Release Date: July 22, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Q1 fiscal 2025 represented the best-ever Q1 sales start for Agilysys Inc (AGYS, Financial), indicating strong sales momentum.
- Recurring revenue grew by 18.4% year-over-year, driven by a 32% increase in subscription revenue.
- The company achieved its 10th consecutive record revenue quarter at $63.5 million, a 13% increase from the prior year.
- Agilysys Inc (AGYS) added 16 new customers and 72 new properties, with 95% of new properties opting for subscription-based licenses.
- The gaming casino sales vertical continues to lead sales levels, achieving close to peak levels during Q1.
Negative Points
- One-time product revenue, including perpetual software licenses and hardware, was lower than expected at $9.9 million.
- Hardware revenue was impacted by a shift towards consumer-grade devices, reducing hardware sales by about 20%.
- The POS business faced challenges due to the transition from old to new technology, affecting sales and implementation complexity.
- Product revenue decreased by 22.7% compared to the previous year, driven by lower proprietary software revenue for on-premise deployment.
- The company expects full fiscal year 2025 revenue to be closer to the lower end of the $275 million to $280 million guidance range due to product revenue challenges.
Q & A Highlights
Q: Can you explain the outlook for subscription revenue growth and EBITDA margins for the rest of the year?
A: William Wood, CFO: We had a strong start with 32% subscription growth. The product mix was slightly different than expected, with more property management and less point-of-sale, which affected top-line revenue. We are trending above the 27% guidance for subscription growth and closer to 35% for professional services. Profitability is also ahead of guidance, but gross margin might decelerate slightly in the second half, bringing us closer to the 16% EBITDA margin guidance.
Q: What are the challenges and opportunities in driving adoption in international markets?
A: Ramesh Srinivasan, CEO: Establishing new state-of-the-art product versions is key. We have several showcase sites internationally, like Disneyland Paris and Hamilton Island. Competitors often fight with low pricing, but our product ecosystem is superior. We need more reference customers to accelerate adoption.
Q: What is the current percentage of global sales?
A: Ramesh Srinivasan, CEO: We don't share it as a percentage of revenue, but this was our best-ever Q1. Sales levels are in line with the past few quarters.
Q: Can you elaborate on the slower progress in the POS business and its turnaround?
A: Ramesh Srinivasan, CEO: The POS business has undergone a massive transformation from old to new technology in stages. This caused implementation challenges. Now, new customers will only go live with modern versions, simplifying implementations. We expect a turnaround in POS sales in the second half of this fiscal year.
Q: What is the potential for additional room count and monetization beyond the core PMS?
A: Ramesh Srinivasan, CEO: Our current PMS universe is less than 300,000 rooms. The Marriott PMS opportunity could add 450,000 to 500,000 rooms. We also have many add-on modules that increase the value per room. The focus should be on the overall ecosystem rather than just room count.
Q: Which add-on modules have the most potential for incremental monetization?
A: Ramesh Srinivasan, CEO: On the POS side, the remote ordering tool and guest-facing kiosks have high demand. On the PMS side, various add-on modules have significant potential. Some modules have markets as large as standalone businesses in the industry.
Q: How are you addressing implementation challenges in the POS business?
A: Ramesh Srinivasan, CEO: The complications were more related to software than hardware. We had to mix old and new software versions, causing challenges. Now, new customers will only use modern versions, simplifying implementations and resolving past issues.
Q: What are your plans for expanding sales and marketing efforts?
A: Ramesh Srinivasan, CEO: Our quota-carrying sales personnel are about 30% higher than last year. We have expanded sales teams in the Americas hotels and resorts vertical and internationally. Marketing efforts are more targeted, focusing on areas with immediate benefits.
Q: What is the impact of being named the golf brand standard for Marriott?
A: Ramesh Srinivasan, CEO: Agilysys Golf has been declared the brand standard for Marriott properties. Many managed properties will adopt it soon, and franchise owners will make their own decisions. This is an example of current customers adopting additional products.
Q: How did deal activity trend throughout the quarter?
A: Ramesh Srinivasan, CEO: Deal flow remained strong throughout the quarter, resulting in a record Q1. Sales bookings were strong, and backlogs for services and subscriptions are at or near record levels.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
