(Click here for the press release in pdf, including financial tables.)
Fiscal 2011 Third-Quarter Unaudited Results of Operations
Third-quarter fiscal 2011 consolidated net revenue increased $1.2 million to $217.0 million from $215.8 million in the prior year. Software and services sales grew 7.3% and 8.2%, respectively, while hardware revenue decreased 2.2% from the prior year. Revenue from the Company’s Hospitality Solutions and Technology Solutions groups grew 8.2% and 1.6%, respectively, from the prior-year third quarter, offsetting an 8.2% revenue decline in the Retail Solutions Group.
Third-quarter gross margin declined to 21.5% from 23.2% in the prior year third quarter, primarily due to lower vendor incentives and services margins.
“We are pleased with continued positive demand momentum and expect to report approximately 10% revenue growth this fiscal year. Our solution strategy showed continued success as the higher quarterly revenues reflect our initiatives to accelerate software and services volumes. In addition, our point of sale businesses, being hospitality and retail, continue to improve with our focus on increasing both proprietary content and cross selling,” said Martin Ellis, president and chief executive officer. “However, the positive traction in the market place was offset by lower gross margins, primarily due to lower vendor rebates.”
SG&A expenses in the fiscal 2011 third quarter were $44.9 million, of which $1.1 million relates to Guest360TM development costs that were capitalized in the fiscal 2010 third quarter and $0.7 million, associated with the Company’s ERP implementation, which will decrease significantly beginning in fiscal year 2012. Last year’s quarterly expenses of $40.5 million also included the benefit of a $1.6 million credit related to a litigation settlement.
The Company reported operating income for the quarter of $1.9 million, versus $8.6 million in last year’s third quarter. Adjusted EBITDA (defined as operating income plus depreciation and amortization), excluding asset impairment and restructuring charges, was $5.4 million for the quarter, compared with $12.6 million in the prior-year third quarter. (See reconciliation in financial tables.)
Agilysys reported net income of $2.0 million, or $0.08 per diluted share, for the fiscal 2011 third quarter, compared with net income of $13.6 million, or $0.59 per diluted share, in the previous year’s quarter.
“We have continued our aggressive investment in Guest360TM, our next generation hotel management system, which together with our previous investments in market-leading, complementary software solutions, including property management, point of sale and inventory and procurement, positions us very well for long-term success in the hospitality industry,” said Mr. Ellis.
Fiscal 2011 Nine-Month Unaudited Results of Operations
Consolidated net sales in the first nine months of fiscal 2011 increased 6.7% to $531.7 million, compared with the $498.5 million reported in the first nine months of fiscal 2010. Sales of hardware, software and services increased 3.7%, 20.2% and 9.4%, respectively, compared with the prior-year period. Revenue from the Company’s Hospitality Solutions, Technology Solutions and Retail Solutions groups grew 9.8%, 7.2% and 2.1%, respectively, from the first nine months of fiscal 2010.
Gross margin decreased to 22.8% in the first nine months, compared with 25.2% in the same year-ago period, due to the lower vendor incentives and competitive pricing pressure.
SG&A expenses were $128.4 million, compared with $125.3 million in the first nine months of the prior fiscal year. The increase is primarily attributable to non-capitalized ERP implementation expenses of $2.5 million, expensing of Guest360 development costs of $2.3 million and the absence of a $1.6 million benefit related to a litigation settlement in the current fiscal year. This was partially offset by lower acquisition-related intangibles amortization, which declined by $2.4 million.
For the nine-month period, the Company reported an operating loss of $7.5 million, compared with an operating loss of $0.6 million in the first nine months of fiscal 2010. Year to date, adjusted EBITDA, excluding asset impairment and restructuring charges, was $3.2 million, versus $13.0 million in the first nine months of the prior year. (See reconciliation in financial tables.)
For the first nine months of fiscal 2011, the net loss was $10.5 million, or a loss of $0.46 per share, versus the previous year’s net income of $4.0 million, or $0.18 per diluted share. Net income for the first nine months is decreased due to lower operating income, a decrease in other income of $3.7M due to the absence of a non-recurring gain and litigation settlement and higher income taxes related to a $3.8M charge for valuation allowance recognized in the first quarter of fiscal 2011.
Fiscal 2011 Business Outlook
“While year-to-date revenue and expenses have met our expectations, our bottom line results have been disappointing. Given the gross margin pressure we have faced, we are executing on $7 million in costs savings in the current quarter. These savings will position the Company for approximately break-even operating income on a go forward basis. As we move forward with our fiscal 2012 budgeting and planning process, we will develop more comprehensive profitability targets focused on materially improving our bottom line,” Ellis concluded.
The Company stated that it expects to generate consolidated revenue of $690 million to $710 million and adjusted EBITDA, excluding asset impairment and restructuring charges, of $3 million to $6 million in fiscal year 2011. Further, the Company expects to incur stock compensation of approximately $3.5 million and depreciation and amortization expense of $13.0 million to $13.5 million. Capital expenditures are anticipated to be $8 million to $9 million, of which $5 million is related to capitalized costs associated with the development of Guest360 and the implementation of the Company’s new Oracle ERP system.
Cash on hand is expected to be $60 million to $75 million as of March 31, 2011.
Conference Call Information
A conference call will be held today, February 2, 2011, at 11:00 a.m. ET to review unaudited third-quarter and nine-month fiscal 2011 results. A slide deck will be the basis for the review. Both the slide deck and the conference call can be accessed via the Investor Relations section of www.agilysys.com. In addition, a replay of the call will be archived on the website for approximately 30 days.
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This release contains certain management expectations, which may constitute forward-looking information within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities and Exchange Act of 1934, and the Private Securities Reform Act of 1995. Forward-looking information speaks only as to the date of this release and may be identified by use of words such as “may,” “will,” “believes,” “anticipates,” “plans,” “expects,” “estimates,” “projects,” “targets,” “forecasts,” “continues,” “seeks,” or the negative of those terms or similar expressions. Many important factors could cause actual results to be materially different from those in forward-looking information including, without limitation, competitive factors, disruption of supplies, changes in market conditions, pending or future claims or litigation, or technology advances. No assurances can be provided as to the outcome of cost reductions, expected benefits and outcomes from our recent ERP implementation, business strategies, future financial results, unanticipated downturns to our relationships with customers and macroeconomic demand for IT products and services, unanticipated difficulties integrating acquisitions, new laws and government regulations, interest rate changes, consequences of MAK Capital’s shareholder-approved control share acquisition, and unanticipated deterioration in economic and financial conditions in the United States and around the world or the consequences. The Company does not undertake to update or revise any forward-looking information even if events make it clear that any projected results, actions, or impact, express or implied, will not be realized.
Other potential risks and uncertainties that may cause actual results to be materially different from those in forward-looking information are described in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC), under Item 1A, “Risk Factors.” Copies are available from the SEC or the Agilysys website.
Use of Non-GAAP Financial Information
To supplement the unaudited condensed consolidated financial statements presented in accordance with U.S. GAAP in this release, certain non-GAAP financial measures are used. Management believes that such information can enhance investors' understanding of the Company's ongoing operations and is a measure used in the Company’s debt agreement. The non-GAAP measures included in this release have been reconciled to the comparable GAAP measures within an accompanying table, shown on the last page of this release.
About Agilysys, Inc.
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 Cleveland, Agilysys operates extensively throughout North America, with additional sales offices in the United Kingdom and Asia.
News releases and other information on Agilysys are available on the Internet at: http://www.agilysys.com
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