Q2 2023 Agilysys Inc Earnings Call

October 25, 2022

The conference will begin shortly to raise your hand during Q&A you can dial star one.

[music].

Good day, ladies and gentlemen, and welcome to the Genesis fiscal 2023 second quarter Conference call. As a reminder, today's conference call may be recorded I would now like to turn the conference over to Jessica Hennessy Senior director of corporate strategy and Investor Relations.

At Joseph you May begin.

Thank you Dustin and good afternoon, everybody. Thank you for joining via jealous is fiscal 2023 second quarter Conference call. We will get started in just a minute with management's comments, but before doing so let me read the safe Harbor language. Some statements made on today's call will be predictive and are intended to be made as far.

Looking within the Safe Harbor protections of the private Securities Litigation Reform Act of 1995.

Any 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.

Our ability to continue profitable growth 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.

As a reminder, any references to record financial and business levels. During this call refer only to the time period. After adult has 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 of Jonathan Ramesh. Please go ahead.

Thank you Jess good evening and welcome to the fiscal 2023 second quarter earnings call.

Joining me on the call today at our Atlanta headquarters is deepwater.

Paul.

Let me first cover sales and what we are seeing in the overall market.

Before moving to revenue and other details.

We measure sales or selling success.

Based on annual contract value of sales agreements, one and find.

After five consecutive quarters of solid good sales quarters as reported during the previous earnings call.

This July to September Q2 of fiscal 2023.

Great sales quarter.

Possibly representing the first phase.

Growth breakthrough.

<unk> been building towards for a while now.

Despite the slow start in July .

Q2 was our highest sales quarter in more than six years.

This good sales momentum.

Got it into October as well.

While the gaming casinos in Europe , EMEA sales vertically set new quarterly sales record.

We also saw good momentum in other verticals with the exception of Asia.

Fiscal Q2 was again slow with respect to Asia sales.

The number of prospective customers meetings and product demos requests have increased significantly in Asia as well during the month of October .

Our general sales trends have picked up significantly since the beginning of August .

We have not seen any noticeable effects of the negative macroeconomic headlines during the past few months.

From a window, we are seeing ample evidence that the shifting demands and compelling hospitality industry needs for technology solutions.

Bill thrive and expand despite the macroeconomic challenges.

We think this industry has been underserved for a long time from technology and functional innovation standpoints.

You're just seeing that opportunity that drove us to make the kind of research and development investments that we did during the past five plus years.

Hospitality customers need now more than ever before.

World Class cloud native integrated Configurable.

Innovative software solutions to make operational management easier for their team members and create memorial experiences for their guests, even when we have shot up stuff.

Given the current and growing status of our state of the art software solutions, which have been carefully crafted to fulfill the real and immediate needs of this industry.

She is optimistic that our current sales momentum can be maintained and improved upon even if the economic headlines don't lend a helping hand during the short and medium term.

Our total addressable market remains huge relative to our size and that should also help serve as an adequate shock absorber to possible upcoming macroeconomic bumps in the road.

We continue to increase sales and marketing investments as you can see in the GAAP P&L statement operating expenses table in the earnings announcement.

Q2 sales and marketing expenses increased 55% year over year compared to Q2 last fiscal year.

We are in the process of opening a middle East office and have hired a local sales leader in Dubai recently.

We see good medium term potential in the Middle East region, which is already a big hospitality market and is gearing up for another major expansion.

We have had precious little questions there until now.

Many big prospective customers in the Middle East region are eager for a good world class technology provider alternatives after relying on only a couple of vendors for several decades.

Our participation in the June high Tech show in Orlando.

The recent <unk> gaming show in Las Vegas.

The low vacancy show in Australia.

And our <unk> stakeholder confidence in Dubai.

The last two involved our attendance for the first time ever.

And the customer responses to our recent innovations at the shows.

Has given us further confidence.

That our current sales momentum can be sustained and improved further.

Modern ice visual one hotel property management systems Pms.

Which we have rebranded as worse that is.

He is now live across seven customer sites.

Visual one CMS has had a presence among hundreds of multi amenity to subs for several decades.

We took it up for a complete ground up rewrite three to four years ago and completed this major task earlier this calendar year.

The V in the new name versa is a nod to the heritage of the old <unk> visual one name while the inspiration for the name versa comes from this cloud native products current versatility to support both cloud SaaS and on premise implementations.

A single code base.

After not being one of the leading players in the BMS space for a long time it feels good to launch ourselves in the huge pms global marketplace.

Not just one but two cloud native World class solutions.

<unk>, which is a cloud only product and versa, which can support both cloud and on premise installations of the same code base.

This of course is in addition to LMS, which continues to stay strong in the domestic market, especially among bigger gaming casino hotels.

All of the 20, plus pms add on experience enhance of software modules are already.

Or will be soon integrated with all these three core pms products.

During Q2 fiscal 2023 July to September we added 13, one 313, new customers of which 12 were.

Fully subscription beads.

The deal size for new customers during Q2.

It was almost twice as big as the previous quarter.

We also added 77 zero 70, new properties.

Did not have any of our products before but the parent company was already a customer.

The total number of current added customers.

Additional properties added during the past two quarters.

Has it been at the fastest pace since the start of the pandemic about two and half years ago.

Business levels and the pace of technology decisions among multi property bigger customers are improving.

Of the 83, new properties added during the quarter across new customers.

And new properties of current patent customers.

More than 90 more than 85%, but EBIT, partially or fully subscription base.

With respect to new product sales.

75 instances of selling at least one additional product to properties, which already had at least one of our other products.

These 75 instances actually involved.

Total of 186, new products sold to current customer properties, meaning.

Meaning some of these new product sales instances involve selling multiple products.

So an average of 186 divided by 75 about two and a half new products sold.

New product sales instance.

The average deal size this quarter across the 75 instances of new product sales is among the highest we've seen.

In annual contract value terms.

This was our best quarter in three years.

For total value of new customers, new properties and new product sales combined.

The number of new products installed per customer property sites.

Has grown from about one six to about $2 one during the past two years.

With about 25 additional software modules available and our sales toolbox now, we obviously have a long runway of growth available to us.

Just based on our current customer properties.

One other interesting detail for you.

The number of properties currently using four or more of our software modules has more than doubled during the last one and a half years.

The one slight negative about sales. This quarter was the addition of only five core pms customer properties we.

We are not losing sleep over at that point.

We are only beginning to scratch the surface of the pms addressable market in front of us.

This quarter fiscal 2023 Q2 was.

As our best quarter in more than six years in terms of sales measured annual contract value of BMS and related add on attachment modules.

The state of the art Pms solutions are in the early stages of establishing themselves and we are clearly moving in the right direction.

We are now competing with our BMS products in more multi property bigger opportunities than ever before.

As the number of reference customers on the newer state of the art core Pms products and additional software modules increases.

Success rate with such opportunities will improve significantly.

Increasing PMA sales will also help us sell more additional software modules because there are just more of them available for PFS than for us.

Across all products combined.

Q2 fiscal 2023 was our highest quarter ever with respect to subscription sales bookings measured in annual contract value tons.

I think it was about 15% one five about 15% higher than the previous best quarter, which was Q2 last fiscal year.

Now on to revenue.

Fiscal 2023, Q2 revenue was a record $47 $7 million, the third consecutive record revenue quarter close to 26% higher than the comparable prior year quarter.

But sequentially only slightly higher than Q1.

We remain well on track to achieve our full fiscal year revenue targets.

One time product and services revenue combined.

At $18 7 million that is $118 $7 million was 35% higher than the comparable prior year period.

But down compared to the sequentially preceding Q1 fiscal 2023 quarters.

We expect one time revenue consisting of product and services revenue to remain in the $19 million to $20 million range each quarter for a few more quarters in line with our expectations going into the fiscal year that.

And that the overall revenue guidance was based on.

Having said that services revenue and margin levels were disappointing this quarter.

Services cost levels remained at the same level or slightly less than the sequentially preceding quarter, but services revenue was close to $600000 less.

Disappointing yes.

But concerning not.

We are currently working through a tough transformation period.

<unk> from an older technology on premise based software providers.

One which is based on an innovation driven subscription license model.

All of US know is among the toughest transitions for an enterprise software organization to go through.

In addition.

We are also transforming from a one or two product installed services project management unit.

The one that handles complex multi product integrated implementations routinely.

While also dealing with far higher customer expectations.

We also experienced a slower start to the quarter for project implementations.

All of that added up to a lower than expected fiscal 2023, Q2 services revenue and services margin levels.

We expect both of those metrics to improve gradually during the medium to long term.

One other interesting services related detailed for you.

This fiscal 2023 second quarter was our highest quarter with respect to services sales bookings.

Apart from one quarter in calendar 2019 before the pandemic.

Fiscal 2023, Q2 recurring revenue grew to $29 million driven by just under 29% year over year subscription revenue increase over the comparable prior year quarter.

In percentage terms, the 21% year over year total recurring revenue growth from Q2 of fiscal 2022 for Q2 of fiscal 2023 is also the highest such percentage increase in more than six years.

Quarter of subscription revenue has now grown to 49% of total recurring revenue.

Subscription revenue generated from add on software modules, most of which were developed ground up during the past few years constituted 16% one 616% of total subscription revenue this quarter compared to 11% during the full previous year fiscal 2022.

And 10% during the fiscal 2022 second quarter.

Each of these innovative additional software modules.

Which are becoming increasingly better integrated with the core point of sale property management and inventory procurement systems has now stabilized in at least a handful of customer sites.

And providing good value.

Feedback on these additional attachment experience enhancement modules has been positive.

Particularly the reduced need for the customers to manage complex integrations across multiple software providers.

Increased operational efficiencies and incremental revenue generation opportunities enabled by these modules.

Overall recurring revenue was 5% sequentially higher than the previous quarter.

And about 20% higher than the comparable prior year quarter.

We've added more than $1 million in recurring revenue sequentially quarter over quarter for the fourth consecutive quarter.

There were only two such quarters in our software solutions for hospitality history before.

Adjusted EBITDA for the quarter was $7 4 million and $15 five that is one 515, 5% of revenue.

Slight improvement over the sequential Q1 quarters and in line with our expectations for the first half of fiscal 2023.

Our overall profitability levels continue to be challenged by the current need to carry dwell costs across R&D services and support.

For supporting our previous generation older products and the newer state of the art technology innovations, which we are currently implementing across the globe.

We expect our profitability levels to improve in the medium to long term as we make progress with this difficult transition and the need to support older product versions diminishes.

Free cash flow for the period was $2 3 million slightly lower than the comparable prior year quarter of $3 2 million.

Consistent with our normal pattern of our business, we expect free cash flow during the second half of each fiscal year to be better than the first half.

Cash collections remained strong and at record levels.

Capital expenditures will increase during the second half of the fiscal year, which is unusual for us.

We planned before the pandemic to move to a world class High Tech facility in Las Vegas.

Largest single geographic market.

And we expect to make that more sometime before mid calendar 2023.

We will be working through the outfit process for this facility the rest of this fiscal year's costing onetime additional capital expenditures.

With that let me hand, the call over to Deb Deb.

Thank you Ramesh taking a look at our financial results beginning with the income statement.

Quarter of fiscal 2023 revenue was a quarterly record of 47 7 million or 26% increase from total net revenue of $37 $9 million in the comparable prior year period.

All three product lines increased compared to the prior year period with product revenue up 44, 5% and professional services revenue up 24, 2% over the prior year.

Recurring revenue was also up 28% with subscription up 28, 6% over the prior year period.

Sales in fiscal 2023, Q2, our highest for a single quarter in well over six years and included record subscription sales Q2, FY 'twenty three sales were up 13% over Q2 fiscal year, 2022, which was our highest sales quarter in the previous fiscal year.

While up significantly over the previous year onetime revenue consisting of product and professional services declined sequentially.

Products revenue declined slightly mostly due to timing of deliveries related to new sales.

Backlog increased 17% compared to last quarter and is north of 80% of record levels.

Professional services revenue declined sequentially due to remaining implementation challenges because of the breadth of our multi multi product installs as well as some delays in projects during July as a result of our extremely busy customer sites.

August through October have resumed to a normal implementation schedule we.

We continue to staff the team in order to meet higher revenue levels and decreasing our backlog as customers go live with multi product installations.

Professional services sales increased by more than 25% compared to last quarter.

And this increase along with the decline in services revenue drove services backlog back to new record levels.

Total recurring revenue represented 68% of total net revenue for the fiscal second quarter compared to 63, 4% of total net revenue in the second quarter of fiscal 2022.

Increased revenue from professional services implementations and product revenue coming back into the business.

Drove the change in revenue mix compared to the prior fiscal year.

We are also happy with our subscription revenue growth, which grew 28, 6% during the second quarter of fiscal 2023 subscription.

Revenue comprised around 49% of total quarter recurring revenue compared to about 46%.

Total recurring revenue in the second quarter of fiscal 2022.

Add on software modules comprised 16% of subscription revenue in Q2 fiscal year 2023, compared to 10% in the comparable prior year quarter and continue to be a meaningful contributor to <unk>.

Subscription revenue.

As <unk> mentioned the penetration level of our add on software modules still has significant room for growth within our existing customer base.

Moving down the income statement.

Gross profit was $29 4 million compared to $24 3 million in the second quarter of fiscal 2022.

Gross profit margin decreased to 61, 5% compared to 64% in the second quarter of fiscal 2022.

Gross profit margin decrease was primarily due to product and professional services revenue coming back into the business, causing a shift in revenue.

Combined the three main operating expense loans product development sales and marketing and general and administrative expenses, excluding stock based compensation were 46% of revenue consistent with the prior quarter and in line with our FY 'twenty three plan.

As a reminder share based compensation should remain in the 6% to 9% of total revenue for the entire fiscal year 2023.

Operating income for the second quarter of $2 9 million net income of $3 6 million and gain per diluted share of <unk> 12.

All compare favorably to the prior year's second quarter gain of $1 1 million $1 million and <unk> <unk> per diluted share respectively.

Adjusted net income normalizing for certain noncash and nonrecurring charges of $6 3 million and adjusted diluted earnings per share of <unk> 24, compared favorably to adjusted net income of $4 6 million and diluted earnings per share of <unk> 18.

In the prior year second quarter.

Fiscal 2023 second quarter, adjusted EBITDA was $7 4 million compared to $6 3 million in the year ago quarter as.

As we discussed on the last call we expected adjusted EBITDA will be lower in the first half of the fiscal year.

Adjusted EBITDA during the first half came in slightly ahead of plan at 14, 8% of revenue.

Adjusted EBITDA this quarter was 15, 5% of revenue.

Moving to the balance sheet and cash flow statement cash and marketable securities as of September 32022 was $96 2 million compared to $97 million on March 31 2022.

Primary reason for the cash balance decrease compared to the beginning of this fiscal year. Despite our profitability levels were due to the timing of payments in Q1 related to bonus dividend and inventory payments, which came due during the April to June timeframe. However.

However, we generated roughly $1 $3 million in cash during the second fiscal quarter.

Free cash flow in the quarter was $2 3 million compared to $3 $2 million in the prior year quarter. As we stated in the past free cash flow in the first half of the year is significantly impacted by working capital fluctuations, mainly due to amortization of our calendar year annual maintenance invoices.

<unk> of bonus payment along with paying down accounts payable as a result of higher inventory levels.

In closing we are pleased with our second quarter financial results and remain comfortably on track to meet our FY 'twenty three financial plan.

With that I will now turn the call back over to Ramon. Thank you Dave.

In summary.

Overall, we are pleased with our continued business progress.

We think that there is a high probability that the significant increases in selling success. We have enjoyed during the past close to three months marked the first phase of the growth breakthrough we've been building towards.

The sales surge also drove the combined product recurring revenue and services backlog to close to peak record levels, giving us increased confidence and comfort in the revenue guidance provided at the beginning of the fiscal year.

We continue to expect fiscal 2023 annual revenue to be in the range of $190 million to $195 million.

Driven by year by year.

Driven by year over year subscription revenue growth of approximately 30% please below $30.

We also continue to expect EBITDA levels for the full year to be better than 15%, one five better than 15% of revenue. Despite the first half of fiscal 2023 being less than that level.

We are continuing to invest in increasing our sales and marketing efforts to keep the current sales momentum going.

And to move it up to the next year.

While our increased marketing efforts, both in terms of quality and quantity will take a bit more time to show measurable increase sales results.

We are already seeing positive responses to the improved messaging.

<unk> focused market development higher quality public relations efforts and more frequent attendance and tradeshows. Some of them are seeing us participate for the very first time.

Despite all the pressures the current transformation cautious and.

I need to maintain increased cost levels to support the oil.

And investing in listing and grow the new <unk>.

We remain a disciplined growth business unit that will not get too far ahead of its skis at any point in time.

We will continue to remain proficient at walking and chewing gum at the same time.

With that let's open up the call for questions Justin.

And thank you as a reminder to ask a question you will need to press star one on your telephone. Please standby, we compile the Q&A roster.

And one moment for our first question.

And our first question comes from Matthew <unk>.

From <unk>. Your line is now open.

Yes. Good afternoon. Thanks for taking my question nice job on the <unk>.

<unk>.

First off.

Would be curious to hear how the launch of and sort of rebranding of reverse the pms platform is progressing out there do you feel like you have some customers kind of waiting to see that fully deployed and get kind of a proof of concept at other properties.

Or is it just sort of a pent up demand taking time to work its way through the sales cycle.

And then any kind of next level or I guess layer deeper.

Extra detail in terms of any geographic dispersion in terms of U S versus Europe versus APAC in terms of performance with our product.

Yes, Hi, Matthew.

But before I answer the question on Whatsapp, Matthew one thing I want to confirm with you is the reception for say the demand for <unk>, our cloud Vms product also remains good but let me focus since your question was about welfare, let me answer that one.

I would say is ahead of schedule Matthew.

About seven customer Huss, who have gone live and have all settled down quite well during the last six months or so so from the beginning of this calendar year, we've been installing that product and it has settled down quite well just to give you a snippet of information for you.

You take off the one slash versa sales and we always measure the savings in annual contract value like you know.

This is our best sales quarter for that in three and a half years.

That product alone.

So the reception is good and we are now getting some reference customers as well because seven of them have gone live up annually about half of them are our reference level, because they have settled down well and.

There are a couple of pretty interesting global PMI.

PMA sales deals we are working on.

We're well size the product being looked at.

That is across APAC and across U S. As well so I would say the short answer to your question versa is ahead of schedule. We are happy with the way this progress with our current installed and for example, the sales quarter was our best re one word soft sales quarter in about three and a half years.

It continues to go well, but it is still a young product. It is only less than a year old. So we are focused on settling down and improving it further.

Alright very helpful color and then as you look at the.

I guess sort of like chain hotel or maybe urban hotel locations that.

We're seemingly sort of most impacted by the pandemic I'm curious how you are seeing progress there or are they looking to make investments now that business travel has picked up quite a bit.

They staring the macro and the macro headwinds potentially impacting their business and.

Giving a little skittish on furniture investments just curious how that segment of the business has been performing over the last couple of months.

It's been performing well Matthew.

I wouldn't say, it's back to pre pandemic calendar 2019 levels, but it is definitely at the best level.

We have seen it be since the start of the pandemic so the business from.

The hotel chains, where already our customer.

And a couple of similar customers has picked up and was one of the big contributors to us having our best sales quarter than six plus years. So the business from such chains has improved now Nokia back to calendar 2019 levels.

And then maybe one last one if I could.

Adding to the leadership team over the last year plus.

A lot of effort and you highlighted the sales and marketing expenses going up but curious how you feel like the.

The additions to the marketing team and just sort of the overall branding and visibility of the company out there.

Is going so far how much more work do you have to do or is it now about execution on the sales front that you've gotten a better visibility in the market. Thank you.

Thank you Matthew it's going very with the addition of Dario handling and the team that she has brought in and marketing is doing terrific work the kind of quality work that we have never had before to be honest with you is that as this company is concerned we are focused so much on the product part of it we've just not paid enough attention to marketing at all.

And Terry and the team have made a dramatic difference.

And all the new sales staff and our new.

VP of HFC sales Andrea fits have made a big difference and which obviously also had that as hotel resorts cruise ships. The vertical that we call HRC also had a very good quarter.

In terms of sales this quarter.

To address your question the way growth always happens as you invest more and we've made a big investment in sales and marketing when you compare Q2 to Q2.

Fiscal 'twenty two to fiscal 'twenty, three sales and marketing costs have gone up by 55%. So we have done the investment now its a matter of executing for the level of investments we have done and that is going very well and once we reach the next stage of growth, obviously, we'll invest more in sales and marketing as well. So now it is a matter of executing on.

What we have enlisted which is going well and once we reach the next level of quantum growth. We will think about investing more in sales and marketing is with some of the things that we have done that.

Top of the funnel that you measured in marketing the marketing qualified leads.

And what we call sales excepted opportunity with <unk>.

The top of the funnel is really doing well at the top of the funnel now is bigger than it has been before but ultimately it's all about final sales process.

This quarter the sales that we saw I would attribute it a bit more towards the product improvements that we have done if I have to give credit and also to the increased sales presence. The increased number of sales personnel, we have our increased.

Participating into participation in trade shows not just in the U S and APAC and EMEA as well and market development outbound efforts, which have been more targeted both marketing campaigns and market development efforts have been very targeted.

So we think it's a culmination of all that we have seen a real pickup since August .

Rest of the brand image changes.

Australia, presenting ourselves as a more modern company, which was long overdue.

Positive effects will take a bit more time to show up really nice results.

Currently our focus is.

Our sales marketing efforts are going better than ever before.

The most today are really but I mean orders.

As of magnitude better than we've ever had before now it's a matter of also focusing on implementations, making sure those go better having more reference customers for our newer products and then the growth cycle will kick in and then we will continue investing in sales and marketing models with.

That's a long winded answer to informatics.

Very helpful. Thank you.

Yes.

And thank you.

And one moment our next question.

And our next question comes from George Sutton from Craig Hallum. Your line is now open.

Thank you nice results. So I wonder if you could just give us some.

Uh huh.

Correct.

Alright.

<unk> numbers relative to the quota carrying reps that you have relative to where you were any sense on the number of aircrafts you mentioned a bigger funnel any update on your win rates or are they consistent did not 70% ballpark. Just curious if you can give us some more numbers around the.

The growth.

I don't know if we have exact numbers on that George I can only give you a qualitative answer about.

The number of sales excepted opportunities in marketing qualified leads increasing we had not yet evolve to a stage, where we can share those exact numbers with you outside but to answer the second part of your question our win loss ratios continue to be good.

So when you look at all our competitive wins that is new customers new products and new properties. It still remains.

If we win the majority of those deals and if you just take new customers alone. We've been a very good portion of those deals or deals also as long as we can get them to the demo stage once they reach the demo stage and they take a look at the products.

The end to end functionality that we offer that.

It's tough to compete against US now once we get them to that stage our win loss ratio continues to be very quick.

I was particularly interested in what you said about Asia, given how challenging Asia has been for you you mentioned Thats picked up in October can you just give us a.

More specific sense of what you meant by that pickup.

Yes, there are two things that I was trying to convey.

That I did not say explicitly.

Number one George is the quality of the ACI sales team has improved dramatically.

Some of our.

Several of the recent sales leadership additions we have made we may not have announced publicly a sales lift in Singapore, a sales leader in.

Australia, and then sales engineering strengths that we have added to Asia. They have all been excellent.

Recruitment pickups for US number one it's a very strong sales team there and I would say the first time since I've been here that the Asia sales team is really full level of high quality. That's number one number two what we have noticed in October and probably including September as well is the activity in Asia has really picked up.

And there are at least a couple of <unk>.

Reasonably big interesting opportunities that we're working on now that we feel we have a reasonable chance of winning at in Asia and the number of opportunities. The demos. The conversations we have with new customers prospective customers has increased significantly in the last couple of months.

Back to the previous months since the start of the pandemic. So that activity level has increased and we are hoping very soon you will we will see it in the sales numbers as well.

Okay. Just one other question and this would be for Dave who has been quiet on the Q&A.

And I wonder when we talk about the need to support older versions of the product can you just talk about what that means are you going to see step function reductions in cost over time.

As those fall off or is it going to be a more gradually lower expense base over time.

Yes, I think it's I mean, it's consistent to what we've said in the past I mean.

R&D as a percentage of revenue or stay in the 26% to 28% and starting next year Youll see a real gradual decline. So we kind of topped out around that 30% of revenue for R&D expense coming down into the 26 28, I don't think youll see any kind of big step a cliff it will just increment.

They get better as revenue grows.

Keep in mind. We've also said we can handle another $50 million to $100 million of revenue on this team so it'll be a ro Ro gradual step down.

Got you okay. Thanks, guys.

And thank you.

And one moment our next question.

And our next question comes from Nihon <unk> from Northland Capital markets. Your line is now open.

Alright very good.

Let me now.

Thank you and congratulations on moving from good to great sales quarters.

Sure.

I know you had justice and be with my script right.

Smith.

Apologies.

Could you just walk through again wireless service businesses service business has not performed the way we had expected.

In terms of delivery and implementation.

Yes, so I mean.

A lot of it is just taking longer for these multi product implementations and in kind of a secondary factor was July was just generally a little bit slower of a month I mean, we said on the call that August through October have kind of returned back to normal but.

The multi product implementations are more challenging and we remained staff to do a lot more billable work than we do today.

We pretty much just got a slow start to the quarter and July revenue was a little bit lower than expected.

I see okay.

And is this effectively the reason why you're only reiterating guidance as opposed to raising guidance given that you have gone from good to great in terms of Salesforce booking quarters.

Yes, certainly.

As far as the guidance is confirmed.

The fiscal year is going exactly as we planned as we thought it would and it is proceeding towards.

What about assumptions, we made when we initially provided guidance those assumptions are working out and it is gradually improving and we are beginning to do well.

We are confident now we've just had the two or three good sales months and we are hoping that trend continues and that is the startup of new trend for us.

And we are comfortable we are confident about the guidance provided and that we are always realistic with whatever guidance. We provide this fiscal year is going along exactly the way we thought it would which is building up nicely for us.

Okay.

In order to.

To make this guidance.

Don't need to.

Additional backlog here you'd like to get through.

Brain.

So to your fiscal year.

Yes, I mean, we feel really.

Really comfortable with where our backlog sits today and the visibility it gives us into the second half of the year.

And the way to look at the second half is.

Product and professional services kind of goes up and down amongst the quarter, but it will remain about in the second half about $38 million in and then subscription I'll keep incrementally going up quarter to quarter. So the simple way to look at the second half is onetime revenue being product and professional services will remain in that 37%.

$38 million range and recurring revenue will go up by about $4 million.

And we have to continue to add to the backlog Mohali traits is a continuing story that both increased consumption of the backlog and adding to the backlog are both important functions. So we have to keep our focus and just continuing doing more of what we are doing well.

Okay understood.

I think you already sort of spoke to a little bit but.

You've added a lot of capacity.

And you talked about going from third.

Great sales quarters.

Does this mean that.

The.

Productivity of new sales reps is now at mature levels already.

Or is there still a lot more ramping left to go here.

I think if you measure it in terms of sales success not just in terms of sales activities, yes, the productivity levels at <unk> and they are all contributing.

In terms of sales success, how much each of them actually closes depends not only on the sales team, but on the rest of us as well.

And that we are focused on improving the number of reference customers. We have on the new state of the art products all of them have been implemented but we have to build a number of properties that use those products and then you have to increase customers being delighted with them and willing to talk about that so that part has to increase as well.

That in turn will increase sales productivity in terms of how much sales is closed so I wouldn't call that close to the peak, but the activity level is very good and we're very happy with how the sales team is progressing.

But to be clear when you say the closing of the sales rate.

They have.

He probably dropped off right let me just.

I'm, assuming the rest of you can hear us sorry, yes.

Hi.

And of course I can.

Quick question was that.

Okay.

Constructed.

Yes.

So let me pick it up with Alan hair.

We can sell more with the current level of sales staff, we have and the current level of sales and marketing spend I think thats, where we are going towards.

That is a matter of us implementing better increasing the number of reference customers and just making the current state of the art modern technology solutions, we have more spread out in the space. So that more people come to know about it.

The current sales staff if that is your question, yes, we can sell close more deals and once that reaches the peak, we will add more to our sales teams as well.

Okay got it and I know remember exactly what I was trying to go.

The close rates remain good it's just that the increased number of assets that you have generated hasnt gone through a full lifecycle of a pipeline, yet and that's more or less what youre waiting to see.

That close rates that your mature sales teams has had.

With the new sales team is that correct.

That is correct with the additional sales members are also beginning to contribute well and we need to increase at bats, and the more successful implementations, we have with the new products the more at bats.

Okay, great. Thank you.

Great. Thank you.

And thank you and I'm showing no further questions I would now like to turn the call back over to <unk> for closing remarks.

Thank you Justin Thank you all for your interest and attention. Please enjoy the holiday season and have wonderful <unk>. We look forward to talking to you again in about three months from now when we will report on fiscal 2023 third quarter results towards the end of January Thank you.

This concludes today's conference call. Thank you for participating you may now disconnect.

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Thank you.

Good day, ladies and gentlemen, and welcome to the Genesis fiscal 2023 second quarter Conference call. As a reminder, today's conference call maybe recorded.

I'd now like to turn the conference over to Jessica Hennessy Senior director of corporate strategy and Investor Relations at a Genesis you may begin.

Thank you Jonathan and good afternoon, everybody. Thank you for joining via Genesis fiscal 2023 second quarter Conference call. We will get started in just a minute with management's comments, but before doing so let me read the safe Harbor language. Some statements made on today's call will be predictive and are intended to be made as.

Forward looking within the Safe Harbor protections of the private Securities Litigation Reform Act of 1995, 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 and other global economic factors on our business our ability to continue profitable growth and the risks set forth in the company's report on Form 10-K.

10-Q, and other reports filed within the Securities and Exchange Commission.

A reminder, any references to record financial and business level. During this call refer only to the time period. After <unk> made the transformation to an entirely hospitality focused software installations comparable in fiscal year 2014.

With that I'd now like to turn our call over to Mr. Ramesh Srinivasan, President and CEO of the Jonathan Ramesh. Please go ahead.

Thank you Jess good evening.

Welcome to the fiscal 2023 second quarter earnings call.

Joining me on the call today at our Atlanta headquarters is Dave Wood, our CFO .

Let me first cover sales and what we are seeing in the overall market before moving to revenue and other details.

We measure sales or selling success.

Based on annual contract value of sales agreements, one and signed.

After five consecutive quarters of solid good sales quarters as reported during the previous earnings call.

July to September Q2 of fiscal 2023 was a great sales quarter.

Possibly representing the first phase of growth breakthrough, we have been building towards for a while now.

Despite the slow start in July .

Q2 was our highest sales quarter in more than six years.

This good sales momentum has carried into October as well.

While the gaming casinos in Europe , EMEA sales vertical set new quarterly sales records.

We also saw good momentum in other verticals with the exception of Asia.

Fiscal Q2 was again slow with respect to Asia sales.

The number of prospective customers meetings and product demos requests have increased significantly in Asia as well during the month of October .

Our general sales trends have picked up significantly since the beginning of August .

We have not seen any noticeable effects of the negative macroeconomic headlines during the past few months.

From our window, we're seeing ample evidence that the shifting demands and compelling hospitality industry needs for technology solutions.

Bill thrive and expand despite the macroeconomic challenges.

We think this industry has been underserved for a long time from technology and functional innovation standpoints.

You're just seeing that opportunity that drove us to make the kind of research and development investments that we did during the past five plus years.

Hospitality customers need now more than ever before.

World Class cloud native integrated Configurable.

Innovative software solutions to make operational management easier for their team members and create memorial experiences for their guests even when we are short of stuff.

Given the current and growing status of our state of the art software solutions, which have been carefully crafted to fulfill the real and immediate needs of this industry.

She is feeling optimistic that our current sales momentum can be maintained and improved upon even if the economic headlines don't lend a helping hand during the short and medium term.

Our total addressable market remains huge relative to our size and that should also help serves as an adequate shock absorber to possible upcoming macroeconomic bumps in the road.

We continue to increase sales and marketing investments as you can see in the GAAP P&L statement operating expenses table in the earnings announcement.

Q2 sales and marketing expenses increased 55% year over year compared to Q2 last fiscal year.

We are in the process of opening a middle East office and have hired a local sales leader in Dubai recently.

We see good medium term potential in the Middle East region, which is already a big hospitality market and is gearing up for another major expansion.

We have had precious little presence there till now.

Many big prospective customers in the Middle East region are eager for a good world class technology provider alternatives after relying on only a couple of vendors for several decades.

Our participation in the June high Tech show in Orlando.

The recent <unk> gaming show in Las Vegas.

The low vacancy show in Australia.

And the hospitality stakeholder confidence in Dubai.

The last two involved our attendance for the first time ever.

And the customer responses to our recent innovations at the shows.

Has given us further confidence.

That our current sales momentum can be sustained and improved further.

Modern ice visual one hotel property management systems Pms.

Which we have rebranded as <unk> is.

He is now live across seven customer sites.

Israel, one CMS has had a presence among hundreds of multi amenity the subs for several decades.

We took it up for a complete ground up rewrite three to four years ago and completed this major task earlier this calendar year.

The V in the new name versa is a nod to the heritage of the all we want our visual one name wildly.

While the inspiration for the name versa comes from this cloud native products current versatility to support both cloud SaaS and on premise implementations of our single code base.

After not being one of the leading players in the BMS space for a long time it feels good to launch ourselves in the huge <unk> global marketplace.

With not just one but two cloud native World class solutions, which is a cloud only product and versa, which can support both cloud and on premise installations of the same code base.

This of course is in addition to LMS, which continues to stay strong in the domestic market, especially among bigger gaming casino hotels.

All the 20, plus pms add on experience enhance of software modules are already are.

Or will be soon integrated with all of these three core pms products.

During Q2 fiscal 2023 July to September .

We added 13, one 313, new customers of which 12 were fully subscription beads.

The deal size for new customers during Q2 was.

It was almost twice as big as the previous quarter.

We also added 77 zero 70, new properties.

Did not have any of our products before but the parent company was already a customer.

The total number of current added customers.

Additional properties added during the past two quarters.

Has been at the fastest pace since the start of the pandemic about two and half years ago.

Business levels and the pace of technology decisions among multi property bigger customers are improving.

Of the 83, new properties added during the quarters across new customers.

And new properties of current pattern customers.

More than 90 more than 85%, but EBIT, partially or fully subscription base.

With respect to new product sales.

75 instances of selling at least one additional product to properties, which already had at least one of our other products.

B 75 instances actually involved.

Total of 186, new products sold to current customer properties, meaning.

Meaning some of these new product sales incentives involve selling multiple products.

So an average of 186 divided by 75 about two and a half new products sold.

New product sales instance.

The average deal size this quarter across the 75 instances of new product sales is among the highest we've seen.

In annual contract value terms.

This was our best quarter in three years.

For total value of new customers, new properties and new product sales combined.

The number of new products installed per customer property sites.

Has grown from about 1.6 to about $2 one during the past two years.

With about 25 additional software modules available in a sales tool box now, we obviously have a long runway of growth available to us.

Just based on our current customer properties.

One other interesting detail for you.

The number of properties currently using four or more of our software modules has more than doubled during the last one and a half years.

Yeah.

So one slight negative about sales. This quarter was the addition of only five core pms customer properties. We are now.

Not losing sleep over that one.

We are only beginning to scratch the surface of the pms addressable market in front of us.

This quarter fiscal 2023, Q2 was our best quarter in more than six years in terms of sales measured annual contract value of CMS and related add on attachment modules.

The state of the art Pms solutions are in the early stages of establishing themselves and we are clearly moving in the right direction.

We are now competing with our BMS products in more multi property bigger opportunities than ever before.

As the number of reference customers on the newer state of the art core Pms products and additional software modules increases our success rate with touch opportunities will improve significantly.

Increasing <unk> sales will also help us sell more.

Additional software modules because there are just more of them available for Pms. Therefore.

Across all products combined.

Q2 fiscal 2023 was our highest quarter ever with respect to subscription sales bookings measured in annual contract value terms.

I think it was about 15% one five about 15% higher than the previous quarter, which was Q2 last fiscal year.

Now on to revenue.

Fiscal 2023, Q2 revenue was a record $47 $7 million, the third consecutive record revenue quarter close to 26% higher than the comparable prior year quarter.

But sequentially only slightly higher than Q1.

We remain well on track to achieve our full fiscal year revenue targets.

One time product and services revenue combined.

At $18 7 million that is one $818 7 million was 35% higher than the comparable prior year period.

But down compared to the sequentially preceding Q1 fiscal 2023 quarters.

We expect onetime revenue consisting of product and services revenue to remain in the $19 million to $20 million range each quarter for a few more quarters in line with our expectations going into the fiscal year that the overall revenue guidance was based on.

Having said that so.

Services revenue and margin levels were disappointing in this quarter.

Services cost levels remained at the same level or slightly less than the sequentially preceding quarter, but services revenue was close to $600000 less.

Disappointing yes.

But concerning law.

We are currently working through a tough transformation period.

Transforming from an older technology on premise based software providers to one which is based on an innovation driven subscription license model.

As all of US know is among the toughest transitions for an enterprise software organization to go through.

In addition.

We are also transforming from a one or two product installed services project management unit.

Two one that handles complex multi product integrated implementations routinely.