Agilysys, Inc.

Good day, ladies and gentlemen, and welcome to the Agilisys Fiscal 2024 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 Director of Corporate Strategy and Investor Relations at Agilisys. You may begin.

Thank you, Lisa, and good afternoon, everybody. Thank you for joining the Agilisys Fiscal 2024 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 vary materially from these forward-looking statements include the effects of global economic factors on our business, our ability to increase profitability, our ability to improve services implementation efficiencies, 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 Agilisys 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 our fiscal 2024 first quarter earnings call. Joining Jess and me on the call today is Dave Wood, CFO, and we are at the new Alpharetta Atlanta headquarters we moved into a couple of weeks ago. As has become the norm during our last several earnings calls, we will cover sales first before moving on to revenue and other details. All sales numbers discussed in this and other calls are measured in annual contract value terms. The current stretch of increased sales success, which started around August last year, has kept up its momentum during the past few months as well. The state-of-the-art cloud-native technology, breadth and depth of the functionality feature sets we have built in the end-to-end hospitality-focused ecosystem of software solutions, are making our sales value propositions compelling for prospective customers. Fiscal 2024 first quarter sales was the highest we have seen during any April through June period. This was our best sales quarter in APAC in about three and a half years, and that was the top highlight of the quarter with respect to selling success. It was also another excellent sales quarter for the USHRC hotels, resorts, and cruise ships sales team. Other sales verticals also kept up their recent progress, rounding out another excellent sales quarter. With respect to sales across product categories, software subscription and services sales during Q1 were respectively 46% and 28% higher than the comparable quarter last fiscal year. The other highlight was services implementation efficiency picking up during the quarter to match the pace of sales success, resulting in total backlog across product, services, and recurring revenue decreasing slightly, which is a positive for the business. Services backlog by itself remained flat from the sequentially preceding Q4 fiscal 2023 quarter end, while product and recurring revenue backlog reduced slightly thanks to the improved pace of project delivery during the quarter. Total backlog across product, services, and recurring revenue as of June 30th at the end of Q1 was at 96% of record levels reached at the end of the sequentially previous quarter and 46% higher than at the end of Q1 last fiscal year. With respect to sales deals won during Q1 fiscal 2024, April to June, we added 20 new customers, 18 of whom signed full subscription SaaS agreements. There was an average of about three products or modules licensed per new customer during the quarter. We also added 74 new properties, which did not have any of our products before, but the parent company was already our customer. Of the 94 new properties added during the quarter across new and current customers, about 85% were either partially or fully subscription software license-based. In addition, there were 91 instances of selling at least one additional product to properties which already had one or more of our other products. These 91 new product sales instances included a total of 199 new products sold. Our quota carrying sales team strength has increased steadily over the past couple of years. While the average Agilis' tenure of sales personnel is about seven and a half years across the entire team, close to half the team members have been with us for only two and a half years or less. The value of sales deals closed one by them represented only 6% of total sales during full fiscal year 2023. And it's already three times higher at 19, one nine, at 19% through the first quarter of fiscal 2024. During the first three months of fiscal 2024, the total value of deals closed by this half of the team, who have been with us for two and a half years or less, is already at about 72% of the total value of sales closed by this team during all of fiscal 2023. Sales productivity is another growing strength in our business now. Onto revenue. Fiscal 2024 Q1 revenue of $56.1 million was a record for the sixth consecutive quarter and 18% higher than the comparable prior year quarter. This was a best-ever record quarter for all four major revenue categories, subscription revenue, overall recurring revenue, product, and services revenue. We are off to a good start this fiscal year, and have put ourselves in a good position to achieve our full fiscal year revenue and other annual goals. Reckoning revenue during Q1 fiscal 2024 grew to $32.1 million, about 16.16, about 16% higher year over year, driven by a 27.4% increase in subscription revenue. Subscription revenue constituted 52.2% of total reckoning revenue. Subscription revenue from add-on experience enhancer software modules, most of which were developed in our R&D labs during the past few years, constituted 17% of total subscription revenue this quarter, compared to 15% during Q1 last year. Our ability to provide end-to-end solutions continues to be a significant competitive strength, keeping sales win-loss ratio at impressive high levels. One-time revenue consisting of product and services revenue added up to $23.9 million, close to 21% higher than the comparable prior year quarter. Services revenue was $11.2 million the first time we have crossed the $11 million mark during a quarter, and 27.7% higher than Q1 last year. Many of our recently hired services personnel were in a ramp-up mode during the quarter, causing services margins to be lower than the sequentially preceding Q4 fiscal 2023 quarter. We continue to expect services margins for full fiscal year 2024 to be around 25%, with higher margins expected during the second half of the year. Services implementations increasing in volume and efficiency was another good sign of improving business momentum and has helped our increased confidence in the annual revenue guidance provided. Given the extent of reengineering efforts, new software modules development, product integration initiatives completed, and the dramatic improvements in product innovation undertaken during the last few years, Virtually all the implementations we are carrying out in the field today involve software developed, most of them in-house, during the past few years. Now, that is both a strength and a challenge. The most encouraging aspect of this April to June quarter was all these products and modules becoming progressively easier to implement and support and settling down well in the field. That paves the way for growing improvements in our future ability to scale up and keep improving customer satisfaction levels. That was true this quarter, especially on the PMS side of our business, that's property management systems. We are now involved in more property management systems, PMS sales opportunities than ever before, and are encouraged by the PMS credibility we are building with prospective customers. Our competitive positioning against the major, very well-established PMS providers is far better today than it was a year ago. We expect core PMS products, along with all the add-on experience-enhanced PMS software modules we have integrated the core products with, to make increasingly bigger contributions to our short- and long-term growth. Adjusted EBITDA for the quarter was $6.3 million and 11.2% of revenue, slightly ahead of our expectations, but still the lowest EBITDA of revenue percentage during a quarter in about three years. As discussed during the last couple of earnings calls, this decline in profitability was caused by recent increases in cost investments in preparation for major business growth opportunities we are making good progress with, along with the fact that the first half of each fiscal year tends to be more challenging for us with respect to costs and cash management. The timing of incentive bonus payments, trade shows, professional fees, and several other cash and cost elements, and incoming annual maintenance payments, a majority of which tend to come in during the second half of the fiscal year, makes the first half relatively more challenging for us for cash management and profitability. Free cash flow during the past couple of quarters have been affected by increased capital expenditures pertaining to our move into new offices in our two main U.S. locations, Atlanta and Las Vegas. And the fact that India Development Center is also in the process of moving into a single building. We are currently distributed across multiple buildings, which are within one world-class campus in Chennai, but are not contiguous. Profitability during the next sequential quarter, Q2 fiscal 2024, will also remain compressed due to many of the recent cost increases now becoming applicable for the entire quarter. We expect profitability to then return to our normal previous levels during the second half of the fiscal year. We continue to expect EBITDA by revenue percentage to be around 13, 1.3, around 13% for full fiscal year 2024, and expect the Q4 exit rate percentage to be higher than the corresponding prior year Q4 exit. As during previous fiscal years, we expect free cash flow to approximate to adjusted EBITDA minus capital expenditures on an annual basis, with the unfavorable first half being compensated by the second half of the fiscal year. With that, let me hand the call over to Dave for more color on the financial and other business details.