Good day, ladies and gentlemen and welcome to Agilysys Fiscal 2019 Fourth Quarter Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, today’s conference maybe recorded. I would now turn the conference over to Dave Wood, VP of Finance at Agilysys. You may begin.

Thank you, Liz and good afternoon everybody. Thank you for joining the Agilysys fiscal 2019 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 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 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 these indicated in the forward-looking statements today include, among others, our ability to achieve operational efficiencies and meet customer demand for products and services 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 the SEC Regulation G. When required, a reconciliation of all non-GAAP financial measures to the most directly comparable financial measures calculated and then 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 2019 fourth quarter earnings call. Joining me on the call today will be Tony Pritchett, our Chief Financial Officer. Fourth quarter revenue increased 14.2%, that’s 14.2, increased 14.2% over the comparable quarter last year to a record $36.6 million. Q4 fiscal 2019 was our third consecutive double-digit year-over-year growth quarter, the fourth consecutive record revenue quarter and the sixth consecutive sequential revenue growth quarter. Our sales momentum continues to be strong. The third and fourth quarters of fiscal 2019 were two of our strongest ever with respect to overall global sales. That sales momentum trend has continued into the first half of our current Q1 fiscal 2020 quarter as well. And we seem well set to make this current Q1 FY ‘20 our fifth consecutive record revenue quarter. Our full year fiscal 2019 revenue was $140.8 million, that is 1-4-0, $140.8 million, slightly exceeding our expectations and just above our full year revenue guidance of 10% growth over fiscal 2018 revenue. For the full year, our overall recurring revenue base grew by $6.4 million over the prior year. The largest single year increase since we became a pure play hospitality software solutions provider during fiscal 2014 and included a 24% increase in full year subscription revenue compared to fiscal 2018. Adjusted earnings from operations or AOE was positive during each quarter in fiscal 2019, adding up to $4.8 million for the year, approximately $10.7 million better than fiscal 2018 and well ahead of our original expectations and guidance provided. Adjusted EBITDA grew approximately 13%, 1-3, 13% year-over-year to $10.3 million. Free cash flow was $1.7 million for the year, our first such positive free cash flow year since before fiscal 2014. Fiscal 2019 was an important milestone…

Thanks, Ramesh. To echo Ramesh’s comments, we are pleased with the results for both the fiscal fourth quarter and for the full year. We are very encouraged by the growth trajectory we see in our business as we are more confident than ever in our ability to grow top line and leverage our momentum down to the bottom line to create shareholder value. Throughout the fiscal year, we made significant progress on our key financial priorities, including lowering overall costs, total OpEx and CapEx as a percentage of revenue and positioning the Company for growth through the result of success of the strategic initiatives we put in place over the past two years. We are pleased with the success we are having with sales and the positive impact that it’s having on our overall business momentum. Taking a look at our financial results, beginning with our income statement, fourth quarter fiscal 2019 revenue was $36.6 million, a 14.2% increase from total net revenue of $32.1 million in the comparable prior year period. This marks our fourth consecutive record revenue quarter and our sixth consecutive quarter of sequential revenue growth. The increase in top line largely reflects the 37.5% increase in product revenue to $10.9 million and a 7.1% increase in recurring revenue to $19.4 million. On an annual basis, we are pleased to see growth across all three of our revenue line items, including a $6.4 million increase in recurring revenue, our largest annual increase in recurring revenue to-date. Total recurring revenue represented 52.9% of total net revenues for the fiscal fourth quarter and 53.6% for the full year. That compares to 56.4% and 54.2% of total net revenues in the fourth quarter and full year fiscal 2018. We are also pleased with our robust subscription revenue growth, which grew…

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

Yes, hi. I missed you said something about what you expected your next fiscal quarter revenues to exceed I thought you said $38 million, but could you clarify that. And then can you just remind us of how we should think about any seasonality throughout the year?

Hi, Allen. Thanks for joining the call. Yes, I did say that based on our sales momentum was very good in Q3, Q4 of last year and so far, we have almost done with half the quarter now of this quarter and that momentum continues. So, based on all of that, I did say that there’s a high probability we’ll cross – we will exceed the $38 million mark for the first time in our history. So that is one. As far as cyclicality in our business, there is really not much cyclicality in our business at all. Like you see with our consecutive sequential growth, we are just getting better quarter-after-quarter like six consecutive sequential quarter growth. Our business is getting better, our market share is getting better. We have more products to offer to our customers. So, it’s getting better. So, there’s no cyclicality in our business at all, with the exception of one aspect, which is cash balance. Our cash tends to be bit of a challenge in Q1 and Q2 where there are certain expenses that happen and also a lot of our maintenance invoices tend to go in the second half of the year. So, the cash balance alone will tend to go down in Q1 and Q2 and then more than make up for it in Q3 and Q4. That is about the only part of our business I would call cyclical, Allen.

Okay, thank you. And can you tell us where you had set a goal of doubling the amount of people, I believe, in your India Development Center. Can you give us an idea of where that stands and then of the spend expenses that you’re planning to spend in fiscal ‘20, is there a way we can think of like how much extra spending there is to get to that higher level. What I’m trying to figure out is, if it might be the expense run rate at least the incremental increases maybe at a little higher rate than a normalized rate would be there after. Thank you.

Yes. Hi, Allen. Yes. Just to clarify, Allen, what we set about what we said about the India Development Center is that, we have created the space and the infrastructure to double the people. Like we initially had a capacity of 330 and we said we will double it to 660 and get the infrastructure ready. But how much of the 660 we hire is going to be carefully balanced against how our sales grows and how our revenue grows. So, our objective does remain that we will grow revenue at a faster pace than costs, and that applies to R&D as much as it applies to any of our other OpEx headlines OpEx heads. So, we will be growing R&D revenue fast. We will be growing revenue faster than we grow R&D costs. And how much we hire in India will depend on how our sales and revenue grows. At the moment, our India Development Center is about, it’s crossed the 400 mark, it’s a little higher than 400. But there is no specific plan we are committed to as to how quickly we will grow that to 660. It will we’ll just grow it along with our business. Currently, when you look at our product development expense in our GAAP P&L, it looks like those costs have gone up, while actually it is more because we are not capitalizing software cost now and we were before, and you just have to work through that. But in general, we do expect revenue to grow faster than our R&D expense. Tony, you have something to add to that?

Yes. And just, for a little bit more clarity and precision, Allen, if you look at our P&L, our operating expense line items are product development, sales and marketing, and general and administrative expenses. As we’ve said over the last couple quarters, since we announced the expansion of the IDC, we do expect product development expense to probably tick up a couple of percentage points next year. That’s on an annual basis. If you look at our current product development as a percentage of revenue on an annual basis, you can apply that to next year and add a couple of percentage points likely. And then sales and marketing and G&A combined, they stay about flat, they might come down a little bit to offset that increase of product development expense. So overall, you’re looking at as a percentage of revenue, our OpEx should stay fairly consistent.

Thank you. And any thoughts on what CapEx would be for the year?

Yes. So, we’re looking at CapEx next year that’s a little bit higher than what we saw in fiscal ‘19, not substantially, but probably increases a little bit from where we were in fiscal ‘19.

Okay, alright. Thank you so much. Appreciate it.

Thanks, Allen.

[Operator Instructions] Our next question comes from line of Tim Klasell with Northland Securities. Your line is now open.

Hi, guys. Congratulations on a nice quarter. My first question has to do with this is sort of the, obviously the time of the year where you have set your sales quotas and territories and goals, what have you, I’m sure. Can you sort of maybe, even just qualitatively tell us where you are directing maybe additional sales efforts and resources this year? Are there particular geography or product set that is getting extra attention for this fiscal year? Thank you.

Yes. Sure, Tim. Great to have you on board, Tim. To answer your question, yes. The quotas, the goals and all our budgets everything has been set. The anomaly happened during the first month of the fiscal year. So those are all set. In general, the good news about our business is, we see growth in all our major verticals. The gaming sector continues to focus more and more on non-gaming and they require more and more products that are well integrated with the rest of the systems they have and they’ve always done well in that sector and we see more and more opportunities there. Like I said in my prepared remarks, just in the last quarter alone, there are like five major operators, who switch from a computing system to us. So, we continue to see growth there. Hotel, resorts and cruises, what we call HRC, there are massive opportunities for us there. So, we do have extra focus in those areas now, especially in the cruise segment of that, there are multiple big cruise companies that are currently talking to us based on the recent successes we’ve had. And foodservice management also remains a major focus area because with what we have done there, with one major customer now we have opportunities with a couple of other major foodservice management providers and also, we are branching into market segments where we have typically not done well. So that’s a big focus area for us, getting into senior living, healthcare, higher education, sports and entertainment. So, we do have additional sales staff, who are focused on those areas and of course Asia and Europe remain huge opportunities for us. So, we have improved bulked up our sales support and sales staff there. In Europe, we are just in the process of expanding our sales team there and the same with Asia as well. So, you think of Asia, Europe and our three major verticals in the U.S., we see opportunities in all of those and we are continuing to expand our sales efforts in each of them. Now you switch to products. POS continues to be a scent area for us now. That’s where a bulk of our growth is happening and we are beginning to increase our focus in the PMS area as well. As the products are improving, as we have created more and more ancillary products that our customers have always wanted, where they would have, they like to get the core products and the ancillary products from one vendor, if they can help it, so PMS is a major product focus area for us.

Okay, good. And then in your guidance, you mentioned some new products or areas, I believe golf and spas. Is there anything in the guidance that is coming from new products or the guidance predicated all on existing products? Thank you.

It’s a combination of the two, Tim. Our growth, our, the guidance we have provided is based on both. We do have a lot of strength with our core products now that have been established over many, number of years. And of course, the rGuest platform is continuing to gain strength with every passing month. So that is a big growth driver for us. And then a lot of these new additional modules that I mentioned they achieve two objectives they help us achieve two objectives. One, the revenue and book sales bookings we gain from those additional products increases, they also help us increase the sales of our core products, because a customer will prefer to buy the core product when you have these ancillary modules that also add value. So, I mean fortunately or unfortunately, the answer is all of the above. Our guidance is based on continued growth in all our core products and from our newer set of products.

Okay, good. Thank you very much, guys. Appreciate the help.

Thank you, Tim.

Thanks, Tim.

I’m showing no further questions in queue at this time. I’d like to turn the call back to Ramesh Srinivasan for closing remarks.

Thank you, Liz. And does Allen have another question? No?

I think Allen has.

We do have a follow-up question from the line of Allen Klee. Your line is now open.

Yes, sure, Liz. Yes.

Hi. It’s not that meaningful, but it’s something that stood out that I was just trying to understand. I noticed that your gross margins in the professional services segment improved pretty significantly in the quarter compared to where they’ve kind of averaged around and I was just wondering what was behind that and is that anything that to think about going forward?

Allen, we’ve talked about this a bit in the past. Professional services margins vary a decent amount depending on the mix of projects that we have going on in any given quarter. We continue to expect that our margins for professional services will be in the 20% range, sometimes it’s low-20s and sometimes it’s high-20s. It will fluctuate from quarter-to-quarter. Likely next year that trend will continue to be comparable to what we saw in fiscal ‘19. So not great predictability there, but in the 20s, that’s what we expect to see.

Okay. Thank you very much.

Thank you, Allen.

Thanks, Allen.

I’m showing no further questions in queue at this time.

Thank you, Liz and thanks to everyone for joining the call today. Look forward to speaking with all of you again in a couple of months when we report our Q1 FY ‘20. Enjoy the summer and good luck with everything. Thank you.

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the program and you may now disconnect. Everyone, have a great day.