Agilysys Is Back in the Black in First Quarter

Published: August 13, 2007

by Timothy Prickett Morgan

Server reseller Agilysys, which has a substantial presence in the System i market, has swung to a profit in its fiscal 2008 first quarter ended June 30, and has done so because sales are up and it got out of the IT distribution business back in January.

Agilysys said that in the first quarter, sales were up 20 percent to $128.4 million. About $12 million of that growth (or around 56 percent of that) came because of acquisitions earlier this year, but the company also had organic growth as well. In the first quarter, hardware sales were up 20 percent to $91 million, while software sales rose by 64 percent to $12.4 million. Services sales during the quarter at Agilysys came to $25 million, up only 5 percent.

In January, Agilysys sold its KeyLink Systems distribution business to Arrow Electronics, becoming a downstream reseller instead of trying to compete with the master resellers in the server space. Arrow paid $485 million for KeyLink Systems, which generated approximately $1.6 billion in revenues in calendar 2006. Agilysys was always smaller than Arrow and the other big server master distributor, Avnet, and the company believed that by getting out of the wholesale sales of servers and storage and by moving itself closer to customers, it could make more money even if it didn't have as much top-line revenue. So far, this theory is panning out.

In the quarter, net income from continuing operations at Agilysys came to $2.7 million, or 8 cents a share, compared to a net loss of $2.8 million, or 9 cents a share, in the year-ago quarter. In the quarter, Agilysys did four acquisitions, which burned down the $604 million pile of cash it had at the beginning of the quarter to $364 million. Agilysys bought Visual One Systems, a maker of Windows-based applications for the hospitality industry, which has annual sales in the range of $9 million; Stack Computer, a technology integrator that has $55 million in sales a year and that puts together high availability storage setups using gear from EMC and Cisco Systems; InfoGenesis, which has software for running hotels and casinos and which brings in about $42 million a year; and Innovativ, which has around $256 million in annual sales peddling Sun servers and storage to end users.

Looking ahead, Agilysys provided updated guidance to Wall Street, saying that it expects fiscal 2008 sales in the range of $800 million to $824 million, with gross margins in the range of 24 percent and earnings before taxes and other items in the EBITDA chant of between 2.5 percent and 3 percent of sales. That revised guidance is upward, not downward. Back in May, when Agilysys had closed out its fiscal 2007, the company said sales would be in the range of $770 million to $790 million; margins were essentially the same, so whatever incremental top-line growth the company sees also incurs just about the same increase in costs.

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