Agilysys Reports Unaudited Fiscal 2007 Fourth-Quarter and Full-Year Results Reflecting Divestiture of Distribution Business

BOCA RATON, Fla., May 25 /PRNewswire-FirstCall/ -- Agilysys, Inc. (NASDAQ:AGYS), a leading provider of IT solutions, today announced fiscal 2007 unaudited fourth-quarter and full-year results for the periods ended March 31, 2007.

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Strategic Transformation

As previously announced, on March 31, 2007 Agilysys closed the sale of its KeyLink Systems Distribution Business assets to Arrow Electronics, Inc. for $485 million in cash, subject to a working capital adjustment, to focus exclusively on growing its IT solutions business. For purposes of financial reporting, this business is now treated as discontinued operations in the accompanying unaudited condensed financial statements.

Over the last six months, in addition to the divestiture of KeyLink Systems, Agilysys has announced three acquisitions. These include Visual One Systems, a leading developer and marketer of Microsoft(R) Windows(R)-based software for the hospitality industry; Stack Computer, a premier technology integrator with a strong focus in high availability storage infrastructure solutions; and, as announced in a separate news release today, an agreement to acquire Innovativ Systems Design, Inc., the largest U.S. commercial reseller of Sun Microsystems servers and storage products.

Arthur Rhein, chairman, president and chief executive officer of Agilysys, said, "I am extremely pleased with our progress. We have completed our transformation to a business focused solely on selling IT solutions direct to end customers. In addition, we continue to execute our strategic plan, including accelerating growth through acquisitions as a solution provider."

Acquisition of Innovativ

Agilysys announced today that it has entered a definitive agreement to acquire Innovativ Systems Design.

Innovativ is an integrator and value-added reseller of servers, enterprise storage management products and professional services, and has a strong financial services and telecommunications industry presence. This acquisition will further diversify Agilysys' supplier mix, establish new markets and broaden Agilysys' customer base. Through the addition of Sun, the acquisition will also expand Agilysys' offerings to now include four of the most pervasive computer technology suppliers: EMC, HP, IBM and Sun. Over the trailing 12 months ended March 31, 2007, Innovativ generated revenues of approximately $256 million and earnings before interest, taxes, depreciation and amortization ("EBITDA") in excess of $20 million.

Acquisition of Stack Computer

On April 2, 2007, Agilysys announced the acquisition of Stack Computer, a privately held technology integrator with a strong focus in EMC-based high availability storage infrastructure solutions. Stack's customers include leading corporations in the financial services, healthcare and manufacturing industries. Strategically, the acquisition provides Agilysys with product solutions and services offerings that significantly enhance its storage and professional services businesses. Stack has annual revenues of approximately $55 million. Stack's product category sales mix consists of approximately 62% hardware, 27% software and 11% services.

Rhein added, "I believe our financial performance, over the last six months in particular, given the level of activity around the divestiture and multiple acquisitions, is quite impressive. This bodes well for the future as we narrow our focus on growing the business and continue to provide increased shareholder value."

Continuing Operations

The descriptions for fourth-quarter and full-year results reflect financial information for Agilysys continuing operations.

Fiscal 2007 Fourth Quarter: Results from Continuing Operations

Sales for the fourth quarter increased 3% to $118.1 million, compared with $115.1 million in the fourth quarter of fiscal 2006.

Fiscal 2007 fourth-quarter sales of hardware products were $87.7 million. Software sales were $7.8 million. Services sales were $22.6 million.

Gross margin from continuing operations for the fourth quarter increased to 27.0% of sales from 22.3% for the fourth quarter of fiscal 2006.

Selling, general and administrative (SG&A) expenses from continuing operations for the fourth quarter of fiscal 2007 were $37.4 million, or 31.7% of sales, compared with $34.4 million, or 29.9% of sales in the same quarter a year ago. Fiscal 2007 fourth-quarter SG&A expenses include approximately $900,000 related to the company's acquisition of Visual One Systems as well as legacy overhead costs associated with discontinued operations. Agilysys will realize cost savings in fiscal 2008 based on restructuring of the business.

Loss from continuing operations for the fourth quarter improved $1.0 million to $6.6 million, or 21 cents per share, compared with $7.6 million, or 25 cents per share in the same quarter a year ago.

Fiscal 2007 Full Year: Results from Continuing Operations

For the fiscal year ended March 31, 2007, sales were $474.6 million, an increase of 1.2% over the $469.0 million in sales reported for the prior year.

Full-year sales of hardware products were $348.5 million. Software sales were $33.3 million. Services sales were $92.8 million.

Gross margin was 25.4% of sales, up 2.6 percentage points, from 22.8% in fiscal 2006. SG&A expenses increased to 28.1% of sales, from 26.2% in the prior year. SG&A expenses include legacy overhead costs associated with discontinued operations.

Loss from continuing operations for the fiscal year improved $9.1 million to $11.6 million, or $0.38 per share, compared with a net loss from continuing operations in the previous year of $20.7 million, or $0.69 per share.

Restructuring Credit

Agilysys reported a net $2.5 million restructuring credit for fiscal 2007 fourth-quarter and full-year results. This included a $4.9 million credit resulting from the reversal of a previous charge related to 2003 facility exit costs. The credit was partially offset by a restructuring charge of $2.4 million for severance and facility exit costs.

Business Outlook

In January 2007, upon announcing its intention to focus exclusively on selling IT solutions to corporate and public-sector customers, Agilysys established several long-term financial goals, including:

    -- Grow sales from approximately $500 million to $1 billion within two
       years and to $1.5 billion in three years;
    -- Target gross margins in excess of 20% and EBITDA margins of 6% within
       three years;
    -- While in the near term return on invested capital will be diluted due
       to acquisitions and legacy costs, the company continues to target long-
       term return on capital of 15%.

Rhein said, "Following the close of Innovativ and including the recent acquisition of Stack Computer, Agilysys will have pro forma revenues in excess of $800 million, well ahead of our initial expectations."

For fiscal 2008, the company currently estimates sales to be in the range of $770 million to $790 million. Full-year gross margin is expected to be approximately 23% of sales, with EBITDA margins of approximately 2% to 3% of sales.

Selling, general and administrative expenses are anticipated to be in the range of $170 million to $173 million, including stock option expense of $4.8 million and approximately $6 million in new investments in software development and additional customer-facing employees. Interest income is expected to be approximately $17 million and the company anticipates an effective tax rate of approximately 41.5% for the fiscal year. Based on an estimated 32 million shares outstanding, EPS is expected to be in the range of $0.40 to $0.50 per share.

Agilysys also expects fiscal 2008 capital expenditures of approximately $5 million and depreciation and amortization of approximately $12 million, subject to finalizing FAS 142 intangible asset analysis on Visual One, Stack and Innovativ.

Conference Call Information

A conference call to discuss the quarterly and full-year results is scheduled for 11 a.m. ET on Friday, May 25, 2007. The conference call will be broadcast live over the Internet and a replay will be accessible on the investor relations page of the company's Web site: www.agilysys.com. A taped replay of the conference call will be available at 2 p.m. ET on Friday, May 25, 2007, through midnight ET on Friday, June 8, 2007, accessible by dialing (877) 344-7529 or (412) 317-0088 (passcode #405938).

Forward-Looking Language

Portions of this release, particularly the statements made by management and those that are not historical facts, are forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on current assumptions and expectations, and are subject to risks and uncertainties, many of which are beyond the control of Agilysys. Many factors could cause Agilysys actual results to differ materially from those anticipated by the forward- looking statements. These factors include those referenced in the Annual Report on Form 10-K or as may be described from time to time in Agilysys subsequent SEC filings.

Potential factors that could cause actual results to differ materially from those expressed or implied by such statements include, but are not limited to, those relating to Agilysys long-term financial goals, anticipated revenue gains, sales volume, margin improvements, cost savings, capital expenditures, depreciation and amortization, and new product introductions.

Other associated risks include geographic factors, political and economic risks, the actions of Agilysys competitors, changes in economic or industry conditions or in the markets served by Agilysys, and the ability to appropriately integrate and derive performance from acquisitions, strategic alliances, and joint ventures.

In addition, this release contains time-sensitive information and reflects management's best analysis only as of the date of this release. Agilysys does not undertake any obligation to publicly update or revise any forward-looking statements to reflect future events, information or circumstances that arise after the date of this release. Information on the potential factors that could affect Agilysys actual results of operations is included in its filings with the Securities and Exchange Commission, including, but not limited to, its Annual Report on Form 10-K for the fiscal year ended March 31, 2006. Interested persons can obtain it free at the Securities and Exchange Commission's Web site, www.sec.gov.

About Agilysys

Agilysys is a leading provider of innovative IT solutions to corporate and public-sector customers, with special expertise in select vertical markets, including retail and hospitality. The company uses technology -- including hardware, software and services -- to help customers resolve their most complicated IT needs. The company possesses expertise in enterprise architecture and high availability, infrastructure optimization, storage and resource management, and business continuity; and provides industry-specific software, services and expertise to the retail and hospitality markets. Headquartered in Boca Raton, Fla., Agilysys operates extensively throughout North America, with additional sales offices in the United Kingdom and China.



                                AGILYSYS, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (Unaudited)

                                                  Three Months Ended March 31
    (In thousands, except share and per              2007              2006
     share data)

    Net sales                                     $118,093          $115,092
    Cost of goods sold                              86,162            89,410
     Gross margin                                   31,931            25,682
    Operating expenses
     Selling, general and administrative
      expenses                                      37,431            34,413
     Restructuring (credits) charges                (2,576)              216
      Operating loss                                (2,924)           (8,947)
    Other (income) expense
     Other expense (income), net                     4,803              (753)
     Interest (income) expense, net                   (659)              386
     Loss on redemption of Mandatorily
      Redeemable Convertible Trust
      Preferred Securities                             -                 -
    Loss before income taxes                        (7,068)           (8,580)
    Provision for income taxes                        (517)             (981)
    Distributions on Mandatorily
     Redeemable Convertible Trust Preferred
     Securities, net of taxes                          -                 -
    Loss from continuing operations                 (6,551)           (7,599)
    Discontinued operations
     Income from operations of
      discontinued components, net of
      taxes                                         11,311            13,579
     Gain on disposal of discontinued
      component, net of taxes                      195,952               -
        Income from discontinued operations        207,263            13,579
    Net income                                    $200,712            $5,980

    Earnings per share - basic and diluted
     Loss from continuing operations                $(0.21)           $(0.25)
     Income from discontinued operations              6.67              0.45
     Net income                                      $6.46             $0.20

    Weighted average shares outstanding -
     basic and diluted                          31,052,584        30,357,151



                                 AGILYSYS, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (Unaudited)

                                                       Year Ended March 31
    (In thousands, except share and per              2007              2006
     share data)

    Net sales                                     $474,570          $468,984
    Cost of goods sold                             353,863           362,015
     Gross margin                                  120,707           106,969
    Operating expenses
     Selling, general and administrative
     expenses                                      133,185           123,058
     Restructuring (credits) charges                (2,531)            5,337
      Operating loss                                (9,947)          (21,426)
    Other (income) expense
     Other expense (income), net                     6,025            (1,094)
     Interest (income) expense, net                 (2,402)            1,618
     Loss on redemption of Mandatorily
      Redeemable Convertible Trust
      Preferred Securities                             -               4,811
    Loss before income taxes                       (13,570)          (26,761)
    Provision for income taxes                      (1,935)           (6,966)
    Distributions on Mandatorily
     Redeemable Convertible Trust Preferred
     Securities, net of taxes                          -                 949
    Loss from continuing operations                (11,635)          (20,744)
    Discontinued operations
     Income from operations of
      discontinued components, net of
      taxes                                         48,761            48,858
     Gain on disposal of discontinued
      component, net of taxes                      195,729               -
      Income from discontinued operations          244,490            48,858
    Net income                                    $232,855           $28,114

    Earnings per share - basic and diluted
     Loss from continuing operations                $(0.38)           $(0.69)
     Income from discontinued operations              7.97              1.63
     Net income                                      $7.59             $0.94

    Weighted average shares outstanding -
     basic and diluted                          30,683,766        29,935,200




                                 AGILYSYS, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEET
                                  (Unaudited)

                                                            March 31
    (In thousands)                                   2007              2006
    ASSETS
    Current assets
     Cash and cash equivalents                    $604,667          $147,850
     Accounts receivable, net                      116,735           111,903
     Inventory, net                                  9,922            10,045
     Deferred income taxes                           3,092             6,019
     Prepaid expenses and other current
      assets                                         3,494             2,178
     Assets of discontinued operations -
      current                                          206           205,077
      Total current assets                         738,116           483,072
    Goodwill                                        93,197            82,580
    Intangible assets, net                           8,716            11,854
    Investments in affiliated companies             11,231            18,821
    Other non-current assets                        30,701            25,736
    Property and equipment, net                     17,279            16,351
    Assets of discontinued operations -
     noncurrent                                        -             123,925
     Total assets                                 $899,240          $762,339

    LIABILITIES AND SHAREHOLDERS' EQUITY
    Current liabilities
     Accounts payable                              $84,286           $54,152
     Income taxes payable                          134,607             3,690
     Accrued liabilities                            32,189            36,466
     Current portion of long-term debt                 116            59,587
     Liabilities of discontinued
      operations - current                             162           186,297
      Total current liabilities                    251,360           340,192
    Other long-term liabilities                     20,813            20,755
    Liabilities of discontinued
     operations - noncurrent                           223            16,216
    Shareholders' equity                           626,844           385,176
     Total liabilities and shareholders'
      equity                                      $899,240          $762,339



                                AGILYSYS, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
                                 (Unaudited)

                                                      Year Ended March 31
    (In thousands)                                   2007              2006
    Operating activities:
     Net income                                   $232,855           $28,114
     Less: Income from discontinued
      operations                                  (244,490)          (48,858)
      Loss from continuing operations              (11,635)          (20,744)
    Adjustments to reconcile loss from
     continuing operations to net cash
     provided by (used for) operating
     activities (net of effects from
     business acquisitions):
     Investment impairment                           5,892               -
     Gain on redemption of investment by
      affiliated company                               -                (622)
     Loss on redemption of
      Preferred Securities                             -               4,811
     Loss on disposal of plant and equipment         1,501               302
     Depreciation                                    1,565             1,822
     Amortization                                    6,928             7,572
     Deferred income taxes                             661            (3,469)
     Stock based compensation                        3,619               -
     Excess tax benefit from exercise of
      stock options                                 (1,854)              -
     Changes in working capital:
      Accounts receivable                           (3,939)          (15,344)
      Inventory                                        122             1,165
      Accounts payable                              30,136            (8,873)
      Accrued liabilities                          124,705             3,479
      Other working capital                         (1,316)            4,752
     Other                                          (2,908)             (435)
      Total adjustments                            165,112            (4,840)
    Net cash provided by (used for)
     operating activities                          153,477           (25,584)

    Investing activities:
     Proceeds from sale of investment in
      affiliated company                               -                 788
     Purchase of marketable securities                 -              (6,822)
     Proceeds from sale of business                485,000               -
     Acquisition of business, net of cash
      acquired                                     (10,613)          (27,964)
     Purchases of property and equipment            (6,250)           (3,252)
     Proceeds from escrow settlement                   423               -
    Net cash provided by (used for)
     investing activities                          468,560           (37,250)

    Financing activities:
     Redemption of Preferred Securities                -            (107,536)
     Principal payment under long-term
      obligations                                  (59,567)             (286)
     Issuance of common shares                      10,107             5,442
     Excess tax benefit from exercise of
      stock options                                  1,854               -
     Dividends paid                                 (3,675)           (3,608)
    Net cash used for financing                    (51,281)         (105,988)

    Effect of exchange rate changes on
     cash                                              (97)              367

    Cash flows provided by (used for)
     continuing operations                         570,659          (168,455)
    Cash flows (used for) provided by
     discontinued operations                      (113,842)           74,425
    Net increase (decrease) in cash                456,817           (94,030)
    Cash at beginning of year                      147,850           241,880
    Cash at end of year                           $604,667          $147,850

Source: Agilysys, Inc.

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