James Dennedy - President and Chief Executive Officer Janine Seebeck - SVP, Chief Financial Officer and Treasurer

Stan Berenshteyn - Sidoti & Company, LLC Phil Bernard - Eilers Research

Thanks Jim, and good morning everyone. Our fourth quarter fiscal 2015 revenue was $28.7 million, a 3% increase compared to a total net revenue of $27.8 million in the comparable prior year period.

Full year revenue increased $2.2 million or 2% to a $103.5 million compared with fiscal 2014. Top line results reflect the impact of the various organizational changes implemented throughout the year, but negatively impacted our near-term product sales revenue related to on-premise sales.

In spite of the near-term impact of our strategy to focus on selling new logo and subscription based revenue, we are confident that this strategic change is beneficial to our long-term growth objectives and it better positions us to accelerate the growth around our higher margin recurring revenue business. As Jim highlighted, it is important to note the encouraging trends in our recurring revenues which are comprised of support, maintenance and subscription services.

Our effort to focus on the high margin business led to quarterly record revenues of $14.5 million or 51% of our total net revenue for the fourth quarter. For the year recurring revenues increased 5% to $56 million or 54% of total net revenue.

A vital part of recurring revenue are SaaS based revenues, which increased 8% on a quarterly basis and a 11% on a year-over-year basis. Moving down the income statement, overall gross margin fell to 51% for the fourth quarter of fiscal 2015 compared to 60% in the prior year period.

On a full year basis, gross margins decreased to 58% compared to 63% in fiscal 2014. The gross margin decline for the fiscal 2015 fourth quarter was due to the impact of certain lower margin hardware sales as well as increased labor costs associated with a large customer commitment.

Gross margin for the full year was also negatively impacted by the start of amortization expense representing approximately $1.3 million for our developed technology compared to approximately $300,000 in fiscal 2014. We believe that the issues which impacted professional services gross margin in the second half of fiscal 2015 should not be repeated.

As such, and in spite of the amortization around our developed technology beginning to impact our margins as our newest products go into service, we expect fiscal 2016 overall gross margin will be consistent with fiscal 2015 levels in the high 50% range. Operating expenses, which include product development, selling and marketing, general administrative and depreciation expense increased by 5% to $20.2 million in the fourth quarter compared to the prior year period.

Fiscal 2015 operating expenses increased 3% to $72.5 million versus the full year fiscal 2014. As a percentage of net revenue operating expenses were 70% for the fourth quarter versus 69% in the prior year period and 70% in the full year fiscal 2015 compared to 69% in the full year fiscal 2014.

As expected product development expense increased by 1% to $6.6 million in the fourth quarter of fiscal 2015 compared with the fourth quarter of fiscal 2014 as we continue investing in engineering resources and research and development initiatives. For the full year product development expenses were flat at $25.3 million.

We expect product development expenses as a percentage of revenue to be in the mid 20% range through fiscal 2016. Sales and marketing costs increased to $1 million or 26% in the fourth quarter of fiscal 2015 compared with the fourth quarter of fiscal 2014.

On a full year basis, sales and marketing expenses increased 16% to $16.4 million. The increases were due to the continued implementation of our sales strategy, as we continue to invest, align and ramp our sales force to better serve our customers and our long-term strategy.

G&A increased 1% for the fiscal fourth quarter of 2015 versus the prior year and increased 4% for the full year as a result of increased spend during the first half of fiscal 2015 surrounding the ongoing efforts to streamline and rationalize our back office processes. Our fiscal 2015 fourth quarter and full year financial results include the impact of some non-recurring items, including $1.8 million in non rGuest product related asset write-offs and other fair value adjustments as we determined that the carrying amount of certain assets and liabilities would no longer yield significant future cash flows to support their carrying values.

The write off included a $1.5 million asset write-off around Elevate our point-of-sale system for any single pass environment due to a shift in customer preference for next generation offerings with more features and compatibility as compared to this internally used asset, a $1.4 million asset write-off around InfoGenesis Mobile, the android mobile version of InfoGenesis point-of-sale as it was determined that the remaining net book value exceeded its net realizable value, with customers still being able to enjoy a full mobile point of sale experience through IG Flex, and a $600,000 asset write-off around Eatec. As certain restructuring activities incurred to better align product development, sales and marketing and general administrative functions impacted the expected remaining use for life of the products under the Eatec trade name, which was determined to have a finite life and subsequently written down to its fair value to be amortized over five years.

These changes were offset by a gain of $1.6 million recorded in fiscal 2015 to adjust the carrying value of the TimeManagement Corporation contingent consideration to fair value as a result of a decrease in expected revenues associated with the contingent consideration. This will impact the balance sheet as long-term assets are reduced by the write-off and stockholders equity is reduced as a result of the write-offs included in the income statement.

This led to an operating loss in the fourth quarter of $5.6 million or a loss of $0.25 on a diluted share basis, compared to a loss of $2.6 million or an $0.11 loss per diluted share in the fourth quarter of fiscal 2014. For the full year, operating loss was $12.5 million or a loss of $0.56 on a diluted share compared to a loss of $6.2 million or a loss of $0.28 for fiscal 2014.

And on an adjusted basis we reported an adjusted operating loss from continuing operations of $1.4 million in the fourth quarter compared to a gain of $1.1 million in the year ago period, and adjusted loss from continuing operations of $2.3 million for the full fiscal 2015 compared to a gain of $4.1 million for full year fiscal 2014. Adjusted loss from continuing operations in the fourth quarter was $1.5 million or a loss of $0.7 per diluted share compared with adjusted income from continuing operations of $1.8 million or $0.8 per share last year.

For the full year adjusted loss from continuing operations of $2.5 million compared to a gain of $4.8 million for fiscal 2014. This led to a loss of $0.11 per share for full year fiscal 2015 compared with a gain of $0.22 per share last year.

Moving to the balance sheet and cash flow statement, cash and marketable securities as of March 31, 2015 totaled $75.1 million compared to $99.6 million at March 31, 2014. The decrease in cash reflects the cost of our July 2014 acquisition of technology supporting the launch of our rGuest Seat product, as well as approximately $16 million in spend for ongoing product development investments.

While we continue to invest in our next-generation platform we are maintaining our fiscal discipline on running the business as evidenced by the positive adjusted operating cash flows from continuing operations generated in fiscal 2015. As we continue to invest in the transition to a SaaS company and the rGuest platform this year we expect to end fiscal 2016 with approximately $50 million in cash.

Net cash used in continuing operations was $2.2 million compared to net cash provided by continuing operations of $1.4 million for fiscal 2014. Adjusted for non-recurring items, net adjusted cash provided by operations for fiscal 2015 was $900,000 compared to $3.2 million in the prior year period.

In terms of our NOLs, we currently have a $170 million on our books for which we can attribute a full valuation allowance and which will help us remain liable for just taxes paid in foreign jurisdictions along with minimal state taxes for the foreseeable future. With regard to our assets for fiscal 2016 we expect full year revenue to be slightly higher than fiscal 2015, largely as a result of the ongoing transition in our operations throughout fiscal 2016 to a SaaS oriented business model.

In addition, given the change in nature of our business, we believe that adjusted EBITDA is a better representation of cash flows from operations than adjusted operating income. Going forward, we are introducing this concept as part of the guidance section.

We expect gross margins to be consistent with full fiscal 2015 levels in the high 50% range and adjusted EBITDA will show incrementally greater profitability than fiscal 2015 adjusted EBITDA of $1.2 million. While the revenue growth will reflect the emphasis on subscription services revenue, the greater EBITDA expansion will come primarily from lower operating expenses.

In this morning's press release we provided a reconciliation table of adjusted EBITDA to net loss or income for each of the fiscal 2015 quarters and the full-year period. In closing, we are encouraged by the early success around our initiatives and our consistent progress in growing the percentage of higher margin subscription revenue as part of our overall business mix.

With a healthy balance sheet including approximately $75 million in cash and cash equivalents and no debt we have the financial flexibility to support our business both organically and by investing in our people and our products. With that, let's open the call up for questions.

Operator?

Good morning. Thanks for taking my questions.

Good morning Stan.

Janine, can you please repeat, you said that for 2016 year end, how much did you project the cash balance to be?

Approximately $50 million.

Okay, and when can we expect the professional services margins to kind of return back to historic levels, will it be a gradual thing, will it be sudden next year?

So, we think that the impact that we saw in '15 should have basically be done at the end of '15, I expect we'll have slightly lower margins in the first quarters, but we expect will be by second, third quarter kind of back at that high 20s or 30 range.

Okay, and was there anything in particular that contributed to the strong product sales that we saw in the quarter end?

So, consistent with prior years we have seen we did have one large hardware deal that did impact the results. Obviously that had an impact on margin as well, but nothing else that would have been material.

So it wasn’t really a seasonal thing, it was just also a one-off just happened to the thing factored in?

That's factored in.

Okay. Can you also Jim, can you give us an idea of the typical length of an upgrade cycle for your clients?

In terms of the sales cycle or in terms of the new the new subscription engagement that they would sign?

New subscription engagements?

So, the new subscription engagements generally range from a three to a five-year contract with most contracts going out with a five-year request and most of our contracts are signed up for a five-year subscription services arrangement.

Okay and how much of anticipated sales growth from rGuest do you expect to come from existing clients versus new logos?

From existing clients we expect they will adopt the rGuest Pay Analyze, Seat products. Many will also select the rGuest Buy product.

So rGuest Buy is starting out sort of a kiosk based re-envisioning of a terminal. Customers who adopt rGuest Buy do not need to change their backend InfoGenesis engine.

It will still work with their backend InfoGenesis engine. We see many of our customers in our installed base adopting those components of the new rGuest platform.

Most of the new logo business will come from adoption of the rGuest Stay product. The customers who are on let's say Visual One or Lodging Management System we still have some development work to complete yet this year on the rGuest Stay product before it reaches future scale parity with the LMS and Visual One application.

Okay. Can you may be give us some color in terms of a dollar amount, how much of the incremental dollar gains that we see on the subscription service is coming from new logos versus existing clients just upgrading to the rGuest platform?

Sure and looking at year-over-year results '14 to '15 the total number of new logos has more than doubled year-over-year. In terms of how that breaks down between subscription and traditional, the traditional new logo business has been relatively constant year-over-year.

Our new logo subscription business has increased by more than five-fold year-over-year. So the majority of the new logo business we're seeing are our subscribers as opposed to traditional maintenance [indiscernible].

Okay. Right, all right thank you.

Yes sir.

How are you doing guys? One quick question.

With the completion of the rGuest platform how do you guys see CapEx going forward in 2016?

Sir as we indicated in Stan's question we have continued development work around rGuest Stay to reach feature and scale parity with our TMS product, LMS and Visual One. We also see some continued investment around the rGuest Pay product, customers really value what we've offered in the rGuest Pay product and they are asking for it to do more in terms of deeper integration with their transactional systems.

The rGuest Buy product the next-gen point-of-sale was re-envisioned that terminal, its initial concept was to be guests facing, guest self ordering with kiosk and mobile apps. The intuity [ph] design customers are asking for increased investment to see a guest service associates UI improvements of their employees with the better UI experience that's similar to that which we are providing on a kiosk there or mobile self ordering.

Finally, we see continued requests for deeper investment in the rGuest Seat product. What competitors offer on table management or online table reservation products is a stop at some point of the sharing of that data on the reservations side with the property and its integration to the point-of-sale or transactional systems.

And what our customers are asking for and what they wanted a long time for the markets is deeper integration with their transactional systems so they can align guest spend and with exactly who the guest is and right now that information is a little bit blocked by current competitors in the market. So that request for additional insight in the guest buying behavior and guest paying behavior is driving an increased CapEx spend in this year as we continue to evolve those products.

Year-over-year it is definitely comparable but slightly less and fiscal '16 it was fiscal '15 levels.

Great, thank you guys.

I just had a quick follow up. One on client upgrades to the new rGuest platform, what kind of incremental revenue gains do you expect to see on a percentage basis, so for every one dollar that they spend historically after they upgrade what kind of incremental revenue gain can we expect?

Stan that's a great question, and the example we provide with this University example. They went from InfoGenesis [indiscernible] to InfoGenesis hosted or subscription.

The lift on just the point-of-sale services was in the 45% to 50% range. The opportunity is as they move to that subscription services and to the broader platform, the additional layered revenue services we can provide in particularly this customer selecting the payment product as well as the analytics product to apply top of their point-of-sale services helped us almost double the recurring revenue contribution from this particular customer.

Important to note is that while they went from a license and maintenance paying relationship to a subscription. When they moved to that subscription, they also signed up for five-year deal for all three components.

I see, and now just final question, when you have new logo wins what kind of typical package of rGuest options do they tend to buy as a norm, rGuest Seat, rGuest Pay, or rGuest Stay, what's the combinations?

It's kind of varied by sector. So, as we indicated in the hotel, resort, and cruise, those customers who adopted the rGuest Stay product your North Hill [ph] property, they and others they selected both the rGuest Stay as well as the payment product.

In the restaurant or in the F&B environment food and beverage environments you'll see a combination of the point-of-sale services along with typically payment and the table management product Seat as well as the Analyze. So there is a combination of products that are targeted for each sector and we have, let's say a power package offering where it’s a value proposition sector depending on what they are likely buying preferences, food and beverage versus hotel operations.

Can you maybe give an average of how many rGuest solutions per client are sold on average?

Stan it's Janine. I think it's a little bit too early for us to average what we obviously trying to sell between more than three I think as we're early in this stage it is too early to assess how that will fall in average that with regards to the different sectors having different needs.

Okay, great, thank you.

Thank you, Candice. As always, thank you for your interest and for your investment in our Company.

We believe Agilysys continues to make progress as we focus our resources on the highest value opportunities and our chosen end markets and manage the business for the longer term to deliver sustainable value to our shareholders and our customers. In closing, I want to take this opportunity to thank the very talented and dedicated team at Agilysys.

Their work drives our success. I also want to thank our many customers and partners who entrust us with their business.

I look forward to updating you on our progress on our fiscal 2016 first quarter call. Thank you.