Good morning, ladies and gentlemen. Welcome to the Agilysys Fiscal 2016 Second Quarter Conference Call. [Operator Instructions] 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. Although the company believes that its forward-looking statements are based on reasonable assumptions, such statements are subject to risks and uncertainties that could cause results to differ materially. Important factors could cause actual results to differ materially from these in the 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, Andrea, and good morning, everyone. We appreciate you joining us on the call today to review our fiscal 2016 second quarter results. Joining me today is our Chief Financial Officer, Janine Seebeck. Before we get started, just a quick reminder that on the call today, we'll be discussing some non-GAAP metrics, primarily adjusted cash from operations and adjusted EBITDA, which eliminates the effect of restructuring and other items that are either noncash or nonrecurring. Reconciliation to GAAP metrics are provided in the financial section of the press release issued earlier today. Starting with a brief overview of our financial results. Total net revenue for the second quarter increased 13% to $29.6 million compared to total net revenue of $26.3 million in the comparable prior year period. While we are pleased with the overall result, we are equally pleased with the 7% increase in recurring revenue, both on a quarterly as well as on a year-to-date basis, to $14.7 million and $29.6 million, respectively. Within recurring revenue, our subscription-based revenues continues to grow, posting 35% growth in the second quarter of fiscal 2016 compared to the year-ago period and now represents 18% of total recurring revenue versus 14% in the second quarter of fiscal 2015. Taking a look at the rest of our key financial metrics. Gross margin was 59% in our fiscal 2016 second quarter compared to 63% in the prior year period. Adjusted EBITDA for the quarter was $1.5 million compared to adjusted EBITDA of $1.6 million in the same period last year, and this led to a net loss in the fiscal 2016 second quarter of $400,000, or a loss of $0.02 per diluted share, which compares to a net loss of $1.1 million or a loss of $0.05 per diluted share in the prior year…

Thanks, Jim, and good morning, everyone. Our second quarter fiscal 2016 revenue was $29.6 million, a 13% increase compared to total net revenue of $26.3 million in the comparable prior year period, and a 14% increase for the first half of fiscal 2016 compared to the first half of fiscal 2015. Looking at revenue in greater detail. Products revenue increased 30% or $2.3 million to $9.9 million or 34% of total revenue. The increase was primarily related to our on-premise proprietary offerings and growth in remarketed products associated with our rGuest platform. Support, maintenance and subscription revenue increased 7% or $900,000 to $14.7 million compared to the second quarter of fiscal 2015, largely as a result of our continued focus on selling hosted perpetual and subscription-based services. Subscription-based revenue grew by over 35% in the second quarter versus the prior year period and 29% on a year-to-date basis versus the first half of fiscal 2015. Professional services revenue remained flat, increasing $100,000 to $5 million compared to the second quarter of fiscal 2015. We are pleased to see growth in total net revenues and are pleased -- and are particularly pleased to see continued growth in our recurring revenues, which accounted for 50% of our total net revenue for the second quarter and 52% for the first half of fiscal 2016. Moving down the income statement. Cost of goods sold totaled $12.1 million, or a 26% increase versus the prior year period, leading to an overall gross margin of 59% for the second quarter of fiscal 2016 compared to 63% in the prior year period. The decline in gross margin for the fiscal 2016 second quarter was a result of the higher portion of remarketed product-related sales. Going forward, we expect full year fiscal 2016 overall gross margin will be…

[Operator Instructions] And our first question comes from the line of Stan Berenshteyn with Sidoti & Company.

I guess to start, just looking at recurring revenue, it seems like it ticked down a bit on a sequential basis. Can you please explain what's going on there?

So on a sequential basis, it's actually a little bit down with results to some of the remarketed that is -- that we have in our numbers. So it's nothing that impacts the total support. From a recurring support, we're at about a 2% growth year-over-year. It was just a couple of small items in last quarter that drove a little bit higher-than-normal number.

Okay. And then just, I guess, looking at LMS and now that it's hosted, is there any premium in pricing for the hosted solution versus the on-premise solution?

Stan, when you say premium in pricing, the pricing is going to reflect, for a hosted solution, like it normally does, fees for the utilization of the infrastructure, the support services, the licenses itself. So as you think about, let's say, annual recurring maintenance that might come from an acquired license and then maintenance and support that's paid, the per room per month charge for hosted LMS is going to align to, say, an increase in recurring revenue that's going to be at least 2x on a per month basis what we'd ordinarily get from just a typical maintenance and subscription -- or I'm sorry, a maintenance and support recurring component. Does that make sense?

Yes. I guess, maybe comparing that to a pure SaaS manner, is it very similar?

Yes. Yes, it is going to be similar. So it is going to be a subscription service. It's not an owned license. So in that subscription service stack, you're going to have a subscription license, not a permanent license, to use the software, and then all of the other managed services around that infrastructure will be incorporated into the whole fee stack to come up with your subscription service fee on a monthly basis. So it's going to be, price wise, similar to a SaaS or a subscription offering. The only reason I don't want to say it's cloud is we want to be very particular. When you say cloud, it's a technology definition, in my mind, and subscription is a business relationship versus a license. So I just want to be clear on what's technical and what's business.

Sure. Sure. That makes sense. And then I know you had intended to continue and increase your sales force. Has the number that you had targeted previously been changed or is it kind of the same target as you have announced previously?

It's about the same target.

Same target.

We've only got a couple remaining that are outstanding, to hire.

Okay. And I guess, last question. Obviously, you guys had a very strong quarter on the product sales side and it looks like it's on track to beat 2014. Just looking ahead, how should we think about the drivers for your business? Specifically, at what point do you envision SaaS becoming the primary growth driver?

Stan, as I look ahead, I think it's going to be probably another 18 months before SaaS is a primary growth driver. I think one of the things that I want the investors and really the entire team to focus on is that while the primary driver of the business is to push further into subscription service opportunities, as we go to the line and we're calling the plays, the market right now, with respect to the competitive landscape, is offering us an opportunity where as we check down the line and we see, let's say, an uncovered receiver and we're quickly calling in audible because the market opportunity is leaving that receiver open. And we've been able to take a couple of flyers down the field and score. And we're going to continue to look for those opportunities as we're focused on our core business. It just so happens that, as we mentioned in our prepared remarks, the competitive landscape is giving us the opportunities to have a higher than historical level of competitive opportunities to win, and we're not trying to force that solution to be a subscription. We're just doing all we can to secure that customer and then work with them over time to migrate them eventually to a subscription-based relationship. But right now we're taking what the market has given us, and it's been generous to us in the first half of this year.

[Operator Instructions] And I'm not showing any further questions. I would now like to turn the conference back over to Mr. Jim Dennedy for further remarks.

Thank you, Andrea. Thank you for your interest in our company. I want to take this opportunity to thank the very talented and dedicated team at Agilysys. Their work drives our success. I also want to thank our many customers and partners who entrust us with their business. 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 longer term to deliver sustainable value to our customers and shareholders. We look forward to updating you on our progress during our fiscal 2016 third quarter call. 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.