Write-Downs Hammer Agilysys Financials in Fiscal Q4

June 8, 2009 Timothy Prickett Morgan

Application software developer and hardware reseller Agilysys is trying to steer its enterprise in the same choppy economic seas as the rest of us, and despite an uptick in sales for its key InfoGenesis product, the company still was unable to stay in the black in its fourth quarter of fiscal 2009 ended in March.

For the quarter, which spanned the worst part of the economic meltdown and the consequent slamming down of IT spending, sales of hardware and software by Agilysys, which is a key peddler of Power Systems i products, fell by 27.1 percent to $118.2 million. However, services sales rose by 19.3 percent to $37.2 million, at least cushioning the blow a little bit. All told, sales fell by 19.6 percent to $155.4 million., and Agilysys had to book an $86.2 million impairment of assets charge, which drove the company to a $113.8 million loss–a lot more than the $4.3 million loss in last year’s fourth quarter.

Agilysys said that hardware sales declined 27.7 percent in the quarter, compared to a 2.7 percent increase for software and services. The company’s Technology Solutions Group had a 25 percent revenue decline in the quarter, the company said, thanks in large part because large IT infrastructure projects “remained challenging.” Sales at its Retail Solutions Group fell by 15 percent, but sales in the Hospitality Solutions Group actually rose by 15 percent due to strong sales of the company’s InfoGenesis suite of applications in the quarter. The higher mix of software and services plus increased hardware vendor rebates helped boost gross margins in the quarter, the company said.

For the full fiscal 2009 year, Agilysys reported $730.7 million in sales, down 3.9 percent, with hardware sales declining 9.5 percent to $508.7 million. Services sales for the year were up 15.1 percent to $145 million, and software sales rose by 7.1 percent to $77 million. This would have been a pretty good fiscal year had Agilysys not booked $40.8 million in restructuring charges and $231.9 million in write-downs on assets.

“While the market remained weak in the fourth quarter, particularly as it relates to hardware sales, we were pleased with the improvement in adjusted EBITDA, given the 20 percent decline in sales,” said Martin Ellis, president and chief executive officer at Agilysys in a statement accompany. “The cost-savings initiated in fiscal 2009 are beginning to be reflected in performance.”

Last June, before the economic meltdown really hit home, Agilysys hired JPMorgan Chase to explore its future financial options, including a possible sale of all or part of the company. Not much has been said about this since that time, and as we go to press on Friday, the company has a market capitalization of $168 million, a little more than half of what it was worth a year ago but considerably more than the dark days of November, when the company’s shares were trading at $1.89 a pop, giving Agilysys a market cap of a mere $45 million. Agilysys had $36.2 million in the bank as the 2009 fiscal year ended in March. Acquisitions are probably out of the question, given the desire to conserve cash these days. It would be fair to assume that Agilysys is going to hold tight, batten down the hatches, and let its restructuring help right its ship and hope that the economy–and therefore its fortunes–improve.

That’s what most of us are doing, too.

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