Agilysys, Inc. (AGYS) on Q2 2022 Results - Earnings Call Transcript
Operator Good day, ladies and gentlemen, and welcome to the Agilysys Fiscal 2022 Second Quarter Conference Call. As a reminder, today's conference may be recorded. I would now like to turn the conference over to Jessica Hennessy, Director of Corporate Strategy and Investor Relations at Agilysys. You may begin.Jessica Hennessy Thank you, Justin, and good afternoon, everybody. Thank you for joining the Agilysys Fiscal 2022 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 vary materially from these forward-looking statements include the continued effects of the COVID-19 pandemic on our business, global supply chain challenges 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 like to now turn the call over to Mr. Ramesh Srinivasan, President and CEO of Agilysys. Ramesh, please go ahead.Ramesh Srinivasan Thank you, Jess. Good evening. Welcome to our fiscal 2022 second quarter earnings call. Joining Jessica Hennessy and me on the call today in our Atlanta office is Dave Wood, our CFO. As stated in the last earnings call, we are going to do our best to continue offering comparisons to two historical quarters. One with the comparable quarter from a year ago and one from two years ago. While more sales and revenue comparisons with the prior fiscal year will obviously look good, we think comparisons with comparable pre-pandemic periods from two years ago will provide a better gauge of business progress for the remainder of this fiscal year. We will provide the same comparisons for profitability measures like EBITDA as well as last year was higher than normal due to artificial salary reductions and other onetime cost saving measures.Our sales success narrative has remained more or less the same as reported from the previous quarter. We continue to see excellent recovery in the US gaming and resorts market verticals, a partial recovery in the hotel chain and cruise ship verticals, while managed food services and international regions remain significantly affected by the lingering effects of the pandemic. Despite all the remaining short-term marketplace challenges, our sales levels measured in annual contract value, ACV, terms have increased for two consecutive quarters and have again reached levels similar to the pre-pandemic fiscal year 2020. Please note that all data pertaining to sales in this and other narratives are based on annual contract value, ACV, of one and closed sales agreements.Subscription sales have increased significantly over three consecutive quarters. This July to September quarter Q2 of fiscal 2022 was our best ever subscription sales quarter by a fair distance and in line with our increasing expectations. 21% higher than the previous best subscription sales quarter, which was the preceding Q1 of fiscal 2022. The steady increase in subscription sales during the past few quarters is possibly due to both an increasing preference among customers for cloud applications and the current availability with us of such cloud native software solutions across virtually every hospitality need. This is a long awaited and welcome change for our business despite both these situations resulting in delayed conversions of sales success to revenue compared to on-premise perpetual license sales in the past.The other sales success highlight is the growing momentum in property management systems, PMS, sales. Total ARR of PMS sales for the second quarter have increased 115% compared to fiscal 2020 two years ago. Within that total number, subscription only PMS sales were up more than 145% for the second quarter compared to fiscal 2020 two years ago. The product modernization efforts over the past few years have given us cloud native subscription sales options across all our hospitality software solution offerings. Though in this industry, a small portion of customers still prefer on-premise implementations for good reasons, our recently modernized products give us the capability of supporting both on-premise and cloud installations, including mixed environments of both with the same code base, which is a significant competitive advantage. We no longer need to turn down sales and revenue opportunities due to any kind of technology limitation.With respect to signed sales agreements during Q2, July to September, we added 16. We added 16 new customers, 58 new properties, which did not have any of our products before, but the parent company was already our customer. And there were 82 instances of selling at least one additional product to properties, which already had one of our other products. Once again, more than 90, more than 90% of the 16 new customers and 58 new properties added during the quarter, were either fully or partially subscription license based. While the number of new customers signed during the quarter is only more or less in line with previous quarters, Q2 fiscal 2022 was our best quarter in five years for new customer sales measured in ACV terms. What that implies is the size of each new customer win in value terms has expanded due to the increased availability of world class cloud native software solutions. Once we break through and win the new customer, what would have possibly been a single product sale a couple of years ago, most probably InfoGenesis POS, is now often a multiproduct sale.To cite a few examples. Britain resorts and hotels selected Agilysys to provide multiple cloud applications, including State EMS, rGuest Service and Agilysys Pay, to manage their properties in Myrtle Beach along the coast of South Carolina. Big Cedar, who offer rustic luxury and a variety of amenities across multiple properties in the Missouri Ozark Mountains, selected Stay PMS, sales and catering, on-demand and [EDC], to manage their operations. Eden Hall and Hoar Cross Hall selected InfoGenesis POS across two properties in the U.K. and are actively looking at purchasing other additional Agilysys products. And her Majesty's naval base at Clyde UK chose V1 PMS and sales and catering for one of their three operating label basis for the Royal Navy. Such multiproduct sales wins have become more frequent and regular occurrences during recent quarters.Despite the same successes during the past couple of quarters, especially pertaining to subscription sales, revenue for the July to September second quarter of fiscal 2022 was at the low end of our guidance at $37.9 million, slightly below the sequentially preceding Q1, 10% higher than the comparable quarter last fiscal year and 7% below Q2 from fiscal 2020 two years ago. While recurring revenue, including subscription revenue continued to grow to record levels, onetime revenue consisting of hardware and software product revenue and services revenue was at the low end of the guidance range and was sequentially down $1.7 million compared to Q1. Q2 product revenue of $7.3 million was 11% higher than Q2 of last fiscal year but 39% below Q2 of fiscal 2020. Global supply chain issues caused delays in POS terminal and payment device shipments from hardware partners, affecting hardware and associated software product delivery to customers. While we continue to work with our partners, have increased inventory levels and have chosen expedited shipment methods, short term product revenue is dependent on receiving the promised shipments during the coming months and uncertainties do remain. Recent increases in sales of PMS and related software solutions have been timely and valuable since they have no hardware shipment dependencies.Services revenue of $6.6 million remained sequentially flat compared to Q1 this fiscal year, increased increased 19% over the comparable prior fiscal year quarter but decreased by 23% compared to Q2 from two years ago. Customers are continuing to manage through labor shortages and are forced to make hard choices in prioritizing various required software implementations and other operational high demand projects as best as they can. In addition, our recently created and reengineered products are needing extra levels of support in the seat. Q2 recurring revenue of $24 million was record. Recurring revenue during Q2 last fiscal year was $22.3 million and $20.3 million during Q2 of fiscal 2020. Within the recurring revenue line, subscription revenue was also a record crossing the $11 million mark for the first time. Q2 subscription revenue was sequentially $900,000 higher than Q1 this year, an impressive 9% quarter-over-quarter sequential increase. Despite all the customer site closures and hospitality industry damage caused by the pandemic during the past few quarters, Q2 subscription revenue was 22% higher than Q2 last fiscal year and more than 50% higher than Q2 two years ago.Q2 subscription revenue comprised a record 46% of total recurring revenue compared to 41% during Q2 last year and 36% during Q2 two years ago. Adjusted EBITDA for the quarter was $6.3 million and about 17% of revenue, down from $8.6 million in Q2 last fiscal year but an improvement of 110% from $3 million during fiscal 2020 two years ago. Cash collection trends continue to be increasing. Cash balance increase of $7.2 million during the first half of fiscal 2022 represents our best cash increase during the first half of the fiscal year in more than seven years, excluding the convertible investment cash gain last year. The in-person HITEC show in Dallas and G2E show in Las Vegas, on recent back-to-back, weeks were encouraging. I was there in person myself for both those shows. We had a significantly increased marketing presence in both the shows, thanks to new sponsorship of [lanyards] for all participants and displays in a couple of strategically positioned physical locations. Though the foot traffic was considerably lower than previous pre-pandemic shows during calendar 2019, our booth was busy throughout the show days. The quality of conversations with current and prospective customers was high. Customer users who attended the shows came with focus and purpose.Despite the relatively low attendance, the number of quality leads we generated were comparable to prior years. During the HITEC show, we announced the completion of our multiyear modernization effort of the V1 PMS platform. After being an on-premise only PMS solution for multiple decades, the completely reengineered V1 PMS is now cloud native and can also support on-premise implementations of the same core base. Around this time, we also announced further releases of the completely reengineered and modernized InfoGenesis terminal, which is now pound for pound the best point-of-sale enterprise system out there and can support Windows, iOS and Android operating systems, which is a major improvement over the past when we were able to support only Windows terminals. Our displays and announcements during the HITEC and G2E shows were the first steps in our current endeavor to launch Agilysys 2.0 as a company which has retained the functionality strength of the solutions, which have been trusted and relied on for mission critical requirements in the hospitality industry for multiple decades. And now also feature modern cloud native technology architectures and many additional software modules, which serve end-to-end industry needs, making it easy on customers who now don't need to go to multiple vendors.While the hospitality industry recovery from the pandemic continues to make steady progress across the globe with increasing vaccination rates, significant challenges remain in various international regions and in domestic managed food services market due to the work from home practices still remaining predominant across many businesses. While the current challenges to onetime revenue are yet to be fully resolved, we remain bullish about our medium and long term prospects due to the breadth of cloud native applications we now have available, our continued momentum in the marketplace, current record backlog levels and our expectation that the lingering pandemic challenged portions of the hospitality industry will turn the corner soon. We remain cautiously optimistic and are maintaining the range of fiscal 2022 revenue guidance of $160 million to $170 million and adjusted EBITDA levels of slightly above 15%. We came into this fiscal year, expecting the second half of the fiscal year to be significantly better than the first half and that expectation has not changed. The speed at which we overcome the current short term onetime revenue challenges will determine how successful we are with our overall results this fiscal year. Despite all the current business environment challenges, we are making great progress towards a promising medium and long term, and that remains the main theme.Now that our products are more or less where we have always wanted them to be, we are well underway with increasing our sales and marketing focus. We expect a recently selected additional VP of Sales entirely focused on the Hotels and Resorts division to join us in about a month from now. We are in the process of expanding our quota carrying sales force with six additional hires during the next few months, and we have just kicked off the recruitment process for a head of marketing. While we will always remain a disciplined growth company, our current answer to virtually every sales and marketing expansion need is yes, just like how it has been for R&D during the past few years. We like our current win loss batting ratio in sales deals we participate in and now most of our focus is on increasing the number of at bats we get invited to.With that, let me hand over the call to Dave Wood for detailed commentary on the financial results and additional color on our business progress. Dave?Dave Wood Thank you, Ramesh. Taking a look at our financial results, beginning with the income statement. Second quarter fiscal 2022 revenue was $37.9 million, a 10.3% increase from total net revenue of $34.4 million in the comparable prior year period. The increase in top line revenue largely reflects an 11.3% increase in product revenue and 19.4% increase in professional services revenue. Onetime product revenue dropped 17% below first quarter levels due mostly to supply chain and logistical challenges and the initial impact of the Delta variant in the US. These challenges have been ever changing and throughout the second quarter, we have taken steps to mitigate risk for the second half of the year. While we are uncertain on when these expected short term challenges will be completely resolved, we believe the actions we have taken, such as investments in incremental inventory levels, electing airfreight for more reliable delivery options and longer term purchase level commitments with our vendors, have positioned us to serve customers in a timely manner and support our expected revenue levels for the second half of the fiscal year.Recurring revenue increased by 7.7% compared to the prior year period and represented 63.4% of total net revenue for the fiscal second quarter compared to 64.9% of total net revenue in the comparable prior year period. Recurring revenue of $24 million is $1.7 million higher than the prior year and up $820,000 sequentially. We are also pleased with our subscription revenue growth, which grew year-over-year 21.7% during the second quarter of fiscal 2022 to a record $11.1 million and 9% sequentially over the first quarter. Subscription revenue comprised about 46% of total recurring revenue compared to 41% of total recurring revenue in the second quarter of fiscal 2021.Add-on software models that build out our product ecosystem beyond the core POS, PMS and inventory procurement offerings are adding scale quickly and are now contributing to 6% of total sales this quarter when less than two years ago, the add-on modules were not a measurable contributor in sales. We have added over $1 million in ARR for these new products in each of the last six quarters. Add-on software modules made up 9.7% of our subscription revenue in our second fiscal quarter of 2022. Moving down the income statement. Gross profit was $24.3 million compared to $23.2 million in the second quarter of fiscal 2021. Gross profit margin decreased to 64% compared to 67.4% in the prior year period. The change in gross profit was primarily due to a change in revenue mix as product and professional services revenue come back into the P&L compared to the prior year. Recurring revenue continues at record levels while product and professional services revenue have not yet fully returned to prepandemic levels.Moving to operating expenses. Operating expenses, excluding charges for legal settlements, severance and other charges for the second quarter, was relatively flat with a slight decrease of 2% over Q1 fiscal 2022, mostly due to a slight reduction in G&A costs from some onetime items in fiscal Q1. Compared to the prior year period, operating expense saw 30% increase to $22.2 million from $17 million. This year-over-year increase in operating expense is due to slightly inflated stock based compensation expense from our previous grants and some temporary reductions, which were in place last year. Costs such as travel and trade show expenses are also beginning to come back into the business, especially here in the US post COVID. Product development, sales and marketing and general and administrative expenses, were 56% of revenue compared to 46% of revenue in the second quarter of fiscal 2021. For the remainder of the year, we expect product development and general and administrative expense to remain constant or slightly down as a percentage of revenue, while sales and marketing expense continued to increase by 1% or 2% from Q2 levels with the additional incremental investments we have mentioned before.Our net income of $0.5 million is a decrease from the prior quarter net income of $1.5 million with earnings per share also dropping to $0.02 compared to $0.06 in the first quarter of fiscal 2022. Adjusted net income and adjusted diluted earnings per share both showed a decrease over the prior year second quarter as more costs are coming back into the business. Adjusted net income of $4.6 million is down from $6.8 million in the prior year second quarter and adjusted diluted earnings per share of $0.18 decreased from $0.29 in the prior year second quarter when normalizing for certain noncash and nonrecurring charges. This reduction is mostly due to increase in operating expense coming back in the business and the additional stock based compensation expense. For the fiscal 2022 second quarter, adjusted EBITDA was $6.3 million compared to $8.6 million in the year ago quarter. Adjusted EBITDA remains a strength of the company as we continue to invest in our sales and marketing efforts and appropriately staff our service teams to complete projects and implementations as our customers work through resource constraints to implement our solutions.Moving to the balance sheet and cash flow statement. Cash and marketable securities improved by $2.5 million in the second fiscal quarter of 2022 to an ending balance of $106.4 million. Cash collections continues to be a strength as cash has now increased by $7.2 million since the beginning of the fiscal year. Free cash flow in the quarter was $3.2 million compared to $11.3 million in the prior year quarter. The recovery in our markets continued through the fiscal second quarter, translating into record subscription sales for the second consecutive quarter. We are pleased to see our PMS solutions contributing with an increase of 115% in ARR terms compared to prepandemic levels in Q2 fiscal '20. With the addition of new add-on software modules and the strengthening of our existing solutions, we remain confident in our ability for long term sustained growth. We believe our profitability and business fundamentals have us well positioned to continue to manage through the current environment and short term challenges we are continuing to see in our markets.With that, I'd now like to open up the call for Q&A. Justin?Question-and-Answer Session Operator [Operator Instructions] And our first question is going to come from Allen Klee from Maxim Group.Allen Klee Can you point to what data points you have as of now that give you confidence in a stronger fiscal second half?Ramesh Srinivasan Like we said, our backlogs are at a record level. And some of the supply chain issues we had and some of the product delivery issues we had we are seeing circumstances improve during the last few weeks or so. That's what gives us the confidence that the second half will be significantly better than the first half. Our product backlog, our services backlog, our recurring revenue backlog when you add up all the three, they are at record levels, they’re at the highest levels they've ever been. So this gap between how much we are able to sell and what the environment is allowing us to deliver, we are seeing that improving and becoming much better in the second half. And our recurring revenue and subscription revenue, of course, will continue to improve and contribute a lot more in the second half compared to the first half.Operator And our next question comes from George Sutton from Craig Hallum.George Sutton Ramesh, coming off of HITEC and G2E and also honing in on your discussion around your win-loss ratio. Can you just talk about your view on your competitive position after some of the recent shows and sort of what you're seeing in the market competitively?Ramesh Srinivasan We are encouraged by our competitive position improving compared to the past, especially in the PMS and related solutions area. We were not even significant player in PMS till, say, a few months ago. And now we are a major participant. We are invited to the table on many PMS deals. And POS, of course, IG 12UX, which is the latest version of the reengineered terminal is competitively far better than anything that is there competition wise. So in terms of competitive environment, George, I would say things have improved. Though the one thing I should mention is we are now walking around with more of a target on our back. So people are taking us more seriously and there are pricing challenges. There are some desperate competitors who do win based on price there's nothing much we can do about that. Now this is a high barrier to entry business. And many of our smaller competitors continue to struggle to scale. In the US, I would say, our competitive positioning has really improved, though we have some ways to go international markets. I would say the competition remains quite severe in both Europe and Asia because our name and the fact we have done all these improvements is not yet part of the dialog there. So I would say, internationally, our competitive positioning has only improved slightly while in the US, our competitive positioning has improved significantly and the PMS solutions, it's improved dramatically.George Sutton So you mentioned that you now support all the platforms, not just Microsoft. And can you just give us a picture of what that means in terms of the market opportunity that you may have been not addressing before?Ramesh Srinivasan So as far as our InfoGenesis POS is concerned, before we go into the fact we support multiple operating systems, it is also a completely reengineered terminal with farly improved functionality features. So even if we don't support multiple operating systems, it is by far the best POS system out there. So every time we have done a demo and it has already gone live in about 10 sites already, customers are much more pleased with it than our previous versions. So if we just get an at-bat and if the customer sees IG 12UX our latest version of the terminal, the probability is very high that we will win the deal. Now as an additional, but a very significant advantage, is the fact it supports multiple operating systems in terminals. Before, it would only support a Windows terminal. And in terms of handheld devices, there are only so many windows options out there. Now that we support iOS and Android, let's take iOS, for instance, it now runs natively on an iPad. It's not a different code base like many of our competitors do, that iPad code base is not managed by a third-party vendor. It is the same code that runs in the main terminal that also runs in the iPad. So if you make a change here, the change happens there as well.Now that gives our customers tremendous options to deal with slightly offset, meaning at a beach or at a swimming pool, you now can carry around an iPad that easily connects to the base system and those kinds of options we used to struggle with and all our competitors still struggle with today, and then you add the Android tablet facilities as well. Now looking to the future, George, what this gives us is a code base that supports any device. So let's say, a year from now, we develop a sleek device an all-in-one device like many of the players in retail restaurants and other places do. Now those kinds of devices become a possibility for us because the software is there, it is just a matter of finding a proprietary device that does that. So it opens up the market for us. And currently, it is competitively a superior position, superior product to what is there in the marketplace.George Sutton Just one other quick one, if I could. You mentioned there are some -- obviously, we know of labor challenges at some of your customers. And you mentioned that your new products require extra levels of support in the field, I actually thought the opposite. So I just wanted to make sure I clarified what you said there.Ramesh Srinivasan So in terms of our backlog being at record levels, George, and focusing on the services and recurring revenue portion of it, the number of services projects, implementation projects that are not started or the number of are still pending to get done in those projects, that is at a record level now. A good portion of it has to do with the fact that customers are unable to get the project started that they know they need, which is why they signed the sales deal before. So all these sales deals are signed but the projects have not yet started. So that is why our services backlog is at record levels now. Those projects will start getting done at a faster pace, which also in turn will increase our recurring revenue at a faster pace when the labor shortages get sorted out and customers don't have too many conflicting priorities to work out and prioritize and currently, there are just a lot of those conflicting priorities there.Now an additional contributor to our services backlog is also the fact that a portion of our services personnel will have to support our new products, which are settling down in the field. Now we have done a lot of reengineering, we have created a lot of new products in the last two, three years and they're all now hitting the market. And many of them have obviously not been established for multiple years. So each of them are requiring a bit more hand holding, a bit more training, a bit more time working with the customers now that is also delaying other services projects that are in the pipeline to be delivered.Operator And our next question comes from Matt VanVliet from BTIG.Matt VanVliet I guess kind of on the last couple of questions there, a little bit of a follow-up here. In terms of the hardware supply issues cause income constraints. Do you feel like this is going to further accelerate the adoption of just the off-the-shelf hardware? And now with your software advances, you can, especially on the POS side, go in with just sort of a software-only sales process, or are your buyers still wanting to buy kind of the full solution from you and even if that's you reselling an iPad or something for that instance?Ramesh Srinivasan So as far as the PMS and other software solutions being purchased and installed, there are no supply chain issues or anything. There all we need is the labor shortages at our customer sites to become progressively less acute and also our own newer PMS products settling in the field faster. Those two will contribute to the PMS portion of our business expanding faster, which is already happening. So there are more hardware issues as far as the software solutions are concerned. Now where the hardware issues do come in, Matt, the hardware delivery issue that is with respect to our POS solutions. Now as far as the POS solutions are concerned, the fact we have additional iPad like options helps a little bit but a major portion of it, the supply chain issues, have to be sorted out. because customers who are moving from a competing system to us still require the terminals to run the restaurant, even though a few additional iPads help them with order taking when the personnel are moving around the restaurant, but you still need those base terminals to be there.So our supply chain and hardware issues will have to get sorted out. They look like they are already in the process of getting sorted out based on the current deliverables that we are beginning to get in this quarter, they should get sorted out. But for the hardware and some of the perpetual license software delivery, we do need the supply chain issues to get sorted out. The PMS software increasing helps us a bit, Matt, helps us significantly. The fact that iPads are there helps us a bit. But fundamentally, we do need the supply chain issues to get sorted out quickly and there we are seeing signs of that happen.Matt VanVliet And when you talk about record backlog and just really strong sales performance and I guess, sales leads from that perspective. Are you seeing any new areas of emerging strength? Are you seeing any urban hotels now looking to finally reopen with higher capacity and expectations that business travel comes back or any areas that haven't seen as much conference traffic yet? Or is it still the core gaming and warmer weather resort areas that are seeing the most strength?Ramesh Srinivasan So Matt, in terms of new areas for us, before I answer your sales verticals related part of the question, in terms of product areas, PMS and related solutions is becoming a big strength for us. So compared to a year ago, compared to two years ago, we are up like 100% plus with respect to PMS sales compared to two years ago. So from a product vertical standpoint, from a product segmentation standpoint, PMS and PMS related solutions are doing very well for us and we are only getting started with those. Those products have all hit the market only recently a few months ago. And now with V1 PMS also available as a modernized PMS, we are going to go from strength to strength there. So that is from a product vertical standpoint.But I understand your question is more about the geographical and more the sales verticals. That negative unfortunately, hasn't changed much, Matt, compared to Q1. Gaming and gaming casino, the non-gaming part of gaming casinos and resorts are still doing phenomenally well. When we just take our resort sales and gaming sales, we are well ahead of our fiscal 2020 levels before the pandemic. So those two are doing very well. And there all the new products we have and our increasing competitive advantage is really shining well there, because when you compare to the past, our sales to the gaming sector and resort sector is at record levels now. But the issue still is like it was at Q1 that there is only a partial recovery with cruise ship vertical. They are just getting their feet back now. Hotel chains are sort of recovering, but it is still sort of sideways kind of recovery it is not doing as well as gaming and resorts.International regions are definitely not doing all that well. Asia, especially international tourism and the border still being closed and all is still a challenge in Asia. And Europe is sort of okay. It is sort of flat compared to two years ago. So our sales is doing very well compared to fiscal 2020. Two years ago, it was almost at that level now. Despite all the challenges we have with international regions, a partially recovering hotel chain sector, a partially recovering cruise ship sector. And our biggest challenge remains the domestic managed food services sector, because a lot of the cafeterias and all that for which we are a major supplier have just not come back due to many people still working from home. So that narrative has not changed much from Q1 other than the fact we are doing even better in the gaming and resort sectors.Matt VanVliet And then lastly, on the pricing commentary that you made. You mentioned a number of competitors maybe getting pretty irrational or at least competing solely on price. When we think about where the latest model of the POS is, you touched on a number of areas where it's superior. How should we think about the product being priced in the market in terms of actual RFP terms? Are you coming in close to some of those competitors, are you significantly priced higher and for that, the customer has to see that significant value increase? How should we think about that maybe now in terms of what's actually happening in the market?Ramesh Srinivasan So Matt, I've been in this B2B enterprise software on the vendor side for more than, I think, two decades now. And this has always been a problem. There are always a few desperate vendors and sometimes they even happen to be the bigger vendors in the space. And whether it is in supply chain execution or gaming systems or now in hospitality solutions, that challenge has always been there. There are always a few desperate vendors who will give it away and that challenge is always going to be there in this business. So that's no different. But in terms of us, we have always been in an RFP, typically the highest priced vendor. We've always been disciplined about our pricing levels. So we have always sort of been a little bit more pricing wise than our other competitors. But now the difference is we have the products to back it up. We always had the features and products to back it up before but now we have the technology and products to back it up as well. So when you combine it with trusted solutions and modern technology, we are able to defend our pricing a lot better today than we were able to, say, a year or so ago. So we continue to remain quite disciplined with our pricing, Matt.Operator And our next question comes from Nehal Chokshi from Northland Capital.Nehal Chokshi And clearly, very strong bookings demand, especially given the context of the sales quarter ever in terms of annual contract value, higher service subscription sales quarter, higher customer win sales quarter in five years and the total backlog and restructurings. But what I'd really like to know is what is the actual subscription sales or what I would call bookings in terms of year ago levels and two year ago levels.Ramesh Srinivasan So as far as bookings are concerned, Nehal -- as far as bookings go, Nehal, we don't provide the full annual contract value levels. But what I can tell you is the Q1 and Q2 sales bookings levels, which we always measure in annual contract value terms are more or less in line with fiscal 2020 two years ago. So if you take our Q1 and Q2, the first two quarters we have completed now this fiscal year with Q1 and Q2 of fiscal 2020 two years ago, they are obviously better than last year but that doesn't mean much. When you compare it with two years ago, they are more or less in line. So the bookings in the first half have been more or less in line with the bookings or equal to bookings in Q1 and Q2 of last year -- or two years ago of fiscal 2020. Now the way to interpret that data is Q1 and Q2 of fiscal 2020 two years ago did not have any pandemic challenges. And all our sales verticals were working quite well as far as the market environment is concerned, gaming, resorts, hotels, hotel chains and cruise ships and Asia and EMEA, they're all doing quite well and managed food service providers.Here, we have gaming and resorts doing well but the other ones have varying degrees of difficulty. In spite of that, our sales levels are comparable or almost equal when you compare the first half of this year to first half of two years ago. So that's one data point we can definitely give you. The other data point, like you mentioned, is subscription sales is substantially up compared to two years ago, just because more and more customers prefer cloud native applications. And all our products at now are supported by cloud native applications. So every time a customer wants to go to the cloud, our answer is yes. So those two are contributing and those are comments we can make about our bookings.Nehal Chokshi And if you were not --. So were the bookings level that you've seen over the past two quarters, consistent with what your expectations were when you initially set out the $160 million, $170 million revenue guidance? Because obviously, you've had some surprises on the delivery of the actual products and services to turn on the incremental ARR that you're booking [there]?Ramesh Srinivasan So the quick answer to your question is the sales bookings of Q1 and Q2 were in line with our expectations in order to meet the revenue guidance provided. They were in line as far as the sales bookings are concerned. Where we have fallen short and we feel we are at the low end of the guidance now is with respect to onetime revenue, which has more to do with the delivery challenges we have had in the market environment, which we believe will get improved enough during the second half of the year, which is why we are maintaining our guidance as it is now. As far as bookings are concerned, Nehal, they were in line with our expectance when we provided the revenue guidance.Nehal Chokshi And then pandemic has arguably driven acceleration of new solutions, new solution adoption in the QSR arena potentially to a majority of opportunities. How would you compare the completion of opportunities within the hospitality industry that is also serving relative to the rate of adoption that we're seeing in the QSR industry?Ramesh Srinivasan The customers looking for more modern solutions and adopting them quickly has been quite high in the hospitality industry as well, especially in the gaming and resort segments that we have. Managed food service providers obviously need people to come back work from home. So there they are not looking for anything new and therefore, I can't comment on the adoption rate. But the two markets that are doing well for us, gamings and resorts, they are looking for more modern cloud-native applications that come well integrated with each other, which is why our deal size has increased, that expectation is high in those industries. And once they make the decision they are also adopting it fairly quickly as well.Operator And I am showing no further questions. I would now like to turn the call back over to Ramesh for closing comments.Ramesh Srinivasan Thank you, Justin. Thank you all for your continued interest and investment in Agilysys and for your participation today. Please take good care. Thank you.Operator This concludes today's conference call. Thank you for participating. You may now disconnect.
