Good afternoon, ladies and gentlemen, welcome to the Agilysys Fiscal 2017 First Quarter and Full Year Conference Call. As a reminder, this conference is being recorded. Some statements made on today's call will be predictive and are intended to be made as forward-looking within the Safe Harbor protections of the Private Securities Litigation Reform Act of 1995. Also the company believes that its forward-looking statements are based on reasonable assumptions. Such statements are subject to risks and uncertainties that would cause results to differ materially. Important factors that could cause actual results to differ materially from these forward-looking statements are set forth in the Company's report on Form 10-K and 10-Q and news releases filed with the Securities and Exchange Commission. I'd now like to turn the call over to Mr. Jim Dennedy, President and CEO.

Thank you, Candice and good morning everyone. We appreciate you joining us today to review our fiscal 2017 first quarter results. Joining me on the call today is our Chief Financial Officer, Janine Seebeck. Before we get started, just a quick reminder that we will be discussing some non-GAAP metrics on the call today, primarily adjusted cash from operations and adjusted EBITDA which eliminates the effect of restructuring and other items that are either non-cash or non-recurring. Reconciliations to GAAP metrics are provided in the financial section of the press release issued earlier today. With that, let me provide a quick overview of the results for the quarter. Total net revenue for the first quarter increased 13% to $31 million including over 31% growth in subscription revenues. However, due to the amortization of developed technology resulting from the general availability of rGuest Stay as expected gross margin in the quarter declined to 52.3% from 59.7% in the prior year period. This led to our reporting operating loss of $2.1 million compared to an operating loss of $277,000 a year ago. Adjusted EBITDA for the first quarter was $441,000 compared to adjusted EBITDA of $1.2 million in the same period last year. As a result we reported a net loss for the fiscal first quarter of $2.3 million or a loss of $0.10 per diluted share, compared to a net loss of $200,000 or a loss of $0.01 per diluted share in the prior year period. Janine will provide a more extensive review of our financial results including the income statement and balance sheet as well as our expectations and outlook for fiscal 2017. The business remains healthy and growing. We continue to increase revenue, expand our customer base, increase recurring revenue including rGuest based sales and strategically investing in our…

Thanks, Jim, and good morning, everyone. Our first quarter fiscal 2017 total revenue was $31 million representing a 13% increase from total net revenues of $27.5 million in the comparable prior year period. Products revenue, which is comprised of hardware and on premise software license sales increased 8% to $9.5 million and represented 31% of total revenue during the quarter. This reflects an increase in hardware sales associated with our proprietary software so does the subscription based service, as well as increases in hardware replacement sales for iconic products. It is important to note that while subscription based license sales yield initial revenue of lower margin hardware. They provide us with higher margin subscription revenues in future periods. Support, maintenance and subscription revenue or recurring revenue remained flat at $14.9 million compared to the first quarter of fiscal 2016, while our subscription based revenue grew by 31% and accounted for approximately 20% of support, maintenance and subscription revenue compared to 16% in the fiscal 2016 first quarter. In the quarter we experienced a decline in our remarketed support revenue resulting in the overall year-over-year flat recurring revenue. We expect that the support, maintenance and subscription revenue for the year will show annual growth trends in the 4% to 6% range. Professional service revenue grew 72% to $6.5 million compared to $3.8 million in the first quarter of fiscal 2016 reflecting a better utilization of our services resources. rGuest platform revenues comprised 5% of total fiscal 2017 first quarter revenue. Moving down the income statement, cost of goods sold increased approximately 33% or $14.8 million. The increase is largely due to the start of amortizing software development cost as rGuest Stay reached general availability. And total gross profit fell 1.3% to $16.2 million in the first quarter of fiscal 2017, while…

Thank you, Janine. Before we turn to your questions I’d like to take this opportunity to thank the very talented and dedicated team at Agilysys. Their work truly drives our success. And I want to thank our many customers and partners who entrust us with their business. Secondly, Agilysys will continue to invest for growth operate efficiently and engage your customers widely. I remain confident about your investment in innovation. Agilysys will be a formidable competitor a better partner for our customers, remain an interesting company for our employees and a profitable investment for our shareholders. With that, let's turn the call over to Candice for questions. Candice.

Thank you. [Operator Instructions] And our first question comes from the line of Allen Klee of Sidoti. Your line is now open.

Yes. Hi, good job on the quarter. In terms of – I guess to start with in terms of the faster growth in professional services. I know products is more related to I guess some of the new product offerings that you have, but maybe can you comment on professional services what’s going on there.

Sure, this is Janine. So I think in the quarter what we saw was definitely some clearing of some of the backlog as we started to grow our bookings overtime. You've seen the number in professional services going up quarter-over-quarter sequentially. I think we definitely saw that this quarter was a little bit higher than kind of what we expect the run rate to be. But definitely we’re expecting professional services to be at a higher run rate than what you would have seen in Q1 of last year as we continue to close more of the subscription deals and be able to take the hardware and the professional services upfront.

Okay. Then I – go ahead, sorry.

Just to explain the business a bit as we sell demand for our solutions whether its a premise or a subscription based. You're building a backlog of professional services demand that we need to address and what we saw in the first quarter was some changes that are under leadership of Ravi Angadi and Rob Jackson our services organization, we were able to get greater resource utilization out of the team. We think that their greater utilization in terms of billable hours per month is going to be sustained throughout the year and that we should see based on our previous recorded demand in our bookings data continued higher levels of professional services revenue for the rest of the balance of fiscal year. We did have an outsized bump in Q1 as the changes that they made in their organization helped retire more backlogs, but now we're getting down to a more normalized level of just a higher level of service revenues in every quarter we see going forward.

Okay, thank you. And then for subscription revenue you mentioned that it was the SaaS grew but something else declined to result in the whole thing flat, but I missed what you said about the other thing that declined and then did you say the whole segment you expect to be up 4% to 6%.

That's correct. So Allen basically we have within our support. It's obviously made up of our annual recurring proprietary maintenance as well as remarketed support, which we book as a net upfront revenue. So those are things like third-party hardware contracts we sell to some of our third-party hardware contract maintenance contracts. That line item actually declined year-over-year as we’re moving away from more of – less of that I series LMS on premise. So that line item, the decline in that basically offset the growth we saw from a subscription based revenue in the quarter, but I am expecting even with that line having some impact that will still hit 4% to 6% for the year for the whole line item.

Okay. And then as we think about margins and I know in the near-term product and professional as you're getting these subscription products you get more of an impact upfront, but how do you think about the timing of how those margins kind of change over – how that kind of influx overtime.

So Allen I think what you're asking is obviously we've got items coming off the balance sheet, it’s about $31 million that came off in Q1 related to Stay and then Buy will have another $10 million or so that’s coming off in Q2 that will start to amortize. That obviously has an impact on margins it’s a five-year amortization. So you have to assume that it’s going to come in. We do assume that it will take a little bit of time for revenue to ramp to offset that and that probably won’t happen up until the second half of our fiscal 2018. These start to see that normalize. So I think there's definitely a timing impact as we start to show the costs technically ahead of kind of the key parts of the revenue as we’ve now gone generally available. Does that answer your questions.

Yes, thanks. Then you talked about the dollar amount – the total dollar amount of total contracted value of subscription business that was up 250% year-over-year. Do we know what the actual – what the dollar amount of the contract value is?

Yes. We do, we haven't disclosed. We haven't disclosed those numbers. We haven't made those numbers on a quarterly basis available generally.

Okay. And then of the new rGuest products, could you give us a sense. You did a good job of kind of what's been coming out and stuff just going forward over the next year or so kind of what we could look forward to?

In terms of product revenue growth or product revenue contribution from the rGuest products.

Or kind of – new things that you're thinking about.

I see, in terms of new developments.

Yes.

The new dev – yes, I think when you look at the portfolio today it’s – we’re essentially focused and we spent a lot of time getting the Buy, Seat and Pay products outs. The Stay product is the central investment that we then recently released for limited and select service. It's now evolving primarily Stay and Buy going forward. So if you think about the evolution of Stay, it’s addressing a market that's now bigger than Limited and Select Service, while Limited and Select Service is a big market even if you discount the US alone, as we make a continued enhancements to rGuest Stay, that include full service hotel that opens up a larger market. Full service hotels and chains that gets you into the Tier 1 chain hotel market. And then we start encroaching in the territory that we already serve in the resorts and the casinos. So the near-term opportunities over the next let's say 12 months we’ll be introducing new lets say feature sets within Stay to address greater and greater market opportunity for us in the core hotel market. The same is generally true for rGuest Buy, rGuest Buy utilizes the backend engine of InfoGenesis. So our customers don't need to do anything if they've already been on InfoGenesis to use the rGuest Buy technology. What rGuest Buy technology does is it presents a new terminal phase to the users first focusing on let's say the guest services associate so a new terminal itself or the guest service. And at the same time creating this kiosk product that will allow for a guest facing interaction with the ordering system or the menu system. So within the Buy product, there's really going to be sort of two introductions. Introduction one will be opening up new…

That's helpful. Thank you. And then last quarter you talked about that there could potentially be some transformational type of opportunities out there. How do you think about that today?

So these are the large deals that we track in our pipeline, but we hold them out. Jim Walker and I sort of hold them out separately and we talk about those in our weekly cadence calls as a separate kind of large deal step up and change opportunities within the business. We have about a half a dozen of those on which we're working. And through the summer I mean it's only been two months since our last call. So over the last two months, some of those projects have advanced materially. Others based on summer vacationing and customers just generally not being available through the summer. The projects are still there. We expect activity around those projects to pick up later this month and into the fall, but again those large opportunities remain available to us. It's continuing to address their needs any special configuration requirements or – these larger enterprises they have complex networks and its understanding what we need in order to have line of sight from the end point out through their proprietary networks to our data center to make the whole solution operate effectively for them. So those large deals are still there. We still anticipate that landing several of these will cause needle moving changes in our business. Now that said I also want to describe how some of these enterprises work. Some of these enterprises work in a way where you land a deal and you get the entire enterprise deal. And they'll make a wholesale shift and what they use for their point of sale operations right away. Others tend to give you let's say a hunting license if you will and they give you the stamp of approval and then you need to go out and target each one of the franchisees in their universe and secure business with the franchisees separately in order to secure all those properties. The ones who are likely to move first or at least the deals that are furthest along right now are the ones that are more decentralized decision making franchisee based. And those are the ones who just happen to have spent more activity throughout the summer. And ones that we think we'll get approval on sooner rather than later but that also means it's not going to be a large enterprise deal announcement. It’s just going to give us the opportunity to then go sell these franchise or groups of owners on doing business with it with Agilysys. That's the way that big deals and the large businesses is shaping up.

Okay. Thank you. And then in your beginning text you talked about some competitive wins and could you maybe just go over a little bit of kind of why you were able to displace the incumbent what do you think that you had versus them.

Sure. I think it really boils down to first half service and support. Our ability to deliver a higher level of support in terms of business support. We need new terminals. We have a surge in business. We have an event upcoming. We need you to be responsive to our business needs. And we’re able to address that more quickly than our competitors. The second area around support is when there are outages like there often are in this type of technology is that our ability to respond to outages more quickly and get them back into operating service faster is also something where we excel relative to our competitors. That said the underlying technology itself whether its InfoGenesis compared to any of the other providers point of sale services in the space or LMS or Visual One. The product capabilities themselves are by default superior to our competitors, but I think what we're hearing is being a more responsive partner has actually been more important to them in their decision making to switch than the feature set availability that might be superior in InfoGenesis or LMS or Pay or what have you. Once they begin using the product, they then understand why the response and services can be so high because the product is just easier to use and more suitable to hospitality operations. So that’s the feedback that we're hearing from why we are winning these competitive displacements.

Thank you. Congratulations on the quarter.

Thank you.

Thank you. [Operator Instructions] And our next question comes from Phil Bernard of Eilers. Your line is now open.

Hi guys, thanks for taking my call. Well done on a good quarter.

Thank you.

I will try and make this quick, I’ll start with the support and subscription revenue. You guys provide some more information on terminals installed and rooms managed for POS and your Property Management Systems. I was wondering if you'd be able to speak to the mix between licensed and subscription, terminals and rooms and how you see that – how that has evolved over the last year and a half and how you see that changing going forward and maybe provide some color on yield as well.

So Phil, it’s a great question. I would tell you from a terminal and revenue perspective it’s still because of the bulk obviously it’s still pretty much legacy on premise, where it's probably still much heavier weighted 80% to 90% depending of that would be on premise. Obviously more of the new deals that are coming in and moving to be installed are definitely a heavier shift towards subscription. We haven't given that full data yet, but I think that something that as we continue to transform into subscription business. And we see more and more of the terminals and the rooms come in that fashion. I think we'll be able to start sharing that data with you. I think today it is pretty heavy – heavily weighted although I would tell you the new opportunities and new logos right are definitely much more heavily shifted at least 60, 40, maybe even a little bit more than that towards that base.

Got it, got it. Okay, okay. Good news going forward. And then my last question, an update on your progress with the Drury install and maybe some commentary on how that's going and what the response has been from them.

The Drury installs are going extremely well. I think we have two properties live and are working on a third, the rollout schedule that we had planned for them. We're still on track for that. They – we always felt like it was going to go somewhat slow in the beginning and then the pace would pick up. The feedback that we're hearing particularly from the lead or the head of IT for Drury has said this has been the smoothest PMS replacement that they've ever seen. Not only from doing the record counts and reducing the number of records down to a more sensible level of unique records in their database, so they went from several million down to a couple of million and through that transformation we identified many records that were duplicates of the same individual, but then once we've transferred those records over into our new rGuest PMS, rGuest Stay that transfer of records, the transfer of information, the migration of full reservations in to Stay has gone far smoother than they ever anticipated. And we think that’s all good news. It's a reflection not only of the technology, but I think it's a reflection of our people. Our people really understand not just the technology, but how an operator needs to function. And so when they think about data migration is it just moving a thing from cell A1 to cell A1 in the new concept to the new system it’s understanding what a reservation record looks like. So you can move the whole thing over and make it make sense in the context of the new system. And I think that is a testament to the quality of the people we have in the organization.

Got it, got it. I appreciate it. So service continues to be a source of competitive advantage for you guys it seems.

It always is. When I look at an enterprise product, there is two components to the enterprise product and it’s the developed technology plus the services. But within the services, there’s three central pieces of services that you’re delivering. It's the support services for the use of the product, it’s the professional services for the implementation, the understanding the how to run your business on the product and then its the corporate services all around provisioning and getting the right products at the right time to you that the invoicing is correct that it's easy to do business with. So you think about an enterprise product out of the four components I highlighted three of them are service related. And of all you focus on is the technology you're missing three of the four things that an enterprise customer relies on a provider for support for the entire solution and it's all around services. So you're absolutely right that by focusing on our service and how we distinguish ourselves with a product that is superior in the marketplace because of our engineering services being so high quality. It makes for an easier sale and greater growth rates in the business.

Got it. So quarter backing off of that point and moving over to a specific vertical gaming, there seems to be – there continues to be some growth within that sector. However, it would probably come from competitive replacements do you see yourselves in a position to be able to grow the business within that vertical.

We do. It's not only from competitive displacement, but it's also through innovative thinking on how we can help operators address more of the non-gaming spend that's going on at their property. When we talk about the rGuest Buy technology or we talk about InfoGenesis Flex the mobile tablet. It's giving our operators more product or more solution endpoints from us. So we're basically expanding the footprint of what you would traditionally think would be available on the number of point of sale endpoints per venue and sort of almost doubling that. And so if you then double that, but you give it to let’s say a guest service associate poolside or in an area where walking around and serving – servicing the guest is the situation versus the guest being seated at a specific table and you do a lot of back and forth. What we've noticed and I talked to our friends that at the – property themselves, so when I go to the MGM properties or when I stay at Vdara I actually ask the server is this more effective for you, how does it work for you. And what they're telling us and what they see in their venue revenues that it makes them 25% to 30% more efficient in terms of order delivery, order taking and the guests are happier because instead of like everybody coming to the well and putting drinks all at the same time that guest services associate can take three or four orders and be sending those as they're ordered to the well. So there's not a huge queue up by the time the guest service associate gets back the orders in many cases are already available for the take back to the floor. So it increases order flow, he gets the drinks to the guest more quickly and the overall experience is higher. So through that we are expanding some of the footprint that otherwise would be more limited by offering them innovation and service that then uses our technology to provide that delivery. Now that said, that's expanding the addressable market within the market we already own. But because of our ability to do that we then can explain this is why you should use Agilysys technology versus a competing technology and we’re winning the competitive displacement at the same time. So that what's happening within the business in the competitive dynamics and why we think growth in gaming remains available to us.

Got it, got it, great. Well, that is it for me. Thanks, guys.

Thank you.

Thanks, Phil.

Thank you and that concludes our question-and-answer session for today. I’d like to turn the conference back over to Mr. Dennedy for closing remarks.

Thank you, Candice and thank you all for your interest in our Company. We believe Agilysys continues to make progress as we focus our resources on the highest value opportunities in our chosen end markets and manage the business for the long-term to deliver sustainable value to our customers and our shareholders. We look forward to updating you on our progress during our fiscal 2017 second quarter results call. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect. Have a great day everyone.