Agilysys, Inc. F1Q11 (Qtr End 06/30/10) Earnings Call Transcript

Agilysys, Inc. F1Q11 (Qtr End 06/30/10) Earnings Call Transcript
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Agilysys, Inc. (AGYS)

F1Q11 (Qtr End 06/30/10) Earnings Conference Call

August 4, 2010 11:00 AM ET

Executives

Martin Ellis – President & CEO

Ken Kossin – SVP & CFO

Analysts

Brian Kinstlinger – Sidoti & Co.

Matt Sheerin – Stifel Nicolaus

Presentation

Operator

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Welcome to the Agilysys fiscal 2011 first quarter conference call. Some statements made on today’s call will be predictive and are intended to be made as forward-looking within the Safe Harbor protections of the Private Securities Litigation Reform Act of 1995. Although the company believes that its forward-looking statements are based on reasonable assumptions, such statements are subject to risks and uncertainties that could can results to differ materially.

Important factors that could cause actual results to differ materially from those in the forward-looking statements are set forth in the company’s reports on Form 10-K and 10-Q and news releases filed with the Securities and Exchange Commission. Today’s conference is being broadcast live on Agilysys’s website and will be available for replay on the site for approximately 30 days. Now I would like to introduce your host for today’s call, Agilysys President and CEO, Martin Ellis. Please go ahead, Mr. Ellis.

Martin Ellis

Thank you, Debbie and good morning, everyone and thanks for joining us today to review our unaudited first quarter results. With me today is Ken Kossin, our Senior Vice President and Chief Financial Officer.

In our discussion today, we will be using adjusted EBITDA. Reconciliations to GAAP are provided at the end of the presentation, as well as in the press release issued this morning. We also will be using a slide presentation as the basis for today’s review. If you have not already done so, we invite you to access the presentation from the Investor Relations section of our website.

Turning to a quick review of the first quarter highlights. 11% increase in services revenue and 35% increase in software during the fiscal first quarter led the way to 2% higher consolidated revenue. On a segment basis, Hospitality and Retail met expectations while Technology Solutions revenue with some of our larger customers lagged expectations during the quarter.

We successfully increased the tax rates, funding more software and services with the hardware. The improvement in software and services continue to validate our strategy of developing higher value solutions with more proprietary software and services. The increased software and services revenue helped expand gross margin 110 basis points from 24.5% last year to 25.6% this year.

Largely reflecting lower compensation in acquisition-related intangible amortization expense versus last year, quarterly SG&A also improved, down $4.7 million or approximately 11%. While we reported a pretax loss for the quarter, a one-time non-cash adjustment to the company’s deferred tax valuation allowance taken in 2009 contributed to an income tax expense of $4.5 million, including this one-time tax charge, we reported an improvement of $0.10 per share or a net loss of $0.45 per share compared with a net loss of $0.55 a share a year ago. Excluding the one-time tax adjustment, earnings per share improved $0.30 year-over-year.

The increase in consolidated sales year-over-year was largely driven by strengthening demand across the board. We saw improvements in most segments in which we compete. But as we frequently discussed, we are partly impacted by the buying habits of our large customers where purchases were lower this quarter than in the prior year. Our hardware sales were down 7% versus a year ago. Software and services more than offset the decline and we’re up 35% and 11% respectively. The gross margin expansion reflected a higher mix of both software and services margins which were partially offset by lower rebate margins in the quarter.

Notwithstanding the improvement in overall gross margin, pricing remains competitive and acute to be so in certain accounts as well as generally for severance-storage related products. Our cost remain in line with the expectations and as a result, adjusted EBIDTA, now to a loss of $2.7 million from last year’s loss of $6.6 million. We’ve made progress in improving profitability by continuing to focus on driving the top line and managing our costs to further improve our overall profitability. At this time, let me turn it over to Ken to review segment results, balance sheet and cash flow.

Ken Kossin

Thanks, Martin. Sales for the Hospitality Solutions Group were $23 million for the first quarter of fiscal 2011, 44% higher than a year ago. This was in line with our expectations. We continue to see solid demand in both the Cruise and food service segments while both the Casino and Resort segments of the market remains soft. Overall, gross margin declined compared to last year as a result of a higher mix of hardware sales in the current year. SG&A including depreciation and amortization decreased approximately 6% for the quarter primarily as a result of reduced benefit costs.

In June, we announced the general availability of our Guest360 property management system. Capitalized costs for Guest360 were $1 million for the first quarter same as last year. Going forward, these development costs will be expensed resulting in SG&A increasing by approximately $1 million for the quarter and the remainder of fiscal 2011. Adjusted EBITDA was $3.3 million compared to $1 million loss last year and EBITDA margin was 14.4%. Turning to our Retail Solutions group, as we have discussed in the past, our SG&A results tend to be more volatile due to the timing of large customer roll-outs. Despite the 3% decline in revenue, gross profit increased $300,000 for the first quarter compared to last year.

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