Agilysys, Inc. (NASDAQ:AGYS) Q4 2020 Results Earnings Conference Call May 21, 2020 4:30 PM ET

Company Participants

Dave Wood - Vice President, Corporate Strategy and Investor Relations
Ramesh Srinivasan - President and CEO
Tony Pritchett - Chief Financial Officer

Conference Call Participants

Matt VanVliet - BTG
George Sutton - Craig-Hallum
Tyler Wood - Northland Securities
Allen Klee - National Securities
Ishfaque Faruk - Sidoti & Company

Operator

Good day, ladies and gentlemen. And welcome to the Agilysys’ Fiscal 2020 Fourth Quarter Conference Call. As a reminder today’s conference is being recorded.

I would now like to turn the conference call over to Dave Wood, Vice President of Corporate Strategy and Investor Relations at Agilysys. Please go ahead.

Dave Wood

Thank you, Jonathan, and good afternoon, everybody. Thank you for joining the Agilysys’ fiscal 2020 fourth quarter conference call. We will get started in just a minute with management’s comments.

But before doing so, let me read the Safe Harbor language. Some statements made on today’s call will be predictive and are intended to be made as forward-looking within the Safe Harbor protections of the Private Securities Litigation Reform Act of 1995 including statements regarding our financial guidance.

Although, the company believes that its forward-looking statements are based on reasonable assumptions, such statements are subject to risks and uncertainties that could cause results to differ materially.

Important factors that could cause actual results to differ materially from these and the forward-looking statements include the effect of the COVID-19 pandemic on our business and the success of any measures we have taken or may take in the future in response to the COVID-19 pandemic and the risk 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

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

We hope all of you and your families and colleagues are doing well and staying healthy during these incredibly challenging times.

Like many other organizations across multiple industries have reported, our fiscal 2020 fourth quarter, the period January through March was very much a tail of two quarters within one. We started the quarter on a high note carrying on the momentum of seven consecutive record revenue quarters before it. It then got even better with our Inspire User Conference during February held at Rosen Hotels and Resorts in Orlando.

The conference was highlighted by the highest customer attendance we have seen at a location other than Las Vegas. Attendance of customer users from the hotel and resorts vertical was up 45% year-over-year.

The overall number of customer users attending additional training classes and setting up meetings with our technical staff for further product discussions, two crucial user conference customer engagement metrics for us was up 40, 4-0, was up 40% year-over-year. Our increase product innovation velocity during the last couple of years was on full display.

Little did we know then that many additional modules like mobile check in, check out, rGuest Service and on-demand which were discussed in packed conference rooms during the conference would move from being nice to have modules to become must have ones just a couple of months later and then everything temporarily changed during March.

In spite of the hospitality industry virtually shutting down completely about 32% of sales during the quarter actually happened during March. To put that in context during the previous four quarters, the average percentage of sales which happened during the last month of the quarter was about 43%.

While this March was much less than a typical month of March for us it was still reasonably good under the circumstances. One third of our Q4 sales happening during March under such extraordinary tough circumstances was a good reminder that the solutions we provide are mission critical for the industry.

As a reminder, please note that unlike many other organizations, we use the terms revenue and sales to indicate two different business metrics. Revenue is, of course, recognized revenue based on normal revenue recognition rules, which are more or less standard across enterprise software companies like us.

We use the term sales, however, to refer to actual new sale agreement signed with current and prospective customers for products and services. We measure such sales in terms of annual contract value of sale agreement signed.

We also tend to use the term sales, selling activity and bookings to all refer to the same thing annual contract value sales. There is obviously a time lag involved in the conversion of sales to revenue.

Now switching back to our quarter narrative, we were well on our way towards our eight consecutive record revenue quarter when the drastic March changes happened, causing us to miss our revenue guidance for fiscal 2020.

Q4 revenue was $39.7 million, an 8% increase over Q4 of last fiscal year. Fiscal 2020, full year revenue was a record $160.8 million that is, 1-6-0 point 8 million dollars representing a 14.1, 1-4 point 1 representing 14.1% increase over fiscal 2019. Q4 recurring revenue of $22.3 million was another new record.

Subscription revenue was up 9.1% sequentially over the third quarter and was up 29.8% over Q4 of last fiscal year. Professional Services revenue in Q4 fiscal 2020 was up 25% over Q4 of last fiscal year, despite a significant slowdown during March due to travel restrictions and site closures.

Adjusted EBITDA during Q4 fiscal 2020 was $3.6 million, compared to $2.4 million during Q4 of last year. Overall, for the full fiscal 2020 adjusted EBITDA was $13, 1-3, was $13 million increasing 27% over fiscal 2019 or actually a 61% improvement if you take out the benefit of capitalized software in fiscal 2019.

During fiscal 2020, we signed sales agreements which added 55 new customers, 61 new properties, which did not have any of our products before and 152 new instances of selling a product to sites, which were new for that property. Of these sales agreements, 17, 1-7, new customers, 17, again, 1-7, new properties and 35 new products were closed or signed during the January to March Q4 quarter.

The IG POS sales win with team San Jose in the sports and entertainment sector. The rGuest state PMS and IG POS win with Saba Rock Resort in the British Virgin Islands. The rGuest state PMS win at hotel 166 in Chicago. The huge 19 site IG POS win with Comwell resorts in Denmark. The rGuest via kiosks and on demand win at Sea Pines resorts in South Carolina. And the IG POS win at the intercontinental Los Angeles and IHG property were among the sales win highlights of the quarter.

Before we move on to other topics, one quick update on customer retention, fiscal 2020 was our best year in recent memory with respect to customer retention success. Customer retention was again well over 95% and our best percentage in many years.

We measure customer churn and reverse of it customer retention in the old fashioned conservative way. We measure customer churn as a simple division of annual recurring revenue lost during the year as a percentage of total annual recurring revenue. And customer -- and we report customer retention as 100 minus customer churn percentage therefore by definition our customer retention measure cannot be more than a 100%.

Please note that we measure customer churn as a percentage of only recurring revenue and not as a percentage of total revenue. Given our recurring revenue is about half our total revenue, churn and its reverse customer retention is even better if you think of it as percentage of total revenue.

We are aware that many software companies express customer retention in dollar retention terms using a variety of different formulae designed to make the numbers look great and often report them to be higher than 100%.

If we use any of those methods, our dollar retention rate would also be significantly higher than 100%, because the extent of repeat business we get from current customers in terms of new property sites and new products far exceeds the extent of recurring revenue loss during the year. However, we continue to believe that the old fashioned method of calculating customer retention as a percentage of recurring revenue is the right measures.

We continue to retain well more than 95% of our recurring revenue base and also further act with significantly through business expansion as you can derive by our consistent increases in recurring revenue year-after-year.

Going back to the subject of sales measured by annual contract value of sale agreements closed during a period. Sales during January and February this year was about 40% that is, 4-0, 40% higher than the January, February average over the past four years despite a February slowdown in international sales.

While sales during March slowed down as was to be expected and was not the typical high-end to a quarter and fiscal year we are use to. It was still close to 80%, 8-0-, 80% of the February level.

Sales during April and May in Q1 fiscal 2021 that is the current quarter so far has been at about 60%, 6-0 percent, of the average of the past four quarters at the same comparable time during the quarter.

To reiterate that point, in spite of this global pandemic causing virtually everything to shutdown, we are still able to close about 60% of the value of deals we would normally expect. These products are mission critical and our product innovation engine continues to churn out additional modules and core enhancements, which will help our valued customer manage current realities better.

As we have discussed with you before, we have introduced many new software modules in the marketplace during the past couple of years especially during the past year. Many of these modules have already been implemented in multiple customer sites.

These modules include, one, rGuest Express Mobile a PMS solution enabling checking in and checking out of hotels without any need for human contact entirely based on one’s smartphone including the use of digital keys.

Two, rGuest Express Kiosk a similar PMS solution, which can be used to check in and check out and for other purposes. We have now this kiosk to be essentially touch-free using personal or throw away stylus pens. Guests can bring keys if they so desire through the kiosk or through the use of our new mobile concierge model.

Number three, rGuest Service, a PMS module which enables management and optimization of all operations in the hotel including housekeeping and preventive maintenance of crucial assets. This along with two way SMS and other communication between the hotel staff including hotel staff at the reception and guest enables less need for frequent checks with the reception desk on room readiness and other matters reducing crowding around the reception desk.

Four, rGuest on demand for POS, this is a software module in our POS family of products, which was introduced during the last year. It enables remote ordering of food and beverage items from a mobile phone for takeout or delivery using a website app or QR code and is completely integrated with our InfoGenesis POS back end.

Five, Agilysys authorized for both POS and PMS. This module enables scanning a QR code on a food and beverage or other receipt to initiate payment or charge to a room through the guess mobile device with no human touch or contact necessary. This was introduced recently eliciting serious interest from many customers. One of these customers signed up for use of this module across more than 70, 7-0, across more than 70 profit centers just this week.

Number six, contactless payments, we have also introduced other forms of contactless payments.

Number seven rGuest book, the need for a direct channel zero commission online booking engine has become even more important for our customer base now. With our new modernized rGuest spa and golf modules already installed in multiple customer sites, customers can now provide their guest the ability to book rooms, spa and golf reservation, all from one place. This includes the ability to handle group reservations as well.

Number eight, rGuest Seat, this product now supports booking and managing reservations across any outlet of a property. Guests can see a doll house view of the outlet and reserve a specific seat in a restaurant or a specific lounge chair or cabana in the pool area or a seat in a performance center. Properties have an opportunity to promote social distancing right at the booking process providing their guest an increased level of comfort as they make their reservations. The application -- now this application now also supports yielding of seats giving our operator additional tools to monetize their assets.

Now that list is only a subset of all the new modules we have introduced during the recent past, which enables social distancing and improve operational efficiencies, enabling hospitality operators to do more with less. Such modules were nice to have till recently and have now for the most part become must have modules.

Our core POS/PMS and inventory management solutions have always enabled operators to be highly efficient but in the current scenario these solutions have become mission critical as our customers look to maximize revenue while minimizing variable cost.

While the number of sales agreements closed during March, April and May, have clearly been down compared to previous quarters. We have been surprised to find the number of product demos we have been involved in during April and May especially regarding our emerging products and software modules. It’s been almost double the level that we saw during January and February.

The current trend is unmistakably around mobility and contactless service solutions, and we are fortunate to have been busy with precisely that kind of product innovation for a couple of years now.

Both our food and beverage POS and lodging PMS solutions now enable a frictionless and contactless experience end-to-end all across the guest journey through a property all the way down from order initiation till payment.

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

With respect to our balance sheet, we ended Q4 fiscal 2020 with a cash balance of $46.7 million our highest level since June calendar 2017 Q1 of fiscal 2018. We were fortunate to come into the crisis with the position of strength. The recent $35 million convertible preferred investment by MAK Capital will provide additional balance sheet strength.

As is well known the CEO of MAK Capital Mr. Mike Kaufman is also the Chairman of our Board. I cannot think of anyone who knows our business better than him, his vote of confidence in us thus say a lot. Our improved and record levels of financial performance in fiscal 2020 has a lot to do with our increase in R&D and product innovations strength and are passionate focus on customer service.

The number of resources involved in product development has tripled since January calendar 2017 and that increase has resulted in our current ability to provide our customers with end-to-end solutions to enable the kind of contactless, safe and comfortable guest journey, our customers have now have an enhanced need to provide.

We are determined to keep the innovation and customer service engines going through this current situation and expect to reach the other side of this crisis with an even better competitive differentiation and positioning.

While we have been forced to take multiple cost reductions steps like most of other organizations, we have taken care to ensure such steps have minimal to no impact on our product development and customer service areas.

Due to the drastic change and uncertainty in macroeconomic conditions and the lack of clarity with future sales revenue and profitability projections by product, there was assessed impediment most of the capitalized software development cost on our balance sheet.

As you are aware, we discontinued the practice of capitalizing software development costs as of January calendar 2018 or Q1 fiscal 2019. This impairment action does not affect are ongoing and future product investment strategies in anyway.

This pandemic and the related closures have been particularly hard on our customers. We have strived to be a responsible business partner and have tried our best to help them with various forms of one-time credit and product concessions.

Among the concessions provided is free use of rGuest on demand product for 90 days. About 60 customer sites have executed contracts for the use of this product and another 250 sites are in the process of signing up.

Such one-time credits and product use concessions provided is going to hurt our short-term revenue level, but will help us in the medium and long-term once the recovery begins to take shape.

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

With respect to the one-time concessions provided to customers, we expect about two-third of that effect to be felt during Q1 and the remaining one-third to be spread out almost equally across Q2, Q3 and Q4 of fiscal 2021.

Please note these actions to help customers will show up as declines in multiple revenue areas including recurring revenue during Q1. Such declines are expected to be strictly temporary and one-time and should not be interpreted as having anything to do with customer retention. We continue to do well with customer retention.

We are beginning to see signs of the recovery process already starting with sites reopening. Assuming the pandemic recovery process continues to keep improving steadily thereafter, we expect 35% year-over-year revenue decline in the April through June Q1 quarter to be the low point. Q2, Q3 and Q4 should be progressively better. However at this stage, we are unable to predict how steep that improvement curve will be.

On the one hand, we find our product and services backlog and sales pipeline remaining at high levels now, while on the other hand the decision making in sales finalization processes have slowed down considerably. We are therefore not in a position now to provide any meaningful guidance on overall fiscal 2021 revenue and profitability levels.

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

While the current circumstance is definite setback, we have every reason to believe we will come out of this phase in reasonably good shape. We remain a relatively small player in this huge hospitality industry and even a partial recovery in the industry will be sufficient to fuel our growth.

We are keeping our focus on keeping up the pace of product innovation and customer service. There is a good possibility that the reduced overall industry business levels in the short-term could be compensated by an increase need for technology solutions to make hospitality guess experiences safer and more comfortable. We expect to be in the frontline of providing such much needed high quality technology solutions and that should serve our financial performance well.

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

Tony Pritchett

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

Taking a look at our financial results, beginning with our income statement. Fourth quarter fiscal 2020 revenue was $39.7 million and 8.3% increase from total net revenue of $36.6 million in the comparable prior year period. The increase in topline largely reflects a 26.3% increase in professional services revenue and a 15.2% increase in recurring revenue offset by a 14.3% drop in our product revenue due to the sudden shutdown our customers were faced with in the last half of March.

On an annual basis, we are pleased to see growth across all three of our revenue line items including a record $8.2 million increase in recurring revenue and a $6.5 million increase in professional services revenue.

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

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

With regard to endpoints, we currently service about 274,400 rooms and have approximately 62,100 terminal endpoints or 1% and 16% increase respectively, compared to how we exited Q4 of last year. We are continuing to give this metric though more and more our revenue growth is not dependent on endpoint grow.

Our add-on software modules that build our ecosystem of products are adding scale quickly. As an example so far, just in the month of April and May we have closed deals for r rGuest on demand and rGuest Authorize that once live in billing will be worth nearly $700,000 of annual recurring revenue for us. These are two of our newer products to help our customers enable social distancing initiatives and are great examples to point out.

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

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

Moving down the income statement, gross profit of $19.7 million compared to $19.6 million in the fourth quarter of fiscal 2019. Gross profit margin decreased to 49.6%, compared to 53.5% in the fourth quarter of fiscal 2019. This gross profit was negatively impacted by $600,000 of credits related to COVID-19 reserves.

In addition the professional services team realized the sharp drop in serviceable installation during the last half of March for obvious reasons, resulting in a negative margin impact for the quarter.

Looking at operating expenses, excluding charges for legal settlements, impairment and restructuring, severance and other charges, fourth quarter saw 1.8% decrease in operating expenses to $22.7 million, compared to $23.1 million in the prior year period. This decrease in operating expenses is mainly due to decreased incentive compensation negatively impacted by COVID-19.

Combined our three main operating expense line items, product development expense, sales and marketing expense, and general and administrative expense were 53% of revenue this fiscal year for the full year. The lowest in the past four years, not even accounting for the fact that in the prior three years we had some levels of capitalized software removed from the income statement.

Fiscal 2019 was 57% while fiscal 2018 and fiscal 2017 were 55%, compared to this year’s 53%. Even without the impact of COVID-19, this trend would have been about the same and is a good reflection of the steady progress we are making with our operating leverage.

Our operating loss for the fourth quarter of $26.9, net loss of $27 million and loss per diluted share of a $1.16, all compared negatively to the prior year’s fourth quarter losses of $3.8 million, $3.6 million and $0.16 due to the impairment charge taken this quarter.

Adjusted net income and adjusted diluted earnings per share both compared favorably to the prior year fourth quarter. Adjusted net income of $1.3 million compares favorably to $700,000 in the prior year fourth quarter and adjusted diluted earnings per share of $0.05 compares favorably to $0.03 in the prior year fourth quarter when normalizing for certain non-cash and non-recurring charges including this impairment charge.

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

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

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

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

As Ramesh mentioned, revenue in our first fiscal quarter of 2021 could be down by as much as 35% due to the customer concessions we are giving along with the slowdown in sales we have experienced. We do expect this to be a low point and assuming our recovery process continues from this point on. The remaining quarters should be progressively better.

Given these revenue levels, adjusted EBITDA for the first quarter should be around breakeven and the transfer adjusted EBITDA should follow revenue and be progressively better for the rest of the year. Otherwise given the uncertainty of the global markets we are not providing any further guidance now.

In closing, we are pleased with our 2020 financial results and with financial stability we have to navigate through our current economic environment. We are fortunate enough to have a good recurring revenue base built on a foundation of mission critical products.

Our backlog and sales pipeline are both at historically high levels. As the economy made progress, we feel confident our financial results will react in concert. We just can’t predict the exact shape but of the recovery.

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

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Our first question comes from the line of Matt VanVliet from BTG. Your question, please.

Matt VanVliet

Yes. Hi, guys. Thanks for taking my question. Nice job on the coral things considered especially at the beginning of the year, getting the pipeline built out there. I guess digging in on some of the trends that you saw normally through the quarter and into the end, but some of the concessions that you talked about. Can you just dig a little deeper for us here in terms of how much of a delayed fuse are on some of those to that 90-free windows start sort of the day they agreed to it or is that conditional on the when properties reopen, when businesses at least put in motion our plans to reopen. Help us think about what that could look like on a sort of time series basis moving forward?

Ramesh Srinivasan

Yeah. Hi, Matt. Thanks for attending the call. So we are hospitality too, Matt, so we were also -- we are also badly affected by this and so there are limits to how much we could help out our customer though we tried our best.

And I don’t want to get into all the specifics, Matt, but this much I can tell you. We break it up into two separate things, as far as the product concession goes. It is like giving a 90-day free trial if they sign up for a much longer period of time.

So customers -- and it was for one particular product like we mentioned for on demand. So if they sign up for a longer period of time, which is how customers normally sign up. The first 90 days there is no charge on the SaaS fees and it starts on the day they go live.

And so, obviously, the only customers, signing up for that our customers who are just about opening now or have definite plans to open. And the trial period in terms of when they have to sign up -- is only for a certain period of time. It is only for a couple of months kind of thing. So that is on the product concession which is basically for use of a product but they get the first say three months free after they go live with it.

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

Matt VanVliet

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

Ramesh Srinivasan

Yeah. It’s a good question Matt. So, yes, we are -- obviously, we are in touch with all our customer base and we are constantly talking to them and not just in terms of when they will reopen also helping them with their reopening, right? So I will come to that in a second.

So the one thing about our customer portfolio, the customer profile Matt is that gently all our customers are of the bigger size, right? We don’t have much of a play in the smaller retail restaurants so that is not the space we play-in at all.

So virtually all our customer base is in the bigger customer segment, we are an enterprise software company. We don’t compete much in the smaller restaurant space at all, in fact we don’t compete there at all.

So to a certain extent a lot of our customers have much more concrete plans of the reopening compared to what you might find in the small restaurant space. So that is one aspect to remember about our customer portfolio.

Virtually our entire customer but we have got all the customers have plans to be open it is only a matter of when they will be open not if they will be open because he’s got all the customers who have videos access -- access to capital and they all have different plans to re open. So that’s one thing to keep in mind.

The second thing to keep in mind is, we had a fairly small player like they always say about portal addressable market runs into billions. I mean depending on which study you believe you call it $3.5 billion or $4.5 billion it runs into billions in terms of the recurring revenue of the industry while our recurring revenue is still less than $100 million.

So we had a smaller player. So even if portions of the industry reopen later than the others even a partial recovery is pretty -- it should be enough to drive our growth forward, right? So that’s the second aspect to keep in mind.

The third thing to keep in mind at least what we are noticing is that, we were quite surprised ourselves we didn’t expect this, that the number of product demos we have done in April and May have been twice as much as January and February, which in a lot of ways, doesn’t make sense, but that is what we have been seeing.

So what that means is the fact that part of the industry is going to recover, slower, or going to reopen slower for us and all of them are going to reopen for us, is going to be made up for the fact possibly going to be made up by the fact that they have a greater need for a lot of the technology solutions that we have been very fortunate.

We have been in the process of developing for the last couple of years, even if you look up the earnings call script in the last couple of years we have always hopped on all these additional modules, which we believe add strengths to PMS and POS and they are all must have now. I mean the on-demand product, there are more than 300 sites talking about it now and all of them in the last couple of months.

So the fact that the business is going to be affected by a slower recovery, we think could be made up by the fact -- could be made up by the fact that there is a higher need for all these technology solutions.

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

Matt VanVliet

Great. Thank you for taking my question. I really appreciate it.

Ramesh Srinivasan

Thank you, Matt. Appreciate it.

Operator

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

George Sutton

Thank you, Ramesh. I appreciate you are going thoroughly for module additions I thought that was helpful. So as you think about the mobility part of the equation, when you are talking to existing customers and they decide to move forward with that and I am speaking mobility and more broadly the safe distancing applications that you have. What does that do to the TAM opportunity with that specific account or the ARPU opportunity with that account? And then how much influence is that having on the deals you are working on right now. I assume it’s relatively significant?

Ramesh Srinivasan

Yeah. Hi, George. Good to talk to you it’s been a while. Yeah. Now as far as the software modules are concerned, it’s not just mobility, but a lot of it is mobility. I understand what you are saying this is what it does as far as how we analyze Agilysys, right?

We have so far we have focused a lot on the number of rooms and the number of terminal endpoints. Those are still important right. Those are still reasonable indicators of how we are growing the business.

But now what is becoming of even more importance is the fact that the rooms that we have and the terminal points that we support. There is a lot more products to feed into that. So that is definitely increasing the revenue per unit of room and of terminal points because we have a lot more products to feed into that and it’s not just products, these are all software products that are going to drive recurring revenue and all these products are designed to work both on-prem SaaS and of course more and more of the industry now prefer SaaS over on-prem, but some customers want it on-prem the products are designed to support that as well.

So at the moment what we are seeing in the month of April and May is basically feeding into the customer base, we already have for the most part. There are also instances we are seeing, like, we are the number of new logo or new customers, we are talking to has increased more than we thought it would in April and May, because these additional modules now become drivers of the core product as well.

Well I mean, we need these additional modules to enable social distancing and everything else we need and your core product needs to support it. It has to integrate well with the core product. For example, we have just introduced the product Agilysys Authorize, which I told you in the prepared remarks that one particular customer signed up for more than 70 profit centers. But that has to work well with the core POS product and it even has to work well with the PMS, because when you go charge a room and you just scan a QR code and with your mobile phone, you can just pay at the table. We still need to make sure if you charge it to your room that by mistake you are not putting a wrong room there or something. So we have to talk to the PMS as well.

So to a certain extent these additional modules will start driving our core products forward as well. But at the moment I would say a lot of the interest is in additional modules. There is some amount of driving the core products forward as well. I suspect that will happen more and more in the future.

And that does expand our TAM opportunity to answer your question. The total addressable market does get expanded by the fact that these products are not even there a year ago. So to that extent, it does serve the purpose of expanding the market.

Tony Pritchett

Yeah. To add to that just a bit, expansion of the market or expansion of RPU. The way to think about these module is any individual module can add somewhere in the 20% to 50% range of the core product.

So for example if the core product is worth $1 or cost a $1, these additional modules individually could add somewhere in the $0.20 to $0.50 range. So if we sell somewhere from two to five of these additional modules, depending on the module you are talking about. We could have double the revenue from that particular unit.

George Sutton

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

Ramesh Srinivasan

Yeah. I mean, we only know it through customers and some of the friends we have even in our computing companies. I think to be honest with you George, everyone is making an honest attempt, our peer, our competitors and everyone else is doing the best to help.

So we got to give them credit for that. I think each company is doing its best to help, because the hospitality industry is badly affected. And we all owe it to our customers to do the best we can.

And there are limits to how much we can do as well. We have not that big companies, but I think George, I think each of the competitor is trying to help in their own way. I think the concessions are similar, but not the same, but I think everyone is trying to help, George.

George Sutton

Perfect. Thank you.

Ramesh Srinivasan

Thanks, George.

Operator

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

Tyler Wood

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

Ramesh Srinivasan

Yeah. So, hi, Tyler. Good to talk to you. So, basically, Tyler, following up on George’s question the one-time concessions it’s just the right thing to do right. That is not about building competitive positioning or anything like that. It is just the right thing to do for customers and all of us hospitality vendors are trying to do the best.

But in terms of where we feel we are gaining in terms of competitive positioning is our continuing investments in product innovation and in customer service and also I think where the greatest advantage is building up for us is in the fact in terms of an end-to-end provider.

So you take the POS, PMS and inventory procurement products and then all the additional modules we are adding to it. So in terms of helping a customer manage the entire guest journey from the time they do the reservations in a direct channel zero commission website.

All the way through the check-in process where they can check in without going to the reception desk, all the way through how they manage themselves within a room where there is easy communication or what they require in the room, all the way through when they go to a restaurant. So every which way end-to-end, we are enabling the guest journey with modern technology products.

So when you think of us as an end-to-end hospitality technology software solutions. That is where the competitive positioning is building because we have some competitors who are pretty strong in POS, PMS, but are not doing the additional modules, like we are doing. They are just pointing to third-party vendors to do it. Then we have another big competitor who is very strong in one of the two areas PMS, POS, but not so much in the other.

Then we have a bunch of smaller size competitors who are pretty good in each of the products they do, but don’t have end-to-end solutions. So when you think of where our competitive advantage we feel is increasing and will really be -- will shine once the crisis is over. Is in the fact end-to-end software solutions enabling the entire guest journey, I have a feeling our lead is now increasing Tyler. That’s what I see.

Tyler Wood

All right. Thanks. That’s helpful. I will get back in the queue.

Ramesh Srinivasan

Thank you, Tyler.

Operator

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

Allen Klee

Yeah. Hi. And any insight on your plans of growing -- of what rate do you plan to grow your or cut your operating expenses for the year?

Tony Pritchett

Allen, hi. This is Tony. How you are doing Allen good to talk to you. As we made commentary on the call, we are not giving full year guidance for any aspect of the P&L. The one thing that you can keep in mind though is that we have indicated.

We could have revenue in the first quarter, that’s down as much as 35% from last Q1. And at the same time, if we do realize that type of revenue our adjusted EBITDA for the first quarter would be about breakeven and then from that point forward.

We expect revenue to go up and adjusted EBITDA would go up from there as well. So while we are not giving specific guidance on operating expense, line items or any other aspects of the P&L, you can make some assumptions. And that’s how -- I would build the model.

Allen Klee

Okay. Thank you.

Tony Pritchett

Absolutely. Thank you, Allen.

Ramesh Srinivasan

Thanks Allen.

Operator

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

Ishfaque Faruk

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

Ramesh Srinivasan

Yeah. Hi Ishfaque. Good to talk to you. So just to be clear Ishfaque about my comments earlier the sales activity in terms of number of demos and all that during April and May has surprised even us. It is almost double what we did in January, February, and we didn’t expect this much sales activity in April/ May.

I mean given the circumstances, the sales activity has increased however, the closure of agreements reaching a decision those are definitely delayed. So a lot of customers are kicking the tires, but the rate at which sales is closing is definitely fallen and March, April and May is much lower, which is why we are projecting Q1 will be a 35% decline on all that one-time concessions is part of the reason.

But the part of the reason, also is the fact that the business and sales levels are declining. The activity is there, everyone is intrigued -- everyone like we held two webinars to explain the products and hundreds of customer users attended them one on the 14 and one earlier today.

So there is a lot of interest, but the rate at which deals are getting closed. It’s still quite slow because everybody is making plans to reopen and they are being very circumspect with how they sign deals. So I want to be clear about that distinction that is number one.

Ishfaque Faruk

Yes.

Ramesh Srinivasan

And the interest is definitely in the products that enable them to provide their guests with safety and comfort. So yes rGuest Express is definitely part of it, the mobile both the rGuest Express Mobile and the kiosk are definitely part of it.

But probably the biggest ones, we are seeing is an on-demand of which is an extension of our POS product set, which enables you to remote order and either pick up or it connects to a delivery mechanism or delivery company that can deliver it to you. There is great interest in that.

Then we recently introduced the Authorize product basically, when you get an F&B receipt you can scan a QR code that’s on the receipt and pretty much pay for it through your mobile phone itself, which is the best form of paying table we can provide.

There’s a lot of interest in that and there is a lot of interest in seat like you mentioned because that helps you plan out when you want to book like when you -- for example if you want to keep every alternate cabana occupied.

You have a way of managing that and not just cabana even a lounge chair, you can create a reservation system thereby which you make sure every alternate a lounge chair is occupied there are a lots of different things you can do with seat.

The current interest is definitely in those kinds of products. You are right, but it is having a drag on effect on our core product as well. There is a reflected effect on the core products as well, because we are so well integrated with all.

Ishfaque Faruk

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

Ramesh Srinivasan

Yeah. The slowdown in March was quite significant because of travel restrictions and obviously -- almost all the sites are getting closed. So there was a lot of cancellations. So there where we had our personnel ready to go to customer sites and we were amazed that some of the go lives even the implementations even happen there was one towards the end of March in Memphis, which was even surprising to us.

So but more or less everything did slowed down in March and that did affect services revenue in March, no question about it and April was quite bad where April we didn’t have too many implementations going on, we had the implementations, but much, much reduced level and what we have noticed in the last three weeks is things are picking up. Every week, the amount of services bookings has increased over the prior week in the last three weeks or so.

So we are seeing definite signs of picking up, but in our Q1 results, you should expect a significant decline in services revenue, because we were working at record levels before and services.

The number of implementations we were doing was at record levels. So Q1 is definitely going to be a slowdown. So the 35% decrease in revenue we talked about, you should expect a lot of that right to be in services.

But in the last three weeks or so we are seeing every sign of it picking up, and our services personnel are getting booked and in fact June is pretty much getting close to getting fully booked now. We are seeing improvements there, but unfortunately for Q1 Ishfaque it’s too late it is going to…

Ishfaque Faruk

Yeah. Absolutely. That’s very, very helpful, Ramesh. Thank you so much.

Ramesh Srinivasan

Thank you, Ishfaque.

Operator

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

Ramesh Srinivasan

Thank you, Jonathan. Thank you all for joining us on the call today and for your continued interest and support. Agilysys continues to be well positioned to increase shareholder value. This is a great value creation opportunity. We are determined to make good on for our employees, customers and shareholders. I also want to take this opportunity to give a special thanks to all our team members all across the globe who have been working very hard, who have been very brave through all these circumstances and we are working hard every day to make Agilysys a world-class company. And of course, to our customers and all our investors who trust us with their investments, more now than ever before. Thank you.

Operator

Thank you, ladies and gentlemen for your participation in today’s conference. This does conclude the program. You may now disconnect. Good day.