Good morning and welcome to the Agilysys fiscal 2008 fourth quarter earnings conference call. For your information, all participants will be in a listen-only mode. There will be an opportunity for you to ask questions at the end of today’s presentation. Before we begin, the company would like to remind you that all remarks today may include forward-looking statements based on current expectations that involve risks and uncertainties that could cause the company’s results to differ materially from management’s current expectations. Please refer to the risk factors which can materially affect results outline in Agilysys' corporate filings with the Securities and Exchange Commission and the company’s earnings release. (Operator Instructions) I would now like to turn the conference over to Mr. Arthur Rhein, Chairman, President, and CEO for Agilysys. Mr. Rhein, the floor is yours, sir.

Thank you. Good morning and thanks for joining us today. Our unaudited results were issued before the market opened and are currently available on our website. With me today as usual is Martin Ellis, Executive Vice President, Treasurer, and Chief Financial Officer. Before we discuss our financial results and the new segment reporting information we introduced with today’s earnings release, I want to make a few comments on the year we just completed. First, neither my management team nor I are happy with our bottom line. As we move through the first six months of the year, we were busy integrating acquisitions and our pre-existing or organic business was doing pretty well. At the end of Q3, when we updated guidance, we acknowledged our costs were high. Some of them were retained to execute integrations, given the number and speed of the acquisitions we made, and we again acknowledged that our legacy infrastructure costs are high and that we would grow into them as a function of our aggressive growth plans. This infrastructure was built to support our previous distribution businesses and it’s not quickly nor easily changed or replaced with something more suited to support our new business. As a result, we’ve retained significant corporate overhead cost that would not typically be associated with an IT business of our size. Given the current uncertain economic environment and the state of capital markets, we announced we reengaged J.P. Morgan to review our strategic growth plans while we performed a detailed review of our business in light of the economy and our financial performance. This review has resulted in a significant cost reduction plan which we are already implementing. While not understating my disappointment with our bottom line, I want to highlight what we’ve accomplished in terms of repositioning the company.…

Thank you, Art and good morning, everyone. Let me begin today by mentioning that there are a number of items that without further explanation make it difficult to compare earnings and earnings per share to the prior year. For the quarter, we had a net loss including discontinued operations of $807,000, or $0.03 per share. Discontinued operations contributed $151,000, or $0.01 per share of income. In the fourth quarter a year ago, net income was $200 million, or $6.46 per share, which included income of $207 million, or $6.67 per share from discontinued operations of our former KeyLink systems distribution business. Loss from continuing operations was $958,000 in the fourth quarter, or $0.04 per share. This was a $7.5 million increase over a loss of $6.6 million, or $0.21 per share a year earlier. Sales for the fourth quarter increased 75% to $206 million, compared with $118 million in the fourth quarter of fiscal 2007. The base business, or as we have defined it, our organic business, which was the business we owned last March and excludes the acquisitions we’ve made since the announcement of the KeyLink divestiture, declined 2.8% year over year and contributed $115 million of the sales for the quarter. Revenue from acquisitions accounted for $92 million of the sales, or 44% of the revenue in the quarter. Fourth quarter revenue from hardware products was $153.8 million, up 75.4% compared with $87.7 million for last fiscal year’s fourth quarter. Software revenue was $20.4 million, up 161.5% from the $7.8 million a year ago. Services revenue was $32.2 million, up 42.5% from $22.6 million a year ago. As we discussed last quarter, gross margins can vary depending on customer, size of transaction, mix of products, related supplier programs, and services associated with an audit. Also, the increased size…

(Operator Instructions) The first question we have comes from Brian Kinstlinger with Sidoti & Company. Brian Kinstlinger - Sidoti & Company: Good afternoon. Good morning. I have a bunch of questions, so I’m going to ask some and then I’ll get back in the queue. The first one, I took your ending cash flow position from cash flow from operations and I subtracted the last three quarters and I got a cash flow outflow of $26 million for the fourth quarter. Maybe you can highlight the factors leading to that and what you are expecting for fiscal 2009 in terms of cash flow.

Brian, I’m not able to reconcile exactly to your cash flow for the fourth quarter. I’m not sure if you picked up in the financing section the fact that we’d implemented a flooring plan and that under flooring plan, part of accounts payable is now reflected in financing versus cash flow from operations and that was a $14.5 million impact in the quarter. Brian Kinstlinger - Sidoti & Company: Right, so -- sorry, go on.

As it relates to the full fiscal year for FY09, obviously cash flow will be positively impacted by performance and given the wide range on guidance for the top line and EBITDA, we expect cash flow to be in the range of $15 million to $20 million for the year. Brian Kinstlinger - Sidoti & Company: That’s operating cash flow, right?

Yes, cash flow from operations. Brian Kinstlinger - Sidoti & Company: Great. Can you give us a sense of what your cash position is today? You had that earn-out payment and I’m not sure what the floor planning liability is but when you pay that out, so maybe give us a sense of where you are today and when the floor planning payment is going to be made.

The floor planning, let me just spend a minute on the floor planning. The floor planning is effectively a structure to assign our payables to IGF or IBM global finance and as opposed to paying Arrow. We have put in place this floor planning agreement, which will be permanent, and so this isn’t something that’s going to be settled in the short-term. It’s an ongoing financing relationship that we will use to fund our payables and purchases of product, so that payment of $14 million is not going to in and of itself go away. It will expand over time as the business grows. Brian Kinstlinger - Sidoti & Company: Okay. In your comments, you guys mention that you will not be as acquisitive. I’m curious what your new EBITDA goals are now [for] fiscal 2010 and you’ve already made another small acquisition. Do you expect that door to be closed for the year? Just give us a sense?

Brian, guidance as it relates today is obviously guidance for the base business. If you look at the pro forma EBITDA margin for the full year under the cost savings, we are moving up pretty high up that EBITDA margin scale, if we get to the high end of our guidance. Right now, we are focused on integrating acquisitions and improving profitability and given some of the uncertainty on the macroeconomic environment on the macro front, it’s our objective to see how things shake out first before we aggressively pursue any acquisitions, unless something of true interest and strategic nature comes up in the next short-term. Longer term, those goals that we outlined are still our long-term financial goals. It’s just that in the short-term, we are not aggressively pursuing any acquisitions, given the uncertainty in the macroeconomic environment. Brian Kinstlinger - Sidoti & Company: Can you say --

Brian, I think it’s important to note that the management team is paid on those three-year goals and we continue to be. Brian Kinstlinger - Sidoti & Company: And then -- that’s helpful. And then so you still expect by fiscal 2010 to reach that 6% or is that more of a longer term goal now?

Those are still our goals. If you go back to our original guidance on those long-term goals, that was a run-rate goal that by the time we exited fiscal 2010, we would have a $1.5 billion business on a pro forma basis with a run-rate EBITDA of -- EBITDA margin of 6%. Obviously we’ve still got two years between now and then and nobody has a crystal ball as to exactly how the macroeconomic environment changes, but our expectation is that we will work through this over the next quarters and the market will return to some sense of normalcy later in the year ahead or maybe next year. Brian Kinstlinger - Sidoti & Company: But how much cash and/or debt will you need to use to get to those objectives?

Well obviously that will be a function of the nature of the acquisition that we make. Generally speaking, the nature of the acquisitions will be a blend of what you’ve seen thus far and if you look at the multiples on our acquisitions on the one hand on the hospitality side and on the other hand on the technology solutions side, you can probably come up with a reasonable estimate of what acquiring approximately $0.5 billion in revenues would require in terms of an acquisition multiple. You know, $0.5 billion at an EBITDA margin of 6% or 6%-plus, at on average eight or nine times EBITDA if you look at the blend of acquisitions that we’ve made in the past, that requires financing of approximately $250 million. That’s probably a reasonable ballpark given that we don’t have anything specific at this point. Brian Kinstlinger - Sidoti & Company: And I forgot, did you give us -- did you say what your cash position is today?

I did not. Currently it’s in the $40 million range, mid-40s. Brian Kinstlinger - Sidoti & Company: I’m going to ask two more questions and then I’m going to get back in the queue. First of all, in the 4Q expenses on the SG&A side, how much of that, of the inflated number was rebate related versus what you kind of alluded to as one-time or non-recurring?

You’re talking about gross margin? Brian Kinstlinger - Sidoti & Company: No, I’m talking about the SG&A number in the fourth quarter. I mean, your SG&A went up $5 million but your revenue quarter to quarter is down almost $50 million, so I’m curious -- what was going on in the SG&A line and in terms rebates and anything else?

The rebates that we earn are recorded in gross margin, so our rebates are reflected in gross margin. SG&A would then be a function of obviously facilities, largely people related costs, and then year-end true-ups on various accruals. In the fiscal year, we had to obviously in the fourth quarter, we had a significant contribution from new acquisitions in the way of SG&A and then we had true-ups on year-end compensation related items and other year-end closing entries. I don’t think that there’s anything specific that would get you to -- or anything material that’s going to get you to reconcile back to the number that you were referring.

Brian, in regard to your question earlier in terms of our three-year goals, we are certainly mindful that with the current uncertainty in the economy, you layer on the credit market and what we are terming the disconnect in multiples, where Martin was talking about our historic multiples versus what the market will support today versus what may be expectations of sellers, and then compounded by our multiple in terms of our current stock price, there’s no question we see a reason to -- how shall I say -- pause in terms of our acquisition strategy. We will be very interested but we are only going to be aware of something or only entertain something that really is of strategic importance to us. We’ve determined that for the next period of time, we really have to concentrate on running the business certainly more efficiently, and that’s where our efforts are going. So again, I think it’s important to note that we haven’t adjusted our three-year plan. Again, as I mentioned, our team is continuing to be rewarded or incentivized towards that plan but we are certainly mindful of what’s going on in the economy, as I say, as it relates to the multiples and the credit market and we’ve got to see how this thing works itself through in the next couple, four quarters, depending on how long it’s going to take. Brian Kinstlinger - Sidoti & Company: Great. Thank you. I’m going to -- I’ve got a handful more but I’ll let some other guys ask some questions first. Thanks.

The next question we have comes from Matt Sheerin with Thomas Weisel.

Good morning. This is Aaron [Vermonen] in for Matt. So I had a few questions also. So just to start on the cost reduction that you guys were talking about that you expect to be completed by the end of the first quarter, is that primarily in the corporate part of the business or are you planning to cut costs across other parts of the business, or maybe in a few of the acquired companies?

Well, we are certainly looking at the areas where we think we have under-performing assets, if you will. And we are going to be -- well, we have looked and we are going to be making adjustments in a number of the businesses. As yet, we have not really made public those cuts that we are going to be making. They are broad-based and we certainly will be able to talk more about them as we execute them.

Okay, so we should expect an update on that, I guess.

Yeah, at the end of the -- when we report results for the June quarter, we will be able to share more of the specifics around what we’ve planned and what we’ve executed on.

Okay, and do those reductions assume the demand environment stays at this current weakness or if things deteriorate further, should we expect to see anymore reductions? Or if they stay at this level, should we also expect to see anymore reductions?

Well, as you can see in the -- both in the range of our guidance and where that guidance is, we’ve really assumed what I consider to be a conservative number but appropriately conservative number in terms of growth for the year, and the savings are truly based on cost reductions as opposed to looking for growth in our gross margin. So although we will have some of that, we hope, again you have a good sense of where we’ve targeted the business. As we go through the year, we certainly will be looking at whether we are up or down relative to those numbers and certainly consider adjusting the business accordingly.

Okay, that’s helpful. And just moving to the -- your comments about deals being pushed out and just weakness in IT spending, have you seen any of those -- have you seen those deals close? Are you seeing any improvement in the current quarter?

On the acquisition front, and then if the question was acquisition related deals versus --

Deals -- I’m referring to deals from your customers, because you mentioned there were push-outs of hardware purchases.

No, I think that we’re seeing -- it’s still a bit early in the quarter. You know, typically most things happen in the last month of every quarter, so it is a bit early. But I would say that we haven’t seen a -- what I would call a gross deterioration in the market. We certainly were a bit surprised by the lack of end-of-quarter bump that we normally get. We are concerned about this quarter but activity through -- so far through the quarter is pretty normal. We’ll just have to see where we wind up.

Okay, that’s helpful. And also, just on -- you mentioned you saw organic growth of 1.4% year over year, but could you describe how the acquired businesses performed year over year on a -- I guess on a pro forma basis, if you --

Well, from an overall basis, I think that our businesses performed generally within our level of expectations. You know, some of them will be a bit better, some will be a bit worse than our original plans. In the case of one of our acquisitions, InfoGenesis, we altered our integration plan and certainly the normal disruptions that you experience, which are those that result from a company being in the mode of selling, and then going through an acquisition process, we then altered, as I said, our integration plan and that caused additional disruption, so sales and margin were less than we originally had planned. But again, given the changes we made, fairly consistent with our adjusted expectations. So again, you’ve got some that will be a little better, some that will be a little worse. There’s no question that when we look at our technical technology sales group, a figure that you may be interested in is that for the first nine months of the year, we were up about 17%. In the last quarter, we were down year over year about 10%. That’s a dramatic swing and that certainly surprised us, along with many folks in the industry. You may not have been able to glean it from the reports of some of the manufacturers but when you look at the reports by the two major enterprise distributors, which are Arrow and Avnet, and you look at hardware, particularly servers in North America, it was a very, very difficult quarter, particularly with certain product lines. And there’s no question that again, we did not expect that. We were surprised at that, as I suspect were a lot of folks.

Okay, that’s definitely helpful. And I just have a few housekeeping questions and then I’ll jump back in the queue, just to give some others the opportunity to ask questions. So in the other income line, it was pretty high this quarter, related to the Magirus sale, but what should we expect going forward? Should we expect a return to a normal range of plus or minus $1 million or $2 million a quarter?

I think going forward, you should expect there to be a loss on the other income line, at least for this fiscal year. When Magirus sold off a large part of their business, as you know, last year and they are going through a restructuring of that business and as a result, we will report losses against their business for at least this fiscal year.

Okay, and just one question on the expectation for shares for FY09, it looks like you guys are anticipating purchasing another million shares. Would you expect that to happen earlier in the year, later in the year?

No, I think what you are picking up, Aaron, is that currently we have 22.7 million shares outstanding. The fully diluted share count for fiscal 2008 or for the quarter reflects a weighted average outstanding of shares based on the timing of which we repurchased them, so if you take current shares outstanding of 22.7 and then readjust it upwards based on estimated dilution to 23.5, that was the number that we used for guidance. But in our guidance, there’s no implied additional retirement of shares this year.

Okay. All right, thank you.

The next question we have comes from Michael [Cougar] with [Prometheon].

Good morning, gentlemen. I was wondering if you could comment a little bit on the work that J.P. Morgan is doing for you. I understand from your comments that the results of some of their work has resulted in cost-cutting targets, but I was a little confused because I would kind of think that they would be retained for M&A type of activity, so if you can just give me some detail there.

Well first off, our cost-cutting initiatives really had very little, if anything, to do with our reengagement with JPM. JPM has been our investment advisors for some time and as we announced, we’ve re-engaged with them to take a look at our growth plans and our growth strategy. Again, at the risk of repeating myself, when you look at the macroeconomic environment that we find ourselves in, let alone what occurred in the fourth -- our fourth quarter, but more importantly again, if you look at the economy, if you look at the credit market, and what we’ve now termed or we are recognizing is the disconnect in multiples. Again, that’s between what companies were paid a couple of years ago versus where we are today, let along where it may go in the next six, nine months. And then you look at our valuation, what we’ve acknowledged as what we believe is the disconnect in the value of our stock versus the underlying value of the company and candidly, when our shareholders look at that, obviously our stock looks like a wonderful value and that’s why we in fact did execute the repurchases. So we’ve asked JPM for a very broad look at the market and how these factors will affect us in the coming year or two or three, and subject to that we’ll be obviously continuing to reevaluate our plans in light of what they have to say and in light of the factors I’ve just mentioned.

Okay, thanks for that. I was wondering if you could comment on where you are seeing private market transaction multiples and the relevant sectors take place versus the current valuation of the shares.

Rather, Michael, than provide you a specific number, what I can tell you is we have had conversations over the course of the past several months with companies and several have withdrawn from the market because they did not receive offers that were anywhere near in line with their valuation, if you will. So I suspect that again, we are just acknowledging what has been this disconnect.

Okay, thanks for that.

I would add a comment to that. You know, I think certainly companies that were considering liquidity options late last year were doing that on the back of some very high multiples that came to market in the summer of last year, and probably had inflated expectations based on those multiples. And given that the market changed, they hadn’t reset their expectations and as a result, we are looking at very recent transactions in the rearview mirror thinking that those still held in the current environment. I don’t know that there’s anything specific that we can offer on multiples outside of the fact that one or two of the transactions that took place in the summer and late summer of last year were at multiples which were quite high compared to historical multiples.

Okay.

The next question we have comes from Brian Alexander with Raymond James.

Good afternoon. This is Brian Peterson in for Brian Alexander. If I look at your full-year revenue guidance, and I exclude what you guys have already announced for acquisitions, it looks like you are forecasting revenue growth to be flat organically year over year. And I know you talked about negative 10% organic growth in the fourth quarter, which is a big step down. Is that how we should be thinking about the TSG segment, or should we be seeing some deceleration in organic growth in the other segments? Just wondering how we should be thinking about this revenue by segment.

We haven’t provided guidance by segment but let me talk generally about revenue guidance for the year. The low-end of the range of 860 implies limited growth of the overall business. And that’s a function of some of the uncertainty in the macroeconomic environment at this time. Our broad expectations are that the hospitality business will have higher growth than the technology solutions business, given the uncertainty in the IT spending environment today.

Okay, and can you also talk about maybe gross margins? It seems like you are forecasting them to be up 135 bps year over year. Just trying to put that together with your comments on the growth environment and the rebates.

I think that’s just a function of where we will see, as we’ve modeled, where we are going to see the growth and the difference in product and customer mix.

And also, we will report for this upcoming fiscal year our acquisitions for a full year and we acquired late in the year the Eatec acquisition, which did not contribute to our overall gross margin and so that will push it up a little. And we have a slight change in mix at some of our businesses towards services. But the acquisitions are a key driver of the increase in the gross margin.

Thank you very much.

The next question we have comes from Brian Kinstlinger with Sidoti & Company. Brian Kinstlinger - Sidoti & Company: Thanks for taking my additional questions. Martin, if the growth rates slow a little bit more on the technology solutions business, where could the gross margin based on the rebates go? I mean, what could happen to the rebates?

Well, right now, although the rebate programs are fairly consistent in terms of what we are being rewarded to do, the rebate targets are a bit high and that’s what we experienced in the -- well, in our fourth quarter. So candidly, those conversations are going on now, so that we will be working with our suppliers to frankly negotiate some of these rebate levels. And at this time, it’s really difficult for us to project what we will accomplish or where we will come out with our suppliers as it relates to some of those rebate programs. Now, it’s important to note, some of the rebate programs are volume-oriented but not all, so some are tied to growth and some are tied to penetration of certain markets. So again, they vary. Brian Kinstlinger - Sidoti & Company: Do you expect to be GAAP profitable in the last three quarters of the year once all the cuts are completed, or is that going to be a seasonal -- does that depend on seasonality, whether you are GAAP profitable or not? Does that make sense?

Well, from a GAAP standpoint, the biggest contributor to operating income, the biggest drag to operating income from reporting GAAP profit is our depreciation and amortization, which for this year, for the fiscal ’09 is expected to be pretty significant at about $27 million. Depending on how the year shakes out, the GAAP profit or operating income is somewhere between -- about break-even and positive and a large portion of that will be a function of the third quarter, given some of the seasonality in that quarter. But Brian, it depends really on growth rates in the overall business for the year but as I say, at the low-end of our guidance, you are looking at approximately break-even operating income, given the depreciation and amortization that we forecast of $27 million for the year. Brian Kinstlinger - Sidoti & Company: Okay, and suppose the market remains status quo from where we were at the end of March to right now, is that reflected in your range? Because that sounds like then you are seeing more weakness than you might expect for the full year -- is that accurate or is that an inaccurate way to look at it?

I think we’ve captured the current market environment in the low-end of our range, and the high-end of our range is under the broad base of expectations that some people think spending may come back later in the fiscal year, as well as as we look at some of our businesses, what prospects might be if spending strengthens. So we’ve captured I think the macroeconomic environment, the current macroeconomic environment in our guidance. If things change, then we’ll have to revisit that.

I think, Brian, to share with you some of the things we’ve been thinking about, right now is a very difficult time to plan the business, and therein lies the degree of the range we’ve been talking about. It appears as though people are pausing. In other words, we’re seeing projects delayed. We are not seeing projects being taken off the boards yet, so right now we are in this interim period where we are between customers saying well, we’ve delayed this a quarter or we are going to delay it X number of weeks or into the next quarter because we want to see how the climate will be. Some of the companies are reducing the transactions -- in other words, where they were planning on X millions of dollars, today it might be half that or two-thirds of that or a third of that. So right now is a very awkward time, and maybe awkward is a poor choice of words but it just is difficult for us to plan the business beyond what we’ve done, which I think has really been quite an aggressive cost-savings program, if you will, that we are implementing. But as we go through the year, we’re just going to have to get a sense of this quarter by quarter and see how things start to shake out. It’s just not clear whether these programs, these projects, if you will, are going to be mothballed or in fact just reduced or if the economy comes back in another quarter or two, reinstated to full bore. So it’s just tough to call right now. Brian Kinstlinger - Sidoti & Company: Fair enough. Were taxes impacted by your gain, or was that net of taxes in the other income line? I know that’s a maintenance question but I’m just curious.

By our gain on? Brian Kinstlinger - Sidoti & Company: On the -- on Magirus’ selling what they sold. You had that gain of $11 million. Would taxes have been the same without that gain for the fourth quarter?

Well, taxes would have been the same. The effective tax rate may have been different. Brian Kinstlinger - Sidoti & Company: Okay, that’s fair. And then, in terms of restructuring, what kind of dollar amount might you think you will spend on restructuring and how much of that is related to J.P. Morgan? Is that included in there? If not, what are you -- what kind of money are you spending on that?

We are not in a position to disclose fee structure with J.P. Morgan, but as far as restructuring is concerned, Brian, I’d rather defer that until the end of this quarter when we report Q1 and I’m in a position to give you something a little bit more precise. Brian Kinstlinger - Sidoti & Company: Fair enough. Last question is related to Magirus -- what are your present plans with that asset? And I saw your asset went up significantly in the quarter. Is that a result of that gain? Or why else would that investment go up in the quarter on the balance sheet?

The asset went up based on the gains. That’s their gain on sale of part of their business. Brian Kinstlinger - Sidoti & Company: And your status of ownership? I mean, you’ve talked about this before on the call. What are your plans?

Well, we currently or continue to own about 20%, just under 20% of the business. To be fair, it was a strategic investment when we were in the distribution business. I would certainly acknowledge that it’s a bit less of a strategic investment today but our relationship remains very strong with the management of that company and at this time, there’s really nothing that we foresee changing in the relationship. Brian Kinstlinger - Sidoti & Company: Okay. Thank you for your time.

(Operator Instructions) Mr. Rhein, Mr. Ellis, gentlemen, I’m showing no further questions at this time.

Thank you. In closing, I’ll remark that I guess we’ve all just acknowledged that it’s not entirely clear to any of us whether IT spending will be pushed into the second half of the year or perhaps even into next year. Either way, it makes for challenging times. By aggressively taking action to reduce expenses at this time, we believe we are improving our position to take advantage of the longer opportunities that we think the market will hold for us. So again, thank you for listening today.