Agilysys Reports Unaudited Fiscal 2009 Third Quarter Results
|
Agilysys Reports Unaudited Fiscal 2009 Third Quarter Results
|
Category: Worldwide - Industry economy
- Figures / Studies
This is a press release selected by our editorial committee and published online for free on 2009-02-11
* Gross Margin Increases to 26.7% Compared with 23.1 % in Prior Year
* Adjusted EBITDA, Excluding Restructuring Charges, Increases to $18.1 Million, or 8.1% of Revenue, in Third Quarter, Compared With $10.8 Million, or 4.4% of Revenue in Prior Year
* Cash on Hand of $72.4 Million Increases $22.5 Million From Fiscal 2009 Second Quarter
Agilysys, Inc. (Nasdaq: AGYS), a leading provider of innovative IT solutions, today announced fiscal 2009 unaudited third quarter results for the period ended December 31, 2008.
Third Quarter Results of Operations
Revenue for the third quarter was $224.1 million, with strong software and services revenue in the quarter. Software revenue was $29.8 million, up 17.4% compared with $25.4 million a year ago. Services revenue was $38.8 million, up 10.2% from $35.2 million a year ago. Revenue from hardware products was $155.6 million, down 16.9% compared with $187.3 million in last year’s third fiscal quarter.
Gross profit for the third quarter was $59.8 million, or 26.7% of revenue, compared with $57.3 million, or 23.1% of revenue, for the third quarter of 2008. The increase was primarily due to the higher mix of software and services.
Selling, general and administrative (SG&A) expense was $48.3 million, or 21.6% of revenue, compared with $54.5 million, or 22.0% of revenue, last year. The $6.2 million decrease in SG&A was largely due to a $5.6 million reduction in compensation and benefits, which included a credit of $2.2 million related to the reversal of stock compensation expense. The credit was primarily due to a change in the estimate to stock option forfeitures. In addition, intangibles amortization decreased $0.9 million. This was offset by higher professional fees of $0.9 million.
The company recorded $13.4 million of restructuring expense in the quarter. The restructuring charges were primarily comprised of:
* A non-cash charge for defined benefit plan curtailment of $4.5 million;
* $7.4 million related to one-time termination benefits resulting from workforce reductions;
* $1.3 million related to relocation of company headquarters to Cleveland from Boca Raton, Florida.
The operating loss for the quarter, which includes the $13.4 million of restructuring charges, was $1.9 million, compared with operating income of $2.9 million in the third quarter last year.
Consolidated depreciation and amortization for the quarter was $6.7 million, compared with $8.0 million in the prior year. The decrease was largely due to decreased intangible amortization.
Adjusted EBITDA (operating income plus depreciation and amortization), excluding restructuring expenses, was $18.1 million for the current quarter, compared with $10.8 million a year ago. The increase in adjusted EBITDA, excluding restructuring expenses, was due to the cost saving actions the company initiated in its fiscal 2009 first, second, and third quarters and higher gross profit from software and services revenue in the third quarter.
As a result of the March 2007 divestiture of the company’s KeyLink Systems Distribution Business, acquisitions, and definitions in the company’s IBM floor plan financing agreement, the company believes that adjusted EBITDA most accurately reflects the company’s performance and provides more meaningful year-over-year comparisons.
(NOTE: A reconciliation of adjusted 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 release. See the “Use of Non-GAAP Financial Information” section in this release for further information).
Net interest expense for the third quarter was $1.7 million, compared with net interest income of $1.4 million in the same period last year. Interest expense for the third quarter includes non-cash charges of:
* $0.4 million of unamortized bank fees related to the termination of the company’s unsecured credit facility in January as previously announced; and,
* A $1.1 million reserve for the company’s investment in The Reserve Fund’s Primary Fund, a money market fund that is in the process of liquidating as a result of investments in the securities of Lehman Brothers Holdings, Inc.
The loss from continuing operations for the third quarter was $2.2 million, or $0.10 per share, compared with income from continuing operations of $1.4 million, or $0.06 per share, last year. The change in income from continuing operations is primarily due to increased restructuring charges and higher interest expense.
"We are pleased with the significant improvement in both adjusted EBITDA and cash flow generated during the quarter," said Martin Ellis, president and CEO of Agilysys. "The fact that these results were generated in a weak demand environment is all the more notable. We will continue to focus on driving long-term value for our shareholders as we navigate these uncertain economic times."
Hospitality Solutions Group
In the fiscal 2009 third quarter, the Hospitality Solutions Group (HSG) recorded revenue of $27.9 million, up 1.8%, compared with $27.4 million last year. The acquisitions of Eatec Corporation and Triangle Hospitality Solutions Ltd. contributed revenue of $3.7 million during the quarter.
Gross profit was $15.8 million, or 56.7% of revenue, compared with $14.1 million, or 51.5% of revenue, in the same period a year ago. The margin increase was due to a higher mix of software and services. The acquisitions of Eatec and Triangle contributed gross profit of $2.6 million during the quarter.
SG&A was $12.7 million in the quarter and $12.2 million in the prior year. The increase of $0.5 million over the prior year was due to the acquisitions of Eatec and Triangle, which were both acquired after the third quarter of fiscal 2008. Also, development costs associated with the company’s new property management software, Guest360TM, were $1.0 million in the quarter, which was $0.4 million higher than in the prior year’s third quarter. Higher SG&A costs from the acquisitions and Guest360 were partially offset by other cost reductions in HSG.
Depreciation and amortization for HSG was $1.6 million in the third quarter, compared with $1.5 million in the third quarter last year.
Adjusted EBITDA for the quarter was $4.7 million, or 16.9% of revenue, compared with $3.4 million, or 12.4% of revenue, a year ago.
Retail Solutions Group
In the fiscal 2009 third quarter, the Retail Solutions Group (RSG) recorded revenue of $34.8 million, a decrease of 34.3%, compared with $53.0 million in the same quarter a year ago. The decrease is primarily due to the absence of a large hardware transaction that was recognized in the third quarter of fiscal 2008.
Gross profit was $8.9 million, or 25.7% of revenue, compared with $7.9 million, or 14.9% of revenue, in the same period a year ago. The increase as a percentage of revenue was due to the higher mix of services.
SG&A of $4.7 million decreased from $5.4 million in the third quarter of fiscal 2008 due to lower compensation and benefits and a decrease in outside services.
Adjusted EBITDA for the quarter was $4.2 million, or 12.1% of revenue, compared with $2.5 million, or 4.7% of revenue, a year ago.
Technology Solutions Group
In the fiscal 2009 third quarter, the Technology Solutions Group (TSG) recorded revenue of $161.4 million, down 3.6%, compared with $167.5 million in the third quarter of fiscal 2008. Softening demand for IT products continued to affect TSG during the quarter.
Gross profit was $33.8 million, or 20.9% of revenue, compared with $34.1 million, or 20.4% of revenue, in the same period a year ago. The increase in gross margin percentage was due to the absence of several large transactions that carried lower gross margins in the third quarter of fiscal 2008.
SG&A was $22.0 million in the quarter compared with $26.1 million in the same quarter last fiscal year. The $4.1 million decrease is attributable to cost reductions.
Depreciation and amortization for TSG was $4.1 million in the third quarter of fiscal 2009, compared with $5.3 million in the third quarter of fiscal 2008. The decrease in depreciation and amortization was primarily due to lower intangibles amortization.
Adjusted EBITDA for the quarter was $15.9 million, or 9.8% of revenue, compared with $13.4 million, or 7.9% of revenue, a year ago. The increase in adjusted EBITDA was due to lower SG&A costs.
Retail Solutions Group
In the fiscal 2009 third quarter, the Retail Solutions Group (RSG) recorded revenue of $34.8 million, a decrease of 34.3%, compared with $53.0 million in the same quarter a year ago. The decrease is primarily due to the absence of a large hardware transaction that was recognized in the third quarter of fiscal 2008.
Gross profit was $8.9 million, or 25.7% of revenue, compared with $7.9 million, or 14.9% of revenue, in the same period a year ago. The increase as a percentage of revenue was due to the higher mix of services.
SG&A of $4.7 million decreased from $5.4 million in the third quarter of fiscal 2008 due to lower compensation and benefits and a decrease in outside services.
Adjusted EBITDA for the quarter was $4.2 million, or 12.1% of revenue, compared with $2.5 million, or 4.7% of revenue, a year ago.
Technology Solutions Group
In the fiscal 2009 third quarter, the Technology Solutions Group (TSG) recorded revenue of $161.4 million, down 3.6%, compared with $167.5 million in the third quarter of fiscal 2008. Softening demand for IT products continued to affect TSG during the quarter.
Gross profit was $33.8 million, or 20.9% of revenue, compared with $34.1 million, or 20.4% of revenue, in the same period a year ago. The increase in gross margin percentage was due to the absence of several large transactions that carried lower gross margins in the third quarter of fiscal 2008.
SG&A was $22.0 million in the quarter compared with $26.1 million in the same quarter last fiscal year. The $4.1 million decrease is attributable to cost reductions.
Depreciation and amortization for TSG was $4.1 million in the third quarter of fiscal 2009, compared with $5.3 million in the third quarter of fiscal 2008. The decrease in depreciation and amortization was primarily due to lower intangibles amortization.
Adjusted EBITDA for the quarter was $15.9 million, or 9.8% of revenue, compared with $13.4 million, or 7.9% of revenue, a year ago. The increase in adjusted EBITDA was due to lower SG&A costs.
Nine-Month Results of Operations
For the nine months ended December 31, 2008, revenue was $575.3 million, a 1.5% increase compared with revenue of $566.8 million for the comparable period last year. The increase in revenue was primarily due to the acquisitions of InfoGenesis and Innovativ, which were only included for six of the first nine months of fiscal 2008.
Year-to-date software revenue was $61.5 million, up 19.0% compared with $51.7 million a year ago. Services revenue was $107.8 million, up 13.8% compared with $94.7 million last year. Revenue from hardware products was $406.0 million, down 3.4% from $420.4 million last year.
Gross profit for the first nine months was $158.4 million, or 27.5% of revenue, compared with $131.6 million, or 23.2% of revenue, in the prior year. The margin increase was due to the higher mix of software and services revenue.
SG&A was $157.7 million, or 27.4% of revenue, in the first nine months compared with $137.0 million, or 24.2% of sales, in the prior year. The increase in SG&A was primarily the result of:
* Full nine-months compensation and benefits from the company’s acquisitions, which contributed $12.3 million of the increase;
* Higher intangibles amortization of $6.6 million related to the company’s acquisitions;
* Bad debt expense, which increased by $1.7 million; and
* Increased professional fees of $1.4 million associated with the company’s periodic SEC filings, additional communication with shareholders regarding the fiscal 2008 Annual Shareholder Meeting and exploration of strategic alternatives.
SG&A, excluding charges for impairment of goodwill, depreciation and amortization, declined from a quarterly run rate of $49.7 million in the first quarter of fiscal 2009 to $41.6 million in the third quarter. The cost savings benefits from the company’s executive management realignment and closure of the headquarters in Boca Raton, Florida, have not been fully realized in the quarterly SG&A run rate.
The company has recorded year-to-date restructuring charges related to cost-saving initiatives of $36.9 million.
The nine-month operating loss was $181.8 million, a $176.4 million increase from a loss of $5.4 million in the first nine months of fiscal 2008. The increase was largely due to the write-down of goodwill of $145.6 million and $36.9 million in restructuring charges associated with cost savings actions.
Adjusted EBITDA, excluding restructuring expenses and impairment of goodwill, was $21.5 million in the first nine months, compared with $8.0 million in the prior year.
Net interest expense was $1.7 million for the first nine months, compared with net interest income of $11.6 million in the same period last year. The company had a higher cash position in fiscal 2008 following the sale of its KeyLink Systems Distribution Business.
The loss from continuing operations was $167.6 million, or $7.42 per share, for the first nine months, compared with income from continuing operations of $6.1 million, or $0.20 per share, for the comparable period last year. The decrease was largely due to the write-down of goodwill of $145.6 million, $36.9 million in restructuring charges associated with cost savings actions and lower interest income.
Restructuring and Cost Savings
During fiscal 2009, the company has taken aggressive action to reduce its cost structure and improve profitability. Specifically, the company has executed the following restructuring actions over the past six months:
* Restructured the go-to-market strategy for TSG’s professional services offering;
* Eliminated investments to fund organic growth made when the macro-economic conditions were healthier;
* Exited Asian operations of TSG;
* Realigned executive management;
* Closed corporate offices in Boca Raton and relocated headquarters back to Cleveland;
* Realigned certain operational and administrative departments and streamlined certain processes to reduce costs and drive efficiencies.
In the first quarter of fiscal 2009, the company conducted a detailed review of its businesses to identify opportunities to improve operating efficiencies and reduce costs. As of June 30, 2008, the company executed on a cost savings plan to reduce costs, on an annual basis, by approximately $14 million.
In October 2008, the company took actions to realign its overhead infrastructure that led to an additional $8 million in annualized cost savings, which includes the elimination of corporate-level executive positions, consolidation of headquarters and the initial phase of realigning a number of former corporate SG&A functions into the company's three business units.
The restructuring actions have resulted in significant cost reductions. In addition to the $22 million of annual cost savings announced to date, the company further reduced costs by an additional $3 million in the fiscal 2009 third quarter. The $25 million in cost savings consists of:
* $12 million related to the Corporate segment;
* $12 million related to TSG; and,
* $1 million related to HSG.
Approximately one-third of these cost savings have been realized year-to-date. In realizing these cost savings and operating efficiency improvements associated with these restructuring actions, the company has incurred restructuring charges of $13.4 million in the fiscal third quarter and $36.9 million year-to-date, of which $4.5 million and $25.1 million respectively are non-cash charges.
"Over the past 90 days we have pro-actively addressed our cost structure and profitability,” Ellis said. "These initiatives are making Agilysys a stronger company that is well positioned to deliver sustainable increases in shareholder value."
Liquidity
As of December 31, 2008, Agilysys had cash on hand of $72.4 million, an increase of $22.5 million over cash of $49.9 million as of September 30, 2008. The increase in cash was due to strong cash operating earnings, and increased utilization of the company’s flooring facility.
On January 20, 2009, the company announced the termination of its credit facility with Bank of America. The credit facility was put in place in October 2005 to primarily fund acquisitions. The company had no amounts outstanding under the facility at the time of termination and had never drawn on the facility.
The company is currently evaluating financing alternatives with several financial institutions to complement the company’s existing floor plan financing facility and cash on hand. The company expects to be able to announce its new credit facility by March 31, 2009.
Sale of Asian Operations
The company divested TSG’s China operations in January 2009 for $1.2 million. These actions were taken to further increase adjusted EBITDA and focus the operating segment on its most strategic and profitable geographies. Financial results of TSG’s Asian businesses have been reported in discontinued operations since the fiscal 2009 second quarter.
Agilysys continues to serve and grow its HSG customer base in Asia, including China.
SEC and Nasdaq Compliance
The company is now current with all SEC filing requirements. Following the divestiture of its 20% minority investment in Magirus AG, a privately held computer systems distributor headquartered in Germany, Agilysys filed its Annual Report on Form 10-K for the fiscal year ended March 31, 2008, on December 16, 2008, filed its first fiscal quarter Form 10-Q on December 30, 2008, and its second fiscal quarter Form 10-Q on January 13, 2009.
Also, as previously announced on January 21, 2009, the company received a letter from Nasdaq confirming the company is in compliance with its listing standards following the filing of the company’s Form 10-Q with the SEC for the period ended September 30, 2008.
Business Outlook
As previously announced on November 20, 2008, in the company’s fiscal second quarter earnings release, unprecedented uncertainty in the macro economic environment has severely limited visibility into the quarters ahead. Due to this uncertainty, the company has suspended revenue guidance until the outlook stabilizes.
The company expects to exceed the high end of its adjusted EBITDA guidance announced in the company’s fiscal second quarter earnings release. Fiscal 2009 adjusted EBITDA, excluding restructuring and goodwill impairment charges, is expected to be in the range of $23 million to $25 million compared with fiscal 2008 adjusted EBITDA of $4.6 million.
Conference Call Information
A conference call to discuss the fiscal third quarter results is scheduled for 11 a.m. ET on February 10, 2009. The conference call will be broadcast live over the Internet and the call will be archived on the investor relations page of the company's Web site: www.agilysys.com.
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 adjusted EBITDA, defined as operating income plus depreciation and amortization.
Management, creditors and investors review 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 Securities and Exchange Commission (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.
|
|
