Agilysys, Inc.

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

Thank you, Tawanda, and good afternoon, everybody. Thank you for joining the Agilisys Fiscal 2021 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. 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 hospitality industry, 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 and TenQ 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, Jessica, and good afternoon, good evening, everyone. Welcome to our Fiscal 2021 Second Quarter Earnings Call. Joining Jessica and me on the call today is Dave Wood, our CFO. Thank you for joining us. Thank you for joining us. Thank you very much. Sometimes that progression happens relatively quickly, while for certain other sales agreements, especially those involving subscription-based license fees, the transition to revenue happens over time after the relevant product implementations have been completed. Q2 fiscal year 2021 revenue was $34.4 million dollars. Representing 15% sequential growth over Q1 and a 16% year-over-year decline compared to the comparable Q2 quarter last fiscal year. The difficult circumstances faced by the global hospitality industry due to the pandemic continue to have a detrimental effect on our sales and revenue levels. Product and services revenue recovered partially and increased sequentially by 25 and 35% respectively over Q1, though they remained at 45 and 35% year-over-year decline levels compared to Q2 of last fiscal year. The sequential increase in services revenue from Q1 to Q2 Thank you very much. by customers not yet being able to accept product deliveries and start services implementations they had already signed up for. Services revenue was also affected by the highly successful on-demand POS remote ordering SaaS application launch where we offered no-cost or low-cost implementation services fees in addition to 90 days subscription fee relief. It was a timely goodwill gesture to our customers with a long-term subscription revenue benefit for us, which worked out well. The silver lining in our revenue this quarter was recurring revenue returning to record levels at $22.3 million, a year-over-year increase of 10% compared to Q2 of last fiscal year. Within recurring revenue, subscription revenue grew year over year by 24% despite the various one-time COVID-related relief provided to customers. The solid subscription revenue and overall recurring revenue results, despite the difficult business circumstances, underscore the mission-critical nature of our software applications. The continuing steady migration of our customer base and the increased availability of newly created cloud-native SaaS applications in our product portfolio. Our product innovation levels and pace of delivery with respect to such applications have increased this calendar year. Now, with respect to sales success levels, Thank you for joining us. Our sales levels have shown steady sequential improvement every month since April, with the exception of August. Sales during August, though, were still better than April and May. September was our best sales month since March. One of the major sales highlights during the six months between April and September across Q1 and Q2 of this fiscal year Despite the extreme challenges faced by the hospitality industry, has been the fact that these six months have been our best ever in terms of average monthly SaaS subscription-related sales. That certainly augurs well for our future. The second major highlight of sales success has been, now, if we define new products as cloud-native, Thank you very much. which are well integrated with our core products enable greater operational efficiency and visibility, enable contactless interactions with their guests, and in general, go a long way to help with guest comfort and safety. The fact that these additional SaaS applications have also helped establish Agilisys as a partner who can be relied on for rapid product innovation, and world-class cloud-native modern technology solutions is an additional bonus. This success has given us good reasons to feel good about our long-term future subscription recurring revenue growth and profitability prospects. Even during this pandemic, we have continued to make good progress towards converting Agilisys into a world-class cloud-native SaaS applications-led enterprise software business unit. Thank you very much. along with well-integrated innovative add-on modules which provide great value. We are in a terrific position to meet that need. Among the new products, the POS remote ordering platform on demand has been the star performer. This product, which became especially relevant after the pandemic started, is the one we had announced a special purchase offer for. Customers who signed for the SaaS-based platform on or before June 30th were eligible for a 90-day free trial and a no-charge services implementation for the first food outlet or profit center of a particular site. As of April 1, calendar 2021, the start of our next fiscal year, we expect close to about 200 sites using the on-demand application with applicable SAS fees to be live and we expect this module by itself to contribute to 3-5% SAS recurring revenue year-over-year growth. Other new additional software applications like Argus Service, a service optimization platform that enhances operator efficiencies and integrates all aspects of back-of-the-house operations around guest preferences and safety, and Argus Book, Thank you very much. Agilisys has received the Gold Award in this prestigious casino industry annual award cycle. We continue to enhance all such additional SaaS applications to make them increasingly more compelling. Many of the following notable sales wins during the quarter would not have been possible a couple of years ago when we did not have the benefit of the new additional SaaS applications which add considerable value to the robust core products they are built around. This list is in no particular order. 1. Lucky Star Casino, a multi-property Oklahoma-based casino and hotel corporation, purchased multiple products including... Infogenesis POS and IG Flex tablets across all their properties and also invested in Stay PMS, Argus Book, and Argus Express mobile check-in checkout for their newest hotel property. Number two, Paragon Casino Resort located in Marksville, Louisiana, a long-time LMS PMS, Data Imagine, and Straten Warren Inventory and Procurement Solution customer, finalized their decision to upgrade their LMS version to make use of the new web UI now available in LMS PMS and also implement Argus Book and Argus Pay. In addition, they invested recently in Infogenesis for their food and beverage point of sale needs. Number three, Caesars Entertainment in the UK purchased on demand to implement in seven of their casino sites in the United Kingdom. 4. Chickasaw Nation purchased Infogenesis with IG Flex tablets, on-demand, seat, and e-tech for their new high-end venue, the Dallas Cowboys Bar and Grill. 5. Located around Lake Elkhart in Wisconsin, Osthoff Resort is a long-time user of Infogenesis POS and expanded their investment in Agilisys during the quarter by implementing on-demand and the E-Tech Inventory and Procurement Solution for their hotel operations. 6. Hard Rock Hotel and Casino located at Lake Tahoe, Nevada, situated in the heart of the Sierra Mountains, selected Agilis' E-Tech to manage their food and beverage, retail and hotel inventory needs. 7. Altera Deer Valley and Solitude Resorts started their partnership with Agilis' selecting Infogenesis POS, and IG Flex tablets for their food and beverage servicing needs and are continuing to evaluate on demand and a few of our other solutions. Number eight, last but not the least and probably the coolest of them all for a sports lover like me, our new cloud native golf module but installed in this particular site as an on-prem solution based on customer preference was recently installed In one of the most prestigious golf courses in the US. Unfortunately, we don't have their permission yet to share the name of the golf course. During Q2, we signed sales agreements which added 10 new customers, 55 new properties which did not have any of our products before, but the parent company was already our customer. and there were 72 instances of selling at least one additional product to sites which already had one or more of our other products. Now, with respect to revenue guidance, the hospitality industry remains very challenged though various pockets of the industry are showing good signs of close to complete recovery. We expect the environment though to remain tough during at least the next few quarters With this October to December quarter being particularly shaky and uncertain. Now given the tough circumstances, we expect only a modest 5% sequential revenue increase during Q3 over the 34.4 million revenue level achieved during Q2. We will continue providing sequential quarterly guidance for the remainder of this fiscal year. Now, regarding profitability levels achieved during the quarter. Adjusted EBITDA for Q2 fiscal 2021 was 8.6 million, significantly higher than our original expectations and more than twice as high as our previous best adjusted EBITDA quarter, which was just a couple of quarters ago. This was also our first positive gap EPS and highest adjusted EPS quarter since Since we became an entirely hospitality software solutions focused business unit about seven years ago. Profitability levels this quarter were partially aided by the salary reductions and other cost saving initiatives that were implemented during the six month period between April and September to help manage through this pandemic phase. However, even without such one time cost reductions in place, our Q2 profitability would have been far higher The main highlight of this profitability level is It was achieved while simultaneously increasing our product innovation momentum and also fully maintaining world-class customer service levels. We did not compromise on those crucial elements in any way, shape or form. Our R&D strength has actually increased by about 50, 5-0, by about 50 resources since the onset of the pandemic about 7 or 8 months ago. Product innovation remains our main ticket to greatness, and we have our foot firmly on that gas pedal, regardless of the external circumstances. We continue to make terrific progress with our efforts to modernize all our core solutions. It would be fair to say we are at about the seventh inning of that effort. While also simultaneously adding several new cloud-native, on-prem capable additional software applications, Thank you very much. The fact we have been able to achieve this level of profitability in such an all-round challenging environment should be taken as a solid indicator of the future earnings potential of this business. During the past few years, we have been making good strides Thank you very much. Thank you very much. Increased sales process efficiencies created by the pandemic with less travel and our ability to conduct a lot more business virtually and a lot more efficiently, less spend on trade shows and advertising, less commissions, and other direct expenses due to decreased sales levels. These past eight months or so have created an environment which can be managed well during the short term with less sales and marketing spend. The same has not been true for R&D product development costs. In about two to four quarters from now, we expect our R&D strength to reach a strong peak level, which will then remain steady, and our focus will then be on ramping up the sales and marketing engine. The increase in sales and marketing would have happened earlier under normal circumstances, but the pandemic has delayed it by a few quarters. Please be assured, Thank you very much. is not too far away. While we expect revenue during the October to December quarter to be sequentially about 5% higher than Q2, we do expect adjusted EBITDA to decrease to about $7 million during Q3 from 8.6 million in Q2. This 1.6 million decrease will be due to the reversal starting October of virtually all salary reductions Thank you for joining us. The relatively lower margin product and services revenue were affected by business conditions. In the future, we think it will be fair to expect the EBITDA percentage to be in the high teens, 15% or above, on a consistent basis for the foreseeable future. With that, let me hand over the call to Dave for further color on our financials and other business details, and I will then be back for a few closing remarks. before opening up the call for questions. Dave? Thank you, Ramesh.