Agilysys, Inc.

Good day, ladies and gentlemen, and welcome to the Agilisys Fiscal 2021 First Quarter Conference Call. As a reminder, today's conference may be recorded. I would now like to turn the conference over to Jessica Hennessy, Senior Manager, Corporate Strategy and Investor Relations at Agilisys. You may begin.

Thank you, Liz, and good afternoon, everybody. Thank you for joining the Agilisys Fiscal 2021 First 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. 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 that could cause actual results to differ materially from these in the forward-looking statements include the effect of the COVID-19 pandemic on our business and the success of any measures we have taken or may take in the future in response to the COVID-19 pandemic and the risks 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 would now like to turn the call over to Mr. Ramesh Srinivasan

Thank you, Jessica, and good afternoon. Good evening, everyone. Welcome to our Fiscal 2021 First Quarter Earnings Call. Joining Jessica and me on the call today is Dave Wood, our Chief Financial Officer. I'm participating in this call from my home base in Las Vegas, while Dave and Jessica are in Atlanta. We hope all of you and your families and colleagues are doing well and staying healthy. I first want to assure you that we've taken every step possible to keep our employees safe and healthy. We've also done our very best using our growing product research and development strength to help our customers with social distancing enabling and other product enhancements and innovation to enable and ensure the safety and comfort of guests visiting their properties. Thank you for joining us. We measure such sales in terms of net annual contract value of sale agreements signed. We also tend to use the term sales, selling activity, and bookings to all refer to the same thing, net annual contract value sales. There is a time lag involved in progression from sales to revenue. Some happen relatively quickly, while others, especially those involving subscription-based licenses, happen over time After the implementations are completed. Q1 fiscal 2021 revenue was $29.8 million, a 22% decline compared to Q1 of fiscal 2020. This was likely the most challenging quarter ever faced by the hospitality industry and our business. Considering the extraordinarily tough circumstances, We are pleased that Q1 revenue turned out to be better than our earlier expectations. Now looking back on the quarter, we think the fact we faced such tough circumstances and still came out of it reasonably well had a lot to do with our increasing pace of product improvements and innovation, our growing reputation as a world-class customer service organization and the strength of the backlog before the crisis. Thank you very much. to also affect future quarters of this fiscal year, but to a lesser extent in each quarter. We continue to do very well with customer retention. The recurring revenue challenges this quarter are only due to the one-time COVID relief and have nothing to do with any customer retention issues. Product and services revenues were down 1%. 52% and 45% respectively year over year compared to Q1 of last fiscal year, mainly due to delayed purchase and product receiving decisions caused by site closures. We announced special sales incentives during April for our new food and beverage online ordering software module called On Demand. The incentives included a 90-day free SaaS trial and no services installation charges for the first food outlet at a property. By any measure, the offer was a big success and multiple hundreds of sites signed up for it. Assuming a majority of the customer sites who signed up for the free trial choose to continue using the product, this should help our SaaS fees growth starting around the September, October, November time frame. Regarding services in general, after hitting a low in April, the number of product implementation projects has increased each month over the prior month during May, June, and July. Now about sales. The extent of sale agreements closed during the quarter was about 60% in value terms compared to the same quarter last year. Thank you for joining us. Thank you for watching. Both July and April are first months in the quarter as you know and are comparable. There are many customers who are moving forward now with strategic projects they need to get done for the long term. Many resort operations and hotels in resort towns seem to be sustaining themselves with modest to good occupancy levels and continue to invest in technology solutions. These resorts have many amenities and options available and are benefiting from guests who are driving to their destination when a few months back the same guests would have probably boarded a plane to get there. Hotels which cater to business travelers seem to be struggling the most. Gaming casinos, especially the regional resorts and tribal gaming casinos, have made decent rebounds and continue to make various kinds of technology investments. While how badly the cruise industry has been affected is well documented by now, They too are somewhat bullish about the recovery and are working on various projects taking advantage of this downtime. With respect to managed food service, the healthcare segment is doing reasonably well for us and the higher education segment is involved in a reasonable amount of technology investment decisions. After a big decline for a couple of months, the APAC and EMEA businesses have started picking up in July. For customers who are continuing to make technology investments, our exponential product improvements and new product innovation progress is making our selling proposition increasingly more compelling. During Q1, we signed sales agreements which added 10 new customers, 32 new properties which did not have any of our products before, but the parent company was already our customer, and there were 113 instances of selling at least one additional product to sites which already had one or more of our other products. Major sales highlights during the quarter included a new customer, Century World in Stevens Point, Wisconsin, choosing Agilis' Stay PMS, the Argus Booking Engine, Express, Infogenesis POS, and a new golf module with retail for their hotel and their Robert Trent Jones Jr. designed golf course. The Agilis Estate PMS win at Palm Garden Hotel in Thousand Oaks, California, an independent 147-room hotel. The Infogenesis IG Flex on-demand quick pay and buy kiosk win with La Cantera Hotel in San Antonio, Texas, one of the premier luxury resorts in San Antonio, with 496 rooms and 34 boutique-style villas. The on-demand purchase across four outlets to enable social distancing by a long-time user of Infogenesis, Hyatt Regency, Chesapeake Bay Resort & Spa in Cambridge, Maryland. They have reported outstanding on-demand adoption rates and reviews by their guests. Then the Infogenesis POS, IG Flex, and PayWin with the Canopy Hotel by Hilton in Austin, Texas, a PM Hotel Group property. And the Rochester Institute of Technology in Rochester, New York, choosing Infogenesis POS, IG Flex, Buy, Pay, and on-demand for 13 locations. One, three. The other major highlight of the quarter was our PMS implementation across three prestigious hotels owned by the Choctaw Nation, where LMS PMS replaced a well-established competitor property management system. Choctaw Casino and Resorts, located about an hour north of Dallas in southeastern Oklahoma, is a AAA four-diamond resort and entertainment destination. A long-standing Infogenesis POS customer, they are now live with LMS PMS across their three properties at Durant, Pukola, and Grant, Oklahoma, taking advantage of the recently modernized LMS features. As Choctaw reimagined their new guest experience, they have extended their partnership with us to add the guest-centric booking engine, Our Guest Book, which should be replacing their existing booking engine during the next few weeks. They will be using the group feature in our guest book to provide a personalized booking experience for their group guests. In addition, as part of the new guest experience, Choctaw is now accelerating their rollout of our guest express mobile to allow their guests to check in and check out directly from their phones, including by using digital keys, thereby allowing guests to completely bypass the front desk if they choose to. In addition, Choctaw opened their new 277-seat Guy Fieri's American Kitchen and Bar, where they wanted to provide guests a true omni-channel, frictionless, and contactless ordering and payment experience. As a result, they chose the IG on-demand suite of applications to allow guests to order and pay table-side using their own mobile devices. For their servers, They decided to enable mobility throughout with IG Flex tablets to offer guests the next level of hospitality service. We are truly honored to partner with the Shokta Nation as they drive forward innovation and new guest experiences. One of the significant highlights of sales success during the quarter was 17%, of total sales in value terms was comprised only of new software modules created during the recent past against only 1% of sales pertaining to products which were new then during the same quarter last fiscal year. In absolute value terms, sales of new products were about eight times higher in Q1 of fiscal 2021 compared to Q1 last year. Thank you very much. All based on modern cloud, SaaS native and on-prem ready technology will yield good short-term and long-term financial results. This industry is clearly hungry for such cutting-edge modern technology-based solutions backed up by world-class customer service. We clearly are on the right track. The new products which constituted most of the 17% of total sales during Q1 2020 Included the following. One, IG On Demand. On Demand is a contactless self-service F&B ordering solution which offers an intuitive guest-facing ordering and pay experience. This application allows guests to place and pay for orders using their own device, phone, tablet, or laptop. This application also includes a smart menu option which provides a touchless menu display on a guest-owned mobile device. The displayed menu is linked directly to the actual items in the on-demand system and is not to a PDF or a website link. We've also updated a full-service option to this application, which is a completely contactless, multi-pass, self-service F&B solution that offers an intuitive guest-facing, table-side order and pay experience. It supports ordering for multiple guests at a table over the course of a meal and using their own devices. Number two, IG QuickPay. This application allows guests to use their own mobile device, scan a QR code on the Infogenesis check, review a digital copy of the check, add a tip, and initiate payment, maintaining a fully touchless guest payment experience. Number three, Our Guest Express. This application enables guests to check in and check out via a mobile device or a lobby kiosk with support for digital keys, ID verification, and key encoding. Number four, Argus Book, a commission-free, direct channel, easy-to-use online reservation system that is designed to move guests easily through the booking process for room reservations, spa appointments, and golf tee times. Given its seamless, tight integration with our PMS applications, It enables real-time availability and the ability to upsell room upgrades and service enhancements, helping drive increased revenue. 5. Agilisys Authorize This module provides support for fully automated and secure online payments for any room deposits, third-party guarantees, and folio charges, while eliminating the need for manual credit card authorization forms. Payments are seamlessly authorized, and posted appropriately in real time. Fully integrated with our PMS applications, this module now enables guests to authorize their hotel stay from their personal device, preventing the need to provide credit card details over the phone to an agent. This helps avoid the previously cumbersome process of the employee having to click a button to enable surveillance to check for and capture any fraudulent steps. Number six, our guest service. This application is an easy-to-use hospitality native platform that monitors events across various staff and guest touchpoints. As a configurable service optimization solution, it enables task assignment with context-based guest location and task details and optimized routing of tasks and approvals with support for smartphones, tablets, laptops, and wearables. This application contains modules for housekeeping, preventive maintenance, and two-way guest communication. Number seven, Agilis Spa. This is a modern spa management solution for independent hotel and resort-based spa operators. Built-in mobility options help deliver an effortless check-in and staff scheduling process, while intuitive drag-and-drop appointment management helps maximize therapist and treatment room utilization. Built-in yield management insights, which include real-time availability and optimized pricing, as well as the ability to book group services and manage retail items can help grow revenue for a property. This application comes integrated with our PMS and POS solutions, making it easy to share data across the enterprise. Number eight, Agilisys Golf. This is a pro shop and golf course management solution for independent hotel and resort courses with guest-centric technology That helps build personalized experience for players, guests, and members on the course. Again, integrations with our PMS and POS solutions makes it easy to share data across the enterprise and access player information, including personal preferences, play histories, and handicaps. In addition, there are a couple of other recently developed software modules which are in the process of being released. Agilis' Sales and Catering, which is a comprehensive sales and event management system and you would have seen the press release on this yesterday. And number two, Agilis is Engage, loyalty and promotions which will help operators leverage guest preferences for targeted promotions and offers. Now, none of these modules were available for our sales system, for our sales team to sell as recently as two years ago. and a majority of them were not available even a year or six months ago. All these new software solutions have been created cloud SaaS native and also on-prem enabled, leaving the choice to the customer with no technology limitations. Most of the customers are choosing the cloud SaaS option now, which augurs well for accelerated SaaS fees growth in the future. In addition, The projects underway to strengthen and modernize our feature-rich core products continue to make excellent progress. Each recent version release of the core products, apart from a continuous stream of enhanced and new features, has also included good technology modernization progress. Adjusted EBITDA during the quarter was $3.4 million, better than our original expectations. What is notable about the EBITDA level achieved is that we did not in any way compromise the pace of product innovation and customer service levels during the quarter. Our current velocity of product improvements and innovation is the best it's ever been and has helped create expanded market opportunities even under the current tough market conditions. Our R&D team size, not including the technical services team, is now about 720% strong, which is about 25% higher than at the end of Q1 last fiscal year. With about 40% of the R&D team, that's 4-0, with about 40% of the R&D team having been with us for more than two years now, we are currently at a level of quality and productivity we have not seen before. The reduced level of product development spend the Q1 P&L shows is mainly due to salary reductions in place for the six-month April through September period, lower incentive compensation accruals compared to last year, and consistently improving R&D cost efficiencies. Regardless of what the spend indicates, the current level of product development and innovation output is at least 25% higher We continue to increase our ability to provide end-to-end solutions which enable the kind of contactless, safe, and comfortable guest journey our customers now have an enhanced need for. We are committed and determined to increase the pace of product innovation even through the current business conditions and back that up with superior and improving customer service levels. Along similar lines, our sales and marketing spend during Q1 was down mainly due to the six-month salary reductions in place, less spend on trade shows, lower commissions and incentive compensation levels, and limited travel. We expect normal spend levels to get restored and increased as market conditions continue to improve. Lastly, and the most important detail of them all, We continue to be intensely focused on securing the safety and health of our employees, customers, and the communities we serve in. We are deeply grateful for all the personal sacrifices our team members worldwide have made to secure the financial health of the company during this crisis period. As we work our way through the current business environment, significant marketplace uncertainties remain. Thank you for joining us. Even as various parts of the industry reopen and begin their recovery process. In the meanwhile, we expect revenue during Q2 fiscal 2021, the July to September quarter, to be about 15% sequentially higher than the $29.8 million revenue level during Q1. We also expect that to translate to a 25% corresponding improvement Thank you for joining us. and even a partial recovery in various areas of the industry will be sufficient to fuel our growth. We continue to see solid evidence that the short-term reduction in overall industry business levels will be increasingly compensated by an increased need for technology solutions to make hospitality guest experiences safer and more comfortable. We expect to increasingly be the leading provider of such much needed high-quality technology solutions. Thank you, Ramesh.