	$	895		$	853
Unrealized loss relating to instruments held at reporting date		(11	)		(12	)
Purchases, sales, issuances and settlements, net		26			27
Balance on December 31	$	910		$	868

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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 managementbelieves 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 endedMarch 31, 2019, 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 endedMarch 31, 2019. Information provided in the MD&A may includeforward-looking statements that involve risks and uncertainties. Many factors couldcause actual results to be materially different from those contained in the forward-lookingstatements. See “Forward-Looking Information” on page 29 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 endedMarch 31, 2019for additional informationconcerning these items. Management believes that this information, discussion, and disclosure is important in making decisions about investing in Agilysys.

Overview

Agilysys has been a leader in hospitality software for more than 40 years, delivering innovative guest-centric technology solutions for casinos, hotels, resorts, cruise ships, managed foodservice providers, stadiums and arenas. Agilysys offers the most comprehensive solutions in the industry, including point of sale (POS), property management systems (PMS), inventory and procurement, payment solutions, and related hospitality 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.

Agilysys operates across the Americas, Europe, the Middle East, Africa, Asia-Pacific, and India with headquarters located in Alpharetta, GA. For more information, visit www.agilysys.com.

Our top priority is to increase 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

• Accelerating our product development

• Improving organizational efficiency and teamwork

• Developing our employees and leaders

• Growing revenue by improving the breadth and depth of our product set across both our well established products and our newer rGuest platform

• 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

We separately present revenue earned as products revenue, support, maintenance and subscription services 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 sales of software licenses, third party hardware and operating systems.

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• 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.

Results of Operations

ThirdFiscal Quarter2020Compared toThirdFiscal Quarter2019

Net Revenue and Operating Loss

The following table presents our consolidated revenue and operating results for the three months ended December 31, 2019 and 2018:

	Three months ended
	December 31,						Increase (decrease)
	2019			2018			$			%
Net revenue:
Products	$	12,126		$	10,232		$	1,894			18.5	%
Support, maintenance and subscription services		20,965			19,345			1,620			8.4
Professional services		8,896			6,437			2,459			38.2
Total net revenue		41,987			36,014			5,973			16.6
Cost of goods sold:
Products (inclusive of developed technology amortization)		9,639			8,371			1,268			15.1
Support, maintenance and subscription services		4,841			3,909			932			23.8
Professional services		6,443			5,087			1,356			26.7
Total cost of goods sold		20,923			17,367			3,556			20.5
Gross profit	$	21,064		$	18,647		$	2,417			13.0	%
Gross profit margin		50.2	%		51.8	%
Operating expenses:
Product development	$	11,285		$	10,059		$	1,226			12.2	%
Sales and marketing		4,918			5,217			(299	)		(5.7	)
General and administrative		6,084			5,865			219			3.7
Depreciation of fixed assets		854			651			203			31.2
Amortization of intangibles		608			675			(67	)		(9.9	)
Restructuring, severance and other charges		11			58			(47	)	nm
Operating loss	$	(2,696	)	$	(3,878	)	$	1,182			(30.5	)%
Operating loss percentage		(6.4	)%		(10.8	)%

nm - not meaningful

21

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,
	2019			2018
Net revenue:
Products		28.9	%		28.4	%
Support, maintenance and subscription services		49.9			53.7
Professional services		21.2			17.9
Total net revenue		100.0	%		100.0	%
Cost of goods sold:
Products		23.0	%		23.2	%
Support, maintenance and subscription services		11.5			10.9
Professional services		15.3			14.1
Total cost of goods sold		49.8	%		48.2	%
Gross profit		50.2	%		51.8	%
Operating expenses:
Product development		26.9	%		27.9	%
Sales and marketing		11.7			14.5
General and administrative		14.5			16.3
Depreciation of fixed assets		2.0			1.8
Amortization of intangibles		1.5			1.9
Restructuring, severance and other charges		0.0			0.2
Operating loss		(6.4	)%		(10.8	)%

Net revenue. Total net revenue increased $6.0 million, or 16.6%, during the third quarter of fiscal 2020 compared to the third quarter of fiscal 2019. Products revenue increased $1.9 million, or 18.5%, due to increased sales of third-party hardware including new customers and expansion with existing customers. Support, maintenance and subscription services revenue increased $1.6 million, or 8.4%, compared to the third quarter of fiscal 2019 driven by continued growth in subscription-based service revenue, which increased 24.8% during the third quarter of fiscal 2020 compared to the third quarter of fiscal 2019. Professional services revenue increased $2.5 million, or 38.2%, 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 $2.4 million, or 13.0%, for the third quarter of fiscal 2020 and total gross profit margin decreased from 51.8% to 50.2%. Products gross profit increased $0.6 million and gross profit margin increased approximately 232 basis points to 20.5%. The improvement is primarily related to increased product revenue on a partially fixed cost base which includes software development cost amortization. Support, maintenance and subscription services gross profit increased $0.7 million and gross profit margin decreased 288 basis points to 76.9%. The margin decrease is the result of costs incurred for the expansion of our teams and infrastructure to continue to support and host customers. Professional services gross profit increased $1.1 million and gross profit margin increased 660 basis points to 27.6% due to the increased efficiencies of implementation projects during the current quarter following the hiring and training of additional team members at the beginning of fiscal 2020 to meet growing demand for professional services.

Operating expenses

Operating expenses, excluding legal settlements, restructuring, severance and other charges, increased $1.3 million, or 5.7%, during the third quarter of fiscal 2020 compared with the third quarter of fiscal 2019.

Product development. Product development increased $1.2 million, or 12.2%, in the third quarter of fiscal 2020 due primarily to an increase in headcount and additional rent expense related to our India Development Center.

22

Sales and marketing. Sales and marketing decreased $0.3 million, or 5.7%, in the third quarter of fiscal 2020 compared with the third quarter of fiscal 2019 due to the overall consistency of sales and marketing team composition, compensation and activities.

General and administrative. General and administrative increased by $0.2 million, or 3.7%, in the third quarter of fiscal 2020 compared with the third quarter of fiscal 2019 due primarily to increases in headcount and improvement of our internal systems to support our growing organization and business requirements.

Other (Income) Expenses

	Three months ended
	December 31,						(Unfavorable) favorable
(Dollars in thousands)	2019			2018			$			%
Other (income) expense:
Interest (income)	$	(92	)	$	(83	)	$	9			10.8	%
Interest expense		25			3			(22	)	nm
Other (income) expense, net		(142	)		68			210		nm
Total other (income), net	$	(209	)	$	(12	)	$	197		nm

nm - not meaningful

Interest income. Interest income consists of interest earned on cash equivalents including short-term investments in treasury bills and commercial paper.

Interest expense. Interest expense consists of costs associated with finance leases.

Other (income) expense. Other (income) expense consists mainly of the impact of foreign currency due to movement of European and Asian currencies against the US dollar.

Income Taxes

	Three months ended
	December 31,						(Unfavorable) favorable
(Dollars in thousands)	2019			2018			$		%
Income tax expense	$	95		$	182		$	87	nm
Effective tax rate		(3.8	)%		(4.7	)%

nm - not meaningful

For the three months ended December 31, 2019 and 2018, 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, certain foreign and state tax effects, and other U.S. permanent book to tax differences.

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 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.

23

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. 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.

Results of Operations

First Nine Months Fiscal2020Compared to First Nine Months Fiscal2019

Net Revenue and Operating Loss

The following table presents our consolidated revenue and operating results for the nine months ended December 31, 2019 and 2018:

	Nine months ended
	December 31,						Increase (decrease)
	2019			2018			$			%
Net revenue:
Products	$	34,868		$	28,081		$	6,787			24.2	%
Support, maintenance and subscription services		61,377			56,130			5,247			9.3
Professional services		24,854			20,013			4,841			24.2
Total net revenue		121,099			104,224			16,875			16.2
Cost of goods sold:
Products		28,056			23,204			4,852			20.9
Support, maintenance and subscription services		13,676			11,960			1,716			14.3
Professional services		18,071			14,775			3,296			22.3
Total cost of goods sold		59,803			49,939			9,864			19.8
Gross profit	$	61,296		$	54,285		$	7,011			12.9	%
Gross profit margin		50.6	%		52.1	%
Operating expenses:
Product development	$	32,127		$	27,299		$	4,828			17.7	%
Sales and marketing		14,307			14,363			(56	)		(0.4	)
General and administrative		17,998			17,047			951			5.6
Depreciation of fixed assets		1,774			1,933			(159	)		(8.2	)
Amortization of intangibles		1,900			1,892			8			0.4
Restructuring, severance and other charges		438			948			(510	)		(53.8	)
Legal settlements, net		(125	)		126			(251	)	nm
Operating Loss	$	(7,123	)	$	(9,323	)	$	2,200			(23.6	)%
Operating loss percentage		(5.9	)%		(8.9	)%

24

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:

	Nine months ended
	December 31,
Net revenue:	2019			2018
Products		28.8	%		26.9	%
Support, maintenance and subscription services		50.7			53.9
Professional services		20.5			19.2
Total net revenue		100.0	%		100.0	%
Cost of goods sold:
Products		23.2	%		22.3	%
Support, maintenance and subscription services		11.3			11.4
Professional services		14.9			14.2
Total cost of goods sold		49.4	%		47.9	%
Gross profit		50.6	%		52.1	%
Operating expenses:
Product development		26.5	%		26.2	%
Sales and marketing		11.8			13.8
General and administrative		14.9			16.3
Depreciation of fixed assets		1.4			1.9
Amortization of intangibles		1.6			1.8
Restructuring, severance and other charges		0.4			0.9
Legal settlements, net		(0.1	)		0.1
Operating loss		(5.9	)%		(8.9	)%

Net revenue. Total net revenue increased $16.9 million, or 16.2%, during the first nine months of fiscal 2020 compared to the first nine months of fiscal 2019. Products revenue increased $6.8 million, or 24.2%, due to increased sales of third-party hardware including new customers and expansion with existing customers. Support, maintenance and subscription services revenue increased $5.3 million, or 9.3%, compared to the first nine months of fiscal 2019 driven by support and maintenance for the growth in customers using our on premise software products along with continued increases in subscription-based service revenue, which increased 22.2% during the first nine months of fiscal 2020 compared to the first nine months of fiscal 2019. Professional services revenue increased $4.8 million, or 24.2%, due to ongoing installation and integration of our software solutions for our growing customer base.

Gross profit and gross profit margin. Our total gross profit increased $7.0 million, or 12.9%, for the first nine months of fiscal 2020 and total gross profit margin decreased slightly from 52.1% to 50.6%. Products gross profit increased $2.0 million and gross profit margin increased approximately 217 basis points to 19.5%. The improvement is primarily related to increased product revenue on a partially fixed cost base which includes software development cost amortization. Support, maintenance and subscription services gross profit increased $3.5 million and gross profit margin decreased 97 basis points to 77.7%. Our slight margin decrease is due to the expansion of our teams and infrastructure to continue supporting and hosting customers. Professional services gross profit increased $1.5 million and gross profit margin increased 112 basis points to 27.3% due to the increased efficiencies of implementation projects during the first nine months of fiscal 2020 following the hiring and training of additional team members at the beginning of fiscal 2020 to meet growing demand for professional services.

Operating expenses

Operating expenses, excluding legal settlements, restructuring, severance and other charges, increased $5.6 million, or 8.9%, during the first nine months of fiscal 2020 compared with the first nine months of fiscal 2019.

Product development. Product development increased $4.8 million, or 17.7%, in the first nine months of fiscal 2020 compared to the first nine months of fiscal 2019. $2.5 million of this increase was due to increased employee compensation and hiring costs from our continued expansion of our product development teams. The remaining $2.3 million was due to the reduction of cost capitalization. The products in our rGuest platform for which we capitalized costs reached general availability be the beginning of the second quarter of fiscal 2019. These products join 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. The Company capitalized $2.0 million of external use software costs, and $0.3 million of internal use software development costs in first quarter of fiscal 2019. The Company capitalized no software development costs in the first nine months of fiscal 2020.

25

Sales and marketing. Sales and marketing decreased slightly by $0.1 million, or 0.4%, in the firstnine months of fiscal 2020 compared with the firstnine months of fiscal 2019 due to the overall consistency of sales and marketing team composition, compensation and activities.

General and administrative. General and administrative increased by $1.0 million, or 5.6%, in the first nine months of fiscal 2020 compared with the first nine months of fiscal 2019 due primarily to increases in headcount and improvement of our internal systems to support our growing organization and business requirements.

Restructuring, severance, and other charges. Restructuring, severance, and other charges decreased $0.5 million during the first nine months of fiscal 2020 compared to the first nine months of fiscal 2019 due to a reduction in severance payments and executive search fees.

Legal settlements, net. The Company received approximately $0.1 million of settlement funds during the first nine months of fiscal 2020 due to the resolution of an outstanding lawsuit involving a former employee; no further activity is expected related to this matter.

Other (Income) Expenses

	Nine months ended
	December 31,						(Unfavorable) favorable
(Dollars in thousands)	2019			2018			$			%
Other (income) expense:
Interest (income)	$	(287	)	$	(235	)	$	52			22.1	%
Interest expense		28			8			(20	)	nm
Other expense, net		50			293			243		nm
Total other (income) expense, net	$	(209	)	$	66		$	275		nm

nm - not meaningful

Interest income. Interest income consists of interest earned on cash equivalents including short-term investments in treasury bills and commercial paper.

Interest expense. Interest expense consists of costs associated with finance leases.

Other expense. Other expense consists mainly of the impact of foreign currency due to movement of European and Asian currencies against the US dollar.

Income Taxes

	Nine months ended
	December 31,						(Unfavorable) favorable
(Dollars in thousands)	2019			2018			$		%
Income tax expense	$	161		$	186		$	25	nm
Effective tax rate		(2.3	)%		(2.0	)%

nm - not meaningful

For the nine months ended December 31, 2019 and 2018, the effective tax rate was different than the statutory rate due primarily to the recognition of net operating losses as deferred tax assets in the U.S. and certain foreign jurisdictions, which were offset by increases in the valuation allowance, certain foreign and state tax effects, and other U.S. permanent book to tax differences.

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 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.

26

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. 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.

Liquidity and Capital Resources

Overview

Our cash requirements consist primarily of working capital needs, operating expenses, capital expenditures, and employee tax withholdings payments for share-based compensation. We believe that cash flow from operating activities, cash on hand of $41.9 million as of December 31, 2019 and access to capital markets will provide adequate funds to meet our short- and long-term liquidity requirements.

As of December 31, 2019 and March 31, 2019, our total debt was approximately $0.1 million, comprised of finance lease obligations in both periods.

At December 31, 2019, 100% of our cash and cash equivalents of which 93% is located in the United States, were deposited in bank accounts or invested in highly liquid investments with original maturity from the date of acquisition of three months or less, including investments in treasury bills and commercial paper. We believe credit risk is limited with respect to our cash and cash equivalents balances.

Cash Flow

	Nine Months Ended December 31,
(In thousands)	2019			2018
Net cash provided by (used in):
Operating activities	$	5,273		$	1,719
Investing activities		(3,035	)		(3,826	)
Financing activities		(1,071	)		(702	)
Effect of exchange rate changes on cash		(33	)		(139	)
Net increase (decrease) in cash and cash equivalents	$	1,134		$	(2,948	)

Cash flow used in operating activities. Cash flow provided by operating activities was $5.3 million in the first nine months of fiscal 2020. The provision of cash was due primarily to the offset of $16.3 million in non-cash expense including depreciation, amortization, and share-based compensation, against our operating loss of $7.1 million and the decrease of $3.6 million in net operating assets and liabilities.

Cash flow used in investing activities. During the first nine months of fiscal 2020, the $3.0 million used in investing activities consisted of property and equipment purchases. During the first nine months of fiscal 2019, the $3.8 million used in investing activities consisted of $1.6 million of property and equipment purchases along with $2.2 million of capitalized software development costs.

Cash flow used in financing activities. During the first nine months of fiscal 2020, the $1.1 million used in financing activities was primarily related to the repurchase of shares to satisfy employee tax withholding on share-based compensation.

Contractual Obligations

As of December 31, 2019, there were no significant changes to our contractual obligations as presented in our Annual Report for the year ended March 31, 2019.

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.

27

Critical Accounting Policies

A detailed description of our significant accounting policies is included in our Annual Report for the year ended March 31, 2019. There have been no material changes in our significant accounting policies and estimates since March 31, 2019 except as noted in Note 2, Summary of Significant Accounting Policies.

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, 2019. 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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

For quantitative and qualitative disclosures about market risk affecting us, see Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” contained in our Annual Report for the fiscal year ended March 31, 2019. There have been no material changes in our market risk exposures since March 31, 2019.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision of and with the participation of our Chief Executive Officer (CEO), Chief Financial Officer (CFO) and Corporate Controller and Treasurer, management evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this Quarterly Report. Based on that evaluation, the CEO, CFO and Corporate Controller and Treasurer concluded that, as of the end of the period covered by this Quarterly Report, our disclosure controls and procedures were effective.

Change in Internal Control over Financial Reporting

In connection with the adoption of Topic 842, we assessed the impact to our internal controls over financial reporting and noted no material changes during the period ended December 31, 2019.

28

PART II. OTHER INFORMATION

Item 1.     Legal Proceedings

None.

Item 1A. Risk Factors

There have been no material changes in the risk factors included in our Annual Report for the fiscal year ended March 31, 2019 that may materially affect our business, results of operations, or financial condition.

Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.    Defaults Upon Senior Securities

None.

Item 4.    Mine Safety Disclosures

Not applicable.

Item 5.    Other Information

None.

29

Item 6.    Exhibits

31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.
31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.
31.3	Rule 13a-14(a)/15d-14(a) Certification of Corporate Controller and Treasurer.
32	Certification of Chief Executive Officer, Chief Financial Officer and Corporate Controller and Treasurer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002.
101	The following materials from our quarterly report on Form 10-Q for the quarter ended December 31, 2019, formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets at December 31, 2019 and March 31, 2019, (ii) Condensed Consolidated Statements of Operations for the three and nine months ended December 31, 2019, (iii) Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended December 31, 2019, (iv) Condensed Consolidated Statements of Cash Flows for the nine months ended December 31, 2019 and 2018, (v) Condensed Consolidated Statements of Shareholders' Equity for the three and nine months ended December 31, 2019 and (vi) Notes to Condensed Consolidated Financial Statements for the three and nine months ended December 31, 2019.

30

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Quarterly Report to be signed on its behalf by the undersigned thereunto duly authorized.

AGILYSYS, INC.

Date:	January 29, 2020	/s/ Anthony S. Pritchett
		Anthony S. Pritchett
		Chief Financial Officer
		(Principal Financial Officer and Duly Authorized Officer)

31

EX-31

Exhibit 31.1

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER

I, Ramesh Srinivasan, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Agilysys, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: January 29, 2020

By:	/s/ Ramesh Srinivasan
	Ramesh Srinivasan
	President and Chief Executive Officer
	(Principal Executive Officer)

EX-31

Exhibit 31.2

CERTIFICATION OF THE CHIEF FINANCIAL OFFICER

I, Anthony S. Pritchett, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Agilysys, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: January 29, 2020

By:	/s/ Anthony S. Pritchett
	Anthony S. Pritchett
	Chief Financial Officer
	(Principal Financial Officer)

EX-31

Exhibit 31.3

CERTIFICATION OF THE CORPORATE CONTROLLER AND TREASURER

I, Chris J. Robertson, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Agilysys, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: January 29, 2020

By:	/s/ Chris J. Robertson
	Chris J. Robertson
	Corporate Controller and Treasurer
	(Principal Accounting Officer)

EX-32

Exhibit 32

CERTIFICATION

Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Ramesh Srinivasan, the Chief Executive Officer, Anthony S. Pritchett, the Chief Financial Officer, and Chris J. Robertson, the Corporate Controller and Treasurer, of Agilysys, Inc. (the “Company”), hereby certify, that, to their knowledge:

1. The Quarterly Report on Form 10-Q of the Company for the period ended December 31, 2019 (the “ Report ”) fully complies (1) with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: January 29, 2020                 

By:	/s/ Ramesh Srinivasan
	Ramesh Srinivasan
	President and Chief Executive Officer
	(Principal Executive Officer)
	/s/ Anthony S. Pritchett
	Anthony S. Pritchett
	Chief Financial Officer
	(Principal Financial Officer)
	/s/ Chris J. Robertson
	Chris J. Robertson
	Corporate Controller and Treasurer
	(Principal Accounting Officer)

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Income Taxes

9 Months Ended

Dec. 31, 2019

Income Tax Disclosure [Abstract]

Income Taxes

7. Income Taxes

The following table compares our income tax expense and effective tax rates for the three and nine months ended December 31, 2019 and 2018:

	Three Months Ended December 31,						Nine Months Ended December 31,
(Dollars in thousands)	2019			2018			2019			2018
Income tax expense	$	95		$	182		$	161		$	186
Effective tax rate		(3.8	)%		(4.7	)%		(2.3	)%		(2.0	)%

For the three and nine months ended December 31, 2019 and 2018, the effective tax rate was different than the statutory rate due primarily to the recognition of net operating losses as deferred tax assets in the U.S. and certain foreign jurisdictions, which were offset by increases in the valuation allowance, certain foreign and state tax effects and other U.S. permanent book to tax differences.

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. 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.

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Revenue Recognition

9 Months Ended

Dec. 31, 2019

Revenue From Contract With Customer [Abstract]

Revenue Recognition

3. Revenue Recognition

Disaggregation of Revenue

We derive and report our revenue from the sale of products (software licenses, third party hardware and operating systems), support, maintenance and subscription services and professional services. Revenue recognized at a point in time (products) totaled $12.1 million and $34.9 million, and $10.2 million and $28.1 million for the three and nine months ended December 31, 2019 and 2018. Revenue recognized over time (support, maintenance and subscription services and professional services) totaled $29.9 million and $86.2 million, and $25.8 million and $76.1 million for the three and nine months ended December 31, 2019 and 2018, respectively. See Nature of Goods and Services section below for additional information regarding revenue recognition procedures for our revenue streams.

Nature of Goods and Services

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 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 purchase 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 purchase 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 a 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 price both with the supplier and the customer, payment to the supplier, establishing payment terms and product returns with the customer, and we bear 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 estimate 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.

Shipping and handling fees billed to customers are recognized as revenue and the related costs are recognized in cost of goods sold. Revenue is recorded net of any applicable taxes collected and remitted to governmental agencies.

Contract Balances

Contract assets are rights to consideration in exchange for goods or services that we have transferred to a customer when that right is conditional on something other than the passage of time. The majority of our contract assets represent unbilled amounts related to professional services. We expect billing and collection of our contract assets to occur within the next twelve months. We receive payments from customers based upon contractual billing schedules and accounts receivable are recorded when the right to consideration becomes unconditional. Contract liabilities represent consideration received or consideration which is unconditionally due from customers prior to transferring goods or services to the customer under the terms of the contract.

Revenue recognized from amounts included in contract liabilities at the beginning of the period was $8.6 million and $7.6 million for the three months ended December 31, 2019 and 2018, respectively, and $34.6 million and $28.1 million for the nine months ended December 31, 2019 and 2018, respectively. Because the right to the transaction became unconditional, we transferred to accounts receivable from contract assets at the beginning of the period, $0.2 million and $0.4 million for the three months ended December 31, 2019 and 2018, respectively, and $2.7 million and $3.8 million during the nine months ended December 31, 2019 and 2018, respectively.

Our arrangements are for a period of one year or less. As a result, unsatisfied performance obligations as of December 31, 2019 are expected to be satisfied and the allocated transaction price recognized in revenue within a period of 12 months or less.

Assets Recognized from Costs to Obtain a Contract

Sales commission expenses that would not have occurred absent the customer contracts are considered incremental costs to obtain a contract. We have elected to take the practical expedient available to expense the incremental costs to obtain a contract as incurred when the expected benefit and amortization period is one year or less. For subscription contracts that are renewed monthly based on an agreement term, we capitalize commission expenses and amortize as we satisfy the underlying performance obligations, generally based on the contract terms and anticipated renewals. Other sales commission expenses have a period of benefit of one year or less and are therefore expensed as incurred in line with the practical expedient elected.

As of December 31, 2019, we had $3.3 million of capitalized sales incentive costs. These balances are included in other non-current assets on our condensed consolidated balance sheets. During the three and nine months ended December 31, 2019, we expensed $1.3 million and $3.5 million, respectively, of sales commissions, which included amortization of capitalized amounts of $0.3 million and $1.0 million, respectively. During the comparable periods ending December 31, 2018, we expensed $1.3 million and $3.1 million, respectively, of sales commissions, which included amortization of capitalized amounts of $0.3 million and $0.8 million, respectively. These expenses are included in operating expenses – sales and marketing in our condensed consolidated statement of operations. All other costs to obtain a contract are not considered incremental and therefore are expensed as incurred.

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Fair Value Measurements

9 Months Ended

Dec. 31, 2019

Fair Value Disclosures [Abstract]

Fair Value Measurements

11. Fair Value Measurements

We estimate the fair value of financial instruments using available market information and generally accepted valuation methodologies. We assess the inputs used to measure fair value using a three-tier hierarchy. The hierarchy indicates the extent to which pricing inputs used in measuring fair value are observable in the market. Level 1 inputs include unadjusted quoted prices for identical assets or liabilities and are the most observable. Level 2 inputs include unadjusted quoted prices for similar assets and liabilities that are either directly or indirectly observable, or other observable inputs such as interest rates, foreign currency exchange rates, commodity rates, and yield curves. Level 3 inputs are not observable in the market and include our own judgments about the assumptions market participants would use in pricing the asset or liability. The use of observable and unobservable inputs is reflected in the hierarchy assessment disclosed in the tables below.

There were no transfers between Levels 1, 2, and 3 during the nine months ended December 31, 2019 and 2018.

The following tables present information about our financial assets measured at fair value on a recurring basis and indicate the fair value hierarchy of the valuation techniques utilized to determine such fair value:

(In thousands)	Recorded value as of December 31, 2019		Active markets for identical asset or liabilities (Level 1)		Quoted prices in similar instruments and observable inputs (Level 2)		Active markets for unobservable inputs (Level 3)
Assets:
Corporate-owned life insurance — non-current	$	910		-		-	$	910

(In thousands)	Recorded value as of March 31, 2019		Active markets for identical asset or liabilities (Level 1)		Quoted prices in similar instruments and observable inputs (Level 2)		Active markets for unobservable inputs (Level 3)
Assets:
Corporate-owned life insurance — non-current	$	895		-		-	$	895

The recorded value of the corporate-owned life insurance policies is adjusted to the cash surrender value of the policies obtained from the third party life insurance providers, which are not observable in the market, and therefore, are classified within Level 3 of the fair value hierarchy. Changes in the cash surrender value of these policies are recorded within “Other (income) expenses, net” in the condensed consolidated statements of operations.

The following table presents a summary of changes in the fair value of the Level 3 assets:

	Nine Months Ended December 31,
(In thousands)	2019			2018
Corporate-owned life insurance:
Balance on April 1	$	895		$	853
Unrealized loss relating to instruments held at reporting date		(11	)		(12	)
Purchases, sales, issuances and settlements, net		26			27
Balance on December 31	$	910		$	868

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Leases (Details Textual) - USD ($) $ in Thousands	9 Months Ended
	Dec. 31, 2019	Apr. 01, 2019
Leases [Line Items]
Operating lease liability	$ 14,035	$ 16,300
Operating lease right-of-use assets	12,044	$ 13,800
India Development Center
Leases [Line Items]
Operating lease liability	2,500
Operating lease right-of-use assets	$ 2,500
Lessee, operating lease, leases not yet commenced, description	As of December 31, 2019, we have one additional operating lease for the extension of the office space at our India Development Center which has not yet commenced. In relation to this lease, we anticipate approximately $2.5 million and $2.5 million of ROU assets and lease liabilities, respectively. The operating lease commences during January 2020.

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Income Taxes (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2019	Dec. 31, 2018
Income Tax Disclosure [Abstract]
Income tax expense	$ 95	$ 182	$ 161	$ 186
Effective tax rate	(3.80%)	(4.70%)	(2.30%)	(2.00%)

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Share-based Compensation (Details 3)	9 Months Ended
	Dec. 31, 2019 $ / shares shares
Restricted Stock [Member]
Activity Related to Restricted Shares Awarded by the Company
Number of Shares Outstanding at Beginning of Period	237,146
Granted, Number of Shares	197,460
Vested, Number of Shares	(2,757)
Forfeited, Number of Shares	(45,009)
Number of Shares Outstanding at End of Period	386,840
Weighted Average Grant-Date Fair Value, Outstanding at Beginning of Period | $ / shares	$ 13.46
Granted, Weighted Average Grant-Date Fair Value | $ / shares	22.57
Vested, Weighted Average Grant-Date Fair Value | $ / shares	22.67
Forfeited, Weighted Average Grant-Date Fair Value | $ / shares	17.01
Weighted Average Grant-Date Fair Value, Outstanding at End of Period | $ / shares	$ 17.63
Performance Shares [Member]
Activity Related to Restricted Shares Awarded by the Company
Number of Shares Outstanding at Beginning of Period	63,291
Granted, Number of Shares	30,120
Vested, Number of Shares	(23,526)
Forfeited, Number of Shares	(39,765)
Number of Shares Outstanding at End of Period	30,120

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Nature of Operations and Financial Statement Presentation

9 Months Ended

Dec. 31, 2019

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Nature of Operations and Financial Statement Presentation

1. Nature of Operations and Financial Statement Presentation

Nature of Operations

We serve five major market sectors: Gaming, both corporate and tribal; Hotels and Resorts; Cruise; Managed Foodservice, and Sports and Entertainment. A significant portion of our consolidated revenue is derived from contract support, maintenance and subscription services.

Agilysys operates across the Americas, Europe, the Middle East, Africa, Asia-Pacific, and India with headquarters located in Alpharetta, GA. For more information, visit www.agilysys.com.

Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements include our accounts consolidated with our wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Our fiscal year ends on March 31st. References to a particular year refer to the fiscal year ending in March of that year. For example, fiscal 2020 refers to the fiscal year ending March 31, 2020.

Our unaudited interim financial statements are prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information, the instructions to the Quarterly Report on Form 10-Q (Quarterly Report) under the Securities Exchange Act of 1934, as amended (the Exchange Act), and Rule 10-01 of Regulation S-X under the Exchange Act. Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations relating to interim financial statements.

The Condensed Consolidated Balance Sheet as of December 31, 2019, as well as the Condensed Consolidated Statements of Operations, Condensed Consolidated Statements of Comprehensive Loss, and the Condensed Consolidated Statements of Shareholders' Equity for the three and nine months ended December 31, 2019 and 2018, and Condensed Consolidated Statements of Cash Flows for the nine months ended December 31, 2019, are unaudited. However, these financial statements have been prepared on the same basis as those in the audited annual financial statements, except for the recently adopted accounting pronouncements described below. In the opinion of management, all adjustments of a recurring nature necessary to fairly state the results of operations, financial position, and cash flows have been made.

These unaudited interim financial statements should be read together with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended March 31, 2019, filed with the Securities and Exchange Commission (SEC) on May 24, 2019.

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Fair Value Measurements (Tables)

9 Months Ended

Dec. 31, 2019

Fair Value Disclosures [Abstract]

Assets and liabilities measured at fair value on a recurring basis

The following tables present information about our financial assets measured at fair value on a recurring basis and indicate the fair value hierarchy of the valuation techniques utilized to determine such fair value:

(In thousands)	Recorded value as of December 31, 2019		Active markets for identical asset or liabilities (Level 1)		Quoted prices in similar instruments and observable inputs (Level 2)		Active markets for unobservable inputs (Level 3)
Assets:
Corporate-owned life insurance — non-current	$	910		-		-	$	910

(In thousands)	Recorded value as of March 31, 2019		Active markets for identical asset or liabilities (Level 1)		Quoted prices in similar instruments and observable inputs (Level 2)		Active markets for unobservable inputs (Level 3)
Assets:
Corporate-owned life insurance — non-current	$	895		-		-	$	895

Summary of changes in the fair value of the Level 3 assets and liabilities Corporate-owned life insurance

The following table presents a summary of changes in the fair value of the Level 3 assets:

	Nine Months Ended December 31,
(In thousands)	2019			2018
Corporate-owned life insurance:
Balance on April 1	$	895		$	853
Unrealized loss relating to instruments held at reporting date		(11	)		(12	)
Purchases, sales, issuances and settlements, net		26			27
Balance on December 31	$	910		$	868

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Leases (Tables)

9 Months Ended

Dec. 31, 2019

Leases [Abstract]

Schedule of lease expenses and other information

The components of lease expenses for the three and nine months ended December 31, 2019 were as follows:

	Three Months Ended		Nine Months Ended
(in thousands)	December 31, 2019
Operating leases expense	$	1,001	$	3,017
Finance lease expense:
Amortization of ROU assets		6		17
Interest on lease liabilities		2		4
Total finance lease expense		8		21
Variable lease costs		60		197
Short term lease expense		22		72
Total lease expense	$	1,091	$	3,307

Other information related to leases for the nine months ended December 31, 2019 was as follows:

	Nine Months Ended
Supplemental cash flow information	December 31, 2019
Cash paid for amounts included in the measurement of lease    liabilities (in thousands):
Operating cash flows for operating leases	$	3,560
Operating cash flows for finance leases		9
Financing cash flows for finance leases		18
ROU assets obtained in exchange for lease obligations (in thousands):
Operating leases	$	185
Finance leases		11
Weighted average remaining lease terms
Operating leases		5.26
Finance leases		2.37
Weighted average discount rates
Operating leases		10.04	%
Finance leases		4.37	%

Schedule of future minimum lease payments, finance leases

The table below reconciles the undiscounted future minimum lease payments (displayed by year and in the aggregate) under non-cancelable leases with terms of more than one year to the total lease liabilities recognized on the condensed consolidated balance sheet as of December 31, 2019:

(in thousands)	Operating leases			Finance leases
2020 (excluding the nine months ended December 31, 2019)	$	1,086		$	7
2021		4,390			29
2022		3,623			21
2023		2,244			5
2024		2,049			3
Thereafter		5,719			—
Total undiscounted future minimum lease payments		19,111			65
Less: difference between undiscounted lease payments and discounted lease liabilities		(5,076	)		(10	)
Total lease liabilities	$	14,035		$	55

Schedule of future minimum lease payments, operating leases

The table below reconciles the undiscounted future minimum lease payments (displayed by year and in the aggregate) under non-cancelable leases with terms of more than one year to the total lease liabilities recognized on the condensed consolidated balance sheet as of December 31, 2019:

(in thousands)	Operating leases			Finance leases
2020 (excluding the nine months ended December 31, 2019)	$	1,086		$	7
2021		4,390			29
2022		3,623			21
2023		2,244			5
2024		2,049			3
Thereafter		5,719			—
Total undiscounted future minimum lease payments		19,111			65
Less: difference between undiscounted lease payments and discounted lease liabilities		(5,076	)		(10	)
Total lease liabilities	$	14,035		$	55

Schedule of future minimum lease payments, finance leases, under previous lease accounting standard

As previously disclosed on our March 31, 2019 Form 10-K and under the previous lease accounting standard, future minimum lease payments under non-cancelable leases as of March 31, 2019 were as follows:

Year ending (in thousands)	Operating leases		Finance leases
2020	$	4,143	$	27
2021		3,945		23
2022		3,166		15
2023		1,916		—
2024		1,770		—
Thereafter		4,497		—
Total lease payments		19,437		65
Less: Amounts representing interest		—		(8	)
Present value of lease liabilities	$	19,437	$	57

Schedule of future minimum lease payments, operating leases, under previous lease accounting standard

As previously disclosed on our March 31, 2019 Form 10-K and under the previous lease accounting standard, future minimum lease payments under non-cancelable leases as of March 31, 2019 were as follows:

Year ending (in thousands)	Operating leases		Finance leases
2020	$	4,143	$	27
2021		3,945		23
2022		3,166		15
2023		1,916		—
2024		1,770		—
Thereafter		4,497		—
Total lease payments		19,437		65
Less: Amounts representing interest		—		(8	)
Present value of lease liabilities	$	19,437	$	57

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Condensed Consolidated Statements of Operations (Unaudited) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2019	Dec. 31, 2018
Net revenue:
Total net revenue	$ 41,987	$ 36,014	$ 121,099	$ 104,224
Cost of goods sold:
Total cost of goods sold	20,923	17,367	59,803	49,939
Gross profit	$ 21,064	$ 18,647	$ 61,296	$ 54,285
Gross Profit Ratio	50.20%	51.80%	50.60%	52.10%
Operating expenses:
Product development	$ 11,285	$ 10,059	$ 32,127	$ 27,299
Sales and marketing	4,918	5,217	14,307	14,363
General and administrative	6,084	5,865	17,998	17,047
Depreciation of fixed assets	854	651	1,774	1,933
Amortization	608	675	1,900	1,892
Severance Costs	11	58	438	948
Legal settlements, net			(125)	126
Total operating expense	23,760	22,525	68,419	63,608
Operating loss	(2,696)	(3,878)	(7,123)	(9,323)
Other (income) expense:
Interest income	(92)	(83)	(287)	(235)
Interest expense	25	3	28	8
Other (income) expense, net	(142)	68	50	293
Loss before taxes	(2,487)	(3,866)	(6,914)	(9,389)
Income tax expense	95	182	161	186
Net loss	$ (2,582)	$ (4,048)	$ (7,075)	$ (9,575)
Weighted average shares outstanding (in shares)	23,240	23,048	23,230	23,030
Loss per share - basic and diluted:
Loss per share (in dollars per share)	$ (0.11)	$ (0.18)	$ (0.30)	$ (0.42)
Products
Net revenue:
Total net revenue	$ 12,126	$ 10,232	$ 34,868	$ 28,081
Cost of goods sold:
Total cost of goods sold	9,639	8,371	28,056	23,204
Support, maintenance and subscription services
Net revenue:
Total net revenue	20,965	19,345	61,377	56,130
Cost of goods sold:
Total cost of goods sold	4,841	3,909	13,676	11,960
Professional services
Net revenue:
Total net revenue	8,896	6,437	24,854	20,013
Cost of goods sold:
Total cost of goods sold	$ 6,443	$ 5,087	$ 18,071	$ 14,775

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Share-based Compensation (Details 2) - Stock Settled Stock Appreciation Rights (SSARS) [Member] $ / shares in Units, $ in Thousands	9 Months Ended
	Dec. 31, 2019 USD ($) $ / shares shares
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Number of Rights Outstanding at Beginning of Period | shares	1,016,643
Number of Rights Granted | shares	91,364
Number of Rights Exercised | shares	(30,430)
Number of Rights, Forfeited | shares	(15,704)
Number of Rights Expired | shares	(9,112)
Number of Rights Outstanding at End of Period | shares	1,052,761
Number of Rights Exercisable at End of Period | shares	825,908
Weighted Average Exercise Price Outstanding at Beginning of Period | $ / shares	$ 11.22
Weighted Average Exercise Price, Granted | $ / shares	22.41
Weighted Average Exercise Price, Exercised | $ / shares	9.47
Weighted Average Exercise Price, Forfeited | $ / shares	18.13
Weighted Average Exercise Price, Expired | $ / shares	10.35
Weighted Average Exercise Price Outstanding at End of Period | $ / shares	12.15
Weighted Average Exercise Price, Exercisable at End of Period | $ / shares	$ 10.96
Remaining Contractual Term Outstanding at End of Period	4 years 3 months 18 days
Remaining Contractual Term Exercisable at End of Period	3 years 10 months 24 days
Aggregate Intrinsic Value Outstanding at End of Period | $	$ 13,959
Aggregate Intrinsic Value Exercisable at End of Period | $	$ 11,931

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Nature of Operations and Financial Statement Presentation (Details)	Dec. 31, 2019 market
Organization Consolidation And Presentation Of Financial Statements [Abstract]
Number of major markets served	5

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Document and Entity Information - shares	9 Months Ended
	Dec. 31, 2019	Jan. 24, 2020
Cover [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Dec. 31, 2019
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q3
Entity Registrant Name	AGILYSYS INC
Entity Central Index Key	0000078749
Entity Current Reporting Status	Yes
Current Fiscal Year End Date	--03-31
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		23,656,917
Entity Shell Company	false
Entity Small Business	false
Entity Emerging Growth Company	false
Trading Symbol	AGYS
Title of 12(b) Security	Common Shares, without par value
Security Exchange Name	NASDAQ
Document Quarterly Report	true
Document Transition Report	false
Entity Interactive Data Current	Yes
Entity File Number	0-5734
Entity Incorporation, State or Country Code	OH
Entity Tax Identification Number	34-0907152
Entity Address, Address Line One	1000 Windward Concourse
Entity Address, Address Line Two	Suite 250
Entity Address, City or Town	Alpharetta
Entity Address, State or Province	GA
Entity Address, Postal Zip Code	30005
City Area Code	770
Local Phone Number	810-7800

XML

Condensed Consolidated Statements of Comprehensive (Loss) Income (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2019	Dec. 31, 2018
Statement Of Income And Comprehensive Income [Abstract]
Income (Loss) from Continuing Operations, Net of Tax, Attributable to Parent	$ (2,582)	$ (4,048)	$ (7,075)	$ (9,575)
Other comprehensive (loss)/gain, net of tax:
Unrealized foreign currency translation adjustments	(31)	87	30	21
Total comprehensive loss	$ (2,613)	$ (3,961)	$ (7,045)	$ (9,554)

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Income Taxes (Tables)

9 Months Ended

Dec. 31, 2019

Income Tax Disclosure [Abstract]

Effective tax rates from continuing operations

The following table compares our income tax expense and effective tax rates for the three and nine months ended December 31, 2019 and 2018:

	Three Months Ended December 31,						Nine Months Ended December 31,
(Dollars in thousands)	2019			2018			2019			2018
Income tax expense	$	95		$	182		$	161		$	186
Effective tax rate		(3.8	)%		(4.7	)%		(2.3	)%		(2.0	)%

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Summary of Significant Accounting Policies

9 Months Ended

Dec. 31, 2019

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

A detailed description of our significant accounting policies can be found in the audited financial statements for the fiscal year ended March 31, 2019, included in our Annual Report on Form 10-K. Our accounting policy for leases changed with the adoption of Accounting Standards Update ("ASU") No. 2016-02 ("Topic 842"), as described further below. There have been no other material changes to our significant accounting policies and estimates from those disclosed therein.

Reclassification – Certain prior year balances have been reclassed to conform to the current year presentation. Specifically, we reclassed certain employee benefit obligations from current to non-current liabilities.

Adopted and Recently Issued Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board ("FASB") issued ASU No. 2019-12, Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes. ASU 2019-12 removes certain exceptions previously allowed in the standard and simplifies the accounting for income taxes by providing additional guidance for certain tax situations. The update is effective for annual periods beginning after December 15, 2020, including interim periods within those annual periods, with early adoption (including early adoption in any interim period) permitted. We do not believe the adoption of this guidance will have a material impact on our consolidated financial statements.

In April 2019, the Financial Accounting Standards Board ("FASB") issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. ASU 2019-04 provides corrections, updates and clarifications to the previously issued updates ASU 2016-13, ASU 2017-12 and ASU 2016-01. Various areas of the codification were impacted from the update. The standard follows the effective dates of the previously issued ASUs, unless an entity has already early adopted the previous ASUs, in which case the effective date will vary according to each specific ASU adoption. Consistent with the documentation below, we are still assessing the impact of the adoption of ASU 2016-13, and the other two ASUs affected by ASU 2019-04 are not applicable to us. We are currently reviewing this standard to assess the impact on our future consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. ASU 2018-15 addresses the treatment of implementation costs incurred in a hosting arrangement that is a service contract. The update does not impact the accounting for the service element of a hosting arrangement that is a service contract. The update is effective for annual periods beginning after December 15, 2019, including interim periods within those annual periods, with early adoption (including early adoption in any interim period) permitted. We do not believe the adoption of this guidance will have a material impact on our consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 addresses the required disclosures around fair value measurement. The disclosure requirements of the reasons for transfers between Level 1 and Level 2, the policy for timing transfers between levels, and the valuation process for Level 3 measurements have been removed. Certain modifications were made to required disclosures and additional requirements were established. The standard is effective for annual periods beginning after December 15, 2019, including interim periods within those annual periods. Early adoption is permitted. We do not believe the adoption of this guidance will have a material impact on our consolidated financial statements.

In February 2018, the FASB issued ASU No. 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220). ASU 2018-02 addresses the effect of the change in the U.S. federal corporate tax rate on items within accumulated other comprehensive income or loss due to the enactment of the Tax Act on December 22, 2017. The new standard is effective for annual periods, and for interim periods within those annual periods beginning after December 15, 2018, with early adoption permitted. We have adopted this standard as of April 1, 2019; the adoption had no impact on our condensed consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles- Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment. ASU No. 2017-04 eliminates Step 2 of the goodwill impairment test and requires a goodwill impairment to be measured as the amount by which a reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of its goodwill. The ASU is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. While we are still assessing the impact of this standard, we do not believe that the adoption of this guidance will have a material impact on our consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326). This new standard changes the impairment model for most financial assets and certain other instruments. Entities will be required to use a model that will result in the earlier recognition of allowances for losses for trade and other receivables, held-to-maturity debt securities, loans, and other instruments. For available-for-sale debt securities with unrealized losses, the losses will be recognized as allowances rather than as reductions in the amortized cost of the securities. The new standard is effective for annual periods, and for interim periods within those annual periods, beginning after December 15, 2019, with early adoption permitted. We are currently reviewing this standard to assess the impact on our future consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires lessees to recognize assets and liabilities for leases with lease terms of more than 12 months. Unlike Accounting Standard Codification Topic 840 ("Topic 840"), which requires only capital leases to be recognized on the balance sheet, the new guidance requires both types of leases to be recognized on the balance sheet. The most prominent change for leasees is the requirement to recognize both Right-of-Use (ROU) assets and lease liabilities for leases classified as operating leases under Topic 840. We adopted Topic 842 as of April 1, 2019 using the current period adjustment method of adoption. Please refer to Note 6, Leases for further details.

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Summary of Significant Accounting Policies (Policies)

9 Months Ended

Dec. 31, 2019

Accounting Policies [Abstract]

Reclassification

Reclassification – Certain prior year balances have been reclassed to conform to the current year presentation. Specifically, we reclassed certain employee benefit obligations from current to non-current liabilities.

Adopted and Recently Issued Accounting Pronouncements

Adopted and Recently Issued Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board ("FASB") issued ASU No. 2019-12, Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes. ASU 2019-12 removes certain exceptions previously allowed in the standard and simplifies the accounting for income taxes by providing additional guidance for certain tax situations. The update is effective for annual periods beginning after December 15, 2020, including interim periods within those annual periods, with early adoption (including early adoption in any interim period) permitted. We do not believe the adoption of this guidance will have a material impact on our consolidated financial statements.

In April 2019, the Financial Accounting Standards Board ("FASB") issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. ASU 2019-04 provides corrections, updates and clarifications to the previously issued updates ASU 2016-13, ASU 2017-12 and ASU 2016-01. Various areas of the codification were impacted from the update. The standard follows the effective dates of the previously issued ASUs, unless an entity has already early adopted the previous ASUs, in which case the effective date will vary according to each specific ASU adoption. Consistent with the documentation below, we are still assessing the impact of the adoption of ASU 2016-13, and the other two ASUs affected by ASU 2019-04 are not applicable to us. We are currently reviewing this standard to assess the impact on our future consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. ASU 2018-15 addresses the treatment of implementation costs incurred in a hosting arrangement that is a service contract. The update does not impact the accounting for the service element of a hosting arrangement that is a service contract. The update is effective for annual periods beginning after December 15, 2019, including interim periods within those annual periods, with early adoption (including early adoption in any interim period) permitted. We do not believe the adoption of this guidance will have a material impact on our consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 addresses the required disclosures around fair value measurement. The disclosure requirements of the reasons for transfers between Level 1 and Level 2, the policy for timing transfers between levels, and the valuation process for Level 3 measurements have been removed. Certain modifications were made to required disclosures and additional requirements were established. The standard is effective for annual periods beginning after December 15, 2019, including interim periods within those annual periods. Early adoption is permitted. We do not believe the adoption of this guidance will have a material impact on our consolidated financial statements.

In February 2018, the FASB issued ASU No. 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220). ASU 2018-02 addresses the effect of the change in the U.S. federal corporate tax rate on items within accumulated other comprehensive income or loss due to the enactment of the Tax Act on December 22, 2017. The new standard is effective for annual periods, and for interim periods within those annual periods beginning after December 15, 2018, with early adoption permitted. We have adopted this standard as of April 1, 2019; the adoption had no impact on our condensed consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles- Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment. ASU No. 2017-04 eliminates Step 2 of the goodwill impairment test and requires a goodwill impairment to be measured as the amount by which a reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of its goodwill. The ASU is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. While we are still assessing the impact of this standard, we do not believe that the adoption of this guidance will have a material impact on our consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326). This new standard changes the impairment model for most financial assets and certain other instruments. Entities will be required to use a model that will result in the earlier recognition of allowances for losses for trade and other receivables, held-to-maturity debt securities, loans, and other instruments. For available-for-sale debt securities with unrealized losses, the losses will be recognized as allowances rather than as reductions in the amortized cost of the securities. The new standard is effective for annual periods, and for interim periods within those annual periods, beginning after December 15, 2019, with early adoption permitted. We are currently reviewing this standard to assess the impact on our future consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires lessees to recognize assets and liabilities for leases with lease terms of more than 12 months. Unlike Accounting Standard Codification Topic 840 ("Topic 840"), which requires only capital leases to be recognized on the balance sheet, the new guidance requires both types of leases to be recognized on the balance sheet. The most prominent change for leasees is the requirement to recognize both Right-of-Use (ROU) assets and lease liabilities for leases classified as operating leases under Topic 840. We adopted Topic 842 as of April 1, 2019 using the current period adjustment method of adoption. Please refer to Note 6, Leases for further details.

Leases

We adopted Topic 842 on April 1, 2019 using the current period adjustment method of adoption to recognize leases with a duration greater than 12 months on the balance sheet. The impact of adoption on April 1, 2019 was recognition of operating lease liabilities of $16.3 million and related Right-of-Use ("ROU") assets of $13.8 million. Prior period financial statements have not been restated and therefore the comparative amounts are not presented below or on the condensed consolidated balance sheet as of March 31, 2019. For operating leases with a term greater than 12 months, we have recorded the lease liability at the present value of lease payments over the remaining lease term and the related ROU asset. The remaining lease term has been determined for each lease considering factors such as renewal options, termination options, our Company's historical practices in exercising such options, and current business knowledge which may impact lease related decisions. The majority of our leases are comprised of real estate leases for our respective offices around the globe. Our finance leases consist of office equipment. We have no residual value guarantees or restrictions or covenants imposed by, or associated with our active leases. Since our current leases do not provide an implicit rate of return, our incremental borrowing rates used to determine the value of lease payments in implementation are estimated at April 1, 2019, based on collateralized rates for a term similar to each remaining lease term.

We have elected the package of practical expedients permitted under the transition guidance which includes the ability to carryforward the previously determined lease classification (operating or financing), forgo the assessment whether active contracts contain a lease, and whether capitalized costs associated with a lease meet the definition of "initial direct costs" as defined within Topic 842. In the event that any of our leases contain nonlease components, we have elected the practical expedient to account for each separate lease component and the associated nonlease component(s) as a single lease component. We have also elected the accounting policy to forgo applying the guidance of Topic 842 to short term leases (defined as a term of 12 month or less, without a purchase option which we are reasonably certain to exercise).

As of December 31, 2019, we have one additional operating lease for the extension of the office space at our India Development Center which has not yet commenced. In relation to this lease, we anticipate approximately $2.5 million and $2.5 million of ROU assets and lease liabilities, respectively. The operating lease commences during January 2020. We do not have any related party leases or sublease arrangements. We have variable payments for expenses such as common area maintenance and taxes. We do not have variable payments that are based on an index or rate. As a result, we do not include variable payments in the calculation of the lease liability. Any variable lease costs are expensed as incurred.

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Commitments and Contingencies

9 Months Ended

Dec. 31, 2019

Commitments And Contingencies Disclosure [Abstract]

Commitments and Contingencies

8. Commitments and Contingencies

Agilysys is the subject of various threatened or pending legal actions and contingencies in the normal course of conducting its business. We provide for costs related to these matters when a loss is probable, and the amount can be reasonably estimated. The effect of the outcome of these matters on our future results of operations and liquidity cannot be predicted because any such effect depends on future results of operations and the amount or timing of the resolution of such matters. While it is not possible to predict with certainty, management believes that the ultimate resolution of such individual or aggregated matters will not have a material adverse effect on our consolidated financial position, results of operations, or cash flows.

On April 6, 2012, Ameranth, Inc. filed a complaint against us in the U.S. District Court of Southern District of California alleging that certain of our products infringe patents owned by Ameranth directed to configuring and transmitting hospitality menus (e.g. restaurant menus) for display on electronic devices and synchronizing the menu content between the devices. The case against us was consolidated with similar cases brought by Ameranth against more than 30 other defendants. All but one of the patents at issue in the case were invalidated by the U.S. Court of Appeals for the Federal Circuit in 2016. In September 2018, the District Court found the one surviving Ameranth patent invalid and granted summary judgment in favor of the movant co-defendants. In November 2019, the District Court's ruling was upheld on appeal by the Court of Appeals for the Federal Circuit. In early 2020, the Court of Appeals also denied Ameranth’s request for rehearing. It is currently unclear what impact the summary judgment ruling or the denial of Ameranth’s appeal may have on our case. Ameranth seeks monetary damages, injunctive relief, costs and attorneys' fees from us. At this time, we are not able to predict the outcome of this lawsuit. However, we dispute the allegations of wrongdoing and are vigorously defending ourselves in this matter.

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Intangible Assets and Software Development Costs

9 Months Ended

Dec. 31, 2019

Goodwill And Intangible Assets Disclosure [Abstract]

Intangible Assets and Software Development Costs

4. Intangible Assets and Software Development Costs

The following table summarizes our intangible assets and software development costs:

	December 31, 2019							March 31, 2019
	Gross					Net		Gross					Net
	carrying		Accumulated			carrying		carrying		Accumulated			carrying
Intangible assets (In thousands)	amount		amortization			amount		amount		amortization			amount
Amortized intangible assets:
Customer relationships	$	10,775	$	(10,775	)	$	—	$	10,775	$	(10,775	)	$	—
Non-competition agreements		2,700		(2,700	)		—		2,700		(2,700	)		—
Developed technology		10,398		(10,398	)		—		10,398		(10,398	)		—
Trade names		230		(226	)		4		230		(192	)		38
Patented technology		80		(80	)		—		80		(80	)		—
		24,183		(24,179	)		4		24,183		(24,145	)		38
Unamortized intangible assets:
Trade names		8,400	N/A				8,400		8,400	N/A				8,400
Total intangible assets	$	32,583	$	(24,179	)	$	8,404	$	32,583	$	(24,145	)	$	8,438
Software development costs (In thousands)
Total software development costs	$	67,541	$	(42,406	)	$	25,135	$	67,541	$	(32,974	)	$	34,567

The following table summarizes our remaining amortization expense relating to in service intangible assets and software development costs.

	Remaining
	Amortization
(In thousands)	Expense
Fiscal year ending March 31,
2020	$	3,132
2021		12,515
2022		5,403
2023		3,399
2024		690
Total	$	25,139

Amortization expense for software development costs related to assets to be sold, leased, or otherwise marketed was $3.1 million and $3.4 million for the three months ended December 31, 2019 and 2018, and $9.4 million and $9.4 million for the nine months ended December 31, 2019 and 2018, respectively. These charges are included as costs of goods sold - products in our condensed consolidated statements of operations. Amortization expense relating to other definite-lived intangible assets was $11,500 for the three months ended December 31, 2019 and 2018, and $34,500 for the nine months ended December 31, 2019 and 2018. These charges are classified as operating expenses - amortization of intangibles in our condensed consolidated statements of operations along with amortization expense related to our capitalized internal-use software that we classify in Property and equipment, net within the condensed consolidated balance sheets.

Capitalized software development costs for software internally developed to be sold, leased, or otherwise marketed, are carried on our balance sheet at carrying value, net of accumulated amortization. The Company did not capitalize any amounts for external-use software development costs during the three and nine months ended December 31, 2019 due to the current active projects, which carry a sufficiently short amount of time between achieving technological feasibility and reaching general availability to preclude capitalization. We capitalized approximately $2.0 million during the nine months ended December 31, 2018.

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Additional Balance Sheet Information (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Mar. 31, 2019
Accrued liabilities:
Salaries, wages, and related benefits	$ 10,438	$ 12,755
Other taxes payable	1,231	1,041
Accrued legal settlements	0	15
Severance liabilities	86	46
Professional fees	127	67
Deferred rent	0	273
Other	600	521
Total	12,482	14,718
Other non-current liabilities:
Uncertain tax positions	1,097	1,083
Deferred rent and asset retirement obligations	165	2,613
Employee benefit obligations	279	174
Other	76	76
Total	$ 1,617	$ 3,946

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Leases - Maturities of Operating and Finance Lease Liabilities (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Apr. 01, 2019	Mar. 31, 2019
Operating leases
2020 (excluding the nine months ended December 31, 2019)	$ 1,086
2021	4,390
2022	3,623
2023	2,244
2024	2,049
Thereafter	5,719
Total undiscounted future minimum lease payments	19,111
Less: difference between undiscounted lease payments and discounted lease liabilities	(5,076)
Total lease liabilities	14,035	$ 16,300
Finance leases
2020 (excluding the nine months ended December 31, 2019)	7
2021	29
2022	21
2023	5
2024	3
Thereafter	0
Total undiscounted future minimum lease payments	65
Less: difference between undiscounted lease payments and discounted lease liabilities	(10)
Total lease liabilities	$ 55
Operating leases
2020			$ 4,143
2021			3,945
2022			3,166
2023			1,916
2024			1,770
Thereafter			4,497
Total lease payments			19,437
Finance leases
2020			27
2021			23
2022			15
2023			0
2024			0
Thereafter			0
Total lease payments			65
Less: Amounts representing interest			(8)
Present value of lease liabilities			$ 57

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Share-based Compensation (Details Textual)	9 Months Ended
	Dec. 31, 2019 USD ($) shares
Restricted Stock [Member]
Stock Based Compensation (Textual) [Abstract]
Weighted-average vesting period	2 years
Unrecognized stock based compensation expense related to non-vested restricted stock	$ 3,100,000
Stock Settled Stock Appreciation Rights (SSARS) [Member]
Stock Based Compensation (Textual) [Abstract]
Unrecognized stock based compensation expense related to non-vested SSARs	$ 500,000
Weighted-average vesting period	2 years 7 months 6 days
Performance Shares [Member]
Stock Based Compensation (Textual) [Abstract]
Weighted-average vesting period	3 months
Unrecognized stock based compensation expense related to non-vested restricted stock	$ 100,000
Estimated liability to be settled through vesting of variable number of performance shares	$ 450,000
Two Thousand and Sixteen Stock Incentive Plan [Member]
Stock Based Compensation (Textual) [Abstract]
Shares authorized under 2016 Stock incentive plan | shares	2,000,000
Two Thousand and Sixteen Stock Incentive Plan [Member] | Restricted Stock [Member]
Stock Based Compensation (Textual) [Abstract]
Shares available for grant | shares	1,250,000
2011 Stock Incentive Plan [Member]
Stock Based Compensation (Textual) [Abstract]
Shares available for grant | shares	957,575

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Fair Value Measurements (Details) - Fair Value, Recurring [Member] - USD ($) $ in Thousands	Dec. 31, 2019	Mar. 31, 2019
Assets:
Corporate-owned life insurance — non-current	$ 910	$ 895
Active markets for identical asset or liabilities (Level 1) [Member]
Assets:
Corporate-owned life insurance — non-current	0	0
Quoted prices in similar instruments and observable inputs (Level 2) [Member]
Assets:
Corporate-owned life insurance — non-current	0	0
Active markets for unobservable inputs (Level 3) [Member]
Assets:
Corporate-owned life insurance — non-current	$ 910	$ 895

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Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Dec. 31, 2019	Mar. 31, 2019
Statement Of Financial Position [Abstract]
Allowance for doubtful accounts receivable	$ 593	$ 788
Common stock, stated value	$ 0.30	$ 0.30
Common stock, shares authorized	80,000,000	80,000,000
Common stock, shares issued	31,606,831	31,606,831
Common stock, shares outstanding	23,656,891	23,501,450
Treasury shares	7,949,940	8,105,381

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Share-based Compensation (Tables)

9 Months Ended

Dec. 31, 2019

Share Based Compensation [Abstract]

Summary of share-based compensation expense for options

The following table summarizes the share-based compensation expense for options, SSARs, restricted and performance awards included in the condensed consolidated statements of operations:

	Three Months Ended December 31,				Nine Months Ended December 31,
(In thousands)	2019		2018		2019		2018
Product development	$	639	$	509	$	1,579	$	938
Sales and marketing		104		136		217		335
General and administrative		586		637		1,360		1,683
Total share-based compensation expense	$	1,329	$	1,282	$	3,156	$	2,956

Activity related SSARs award

The following table summarizes the activity during the nine months ended December 31, 2019 for SSARs awarded under the 2011 and 2016 Plans:

	Number of Rights			Weighted-Average Exercise Price		Remaining Contractual Term		Aggregate Intrinsic Value
(In thousands, except share and per share data)				(per right)		(in years)
Outstanding at April 1, 2019		1,016,643		$	11.22
Granted		91,364			22.41
Exercised		(30,430	)		9.47
Forfeited		(15,704	)		18.13
Expired		(9,112	)		10.35
Outstanding at December 31, 2019		1,052,761		$	12.15		4.3	$	13,959
Exercisable at December 31, 2019		825,908		$	10.96		3.9	$	11,931

Activity related to restricted shares awarded by the Company

The following table summarizes the activity during the nine months ended December 31, 2019 for restricted shares awarded under the 2011 and 2016 Plans:

	Number of Shares			Weighted-Average Grant-Date Fair Value
(In thousands, except share and per share data)				(per share)
Outstanding at April 1, 2019		237,146		$	13.46
Granted		197,460			22.57
Vested		(2,757	)		22.67
Forfeited		(45,009	)		17.01
Outstanding at December 31, 2019		386,840		$	17.63

Performance shares awarded

The following table summarizes the activity during the nine months ended December 31, 2019 for the performance shares awarded under the 2016 Plan:

(In thousands, except share and per share data)	Number of Shares
Outstanding at April 1, 2019		63,291
Granted		30,120
Vested		(23,526	)
Forfeited		(39,765	)
Outstanding at December 31, 2019		30,120

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Additional Balance Sheet Information (Tables)

9 Months Ended

Dec. 31, 2019

Balance Sheet Related Disclosures [Abstract]

Schedule of Additional information related to the Condensed Consolidated Balance Sheets

Additional information related to the condensed consolidated balance sheets is as follows:

	December 31, 2019		March 31, 2019
Accrued liabilities:
Salaries, wages, and related benefits	$	10,438	$	12,755
Other taxes payable		1,231		1,041
Accrued legal settlements		—		15
Severance liabilities		86		46
Professional fees		127		67
Deferred rent		—		273
Other		600		521
Total	$	12,482	$	14,718
Other non-current liabilities:
Uncertain tax positions	$	1,097	$	1,083
Deferred rent and asset retirement obligations		165		2,613
Employee benefit obligations		279		174
Other		76		76
Total	$	1,617	$	3,946

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Condensed Consolidated Statements of Shareholders' Equity Statement - USD ($) shares in Thousands, $ in Thousands	Total	Common Shares	Treasury Shares	Capital in excess of stated value	Retained earnings	Accumulated other comprehensive loss
Beginning balance at Mar. 31, 2018	$ 108,431	$ 9,482	$ (2,486)	$ (1,911)	$ 103,601	$ (255)
Beginning balance (in shares) at Mar. 31, 2018		31,607	(8,283)
Cumulative effect of change in accounting policy	2,614				2,614
Share-based compensation	2,868			2,868
Restricted shares issued, net			$ 52	(52)
Restricted shares issued, net (in shares)			175
Shares issued upon exercise of SSARs			$ 16	(16)
Shares issued upon exercise of SSARs (in shares)			53
Shares withheld for taxes upon exercise of stock options, SSARs or vesting of restricted shares	(254)		$ (4)	(250)
Shares withheld for taxes upon exercise of stock options, SSARs or vesting of restricted shares (in shares)			(16)
Net loss	(9,575)				(9,575)
Unrealized translation adjustments	21					21
Ending balance at Dec. 31, 2018	104,105	$ 9,482	$ (2,422)	639	96,640	(234)
Ending balance (in shares) at Dec. 31, 2018		31,607	(8,071)
Beginning balance at Sep. 30, 2018	106,974	$ 9,482	$ (2,424)	(451)	100,688	(321)
Beginning balance (in shares) at Sep. 30, 2018		31,607	(8,077)
Share-based compensation	1,147			1,147
Restricted shares issued, net			$ 2	(2)
Restricted shares issued, net (in shares)			7
Shares issued upon exercise of SSARs			$ 1	(1)
Shares issued upon exercise of SSARs (in shares)			2
Shares withheld for taxes upon exercise of stock options, SSARs or vesting of restricted shares	(55)		$ (1)	(54)
Shares withheld for taxes upon exercise of stock options, SSARs or vesting of restricted shares (in shares)			(3)
Net loss	(4,048)				(4,048)
Unrealized translation adjustments	87					87
Ending balance at Dec. 31, 2018	104,105	$ 9,482	$ (2,422)	639	96,640	(234)
Ending balance (in shares) at Dec. 31, 2018		31,607	(8,071)
Beginning balance at Mar. 31, 2019	100,622	$ 9,482	$ (2,433)	781	93,051	(259)
Beginning balance (in shares) at Mar. 31, 2019		31,607	(8,105)
Share-based compensation	3,479			3,479
Restricted shares issued, net			$ 42	(42)
Restricted shares issued, net (in shares)			143
Shares issued upon exercise of SSARs			$ 5	(5)
Shares issued upon exercise of SSARs (in shares)			17
Shares withheld for taxes upon exercise of stock options, SSARs or vesting of restricted shares	(120)		$ (1)	(119)
Shares withheld for taxes upon exercise of stock options, SSARs or vesting of restricted shares (in shares)			(5)
Net loss	(7,075)				(7,075)
Unrealized translation adjustments	30					30
Ending balance at Dec. 31, 2019	96,936	$ 9,482	$ (2,387)	4,094	85,976	(229)
Ending balance (in shares) at Dec. 31, 2019		31,607	(7,950)
Beginning balance at Sep. 30, 2019	98,365	$ 9,482	$ (2,386)	2,909	88,558	(198)
Beginning balance (in shares) at Sep. 30, 2019		31,607	(7,949)
Share-based compensation	1,184			1,184
Restricted shares issued, net			$ (1)	1
Restricted shares issued, net (in shares)			(1)
Net loss	(2,582)				(2,582)
Unrealized translation adjustments	(31)					(31)
Ending balance at Dec. 31, 2019	$ 96,936	$ 9,482	$ (2,387)	$ 4,094	$ 85,976	$ (229)
Ending balance (in shares) at Dec. 31, 2019		31,607	(7,950)

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Intangible Assets and Software Development Costs - Schedule of Intangible Assets (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Mar. 31, 2019
Schedule Of Finite Lived And Indefinite Lived Intangible Assets [Line Items]
Gross carrying amount	$ 24,183	$ 24,183
Accumulated amortization	(24,179)	(24,145)
Net carrying amount	4	38
Finite Lived Software Development Costs [Abstract]
Total intangible assets, gross carrying amount	32,583	32,583
Finite Lived Software Development Costs Gross	67,541	67,541
Finite Lived Software Development Costs Accumulated Amortization	(42,406)	(32,974)
Finite Lived Software Development Costs Net	25,135	34,567
Intangible assets, net	8,404	8,438
Total intangible assets, gross carrying amount	32,583	32,583
Trade Names [Member]
Schedule Of Finite Lived And Indefinite Lived Intangible Assets [Line Items]
Gross carrying amount, excluding accumulated impairment	230	230
Accumulated amortization, excluding accumulated impairment	(226)	(192)
Net carrying amount, excluding accumulated impairment	4	38
Unamortized intangible assets:
Carrying amount, excluding accumulated impairment	8,400	8,400
Customer Relationships [Member]
Schedule Of Finite Lived And Indefinite Lived Intangible Assets [Line Items]
Gross carrying amount, excluding accumulated impairment	10,775	10,775
Accumulated amortization, excluding accumulated impairment	(10,775)	(10,775)
Net carrying amount, excluding accumulated impairment	0	0
Noncompete Agreements [Member]
Schedule Of Finite Lived And Indefinite Lived Intangible Assets [Line Items]
Gross carrying amount, excluding accumulated impairment	2,700	2,700
Accumulated amortization, excluding accumulated impairment	(2,700)	(2,700)
Net carrying amount, excluding accumulated impairment	0	0
Developed Technology Rights [Member]
Schedule Of Finite Lived And Indefinite Lived Intangible Assets [Line Items]
Gross carrying amount, excluding accumulated impairment	10,398	10,398
Accumulated amortization, excluding accumulated impairment	(10,398)	(10,398)
Net carrying amount, excluding accumulated impairment	0	0
Patented Technology [Member]
Schedule Of Finite Lived And Indefinite Lived Intangible Assets [Line Items]
Gross carrying amount, excluding accumulated impairment	80	80
Accumulated amortization, excluding accumulated impairment	(80)	(80)
Net carrying amount, excluding accumulated impairment	$ 0	$ 0

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Loss per Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2019	Dec. 31, 2018
Numerator:
Net loss	$ (2,582)	$ (4,048)	$ (7,075)	$ (9,575)
Denominator:
Weighted average shares outstanding (in shares)	23,240	23,048	23,230	23,030
Loss per share - basic and diluted:
Loss per share (in dollars per share)	$ (0.11)	$ (0.18)	$ (0.30)	$ (0.42)
Earnings Per Share, Diluted [Abstract]
Anti-dilutive stock options, SSARs, restricted shares and performance shares	1,469	1,471	1,414	1,443

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Intangible Assets and Software Development Costs - Schedule of Future Amortization Expense (Details) $ in Thousands	Dec. 31, 2019 USD ($)
Finite-Lived Intangible Assets, Net, Amortization Expense, Fiscal Year Maturity [Abstract]
2020	$ 3,132
2021	12,515
2022	5,403
2023	3,399
2024	690
Total	$ 25,139

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Leases - Components of Lease Expense (Details) - USD ($) $ in Thousands	3 Months Ended	9 Months Ended
	Dec. 31, 2019	Dec. 31, 2019
Leases [Abstract]
Operating leases expense	$ 1,001	$ 3,017
Amortization of ROU assets	6	17
Interest on lease liabilities	2	4
Total finance lease expense	8	21
Variable lease costs	60	197
Short term lease expense	22	72
Total lease expense	$ 1,091	$ 3,307

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Share-based Compensation

9 Months Ended

Dec. 31, 2019

Share Based Compensation [Abstract]

Share-based Compensation

10. Share-based Compensation

We may grant non-qualified stock options, incentive stock options, SSARs, restricted shares, and restricted share units under our shareholder-approved 2016 Stock Incentive Plan ("2016 Plan") for up to 2.0 million common shares, plus 957,575 common shares, the number of shares that were remaining for grant under the 2011 Stock Incentive Plan ("2011 Plan") as of the effective date of the 2016 Plan, plus the number of shares remaining for grant under the 2011 Plan that are forfeited, settled in cash, canceled or expired. The maximum aggregate number of restricted shares or restricted share units that may be granted under the 2016 Plan is 1.25 million.

We may distribute authorized but unissued shares or treasury shares to satisfy share option and appreciation right exercises or restricted share and performance share awards.

We record compensation expense related to stock options, SSARs, 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 SSARs 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 following table summarizes the share-based compensation expense for options, SSARs, restricted and performance awards included in the condensed consolidated statements of operations:

	Three Months Ended December 31,				Nine Months Ended December 31,
(In thousands)	2019		2018		2019		2018
Product development	$	639	$	509	$	1,579	$	938
Sales and marketing		104		136		217		335
General and administrative		586		637		1,360		1,683
Total share-based compensation expense	$	1,329	$	1,282	$	3,156	$	2,956

Stock-Settled Appreciation Rights

SSARs are rights granted to an employee to receive value equal to the difference in the price of our common shares on the date of the grant and on the date of exercise. This value is settled in common shares of Agilysys, Inc.

The following table summarizes the activity during the nine months ended December 31, 2019 for SSARs awarded under the 2011 and 2016 Plans:

	Number of Rights			Weighted-Average Exercise Price		Remaining Contractual Term		Aggregate Intrinsic Value
(In thousands, except share and per share data)				(per right)		(in years)
Outstanding at April 1, 2019		1,016,643		$	11.22
Granted		91,364			22.41
Exercised		(30,430	)		9.47
Forfeited		(15,704	)		18.13
Expired		(9,112	)		10.35
Outstanding at December 31, 2019		1,052,761		$	12.15		4.3	$	13,959
Exercisable at December 31, 2019		825,908		$	10.96		3.9	$	11,931

As of December 31, 2019, total unrecognized share-based compensation expense related to non-vested SSARs was $0.5 million, which is expected to be recognized over a weighted-average vesting period of 2.6 years.

Restricted Shares

We granted shares to certain of our Directors, executives and key employees, the vesting of which is service-based. The following table summarizes the activity during the nine months ended December 31, 2019 for restricted shares awarded under the 2011 and 2016 Plans:

	Number of Shares			Weighted-Average Grant-Date Fair Value
(In thousands, except share and per share data)				(per share)
Outstanding at April 1, 2019		237,146		$	13.46
Granted		197,460			22.57
Vested		(2,757	)		22.67
Forfeited		(45,009	)		17.01
Outstanding at December 31, 2019		386,840		$	17.63

The weighted-average grant date fair value of the restricted shares is determined based upon the closing price of our common shares on the grant date. As of December 31, 2019, total unrecognized share-based compensation expense related to non-vested restricted stock was $3.1 million, which is expected to be recognized over a weighted-average vesting period of 2.0 years.

Performance Shares

We awarded certain restricted shares to our Chief Executive Officer, the vesting of which is performance based. The number of shares that vest will be based on relative attainment of a performance metric and any unvested shares will forfeit upon settlement of the bonus.

The following table summarizes the activity during the nine months ended December 31, 2019 for the performance shares awarded under the 2016 Plan:

(In thousands, except share and per share data)	Number of Shares
Outstanding at April 1, 2019		63,291
Granted		30,120
Vested		(23,526	)
Forfeited		(39,765	)
Outstanding at December 31, 2019		30,120

Based on the performance goals, management estimates a liability of approximately $450,000 to be settled through the vesting of a variable number of the performance shares subsequent to March 31, 2020. As of December 31, 2019, total unrecognized share-based compensation expense related to non-vested performance shares was $0.1 million, which is expected to be recognized over the remaining vesting period of 3 months.

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Leases

9 Months Ended

Dec. 31, 2019

Leases [Abstract]

Leases

6. Leases

We adopted Topic 842 on April 1, 2019 using the current period adjustment method of adoption to recognize leases with a duration greater than 12 months on the balance sheet. The impact of adoption on April 1, 2019 was recognition of operating lease liabilities of $16.3 million and related Right-of-Use ("ROU") assets of $13.8 million. Prior period financial statements have not been restated and therefore the comparative amounts are not presented below or on the condensed consolidated balance sheet as of March 31, 2019. For operating leases with a term greater than 12 months, we have recorded the lease liability at the present value of lease payments over the remaining lease term and the related ROU asset. The remaining lease term has been determined for each lease considering factors such as renewal options, termination options, our Company's historical practices in exercising such options, and current business knowledge which may impact lease related decisions. The majority of our leases are comprised of real estate leases for our respective offices around the globe. Our finance leases consist of office equipment. We have no residual value guarantees or restrictions or covenants imposed by, or associated with our active leases. Since our current leases do not provide an implicit rate of return, our incremental borrowing rates used to determine the value of lease payments in implementation are estimated at April 1, 2019, based on collateralized rates for a term similar to each remaining lease term.

We have elected the package of practical expedients permitted under the transition guidance which includes the ability to carryforward the previously determined lease classification (operating or financing), forgo the assessment whether active contracts contain a lease, and whether capitalized costs associated with a lease meet the definition of "initial direct costs" as defined within Topic 842. In the event that any of our leases contain nonlease components, we have elected the practical expedient to account for each separate lease component and the associated nonlease component(s) as a single lease component. We have also elected the accounting policy to forgo applying the guidance of Topic 842 to short term leases (defined as a term of 12 month or less, without a purchase option which we are reasonably certain to exercise).

As of December 31, 2019, we have one additional operating lease for the extension of the office space at our India Development Center which has not yet commenced. In relation to this lease, we anticipate approximately $2.5 million and $2.5 million of ROU assets and lease liabilities, respectively. The operating lease commences during January 2020. We do not have any related party leases or sublease arrangements. We have variable payments for expenses such as common area maintenance and taxes. We do not have variable payments that are based on an index or rate. As a result, we do not include variable payments in the calculation of the lease liability. Any variable lease costs are expensed as incurred.

The components of lease expenses for the three and nine months ended December 31, 2019 were as follows:

	Three Months Ended		Nine Months Ended
(in thousands)	December 31, 2019
Operating leases expense	$	1,001	$	3,017
Finance lease expense:
Amortization of ROU assets		6		17
Interest on lease liabilities		2		4
Total finance lease expense		8		21
Variable lease costs		60		197
Short term lease expense		22		72
Total lease expense	$	1,091	$	3,307

Other information related to leases for the nine months ended December 31, 2019 was as follows:

	Nine Months Ended
Supplemental cash flow information	December 31, 2019
Cash paid for amounts included in the measurement of lease    liabilities (in thousands):
Operating cash flows for operating leases	$	3,560
Operating cash flows for finance leases		9
Financing cash flows for finance leases		18
ROU assets obtained in exchange for lease obligations (in thousands):
Operating leases	$	185
Finance leases		11
Weighted average remaining lease terms
Operating leases		5.26
Finance leases		2.37
Weighted average discount rates
Operating leases		10.04	%
Finance leases		4.37	%

The table below reconciles the undiscounted future minimum lease payments (displayed by year and in the aggregate) under non-cancelable leases with terms of more than one year to the total lease liabilities recognized on the condensed consolidated balance sheet as of December 31, 2019:

(in thousands)	Operating leases			Finance leases
2020 (excluding the nine months ended December 31, 2019)	$	1,086		$	7
2021		4,390			29
2022		3,623			21
2023		2,244			5
2024		2,049			3
Thereafter		5,719			—
Total undiscounted future minimum lease payments		19,111			65
Less: difference between undiscounted lease payments and discounted lease liabilities		(5,076	)		(10	)
Total lease liabilities	$	14,035		$	55

As previously disclosed on our March 31, 2019 Form 10-K and under the previous lease accounting standard, future minimum lease payments under non-cancelable leases as of March 31, 2019 were as follows:

Year ending (in thousands)	Operating leases		Finance leases
2020	$	4,143	$	27
2021		3,945		23
2022		3,166		15
2023		1,916		—
2024		1,770		—
Thereafter		4,497		—
Total lease payments		19,437		65
Less: Amounts representing interest		—		(8	)
Present value of lease liabilities	$	19,437	$	57

Leases

6. Leases

We adopted Topic 842 on April 1, 2019 using the current period adjustment method of adoption to recognize leases with a duration greater than 12 months on the balance sheet. The impact of adoption on April 1, 2019 was recognition of operating lease liabilities of $16.3 million and related Right-of-Use ("ROU") assets of $13.8 million. Prior period financial statements have not been restated and therefore the comparative amounts are not presented below or on the condensed consolidated balance sheet as of March 31, 2019. For operating leases with a term greater than 12 months, we have recorded the lease liability at the present value of lease payments over the remaining lease term and the related ROU asset. The remaining lease term has been determined for each lease considering factors such as renewal options, termination options, our Company's historical practices in exercising such options, and current business knowledge which may impact lease related decisions. The majority of our leases are comprised of real estate leases for our respective offices around the globe. Our finance leases consist of office equipment. We have no residual value guarantees or restrictions or covenants imposed by, or associated with our active leases. Since our current leases do not provide an implicit rate of return, our incremental borrowing rates used to determine the value of lease payments in implementation are estimated at April 1, 2019, based on collateralized rates for a term similar to each remaining lease term.

We have elected the package of practical expedients permitted under the transition guidance which includes the ability to carryforward the previously determined lease classification (operating or financing), forgo the assessment whether active contracts contain a lease, and whether capitalized costs associated with a lease meet the definition of "initial direct costs" as defined within Topic 842. In the event that any of our leases contain nonlease components, we have elected the practical expedient to account for each separate lease component and the associated nonlease component(s) as a single lease component. We have also elected the accounting policy to forgo applying the guidance of Topic 842 to short term leases (defined as a term of 12 month or less, without a purchase option which we are reasonably certain to exercise).

As of December 31, 2019, we have one additional operating lease for the extension of the office space at our India Development Center which has not yet commenced. In relation to this lease, we anticipate approximately $2.5 million and $2.5 million of ROU assets and lease liabilities, respectively. The operating lease commences during January 2020. We do not have any related party leases or sublease arrangements. We have variable payments for expenses such as common area maintenance and taxes. We do not have variable payments that are based on an index or rate. As a result, we do not include variable payments in the calculation of the lease liability. Any variable lease costs are expensed as incurred.

The components of lease expenses for the three and nine months ended December 31, 2019 were as follows:

	Three Months Ended		Nine Months Ended
(in thousands)	December 31, 2019
Operating leases expense	$	1,001	$	3,017
Finance lease expense:
Amortization of ROU assets		6		17
Interest on lease liabilities		2		4
Total finance lease expense		8		21
Variable lease costs		60		197
Short term lease expense		22		72
Total lease expense	$	1,091	$	3,307

Other information related to leases for the nine months ended December 31, 2019 was as follows:

	Nine Months Ended
Supplemental cash flow information	December 31, 2019
Cash paid for amounts included in the measurement of lease    liabilities (in thousands):
Operating cash flows for operating leases	$	3,560
Operating cash flows for finance leases		9
Financing cash flows for finance leases		18
ROU assets obtained in exchange for lease obligations (in thousands):
Operating leases	$	185
Finance leases		11
Weighted average remaining lease terms
Operating leases		5.26
Finance leases		2.37
Weighted average discount rates
Operating leases		10.04	%
Finance leases		4.37	%

The table below reconciles the undiscounted future minimum lease payments (displayed by year and in the aggregate) under non-cancelable leases with terms of more than one year to the total lease liabilities recognized on the condensed consolidated balance sheet as of December 31, 2019:

(in thousands)	Operating leases			Finance leases
2020 (excluding the nine months ended December 31, 2019)	$	1,086		$	7
2021		4,390			29
2022		3,623			21
2023		2,244			5
2024		2,049			3
Thereafter		5,719			—
Total undiscounted future minimum lease payments		19,111			65
Less: difference between undiscounted lease payments and discounted lease liabilities		(5,076	)		(10	)
Total lease liabilities	$	14,035		$	55

As previously disclosed on our March 31, 2019 Form 10-K and under the previous lease accounting standard, future minimum lease payments under non-cancelable leases as of March 31, 2019 were as follows:

Year ending (in thousands)	Operating leases		Finance leases
2020	$	4,143	$	27
2021		3,945		23
2022		3,166		15
2023		1,916		—
2024		1,770		—
Thereafter		4,497		—
Total lease payments		19,437		65
Less: Amounts representing interest		—		(8	)
Present value of lease liabilities	$	19,437	$	57

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Intangible Assets and Software Development Costs (Details Textual) - USD ($)	3 Months Ended		9 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2019	Dec. 31, 2018
Finite-Lived Intangible Assets [Line Items]
Amortization of developed technology	$ 3,100,000	$ 3,400,000	$ 9,432,000	$ 9,357,000
Capitalized Software Development Costs	0		0	2,000,000
Developed Technology Internal [Member]
Finite-Lived Intangible Assets [Line Items]
Amortization of Intangible Assets	$ 11,500	$ 11,500	$ 34,500	$ 34,500

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Leases - Other Information (Details) $ in Thousands	9 Months Ended
	Dec. 31, 2019 USD ($)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$ 3,560
Operating cash flows for finance leases	9
Financing cash flows for finance leases	18
ROU assets obtained in exchange for lease obligations:
Operating leases	185
Finance leases	$ 11
Weighted average remaining lease terms
Operating leases	5 years 3 months 3 days
Finance leases	2 years 4 months 13 days
Weighted average discount rates
Operating leases	10.04%
Finance leases	4.37%

XML

Loss per Share (Details Textual) - shares	9 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Earnings Per Share [Abstract]
Incremental common shares attributable to restricted shares (in shares)	416,960	482,846

XML

Loss Per Share

9 Months Ended

Dec. 31, 2019

Earnings Per Share [Abstract]

Loss Per Share

9. Loss per Share

The following data shows the amounts used in computing (loss) per share and the effect on earnings and the weighted average number of shares of dilutive potential common shares.

	Three Months Ended December 31,						Nine Months Ended December 31,
(In thousands, except per share data)	2019			2018			2019			2018
Numerator:
Net loss	$	(2,582	)	$	(4,048	)	$	(7,075	)	$	(9,575	)
Denominator:
Weighted average shares outstanding		23,240			23,048			23,230			23,030
Loss per share - basic and diluted:
Loss per share	$	(0.11	)	$	(0.18	)	$	(0.30	)	$	(0.42	)
Anti-dilutive stock options, SSARs, restricted shares and    performance shares		1,469			1,471			1,414			1,443

Basic loss per share is computed as net income available to common shareholders divided by the weighted average basic shares outstanding. The outstanding shares used to calculate the weighted average basic shares excludes 416,960 and 482,846 of restricted shares at December 31, 2019 and 2018, respectively, as these shares were issued but were not vested and therefore, not considered outstanding for purposes of computing basic loss per share at the balance sheet dates.

Diluted loss per share includes the effect of all potentially dilutive securities on earnings per share. We have stock options, stock-settled appreciation rights ("SSARs"), unvested restricted shares and unvested performance shares that are potentially dilutive securities. When a loss is reported, the denominator of diluted earnings per share cannot be adjusted for the dilutive impact of share-based compensation awards because doing so would be anti-dilutive. Therefore, for all periods presented, basic weighted average shares outstanding were used in calculating the diluted net loss per share.

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Additional Balance Sheet Information

9 Months Ended

Dec. 31, 2019

Balance Sheet Related Disclosures [Abstract]

Additional Balance Sheet Information

5. Additional Balance Sheet Information

Additional information related to the condensed consolidated balance sheets is as follows:

	December 31, 2019		March 31, 2019
Accrued liabilities:
Salaries, wages, and related benefits	$	10,438	$	12,755
Other taxes payable		1,231		1,041
Accrued legal settlements		—		15
Severance liabilities		86		46
Professional fees		127		67
Deferred rent		—		273
Other		600		521
Total	$	12,482	$	14,718
Other non-current liabilities:
Uncertain tax positions	$	1,097	$	1,083
Deferred rent and asset retirement obligations		165		2,613
Employee benefit obligations		279		174
Other		76		76
Total	$	1,617	$	3,946

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Share-based Compensation (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2019	Dec. 31, 2018
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Share-based Payment Arrangement, Noncash Expense	$ 1,329	$ 1,282	$ 3,156	$ 2,956
Product development [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Summary of share-based compensation expense for options	639	509	1,579	938
Selling and marketing [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Summary of share-based compensation expense for options	104	136	217	335
General and administrative [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Summary of share-based compensation expense for options	$ 586	$ 637	$ 1,360	$ 1,683

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Fair Value Measurements (Details 1) - Cash Surrender Value [Member] - USD ($) $ in Thousands	9 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Balance at beginning of period	$ 895	$ 853
Unrealized loss relating to instruments held at reporting date	(11)	(12)
Purchases, sales, issuances and settlements, net	26	27
Balance at end of period	$ 910	$ 868

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Revenue Recognition - Narrative (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2019	Dec. 31, 2018
Disaggregation of Revenue [Line Items]
Total net revenue	$ 41,987	$ 36,014	$ 121,099	$ 104,224
Revenue recognized	8,600	7,600	34,600	28,100
Transfers to accounts receivable	200	400	2,700	3,800
Capitalized contract cost, net	3,300		3,300
Capitalized Contract Cost, Amortization	300	300	1,000	800
Sales Commissions and Fees	1,300	1,300	3,500	3,100
Products
Disaggregation of Revenue [Line Items]
Total net revenue	12,126	10,232	34,868	28,081
Support, Maintenance, Subscription Services, And Professional Services [Member]
Disaggregation of Revenue [Line Items]
Total net revenue	$ 29,900	$ 25,800	$ 86,200	$ 76,100

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Loss per Share (Tables)

9 Months Ended

Dec. 31, 2019

Earnings Per Share [Abstract]

Schedule of amounts used in computing loss per share and the effect on earnings and the weighted average number of shares of dilutive potential common shares

The following data shows the amounts used in computing (loss) per share and the effect on earnings and the weighted average number of shares of dilutive potential common shares.

	Three Months Ended December 31,						Nine Months Ended December 31,
(In thousands, except per share data)	2019			2018			2019			2018
Numerator:
Net loss	$	(2,582	)	$	(4,048	)	$	(7,075	)	$	(9,575	)
Denominator:
Weighted average shares outstanding		23,240			23,048			23,230			23,030
Loss per share - basic and diluted:
Loss per share	$	(0.11	)	$	(0.18	)	$	(0.30	)	$	(0.42	)
Anti-dilutive stock options, SSARs, restricted shares and    performance shares		1,469			1,471			1,414			1,443

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Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Dec. 31, 2019	Mar. 31, 2019
Current assets:
Cash and cash equivalents	$ 41,905	$ 40,771
Accounts receivable, net of allowance for doubtful accounts of $593 and $788, respectively	29,794	27,000
Contract assets	3,962	2,921
Inventories	1,856	2,044
Prepaid expenses and other current assets	6,796	6,272
Total current assets	84,313	79,008
Property and equipment, net	14,849	15,838
Operating lease right-of-use assets	12,044
Goodwill	19,622	19,622
Intangible assets, net	8,404	8,438
Software development costs, net	25,135	34,567
Deferred income taxes, non-current	753	443
Other non-current assets	6,708	5,675
Total assets	171,828	163,591
Current liabilities:
Accounts payable	10,454	4,718
Contract liabilities	35,374	38,669
Accrued liabilities	12,482	14,718
Operating lease liabilities, current	4,235
Finance lease obligations, current	24	22
Total current liabilities	62,569	58,127
Deferred income taxes, non-current	875	861
Operating lease liabilities, non-current	9,800
Finance lease obligations, non-current	31	35
Other non-current liabilities	1,617	3,946
Commitments and contingencies (see Note 8)
Shareholders' equity:
Common shares, without par value, at $0.30 stated value; 80,000,000 shares authorized; 31,606,831 shares issued; and 23,656,891 and 23,501,450 shares outstanding at December 31, 2019 and March 31, 2019, respectively	9,482	9,482
Treasury shares, 7,949,940 and 8,105,381 at December 31, 2019 and March 31, 2019, respectively	(2,387)	(2,433)
Capital in excess of stated value	4,094	781
Retained earnings	85,976	93,051
Accumulated other comprehensive loss	(229)	(259)
Total shareholders' equity	96,936	100,622
Total liabilities and shareholders' equity	$ 171,828	$ 163,591

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Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2019	Dec. 31, 2018
Operating activities
Net loss	$ (2,582)	$ (4,048)	$ (7,075)	$ (9,575)
Adjustments to reconcile loss from operations to net cash provided by operating activities
Net restructuring, severance and other charges			40	(268)
Net legal settlements			(15)
Loss on disposal of property & equipment			(5)
Depreciation	854	651	1,774	1,933
Amortization	608	675	1,900	1,892
Amortization of developed technology	3,100	3,400	9,432	9,357
Deferred income taxes			(313)	44
Share-based compensation	1,329	1,282	3,156	2,956
Change in cash surrender value of company owned life insurance policies			11	12
Changes in operating assets and liabilities:			(3,632)	(4,632)
Net cash provided by operating activities			5,273	1,719
Investing activities
Capital expenditures			(3,009)	(1,610)
Capitalized software development costs				(2,189)
Investments in corporate-owned life insurance policies			(26)	(27)
Net cash used in investing activities			(3,035)	(3,826)
Financing activities
Repurchase of common shares to satisfy employee tax withholding			(1,053)	(612)
Principal payments under long-term obligations			(18)	(90)
Net cash used in financing activities			(1,071)	(702)
Effect of exchange rate changes on cash			(33)	(139)
Net increase (decrease) in cash and cash equivalents			1,134	(2,948)
Cash and cash equivalents at beginning of period			40,771	39,943
Cash and cash equivalents at end of period	$ 41,905	$ 36,995	41,905	36,995
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES:
Accrued capital expenditures			$ 48	$ 31

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Intangible Assets and Software Development Costs (Tables)

9 Months Ended

Dec. 31, 2019

Goodwill And Intangible Assets Disclosure [Abstract]

Schedule of intangible assets

The following table summarizes our intangible assets and software development costs:

	December 31, 2019							March 31, 2019
	Gross					Net		Gross					Net
	carrying		Accumulated			carrying		carrying		Accumulated			carrying
Intangible assets (In thousands)	amount		amortization			amount		amount		amortization			amount
Amortized intangible assets:
Customer relationships	$	10,775	$	(10,775	)	$	—	$	10,775	$	(10,775	)	$	—
Non-competition agreements		2,700		(2,700	)		—		2,700		(2,700	)		—
Developed technology		10,398		(10,398	)		—		10,398		(10,398	)		—
Trade names		230		(226	)		4		230		(192	)		38
Patented technology		80		(80	)		—		80		(80	)		—
		24,183		(24,179	)		4		24,183		(24,145	)		38
Unamortized intangible assets:
Trade names		8,400	N/A				8,400		8,400	N/A				8,400
Total intangible assets	$	32,583	$	(24,179	)	$	8,404	$	32,583	$	(24,145	)	$	8,438
Software development costs (In thousands)
Total software development costs	$	67,541	$	(42,406	)	$	25,135	$	67,541	$	(32,974	)	$	34,567

Schedule of remaining estimated amortization expense

The following table summarizes our remaining amortization expense relating to in service intangible assets and software development costs.

	Remaining
	Amortization
(In thousands)	Expense
Fiscal year ending March 31,
2020	$	3,132
2021		12,515
2022		5,403
2023		3,399
2024		690
Total	$	25,139