| High conviction ideas by Small & Micro Cap portfolio managers
Agilysys: Significant percentage in MAK Capital’s portfolio and signs of moat
M.Cap: $580 million
Agilysys has been a leader in hospitality software for more than 40 years, delivering innovative guest-centric technology solutions for gaming, hotels, resorts and cruise, corporate foodservice management, restaurants, universities, stadia and healthcare.
1. MAK Capital
Mr. Kaufman is the founder and president of MAK Capital, a New York hedge fund.
- MAK runs an ultra-concentrated portfolio with just five stocks.
- Agilysis is the second largest position, and accounts for roughly 25% of its portfolio.
MAK Capital currently holds approximately 10% of o/s shares of Agilysys.
2. Sign of moat
Generally speaking, SaaS customers face huge switching costs – (a) risk of data loss from migration from one platform to another platform; and (b) the learning curve involved with learning a new platform.
Over the past few years, the company has shifted from the legacy business model (license and maintenance) to the SaaS model.
As per the investor presentation filed in August 2019, recurring revenue accounts for 53% of total revenue; out of the total recurring revenue, 34% is generated from a subscription revenue model.
Moreover, the company noted that their renewal rate is 95% and its average customer relationship is ~10 years (as per IR presentation, 2017).
A huge and growing recurring revenue and a high renewal rate gives a solid impression that the company enjoys a significant competitive advantage.
3. Achievements of the new management
a) Significant management shakeup in 2017
Seven out of nine top executives were appointed after January 2017.
CEO – January 2017; CFO (June 2017); Corporate Controller (June 2017); CTO (April 2018); SVP, Sales, Americas (January 2018); VP, Marketing (March 2018); VP, Customer Support (September 2017); VP, India (March 2017)
b) Achievements of the new management team, as highlighted by the company:
- Seven consecutive quarters of sequential revenue growth
- Five consecutive quarters of record revenue
- 16 quarters of double-digit SaaS revenue growth
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