Agilysys, Inc.

Good day, ladies and gentlemen, and welcome to the Agilisys Fiscal 2020 Third 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 Agilisys. You may begin.

Thank you, Cherie, and good afternoon, everybody. Thank you for joining the Agilisys Fiscal 2020 Third 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. 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, including statements regarding our financial guidance and continued business momentum. Although the company believes 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 that could cause actual results to differ materially from these in the forward-looking statements are set forth in the company's reports on Form 10-K and 10-Q and other reports filed with the Securities and Exchange Commission. With that, I'd now like to turn the call over to Mr. Ramesh Srinivasan, President and Chief Executive Officer of Agilisys. Ramesh, please go ahead.

Thank you, Dave, and good afternoon, everyone. Welcome to our fiscal 2020 third quarter earnings call. Joining Dave and 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 $42 million. A 17% increase over Q3 of last year, with record revenue across all three revenue lines. Recurring revenue, product revenue, and professional services revenue. With respect to overall quarterly revenue, this is the ninth consecutive sequential revenue increase, seventh consecutive record revenue, and sixth consecutive double-digit year-over-year revenue. Revenue Increase Quarter. Recurring revenue was a record $21 million led by a 28% year-over-year growth in subscription revenue. Our customer satisfaction levels continue to improve. As a result, customer churn as a percentage of recurring revenue continues to decline significantly year-over-year as has been the case the past couple of years. That improving metric continues to validate our organizational improvements across all aspects of our business, especially in product development, professional services, and customer support. Professional services revenue for Q3 fiscal 2020 was a record 8.9 million. This was our second consecutive record revenue quarter in professional services. As we mentioned in our last call, professional services is a good measure of how busy we are with various software implementations all across the globe and is therefore a good leading indicator of the overall strength of our business, especially of future growth of recurring revenue. Due to changing customer preferences and increasing number of new customer software implementations involved Our selling momentum continues to be strong, with our global selling success in Q3 fiscal 2020 being one of our best ever. Please note, we use the words sales, selling, and bookings to mean new product and services sale arrangements with customers, while revenue is of course recognized revenue. In many other places, the words sales and revenue tend to be used interchangeably, while it means different things for us. For us, sales this quarter will partially affect the current quarter revenue and also contribute towards building future recurring revenue, product revenue, and services revenue backlog. With the exception of one quarter, The last five quarters have been our five best selling quarters ever. This has helped build our revenue backlog significantly, making our revenue growth increasingly more consistent and predictable. In addition, the last six quarters through Q3 of this fiscal year have been our six best Subscription booking quarters on record, which augurs well for our continued subscription revenue growth. During Q3 fiscal 2020, we added 18 new customers to our family. Our international momentum continues to grow. Q3 this fiscal year was a record sales quarter for us in the APAC region, and was our second best overall international sales quarter. To a large extent, our current sales and revenue growth is still being led by our market leading point of sale POS solutions Infogenesis and Argus by Kiosk. Alongside our star performer Infogenesis, which for the most part handles POS top facing software solutions, Our Guest Buy Kiosk, which handles the growing demand for guest-facing kiosks and other functionality requirements, continues to build momentum in the marketplace, with increasing instances of competitor systems being replaced in employee cafeterias in multiple large and prestigious workplace campuses all across the U.S. While our POS solutions by themselves are good enough to drive our revenue and profitability levels further forward at a significant pace for the foreseeable future, we continue to improve our property management system, PMS offerings. Several of our new logo wins during Q3 fiscal 2020 included PMS software solutions as well. We've also had good success during the past couple of years building a set of emerging products which are ancillary software modules which work in conjunction with and add strength to the core POS and PMS products. Especially on the PMS side of the equation, there is a major industry need for well-integrated solutions which can bring together the world of core PMS with modules like direct channel web-based booking systems, mobile check-in check-out Kiosk Check-in Check-out, Guest Loyalty Management, Service Optimization to Better Manage Various Hospitality Tasks and Operations, and Spa, Golf, and Other Guest Activities Management Software. We have several customer sites who have already implemented such modules integrated with the core PMS products also provided by us, resulting in significant improvements in operational efficiency, guest experience, and Get Satisfaction. While there are many competing POS vendors in the marketplace today, there are far fewer major PMS providers. And the number of providers who are actually trying to create fully integrated yet modular PMS ancillary modules is even fewer. Customers are increasingly inclined to use as few vendors as possible to get such integrated software solutions from and that's a trend which is favorable to our product and strategy direction. We have now sold close to 100 deals containing at least one of these emerging product modules with about half of them coming just in the past six months. Thanks to these additional software products, our average deal size is increasing and more crucial than that, our competitive advantage is increasing with no comparable competing vendor as intensely focused as we are in providing end-to-end software solutions and delivering a fully integrated technology platform to serve the full breadth of hospitality operators and their evolving guest engagement ecosystem. Customers in this industry are starved for such progress and are steadily rewarding us for being the partner they can depend on for both day-to-day great execution and industry leading innovation. With respect to U.S. domestic markets during Q3 fiscal 2020, in the gaming vertical, Fortune Bay Resort Casino located in Minnesota and the Grand River Casino and Resort located in South Dakota invested in both our PMS and POS solutions along with a couple of other software modules. While the Sky Dancer Casino and Resort recently purchased our Arget Stay PMS solution to run their lodging operations. In addition, we significantly expanded our POS business partnership with one of our largest gaming customers during the quarter. In addition to our historical strength in the gaming, hotel resorts and cruises, and traditional managed food service verticals, During the last couple of quarters, we've also made good breakthroughs into renewed areas of focus in managed food service, higher education, and healthcare. During Q3 fiscal 2020, we had new customer wins in this segment, including Longwood University, Virginia, and another healthcare facility in Texas. Backed by a stable management team with senior executives who have all been with us for a while now, All of them wonderful team players who are passionate about the company and the huge potential we have before us. We continue to make good progress with all the business initiatives we started on a couple three years ago. We started this fiscal year with annual revenue guidance of 11% growth over the prior year, 141 million level, then increased it during our last call to 14%. which we now are increasing to 16%. We continue to expect this significant revenue growth to also be accompanied by a strong adjusted EBITDA profitability year-over-year growth of 25%. Our adjusted EBITDA for Q3 fiscal 2020 was 3.2 million which is close to record levels. Encouraged by our successes during the past couple of years, We continue to increase our R&D resource strength to drive home our widening competitive advantage without any significant increase in R&D cost as a percentage of revenue. Our R&D teams are currently about 730 personnel strong compared to about 230 at the beginning of calendar 2017. This increase has afforded us the ability to strengthen and modernize our core products quicker and more effectively while also increasing innovation levels, creating well integrated additional high value software modules which face much less competition in the marketplace and is helping us focus on our long term top line and bottom line growth strategies. In summary, we are hitting our stride operationally as a small company with a big realistic vision and the resources necessary to execute and innovate consistently well. We understand well the nuances and operational realities of disciplined profitable revenue growth. There is a high demand in the growing hospitality industry we are currently and intensely focused on for the kind of integrated software solutions we continue to create and enhance. We are beginning to see the results of having a solid good team in place Thanks, Ramesh.