Good day, ladies and gentlemen, and welcome to the Agilysys Fiscal 2018 Fourth Quarter Conference Call. [Operator Instructions]. As a reminder, today's conference may be recorded. I would now like to turn the call over to Norberto Aja, Investor Relations. Sir, you may begin.

Thank you, operator, and good afternoon, everyone. Thank you for joining us on the Agilysys Fiscal 2018 Fourth Quarter Conference Call. We will get started in just a minute with management's comments. But before doing so, let me read the safe harbor language. Today's conference call contains forward-looking statements within the meaning of the safe harbor provision of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as anticipate, intend, plan, goal, believe, estimate, expect, future, likely, may, should, will and other similar references to future periods. Examples of forward-looking statements include, among others, our guidance relating to revenue, adjusted earnings from operations and cash and cash equivalent balance and statements we make regarding continuing sales momentum, our ability to achieve revenue and profitability growth, greater innovation, product development velocity and improvements in the financial results and shareholder value. Forward-looking statements are neither historical facts nor assurance of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial conditions to differ materially from those indicated in the forward-looking statements today include, among others, our ability to achieve operational efficiencies and meet customer demand for products and solutions and the risks described in today's news announcement and in the company's filings with the SEC, including the company's reports on Form 10-K and Form 10-Q. Forward-looking statement made by us in today's conference call is based solely on information currently available to us and speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking statements that may be made from time-to-time, whether as a result of new information, future developments or otherwise. Today's call and webcast will include non-GAAP financial measures within the meaning of the SEC Regulation G. When required, a reconciliation of all non-GAAP financial measures to the most directly comparable financial measure, calculated and presented in accordance with GAAP, can be found in today's press release as well as in the company's website. With that, I would now like to turn the call over to Mr. Ramesh Srinivasan, President and Chief Executive Officer of Agilysys. Ramesh, please go ahead.

Thank you, Norberto. Good afternoon and good evening, everyone. Thank you for joining us on the call today to review our fiscal 2018 fourth quarter results, our future outlook, and expectation. Joining me on the call today is Tony Pritchett, our Chief Financial Officer. Taking a quick look at our financial results. Revenue as compared to last fiscal year's fourth quarter increased 4.8% to $32.1 million, leading to a GAAP net loss of $0.2 million or a loss of $0.01 per share compared to a loss of $5.3 million or $0.23 per share in Q4 of fiscal 2017. This improvement in GAAP loss included a onetime noncash gain of approximately $2 million related to changes in our tax provision as a result of the recently passed Tax Act. This brought our full year fiscal 2018 revenue to $127.4 million, in line with full year fiscal 2017 revenue, and led to a GAAP net loss of $8.4 million or $0.37 per share compared to a GAAP net loss of $11.7 million or $0.52 per share for full year fiscal 2017. The total annual onetime noncash gain included in our GAAP net loss related to adjustments from the Tax Act was $3.3 million revenue. Revenue for the fourth quarter was driven by a marked increase in our SaaS subscription and annual maintenance recurring revenue, which rose to a quarterly record of $18.1 million, 11% increase over the comparable quarter last fiscal year. This year-over-year quarterly increase in recurring revenue included a 32% increase in SaaS subscription revenue. Our overall recurring revenue base grew by $5.8 million in fiscal 2018 compared to fiscal 2017, our largest single year increase since fiscal 2014 when we transformed our business into a pure-play hospitality industry software provider that we are today. This recurring revenue increase during…

Thank you, Ramesh. To echo Ramesh's comments, we are pleased with the direction we're headed and more confident than ever in our ability to grow top line, drive back growth down to the bottom line and create shareholder value. In the fourth quarter of fiscal 2018 and throughout the fiscal year, we made significant progress on our key financial priorities, including lowering our overall cost as a percentage of revenue and positioning the company for growth through all of the strategic initiatives Ramesh just explained. Taking a look at our financial results, beginning with our income statement. Fourth quarter fiscal 2018 revenue was $32.1 million, a 4.8% increase from total net revenue of $30.6 million in the comparable prior year period. The increase in top line revenue largely reflects an 11.4% increase in recurring revenue to $18.1 million, offsetting a slight decline in product and professional services revenues. On an annual basis, we are happy with our $5.8 million increase in recurring revenue. The decline in our product revenue was mostly due to lower volume with third-party products. This shift in the revenue mix is important to keep in mind. Total recurring revenue represented 56.4% of total net revenues compared to 53% of total net revenues in the fourth quarter of fiscal 2017. We are pleased with the all-time high quarterly recurring revenue this quarter and the fact that total revenue rose sequentially for the second consecutive quarter. We are also pleased with our robust SaaS-based revenue growth, which grew at 32% for the fourth quarter of fiscal 2018 and 35% for the full fiscal year. SaaS revenues comprised around 30% of total recurring revenues compared to 25% of total recurring revenues in the fourth quarter of fiscal 2017. Product revenue and professional services revenue were both down slightly compared…

[Operator Instructions]. And our first question will come from Allen Klee with Maxim Group.

I had three questions. The first one is, can you talk a little about the timeline for rolling out new pieces of the rGuest offerings and plans to add any new services or features that you believe can improve your competitive position? The second question is, if you could expand on opportunities to grow with larger hotels internationally and how to think about the impact that, that can have on the overall revenue growth and potential upside to your guidance? And then finally, just some comments on the overall competitive environment and if it's changed in any way.

Allen, thank you. Let me just take those questions one-by-one. As far as the rGuest timeline is concerned, rGuest Buy -- the bookings for rGuest Buy is really beginning to pick up and that product is doing well right now, and we're continuing to add more features and more enhancements to that product. In terms of rGuest Stay hitting the stride, I think, like we told you before, we are a few quarters away from that before rGuest Stay really starts contributing to our revenue growth. In terms of new services and new modules and features, we are just about gone live now with a new Web booking engine that's gone actually live with the customer and we are beginning -- that's an additional software module that we're beginning to sell now. We will also be bringing in a matter of weeks a new kiosk product that's an rGuest Express Kiosk that enables customers to help themselves more and more customer guest-facing functionality. So that new module is coming to the marketplace. We are working on a whole lot of mobile applications that can be attached to our InfoGenesis product. And we're also working on a new golf and spa module that will be additions to all our property management systems, LMS, V One and Stay. So the pace at which we are now doing software modules, the newer ones that are higher margin by nature has really picked up, and they are all beginning to hit the marketplace now one-by-one. So in terms of time line, rGuest Buy is hitting its stride right now. rGuest Stay is a few quarters away. But a few more new rGuest modules are beginning to hit the marketplace now in a matter of weeks. Number two, in terms of opportunities of larger hotels,…

[Operator Instructions]. Our next question will come from Phil Bernard with Eilers & Krejcik.

Congrats on a decent period and the significant margin improvement. And just one question today. You mentioned one opportunity to grow the top line and the increasing sales within your customer base. Just wonder if you could maybe provide a little more detail there on maybe what percentage of your current customers have a single product and maybe how that has changed over the last year and maybe your goal going forward over the next year.

Yes. Phil, this is Tony. Thanks for listening in. So with respect to our current customers, we did feel like there's a significant opportunity there to help grow our revenue and help grow our top line. We still have just over 50% of our customers with one of our products. So that provides a great opportunity for us to go after. There's lot of opportunity to sell rGuest Pay into those customers as well as just all of our other complementary products. So Don, when he came onboard, he's been here for about, what, four months now. That's one of his big initiatives, and we've also got several of our product teams working on initiatives to kind of drive sales into our existing customers with some of our new products that Ramesh mentioned earlier.

Our next question comes from John Dumont with Archon Capital.

Congrats on the strong SaaS revenue growth. It's great to see the continued growth there and as well as just the increased profitability. A couple of questions here. On the sales strategy, we're curious, as part of your strategy there, are you going back to your current customers and trying to move them over to your SaaS offerings from your on-premise customers? And then as a follow-up to that, we're also curious just have you seen a change in just how new customers are consuming the software? Is there a shift between SaaS and on-premise? Or just curious if you could give some color there.

Yes, sure. Thanks, John. In terms of going to our current customers, I would say the chief highlight, the main highlight there is that we are going to them with a lot more software offerings, right? Following up on Phil's question, our position with our current customers, where about half our customers use only one of our products, hasn't changed much, because a lot of the innovation, a lot of the speeding up of our product development is beginning to hit the marketplace now in the last few months or so. So we just have a lot more software modules to offer to our current customers now, and that's what we're focused on. And most of the demand is for SaaS, right? Compared to on-premise versus SaaS, SaaS is where the general marketplace is. So that is going to continue to drive our SaaS revenue forward. And wherever possible, we do offer customers the option of switching from annual maintenance model to a SaaS model. When it is good for them and it is good for us, it really works out well. But in terms of selling more to our current customer base, the major driver is coming from the fact that there is just a lot more increased pace of innovation and we have a lot more new software modules to offer to them. And also, the product that they're already licensed have improved a lot in the last few months. So that is also beginning to drive our services revenue and customers wanting to upgrade to our newer versions.

Okay. And a couple of follow-ups if you don't mind. On the development side, I know you guys have spent the whole last year really focusing on upgrading the development and the speed of innovation there. And you kind of touched on this a little bit earlier. But curious, do you think you're where you need to be as far as just your development speed, or is there more working to do there? And just curious if you could also provide just a little bit of color in terms of just to have a difference that the -- all the increased capacities in India has put on?

Yes, the increased capacity in India has made a big difference during the last few months. We're just getting a lot more done not only in terms of new requirements that customers have, but also we're acting quicker to all kinds of customer requirements. So that's definitely making a difference, and they're especially making a difference in India and Asia. We're beginning to support those markets a lot better. Now in terms of your first part of your question, it's a matter of continuous improvement, John. I mean, there's never a period where we're going to say we are completely satisfied. We are in a far better position now than we were 12 months ago. We are multiple times more productive now than we were 12 months ago. But it's a continuous improvement process. India can still get better. Our U.S. R&D teams can still get better. We're continuing to attract more talent into our R&D offices. And it's a continuous improvement process. But what I can tell you is we are far better off today than we were six months ago, 12 months ago, and we will continue to improve in the next 3 to 6 months as well. It's a continuous improvement, John.

Great. And then are you planning on adding significant headcount on the R&D side or -- as far as headcount, or are you close to where you want to be there?

We're close to where we want to be now, but that will be driven by revenue growth. Like Tony said in his comments, our plan is to grow revenue at a faster pace than we grow cost. And that applies to R&D as much as it applies to sales and marketing and G&A. So we will carefully continue to expand R&D as our revenue continues to grow as well. And at current level of revenue, we are almost there where we need to be.

And our next question comes from Tucker Golden with Solas.

Ramesh, Tony, Norberto, congratulations on continued progress and look forward to more. I was curious on the India Development Center. What's the current headcount and how far are you towards being fully staffed up there?

Yes, the current headcount is just about at 300 or less, and our capacity there is 330. So we should be building up to 330 in a matter of weeks. We've made a bunch of offers and they are about to join. So they are about to join us. So I would say the current headcount is 300. We should be at our capacity of 330 in a matter of a few weeks.

That's great. I know that's a big piece of the puzzle. And I know you've talked about one -- in addition to hotels, one other big growth opportunity is being international, specifically Asia. Just any update there, any more granularity into where you see opportunity and when you think you might be able to begin to address it?

We are beginning to address it already, Tucker. International growth, we saw that happening in Q4, where EMEA had an excellent quarter as far as sales booking goes. And our product sets are beginning to deliver the enhancements that those markets require. So I expect, in the subsequent quarters, international to become an increasing contributor. But that's not the only growth factor we're relying on. Like we said, 50% of our customers have only one product. Our selling to our current customers has also increased, because we have more to offer them. The gaming vertical is doing quite well. So we expect considerable growth there, because generally gaming, which currently constitutes about 50% of our revenue, that industry is doing very well. So there's increased customer demand there. So we expect that to drive our revenue as well. And rGuest Buy as a product is a second offering now we have to the broad-based food services management market. So there, we were a very little dependent on one big customer. Now there are more customers there, who are talking to us with respect to InfoGenesis and Buy. And so there are a lot of areas of growth that we are currently addressing. And all of them, I think, will constitute our growth in this coming next two, three quarters. International is just one piece of the puzzle.

That's great. I know you're not guiding out this far today, but as you look into fiscal 2020, do you hope to accelerate on beyond 10% sales growth?

Yes. Most definitely, yes. Yes. Because we like our momentum now and as we continue to improve our products, we continue to improve our people strength and talent level, we are seeing -- we are being -- we're very encouraged with the improvements we are seeing now. And I think that momentum will only continue to increase. I do expect 2020 to be a high double-digit growth year, between 10% and 20%. That's what I...

Not the 90s. That's great. It's clear you're laying all the groundwork and making a lot of progress. Just switching gears a little bit, in terms of next year's guidance, Tony, can you give us some color on CapEx and capitalized software development costs?

Yes. So if you look at our cash flow statement and you look at those two numbers for capitalized PP&E and capitalized software development costs, looking into next year, those numbers will probably come down a bit. We ramped up the India Center this year. That required a descent amount of capitalized PP&E. So that number will come down a bit, not a whole lot, though, because we do have other initiatives to invest in. And then the capitalized software development costs will probably tick down a little bit just as we continue to realize the benefits of our transition from the contractors that we used to have even into early fiscal '18 that are now pretty much gone and everything has kind of completely transitioned to our own internal resources.

Okay. And so I'm guessing adjusted EBITDA might be just up very modestly if we're looking at adjusted operating earnings being kind of $4 million or $6 million better with lower CapEx, lower capitalized software development cost. Any line items you can highlight on the income statement where there will be kind of incremental investment or are gross margin still going to be kind of in that 50%, 51% range?

We think gross margin will probably stay pretty close to where it is now, kind of as we ended the fiscal year. As you look down the P&L, all of our costs, we expect to stay about the same range as a percentage of revenue. There is still some ramping to go with respect to the engineering teams from where we are today. But overall, as a percentage of revenue on an annual basis, we're pretty close to where we're expecting it to be. Keep in mind, there's fluctuations in the quarter. Q1, we've got some additional expenses that come in for certain trade shows and professional fees for things like our annual audit, stuff like that. So it's cyclical to some extent. Some quarters are heavier than others. But on an annual basis, the percentage of revenue should be pretty consistent with where we are now.

Okay. Makes sense. And then hopefully, we'd expect to see some operating leverage in 2020?

Yes, absolutely. And we do feel like we're pretty well set-up at this point with descent operating leverage. As we both mentioned, I think we expect revenue to grow faster than cost.

Even in the FY '19.

Even in FY '19, absolutely.

And I'm showing no further questions at this time. I would now like to turn the call back to Ramesh for closing remarks.

Thank you, Chelsey. In closing, we enter fiscal 2019 with growing momentum, driven by increasing SaaS and recurring revenue, improving operating margins, a world-class leadership team, expanded R&D capacity and a new work ethic and attitude across the organization, focused on being customer-centric, engineering-driven and devoted to all the markets we serve. Please enjoy a terrific and safe long weekend coming up. We look forward to reporting further progress when we report our first quarter results a couple of months from now. Thank you.

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