Michael Kaufman - Chairman Jim Dennedy - President and Chief Executive Officer Janine Seebeck - Chief Financial Officer Larry Steinberg - Chief Technology Officer

Phil Bernard - Eilers Krejcik Gaming

Good afternoon ladies and gentlemen, welcome to the Agilysys Fiscal 2017 Second Quarter Conference Call. As a reminder, this conference is being recorded. 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. Also the Company believes that its forward-looking statements are based on reasonable assumptions. Such statements are subject to risks and uncertainties that would cause results to differ materially. Important factors that could cause actual results to differ materially from these forward-looking statements are set forth in the Company's report on Form 10-K and 10-Q and news releases filed with the Securities and Exchange Commission. In addition, management will be discussing some non-GAAP metrics on the call today. 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. I'd now like to turn the call over to Mr. Michael Kaufman, Chairman of the Board of the Agilysys.

Thank you, operator. Good afternoon and thank you to everyone for joining us to review our fiscal 2017 second quarter results. Joining me on the call today are Jim Dennedy; Janine Seebeck; and Larry Steinberg our Chief Technology Officer. Before I turn the call over to Jim, Larry and Janine for the commentary I want to spend few minutes reviewing some of the Board's thoughts. Revenues we issued two weeks ago. As we noted, the Board has commenced a search for a new CEO and is confident they will be able to do so in a reasonable amount of time. Until the successor is named, Jim Dennedy will continue to serve a CEO. The Board is conducting a thorough search casting a broad net to recruit executive leaders of high growth, top performing companies you would all recognize. We have received tremendous interest from highly talented executives who are keenly aware and excited by the opportunity at Agilysys. Our products and vision that we've developed are respected and admired by people outside and across the industry. As a result, we are in an excellent position to recruit a world-class executive to bring our vision to fruition. In the meantime, we continue to move forward aggressively executing on our strategy. While we are still working through some of the fine details with management, the Board is committed to accelerating planned future investments in our products, sales and marketing efforts; and our overall infrastructure into the current fiscal year to bring our capabilities in line with the opportunities we have to aggressively expand our business with large-scale hotel operators and in international markets. We want the products finish today, we want to win these major new customers today, and we want to be the fastest growing company in hospitality today. We also announced separately Janine Seebeck has informed us of her decision to resign as CFO effective November 18th, as she has accepted a CFO position with the private company that is not a competitor to Agilysys. Tony Pritchett who joined Agilysys in 2012 as Controller of the Retail Solutions Group, and he was subsequently served as the Company's Controller as well as in his current role a Senior Director of Operations will assume the role of Interim CFO following Janine's departure at the end of next week. Tony and the rest of the finance and accounting team are highly capable and experienced and the Board is confident that they will service well during this management transition. I want to personally thank Jim Dennedy for the services at Agilysys because of the work on the Company strategic initiatives we are currently positioned with the most significant opportunities for growth in our company’s recent history. The Board of Directors is committed to supporting the Company and all of our team members at the highest level. As part of this commitment, the Board believes that now is the optimal time to bring in a new CEO, one that brings to Agilysys the knowledge based, experienced and track record of success in managing a high growth global business. The Board believes that we have a real opportunity to double our business over the next several years. By building on the word accomplished by Jim and Janine and all the team members of Agilysys, the Company is now positioned to dramatically accelerate our growth around our three priorities point-of-sale, property management systems and payments or the PPPs as we call them. As a very significant shareholder in Agilysys, I very much appreciate the commitment from the full Board of Directors. Speaking on behalf of the Board, I know we are all extremely excited by the opportunities available to the Company today, and we are fully supportive of investing and accelerating and teams efforts to achieve these goals. With that, let me turn the call over to Jim for some comments. Jim?

Thank you, Michael, and good afternoon everyone. While Larry will review the status of our product initiatives and Janine will provide a detail review of the second fiscal quarter of 2017, I’ll provide important business highlights and an overview of our go-to-market strategy. One of our most initiatives is to drive success and winning a new opportunities and increasing our rate of competitive takeout. No matter the competitor Agilysys has deep solutions knowhow and overall capabilities to compete and win. Evidence of our success is our consistent level of competitive takeout. We have seven this quarter and expect the trend of four to six competitive takeouts per quarter that we have experienced for the past six quarters to continue for the balance of fiscal 2017. Going forward, this is an area that I am confident will continue to be a key growth opportunity for Agilysys. We also continue to make headwind with new customer wins. In the second quarter, we secured 32 contracts with new customers compared to 30 new consumer wins in the prior year period. The total contract value for subscription-based booking for these new customers increased 25% compared to the new deals in the second quarter of last year and represented over 50% of new customers for the quarter. And on a six months basis, the total contract value for subscription-based bookings for both the new rGuest platform and our iconic solution increased by 135%, compared to the first six months of fiscal 2016. Subscription revenue in the fiscal 2017 second quarter comprised 12% of total revenue, which is the highest percentage on a quarterly basis we have ever achieved and compares favorably to the 9% of subscription revenue and the overall revenue mix in last year second quarter. This ongoing increase in the percentage of subscription revenues and our overall revenue mix and our ability to create deeper and broader connections to our customers is enabling us the base of recurring revenue that will recognize in the coming quarters. With respect to our install based, we ended the second quarter with more than 37,000 point-of-sale end points in total, up 23% from same period last year and, more than 245,000 hotel rooms are now being managed by our lodging solutions, up 5% from the second quarter of fiscal 2016 and representing 5% of the approximately 5 million hotel rooms across the United States. As it relates our solutions, we have made great progress in bringing the rGuest platform and select applications to market. The rGuest adoption rate among new customer wins is growing and I believe this will continue. As Michael noted, the Board is committed to ramping up to the Company's efforts around our product offering including our rGuest Stay our rGuest Buy and our rGuest Pay. In late to July, we announced the general availability of our rGuest Buy, our ground breaking Self-Service Kiosk Solution that extends point-of-sale reach, improved guest service and reduces staff demand. Those solutions as part of the Agilysys continuing market penetration in as food and beverage menus that for prepackaged and bar coded food items, a large and growing across several hospitality segments. rGuest Buy is currently deployed more than 40 customers sites across the country including corporate cafeteria at a top five U.S. banks, a top 40 U.S. law firms, one of the nation's largest technology companies and a national financial services firm. Besides from rGuest, we have made significant progress with our iconic lodging specific solutions LMS and Visual One. LMS continues to deliver significant revenue growth including hosted element as a service and recently we went live with our first customer with Visual One property management as a service. In September, we announced the latest version of InfoGenesis Point-Of-Sale approved by the Nevada Gaming Control Board, InfoGenesis Point-Of-Sale version 4.4.8., continues to demonstrate Agilysys' hospitality provision leadership, support for AMV and a series of innovative enhancement design to boost efficiency, improve the user experience and increase revenue. We also recently released several important new features to our Stratton Warren System inventory and procurement solution. Stratton Warren, SWS Version 9.1 including number of innovative enhancements design to boost efficiency, increase revenue and improve compliance. With regard to our sales force, we have made strategic investments in our resources in this area including an increase to our overall sales capacity, establishing a strategic account management function and growing our international operations as we look to expand our global presence. We currently have 32 [indiscernible] in sales people. Strategic account management or [indiscernible] and service the opportunities we see with the large Tier I chain hotels. I am also pleased with our continued growth in the corporate and travel gaining markets. We see significant opportunities to continue to grow on market share to competitive takeout as well as through expansion. Marketing expansion as the emphasis on non-gaining revenue increases. Our bookings in this vertical grew 115% in the second quarter of fiscal 2017 versus the prior year period and on a trailing 12 months basis grew by 44%. In hotel market, we are leveraging the migration towards next generation hotel solutions and providing increased adoption for our iconic solution including Visual One hosted. We have 15 new customer wins during the second quarter of fiscal 2017, now recorded total revenue bookings value of approximately $2.3 million. Importantly, we remained confident that our ability to secure agreement with Tier 1 branded hotel operators who lead to a significant expansion of revenue in this core vertical. Looking at the food service and the restaurant university stadium and healthcare vertical, which combined represents approximately 26% of our total revenues. We see healthy fundamentals and the potential for significant growth around key areas such as self-services with rGuest buy kiosks, growth in tablets with InfoGenesis Flex and other initiatives. Our focus on enabling our clients to better leverage the guest lifecycle has resulted in steady growth through the competitive takeouts, subscription introduction, winning the customers and cross-selling and up-selling. The 10% revenue growth and 46% year-over-year growth in subscription-based revenue in the fiscal 2017 second quarter provides strong evidence as we moving in the right direction and making progress against these key objectives. In summary, I 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 employees, customers and our shareholders. Current potential customers are comfortable buying our iconic solutions like LMS, Visual One and InfoGenesis because they see the current value these solutions represent, as well as the long-term value potential as they plan to shift to rGuest Platform based solutions. With that, I would now like to turn the call over to Larry, who will provide an update on our technology solutions and development. Larry?

Thank you, Jim. We thought it would be helpful this afternoon to provide an overview on where we stand with our technology solution as it pertains to the market opportunities we're addressing now or seeking to address going forward. A little earlier, Michael Kaufman noted that the Board is solidly behind the vision to execute on the opportunities we have today that can help to double our business and that to achieve the goal, we’re going to accelerate near-term spend and product development infrastructure. I’ll provide some perspectives on what that means in terms of the key product development initiatives, we’re focused on. Let me start with a look at value proposition, our hospitality software platform provides to current and potential customers. What Agilysys has developed is a hospitality software program that is very unique in the industry. We’re enabling our customers the centralized guest information across multiple application, which provides them with the better real-time understanding of their guest needs and the opportunity to have to service them, and ultimately create added opportunities for revenue increased level of customer satisfaction. Our platform provides the opportunity for operators to service their guest better in the more ways than never before. It also provides us with the ability to deliver new applications to better address the dynamic nature of the guest experience. In addition, the platform provides a reach and seamless integration between our iconic solutions and rGuest applications as well as between our partners and our customers' application. By offering this type of open platform, we’re making more data available on hospitality guest to our customers, our partners and to ourselves than ever before and this has a tremendous amount of value in the marketplace. Looking at some specific products now, we continue to see consistent success for the rGuest Pay solution as we have secured 197 new agreements with the rGuest Pay products in the first six months fiscal 2017. As rGuest Pay fully supports both point-to-point encryption and the EMV compliance, it offers our customers added security and peace of mind. rGuest Pay supported by our full product suites which accepts payment including our iconic and rGuest solution. I think the single payment interface because all of our products enhance with our efficiencies which is significant benefit for our go-to-market strategy. Turning to rGuest Buy, the rGuest Buy kiosk is live in many sites and we add additional sites every week. We believe its ability to provide critical self-service functionality to our pause offering is a key distinguishing in characteristics that will keep out momentum going. This big near-term opportunity for rGuest Buy in the managed foodservice market, as the self-service capability helps our customers reduce expenses by eliminating staffing from main point sale terminals. Since we first introduced rGuest Buy, customers have highlighted not just the easy to use customer interface, but as important they’re noting that guest workflows are improving once the rGuest Buy kiosk is introduced. This increases guest satisfaction and revenue. In terms of rGuest Pay, we continue to make progress rolling up the solution with limited service and small chain customers. A little up to food chain, we are aggressively rolling up stay with our larger chain customer which will continue through the next calendar year. rGuest Pay product focus is on continuing to add features that will help open up new opportunities in the next level of the hotel segment. In order to penetrate the large hotel chain market with InfoGenesis, we are adding capabilities to the solution that can end up this chain international operations and the broad enterprise oversize they require. This work is at the center of the accelerated investments we are making now and planning for in the near term. This one showed our sales team equipped with the best solution now on when that we know large chain operators trust and want, which is critical to securing new market wins and share. We are confident that InfoGenesis SaaS solution will prove itself potentially new our chain of hotel operators. That's the way we are mapping out our current product development and hope this is helpful for the understanding of the progress we have made to-date with our technology in the near-term development plans we are focused on. With that, let me turn the call over to Janine.

Thank you, Larry, and good afternoon everyone. Our second quarter fiscal 2017 total revenue was $32.7 million, representing a 10% increase from total net revenues of $29.6 million in the comparable prior year period. Product net revenues which is comprised of remarketed product including hardware and software, and on-premise proprietary software license sales increased 8% to $10 million, and represents 33% of total revenue during the quarter compared to $9.9 million and 34% of total revenue during the prior year period. The increase reflects at every marketed product sales for iconic products as well as increased new customer hardware sales associated with our proprietary software sold as a service. Remarketed product revenue growth was partially offset by a decline in proprietary software license revenue in line with the strategic shift in mix to subscription-based services revenue. As we have highlighted before, it is important to note that while subscription-based license sales initially carry a lower margin remarketed product revenue component, they will drive the growth in higher margin subscription revenues in future periods. Importantly, approximately 23% of product revenues in the second quarter fiscal 2017 was related to subscription agreement, compare to approximately 13% in the prior year quarter. Support maintenance and subscription revenue or recurring revenues also grew by 8% to $15.9 million compare to the second quarter of fiscal 2016, driven by a 46% increase in our subscription-based revenue, which accounted for 24% of support maintenance and subscription revenue, compare to 18% in the fiscal 2016 second quarter. Going forward, we expect support maintenance and subscription revenue for the second half of the year will show similar growth trends to Q2 and that we will end the year in a 4% to 6% year-over-year growth rate. Professional services revenue grew 21% to $6 million compared to $5 million in the second quarter fiscal 2016, reflecting a greater utilization of our services resources in support of new installation. I would like to point out that the revenue performance in the services, implementation, integration and installation services for proprietary and remarketed products has grown over 42% in the first half of fiscal 2017, compared to the first half of fiscal 2016. And as it relates to the rGuest platform, these revenues comprised 7% of total fiscal 2017 second quarter revenue. Moving down the income statement, cost of goods sold increased approximately 39% to $16.8 million. This increase contributed to a 10% decline in the total gross profit from $17.6 million to $15.9 million for the second quarter of fiscal 2017, and gross profit margin sales by 1,075 basis points to 48.6%. This decrease in gross profit and gross profit margin was primarily driven by the impact of an incremental 1.9 million of developed technology amortization costs as a result of search in rGuest products being placed into service in the first half of 2017. Gross margins in the second quarter of fiscal 2017 were also impacted by the greater mix of lower margin upfront remarketed product revenue and lower gross profit margin for professional services, reflecting upfront investments in our professional service team to support the growth and both proprietary software license and subscription services revenue. We continue to expect gross margins will be in the low-50% range due to the non-cash developed technology expense coming up for balance sheet and the continued shift in revenue towards more subscription-based sales. Operating expenses in the second quarter of 2017 were 17.8 million, which includes product development, selling and marketing, general, administrative and depreciation expense. These were consistent with second quarter of fiscal 2016. Operating expenses represented 54% of total net revenues versus 60% in the prior year period. As expected, product development expense in the second quarter of fiscal 2017 increased 2% year-over-year to 6.9 million and represented 21% of total revenue in the second quarter of fiscal 2017 versus 23% in fiscal 2016, driven by our ongoing investment and resources related to both rGuest and iconic product enhancements to expand the customer experience across our installed based. Sales and marketing costs decreased 4% year-over-year to 5.1 million in the second quarter of fiscal 2017, primarily as a result of approximately $400,000 decline in employee related expenses due to the timing of a large subscription-based booking during the second quarter of fiscal 2016 compared to the second quarter of fiscal 2017. This was partially offset by increased spend in advertising and promotion of approximately 200,000 in order to accelerate the growth in lead acquisitions and pipeline velocity in support of the future revenue growth. General and administrative expenses decreased 1% versus the second quarter of fiscal 2016, primarily due to our continued efforts to improve efficiencies and streamline back office functions. This slides to an operating loss of 2.3 million for the second quarter of fiscal 2017, compared to an operating loss of 379,000 in the prior year period. Net loss for the second quarter was 2.4 million or $0.11 loss per diluted share compared to a net loss of 370,000 or $0.02 loss per diluted share in the second quarter of fiscal 2016. Adjusted EBITDA decreased approximately 200,000 in the second quarter to 1.3 million versus 1.5 million in the second quarter of fiscal 2016. Moving to the balance sheet and cash flow statement, cash and marketable securities as of September 30, 2016 was 51.6 million, compared to 60.6 million at March 31, 2016. The decrease in cash reflects approximately 6.6 million of spending related to ongoing product development investments. Net cash used in operations was 184,000 compared to the prior year period of 224,000 of net cash used in operation. Adjusted for non-recurring items, net adjusted cash provided by operations for the first half of fiscal 2017 was 287,000, compared to 150,000 in the prior year period. In terms of NOLs, we continue to have approximately 190 million on our books for which we can attribute a full valuation allowance and which will help us remain liable for only taxes paid in foreign jurisdictions along with minimal state taxes for the foreseeable future. Looking ahead to the balance of fiscal 2017, we continue to expect to full year revenue growth in excess of the market rate of growth. And I expect that our booking will continue to favor subscription-based contract that's continuing the trend we saw last quarter and this quarter of realizing remarketed product and professional service revenue upfront, so that we can subsequently recognized the software license revenue over the term of the contract. As such, we are reiterating our expectations for fiscal 2017 full year revenue of between $132 million and $136 million or 10% to 13% growth over fiscal 2016. We also continue to expect gross margin for fiscal 2017 to be in the low 50% range, which reflects the impact of higher cost of goods sold related to the recent general availability of first generation version of rGuest product, and a continued shift in revenue towards most subscription-based sale. In addition, while we were on track to achieve our outlook for adjusted EBITDA to double in fiscal 2017 from fiscal 2016 adjusted EBITDA, given some uncertainties regarding the full scope of the accelerated investment in products, sales and marketing and infrastructure over the next several quarters as well as the timing of the several large potential agreement discussed on the call this afternoon. We are not at this time able to provide a forecast for fiscal 2017 adjusted EBITDA. In summary, we are continuing to demonstrate that our operating model and our platform is working for our clients and then our investment returns are paying off. And as well as company we are proud of this quarter performance and in particular we are proud of the growth in key underlying business driver. We take a long-term disciplined view on delivering excellent customer experiences and strong execution while remaining focused on food and expense management and return focus investment, so we can accelerate our top line growth and move forward towards generating positive cash flow and profitability. On a personal note, I want to take this opportunity to thanks everyone at Agilysys. I have very much enjoyed working with such a talented and supportive team. Agilysys has a deep and experienced team finance team led by Tony Pritchett and I am confident that Tony and his team will serve Agilysys well during this transition period. With that, let's open the call for your questions. Chelsie?

[Operator Instructions] And we have a question from the line of Phil Bernard with Eilers Krejcik Gaming. Your line is now open.

Just a couple quick questions, I was wondering, if you could provide a little more detail on the mixed stream license and subscription terminals or mix between those two respective your POS terminals and your PMS terms managed?

So, I'll take that question. So, I think we're still looking pretty consistent to what we disclosed before. I think we are still looking pretty heavily with the on-premise being the larger piece of those. We've talked about a little bit, but you know we're starting to see the new logos coming in and they're greater than 50%. But obviously as you know we are looking at 90 percent-ish that are kind of on-premise today's, it's going to take while for that to catch up and mix. So it's kind of pretty heavily weighted on premise to that while we're obviously continuing to see those subscripting bookings increased in the new logo, which is very positive.

Okay, great. And then last one, you've guided for margin in a low 50% range. Obviously the current quarter was little below that, primarily due to I am assuming the modernization of developed technology coming through product sales. Do you anticipate that to rebound with a lot of that amortize within the quarter? Was there large a one-time amortization charge in the quarter? Or do you anticipate product sales margin to remain a little more subdued as it was in this quarter?

So, I think it will be right around that 50% in that range. The [debt track] is coming in. We say there is about 1.9 incremental that’s kind of going to continue from a run rate perspective slightly higher than that, but they were a couple of other items impacting in the quarter. We had an additional investment from a professional services staff perspective as we’re ramping up as there is little bit more overhead costs there. And then there was obviously additionally a little bit more heavy weight towards the hardware and low margin hardware upfront as opposed to the on-premise license right with that, just to that we saw a little bit more of that in the quarter. I think that while we came in at that kind of 48.6, I think for the year we’re right about 50.4%. And so, I think we’re going to come back and it will probably be right in that range just because it normalized for the subscription group, as well as for the professional services teams being ramped up and utilized.

Okay, great. And then lastly, I know early in the call Larry mentioned an increased focused on -- I’m trying to update and maybe make some changes, you need to some of your customers on the property management side. How do you anticipate R&D for the remainder of the year and current levels of the first half or accelerate even further?

Yes. So, I think the reason that we are not giving adjusted EBITDA guidance as we’re obviously going through in assessing what is required to meet the market needs of certain things that are going on. And so, I think while I can't give you exact guidance, I definitely believe the cost from a product perspective both OpEx and CapEx from a sales and marketing perspective, and the way that Jim talk about the sales force investments. And from the overall infrastructure with some of the large deals we’re working on, I think it will have an impact on all product lines. I just can’t quantify based upon the timing, how much that would be. We just know that as a business, we see the opportunity the business wants to get the business and grow the top line revenue and so there will be some flux in that.

Okay, great. And is that happening as a result of conversations with these potential clients that they're staying, you guys are great, the service is great, but we’re missing these needs or you trying to anticipate future needs in the market?

So, I'd just tell you that a lot of it is conversation, we talk about at the Analyst Day that we’ve got those 10 to 12 large change that we’re talking with. I think as we've talked to move kind of into that phase in the market and something that we haven’t really been before, there is just general needs in that market that we may not have in product today. And so with herein consistency to help us expand, as Larry just talking about to be able to capitalize in those markets, and so it’s not customization on a per customer base, it is just more market driven to be able to go after those types of markets in the large chain base.

Thank you. And I’m not showing any further questions at this time. I would now like to hand the call back to Ms. Janine Seebeck for any closing remarks.

Thanks Kelcie [ph]. That concludes this afternoon’s conference call. Thank you again to everyone for joining us this afternoon.

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you may all disconnect. Everyone have a great day.