Q3 2025 Agilysys Inc Earnings Call

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

Jessica Hennessy: Thank you Troy and good afternoon, everybody. Thank you for joining the adult as 2025 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.

Jessica Hennessy: 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.

Jessica Hennessy: Although the company believes that its forward looking statements are based on reasonable assumptions.

Jessica Hennessy: Such statements are subject to risks and uncertainties that could cause actual results to differ materially.

Jessica Hennessy: Important factors that could cause actual results to vary materially from these forward looking statements include our ability to meet the provided guidance levels, our ability to increase sales our ability to maintain profitability levels and the risks set forth in the company's reports on Form 10-K, and 10-Q and other reports filed with the six.

Jessica Hennessy: <unk> and Exchange Commission.

Jessica Hennessy: As a reminder, any references to record financial and business levels. During this call refer only to the time period. After Joseph made the transformation to an entirely hospitality focused software solutions company in fiscal year 2014.

Jessica Hennessy: With that I'd now like to turn the call over to Mr. Ramesh Srinivasan, President and CEO of <unk> for mesh. Please go ahead.

Ramesh Srinivasan: Thank you James Good evening and welcome to the fiscal 2025 third quarter earnings call.

Speaker Change: Joining Jeff and me on the call today.

Dave Wood: Atlanta headquarters is Dave Wood CFO.

Speaker Change: As is our usual practice on these calls let me cover sales first before discussing revenue and other details.

Speaker Change: We measure suits are settling succes in annual contract value terms.

Speaker Change: Yes.

Speaker Change: Fiscal 2025, Q3 was our third highest sales quarter ever slight.

Speaker Change: Slightly below the sequent sheep received in Q2.

Speaker Change: It was the second highest.

Speaker Change: Just like all of the previous quarter was our best July to September sales period.

Speaker Change: This one was.

Speaker Change: Best.

Speaker Change: October to December sales quarter.

Speaker Change: Fiscal 2025 to three October to December was a successful sales quarter despite point of sale.

Speaker Change: S sales coming in below expectations.

Speaker Change: Sales of <unk> and <unk> related products during Q3 was better than Q1, but less than Q2.

Speaker Change: Fiscal 2025 sales and revenue levels fell well short of our expectations, mainly due to disappointing sales levels in the managed foodservice verticals.

Speaker Change: The very tough process of crossing that technology, all to new transformation bridge turned out to be a lot more challenging.

Speaker Change: Then rebound going forward.

Speaker Change: We are currently working on several significant near term sales.

Speaker Change: Sales opportunities.

Speaker Change: We remain confident we will get past this current challenging phase soon.

Speaker Change: We expect <unk> sales to return to normal levels. During the next few quarters and then improve further on from this.

Speaker Change: With the exception of installations for one customer who.

Speaker Change: Who is not approved the newer versions for their properties yet.

Speaker Change: Virtually all our current implementations involve only the combined modernized and unified new versions and are going very well.

Speaker Change: As we move into the new calendar year, many customers are coming back to the table for compositions on moving from old to new oceans now that they have had the time to plan and budget for these upgrades.

Speaker Change: On the other hand.

Speaker Change: Q3 was the all time best quarter for sales of property management systems, Pms and Pms related add on modules.

Speaker Change: Even excluding sales pertaining to book for time.

Speaker Change: Sales of BMS and related modules, excluding booked for time measured in annual contract value terms.

Speaker Change: Was 70% that is seven zero, 70% higher than sales during the comparable prior year quarter.

Speaker Change: None of any PMA sales reported so far this includes anything from the Marriott Pms agreement.

Speaker Change: With one full quarter left to go physically.

Speaker Change: <unk> fiscal 2025 is already.

Speaker Change: Record sales year for Pms and related modules ahead of the previous best full year.

Speaker Change: By as much as 33%.

Speaker Change: The transformation process from old to new modernized cloud native technology has proven to be a lot more straightforward and simpler to manage with respect to pms.

Speaker Change: Baird.

Speaker Change: Sure.

Speaker Change: Okay.

Speaker Change: Fiscal 2025, Q3 was another excellent sales quarter for U S domestic sales, including the gaming casinos vertical.

Speaker Change: With a turnaround beginning to happen in the managed foodservice verticals.

Speaker Change: Sales levels in the APAC and EMEA regions remained at about the same disappointing levels as before.

Speaker Change: However, we are currently working on several substantial sales opportunities in both of these international regions.

Speaker Change: And it will not surprise us if this current January to March Q4 quarter with a record one for international flights.

Speaker Change: We are continuing to build our brand reputation and a base of good solid residential customers in international regions and are making slow but steady progress.

Speaker Change: More opportunities will come as we make progress with these efforts.

Speaker Change: Despite ongoing challenges with Pos and international sales.

Speaker Change: Overall global sales at the end of the first three quarters of fiscal 2025.

Speaker Change: April to December.

Speaker Change: Was well ahead of last year's record pace through three quarters.

Speaker Change: And we continue to see sales momentum as we move into the final quarter of the fiscal year.

Speaker Change: During fiscal 2025 Q3 October to December we added 12, new customers and 11 of them were fully subscription based.

Speaker Change: These new customer signed a put an average of six products, each which is a record high.

Speaker Change: In addition, we added 76, new properties, which did not have any of our products before but the parent company was already our customers.

Speaker Change: Of the 8% to eight new properties added during the quarter across new customers.

Speaker Change: Our new properties of current pattern customers 86 were either partially or fully subscription based.

Speaker Change: With respect to new product sales. They were 86 instances of sales to properties, which have at least one of our other products already in use.

Speaker Change: This 86 instances involve sales of a total of 204 new products.

Speaker Change: With one quarter remaining in the year.

Speaker Change: Fiscal 2025 is already.

Speaker Change: Best full year in our history for new product sales.

Speaker Change: Customers using at least one of our products continue to trust us.

Speaker Change: Buying additional products at a record pace.

Speaker Change: We continue to work hard to translate that success, we are having with customers who know us well.

Speaker Change: Two new customers, who have not known as well before and are only now becoming more familiar with our recent history of product innovation like.

Speaker Change: Like we said in our last earnings call much of the hospitality industry is not fully discovered the new analysis yet.

Speaker Change: We have a long promising runway of short and medium term sales and revenue growth ahead of us both with the existing customer base and with new customers.

Speaker Change: Our current global demo plus sales pipeline.

Speaker Change: Measured at the annual contract value some of all sales opportunities. We are currently working on which have reached at least the product demonstration stage is now at a record level. Since we started tracking this value a couple of years ago.

Speaker Change: And it was 20% higher as of December end compared to the same time the previous year.

Speaker Change: This demo plus sales pipeline was 22%.

Speaker Change: At 37% highest for Pos and Pms opportunities respectively as of December end compared to the same time one year ago.

Speaker Change: Our sales momentum remained strong, but it can be even stronger.

Speaker Change: The installations are getting better, but we should be doing a lot more of them.

Speaker Change: A number of new customers is good but can be fought highest <unk>.

Speaker Change: These are the areas we are focused on as we move into the final quarter of this year.

Speaker Change: And continue to work on growth plans for the next fiscal year.

Speaker Change: On to revenue and profitability.

Speaker Change: Fiscal 2025, Q3 revenue was a record $69 6 million.

Speaker Change: The 12th consecutive record revenue quarter.

Speaker Change: 14, 9% that is one four.

Speaker Change: $14, 9% higher than the comparable prior year quarter.

Speaker Change: Product revenue was $10 7 million, which was 15, 8% that is one $515 8% lower.

Speaker Change: And then Q3 last year.

Speaker Change: Product revenue continues to be challenged due to three main factors.

Speaker Change: One.

Speaker Change: An increasing proportion of business expansion is now based on the cloud involving subscription licenses.

Speaker Change: Actual software license revenue, which forms a portion of product revenue is not expected to be one of our future growth engines.

Speaker Change: Factor number two the hardware portion of product revenue is dependent on sales, which has been challenged in the recent past.

Speaker Change: And factor number three each unit of sales now has a reduced hardware attach rate because of the recent software versions of our <unk> terminal support all major operating systems Windows, iOS, and Android, enabling customers to buy devices like ipads directly and not through us.

Speaker Change: While we expect <unk> sales levels to improve in the near term, we expect product revenue levels to remain challenged for the foreseeable future.

Speaker Change: Fiscal 2025, Q3 services revenue was $14 5 million and one for $14 5 million.

Speaker Change: 13, 5% that is one three again 13, 5% higher than the comparable prior year quarter, but below our expectations and back to more realistic levels.

Speaker Change: Services revenue and margin this quarter was affected by three reasons.

Speaker Change: One.

Speaker Change: Billable Pms product enhancement and development work for the major projects, we have been working on for several quarters has been substantially completed.

Speaker Change: That project now moves into the deployment planning phase.

Speaker Change: Reason number two.

Speaker Change: Few significant implementation projects were postponed by customers during December to subsequent months to a larger extent compared to previous December months.

And reason number three was our inability to meet our hiring goals during the past few months as we continue to expand the size and strength.

After implementation services teams.

Speaker Change: Services backlog is now at a record high level and we expect services revenue to grow along a more realistic path for the foreseeable future we.

Speaker Change: We are currently working on ways to increase the hiring pace for the services teams.

Speaker Change: Fiscal 2025, Q3 recurring revenue was a record $44 4 million 26, 4% higher than the comparable prior year period.

Speaker Change: The year over year increase in recurring revenue of $9 3 million is a record high.

Speaker Change: Recurring revenue was 63, 8% of total revenue this quarter.

Speaker Change: Within recurring revenue subscription revenue was a record $28 3 million 45, 1% higher than the comparable prior year quarter.

Speaker Change: This was the sixth consecutive quarter of subscription revenue year over year growth of at least 29%.

Speaker Change: Organic subscription revenue year over year growth was 23%.

Speaker Change: The overall subscription revenue year over year increase was a record $8 $8 million.

Speaker Change: Subscription revenue is now 63, 8% of total recurring revenue, which is the highest level reached till now.

Services revenue and margin this quarter.

Affected by three reasons one.

Billable Pms product enhancement and development work for the major project, we've been working on for several quarters has been substantially completed.

Speaker Change: Subscription revenue pertaining to point of sale, Pos and Tos related modules grew by close to 20% year over year, while subscription revenue pertaining to pms and pms related modules not including booked for time grew by 35% year over year.

As that project now moves into the deployment planning space.

Reason number two.

A few significant implementation projects were postponed by customers during December to subsequent months to.

Yes.

Speaker Change: Pms related subscription revenue grew during the first three quarters of fiscal 2025.

To a larger extent compared to previous disappointments.

A reasonable one.

Speaker Change: A lot more than the sum of the growth during all of the previous full fiscal years.

We are hiring goals.

Two months.

And we continue to expand the size and strength.

Our implementation services.

Speaker Change: Now moving book for time subscription revenue from both the numerator and the denominator.

Services backlog is now at a record high level.

Speaker Change: Subscription revenue from only add on modules across both Prs and Pms most of which were created during the recent past several years constituted 22% of total subscription revenue.

Thank you.

Yes.

Okay.

Yes.

Yes.

Yeah.

Okay.

Yes.

Speaker Change: Including book for Diamond the equation add on modules are now 34% of total subscription revenue.

Fiscal 2025, Q3 recurring revenue was a record $44 4 million.

26, 4% highest than the comparable prior year period.

Speaker Change: Over the past several years, our product development teams have done a masterful job of completing the extremely onerous and difficult product modernization projects, achieving a near 100% success rate with each product reengineering and new module creation effort.

The year over year increase in recurring revenue of $9 3 million is a record high.

Recurring revenue was 60.

Speaker Change: This kind of success rate is not often seen with such massive reengineering exercises in the enterprise software world.

All the recent installations, which are based only on the modernized versions are going very well.

Speaker Change: The transformation from old to new has to be done in stages for the <unk> products and became more challenging than we expected.

Speaker Change: We underestimated those transition related sales challenges this fiscal years.

Speaker Change: Most of the topline revenue headwinds we have faced this fiscal years are.

Speaker Change: Related to this.

Speaker Change: POS sales challenges, mainly in the managed food services vertical.

Speaker Change: We now expect full fiscal year 2025, total revenue to be $273 million.

Speaker Change: We expect to achieve the previously guided guidance. The previously provided guidance for profitability levels and subscription revenue growth.

Speaker Change: Before handing the call over to Dave for more on our financial results a quick update on the <unk> project.

Speaker Change: As we mentioned earlier in the call. We have now moved past the initial significant development phase of the project.

Speaker Change: All vendors are working collaboratively towards the next phase and there is a high degree of transparency regarding all project details among all involved parties.

Speaker Change: This includes detailed end to end ecosystem and system performance testing across all windows and preparing for the few test properties, which will be followed by pilot property installations expected in the second half of this calendar year.

Speaker Change: With that.

Speaker Change: Let me handle the call today.

Ramesh Srinivasan: Thank you Ramesh taking a look at our financial results beginning with the income statement third quarter fiscal 2025 revenue was a quarterly record of $69 6 million a 14, 9% increase from total net revenue of $60 $6 million in the comparable prior year period.

But at this rate does not often seen with such massive reengineering exercises in the enterprise software world.

All of the recent installations, which are based only on the modernized versions are going very well.

The transformation from old to new has to be done in stages for the <unk> products and became more challenging than we expected.

Ramesh Srinivasan: Onetime revenue consisting of product and professional services was down one 1% compared to the prior year quarter, while recurring revenue was up 26, 4%.

We underestimated those transition related sales challenges this fiscal years.

Most of the topline revenue headwinds we have faced this fiscal years are related to this.

Ramesh Srinivasan: We continue to work through challenges of transforming the new versions of our modern products. We're also seeing revenue impacts this quarter as we move beyond the development phase and start planning for the rollout of a major customer.

POS sales challenges, mainly in the managed food services vertical.

We now expect full fiscal year 2025, total revenue to be $273 million.

Ramesh Srinivasan: However, our sales momentum remained strong with Q3 bookings at healthy levels for future revenue growth.

We expect to achieve the previously guided guidance. The previously provided guidance for profitability levels and subscription revenue growth.

Ramesh Srinivasan: Our total backlog remains at near record levels.

Ramesh Srinivasan: Onetime product revenue, which has been a significant challenge during the second half of the fiscal year, we will continue to be the biggest headwind in the business through the fourth quarter.

Before handing the call over to Dave for more on our financial results a quick update on the <unk> project.

Ramesh Srinivasan: The full fiscal year product revenue will be 15% to 20% down compared to last fiscal year, a larger year over year reduction than we originally expected.

As we mentioned earlier in the call. We have now moved past the initial significant development phase of the project.

Ramesh Srinivasan: Although short of expectations point of sale bookings are still over the low point in Q1 of fiscal year 'twenty.

All vendors are working collaboratively towards the next phase and there is a high degree of transparency regarding all project details among all involved parties.

Ramesh Srinivasan: Professional services increased 13, 5% over the prior year quarter to $14 5 million with services gross margin at 26, 7%.

This includes detailed end to end ecosystem and system performance testing across all windows and preparing for the few test properties, which will be followed by pilot property installations expected in the second half of this calendar year.

Ramesh Srinivasan: Professional services reduced by $1 8 million when compared to Q2 fiscal year 'twenty five.

Ramesh Srinivasan: The drop was largely related to the large development effort. We've been working on during the past couple of years, we have now wrapped up the majority of the initial development requirements.

With that.

Ramesh Srinivasan: We are moving past the major development phase and shifting our focus to the rollout phase of the project.

Let me handle the call today.

Thank you Ramesh taking a look at our financial results beginning with the income statement third quarter fiscal 2025 revenue was a quarterly record of $69 6 million a 14, 9% increase from total net revenue of $60 $6 million in the comparable prior year period.

Ramesh Srinivasan: We will continue to see some development services related revenue associated with a large project, but at a significantly reduced level, bringing services revenue more in line with normal growth rates.

Ramesh Srinivasan: Typical professional services projects also also caused some revenue impact during Q3 or the timing of holidays caused several large project to delay into the fourth quarter more than in prior years.

Onetime revenue consisting of product and professional services was down one 1% compared to the prior year quarter, while recurring revenue was up 26, 4%.

Ramesh Srinivasan: Professional services backlog once again increased to record levels.

We continue to work through challenges of transforming the new versions of our modern products. We are also seeing revenue impact this quarter as we move beyond the development phase and start planning for the rollout of a major customer.

Ramesh Srinivasan: Total recurring revenue represented 63, 8% of total net revenue for the fiscal third quarter compared to 58% in the third quarter of fiscal 2024.

Ramesh Srinivasan: Fiscal 2025 third quarter subscription revenue grew 45, 1% over Q3 last fiscal year.

However, our sales momentum remained strong with Q3 bookings at healthy levels for future revenue growth.

Ramesh Srinivasan: Subscription revenue comprised 63, 8% of total recurring revenue compared to 55, 6% of total recurring revenue in the third quarter of fiscal 2024.

Our total backlog remains at near record levels.

Onetime product revenue, which has been a significant challenge during the second half of the fiscal year, we will continue to be the biggest headwind in the business through the fourth quarter.

Ramesh Srinivasan: Subscription revenue increased sequentially $3 $3 million from the second quarter of fiscal 2020 from organic.

The full fiscal year product revenue will be 15% to 20% down compared to last fiscal year, a larger year over year reduction than we originally expected.

Ramesh Srinivasan: Subscription growth was 23% for the quarter and trending to 25% for the full fiscal year.

Although short of expectations point of sale bookings are still up over the low point in Q1 of fiscal year 'twenty five.

Ramesh Srinivasan: Q3 was the best subscription sales quarter in our history.

Ramesh Srinivasan: Prescription backlog continues to increase over our fiscal year 'twenty four exit rates.

Professional services increased 13, 5% over the prior year quarter to $14 5 million with services gross margin at 26, 7%.

Ramesh Srinivasan: Moving down the income statement gross profit was $43 9 million compared to $37 $8 million in the comparable prior year quarter gross profit margin was 63% compared to 62, 5% in the third quarter of fiscal 2024.

Professional services reduced by $1 8 million when compared to Q2 fiscal year 'twenty five.

The drop was largely related to the large development effort. We've been working on during the past couple of years, we have now wrapped up the majority of the initial development requirements.

Ramesh Srinivasan: Overall total gross margins should remain just north of 60% for the full fiscal year.

We are moving past the major development phase and shifting our focus to the rollout phase of the project.

Ramesh Srinivasan: Combined with the remaining three main operating expense line items product development sales and marketing and general and administrative expenses when excluding stock based compensation or <unk> 42, 1% of revenue.

We will continue to see some development services related revenue associated with a large project, but at a significantly reduced level, bringing services revenue more in line with normal growth rates.

Fiscal 2023rd quarter compared to 43, 1% of revenue in the prior year quarter.

Typical professional services projects also also caused some revenue impact during Q3 or the timing of holidays caused several large project to delay into the fourth quarter more than in prior years.

Ramesh Srinivasan: Excluding stock based compensation product development decreased to 18, 2% of revenue during Q3 of fiscal 2025 compared to 29% of revenue in the comparable prior fiscal year Q3.

Professional services backlog once again increased to record levels.

Ramesh Srinivasan: General and administrative expenses decreased to 11, 7% of revenue compared to 12, 4% in the comparable prior fiscal year, while sales and marketing increased from nine 8% of revenue to 12, 2% revenue.

Total recurring revenue represented 63, 8% of total net revenue for the fiscal third quarter compared to 58% in the third quarter of fiscal 2024.

Fiscal 2025 third quarter subscription revenue grew 45, 1% over Q3 last fiscal year.

Ramesh Srinivasan: Operating income for the third quarter of $7 4 million net income of $3 8 million and gain per diluted share of <unk> 14 compares to the prior year third quarter gain of $7 8 million $76 9 million and $2 85.

Subscription revenue comprised 63, 8% of total recurring revenue compared to 55, 6% of total recurring revenue in the third quarter of fiscal 2024.

Subscription revenue increased sequentially $3 $3 million from the second quarter of fiscal 2025 organic.

Ramesh Srinivasan: The reduction in net income was primary primarily due to the release of a $65 million valuation allowance in the prior year quarter adjusted.

Subscription growth was 23% for the quarter and trending to 25% for the full fiscal year.

Ramesh Srinivasan: Net income normalizing for certain noncash and nonrecurring charges of $10 7 million and adjusted diluted earnings per share of 38 four.

Q3 was the best subscription sales quarter in our history.

Ramesh Srinivasan: We're both improvements over the prior year third quarter result of $9 3 million and <unk> 35, respectively.

Prescription backlog continues to increase over our fiscal year 'twenty four exit rates.

Moving down the income statement gross profit was $43 9 million compared to $37 $8 million in the comparable prior year quarter gross profit margin was 63% compared to 62, 5% in the third quarter of fiscal 2024.

Ramesh Srinivasan: For the 2025 third quarter adjusted EBITDA was $14 7 million compared to $11 8 million in the year ago quarter. We are pleased to see our profitability levels being well ahead of the original FY 'twenty five plan with adjusted EBITDA coming in at 21, 2% of revenue.

Overall total gross margins should remain just north of 60% for the full fiscal year.

Ramesh Srinivasan: Moving to the balance sheet and cash flow statements cash and marketable securities as of December 31, 2024 was $60 8 million compared to $144 9 million as of March 31 2024.

Combined the three remaining for three main operating expense line items product development sales and marketing and general and administrative expenses when excluding stock based compensation or <unk> 42, 1% of revenue.

Ramesh Srinivasan: Cash decrease was related to the portion of the book for Tom acquisition paid with cash on hand.

Fiscal 2025 third quarter compared to 43, 1% of revenue in the prior year quarter.

Ramesh Srinivasan: As a reminder, we also utilized $50 million under our credit revolver.

Ramesh Srinivasan: The book for Tom acquisition.

Excluding stock based compensation product development decreased to 18, 2% of revenue during Q3 of fiscal 2025 compared to 29% of revenue in the comparable prior fiscal year Q3.

Ramesh Srinivasan: As of fiscal Q3, and we have paid down $12 million of the associated debt sub.

Ramesh Srinivasan: Subsequent to December 31, 2024, we paid down an additional $14 million.

General and administrative expenses decreased to 11, 7% of revenue compared to 12, 4% in the comparable prior fiscal year, while sales and marketing increased from nine 8% of revenue to 12, 2% revenue.

Ramesh Srinivasan: Free cash flow in the quarter was $19 7 million compared to $11 $3 million in the comparable prior year quarter.

Ramesh Srinivasan: For the first nine months of fiscal year 2025, free cash flow was $25 9 million compared to $10 7 million in the prior year.

Operating income for the third quarter of $7 4 million net income of $3 8 million and gain per diluted share of <unk> 14 compares to the prior year third quarter gain of $7 8 million $76 9 million and $2 85.

Ramesh Srinivasan: As we said in the past adjusted EBITDA and free cash flow continued to be good proxy for health of the business over the course of the fiscal year.

Ramesh Srinivasan: One time revenue challenges have led us to lower our annual guidance to $273 million those subscription growth remains at least 38%.

The reduction in net income was primary primarily due to the release of a $65 million valuation allowance in the prior year quarter adjusted.

Ramesh Srinivasan: Despite this profitability is above plan due to lower costs associated with reduced revenue expectations.

Ramesh Srinivasan: In closing our Q3.

Net income normalizing for certain noncash and nonrecurring charges of $10 7 million and adjusted diluted earnings per share of 38 four.

Ramesh Srinivasan: Fiscal year 2025 financial results reflect some short term challenges, but a firm the solid foundation for current and future revenue growth.

We're both improvements over the prior year third quarter result of $9 3 million and <unk> 35, respectively.

Ramesh Srinivasan: With that I will now turn the call back over to Ramesh.

For the 2025 third quarter adjusted EBITDA was $14 7 million compared to $11 8 million in the year ago quarter. We are pleased to see our profitability levels being well ahead of the original FY 'twenty five plan with adjusted EBITDA coming in at 21, 2% of revenue.

Ramesh Srinivasan: Thank you Dave.

Ramesh Srinivasan: In summary, let.

Ramesh Srinivasan: Let me reiterate that the topline revenue related headwinds we have faced this fiscal year.

Ramesh Srinivasan: Our only related to the tough transition phase we are in now.

Ramesh Srinivasan: As we leave behind older technologies, we were dependent bond for a couple of decades.

Moving to the balance sheet and cash flow statements cash and marketable securities as of December 31, 2024 was $60 8 million compared to $144 9 million as of March 31 2024.

Ramesh Srinivasan: And have entered a new era of cloud native modernized technologies using which.

Ramesh Srinivasan: We have created an integrated set of a unified ecosystem of hospitality focused software modules, which have given us a distinct and tough to duplicate competitor advantage.

The cash decrease was related to the portion of that book for Tom acquisition paid with cash on hand.

As a reminder, we also utilized 50 million through a credit revolver.

Ramesh Srinivasan: Fiscal 2025 was a pivotal year in that massive plantation and we underestimated the same challenges on the point of sale Pos side of the accretion.

The book for Tom acquisition.

As of fiscal Q3, and we have paid down $12 million of the associated debt.

Subsequent to December 31, 2024, we paid down an additional $14 million.

Ramesh Srinivasan: We should keep in mind that fiscal 2025 is still a record sales year for us.

Free cash flow in the quarter was $19 7 million compared to $11 $3 million in the comparable prior year quarter.

Ramesh Srinivasan: But could have been a lot better.

Ramesh Srinivasan: In addition, <unk> also done a lot better with the speed of hiring for the implementation services teams.

For the first nine months of fiscal year 2025, free cash flow was $25 9 million compared to $10 7 million in the prior year.

Ramesh Srinivasan: We have focused on that now and we expect professional services revenue to return to more realistic growth levels moving forward.

As we said in the past adjusted EBITDA and free cash flow continued to be good proxy for health of the business over the course of the fiscal year.

Ramesh Srinivasan: We cannot blame the challenges on any other significant reason.

One time revenue challenges have led us to lower our annual guidance to $273 million those subscription growth remains at least 38%.

Ramesh Srinivasan: There are no external headwinds that have caused these challenges no macroeconomic issues.

Despite this profitability is above plan due to lower costs associated with reduced revenue expectations.

No changes in the competitive environment.

Ramesh Srinivasan: No structural issues, our business fundamentals are stronger now than ever before.

In closing our Q3.

Ramesh Srinivasan: Nothing that will require us to rethink any of our ongoing business and growth investment strategies, none of any of that.

Fiscal year 2025 financial results reflect some short term challenges, but a firm the solid foundation for current and future revenue growth.

Ramesh Srinivasan: Our profitability levels have good and can be improved further as our operating leverage continues to be steadily more effective over the medium and long term.

Ramesh: With that I will now turn the call back over to Ramesh.

Ramesh: Thank you Dave.

Ramesh: In summary, let.

Ramesh Srinivasan: We have not sacrificed any growth related needs to fuel profitability.

Ramesh: Let me reiterate that the topline revenue related headwinds we have faced this fiscal year.

The total addressable market size remains huge.

Ramesh: Only related to the tough transition phase III I don't know.

Ramesh Srinivasan: We have now a credible presence in the Pms property management systems Arena.

Ramesh: As we leave behind older technologies, we are dependent bond in for a couple of decades.

Ramesh Srinivasan: Our growth journey is only getting started.

Ramesh: And we have entered a new era of cloud native modernized technologies using which.

Ramesh Srinivasan: We remain confident in our ability to run a world class enterprise software disciplined growth organization, which knows how to balance growth and profitability.

Ramesh: We have created an integrated set of a unified ecosystem of hospitality focused software modules, which have given us a distinct and Dr.

Ramesh Srinivasan: The major Pms project, we've been working on continues to progress well.

Ramesh: After duplicate competitor advantage.

Ramesh Srinivasan: We are working through this transition phase and are in a good position.

Ramesh: Fiscal 2020 high it was typically is in that massive plantation and we underestimated the same challenges on the point of sale Pos side of the equation.

Ramesh Srinivasan: And growth.

Ramesh Srinivasan: We underestimated some of the short term all to new transition challenges this fiscal year.

Ramesh: We should keep in mind that fiscal 2025 is still a record sales year for us.

That is it nothing more nothing less.

Ramesh Srinivasan: The newer modernized unified version of our product sets are doing well in the field.

Ramesh: But could have been a lot better.

Ramesh: In addition, <unk> also done a lot better with the speed of hiring for the implementation services teams.

Ramesh Srinivasan: They are easier to implement support and enhance.

Ramesh Srinivasan: They give us excellent reasons to be very bullish about our future.

Ramesh: We have focused on that now and we expect professional services revenue to return to more realistic growth levels moving forward.

Ramesh Srinivasan: To our employees customers and shareholders.

Ramesh Srinivasan: With that to end up let's open up the call for questions.

Ramesh: We cannot blame the challenges on any other significant reason.

Ramesh Srinivasan: Thank you.

Speaker Change: Ladies and gentlemen, as a reminder to ask a question. Please press star one on your telephone and then wait for your name to be announced to withdraw your question. Please press star one again.

Ramesh: There are no external headwinds that have caused these challenges no macroeconomic issues no changes in the competitive environment.

Ramesh: No structural issues.

Ramesh Srinivasan: Please stand by while we compile the Q&A roster.

Ramesh: Business fundamentals are stronger now than ever before.

Ramesh Srinivasan: Okay.

Ramesh: Nothing that will require us to rethink any of our ongoing business and growth investment strategies, none of any of that.

Speaker Change: Our first question comes from the line of George Sutton with Craig Hallum. Your line is open.

Ramesh Srinivasan: Yes.

Ramesh: Our profitability levels have good and can be improved further as our operating leverage continues to be steadily more effective over the medium and long term.

Speaker Change: Thank you.

Speaker Change: I wondered if you could just walk through this development process that you've talked about that we're now going to be in.

Ramesh: We have not sacrificed any growth related needs to fuel profitability.

Speaker Change: With our major project.

Speaker Change: What does it tell us about the overall projects has there been any scope changes.

Ramesh: The total addressable market size remains huge.

Speaker Change: I believe we were pursuing a train the trainer model, which would suggest at some point, we have less services component to this but if you could just give us a little sense of that and then also you mentioned that.

Ramesh: We have now a credible presence in the Pms property management systems Arena.

Ramesh: Our growth journey is only getting started.

Ramesh: We remain confident in our ability to run a world class enterprise software disciplined growth organization, which knows how to balance growth and profitability.

Speaker Change: There will be a few test properties than any pilot phase can you just give us a little more detail on the significance of those phases.

Ramesh: The major of BMS project, we've been working on continuous to progress well.

Speaker Change: Yes, George the good news about this project as there are no major changes.

Ramesh: We are working through this transition phase and are in a good position.

Speaker Change: <unk> been telling you all this time.

Speaker Change: Given how big a project.

Ramesh: And growth.

Ramesh: We underestimated some of the short term all to new transition challenges this fiscal year.

Speaker Change: With a major customer and it's a massive transformational project for them that involve multiple vendors and considering all the moving parts. It has gone remarkably well sulfides and almost exactly on plan.

Ramesh: That is it nothing more nothing less.

Ramesh: The newer modernized unify devotion of our product sets are doing well in the field.

Speaker Change: So there was a lot of development needs product development needs that needed to get done which are all substantially over now and we are now moving into the ecosystem system performance testing and deployment planning phases, which is exactly where we thought we would be at this time.

Ramesh: They are easier to implement support and hence.

Ramesh: They give us excellent reasons to be very bullish about our future for our employees customers and shareholders.

Ramesh: With that to end up let's open up the call for questions.

Ramesh: Thank you.

Speaker Change: And what we expect in the second half of this year.

Speaker Change: Ladies and gentlemen, as a reminder to ask a question. Please press star one on your telephone and then wait for your name to be announced to withdraw your question. Please press star one.

Speaker Change: Is test properties, followed by pilot sites to go live in the second half of calendar 2025.

Ramesh: Please stand by while we compile the Q&A roster.

Speaker Change: And then we proceed from there.

Speaker Change: Okay.

Speaker Change: So all of that is going exactly the way it was planned.

Speaker Change: Our first question comes from the line of George Sutton with Craig Hallum. Your line is open.

Speaker Change: And one thing to note that it is being managed very well by Marriott Theres a lot of transparency across all parties that are obviously multiple vendors involved in this and we and the other vendors have good seats at the table, we had all of.

Thank you.

Speaker Change: I wondered if you could just walk through this development process that you talk about that we're now going to begin.

Speaker Change: With our major project what does it tell us about the overall projects has there been any scope changes.

Speaker Change: The details are transparent we're all aware of what is going on and there is a remarkable degree of cooperation and coordination among all the parties. So things are going on with.

Speaker Change: I believe we were pursuing a train the trainer model, which would suggest at some point, we have less services component to this but if you could just give us a little sense of that and then also you mentioned that.

Speaker Change: You mentioned.

Speaker Change: Don't be surprised if international is a record this quarter.

Speaker Change: Which would be suggestive of some near term pipeline opportunities.

Speaker Change: There will be a few test properties than a pilot phase can you just give us a little more detail on the significance of those phases.

Speaker Change: Is that dependent on this quarter is it dependent on.

Speaker Change: Are you winning something that you are anticipating winning or is it the timing of the decision that's more important.

Speaker Change: Yes, George the good news about this project as there are no major changes from what we have been telling you all this time.

Steve: Hi, Steve.

Steve: Doug characteristic of international sales for the last few quarters.

Speaker Change: Given how big a project of it.

Steve: Both good news and bad news jobs is that it is still dependent on.

Speaker Change: With a major customer and it's a massive transformational project for them that it was multiple windows and considering all the moving parts. It has gone to the market <unk> sulfides and almost exactly on plan.

Steve: A few homeruns and not enough singles and doubles.

Steve: And then a couple of significant sales opportunities that we have been working on that I think hopefully should come to fruition. During the next few months. So there is a chance that this quarter January through March could be a record quarter for international sales.

Speaker Change: So there was a lot of development needs product development needs that needed to get done which are all substantially over now and we are now moving into the ecosystem system performance testing and deployment planning phases, which is exactly where we thought we would be at this time.

Steve: But that still doesn't get out of the doldrums, we still need to build a solid pipeline of singles and doubles, which we are working on we are building a reputation we are increasing our relationships, but these kinds of big wins, when they happen do matter because it increases our presence but.

Speaker Change: And what we expect in the second half of this year.

Speaker Change: Is test properties.

Speaker Change: Following by pilot sites to go live in the second half of calendar 2025.

Steve: The dependence is still on the big hits the Big Homeruns.

Speaker Change: Then we proceed from there.

Steve: Need to develop more singles and doubles in the international regions.

Speaker Change: So all of that is going exactly the way it was planned.

Steve: One other thing if I could you mentioned the new agilis is still not necessarily appreciate it as broadly as you would like.

Speaker Change: And one thing to note that it is being managed very well by Marriott Theres a lot of transparency across all <unk> that are obviously multiple vendors involved in this and we and the other vendors have good seats at the table to be at all.

Speaker Change: I am curious if you can bifurcate that to domestic versus international or <unk>.

Speaker Change: You feel you're known better domestically and therefore seeing the opportunities you should see.

Speaker Change: The details of that transparent we're all aware of what is going on and there is a remarkable degree of cooperation and coordination among all the parties. So things are going on with.

Speaker Change: And then on the other side on the international side My assumption is you're not seeing as many opportunities as you think you should be.

Speaker Change: You mentioned.

Speaker Change: Based on the new agilis.

Speaker Change: Don't be surprised if international is a record this quarter.

Speaker Change: Yes in terms of the reputation of the new Agilis US George we do have two hills to climb one domestic and one international and there is no question that the domestic hill is a lot shorter to clients. We already have a reputation domestically we are well known reasonably well known now we are trying to spread the message of the new <unk>.

Speaker Change: Which would be suggestive of some near term pipeline opportunities.

Speaker Change: Is that dependent on this quarter is it dependent on.

Speaker Change: You winning something that you are anticipating winning or is it the timing of the decision that's more important.

Speaker Change: And for that.

Steve: Hi, Steve.

Steve: The characteristic of international sales for the last few quarters.

Speaker Change: Lot of the new installing new installations, meaning installations based on the new modernized and unified versions.

Steve: Both good news and bad news jobs is that it is still dependent on.

Speaker Change: We are getting we are getting more and more of them done and as they continue to go well the message of the new agile as the modernized cloud native solutions keeps spreading internationally that hill is a lot higher decline because we just didn't have that much of a reputation before not only do we have to establish the name of ideal is there and then.

Steve: A few homeruns.

Steve: Not enough singles and doubles.

Steve: And then a couple of significant sales opportunities that we have been working on that I think hopefully should come to fruition. During the next few months. So that is a chance that this quarter January through March could be a record quarter for international sales.

Speaker Change: We have to establish the name of new analyses as well and a lot of the big projects. The big sales opportunities. We are working on will provide us that news that will provide us those are evidenced apple customers around whom we can build to answer. Your question. It is definitely an easier process domestic.

That still doesn't get out of the doldrums, we still need to build a solid pipeline of singles and doubles, which we are working on we are building a reputation we are increasing our relationships, but these kinds of big wins, when they happen do matter because it increases our presence.

Speaker Change: And internationally.

Yeah sure I'll leave it to others. Thank you very much. Thank you Josh good.

But.

Speaker Change: Please standby for our next question.

Steve: The dependence is still on the big hits, the Big home runs.

Speaker Change: Our next question comes from the line of Sam <unk> with Needham <unk> Company. Your line is open.

Steve: Need to develop more singles and doubles and internationally.

Speaker Change: One other thing if I could you mentioned the new agilis is still not necessarily appreciate it as broadly as you would like.

Speaker Change: Great.

Speaker Change: Hey, guys I'm just following on for Mark Here Tonight.

Speaker Change: I wanted to touch on the POS sales in the quarter I know you said they were better than.

Speaker Change: I am curious if you can bifurcate that to domestic versus international or <unk>.

Speaker Change: The first quarter, but they still declined sequentially. So I'm just curious if you guys could talk about what gives you the confidence that these trends are going to get better in the coming quarters and throughout the coming year.

Speaker Change: Do you feel you're known better domestically and therefore seeing the opportunities you should see.

Speaker Change: And then on the other side on the international side My assumption is you're not seeing as many opportunities as you think you should.

Yes, so our confidence that <unk> sales will continue improving is based on the pipeline we're working on now Sam.

Speaker Change: Based on the new agilis.

Speaker Change: Yes in terms of the reputation of the new Agilis US jobs, we do have tall hill to climb one domestic and one international and there is no question that the domestic hill is a lot shorter to clients. We already have a reputation domestically we are well known reasonably well known now we are trying to spread the message of the new <unk>.

Speaker Change: Like we told you that is one crucial metric of pipeline that we manage internally that we referred to as demo plus pipeline. So our sales pipelines runs into one hundreds of millions of dollars, but within that we focus on a subset that we call demo plus which is the pipeline of sales off.

Speaker Change: And for that.

Speaker Change: Lot of the new installing new installations, meaning installations based on the new modernized and unified solutions.

Speaker Change: Opportunities.

Speaker Change: Well, we have at least reached the product demonstration stage.

Speaker Change: We are getting we are getting more and more of them done and as they continue to go well.

Speaker Change: The customer has asked for product demos and those product demos are going on.

Speaker Change: Message of the new agile as the modernized cloud native solutions keeps spreading internationally that hill is a lot higher decline because we just didn't have that much of a reputation before not only do we have to establish the name of ideal is that and then we have to establish the name of new analyses as well and a lot of the big projects the big sales opportune.

Speaker Change: Now that pipeline.

Speaker Change: BMS is something like 37% higher than the same time last year, meaning compared December end calendar 2020 forward with December end calendar 2023, BMS is like 37% higher at about 22% highest beyond working through a lot of significant sales opportunities.

Speaker Change: These were working on will provide us that news that will provide us those are evidence of our customers around whom we can build to answer. Your question. It is definitely an easier process domestic.

Speaker Change: I would not put too much focus on the fact, comparing sales of Q1 versus Q2 versus Q3, one thing is clear to US Q1 was the definite bottom point.

Speaker Change: And internationally.

Speaker Change: We have struggled with Pos sales for a couple of quarters Q1 hit a low point and since then we are climbing back upwards and there are significant sales opportunities. We are working on now which gives us the confidence that things will improve our reasonably quickly during the coming few quarters.

Jos: Yes, sure I'll leave it to others. Thank you very much thank you Jos.

Speaker Change: Please standby for our next question.

Speaker Change: Our next question comes from the line of Sam <unk> with Needham <unk> Company. Your line is open.

Speaker Change: Great.

Speaker Change: Hey, guys I'm just following on for Mark Here Tonight.

Speaker Change: Got it okay. That's helpful.

Speaker Change: I wanted to touch on the POS sales in the quarter I know you said they were better than.

Speaker Change: And then just a quick follow up on the VA 11, new subscription logos you guys signed in the quarter could.

Speaker Change: The first quarter, but they still declined sequentially. So I'm just curious if you guys could talk about what gives you the confidence that these trends are going to get better in the coming quarters and throughout the coming year.

Speaker Change: Could you just quickly talk about what markets, we're in which verticals.

Speaker Change: Maybe parse out how many where Pos versus pms.

Speaker Change: A good portion of them granted.

Speaker Change: Yes, so our confidence that <unk> sales will continue improving is based on the pipeline we're working on now.

Speaker Change: Like unusually for us many of them involved both Pos and Pms together.

Speaker Change: Like we told you that is one crucial metric of pipeline that we manage internally that we refer to as demo plus pipeline. So our sales pipelines runs into one hundreds of millions of dollars, but within that the focus on a subset that we called demo plus which is the pipeline of sales off.

Speaker Change: And probably the main highlight of that.

Speaker Change: Was that each of them involved purchase of six dropped six products, which is a record high for US we have never been anywhere close to that six number on an average across all the new customers.

Speaker Change: And six was a record high for us so each customer who came to US purchased several products and most of them involved both Pos and Pms Pos was more than PFS in that in terms of verticals.

Speaker Change: Opportunities.

Speaker Change: Van <unk> at least reached the product demonstration stage.

Speaker Change: The customer has asked for product demos and those product demos that are going on.

Speaker Change: Now that pipeline.

Speaker Change: BMS is something like 37% higher than the same time last year, meaning compared to December end calendar 2020 forward with December end calendar 2023, BMS is like 37% higher at about 22% highest beyond working through a lot of significant sales opportunities.

Speaker Change: I don't know exactly which vertical David Moore, but it involves all verticals. So there was no particular vertical.

Speaker Change: Where I could highlight for you. It involves all our savings verticals, there with new customers across all of them.

Speaker Change: Okay. Good to hear alright, thanks, guys I'll jump back in.

Speaker Change: I would not put too much focus on the fact, comparing sales of Q1 versus Q2 versus Q3, one thing is clear to US Q1 was the definite bottom point.

Speaker Change: Thank you Sam.

Speaker Change: Please standby for our next question.

Speaker Change: Our next question comes from the line of <unk> <unk> with Oppenheimer. Your line is open.

Speaker Change: We have struggled with Pos sales for a couple of quarters Q1 to hit the low point and since then we are climbing back upwards and there are significant savings opportunities. We are working on now which gives us the confidence that things will improve reasonably quickly during the coming few quarters.

Speaker Change: Hi, This is Brian Schwartz.

Brian Schwartz: Oppenheimer. Thanks for taking my questions Ramesh in terms of the point of sale bookings weakness that you talked a lot about is that mostly contained in the manage foods category or is that happening in those other categories.

Speaker Change: Got it okay. That's helpful.

Brian Schwartz: It just to answer your question, Brian It's mostly large spot major huge majority of it is mostly because of the managed foodservice verticals.

Speaker Change: And then just a quick follow up on the 11, new subscription logos you guys signed in the quarter could.

Speaker Change: Could you just quickly talk about what markets these were in which verticals.

Brian Schwartz: Though I would say that in the other verticals, which are doing well it could be better.

Maybe parse out how many where Pos versus pms.

Brian Schwartz: But in terms of the challenges we have had they have been for the large spot in the managed services vertical.

Speaker Change: A good portion of them granted.

And in that vertical and also in the lower end of the markets in the other verticals as well. These are all major Mr. Vance Cascadia as F&B places that don't have the greatest support.

Speaker Change: I'd like it usually for us many of them involved both Pos and Pms together.

Speaker Change: And probably the main highlight of that.

Speaker Change: Was that each of them involved purchase of six plus six products.

Brian Schwartz: They cannot afford huge it departments. So the products have to be simple to install they have to be simple to support they have to be very simple to upgrade those are all of the requirements in the Pos.

Speaker Change: The record high for US we have never been anywhere close to that six number on an average across all the new customers.

Speaker Change: And six was a record high for us so each customer who came to us bloodshed several products and most of them involved both Pos and Pms Pos was more than PFS in that in terms of vertical.

Brian Schwartz: Our Pos systems used to be but we took on this massive transformation of reengineering it completely into cloud native products and also unify stop facing and guest facing feature sets and it became more complicated than the than it should be and that cost pass.

Speaker Change: I don't know exactly which vertical David Moore, but it involves all verticals. So there was no particular vertical.

Brian Schwartz: In some of the opportunities coming through which we are now getting passed since a lot of the new installs are back to being simple to upgrade to enhance and support.

Speaker Change: Where I could highlight for you. It involves all our savings verticals, there with new customers across all of them.

Speaker Change: Okay. Good to hear alright, thanks, guys I'll jump back in.

Dave Wood: But it was the damage was mostly in the managed foodservice wood.

Sam: Thank you Sam.

Brian Schwartz: Okay.

Speaker Change: Please standby for our next question.

Speaker Change: Moving on rematch in your introductory comment it sounds like Youre, putting a greater focus on the go to market on the new customer acquisition.

Speaker Change: Our next question comes from the line of <unk> <unk> with Oppenheimer. Your line is open.

Speaker Change: Hi, This is Brian Schwartz.

Speaker Change: I know that path.

Speaker Change: It Hasnt been the primary source for bookings more of that comes from the installed base. My question for you Ed.

Brian Schwartz: Oppenheimer. Thanks for taking my questions Ramesh in terms of the point of sale bookings weakness that you talked a lot about is that mostly contained in the manage foods category or is it happening in those other categories.

Speaker Change: Does that changed.

Speaker Change: Cadence of your sales rep hiring for next year.

Speaker Change: Looking to scale up the capacity of more hhonors or are you planning to make any other changes either to the organizational structure or the leadership to support a greater focus on the.

Ramesh: Just to answer your question, Brian It's mostly large spot major huge majority of it is mostly because of the managed foodservice verticals.

Speaker Change: Customer acquisition motion next year.

Ramesh: Though I would say that in the other verticals, which are doing well it could be better.

Brian Schwartz: Yeah, So Brian the customer acquisition.

Ramesh: But in terms of the challenges we have had they have been for the large spot in the managed services vertical.

Speaker Change: <unk> focus.

Speaker Change: Yes, it's more on getting more newer customers.

Speaker Change: And the fundamental thing we are doing now we are focused on is ensuring full territory coverage, which is where we have been lacking before now we are continuing to we're continuing to we're going to get a lot of sales from our current customers. We have great relationships with them. They are all very happy that we have modernized our products and they have been with us.

Ramesh: And in that vertical and also in the low end of the markets in the other verticals as well. These are all major Mr. Vance Cascadia as F&B places that don't have the greatest <unk> support.

Ramesh: They cannot afford huge it departments. So the products have to be simple to install they have to be simple to support they have to be very simple to upgrade those are all of the requirements in the Pos.

Speaker Change: For a very long time, so the new product sales selling more products to customers with at least one of our products is going to continue to increase like I said in my opening remarks in three quarters. This year.

Ramesh: Our Pos systems used to be but we took on this massive transformation of reengineering it completely into cloud native products and also unify stop facing and guest facing feature sets and it became more complicated then.

Speaker Change: This is already a best year, we have one quarter to go and we are far ahead of full previous years. So that is going to continue.

Speaker Change: But our success has to come a lot more from new customers and new sites as well.

Ramesh: And then it should be and that cost pass.

Speaker Change: Now couple of things number one we have plenty of room for sales growth with the current sales team.

Ramesh: In some of the opportunities coming through which we are now getting passed since a lot of the new installs are back to being simple to upgrade to enhance and support.

Speaker Change: We did expand our sales team over the last one or two years and we still have what I would call. The second half of the sales team.

Ramesh: But it was the damage was mostly in the managed foodservice wood.

Speaker Change: That can do a lot better than we're doing today. So the focus is on that they have all gone through the ramp time and now that the products out there to sell we are expecting a lot more from them. So the first thing is there is plenty of room for sales growth with the current sales team.

Ramesh: Okay.

Ramesh: Moving on rematch in your introductory comment it sounds like Youre, putting a greater focus on the go to market on the new customer acquisition.

Ramesh: Now with that path.

Ramesh: It Hasnt been the primary source for bookings more of that comes from the installed base. My question for you is.

Speaker Change: Now Julia users is also focused on expanding the sales teams.

Speaker Change: Especially in the hotels and resorts area and we are focused on making sure. We covered the territory. There are still thousands of properties that we are not touching properly at the moment and we are focused on expanding our sales team to ensure full territory coverage now.

Ramesh: Does that changed.

Ramesh: The cadence of your sales rep hiring for next year are you looking to scale up the capacity of more hhonors or are you planning to make any other changes either to the organizational structure or the leadership to support a greater focus on the.

Speaker Change: Now the rest of all the teams are focused on helping sales we want to make sure. We create a lot more of a principal customers with the newer versions. So that it becomes easier for sales to set. So we are focused on all of those areas.

Ramesh: Customer acquisition motion next year.

Brian Schwartz: Yeah, So Brian the customer acquisition.

Ramesh: <unk> focus.

Ramesh: Yes, it's more on getting more newer customers.

Speaker Change: Thank you and one follow up for Dave.

Ramesh: And the fundamental thing we are doing now we are focused on is ensuring full territory coverage, which is where we have been lacking before now we are continuing to we're continuing to we're going to get a lot of sales from our current customers. We have great relationships with them. They are all very happy that we have modernized our products and they have been with us.

Speaker Change: Just on the guidance are you taking the same methodology as you've had before or are you injecting a little more conservative given the guidance says it's been walked down here a couple of times.

Speaker Change: Just getting a lot of questions. Whether this is a new guide or still kind of the same pipeline that youre looking at.

Ramesh: For a very long time, so the new product sales selling more products to customers with at least one of our products is going to continue to increase like I said in my opening remarks in three quarters. This year.

Speaker Change: Could share any color on that methodology I would appreciate it thanks for taking my questions.

Speaker Change: I think it's a consistent way of guiding I mean, we feel very strong about the short and medium term opportunities through the pipeline I mean, <unk> gave a lot of commentary about how well our pipeline is doing but obviously with only a couple months left in the quarter.

Ramesh: This is already a best year, we have one quarter to go and we are far ahead of full previous years. So that is going to continue.

Ramesh: But our success has to come a lot more from new customers and new sites as well.

Speaker Change: We're likely not going to make up some of the services shortfall and some of the the product shortfall may I would expect.

Ramesh: Now couple of things number one we have plenty of room for sales growth with the current sales team.

Speaker Change: Product revenue to kind of remain about where it is today, maybe up a little bit services, obviously will improve next quarter as we without the holiday impact and then the normal subscription growth youre used to seeing that kind of gets you to the 25% guide, but I would say there's not a there's not a change in methodology I mean, we feel is strong.

Ramesh: We did expand our sales team over the last one or two years and we still have what I would call. The second half of the sales team.

That can do a lot better than we're doing today. So the focus is on that they have all gone through the ramp time and now that the products out there to sell we are expecting a lot more from them. So the first thing is there is plenty of room for sales growth with the current sales team.

Speaker Change: As we ever have about our pipeline in the medium and short term overdoses, but.

Ramesh: Now Julia users is also focused on expanding the sales teams.

Speaker Change: With just one quarter left is going to be hard to make up the onetime revenue.

Ramesh: Especially in the hotels and resorts area and we are focused on making sure. We covered the territory. There are still thousands of properties that we are not touching properly at the moment and we are focused on expanding our sales team to ensure full territory coverage now.

Speaker Change: Thank you.

Speaker Change: Thank you.

Speaker Change: Please standby for our next question.

Speaker Change: Our next question comes from the line of Neil <unk> with Northland Capital markets. Your line is open.

Thank you.

Speaker Change: <unk> in your prepared remarks, you said something was up 70% year over year I Didnt catch what that something was could you repeat that please.

Ramesh: Now the rest of all the teams are focused on helping sales we want to make sure. We create a lot more of a principal customers with the new evolutions. So that it becomes easier for sales to set. So we are focused on all of those areas.

Speaker Change: The said.

Hal: Are you referring to the sales pipeline comment we made me Hal.

Speaker Change: Sure.

Ramesh: Thank you and one follow up for Dave.

Speaker Change: I believe so yes.

Speaker Change: Yes, so I think you ought to pay much bookings or some sort of bookings.

Speaker Change: Just on the guidance are you taking the same methodology as you've had before or are you injecting a little more conservative given the guidance says it's been walked down here a couple of times.

Speaker Change: Yes.

Speaker Change: Referring to the sales pipeline audio referring to the bookings are you referring to the subscription revenue growth. So let me just cover that very quickly, let's talk about bookings first.

Speaker Change: Just getting a lot of questions. Whether this is the new guide or still kind of the same pipeline that youre looking at.

Speaker Change: Pms and Pms related add on modules.

Speaker Change: <unk> booking.

Speaker Change: Could share any color on that methodology I would appreciate it thanks for taking my questions.

Speaker Change: At the end of three quarters.

Speaker Change: Is already a record full year for us.

Speaker Change: I think it's a consistent way of guiding I mean, we feel very strong about the short and medium term opportunities through the pipeline I mean, <unk> gave a lot of commentary about how well our pipeline is doing but obviously with only a couple months left in the quarter.

Speaker Change: So in terms of sales bookings of BMS and Tms related add on modules.

Speaker Change: A record for us record as far as full year discuss now with.

Speaker Change: <unk> booked for time.

Speaker Change: If you remove booked for time numbers out of it.

Speaker Change: We're likely not going to make up some of the services shortfall and some of the product shortfall I mean I would expect.

Speaker Change: Sales of BMS and related modules is about 70% higher this Q3 than last Q3. So you take this October to December and just add up all RPM is by the way there is no Marriott BMS sales included in all of this because we have not yet started including that in sales.

Speaker Change: <unk> revenue to kind of remain about where it is today, maybe up a little bit services, obviously will improve next quarter as we without the holiday impact and then the normal subscription growth youre used to seeing that kind of gets you to the 25% guide, but I would say there's not a there's not a change in methodology I mean, we feel as strong as we are.

Speaker Change: Sales of Pms and add on modules. This Q3 was 77 zero, 70% highest net sales during last year's Q3. That's one thing we mentioned, we also mention that including book for time sale.

Speaker Change: Ever have about our pipeline in the medium and short term overdoses, but.

Speaker Change: With just one quarter left that's going to be hard to make up the onetime revenue.

Speaker Change: Sales of BMS and related modules in three quarters is already at a best ever year higher than 33% compared to the previous best full year, We mentioned both dose ethics and we also said that sales pipeline and we only count pipeline that have reached the demonstration stage of products.

Speaker Change: Thank you.

Speaker Change: Thank you.

Speaker Change: Please standby for our next question.

Speaker Change: Our next question comes from the line of Neil <unk> with Northland Capital markets. Your line is open.

Speaker Change: Thank you.

Speaker Change: This year is about 37% higher than Pms at the same time December and last year I think those are the three things we mentioned.

Speaker Change: Very much in your prepared remarks, you said something was up 70% year over year I Didnt catch what that something was could you repeat that please.

Speaker Change: The said.

Speaker Change: Yeah, that's great and just to be clear Pms bookings, excluding bulk for time is up 70% year over year.

Speaker Change: You are exiting to the sales pipeline comment we made me Hal.

Speaker Change: I believe so yes.

Speaker Change: Which is tracking way ahead of your pipeline growth.

Speaker Change: Yes, so I think you ought to pay much bookings or some sort of bookings.

Speaker Change: Is that just a result of timing or is that a result of increased win rates.

Speaker Change: Yes.

Speaker Change: Referring to the sales pipeline audio referring to the bookings are you referring to the subscription revenue growth. So let me just cover that very quickly, let's talk about bookings first.

Speaker Change: It is because of additional signings with new customers that is customers, who didn't have a pms products before signing up to buy Pms products. Yes, you compared Q3. This year that we just completed with Q3 last year. It is seven zero, 70% higher in terms of actual sale signed with customers.

Speaker Change: Pms and Pms related add on modules.

Speaker Change: Sales booking.

Speaker Change: At the end of three quarters.

Speaker Change: Is already a record full year for us.

Speaker Change: So in terms of sales bookings of BMS in Dms related add on modules.

Speaker Change: Okay.

Speaker Change: It is tracking ahead of pipeline and that is where do we wish sales had also done well, we would be flying a lot higher level.

Speaker Change: A record for us record as far as full year, Wisconsin.

Speaker Change: <unk> booked for time.

Speaker Change: If you remove booked for time numbers out of it.

Speaker Change: Yes.

Speaker Change: And then in the past you had talked about module attach rate for PFS bookings.

Speaker Change: The sales of BMS and related modules is about 70% higher this Q3 than last Q3. So you take this October to December and just add a whole lot of PM is by the way. There is no Marriott BMS sales included in all of this because we have not yet started including that in sales.

Speaker Change: Can you give out that metric again.

Speaker Change: The summer quarter.

Speaker Change: Yes, mostly for the newer customers the new what we said the new customers, who have signed bought on average of six products from us which is a record high for us.

Speaker Change: Sales of Pms and add on modules. This Q3 was 77 zero, 70% highest net sales during last year's Q3. That's one thing we mentioned, we also mention that including book for time sale.

Speaker Change: And generally the pms attach rate of AD module is about eight modules was about eight and a half modules.

Speaker Change: <unk> deal that we sign every time, we sign a BMS deal. It goes along with about seven to eight attached add on modules.

Speaker Change: Sales of BMS and related modules in three quarters is already at a best ever year higher than 33% compared to the previous best full year as we mentioned both dose ethics and we also said that sales pipeline and we only count pipeline that have reached the demonstration stage of products.

Speaker Change: Okay and then my last question is that.

Nick: And we have more to Saudi and they have you have more add on modules with BMS than we have with POS go ahead Nick.

Speaker Change: Yes understood.

Speaker Change: Then you got a new Tam slide.

Speaker Change: This year is about 37% higher than Pms at the same time December and last year I think those are the three things we mentioned.

Speaker Change: Where youre going from what we're used to be a $5 billion.

Speaker Change: Our Tam that you used to say six months ago to now 16 billion.

Speaker Change: Yeah, that's great and just to be clear <unk> bookings, excluding bulk for time is up 70% year over year.

Speaker Change: Can you take us through the confidence level that Joseph really is addressing this incremental $11 billion and whether or not the expectation is that the type of market share. You think you can get in your core markets is the same for these adjacencies that you've identified.

Speaker Change: Which is tracking way ahead of your pipeline growth.

Speaker Change: Is that just a result of timing or is that a result of increased win rates.

Yeah, Hey, now.

Speaker Change: We feel like the new Tam represents our current market I mean, the old Tam we have not rolled in a lot of the add on modules I mean keep in mind. Most of these add on modules or we call them add on modules, but they are really standalone products that are competing with five to 10 people in the market at any given point. So we had we had kind of as a practice.

Speaker Change: It is because of additional signings with new customers that is customers, who didn't have a BMS products before signing up to buy Pms products. Yes, you compared Q3. This year that we just completed with Q3 last year. It is seven zero, 70% higher in terms of actual sale signed with customers.

Speaker Change: Waited till they were had the ability to compete on a best of breed to roll that in but most of the Tam expansion is really just.

Speaker Change: Okay.

It is tracking ahead of pipeline and that is where do we wish sales had also done well we would be flying a lot higher.

Speaker Change: Rolling in our rolling in our add on modules. This after three or four years are now competing on a best of breed methodology.

Speaker Change: Yes.

Speaker Change: And then in the past you had talked about module attach rate for PFS bookings.

Speaker Change: Okay, and then implicitly currently have lower market share.

Speaker Change: Can you give out that metric again.

Speaker Change: This incremental Sam that's expected.

Speaker Change: The summer quarter.

Speaker Change: Longer term basis.

Speaker Change: Yes, mostly for the newer customers the new what we said the new customers, who have signed bought on average of six products from us which is a record high for us.

Speaker Change: Would you expect the <unk>.

Speaker Change: Market share on that incremental Tam to continue be far less than your market share of your core markets current core markets.

Speaker Change: And generally the pms attach rate of add modules is about eight modules was about eight and a half modules.

Speaker Change: I mean, we expect I mean, whether you were talking about add on our Pms core I mean were such we have such low market share today, I mean, we still have less than 300000 rooms.

Speaker Change: <unk> deal that we sign every time, we sign a BMS deal. It goes along with about seven to eight attached add on modules.

Speaker Change: Near $20 million of the market. So there's plenty of expansion in our core solutions.

Okay and then my last question is that.

Speaker Change: And obviously like we talked about a lot over the last couple of years, we're just starting to compete.

Speaker Change: And we have more to Saudi and they have you have more add on modules with BMS that we have with POS go ahead Nick.

Speaker Change: On a best of breed in our tier two core in our in our add on modules. So we don't feel like we're butting up against any kind of market penetration limitations and we think across the board, we'll take more market share over the short and medium term.

Speaker Change: Yes understood.

Speaker Change: Then you got a new Tam slide.

Speaker Change: Where youre going from what we're used to be a $5 billion.

Speaker Change: Our Tam that you use a site six months ago to now 16 billion.

Speaker Change: Can you take us through the confidence level that Joseph really is addressing this incremental $11 billion and whether or not the expectation is that the type of market share. You think you can get in your core markets is the same for these adjacencies that you've identified.

Speaker Change: Alright, thank you.

Speaker Change: Thank you.

Speaker Change: Please standby for our next question.

Speaker Change: Our next question comes from the line of Stephen Sheldon with William Blair. Your line is open.

Speaker Change: Hey, everyone you have Matt <unk> on for Stephen Sheldon. Thank you for taking my questions I wanted to start with a couple of quick model questions for Dave.

Speaker Change: Yeah, Hey, now.

Speaker Change: We feel like the new Tam represents our current market I mean, the old Tam we have not rolled in a lot of the add on modules I mean keep in mind. Most of these add on modules or we call them add on modules, but they are really standalone products that are competing with five to 10 people in the market at any given point, so we've kind of as a practice.

Speaker Change: Number one how should we be thinking about gross margins in the fourth quarter and into next year in light of the challenges with the point of sale sales activity and then two can you just clarify what you mean by more normalized growth rates for the professional service line item looking into next year.

Speaker Change: Waited till they were had the ability to compete on a best of breed to roll that in but most of the Tam expansion is really just.

Speaker Change: Yes.

Speaker Change: I mean for US we kind of look at the business. It's been the gross margins, obviously been growing over the last four or five years as we've made the transition to more of a subscription base.

Speaker Change: Rolling in our rolling in our add on modules. This after three or four years are now competing on a best of breed methodology.

Speaker Change: We went into this year kind of thinking they would crossover into the 60% gross margins for the first time now we're trending closer to the 63% gross margin that feels more normal to us so going into next year I would I would assume you would see gross margin expansion.

Speaker Change: Okay, and then implicitly currently have lower market share on this incremental Sam that's expected, but on a longer term basis.

Speaker Change: Would you expect the <unk>.

Speaker Change: Market share on that incremental Tam to continue be far less than your market share of your core markets current core markets.

Speaker Change: Incrementally I don't think theres going to be a five or six.

Speaker Change: 6%, John but I would think gross margins will continue to grow off a point or two from where they are today at 62, 63%. So.

Speaker Change: I mean, we expect I mean, whether you were talking about add on our Pms core I mean were such we have such low market share today, I mean, we still have less than 300000 rooms.

Speaker Change: With the change in product mix I don't think we will we will go back down to the low <unk> or high fifties and gross margin.

Speaker Change: Near $20 million of new market. So there's plenty of expansion in our core solutions.

Speaker Change: Question about service and then the normalized service I mean, so really the way we think about professional services is professional services line that kind of grows with topline revenue.

Speaker Change: And obviously like we talked about a lot over the last couple of years, we're just starting to compete on a best of breed in our tier two core in our in our add on modules. So we don't feel like we're butting up against any kind of market penetration limitations and we think across the board, we'll take more market share over the short and medium term.

Speaker Change: And obviously the last couple of quarters, we would have the major development and we've had some.

Speaker Change: 3700, 39% services growth, which is which is not normal for us.

Speaker Change: We expect professional services to grow in line with top line. So if top lines growing 15% to 20% professional services probably grows around the same level, obviously once <unk> kind of backing out some of the one time anomalies we've had this fiscal year.

Speaker Change: Alright, thank you.

Speaker Change: Thank you.

Speaker Change: Please standby for our next question.

Speaker Change: Our next question comes from the line of Stephen Sheldon with William Blair. Your line is open.

Speaker Change: Hey, everyone you have Matt <unk> on for Stephen Sheldon. Thank you for taking my questions I wanted to start with a couple of quick model questions for Dave.

Speaker Change: Got it. Thank you Dave helpful context on both of those and then this question was somewhat addressed already but I just wanted to circle back on it so for the Marriott rollout is there anything you can share on the planned pace of rollout from a location perspective, and then are there any regions in particular that you may initially focus that deployment.

Speaker Change: Number one how should we be thinking about gross margins in the fourth quarter and into next year in light of the challenges with the point of sale sales activity and then two can you just clarify what you mean by more normalized growth rates for the professional service line item looking into next year.

Speaker Change: Unfortunately, Matt can Dolby cannot so the best we can tell you now is the project is going well there is a high degree of transparency across all the parties and it is being managed very well and what we expect in the second half of calendar 2025.

Speaker Change: Yeah, So I mean for US we kind of look at the business. It's been the gross margins, obviously been growing over the last four or five years as we've made the transition to more of a subscription based I mean, we went into this year kind of thinking they would.

Speaker Change: Our test properties and following that pilot sites to go live.

Speaker Change: That is the best we can tell you now unfortunately.

Speaker Change: Crossover into the 60% gross margins for the first time now we're trending closer to the 63% gross margin that feels more normal to us I mean, so going into next year I would I would assume you would see gross margin expansion.

Speaker Change: Okay. Thank you Ramesh and team appreciate the time.

Speaker Change: Yes, Thank you Matthew.

Speaker Change: Thank you.

Speaker Change: Ladies and gentlemen, im showing no further questions in queue.

Ramesh Srinivasan: I'd now like to turn the call back over to Ramesh for closing remarks.

Speaker Change: Incrementally I don't think theres going to be a fiber.

Ramesh Srinivasan: Thank you joining us. Thank you for all your interest and support best wishes to all of you for a very happy healthy safe and successful 2025 look forward to catching up again around the middle to end of May when we will be reporting Q4, and full fiscal year $2025 us. Thank you.

Speaker Change: 6% jump, but I would think gross margins will continue to grow off a point or two from where they are today at 62, 63%. So.

Speaker Change: With the change in product mix I don't think we will.

Speaker Change: We will go back down to the low <unk> or high fifties and gross margin.

Speaker Change: Question about service and then the normalized service.

Ramesh Srinivasan: Ladies and gentlemen that concludes today's conference call. Thank you for your participation you may now disconnect.

So really the way we think about professional services is professional services line that kind of grows with topline revenue and obviously the last couple of quarters, we would have the major development and we've had some.

Speaker Change: 3700, 39% services growth, which is which is not normal for us. We we expect professional services to grow in line with top line. So if top lines growing 15% to 20% professional services probably grows around the same level, obviously once kind of backing out some of the one time anomalies we've had this fiscal year.

Speaker Change: Got it. Thank you Dave helpful context on both of those and then this question was somewhat addressed already but I just wanted to circle back on it so for the Marriott rollout is there anything you can share on the planned pace of rollout from a location perspective, and then are there any regions in particular that you may initially focus that deployment.

Speaker Change: Unfortunately, Matt can Dolby cannot so the best we can tell you now is the project is going well.

Speaker Change: There is a high degree of transparency across all of the parties and it is being managed very well.

Speaker Change: And what we expect in the second half of calendar 2025.

Speaker Change: <unk> properties and following that pilot sites to go life that is the best we can tell you now unfortunately.

Matthew: Okay. Thank you Ramesh and team appreciate the time, Thank you Matthew.

Speaker Change: Thank you.

Speaker Change: Ladies and gentlemen, im showing no further questions in the queue I would now like to turn the call back over to Ramesh for closing remarks. Thank.

Thank you joining us. Thank you for all your interest and support best wishes to all of you for a very happy healthy safe and successful 2025 look forward to catching up again around the middle to end of May when we will be reporting Q4 and full fiscal year 2025. Thank you.

Speaker Change: Ladies and gentlemen that concludes today's conference call. Thank you for your participation you may now disconnect.

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