Agilysys Reports Unaudited Fiscal 2007 Third-Quarter Results

To view the full release and financial statements in a PDF format, click here.

BOCA RATON, Fla. – Feb. 5, 2007 – Agilysys, Inc. (NASDAQ: AGYS), a leading provider of innovative information technology (IT) solutions, today announced fiscal 2007 unaudited third-quarter and year-to-date results for the periods ended December 31, 2006.

Consolidated sales for the third quarter were $585.0 million, an increase of 10%, compared with sales of $532.2 million for the third quarter last year.  The increase was led by double digit growth in industry-standard server and storage hardware; as well as software. Agilysys also reported positive growth in proprietary servers.

Sales of hardware products in the third quarter were $463.9 million, up 10% from $423.2 million in last year’s third quarter. Software sales were $96.0 million, up 17% from $81.8 million a year ago. Services sales were $25.0 million, down 8% from $27.2 million in last year’s third quarter.

Gross margin for the quarter remained consistent with the third quarter last year at 13.2% of sales.

Selling, general and administrative expenses for the third quarter were $44.4 million, or 7.6% of sales, compared with $43.5 million, or 8.2% of sales, for the third quarter last year. Included in the fiscal 2007 third quarter expense is approximately $1.2 million in stock option expense and approximately $0.6 million expense from the company’s Asia operations, which were acquired in December 2005.

Third-quarter net income of $20.0 million, or 64 cents per diluted share, increased 32% compared with a net income of $15.2 million, or 49 cents per diluted share, in the third quarter last year.

Arthur Rhein, Agilysys chairman, president and chief executive officer, said, “I am very pleased with our performance this quarter, including the impressive results achieved in IT solutions, as this will be our business following the announced divestiture of the KeyLink Systems Distribution Business. I would also note the results achieved by KeyLink Systems as the organization prepares for its transition to Arrow Electronics.”

Update on Divestiture of KeyLink Systems Distribution Business
Agilysys recently announced that it signed a definitive agreement to sell its KeyLink Systems Distribution Business to Arrow Electronics, Inc. for $485 million in cash and to use the proceeds from sale to accelerate the growth of its IT Solutions Business.

The agreement to sell substantially all the assets of the KeyLink Systems Distribution Business is subject to a working capital adjustment to be determined at close. Taxes payable on the gain on sale are estimated to be approximately $145 million. Based on the purchase price of $485 million, Agilysys expects to net after-tax proceeds of $340 million. 

While the company anticipates the sale of the distribution business will close by March 31, 2007, the transaction is subject to certain closing conditions, including regulatory and Agilysys shareholder approval. 

Agilysys plans to hold a special meeting of shareholders on March 12, 2007 at 9 a.m.  In connection with the special meeting, shareholders of record at January 31, 2007 are being asked to provide their votes on the proposals contained in the company’s definitive proxy statement.

After the anticipated sale of the distribution business, Agilysys plans to aggressively grow organically and through the acquisition of other solution providers with differentiated value that enhance its product and service offerings, broaden its customer base and expand its markets.

Operating exclusively as a solution provider, Agilysys delivers enterprise IT solutions by selecting the best available technology to meet its customers’ specific needs.  The company provides market-leading solutions in infrastructure optimization, storage and resource management, business continuity, and enterprise architecture and availability.  Agilysys is a leader in the retail industry, designing solutions that help make customers more productive and their customers more satisfied.  In the hospitality industry, the company develops and delivers fully integrated software designed exclusively for hotels, resorts and conference centers. To complement and support the system solutions it provides, Agilysys also provides a strong and broad-based portfolio of professional services, including consulting, technical and integration services.

Year-to-Date Results
For the nine months ended December 31, 2006, sales were $1.36 billion, a 0.8% increase compared with sales of $1.35 billion reported for the comparable period last year. 

Year-to-date sales of hardware products were $1.06 billion, down 1% from $1.07 billion last year. Software sales were $213.8 million, up 11% from $193.0 million a year ago. Services sales were $82.7 million, up 2% from $80.8 million in last year.

Gross margin for the nine months was 13.6% of sales, compared with 12.9% in the prior year. 

Selling, general and administrative expenses were $131.1 million, or 9.6% of sales year to date, compared with $123.4 million, or 9.2%, in the prior year.

The company recorded year-to-date net income of $32.2 million, or $1.04 per diluted share, compared with net income of $22.1 million, or $0.70 per diluted share, last year, which included $3.0 million, after tax, in restructuring charges and $2.9 million, after tax, loss on redemption of the company's Convertible Trust Preferred Securities.

The following discussion is included to provide additional financial information about the ongoing Agilysys IT Solutions Business (currently known as the Enterprise Solutions Group), as well as the KeyLink Systems Distribution Business, which the company has agreed to sell to Arrow Electronics. This information has not been disclosed in previous releases. 

Results for IT Solutions Business
Sales from the company’s IT Solutions Business for the third quarter were $151.5 million, an increase of 10% compared with sales of $137.5 million for the third quarter last year.  Gross margin in the IT Solutions Business for the third quarter was 24.0%, compared with 24.2% in the same period last year.

For the nine months ended December 31, 2006, sales from the IT Solutions Business were $356.4 million, an increase of 1% compared with sales of $353.8 million for the same period last year.  Gross margin in the IT Solutions Business for the nine months was 25.1%, compared with 23.1% in the prior year.

Results for KeyLink Systems Distribution Business
Sales from the company’s KeyLink Systems Distribution Business for the third quarter were $433.5 million, an increase of 10% compared with sales of $394.7 million for the third quarter last year. Gross margin in the Distribution Business for the quarter was 9.5%, compared with 9.3% in the same period last year.

For the nine months ended December 31, 2006, sales from the company’s KeyLink Systems Distribution Business were $1.00 billion, an increase of 1% compared with sales of $994.0 million for the same period last year.  Gross margin in the KeyLink Systems Distribution Business for the nine months was 9.5%, compared with 9.3% in the prior year.

Major Product Category Sales by Business
Click here for tables that illustrate the company’s sales by major product category.

Business Outlook
Given the expected sale of KeyLink Systems, the company’s previous business outlook for Fiscal 2007 is no longer applicable for the remaining business. Following the transaction close, Agilysys plans to issue Fiscal 2008 guidance.

The company has established a number of long-term goals:
• Grow sales from approximately $500 million to $1 billion within two years and to $1.5 billion in three years. Much of this growth will come from acquisitions. 

• Target gross margins in excess of 20% and earnings before interest, taxes, depreciation and amortization (“EBITDA”) 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%.

Conference Call Information
A conference call to discuss the third-quarter results is scheduled for 11 a.m. ET on Monday, Feb. 5, 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 1 p.m. ET on Monday, Feb. 5, 2007, through midnight ET on Monday, Feb. 19, 2007, accessible by dialing (877) 344-7529 or (412) 317-0088 (passcode #400702).

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 anticipated revenue gains, sales volume, margin improvements, cost savings, new product introductions and acquisitions, development of intellectual assets and information and control systems.

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, the ability to appropriately integrate acquisitions, strategic alliances or joint ventures, and the ability to execute planned cost savings.

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.

Analysts/Investor Contact:  

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

Media Contact:     

Julie Young
Director, Corporate Communications
Agilysys, Inc.
440-498-6736
julie.young@agilysys.com

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