Jim Dennedy - President and CEO Janine Seebeck - CFO

Phil Bernard - Eilers & Krejcik Gaming Allen Klee - Sidoti & Company

Thank you, Trisha, and good morning everyone. We appreciate you joining us on the call today to review our fiscal 2016 third quarter results.

Joining me today is our Chief Financial Officer, Janine Seebeck. Before we get started, just a quick reminder that on the call today we'll be discussing some non-GAAP metrics, primarily adjusted cash from operations, and adjusted EBITDA which eliminates the effect of restructuring and other items that are either non-cash or non-recurring.

Reconciliations to GAAP metrics are provided in the financial section of the press release issued earlier today. Beginning with the brief overview of our financial results, total net revenue for the third quarter increased 27% to $31.3 million compared to total net revenue of $24.7 million in the comparable prior-year period.

We are pleased with both the overall result, as well as the fact that we saw growth within each component of reported revenue. Product revenue was up over 65%.

Recurring revenue or support maintenance and subscription revenue, increased by almost 7%. And professional services revenue grew 26% versus the comparable prior year period.

For the first nine months of fiscal 2016, total revenue increased by 18% versus the comparable prior year period driven by growth across all three of our revenue components. Importantly, our subscription-based recurring revenue continues to grow, posting a 24% year-over-year increase for the third quarter of fiscal 2016, and representing over 18% of total recurring revenue and 9% of total revenue.

Taking a quick look at the rest of our key financial metrics. Gross margin for the quarter was 53% compared to 57% in the prior year period, while adjusted EBITDA was $600,000 compared to an adjusted EBIDTA loss of $300,000 in the same period last year.

We reported a net loss for fiscal 2016 third quarter of $1.7 million or a loss of $0.07 per diluted share which compares favorably to a net loss of $2.7 million or a loss of $0.12 per diluted share in the prior year period. Janine will provide a more extensive review of our financial results including the income statement and balance sheet, as well as our expectations for the balance of fiscal 2016 and initial outlook for 2017.

As we look at our overall business, we continue to make progress towards our goals of evolving our solutions, growing our revenue, and improving our financial health. Key enhancements to our traditional solution offering such as LMS and InfoGenesis, and an improved go-to market strategy are primarily responsible for the growth we realized in our third quarter and for the first nine months of fiscal 2016.

The product enhancements not only keep our traditional solutions relevant in the market but also serves as a strong foundation to transition our customers to the new rGuest platform based solutions. Examples of our solution enhancements include hosted LMS, while traditionally offered only as an on-site deployment, hosted LMS is now also offered in an above premise subscription format.

We've also introduced new versions of InfoGenesis, and InfoGenesis Flex, both of which are fully integrated with rGuest Pay, rGuest Seat, and rGuest Analyze. As we make further gains in leveraging our entire portfolio of solutions by offering new hosted solutions and tighter integration between traditional solutions such as InfoGenesis and LMS in the rGuest platform, we are creating a positive impact on our business today while paving the way for greater and seamless adoption of rGuest platform based solutions in the future.

Agilysys created a powerful hospitality solution offering that we are confident will enable us to continue to gain share across all our various lines of business, both with existing and new customers. This path offers lower solution life cycle cost, reduced overhead, improved security and added capabilities to help our customers improve recruitment, grow wallet share, and strengthen the connection with their guest.

Examples of our success in creating a transition path between traditional solution and the rGuest platform include the Odawa Casino Resort in Petoskey, Michigan. We selected a suite of products including Visual One, InfoGenesis, and rGuest Pay.

Our work with Suncadia Resort in Cle Elum, Washington is another great example, as they selected a solution suite including InfoGenesis point-of-sale, InfoGenesis Flex and rGuest Pay to streamline food and beverage operations, enhance guest service, and provide secured credit card payments. Also Chesapeake Beach Resort in Islamorada, Florida selected both Visual One traditional and hosted InfoGenesis to manage their sprawling property which includes a casino, three restaurants and various public areas.

Posted or SaaS based solutions are also playing a key role in the ongoing evolution of our offering. For example South Seas Island Resort, one of Florida’s largest resorts chose InfoGenesis as a hosted solution.

More recently we announced that Brigham Young University in Hawaii chose InfoGenesis hosted solutions to help manage its food and beverage operations for more than 2800 students across its campus in Honolulu. And we are pleased to announce that Tropicana's Belle of Baton Rouge and Baton Rouge, Louisiana selected a hosted InfoGenesis point-of-sale solution along with rGuest Pay.

Not only was this a great win for us as it relates to advancing our hosted solutions for print and growth of the rGuest platform but it also showcases our continued ability to expand market share through competitive displacement. The key component of the rGuest platform, rGuest Pay continues to grow at a robust pace with another solid quarter of agreements in the third quarter of fiscal 2015 bringing the total to more than 250 agreements this fiscal year alone and more than 300 deals since the launch of this solution in the latter part of fiscal 2015.

The rGuest Buy solution received a significant boost recently when Compass Group North America began live trials of this innovative solution with two large multinational organizations, one in the financial services sector and one in the life sciences sector. rGuest Buy is our self service guest base in kiosk solutions that helps to reduce the time and takes to serve guest, improve guest convenience and reduces staff demand, all using a simple interface.

We believe rGuest Buy offers a truly unique value proposition for organizations such as food service operators, seeking increased service efficiency and capture increased consumer opportunities. While platform based in rGuest, the rGuest Buy solution leverages the highly scalable and reliable InfoGenesis backend engine delivering guest facing innovation while protecting current and prior investment and the best-in-class InfoGenesis point-of-sale technology.

I want to point out that our growth with first time customers, deployments that in many cases the displaced and incumbent provider continues to accelerate. More importantly it is growing in terms of contract size and average dollar amount.

We secured 38 contracts with new customers to bring the year-to-date total of new logos to over 110. While this is a lower rate than the approximately 225 new customers with whom we closed contracts in fiscal 2015, the total bookings value for our new customers secured at fiscal 2016 to-date has almost doubled compared to last year and the average contract value of subscription based bookings per new customer win has more than tripled in the quarter.

Examples of new logo agreements secured in the third quarter include the iconic Dunes Inn Wilshire and Dunes Inn Sunset properties in Los Angeles choosing the rGuest Stay property management solution which also highlights the traction we're gaining from our rGuest platform. In addition, Rock Gaming's Greektown Casino Hotel in Detroit selected a hosted LMS solution and a traditional InfoGenesis and rGuest Pay solution to manage its 400 room hotel and 100,000 square foot gaming space.

We’re pleased to see that an increasing number of customers recognize us as the leaders in the effective use of cloud enabled solutions specifically tailored towards the needs of hospitality industry. These customers value our peer leading deployment and support services and the performance and innovation of our solutions.

Regarding the install base, we currently have more than 33,000 Point-of-Sales end points installed, up 21% in the last 9 months. Additionally the number of hotel rooms of property management solutions health manage is up 3% to more than 235,000 rooms over the same period last year.

Our goal is to continue to grow both the total number of terminal end points and hotel rooms under management, as well as the average yield these deployments generate. Shifting to the health and current state of each of our business verticals, commercial and tribal gaming which represents over 50% of total revenue remains a primary focus for us as it continues to show healthy growth.

This growth is evidence in our key customer wins including Saratoga Casino Raceway and Saratoga Springs, New York, which selected a comprehensive Agilysys' solution suite including Visual One, InfoGenesis Flex and rGuest Pay to boost efficiency and guest service at the popular destination attraction. In the Hotel, Resorts and Cruise vertical, which represents almost 25% of our revenue, we continue to make progress in bringing the market solutions that deliver improved guest recruitment, increased wallet share opportunities and enhanced operational efficiencies while strengthening guest connections with both personalized services.

In the Food Service Management vertical, which represents approximately 13% of our total revenues, we see continued opportunity to increase our market share and deliver an array of best degree solutions to the food service industry. Finally, moving to Restaurants, Universities, Stadia and Healthcare or RUSH, the industry continues to rapidly evolve with new openings to meet growing customer demand for more sophisticated dining experiences.

Operators of all sizes are looking for Point-of-Sales solutions that will handle loyalty programs, online ordering platforms and timely and use for analytics capability that help them streamline and leverage everything from inventory to guest interactions. Next month we will host the 2016 Inspire User Conference & Executive Summit in Las Vegas forwarding our participating customers and opportunity to learn more about our vision for the future and share information about how to achieve success using the complete portfolio of Agilysys' Solutions.

In addition, building upon our inaugural success last year, the Agilysys Executive Summit of Inspire, will provide a special track for senior level executives that will cover a variety of strategic topics, including new trends and business efficiency, payment and security, infrastructure frameworks and operational cost management. To demonstrate the power of end-to-end hospitality solutions, a partner pavilion will also showcase products that integrate what Agilysys' Solution to deliver increased value across the property.

In summary, we had another important and solid quarter and are on track to achieve and in some cases surpass our full-year targets. I am pleased with the performance of the Agilysys team as we continue to drive growth across our business and remain focused on finishing the year strong.

We are executing our vision to enable customers of all sizes to deliver the best guest experience by leveraging either an on-premise or crowd solution that provides the more insightful and capable platform for management, staff and a better guest experience for their patrons. With that, I would now like to turn the call over to our CFO, Janine Seebeck, who'll review our financial results before opening the line for questions.

Janine?

Thanks, Jim, and good morning everyone. Our third quarter fiscal 2016 revenue was $31.3 million, a 27% increase from total net revenue of $24.7 million in the comparable prior year period.

Revenue for the first nine months for fiscal 2016 grew 18% over the first nine months of fiscal 2015. Looking at revenue in greater detail, products revenue increased 65% or $4.7 million to $11.9 million or 38% of total revenue.

Hardware related revenues grew 75% and software related revenues grew 45% over the prior year period. The hardware growth included one large hardware refresh as well as new hardware sales related to our proprietary software sold at the service.

Support, maintenance and subscription revenue increased 7% or $976,000 to $14.9 million compared to the third quarter of fiscal 2015 largely as a result of our continued focus on selling hosted perpetual and subscription-based services. Subscription-based revenues grew by over 24% in the third quarter versus the prior year period and by 27% on a year-to-date basis.

Professional services, revenue grew 26% or $4.5 million compared to the third quarter of fiscal 2015. We are pleased to see growth across all three reporting revenue lines.

In particular, we are pleased to see continued growth in our recurring revenues, which as Jim mentioned accounted for 48% of total net revenues for the third quarter and 50% of total net revenues for the first nine months of fiscal 2016. Moving down to income statement, cost of goods sold totaled $14.8 million or a 39% increase versus the prior year period, while our total gross profit increased $2.4 million or 17% for the third quarter of fiscal 2016, we experienced a decline in gross margins to 53% for the third quarter of fiscal 2016 from 57% in the prior year period.

The decline in gross margin was primarily the results of the higher proportion of total revenues coming from product sales, which contributed 38% of total net revenue compared to 29% in the prior year period. Product gross margins were 41% in the third quarter of fiscal 2016 compared to 39% in the prior year period.

A portion of the growth in hardware sales is as a result of the positive growth we are seeing in our subscription bookings, which as Jim noted has more than tripled over the same period a year ago. The increase in subscription-based license sales, yield initial revenues from lower margin hardware and reduced our higher margin proprietary software revenue referring the higher margins software revenue to be recognized over the term of the subscription agreement.

As the result of the mix shift discussed above, we expect full year fiscal 2016 gross margin will now be in the mid 50% range. Operating expenses of $18 million, which includes product development, selling and marketing, general and administrative and depreciation expense were 8% higher than the $16.7 million of expense in the prior year period.

However, operating expense were 57% of net revenues for the third quarter versus 68% in the prior year period. This lead to an overall operating loss of $1.7 million for the third quarter of fiscal 2016 compared to an operating loss of $2.7 million in the prior year period.

As expected, product development expense remained at similar levels to fiscal 2015, increasing by 4% to $7 million in the third quarter of fiscal 2016 from $6.7 million in the third quarter of fiscal 2015. We continued our investments and resources around both rGuest and non-rGuest product enhancements.

To expand the current customer experience across our installed base, as well as future offerings with existing and new customers. For the balance of fiscal 2016, we expect product development expense be in the mid 20% range as a percentage of revenue comparable with fiscal 2015 levels.

Sales and marketing cost increased $900,000 or 25% year-over-year in the third quarter of fiscal 2016 primarily reflecting an increase in commission expense in line with revenue achievements during the quarter. General and administrative expense increased 7% for the fiscal third quarter 2016 compared to the prior year period primarily due to a $200,000 loss on disposal of internal used software related to our support ticketing systems and increases in lieu on professional service fees.

And we saw a $300,000 year-over-year decline in amortization of intangibles during the quarter primarily due to a reduction expenses related to assets becoming fully amortized and assets being replaced or impaired during fiscal 2015, including our internal ERP replacement project. Net loss for the quarter was $1.7 million or at $0.07 loss per diluted share compared to a net loss of $2.7 million or $0.12 per diluted share in the third quarter of fiscal 2015.

Adjusted EBITDA for the quarter was $600,000 versus a loss of $300,000 in the third quarter of fiscal 2015. Moving to the balance sheet and cash flow statement, cash and marketable securities as of December 31, 2015 was $65.7 million compared to $75.1 million at March 31, 2015.

The decrease in cash reflects approximately $13.5 million in spend for our ongoing product development investments. This was impart offset by a much higher than normal collection level for our annual support contract, which are build in the third quarter as I will touch on in a moment.

Cash provided by operations was $8.3 million, an improvement compared to net cash used in operations of $7.5 million for the nine months of fiscal 2015. Adjusted for non-recurring items, net adjusted cash provided by operations for the nine months of fiscal 2016 was $8.9 million compared to net adjusted cash used by operations of $4.6 million in the prior year period.

We are pleased that we generated both net cash and adjusted cash from operations as this has historically been a period where Agilysys has been a user of cash. It is important to note that a significant portion of the cash flow improvements in the quarter was driven by a change in timing around the collections of our annual support billing, and to a less degree to a prepayment from a large upcoming engagement.

Earlier collections of these accounts receivable lead to a shift forward and the results in cash inflow. As such, we expect to be a user of cash in the fourth quarter.

So really just a timing issue is that in that we collected more cash earlier than typical. We continue to expect that we will end the year with over $55 million in cash and cash equivalent.

And in terms of our NOL, we currently had approximately $175 million on our books for which we can attribute a full valuation allowance and will help us remain liable for only taxes paid and foreign jurisdictions along with minimal state taxes for the foreseeable future. With regard to our outlook for the fourth quarter of fiscal 2016, we expect to demonstrate a continuation of the growth trend we’ve seen through the year and are raising our outlook for full year revenue by 7 million to a range of 117 million to 119 million.

We’re also reaffirming our expectations and inspite of some gross margin compression, full year adjusted EBITDA will more than double over fiscal 2015 and that we will end the year with over 55 million in cash and cash equivalent as a result of our favorable results and improvements in working capital management Looking to fiscal 2017, which begins on April 1, we wanted to provide some perspective on our thoughts for how this business will continue to grow. We currently expect fiscal 2017 revenues to increase between 8% and 12% over our current fiscal 2016 guidance.

In addition, we expect to significantly decrease our capital investment cycle while further improving operational efficiencies as our next gen product development cycle stabilizes. Together with top line growth, these initiatives will help us generate breakeven to moderately positive free cash flow for fiscal 2017.

In closing, we’re pleased with the results for the quarter and the progress we’re making across many areas and initiatives both from a financial perspective, as well as operationally. The underlying drivers remain healthy and we continue to gain share as we further invest resources in our business.

With that, let's turn the call over to the operator for questions. Trisha?

Hi guys, thanks for taking my call. Congratulations on a solid quarter.

Looks like we’re making a progress here. First question product sales made a strong bump and you were mentioning that how to deal with the sales remarketed.

Just wondering how you continue to see that going forward and whether you continue to, I guess it has to coincide with large contracts? How do you see that going forward in the next quarter and then in 2017?

Phil, I’ll give you some color on what happened in the quarter and Janine can maybe provide some more details but it typically products both proprietary and remarketed are good percentage of our overall revenue, it’s not the majority but it’s a good percentage of our overall revenue and this particular quarter remarketed products were about 25%, 26% of total revenue for the quarter when it’s typically in this 15% to 18% range. It was benefitted by one fairly large hardware deal but majority was driven by subscription bookings where we're taking the hardware portion of the total deal today and then the subscription service portion of the deal for the software related services are stretched over time.

To the extent that our bookings continue to express preference for subscription type contracts, we see that trend continuing and for that reason when Janine expressed the forward view of what fiscal '17 is going to look like in terms of a growth rate range of 8% to 12% next year, we see that continuing to be driven by the types of bookings that we’ve seen in our fiscal '16 to-date. We see that trend continuing in the '17.

Phil just to add on to that - to think about your question I do think that the mix of revenue will probably be similar as we move into the fourth quarter and as we drive into '17, as Jim mentioned I think we’re seeing this trend as we’re seeing a lot of the deals Jim mentioned on the call are subscription based where under the Rev Rec Rules we can take the hardware upon delivery of weekly upfront but we’re spreading that software license over the term. It will take longer for us to see that software revenue hit where normally we used to take an upfront pop for that, I do think we’re going to start to see that mix shift.

The third quarter versus the first quarter where we really saw that have a bigger impact, I’d say that I think the fourth quarter is showing that similarly and we’re continuing to drive that as we’re planning for fiscal '17.

Okay, great. And then down to recurring revenue, what is the mix between support and maintenance and the SaaS based revenue?

The mix is still consistent of the total revenues. When you look at it I think the subscription is about 9% of total revenue which is probably about 20% of the support maintenance line itself.

So you’re still probably looking at about an 80/20 split within that line item - support versus subscription.

Got it. And do you expect that to - the subscription base to trend up I’m assuming into 2017?

We do expect it to trend up. As I was mentioning I don’t think it’s going to pop huge right, it takes longer to bring that in with the contract terms coming in but we definitely think that we'll continue to see trends at similar or slightly higher percentages than what you see stay at this growth rate.

And on the call, if I heard correctly I think you mentioned Jim 235,000 rooms through your hotel management. How many of those are on the hosted rGuest Stay platform or the hosted LMS platform that you guys recently dealt?

The hosted LMS is a relatively new introduction. We’ve about half a dozen customers that are on the hosted LMS products.

So we’re talking something in maybe total of 1,000 rooms at most on hosted LMS. The rGuest Stay wins have largely been smaller deals to-date.

So we’re talking somewhere in the less than 500 total rooms on rGuest Stay. Now as we talked earlier this year in July, we won the business with Drury that we announced.

When that starts rolling-out and we look for that to rolling the pilot sometime later this spring, you’re talking about a population universe that's 125 plus properties and more than 15,000 rooms. So it will just take a little bit more time before that roll-out starts to occur but that’s what the forward pipeline looks like.

Got it. And most of those are on a hosted version, those are all rGuest Stay?

rGuest Stay, the only way we’re offering it today is in a cloud based delivery format. There is no on-prem delivery solution available for rGuest Stay today.

Got it. Could you speak to the average yield, I know there is two buckets more or less and I know I’m over simplifying this but the average yield for a licensed on premise product versus a hosted product and maybe provide some other details if you can, now that you guys are doing so well?

Can you state that question again?

Right, so average yield I guess per room either per day or however, whatever metric you guys are using, average yields per room per quarter or per day and I understand that that maybe different based off of each contracts or property but I’m assuming that there is an average difference there between the licensed on premise and the hosted cloud versions.

Correct. The easiest way to think of it is if we look at the market statistics today and we try to price it around the market in a slight premium to it, the per room per day, it’s really per room per month pricing on the subscription format, will vary by property type.

So you're limited to select service, property types, the per room per month, subscription fee is going to be somewhere in that $5 to $7 per room per month and as you get into full service and then the resort gaming space, you’re going to be in that plus $10 per room per month for a subscription. The comparably priced license if you will, so you don't have to wrap that up to say an annualized cost, we’ve generally been using normally 8 bucks per room per month which gets you about 1,000 bucks per year per room for your average hotel.

So that's where the average down the road value. If you are on on-prime license deal, again, it’s going to be segmented, prices are going to be segmented by property type.

So your limited select service, full service, and then high-end resort gaming, you’re going to range anywhere from let’s say, a $75, $80 per room license with 20% maintenance added to that, up to let's say, $175 to $200 per room license with again, 20% maintenance added to that.

And that's an annual number, correct?

The maintenance would be an annual number. The license is going to be the upfront basically capital or license purchase.

Make sense?

Absolutely. That’s upfront 20% maintenance.

The way many of our properties are looking at this is, you look at the five year total life cycle ownership or seven-year total life cycle ownership where you might pay - again let’s just - somewhere like the $80 to $90 per room for a license, you then add 20% maintenance for 7 years and you compare that to, let's say, $8 per room per month or about a 100 bucks per room per year and you do your evaluation based on that math. Now, that's just on the software technology itself included in the subscription service or the infrastructure that you’d have to acquire to run the software on your property, your own personnel to manage that infrastructure which is all part of the subscription service if you acquire from us in a subscription format versus a license format.

Useful. As the economy is moderately recovering to basically flat to, who knows, in the next year, do you see a pricing trend upward flat, downward?

What do guys are seeing?

We’ve been able to hold pricing. Again we typically are pricing at a modest premium to what we see as average pricing in the market, and we are able to get that the quality of software but more importantly, the quality of services and the people that we deliver and support these operations permits the opportunity to charge at a slight premium to market for our solution and services.

We see our ability to price at that level continuing. The bigger trend that we see in hospitality operators across everyone of the segments we service whether it’s casinos, or hotels, resorts, food service, they want to get out of basically the technology management business and stick to their coordinating which is in the hospitality service delivery, whether it’s food service or restaurants or stadia or whatever.

And so they would like for us to manage more and more of that technology-related services. Some of our long time customers who still are using LMS are asking us, we really like to manage the whole infrastructure, we’re not ready to go cloud yet or put it above prim but we’d like to contract for more of your professional services to manage that infrastructure because we’d rather just focus on providing exceptional guest service.

That is a trend that we see across all segments which allows us to deliver greater services and higher value services to our customers which is going to help with pricing and margins for the business generally.

Great. Moving over to POS, I think I may have missed the number.

Did you mention how many POS terminals you guys have installed?

We did. A little over 33,000.

And that number, year-to-date, is up by more than 20% over - where we exited fiscal '15.

Okay, great. And what would be an average revenue per terminal per month for that again comparing the license versus on-premise.

So again, it’s going to have similar metrics if you’re buying let’s say, per terminal per month, again, depending on the segment that we serve is going to be more value derived from those Point-of-Sales services as you go from let's say basic restaurant and food and beverage operations up to manage food service, cafeteria, corporate dining stadium arena and up to gaming. So the easiest thing to use is sort of about $125 per terminal per month for at least our distribution of the 33,000 end points that are in the market today.

If you were to look at just your core restaurant and we look at the market and you drive just at the core restaurant market and the competitors that are participating there, an average restaurant is probably only going to be paying say $50 to $55 per terminal per month. We don’t look at that as great margin opportunity for us.

The higher margin market opportunity for us is to stay at the luxury resorts, the complex casinos, the complex hotel properties, complex food service where we’re getting a higher yield per terminal per month for point-of-sale related subscription services.

Got it. So not necessarily going after the fast casuals I know that - that has been something that you guys have discussed a little off and on over the past year but sticking with the premium clients.

Correct. Yes, staying at that high margin market opportunity where for the complexity of the solutions that we can deliver.

We do complex really well and we may complex simple through our solutions but for an average restaurant that might not have that complex an operation, they are not changing menus that often, they are not changing pricing that often. We have very complex operations where in a hotel they are offering a conference or some kind of convention, they may want to update pricing frequently and to be able to turn that frequently is again an added complexity that average restaurant doesn’t value.

So they are not going to pay for it.

Continuing the food service one of the products that you guys have been working on is over the last year's rGuest Buy, just wondering if we could get an update on that?

So the rGuest Buy product went live earlier in January and the product is working extremely well, well enough that you know our largest customer chose to implement rGuest Buy at size and scale with two of its largest and most important customers of its own, and we mentioned that in a call one is a financial services and one is a life sciences customer and the roll outs at these two large customers are in the plus 100 end point range of size. So your pilot maybe 10 or 12 end points in the location and within a short period of time they liked the technology, its stable, its reliable, the order then closely followed behind that said okay, let’s go deploy this at scale within the next two months.

So within the next two months, we're going to be deploying this at scale with large multinationals in a very short period of time. It's a product and a solution that the team and across the entire company has done just a fabulous job and we see a great market opportunity for rGuest Buy for the remainder of this fiscal year but really there is a bright future for it in our fiscal '17.

Okay, great. As far as revenue generating capability, how does that compare to a POS, I'm trying to think of a comparable service managed care.

There is two ways to look at it Phil -

I know this is annoying, I’m sorry.

No, one way to look at it is well it’s a more simplified terminal. So you have fewer terminal related services on that end point and that’s one way to look at it.

The other way to look at it is while it’s a more simplified view, it’s also taking an extraordinarily expensive human operator out of the operations on the other side, so it's value add to the customer is really, really high. So you're putting guest enablement in place, yes it maybe a simplified view because you don’t have as complex terminal options but you are eliminating a really expensive human cost, human resource expense on the operators side and so that terminal becomes a lot more valuable in that case.

So our yield per terminal is approximately the same for a kiosk as it is for street terminal.

Okay, great. Moving forward from that, I guess, in line with that your product development expense, R&D, it's been in line with the last year.

Do you continue to see that trending flat, maybe down as you're coming, I guess out of a development cycle.

So what Janine forecasted - and what she guided to in our fiscal '17 forecast is again there is 8% to 12% revenue growth. But we've also been indicating to investors on call throughout the year, when we did the Needham Conference earlier in January.

We indicated our investors should expect positive free cash flow from the business for next year. So that means we’re not only going to be operationally cash flow positive, but you should expect us to be free cash flow positive in fiscal '17.

That necessitates basically a step function reduction in CapEx in order to achieve that. So when you think about CapEx running at levels this year of high teens, we're going to be somewhere half that value in our fiscal '17 project.

Do you want to comment any further now?

No. I think that's a fair statement.

Okay, great. All right.

I will stop bothering you guys. Thank you.

Good morning. I was just curious if you could comment on your sales force and how you think about where it is and where you'd like it to be?

We think our sales force right now is basically at full strength. We are in the mid 30s, which is down a couple of headcounts from where we were in the prior quarter results.

But I think we will consider ourselves to be at full strength for our quarter period and sales team right now.

Okay. And then can you just comment how you think about the competitive environment and how you distinguish yourselves?

Well, in terms of the competitive environment, we think we compete extremely well. We think some of our largest competitors have - who have been servicing this hospitality market for a long time in our judgment, what we hear from the customers is that we tend to value this hospitality industry greater than potentially our customers do - sorry, our competitors do.

Our competitors that service hospitality also service retail and the core restaurant markets. And our chief competitors with whom we compete in hospitality, the hospitality operators feel like our lead competitors value retail and restaurants more than they do core hospitality.

In terms of how we distinguish ourselves, I would say we distinguish ourselves on our service first. The technology component of what we deliver whether it's licensed or subscription, is an important parameter.

But in any enterprise product it's the developed technology plus the services you deliver that the enterprise customers buy. And in last year's sensitive to the customer's business support, not just supporting the technology of users having, particular difficulty with point-of-sale or property-management related services not being available, but scaling to the business need.

So when Vegas has five week and all of a sudden, all of our customers need a number of additional terminals and we need all hands on deck to support them, because of the volume of businesses increasing. The way we respond to those customers is why they choose us.

Not only is technology itself more scalable and more reliable but the fact that we care about their business more and we scale quickly to their needs when demand rises for them, that's one of the biggest characteristics that we offer that our customers say they value in doing business with us.

Thank you. You said four verticals and I was just curious of near to mid-term which verticals you might see more opportunity?

Well, we see gaming as 50% of our business today. But as you look at gaming growth, the growth in gaming is largely coming from within.

It's a mix shift within a gaming segment itself, away from gaming dollars and two non-gaming sources, retail, food and beverage, hotel, events, that type of thing. Within that mix shift that occurs that mix shift now is 60% to 65% of gaming operators revenue being non-gaming, is shifting in favor of technologies that we have that can support that revenue demand.

That is going to naturally lead for greater demand for point-of-sale in hotel related services, software services, the stuff that we provide. So we do see continued growth opportunity albeit sort of finite market.

We actually have what we think is 35 plus percent share of that market. So our ability to grow into and still gain plus 50% share of that market still give us good opportunity, going to give us good pricing power, but at the same time it's rather finite.

If we look at the core hotel market, it's a market in which we have - what we would consider less than 5% share, but they still have a large market opportunity for growth both in terms of the rate of growth, the number of rooms being added worldwide. We look at the core hotel market as a real growth opportunity for our company for the next several years.

That's the two areas we see leading growth for our company.

Okay. Thank you so much.

Good morning. Thanks for taking the call.

I just got actually a follow up question to the competitive landscape. Understanding your point - some of your traditional competitors Micros or Radiant sort of not providing us good service, but I noticed there are bunch of new upstart SaaS players and then there are couple of big players [indiscernible] they're trying to move into the hotel software space.

So I'm kind of curious if you can comment on the competitive pressure you've seen from those new players?

Sure. I'll start with the point-of-sale area first.

We do see a number of cloud-based point-of-sale providers executing in [10 juncture] [ph] markets, we don't see them in the complex hospitality environments we serve today. We think they can get there, but there is a significant amount of learning that must occur for them to not only understand the hospitality operator, but then codify into their software, those scenarios that hospitality operator would encounter that's more complex than what they do today.

We pay attention to those folks quite closely because we think we can learn not only what they're doing from how they service their industry today from a peer cloud base perspective but also be aware of how close they're getting to us in terms of satisfying complex hospitality scenarios. We are not that concerned about it as we've been doing hosted point-of-sale for more than 13 years or 14 years.

So it is an area that we've been able to compete effectively and have great experience in doing multi-tenant hosting. I won't say it's true "cloud" at every layer of the solution delivery, but its cloud enough that it gives us the scale on economies to compete in that space.

As it relates to hotel systems, we do see the same data that you identified in terms of other competitors in the RFP process and which we've participated over the last year. And all I can say in response to that is that we've competed in one successfully in those engagements, may be not the entire engagement like we have with our friends in St.

Louis, but we've been successful in getting pilot selected where our rivals that you had mentioned have not.

Thank you, Trisha. Thank you for your interest in our company.

We really do appreciate the questions. I'd like to take this opportunity to thank the very talented and dedicated team at Agilysys, their work truly drives our success.

I want to thank our many customers and partners who entrust us with their business. We believe Agilysys continues to make progress as we focus our resources on the highest value opportunities in our chosen end markets and manage the business for the long term to deliver sustainable value to our customers and our shareholders.

We look forward to updating you on our progress during our fiscal 2016 fourth quarter and full year results call. Thank you.