Agilysys Touts Cost Cutting Ahead of Financials

November 10, 2008 Timothy Prickett Morgan

It’s been a rough couple of months for the U.S. economy, and it has also been tough on i platform reseller and application software developer Agilysys, which four weeks ago said it wasn’t going to make its numbers in the quarter and then two weeks ago did a management shakeup that saw four top executives leave the company. Last week, Agilysys wanted to let everyone know it is getting its financial house in order–and fast.

The company, which is publicly traded, will report its second quarter of fiscal 209 results on November 20, but wanted to let everyone know that the moves it has made in recent weeks have shaved $8 million in costs out of the company–that’s $8 million over-and-above the $17 million in cost cutting that the company announced back in June. That was also when Agilysys hired JP Morgan Chase to be its financial advisor to explore its strategic alternatives, as they say in the business, which is usually a codeword for a company that is looking to sell off assets or find a buyer.

As it turns out, Agilysys said two weeks ago, when executive vice presidents Robert Bailey and Peter Coleman were asked to leave, along with Jeff Levine, a senior vice president of IT and operations, who was also shown the door, that it would not try to find a buyer for itself but remain an independent company. (This is not exactly a seller’s market, and very few companies have the cash or credit to acquire much of anything these days. So there is no surprise in this.) Arthur Rhein, retired two weeks ago as president, CEO, and chairman of the board, was replaced by Martin Ellis, previously the company’s chief financial officer, and now its president and CEO. Keith Kolerus, a director, was named non-executive chairman of the board.

Last Saturday, Agilysys put out a statement saying it had cut $8 million in costs (and a lot of that apparently came from the firing of the top execs at the firm). “Since our leadership transition, we have met with key stakeholders and they remain supportive of our strategy and recognize the strong long-term growth potential of our business,” Ellis said in a statement. “With the actions we have taken or initiated, we will further strengthen our financial position and improve our prospects for profitable growth, as we continue to build on our already-distinctive customer service reputation.”

Agilysys has not pre-announced its results, but did say in early October that it expected sales for fiscal 2009 to be in the range of $810 million to $825 million, down significantly from earlier estimates of between $860 million to $900 million. The company booked sales of $781 million in fiscal 2008.

The company has lost another $11 million in market capitalization in the past two weeks, and is now valued at $89 million as we go to press. A year ago, the company was worth nearly four times that, and was undervalued compared to its revenue stream. The problem, of course, is profits. On an annual basis, Agilysys has not made money since 2004. Even selling off its KeyLink server reseller business to Arrow Electronics in early 2007 for $485 million didn’t help its bottom line as much as was hoped. Agilysys hasn’t made money since it stopped being a master reseller for IBM gear back in 2004, a move it made to try to focus on higher-value “solution” sales.

The fact is, it is a tough market out there in the midrange–and not just the IBM midrange, but all of it. Just ask Sun Microsystems or the Business Critical Systems unit at Hewlett-Packard.

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