U.S. Markets closed

Edited Transcript of AGYS earnings conference call or presentation 25-Oct-18 8:30pm GMT

Q2 2019 Agilysys Inc Earnings Call

Solon Oct 30, 2018 (Thomson StreetEvents) -- Edited Transcript of Agilysys Inc earnings conference call or presentation Thursday, October 25, 2018 at 8:30:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Anthony Pritchett

Agilysys, Inc. - VP & CFO

* Norberto Aja

* Ramesh Srinivasan

Agilysys, Inc. - CEO, President & Director

================================================================================

Conference Call Participants

================================================================================

* Allen Robert Klee

Maxim Group LLC, Research Division - Senior VP & Senior TMT Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good day, ladies and gentlemen, and welcome to the Agilysys Fiscal 2019 Second Quarter Conference Call. (Operator Instructions) As a reminder, this conference call may be recorded. I would now turn the conference over to Norberto Aja, Investor Relations. You may begin.

--------------------------------------------------------------------------------

Norberto Aja, [2]

--------------------------------------------------------------------------------

Thank you, operator, and good afternoon, everyone. Thank you for joining the Agilysys Fiscal 2019 Second Quarter Conference Call. We will get started in just a minute with management's comments, but before doing so, let me read the safe harbor language.

Today's conference contains forward-looking statements within the meaning of the safe harbor provision of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as anticipate, intend, plan, goal, believe, estimate, expect, future, likely, may, should, will and other similar references to future periods. Examples of forward-looking statements include, among others, our guidance relating to revenue, adjusted earnings from operations and cash balance and statements we make regarding continuing sales momentum and revenue growth and increases in research and development investments and resources. Forward-looking statements are neither historical facts nor assurance 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, risk and changes and circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition 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 achieve operational efficiencies and meet customer demand for products and solutions and the risks described in today's news announcement and in the company's filings with 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 is made. We undertake no obligation to publicly update any forward-looking statements that may be 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 the SEC Regulation G. When required, a reconciliation of all non-GAAP financial measures to the mostly directly comparable financial measures, calculated and presented in accordance with GAAP, 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. Ramesh Srinivasan, President and Chief Executive Officer of Agilysys. Ramesh, please go ahead.

--------------------------------------------------------------------------------

Ramesh Srinivasan, Agilysys, Inc. - CEO, President & Director [3]

--------------------------------------------------------------------------------

Thank you, Norberto. Good afternoon, and good evening, everyone. Thank you for joining us on the call today to review our fiscal 2019 second quarter results. Joining me on the call is Tony Pritchett, our Chief Financial Officer.

Taking a look at our financial results, revenue was a quarterly record, $34.2 million on an increase of $4 million compared to fiscal 2018 second quarter, leading to a GAAP net loss of $3.8 million or a loss of $0.16, 1-6, $0.16 per share compared to a loss of $3.2 million or $0.14, 1-4, $0.14 per share in Q2 of fiscal 2018.

Adjusted EBITDA was $2.6 million this quarter compared to $2.3 million in the same period last year. Both adjusted EBITDA and GAAP net loss calculations for last year, fiscal 2018 Q2, benefited from approximately $2.5 million of capitalized software development costs. If all software development costs were not capitalized in both periods, then adjusted EBITDA this quarter would have been a $2.8 million improvement over the comparable quarter last year. Adjusted EBITDA would have been positive $2.6 million for this period, that is fiscal 2019 second quarter, as against a loss of $0.2 million for the comparable period last year. Along the same lines, the increase in GAAP product development costs in Q2 of fiscal 2019 over Q2 of fiscal 2018 is mostly due to Q2 of fiscal 2018 having the benefit of capitalized software development costs, which are not applicable to Q2 of fiscal 2019.

This was our second consecutive record revenue and fourth consecutive sequential revenue growth quarter. Revenue increased in all 3 major revenue lines. Product revenue was up 20%, recurring revenue increased 10% highlighted by a 27% increase in SaaS-based subscription recurring revenue, and professional services rose by over 15%, 1-5, 15%.

Recurring revenue comprised of annual maintenance and SaaS subscription services was a quarterly record, $18.9 million, that is $1-8.9 million, or 55% of total net revenue compared to $17.1 million, that is $1-7.1 million, or 57% of total net revenue in Q2 of fiscal 2018.

SaaS revenues increased 27% year-over-year and was a record high 34% of total recurring revenue compared to 29% of total recurring revenue in Q2 of the prior year fiscal 2018. We remain confident in our ability to maintain and improve on our recurring revenue levels driven by growth in SaaS revenue.

Adjusted earnings from operations, or AOE, was positive $2 million this quarter compared to a loss of $1.2 million in Q2 of fiscal 2018. As a reminder, AOE is essentially adjusted EBITDA minus capitalized software spend minus CapEx, a measure of our overall revenue minus overall expenses, whether they are capitalized or not, minus capital expenditures. Excluding some extraordinary onetime cash expenditures, such as restructuring costs or legal settlement payments, AOE is also a good proxy for free cash flow over a full year fiscal period.

We narrowed our cash losses during the first half of fiscal 2019 to $7 million compared to $10.7 million cash loss during the first half of fiscal 2018. Our balance sheet and liquidity positions remain healthy with close to $33 million in cash and cash equivalents and no debt. As a reminder, due to the timing of our annual maintenance billing cycle, our cash flow tends to be significantly better during the second half of the fiscal year compared to the first half. Thus, we expect our cash balance to improve during each of Q3 and Q4 of fiscal 2019 and end up above $35 million as at the end of the current fiscal year.

As expected, a majority of our current revenue growth is being driven by our industry-leading POS products, InfoGenesis and rGuest Buy. We have introduced crucial mobility-based modules, along with other enhancements, to complement our core point-of-sale, POS, products strength. We continue to work on enhancing our PMS products as well, including the creation of additional software modules, some of which have already been deployed on customer production floors.

During the past 6 months, we've added multiple new innovative software modules, which work with and add value to our POS and PMS product offerings. There are about 8 new software modules that have already been implemented or will be implemented during the next few months. Each of these are based on customer requests and were designed quickly and efficiently to allow our customers to implement them in the shortest possible time frame. Such increased development and deployment speed will continue to help us gain traction with both current and new customers.

We expect our property management system product line to contribute to our revenue growth with increasing effectiveness going forward. In the recent past, we have made considerable progress with our leading-edge, cloud SaaS-based rGuest Stay property management system, both in terms of product enhancements and sales deals closed. rGuest Stay is currently live in more than 130 properties across more than 20,000 rooms. Given the rapid progress we are making with this product, we expect rGuest Stay to be an increasingly important growth driver for us.

Our property management system solutions currently support about 270,000, that is 2-7-0, 270,000 rooms, which is a small fraction of the overall market size. As an added perspective, our largest competitor is reported to support about 5 million rooms.

Increased product development and innovation velocity have clearly been the main drivers of our revenue growth during the recent past. We plan to continue driving home that competitive advantage with sensible, carefully managed increases in R&D investments. Our U.S.-based R&D teams have led and collaborated with the currently 320-person strong India Development Center in an exemplary manner.

We have made significant progress with our well-established products like InfoGenesis, LMS and V One. And our rGuest solutions have made considerable progress as well during the recent past. Customers have noticed the improved velocity of product improvements and new innovative modules creation, and that has resulted in improved sales and revenue levels.

Given that success and with the opportunity in front of us to build on our current business momentum, our board recently approved an initiative to increase our U.S.-based R&D services and customer support engineering resources, along with doubling our India Development Center capacity from the current 330 to approximately 660 by the end of calendar 2019.

While our goal remains to grow revenue significantly faster than cost, as can be seen by our 6-month fiscal 2019 versus 2018 AOE improvement of more than $6 million on a revenue increase of about $4 million, our goal remains to ultimately get our R&D cost to under 20% of overall revenue. While we expect a 1 to 3 percentage points increase in R&D as a percentage of revenue over the next 4 to 5 quarters, that ratio will start moving down as revenue increases and should settle down at a run rate of less than 20% of overall revenue.

Despite remaining very disciplined while managing our costs, we are also keen on investing in the right areas at the right time to support our market position and growth. Our recent focus on world-class customer service and support and on delivering product enhancements, new products and innovative solutions to real customer demands has been driving our recent revenue growth. This increased investment in expanding and strengthening our software engineering talent should further those gains.

As we have highlighted in the past, one of our major revenue growth opportunities lies in cross-selling to our current extensive customer base. With a broader product offering, we are in a good position to take advantage of this opportunity. About 12 months ago, approximately 50%, that is 5-0, approximately 50% of our customers were using only one of our products. That percentage has been reduced to 42% now, and we are confident it can continue to improve.

This quarter was one of our best ever quarters in terms of new business sales wins. During this quarter, we added 24 new customers, of which 15 were SaaS. We also expanded partnerships with more than 60, that is 6-0, with more than 60 current customers through more than 100 new sites and over 50 new product purchases for current sites. Altogether, new business made up of 3 categories: one, new logos; two, new sites sold to current customers; and three, new product sales to current customer sites. All taken together, this was one of our best ever quarters for new business sales.

We continue to see multiple areas of opportunities to expand our business with large strategic customers across all our market segments. We continue to expand our business and partnership with Hilton properties across the world. Since we were named as one of Hilton's approved hospitality solutions vendors about 2 years ago, many Hilton properties all over the world have switched their POS system to InfoGenesis. Over the past few months alone, we have closed more than 20 engagements with various additional Hilton properties in the U.S., Europe and Asia. And we are currently in the early stages of initial implementations with at least a couple other large customers across the hotels, resorts, cruises and foodservice management market segments.

With respect to foodservice management, we continue to make good headway led by our InfoGenesis and rGuest Buy products. Multiple major operators in this segment are in the process of expanding their business partnership with us.

Our gaming/casino hospitality-related business continues to do exceptionally well. Growth in non-gaming revenue continues to outpace growth in gaming revenue in various major casino resorts across the country. That also means, our casino customers will spend relatively more on enhancing the non-gaming areas of their resorts, which obviously bodes well for hospitality technology solution providers like us. Our overall sales levels in the gaming/casino segment during the past 6 months were our best first half of the fiscal year start ever.

Earlier this month, we attended the Global Gaming Expo, G2E show, in Las Vegas, where we made a good splash. We had tripled the booth space we had last year in order to showcase the increased core product enhancements available, along with our new innovative software modules. We enjoyed a significant increase in customer meetings, and the number of actionable leads generated during the show was twice as much as in 2016 and about 60%, 6-0, about 60% greater than last year.

International expansion in EMEA and APAC remains the major revenue growth focus for us. We continue to work on several initiatives, including required product enhancements, to accelerate our growth in these regions. The past year has been one of our best periods in terms of sales from APAC and EMEA, and we are only getting started as our market share in both those regions is nowhere close to where we are capable of achieving. [Rod Talbert], an experienced application software executive, who is an expert in selling technology solutions in virtually all major countries in Asia, joined us earlier this month as our APAC Managing Director.

We've also made good strides at our marketing efforts and overall company messaging. We are now a lot more consistent and focused with our positioning and messaging. Our lead and demand generation activities are currently in the process of getting kicked into a higher gear.

A couple of quick comments regarding the current environment and the markets we serve. The hospitality industry is now well poised and at an inflection point having outperformed many other sectors and the overall economy. We are lucky to be operating in a healthy and growing market, where there is an important and strategic need for better technology solutions that empower and enable property operators to compete more effectively and efficiently for their guest loyalty. Our customers are facing increasing demands from their guests, who in turn are getting more and more familiar with greater conveniences in various aspects of their lives, most of them driven by technological advances. Faced with such demand from their guests, our customers are looking more and more to partners like Agilysys to help them meet those guests' demands, be it across casinos, hotels, cruise ships or food and beverage outlets, our customers are laser-focused on improving guest experience and loyalty levels. This constitutes a major opportunity for us and for the other technology vendors in this business. We are in an environment where our growth depends almost entirely on our speed of innovation and remains largely insulated from the various uncertainties many other industries are currently facing. As a leading provider of both cloud, SaaS-based and on-prem solutions across all our product lines and as a provider entirely focused on hospitality with an increasingly cost-effective and powerful R&D engine powering us forward, we are uniquely positioned to be the most trusted and innovative partner for our customers. These industries and markets we serve are hungry for a world-class technology provider, and we are well on our way towards being the one.

Our sales and marketing teams are reenergized with the support they are getting for their business development initiatives from the various product, finance, services and support teams, and this is leading to much-improved sales productivity and a positive change towards a more driven and passionate culture.

In conclusion, we are encouraged by our results so far when we think about our ability to grow the business and drive shareholder value. We are beginning to see positive results from our transformation process. We are very conscious that we have a lot of improvements yet to get done and a lot more opportunities to address in front of us. We will remain disciplined with our growth plans. If there is anything the recent past has shown us, discipline and profitable growth is clearly possible for us.

We look forward to reporting on another record revenue quarter late January 2019.

With that, I'll turn the call over to our CFO, Tony Pritchett, to provide added perspective on our financial results and various other aspects of our business. Tony?

--------------------------------------------------------------------------------

Anthony Pritchett, Agilysys, Inc. - VP & CFO [4]

--------------------------------------------------------------------------------

Thank you, Ramesh.

Our fiscal 2019 second quarter results highlight our continued progress and provide further proof that our initiatives are yielding success across many key financial metrics, including double-digit top line growth, lowering our overall costs as a percentage of revenue, turning into a cash-generating company and positioning the company for further growth, all while maintaining a healthy balance sheet and operating the company in a prudent and disciplined fashion.

Starting with our top line. Overall revenue grew by 13.5% or $4.1 million in the second quarter of fiscal 2019 to $34.2 million compared to $30.1 million in the prior year period, marking our highest quarterly revenue since we transformed our business into a pure-play hospitality technology provider in fiscal 2014. Second quarter revenue also marked the fourth consecutive sequential rise in overall revenue, growing from $30.1 million in Q2 of fiscal 2018. Importantly, we are able to achieve this while maintaining a discipline and focused approach to costs and have continued to achieve a much higher quality revenue mix that provides us with higher margins given the strong contribution from SaaS subscription and other recurring revenue.

Before I discuss our results in more detail, I want to point out a few things to remember when reviewing our Q2 fiscal 2019 financial statements. First of all, please remember that beginning in fiscal Q2 of this year, we adopted agile development and deployment methodologies across all of our products that preclude the ability for us to capitalize internal labor costs onto the balance sheet. The fiscal second quarter of 2019 is the first quarter which you will see the results of this change in our financial statements. As a result of this change, and as discussed on our last call, product development expense on the income statement is significantly higher than prior quarters due largely to this change. The cost that was previously removed from the P&L and capitalized onto the balance sheet is now hitting expense. In Q2 of fiscal 2018, this was about $2.5 million. In the back of our earnings release, you will see a reconciliation of product development expense for Q2 of fiscal 2018 to include this $2.5 million. As an effect of this change, our operating loss and net loss are also lower this quarter than they would have been if we had capitalized labor. And for comparison purposes, operating loss and net loss would have been around $2.5 million worse in fiscal Q2 of last year with comparable development practices.

In addition, our operating cash flows on the cash flow statement now include the effect of wages and contract labor costs that was previously capitalized, whereas previous quarters reflected this expenditure as an investing activity. Free cash flow, defined as cash used in operating activities plus cash used for capital expenditures and cash used for capitalized software development costs, is a better cash flow metric to look at for us. Free cash flow for the 6 months ended September 30, 2018, is a first half record for us. Free cash outflows of $6.3 million in the first half of this year compares to $10.2 million in the first half of last year, a nearly $4 million improvement over a half year period.

Finally, please note that in accordance with the modified retrospective method of adopting the new revenue recognition standards, which we adopted beginning with Q1 of fiscal 2019, our March 31 balance sheet has not been restated to reflect the accounting standard. Therefore, accounts receivable, prepaid expenses, other noncurrent assets, contract assets and contract liabilities are not directly comparable on the face of the balance sheet. Please refer to the full disclosure in the notes to our consolidated financials in our 10-Q, which will be filed later this week for more disclosure to help the comparison.

Getting back to my normal commentary. Product revenue increased 19.8% to $8.8 million compared to $7.3 million in the prior year period as a result of higher hardware sales on the back of one of our best new business bookings quarters. Professional services revenue was up 15.3% to $6.6 million compared to $5.7 million in the prior year period due to growth in our customer base including installations of our traditional on-premise and subscription-based software solutions and increased use of our technical services team for customer-specific software development projects.

Looking at the support maintenance and subscription services line item, our recurring revenue rose 10.2% to a quarterly record $18.9 million compared to $17.1 million in the prior year period. We are pleased with our continued growth across our recurring revenue, particularly the 27% increase in SaaS-based subscription revenue, which was a little ahead of the expectation we previously stated of approximately 20% year-over-year growth for this metric. Going forward, we continue to think the 20% year-over-year growth expectation is the right way to think about the progress we will make in growing SaaS revenue this year. Recurring revenue now represents over 55% of total revenue, with SaaS-based subscription revenue representing approximately 34% of recurring revenues, marking steady growth compared to 29% in Q2 of last year.

Going forward, we expect sales momentum to continue in the second half of fiscal 2019 resulting in top line revenue growth, while SaaS revenue growth will continue to outpace the rate of total recurring revenue growth.

Regarding installed endpoints, by the end of Q2, we serviced about 270,000 rooms and approximately 51,000 terminal endpoints or an 8% and 21% increase, respectively, compared to Q2 of last year. And total revenue related to our rGuest platform comprised approximately 9% of total fiscal 2019 second quarter revenue.

Moving down the income statement, cost of goods sold increased by 11.5% or $1.7 million in the second quarter to $16.5 million versus $14.8 million in the prior year period, mainly as a result of higher hardware revenue and the associated third-party costs along with amortization of developed technology, which increased by almost $1 million compared to last Q2. This led to a gross profit margin of 51.9% or 90 basis points higher than the prior year period.

Products gross profit decreased $0.8 million, with gross profit margin decreasing to 12%, primarily as a result of the inclusion of developed technology amortization. Normalizing out developed technology would have resulted in profit margins of around 50% for product, down 900 basis points from prior year due to the higher mix of hardware revenue this year.

Professional services gross profit increased by $1 million, with gross profit margin increasing to 27% compared to 14% in Q2 of fiscal 2018 as a result of higher revenue, along with better management and utilization and billability of our professional services resources.

Support, maintenance and subscription services gross profit increased $2.2 million, leading to a total gross margin of 79% compared to 74% in Q2 of fiscal 2018, reflecting the positive impact of the operational changes we have implemented, allowing us to grow revenue per recurring revenue at a faster pace than growing cost.

Looking at operating expenses. Excluding the charges for legal settlements and restructuring, severance and other charges, the second quarter saw an 18.7% increase in operating expenses to $21.1 million compared to $17.7 million in the prior year period. The increase in operating expenses is due primarily to product development expenses, which increased by $3.4 million compared to fiscal Q2 of last year. As discussed, we have dramatically reduced the time lapse between design the software product or feature in its deployment in the field. In Q2, this precluded capitalization of software development costs, and we expect similar outcomes going forward. This change, along with the growth in our number of global R&D resources led to the increase.

Sales and marketing expenses increased $0.2 million or 4.4% compared to fiscal Q2 of last year, while general and administrative expenses decreased to $0.4 million or 6.9% compared to fiscal Q2 of last year as we continue to make progress on implementing more efficient and cost-effective operational processes.

As was the case in the prior quarter, our overall expense level, including capital expense and operating expense as a percentage of revenue, was lower in Q2 fiscal 2019 compared to the same period last year. And our expectation remains that we will grow revenue at a faster rate than cost increases as we leverage the operating scale of the business.

Q2 of fiscal 2019 resulted in an operating loss and net loss of $3.8 million for the second quarter compared to an operating loss and net loss of $3.2 million for the second quarter of fiscal 2018. Adjusted EBITDA was approximately $2.6 million in the second quarter compared to $2.3 million in the second quarter of fiscal 2018. However, as reconciled in the back of our earnings release, if all software development costs were not capitalized in both periods, adjusted EBITDA would show an improvement of $2.8 million over a loss in the fiscal 2018 second quarter of $0.2 million.

Adjusted earnings from operations for Q2 of fiscal 2019 was $2 million. This is a metric unaffected by the capitalization changes and improved $3.2 million over the last Q2.

Moving to the balance sheet and cash flow statement. Cash and marketable securities as of September 30, 2018, was $32.9 million compared to $39.9 million at March 31, 2018. Going forward, we expect cash to increase over the second half of fiscal 2019, so that we will end the year with $35 million to $37 million of cash on hand. This will mark a meaningful improvement from the over $9 million decline in fiscal 2018 and much higher rate of cash burn in prior periods, providing us with healthy financial flexibility to achieve our near- and long-term goals.

And in terms of NOLs, we continue to carry just over $200 million of NOL carryforwards with a full valuation allowance on our books that will help us remain liable for taxes paid only in certain foreign jurisdictions, along with minimal state taxes for the foreseeable future. Our NOLs generated prior to this fiscal year expire between fiscal years 2031 and 2038.

Regarding our other guidance. This afternoon, we reiterated our forecast for fiscal 2019 full year revenue growth of approximately 10% over the $127 million in revenue during fiscal 2018, and we expect to realize an improvement of about $6 million in adjusted earnings from operations in fiscal 2019 compared to fiscal 2018. We expect to achieve breakeven or modestly positive AOE for the full year even as we will invest $1.5 million to $2 million to increase our U.S. engineering strength, along with doubling our India Development Center capacity, as Ramesh discussed earlier on the call.

In closing, we are pleased with the progress and momentum across our business and our ability to achieve our financial goals for fiscal 2019 by growing profitably and creating shareholder value while continuing to leverage our overall resources and keep our cost basis in line with top line growth. Our focus continues to be on generating profitable revenue growth.

We are excited about the opportunities ahead of us, including leveraging our increased research and development resources that will allow us to grow across both existing as well as new markets.

I would now like to open the call to questions. Nicole?

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Our first question comes from the line of Allen Klee of Maxim Group.

--------------------------------------------------------------------------------

Allen Robert Klee, Maxim Group LLC, Research Division - Senior VP & Senior TMT Analyst [2]

--------------------------------------------------------------------------------

Could you just remind me -- I'm not sure if I caught it of -- for the increased spending for engineering of what you expect that to be.

--------------------------------------------------------------------------------

Anthony Pritchett, Agilysys, Inc. - VP & CFO [3]

--------------------------------------------------------------------------------

Allen, this is Tony. The increased spending in engineering isn't going to affect the R&D line as a percentage of revenue much this year, so the levels we're at now should continue for the rest of this fiscal year. We expect them to tick up a little bit maybe somewhere in the 1% to 3% range for next year. So as you think about going into next fiscal year, they tick up a little bit. And then looking into the year following that, we do expect R&D cost as a percentage of revenue to start coming back down. As Ramesh mentioned in his prepared remarks, 20% or less is really kind of our long-term target for that metric.

--------------------------------------------------------------------------------

Ramesh Srinivasan, Agilysys, Inc. - CEO, President & Director [4]

--------------------------------------------------------------------------------

And also to -- just to add to that, Allen. We guided to AOE, adjusted earnings from operations -- as you know, adjusted earnings from operations don't get affected by capital expenses as well. So there will be about $1 million to $2 million of capital expenses plus other costs this year. But in spite of that, we expect to do at or slightly better on our AOE guidance this year of being breakeven.

--------------------------------------------------------------------------------

Allen Robert Klee, Maxim Group LLC, Research Division - Senior VP & Senior TMT Analyst [5]

--------------------------------------------------------------------------------

Okay. And then the additional engineering in the U.S. and in India, how do you think about the timing of how that translates into higher revenue?

--------------------------------------------------------------------------------

Ramesh Srinivasan, Agilysys, Inc. - CEO, President & Director [6]

--------------------------------------------------------------------------------

We -- our objective remains -- Allen, just to reiterate, our revenue will grow faster than the costs. And so as -- I mean, we are obviously seeing revenue growth now. We are seeing a lot of business momentum. We see our sales increasing now. So given all that, we decided that we have to keep this momentum going by improving our products at an even faster rate and also bringing in newer products that customers are asking for. So we will manage the engineering increase over a period of time by carefully watching the revenue growth. So we are just giving you a heads up that we are planning to do that, but we will be controlling that dial carefully depending on how our revenue continues to grow. And it will be in proportion with that.

--------------------------------------------------------------------------------

Allen Robert Klee, Maxim Group LLC, Research Division - Senior VP & Senior TMT Analyst [7]

--------------------------------------------------------------------------------

Okay. And then do you have any view just seasonality or the second half relative to the first half if we should think that there'll be a sequential -- continuous sequential growth in revenue in the second half?

--------------------------------------------------------------------------------

Ramesh Srinivasan, Agilysys, Inc. - CEO, President & Director [8]

--------------------------------------------------------------------------------

Yes. The quick answer to your question, Allen, is yes. You should anticipate the second half being better than the first half, and that is what the math points to as well. Because we are retaining our guidance of 10% growth over last year, and the last year revenue was $127-plus million. So to grow that 10%, yes, our second half will be better than the first half. And that is what our current momentum, our sales momentum, everything is showing.

--------------------------------------------------------------------------------

Allen Robert Klee, Maxim Group LLC, Research Division - Senior VP & Senior TMT Analyst [9]

--------------------------------------------------------------------------------

Okay. And then any comment on just the sales pipeline overall of how would you say it compares now to this time last quarter?

--------------------------------------------------------------------------------

Ramesh Srinivasan, Agilysys, Inc. - CEO, President & Director [10]

--------------------------------------------------------------------------------

This time last quarter, you mean this time last year, right?

--------------------------------------------------------------------------------

Allen Robert Klee, Maxim Group LLC, Research Division - Senior VP & Senior TMT Analyst [11]

--------------------------------------------------------------------------------

Yes, or either way, yes.

--------------------------------------------------------------------------------

Ramesh Srinivasan, Agilysys, Inc. - CEO, President & Director [12]

--------------------------------------------------------------------------------

Either way, okay. Our sales pipeline is at the healthiest that it has been, at least as far as I have been here, right? So we obviously feel very positive about it, which is why we are making the decision to continue to fuel that momentum with more engineering work and supporting our customers a lot better. And the pipeline comes from various different angles, Allen, right. The product delivery velocity and innovation velocity, as we are paying a lot more attention to customers, that is definitely driving. The pipeline increasing. APAC, EMEA, our pipeline is increasing. Large, strategic customers, we are talking to a couple -- 3 major customers across segments with whom we have started some initial implementation. So that is feeling very positive. The casino spend shift to non-gaming is really helping. And to start with, our HRC market share was quite low, so that is moving forward. And like we said, selling more to our current customer base because we have a lot more products to sell now, that is picking up. See, that number used to be like 50% a year ago, and it was about 46% even a quarter ago. And just the last 3 months, that number has come down from 46% to 42%, meaning we now only have 42% of the customers who only have one product. So that's improving. There are about 4 new software modules we have launched just in the last 6 months or so, and there are about 5 other modules that will be launched in the next 6 months. rGuest Buy is definitely picking up traction in gaming and HRC. So in a lot of different ways, Allen, the pipeline now is the healthiest that it has ever been and definitely better than the same time last quarter and significantly, multiple significantly better than the same time last year.

--------------------------------------------------------------------------------

Allen Robert Klee, Maxim Group LLC, Research Division - Senior VP & Senior TMT Analyst [13]

--------------------------------------------------------------------------------

Okay. Could -- are you able to disclose how much international was as a percent of sales?

--------------------------------------------------------------------------------

Anthony Pritchett, Agilysys, Inc. - VP & CFO [14]

--------------------------------------------------------------------------------

Allen, it hasn't grown much as a percentage of revenue. Without giving specific numbers for the quarter, it's still under 10% of our total revenue. A lot of momentum internationally. We see a lot of progress there, but it's starting from a small base.

--------------------------------------------------------------------------------

Allen Robert Klee, Maxim Group LLC, Research Division - Senior VP & Senior TMT Analyst [15]

--------------------------------------------------------------------------------

Okay. Maybe my last question would just be with the weakening of the Indian currency relative to the dollar. How should we think about how much benefit maybe that gives you on the savings also?

--------------------------------------------------------------------------------

Ramesh Srinivasan, Agilysys, Inc. - CEO, President & Director [16]

--------------------------------------------------------------------------------

Yes. Not a needle mover, Allen. I won't consider that as a major needle mover but reasonable. Because -- and obviously, India center is very cost-effective for us. And the current exchange rates do help us to a reasonable degree, but not a major needle mover. So if the exchange rate strengthens the other way in the future, I would not get too worried by it. It's quite cost-effective. It's working very well for us. But it's the talent level, it's the amount of innovation we are doing, how quickly our products are improving, if we are able to add new products, because that's the way I would think about it. The exchange rate does give us a little bit of an advantage now, but it's nothing to be too happy about or get concerned about later.

--------------------------------------------------------------------------------

Allen Robert Klee, Maxim Group LLC, Research Division - Senior VP & Senior TMT Analyst [17]

--------------------------------------------------------------------------------

Oh, maybe one other question I just thought. Could you just talk about -- you guys are doing some great stuff competitively. What are you seeing from your other competitors out there? Does it feel like you're moving ahead of them or any of them that you think that they're getting more competitive? Or how would you comment on that?

--------------------------------------------------------------------------------

Ramesh Srinivasan, Agilysys, Inc. - CEO, President & Director [18]

--------------------------------------------------------------------------------

I don't think the competitive environment has changed too much for us, Allen. I would say -- I mean, since the enterprise software area and hospitality is an attractive area, there is more attention to it from other competitors as well, which is a good thing. I think we are operating in a good neighborhood, which is always a positive thing. See, we have -- Allen, basically our advantage is we are in a good sweet spot, right? When you think about that $100 million to $300 million annual revenue range, we are in an excellent sweet spot. And among the leading vendors, we are probably 1 or 2 of the only ones who are only focused on hospitality, right? We have very big competitors who are focused on a lot of other things as well including hospitality. And we have a lot of smaller competitors, so obviously, scaling up is not the easiest thing to do. So we are in a good sweet spot. So I still believe, Allen, like I've told you that our fate is in our hands. If we continue to do a good job, improve the products, introduce new products, serve customers well, we are in an excellent spot now. And I am happy about our competitive environment as I was a year ago.

--------------------------------------------------------------------------------

Operator [19]

--------------------------------------------------------------------------------

(Operator Instructions) I'm showing no questions at this time. I'd turn the call back over to Mr. Srinivasan.

--------------------------------------------------------------------------------

Ramesh Srinivasan, Agilysys, Inc. - CEO, President & Director [20]

--------------------------------------------------------------------------------

Okay. Thank you, Nicole.

In closing, while we have significant work ahead of us and many areas to improve on, we are pleased with the progress we have made in the first half of fiscal 2019 and with the progress we are making towards meeting our goals for the rest of this year and beyond.

We remain on track to achieve our guidance for full year revenue growth of approximately 10% and significant profitability gains as well. We are confident we can continue to deliver growing revenue, healthy margins, profitability and overall improved results and performance going forward.

I hope to see many of you during the coming months. If any additional questions arise in the meantime, please don't hesitate to reach out to us. Otherwise, have a great rest of the year, and we look forward to speaking with you on the fiscal third quarter call late January 2019. Thank you.

--------------------------------------------------------------------------------

Operator [21]

--------------------------------------------------------------------------------

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