Good day, ladies and gentlemen, and welcome to Agilysys' Fiscal 2020 First Quarter Conference Call. As a reminder, today's conference may be recorded. I would now like to turn the conference over to Dave Wood, Vice President of Corporate Strategy and Investor Relations at Agilysys. You may begin.

Thank you, Katherine, and good afternoon, everybody. Thank you for joining the Agilysys' fiscal 2020 first 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 other periods. Examples of forward-looking statements include among others our guidance related to revenue, adjusted EBITDA, and free cash flow, and statements we make regarding continued sales and business momentum. Forward-looking statements are neither historical facts nor assurances 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 the circumstances that are difficult to predict, and many of which are outside of our control. Our actual results and financial conditions 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 maintain 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 within the Securities and Exchange Commission, including the company's reports on Form 10-K and form 10-Q. Any 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 was made. We undertake no obligation to publicly update any forward-looking statements that may have been 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 SEC Regulation G. When required, a reconciliation of all non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP, can be found in today's press release as well as on 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, Dave. Good afternoon, everyone. Thank you for joining our fiscal year 2020 first quarter earnings call. Joining Dave and me on the call today is Tony Pritchett, our Chief Financial Officer. We completed another strong quarter highlighted by revenue of $38.4 million, a 12.9% increase over Q1 of last year with increases in all three of our revenue lines, recurring revenue, product revenue, and professional services, driven by sales growth across our verticals. This was our seventh consecutive sequential revenue increase, fifth consecutive record revenue, and fourth consecutive double-digit year-over-year revenue increase quarter. Recurring revenue was a record $20.1 million for the quarter, driven by a 24% year-over-year increase in subscription revenues. Our cash balance decreased by $3.5 million during Q1 fiscal 2020 which is typical for us. While our revenue is not cyclical, our cash collections tends to be cyclical, Q1 being the most pronounced of them with each subsequent quarter thereafter improving during the fiscal year. We continue to expect fiscal year 2020 to be overall a significantly better free cash flow year compared to fiscal 2019. As I get more deeply into my comments, I want to make it clear that, when we refer to sales, that encompasses everything, we have sold during a period, which we normally measure internally in terms of annual contract value. Revenue on the other hand, is driven by product shipped or in the case of recurring revenue what has already been implemented and refers to the amounts we have recognized as revenue during a period. Sales during a period contributes towards both, current and future revenue. That said, our strong sales momentum continues to drive good revenue growth. The last three quarters have been among our best ever in terms of sales. The year-over-year increase in sales this quarter…

Thanks, Ramesh. As Ramesh highlighted, we are pleased with the results for the fiscal 2020 first quarter. When we look back at the last 12 months to 18 months, we see clear and tangible proof of improvement in growth across just about every facet of our business. As we look ahead, we are very encouraged with the growth potential in the markets and remain confident in our ability to grow top-line and improve profitability and shareholder value. The results reflect the significant progress we are making on the operational side of the business including managing OpEx and CapEx spend in total so that it declines as a percentage of revenue while at the same time investing in the right areas of the company that will afford us the clearest and surest path to growth. Taking a look at our financial results beginning with our income statement first quarter fiscal 2020 revenue was $38.4 million, a 12.9% increase from total net revenue of $34 million in the prior year period. This marks our fifth consecutive record revenue quarter and the seventh consecutive quarter of sequential revenue growth. We are pleased to see growth across all three of our revenue line items and record revenue in two of these revenue lines. The increase in top-line largely reflects a 19.7% increase in product revenue to $10.9 million and a 12% increase in recurring revenue to a record $20.1 million as well as a 6.3% increase in professional services to a record $7.4 million. Total recurring revenue represented 52.3% of total net revenue for the fiscal first quarter compared to 52.7% of total net revenue in the first quarter of fiscal 2019. It is important to note that within that recurring revenue growth, we enjoyed robust subscription revenue growth which continues to outpace our…

Thank you. [Operator Instructions] And our first question comes from Allen Klee with Maxim Group. Your line is now open.

Yes. Good afternoon. Your results topped my expectations. I was just curious if there was anything that you would point out that might have been one-time in nature in this quarter that I should think about?

Hey, Allen, this is Tony. Thanks for listening in today and continuing to follow the stock. As far as one-time items ago we mentioned the depreciation expense, which is not even part of EBITDA. But that depreciation expense item was a non-recurring item. Otherwise things were generally consistent this quarter. Nothing unusually outside the norm from a revenue perspective. There was nothing material. That was a one-time item. You know from time-to-time, we do have operating expenses that hit us in different quarters of the year. So, for example, we had some trade shows and events that hit us in Q1 of last year that don't come in until later this year. So there is some lumpiness in OpEx. But from a general business perspective, ongoing operations there was nothing materially unusual in the quarter.

Okay. Great. And then in terms of the Indian development center, and I think I heard you say around 400 people in it now. Can you help us think about like the cost of -- that you're spending like the run rate of building that out? And is there a sense of like that to any degree that that's like will normalize in a certain time period?

Yeah. Hi, Allen. This is Ramesh. So as far as the CapEx is involved, the CapEx is already done. Those costs have been incurred and we have built out the facility to accommodate about 660 to 670 people. And in my prepared remarks I told you it's 400 plus. It is well north of 400 now. And in terms of how you model the cost, I would think of R&D as a whole as an entirety, Allen. And R&D as a percentage of revenue will remain stable may tick up a point or two this year. But in general over the medium-term, R&D as a percentage of revenue will keep going down. Meaning, we will grow revenue at a faster rate than we grew R&D this fiscal year. This fiscal year you may see a one or two point tick up in R&D. So the IDC and how we manage the U.S. development centers gives us a way to manage R&D in a responsible and prudent way is the way I would think about it.

Okay. Thank you so much. Maybe my last question would just be if you could comment on the competitive environment if you're seeing anything new or different in terms of the level or products and pricing and that type of stuff.

No major change Allen in the competitive environment. We feel in many areas our competitive advantage is increasing mainly because of two reasons. I think we are investing in our core products more than what the competition is I suspect. And also in terms of also investing in the ancillary modules, that is the software modules that surround the core POS and PMS products, we are investing more in that than I suspect the competition is. So in terms of the end-to-end solutions we are able to provide both on the POS side and the PMS side, I can see raised eyebrows with our prospect to the customers. They're appreciating it more and more. So I think we are working hard to increase our competitive advantage. Nothing major has changed in the competitive environment in terms of pricing or anything else, but I would say on the other side of the ledger, the PMS competition is improving. I think PMS products in general are improving in the industry, which is good for the industry. And also POS competition in APAC in Asia is getting better is increasing. So we are doubling our efforts in APAC to make sure we compete well. But the fact that one or two vendors are doing well here and there should not bother us, because it's a massive industry compared to our size. And we remain very confident about our sales and revenue growth prospects.

Okay. Thank you so much.

Thanks Allen.

Thanks Allen.

Thank you. [Operator Instructions] Our next question comes from Tim Klasell with Northland Capital. Your line is open.

Hi. This is Tyler Wood on for Tim. Thanks for taking our question. Can you just talk a little bit more about what you saw in terms of customer retention for the customer? Obviously, we've been seeing it steadily pick up under the new management. Are we kind of seeing that flatten out a bit now or how much more room for improvement, do you see there?

Yeah. Hi Tyler, thanks for joining the call. The measure customer retention as a percentage of recurring revenue and that is continuing to do better. That is continuing to do better than the past. So this fiscal year 2020, in percentage terms, in terms of customer retention as a percentage of recurring revenue should improve over previous years. And we have room to improve there. We have room to number one grow the denominator. Number one grow recurring revenue which is steadily occurring. And we also have room to improve customer retention. So in percentage terms, we are doing better year after year, for the past two or three years. That will continue to improve. But we do have room to improve there. Right we are working hard to make that even better Tyler.

One more, as we look at the international opportunity growing, could you talk a little bit about maybe how the international buyers differ from domestically? You know are they taking on-premise versus hosted more or are there certain modules that you're seeing resonate internationally?

Yeah. So, when you think of international regions Tyler, what you need to keep in mind is our market share there is very low, right. In the past, since we didn't do a great job. We did not do a great job with international regions, our market share there is extremely low. So, there are massive opportunities to improve there to grow our revenue, which is why we've had like five consecutive quarters of revenue growth in international regions. It tends to be a reasonable mix of on-prem and SaaS, like it is here. If anything it's probably a little bit more on-prem oriented than SaaS as things stand now, especially in APAC. And our standing in both Europe and Asia is improving, because more and more customers are taking notice of the improvements we have made in the last two years. So, international regions is just a matter of making sure we improve our products, we provide the kind of functionality features, that our international customers require. We provide the kind of language translations and localization in our product that we require. And since all that is improving now, they are taking more and more notice of us.

All right congrats on the performance.

Thank you, Tyler. I appreciate it.

Thanks, Tyler.

Thank you. And I'm showing no further questions at this time. I'd like to turn the call back to Ramesh, for any closing comments.

Thank you, Katherine. To conclude we had a solid start to fiscal 2020. We continue to focus on maintaining our operational discipline, while pursuing the highest value growth opportunities. We continue to make progress in evolving our solutions portfolio to better address our customer needs, transform our sales efforts and improve our organization to better complement our solutions. And generally improve how we serve our customers. We remain confident that we will continue to make consistent progress. We will see added growth. And will increase shareholder value in continuing future periods. As always, we thank you for your interest, your investment in our company and for joining us today. Thank you.

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