Agilysys, Inc.

Thank you for standing by and welcome to the Agilisys fiscal year 2023 fourth quarter and full year conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. If your question has been answered and you'd like to remove yourself from the queue, simply press star 11 again. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Jessica Hennessey, Senior Director of Corporate Strategy and Investor Relations at Agilisys. Please go ahead.

Thank you, Jonathan, and good afternoon, everybody. Thank you for joining the Agilisys fourth quarter and full fiscal year 2023 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 effects of global economic factors on our business, our ability to continue profitable growth, our ability to expand our room counts under management, 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. As a reminder, any references to record financial and business levels during this call refer only to the time period after Agilis has made the transformation to an entirely hospitality-focused software solutions company in fiscal year 2014. With that, I'd now like to turn the call over to Mr. Ramesh Srinivasan, President and CEO of Agilisys. Ramesh, please go ahead.

Thank you, Jess. Good evening. Welcome to the fiscal 2023 fourth quarter and full year earnings call. Joining Jess and me on the call today in our Atlanta headquarters is Dave Wood, our CFO. If I was allowed only one sentence or phrase during this call to describe the current state of our business, I would say, well positioned for solid, good, disciplined, and profitable revenue growth during the short, medium, and long term. We've worked hard and smart during the past few years to give ourselves considerable competitive advantages with products and services, have greatly expanded our product portfolio for the hospitality industry, all based on state-of-the-art cloud-native technologies. have built a stable, talented, and hardworking team, and are growing from strength to strength, especially over the past three quarters, regardless of how volatile the macroeconomic headlines have been. We are currently working on several significant revenue growth opportunities over the next few years, which are giving us reasons for increased, prudent, additional investments right now, and we are managing through the current Growth fueling additional spend phase carefully and with utmost diligence while remaining significantly profitable. Let me cover sales first before moving to revenue and other details. All the sales and selling success numbers and other details we discuss in this call are measured in annual contract value terms. The Marriott Property Management System PMS sales win announced last December does not figure in any of the sales-related details mentioned in this narrative. We've enjoyed sustained good and improving selling success since around last August. March was our best sales month ever. The January-March quarter was our best sales quarter ever. And fiscal 2023 was our best sales year ever, all by fair distances compared to the previous best periods. The state-of-the-art cloud-native technology, breadth and depth of the functionality feature sets, and the end-to-end hospitality-focused ecosystem of products we've built during the past few years and continue to enhance are making our sales value propositions compelling for prospective customers. Sales win-loss ratios continue to remain at impressive high levels. Overall global sales during fiscal 2023 was 22% higher than during fiscal 2022, including a 46% increase in the MER region. Every one of our sales verticals did better in fiscal 2023 compared to the previous year. Fiscal 2023 was a record sales year for the gaming casino sales vertical in EMEA and for the hotels, resorts, and cruise ship sales vertical, which we refer to as HRC internally, H for hotels, R for resorts, and C for cruise ships. Apart from being a record high sales year for those three major sales verticals, this was also a great year for the managed food services sales verticals. getting back close to pre-pandemic record levels. APAC remained the only challenging vertical. While fiscal 2023 APAC sales was higher than during fiscal 2022, it was still nowhere close to pre-pandemic levels. While sales activity in the APAC region has increased significantly during recent months, with several significant opportunities in the current sales pipeline, We continue to face long delays in purchase decision-making processes there as we continue to compete against a few big, well-entrenched competitors, and in many instances, their low pricing levels. We remain committed with our sales and marketing investments in the APAC region, have made good progress in Australia and New Zealand, have added many product feature sets which makes our products more competitive in international markets, and remain confident that fiscal 2024 should be a good sales year in the APAC region. With respect to sales categories, fiscal 2023 global software subscription sales set a new record, 18, 1.8, 18% higher than fiscal 2022, which was the previous best year. 73% higher than fiscal 2021, which was also a record at that time. 73% improvement in subscription sales across a two-year period is a testament to how far our products have come. Surprisingly, fiscal 2023 was also an excellent year for non-subscription perpetual license-based software sales, validating the innovative work our product development teams have done during the past few years creating cloud-native SaaS software solutions which can also be implemented on-premise off the same code base. Many hospitality providers continue to prefer on-premise software implementations, and being able to also cater to their needs through one unified innovation engine is a significant competitive advantage for us. Several sales agreements have also involved hybrid arrangements. where some portion of the core products are installed on-premise, while most of the add-on experience enhancer modules have tended to be implemented in the cloud with subscription-based licenses. In addition, we think it's reasonable to assume many of the current on-premise installations will choose to convert to the cloud and subscription-based licenses over time. Fiscal 2023 was also a record year for services sales. comfortably ahead of the previous best year from several years ago. With respect to signed sales agreements during January to March Q4, we added 15, that is one five, we added 15 new customers of which 14 were fully subscription agreements. There was an average of four products or modules purchased per new customer during the quarter. This was our best year in six years with respect to total annual contract value of sales to new customers. We also added 80 new properties during the quarter, which did not have any of our products before, but the parent company was already our customer. We tend to refer to this as new site sales. Of the 95 new properties added during the quarter across new and current customers, more than 90% were either partially or fully subscription software license based. There were also 115, that is 115, 115 instances of selling at least one additional product to properties which already had one of our other products a category we refer to as new product sales. These 115 instances involve sales of a total of 226 products. The 115 new product sales instances were about twice as many as the preceding Q3 quarter. Both the 115 instances of such sales agreements and 226 actual products sold to current customer properties were all-time best numbers. During full year fiscal 2023, we added a total of 68 new customers, 303 new property sites of current customers, and there were 322 instances of new product sales to current properties involving 663 new products. There were 10 new core property management system PMS wins during the quarter compared to seven such wins in the sequentially preceding Q3 quarter. We are now a credible presence in the PMS space, an increasing presence in most PMS RFPs, and continue to see momentum in PMS sales. Software sales pertaining to PMS and related add-on experience enhancer modules was 28% higher in fiscal 2023 compared to fiscal 2022. Now on to revenue. Fiscal 2023 full year and Q4 revenue were 198.1 million and 52.9 million respectively, both all-time records. I want to take a pause here and give due credit to our extraordinary teams. Most business success stories are about great people. When many publicly traded organizations were reducing their revenue guidance levels or at best holding on to them while being in the midst of tough macroeconomic circumstances, having the conviction to raise revenue guidance to $195 million to $198 million and then achieving the high end of that range is remarkably good execution by the Agilisys team. This is a hardworking, intelligent, caring, high culture group, which makes commitments very carefully. And once such commitments are made, we'll do whatever it takes. We'll move mountains to make them happen. I'm personally proud to be associated with this remarkable team. Fiscal 2023 full year revenue of $198.1 million was about 22% higher than fiscal 2022 revenue of 162.6 million, which in turn was 19% higher than the 137.2 million revenue level during the pandemic-affected fiscal 2021. Annual revenue has grown by a little more than 60 million during the past two years, of which about 23 million has been through growth in subscription revenue. Overall recurring revenue for fiscal 2023 full year was about 118 million, and full year subscription revenue increased 27.5% year-over-year to 58.2 million. Q4 recurring revenue was 31.4 million, of which subscription revenue was 50.6%. the first quarter in which subscription revenue constituted more than half of overall recurring revenue. We continue to manage the transition to a cloud and subscription revenue-based enterprise software unit without typical short-term detrimental effects on revenue levels, which is usually associated with such efforts. Steady good increase in recurring revenue levels on a sequential quarter over quarter basis is also a good testament to our high customer retention levels. Subscription revenue from the 20 plus state-of-the-art add-on modules, most of which were created ground up by our internal product development teams during the past few years, where 1.3% of total subscription revenue in fiscal 2020, then grew to 4.8% in fiscal 2021, to 11% in 22, and now was 16% of total subscription revenue in fiscal 2023. In absolute value terms, subscription revenue from these add-on modules during fiscal 2023 was close to 90% higher than during fiscal 2022. Customers continue to look for the high value they get from these add-on cloud-native software modules which make it easier for them to manage various complex integration points and also benefit from the exponentially higher pace of innovation for their end-to-end needs, which is possible when most of the required core products and additional modules are handled by one technology provider. Most of our major competitors tend to rely on other third-party vendors for such additional needs. We continue to have significant revenue growth opportunities ahead of us, even within our existing customer base. The average number of Agilis' products installed per customer exiting fiscal 2023 was about 2.0, compared to 1.8 exiting fiscal 2022, 1.7 exiting 2021, and 1.6 exiting fiscal 2020. With the 20 plus add-on state-of-the-art software modules in our arsenal, this is still a huge addressable market with customers we already have a relationship with today. And of course, we also have an enormous total addressable market external to our customer base, which is several times our size. Q4 fiscal 2023 services revenue was a record 10.2 million exceeding 10 million in revenue within a quarter for the first time. Q4 services margins increased to 27.7%. Implementation processes of the relatively newer and recently re-engineered core and add-on software modules have improved over time and have now become considerably more efficient. We expect services margins to remain at around 25% during fiscal 2024. Another good indication of the overall great health of our business is cash collections. Fiscal 2023 was a great year for cash collections and by far our best year ever. We continue to remain disciplined in everything we do and not go after low quality or low margin business just to keep revenue levels up. We've entered fiscal 2024 with record backlog levels across all three revenue lines. One, product in terms of hardware and software perpetual licenses already sold but yet to be delivered to customers. Two, recurring revenue including subscription revenue with respect to implementations already signed for by customers but yet to be implemented. And three, signed services engagements remaining to be worked on. The overall combined backlog levels entering fiscal 2024 is about 36% higher than the levels we saw entering fiscal 2023. Our sales engine has been operating at increasing record levels we have not seen before, and our implementation engine has not yet fully caught up with this higher pace. While not all the reasons for certain implementation challenges delaying revenue recognition are on us, We are working diligently to improve our implementation management processes and increase capacity. We are working through a higher proportion of bigger, more complex, multi-product installations. Some of the reasons for the backlog buildup also have to do with multi-property site implementations where installation at the initial sites have been completed with other sites to follow soon. The Marriott PMS project is not included in any of these backlog numbers. While we are happy with the increased visibility and certainty such high levels of product recurring revenue and services backlog give us, we are working on making sure all our execution engines become well balanced and the backlog remains at healthy levels. Regarding the Marriott PMS project, Our portion of the required product enhancements and services deliverables are progressing well and are more or less on schedule, give or take a few weeks here and there. An initial tranche of product enhancement deliverables was completed and delivered during March. Delivery of the remaining tranches will continue throughout fiscal 2024, driving increases in recognized services revenue. There are many parts to this transformational multi-year project Marriott has undertaken involving several of their vendor partners. This project for us involves the rollout of PMS across the majority of the thousands of Marriott select service premium and luxury properties in US and Canada. As things stand now, this rollout is expected to begin early fiscal 2026. We continue to expect to approximately triple our current PMS install base of about 300,000 rooms during the next three to four years driven by the Marriott project and our increasing PMS sales successes across other prospective customers. One other quick note to answer a question we've been asked a few times recently. The Marriott PMS project will not cause any distraction or challenges with respect to the rest of our business growth plans. We have a dedicated team of product development personnel who are a subset within one of the three major PMS products we are currently selling and supporting, along with a dedicated team of services personnel who are now focused entirely on the Marriott project deliverables. We already have and continue to expand the resource capacity of product development services and other teams as needed for this project and for other customer projects. Apart from the Marriott dedicated teams, all our personnel are focused on other products, including other PMS products, services, support, and activities that have nothing to do with the Marriott project. Please be assured that most of our personnel are focused on growing our business with the rest of the non-marriot hospitality universe and executing well on all aspects of our business and on all growth opportunities. All things considered, we expect fiscal 2024 annual revenue to grow by about 16% to 19%, that is one six and one nine, We expect fiscal 2024 annual revenue to grow by about 16% to 19% and be in the range of 230 million and 235 million, driven, among other factors, by year-over-year subscription revenue growth of 25%. Between product and professional services revenue lines, we expect services revenue to grow year-over-year by a higher percentage. We expect adjusted EBITDA levels for full year fiscal 2024 to decrease to 13, 1.3 to 13%. We have a compelling need to make additional cost investments this fiscal year across cloud management, network and other infrastructure, product development, services, support, sales and marketing to ensure we bring to fruition the significant subscription and other revenue growth opportunities for beyond this fiscal year we are currently working on. Many aspects of this expansion have already happened and others are in the process of happening. Recent expansion of sales teams across various regions has given us sales capacity levels we feel happy and comfortable with going into the fiscal year. We are expanding marketing spend wherever appropriate. In addition, there are various cost elements like audit fees, internal events, and participation in trade shows which tend to happen during the first two quarters of the fiscal year and do not generally apply to the second half. We also expect revenue levels to steadily increase sequentially quarter over quarter throughout the year. Taking into account all these factors, we expect profitability levels, meaning adjusted EBITDA by revenue percentages, to be low during Q1 and Q2, even possibly as low as high single digit percentages, and increase each quarter as revenue increases and cost levels stabilize to end up with an annual total level of 13%. With that, let me hand the call over to Dave for further color on our financial and operational results. Thank you, Ramesh.