Good day, ladies and gentlemen, and welcome to the Agilysys Fiscal 2019 Second Quarter Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this conference call maybe recorded. I would now like to turn the conference over to Norberto Aja, Investor Relations. You may begin.

Thank you, Operator, and good afternoon, everyone. Thank you for joining the Agilysys Fiscal 2019 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 contains forward-looking statements within the meaning of the Safe Harbor provision of the US 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 balance and statements we make regarding continuing sales momentum, and revenue growth and increases in research and development investments and resources. 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 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 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 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, Norberto. Good afternoon, and good evening, everyone. Thank you for joining us on the call today to review our fiscal 2019 second quarter results. Joining me on the call today is Tony Pritchett, our Chief Financial Officer. Taking a look at our financial results revenue was a quarterly record $34.2 million or an increase of 4 million compared to fiscal 2018 second quarter leading to a GAAP net loss of $3.8 million or a loss of $0.16 per share, compared to a loss of 3.2 million or $0.14 per share in Q2 of fiscal 2018. Adjusted EBITDA was 2.6 million this quarter compared to 2.3 million in the same period last year. Both adjusted EBITDA and GAAP net loss calculations for last year fiscal 2018 Q2 benefited from approximately 2.5 million of capitalized software development costs. If all software development costs were not capitalized in both periods then adjusted EBITDA this quarter would have been at $2.8 million improvement over the comparable quarter last year. Adjusted EBITDA would have been positive 2.6 million for this period that is fiscal 2019 second quarter as against a loss of 0.2 million for the comparable period last year. Along the same lines the increase in GAAP product development cost in Q2 of fiscal 2019 over Q2 of fiscal 2018 is mostly due to Q2 of fiscal 2018 having the benefit of capitalized software development costs which are not applicable to Q2 of fiscal 2019. This was our second consecutive record revenue and fourth consecutive sequential revenue growth quarter. Revenue increased in all three major revenue lines. Product revenue was up 20%, recurring revenue increased 10%, highlighted by a 27% increase in SaaS based subscription recurring revenue, and professional services rose by over 15%. Recurring revenue comprised of annual maintenance and SaaS…

Thank you Ramesh. Our fiscal 2019 second quarter results highlight our continued progress and provide further proof that our initiatives are yielding success across many key financial metrics, including double digit topline growth, lowering our overall cost as a percentage of revenue turning into a cash generating company and positioning the company for further growth. All while maintaining a healthy balance sheet and operating the company in a prudent and disciplined fashion. Starting with our topline overall revenue grew by 13.5% or $4.1 million in the second quarter of fiscal 2019 to $34.2 million compared to $30.1 million in the prior year period marking our highest quarterly revenue since we transformed our business into a pure play hospitality technology provider in fiscal 2014. Second quarter revenue also marked the fourth consecutive sequential rise in overall revenue growing from $30.1 million in Q2 of fiscal 2018. Importantly, we were able to achieve this while maintaining a disciplined and focused approach to cost and have continued to achieve a much higher quality revenue mix that provides us with higher margins given a strong contribution from SaaS subscriptions and other recurring revenue. Before I discuss our results in more detail I want to point out a few things to remember when reviewing our Q2 fiscal 2019 financial statements. First of all, please remember that beginning in fiscal Q2 of this year, we adopted agile development and deployment methodologies across all of our product that preclude the ability for us to capitalize internal labor costs onto the balance sheet. The fiscal second quarter of 2019 is the first quarter that you will see the results of this change in our financial statements. As a result of this change, and as discussed on our last call product development expense on the income statement is significantly…

[Operator Instructions] Our first question comes from the line of Allen Klee of Maxim Group. Your line is now open.

Could you just remind me I'm not sure if I caught it as for the increased spending for engineering of what you expect that to be?

So Allen this is Tony. The increased spending in engineering isn't going to affect the R&D line as a percentage of revenue much this year. So the levels we are at now should continue for the rest of this fiscal year. We expect them to tick up a little bit maybe somewhere in the 1% to 3% range for next year. As you think about going to the next fiscal year they tick up a little bit. And then looking into the year following that we do expect R&D costs as a percentage of revenue to start coming back down. As Ramesh mentioned in his prepared remarks, 20% or less is really kind of our long-term target for that venture.

And also to just to add to that Allen, we guided to AOE adjusted earnings from operations as you know adjusted earnings from operations does get affected by capital expenses as well. So there will be about 1 million to 2 million of capital expenses plus other costs this year but in spite of that we expect to do at or slightly better on our AOE guidance this year of being breakeven.

And then the additional engineering in the US and in India how do you think about the timing of how that translates into higher revenue?

Our objective remains, Allen just to reiterate our revenue will grow faster than the cost. We are obviously seeing revenue growth now. We are seeing a lot of business momentum. We see our sales increasing now. So given all that we decided that we have to keep this momentum going by improving our products at an even faster rate and also bringing newer products that customers are asking for. So we will manage the engineering increase over a period of time by carefully watching the revenue growth. So we are just giving you a heads up that we are planning to do that but we will be controlling that dial carefully depending on how our revenue continues to grow. And it will be in proportion with that.

Thank you. And then do you have any view just to the seasonality where the second half relative to the first half if we should think there will be continuous sequential growth in revenue in the second half?

Yes, the quick answer to your question Allen is yes. You should anticipate the second half being better than the first half and that is what the math points too as well, because we are retaining our guidance of 10% growth over last year. You know the last year revenue was 127 million plus, so to grow that 10% yes our second half will be better than the first half. And that is what our current momentum sales momentum everything is showing.

And then any comment on just the sales pipeline overall of how you would say compares now to this time last quarter?

This time last quarter you mean this time last year, right?

Yes, right, yes. Either way.

Either way, okay, our sales pipeline is at the healthiest that it has been at least as far as I have been here, so we obviously feel very positive about it which is why we’re making the decision to continue to fuel that momentum with more engineering work and supporting our customers a lot better and the pipeline comes from various different angles Allen, as the product delivery velocity and innovation velocity as we’re paying a lot more attention to customers that is definitely driving the pipeline increasing APAC, EMEA the pipeline is increasing large strategy customers we’re talking to couple three major customers across segments with whom we’ve started some initially implementations so that is feeling very positive. The casino spend shift to non-gaming is really helping and to start with our HRC market share was quite low so that is moving forward and like we’ve said selling more to our current customer base because we’ve a lot more products to sell now that is picking up. So that number used to be 50% a year ago and it was about 46% even a quarter ago and just last three months that number has come down from 46 to 42 meaning we now only have 42% of the customers who have only one product so that’s improving, there’re about four new software modules we’ve launched just in the last six months or so and there’re about five other modules that will launched in the next six months; rGuest Buy is definitely picking up traction in gaming and HRC, so in a lot of different ways Allen the pipeline now is the healthiest it has ever been and definitely better than the same time last quarter, and significantly multiple significantly better than the same time last year.

Are you able to disclose how much international was as a percent of sales?

Alan it hasn’t grown as a percentage of revenue without giving specific numbers for the quarter it’s still under 10% of our total revenue. A lot of momentum internationally we’ve seen a lot of progress there but it started from a small base.

And maybe my last question would just be with the weakening of the Indian currency relative to the dollar, how should we think about how much benefit may be that gives you on the savings also?

Yes -- not a needle mover Allen I won’t consider that as a major needle mover but reasonable because obviously India itself is very cost effective for us and the current exchange rates do help us to a reasonable degree but not a major needle mover, so if the exchange rates strengthen the other way in the future I would not get too worried by it, it’s quite cost effective it’s working very well for us but it’s the talent level it’s the amount of innovation we’re doing, how quickly our products are improving, we’re able to add new products quicker that’s the way I would think about it. The exchange rate does give us a little bit of an advantage now but it’s nothing to be too happy about or get concerned about later.

So maybe one other question I just thought could you just talk about you guys are doing some really great stuff competitively what are you seeing from your other competitors out there does it feel like you're moving ahead of them or any of them that you think that are getting more competitive or how would you comment on that?

I don’t think the competitive environment has changed too much for us Allen. I would say, I mean since the enterprise software area and hospitality is an attractive area, there is more attention to it from other competitors as well which is a good thing, I think we are operating in a good neighborhood which is always a positive thing. See we are Allen basically our advantage is we are in a good sweet spot, when you think about that 100 million to 300 million annual revenue range we are in an excellent sweet spot. And among the leading vendors we are probably one of two the only ones who are only focused on hospitality. We have very big competitors who are focused on a lot of other things as well including hospitality. And we have a lot of smaller competitors who obviously scaling up is not the easiest thing to do. So again a good sweet spot. So I still believe Allen like I told you that our faith is in our hands. If we continue to do a good job, improve the products, introduce new products, serve customers well we are in an excellent spot now and I'm happy about our competitive environment as I was a year ago.

Okay, congratulations, thank you very much.

Thanks Allen. Thank you for your time.

[Operator Instructions] I'm showing no questions at this time. I would like to hand the call back to Mr. Ramesh Srinivasan.

Okay, thank you Nicole. In closing while we have significant work ahead of us and many areas to improve on we are pleased with the progress we have made in the first half of fiscal 2019 and with the progress we are making toward meeting our goals for the rest of this year and beyond. We remain on track to achieve our guidance for full year revenue growth of approximately 10% and significant profitability gains as well. We are confident we can continue to deliver growing revenue, healthy margins, profitability and overall improved results and performance going forward. I hope to see many of you during the coming months. If any additional questions arise in the meantime, please don’t hesitate to reach out to us. Otherwise have a great rest of the year and we look forward to speaking with you on the fiscal third quarter call late January 2019. Thank you.

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