Q3 2022 Agilysys Inc Earnings Call
Ladies and gentlemen, please standby your.
Juices fiscal 2022 third quarter conference call will begin momentarily.
Two minutes. Thank you for your patience and please standby.
[music].
Yeah.
Good day, ladies and gentlemen, and welcome to the Agilis is fiscal 2022 third quarter Conference call. As a reminder, today's conference may be recorded I would now like to turn the conference over to Jessica Hennessy Senior director of corporate strategy and Investor Relations at agility you may begin.
Thank you Josh and good afternoon, everybody. Thank you for joining via Jealousness fiscal 2022 third 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.
Statements made on today's call will be predictive and are intended to be made as forward looking within the safe Harbor protections of the private Securities Litigation Reform Act of 1995, including statements regarding our financial guidance. 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 vary materially from these forward. Looking statements include the continued effects of the COVID-19 pandemic on our business.
<unk> supply chain challenges 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.
I'd also like to note that any references to record financial and business levels. During this call.
Only to the time period. After a jealous is made the transformation to an entirely hospitality focused software solutions company in fiscal year 2014 with that I'd now like to turn the call over to Mr. Ramesh Srinivasan, President and CEO and Fragilocyte Ramesh. Please go ahead.
Thank you Jess good evening welcome to our fiscal 2022 third quarter earnings call.
Joining just send me on the call today is Dave Wood.
Oh.
You play let to summarize the quarter the subs and the current state of our business progress in one sentence.
I would call it a roller coaster the comedy delayed by a quarter or two.
This feels like we got caught in a pandemic induced storm can see bright sunshine and glorious days at the mixed tone on the road, but the path to get there has to be travelers on a roller coaster.
Months during the recovery period have seen how your sales success and great business progress and then.
Some months seem to get overtaken by tough news headlines infection spikes heavy travel restrictions, especially across international borders Covid testing requirements back to increased work from home policies and staff shortages at customer sites.
The answer to the question.
We made significant progress across calendar years, 'twenty, 'twenty and 2021 would be definitely yes.
But how's the progress been smooth consistent and predictable the answer would be no.
Thanks to the successful product modernization and innovation efforts over the past few years, we continue to operate at record highs in the gaming and destination resort market areas, which also happened to be the dominant areas of out of business constituting more than 70% seven zero more than <unk>.
7% of our overall sales and revenue levels.
However, medium to high business environment challenges remain in Asia, Europe manage food services cruise ships and hotel chains.
Despite all these hospitality industry challenges.
Broad extent continues to drive consistently good progress in subscription recurring revenue.
One time product and services revenue the Cody has been delayed by a quarter or two due to postponed projects.
More than 90% that is nine zero more than 90% of our new customers and new sites this fiscal year.
Have preferred cloud SaaS solutions, leading to a reduction in perpetual license sales.
Being one time software product revenue.
So all of that.
The basics like free cash flow continued to be healthy.
Good lives.
No that would be the short summary.
Let me elaborate on the details of it.
Let me cover sales first before moving to revenue.
All sales numbers for the first two here at <unk>.
Asia in annual contract value of tasks.
Our sales success Toady has it remained consistent during the first three quarters of fiscal 2022.
Driven by the distinct competitive advantage products currently give us and strong demand.
The first three quarters of fiscal 2022 have been odd best period of sales success in gaming and destination resorts in the U S by a fair distance.
An integrated into in cloud native ecosystem of hospitality software solutions.
Beachhead hospitality operators adapt quickly to evolving guest preferences.
Generally it additional revenue reduced labor requirements and increased operational efficiency continued to drive demand in market verticals, where businesses are enjoying good success via.
We are fortunate that our two strongest areas gaming and resource.
<unk> also been the two markets, which have recovered the best so far.
On the other hand.
We've seen only a partial recovery in hotel change.
The hotel is not yet at pre pandemic levels wildly.
While the soft focus full service hotels are trading better.
And a similar partial recovery in the cruise ship market.
Managed services managed services and international regions.
It means significantly affected by all the up and down uncertainties. The pandemic continues to cause.
Sales year to date this fiscal year.
In managed foodservice manage food services has been at only around 66 zero, 60% of pre pandemic levels.
While the business and industry be a night subset of managed services continues to struggle due to extended work from home policies across many large and small corporations.
The higher education and health care portions of this vertically.
Continue to have high demand for omni channel point of sale software solutions.
Our ability to enable staff facing terminal functions guests.
Guest facing features through the bike kiosks.
And guess driven remote auditing through on demand.
And support for all types of payments, including room charging use of loyalty points.
The only the only order and pay in both food and fast casual service.
All of this in one integrated platform for all types of use cases.
A growing competitive advantage for us in this vertical.
With respect to international regions.
Our sales levels in APAC. This fiscal years have been at only around 44 zero only at around 40% of pre pandemic levels.
International travel restrictions continue to have a cvs detrimental effect on the hospitality industry across APAC countries.
However, overall sales across India.
Better and are currently operating at pre pandemic levels.
With respect to subscriptions recurring fee based software sales.
With one quarter still left to go.
Fiscal 2022 is already our best year ever in EMEA.
Which is a strong indicator of our increasing presence as a software solutions provider in the region.
Despite all these various remaining short term business environment challenges.
Overall global sales levels across all verticals during the first three quarters of fiscal 2022.
More than 90% nine zero more than 90% of the levels seen during the pre pandemic fiscal 2022 years ago.
But three months still left to go in the fiscal year.
As of the end of December .
This is already a best T O b.
Respected global sales pertaining to subscription recurring fees.
So that fact deserves to be the pizza.
Thanks to the current availability with us of modern SaaS software solutions.
Across the entire band the hospitality industry needs.
Despite all the challenges in multiple market verticals.
We have sold more subscription based recurring fees in.
In annual contract value Toms.
In just three quarters of this fiscal year.
Any other.
Previous full fiscal year.
That is terrific progress in our business that we have worked hard to achieve during the past few years.
Why is that is a clear shift towards cloud SaaS products among new customers are.
Modernization efforts have given us the flexibility.
To offer the same cloud native solutions.
On premise perpetual license model as well off the same code base.
Without having to create different products and software modules for that purpose.
We are happy to have had the luxury of designing these new software modules and modernizing the core platforms with that flexibility in mind, giving us the ability to support both forms of implementation.
Any additional R&D costs.
<unk> in development.
Total sales of property management systems, Pms products and related additional modules during the first three quarters of fiscal 2022.
<unk> already surpassed sales levels during all of pre pandemic fiscal 2020.
Okay.
With respect to signed sales agreements during Q3 October to December .
We added 11, new customers with four of them, including SaaS based core Pms products in their list of products chosen.
62, new properties, which did not have any of our products before but the parent company was already out of customer.
Database 87 instances.
Selling at least one additional product to properties, which already had one of our other problems.
Once again more than 99 zero more than 90% of the 11, new customers and 62, new properties added during the quarter.
EBIT, partially or fully subscription fee license based.
While the number of new customers signed during the quarter was below expectations. The overall sales from new customers in annual contract value Toms once again, hi, thanks to higher average deal sizes.
New customers buying multiple SaaS based software products and modules have become the new norm for us.
Overall, new customer sales measured in annual contract value comes during the first three quarters of this fiscal year is the highest levels we've seen in five years.
The first three quarters of fiscal 2022 have also been odd best errors in annual contract value of sales of additional products to current sites, what we normally refer to as new product sales.
All of that has been driven by the R&D investments over the past few years and our continuing relentless product innovation right.
Some of the new customers, who signed with us during the quarter include the hideout with salt in Texas.
But just modernized V. One P M S.
And for Genesis P O S hog.
Book Derrick channel booking engine.
E Tic inventory management and Rguest seat for managing reservations.
The breakout is in new Jersey, who purchase tape Vms and info Genesis.
As part of managing that boutique Beach hotel and wedding venue.
And the Lake House in New York on the shore of the Canandaigua League purchase info Genesis.
And the pay module to manage that F&B means.
Now onto revenue.
But they didn't know narrative falls into two distinct categories, one recurring revenue, including subscription revenue.
Two one time revenue consisting of hardware, one time perpetual license software and services.
Subscription revenue continues to drive our overall recurring revenue to March forward at record levels.
Given excellent customer retention levels and continuing good progress with adding new customers new sites with current customers and selling more new products to current customer sites that.
It should come as no surprise.
The subscription revenue backlog continues to also build to record levels due to project delays.
We expect the current momentum in the most crucial portion of the part of business subscription recurring revenue to accelerate further when the business environment improves across all the hospitality market verticals. We currently operate in.
Overall recurring revenue was $25 $1 million of this quarter.
Getting us to the $100 million totaled eight out of exit run rate level for the first time in our history.
Of this 11 7 million consisted of subscription revenue a bit more than 46% of overall recurring revenue.
Each quarter of fiscal 2022 has been a record for subscription revenue.
But this quarter growing by 25% compared to Q3 of last fiscal year.
And by 48% compared to Q3 of fiscal 2022 years ago before the pandemic.
Overall total recurring revenue was 5% sequentially higher than Q2.
10% higher than Q3 last fiscal year, and 20% higher than Q3 of <unk>.
2022 years ago.
Fiscal 2022 third quarter overall revenue was $39 $5 million, our highest level since the start of the pandemic nearly two years ago, but still below expectations and at the low end of revenue guidance.
Q3 revenue was 4% sequentially higher than Q2.
8% higher than the comparable quarter last fiscal year.
And 6% lower than Q3 from fiscal 2022 years ago, which was up last full quarter of not affected by the pandemic and at 42 million was a record for quarterly revenue.
The main challenges during this quarter, we had with one time revenue.
Apart from possible exceptionally large on premise software customer purchases, which would happen from time to time in the future.
We expect one time software revenue to remain at current levels.
I had some more new customers and new properties.
Subscription fee based options.
Hardware revenue increased sequentially from Q2 as the supply chain situation improved but was still below our expectations going into the quarter.
Overall hardware and software product revenue taken together.
<unk> 8.1 million.
It was 11% sequentially higher than Q2.
7% higher than Q3 last fiscal years, and 33% below Q3 of fiscal 2020.
We expect hardware shipments and related revenue to return to normal levels during Q4.
So this is revenue continues to be challenged by project billings.
Q3 services revenue was $6 2 million, 5% sequentially lower than Q2.
About the same as last fiscal year, and 33 zero, 30% lower than Q3 of fiscal 2022 years ago.
It's been a strange situation of good sales levels, but low implementation levels for a few quarters now.
Well, it's would you have any customers see the value in the integrated into in modern technology based software products and modules want to get going improving their operations and increasing guest experience levels and not finding sales agreements at a reasonable pace without significant delays.
However, when the project start.
Stock shortages and conflicting priorities have made it difficult to get software implementations completed in a timely manner.
But recent extensive spread of army chrome and the resultant extent of customer and the hardest stuff falling sick for a week or two each.
Had a significant negative effect on Q3 services revenue.
The fact that many of the current projects involve multiple products tend to be complex implementations and for the most part involved new and recently extensively modernized software products have been additional challenging factors costing implementation timing delays.
We are seeing improvements can be videos.
We've seen an increased urgency to get projects implemented during the past few weeks.
And are cautiously optimistic that the coming months are going to be better.
Adjusted EBITDA for the quarter was $6 $6 million and about 17, one seven about 17% of revenue.
Slightly higher sequentially compared to Q2.
13, one 313% less than Q3 of last fiscal year.
And 140% better than Q3 in fiscal 2020.
Q3 was our highest quarterly we can recall with respect to cash collections, which is arguably the second best indicators of overall business health after subscription revenue growth.
Cash balance increase of nearly 16, one six up nearly $16 million in fiscal 'twenty to 'twenty two so far.
These are the highest cash increase during the first three quarters of our fiscal year in more than seven years excluding.
Excluding the convertible investment cash gain during fiscal 'twenty or 'twenty one.
The acquisition of the Sop suite close early January as previously announced approximately $25 million.
Consistent with our revenue structure with soft sweet comes with a mix of onetime software product services and annual maintenance ticketing revenue.
But you should all together add up to slightly more than $1 million per quarter for the next few quarters of which about 77 zero of which about 70% should be annual maintenance recurring revenue.
Only a handful of technology providers in the hospitality industry currently have the experience and the expertise to offer robust comprehensive end to end integrated property management Pms solutions, and we are happy to have them or to get them up.
The acquisition related execution steps appropriate swift.
The teams are coming together well.
<unk> have been positive without combined increased capability to bring them the solutions and innovation space they need to keep up with their guests and operational demands.
And the industry community in general has provided good positive feedback.
This acquisition makes us significantly stronger in the multi I mean, it is a soccer vertical where advancements like common guest profile and common item there the management at fast becoming must have features.
And there are very few technology providers, who can make that happen.
This acquisition opens three major opportunities for us one use of the default suite product set to fill in some of the gaps in our product portfolio.
Cool.
In corporate and interface with many of the integrated resort application innovations that are sub suite has done well with over many years.
And three and the most crucial.
The revenue synergy opportunity offered was soft suites base of approximately 150 customers.
The option to move to cloud native modernized applications during the coming months and years.
This should give us an additional way to improve subscription revenue levels. During the next couple of years.
With that let me handover the call to Dave for a detailed commentary on the financial results and additional color on our business progress.
Thank you Ramesh.
A look at our financial results beginning with the income statement third quarter fiscal 'twenty 'twenty. Two revenue was $39 5 million a seven 6% increase from total net revenue of $36 $7 million in the comparable prior year period.
The increase in topline revenue largely reflects a six 6% increase in product revenue and a 10% increase in recurring revenue.
Product revenue revenue improved sequentially over the previous quarter by 11%.
The measures we put in place during the previous quarters to mitigate supply chain risks such as increasing our inventory on hand significantly reduced but did not eliminate the impact of the issue is still prevalent in our markets.
Our inventory levels have increased by over 175% since the start of the fiscal year, but logistical challenges with delivering product to the end customer resulted in a reduced topline Q3 product revenue.
Recurring revenue increased by 10% compared to the prior year period and remain at record levels total recurring revenue represented 63, 7% of total net revenue for the third fiscal quarter.
Compared to 62, 3% of total net revenue in the comparable prior year period.
Recurring revenue of $25 $1 million is $2 3 million higher than the prior year and up $1 1 million sequentially.
We are also pleased with our subscription revenue growth, which grew year over year 24, 9% during the third quarter of fiscal 2022 to a record $11 7 million and five 5% sequentially over the second quarter.
Subscription revenue comprised about 46% of total recurring revenue compared to 41% of total recurring revenue in the third quarter of fiscal 2021.
The momentum in our add on software modules that build out our product ecosystem beyond the core point of sale property management and ambulatory and procurement offerings continued through our third fiscal quarter contributing to 6% of total sales this quarter.
We continue to add over $1 million in a our sales bookings for these new products in each of the last seven quarters.
Add on software modules made up 11, 7% of subscription revenue in the third fiscal quarter of 2022.
Despite many of these sales remaining on the backlog due to outlet closures and labor shortages at our customer sites.
Moving down the income statement gross profit was $24 7 million compared to $24 2 million in the third quarter of fiscal 2021 gross profit margin decreased to 62, 6% compared to 66% in the prior year period. The change in gross profit was primarily due.
Due to a change in revenue mix as the extent of product revenue increased compared to the prior year third quarter.
Moving to operating expenses.
Operating expenses, excluding charges for legal settlements severance and other charges in the third quarter were relatively flat with a slight increase of 2% over Q2 fiscal 2022 .
Mostly due to incremental investments in sales and marketing and certain one time expenses and G&A.
Compared to the prior year period operating expense saw a 7% decrease to $22 7 million from $24 5 million. This year over year decrease in operating expense is due to stock based compensation expense returning to normal levels from the previous grants.
Product development sales and marketing and general and administrative expense were 56% of revenue compared to 63% of revenue in the third quarter of fiscal 2021.
For the remainder of the fiscal year, we expect the Soma product development sales and marketing and general and administrative expense to remain close to this level as a percentage of revenue.
Q3.
<unk> 2022, net income of $1 1 million is a sequential increase from the previous Q2 net income of <unk> 5 million.
With earnings per share also increasing to four cents compared to <unk>.
Adjusted net income of $4 9 million is down from $5 5 million in the prior year third quarter and adjusted diluted earnings per share of 19.
Decreased from 23 in the prior year third quarter, when normalizing for certain noncash and nonrecurring charges.
The reduction in adjusted net income and adjusted diluted earnings per share is partially due to some cost saving measures.
That were in place during the prior year and a return of normal business operating expense during the current period.
For the fiscal 2022 third quarter, adjusted EBITDA was $6 6 million compared to $7 6 million in the year ago quarter.
Adjusted EBITDA remains a strength of the company and above 15% as a percentage of revenue even as we continue to invest in sales and marketing despite lower slower revenue conversion on the increased level of subscription sales bookings.
Moving to the balance sheet and cash flow statement cash and marketable securities improved by $8 7 million in the third fiscal quarter of 2022 to an ending balance of $115 1 million cash.
Cash collections continues to be a strength as cash has now increased by $15 9 million since the beginning of the fiscal year, which is also the best nine month cash collection period in our history.
Free cash flow in the quarter with $9 9 million compared to $7 8 million in the prior year quarter.
Our sales momentum continued through the fiscal third quarter with our best nine month stretch in subscription sales point.
Point of sale property management and add on software modules continue to drive sales back to pre COVID-19 levels.
While certain regions and business verticals remains significantly depressed by the current economic environment.
The quality and extent of our backlog remain as strong as ever across all product lines.
As the industry continues to recover and the residual challenges are addressed we expect our increased investment in sales and marketing to result in sustained revenue growth and profitability levels.
With that I'd now like to turn the call back over to Ramesh. Thank you Dave.
In summary.
Despite the various pandemic related challenges, which remain across Asia Europe .
Managed services crew ships and hotel chains.
We expect Q4.
To be at our best revenue quarter yet.
Getting us to the lower end of the fiscal 2022 full year total revenue guidance range.
We expect continued sequential improvement in subscription recurring revenue and overall recurring revenue.
Expect services revenue to improve from current levels.
And expect to close to pre pandemic normal hardware product revenue quarter.
Adjusted EBITDA should remain at slightly higher than 15, one <unk> slightly higher than 15% of revenue, including the neutral effect after a soft sweet acquisition.
He came into this fiscal year expecting business levels to pick up significantly during the second half.
That was a comedy has been delayed but the overall recovery detection remains positive and promising.
Our products hard where they need to BMO.
To win loss ratio and average deal size remain excellent.
We are now investing more in sales and marketing, while holding the already high R&D level steady.
Now it is a matter of the hospitality business environment, improving in all of the affected areas and this roller coaster ride via have all been on for more than a year.
To stop smoothing out.
And the progress becoming predictable and consistent.
Josh.
Please open up the call for questions.
Thank you.
Minder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key.
Our first question comes from Matt Vanvliet with <unk> you May proceed with your question.
Good afternoon, everyone and thanks for taking the question I.
I guess first on the overall sort of delayed project backlog.
Continuing to make.
Strong strong progress on our new sales, but as that gets more and more backed up.
I'm curious on your commentary around the first couple of weeks of January is seeing a little bit of relief there.
Any color on sort of how many projects are what mix of the backlog might might finally be being put into motion.
Is it still primarily your customers' limitations around staffing or opening of properties.
And then kind of as a secondary question if hypothetically everyone said, okay. We're ready let's start the projects today, how long would it take to really kind of flush out the backlog in an ideal situation. Thanks.
Yeah, Hi, Matt Thank you.
So quick comment on the delayed project backlog last few weeks.
Seen positive signs that has since Jan when he started and we got past the holiday season, and the holiday season, Matt also added a little bit to the staff shortages, because many companies and for all the right reasons decided to give their staff a break much overdue break during the holidays and that also added up to some of the delays.
But starting the beginning of January we've seen real positive sites. So for example, our services stuff pretty much booked now.
In implementation projects.
Part of the next six to eight weeks and that's a very positive sign for us. So we are seeing positive signs of all of the pending projects picking up now and we have noticed that in the last two three weeks and we are hoping that there is no new radian setback or anything like that that's what we are hoping for but so far so good in January the <unk>.
So really beginning to pick up.
No I thought as a mix of backlog is coming from Matt a lot of the backlog mix tends to be towards the pms side of the equation because the field.
Projects are simpler and have gone through fairly well during the last few months what has got held up.
Is the relatively more complex pms software modules multiple product implementations, which have quite a bit more work to get it done. So a lot of the backlog mix that is spending now that is beginning to get picked up now have to do with subscription fee subscription revenue in half two.
With the Pms side of it.
I'll take the question.
The customer limitations that you mentioned in terms of staff shortages have been a problem.
But we've seen that they are now getting better like they are now able to focus on the software projects as well now that December is behind us.
And to a certain extent RF products had been in the field for a while not a lot of the new modules and the new software project products.
That'd be the releasing towards the second half of calendar 2021 have all been in the field 10 to 15 customers have already gone live so that also becoming easier to implement and much better in particular.
So all of this together.
It gives us comfort that services revenue should do much better in Q4 than it did in Q3 and also a lot of hard backlog should buy should start getting released and.
How long will that take all of the backlog getting released its probably a three to six month process.
Great. That's helpful and then you.
You announced a couple new pms deals in the quarter I guess on one of the larger ones there.
What are you replacing him I guess, how are those conversations progressing now that you've got sort of the new version of the product fully.
Fully ready and a lot of these add on modules are particularly useful.
And that sale how.
How competitive do you feel like that product is now versus what what's available in the market more broadly.
Our pms products snow, especially state BMS, which has been in the market in its current state for more than a year now.
And visual one which has been completely modernized.
And the first three instances of the modernized visual one being implemented are all slated for February and March. So we have one customer going live mid February one more towards the end of February and one more in March so they will be the first three customers going live on modernized visual one.
So between Steve Pms and modernized visual one V are very competitive in the marketplace.
Truly is a matter of getting more at bats, and getting more chances to demo the product.
Of course, <unk> always has its market in the gaming sector and.
Among very big properties, where there are thousands of rooms properties Elemis is always there to be a modernized the UI of LMS very well.
But in the agenda.
Hotel with sub segment, where our market share is very low on the PMA side, and we really need to make progress Stan visual one now both of them modernized both of them cloud native visual one can also be implemented on premise. We are in good shape as far as competitive advantages kind of stuff.
Well not what adds to that competitive advantage is the fact that we have we have into endoscopy <unk> starting from a data channels booking engine all the way through all the needs. The 17 additional software modules. We have that are noncore gives us an enormous advantage because our products.
Come with an open API architecture.
So we can integrated with third party modules that some uptick even our competitors provide but the fact that they already come integrated.
Giving us a tremendous advantage now for good or bad many of our major the company did not focus on that they focused on core products coming with good API architecture. So that it can be integrated with other modules.
We have not only done that.
<unk> also come out with the additional modules that are well integrated so customers come looking for one product that may end up buying seven products and they loved the fact, it is well integrated.
So the quick answer to your question the products by themselves are very competitive now and the fact, we also provide the additional modules gives us absolutely an extra leg in BMS.
Alright wonderful I appreciate you answering all the questions. Thank you.
Hey, Mike.
Thank you. Our next question comes from George Sutton with Craig Hallum. You May proceed with your question.
Thank you Ramesh I wanted to bring together two things that you've said previously you've talked about two horses of several that are actually working for you right now and they are your two largest.
But you've also said that the flywheel that you.
He has a couple of quarters away. So I wanted to bring those thoughts together and maybe look out two or three quarters, how much different might the business start to look at that point do you see all of your horses as you call them coming together.
In that kind of a timeframe and then can you give us a better explanation of what you mean by the flywheel effect.
Yes, Hi, Josh. Thank you so the two horses gaming and vis hubs.
Probably six or seven houses we depend on.
We're working extremely well so when we look at gaming and resort sales levels.
So they could live in so we've never had a three quarter stretch, where we have done this well in gaming and resource.
No.
In terms of the other five horses College right Asia.
EMEA.
Hotel chains cruise ships and managed foodservice providers.
It's beginning to work reasonably well they are back to pre pandemic levels. He or she is still struggling because a lot of border closures and international tourism is struggling bed and.
And managed foodservice providers of course are struggling because theres still a lot of work from home going on.
In big and small populations.
So those five horses.
We expect we will stop working well in the next two three quarters, because the world is getting better hopefully theres omicron.
It gets solar fast.
And the herd immunity stages reached quickly and like the U K has now done more and more countries open up and we just get going without lifestyle be hope that happens within the next three to say nine month period and that is what will really get the other horses kicking for us as well because the products that are out there compared to the start of the pandemic.
Now our products have made enormous advances now it is a matter of the market picking up as well.
So the last question you asked about the flywheel.
It is a matter of all these new products that we have all the new P. M. S. Modernization, we have getting installed in the field, which is already happening we are making good progress.
Getting more reference customers.
And then spending more than sales and marketing spending at a message at all I'm getting more at bats.
All are good virtuous cycle that we are seeing the beginning signs off especially in gaming and resource that we think it will really pick up speed in the next three six months.
So just as a follow up relative to your at bat theme.
I'm curious how many assets do you think youre not getting today that you ultimately could be getting as you make these additional investments.
I think we could easily double the at bats, we're getting today. So when we look at our.
Pipeline, which is how you measure the at bats.
And the measure of our sales pipeline by annual contract value like we always do.
Current pipeline can be doubled.
With getting more exposure, which we have been a little bit.
Slow a lot because we wanted these new products will settle in the field, but we are now getting a lot more aggressive with.
We should be able to double that of pipeline in the next nine months or so that should be possible as far as just add pad concept then it's a matter of winning those deals and really doing better than the competition.
Super Thank you very much.
Thank you. Our next question comes from Allen Klee with Maxim Group You May proceed with your question.
Good afternoon.
Afternoon questions on resorts suite.
Did I understand that.
Most of their revenue is.
Uh huh.
Kind of software and maintenance.
And that when you mentioned a million dollars in revenue per quarter.
Is that excluding any potential synergies you could get and can the synergies go both ways in terms of you up selling your products to them, but also.
Their products getting holds.
So did you guys. Thank you.
Hey, Alan Yeah, just to confirm the resort suites.
Is mostly on Prem so we referred to it's a little over a million dollars a quarter in revenue and about 70% of that is recurring on brand maintenance. So there's.
Theres, absolutely significant synergies with us I mean, just from the 150 customers Theres a subset of those customers that are looking for native cloud products and that right. There creates a 1% to three times.
Our opportunity for us and Theres also all the other modern cloud products. We've developed over the last two years that certainly create an up sell upsell opportunity into the market. So when we look at it it's largely on premise and.
And there's certainly a subset that's just looking to go to subscription and looking for a modern cloud products and the one thing I would add Alan is that piece of them, but this acquisition was all about revenue synergies.
That's what it was all about and the revenue synergies, we get by selling a lot of our products about 20 additional modules to their customers, especially on the P. O S site via the <unk> project is a lot stronger it's much higher than the other way around.
Youre not going to get much revenue synergies by selling their module slot customers theyre not many of them.
Synergies the other way around of selling our products to results with customers is going to be multiple times higher.
Thank you very much.
Yeah.
Thank you. Our next question comes from New haul truck shoe is Northland capital you May proceed with your question.
Yep. Thank you.
Stay on the resort suite.
But my remarks, she mentioned that filled some gaps with the suites what are those steps.
For example.
A lot of our key.
Customers they have a specifics key the sock based product that is so far we have not built in our product suite.
They have now either that is key just coming to the normal with soft customers.
We have created excellent mobility based options.
Like I just saw the App for example, like you go to the salt and you'll get an app and that covers all your needs across booking engine across spa golf and everything else. So that kind of the thought that a lot of the mobility options. They have created a very sleek and very creative highly innovative so those kinds of products have high demand.
Our customers. So what we are doing now is making sure that we also have that kind of a soft application to solve.
That connects to our products as well so that kind of modules that we sought suite has created an excellent additions to our product suite as well and also in the club membership area.
You will have on our reported slight where do you have certain resource that countries are with us which are owned by different people in both kinds of Etfs with <unk> suite has developed very good applications that we are still a few months away from getting done. So we are learning a lot of lessons dataset.
So in terms of P. M. S innovation, there's a lot of fleet things that we saw suite has done that we are now integrating with our product set as well.
Got it okay, that's very helpful.
So in response to Alan's question, you implied that the surgery is really coming from that.
Joseph selling into the resort suites customers.
What could be potentially.
Consistent with the start of our rollout strategy is that actually how we should be interpreting this acquisition.
Yes, absolutely.
This is a I mean, it'll be incorporated into the business and the revenue just to clarify the revenue synergies are not only on what we can sell into their product base, meaning new products, but it's also on converting on prem products to our cloud platform. So, but yes, it's absolutely a roll up strategy it'll the teams there.
Already integrating through our normal our normal services and support and G&A teams.
<unk>.
I mean to be clear when I said is this just part of a roll up strategy, meaning that there are other relatively small targets like resorts suite that you would expect to be able to acquire at an attractive multiple and then get a revenue synergies how do that by selling the more seats.
Sweden Joseph.
Yeah, I don't really understand that I would look at it as a start of our rollout strategy.
Certainly our M&A discipline Hasnt changed at all this one was just a good fit based on revenue multiple the products, obviously, the talent and the people.
And and it was a profitable company I wouldn't our M&A strategy and rollout strategy Hasnt changed from what you are familiar with this one was just the right fit at the right time and even if it means I'll put you in there.
This was a perfect fit and.
Starting from their CEO , Frank <unk>, all the way down just a perfect cultural fit.
We really like each other it'll be like working with each other.
They are in the perfect sweet spot very creative solutions excellent customer set many big names in that customer site. So this is just one of those absolutely perfect fit and we sort of hit it all from day, one and this goddamn a load of five or six month period.
But overall will remain will remain very opportunistic and very disciplined like Dave said right. We are not going to get too caught up into the M&A thing, but we'll remain disciplined if good opportunities like this come up we'll absolutely take it serious Luca.
Okay, Great and my last question is that I.
I believe that you guys have been hiring sales capacity at a reasonable clip, whereas your sales capacity today relative to a year ago and two years ago.
In terms of quota carrying sales personnel.
We probably increased by about 15, one 515% during the last five months or so.
So probably closer to 20% is where the increase has been compared to nine months ago, one year ago.
And we are aiming to do a lot more so compared to where we've added one musical we should be 50% to 75% the highest in the next six months or so we're continuing to highest.
And most of those hires have worked out well why not all of those high yields have not worked out well for us, but we are continuing to hire in sales and not only in sales in marketing within the next six months to 12 months, we expect to double our marketing budget and our marketing resources and to carry that forward.
Sales and marketing is going to be a much bigger team six or 12 months from now.
And we are doing the hiring every day every week has been cool.
Okay.
So it does bring up a follow up question for me then.
I think what I heard you say is that sales capacity is up about 20% from a year ago.
But when I look at the subscription revenue, it's up 25% year over year.
Revenue was up 6% Q over Q.
Say that backlog was also up towards subscription ACB, which then would imply that subscription bookings is trending well above 25% year over year.
So in my book that basically means that you are actually getting more sales per mature rep than you were a year ago a lot more is that a correct assessment.
Got it so that is correct in terms of for example, this type of breakdown the math a bit our subscription fees sales.
In just three quarters. This fiscal year just from April through December .
With January February March not even happened yet is the best year, we've ever had by quite a distance now.
That is not fully reflected in the subscription revenue yet because of the project delays in the building backlog, which is again at record levels. So you're right.
Our growth has been good mostly driven by products.
So to answer your question in other way, even if we don't do any expansion of sales, we expect to increase our software selling because the product is that much better.
And we have given a lot more of a notion to our current sales staff to sell a lot more so yes. Our sales staff are contributing a lot more especially with respect to subscription software sales and you add more salespeople. It further adds to that.
Alright, great. Thank you very much.
Thank you and I have one.
Thank you and we have another question from Allen Klee with Maxim Group You May proceed with your question.
Uh huh.
I know you've answered this but.
Your guidance.
Your guidance implies to get to consensus it's like.
Over 10% of sequential revenue growth.
In your fiscal fourth quarter.
And that's even if you back out the.
A million dollar contribution from.
Resort suites so.
Could you just simplify if you were to say what was behind that sequential increase it is there one or two things that you could sort of mostly point to that's going to be the driver.
Yeah. So most of the sequential increase when you think about call it $4 million to $5 million is about half of that is product revenue and the product revenue is a mix of obviously, a strong backlog and the sales momentum, we're seeing through the quarter or the.
The other 50% is largely professional services and recurring.
Professional services are largely like <unk> talked about where we're seeing we're seeing installations and customer.
Labor shortages loosen up a bit so there is think of it as half product and have services and recurring.
Thank you.
Yes.
Yes.
Thank you and I'm not showing any further questions. At this time I would now like to turn the call back over to Amit for any.
Further remarks.
Thank you Josh. Thank you all for your time this evening and your continued interest in analysis, we look forward to speaking with you regarding.
Regarding our fiscal 2022 Q4 and annual results in a few months from now out on the third week of May until then please continue to stay with thank you.
Yes.
Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.
Yes.
Sure.
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Right.
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Good morning.