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Agilysys Inc (NASDAQ:AGYS)
Q1 2021 Earnings Call
Jul 28, 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 2021 First Quarter Conference Call. [Operator Instructions]

I would now like to turn the conference over to Jessica Hennessy, Senior Manager Corporate Strategy and Investor Relations at Agilysys. You may begin.

Jessica Hennessy -- Senior Manager Corporate Strategy and Investor Relations

Thank you, Liz, and good afternoon, everybody. Thank you for joining the Agilysys fiscal 2021 first 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 in 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 would now like to turn the call over to Mr. Ramesh Srinivasan, President and CEO of Agilysys. Ramesh, please go ahead.

Ramesh Srinivasan -- President and Chief Executive Officer

Thank you, Jessica, and good afternoon, good evening, everyone. Welcome to our fiscal 2021 first quarter earnings call. Joining Jessica and me on the call today is Dave Wood, our Chief Financial Officer.

I'm participating in this call from my home base in Las Vegas, while Dave and Jessica are in Atlanta. We hope all of you and your families and colleagues are doing well and staying healthy. I first want to assure you that we have taken every step possible to keep our employees safe and healthy. We've also done our very best using our growing product research and development strength to help our customers with social distancing enabling and other product enhancements and innovation to enable and ensure the safety and comfort of guests visiting their properties.

Before our update, 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 standard across public enterprise software companies. We use the term sales, however, to refer to new sale agreements signed with current and new customers for products and services. We measure such sales in terms of net annual contract value of sale agreement signed. We also tend to use the sales, selling activity and bookings to all refer to the same thing, net annual contract value sales. There is a time lag involved in progression from sales to revenue. Some happen relatively quickly, while others, especially those involving subscription based license fees happen over time after the implementations are completed.

Q1 fiscal 2021 revenue was $29.8 million, a 22% decline compared to Q1 of fiscal 2020. This was likely the most challenging quarter ever faced by the hospitality industry and our business. Considering the extraordinarily tough circumstances, we are pleased that Q1 revenue turned out to be better than our earlier expectations.

Now looking back on the quarter, we think the fact we faced such tough circumstances and still came out of it reasonably well had a lot to do with our increasing pace of product improvements and innovation, our growing reputation as a world-class customer service organization and the strength of the backlog before the crisis. Apart from the tough business conditions affecting all our revenue areas, recurring revenue was additionally affected by various one-time COVID related financial relief provided to customers to help them during this time of need. Recurring revenue increased 2% year-over-year compared to Q1 of last fiscal year, despite this one-time COVID relief provided. We expect this relief to also affect future quarters of this fiscal year, but to a lesser extent in each quarter. We continue to do very well with customer retention. The recurring revenue challenges this quarter are only due to the one-time COVID relief and have nothing to do with any customer retention issues.

Product and services revenues were down 52% and 45%, respectively year-over-year compared to Q1 of last fiscal year, mainly due to delayed purchase and product receiving decisions caused by site closures. We announced special sales incentives during April for our new food and beverage online ordering software module called OnDemand. The incentives included a 90-day free SaaS trial and no services installation charges for the first food outlet at a property. By any measure, the offer was a big success and multiple hundreds of sites signed up for it. Assuming a majority of the customer sites who signed up for the free trial choose to continue using the product, this should help our SaaS fees growth starting around the September, October, November timeframe. Regarding services in general, after hitting a low in April, the number of product implementation projects has increased each month over the prior month during May, June and July.

Now about sales. The extent of sale agreements closed during the quarter was about 60, 6-0 -- was about 60% in value terms compared to the same quarter last year. Most of the decline has been due to postponed technology investment decisions. Our win loss ratio in deals where a competitive decision is reached, continues to be impressively high. As one would expect the sales deals won in value terms, hit a low during April. But since April each of the following three months has been an improvement over the previous month. We closed more deals in May in value terms than in April, more in June compared to May and July has been better than June even with a few more business days left to go in the month. Though we are not yet back to normal sales levels, we are progressing in the right direction.

The business expansion progress during the past three months has been encouraging. With about three business days remaining in July, value of sale agreements won we closed during July is so far 45% higher than during all of April. Both July and April, our first months in the quarter as you know and are comparable. There are many customers who are moving forward now with strategic projects, they need to get done for the long-term. Many resort operations and hotels and resort towns seem to be sustaining themselves with modest to good occupancy levels and continue to invest in technology solutions. These resorts have many amenities and options available and are benefiting from guests who are driving to their destination, when a few months back the same guest would have probably boarded a plane to get there.

Hotels which cater to business travelers seem to be struggling the most. Gaming casinos, especially the regional resorts and tribal gaming casinos have made decent rebounds and continue to make various kinds of technology investments. While how badly the cruise industry has been affected is well documented by now, they too are somewhat bullish about the recovery and are working on various projects taking advantage of this downtime. With respect to managed food service, the healthcare segment is doing reasonably well for us and the higher education segment is involved in a reasonable amount of technology investment decisions. After a big decline for a couple of months, the APAC and EMEA businesses have started picking up in July.

For customers who are continuing to make technology investments our exponential product improvements and new product innovation progress is making our selling proposition increasingly more compelling. During Q1 we signed sales agreements, which added 10 new customers, 32 new properties, which did not have any of our products before, but the parent company was already our customer and they were 113, 1-1-3 -- 113 instances of selling at least one additional product to sites, which already had one or more of our other products.

Major sales highlights during the quarter included a new customer SentryWorld and Stevens Point, Wisconsin, choosing Agilysys Stay, PMS, the rGuest booking engine, Express InfoGenesis POS, Pay and the new Golf module with retail for their hotel and their Robert Trent Jones Junior designed golf course. The Agilysys estate PMS win at Palm Garden Hotel in Thousand Oaks, California, an independent 147-room hotel. The InfoGenesis IG flex, OnDemand, quick pay and Buy Kiosk win with La Cantera Hotel in San Antonio, Texas, one of the premier luxury resorts in San Antonio, with 496 rooms and 34 boutique style villas. The OnDemand purchase across four outlets to enable social distancing by a long time user of InfoGenesis, Hyatt Regency Chesapeake Bay Resort and Spa in Cambridge, Maryland, they have reported outstanding OnDemand adoption rates and reviews by their guests. Then the InfoGenesis POS, IG Flex and Pay win, with the Canopy Hotel by Hilton in Austin, Texas, a PM Hotel Group property. And the Rochester Institute of Technology in Rochester, New York, choosing InfoGenesis POS, IG Flex, Buy, Pay and OnDemand for 13 locations, 1-3.

The other major highlight of the quarter was our PMS implementation across three prestigious hotels owned by the Choctaw Nation were LMS, PMS replaced a well-established competitor, property management system. Choctaw casinos and resorts located about an hour North of Dallas, in Southeastern Oklahoma is a AAA four diamond resort and entertainment destination. A long-standing InfoGenesis POS customer, they are now live with LMS, PMS across their three properties at Durant, Phola and Grant, Oklahoma, taking advantage of the recently modernized LMS features.

As Choctaw reimagined their new guest experience. They have extended their partnership with us to add the guest-centric booking engine rGuest Book, which should be replacing their existing booking engine during the next few weeks. They will be using the group feature in rGuest Book to provide a personalized booking experience for their group guests. In addition, as part of the new guest experience Choctaw is now accelerating their rollout of rGuest Express Mobile to allow their guests to check-in and check-out directly from their phones, including by using digital Keys, thereby allowing guests to completely bypass the front desk if they choose to. In addition, Choctaw opened their new 277 seat Guy Fieri's, American kitchen and bar where they wanted to provide guests a true omnichannel, frictionless and contactless ordering and payment experience. As a result, they chose the IG OnDemand suite of applications to allow guests to order and pay table side using their own mobile devices. For their service, they decided to enable mobility throughout with IG Flex tablets to offer guess the next level of hospitality service.

We are truly honored to partner with the Choctaw Nation as they drive forward innovation and new guest experiences. One of the significant highlights of sales success during the quarter was 17, 1-7 -- 17% of total sales in value terms was comprised only of new software modules created during the recent past, against only 1% of sales pertaining to products, which were new then during the same quarter last fiscal year. In absolute value terms, sales of new products were about 8 times higher in Q1 of fiscal 2021 compared to Q1 last year. Especially given the circumstances we were facing during this quarter, this is quite a testament to not only the pace of product innovation now, but also to the fact that the new models -- modules being developed are in good sync with and focused on immediate customer needs.

This also gives us renewed confidence that our objective to be an end-to-end industry focused technology solutions provider. All based on modern cloud SaaS, native and on-prem ready technology will yield good short-term and long-term financial results. This industry is clearly hungry for such cutting edge modern technology-based solutions backed up by world-class customer service. We clearly are on the right track.

The new products which constituted most of the 17% of total sales during Q1 included the following. One, IG OnDemand. OnDemand is a contactless self service F&B ordering solution, which offers an intuitive guest facing ordering and pay experience. This application allows guests to place and pay for orders using their own device, phone, tablet or laptop. This application also includes a smart menu option, which provides a touchless menu display on a guest's owned mobile device. The displayed venue-menu is linked directly to the actual items in the OnDemand system and is not to a PDF or a website link. We've also updated a full service option to this application, which is a completely contactless, multipass, self-service F&B solution that offers an intuitive guest facing table side order and pay experience. It supports ordering for multiple guests at a table over the course of a meal using their own devices.

Number two, IG quick pay, this application allows guests to use their own mobile device, scan a QR code on the InfoGenesis check, review a digital copy of the check, add a tip and initiate payment, maintaining a fully touchless guest payment experience.

Number three, rGuest Express, this application enables guests to check-in and check-out via mobile device or a lobby kiosk with support for digital Keys, ID verification and key encoding.

Number four, rGuest Book, a commission free direct channel easy to use online reservation system that is designed to move guests easily through the booking process for room reservations, spa appointments and golf tea times. Given its seamless tight integration with our PMS applications, it enables real time availability and the ability to upsell room upgrades and service enhancements helping drive increased revenue.

Number five, Agilysys Authorize, this module provides support for fully automated and secure online payments for any room deposits, third party guarantees and folio charges, while eliminating the need for manual credit card authorization forms. Payments are seamlessly authorized and posted appropriately in real time. Fully integrated with our PMS applications, this module now enables guests to authorize their hotel stay from their personal device preventing the need to provide credit card details over the phone to an agent, this helps avoid the previously cumbersome process of the employee having to click a button to enable surveillance to check for and capture any fraudulent steps.

Number six, rGuest Service. This application is an easy to use hospitality native platform that monitors evens across various staff and guest touch points. As a configurable service optimization solution, it enables task assignment with context-based guest location and task details and optimize routing of tasks and approvals with support for smart phones, tablets, laptops and variables. This application contains modules for housekeeping, preventive maintenance and two-way guest communication.

Number seven, Agilysys Spa. This is a modern spa management solution for independent hotel and resort based spa operators. Built-in mobility options help deliver an effortless check-in and staff scheduling process. While intuitive drag and drop appointment management helps maximize therapists and treatment room utilization. Built-in yield management insights, which include real time availability and optimized pricing, as well as the ability to book group services and manage retail items can help grow revenue for a property. This application comes integrated with our PMS and POS solutions, making it easy to share data across the enterprise.

Number eight, Agilysys Golf. This is a Pro Shop and golf course management solution for independent hotel and resort courses with guest-centric technology that helps build personalized experience for players, guests and members on the course. Again integrations with our PMS and POS solutions makes it easy to share data across the enterprise and access player information including personal preferences, play histories and handicaps.

In addition, there are a couple of other recently developed software modules which are in the process of being released. Agilysys sales and catering, which is a comprehensive sales and event management system and you would have seen the press release on this yesterday. And number two, Agilysys engage, loyalty and promotions, which will help operators leverage guest preferences for targeted promotions and offers.

Now, none of these modules were available for our sales system -- for our sales team to sell as recently as two years ago. And a majority of them were not available, even a year or six months ago. All these new software solutions have been created cloud SaaS native and also on-prem enabled leaving the choice to the customer with no technology limitations. Most of the customers are choosing the cloud SaaS option now, which augurs well for a accelerated SaaS fees growth in the future.

In addition, the projects under way to strengthen and modernize our feature-rich core products continue to make excellent progress. Each recent version release of the core products, apart from a continuous stream of enhanced and new features has also included good technology modernization progress.

Adjusted EBITDA during the quarter was $3.4 million, better than our original expectations. What is notable about the EBITDA level achieved, is that we did not in any way compromise the pace of product innovation and customer service levels during the quarter. Our current velocity of product improvements and innovation is the best its ever been and has helped create expanded market opportunities even under the current tough market conditions.

Our R&D team size, not including the technical services team, which is focused on customer-specific custom technical work is now about 720% strong, which is about 25% higher than at the end of Q1 last fiscal year. With about 40% of this R&D team that's 4-0, with about 40% of this R&D team having been with us for more than two years now, we are currently at a level of quality and productivity, we have not seen before.

The reduced level of product development spend, the Q1 P&L shows, is mainly due to salary reductions in place for the six months April through September period, lower incentive compensation accruals compared to last year and consistently improving R&D cost efficiencies. Regardless of what the spend indicates, the current level of product development and innovation output is at least 25% higher than at the same time last year.

We continue to increase our ability to provide end-to-end solutions, which enable the kind of contactless, safe and comfortable guest journey our customers now have an enhanced need for. We are committed and determined to increase the pace of product innovation, even through the current business conditions and backed it up with superior and improving customer service levels.

Along similar lines, our sales and marketing spend during Q1 was down, mainly due to the six months salary reductions in place, less spend on trade shows, lower commissions and incentive compensation levels and limited travel. We expect normal spend levels to get restored and increased as market conditions continue to improve.

Lastly, and the most important detail of them all, we continue to be intensely focused on securing the safety and health of our employees, customers and the communities we serve in. We are deeply grateful for all the personal sacrifices our team members worldwide have made to secure the financial health of the company during this crisis period.

As we work our way through the current business environment, significant marketplace uncertainties remain. This fiscal year will be a tale of four quarters for us. We will therefore continue to provide guidance one quarter at a time for the remainder of this fiscal year and then switch to our normal annual guidance cadence, starting the next fiscal year FY 2022. All aspects of our business, including cash balance on hand continue to improve. We remain well positioned for good financial performance even as various parts of the industry reopen and begin their recovery process.

In the meanwhile, we expect revenue during Q2 fiscal 2021, the July to September quarter to be about 15%, 1-5 -- to be about 15% sequentially higher than the $29.8 million revenue level during Q1. We also expect that to translate to a 25% corresponding improvement in adjusted EBITDA in Q2 compared to the $3.4 million during Q1. While the current macroeconomic circumstance is a definite setback to the business progress we were making pre-COVID, we have every reason to believe we will come out of the phase with our overall business health intact and improved.

We remain a relatively small player in this huge hospitality industry and even a partial recovery in various areas of the industry will be sufficient to fuel our growth. We continue to see solid evidence that the short-term reduction in overall industry business levels will be increasingly compensated by an increased need for technology solutions to make hospitality guest experiences safer and more comfortable. We expect to increasingly be the leading provider of such much needed high-quality technology solutions.

We remain cautiously optimistic about our near-term future and bullish about our long-term growth and profitability improvement prospects. We have good reasons to believe our competitive advantage and overall business health will be better on the other side of this crisis than it was before.

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

Dave Wood -- Chief Financial Officer

Thank you, Ramesh. There is no doubt the effects of the COVID-19 pandemic have deeply affected our industry in the short term. However, we remain more confident than ever in our long-term financial health and ability to execute on our growth and profitability improvement plan, deliver mission critical solutions to our customers, backed up by world-class customer service and to do whatever it takes to support their ever-changing business needs.

We are pleased with the strength of our cash position, along with our ability to deliver cost effective product innovation. This should allow us to pick back up with the business momentum we achieved prior to the pandemic. Taking a look at our financial results, beginning with the income statement, first quarter fiscal 2021 revenue was $29.8 million, a 22% decrease from total net revenue of $38.4 million in the comparable prior year period. The topline decrease largely reflects a 52% decrease in product revenue and a 45% decrease in professional services revenue, due to the delayed delivery and buying decisions throughout the industry, as well as the one-time COVID relief given to the customers, which for the most part, impacted the first quarter.

The decrease in product and services revenue was offset by a slight increase in recurring revenue. Total recurring revenue represented 68.8% of total net revenues for the fiscal first quarter compared to 52.3% of total net revenues in the comparable prior year period. The increase in recurring revenue as a percentage of total revenue is primarily due to the lower product and professional services revenue levels.

We are pleased with our subscription revenue growth, which grew at 8.6% for the first quarter of fiscal 2021, despite the one-time relief given to our customers. Subscription revenues comprised around 37% of total recurring revenue compared to 35% of total recurring revenue in the first quarter of fiscal 2020. With respect to endpoints, we currently service about 274,600 rooms and have approximately 63,100 terminal endpoints.

Like we said on the last call, we are continuing to provide this metric, though an increasing amount of our revenue is now less dependent on endpoint growth. Our add-on software modules that built out our ecosystem of products are adding scale. As for products and services revenue, we currently have a backlog of hardware, software and professional services that remain near record levels. As our customers operations open back up and start to return to normal, we hope to accelerate the deployment of that backlog, given that sales have increased every month since April and Q1 fiscal 2021 was better than expected. We should soon get back to normal revenue levels. However, given the uncertainty everyone continues to face, it is impossible to predict exactly in which future quarter that will happen.

Moving down the income statement, we achieved gross profit of $18.6 million compared to $20 million in the first quarter of fiscal 2020. Gross profit margin increased to 62.2% compared to 52.1% in the first quarter of fiscal 2020. The gross profit margin increase was due to a couple of factors, recurring revenue was a larger portion of total revenue and our first quarter of 2021 was the first quarter not impacted by roughly $3.2 million dollars in capitalized software amortization policy.

Looking at operating expense, but excluding charges for legal settlements, impairments and restructuring, severance and other charges, the first quarter saw a 16.7% decrease in operating expense to $17.8 million compared to $21.3 million in the prior year period. This decrease in operating expense is mainly due to reduced incentive compensation, temporary salary reductions and other cost saving initiatives.

Combined our three main operating line items, product development expense, sales and marketing expense and general and administrative expense were 56% of revenue this quarter, compared to 53% of revenue during Q1 of fiscal 2020. However, the expense of these three lines were down $3.9 million, compared to the same period of last year.

Our net loss of $1.7 million and loss per diluted share of $0.07 are comparable to the prior year's first quarter loss per diluted share of $0.07. Adjusted net income of $1.9 million and adjusted diluted earnings per share of $0.08, compares to $0.08 in the prior year first quarter, when normalizing for certain non-cash and non-recurring charges.

For the 2021 first quarter, adjusted EBITDA improved to $3.4 million, compared to $3.2 million in the year ago quarter. We are pleased with the adjusted EBITDA for our fiscal Q1 2021, which represents the overall health of the business and available cost balance for sustainable long-term profitability.

Moving to the balance sheet and cash flow statement. Cash and marketable securities as of June 30th, 2020, was $74.6 million, compared to $46.7 million on March 31st, 2020. More importantly, our cash balance at the end of the day, yesterday, was approximately $80.6 million. Our strategic initiatives to increase liquidity in the quarter allowed us to pay down nearly $9 million in accounts payable, keeping us in good standing with our vendors.

We are pleased with our ability to manage our liquidity as we navigate these challenging times. Assuming hospitality business trends continue to be on an improved path and there are no major economic reverses and no major M&A type one-time activities, we expect to end this fiscal year at higher cash balance levels than our ending Q1 fiscal 2021 balance of $74.6 million.

As it relates to free cash flow, free cash flow in the quarter was negative $5.2 million, compared to negative $2.5 million in the prior year quarter. The free cash flow reduction was primarily due to working capital and paying down our vendor balances. As Ramesh mentioned, we expect revenue to increase 15% in our second fiscal quarter of 2021, compared to the first fiscal quarter of 2021. As our industry regain strength and begin finalizing buying decisions and accepting product deliveries.

Given these revenue levels, adjusted EBITDA for the second quarter should improve 25% and remain above the first fiscal quarter of 2021 levels of $3.4 million. Otherwise, given the uncertainty of the global markets, we are not providing any further guidance now.

In closing, our business continues to improve as reflected by the strength of our profitability and cash balance along with the new products we have released over the last year. We have spent much of the past couple of years working toward building a company to deliver world-class SaaS solutions and services that is second to none and we hope you can see the results of our efforts coming through our financials.

Despite the current slowdown in sales, we have been laser-focused on improving the company overall. And specifically, the great set of products we have and remain confident our efforts will continue to pay off in the medium and long-term.

With that, I would now like to turn the call back over to the operator. Liz?

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from Matt VanVliet with BTIG. Your line is now open.

Matt VanVliet -- BTIG Research -- Analyst

Yeah, hi guys. Thanks for taking the question. Well done in the quarter given the very difficult operating environment, you find yourselves in. I guess, first, you highlighted a lot of the good wins, especially with some of the newer products that you mentioned, weren't even available two years ago. Wanted to dig in there a little bit and just kind of get a sense of the bookings trends within the quarter and even into July, what level of mix are from I guess existing customers buying some of these sort of new normal social distancing elements and how much of the sort of pipeline rebuild is from those versus just sort of ongoing discussions that you had about broader POS modernization or PMS upgrades with existing customers?

Ramesh Srinivasan -- President and Chief Executive Officer

Yeah, hi, thanks for the question. I mean and thanks for participating in the call. We normally monitor our sales in four categories. One is existing products where a customer buys an additional terminal or buys services, things like that where there is an existing product and there is more business around it.

Now, what we call as competitive sales is the other three categories. The first one is new logos, where a new customer signs up. The next one is a new site where a customer is already signed -- already our customer, but they go live in a new site with our product. And the third category is additional products or new products, where a site already has at least one of our products and they buy at least one other product.

Now what we have found and we were -- we have all -- we have ourselves been a bit surprised since April that the new logos business and the new logos opportunities, we are looking at is reasonably healthy, I wouldn't compare it to the peak time like last the January, February or so, but it is quite high and we were surprised by the number of new logos, number of new customers who are talking to us about system replacements. In fact, there is a seven-digit -- there is a big deal that we signed recently with the new customer. So the new customer business is doing better than we expected it would in April. That's number one.

Number two, what is really doing well for us is new products. And what we mean by new products is additional products, where a customer has one of our products and they are actually buying the other products, many of them are these new products that help with social distancing and the other current needs. And also, when they look at those products they are surprised by the -- how many things we now have to offer and then they take a look at that entire lineup, even products that are not necessarily directly related the social distancing.

Now what has not done well, what is gone down more than we would have bargained for, is new sites. Many of our big customers, who let's say in calendar 2019 were going live with our products in many new sites, that business has definitely slowed down. But what has picked up is new products and new customers looking at our systems now.

Matt VanVliet -- BTIG Research -- Analyst

Got it and very helpful there. I guess as you also look at the on-demand free trials that you rolled out and really wanted to support customers in a difficult time but also kind of open their eyes to a lot of these new products. I guess, as you think about what 15% sequential growth next quarter looks like and hopefully improvement throughout the rest of the year, what kind of conversion rates are you assuming or thinking about for all those customers that have taken you up on that offer and kind of what that is adding to the pipeline from your expectations?

Ramesh Srinivasan -- President and Chief Executive Officer

Yeah, so the 15% guidance of revenue sequential increase Q1 to Q2, and the 25% EBITDA increase is based on general business trends. It is not based on one particular thing. Now, the -- let me answer the OnDemand part of it first. The 90-day free trial is going reasonably well. Many customers love the product and --so we expect a good portion of those customers to continue using that.

So we are optimistic, bullish about the fact that that product is going to be a revenue generator especially SaaS fees generator for us for the long-term, so this is just not a short-term thing. This product is going to be there to stay and it is going to be one of the powerful arrows in our POS kitty, right. So that's going to be helpful and we expect a majority of the customers, a big majority of the customers to continue using the product. So there we have no doubts. But our guidance of a 15% revenue increase in Q2 over Q1 is not based on any one particular thing. I would not base it just on OnDemand. It is -- we monitor pipeline and we monitor our sales opportunities on a weekly basis and currently opportunities all-round including picking up of business in APAC and EMEA is pointing to that kind of sequential growth.

Matt VanVliet -- BTIG Research -- Analyst

Got it. And then lastly from me, if I can slip one more in here. Historically, you've had a lot of strength in gaming, you've talked about Las Vegas being a huge market for you, but also highlighted some of the regional casinos having a lot of success recently. Is there a push and their move to open as early as possible in a lot of these areas and being located often times and maybe less prevalent hotspots at least in the U.S. from a case counts, would you expect over the next several quarters for that mix of revenue coming from gaming to actually tick back up even as you've had a lot of efforts in diversifying away from that or are you seeing strengths in various pockets in all of the different verticals that you've really shown some good success in recently?

Ramesh Srinivasan -- President and Chief Executive Officer

Yeah, so let me answer the question in two separate parts. Number one, as far as gaming is concerned, we have noticed pickup, mostly in the regional resorts and in tribal casinos, where like you said they are not in the center of the hotspots and they also have a bit more freedom to operate the way they want to. So the interest in our products and willingness to invest in technology has been higher with the regional resort casinos than they have been with the destination resort casinos, if you will -- if you make that difference.

So gaming is a big market for us. I would not say that the kind of business pick up there is anywhere close to peak levels. But it is doing reasonably well. Especially in the regional resorts and especially with tribal casinos, as they look at the various new product options. Now regardless of the vertical segment, I will assure you that we are doing reasonably well and our sales activity is this high mainly because of our product innovation over the last year. I mean, I shudder to think what would have happened to us if the product innovation and all the new products, and all that, were not there like they are today, that has really helped and a lot of people are looking at it, including the resort casinos.

Now, I wouldn't say we are trying to diversify away from gaming. We just have great opportunities in HRC and managed foodservices because we have such low market share there and the industry is so huge, especially in hotel, resorts and cruise ships, what we call HRC. Hotels and resorts is a huge market and we have very little market share.

Now, all these new products that we have and our improving PMS offering where rGuest Stay is now pound for pound, feature for feature can stand against any other leading PMS product out there, and we have the additional -- all these additional modules supporting it. So we are very competitive on PMS and our POS offerings are getting better with OnDemand. So we have a long runway to go in HRC and that is beginning to show. HRC has done particularly well during the last four months relative to the past and managed foodservices and healthcare and higher education, they are new markets for us. We have very low market share and there is a partner who we work with is really bringing us a number of deals. So those two businesses are expanding, making up for the temporary short-term lag in destination resort gaming.

Matt VanVliet -- BTIG Research -- Analyst

Got it. Thank you.

Ramesh Srinivasan -- President and Chief Executive Officer

You're welcome. Thank you.

Operator

Our next question comes from George Sutton with Craig-Hallum. Your line is now open.

George Sutton -- Craig-Hellum Capital Group -- Analyst

Thank you. Ramesh, you ran through a series of new offerings, which I appreciate. I'm wondering if you could talk about that relative to what you're seeing from competitors. Are you bringing these newer offerings into the customers and they are valuing it as either the option they go with or not, there aren't comparable offerings, that's our belief. I just wanted to generally confirm that.

Ramesh Srinivasan -- President and Chief Executive Officer

Yeah. I mean I -- George. Hi, George. I never want to -- I never want me or Agilysys to be over confident about anything. In general, you're right. One good hospitality solutions provider like us who provides both the core products and the additional modules is lacking. What a lot of the leading providers do, like our peers, our competitors what they do is, they point to third party vendors for the most part, saying, oh, you want the check-in, check-out mobile or taking check-out kiosk option or an rGuest Service, go to that partners or go to this partner. That's the way they do their business which works. I mean there is nothing terribly wrong with that, other than the fact integrations and the lack of one neck to choke and all that becomes challenging for the customers and what we are noticing now is that, as soon as the customer even comes to realize that we have all these additional modules and that is the main challenge for us George, the fact that we need customers to understand that we are no longer that old company that we used to be, that we have all these offerings. Once they understand that, the fact that all this comes integrated from one vendor, they have been tested together they add value to each other and now we have a single demo environment in which we can demo all the products, that is I think a big competitive advantage for us, George. And I think that competitive advantage is growing as well, month-over-month.

George Sutton -- Craig-Hellum Capital Group -- Analyst

So you referred early on to the social distance enabling offerings that you have, I believe, those are things like Agilysys seat rGuest Service and Express Mobile. Can you talk about what kind of demand on a relative basis you're seeing for those kinds of products specifically. Is that mostly just affecting your existing customers taking on more product or is this your Trojan horse entree into new accounts?

Ramesh Srinivasan -- President and Chief Executive Officer

Yeah, I wouldn't call it Trojan horse. Each of them have their own market, like the Sales & Catering module that came out yesterday that market itself, you can argue runs into billions and we are not using that necessarily as Trojan horse because Sales & Catering by itself can be a product that could be a $20, $30, $40 million product for us by itself. Even if that customer doesn't by any of our other PMS products and so on. And we are talking to our major leading golf course now just about the golf product and there was one customer who was about to sign with us and that deal has got delayed, who had just looking at the spa product and the few things around it, not necessarily connected to PMS. So each of these products do carry, do play in a market of their own and each of them can be double-digit millions of dollars as we go along.

So each of them have good potential by themselves, but taken together, it does provide us a chance to sell more to our big current customer basis. But we are not necessarily viewing it as a Trojan horse kind of strategy, it is just that we have a lot more product offerings now. Each of them have an individually big market and taken together, they are also very useful for all our big customers.

George Sutton -- Craig-Hellum Capital Group -- Analyst

Got you. Last question if I could, you mentioned that your COVID relief was really a one-time item. I'm curious in your confidence in that, though it might not be an extended need to help again at some point and if you thought through that.

Ramesh Srinivasan -- President and Chief Executive Officer

Yeah, good question, George. I mean that is part of the uncertainties that we are working with. What we mean by the phrase, one-time is that, it applies only for one-time like this is not a extended discount or anything like that. And so far so good, I mean, it feels like it is one-time, but we are nervous like you are that there may be future needs as well. It is very possible it all depends on how smooth and how straightforward the recovery is. Whatever it is, even if we make any other future relief offers, they will again be one-time for that time. It's still possible, George. I would not rule that out.

George Sutton -- Craig-Hellum Capital Group -- Analyst

Okay, thanks very much. Appreciate it.

Ramesh Srinivasan -- President and Chief Executive Officer

Yeah. You're welcome, George. Thank you.

Operator

[Operator Instructions] Our next question comes from Allen Klee with National Securities Corporation. Your line is now open.

Allen Klee -- National Securities Corporation -- Analyst

Hello, good afternoon. A question on the temporary discounts, could you quantify like if every one of those customers started paying you when the time period was over. How much quarterly revenue would that represent?

Dave Wood -- Chief Financial Officer

Hey, Allen. It's Dave. So we're not quantifying the amount of discounts. But the way to look at it, I mean you can see that our exit rate of recurring revenue was about $22.3 million in Q4 and our endpoint has continued to grow. So we're at a little over $20 million this quarter. So the one-time discounts really affected the growth rates on recurring revenue to that extent and without the credit -- without the one-time relief credits, our growth rates would have been similar to what we've seen in the past.

Allen Klee -- National Securities Corporation -- Analyst

Okay. And then, the six month temporary discount of -- discount is the wrong word, sorry, cut in compensation costs, is there a way to think about dollar-wise how much that is on a quarterly basis?

Dave Wood -- Chief Financial Officer

So on a quarterly basis, it's -- I mean, the way I would look at it, Allen, is our operating expense as a percentage of revenue and we've historically said for G&A that will remain in the 14% to 16% of revenue and for product development we'll remain in the 25% to 27% of product development and for sales and marketing it will stay in the 12% to 14% of revenue. All of those are slightly down this quarter based on all the temporary and long-term cost savings initiatives. But the way I would look at it is this year will be a little bumpy and some of them will be outside of the range. But as we get into next year, we'll start to return to the normal levels we used to.

Allen Klee -- National Securities Corporation -- Analyst

Okay. And then, just bigger picture as the recovery in some of the hospitality areas is maybe going to be a little slower than what was originally expected, it's very tricky because that's going to affect the number of -- some of your demand while you're doing very well with new products. How does that affect, I guess you're -- just your confidence in the recovery and your ability to return to growth?

Ramesh Srinivasan -- President and Chief Executive Officer

Yeah. So I would -- hi, Allen, I would think of a couple of things there, right. Number one, like we keep repeating. It's a huge market and we are a small player, right. So our recurring revenue, if you take the $20 million or the $22 million per quarter multiplied by four, we are somewhere in the '80s, right? Somewhere in the low '80s to high '80s is where our annual recurring revenue run rate is. And compared to the overall total addressable market that runs literally into billions, right. So we are still a small player.

So what that gives us is even the parts of -- even if portions of the hospitality industry recovers, that should serve us well. So the tribal casino is doing reasonably well, a number of casinos making technology decisions, even the cruise industry making use of this downtime to do upgrades, a whole lot of hotels resorts in regional area is doing reasonably well. So as pockets of the market recover, I think we can do reasonably well, right. It is not as good as the whole market humming, we understand that, but even pockets of it opening up, we should be able to do reasonably well, right.

So -- and the fact that we have all these new products and when a customer really takes a look at us, we are now becoming a more and more compelling proposition that also helps. Our win-loss ratio increasing also helps. So if I were you Allen, I mean we are -- I don't want to get too ahead of ourselves, which is why we are only providing quarterly guidance now and we are saying next quarter we are projecting will improve 15%. Now as you can do the math, that gets us into sort of the region, we used to be about a year, year and a half ago, so we are getting there. If that trend continues, we should get back to normalcy soon, right. And FY 2022 should be a sort of a normal growth year for us.

Allen Klee -- National Securities Corporation -- Analyst

Okay, thank you so much.

Ramesh Srinivasan -- President and Chief Executive Officer

Yeah, thank you so much, Allen.

Operator

Our next question comes from Ishfaque Faruk with Sidoti & Company. Your line is now open.

Ishfaque Faruk -- Sidoti & Company, LLC -- Analyst

Hi, good afternoon guys. Thank you for taking my questions. First of all, Ramesh, thanks a lot for some of the colors that you gave with respect to the one-time credits and concessions. In particular, can you give me a sense for like how -- what's the number of maybe customers who have accepted your offer and maybe how many are in the process of executing those contracts. I think the last time you said there was around like 300 or so customer sites who are in the mix.

Ramesh Srinivasan -- President and Chief Executive Officer

Hi, Ishfaque. So two separate things, Ishfaque. As far as the concessions go to -- there are various kinds of concessions and each one chose one, some of them just chose to extend their payment time period and not take any particular recurring revenue one-time credits, they decided not to do that. Some customers took the recurring revenue credits and the accounting part of it, some portion of it, we have to apply it for the whole year, that is why you will see effects of that in the next three quarters as well. Now that is one kind of COVID relief.

Now also, a different kind of what we offer was this offer this OnDemand product, which we knew was going to be really required by them immediately and it turned out to be true, hundreds of sites. I think it's something like 300, 400 sites picked it up and there the offer was to do the installation of the first outlet for free, where we don't charge them for services, which affected services revenue this quarter and will affect services revenue in the next quarter as well. And also 90-day no SaaS fees, so that was another part of the concessions we gave.

So two different things, one is recurring revenue one-time credit and the other is free use of a product for 90 days and both of them are different customers picked it up in different degrees, right. So we can't go into the details of that. But overall, when you look at Q1 of this year versus Q1 of last year was a 22% decline, a good portion of that had to do with these concessions.

Ishfaque Faruk -- Sidoti & Company, LLC -- Analyst

That's extremely helpful, Ramesh. And in terms of the number of customers, you mentioned that if these 400 sites converted to paying customers in the -- maybe in the December quarter, could you give a sense for maybe what the dollar volume of all of these customer subscribed would be?

Ramesh Srinivasan -- President and Chief Executive Officer

Yeah, I mean -- I don't want to -- we don't want to get into those kinds of details, Ishfaque and it is important to look at us a little bit more holistically than that. Our revenue is going to be driven both in the short-term and the long-term by a whole lot of such products. It is not only this product. So I would not get too held up with just this one product and what it's going to contribute to SaaS fees.

But one thing I can generally tell you Ishfaque, our SaaS offerings have really increased now. Virtually all our products now, a big majority of our products are available both SaaS and on-prem and most customers are picking up SaaS. So we are quite bullish about how all these products are going to help SaaS fees in the future, especially this OnDemand product.

Ishfaque Faruk -- Sidoti & Company, LLC -- Analyst

Yeah. Okay. And on the -- and you also already touched on this in terms of state of some of the casinos, you said, regional and tribal casinos are doing well. And Ramesh you being based out of Nevada and Nevada opened in early June, casinos -- are you -- what are you seeing in terms of like foot traffic for casinos -- at casinos and maybe are some of the Las Vegas based casinos looking to -- are you seeing more inquiries from that strip?

Ramesh Srinivasan -- President and Chief Executive Officer

Yes. I mean a lot of the major corporate gaming customers are looking at various products. We are having discussions with them. I don't want to comment on one particular -- generally, the foot traffic is reasonably picking up in Vegas, because I tend to go on drives, I get in the car and just drive through the strip. And about two Saturdays ago I was really stuck in a bad traffic jam there and I was really thrilled about it. So the traffic is picking up in Vegas.

But in terms of sales decisions, technology investment decisions, we are noticing it to be relatively more with tribal casinos and our regional resorts, non-casino resorts, those are the kinds of areas where we are seeing more investment decisions being taken. And I think that is only a short-term phenomenon, Ishfaque, it will change quickly.

Ishfaque Faruk -- Sidoti & Company, LLC -- Analyst

Wonderful. Thank you so much, guys, for asking my -- for answers for my questions.

Ramesh Srinivasan -- President and Chief Executive Officer

Thank you.

Operator

That concludes our Q&A for the call. I'd now like to turn the call over to Ramesh for closing remarks.

Ramesh Srinivasan -- President and Chief Executive Officer

Thank you, Liz. Thank you all for joining us on the call today and for your continued interest and support. We look forward to talking with you to report our progress in the next quarter about three months from now. Please take good care. Thank you.

Operator

[Operator Closing Remarks]

Duration: 61 minutes

Call participants:

Jessica Hennessy -- Senior Manager Corporate Strategy and Investor Relations

Ramesh Srinivasan -- President and Chief Executive Officer

Dave Wood -- Chief Financial Officer

Matt VanVliet -- BTIG Research -- Analyst

George Sutton -- Craig-Hellum Capital Group -- Analyst

Allen Klee -- National Securities Corporation -- Analyst

Ishfaque Faruk -- Sidoti & Company, LLC -- Analyst

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