BOCA RATON, Fla., Nov. 1 /PRNewswire-FirstCall/ -- Agilysys, Inc. (NASDAQ:AGYS), a leading provider of innovative IT solutions, today announced fiscal 2008 unaudited second-quarter results for the period ended September 30, 2007.
Second-Quarter Results of Operations
Sales for the second quarter increased 100% to $196.2 million, compared with $97.9 million in the second quarter of fiscal 2007. Growth in the base business contributed $18.3 million or 18.6% of the sales increase for the quarter, representing an increase of 18.7% compared with last year. Revenue from acquisitions contributed $80.0 million, or 81.4%, of the increase.
Fiscal 2008 second-quarter sales of hardware products increased 125.9% to $146.9 million. Software sales increased 131.8% to $14.6 million, and services revenue increased 30.5% to $34.7 million.
Gross margin for the second quarter was $42.8 million, or 21.8% of sales, compared with $24.5 million, or 25.0% of sales, for the second quarter of fiscal 2007. The decline in gross margin percentage was due to the change in customers and the resulting product mix in the quarter compared with the year- ago quarter.
Selling, general and administrative (SG&A) expenses for the second quarter were in line with the company's expectations at $46.4 million, or 23.6% of sales, compared with $31.5 million, or 32.2% of sales, in the same quarter a year ago. The $14.8 million increase in SG&A expenses was due to the company's recent acquisitions, including $14.3 million of incremental operating expenses and $0.3 million of one-time expenses.
Net interest income for the second quarter was $3.5 million compared with $0.6 million in the same period last year. The improvement was due to the company's significantly higher cash position as a result of the sale of the KeyLink Systems Distribution Business, and lower average debt levels compared with last year.
Income from continuing operations for the second quarter was $1.4 million, or $0.05 per share, compared with a loss from continuing operations of $4.8 million, or a loss of $0.16 per share, for the second quarter last year. Net income for the second quarter was $3.4 million compared with $5.5 million last year. Last year's second-quarter net income includes $10.3 million from discontinued operations of the distribution business, which the company divested earlier this year.
EBITDA from continuing operations (earnings before interest, taxes, depreciation, amortization, and results of discontinued operations) was a loss of $0.5 million for the current quarter, compared with a loss of $5.1 million last year. (NOTE: A reconciliation of net earnings to EBITDA is provided in the financial tables included in this release. This financial measure of profitability is included to supplement the unaudited condensed consolidated financial statements presented in accordance with generally accepted accounting principles ("GAAP") in this press release. See the "Use of Non- GAAP Financial Information" section in this release for further information.)
Arthur Rhein, chairman, president and chief executive officer of Agilysys, said, "I am extremely pleased with the progress we have made both strategically and tactically. The substantial growth in our revenues this quarter was the result of our organic business outperforming the market, and the full-quarter contributions of our newly acquired businesses. SG&A as a percent of net sales has declined significantly from a year ago, further demonstrating our ability to improve our operating leverage."
Six-Month Results of Operations
For the six months ended September 30, 2007, sales were $324.6 million, a 58.3% increase compared with sales of $205.0 million reported for the comparable period last year. Organic growth accounted for $27.6 million, or 23.1%, of the increase in sales, representing a 13.5% increase as compared with last year. Incremental sales from the company's recent acquisitions accounted for $92.0 million, or 76.9%, of the increase.
First-half sales of hardware products were $237.9 million, up 69.0% from $140.8 million in the first half of last year. Software sales were $27.0 million, up 94.5% from $13.9 million a year ago. Services revenue was $59.7 million, up 18.5% from $50.4 million in last year's first six months.
Gross margin for the first half was 23.1% of sales, compared with 26.0% in the prior year. Selling, general and administrative expenses were $84.0 million, or 25.9% of sales, for the first half, compared with $62.9 million, or 30.7%, in the prior year.
The company recorded income from continuing operations for the first six months of $4.1 million, or $0.13 per share, compared with $7.6 million, or $0.25 per share, for the same period a year ago. Net income for the first six months, including discontinued operations, was $6.0 million compared with $12.2 million a year ago.
"Our current performance, including our successful acquisition integrations and strong cash position, certainly bodes well as we continue to execute our strategy, and we are on target to meet or exceed our stated goals," said Rhein.
Acquisition of Innovativ Completed
On July 2, 2007, Agilysys completed its most recent acquisition of Innovativ Systems Design, Inc., a privately held integrator and value-added reseller of servers, enterprise storage management products and professional services. Innovativ is the largest U.S. commercial reseller of Sun Microsystems servers and storage products. With the company's Sun relationship and strong presence in financial services and telecommunications, the acquisition further diversifies Agilysys' supplier mix, establishes new markets and broadens the company's customer base.
Innovativ's accounting policies have been conformed to Agilysys' current practices, which are in accordance with U.S. GAAP. The primary change in Innovativ's accounting policies relates to revenues generated from the sale of third-party service contracts which now reflect "commission" received (equal to the selling price less the cost of sale), rather than the full amount of the selling price with separate reporting of the cost of sale. Although conformity of this accounting policy results in a reduction of net sales, there is no impact on gross profit or operating results. Gross revenues for Innovativ were previously reported at approximately $256 million. With the adjustment for services, revenues were $224 million. The impact of the adjustment has been reflected in Agilysys' revenue guidance for fiscal 2008.
Balance Sheet and Treasury Highlights
Cash and cash equivalents were $167.8 million compared with $604.7 million at March 31, 2007. For the first six months of fiscal 2008, the company used cash for income tax payments of $127.8 million related to the operating results and gain on the sale of the KeyLink Systems Distribution Business, along with a $10.8 million working capital adjustment (of which $10.0 million was accrued at year-end) and $13.2 million in fees and contingencies, all as a result of the sale. In addition, the company paid $212.8 million for the acquisitions of Innovativ, Stack Computer and InfoGenesis, and $86.1 million for the purchase of treasury shares through its self-tender offer in the second quarter. Excluding taxes and transaction expenses associated with the divestiture of KeyLink Systems, the company generated $8.5 million in cash flow from operations for the first six months of fiscal 2008.
As of September 30, 2007, accounts receivable were $172.2 million, an increase of 47.5%, or $55.4 million, compared with $116.7 million at March 31, 2007. Inventory was $16.5 million at September 30, 2007, compared with $9.9 million at March 31, 2007. Accounts payable of $119.8 million increased 42% from $84.3 million at March 31, 2007. For the first six months of fiscal 2008, the increases in receivables, payables and inventory were due to the overall increase in company sales and the impact of recent acquisitions.
Net working capital was 5% of sales in the second quarter of fiscal 2008. This reflects an improvement from 7.7% a year ago, and is in line with the company's goal of keeping working capital at approximately 5% of sales.
On September 26, 2007, Agilysys announced the final results of its "Dutch Auction" tender offer, which expired September 19, 2007. The company accepted for purchase 4,653,287 shares at a price of $18.50 per share, for a total cost of approximately $86.1 million, excluding fees and expenses related to the tender offer. The shares repurchased in the tender offer represented approximately 15% of the company's outstanding shares. Following the tender offer, Agilysys has approximately 26.8 million shares outstanding.
Also, as previously announced, Agilysys has adopted a program to repurchase up to an additional 2,000,000 shares in the open market and has entered into a Rule 10b5-1 Plan to facilitate the repurchase of shares. As of October 26, 2007, 445,602 common shares have been repurchased for approximately $7.6 million under the plan. The company anticipates that the 10b5-1 Plan will be in place for up to one year following the expiration of the tender offer.
As of the fiscal 2008 second quarter, the company is refining guidance to account for half-year performance and the change to Innovativ revenue accounting policies discussed above. Revenue guidance is adjusted to reflect Innovativ services as net versus gross, as previously reported. The impact of this accounting policy adjustment is to reduce sales by approximately $20 million. As a result, annual sales are expected to be in the range of $780 million to $800 million. Full-year gross margin is expected to be approximately 23.5% of sales, with EBITDA margins of approximately 2.5% to 3% of sales.
SG&A expenses are anticipated to be approximately $179 million, including stock option expense of $6.0 million and approximately $6.0 million in new investments in software development and additional customer-facing employees. Interest income is expected to be approximately $13.5 million and the company anticipates an effective tax rate of approximately 41.5% for the fiscal year. Based on an estimated 28.9 million weighted average shares outstanding, earnings per share are expected to remain 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 $15 million, subject to finalizing the intangible asset analysis on the company's recent acquisitions.
The company continues to be on track to achieve its already stated long- term financial goals including:
-- Grow sales to $1 billion within two years of the KeyLink Systems divestiture, and to $1.5 billion in three years; -- Target gross margins in excess of 20% and EBITDA margins of 6% within three years; and -- Continue to target long-term return on capital of 15%.
Conference Call Information
A conference call to discuss second-quarter and year-to-date results is scheduled for 11 a.m. ET on Thursday, November 1, 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 Thursday, November 1, 2007, through midnight ET on Thursday, November 15, 2007, accessible by dialing (877) 344-7529 or (412) 317-0088 (passcode #408990).
Use of Non-GAAP Financial Information
To supplement the unaudited condensed consolidated financial statements presented in accordance with GAAP in this press release, the company uses the non-GAAP financial measure of EBITDA, defined as net income minus interest, taxes, depreciation and amortization. EBITDA is further adjusted to remove the results of discontinued operations to arrive at EBITDA from continuing operations.
Management reviews these non-GAAP financial measures internally to evaluate the company's performance. Additionally, management believes that such information can enhance investors' understanding of the company's ongoing operations. The non-GAAP measures included in this press release have been reconciled to the comparable GAAP measures within the accompanying table, as required under SEC rules regarding the use of non-GAAP financial measures. They should not be considered in isolation or as a substitute for analysis of the company's results as reported under GAAP.
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 Securities and Exchange Commission (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 SEC, including, but not limited to, its Annual Report on Form 10-K for the fiscal year ended March 31, 2007. Interested persons can obtain it free at the SEC's Web site, www.sec.gov.
Agilysys is a leading provider of innovative IT solutions to corporate and public-sector customers, with special expertise in select 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, identity 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 Six Months Ended (In thousands, except share and September 30 September 30 per share data) 2007 2006 2007 2006 Net sales Products $161,507 $71,319 $264,909 $154,640 Services 34,724 26,615 59,685 50,359 Total net sales 196,231 97,934 324,594 204,999 Cost of goods sold Products 146,455 67,557 236,901 140,033 Services 6,963 5,859 12,564 11,699 Total cost of goods sold 153,418 73,416 249,465 151,732 Gross margin 42,813 24,518 75,129 53,267 Operating expenses Selling, general and administrative expenses 46,358 31,520 83,981 62,884 Restructuring charges (credits) 5 (44) 31 (78) Operating loss (3,550) (6,958) (8,883) (9,539) Other expenses (income) Other expense (income), net 260 83 (920) 894 Interest income (3,654) (1,209) (10,651) (2,782) Interest expense 204 574 434 2,018 Income (loss) before income taxes (360) (6,406) 2,254 (9,669) Income tax benefit 1,784 1,598 1,827 2,077 Income (loss) from continuing operations 1,424 (4,808) 4,081 (7,592) Income from discontinued operations, net of taxes of $1,107 and $5,579 in for the three-months ended September 30, 2007 and 2006, respectively and $1,068 and $10,790 for the six-months ended September 30, 2007, and 2006, respectively 2,016 10,300 1,951 19,835 Net income $ 3,440 $ 5,492 $6,032 $12,243 Earnings per share - basic and diluted Income (loss) from continuing operations $0.05 $ (0.16) $0.13 $(0.25) Income from discontinued operations 0.06 0.34 0.06 0.65 Net income $0.11 $0.18 $0.19 $0.40 Weighted average shares outstanding Basic 31,283,478 30,565,749 31,333,014 30,545,366 Diluted 31,915,716 30,565,749 32,106,268 30,545,366 Cash dividends per share $0.03 $0.03 $0.06 $0.06 AGILYSYS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Amounts at September 30, 2007 are unaudited) (In thousands) September 30 March 31 2007 2007 ASSETS Current assets Cash and cash equivalents $167,816 $604,667 Accounts receivable, net 172,171 116,735 Inventories, net 16,480 9,922 Deferred income taxes 3,821 3,092 Prepaid expenses and other current assets 5,464 3,494 Assets of discontinued operations - current 174 206 Total current assets 365,926 738,116 Goodwill 280,785 93,197 Intangible assets, net 29,122 8,716 Investments in affiliated companies 6,903 11,231 Other non-current assets 25,818 30,701 Property and equipment, net 26,231 17,279 Total assets $734,785 $899,240 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable $119,771 $84,286 Income taxes payable - 134,607 Accrued and other current liabilities 38,886 32,305 Liabilities of discontinued operations - current 914 162 Total current liabilities 159,571 251,360 Other non-current liabilities 28,028 20,813 Liabilities of discontinued operations - noncurrent 141 223 Shareholders' equity Common shares 9,366 9,333 Treasury shares (1,397) (10) Capital in excess of stated value 48,626 129,750 Retained earnings 490,695 489,435 Accumulated other comprehensive loss (245) (1,664) Total shareholders' equity 547,045 626,844 Total liabilities and shareholders' equity $734,785 $899,240 AGILYSYS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended September 30 (In thousands) 2007 2006 Operating activities: Net income $6,032 $12,243 Less: Income from discontinued operations (1,951) (19,835) Income (loss) from continuing operations 4,081 (7,592) Adjustments to reconcile income (loss) from continuing operations to net cash provided by (used for) operating activities (net of effects from business acquisitions): Gain on redemption of investment in affiliated company (1,330) - Loss on disposal of property and equipment - 373 Depreciation 1,184 819 Amortization 4,060 3,268 Deferred income taxes (456) 3,464 Stock based compensation 3,219 1,413 Excess tax benefit from exercise of stock options (97) (44) Changes in working capital: Accounts receivable 26,529 29,345 Inventories 3,454 973 Accounts payable (31,746) (14,879) Accrued liabilities (16,362) (9,981) Income taxes payable (134,671) (687) Other changes, net 721 (672) Other non-cash adjustments (1,096) (289) Total adjustments (146,591) 13,103 Net cash (used for) provided by operating activities (142,510) 5,511 Investing activities: Proceeds from redemption of investment in affiliated company 4,770 - Acquisition of businesses, net of cash acquired (212,752) - Proceeds from escrow settlement - 423 Purchase of property and equipment (3,702) (1,353) Net cash used for investing activities (211,684) (930) Financing activities: Purchase of treasury shares (86,087) - Dividends paid (1,884) (1,833) Issuance of common shares 1,447 778 Principal payment under long term obligations (171) (59,481) Excess tax benefit from exercise of stock options 97 44 Net cash used for financing activities (86,598) (60,492) Effect of exchange rate changes on cash 1,289 111 Cash flows used for continuing operations (439,503) (55,800) Cash flows of discontinued operations Operating cash flows 2,652 3,620 Investing cash flows - 60 Net decrease in cash (436,851) (52,120) Cash at beginning of period 604,667 147,850 Cash at end of period $167,816 $95,730 AGILYSYS, INC. RECONCILIATION OF EBITDA TO NET INCOME (Unaudited) Three Months Ended Six Months Ended September 30 September 30 (In thousands) 2007 2006 2007 2006 Net income $3,440 $5,492 $6,032 $12,243 Plus: Interest income, net (3,450) (635) (10,217) (764) Income tax benefit (1,784) (1,598) (1,827) (2,077) Depreciation and amortization expense 3,268 1,947 5,131 3,978 Income from discontinued operations (2,016) (10,300) (1,951) (19,835) EBITDA from continuing operations $(542) $(5,094) $(2,832) $ (6,455)
Source: Agilysys, Inc.