Agilysys Inc (AGYS) Q4 2022 Earnings Call Transcript

Agilysys Inc (NASDAQ: AGYS) Q4 2022 earnings call dated May. 17, 2022

Corporate Participants:

Jessica Hennessy — Senior Director Corporate Strategy and Investor Relations

Ramesh Srinivasan — President and Chief Executive Officer

Dave Wood — Chief Financial Officer

Analysts:

Matt VanVliet — BTIG, LLC — Analyst

George Sutton — Craig-Hallum Capital Group LLC — Analyst

Nehal Chokshi — Northland Securities, Inc. — Analyst

Presentation:

Operator

Good day, ladies and gentlemen,, and welcome to Agilysys Fiscal 2022 Fourth Quarter Conference Call. As a reminder, today’s conference may be recorded.

I would now like to turn the conference over to Jessica Hennessy, Senior Director of Corporate Strategy and Investor Relations at Agilysys. Ma’am, you may begin.

Jessica Hennessy — Senior Director Corporate Strategy and Investor Relations

Thank you, Towanda, and good afternoon, everybody. Thank you for joining me on Agilysys fiscal 2022 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 vary materially from these forward-looking statements include the continued effects of the COVID-19 pandemic and other global economic factors on our business; global supply chain challenges and our ability to manage through them; 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.

I would also like to note that any references to record or best-ever financial and business levels during this call refer only to the time period after Agilysys made the transformation to an entirely hospitality-focused software solutions company in fiscal year 2014.

With that, I’d now like to turn the call over to Mr. Ramesh Srinivasan, President and CEO of Agilysys. Ramesh,. Please go ahead.

Ramesh Srinivasan — President and Chief Executive Officer

Thank you, Jess. Good evening. Welcome to our fiscal 2022 fourth quarter and full year earnings call. Joining Jess and me on the call today in our Atlanta headquarters is Dave Wood, our CFO. All the details of the results we are about to cover should be understood keeping in mind the following context. We tend to think of our current business as made up of seven major market verticals: APAC and EMEA are two regional verticals; and in the U.S., hotel chains, cruise ships, gaming casinos, multi-amenity resorts, and managed food services. Three of those verticals, Asia, Europe, and U.S. managed food services continue to be adversely affected by lingering pandemic-related and other business environment challenges and are nowhere close to being the sales and revenue drivers for us they used to be during calendar 2019. The hotel chains and cruise ship verticals are showing promising signs of recovery, though not fully back to pre-pandemic levels with respect to technology investments. The gaming casinos and resort verticals, which typically represent about 70% of our business, continue to show exceptional strength. We continue to perform very well in these two verticals.

To use the wagon-pulled-by-horses metaphor we have used before, the seven-horse wagon is still being pulled by only two full-strength horses. Two other horses, which are recovering well but not yet to full strength, and three others which are still way off normal levels. Despite all such partial weaknesses in the business environment, the fact that we still produced all-time record numbers is a testimony to our increasing competitive strength driven by our pace of product innovation and world-class customer service levels. We have positioned ourselves well for the future when the hospitality industry recovers fully across the globe and technology investments return to pre-pandemic levels and then start growing upwards from there.

Let me cover sales first before moving to revenue. All the sales numbers we will discuss in this call are measured in annual contract value terms. Despite the various business environment challenges, overall global sales level during fiscal 2022 was 44% higher than the previous year and 96% of our best previous year fiscal 2020 just before the onset of the pandemic. Due to various levels of on-and-off lockdowns across countries practically throughout the year, sales in the APAC region decreased by 15% compared to last year and by about 50% compared to the pre-pandemic fiscal 2020 year. Sales in EMEA showed a 74% improvement over the prior year and was only slightly better than fiscal 2020.

Global subscription sales set a new record, beating the previous best year, which happened to be last year, by a whopping 47%. Our current stable of integrated, end-to-end, cloud-native software solutions are empowering and making it more efficient for customer teams to deliver exceptional guest experiences and enable revenue upsell opportunities. That in turn is increasing our software deal sizes and subscription sales. Fiscal 2022 was our best year with respect to subscription software sales of PMS and related modules, 53% higher than the previous best year.

With respect to signed sales agreements during Q4 January to March, we added 21 new customers with six of them, including a core property management system, PMS product, in the list of products chosen. All but one of the 21 new customers signed this quarter chose the SaaS options for at least one of the products they licensed. We also added 58 new properties which did not have any of our products before but the parent company was already our customer. Of these 58 new properties added during the quarter, more than 90% were either partially or fully subscription fee based. There were also 112 instances of selling at least one additional product to properties which already had one of our other products. Overall, subscription sales for the last few quarters have become 70% of our software sales during each period. We expect this shift in software sales mix to continue.

Now on to revenue. Fiscal 2022 Q4 revenue was a record $46.6 million, 18% sequentially higher than Q3 earlier this year and 28% higher than the comparable prior year quarter. $46.6 million is about 11% higher than the previous best $42 million level achieved during Q3 fiscal 2020 October to December calendar 2019 quarter just before the onset of the pandemic. We were on a run of nine consecutive sequentially increasing quarters then, of which seven were record setting at the time. Recurring revenue during Q4 fiscal 2022 grew to $26.6 million, driven by a 33% year-over-year increase and a 10% sequential increase in subscription revenue. Subscription revenue grew to 48% of total recurring revenue, the highest level thus far. Overall, recurring revenue was 16% higher than the comparable quarter last year and 6% sequentially higher than the previous quarter. There were also significant sequential increases in product and services revenue this quarter. Quarter product and services revenue while well north of 90% of previous best levels, both achieved during Q3 fiscal 2020 October to December calendar 2019.

Our operations team continues to do excellent work improving our supply chain management function. With respect to implementation services, we have seen significant improvements in staff availability at customer sites and our product implementations are getting close to normal levels now driving services revenue back close to pre-pandemic levels. Implementation processes of the newer software modules are steadily becoming more efficient.

Q4 fiscal 2022 gross margin was 59.5%, higher than pre-pandemic levels but less than the comparable quarter last fiscal year due to increased levels of product and services revenue. Gross margin was also affected by the decreasing level of one-time high-margin perpetual software licenses, as an overwhelming majority of customers continue to opt for subscription fee-based cloud deployments. We continue to have good success in maintaining our product margins. We should expect gross margin percentages to remain in the high-50s to low-60s range for the foreseeable future and increase gradually in the long term as the proportion of recurring revenue increases. The sequential decrease in gross margin has only to do with revenue mix and the decrease in one-time perpetual software licenses in favor of subscription fee based arrangements. We expect one-time perpetual license related software revenue to remain at about current levels.

We continue to manage the gradual but accelerating shift from being a company that was once based on on-premise perpetual software licenses to a cloud SaaS-based business without any significant short-term decline. Most enterprise software companies which go through this paradigm shift tend to go through a J-curve with their financial performance, featuring short- to medium-term declines, hopefully followed by long-term increases. Setting aside humility for a minute, I think we should take a little bit of credit for managing our J-curve without the J as one of our board members aptly described it recently. We are managing to achieve revenue gains while simultaneously managing this transition.

While there is a clear preference among new customers for cloud solutions, the modernization efforts over the past few years have also given us the flexibility to offer the same software solutions of the same code base across both cloud and on-premise implementations which is a distinct competitive advantage in this industry. Some major hospitality customers continue to prefer on-premise implementations, and they are in a good position to satisfy their requirements as well with the same modern, world-class products.

Fiscal 2022 full year revenue was a record $162.6 million, slightly ahead of the annual revenue level achieved during fiscal 2020 before the pandemic. Subscription revenue was about $15 million higher in fiscal 2022 compared to fiscal 2020. Thanks to increasing subscription revenue levels, we are pleased to have achieved a record annual revenue level in fiscal 2022 despite the business environmental challenges faced during the year which depressed product and services revenue levels during a couple of quarters.

In addition to the 11 core software products across point of sale, property management systems, inventory procurement for food and beverage, and document management, which we have modernized during the past few years to be cloud-native solutions, we’ve also added about 20 additional add-on cloud-native software modules around the core products in recent years. These add-on modules, which work well integrated with the core modules are revenue upsell generating and drive operational efficiencies for customers. Subscription revenue from these 20 add-on modules was about 1.3% of total subscription revenue in fiscal 2020, grew to 4.8% in fiscal 2021 and now are 11% of subscription revenue in fiscal 2022. In absolute value terms, subscription revenue from these add-on modules alone during fiscal 2022 was close to three times higher than during the previous year. The hospitality industry remains hungry to implement such long overdue, value-adding, innovative software modules to make their operations simpler and more enriching and empowering for their staff and also help create great experiences for their guests.

Our customer retention levels continue to be excellent. Fiscal 2022 was our best year with respect to customer retention going back many years. Adjusted EBITDA for the quarter was $7.5 million, about 16.1% of revenue, more or less at the same levels as the previous couple of quarters, 6% higher than the comparable prior year quarter, and 110% better than Q4 in fiscal 2020 a couple of years ago. Adjusted EBITDA for fiscal 2022 full year was $27.3 million, at about the same level as the previous year, and again 110% higher than fiscal 2020 two years ago. EBITDA numbers for fiscal 2021, the period from April 2020 to March 2021 were helped by artificial one-time salary cuts, staff reductions, and other temporary cost-cutting measures to help us work through the pandemic phase, while fiscal 2022 was a normal cost level year for us. Fiscal 2022 was also our first full year with positive GAAP net income since fiscal 2014. We’ve also had the best couple of quarters of cash collections with Q4 cash collections being even better than Q3, which was by itself a record. That’s a good indicator of the overall health of the business. We continue to remain disciplined in everything we do and not go after low-quality or low-margin business just to keep revenue levels up.

Cash balance decreased by only $2.2 million during fiscal 2022 despite the approximately $25 million all-cash ResortSuite acquisition transaction which closed during Q4 and the significant increase in inventory levels throughout the year to give us the required cushion to guard against any short-term supply chain related surprises. As you can see in our balance sheet, we ended fiscal 2022 with about six times the amount of inventory we had at the end of fiscal 2021. Speaking of ResortSuite, the ResortSuite acquisition continues to exceed our expectations. The people-culture match has been an almost perfect fit. Frank Pitsikalis, the former Founder and CEO of ResortSuite and current VP of Strategy at Agilysys, has been a terrific addition to our management team and customer conversations continue to make excellent progress. Customers have been welcoming of the merger and are beginning to take a more detailed and wider look at future product conversion possibilities.

We are in discussions now with about 20% of the acquired customers to either add InfoGenesis POS to their existing product suite or convert one or more of PMS-related products to Agilysys cloud-native solutions. While the equivalent Agilysys products are cloud-native, are based on a more modern technology stack, and are wider and deeper with respect to feature sets, there are several areas where the ResortSuite products provide better features. We are in the process of filling those product gaps in the Agilysys product sets. We expect product conversion efforts to pick up pace as we make progress with ensuring feature priority. Overall, we could not be happier with this merger of two of the very few software providers in hospitality who have the products and the expertise to offer robust, end-to-end, integrated, core property management solutions and the supporting value-adding additional modules.

In summary, we are pleased with our Q4 results with fiscal 2022 being a record revenue year driven by good subscription revenue growth and our first GAAP-positive net income year in about eight years. We are also happy that our financial results became less complicated and a lot cleaner during fiscal 2022 compared to previous years giving us a good basis for comparison during fiscal 2023 and beyond. We will stop our fiscal 2022 practice of providing comparisons across the previous two years and return to normal comparisons versus the previous year beginning fiscal 2023. The combined product recurring revenue and services backlog levels remain close to record levels, at about 98% of the record levels we ended the previous quarter with.

We expect fiscal 2023 annual revenue to be in the range of $190 million to $195 million driven, among other factors, by year-over-year subscription revenue growth of around 30%. We also expect adjusted EBITDA for the full year to remain greater than 15% of revenue, though the EBITDA levels may fall to slightly below 15% during Q1 and Q2 due to incentive comp accrual increases; vacation balance related accounting adjustments, which are significant and typically affect Q1 cost levels; employee salary merit increases; accounting and other professional fees, which tend to occur in Q1; additional participation in trade shows, including an all-expense paid hospitality consultants forum being conducted this week to update the industry influencers of our current product and services trends, additional hiring especially in the sales and marketing areas, and additional spend related to internal IT infrastructure improvements. We expect better operating leverage to kick in during the second half of the fiscal year bringing the overall full-year adjusted EBITDA to higher than 15% of revenue.

With that, let me hand the call over to Dave. Dave?

Dave Wood — Chief Financial Officer

Thank you, Ramesh. Taking a look at our financial results, beginning with the income statement. Fourth quarter fiscal 2022 revenue was a quarterly record of $46.6 million, a 28.1% increase from total net revenue of $36.3 million in the comparable prior year period. All three product lines increased compared to the prior year period with product revenue up 60%, mostly due to strong sales within the quarter. Professional services was up 35.4% over the prior year as we continue to return to a more normal implementation schedule. Recurring revenue was also up 16% with subscription up 32.8% over the prior year period.

Throughout the year total sales improved back to almost pre-COVID levels compared to fiscal 2020 sales with subscription sales at record levels. Subscription sales in fiscal 2022 were 47% higher than the prior record in fiscal year 2021. We currently have a backlog of product and professional services significantly higher than our prior year exit and remains at healthy levels to achieve our fiscal year 2023 plan. The improved sales activity we have seen during fiscal year 2022 left us with an exit total backlog 38% higher than our prior year FY ’21 exit, with all three product lines significantly increased.

As a result of the continued momentum in our business, we are pleased to see 18.6% total annual revenue growth year over year with all three product lines increasing over the prior fiscal year, despite certain aspects of our business continuing to be negatively impacted throughout the beginning of fiscal 2022. Product revenue increased 34.6% over the prior fiscal year, professional services increased 26.6% over the prior fiscal year, and recurring revenue during fiscal 2022 was up 11.7% over the prior fiscal year.

Total recurring revenue represented 57.1% of total net revenue for the fourth fiscal quarter and 60.8% for the full year, compared to 63.1% and 64.6% of total net revenue in the fourth quarter and full year fiscal 2021. Increased revenue from professional services implementations and product revenue coming back into the business drove the change in the revenue mix and the drop in recurring as a percentage of total revenue compared to the prior fiscal year.

We are also happy with our continued subscription revenue growth, which grew 32.8% during the fourth quarter of fiscal 2022 and 28% for the full fiscal year, despite tough industry circumstances in a few of our business verticals and delays in professional services implementations during the first three quarters of the fiscal year. Subscription revenue comprised around 48% of total recurring revenue compared to 42% of total recurring revenue in the fourth quarter of fiscal 2021. Add-on software modules in the fiscal year 2022 comprised 11% of subscription revenue compared to 5% in the prior fiscal year. Add-on software module sales contributed over $1 million in subscription ARR for the eighth quarter in a row.

Moving down the income statement gross profit was $27.7 million compared to $23.5 million in the fourth quarter of fiscal 2021. Gross profit margin decreased to 59.5% compared to 64.6% in the fourth quarter of fiscal 2021. The gross profit margin decrease was primarily due to product and professional services revenue coming back closer to normal levels compared to Q4 of fiscal ’21.

For the fiscal year gross profit margin was 62.4% compared to 65.2% in the prior year period for the same reasons previously mentioned. All three of our product lines remain at or above pre-COVID margin levels. Combined, the three main operating expense line items, product development, sales and marketing, and general and administrative expenses, excluding stock-based compensation, were 45.7% of revenue this quarter, which is the lowest in the past five years. This continues to be a good reflection of the steady progress we are making with our operating leverage.

Our operating income for the fourth quarter of $1.5 million, net income of $1.5 million, and gain per diluted share of $0.06, all compare favorably to the prior year’s fourth quarter loss of $24.8 million, $24.7 million, and $1.05 per diluted share. Adjusted net income, normalizing for certain non-cash and non-recurring charges of $6.1 million, compares favorably to adjusted net income of $5.2 million in the prior year fourth quarter. And adjusted diluted earnings per share of $0.24 compares favorably to $0.21. For the 2022 fourth quarter, adjusted EBITDA was $7.5 million compared to $7.1 million in the year ago quarter. And for the full year fiscal 2022, adjusted EBITDA was $27.3 million compared to $26.7 million. We are pleased with our profitability levels with adjusted EBITDA coming in at 16.8% of revenue for fiscal 2022.

Moving to the balance sheet and cash flow statement. Cash and marketable securities as of March 31, 2022, was $97 million compared to $99.2 million on March 31, 2021. The primary reason for the cash balance decrease, despite our profitability, was the all-cash ResortSuite acquisition as well as our increased inventory stocking levels. As it relates to free cash flow, I am pleased to see an increase for the full fiscal year. Free cash flow in the quarter was $6.5 million compared to $13 million in the prior year quarter and $27.3 million for the full fiscal year compared to $27 million in the prior year.

For our fiscal year 2023, we expect revenue to be in the $190 million to $195 million range, inclusive of subscription revenue growth of approximately 30%. Operating expense for product development, sales and marketing, and G&A should remain relatively consistent with current operating ranges with a slight increase in sales and marketing. This results in adjusted EBITDA north of 15% of total revenue for the full fiscal year.

In closing, we are pleased with our 2022 financial results and the ability to grow the business despite some of our regions and customers still recovering from the effects of COVID and other economic factors. With that, I will now turn the call back over to Ramesh.

Ramesh Srinivasan — President and Chief Executive Officer

Thank you, Dave. We operate in a huge total addressable market relative to our current size. We’ve done the hard work during the past years of making our products cloud-native and world-class. Our high levels of caring customer service continues to be a differentiator in the marketplace. We remain one of the less than handful of technology vendors who can provide end-to-end solutions to empower hospitality teams to deliver exceptional, integrated guest experiences. Terrie O’Hanlon, a seasoned enterprise software marketing veteran, who has made a huge difference to many world-class technology companies, joined us recently as our Chief Marketing Officer. We are making good progress with increasing our sales and marketing strengths.

A seasoned hospitality sales veteran, Andrea Bitz, joined us last week as our new head of the U.S. hotels and resort sales team. Our win-loss ratio and average deal sizes continue to be high. We are hopeful of a complete recovery in hospitality across Asia and Europe during the coming months. The hotel chain and cruise ship verticals are already showing good signs of recovery and could exceed 2019 levels before the end of this calendar year. How well we are doing in the gaming and resort verticals is good proof for how well we can do in the future when the results of our successful and continuing product innovation efforts meet good business environments which have compelling needs to keep up with modern technology demands of both their employees and their guests. Even within U.S. managed food services, we are having good success expanding our business levels within the healthcare and higher education portions of this vertical. In the business and industry portion of U.S. managed food services, our recent mobility driven innovations are well set to meet the changing needs of customers.

Basic business parameters like free cash flow remain healthy. We remain committed to continued, disciplined, profitable revenue growth. All things considered, we have solid good reasons to be bullish about our future. This is the beginning of a new and exciting era in our history. We’ve successfully worked through difficult circumstances during the past couple of years, without sacrificing product innovation and customer service progress in any way. We are extremely grateful to our hard and smart working colleagues for their continued dedication to Agilysys and their extraordinary accomplishments during the past few years. This journey is only getting started.

With that, Towanda, can we open up the call for questions, please?

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question comes from the line of Matt VanVliet with BTIG. Your line is open.

Matt VanVliet — BTIG, LLC — Analyst

Yeah. Good afternoon. Thanks for taking the question. I guess first on the PMS side. You mentioned one big new logo win and maybe some inclusion on some of the other expansion deals. So do you think about — especially in the U.S. on the hotel side of things, are you having more conversations? How has the overall activity been, especially as business travel seems to be starting to come back in a greater volume and just maybe how much demand is out there from your hotel customers?

Ramesh Srinivasan — President and Chief Executive Officer

Both from — all three, Matt, hotel, resorts, and the gaming customers, there are definitely increased conversations about PMS. We are working through many sizable big size sales opportunities on the PMS side of the equation and they are being worked through the process. So our progress with our modernized PMS solutions Stay PMS, which is cloud-only, modernized V One, the Visual One product, we’ve installed three major resorts with the modernized version, which can work both on-prem and cloud, and LMS continues to be the preferred solution for many of the big hotel properties. So good progress with PMS, I would say, not only in hotel but with resorts and gaming customers as well. And there are a couple of very encouraging big opportunities that we are talking with at the moment.

Matt VanVliet — BTIG, LLC — Analyst

All right. That’s great. Thank you. And then, Ramesh, as you look at both Europe and Asia, where do you feel like you’re are at in terms of the recovery, either relative to where they were prior or maybe what you saw in different components of the U.S. market and what gives you confidence that those two regions will ultimately come back sooner than later?

Ramesh Srinivasan — President and Chief Executive Officer

Asia, we have two issues there: one is many countries have gone on and off closing the borders, opening the borders, and that’s gone back and forth. With the exception of China now, the other countries are pretty much have been opened up, Singapore, New Zealand, Australia, and the rest of the countries — Malaysia are all in various stages of full to complete opening now. And our issue with Asia for the last couple of years have been, there have been pretty significant opportunities that we have been in conversations with, but the deals tend to get stalled, because you can’t expect these customers to make decision when they are facing such uncertain business environments, which is understandable. So that’s one issue we have in Asia.

The other issue is we don’t have much name recognition there, in the sense we have not had major presence in Asia before. So what we have done in the last few months, six months or so is we now have a full-fledged sales team across all the country, across all the regions there. So we are well represented sales wise. We have worked hard to improve our name recognition. And the more they see product demos, the more impressed they get. So that part of the equation we are beginning to resolve quite well, but the environment has to improve there in all the countries. So that’s the issue with Asia.

Europe is a much better environment. Things are doing much better there, working through a lot more opportunities, not just in the main Europe but also in the Middle Eastern region where we are beginning to establish a presence there in Dubai to work on a whole lot of Middle East opportunities we have. So that is opening up quite well. There it is a matter of just getting our name established there as a reasonable alternative for one or two vendors who have dominated that space for quite a while. And the more they see our product demos, the more we are able to be successful with them. So I would say, I think Europe will recover for us faster than Asia will, but Asia is also showing promising signs of recovery with all the countries opening up their borders to international tourists.

Matt VanVliet — BTIG, LLC — Analyst

All right, wonderful. Thank you.

Operator

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

George Sutton — Craig-Hallum Capital Group LLC — Analyst

Thank you. Ramesh, great quarter. I’m curious since we’re coming out of a fiscal year, I know there are some year-end incentives for folks to sell by the end of the year. How much influence was that? And obviously, given the backlog coming out, it doesn’t look like you pulled much out of backlog to achieve these very good numbers. So I’m just curious if there were any one-time impacts.

Ramesh Srinivasan — President and Chief Executive Officer

Hi, George. The quick answer is, no, George, there was no particular one-time thing that happened towards the end of the year. If you break up our sales during fiscal ’22, it was pretty even across Q1, Q2, Q3, and Q4. If you divide it by four, it was almost the same number that we centered around our sales. So there was no special one-time effect that happened during Q4. All I will tell you is it is steadily improving the business environment is improving, our products are improving, so sales is looking better and better as we go along, but there was no special pickup at the end of the fiscal year. We didn’t notice any special pickup. In fact, Q4 was not our best sales quarter compared to a couple of previous quarters, but they were more or less all in range. So that is one. So there were no major incentives that drove this number.

And like you said, the backlog pretty much remains the same, 98% is — let’s just assume, it’s 100%. It’s almost the same as we ended the previous quarter with. And what is more crucial, George, is close to — it’s about 38%, 40% more than we ended the previous fiscal year with. So when you look at our backlog now, product services and recurring revenue, and you compare where we were on April 1st this year with April 1st last year, we are about 38% ahead backlog wise. So there was no particular pulling in or increased sales during the quarter or anything like that, George. It was just gradual improvement that finally hit the kind of pace that we were expecting a quarter or two before.

George Sutton — Craig-Hallum Capital Group LLC — Analyst

Got you. You and I have talked for a long time and I think we agree, you have very good product relative to your competitors. The challenge has been getting more at-bats. Can you just give us an update on the number of at-bats you think you’re getting now versus previously?

Ramesh Srinivasan — President and Chief Executive Officer

Yeah, sure. So two things, we’ve always been known for good feature sets and products, but one additional attribute we did not have for quite a while was modern technology. Our marketing tagline now pretty much says the trusted solutions they were always there but modern technology was absent. So now that modern technology has been added to that, our competitive strength has increased dramatically. So that is one aspect to it.

The other aspect is these add-on modules. So we have a whole bunch of add-on modules that add value to point-of-sale and to property management system, and there are very few vendors, you can count them in one hand and you will still have a couple of fingers remaining in the count, who can provide end to end, starting from the booking engine, direct channel, website, all the way to the end, there are very few vendors who have bothered to do that kind of integrated solutions, and that’s a tremendous competitive advantage for us now. So that increasing deal size because the customer comes to look at two products and end up buying seven is really propelling our sales efforts now. And not only that, it is attracting more customers to come to us because they have all dealt with the integration issues for a while. Even though you provide world-class APIs, you still have to integrate the products, and they now — prefer the solution now because it comes integrated and it’s a lot easier to deal with one vendor.

So I would say both those factors, George. One is the fact it’s modern technology as well now; and two is the fact we provide end-to-end solutions. Both of them together are giving us a very noticeably increased competitive advantage now.

George Sutton — Craig-Hallum Capital Group LLC — Analyst

Perfect. Nice job.

Ramesh Srinivasan — President and Chief Executive Officer

Thank you, George.

Operator

Thank you. Our next question comes from the line of Nehal Chokshi with Northland. Your line is open.

Nehal Chokshi — Northland Securities, Inc. — Analyst

Yeah. Thank you. Congrats on a great quarter. What type of bookings growth needs to be achieved in order to achieve the impressive 30% subscription growth guidance that you’re providing for fiscal year ’23?

Ramesh Srinivasan — President and Chief Executive Officer

Nehal, you have to speak up a bit — a little bit slower, a little bit louder, please. We didn’t catch that question, sorry.

Nehal Chokshi — Northland Securities, Inc. — Analyst

Hold on, one sec. Okay. Hopefully, you can hear me better now.

Ramesh Srinivasan — President and Chief Executive Officer

Much better.

Nehal Chokshi — Northland Securities, Inc. — Analyst

Okay. What type of bookings growth needs to be achieved throughout fiscal year ’23 in order to achieve the impressive 30% subscription growth guidance given that you can probably train [Phonetic] some of your backlog here?

Dave Wood — Chief Financial Officer

Yeah. I think from a subscription growth on bookings, it’s just really the continued momentum we’re seeing. If you think about from a sales rep standpoint, we increased our sales rep in the fiscal year by almost 40%, and we’re increasing our sales reps again in fiscal year 2023 by almost 20%. And most of them are starting to contribute to bookings. We have a lot more products to sell, and most of those products people are choosing subscription based. So I think you’ll see the continued momentum the same way it’s been the last couple of quarters.

Ramesh Srinivasan — President and Chief Executive Officer

And Nehal, we are not expecting any dramatic increases in bookings to justify the subscription revenue growth of 30%. And also, in terms of the revenue growth of 20% that we are guiding to — approximately 20%, we’re not expecting any dramatic increases in booking in order to achieve that. Now, Nehal, last year, fiscal 2022, was our best year with respect to recurring bookings, and much of it was subscription revenue. So we had a terrific year fiscal ’22 with respect to subscription bookings, and we are expecting reasonable growth as we go along. We are not expecting any dramatic bookings growth in order to achieve this subscription revenue growth of 30%. We are fairly confident we will achieve those.

Nehal Chokshi — Northland Securities, Inc. — Analyst

Got it. I guess what I’m trying to drive at, though, is that given what appears to be some pretty strong bookings growth in fiscal year ’22 and an elevated backlog, you don’t need to achieve even 20% bookings growth to hit the overall number or 30% bookings growth to hit the subscription guidance. A, is that correct? And how much less do you need to go in order to just hit that level?

Ramesh Srinivasan — President and Chief Executive Officer

Yes, you are correct, we don’t need any bookings growth to that extent. We just need bookings growth to grow consistent, like it has been growing now. But it does not need to be something as dramatic as 25% or 30% growth.

Nehal Chokshi — Northland Securities, Inc. — Analyst

Got it.

Ramesh Srinivasan — President and Chief Executive Officer

And like you said, a backlog is very helpful, and last year we had an excellent year with respect to recurring bookings, especially subscription sales. So as long as that momentum generally keeps up and keeps going steadily, we will be in good shape with our subscription revenue 30% growth.

Nehal Chokshi — Northland Securities, Inc. — Analyst

Okay. And then just to be clear, the reason why backlog isn’t coming down more substantially is because you are still resource constrained or is it that your customers are resource constrained?

Dave Wood — Chief Financial Officer

No, the backlog is mostly increasing just because of general sales momentum, right? We haven’t flushed the backlog. We’ve seen actually in Q4, if you look at our services number, a lot of the customer restraints have lessened. So it’s really just general sales momentum that the backlog is increasing.

Nehal Chokshi — Northland Securities, Inc. — Analyst

Okay, great. And then can you give us some color as far as how has property management system done relative to point-of-sale especially within the subscription line?

Ramesh Srinivasan — President and Chief Executive Officer

Property management systems relative to our history, right? In fact, I said PMS and additional modules have had a dramatic increase this year of something like more than 50% as far as subscription sales goes. So property management system has had a good year relative to its past, but still it is lesser compared to point-of-sale because that is still our dominant product. But property management systems are becoming more and more important. Like we said, 21 new customers, six of them chose core PMS product. That is at the higher level of where we have been before. And what is promising about property management systems is that we are working through a few pretty big-sized opportunities, and we are hoping one of them — at least one or two of them come through quickly. So PMS has tremendous momentum, but we are still only scratching the surface now.

Nehal Chokshi — Northland Securities, Inc. — Analyst

Great. Congrats.

Ramesh Srinivasan — President and Chief Executive Officer

Thank you.

Operator

Thank you. I’m showing no further questions in the queue. I would now like to turn the call back over to Ramesh for closing remarks.

Ramesh Srinivasan — President and Chief Executive Officer

Thank you, Towanda, Thank you for joining us on the call today and for your continued interest in Agilysys. We look forward to discussing our fiscal 2023 first quarter results with you in a couple of months from now, somewhere near the end of July. Until then, please enjoy a terrific summer, stay healthy and well. Thank you.

Operator

[Operator Closing Remarks]