Ramesh Srinivasan - President, Chief Executive Officer Tony Pritchett - Chief Financial Officer David Wood - Vice President of Corporate Strategy & Investor Relations

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

Thank you Sarah and good afternoon everybody. Thank you for joining the Agilysys, fiscal 2020 second 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 revenue, recurring revenue and subscription revenue growth, continued sales and business momentum, and increasing investments and resources in R&D, SaaS operations, professional services and customer support. 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’d 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 and good afternoon everyone. Welcome to our fiscal 2020 second quarter earnings call. Joining me on the call today is Tony Pritchett, our CFO. We are pleased to report that we completed yet another strong quarter, highlighted by revenue of $40.7 million, a 19% increase over Q2 of last year, with increases across all three of our revenue lines: recurring revenue, product revenue and in particular, professional services revenue. Professional services revenue is directly proportional to the number of software implementations we are involved in. It is therefore a good indicator of our current level of overall selling success and business activity. The fact that this was a record professional services revenue quarter exceeding the $8 million mark for the first time, all that is well for future recurring revenue growth, especially subscription revenue growth given a majority of the installs we are currently working on are subscription revenue related. Recurring revenue was a record $20.3 million, driven by a 16% year-over-year increase in subscription revenue. Regarding overall quarterly revenue, this quarter marked the eighth consecutive sequential revenue increase, sixth consecutive record revenue and fifth consecutive double-digit year-over-year revenue increase. Fiscal 2020 second quarter was also a record quarter in terms of value of major competitive replacements won. In summary, we are improving with respect to almost all business indicators every quarter. In addition, our cash balance increased by $1.7 million during fiscal 2020 second quarter, a significant improvement over the $2.2 million cash loss during the same period last year. The cash balance at the end of fiscal 2020 second quarter is about $6 million higher compared to the end of the second quarter last year. That is our largest year-over-year cash balance increase during a 12-month period since Q1 of fiscal 2015, which was only…

Thanks Ramesh. We are pleased with the results for the fiscal 2020 second quarter both as it relates to the quarter itself, as well as with the trend that the results show. We continue to see improvements across many facets of the business and in our financial results that reflect the success we are achieving. We are confident the success will continue. Looking at our financial results, second quarter of fiscal 2020 revenue was a record $40.7 million or 19% higher than total net revenue of $34.2 million in the prior year period. As Ramesh highlighted, this represents our eighth consecutive quarter of sequential revenue growth, our sixth consecutive quarter of record revenue and our fifth consecutive quarter of double digit year-over-year revenue improvement. We are pleased to see that growth came from all three of our revenue line items, including record revenue across support, maintenance and subscription services revenue, as well as for professional services revenue. The increase in our top line was driven by a 35.4% increase in product revenue to $11.9 million, a 7.8% increase in recurring revenue to a record $20.3 million and a 29.5% increase in professional services revenue to a record $8.5 million. I want to highlight that the 7.8% recurring revenue growth includes subscription revenue growth of 16% for the quarter. Subscription revenue comprised approximately 36.1% of total recurring revenue, compared to 33.6% of total recurring revenue in the second quarter of fiscal 2019. Total recurring revenue represented 49.9% of total net revenue for the fiscal second quarter compared to 55.1% of total net revenue in the second quarter of fiscal 2019. It’s important to keep in mind that the strong selling momentum we have generated which Ramesh discussed earlier, is not only driving our product and professional services revenue growth but also…

Thank you. [Operator Instructions] Our first question comes from the line of Tyler Wood with Northland Securities. Your line is now open.

Hey, I’ll ask a question on the gaming side of the business. How big do you think the opportunity is there outside of Las Vegas and how are you approaching that market differently, and how far along are those customers been – their transformation to – what were they using previously? Is it a competitive displacement or were they using something homegrown? Thank you.

Yeah, hi Tyler. So the opportunity in gaming continues to be good for us and its good both in Las Vegas and outside, and a good portion of the opportunity is outside Las Vegas. So we generally do well in gaming – in the gaming casino industry and that is true for both, within Las Vegas and outside Las Vegas, and a significant portion of the opportunity is outside Las Vegas as well. And the two things, the two reasons why our gaming business will continue to improve: number one, all the customers in general are relatively more focused on the non-gaming hospitality side of their business and that gradually continues to improve. They are more and more focused on the hospitality non-gaming part of the business. And in terms of competitor systems there, most of the competitive replacements we do there are of a couple of major competitors. That space has been dominated by a couple of major competitors and most of the replacements we do are switches from those major competitors.

Thank you, that’s helpful. And one more, any progress during the quarter on the international opportunity worth mentioning, and then could you just remind us what sales resources do you have internationally? Thank you.

Yeah, thanks Tyler. Yeah, the international opportunities continue to make good progress and like I described in the earnings call, the major cruise ship customer that we are beginning to make great progress with is an international customer, and we are also making good progress with a major hotel chain that is our customer, both domestic and in international. And outside of these two major customers we continue to make good progress in both the APAC region and the EMEA region and we do have future plans to look at Mexico, and the rest of Latin America as well. So international is going to be a major growth area for us. And the number of salespeople there, I don’t know the exact number Tyler, but it is sufficient to cover the area. And we are always open to increasing our sales staff as the market demands. So currently we are more focused on sales productivity. We are giving them more products to sell and as and when it is required, we will increase our sales staff there, but currently our coverage is very good, both APAC and EMEA.

Alright, thank you.

Thanks Tyler.

Thank you. [Operator Instructions] Our next question comes from the line of Allen Klee with National Securities. Your line is now open.

Yes, hi. Can you just give us an update on the – and I apologize if you mentioned this and I missed it, the Indian Development Center in terms of number of people and the products and modules and things that are getting added from there? Thank you.

Yeah, hi Allen. Thank you for the question. Our India Development Center, IDC, our original capacity for a number of sources was about 670 or so and so far we have about 570 resources there.

Do you have a sense of where you want that to be kind of percentage wise by the end of the year and…

Are you talking to us, Allen? Hi, Allen. Yeah, so as far as India Development Center is concerned, our capacity is about 670 and we have about 570 resources and we continue to hire there, and recently we have taken up, we have leased some extra space at our IDC as well. Now in terms of products and modules, all our products, all our modules are developed across U.S. and India. So we don’t have any demarcation of certain modules and products that are done in the U.S. and certain that are done in India. All our products have teams both in the U.S. and in India. So everything that we described in our call so far is done both in the U.S. and in India. You said something else like the – grew organic growth in light of the legacy business was and if we could think about what series this was, if it was last year for both of them?

You said something else like the – grew organic growth in light of the legacy business was and if we could think about what series this was, if it was last year for both of them? Okay, thank you very much.

Thanks Allen.

Thank you. This concludes today’s question-and-answer session. I would now like to turn the call back over to Ramesh for closing remarks.

Thank you, Sarah. Thank you all for joining us on the call today and for your continued interest and support. Agilysys continues to be well positioned to increase shareholder value. There is a great value creation opportunity we are determined to make good on for our employees, customers and shareholders. I want to also take this opportunity to give a special thanks to our 1,000 plus team members across the globe, who are working hard every day to make Agilysys a world-class company, and to our customers who trust us with their investments now more than ever before. Our best wishes to all for a joyful and safe holiday season. We look forward to our next earnings call in late January. Talk to you then. Thank you.

Ladies and gentlemen, this concludes today’s conference. Thank you for participating. You may now disconnect.