Agilysys Inc (AGYS) 2011 Q4 法說會逐字稿

Greetings, and welcome to the Agilysys Incorporated fiscal 2011 fourth quarter results conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions).

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jim Dennedy, interim President and CEO for Agilysys, Incorporated. Thank you, Mr. Dennedy. You may begin.

Thank you, Rob. Good morning and thank you for joining us to review our unaudited fiscal 2011 fourth quarter and full year results. With me today is Henry Bond, our Senior Vice President and Chief Financial Officer. We will be using a slide presentation as a basis for today's review. If you have not already done so, we encourage you to access the slide deck from the Investor Relations section of our website at www.agilysys.com. Also during today's review, we will be discussing non-GAAP financial data, namely, adjusted EBITDA. Reconciliations to GAAP are provided at the end of the presentation, as well as in the press release issued this morning.

At the end of May, we announced the divestiture of TSG, which will allow us to concentrate exclusively on our higher margin HSG and RSG businesses. Our goal is to use these 2 industry-leading businesses as a platform for profitable future growth. For fiscal 2012, the Company will emphasize improving financial performance and returning capital to shareholders. To accomplish this, we will sharpen the focus of our investments in growth opportunities with the highest available returns, and activities targeted to reduce the level of ongoing operating costs.

A major initiative of the ongoing restructuring is to tighten our cost controls and better align corporate functions with our operating businesses. To that end, today we announced that the board of directors has approved a restructuring plan, as well as relocation of the Company's corporate functions from Solon, Ohio to Alpharetta, Georgia, during fiscal 2012. This is a significant step in our restructuring initiative. I'm sure you have a number of questions about the details of the announced restructuring and the anticipated normalized run rate after the TSG sale closes and the restructuring is complete. At this time, we are not prepared to provide guidance or post sale metrics. However, it is our intention to provide guidance regarding the cost of the restructuring and a normalized post restructuring run rate as soon after the completion of the TSG sale as we are able.

Turning to the fourth quarter of fiscal 2011, we were pleased with the continued positive momentum in demand and improving market conditions. Consolidated revenues for the quarter were up 7%(Sic-see press release) to $144 million, compared with $136 million in the final quarter of fiscal 2010. Software sales experienced the most growth, advancing 37% from last year. Hardware was up 3% and services were flat. Compared to last fiscal year's fourth quarter, revenues for HSG and TSG grew 16.5% and 8.8%, respectively. These improvements were partially offset by a 13.6% decline in RSG sales during the quarter.

Gross margin contracted to 25.3% of sales versus 26.4% in the prior year. The decline was primarily due to lower service margins and vendor rebates. The lower services margins were primarily driven by lower proprietary service margins in RSG. The lower vendor rebates were driven by changes in the Sun direct rebate programs since their acquisition by Oracle. Selling, general and administrative expenses increased $2.9 million to $44.8 million, due largely to higher incentive compensation, which was driven by higher sales volume and mix of performance to plan in different segments and product groups.

As previously announced in May, during the fourth quarter we took a non-cash asset impairment charge primarily attributable to the acquisition-related goodwill and intangible assets of TSG. The charge totaled $37.7 million, and reduced the carrying book value for the TSG segment to approximately $44 million. Adjusted EBITDA excluding the impairment and restructuring charges was a loss of $5.1 million for the quarter, compared with a loss of $2.9 million a year ago. As revenue gains in the quarter were more than offset by lower gross margins and higher SG&A. After the asset impairment charge and $800,000 in restructuring charges, the reported net loss for the quarter was $45 million or a loss of $1.97 per share, compared with a net loss of a $500,000 or a loss of $0.02 per share a year ago.

With that, I'll turn the call over to Henry to discuss the segments and balance sheet information.

Thanks, Jim. Sales in the Hospitality Solutions Group increased more than 16% from last year, driven by growth in the UK as well as in the cruise industry. Gross margins increased to 63.8% from 62.8% last year, due to higher services and hardware margins. SG&A excluding depreciation and amortization increased $2.3 million during the quarter. $900,000 of this increase was driven by higher expense due to Guest360 development, which was capitalized in the prior period.

Operating income was $1.6 million for the quarter, which includes a $900,000 charge for the write-off of a trade name that is no longer used in HSG. Operating income was down from $2.2 million last year. Adjusted EBITDA excluding the impairment charge was $3.6 million, reflecting higher revenue and gross margin expansion, partially offset by higher SG&A expenses.

For RSG, revenue was down 13.6% in the quarter, primarily due to lower hardware sales. This was due to a large customer order in fiscal 2010 that did not repeat in fiscal 2011. Gross margin contracted during the quarter to 18.1% of sales, compared with 23.1% last year. The margin decline primarily reflected lower services margins, particularly in proprietary services. The drop in proprietary services margins was partially driven by higher project-related costs.

SG&A excluding depreciation and amortization decreased $800,000 due to lower bad debt and administrative expenses. On an operating basis, the RSG segment reported a loss of $500,000 versus operating income of $700,000 last year. Adjusted EBITDA for the RSG unit swung to a loss of $300,000 from the positive $800,000 reported last year, due to the decline in revenue and gross margin, partially offset by lower SG&A.

PSG's reported revenue increased 8.8% in the quarter, due to bundled -- to bundling more remarketed software with hardware purchases, as well as improved customer demand. Lower vendor rebates continued to hinder margins in this business. Gross margins contracted to 17% versus 18.6% last year. In addition to the lower rebates, margin contraction for both software and services negatively impacted results. SG&A excluding depreciation and amortization increased to $2.7 million, due to higher incentive compensation expense, which was driven by higher sales volume and mix of performance to plan in different business lines and product groups. After including the $37.6 million in asset impairment and restructuring charges, the operating loss for TSG was $41.3 million in the quarter, compared with an operating loss of $1.5 million last year. Adjusted EBITDA excluding impairment and restructuring charges was a loss of $3 million for the quarter -- $3.4 million for the quarter, as the increase in revenue was more than offset by lower gross margins and higher SG&A.

In corporate, SG&A excluding depreciation and amortization expense was $5 million, down from $6.3 million last year. This was primarily due to lower professional fees and capitalized leases that were treated as operating leases during the prior fiscal year. As Jim mentioned, a major initiative of the ongoing restructuring is to tighten our cost controls and better align corporate functions with our operating businesses. We look forward to updating you on our progress towards this initiative in future communications.

Turning to consolidated results for the fiscal year, revenues grew 6.5% versus fiscal 2010. Hardware, software and services grew 4%, 23% and 7%, respectively. On a segment basis, HSG and TSG grew 12% and 8%, respectively. These increases were partially offset by a 2% decline in RSG. Gross profit margin decreased $3.8 million, again, primarily attributed to lower vendor rebates and, to a lesser extent, services margins. SG&A excluding depreciation and amortization was up $8.6 million, which reflects higher incentive compensation expense and higher expense related to HSG's Guest360 software product and the implementation of the Oracle ERP system.

As previously discussed, the higher incentive compensation expense was driven by higher sales volume and mix of performance to plan in different segments and product groups. Other income was lower by almost $4 million as 2010 results included the favorable impact of a gain on the reserve fund as well as income related to the CTS litigation settlement. Adjusted EBITDA excluding charges was a loss of $1.9 million for fiscal 2011, compared with a positive $10.1 million a year ago, as higher revenue was more than offset by lower gross margins and higher SG&A expense.

Switching to the balance sheet and liquidity for the period ended March 2011. The Company's balance sheet remains very strong. We're debt-free and cash on hand increased $8.8 million during the year, reaching $74.4 million, a gain of more than 13% from the end of last year. This reflected cash from operations of $14.8 million, driven largely by improvements in working capital, which was partially offset by $5.7 million in cash used for investing activities.

Year over year, days sales outstanding increased to 77 days, from 69 days in fiscal 2010, but represented a sequential improvement from the 87 days posted at the end of December. Capital expenditures totaled $7 million for the year. This was down from last year, due to Guest360 development costs being expensed now that the product formally launched last summer, as well as ERP development costs that were capitalized in fiscal 2010. Working capital as a percentage of sales was down to 2.7%, due to management of working capital and higher deferred revenues.

With that, we are ready to open the call for questions. Rob?

Thank you. We will now be conducting a question-and-answer session. (Operator Instructions) Our first question this morning is from the line of Brian Kinstlinger with Sidoti & Company. Please state your question.

Good morning, guys.

Good morning, Brian.

The first question I have related to the divestiture of TSG. I'm wondering, as part of corporate overhead, if any of those costs will be moving over with the sale of the business and if so, are you able to quantify how much of that might be moving with it?

The answer is yes, some of those costs will be moving with the business. We are not yet in a position to quantify that.

Okay. And then without giving exact numbers, I mean, you're losing 70% of your business. Would you think that outside of the cost of being public, the corporate overhead is evenly distributed over all the three businesses, based on the revenue size, or would that not be a fair statement?

I would not say that that is a fair statement, but again, we are providing guidance after we have closed the TSG sale on the details from a financial point of view of the restructuring plan, as well as the expected results, post TSG and post restructuring.

And in addition to the corporate overhead restructuring, are there plans at all for changes to the two existing businesses? At a minimum, when you take a look at the retail business, you had mentioned focusing on higher margin business is but that's a 2% operating margin business outside of the operating costs. And so, I'm wondering what are the plans for that business?

Brian, this is Jim. You're correct in that the operating businesses need an additional review. I'm visiting with them this week on Thursday and Friday and as part of the plan that we intend to introduce soon after the close of the TSG sale as possible, we'll be providing additional guidance, not only on the cost of restructuring the anticipated benefits, but disclosing what we think the expected operating performance will be from those businesses, as well as from corporate overall.

Okay. And then on the -- when you look at the balance sheet, obviously there will be some cash costs to the restructuring. Do you expect to grow, keep even, or do you expect cash to pull back in fiscal '12?

In fiscal '12, I don't know that we can quantify that exactly, as you've said. There will be some interplay. I think on an operating basis we would expect to generate cash, but then that will be -- some of that will be used at least for restructuring activities. And until we better quantify it, I can't make a statement, a start/ending cash position expectations for 2012. But 2012 will obviously be focused on making sure that through this restructuring and corporate relocation, that we're positioned for positive cash flows going forward.

Okay. And then on the hospitality side, can you talk about -- we haven't in a long time, really -- specifics about Guest360. How long are the sales cycles? Where are you in that process? When is the international release? Maybe give us a sense of when you expect that to have a bigger impact on the business.

We have already had sales of that, but as you said, you have not seen the kind of impact in the financial statements that you would be looking for. The sales cycle itself on that product is long, particularly in the larger hotel chains. It's a six month or longer type of sales cycle. So, we have had general release of the product. We are developing additional functionality for the product that we expect to bring to market in this fiscal year. And I think that sets the stage for what we believe will be more meaningful growth that you would see externally more clearly as we move forward.

I guess how would you look at it as it's competed in the marketplace against some of the bigger competitors? Have you been able to win 50/50? Are the win rates kind of low, given that it isn't established in the marketplace yet? Maybe give us a sense how that's playing out.

I don't know if I could quantify in win rates because it is a new product and it's really -- we did sign two additional sales in the quarter. I don't know that we're winning a lot of sales. It's more a matter of educating the market and getting through the sales cycle. So, I couldn't quantify a win ratio, if you will. I don't think there's enough data to support that.

Two more questions and then I'll get back in the queue as I have even more than that. But the operating costs went up $2 million on -- I think it's TSG or was it -- sorry, was it RSG, when I look at the December quarter versus the March quarter. And I guess I'm wondering, is that Guest360? Let me just make sure I'm asking the right division there, which one went up $2 million. It was -- okay, it was HSG. Yes. So I'm wondering, quarter to quarter, what was the difference while revenues were flat, December to March, that caused such a spike in SG&A?

You're talking about this fiscal quarter to the comparable fiscal quarter a year ago?

HSG in the March quarter was 12.7, and I think just last quarter it was considerably lower. So I guess I'm wondering, not year-over-year, but quarter-over-quarter, what causes the difference?

Quarter-over-quarter, I do not have that number. A fair amount of it would have been tied to -- you would have higher commissions on higher sales. It was a strong revenue quarter and it was higher quarter-over-quarter. I can tell you year-over-year, where the difference was $2.3 million, about $900,000 of that was driven by the change in capitalization as it related to Guest360 development, and the rest of it no one factor jumps off the page. It's a combination of other factors.

Okay. Well, maybe we'll follow up after the call on that. Because actually, revenues were flat. They were both -- I think they both had $24 million in this quarter and last quarter. Costs were up 20%.

Revenue was up about $1 million sequentially, but I do hear you.

Okay. And then uses of cash, I think that's the biggest question I get from investors right now. You've talked about returning it to shareholders. After you figure out your needs for working capital and maybe investments, I'm wondering, are you going to maybe institute a dividend? Are you going to be buying back shares? How do you plan to return excess cash to shareholders?

Brian, this is Jim. We haven't determined the exact mechanism by which to return capital to shareholders. I think our plan is to complete the review of the businesses, provide more detail around the restructuring plan and the cost to support TSG and transition, and as soon after that, the business is sold or the closing, we'll be able to introduce to the marketplace what we feel the cash cost of the restructuring of the business and relocation would be, as well as our expected results. At that time, we'd have a cash level where we feel comfortable disclosing that which may be available for return of capital to shareholders, and then we'll have to evaluate what's the optimal method by which to return that, whether it's a mix of dividend, special dividend, share buyback. We haven't determined the exact mechanism to return that capital to shareholders.

I've got a few more. I'll get back in the queue. Thank you.

Thanks, Brian.

Thank you. Our next question is from Lee Matheson of Broadview Capital Management. Please state your question.

Hi, guys. Just a clarification on the cash. The press release that went out at the time of the TSG sale said $120 million in cash. You're obviously above that. How much of that was pulling cash out of working capital that may have to go back in as an adjustment on the sale price of TSG?

Well, the TSG sale price does actually have an adjustment based on estimated working capital at close, based on the working capital closer to close. So, some of that will be effectuated actually at the close, but there will be a subsequent true-up based on the actual closing working capital.

For our purposes, should we continue to use $120 million as sort of the net number for cash, before restructuring, but after the TSG sale? Or should we go by the 138 or whatever you're at now?

I still think that something in that 120 is roughly the number that investors should be using at this time.

Got you. Okay. I appreciate it. Thank you.

Thank you. Our next question is from Alan Mitrani of Sylvan Lake Asset Management. State your question.

Thank you. Just to follow up on that last question. Is the business -- well, first of all, let me ask you this. When do you expect to close the transaction, the shareholder vote scheduled and --?

During the third quarter. Obviously, there's some -- I'm sorry, the fiscal second quarter. My apologies. We have not provided any more specificity, so it's the same guidance as provided in the initial press release.

So, by the latest, at the end of September?

That's correct.

Okay. And can you just remind us what hurdles need to take place before that happens? I know there's a shareholder vote. You filed a proxy. What else needs to happen?

There are certain other closing conditions, customary closing conditions as outlined in the stock purchase agreement that was filed. An example being some consents that are required as conditions to close.

Okay. But those are typical -- to be honest, I didn't go through this, the filing specifically, but any reason why it should take until the end of September, given -- I assume you've already filed HSR or they've filed HSR?

There is no filing requirement for HSR in this transaction but we are -- we expect, as we have said, shortly to file a proxy and then file the preliminary proxy and you have to wait and see. Some of it's in the SEC's hands as opposed to whether they provide review comments or whether we're able to file the final proxy shortly thereafter.

Okay. Thank you. And then on the cash issue, is there a seasonal working capital need such that cash is going to drop so significantly? Because you mentioned on the last call or statement that the $64 million you expect to get in is going to be untaxed, correct?

That is correct. There are in fact some seasonalities to our business, and if you look at the historical quarterly results, you will see that. That's very much in effect now, with the TSG results of operations leading up through the close, so seasonality is absolutely a factor. And there are certain transaction costs and so forth that need to be taken into account and payed out of those proceeds as well.

I'm sorry, my phone cut out. Seems like the answer cut out in the beginning. I missed the beginning of the answer. Do you mind repeating that?

Sure. The answer is yes, there is seasonality to the working capital and that has to do with the timing, and if you look at past results, you will see that. And for example, even what you couldn't see in past results is within a quarter, there tend to be some fluctuations within the period as well, and so the timing of the transaction can have a material difference in terms of what the working capital position is at at that time. So that's one answer. Yes, there is seasonality and cyclicality. And then in addition to that, there are some transaction costs as there aren't any M&A type of transactions that would need to be subtracted from the proceeds.

Okay. Maybe this is a naive question, but is there any reason why you haven't put this TSG into discontinued operations and report on the ongoing businesses for us? Because some of the slides are meaningless for the existing shareholders of Agilysys.

Yes. It was the conclusion of management, and also agreed to by our auditors, we haven't filed our 10-K yet but we do expect to file it this afternoon, and basically the transaction is not yet considered perfunctory, because there are still conditions to close. Notably, two things we've already talked about. We do still have a shareholder vote, and we do still have consents that are required as closing conditions. And therefore, if the transaction is not considered perfunctory, then it is not a discontinued operation.

Okay. I would just advise you maybe for this next quarter which ends in the next 15 days, that maybe your slide deck could be -- even if you don't have to put it in discontinued ops, you may want to give a little more information. That might be helpful to the shareholders. That would just be appreciated.

Understood. And as Jim said earlier, we'll be looking shortly, as soon as possible after the transaction has closed, to give more visibility on what the remaining operations would look like on a go-forward basis.

Okay. And you're moving down to Georgia for the corporate headquarters. Is it moving into existing facilities of HSG?

We're examining our facility footprint overall corporately. The design is to reduce our overall facilities corporate footprint. At this time, we haven't made a determination to co-locate in the same building with HSG. We're going to examine all options available to us in Alpharetta when we visit them later this week.

Okay. And are you getting any tax breaks to move down to Georgia?

We have not examined that at this time, no.

You made the decision to move down there before you've spoken regarding tax authorities.

I think it's more of a strategic alignment and we think we're going to get better benefit by aligning our corporate services closer to our business units than having them dislocated the way they are today. But we have t not examined tax benefits with the local municipality, no.

Okay. Also, I realize you don't want to give guidance for this coming year, but as it relates to capital spending, I'm not familiar with the software product. Are you finished with the capitalization of the HSG product?

The answer is no. We did have a general release that happened at the beginning of this year, near the beginning of this fiscal year, and so we are now amortizing that portion of the development. But we do have significant enhancements coming out in the next major release that are capitalized as well. So, on the initial release, yes, we're done capitalizing, but on enhancements that are addressing things like internationalization of the product as well as Cloud enablement of the product, that is still being capitalized at this point.

So, overall, do you have a sense of roughly whether capital spending is going to be up or down in the two remaining segments? I don't really want to hear about TSG right now.

Not prepared to provide guidance on that at this point.

I mean, you just have a quarter of spending already done, almost. How about the first quarter? Did they spend more or less than a year ago?

We're not speaking to the first quarter at this point in time. It's still -- we're still in the first quarter. We're not providing those results on this call.

Okay. And then one last question. Do you have a buyback authorized currently?

No, we do not.

And are there restrictions on your credit line that restrict you from paying dividends currently?

There are no -- there are certain limitations on what could be used for dividends within our current credit facility.

Okay. Thank you.

Thank you.

Thank you. (Operator Instructions). The next question is a follow-up from Brian Kinstlinger of Sidoti & Company. Please state your questions.

Couple questions, follow-ups on the retail business. We've seen IBM's business very strong in that software piece and I'm wondering, are there any signs of a turnaround in that business? And then follow-up, maybe you can touch on the costs that are increasing as well as the pricing pressure. Is cost wages? Are those increasing? And is the pricing pressure customer-specific or is it across the board?

Brian, to address the first part of your question, part of my review of the business later this week is to drive into that area of examination and to get better answers, not only for the business, but also for the shareholders on the general level of performance we saw in the business in 2011 and what we should expect for our fiscal 2012. So with respect to providing you more detailed information, I'd ask you to give me the time to dig into the business, get together with our leadership in the business, and report back to you as soon as we can after the close of the TSG sale on what we should expect out of that business, both in 2012 and after.

And on the cost side, maybe talk about wages and pricing. Wages is the obvious piece but on the cost -- on the pricing side, is that just across the board pricing pressure from customers? Is that you undercutting in order to get business? Or is it large customers that are impacting that more than others?

I'm not sure that I would characterize it as any of those things. As we said during the scripted part of the discussion today, we had lower margins, particularly in our proprietary services, in the RSG segment, and that was driven by higher project-related costs. And that was specific to certain projects which, proportionate to our expectations for the projects when we priced and took on the business, these projects took longer than we expected. To Jim's point about getting in and better understanding the operations, these were out of character for what we've seen in past results and obviously, that's an operating thing that we'll be looking at hard from a go-forward basis and making sure that we are appropriately aligning the services required to deliver a project with the amount that we're charging for that project. Because that really was a big driver of the gross margin contraction that you saw in this period.

Was it one project? I assume you're talking about fixed price contracts that we're going over. Is it one project or several?

There were multiple projects during the period.

What percentage of HSG -- sorry, RSG is fixed price?

I don't have that number to disclose for you.

In terms of management changes, moving from Ohio to Georgia, is the team relatively going to stay intact or do you plan to make additional changes to the management team?

We have no -- Brian, we have no planned changes to the management team at this time. The board is giving this team a charter to make the changes and to relocate and restructure corporate, and that's what this management team is doing. I have no expectation that that team would change as we transition the business to Alpharetta from Solon.

Will you be closing the Ohio office?

Yes.

Okay. Great. Thank you.

Thank you. Our next question is a follow-up from the line of Lee Matheson of Broadview Capital. Please state your question.

Hi, guys. Just in terms of what we can expect in terms of communication from you, post -- I guess once the TSG sale closes, and you've had a chance to go through business unit by business unit and through corporate costs, you're going to update shareholders in terms of what you think the potential level of profitability of the existing business is going to be and what the future sort of strategic direction you're going to take them in is? Is that fair to say? That's probably going to happen at the same time, sometime before September 30, 2011?

I'll answer the first part of the question. You're correct in terms of what you should expect. The when you should expect it, there are several factors that will impact the cost of the business, the cost of the ongoing business post the sale of TSG that we will have a transition services related to that. We have the relocation that will occur after that.

So, until we get a better idea of what the business looks like upon the close of the sale, and there's a few things we still have to work out with the buyer of the business between now and closing related to personnel, we'll be in a better position to describe more completely what you should expect in fiscal year 2012 in terms of the costs that are in the business, to deliver all the services we need to both our operating businesses and in transition services to the buyer of TSG. We'll also be giving you an expected operating run rate for what 2013 and beyond would look like, post the restructuring, as well as the anticipated cost of the restructuring that will be in the fiscal 2012 plan. With respect to timing, it will be after the close of TSG, because there's some input we still need from the closing to give you more specific information on that plan.

Okay. Great. Appreciate it and looking forward to hearing what you have to say.

Thank you.

Thank you. Our next question is a follow-up from the line of Alan Mitrani of Sylvan Lake Asset Management. Please state your question.

Hi, thanks. You said that the, call it roughly $5 million of quarterly cash overhead this past quarter and for this past year, run rate basis a little more, is not necessarily attributable or proportionately split based on revenue. Can you tell us if -- I mean, if that's not the case, what is it proportionately split based on?

We're not prepared to break that out in that level of detail at this point in time. That would be part of our guidance post the transaction and post restructuring of what to expect in business run rates as well as in the corporate run rates on a go-forward basis.

How many people are in corporate right now?

Today we have roughly 100 people in corporate.

100 people. And Jim, you mentioned that there's a transition services agreement and so I assume that will be helpful in terms of being able to cover some of the costs while you get your costs down for the remaining two businesses. Is that fair?

We didn't look at it that way, no. We have an ongoing obligation to support the TSG business for the six months following the close of the transaction. That support cost is consistent with what it currently costs us to support TSG today. N

ow, in addition, other responsibilities of corporate, generally supporting HSG and RSG. The moves of corporate or relocating corporate that will occur in fiscal 2012 will result on the other end a smaller corporate footprint both in facilities and personnel. Not only will we have a smaller business to support but by more closely aligning the corporate support functions with the operating units will allow us to reduce the number of personnel it takes to deliver the services that those businesses need.

Okay, that's helpful. Thank you. Also, by moving to Georgia, right now you're in Ohio, your corporate headquarter's in Ohio and I guess Ohio has certain takeover rules and other rules, like you said. You guys are having a shareholder vote here even though it's unclear whether it's required. By moving to Georgia after the close, you lose some of those takeover defenses, is that correct?

We didn't say anything about reincorporating. We are an Ohio corporation. We have not indicated any change to reincorporate in any other state. We're relocating the business, the corporate services and the role of corporate to be closer with our operating businesses, which happen to be in Atlanta and Greenville.

Okay. So at least right now, based on what you see, you'll remain an Ohio corporation?

Correct. There are no plans to reincorporate in any other state right now.

Okay. Okay. That's helpful. Thank you.

Thank you. There are no further questions at this time. I would like to turn the floor back over to Mr. Dennedy for closing comments.

Thank you, Rob. Thank you for joining us on our call today. The sale of TSG is a significant transaction, selling a division representing more than 70% of fiscal year 2011 total revenue. As a part of that sale, Agilysys has an ongoing support obligation for up to six months following the close of the transaction. We are taking the necessary steps to deliver the transition services as efficiently as we can, while also taking steps to rapidly reduce our cost structure to align with the expected revenue run rate of the core businesses.

The core businesses delivered mixed results in fiscal 2011. HSG showed good top line results with improving gross margins. RSG had a difficult year. We believe there are longer-term market and product set collaboration opportunities between the businesses. And, as mentioned at the top of the call, we look forward to providing additional details on our restructuring and normalized operating run rate on future calls.

With that, we would like to thank you for joining us today and look forward to reporting additional progress during the current fiscal year.

Before we close, we would like to remind you that remarks made today may include forward-looking statements based on current expectations. These forward-looking statements may 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 that can materially affect results outlined in Agilysys' corporate filings with the Securities and Exchange Commission, and the Company's earnings release. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.