Image source: The Motley Fool.
Agilysys Inc (AGYS -0.49%)
Q2Â 2021 Earnings Call
Oct 27, 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 Second Quarter Conference Call. [Operator Instructions].
I would now like to turn the conference over to Jessica Hennessy, Senior Manager of Corporate Strategy and Investor Relations at Agilysys. Jessica, you may begin.
Jessica Hennessy -- Senior Manager, Corporate Strategy and Investor Relations
Thank you, Tawanda, and good afternoon, everybody. Thank you for joining the Agilysys fiscal 2021 second quarter conference call. We will get started in just a minute with management's comments.
But before doing so, let me read the safe harbor language. Some statements made on today's call will be predictive and are intended to be made as forward-looking within the safe harbor protections of the Private Securities Litigation Reform Act of 1995, including statements regarding our financial guidance.
Although the company believes that its forward-looking statements are based on reasonable assumptions, such statements are subject to risks and uncertainties that could cause results to differ materially. Important factors that could cause actual results to differ materially from these in the forward-looking statements include the effect of the COVID-19 pandemic on our business and the hospitality industry, 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 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 second quarter earnings call. Joining Jessica and me on the call today is Dave Wood, our CFO. I'm participating in this call from our Las Vegas office, while Dave and Jessica are in our Atlanta office. We hope all of you and your families are doing well during these challenging times. At the outset, I want to assure you that we have taken every possible step to keep our employees safe and healthy.
The work from home arrangements continue to work well for us with no resultant loss in productivity. Before we get into the details of our update on the quarter, please note that unlike many other organizations, we use the term revenue and sales to indicate two different metrics. Revenue is recognized revenue based on normal revenue recognition rules, which are standard across public enterprise software companies like us.
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 the sale agreement signed. We also tend to use the term sales and bookings to refer to the same thing, net annual contract value sales. There is a time lag involved in the progression from sales to revenue. Sometimes that progression happens relatively quickly, while for certain other sales agreements, especially those involving subscription-based license fees, the transition to revenue happens over time after the relevant product implementations have been completed.
Q2 fiscal year 2021 revenue was $34.4 million, representing 15% sequential growth over Q1 and a 16% year-over-year decline compared to the comparable Q2 quarter last fiscal year. The difficult circumstances faced by the global hospitality industry due to the pandemic continue to have a detrimental effect on our sales and revenue levels. Product and services revenue recovered partially and increased sequentially by 25% and 35% respectively over Q1, though they remained at 45% and 35% year-over-year decline levels compared to Q2 of last fiscal year.
The sequential increase in services revenue from Q1 to Q2 is an indication of a partial recovery in implementations since the early days of the pandemic. After hitting a low in April, the number of services product implementation projects doubled during the month of June compared to April and has remained stable each month thereafter. Both services and product revenue levels were affected by customers not yet being able to accept product deliveries and start services implementations they had already signed up for.
Services revenue was also affected by the highly successful OnDemand POS remote-ordering SaaS application launch, where we offered no-cost or low-cost implementation services fees in addition to 90 days subscription fee relief. It was a timely goodwill gesture to our customers with the long-term subscription revenue benefit for us, which worked out well.
The silver lining in our revenue this quarter was recurring revenue returning to record levels at $22.3 million, a year-over-year increase of 10% compared to Q2 of last fiscal year. Within recurring revenue, subscription revenue grew year-over-year by 24% despite the various one-time COVID-related relief provided to customers. The solid subscription revenue and overall recurring revenue results, despite the difficult business circumstances, underscore the mission-critical nature of our software applications, the continuing steady migration of our customer base to cloud subscription licenses, and the increased availability of newly created cloud-native SaaS applications in our product portfolio. Our product innovation levels and pace of delivery with respect to such applications have increased this calendar year.
Now with respect to sales success levels. Sales measured in annual contract value of agreements won, signed and closed increased by nearly 30% sequentially compared to Q1, but remained at only about two-thirds of prior fiscal year Q2 levels. The year-over-year sales declines have been driven mainly by postponement of technology investment decisions.
After hitting a pandemic-induced low in April, our sales levels have shown steady sequential improvement every month since April with the exception of August. Sales during August though was still better than April and May. September was our best sales month since March.
One of the major sales highlights during the six months between April and September across Q1 and Q2 of this fiscal year, despite the extreme challenges faced by the hospitality industry, has been the fact that these six months have been our best ever in terms of average monthly SaaS subscription-related sales. That certainly augurs well for our future.
The second major highlight of sales success has been, now, if we define new products as cloud-native and also on-prem installable software applications created during the past six to 24 months, sales of such new products, again measured an annual contract value of signed sales agreements, was up by more than 500% this quarter compared to Q2 of last fiscal year. We are happy to have been able to help customers with such urgently needed additional software applications, which are well-integrated with our core products, enable greater operational efficiency and visibility, enable contactless interactions with their guests, and in general, go a long way to help with guest comfort and safety. The fact that these additional SaaS applications have also helped establish Agilysys as a partner, who can be relied on for rapid product innovation and world-class cloud native modern technology solutions is an additional bonus. This success has given us good reasons to feel good about our long-term future subscription recurring revenue growth and profitability prospects.
Even during this pandemic, we have continued to make good progress toward converting Agilysys into a world-class cloud-native SaaS applications-led enterprise software business unit. In many ways, this pandemic has accelerated the adoption of mobile and contactless solutions in the hospitality industry. We expect such solutions to be table stakes requirements to manage guest experience going forward.
We also expect that kind of environment to favor companies with a strong, cost-effective, fast-based product development and innovation capacity, who can provide robust core solutions along with well-integrated, innovative, add-on modules which provide great value. We are in a terrific position to meet that need.
Among the new products, the POS remote-ordering platform OnDemand has been the star performer. This product, which became especially relevant after the pandemic started, is the one we had announced a special purchase offer for. Customers who sign for the SaaS-based platform on or before June 30 were eligible for a 90-day fleet trial and a no-charge services implementation for the first food outlet or profit center of a particular site. As of April 1, calendar 2021, the start of our next fiscal year, we expect close to about 200 sites using the OnDemand application with applicable SaaS fees to be live and we expect this module by itself to contribute to 3% to 5% SaaS recurring revenue year-over-year growth.
Other new additional software applications like rGuest Service, a service optimization platform that enhances operator efficiencies and integrates all aspects of back of the house operations are on guest preferences and safety, and rGuest Book, our direct channel commission-free booking engine that allows guests to personalize and book their itinerary from booking their stay to making their dining reservations, spa appointments, golf tea times, and all other amenities on offer at the resort at their convenience and at the same time, continue to drive additional sales and subscription recurring revenue.
You should be picking up in announcement tomorrow that rGuest Service received the Best Productivity Enhancement Gold Award at the Global Gaming Business magazine's Annual Gaming and Technology Awards. This is the very first time Agilysys has received the Gold Award in this prestigious casino industry annual awards cycle. We continue to enhance all such additional SaaS applications to make them increasingly more compelling.
Many of the following notable sales wins during the quarter would not have been possible a couple of years ago, when we did not have the benefit of the new additional SaaS applications, which add considerable value to the robust core products they are built around. This list is in no particular order. Number one, Lucky Star Casino, a multi-property Oklahoma-based casino and hotel corporation, purchased multiple products including, InfoGenesis POS and IG Flex tablets across all their properties and also invested in Stay PMS, rGuest Book and rGuest Express Mobile check-in check-out for their newest hotel property.
Number two, Paragon Casino Resort located in Marksville, Louisiana, a longtime LMS, PMS DataMagine and Stratton Warren inventory and procurement solution customer, finalized their decision to upgrade their LMS version to make use of the new web UI now available in LMS, PMS, and also implement rGuest Book and rGuest Pay. In addition, they invested recently in InfoGenesis for their food and beverage point-of-sale needs.
Number three, Caesars Entertainment in the U.K. purchased OnDemand to implement in seven of their casino sites in the United Kingdom. And before, Chickasaw Nation purchased InfoGenesis with IG Flex tablets OnDemand, Seat and Eatec for the new high-end venue, the Dallas Cowboys Bar & Grill.
Number five, located around Lake Elkhart in Wisconsin, Osthoff Resort is a longtime user of InfoGenesis POS and expanded their investment in Agilysys during the quarter by implementing OnDemand and the Eatec inventory and procurement solution for their hotel operations.
Number six, Hard Rock Hotel and Casino located at Lake Tahoe, Nevada situated in the heart of the Sierra Mountains, selected Agilysys' Eatec to manage that food and beverage, retail and hotel inventory needs.
Number seven, Alterra Deer Valley and Solitude Resorts started their partnership with Agilysys selecting InfoGenesis POS and IG Flex tablets for their food and beverage servicing needs and are continuing to evaluate OnDemand and a few of our other solutions.
Number eight, last but not the least and probably the coolest of them all for a sports lover like me, our new cloud native golf module, but installed in this particular site as an on-prem solution based on customer preference was recently installed in one of the most prestigious golf courses in the U.S. Unfortunately, we don't have their permission yet to share the name of the golf course.
During Q2, we signed sales agreements, which added 10 new customers, 55 new properties, which did not have any of our products before, but the parent company was already our customer, and there were 72 instances of selling at least one additional product to sites, which already had one or more of our other products.
Now with respect to revenue guidance, the hospitality industry remains very challenged, though various pockets of the industry are showing good signs of close to complete recovery. We expect the environment though to remain tough during at least the next few quarters, with this October to December quarter being particularly shaky and uncertain. Now given the tough circumstances, we expect only a modest 5% sequential revenue increase during Q3 over the $34.4 million revenue level achieved during Q2. We will continue providing sequential quarterly guidance for the remainder of this fiscal year.
Now regarding profitability levels achieved during the quarter, adjusted EBITDA for Q2 fiscal 2021 was $8.6 million, significantly higher than our original expectations and more than twice as high as our previous best adjusted EBITDA quarter, which was just a couple of quarters ago. This was also our first positive GAAP EPS and highest adjusted EPS quarter since we became an entirely hospitality software solutions focused business unit about seven years ago.
Profitability levels for this quarter were partially aided by the salary reductions and other cost-saving initiatives that were implemented during the six-month period between April and September to help manage through this pandemic phase. However, even without such one-time cost reductions in place, our Q2 profitability would have been far higher than previous best levels. This quarter is a solid indication that we are well and truly turning the corner with respect to being a profitable, financially healthy, enterprise software company with high operational efficiency. This quarter is by no means a flash in the plan with respect to profitability.
The main highlight of this profitability level is it was achieved while simultaneously increasing our product innovation momentum and also fully maintaining world-class customer service levels. We did not compromise on those crucial elements in any way, shape or form. Our R&D strength has actually increased by about 50 resources, since the onset of the pandemic about seven or eight months ago.
Product innovation remains our main ticket to greatness and we have our foot firmly on that gas pedal regardless of the external circumstances. We continue to make terrific progress with our efforts to modernize all our core solutions. It would be fair to say we are at about the seventh inning of that effort, while also simultaneously adding several new cloud native on-prem capable additional software applications, which are high in the list of current industry needs. At this stage, I would say we are about three quarters away from having a complete state -- complete slate of end-to-end modern technology-based cloud native SaaS applications for the hospitality industry, wherein we can legitimately claim to have the best end-to-end feature sets and the best technology across all hospitality needs, POS, PMS, inventory procurement, document management and everything in between.
The fact we have been able to achieve this level of profitability in such an all-round challenging environment should be taken as a solid indicator of the future earnings potential of this business. During the past few years, we have been making good strides in making our operations, especially R&D, more efficient and cost effective and this pandemic has only sped up that process. We think R&D product development cost as a percentage of revenue is close to its peak levels now.
We will continue our R&D hiring for a couple of more quarters and we expect incentive compensation accruals to return to normal target levels next fiscal year. Beyond that, for the most part, we expect good operating leverage with respect to stable R&D costs for the next, say, about $100 million of annual revenue business expansion.
On the other hand, sales and marketing costs as a percentage of revenue is at its lowest point now. Sales and marketing costs decreased significantly this quarter due to one-time salary reductions, other permanent cost reductions to adjust to the current business climate, increased sales process efficiencies created by the pandemic with less travel and our ability to conduct a lot more business virtually and a lot more efficiently, less spend on trade shows and advertising, less commissions and other direct expenses due to decreased sales levels.
These past eight months or so have created an environment, which can be managed well during the short-term with less sales and marketing spend, when the same has not been true for R&D product development costs. In about two to four quarters from now, we expect our R&D strength to reach a strong peak level, which will then remain steady, and our focus will then be ramping up the sales and marketing engine. The increase in sales and marketing would have happened earlier under normal circumstances, but the pandemic has delayed it by a few quarters.
Please be assured that we are not sacrificing any revenue growth possibilities due to the reduced sales and marketing spend levels. Currently, there is no doubt in our mind that our revenue growth prospects during the short term are directly tied to our products reaching world-class levels. We have made tremendous progress in that regard, as you can see, by our ability to successfully worked through this calendar 2020 industry downturn. The sales and marketing focus growth phase is not too far away.
While we expect revenue during the October to December quarter to be sequentially about 5% higher than Q2, we do expect adjusted EBITDA to decrease to about $7 million during Q3 from $8.6 million in Q2. This $1.6 million decrease will be due to the reversal starting October of virtually all salary reductions, which were in place between April and September, continued R&D hiring, a few Q3-specific cost items like third-party fees and expenses related to a couple of virtual trade shows we are participating in this month.
With respect to the adjusted EBITDA over revenue percentage, this Q2 quarter was particularly high also due to favorable product mix, meaning while the higher-margin recurring revenue increased, the relatively lower margin product and services revenue were affected by business conditions. In the future, we think it will be fair to expect the EBITDA percentage to be in the high teens, 15% or above on a consistent basis for the foreseeable future.
With that, let me hand over the call to Dave for further color on our financials and other business details. And I will then be back for a few closing remarks before opening up the call for questions. Dave?
Dave Wood -- Chief Financial Officer
Thank you, Ramesh. To echo Ramesh's comments, although the impact of the COVID-19 pandemic continues to affect our customers, and therefore, slow down our short-term progress, we are pleased with the profitability levels we have been able to achieve through one of the most challenging times for the hospitality industry. Our balance sheet remains strong and should continue to meet the liquidity demand needed to invest in our products and other strategic initiatives as we manage through the current challenges.
Taking a look at our financial results, beginning with our income statement. Second quarter fiscal 2021 revenue was $34.4 million, a 15.3% sequential increase over the fiscal first quarter of 2021 with all three product lines increasing sequentially over the prior quarter. Our second fiscal quarter represented a 35% increase in professional services and a 25.2% increase in product revenue, as well as an 8.8% increase in recurring revenue over the fiscal first quarter of 2021.
Second quarter fiscal 2021 revenue was a 15.6% year-over-year decrease from total net revenue of $40.7 million in the comparable prior-year period with recurring revenue being the only increase at 9.7%. Total recurring revenue represented 64.9% of total net revenue for the fiscal second quarter compared to 49.9% of total net revenue and the comparable prior-year period. Recurring revenue of $22.3 million is back to record levels and $2 million higher than the prior year.
We are also pleased with our subscription revenue growth, which grew year-over-year 23.9% during the second quarter of fiscal 2021, back to record levels of $9.1 million. Subscription revenue comprised around 41% of total recurring revenues compared to 36% of total recurring revenues in the second quarter of fiscal 2020.
Add-on software modules that build out our product ecosystem beyond the core POS, PMS, and inventory procurement offerings are adding scale quickly with roughly 34% of sales deal and value terms during the second quarter containing at least one of these products compared to 13% in the same period last year. These products, by themselves, have added over $1.3 million in subscription ARR during each of the last two quarters.
We also continue to service about 272,000 rooms and have approximately 66,000 terminal endpoints. As for product and services revenue, we currently have a backlog of hardware, software and services that remain at healthy levels. As operations continue to improve and return to normal, we will continue the deployment of that backlog. Sales improved 30% sequentially over the prior quarter and remain in the 60% to 70% range year-over-year. Given the uncertainty hospitality operators continue to face, it is difficult to predict when sales will return to normal booking levels.
Moving down the income statement, gross profit was $23.2 million compared to $20.2 million in the second quarter of fiscal 2020. Gross profit margin increased to 67.4% compared to 49.6% in the prior-year period. This gross profit increase, despite a $6.4 million decrease in revenue, was primarily due to a couple of factors. Recurring revenue was a larger portion of total revenue, and unlike the second fiscal 2021 quarter, this quarter was not impacted by roughly $3.1 million in capitalized software amortization costs. Product mix shift to higher-margin recurring revenue offset a reduction in revenue in third party products and professional services.
Looking at operating expense, excluding charges for legal settlements, impairment and restructuring, severance and other charges, the second quarter saw a slight sequential decrease over Q1 fiscal 2021. Compared to the prior-year period, operating expense saw a 26% decrease to $17 million from $23 million. This year-over-year decrease in operating expense was due to lesser incentive compensation, temporarily reduced salaries, and other more permanent cost saving initiatives. Product development, sales and marketing, and general and administrative expense were 46.1% of revenue this quarter compared to 53.3% of revenue during Q2 of fiscal 2020.
Our net income of $5.9 million and income per diluted share of $0.22 are a significant improvement to the prior-year second quarter losses of $2.9 million and $0.13. Adjusted net income and adjusted diluted earnings per share both show significant improvement over the prior year second quarter. Adjusted net income of $6.8 million compares favorably to $1 million in the prior year second quarter and adjusted diluted earnings per share of $0.29 compares favorably to $0.04 in the prior year second quarter, when normalizing for certain non-cash and non-recurring charges.
For the 2021 second quarter, adjusted EBITDA was $8.6 million compared to $3 million in the year ago quarter. Even though we had the benefit of some temporary cost reductions in our second fiscal quarter, the adjusted EBITDA 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 improved $11.1 million in the second fiscal quarter of 2021. Cash collections has consistently been a highlight of our business in a tough environment. On an absolute dollar basis, we have accumulated 92% of the cash collections to the same period of fiscal '20 on a much lower revenue base. We continue to be pleased with our ability to manage our liquidity as we navigate these challenging times. Cash and marketable securities as of September 30, 2020 was $85.7 million, compared to $46.7 million on March 31, 2020.
Free cash flow in the quarter was positive $11.3 million compared to $1.8 million in the prior year quarter. As Ramesh mentioned, we expect revenue to increase 5% sequentially in our third fiscal quarter of 2021 compared to the second quarter of 2021 with a corresponding $7 million in adjusted EBITDA as certain one-time cost reductions come back into the business.
With that I'd now like to turn the call back over to Ramesh.
Ramesh Srinivasan -- President and Chief Executive Officer
Thank you, Dave. In summary, we are overall happy with how we have navigated through the past two quarters, quite possibly the toughest two quarters we've ever faced being a business unit focused entirely on the hospitality industry. To start with, we have secured the future of our business and are well-prepared to face even the unlikely scenario of the current crisis lasting a few quarters beyond what we currently expected to last.
Excluding the $34 million convertible investment from MAK Capital net of fees, excluding that $34 million gain, we've added $5 million to our cash balance during the first two quarters of this fiscal year, which is the highest addition to our cash balance during the first two quarters of a fiscal year since we became the company we are today about seven years ago. In addition, we have worked our way through the past six to eight months without in any way sacrificing or delaying our medium-term and long-term growth prospects. If anything, we have increased our R&D and product innovation pace and strength during this time. And world-class customer service remains our primary goal regardless of what challenges we face.
We've also successfully turned the corner with respect to profitability and have demonstrated the future earnings potential of this business that we are in. While this quarter was a particularly high profitability mark during the short term, we do expect to maintain around a 15% plus adjusted EBITDA to revenue ratio during the next few quarters and then improve on it in the future.
As we look ahead to the next year, we are cautiously optimistic that the second half of calendar 2021 could be a culmination of a set of positive stars all lining up well for us. It is possible that around the middle of calendar 2021, that is during our fiscal year 2022, we could be the beneficiary of the following. One, the core product modernization efforts would have reached the point we have been building toward during the past few years, when our entire product set is based on modern technology, adaptable to both cloud and on-prem implementations.
Two, a close to 1,000-person R&D team by then almost entirely freed up from such modernization efforts to move the product innovation ball forward at an even more rapid pace, making us the clear-cut industry leader in providing hospitality customers the technology they need across the entire guest journey from the booking website all the way till the guest leaves the hotel and even beyond that, with loyalty and promotion tools.
Three, based on what we are hearing, at least a portion of the smaller and medium-sized competitors could be weakened as a result of this downturn and unable to compete as effectively as before.
Four, a number of such companies possibly becoming available for acquisition opportunities, which are accretive in the short term to drive good inorganic growth in addition to the organic growth we are currently building toward.
Five, a recovering hospitality industry with significant pent-up demand for technology solutions. We remain confident that the hospitality industry will adapt and evolve like it has after crisis situations in the past. The next stage of this evolution is most likely going to involve high investments and energy devoted to guest comfort, self service, other guest-centric solutions, the ability to design promotions and loyalty systems, built around management of common guest profiles across various amenities, and a far more integrated and a higher level of technology adoption. We are building toward being the lead provider of such well integrated end-to-end solutions, all built cloud-native and built flexible enough to also be implemented on-premise based on customer preference.
On the other side of each crisis, there are always new possibilities and we are beginning to see many such opportunities on the horizon now. Last and certainly not the least, a more aggressive and expansive sales, business development, and marketing effort on our part.
Now, on behalf of our board and management team and myself, I want to express my heartfelt and sincere gratitude to our more than 1,200 employees for all their personal and professional sacrifices they have made this calendar year to enable our increased momentum and also for acting responsibly to ensure their own personal safety and the well-being of all their loved ones and their colleagues. Each of them has been a shining star helping us through this phase and ensuring an awesome future for Agilysys. We are also deeply grateful to all our customers and other partners for all their business, partnership, support and guidance.
With that, Tawanda, please open it up for questions.
Questions and Answers:
Operator
Thank you. [Operator Instructions]. Our first question comes from the line of Matt VanVliet with BTIG. Your line is open.
Matt VanVliet -- BTIG -- Analyst
All right, great. Thanks for taking my question this afternoon and congratulations on getting the model back to the direction of growth and good to see that the outlook is at least starting to get incrementally better, and then the outlook for late next year seems pretty positive. I guess, as you think about that ability to get growth back on the right track, and thinking about the sort of broader product portfolio here, if you were to kind of break down where you've seen the most success over the last six months and where the pipeline looks for maybe the next six to 12 months, between existing customers expanding your technology to new properties or new use cases, expansion at existing properties of more modules, especially some of the newer rGuest and contactless enablement, and then third bucket kind of being net new customers, where has been the most success and where do you expect the most moving forward?
Ramesh Srinivasan -- President and Chief Executive Officer
Yeah. Hi, Matt. Thank you for joining the call. So in terms of what -- where we have seen the most success during the last six months has been in selling more of our additional modules to our current customers. Now, that has in fact increased compared to say last calendar year or last fiscal year. So when you look at the number of instances where we have sold an additional product to a site, which already had one or more of our products before, that number that we reported as 72 for this quarter is actually higher than the last fiscal year average. And in Q1, it was actually even higher. So that is the area where we have seen actually increased success in spite of the pandemic issues, which is quite remarkable, if you think about it.
Now, where it has actually suffered a lot, where it has declined has been in new sites. So one of our major growth drivers in the past has been when a major customer, when a big corporation signs up with us, they tend to like us. They tend to like our products, the robustness, the stability the pace at which we are improving, and they tend to take us to newer sites. Now, that has definitely slowed down during the pandemic and it slowed down significantly. In fact, most of our sales losses has been in that area.
Now when you look at new customers who have signed up with us and like I told you, it's about 10 customers, that compares reasonably favorably -- I mean, it compares reasonably with the last year where the average was about 14 per quarter. Now, it's about 10 new customers per quarter. So, the number of new customers is sort of keeping up, though it is a little decline. New product sales to new customers have dramatically increased. But the new sites of a big corporation already signed up with us has slowed up quite a lot. So, that has been the summary of the last six months.
Now, in terms of where we are going, right, our core products are getting a lot better. They're getting a lot more compelling. In fact, our Stay PMS is now pound-for-pound possibly the best PMS product out there and it is a cloud native product as well. But unfortunately, just when it reached that stage is when the pandemic hit, and the number of PMS replacements and all that have gone down. Our customers are not considering that now. But I think next year, to answer your question, a lot of the growth driver is going to come from the PMS side of the equation as well.
Now for all our core products, the fact we are now end to end from the beginning of the website till all the way when a customer leaves and even beyond with promotions and loyalty, now that is setting us up well, Matt, to be the best end-to-end provider there is. Our smaller and medium competitors I think have been hurt by this pandemic, at least partially, while our bigger competitors are not focusing on end-to-end solutions. They are creating solutions, which can attach to other products and so are we. Our products also have flexible APIs and you can attach to, but we are also providing the end-to-end solutions. So, we have the possibility then to expand into a hospitality-specialized CRM. We can create Artificial Intelligence-based solutions that make it easier for you to cater to a customer and actually predict the guest needs. So all those possibilities will open up for us in the next say 12 to 24 months, Matt. Sorry, long answer, yeah.
Matt VanVliet -- BTIG -- Analyst
No worries. Thank you. That was very helpful to a long question often needs long answers. So understood there. And I guess, maybe thinking about that just maybe one level more or maybe continuing to highlight a few of the portions of the market, where you see the most strength maybe end of the calendar year and into early next year, is it still sort of the regional gaming and regional resorts where people are tending to hop in their car and drive to? Are you starting to have more conversations with some of these destination type places with sort of the hopes that maybe early next year, traffic will continue to grow? Just kind of what you're seeing from that basis of it.
Ramesh Srinivasan -- President and Chief Executive Officer
Yeah, Matt, so as far as that is concerned, our narrative has improved slightly, but has not changed substantially from our conversation in the last earnings call about three months ago. A lot of the momentum is still based on the regional resorts and the regional casinos. That is where the momentum is coming from, where people are able to drive to in order to take a break. So that is where still a lot, the bulk of our sales is coming from. The destination resorts have improved, but not by that much yet. There is still a lot of uncertainty around that. And, of course, areas like cruise ships are still struggling because the sailing has not yet started.
Now, we are very confident of the long-term growth possibilities with our products for cruise ships and areas like that. But short term, it has not improved that much in the last three months. And also our foodservice providers business has also been affected, because a lot of the workplace, they have still not come back to work and therefore, those cafeterias are all still struggling. So the narrative has not changed substantially, Matt, though it has improved slightly. It is the way I would phrase it. Long-term, we are confident of all those areas coming back and there is going to be a lot of pent-up demand that is going to drive demand. But in the short term, the narrative has not changed much in the last three months, unfortunately, Matt, that is the truth. Yeah.
Matt VanVliet -- BTIG -- Analyst
All right. Great. Thank you for taking my questions.
Ramesh Srinivasan -- President and Chief Executive Officer
Thanks, Matt. Thank you.
Operator
Thank you. Our next question comes from the line of George Sutton with Craig-Hallum. Your line is open.
George Sutton -- Craig-Hallum Capital Group -- Analyst
Thank you. Ramesh, I assume you drafted earnings call comments before today and actually today, we were involved in two conferences that you were fairly active in it and certainly a key sponsor of, Hi-Tech and G2E. And you were doing some product demos, which were frankly pretty impressive. I'm just curious if you can give us any updated thoughts from these two conferences that you participated in today in terms of what you're seeing in terms of customer interest.
Ramesh Srinivasan -- President and Chief Executive Officer
Not yet, George, right, unfortunately I'm not yet prepared to address that, because as of today, unfortunately, I've been quite focused on this earnings call and preparing for it. So I don't have a complete up-to-date update for you. However, one comment I will make, George, that is related to that. Going into the shows, Hi-Tech and G2E, they're both virtual shows. The confidence level of our sales team, our sales engineering team, our R&D and services teams that are participating has never been higher. The pride with which they are going in and also our demo capability has improved dramatically, because now we do integrated demos. Now, it is no longer product-by-product. We have an integrated demo environment where we are able to show customers the power of connecting the whole thing together and what that can lead to.
For example, I'll give you one example, George. One of the things that we are demoing now that has a lot of promise for us, I don't like to use the word game changer phrase, but this comes close to that, is a single profile, management of a common profile across all the amenities that you have and also the management of a single itinerary. Now, the single itinerary is a kind of a secondary fact in that. The fact that every person working in a resort will have access to your itinerary. So if you're in a spa, and you have a golf appointment coming up, that spa person will know that you are getting late for a golf appointment. And every person in that resort will know what your next activity is. But what is more important than that is the single guest profile. So when you go to the booking engine now, you can make all your bookings together, for the room, for the golf, for your tea time, for your spa appointment, for your restaurant reservation. You can do all of that in one spot from the booking engine.
And also, currently the data is all spread out. If you go spend money in the casino floor, if you go spend it in the hotel room, if you go spend it in the restaurant and various different places, it is not disparate systems, even if they are integrated. So, we are introducing a single profile by which you will be able to understand the guest and cater to the guest preferences, understanding that guest as one guest, George, and also you can -- George as one guest, and you can create promotions and loyalty-related activities addressing you as a guest. Like, if you have a nut allergy, immediately all the other restaurants will know and they can actually cater a dynamic menu to your needs. So, we are introducing all of that and we are demoing it in the Hi-Tech, G2E shows now. And all that holds a lot of promise for us, George, six months, 12 months from now. And along with the hospitality industry coming up next year, all this is going to put us in a very good position.
George Sutton -- Craig-Hallum Capital Group -- Analyst
We did see that demo today. That was very impressive. I do look forward to a near-term visit to a resort with the golf itinerary, spa treatment and steak restaurant reservation, so hopefully near term. And you also mentioned small challenged competitors that could make a potential M&A going forward. Could you give us a little bit of a picture of what you're seeing from that universe of opportunities? Are you looking at technology add-ons? Are you looking at logo opportunities or just tuck-ins?
Ramesh Srinivasan -- President and Chief Executive Officer
So, the calls to us from bankers and others have increased dramatically during the last, say, three months or so. And they're all telling us it's going to further increase, starting early calendar next year. Unfortunately, we don't feel good about it, but unfortunately, many of our peers and competitors have been quite badly affected by the pandemic. So that is opening up opportunities and we have looked at a few of them. Though we stay quite disciplined in our lane, because our build costs are quite low. Now, like I've told you, George, before, our buy decisions will remain disciplined, because our build cost is both low and the pace of innovation is quite high.
But having said all that, to answer your question, the opportunities we're looking at, number one, is a market share increase. So now that our products are modern and our products will be liked by customers, we could acquire a like-for-like product vendor and then do a roll-up to our product. So there could be a lot of cost synergy opportunities there. And then with those customers, we have more products to sell now, so there could be revenue synergy opportunities as well. So we could quickly turn those companies accretive given that we know now we have become better at how to do cost-effective R&D. So market share increase opportunities are there, number one.
Number two, the product/technology opportunities are also there to fill up what we are doing now. For example, between our PMS and the OTAs on the website, there is a space in between there with yield management and areas like that where there are opportunities coming up, which could really strengthen our PMS offering. So that would be an addition, an extension to what we are doing today. That is possible technology possibilities are also there, right. So these are all cropping up now and we are just taking a careful look at each of them. Now, as far as what we are looking at, any one of those that fit us well, that come at a reasonable price could add value to what we are doing. And about a year from now, a CRM possibility maybe getting into the areas of Artificial Intelligence, now that we have a lot of common guest data to deal with, all those opportunities also open up about 12 months from now.
George Sutton -- Craig-Hallum Capital Group -- Analyst
Superb. Just one other question. You mentioned that your sale of newer customers has slowed and I'm just curious if you could put that into context of what you're seeing in the industry. I assume that is not a market share loss scenario. That's just simply the market dynamic, that is the reality we're living through right now.
Ramesh Srinivasan -- President and Chief Executive Officer
Yes, George. That -- it's the latter. So it's basically postponed technology investment decisions. It basically comes down to the fact that when we go talk to a customer, say, last year, they really liked the direction in which we are going and most of these customers tend to look at your pace of improvement, right. The vendor they are with, the partner they are with is not improving the products much. It has remained there for many years. We like your improvement. We want to partner with you. However, sorry, we'll get back to you when the purse opens up and when we can get the required approval. So, most of it falls in the category of postponed technology investments. That's where. So it is no market share loss or anything like that. It is just that decisions customers come -- I mean, for us it is frustrating, but we do understand the situation they are in. They come close to a decision and then they postpone it by weeks and months.
I mean, I can off the top of my head think about five such major decisions, which we have come close to, but it has been postponed. We have not lost them, but they will all crop up in the next year once there is a little bit of certainty about the environment, about where we are going toward.
George Sutton -- Craig-Hallum Capital Group -- Analyst
Perfect. Thank you very much.
Ramesh Srinivasan -- President and Chief Executive Officer
Thank you, George.
Operator
Thank you. Our next question comes from the line of Nehal Chokshi with Northland Capital Markets. Your line is open.
Nehal Chokshi -- Northland Capital Markets -- Analyst
Oh, yeah. Thank you. So your subscription revenue was up $1.5 million QoQ, or 19% QoQ, based on my calculations on the disclosure that you guys provided, which is quite impressive given the environment. And Dave, you gave out a match-up earlier that said that add-on software modules or adding scale quickly and you added $1.3 million ARR in each of the past two quarters here. So is it fair to say that the subscription revenue QoQ uptick is actually all new subscription ARR or is there a significant coming back from a roll-back of the subscription price relief granted during the June quarter?
Dave Wood -- Chief Financial Officer
Yeah, so most of the subscription growth from Q1 fiscal '21 to '22 was the COVID-relief program. There was obviously a portion that is also organic growth, but the majority of that was just flushing through some of the COVID relief. And the comment around $1.3 million per quarter was -- it wasn't a revenue comment. It was a sales bookings comment. And the way you could take that is we're adding about $1.3 million in or more in ARR a quarter with these new products. So six months into the year, we're $2.6 million. We have $2.6 million more in subscription backlog, related to these new products, which virtually weren't there the prior year. But most of these are still going through the process of going live and haven't started to contribute to revenues yet.
Nehal Chokshi -- Northland Capital Markets -- Analyst
I see. Okay, got it. And then regarding the 5% overall revenue guidance growth, can you give us some sense as far as how you expect the subscription portion to fair in the September quarter? And additionally, details on how much more roll-back is there to go here in terms of the price relief?
Dave Wood -- Chief Financial Officer
Yeah, so most of that flushed through in Q1. I mean, there was a little -- like we said on the last call, there was a little bit of a tail just from GAAP accounting amortizing, but you'll see subscription revenue growth kind of go back into the normal ranges that we were pre-COVID. So getting back to the kind of the 20% plus year-over-year subscription growth.
Nehal Chokshi -- Northland Capital Markets -- Analyst
Okay. And my final question is that for new products, I think you guys said that ACV sales were up 500% year-over-year. Can you give us a sense as to what percent do new products represent of ACV sales now?
Dave Wood -- Chief Financial Officer
So new products are coming in a little north of 10% of total bookings. But kind of the key factor there is last year only about 13% of our deals contained one of these new products. So the last two quarters, it's been north of 31%. It was 34% of all deals is -- contains one of these products. So we're seeing an uptick in our price per endpoint on a deal-by-deal basis.
Nehal Chokshi -- Northland Capital Markets -- Analyst
Okay, great. Thank you and congratulations on a strong subscription quarter and great bottom line results and great cash flow generation.
Dave Wood -- Chief Financial Officer
Thank you.
Ramesh Srinivasan -- President and Chief Executive Officer
Thank you, Nehal.
Operator
Thank you. Our next question comes from the line of Allen Klee with National Securities. Your line is open.
Allen Klee -- National Research -- Analyst
Hi. Can you talk about what activities you've been involved in internationally to try to grow there, as that at least with casinos that, that seems to be where more strength is today? Thank you.
Ramesh Srinivasan -- President and Chief Executive Officer
Yes. Hi, Allen. When you talk about international markets, our strength in international markets at least so far is not in the casino part of it. It is mostly in the -- and it's not even in foodservice providers, it's mostly with the HRC, hotel resorts is where most of our strength is in the international areas. And our international, we have not seen a pickup in sales as yet, but we did sign a very significant seven-figure bookings deal in the APAC region that I hopefully we should be able to announce that soon. So, that was a major win for us in the APAC region. And what drove that is the fact that we are modernizing our POS. If we had not made the kind of progress we have made with modernizing our POS solutions, that deal would not have been a reality for us. So the international customers, they are beginning to turn their head toward us now, because of how our flagship InfoGenesis product is getting modernized now.
Now, as far as EMEA is concerned, we have been sitting with at least three major deals in EMEA, which has been postponed now by a few months because the customers have been hesitant to pull the trigger. So international markets is mostly based on hotel resorts. They are taking -- the sales activity has gone up. The demos have gone up, but the decisions are still getting delayed there, Allen, just like in the US.
Allen Klee -- National Research -- Analyst
Okay. My last question is if we look at segment margins and we look at the product segment in professional services segment, we saw improvement in those segment margins. And can you talk about what was behind those improvements?
Dave Wood -- Chief Financial Officer
Yeah. So, the -- most of the product improvement was because there was a larger percentage of software sales. So we've kind of over the last couple of years, we've seen our third party products start to make up about 75% of our product sales where -- so third-party products stayed down a little bit, but our proprietary software sales started to return to near prior-year numbers. So they were only down about 10%. So, the mix shift in there has a lot to do with it, with more proprietary software compared to third-party products. And then on the professional services, our margins are a little bit inflated this quarter due to some one-time EMEA relief that we got from the payroll. And then there's also some of the temporary salary reductions we've talked about. But the way to think about professional services, once these run through and we get back to the normal state starting October 1, we'll be in that kind of 25% to 30% range like we used to I think.
Allen Klee -- National Research -- Analyst
Thank you very much.
Ramesh Srinivasan -- President and Chief Executive Officer
Thank you, Allen.
Dave Wood -- Chief Financial Officer
Thanks, Allen.
Operator
Thank you. I'm showing no further questions. I would now like to turn the call back over to Ramesh for closing remarks.
Ramesh Srinivasan -- President and Chief Executive Officer
Thank you, Tawanda. Thank you all for your time today and for all your support and guidance. Look forward to talking to you again in about three months from now. In the meanwhile, please take care and stay safe. This is wishing all of you a happy and healthy holiday season. May 2021 make you forget 2020 quickly. Talk to you in the New Year. 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 -- Analyst
George Sutton -- Craig-Hallum Capital Group -- Analyst
Nehal Chokshi -- Northland Capital Markets -- Analyst
Allen Klee -- National Research -- Analyst
