Q2 2020 Earnings Call
Ladies and gentlemen, today's conference is scheduled to begin shortly please continue to standby. Thank you for your patience.
As a reminder, today's conference maybe recorded.
I would now like to turn the conference over to Mr., David Blood, Vice President of corporate strategy in Investor Relations at Agilysys you may begin.
Thank you Sarah and good afternoon, everybody. Thank you for joining the agility its fiscal 2022nd quarter Conference call will get started in just a minute would management's comments, but before doing so let me read the safe Harbor language.
Today's conference call contains forward looking statements within the meaning of the safe Harbor provision of the U.S. Private Securities Litigation Reform Act of 1990.
Forward looking statements can be identified by words, such as anticipates intend plan goal believe estimate expect.
Future likely may should will and other similar references to other periods. Examples of forward looking statements include among others, our guidance related to revenue adjusted EBITDA and free cash flow and statements, we make regarding revenue recurring revenue and subscription revenue growth.
Continued sales and business momentum and increasing investments and resources in R&D Sats operations professional services and customer support.
Forward looking statements are neither historical facts, nor assurances of future performance.
Instead, they are based only on our current beliefs expectations and assumptions regarding the future of our business future plans and strategies projections anticipated events and trends the economy and other future conditions because forward looking statements relate to the future. They are subject to inherent uncertainties risks and changes in circumstances.
That are difficult to predict and many of which are outside of our control our actual results and financial conditions may differ materially from those indicated in the forward looking statements. Therefore, you should not rely on any of these forward looking statements.
Important factors that could cause our actual results and financial conditions to differ materially from those indicated in the forward looking statements. Today include among others, our ability to maintain operational efficiencies and meet customer demand for products and solutions and the rest described in today's news announcement and the company's falling with.
Then the Securities and Exchange Commission, including the company's reports on Form 10-K , and Form 10-Q any forward looking statement made by US in today's conference call is based solely on information currently available to us and speaks only as of the date on which it was made we undertake no obligation to publicly update any forward looking statements.
That may have been made from time to time, whether as a result of new information future developments or otherwise today's call and webcast will include non-GAAP financial measures within the meaning of FCC regulation G. when required a reconciliation of all non-GAAP financial measures to the most directly comparable financial measures.
Calculated and presented in accordance with gap can be found in today's press release as well as on the company's website.
With that I'd now like to turn the call over to Mr. remains Sreenivasan, President and Chief Executive Officer of Agilysys Ramesh. Please go ahead.
Thank you, Dave and good afternoon, everyone.
Welcome to our fiscal 2020 second quarter earnings call.
Joining me on the call today, it's Tony Pritchett, I see a fault.
We are pleased to report that we completed yet another strong quarter highlighted by revenue $40.7 million a 19, one night, a 19% increase over Q2 of last year.
With increases across all three or five revenue lines recurring revenue, but Arctic revenue I Didnt particular professional services revenue.
Professional services revenue is dedicated proportion to the number of software implementations we are involved in.
He just before it would indicate a lot of current level overall selling success and business activity.
The fact that this was if I could professional services revenue quarter.
Exceeding the 8 million dollar Mark for the first time.
<unk> as well for future ticketing revenue growth.
Especially subscription revenue growth.
Given a majority of installs we are currently working on Bob subscription revenue related.
Recurring revenue was that they could $20.3 million driven by a 16 onesix, 16% Yodle what are your increase in subscription revenue.
Regarding oil quarterly revenue.
Squadron marks the eighth consecutive sequential revenue increase.
Six consecutive record revenue.
And fifth consecutive double digit yodle, what are your revenue increase.
Fiscal 2020 second quarter was also a record quarter of in terms of value major competitive replacements one.
In summary, we are improving with respect to almost all business indicators every quarter.
In addition, our cash balance increased by 1.7 million during fiscal 2020 second quarter a.
A significant improvement well what are the 2.2 million cash loss during the same period last year.
The cash balance at the end of fiscal 2020 second quarter, he's about $6 million higher.
Compared to the end of the second quarter last year.
That does not allow just yodle what are your cash balance increased during a 12 month period.
Since Q1 fiscal 2015.
It was only better due to the effect of the sale of the retail solutions group.
We continue to expect fiscal 2020 to be a significantly better free cash flow positive view of compared to fiscal 2019.
We remain committed to both being disciplined in driving revenue growth in a profitable manner and supporting strategy commitments that will help drive profitable revenue growth.
In terms of selling success [laughter].
It's good 2020 second quarter, one was our second best quarter anyway.
In fact, the boss lead some form of bought those have been fortified fight best quarters since he transformed to a pure play hospitality software solutions company in fiscal 2014.
A lot of that's going to they loved ones back in fiscal 2016 and included a major hardware refresh project that's cute the number up whats.
So in terms of consistent successful sales activity. This trailing 12 month period, he's a new high marks for us.
In addition, I'd love to fight for those on all that could portals.
Close deals involving software subscription services.
You are confident the yodle what are your goal in quarterly subscription revenue.
The main into Twentys in percentage terms for the full fiscal year, 2020 and beauty most quarters for the foreseeable future.
I certainly can revenue momentum of not only here to that could live in snow, but just as important also much more broad based than before but why do you not Smith added future growth areas and further diversifying and de risking our revenue streams.
Our strong but since in the gaming and casinos working.
You can use to expense as evidenced by outgrowing partnership, but chopped up casinos and facades well known for that property took casinos and the AAA four Diamond hotel and do not to California do don't Oklahoma.
During Q2 shop selected our Vms property management system suite of products.
Including subscription based solutions of LMS August book, and I'll guess ex this mobile, but all three of that hotel properties in Oklahoma.
I'm not going well known regional gaming operators novelty gaming joined our family of customers during Q2.
Well, it's using subscription based what actions of Infogenesis, Infogenesis flex and I guess being taught that properties in Nevada, Colorado and Washington State.
Outside of gaming, we're particularly encouraged by out increased selling momentum across the hotels, just thoughts and cruise ships, but again.
The expanded a partnership this quarter, but the kids Love collection Hotel group.
But she is Infogenesis August me and I guess analyze all subscription based.
What a few of their properties.
Including for the Beaver Creek launch a Marriott autograph collection Kinski out hotel in Colorado.
Also in the hotels that are soft category.
Accident whole mountain to suck in Teton village, Wyoming, let's see if subscription based motions of Infogenesis Infogenesis Flex August speed and I'll get seat what all of their own mountains Kiva sought fine dining and quick service restaurants.
In the crews working we expanded our partnership with Carnival you can't during the quarter.
Cotton WPS not looking to expand that deployment of Infogenesis and Infogenesis flex.
Onto that 5200 passenger cruise ship Iona.
The biggest and we'll ship purpose built for the UK market that will launch in me 2020 .
This will be out of second shift with Cardinal UK. After the successful pilot on that 3000, plus passenger Grand class cruise ship been children.
We look forward to along and successful partnership with Cardinal UK supporting that food and beverage point of sale needs.
Into food service management already be continue to expand out existing relationships and add new customer sites.
We closed feel agreements and implemented a point of sale software at several outlets.
Multiple major airports during the quarter leveraging a relatively new customer relationship that has evolved quickly over the last few quarters.
We continue to successfully installed and support software and these high volume clicked on food and beverage locations.
Outside of these customer segments that represent the majority of five cut into revenue.
We also recently closed a major new logos tedium sales agreement in the sports and entertainment working.
Within the food service management, what do we also continue to make good progress in the areas of healthcare senior living and higher education.
Another new another recent new logo, when you must sick didn't which via but had no. Other installations before isn't Virgin trains U.S. said, the only privately owned and operated inter city passenger rail road in the United States.
But it didn't seem to purchase Infogenesis Argus by kiosk obvious by mobile August they eat <expletive> and August analyze all subscription based but one of that seems between Miami and West Palm Beach.
These are just a few notable examples of the recent success, we've had winning new customers, a new kinds of customers, while expanding our partnerships with current customers.
During our fiscal 2020 first quarter, calling me earlier this year.
Got you did that the full year fiscal 2020 revenue would be about 11% higher than the full year fiscal 29 teams revenue level.
About $141 million.
Given out increase business momentum, we feel it through didn't know to increase that revenue growth guidance to 14% one for 14 person for the full year fiscal 2020 .
We continued to make good progress without product development initiatives with respect to property management systems, BMS and related to additional software modules and also recently announced a major BMS when they can stiff competition.
However, our revenue growth continues to be largely dependent on point of sale Pos satisfied business.
Alongside ought to stop a form of Infogenesis Autogas Baie continues to build good momentum in the marketplace with increasing instances of out of gets by replacing computer systems in Q2 years in multiple large switch tedious campuses all across the U.S.
Why do you. It's my sense is good enough to keep driving our revenue and profitability levels, albeit at a significant pace.
Yes, generally reaching the stage better growth will be driven by both major product segments point of sale and property management systems.
The hospitality industry is in need of a world class B, a Mrs technology provider, who can create value.
Improving guest experience and increasing guest loyalty, but well integrated solutions that are not able to incorporate modules like Derek channels that booking systems mobile check in checkout kiosks chicken checkout and service optimization.
To better manage stops and operations across an increased number of property initiatives.
We now have multiple examples of customers, who have implemented such additional value, adding software modules offered by us I don't Hot BMS offerings.
Given the demand to be seen the market, we will be bringing to market an additional software module called the agilysys customer engagement sweet during fiscal Q3.
This module will serve as a launching pad for potentially offering that will provide customers the platform for loyalty programs stored value gift card and need car type applications.
We had executive to be one of the very few hospitality solution providers to be focused on developing an offering fully integrated gifts self service solutions.
Encouraged by our successes during the past couple of years, we continue to increase I didn't see the sources and continue to do so without significantly increasing R&D costs as a percentage of revenue to ensure we did I hear about increasing competitive advantage in topline growth down.
Increasing profitability levels.
R&D teams, including technical services are currently about 650 people strong compared to approximately 200 and could be at the beginning of calendar 2017.
This increase has afforded us the ability to strengthen and modernize our core products more quickly and effectively.
While also increasing innovation lives.
We recently leased additional space about India Development Center I'm going to stop fit in line with Hawaii business momentum continues to evolve.
In addition.
We continue to increase that R&D resources and capabilities in the U.S.
In addition to increasing our SAS operation support professional services technical services and customer support U.S. based stuff.
In summary.
But anything in any industry with a total addressable market, which is a couple of orders of magnitude larger they're not cut into relatively modest annual revenue size, providing us with ample runway for growth.
The hospitality industry continues to grow.
Our customers have an increasing need for the products and solutions to be put away.
The success, we are seeing across our business is not only brewing and growing but also doing so consistently.
Our continuing success as well grounded on the stable foundation, we have built over the past few years.
Well said the downward macroeconomic dips, even when they happen tend to actually increase the need for software solutions like ours, which helped him through operational efficiencies and attract and manage gets better.
During challenging economic times that has often an increase need for tools to attract and retain gets.
We look forward to talking to all of you again in about three months from now to report on the December ending Q3 fiscal 2020 quarter.
Which given up cutting selling momentum should be our seventh consecutive record revenue quarters.
With that let me hand, the call over to our CFO , Tony Blair chip for more color on our financial the cells and future outlook Tony.
Thanks for mesh.
We're pleased with the results for the fiscal 2022nd quarter, but as it relates to the quarter itself as well as with the trends that the results show.
We continue to see improvements across many facets of the business and in our financial results that reflect the success we are achieving.
We are confident the success will continue.
Looking at our financial results second quarter fiscal 2020 revenue was a record $40.7 million or 19% higher than total net revenue of $34.2 million in the prior year period.
As we are much highlighted this represents our eighth consecutive quarter of sequential revenue growth or six consecutive quarter.
A record revenue in our fifth consecutive quarter of double digit year over year revenue improvement.
We're pleased to see that growth came from all three of our revenue line items, including record revenue across support maintenance and subscription services revenue as well as for professional services rough.
The increase in our topline was driven by 35.4% increase in product revenue to $11.9 million, a 7.8% increase in recurring revenue to a record $20.3 million and a 29.5% increase in professional services revenue to a record $8.5 million.
I went to highlight that the 7.8% recurring revenue growth includes subscription revenue growth of 16% for the quarter.
Subscription revenue comprised approximately 36.1 person of total recurring revenue compared to 33.6% of total recurring revenue in the second quarter fiscal 2019.
Total recurring revenue represented 49.9% of total net revenue for the fiscal second quarter compared to 55.1% of total net revenue in the second quarter fiscal 2019.
It's important to keep in mind that the strong selling momentum we have generated which ramesh discussed earlier is not only driving our product and professional services revenue growth, but also have a high correlation to future performance for our total recurring and subscription revenue growth.
As such this trend provides us with added confidence that both total recurring and subscription revenues will see increased growth in future quarters.
Following our comments from our Q1 call. We continue to expect total recurring revenue to grow in for subscription revenue growth outpaced the rate of total recurring revenue growth and we continue to expect subscription revenue to grow faster than 20% for the entire year as we have discussed previously.
With regard to endpoints. We currently service approximately 274000 rooms, and have approximately 57000 terminals, reflecting an increase of 2% and 12% respectively compared to Q2 of last year.
Moving down the income statement total gross profit was $20.2 million, representing a 13.9% increase from $17.7 million in the second quarter fiscal 2019.
The increase in gross profit is the result from growth across our three revenue line items.
Gross profit margin was 49.6 person compared to 51.9% in the second quarter fiscal 2019.
Total gross profit margin is down slightly compared to last year due to the acceleration of selling momentum as mentioned earlier, which results in converting products and professional services contracts to revenue in the near term.
This should lead to better than originally expected recurring revenue growth rates in the coming quarters.
We have also hired some additional people for our support team as well as adding some people in infrastructure around our SAS operations, which puts temporary pressure on our recurring gross profit margins.
One important back to note is that even though total gross profit margins are down compared to last year.
Gross profit margins for product in professional services are both up compared to last year and we continue to expand on an annual basis for total gross profit margins to expand slightly from last year.
Moving on to operating expenses, excluding charges for legal settlements and restructuring severance and other charges.
Second quarter saw 9.3% increase in operating expenses to $23 million compared to $21.1 million in the prior year period.
This increase is inline with our operating plan to increase cost a slower pace than we increased revenue.
Combined our three main operating expense line items.
Development expenses sales and marketing expenses in general and administrative expenses were 53% of revenue this quarter compared to 58% of revenue during Q2 fiscal 2019.
And the increase in those same operating expense lines combined was only 10% while revenue increased 19%.
There's still much work to be done and many more opportunities to grow.
As such and as we're much pointed out we will continue to invest in the business, including an R&D SAS operations customer services and support.
While maintaining our focus to increase costs well below the pace of revenue growth.
Operating loss of $2.9 million for the second quarter isn't improvement compared to an operating loss of $3.8 million for the second quarter fiscal 2019.
And that loss for the second quarter was $2.9 million or 13 cents per diluted share favourably comparing to a loss of $3.8 million or 16 cents per diluted share for the second quarter fiscal 2019.
Moving to the balance sheet.
Cash and marketable securities as of September Thirtyth, 2019 was $38.9 million compared to $40.8 million at March 31st 2019.
And compared to $32.9 million at September Thirtyth 2018.
As we previously stated we expected the first half of the fiscal year to pose a drag on cash due to the timing of collections as well as the payment of annual bonuses.
This loss will be offset in the second half of the fiscal year.
One important back to note during the previous five second quarters, we have lost several million dollars of cash or more.
This is the first time since July 2013, when we sold the retail solutions group and received the cash for that transaction that we have increased our cash balance during the second fiscal quarter of the year.
During the fiscal 2021st quarter, we recorded a REIT abuse asset of $13.4 million and operating lease liabilities of $15.7 million split between current and long term liabilities.
These balances are the result of our implementation of assay a 42, the new lease accounting standard that became effective for us in the first quarter of this fiscal year.
This new accounting standard requires companies to record liabilities, which were previously off balance sheet obligations and the associated assets onto the balance sheet.
There is no impact to the income statement classification of rent expense or depreciation expense for us.
As it relates to our cash flow, we reported net cash provided by operating activities, a pretty point $1 million compared to $1.4 million.
Net cash used for the three months ended September thirtyth.
20 to 2018.
Free cash flow also showed a significant improvement from an outflow of $2 million in the second quarter fiscal 2019 to an inflow of $1.8 million during the second quarter fiscal 2020.
Through the first six months of fiscal 2020 free cash flow has improved by approximately five and a half million dollars compared to the first half of fiscal 2019.
For the fiscal 2022nd quarter, adjusted EBITDA was $3 million compared to adjusted EBITDA of $2.6 million in a year ago quarter.
We continue to carry approximately $218 million of into well carry boards with a full valuation allowance on our books that will enable us to remain liable for Texas only in certain foreign jurisdictions as well as minimal state taxes for the foreseeable future.
Our entire wells expire between fiscal years 2031 and 2038.
As it relates to our guidance given the continued improvement across our business. We're confident in raising our guidance for fiscal 2020 year over year revenue growth from 11% to 14% compared to full year fiscal 2019 revenue of approximately $141 million.
We continue to expect an approximate 25% improvement in adjusted EBITDA in fiscal 2020 compared to fiscal 2019, adjusted EBITDA of approximately $10 million.
The reason we are not raising adjusted EBITDA guidance is that given the increased business momentum. We are currently enjoying in the global hospitality marketplace. We have made the decision to slightly increase our investments in SAS operations in preparation for future increases in subscription based services.
As well as an R&D professional services and customer support resources.
Please keep in mind fiscal 2019, adjusted EBITDA of $10.3 million had the benefit of about $2.2 million of capitalized software costs, which did not occur in fiscal 2020.
Growing adjusted EBITDA by 25% between fiscal 2019 in fiscal 2020 is actually the equivalent of growing adjusted EBITDA by 60%.
If we removed the $2.2 million capitalization benefit in the prior year.
Growing revenue by 14% in adjusted EBITDA by around 60% after normalizing for software development capitalization costs.
Reflects the significant operating leverage we continue to work with as we manage expense related investments carefully to continue to support future profitable revenue growth.
And regarding free cash flow, we continue to expects fiscal 2020 free cash flow will be significantly more than the $1.7 million a free cash flow generated in fiscal 2019.
In closing our business is improving as reflected in the consistent progress across multiple quarters and we're confident it will continue to do so.
We have spent much of the past couple of years working towards building a company to deliver world class solutions and service to the second to none.
And we hope you can see the results of RF are coming through in our financial results.
We've been laser focused on improving this company and the great set of products, we have and feel our efforts are beginning to pay off.
Going forward, we will continue to stay focused work hard and work everyday towards making or hospitality industry customers happy and successful.
With that I'd now like to turn the call over to the operator for questions Sarah.
Thank you.
The question at this time, you would need to press Star then one on your touched on telephone.
Withdraw your question. Please press the pound key again that is star then one if he would like to ask a question.
Please standby, we compile the Q and a roster.
[noise].
Our first question comes from the line of Tyler Wood with Northland Securities.
Your line is now open.
[noise] Hey, all ask a question on gaming side of the business how big do you think the opportunity is there outside of Las Vegas, and how are you approaching.
That market differently, and how far along are those customers and their transformation too.
What are they using previously is that a competitive displacement or where there isn't something home grown. Thank you.
Yeah, Hi, Tyler.
So the opportunity in gaming continues to be good for us and it's good both in Las Vegas, and outside and a good portion of the opportunity is outside of Las Vegas. So we generally do well in gaming in the gaming casino industry and that is true for both within Las Vegas, and outside Las Vegas, and a significant portion of the opportunity.
Is outside of Las Vegas is when I.
The cool things that two reasons why are the gaming business will continue to come through number one.
On the customers in general are relatively more focused on the non gaming hospitality side of that business and that gradually continues to improve their more and more focused on the hospitality non gaming part of the business.
And in terms of computer systems that most of the competitive replacements, we do them out off a couple of major company. This out.
That space has been dominated by a couple of major competitors and most of the replay funds we do.
Odd switches from those major competitors.
Thank you that's helpful and.
One more a any progress during the quarter on the international opportunity worth mentioning it could you just remind us what sales resources you have internationally.
Yes.
Yes, Thanks, Tyler Yeah, the international opportunities continue to make good progress and like I described on the earnings call about major cruise ship customers that we are beginning to make good progress with.
Is that international customer and we had also making good progress with a major hotel chain that is out of customer both domestic and international and outside of these two major customers as we continue to make good progress.
In both the APAC region, and the EMEA region, and we do have future plans to look at Mexico, and the rest of Latin America as well. So international is going to be a major growth area for us and by the number of salespeople that I don't know the exact number Tyler, but it is sufficient to cover the area and we're always open to any.
Leasing out of sales stuff as the market demands currently that more focused on sales productivity, we have giving them more products to seven.
And the ads and when it is required to be willing please save the stuff, but currently out of coverage is a very good ability APAC and EMEA.
Hi, Thank you.
Thanks Tyler.
Thank you, ladies and gentlemen, as a reminder to ask the question you would need to press Star then one on your telephone.
Our next question comes on the line of Allen Klee with National Securities. Your line is now open.
Yes, Hi, Ted can you just give us an update on the and I apologize. If you mentioned this one I missed that the Indian development Center in terms of number of people when a products and.
Module and things that are getting added from there. Thank you.
Yeah, Hi, Alan Thank you for the question I didn't get there will have been sent that I'd see.
Our original capacity for a number of solstice.
Was about 670 or so.
And so far we have about 570 the sources there.
You have a.
Sense of where how much where you want that to be on a percentage wise.
He ended the year and.
Are you talking about the timing of the productivity.
[laughter].
Hi, Alan.
Yeah. So how do we get elephant sentiments concern out of capacity was about 670 I'd be additive.
You have about 570 of the sources and we continue to hire them and recently, we have taken up we have at least some extra space I thought I'd see as well.
In terms of products and modules all lot of products all out of modules I've never looked across U.S. and India. So we don't have any demarcation off certain modules and products that are done in the U.S. and certain that I've done in India. All our products have teams both in the U.S. and in India. So everything that we described in a call.
So far is done both in the U.S. and any.
Right, Okay, inorganic growth rate or the legacy business laws and if we could think about what serious was if it was on last year for both of them.
Okay. Thank you very much.
Thanks Alan.
Thank you.
This concludes today's question and answer session I would now like to turn the call back over to remain.
Closing remarks.
Thank you set up thank you all for joining us on the call today and for your continued interest and support Agilysys continues to be well positioned to increase shareholder value does a great value creation opportunity, we have determined to make good on for our employees customers and shareholders.
I want to also take this opportunity to give a special thanks to 1000 plus team members across the globe, who are working hard every day to make Agilysys, a world class company and to our customers, who trust us where they didn't miss means no more than ever before.
The best wishes to own for the joyful and safe holiday season.
We look forward to our next earnings call in late January talk to you that thank you.
Ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.
Oh.