EX-99.1 2 l29879aexv99w1.htm EX-99.1 EX-99.1
 

Exhibit 99.1   (AGILYSYS LOGO)
Agilysys Reports Unaudited Fiscal 2008 Third-Quarter Results
  •   Net sales increased 65% for the quarter including 12% organic growth and 61% for the first nine months including 13% organic growth
 
  •   Operating income of $2.5 million for the quarter was flat compared with last year
 
  •   Company repurchased 8.4 million or 27% of outstanding shares to date
BOCA RATON, Fla. – February 1, 2008 – Agilysys, Inc. (Nasdaq: AGYS), a leading provider of innovative IT solutions, today announced fiscal 2008 unaudited third-quarter results for the period ended December 31, 2007.
Third-Quarter Results of Operations
Sales for the third quarter increased 65.1% to $250.1 million, compared with $151.5 million in the third quarter of fiscal 2007. Organic revenue grew $17.9 million, or 11.8%, compared with last year’s third quarter, and represented 18.2% of the sales increase. Revenue from the company’s four recent acquisitions contributed $80.7 million, or 81.8% of the sales increase.
Fiscal 2008 third-quarter sales of hardware products were $189.3 million, up 57.8%, compared with $120.0 million for last year’s third quarter. Software sales were $25.5 million, up 119.5% from $11.6 million a year ago. Services revenue was $35.3 million, up 77.3% from $19.9 million a year ago.
Gross margin for the third quarter was $57.7 million, or 23.1% of sales, compared with $35.5 million, or 23.4% of sales, for the third quarter of fiscal 2007. The slight decline in gross margin percentage was due to the change in customer and product mix in the quarter compared with the year-ago quarter.
Selling, general and administrative (SG&A) expenses for the third quarter were $55.2 million, or 22.1% of sales, compared with $33.0 million, or 21.8% of sales, in the same quarter a year ago. The $22.2 million increase in SG&A expenses was principally due to incremental operating expenses from the company’s recent acquisitions, which contributed $19.1 million, or 86.0% of the increase in expenses. Depreciation and amortization expense for the quarter was $8.2 million compared with $1.9 million last year.
Net interest income for the third quarter was $1.4 million compared with $1.0 million in the same period last year. The improvement was due to the company’s higher cash position, which was partially offset by a slight decline in the yield earned on the company’s short-term investments.
Income from continuing operations for the third quarter was $1.1 million, or $0.04 per share, compared with $2.5 million, or $0.08 per share, for the third quarter last year. Included in income from continuing operations was a loss of approximately $1.0 million associated with the company’s equity investment.
EBITDA was $10.6 million for the current quarter, compared with $4.4 million a year ago. As a result of the March 2007 divestiture of the company’s KeyLink Systems distribution business and recent acquisitions, the company believes that EBITDA from continuing operations (earnings before interest, taxes, depreciation, amortization, and results of discontinued operations) most accurately reflects the company’s performance and provides more meaningful year-over-year comparisons. (NOTE: A reconciliation of EBITDA to net income 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

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release. See the “Use of Non-GAAP Financial Information” section in this release for further information.)
Excluding one-time discrete tax items, the effective income tax rate for continuing operations for the three months ended December 31, 2007 was 66.4% compared with 20.6% for the third quarter in the prior year. The effective income tax rate differs from the statutory rate principally because of the effects of losses related to the company’s equity investment, tax code limitations on deductibility of meals and entertainment expenses, and compensation associated with incentive stock option awards.
“Operationally, this quarter was very strong, with solid demand across our base business and our newly acquired businesses,” said Arthur Rhein, chairman, president and chief executive officer. “However, our quarterly financial results reflect lower sales than anticipated due to a significant increase in bill-and-hold sales, which consistent with our revenue recognition policies, will contribute to sales and earnings in subsequent quarters. Additionally, we incurred higher costs in the quarter for unanticipated one-time expenses associated with acquisitions.”  
Year-to-Date Results of Operations
For the nine months ended December 31, 2007, sales were $574.6 million, a 61.2% increase compared with sales of $356.5 million for the comparable period last year. Organic growth accounted for $45.5 million, or 20.9%, of the increase in sales, representing a 12.8% increase compared with last year. Incremental sales from the company’s recent acquisitions accounted for $172.7 million, or 79.1%. of the increase, representing an increase of 48.4% over the comparable period last year.
Year-to-date sales of hardware products were $427.2 million, up 63.8% from $260.7 million for the first nine months of last year. Software sales were $52.5 million, up 105.9% from $25.5 million a year ago. Services revenue was $95.0 million, up 35.2% from $70.3 million last year.
Gross margin for the nine months was 23.1% of sales, compared with 24.9% in the prior-year period. The decline in gross margin percentage was due to a change in customer and product mix, including acquisitions made in the past year. Approximately 40 basis points of the decline was unanticipated and is due to our increased participation in a more highly competitive storage environment.
Selling, general and administrative expenses were $139.2 million, or 24.2% of sales, for the year to date, compared with $95.8 million, or 26.9%, in the prior-year nine-month period. The $43.4 million increase in SG&A expense was mainly due to incremental operating expenses from the company’s recent acquisitions, which accounted for $37.3 million, or 85.9% of the increase. Depreciation and amortization for the first nine months was $13.3 million compared with $5.9 million for the same period last year.
Income from continuing operations increased $10.2 million year-to-date to $5.2 million, or $0.17 per share, compared with a loss of $5.1 million, or a loss of $0.17 per share, for the same period a year ago.
EBITDA for the nine-month period was $6.9 million, an increase of $8.0 million over the prior-year period’s loss of $1.1 million.
Recent Acquisitions and Intangible Asset Amortization
Over the past 13 months, the company has recorded total intangible amortization expense of $5.9 million for the third quarter, and $8.8 million for the nine months ended December 31, 2007.
This quarter’s results included the full-quarter contribution of all four acquisitions, which have been integrated into the organization. Visual One Systems – acquired in January 2007 for $14.3 million – is a leading developer of open system software, has been integrated into the Hospitality Solutions business. Agilysys also completed the acquisition of InfoGenesis – acquired in June 2007 for $90.7 million. InfoGenesis is a software developer with the most innovative and scalable point-of-sale product in the hospitality industry. Both of these acquisitions have significantly expanded the company’s customer base

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in the hospitality market and have strengthened its already leading positions in key segments of the hospitality industry.
In April, the company acquired Stack Computer for $26.9 million. Stack, an EMC premier technology integrator and Cisco Advanced Technology Partner, has become the foundation of the company’s storage and networking solutions practice. And, in July, Agilysys completed the acquisition of Innovativ Systems Design for $108.6 million. Innovativ is the largest U.S. solution provider of Sun Microsystems server, storage and enterprise storage management products and professional services. All of these acquisitions have established new markets for Agilysys, diversified the company’s supplier mix, and broadened its customer base.
Balance Sheet and Treasury Highlights
Cash flow from continuing operations in the attached cash flow statement includes divestiture related charges. Excluding taxes and transaction expenses associated with the divestiture, the company generated $17.7 million in cash flow from operations for the year to date.
Cash and cash equivalents were $138.4 million compared with $604.7 million at March 31, 2007. The decrease in cash was due to acquisitions, repurchase of common stock and tax payments related to the divestiture of KeyLink Systems distribution business. The company has aggressively invested the majority of the divestiture proceeds in strategic acquisitions and recapitalizing the business. The company paid $212.7 million, net of cash acquired, for acquisitions and $120.5 million for the repurchase of common shares.
As of December 31, 2007, accounts receivable were $224.7 million, an increase of 92.5%, or $108.0 million, compared with $116.7 million at March 31, 2007. Accounts payable of $185.8 million increased 120% from $84.3 million at March 31, 2007. The increases in receivables and payables were due to the overall increase in company sales and the impact of recent acquisitions.
Inventory was $48.2 million at December 31, 2007, compared with $9.9 million at March 31, 2007. Included in inventory is $31.5 million in bill-and-hold inventory. From time to time, the company enters into bill-and-hold sales transactions where the customer has placed an order, and consistent with the customer’s requirements, the customer has accepted an invoice with shipment of the product scheduled to occur at a later date. In such instances, revenue and the cost of goods sold are recognized once the product has been shipped to the customer. The cost of goods sold associated with these transactions is included in inventory on the balance sheet until shipped.
Net working capital as a percentage of sales at December 31, 2007 was 5.8%, for the trailing twelve months. This reflects an improvement from 11.0% a year ago, and represents the company’s progress toward its goal of keeping working capital at approximately 5% of sales.
Share Repurchases
On September 26, 2007, Agilysys announced the final results of its modified “Dutch Auction” tender offer, which expired September 19, 2007. The company accepted for repurchase 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.
On December 17, 2007, the company announced it had completed the repurchase of 2,000,000 shares on the open market at a total purchase price of approximately $30.4 million. Also announced on December 17, 2007, Agilysys entered into an additional Rule 10b5-1 plan that enables the repurchase of up to an additional 2,500,000 of the company’s common shares. As of January 25, 2008, 1,793,854 common shares have been repurchased for approximately $26.1 million under this plan.
Including the shares repurchased in the self-tender offer, during the past six months the company has

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repurchased 8.4 million shares or approximately 27 percent of its previously outstanding basic shares. Following these repurchases, approximately 23.1 million shares are outstanding.
Business Outlook
As of the fiscal 2008 third quarter, the company is updating guidance to account for its nine-month performance. As a result, the company is confirming its previously issued guidance for annual sales and gross margin. Annual sales are expected to be in the range of $780 million to $800 million. Full-year gross margin is expected to remain at approximately 23.5% of sales.
However, the company now expects EBITDA margin to be approximately 2.0% of sales. SG&A expenses are anticipated to be approximately $190 million for the full year, including the impact of acquisition- and integration-related costs, stock compensation expense of $6 million, and depreciation and amortization of $18.5 million. Interest income is expected to be approximately $12.5 million and the company anticipates an effective tax rate of approximately 27% for the fiscal year, including the impact of $2.9 million in year-to-date FIN 48 benefits. Based on an estimated 28.5 million weighted average diluted shares outstanding, earnings per share are expected to be in the range of $0.22 to $0.25 per share.
“Although we are revising EBITDA guidance and are very mindful of maintaining operating efficiencies, we are well ahead of our plans with an $850 million run rate in revenues this year,” said Rhein. “Our strong organic sales growth is occurring at the same time we are integrating four newly acquired businesses without impacting our core business. We remain focused on executing our strategic plan, and are on target toward meeting our long-term financial goals.”
At the time of the March 2007 KeyLink divestiture, the company established the following long-term financial goals including:
  •   Grow sales to $1 billion within two years of the March 2007 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 third-quarter and year-to-date results is scheduled for 11 a.m. ET on Friday, February 1, 2008. 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, February 1, 2008, through midnight ET on Friday, February 15, 2008, accessible by dialing (877) 344-7529 or (412) 317-0088 (passcode #415198).
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 plus 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.
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

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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.
About Agilysys
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.
# # #
     
Contact:
  Martin Ellis
 
  Executive Vice President, Treasurer and
 
  Chief Financial Officer
 
  Agilysys, Inc.
 
  561-999-8780
 
  martin.ellis@agilysys.com

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AGILYSYS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
                                 
    Three Months Ended     Nine Months Ended  
    December 31     December 31  
(In thousands, except share and per share data)   2007     2006     2007     2006  
Net sales
                                
Products
   $ 214,770     $ 131,578     $ 479,679     $ 286,218  
Services
     35,280       19,900       94,965       70,259  
 
                        
Total net sales
     250,050       151,478       574,644       356,477  
Cost of goods sold
                                
Products
     178,438       109,587       409,956       249,620  
Services
     13,957       6,381       31,904       18,080  
 
                        
Total cost of goods sold
     192,395       115,968       441,860       267,700  
 
                        
Gross margin
     57,655       35,510       132,784       88,777  
Selling, general and administrative expenses
     55,163       32,993       139,175       95,799  
 
                        
Operating income (loss)
     2,492       2,517       (6,391 )     (7,022 )
Other expenses (income)
                                
Other expense, net
     998       328       78       1,222  
Interest income
     (1,620 )     (1,104 )     (12,271 )     (3,886 )
Interest expense
     255       126       689       2,144  
 
                        
Income (loss) before income taxes
     2,859       3,167       5,113       (6,502 )
Income tax expense (benefit)
     1,785       630       (42 )     (1,447 )
 
                        
Income (loss) from continuing operations
     1,074       2,537       5,155       (5,055 )
Income from discontinued operations, net of taxes of $636 and $12,986 for the three-months ended December 31, 2007 and 2006, respectively, and $1,704 and $23,776 for the nine-months ended December 31, 2007, and 2006, respectively
     881       17,426       2,832       37,261  
 
                        
Net income
   $ 1,955     $ 19,963     $ 7,987     $ 32,206  
 
                        
 
                                
Earnings per share — basic
                                
Income (loss) from continuing operations
   $ 0.04     $ 0.08     $ 0.17     $ (0.17 )
Income from discontinued operations
     0.04       0.57       0.10       1.22  
 
                        
Net income
   $ 0.08     $ 0.65     $ 0.27     $ 1.05  
 
                        
 
                                
Earnings per share — diluted
                                
Income (loss) from continuing operations
   $ 0.04     $ 0.08     $ 0.17     $ (0.17 )
Income from discontinued operations
     0.03       0.56       0.10       1.22  
 
                        
Net income
   $ 0.07     $ 0.64     $ 0.27     $ 1.05  
 
                        
 
                                
Weighted average shares outstanding
                                
Basic
     25,760,225       30,591,749       29,476,958       30,560,827  
Diluted
     26,112,682       31,067,820       30,109,946       30,560,827  
 
                                
Cash dividends per share
   $ 0.03     $ 0.03     $ 0.09     $ 0.09  

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AGILYSYS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts at December 31, 2007 are unaudited)
                 
    December 31     March 31  
(In thousands)   2007     2007  
ASSETS
                
Current assets
                
Cash and cash equivalents
   $ 138,404     $ 604,667  
Accounts receivable, net
     224,728       116,735  
Inventories, net
     48,153       9,922  
Deferred income taxes
     3,821       3,092  
Prepaid expenses and other current assets
     4,633       3,494  
Assets of discontinued operations — current
     ¾       206  
 
            
Total current assets
     419,739       738,116  
Goodwill
     211,328       93,197  
Intangible assets, net
     92,294       8,716  
Investments in affiliated companies
     6,039       11,231  
Other non-current assets
     26,142       30,701  
Property and equipment, net
     26,407       17,279  
 
            
Total assets
   $ 781,949     $ 899,240  
 
            
 
                
LIABILITIES AND SHAREHOLDERS’ EQUITY
                
Current liabilities
                
Accounts payable
   $ 185,824     $ 84,286  
Income taxes payable
     ¾       134,607  
Accrued and other current liabilities
     52,267       32,305  
Liabilities of discontinued operations — current
     147       162  
 
            
Total current liabilities
     238,238       251,360  
Other non-current liabilities
     28,637       20,813  
Liabilities of discontinued operations — noncurrent
     ¾       223  
Shareholders’ equity
                
Common shares
     9,366       9,333  
Treasury shares
     (2,079 )     (10 )
Capital in excess of stated value
     15,977       129,750  
Retained earnings
     491,844       489,435  
Accumulated other comprehensive loss
     (34 )     (1,664 )
 
            
Total shareholders’ equity
     515,074       626,844  
 
            
Total liabilities and shareholders’ equity
   $ 781,949     $ 899,240  
 
            

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AGILYSYS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
                 
    Nine Months Ended  
    December 31  
(In thousands)   2007     2006  
Operating activities:
                
Net income
   $ 7,987     $ 32,206  
Less: Income from discontinued operations
     (2,832 )     (37,261 )
 
            
Income (loss) from continuing operations
     5,155       (5,055 )
Adjustments to reconcile income (loss) from continuing operations to net cash used for operating activities (net of effects from business acquisitions):
                
Gain on redemption of investment in affiliated company
     (1,330 )     —  
Depreciation
     2,575       1,219  
Amortization
     10,877       4,851  
Deferred income taxes
     (455 )     2,310  
Stock based compensation
     4,606       2,788  
Excess tax benefit from exercise of stock options
     (97 )     (49 )
Changes in working capital:
                
Accounts receivable
     (26,030 )     (40,627 )
Inventories
     (28,220 )     3,075  
Accounts payable
     34,076       13,730  
Accrued liabilities
     (3,001 )     (3,396 )
Income taxes payable
     (134,047 )     10,061  
Other changes, net
     928       (1,435 )
Other non-cash adjustments
     84       (1,612 )
 
            
Total adjustments
     (140,034 )     (9,085 )
 
            
Net cash used for operating activities
     (134,879 )     (14,140 )
 
                
Investing activities:
                
Proceeds from redemption of investment in affiliated company
     4,770       —  
Acquisition of businesses, net of cash acquired
     (212,741 )     —  
Proceeds from escrow settlement
     —       423  
Purchase of property and equipment
     (5,981 )     (2,034 )
 
            
Net cash used for investing activities
     (213,952 )     (1,611 )
 
                
Financing activities:
                
Purchase of treasury shares
     (120,471 )     —  
Dividends paid
     (2,690 )     (2,753 )
Issuance of common shares
     1,446       1,230  
Principal payment under long term obligations
     (189 )     (59,519 )
Excess tax benefit from exercise of stock options
     97       49  
 
            
Net cash used for financing activities
     (121,807 )     (60,993 )
 
                
Effect of exchange rate changes on cash
     1,575       10  
 
            
Cash flows used for continuing operations
     (469,063 )     (76,734 )
Cash flows of discontinued operations
                
Operating cash flows
     2,800       29,834  
Investing cash flows
     —       60  
 
            
Net decrease in cash
     (466,263 )     (46,840 )
Cash at beginning of period
     604,667       147,850  
 
            
Cash at end of period
   $ 138,404     $ 101,010  
 
            

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AGILYSYS, INC.
RECONCILIATION OF EBITDA TO NET INCOME
(Unaudited)
                                 
    Three Months Ended     Nine Months Ended  
    December 31     December 31  
(In thousands)   2007     2006     2007     2006  
Net income
   $ 1,955     $ 19,963     $ 7,987     $ 32,206  
Plus:
                                
Interest income, net
     (1,365 )     (978 )     (11,582 )     (1,742 )
Income tax expense (benefit)
     1,785       630       (42 )     (1,447 )
Depreciation and amortization expense (a)
     8,152       1,923       13,283       5,901  
Other expenses, net
     998       328       78       1,222  
Income from discontinued operations
     (881 )     (17,426 )     (2,832 )     (37,261 )
 
                        
EBITDA from continuing operations
   $ 10,644     $ 4,440     $ 6,892     $ (1,121 )
 
                        
 
(a)   Depreciation and amortization expense excludes amortization of deferred finance costs, as such costs are already included in interest income, net.

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