Q2 2021 Agilysys Inc Earnings Call
As a reminder, today's conference is being recorded.
I would like to turn the conference over to Jessica Hennessy Senior manager.
Corporate strategy and Investor Relations at Agilysys, Jessica you may begin.
Thank you to Wanda and good afternoon everybody.
Thank you for joining the Agilysys fiscal 2021 second quarter Conference call. We will get started in just a minute with management's comment but before doing so let me read the safe Harbor language.
Some statements made on today's call will be predictive and are intended to be made as forward looking within the safe Harbor protection.
The private Securities Litigation Reform Act of 1995, including statements regarding our financial data.
Although the company believes that its forward looking statements are based on reasonable assumptions such statements are subject to risks and uncertainties that could cause results to differ materially.
Important factors that could cause actual results to differ materially from these in the forward looking statements include the effect of the COVID-19 pandemic on our business in the hospitality industry.
The success of any measures, we have taken or may take in the future in response to that COVID-19, pandemic and the risks set forth in the company's reports on form 10-K, and 10-Q and other reports filed with the Securities and Exchange Commission.
With that I'd now like to turn the call over to Mr., Ramesh Srinivasan, President and Chief Executive Officer of Agilysys.
Mesh. Please go ahead.
Thank you Jessica and good afternoon, good evening, everyone welcome.
Welcome to <unk> fiscal 2021 second quarter earnings call.
Joining Jessica and me on the call today is Dave Ward CFO.
I'm participating in this call from Las Vegas Office.
Dave and Jessica <unk> in our Atlanta office.
We hope all of you and your families are doing well during these challenging times.
At the outset I want to assure you that we have taken every possible step to keep our employees safe and healthy.
The book from home arrangements continue to work well for us.
No the subsequent loss in productivity.
Before we get into the details if an update on the quarter. Please note that unlike many other organizations, we use the term revenue and sales to indicate to different metrics.
Revenue was recognized revenue based on normal revenue recognition rules.
We kept standard across public into play software companies like us.
We use the thumb sales however.
Therefore to new sales agreements signed with current and new customers.
Products and services.
We measure the such sales in Tom's off net annual contract value.
The sale agreement signed.
We also plan to use the thumb sales sales bookings to refer to the same thing net annual contract value sales.
That is a time lag involved in the progression from sales.
Revenue.
Sometimes that progression happens relatively quickly why for certain other sales agreements, especially those involving subscription based license fees.
The transition to revenue happens or what time after that I live in product implementations have been completed.
Q2 fiscal year 2021 revenue.
$34.4 million.
Representing 15% that is one 515% sequin showed growth over Q1.
And the 16 that as one 616% yield or what are your decline.
Back to the comparable Q2 quarter last fiscal year.
The difficult circumstances faced by the global hospitality industry due to the pandemic continue to have a detrimental effect on our sales and revenue levels.
Product and services revenue.
Partially an increased sequentially by 25, and 35% respectively over Q1.
Though they remained at 45 and 35% Yodle what are your decline levels compared to Q2 of last fiscal year.
The sequential increase in services revenue from Q1 to Q2.
He is an indication of a boss she'll decoding implementations since the early days of the pandemic.
After hitting a low in April then.
So this is product implementation projects doubled during the month of June compared to April.
And has remained stable each month thereafter.
Both services and product revenue levels.
But affected by customers not yet being able to accept product deliveries and stopped subleases implementations. They had already signed up for.
Services revenue was also affected by the highly successful on demand Pos Zamora automating SAS application launch battery.
That'd be offered no cost.
Our low cost implementation services fees.
In addition to 90 days subscription fee relief.
Yeah, well the timely goodwill just showed a lot of customers, but the long term subscription revenue benefit for us which worked out well.
The silver lining in our revenue this quarter was recurring revenue returning to a record level of 22.3 million a year or what are your increase of 10% compared to Q2 of last fiscal year.
Within that cutting revenue subscription revenue grew year over year by 24%. Despite the various one time cost related relief provided to customers.
The solid subscription revenue and overall like cutting revenue the sales despite the difficult business circumstances underscore the mission critical nature of our software applications.
The continuing steady migration of our customer base to cloud subscription licenses.
And the increased availability of newly created cloud native SAS applications, you're not a product portfolio.
Our product innovation levels and pace of delivery with respect to such applications have increased this calendar year.
Now with respect to sales success limits.
Sales for MS showed an annual contract value of agreements one signed and closed increased by nearly 33 zero, 30% sequentially compared to Q1, but does it mean that only about two thirds of prior fiscal year Q2 levels.
The yodle video to sales declines have been driven mainly by the postponement of technology investment decisions.
After hitting a pandemic in you slow in April our sales levels have shown steady sequential improvement every month since April with the exception of August.
Sales during August, though what's still better than April and May.
September was our best sales month since much.
One of the major sales highlights during the six months between April and September across Q1, and Q2 of this fiscal year.
Despite the extreme challenges faced by the hospitality industry.
As being the fact that these six months have been our best ever.
In terms of average monthly SaaS subscription to lift the sales.
That's certainly all goes well for the future.
The second major highlight of sales success has been.
No if we define new products as cloud native and also on Prem Installable software applications.
During the past six to 24 months.
Sales of such new products again measured in annual contract value of signed sales agreements was up by more than 500% this quarter compared to Q2 of last fiscal year.
We are happy to have been able to help customers, but such urgently needed.
Additional software applications, which are well integrated with our core products and.
Enable greater operational efficiency and visibility.
Enable contact list into interactions with data gets and in general will go a long way to help the guest comfort and safety.
The fact that these additional SAS applications have also helped establish agilysys as a partner who can be relied on for rapid product innovation and world class Cloud Native modern technology solutions is an additional bonus.
This success has given us a good reasons to feel good about our long term future subscriptions that cutting revenue growth and profitability prospects.
Even during this pandemic, we've continued to make good progress towards converting agilysys into a world class cloud Native SaaS application slid into play software business unit in.
In many ways. This pandemic has accelerated the adoption of mobile and contactless solutions.
In the hospitality industry.
We expect such solutions to be table stakes requirements to manage guest experience going forward.
We also expect that kind of environment to favor companies with a strong cost effective phos based product development and innovation capacity, who can provide robust core solutions, along with well integrated innovative add on modules, which provide great value.
VR in a terrific position to meet that need.
Among the new products.
The U.S. remote ordering platform on demand hasn't been the star performer.
This product, which became especially relevant after the pandemic start to ease the one we had announced a special purchase all for fall.
Customers, who sign for the SaaS based platform on or before June 30, It met eligible for a 90 day free trial.
I don't know what shots services implementation for the fast food outlet thought a profit center off a particular site.
As of April one calendar Twentytwenty, one lets start to flatten next fiscal year.
We expect close to about 200 sites using the on demand application.
Applicable sat fees.
He lives and we expect this module by itself to contribute the 3% to 5% SaaS recurring revenue you had or what are your girl.
Other new additional software applications like ought to get service.
A son, who is optimization platform that enhances operational efficiencies and integrates all aspects of back of the hose operations I don't guess differences in safety.
And I guess book, a direct channel Commission free booking engine that allows guests to personalize and book that entire <unk> Navy from booking that state to making that dining there's emissions pop on mens Gaz de times and all other opportunities on offer at that was thought at their convenience and.
At the same time.
Continue to drive additional sales and subscriptions that cutting revenue.
You should be picking up an announcement to model that ought to get filled with received the best productivity enhancement Gold Award.
At the global gaming business magazines annual gaming and Technology Awards. This is the very first time Agilysys has it received a gold award in this prestigious casino industry I knew a lot cycle.
We continue to enhance all such additional SAS applications to make them increasingly more compelling.
Many of the following notable sales wins during the quarter would not have been possible a couple of years ago. When we did not have the benefit of the new additional SaaS applications, which add considerable value to the robust core products. They are built at all.
This list is a no particular <unk> number one Lucky Star Casino, a multi property, Oklahoma based casino and Hotel Corporation purchased multiple products, including Infogenesis, Pos and I'd flicks tablets across all their properties and also invested in state B M. S.
I guess book and August Express mobile check in checkout for their newest hotel property.
Number two I look on casino resort located in Moxley, Louisiana, a longtime LMS BMS data imagine and satin watering inventory and procurement solution customers finalized that decision to upgrade their LMS worsen to make use of the new web you why no available in LMS BMS and all.
So implement I'd guess book and how to get there.
In addition, they missed it recently, an infogenesis for their food and beverage point of sale needs.
Number three.
Caesars entertainment in the UK, but just on demand to implement in seven of the I guess you know sites.
The United Kingdom.
Before she.
She could saw nation, but just infogenesis flex tablets on demand seat Andy Dick for that New high end venue, the Dallas Cowboys bought in good.
Number five.
Okay did not own lake Elk Hot in Wisconsin.
Oh, it's tough for the thought is a long time, you sort of Infogenesis, Pos and expanded that investment in agilysys during the quarter by implementing on demand and the eatec inventory and procurement solution for that hotel operations.
Number six.
Hard rock hotel and casino located at Lake Tahoe, Nevada, situated in the heart of the Theater Mountains selected Angeles's eatec to manage that food and beverage retail and hotel inventory needs.
Number seven I, just did a deal valley and solitude with thoughts started that partnership with Agilysys selecting infogenesis, Pos and Ivy flex tablets for their food and beverage servicing needs and are continuing to evaluate on demand and a few of our other solutions.
Number eight lost.
Last but not the least and probably the coolest stuff the model for sports lover like me.
Our new cloud native golf more do you.
But installed in this particular site as an on Prem solution based on customer preference was recently installed in one of the most bullish tedious golf courses in the U.S. Unfortunately, we don't have that information yet to shave the name of the golf course.
During Q2, we signed sales agreements, which added 10 new customers.
55, new properties, which did not have any of our products before but the parent company was already out of customer.
And then 72 instances of filling at least one additional product to sites, which already had one not a model for other products.
Now with respect to revenue guidance.
The hospitality industry remains very challenged though various pockets of the industry up showing good signs of close to complete recovery.
We expect the Enlightenment, though to remain tough during at least the next few quarters.
This october to December quarter, being particularly shaky and uncertain.
Well given the tough circumstances, we expect only a modest 5% sequential revenue increase during Q3.
Well what are the 34.4 million revenue level achieved during Q2.
We will continue providing sequential quarterly guidance for the remainder of this fiscal year.
No it's cutting profitability levels achieved during the quarter.
Adjusted EBITDA for Q2 fiscal two ready to anyone was 8.6 million.
Significantly higher than our original expectations and more than twice as high as our previous best adjusted EBITDA quarter, which was just a couple of quarters ago.
This was also our first positive GAAP EPS and the highest adjusted EPS quarter. Since he became an entirely osprey Talenti software solutions focused business unit about seven years ago.
Profitability levels this quarter van partially aided by the salary reductions and other cost saving initiatives that were implemented during the six month period between April and September to help manage through this pandemic face.
However, even without such one time cost reductions in place.
Q2 profitability would have been far higher than previous best levels.
This quarter is a solid indication that we are well and truly turning the corner.
With respect to being a profitable financially healthy enterprise software company with high operational efficiency.
This quarter is by no means a flash in the plan.
With respect to profitability.
The main highlight of this profitability level as it.
It was achieved while simultaneously increasing our product innovation momentum and also fully maintaining world class customer service levels via.
We did not compromise on those crucial element is in any way shape or form.
R&D strength has actually increased by about 55 zito by about 50 the sources since the onset of the pandemic about seven or eight months ago.
Product innovation remains our main ticket to greatness and B, how about a foot firmly on that gas pedal regardless of the external circumstances.
We continue to make terrific progress without efforts to modernize all lot of course solutions.
It would be fair to say if you had asked about the seventh inning of that effort.
While also simultaneously, adding several new cloud native on but I'm capable additional software applications, which had a high in the list of current industry needs.
At this stage I would say would be at about three quarters away from having a complete.
It complete slate of end to end modern technology.
Based cloud native SAS applications for the hospitality industry.
They didn't weaken legitimately claim to have the best and.
End to end feature sets.
And the best technology across all the hospitality needs.
S.P.M.S. inventory procurement document management and everything in between.
The fact, we have been able to achieve this level of profitability in such an all blown challenging environment should be taken as a solid indicator of the future earnings potential of this business.
During the past few years, we've been making good strides in making our operations, especially I didn't be more efficient and cost effective and this pandemic has only sped up that process, but.
We think R&D product development costs as a percentage of revenue is close to its peak levels now.
We will continue our R&D hiding put a couple of more quarters, and we expect incentive compensation accruals to return to normal target levels next fiscal year.
Beyond that for the most spot we expect good operating leverage with respect to stable R&D costs for the next say about hundred million of annual revenue business expansion.
On the other hand.
Sales and marketing costs as a percentage of revenue is at its lowest point no.
Sales and marketing cost decreased significantly this quarter due to onetime salary reductions.
Got a permanent cost reductions to adjust to the current business climate increased sales, but also the efficiencies created by the pandemic, but less travel and our ability to conduct a lot more business virtually and a lot more efficiently less.
Let's spend on clay chosen advertising less commissions and other DECT expenses due to decreased sales levels.
These past eight months or so have created an environment, which can be managed well during the shot them, but less sales and marketing spend what are the same as not being true for R&D product development costs.
In about two to four quarters from now.
We expect R&D spend to reach a strong peak level.
Which will then remain steady.
And our focus will then be on ramping up the sales and marketing engine.
The increase in sales and marketing whatever happened earlier under normal circumstances, but the pandemic has delivered by a few quarters.
Please be assured that we have not sacrificing any revenue growth possibilities due to the reduced sales and marketing spend levels.
Currently there is no doubt in our mind that our revenue growth prospects during the sharp thumb identically tied to our products, reaching world class levels.
We have made tremendous progress in that regard as you can see by any ability to successfully worked through this calendar 2020 industry downturn.
The sales and marketing focus growth phase is not too far away.
Why do we expect revenue during the October to December quarter to be sequentially about 5% higher than Q2.
We do expect adjusted EBITDA to decrease to about $7 million during Q3 from 8.6 million in Q2.
This 1.6 million decrease will be due to the reversal stopping October of virtually all salary reductions, which we had in place between April and September.
Continued R&D hiring.
A few Q3 specific cost items like third party fees and expenses.
Relative to a couple of virtual trade shows we are participating in this month.
With respect to the adjusted EBIT dollar revenue percentage.
Q2 quarter was particularly high also due to favorable product mix, meaning while the higher margin recurring revenue increased the.
The relatively lower margin product and services revenue, but it affected by business conditions.
In the future, we think it would be fair to expect the EBITDA percentage to be in the high teens, 15% or above on.
On a consistent basis for the foreseeable future.
With that let me handle what are the call to Dave for further color on our financials and other business details and I will then be back for a few closing remarks before opening up the call for questions.
Dave.
Thank you a message to echo rushes comment although the impact of the COVID-19 pandemic continues to affect our customers and therefore slow down or short term progress. We're pleased with the profitability levels, we have been able to achieve through one of the most challenging times for the hospitality industry.
Our balance sheet remains strong and should continue to meet the liquidity demands needed to invest in our products and other strategic initiatives as we manage through the current challenges.
Taking a look at our financial results beginning with our income statement second quarter fiscal 2021 revenue was 34.4 million a 15.3% sequential increase over the fiscal first quarter of 2021 with all three product lines increasing sequentially over the prior.
At quarter.
Our second fiscal quarter represented a 35% increase in professional services and a 25.2% increase in product revenue as well as an 8.8% increase in recurring revenue over the fiscal first quarter of 2021. So.
Second quarter fiscal 2021 revenue was a 15.6% year over year decrease from total net revenue of 40.7 million in the comparable prior year period with recurring revenue being the only increase at 9.7%.
Total recurring revenue represented 64.9% of.
Total net revenue for the fiscal second quarter compared to 49.9% of total net revenue in the comparable prior year period.
Recurring revenue of 22.3 million is back to record levels and 2 million higher than the prior year.
We're also pleased with our subscription revenue growth, which grew year over year, 23.9%.
During the second quarter of fiscal 2021 back to record levels of 9.1 million.
Subscription revenue comprised around 41% of total recurring revenues compared to 36% of total recurring revenues in the second quarter of fiscal 2020.
I don't software modules, the build out our product ecosystem beyond the core Pos pms and inventory procurement offerings.
Or adding scale quickly with roughly 34% of sales due in value terms during the second quarter containing at least one of these products compared to 13% in the same period last year.
These products by themselves have added over $1.3 million and subscription A.R.R. during each of the last two quarters.
We also continue to service about 272000 rooms, and have approximately 66000 terminal endpoints.
As for product and services revenue. We currently have a backlog of hardware software and services that remain at healthy levels as operations continue to improve and returned to normal. We will continue that continues the deployment of that backlog.
Sales improved 30% sequentially over the prior quarter and remain in the 60% to 70% range year over year.
Given the uncertainty hospitality operators continue to face it is difficult to predict when sales were returned to normal booking levels.
Moving down the income statement gross profit was 23.2 million compared to $20.2 million in the second quarter of fiscal 2020 gross profit margin increased to 67.4% compared to 49.6% in the prior year period. This gross profit increase despite a 6.5.
$4 million decrease in revenue was primarily due to a couple of factors.
Recurring revenue was a larger portion of total revenue and unlike the second fiscal 2021 quarter. This quarter was not impacted by roughly 3.1 million in capitalized software amortization costs.
Product mix shift to higher margin recurring revenue offset a read deduction in revenue and third party products and professional services.
Looking at operating expense.
Excluding charges for legal settlements impairment in restructuring severance and other charges. The second quarter saw a slight sequential decrease over Q1 fiscal 2021 comes.
Compared to the prior year period operating expenses, sorry, 26% decrease to 17 million from 23 million. This.
This year over year decrease in operating expense was due to lesser incentive compensation temporarily reduced salaries and other more permanent cost saving initiatives.
Product development sales and marketing and general and administrative expenses were 46.1% of revenue this quarter compared to 53.3% of revenue during Q2 of fiscal 2020.
Our net income of $5.9 million.
And income per diluted share of 22 cents.
Our significant improvement to the prior year second quarter losses of 2.9 million and 13 cents.
Adjusted net income and adjusted diluted earnings per share Moshe show significant improvement over the prior year second quarter. Adjusted net income of 6.8 million compares favorably to 1 million in the prior year second quarter and adjusted diluted earnings per share of 29 cents compares favorably to FFO.
Four cents in the prior year second quarter, when normalizing for certain noncash and nonrecurring charges.
For the 2021 second quarter, adjusted EBITDA was $8.6 million compared to $3 million in the year ago quarter.
Even though we had the benefit of some temporary cost reductions in our second fiscal quarter. The adjusted EBITDA represents the overall health of the business and available cost styles for sustainable long term profitability.
Moving to the balance sheet and cash flow statement cash and marketable securities improved 11.1 million in the second fiscal quarter of 2021 cash collections has consistently been a highlight of our business in a tough environment.
On an absolute dollar basis, we have accumulated 92% of the cash collections for the same period of fiscal 20 on a much lower revenue base. We continue to be pleased with our ability to manage our liquidity as we navigate these challenging times.
Cash and marketable securities as of September Thirtyth, 2020 was $85.7 million compared to 46.7 million on March 30, Onest 2020.
Free cash flow in the quarter with positive 11.3, compared to 1.8 million in the prior year quarter.
As Ramesh mentioned, we expect revenue to increase 5% sequentially and our third fiscal quarter of 2021 compared to the second quarter of 2021, with a corresponding $7 million and adjusted EBITDA as certain onetime cost reductions come back into the business.
With that I'd now like to turn the call back over to rematch.
Thank you Dave.
In summary, we had all happy with how we have navigated through the past two quarters quite possibly the toughest two quarters, we've ever faced being a business unit focused entirely on the hospitality industry to start with we have secured the future of out of business and out of well prepared to face.
Even the unlikely scenario of the cut in crisis Lacing, a few quarters beyond what we currently expect to last.
Excluding the 34 million convertible investment from my capital net of fees.
Excluding that 34 million gain we've added 5 million two out of cash balances during the first two quarters of this fiscal years.
Which is the highest addition to out of cash balance during the first two quarters of fiscal years since it became the company be out today about seven years ago.
In addition, we have worked our way through the past six to eight months without in any way sacrificing or delaying our medium term and long term growth prospects.
If anything we have increased R&D and product innovation pace and strength during this time.
And World Class customer service remains our primary goal regardless of what challenges we face.
We have also successfully turned the corner with respect to profitability and have demonstrated the future earnings potential of this business that we had in <unk>.
Why is this quarter it was a particularly high profitability mox getting the shot them. We do expect to maintain that on a 15, one 515% plus adjusted EBITDA to revenue ratio. During the next few quarters and then improve on it in the future.
I would be look ahead for the next year.
We are cautiously optimistic that the second half of calendar Twentytwenty one quick.
Could be a culmination of a second positive stuff all lining up well for us.
It is possible that around the middle of calendar 2021.
This during our fiscal year Twentytwenty two.
We could be the beneficiary of the following.
One.
Corporate Arctic modernization efforts would have reached the point, we have been building towards the during the past few years.
They're not entitled product set is based on modern technology adaptable to both cloud and on Prem implementations.
Two.
Close to pose in person R&D team by then almost entirely freed up from such modernization efforts to move the product innovation ball forward had an even more rapid base, making us the clear cut industry leaders in providing hospitality customers the technology they need across the entire.
I had a guess journey from the booking website all the way till the guess leaves the hotel and even beyond that with loyalty and promotion tools.
Tweet.
Based on what we are hearing at least a portion of the smaller and medium sized competitors could be weekend as a result of this downturn and unable to compete as effectively as before.
For a number of such companies, possibly becoming available for acquisition opportunities, which I couldn't live in the shot them to drive good inorganic growth. In addition to the organic growth. We are currently building towards.
Five.
Oh, the coding hospitality industry with significant pent up demand for technology solutions.
We remain confident that the hospitality industry, even adapt and evolve like it has off the crisis situations in the past.
The next stage of this evolution is most likely going to involve high investments and energy devoted to guests come from self service other guest centric solutions the ability to design promotions and loyalty systems built around management of common guest profiles across a baby is that many of these and a fee.
Far more integrated and a higher level of technology adoption.
We are building towards being the lead providers have such a well integrated end to end solutions, all built cloud native and build flexible enough to also be implemented on premise based on customer preference.
On the other side of each crisis, there are always new possibilities and we are beginning to see many such opportunities on the horizon, though.
Last and certainly not the least a more aggressive and expansive sales business development and marketing effort on our part.
Now on behalf of our board and management team and myself I want to express my heartfelt and sincere gratitude to out of more than 2200 employees for all their personal and professional sacrifices. They have made this calendar year to enable our increased momentum.
And also for acting responsibility.
Fonts sibley to ensure their own personal safety and well being of all their loved ones and their colleagues.
Each of them has being a shining stars, helping us through the safe and ensuring an awesome future for agilysys.
We had also deeply grateful to all our customers and other partners for all that business partnership support and guidance.
With that two Enda please open it up for questions.
Thank you, ladies and gentlemen to ask the question you will need to press Star then one on your telephone to.
To withdraw your question press the pound key.
Next I want to ask the question.
Our first question comes from the line of Matt PD.
Your line is open.
Alright, great. Thanks for taking my question, so clearing and congratulations on getting the bottle back.
The to the direction of growth and good to see that the outlook is are we starting to get a incrementally better and then the outlook for late next year seems pretty positive.
Yes, as you think about that ability to get growth back on the right track.
And thing about dog food sort of broader product portfolio here.
If you were to kind of break down where are you seeing the most success over the last six months and where the pipeline looks for maybe the next six to 12 months between existing customers expanding your technology to new properties or new use cases.
Expansion at existing properties of a more modules, especially some of the newer you know our guest and contactless enablement and then third bucket kind of being net new customers, where where spend the most success or where do you expect the most moving forward.
Yeah, Hi, Matt Thank you for joining the call.
So in terms of what value we have seen the most success during the last.
Six months hasn't been in selling.
Mortified I additional modules to our current customers not that does in fact increased compared to say last calendar year last fiscal year.
So when you look at the number of instances, where we have sold an additional product to a site, which already had one automotive products before.
That number that we reported a 72 for this quarter he.
He is actually higher than the last fiscal year average and in Q1 and it was actually even higher so that is the AIDEA van we have seen actually increased success in spite of the pandemic issues, which is quite remarkable if you think about it.
Well it does actually suffered a lot where did this decline is being in new sites. So one of our major growth drivers in the past has been when a major customer might have been a big corporations signs up with us they tend to like us they tend to like that predicts the robustness of the stability the pace at which we had improving and they tend to.
Take us to a newer sites, but that has definitely slowed down during the pandemic and it slowed down significantly in fact, most of a lot of sales losses has been in that area.
But when you look at new customers, who have signed up with us and like I told you about 10 customers that compares reasonably favorably I mean these compares reasonably with the lost here, where the average was about 14, but a quarter now.
It's about 10, new customers, but quad.
So the number of new customers, it's sort of keeping up the way. It is a little decline new product sales to new customers as dramatically increased but the new sites off a big Corporation already signed up with US has has slowed up quite a lot. So that has been the somebody over the last six months.
In terms of baby out its going right out of core products that are getting a lot better they're getting a lot more compelling in fact ive stayed BMS is no phone phone, possibly the best Vms product out there and it is a cloud native product as well, but unfortunately, just when it reached that stage has been the pandemic hit and that I'm going to be a mystery. Please.
Men's and all that have gone down a.
Our customers are not considering that now, but I think next year to answer your question a lot of the growth driver is going to come from the P.M.S. side of the equation as well.
Now for all our core products.
The fact, we have no end to end from the beginning of the website till all the wave and a customer leaves and even beyond with promotions and loyalty not that the setting us up well not to be the best end to end provider that has a lot of small and medium company does I think have been hurt by the spend to make at least partially.
Why not a bigger company if those are not focusing on end to end solutions. They are creating solutions, which can attach to other products and so out of me odd projects also have flexibility Npis and you cannot that's too but we are also providing the end to end solutions. So we have the possibility then to expand into.
Hospitality, especially CRM.
V can create artificial intelligence based solutions that make it easier for you to cater to a customer and actually predicted guess needs. So all those possibilities and open up for us in the next say 12 to 24 months, Matt Saudi long on for them.
No worries. Thank you that was very helpful to a long question often it's a long answer so oh understood there and I guess, maybe I'm thinking about that just maybe one level more or.
Maybe continuing to highlight a few of the portions of the market, where you see the most strength maybe end of the calendar year and into early next year. You know is it still sort of the regional gaming and regional resorts, where people are tending to help in their car and drive to are you starting to have more conversations with some.
Of these destination type places.
With with sort of the hopes that maybe early next year traffic will continue to grow I'm, just kind of what you're seeing from from that basis of it.
Yeah, Matt so as far as that is concerned not an additive has improved slightly.
But does not change substantially from out of conversation in the last earnings call about three months ago up a lot of that momentum is still based on that even though the thoughts on the regional casinos that is where the momentum is coming from better people not able to drive too.
In order to take a break so that is bad it's still a lot. The bulk of five sales is coming from that.
The definition to thoughts have improved but not quite that much yet there is still a lot of uncertainty around that.
Of course 80 S. Like crew ships are still struggling because the sailing has not yet started now via a very confident of the long term growth possibilities.
Thought products for cruise ships and areas like that but shocked them. He does not improve that much in the last three months and what sort of food service providers business has also been affected because a lot of the work place they have still not come back to work and therefore those gifted he has it all still struggling. So then that it does not change.
Substantially Matt, though it does improve slightly it gives the way I would phrase it long term we are confident of all those 80, s. coming back and there's going to be a lot of pent up demand that is going to drive them on but in the short term than additive it's not changed much in the last three months. Unfortunately, you met that is the truth.
All right great. Thank you for taking my questions. Thank.
Thanks, Matt Thank you thank.
Thank you.
Our next question comes from the line of George Sutton with Craig Hallum. Your line is open.
Thank you rematch I assume you drafted your earnings call comments for today and actually today. We were involved in two conferences that you were fairly active in it and it's certainly a key sponsor of hi Tech in Gtwoe we.
And you were doing some product demos, which were frankly pretty impressive I'm. Just curious if you can give us any updated thoughts from these two conferences that you participated in today in terms of what you're seeing in terms of customer interest.
Not get to judge right. Unfortunately, I'm I'm not yet prepared to address that because as of today. Unfortunately I've been quite focused on his earnings call in preparing for it. So I don't have a complete up to date, Oh well update for you. However, one comment I will make jobs is that as it related to that.
Going into the shows Hi Tech and GE to eat out there both virtual shows the.
The confidence level, if our sales team out of sales engineering team at odd Indian services team that are participating has never been higher the problem with which they are going in.
And also a lot of them won't capability has improved dramatically because now we do integrates a demo snowy does no longer product by product.
We have an integrated demo environment made to be able to show customers. The power of connecting the whole thing together and what that can lead to for example, I'll give you. One example jobs one of the things that we are Demoing now that this that has a lot of promise for us I don't like to use the word game changer for us, but this comes close to that.
As a single profile management off.
A common profile across all the M&A piece that you have and also the management of a single entity not to think like nutty.
No. It is a is a kind of a second to the fact that the fact that.
Every person working another sought will have access to your right and so if you're in a spa and do you have a golf appointment coming up that spot person will know that you're getting laid for the golf appointment and every person in that was thought we'll know what your mix activities, but what is more important than that is the single biggest profile.
But when you go to the booking engine now you can make all your bookings together for the room for the golf.
For your D. time for your spot appointment for your restaurant Reservation, you can do all of that in one spot from the booking engine and also currently the data is all spread out if you go spend money in the casino floor. If you go spend it in the hotel room. If you go spend it in the restaurant and radius. If any places he does not dispatched it systems, even if that entity.
Weighted Soviet introducing a single profile by which you will be able to understand the guest and cater to the guest offences understanding that guest as one guest jarred.
And also you can jog has one guest.
You can create promotions and loyalties related or.
Activities I, just think you as a guest like if you have not allergy immediately all the other restaurants will know and they can actually created a dynamic menu do you have needs Soviet introducing all of that and we're doing it in the high Tech G.. We show is now and all that holds a lot of promise for us jobs six months 12 months from now.
And along with the hospitality industry coming up next year. All this was going to put us in a very good position.
Oh, we did see that demo today that was very impressive I do look forward to a near term visit to a resort with a golf itineraries spot treatment and stake rest.
Restaurant, a reservation, so hopefully near term and you also mentioned small challenged competitors that could make up potential M&A going forward.
Could you give us a little bit of a picture of what you're seeing from that universe of opportunities are you looking at technology.
Add ons are you looking at it the logo opportunities are just tuck ins.
Oh, so the calls to us from bankers and others have increased dramatically during the last three months or so and they're all telling us it's going to further increase starting early calendar actually Unfortunately, we you know we don't feel good about it but unfortunately, many if not be older than competitors have been.
You know quite badly affected by the pandemic. So that is opening up opportunities and we have looked at a few of them, though we stay quite disciplined in our.
Atlanta, because I'd build costs are quite low not like I've told you jobs before I buy.
By decisions, we'll remain disciplined because our build cost as both low and the pace of innovation is quite high but having said all that to answer your question.
The opportunities were looking at a number one is a market share increase so.
So now that I've put Arctic southern Martin and all the products will be liked by customers, we could acquire that like for like product vendor and then do a roll up to a lot of product. So there could be a lot of cost synergy opportunities. There and then with those customers. If you have more products to sell now so they could be revenue synergy opportunities as well so be it.
Quickly done those companies that could it too given that we know no via become better at how to do a cost effective and indeed, some market share increase opportunities out there number one number.
Number two.
For Arctic Slash technology opportunities at all so they had to fill up what we are doing now for example between out of P. M. S and the OTI is on the website that is a space in between their video management and 80 EPS like that we have that opportunity is coming up which could really strengthen our P.M. as offering.
So that would be an addition, and extension to what we're doing today that is possible technology.
Technology possibilities are also dead right. So these are all cropping up now and we have just taking a careful look at each of them now as far as what we have looking at any one of those that fit us well that come at a reasonable price could add value to what we are doing and I bought a young from now let's see out impossibility may.
Maybe getting into radios of artificial intelligence and all that we have a lot of common guess they'd have to deal with all those opportunities also open up about 12 months from now.
Super just a one other question you mentioned that Youre sale of newer customers has slowed and I'm. Just curious if you could put that into context of what you're seeing in the industry I assume that is not a market share loss scenario, that's just simply.
He's a market dynamic.
That is the reality, we're living through right now.
Yes, Josh started though it's the latter it's it's basically postponed technology investment decisions.
It basically comes down to the fact that when do you go talk to a customer to say last year, they really like that that action in which we are going and most of these customers tend to look at your pace of improvement in the window that they had with the patent and the other with is not improving the products much. It is a mandated for many years. We like you would implement we want to partner with you. However sought.
We'll get back to you when the potus opens up and when we can get that acquired Appfluent. So most of it falls in the category off.
Postponed to technology investments, that's where there's no market share loss or anything like that.
You did just that decisions customers come I mean for us it is frustrating, but we do understand the situation. They then become close to it as it should and then they both wanted by weeks and months.
Have I can off the top of my head think about five such a manager positions, which we have come close to what has been postponed we've not lost them, but they have an all crop up in the next tier ones that is a little bit of certainty about being flat.
How about where we are going towards.
Perfect. Thank you very much.
Thank you Josh.
Thank you.
Our next question comes from the line of Me Hall Chelsea.
In capital markets.
Your line is open.
Yep. Thank you.
So your subscription revenue was up a one and a half million QQ, 90% sure would you based on my calculations on the slow season, you guys provided.
Which you know is quite impressive given the environment.
And Dave you gave that a much earlier, that's a that.
Add on software modules are adding scale quickly and you had 1.3 million, Hey, art and each of the past two quarters here. So is it fair to say that.
Subscription revenue Q2 uptick is Ashley.
All new subscription there are or is there a significant coming back from a rollback of the subscription price relief granted during the June quarter.
Yes, so most of the subscription growth from Q1 fiscal 21 to 22 was the Cobot relief program. There was obviously a portion that is also organic growth, but the majority of that was just flushing through some of the covenant relief and the comment around $1.3 million per quarter was.
It wasn't a revenue comment it was the sales bookings comment and the way you could take that as were adding about $1.3 million and or more and they are a quarter with these new products. So six months into the year were $2.6 million, we have $2.6 million more in subscription backlog related to these new products, which virtually weren't there.
The prior year.
But most of these are still going through the process of going live and haven't started to contribute to revenue yes.
I see okay got it.
And then regarding the 5% overall revenue guidance growth can you give some since as far as how you expect the subscription portion to share in the September quarter and.
Additionally, you details on how much more roll back is there to go here in terms of the press release.
So most of that flushed through in Q1, I mean, there was a little like we said on the last call. There was a little bit of a tail just from GAAP accounting amortizing, but you'll see subscription revenue growth kind of go back into the the normal ranges that that we were pre pre cove. It so getting back to the kind of the 20% plus.
Year over year subscription growth.
Okay and my final question is that.
For new parts I think you guys said the HCV sales were up 5% year over year can.
Can you give us a sense of so what percent do new parts for <unk> HPV sales now.
So new products.
New products are coming in a little a little north of 10% of total booking but.
But kind of the key the key factor there is.
Last year, only about 13% of our deals contained one of these new products to the last two quarters, it's been north of 31%. It was 34% of all deals is it.
Things one of these products so we're seeing a.
Uptake in our and our price per endpoint on a deal by deal basis.
Okay, great. Thank you and congratulations on up.
Strong some some quarter and great bottom line results in great cash flow generation.
Thank you thank.
Thank you and Uh huh.
Thank you.
Our next question comes from the line of Allen Klee with National Security. Your line is open.
Hi can you talk about what activities you've been involved in internationally to try to to grow there is as that at least with casinos that that seems to be where more strength is today. Thank you.
Yes, Hi, Alan.
Then you're talking about international markets out of strength in international markets at least so far it is not in the casino part of it is mostly in the <unk>.
It's not even in food service providers, it's mostly with the hits out to sea hotel to thoughts.
As we had most of our strength as an international areas and Oh I've International we have not seen a pickup in sales as yet but we.
We did sign a very up a significant seven figure bookings deal in the APAC region that I, hopefully, we should be able to announce that soon but that wasn't a major win for us in the APAC region on what drove that is the fact that we have modernizing our Pos if we had not made the kind of progress we have made with more tonight.
Got a few it solutions that deal would not have been a reality for us. So the international customers. They are beginning to have done that a head towards us now because of how to flagship infogenesis product is getting modernized snow no outside of EMEA is concerned via have been a sitting with at least three major.
Deals in EMEA, which has been postponed now by a few months because the customers have been hesitant to pull the trigger so international markets is mostly based on hotel to thoughts. They are taking oh that the sales activity is gone up the demos have gone up but the decisions are still getting delayed that Alan just.
Like in the U.S.
Okay. My last question is if.
If we look at segment margins and we looked at the product segment in professional services segment. We saw improvement in those segment margins and can you talk about what was behind those improvements.
Yes, so the most of the product improvement was because there was a larger percentage of software sales. So we've kind of over the last couple of years, we've seen our third party products start to make up about 75% of our product sales were sort of third party products, they down a little bit but our.
Proprietary software sales started to return to the near prior year number.
Numbers. So they were only down about 10%. So the mix shift in there has a lot to do with it with more proprietary software compared to third party product.
And then on the professional services.
Our margins are.
A little bit inflated this quarter due to some one time.
The relief that we got from the payroll and then there is also some of the temporary Lisa temporary salary reductions we've talked about but the way to think about professional services. One once these runs through and we get back to the normal state starting October onest will be in that kind of 25% to 30% range like we used to see.
Thank you very much.
Thank you Alan Thanks, Thank you.
I'm showing no further questions I would now like to turn the call back over to Ms. for closing remarks.
Thank you two anda thanks.
Thank you all for your time today and for all your support and guidance look forward to talking to you again in about three months from now in the Meanwhile, Please take care and stay safe. This is wishing all of you a happy and healthy holiday season May Twentytwenty, one make you forget 2020 quickly talk to you in the new year. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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