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Agilysys Inc (NASDAQ:AGYS)
Q4 2020 Earnings Call
May 21, 2020, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Agilysys Fiscal 2020 Fourth Quarter Conference Call. As a reminder, today's conference is being recorded. I would now like to turn the conference call over to Dave Wood, Vice President of Corporate Strategy and Investor Relations at Agilysys. Please go ahead.

Dave Wood -- Vice President, Corporate Strategy and Investor Relations

Thank you, Jonathan, and good afternoon, everybody. Thank you for joining the Agilysys Fiscal 2020 Fourth Quarter Conference Call. We will get started in just a minute with management's comments. But before doing so, let me read the Safe Harbor language.

Some statements made on today's call will be predictive and are intended to be made as forward-looking within the Safe Harbor protections of the Private Securities Litigation Reform Act of 1995, including statements regarding our financial guidance. Although the Company believes that its forward-looking statements are based on reasonable assumptions, such statements are subject to risks and uncertainties that could cause results to differ materially. Important factors that could cause actual results to differ materially from these and the forward-looking statements include the effect of the COVID-19 pandemic on our business and the success of any measures we have taken or may take in the future in response to the COVID-19 pandemic, and the risks set forth in the Company's reports on Form 10-K and 10-Q and other reports filed with the Securities and Exchange Commission.

With that, I'd now like to turn the call over to Mr. Ramesh Srinivasan, President and Chief Executive Officer of Ramesh -- of Agilysys. Ramesh, please go ahead.

Ramesh Srinivasan -- President and Chief Executive Officer

Thank you, Dave, and good afternoon, everyone. Welcome to our fiscal 2020 fourth quarter earnings call. Joining Dave and me on the call today is Tony Pritchett, our CFO. I'm participating in this call from my home base in Las Vegas, while Tony and Dave are in Atlanta.

We hope all of you and your families and colleagues are doing well and staying healthy during these incredibly challenging times. Like many other organizations across multiple industries have reported, our fiscal 2020 fourth quarter, the period January through March, was very much a tale of two quarters within one. We started the quarter on a high note, carrying on the momentum of seven consecutive record revenue quarters before it. It then got even better with our Inspire user conference during February held at Rosen Hotels & Resorts in Orlando. The conference was highlighted by the highest customer attendance we have seen at a location other than Las Vegas. I Attendance of customer users from the hotel and resorts vertical was up 45% year-over-year. The overall number of customer users attending additional training classes and setting up meetings with our technical staff for further product discussions, two crucial user conference customer engagement metrics for us, was up 40% year-over-year. Our increased product innovation velocity during the last couple of years was on full display.

Little did we know then that many additional modules like mobile check-in check-out, rGuest Service and on-demand, which were discussed in packed conference rooms during the conference, would move from being nice-to-have modules to become must-have ones just a couple of months later. And then, everything temporarily changed during March. In spite of the hospitality industry virtually shutting down completely, about 32% of our sales during the quarter actually happened during March.

To put that in context, during the previous four quarters, the average percentage of sales, which happened during the last month of the quarter was about 43%. While this March was much less than a typical month of March for us, it was still reasonably good under the circumstances. One-third of our Q4 sales happening during March under such extraordinarily tough circumstances was a good reminder that the solutions we provide are mission critical for the industry.

As a reminder, please note that unlike many other organizations, we use the terms revenue and sales to indicate two different business metrics. Revenue is of course recognized revenue based on normal revenue recognition rules, which are more or less standard across enterprise software companies like us. We use the term sales, however, to refer to actual new sale agreements signed with current and prospective customers for products and services. We measure such sales in terms of annual contract value of sale agreement signed. We also tend to use the terms sales, selling activity and bookings to all refer to the same thing, annual contract value sales. There is obviously a time lag involved in the conversion of sales to revenue.

Now, switching back to our quarter narrative, we were well on our way toward our eighth consecutive record revenue quarter when the drastic March changes happened, causing us to miss our revenue guidance for fiscal 2020. Q4 revenue was $39.7 million, an 8% increase over Q4 of last fiscal year. Fiscal 2020 full-year revenue was a record $160.8 million, representing a 14.1% increase over fiscal 2019. Q4 recurring revenue of $22.3 million was another new record. Subscription revenue was up 9.1% sequentially over the third quarter and was up 29.8% over Q4 of last fiscal year. Professional services revenue in Q4 fiscal 2020 was up 25% over Q4 of last fiscal year, despite a significant slowdown during March due to travel restrictions and site closures.

Adjusted EBITDA during Q4 fiscal 2020 was $3.6 million compared to $2.4 million during Q4 of last year. Overall, for the full year fiscal 2020, adjusted EBITDA was $13 million, increasing 27% over fiscal 2019, or actually a 61% improvement if you take out the benefit of capitalized software in fiscal 2019.

During fiscal 2020, we signed sales agreements which added 55 new customers, 61 new properties which did not have any of our products before, and 152 new instances of selling a product to sites which were new for that property. Of these sale agreements, 17 new customers, 17 new properties and 35 new products were closed or signed during the January to March Q4 quarter. The IG POS sales win with Team San Jose in the sports and entertainment sector, the rGuest Stay PMS and IG POS win with Saba Rock Resort in the British Virgin Islands, the rGuest Stay PMS win at Hotel 166 in Chicago, the huge 19-site IG POS win with Comwell Resorts in Denmark, the rGuest Buy Kiosk and On-Demand win at Sea Pines Resort in South Carolina, and the IG POS win at the InterContinental Los Angeles, an IHG property, were among the sales win highlights of the quarter.

Before we move on to other topics, one quick update on customer retention. Fiscal 2020 was our best year in recent memory with respect to customer retention success. Customer retention was again well over 95% and our best percentage in many years. We measure customer churn and the reverse of it, customer retention, in the old-fashioned conservative way. We measure customer churn as a simple division of annual recurring revenue lost during the year as a percentage of total annual recurring revenue. And customer -- and we report customer retention as hundred minus customer churn percentage. Therefore, by definition, our customer retention measure cannot be more than 100%.

Please note that we measure customer churn as a percentage of only recurring revenue and not as a percentage of total revenue. Given our recurring revenue was about half our total revenue, churn and it's reverse, customer retention, is even better if you think of it as a percentage of total revenue. We are aware that many software companies express customer retention in dollar retention terms using a variety of different formulae designed to make the numbers look great and often report them to be higher than 100%. If we use any of those methods, our dollar retention rates would also be significantly higher than 100% because the extent of repeat business we get from current customers in terms of new property sites and new products far exceeds the extent of recurring revenue lost during the year. However, we continue to believe that the old-fashioned method of calculating customer retention as a percentage of recurring revenue is the right measure. We continue to retain well more than 95% of our recurring revenue base and also further add to it significantly through business expansion, as you can derive by our consistent increases in recurring revenue year after year.

Going back to the subject of sales measured by annual contract value of sale agreements closed during a period, sales during January and February this year was about 40% higher than the January-February average over the past four years, despite a February slowdown in international sales. While sales during March slowed down, as was to be expected and was not the typical high end to a quarter and fiscal year we are used to, it was still close to 80% of the February level. Sales during April and May in Q1 fiscal '21, that is the current quarter, so far has been at about 60% of the average of the past four quarters at the same comparable time during the quarter. To reiterate that point, in spite of this global pandemic causing virtually everything to shut down, we are still able to close about 60% of the value of deals we would normally expect. These products are mission critical, and our product innovation engine continues to churn out additional modules and core enhancements, which will help our valued customers manage current realities better.

As we've discussed with you before, we have introduced many new software modules to the marketplace during the past couple of years, especially during the past year. Many of these modules have already been implemented in multiple customer sites. These modules include: one, rGuest Express Mobile, a PMS solution enabling checking in and checking out of hotels without any need for human contact, entirely based on one smartphone, including the use of digital keys. Two, rGuest Express Kiosk, a similar PMS solution, which can be used to check in and check out and for other purposes. We have now tested out these kiosks to be essentially touch free using personal or throwaway stylus pens. Guests can bring keys if they so desire through the kiosks or through the use of our new mobile concierge module. Number three, rGuest Service, a PMS module which enables management and optimization of all operations in the hotel, including housekeeping and preventive maintenance of crucial assets. This, along with two-way SMS and other communication between hotel staff, including hotel staff at the reception, and guests, enables less need for frequent checks with the reception desk on room readiness and other matters, reducing crowding around the reception desk. Four, rGuest On-Demand for POS. This is a software module in our POS family of products, which was introduced during the last year. It enables remote ordering of food and beverage items from a mobile phone for takeout or delivery using a website, app or QR code and is completely integrated with our InfoGenesis POS back end. Five, Agilysys Authorize for both POS and PMS. This module enables scanning a QR code on a food and beverage or other receipt to initiate payment or charge to a room through the guest's mobile device with no human touch or contact necessary. This was introduced recently, eliciting serious interest from many customers. One of these customers signed up for use of this module across more than 70 profit centers just this week. Number six, contactless payments. We've also introduced other forms of contactless payments. Number seven, rGuest Book. The need for a direct channel, zero commission online booking engine has become even more important for our customer base now. With our new modernized rGuest Spa and Golf modules already installed in multiple customer sites, customers can now provide their guests the ability to book rooms, spa and golf reservations all from one place. This includes the ability to handle group reservations as well. Number eight, rGuest Seat. This product now supports booking and managing reservations across any outlet of a property. Guests can see a dollhouse view of the outlet and reserve a specific seat in the restaurant or a specific lounge chair or cabana in a pool area or a seat in a performance center. Properties have an opportunity to promote social distancing right at the booking process, providing their guests an increased level of comfort as they make their reservations. The application now -- this application now also supports yielding of seats, giving our operators additional tools to monetize their assets.

Now, that list is only a subset of all the new modules we've introduced during the recent past, which enable social distancing and improve operational efficiencies, enabling hospitality operators to do more with less. Such modules were nice to have till recently and have now, for the most part, become must-have modules. Our core POS, PMS and inventory management solutions have always enabled operators to be highly efficient. But in the current scenario, these solutions have become mission critical as our customers look to maximize revenue, while minimizing variable costs.

While the number of sale agreements closed during March, April and May have clearly been down compared to previous quarters, we have been surprised to find the number of product demos we have been involved in during April and May. Especially regarding our emerging products and software modules, it's been almost double the level that we saw during January and February. The current trend is unmistakably around mobility and contactless service solutions, and we are fortunate to have been busy with precisely that kind of product innovation for a couple of years now. Both our food and beverage POS and lodging PMS solutions now enable a frictionless and contactless experience end to end all across the guest [Phonetic] journey through a property, all the way down from order initiation, till payment.

One other detail to note, revenue from gaming casinos constitutes more than 50% of our revenue. The interest from our gaming casino customers in our emerging software modules has been particularly high during the past month or so. Many of them are likely to be early adopters of the emerging software modules as they finalize plans to reopen.

With respect to our balance sheet, we ended Q4 fiscal 2020 with a cash balance of $46.7 million, our highest level since June calendar 2017, Q1 of fiscal 2018. We were fortunate to come into the crisis with a position of strength. The recent $35 million convertible preferred investment by MAK Capital will provide additional balance sheet strength. As is well known, the CEO of MAK Capital, Mr. Mike Kaufman, is also the Chairman of our Board. I cannot think of anyone who knows our business better than him. His vote of confidence in us does say a lot. Our improved and record levels of financial performance in fiscal 2020 has a lot to do with our increase in R&D and product innovation strength and our passionate focus on customer service.

The number of resources involved in product development has tripled since January calendar 2017, and that increase has resulted in our current ability to provide our customers with end-to-end solutions to enable the kind of contactless, safe and comfortable guest journey our customers now have an enhanced need to provide. We are determined to keep the innovation and customer service engines going through this current situation and expect to reach the other side of this crisis with an even better competitive differentiation and positioning. While we have been forced to take multiple cost reduction steps like most other organizations, we have taken care to ensure such steps have minimal to no impact on our product development and customer service areas.

Due to the drastic change and uncertainty in macroeconomic conditions and the lack of clarity with future sales, revenue and profitability projections by product, there was an asset impairment of most of the capitalized software development costs on our balance sheet. As you are aware, we discontinued the practice of capitalizing software development costs as of January calendar 2018, or Q1 fiscal 2019. This impairment action does not affect our ongoing and future product investment strategies in any way.

This pandemic and the related closures have been particularly hard on our customers. We have strived to be a responsible business partner and have tried our best to help them with various forms of onetime credits and product concessions. Among the concessions provided is free use of the rGuest On-Demand product for 90 days. About 60 customer sites have executed contracts for the use of this product and another 250 sites are in the process of signing up. Such onetime credits and product use concessions provided is going to hurt our short-term revenue level but will help us in the medium and long term once the recovery begins to take shape.

We expect our April through June Q1 fiscal 2021 revenue to be down year-over-year by a possible 35% due to two reasons. A significant portion of that decline will be due to the onetime concessions provided to customers. The remainder will be due to short-term declines in sales and business levels. These declines are almost entirely due to postponements in buying decisions.

With respect to the onetime concessions provided to customers, we expect about two-third of that effect to be felt during Q1 and the remaining one-third to be spread out almost equally across Q2, Q3 and Q4 of fiscal 2021. Please note these actions to help customers will show up as declines in multiple revenue areas, including recurring revenue during Q1. Such declines are expected to be strictly temporary and onetime and should not be interpreted as having anything to do with customer retention. We continue to do well with customer retention.

We are beginning to see signs of the recovery process already starting with sites reopening. Assuming the pandemic recovery process continues to keep improving steadily thereafter, we expect the 35% year-over-year revenue decline in the April through June Q1 quarter to be the low point. Q2, Q3 and Q4 should be progressively better. However, at this stage, we are unable to predict how steep that improvement curve will be. On the one hand, we find our product and services backlog and sales pipeline remaining at high levels now, while on the other hand, the decision-making and sales finalization processes have slowed down considerably. We are therefore not in a position now to provide any meaningful guidance on overall fiscal 2021 revenue and profitability levels.

Regarding profitability, given all the cost reduction steps currently in place, even with the possible revenue reductions we face in the first quarter of fiscal 2021, we expect Q1 fiscal 2021 adjusted EBITDA to be approximately breakeven for the quarter.

While the current circumstance is a definite setback, we have every reason to believe we will come out of this phase in reasonably good shape. We remain a relatively small player in this huge hospitality industry, and even a partial recovery in the industry will be sufficient to fuel our growth. We are keeping our focus on keeping up the pace of product innovation and customer service. There is a good possibility that the reduced overall industry business levels in the short term could be compensated by an increased need for technology solutions to make hospitality guest experiences safer and more comfortable. We expect to be in the front line of providing such much-needed high-quality technology solutions, and that should serve our financial performance well.

With that, let me hand over to Tony for further color on our financials and other business details. Tony?

Tony Pritchett -- Chief Financial Officer

Thank you, Ramesh. To echo Ramesh's comments, although the impact of COVID-19 situation has been dramatic to our customers and our short-term progress, we remain confident in the long-term plan we put in place 3.5 years ago to become a profitable revenue growth company that leads the market with product innovation. This strategy is now paying off with a flurry of customer activity around our new software modules that Ramesh talked through.

Taking a look at our financial results, beginning with our income statement, fourth quarter fiscal 2020 revenue was $39.7 million, an 8.3% increase from total net revenue of $36.6 million in the comparable prior year period. The increase in top line largely reflects a 26.3% increase in professional services revenue and a 15.2% increase in recurring revenue, offset by a 14.3% drop in our product revenue due to the sudden shutdown our customers were faced with in the last half of March. On an annual basis, we are pleased to see growth across all three of our revenue line items, including a record $8.2 million increase in recurring revenue and a $6.5 million increase in professional services revenue.

Total recurring revenue represented 56.2% of total net revenues for the fiscal fourth quarter and 52.1% for the full year compared to 52.9% and 53.6% of total net revenues in the fourth quarter and full year fiscal 2019.

We are also pleased with our robust subscription revenue growth, which grew at 29.8% for the fourth quarter of fiscal 2020 and 24.3% for the full fiscal year. Subscription revenues comprised around 39% of total recurring revenues compared to 34% of total recurring revenues in the fourth quarter of fiscal 2019.

With regard to endpoints, we currently service about 274,400 rooms and have approximately 62,100 terminal endpoints, or a 1% and 16% increase respectively compared to how we exited Q4 of last year. We are continuing to give this metric though more and more our revenue growth is not dependent on endpoint growth. Our add-on software modules that build out our ecosystem of products are adding scale quickly. As an example, so far, just in the months of April and May, we have closed deals for rGuest On-Demand and rGuest Authorize that once live and billing will be worth nearly $700,000 of annual recurring revenue for us. These are two of our newer products that help our customers enable social distancing initiatives and are great examples to point out.

Ramesh mentioned the possible significant reduction in our June 2020 quarter, our first fiscal quarter, compared to our first fiscal quarter of last year. This reduction will be mostly impactful to our one-time non-recurring services and product line revenues. The majority of the reduction is expected to be allocated to onetime product and services revenue, while recurring revenue is only expected to be down by a few percentage points from Q1 of fiscal 2020. Once we get through the first fiscal quarter, our recurring revenue should be back near our Q4 fiscal '20 levels.

As for products and services revenue, we currently have a backlog of hardware, software and services that are near record levels. As operations start to open back up, we will accelerate the deployment of the backlog. And given we are at about 60% of our normal levels of closing new deals in April and May, as soon as we get back to historic levels, we should see revenues start to normalize. Given the uncertainty everyone faces right now, it is just hard to predict when that will happen.

Moving down the income statement, gross profit of $19.7 million compared to $19.6 million in the fourth quarter of fiscal 2019. Gross profit margin decreased to 49.6% compared to 53.5% in the fourth quarter of fiscal 2019. This gross profit was negatively impacted by $600,000 of credits related to COVID-19 reserves. In addition, the professional services team realized a sharp drop in serviceable installations during the last half of March for obvious reasons, resulting in a negative margin impact for the quarter.

Looking at operating expenses, excluding charges for legal settlements, impairment and restructuring, severance and other charges, fourth quarter saw a 1% decrease in operating expenses to $22.7 million compared to $23.1 million in the prior year period. This decrease in operating expenses is mainly due to decreased incentive compensation, negatively impacted by COVID-19. Combined, our three main operating expense line items, product development expense, sales and marketing expense, and general and administrative expense, were 53% of revenue this fiscal year for the full year, the lowest in the past four years, not even accounting for the fact that in the prior three years, we had some levels of capitalized software removed from the income statement. Fiscal year '19 was 57%, while fiscal year '18 and fiscal year '17 were 55% compared to this year's 53%. Even without the impact of COVID-19, this trend would have been about the same and is a good reflection of the steady progress we are making with our operating leverage.

Our operating loss for the fourth quarter of $26.9 million, net loss of $27 million and loss per diluted share of $1.16, all compare negatively to the prior year's fourth quarter losses of $3.8 million, $3.6 million and $0.16 due to the impairment charge taken this quarter. Adjusted net income and adjusted diluted earnings per share both compare favorably to the prior year fourth quarter. Adjusted net income of $1.3 million compares favorably to $700,000 in the prior year fourth quarter. And adjusted diluted earnings per share of $0.05 compares favorably to $0.03 in the prior year fourth quarter, when normalizing for certain non-cash and non-recurring charges, including this impairment charge.

As Ramesh commented, this impairment charge was a write-off of the majority of the previously capitalized software development costs. The impairment was strictly due to the current economic conditions and the lack of clarity with our ability to predict future sales and profitability with respect to these products. The impairment does not affect our ongoing and future product investment strategies in any way.

For the 2020 fourth quarter, adjusted EBITDA was $3.6 million compared to $2.4 million in the year ago quarter. And for the full year fiscal 2020, adjusted EBITDA was $13 million compared to $10.3 million. The growth in adjusted EBITDA for the full fiscal year represents 27% growth. And if you normalize for the effect of capitalized software development costs in the prior year, you would be comparing $13 million to $8.1 million, or 61% growth.

Moving to the balance sheet and cash flow statement, cash and marketable securities as of March 31, 2020 was $46.7 million compared to $40.8 million on March 31, 2019. More importantly, our cash balance at the end of the day yesterday was approximately $43.5 million, and that does not include the $35 million convertible investment by MAK Capital, which should close soon. We are pleased with our ability to manage our liquidity as we navigate these challenging times.

As it relates to our free cash flow, I am pleased to see an increase for both the quarter and the full fiscal year. Free cash flow in the quarter was $4.9 million compared to $3.9 million in the prior year quarter, and $7.2 million for the full fiscal year compared to $1.7 million in the prior year, driving our cash balance increase.

As Ramesh mentioned, revenue in our first fiscal quarter of 2021 could be down by as much as 35% due to the customer concessions we are giving, along with the slowdown in sales we have experienced. We do expect this to be a low point. And assuming the recovery process continues from this point on, the remaining quarters should be progressively better. Given these revenue levels, adjusted EBITDA for the first quarter should be around breakeven and the trend for adjusted EBITDA should follow revenue and be progressively better for the rest of the year. Otherwise, given the uncertainty of the global markets, we are not providing any further guidance now.

In closing, we are pleased with our 2020 financial results and with the financial stability we have to navigate through our current economic environment. We are fortunate enough to have a good recurring revenue base built on a foundation of mission-critical products. Our backlog and sales pipeline are both at historically high levels. As the economy makes progress, we feel confident our financial results will react in concert. We just can't predict the exact shape of the recovery.

With that, I will now turn the call over to the operator. Jonathan?

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from the line of Matt Vliet from BTG [Phonetic]. Your question please.

Matt VanVliet -- BTIG -- Analyst

Yes. Hi, guys. Thanks for taking my question. Nice job on the quarter, all things considered, especially at the beginning of the year, getting the pipeline built out there. I guess digging in on some of the trends that you saw, not only through the quarter and into the end, but some of the concessions that you talked about, can you just dig a little deeper for us here in terms of how much of a delayed fuse are on some of those? Did that 90-day free window start sort of the day they agreed to it? Or is that conditional on when properties reopen, when businesses at least put in motion plans to reopen? Help us think about what that could look like on a sort of time series basis moving forward.

Ramesh Srinivasan -- President and Chief Executive Officer

Yeah. Hi, Matt. Thanks for attending the call. So, we are hospitality too, Matt. So we were also -- we are also badly affected by this. And so, there are limits to how much we could help out our customers, though we tried our best. And I don't want to get into all the specifics, Matt. But this much I can tell you. We break it up into two separate things. As far as the product concession goes, it is like giving a 90-day free trial if they sign up for a much longer period of time. So, customers who have -- and it was for one particular product like we mentioned for On-Demand. So if they sign up for a longer period of time, which is how customers normally sign up, the first 90 days, there is no charge on the SaaS fees, and it starts from the day they go live. And so, obviously, the only customers signing up for that are customers who are just about opening now or have definite plans to open. And the trial period in terms of when they have to sign up by is only for a certain period of time. It is only for a couple of months kind of thing. So that is on the product concession, which is basically for use of a product, but they get the first, say, three months free after they go live with it.

Now, in terms of the other concessions, it takes various forms with each customer. It just depends on the customer. It depends on what kind of preference they have and what we could afford. And so, it just took various shapes and forms with each customer, which will affect for the most part -- about two-thirds of it will affect Q1, and the remainder of it will get spread over Q2, Q3, Q4. So that is how much clarity I can give on that for you, Matt. I'm sorry, I can't get into the specifics because it involves confidential details with various customers.

Matt VanVliet -- BTIG -- Analyst

I totally understand. Thank you. That's great detail to help us here. And then I guess, looking at your overall customer portfolio, I'm curious of what you've looked at in terms of geographic dispersion and types of industries that you're covering specifically and made some assumptions around what might come back sooner or later. You mentioned gaming might be sort of pushing the envelop to open a little sooner versus something like some of the cruise lines that you've been in. I think they're going to -- at least from my opinion, would be longer term to sort of reopen. But what's the risk in terms of some of the smaller operators that you might deal with or some locations that may not open again or may be extremely delayed in terms of reopening? Have you had conversations with customers? Is there any kind of expectation of sort of permanent churn that you could have? Or is it still currently operating where it's more of a when and not if that the majority of your customers in particular will look to be reopening?

Ramesh Srinivasan -- President and Chief Executive Officer

Yeah. So, good question, Matt. So yes, we are -- obviously, we are in touch with all our customer base and we are constantly talking to them, and not just in terms of when they will reopen, also helping them with the reopening. So, I will come to that in a second. So, the one thing about our customer portfolio, the customer profile, Matt, is that generally all our customers are of the bigger size. We don't have much of a play in the smaller retail restaurants. So, that is not the space we play in at all. So, virtually all our customer base is in the bigger customer segment. We are an enterprise software company. We don't compete much in the smaller restaurant space at all. In fact, we don't compete there at all. So, to a certain extent, a lot of our customers have much more concrete plans of reopening compared to what you might find in the smaller restaurant space. So, that is one aspect to remember about our customer portfolio. Virtually, our entire customer area -- all our customers have plans to reopen. It is only a matter of when they will reopen, not if they will reopen, because these are all big customers who have various access to capital and they all have different plans to reopen. So, that's one thing to keep in mind.

The second thing to keep in mind is, we are a fairly small player. We've always said, our total addressable market runs into billions. Depending on which study you believe, you call it $3.5 billion or $4.5 billion, it runs into billions in terms of the recurring revenue of the industry, while our recurring revenue is still less than $100 million. So we are a smaller player. So even if portions of the industry reopen later than the others, even a partial recovery is pretty -- should be enough to drive our growth forward. So, that's the second aspect to keep in mind.

The third thing to keep in mind, at least what we are noticing is that we were quite surprised ourselves, we didn't expect this, that the number of product demos we have done in April and May have been twice as much as January and February, which in a lot of ways doesn't make sense. But that is what we have been seeing. So, what that means is the fact that part of the industry is going to recover slower, or going to reopen slower for us, and all of them are going to reopen for us. It's going to be made up for the fact -- possibly going to be made up by the fact that they have a greater need for a lot of the technology solutions that we have been very fortunate we've been in the process of developing for the last couple of years. Wven if you look at the earnings call script in the last couple of years, we have always hopped on all these additional modules, which we believe add strengths to PMS and POS, and they are all must have now. The On-Demand product, there are more than 300 sites talking about it now, and all of them in the last couple of months. So the fact that the business is going to be affected by a slower recovery, we think could be made up by the fact that there is a higher need for all these technology solutions.

So that's the way I look at the customer profile. It's -- mostly bigger customers are our customers, so they will reopen sooner or later, and they have a heightened need for technology solutions that help with social distancing and all that. And the fact 50% of our revenue is gaming also helps because they are making quicker plans of what technology solutions they need to reopen.

Matt VanVliet -- BTIG -- Analyst

Great. Thank you for taking my questions. Really appreciate it.

Ramesh Srinivasan -- President and Chief Executive Officer

Thank you, Matt. Appreciate it.

Operator

Thank you. Our next question comes from the line of George Sutton from Craig-Hallum. Your question please.

George Sutton -- Craig-Hallum Capital Group -- Analyst

Thank you, Ramesh. I appreciate your going through the different module additions. I thought that was helpful. So as you think about the mobility part of the equation, when you're talking to existing customers and they decide to move forward with that, and I'm speaking of mobility and more broadly the safe distancing applications that you have, what does that do to the TAM opportunity with that specific kind of [Phonetic] the ARPU opportunity with that account? And then, how much influence is that having on the deals you're working on right now? I assume it's relatively significant.

Ramesh Srinivasan -- President and Chief Executive Officer

Hi, George. Good to talk to you. It's been a while. Yeah. Now, as far as the software modules are concerned, it's not just mobility, but a lot of it is mobility. I understand what you're saying. This is what it does, as far as how we analyze Agilysys. We have so far -- we have focused a lot on the number of rooms and the number of terminal endpoints. Those are still important. Those are still reasonable indicators of how we are growing the business. But now, what is becoming of even more important is the fact that the rooms that we have and the terminal points that we support, there's a lot more products to feed into that. So, that is definitely increasing the revenue per unit of room and of terminal points because we have a lot more products to feed into that. And it's not just products, these are all software products that are going to drive recurring revenue. And all these products are designed to work both on-prem and SaaS, and of course, more and more of the industry now prefer SaaS over on-prem but some customers want it on-prem. The products are designed to support that as well.

So at the moment, what we are seeing in the month of April and May is basically feeding into the customer base we already have for the most part. There are also instances we are seeing, like we are -- the number of new logo or new customers we are talking to has increased more than we thought we would in April and May because these additional modules now become drivers of the core product as well. Well, we need these additional modules to enable social distancing and everything else we need. And your core product needs to support it. It has to integrate well with the core product. For example, we've just introduced a product called Agilysys Authorize, which I told you in the prepared remarks that one particular customer signed up for more than 70 profit centers. But that has to work well with the core POS product and it even has to work well with the PMS because when you go charge a room and you just scan a QR code, and with your mobile phone, you can just bear the table, we still need to make sure if you charge it your room that by mistake, you're not putting a wrong room there or something. So we have to talk to the PMS as well. So to a certain extent, these additional modules will start driving our core products forward as well. But at the moment, I would say a lot of the interest is in additional modules. There is some amount of driving the core products forward as well. I suspect that will happen more and more in the future. And that does expand our TAM opportunity. To answer your question, the total addressable market does get expanded by the fact that these products are not even there a year ago. So to that extent, it does serve the purpose of expanding the market.

Tony Pritchett -- Chief Financial Officer

Yeah. To add to that just a bit, expansion of the market or expansion of RPU [Phonetic], the way to think about these modules is, any individual module can add somewhere in the 20% to 50% range of the core product. So for example, if the core product is worth $1.00 or cost $1.00, these additional modules individually can add somewhere in the $0.20 to $0.50 range. So if we sell somewhere from two to five of these additional modules, depending on the module you're talking about, we could have doubled -- double the revenue from that particular unit.

George Sutton -- Craig-Hallum Capital Group -- Analyst

That's perfect. One other question relative to the concessions you're making. As you look at your competitors, do you find that they're making similar type concessions? I would have to imagine the hardest call in the world is to call Larry Ellison and ask for a concession. Any perspective?

Ramesh Srinivasan -- President and Chief Executive Officer

Yeah. We only know it through customers and some of the friends we have even in our competing companies. I think, to be honest with you, George, everyone is making and honest attempt. Our peer -- our competitors and everyone else is doing the best to help. So, we've got to give them credit for that. I think each company is doing its best to help because the hospitality industry is badly affected, and we all owe it to our customers to do the best we can. And there are limits to how much we can do as well. We are not that big companies. But I think, George -- I think each of the competitor is trying to help in their own way. I think the concessions are similar, but not the same. But I think everyone is trying to help, George.

George Sutton -- Craig-Hallum Capital Group -- Analyst

Perfect, thank you.

Ramesh Srinivasan -- President and Chief Executive Officer

Thanks George.

Operator

Thank you. Our next question comes from the line of Tyler Wood from Northland Securities. Your question please.

Tyler Wood -- Northland Capital Markets -- Analyst

Thank you. I'll just build off of George's last question kind of on the competitive environment. When you think about the longer-term impact on kind of the competitive dynamics of all these changes that are happening in the last few months, how are you guys kind of positioning yourself there? And what do you expect some of the lasting changes to be competitively from all of this? Thank you.

Ramesh Srinivasan -- President and Chief Executive Officer

Yeah. So, hi, Tyler. Good to talk to you. So basically, Tyler, following up on George's question, the onetime conditions, it's just the right thing to do. That is not about building competitive positioning or anything like that. It is just the right thing to do for customers. And all of us, hospitality vendors are trying to do the best. But in terms of where we feel we are gaining in terms of competitive positioning is our continuing investments in product innovation and in customer service. And also, I think where the greatest advantages building up for us is in the fact -- in terms of an end-to-end provider -- so, you take the POS, PMS and inventory procurement products, and then all the additional modules we are adding to it. So in terms of helping a customer manage the entire guest journey from the time they do the reservations in a direct channel, zero-commission website, all the way through the check-in process where they can check in without going to the reception desk, all the way through how they manage themselves within a room where there is easy communication of what they require in the room, all the way through when they go to a restaurant, so every which way end to end, we are enabling the guest journey with modern technology products.

So, when you think of us as an end-to-end hospitality technology software solutions, that is where the competitive positioning is building because we have some competitors who are pretty strong in POS/PMS but are not doing the additional modules like we are doing. They are just pointing to third-party vendors to do it. Then, we have another big competitor who is very strong in one of the two areas, PMS/POS, but not so much in the other. Then we have a bunch of smaller size competitors who are pretty good in each of the products they do but don't have end-to-end solutions. So when you think of where our competitive advantage we feel is increasing and will really be -- will shine once the crisis is over is in the fact end-to-end software solutions enabling the entire guest journey. I have a feeling our lead is now increasing, Tyler. That's what I feel.

Tyler Wood -- Northland Capital Markets -- Analyst

All right, thanks. That's helpful. I'll get back in the queue.

Ramesh Srinivasan -- President and Chief Executive Officer

Thank you, Tyler.

Operator

[Operator Instructions] Our next question comes from the line of Allen Klee from National Securities. Your question please.

Allen Klee -- National Research -- Analyst

Yes, hi. Any insight on your plans of growing -- of what rate do you plan to grow your -- or cut your operating expenses for the year?

Tony Pritchett -- Chief Financial Officer

Allen, hey, this is Tony. How are you doing? And good to talk to you. As we made commentary on the call, we're not giving full year guidance for any aspect of the P&L. The one thing that you can keep in mind though is that we've indicated we could have revenue in the first quarter that's down as much as 35% from last Q1. And at the same time, if we do realize that type of revenue, our adjusted EBITDA for the first quarter would be about breakeven. And then, from that point forward, we expect revenue to go up and adjusted EBITDA would go up from there as well. So while we're not giving specific guidance on operating expense line items or any other aspect of the P&L, you can make some assumptions, and that's how I would build the model.

Allen Klee -- National Research -- Analyst

Okay, thank you.

Tony Pritchett -- Chief Financial Officer

Absolutely. Thank you, Allen.

Operator

Thank you. Our next question comes from the line of Ishfaque Faruk from Sidoti & Company. Your question please.

Ishfaque Faruk -- Sidoti & Company -- Analyst

Hi, good afternoon, guys. A couple of questions from me. First of all, Ramesh, you said you're seeing a lot more deals still closing in April and May. And also -- you also briefly touched on some of your social distancing products. Are you seeing much more interest in some of your products that cater to that like rGuest Seat, rGuest Express? Is that what's happening now in this new environment?

Ramesh Srinivasan -- President and Chief Executive Officer

Yes. Hi, Ishfaque. Good to talk to you. So just to be clear, Ishfaque, about my comments earlier, the sales activity in terms of number of demos and all that during April and May has surprised even us. It is almost double what we did in January, February, and we didn't expect this much sales activity in April, May, given the circumstances. The sales activity has increased. However, the closure of agreements, reaching a decision, those are definitely delayed. So, a lot of customers are kicking the tires, but the rate at which sales is closing has definitely fallen and in March, April and May is much lower, which is why we are projecting Q1 will be a 35% decline and all that. Onetime concessions is part of the reason, but the part of the reason also is the fact that the business and sales levels are declining. The activity is there. Everyone is intrigued. Everyone like -- we held two webinars to explain the products, and hundreds of customer users attended them; one on the 14th and one earlier today. So there is a lot of interest, but the rate at which deals are getting closed is still quite slow because everybody is making plans to reopen and they're being very circumspect with how they sign deals. So, I want to be clear about that distinction. That's number one.

And the interest is definitely in the products that enable them to provide their guests with safety and comfort. So yes, rGuest Express is definitely part of it. The mobile -- both the rGuest Express Mobile and the Kiosk are definitely part of it. But probably the biggest ones we are seeing is in On-Demand, which is an extension of our POS product set, which enables you to remote order and either pick up or it connects to a delivery mechanism or a delivery company that can deliver it to you. There is great interest in that. And then, we recently introduced the Authorize product. Basically, when you get an F&B receipt, you can scan a QR code that's on the receipt and pretty much pay for it through your mobile phone itself, which is the best form of pay on table we can provide. There's a lot of interest in that. And there is a lot of interest in Seat, like you mentioned, because that helps you plan out when you want to book -- like when you -- for example, if you want to keep every alternate cabana occupied, you have a way of managing that. And not just cabana, even the lounge chair, you can create a reservation system thereby which you make sure every alternate lounge chair is occupied. There are lots of different things you can do with Seat. The current interest is definitely in those kinds of products. You are right. But it is having a drag-on effect on our core product as well. There is a reflected effect on the core products as well because we are so well integrated with all those.

Ishfaque Faruk -- Sidoti & Company -- Analyst

Got it. That's very helpful, Ramesh. And also on the professional services segment, Tony briefly touched on that. And around the end of March, professional services sort of came to -- activity declined significantly. But are you seeing some pickup in maybe mid-May or any other color on professional services segment for your first fiscal quarter?

Ramesh Srinivasan -- President and Chief Executive Officer

Yeah. So yes, the slowdown in March was quite significant because of travel restrictions and obviously a lot of -- almost all the sites are getting closed. So there was a lot of cancellations. So there were -- we had our personnel ready to go to customer sites. And we were amazed that some of the go-lives even -- the implementations even happened. There was one toward the end of March in Memphis, which was even surprising to us. So -- but more or less, everything did slow down in March, and that did affect services revenue in March. No question about it. And April was quite bad. April, we didn't have too many implementations going on. We had implementations, but much much reduced level. And what we have noticed in the last three weeks is, things are picking up. Every week, the amount of services bookings has increased over the prior week in the last three weeks or so. So we are seeing definite signs of picking up. But in our Q1 results, you should expect a significant decline in services revenue because we were working at record levels before. And services -- the number of implementations we were doing was at record levels. So, Q1 is definitely going to be a slowdown. So the 35% decrease in revenue we talked about, you should expect a lot of that, right, to be in services. But in the last three weeks or so, we are seeing every sign of it picking up, and our services personnel are getting booked. And in fact, June is pretty much getting close to getting fully booked now. We are seeing improvements there. But unfortunately, for Q1, Ishfaque, it's too late. It is going to [Speech Overlap].

Ishfaque Faruk -- Sidoti & Company -- Analyst

Yeah, absolutely. That's very, very helpful, Ramesh. Thank you so much.

Ramesh Srinivasan -- President and Chief Executive Officer

Thank you, Ishfaque.

Operator

Thank you. This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Ramesh Srinivasan for any further remarks.

Ramesh Srinivasan -- President and Chief Executive Officer

Thank you, Jonathan. Thank you all for joining us on the call today and for your continued interest and support. Agilysys continues to be well positioned to increase shareholder value. This is a great value-creation opportunity we are determined to make good on for our employees, customers and shareholders.

I also want to take this opportunity to give a special thanks to all our team members all across the globe, who have been working very hard, who have been very brave through all these circumstances, and who are working hard every day to make Agilysys a world-class company; and of course, to our customers and all our investors who trust us with their investments, more now than ever before. Thank you.

Operator

[Operator Closing Remarks]

Duration: 59 minutes

Call participants:

Dave Wood -- Vice President, Corporate Strategy and Investor Relations

Ramesh Srinivasan -- President and Chief Executive Officer

Tony Pritchett -- Chief Financial Officer

Matt VanVliet -- BTIG -- Analyst

George Sutton -- Craig-Hallum Capital Group -- Analyst

Tyler Wood -- Northland Capital Markets -- Analyst

Allen Klee -- National Research -- Analyst

Ishfaque Faruk -- Sidoti & Company -- Analyst

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