Agilysys, Inc.

Good day, ladies and gentlemen, and welcome to the Agilis Fiscal 2022 Second Quarter Conference Call. As a reminder, today's conference may be recorded. I would now like to turn the conference over to Jessica Hennessy, Director of Corporate Strategy and Investor Relations at Agilis. You may begin.

Thank you, Justin, and good afternoon, everybody. Thank you for joining the Agilis Fiscal 2022 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 vary materially from these forward-looking statements include the continued effects of the COVID-19 pandemic on our business, global supply chain challenges, 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'd like to now turn the call over to Mr. Ramesh Srinivasan President and CEO of Agilisys. Ramesh, please go ahead.

Thank you, Jess. Good evening. Welcome to our fiscal 2022 second quarter earnings call. Joining Jessica Hennessy and me on the call today in our Atlanta office is Dave Wood, our CFO. As stated in the last earnings call, we are going to do our best to continue offering comparisons to two historical quarters, one with a comparable quarter from a year ago and one from two years ago. While most sales and revenue comparisons with the prior fiscal year will obviously look good, we think comparisons with comparable pre-pandemic periods from two years ago will provide a better gauge of business progress for the remainder of this fiscal year. We will provide the same comparisons for profitability measures like EBITDA as well, as last year was higher than normal due to artificial salary reductions and other one-time cost-saving measures. Our sales success narrative has remained more or less the same as reported from the previous quarter. We continue to see excellent recovery in the U.S. gaming and resorts market verticals, a partial recovery in the hotel chain and cruise ship verticals, while managed food services and international regions remain significantly affected by the lingering effects of the pandemic. Despite all the remaining short-term marketplace challenges, our sales levels measured in annual contract value, ACV, terms have increased for two consecutive quarters and have again reached levels similar to the pre-pandemic fiscal year 2020. Please note that all data pertaining to sales in this and other narratives are based on annual contract value, ACV, of one and closed sales agreements. Subscription sales have increased significantly over three consecutive quarters. This July to September quarter, Q2 of fiscal 2022, was our best ever subscription sales quarter by a fair distance and in line with our increasing expectations, 21% higher than the previous best subscription sales quarter, which was the preceding Q1 of fiscal 2022. The steady increase in subscription sales during the past few quarters is possibly due to both an increasing preference among customers for cloud applications and the current availability with us of such cloud-native software solutions across virtually every hospitality need. This is a long-awaited and welcome change for our business, despite both these situations resulting in delayed conversions of sales success to revenue compared to on-premise perpetual license sales in the past. The other sales success highlight is the growing momentum in property management systems, PMS sales. Total ARR of PMS sales for the second quarter have increased 115% compared to fiscal 2020 two years ago. Within that total number, subscription only PMS sales were up more than 145% for the second quarter compared to fiscal 2020 two years ago. The product modernization efforts over the past few years have given us cloud-native subscription sales options across all our hospitality software solution offerings. Though in this industry a small portion of customers still prefer on-premise implementations for good reasons, our recently modernized products give us the capability of supporting both on-premise and cloud installations, including mixed environments of both, with the same code base, which is a significant competitive advantage. We no longer need to turn down sales and revenue opportunities due to any kind of technology limitation. With respect to signed sales agreements during Q2, July to September, we added 16 new customers 58 new properties which did not have any of our products before, but the parent company was already our customer. And there were 82 instances of selling at least one additional product to properties which already had one of our other products. Once again, more than 90% of the 16 new customers and 58 new properties added during the quarter were either fully or partially subscription license-based. While the number of new customers signed during the quarter is only more or less in line with previous quarters, Q2 fiscal 2022 was our best quarter in five years for new customer sales measured in ACV terms. What that implies is the size of each new customer win in value terms has expanded due to the increased availability of world-class cloud-native software solutions. Once we break through and win a new customer, what would have possibly been a single product sale a couple of years ago, most probably Infogenesis POS, is now often a multi-product sale. To cite a few examples, Britain Resorts and Hotels selected Agilisys to provide multiple cloud applications including Stay PMS, Argus Service, and Agilis Pay to manage their properties in Myrtle Beach along the coast of South Carolina. Big Cedar, who offer rustic luxury and a variety of amenities across multiple properties in the Missouri Ozark Mountains, selected Stay PMS, Sales and Catering, On Demand, and E-Tech to manage their operations. Eden Hall and Hoare Cross Hall selected Infogenesis POS across two properties in the UK and are actively looking at purchasing other additional Agilisys products. And Her Majesty's Naval Base at Clyde UK chose V1 PMS and Sales and Catering for one of their three operating naval bases for the Royal Navy. Such multi-product sales wins have become more frequent and regular occurrences during recent quarters. Despite the sales successes during the past couple of quarters, especially pertaining to subscription sales, revenue for the July to September second quarter of fiscal 2022 was at the low end of our guidance at $37.9 million, slightly below the sequentially preceding Q1, 10% higher than the comparable quarter last fiscal year and 7% below Q2 from fiscal 2020, two years ago. While recurring revenue, including subscription revenue, continued to grow to record levels, one-time revenue consisting of hardware and software product revenue and services revenue was at the low end of the guidance range. and was sequentially down 1.7 million compared to Q1. Q2 product revenue of 7.3 million was 11% higher than Q2 of last fiscal year, but 39% below Q2 of fiscal 2020. Global supply chain issues caused delays in POS terminal and payment device shipments from hardware partners, affecting hardware and associated software product delivery to customers. While we continue to work with our partners, have increased inventory levels, and have chosen expedited shipment methods, short-term product revenue is dependent on receiving the promised shipments during the coming months, and uncertainties do remain. Recent increases in sales of PMS and related software solutions have been timely and valuable since they have no hardware shipment dependencies. Services revenue of 6.6 million remain sequentially flat compared to Q1 this fiscal year, increased 19, one nine, increased 19% over the comparable prior fiscal year quarter, but decreased by 23% compared to Q2 from two years ago. Customers are continuing to manage through labor shortages and are forced to make hard choices in prioritizing various required software implementations and other operational high demand projects as best as they can. In addition, our recently created and re-engineered products are needing extra levels of support in the field. Q2 recurring revenue of 24 million was a record. Recurring revenue during Q2 last fiscal year was 22.3 million and 20.3 million during Q2 of fiscal 2020. Within the recurring revenue line, subscription revenue was also a record, crossing the 11 million mark for the first time. Q2 subscription revenue was sequentially 900K higher than Q1 this year, an impressive 9% quarter over quarter sequential increase. Despite all the customer site closures and hospitality industry damage caused by the pandemic during the past few quarters, Q2 subscription revenue was 22% higher than Q2 last fiscal year and more than 50% higher than Q2 two years ago. Q2 subscription revenue comprised a record 46% of total recurring revenue compared to 41% during Q2 last year and 36% during Q2 two years ago. Adjusted EBITDA for the quarter was 6.3 million and about 17% of revenue, that is one-seventh, 17% of revenue, down from 8.6 million in Q2 last fiscal year, but an improvement of 110% from 3 million during fiscal 2020 two years ago. Cash collection trends continue to be increasing. Cash balance increase of $7.2 million during the first half of fiscal 2022 represents our best cash increase during the first half of the fiscal year in more than seven years, excluding the convertible investment cash gain last year. The in-person high-tech show in Dallas and G2E show in Las Vegas on recent back-to-back weeks were encouraging. I was there in person myself for both those shows. We had a significantly increased marketing presence in both the shows, thanks to new sponsorship of lanyards for all participants and displays in a couple of strategically positioned physical locations. Though the foot traffic was considerably lower than previous pre-pandemic shows during calendar 2019, our booth was busy throughout the show days. The quality of conversations with current and prospective customers was high. Customer users who attended the shows came with focus and purpose. Despite the relatively low attendance, the number of quality leads we generated were comparable to prior years. During the high-tech show, we announced the completion of our multi-year modernization effort of the V1 PMS platform. After being an on-premise only PMS solution for multiple decades, the completely re-engineered V1 PMS is now cloud native and can also support on-premise implementations of the same code base. Around this time, we also announced further releases of the completely re-engineered and modernized Infogenesis Terminal, which is now pound for pound the best point-of-sale enterprise system out there, and can support Windows, iOS, and Android operating systems, which is a major improvement over the past when we were able to support only Windows terminals. Our displays and announcements during the high-tech and G2E shows were the first steps in our current endeavor to launch Agilisys 2.0 as a company which has retained the functionality strengths of the solutions which have been trusted and relied on for mission-critical requirements in the hospitality industry for multiple decades and now also feature modern cloud-native technology architectures and many additional software modules which serve end-to-end industry needs, making it easy on customers who now don't need to go to multiple vendors. While the hospitality industry's recovery from the pandemic continues to make steady progress across the globe with increasing vaccination rates, Significant challenges remain in various international regions and in domestic managed food services market due to the work from home practices still remaining predominant across many businesses. While the current challenges to one time revenue are yet to be fully resolved, we remain bullish about our medium and long term prospects due to the breadth of cloud native applications we now have available, our continued momentum in the marketplace current record backlog levels and our expectation that the lingering pandemic challenge portions of the hospitality industry will turn the corner soon. We remain cautiously optimistic and are maintaining the range of fiscal 2022 revenue guidance of 160, 160 million to 170 million and adjusted EBITDA levels of slightly above 15%, that is one five, 15%. We came into this fiscal year expecting the second half of the fiscal year to be significantly better than the first half, and that expectation has not changed. The speed at which we overcome the current short-term, one-time revenue challenges will determine how successful we are with our overall results this fiscal year. Despite all the current business environment challenges, we are making great progress towards a promising medium and long term, and that remains the main thing. Now that our products are more or less where we have always wanted them to be, we are well underway with increasing our sales and marketing focus. We expect a recently selected additional VP of sales entirely focused on the hotels and resource division to join us in about a month from now. We are in the process of expanding our quota carrying sales force with six additional hires during the next few months. And we have just kicked off the recruitment process. for a head of marketing. While we will always remain a disciplined growth company, our current answer to virtually every sales and marketing expansion need is yes, just like how it has been for R&D during the past few years. We like our current win-loss batting ratio in sales deals we participate in, and now most of our focus is on increasing the number of at-bats we get invited to. With that, Let me hand over the call to Dave Wood for detailed commentary on the financial results and additional color on our business progress. Dave?