管理層發言
Good day, ladies and gentlemen, and welcome to the Agilysys Fiscal 2024 Third 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. You may begin.
Thank you, Justin, and good afternoon, everybody. Thank you for joining the Agilysys fiscal 2024 third 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 hospitality industry's need for technology solutions, our ability to drive sales and increase market share, our ability to increase profitability, 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.
As a reminder, any references to record 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.
Thank you, Jess. Good evening. Welcome to the fiscal 2024 third quarter earnings call. Joining Jess and me on the call today at our Atlanta headquarters is Dave Wood, our CFO. Let me first cover sales before discussing revenue and other details. We measure selling success and sales in annual contract value terms. With respect to sales, I don't want to confuse matters between calendar and fiscal years, but please allow me to make one quick comment. Calendar 2023, that is the period from January to December, was our best-ever calendar sales period. Calendar 2023 was an extraordinarily successful 12-month period for selling success and we think the pace of sales will only get better in the future. Now, switching back to fiscal year. As we have reported before, the previous fiscal year FY 2023, the period from April calendar 2022 to March calendar 2023, was our best fiscal year for sales success.
Sales at the end of the first three quarters of this fiscal year FY 2024 is progressing ahead of last year's pace. Compared to the first three quarters of the previous fiscal year, sales during the first three quarters of fiscal 2024 has seen significant year-over-year, year-to-date improvements across the Asia Pacific region; and in the U.S., across the hotels, resorts, and cruise ship verticals. Sales from gaming casinos continues to be a major strength area for us and remains the number one vertical in terms of overall sales value. We've also seen significant year-over-year sales increases during the first three quarters of fiscal 2024 compared to last year's first three quarters, in the value of non-competitive wins, meaning sales to current customers, where there is no competition involved, and in the value of new customer wins. Sales of POS, point of sale software solutions, InfoGenesis, guest-facing by Kiosk, and guest-facing remote ordering tool, OnDemand, have also been significantly higher this fiscal year-to-date, compared to the prior year.
While sales of certain property management system, PMS products, and related add-on modules have done better this year, there are other PMS modules which are yet to pick up momentum. We like our fiscal 2024 sales momentum and expect to do even better in the future now that our products are at an excellent spot, and we are steadily increasing the number of customer success stories based on the use of the re-engineered modern versions of the products and new modules created. Now that we are in the process of moving past the product re-engineering phase in our journey to become a world-class hospitality-focused enterprise software provider, our next objective is to create good reference customers who are seeing success with our new and integrated product ecosystem and are willing to discuss it with others, and that number continues to increase with every passing month. In fact, in the upcoming March 18 to 21st Annual User Conference, we are dedicating an entire breakout session track for customers, who are going to talk about their success stories with our recent product innovations.
While on the subject of the User Conference, with about eight weeks ago, the number of customer registrations to attend the conference this year is about 25% higher than during the comparable time last year. During Q3 fiscal 2024, October to December, we added 18 new customers and all but one of those deals were subscription-based. Though the number of new customers added each quarter remains steady for now, the average number of products sold to each customer this quarter is the highest level we have seen thus far. New customer PMS deals closed this quarter included an average of about seven products each, while each POS deal included an average of 3.4 products, and overall, each new customer agreement included an average of 4.6 products. The average deal size sold to new customers during the first three quarters of 2024 was about 30% higher than the new customer average deal size last fiscal year.
In annual contract value terms, we've already sold more value of sales to new customers during the first three quarters of this fiscal year, compared to all of last fiscal year. During fiscal 2024 Q3, we also added 63 new properties which did not have any of our products before, but the parent company was already our customer. In terms of sales value to such new properties, this was our highest quarter since last fiscal year Q3. Of the 81 new properties added during the quarter across new customers and new properties of current parent customers, close to 90% were either partially or fully subscription-based. With respect to new product sales, there were 80 instances of selling at least one additional product to properties which already had at least one of our other products currently in use. We continue to have a long runway of sales and revenue growth ahead of us, both within the existing customer base and to new customers.
Starting now, it's a matter of establishing our modernized state-of-the-art technology-based new products and modules at an increasing pace in the field and reaching the flywheel stage of our reputation growth. We now have the capacity to grow regardless of travel spend trends. If such trends are good, that will be great and tailwinds are always helpful. But given our current very low market share, especially on the property management system, PMS side of our business, we can grow well even if such trends are not great. We've also set ourselves up well for growth across a broad base of possibilities in practically all the verticals we play in currently, gaming casinos, hotels, hotel chains, resorts, cruise ships, and managed food services, and are not dependent on one or two big wins. And of course, we have a long growth path ahead in international regions as well, given our current low market share.
There too, it is a matter of establishing credibility and notoriety with more high-quality implementations. During the quarter, one of the biggest and most prestigious resorts to open in Asia in recent times, the INSPIRE Entertainment Resort in Incheon, South Korea, near the Seoul airport, opened successfully using a whole array of the most recent versions of our POS, PMS, and seven experience enhancer add-on solutions for a total of nine products implemented. It's also good to have our POS used at the ongoing Australian Open Tennis Tournament in Melbourne. I personally also enjoyed a few friends and acquaintances calling me to let me know that they noticed the Agilysys name at food outlets at the recently opened casinos in Las Vegas, Durango Station, and Fontainebleau, and also at one of the other major Vegas properties which hosted the recent CES Show. At this property, the various food outlets are in the process of moving to Agilysys' InfoGenesis POS from a competing system and some of the attendees noticed the Agilysys name, which was cool.
Such spreading news of successful implementations and customer value-creation, using the most recent versions of our Hospitality Solutions ecosystem, will be key to our future growth. Back to the topic of sales win during the quarter, there were 11 new core Property Management System, PMS wins during the quarter across new customers, new sites, and new products, making it among our best quarters in history in this regard. Still small numbers and very early days with our PMS business, but the momentum is building given our PMS product strength has never been better than it is now. The core PMS products and related modules are there where we have always wanted them to be at, and now it is a matter of creating more great references in the field, which we are making good progress with. We are a credible presence in the PMS space now and an increasing presence in most PMS RFP processes, like has been the case with most Point Of Sale, POS RFPs for many years.
Once we get ourselves in the game, our end-to-end PMS ecosystem of products, all cloud-native with the capability to also work on-premise, gives us great odds to win. We are competing against very well-entrenched PMS competitors who have dominated the space for a long time, but we are gaining ground. Increasing Property Management System, PMS sales, will also help sell more additional software modules as there are about four times as many add-on modules with PMS as there are with POS. The significant PMS wins during the quarter included Mount Princeton Hot Springs Resort. This historic resort in Colorado has been in service for more than a century, with several amenities and offering visits to natural hot springs. Mount Princeton selected core POS and PMS products along with several experience enhancer add-on software solutions. Among the significant Point-of-Sale, POS wins this quarter was Dordt University in Sioux Center, Iowa.
Other than the InfoGenesis core POS product, this win also included purchase of guest self-service Kiosks and licenses for remote mobile ordering, kitchen display system, and our payment solution. Higher education is another growing sales vertical where our current market share is low, growth opportunities are high, and strong integration partnerships with other vendors, including with one of the major campus card providers, continue to differentiate us in the market. Now on to revenue and profitability. Fiscal 2024 Q3 revenue was a record $60.6 million, the 8th consecutive record-revenue quarter, 21.3% higher than the comparable prior-year quarter, including product revenue of $12.7 million, which was 18.5% higher than Q3 last year. Fiscal 2024 is the first year wherein product revenue has exceeded $12.5 million in each of the first three quarters. One-time product and services revenue combined was a record $25.5 million, which was 28.8% higher than the comparable prior-year period.
Apart from being a record sales quarter for services, this was also an excellent quarter for services revenue as the pace of implementations picked up considerably, giving us increased confidence in the recent modern versions of products becoming easier to implement and making a big positive difference for customers at various properties. Services revenue was a record $12.8 million, 41% higher than the comparable prior-year quarter. Services margin of 32.2% was an impressive improvement over recent prior quarters and should contribute to services margins for the full fiscal year being slightly above our original expectation of 25%. In addition, the extent of implementations completed in the field this quarter involving subscription revenue was the highest level we've achieved thus far, measured in terms of annual recurring revenue, ARR, worth of installations. That obviously augurs well for continued good future subscription revenue growth.
Speaking of subscription revenue, fiscal 2024 Q3 subscription revenue grew 29.9% year-over-year to a record $19.5 million, and overall recurring revenue grew 16.4% to a record $35.1 million. Subscription revenue constituted 55.6% of total recurring revenue, compared to 49.8% in Q3 of last fiscal year. In absolute number terms, subscription revenue grew by $4.5 million year-over-year, which is the highest level we've achieved till now. Comparing subscription revenue this quarter with the comparable quarter two years ago, total subscription revenue has grown by 67%. Subscription revenue from PMS and related additional modules have doubled in this two-year period. Again, relatively small PMS subscription revenue numbers, no doubt, and we are only getting started with PMS growth now, but the trend is definitely encouraging. Further, PMS-related subscription revenue has grown as much in the first three quarters of this fiscal year as it did during the entire last fiscal year.
Fiscal 2024 Q3 was our best quarter thus far for revenue from international regions, again, small numbers but encouraging progress with huge future growth potential. Improving implementation services efficiencies helped reduce our combined product recurring revenue and services backlog levels to about 85% of peak levels. We expect product revenue to be under a bit of short-term and ongoing pressure due to several reasons, including a lower starting product backlog, and our POS systems now supporting all major operating systems, Windows, iOS, and Android, thereby giving customers more POS generic hardware options, including off-the-shelf consumer-grade tablets and sleek all-in-one handheld devices. This trend is good for our medium and long term and gives our POS products a clear competitive edge, but is expected to put some pressure on one-time product revenue. We have a good track record of managing well the J-curve involved in the shift to a subscription revenue-based cloud software Company and I'm confident we will manage as well the shift from even less hardware than the level we are at now and more subscription and other software in our revenue mix.
We expect services and recurring revenue, including subscription revenue to continue to do well. We remain confident of achieving the recently raised full year fiscal year 2024 revenue guidance range of $235 million to $238 million. This should include continuing solid good subscription revenue growth. We expect full year fiscal 2024 subscription revenue growth to be comfortably in and slightly above the 28% guidance already provided. Fiscal 2024 Q3 adjusted EBITDA was 19.4% of revenue at $11.8 million, more than 35% higher than the previous highest level, and the first time we have even exceeded the $9 million mark. Even after discounting for the fact that Q3 is normally a favorable quarter for us with respect to profitability, due to the absence of various once-a-year trade shows and other once-a-year expenses, even after providing for all that, this was a good quarter for profitability as we continue to focus on achieving greater operational efficiencies.
We expect full fiscal year 2024 adjusted EBITDA to be 15% of revenue, higher than the previously guided 14% level and our expectations of 13% going into the fiscal year. We will provide revenue range and other guidance for fiscal 2025 covering the period April 2024 to March 2025 during the year-end earnings call, mid-to-late May. With that, let me hand over the call to Dave.
Thank you, Ramesh. Taking a look at our financial results, beginning with the income statement, third quarter fiscal 2024 revenue was a quarterly record of $60.6 million, a 21.3% increase from total net revenue of $49.9 million in the comparable prior year period. All three revenue lines increased compared to the prior year period, with product up 18.5%, professional services up 40.9%, and recurring revenue up 16.4%, including subscription revenue increases of 29.9%. Sales momentum continued throughout Q3 with total exit backlog remaining strong and at comfortable levels to reach our FY '24 revenue expectations. We also remain pleased to see our total backlog increased by 6% over the comparable prior-year period, despite a decrease in product backlog. Implementation efficiencies and effectiveness of the services team have continued to improve, driving more subscription revenue earlier in the quarter.
Products revenue increased 18.5% over the prior fiscal year to $12.7 million. The Point-of-Sale business continued to perform better-than-expected for the fiscal year. However, we expect product revenue as a percentage of total revenue to continue to decline slightly and be in the $11 million to $12 million range during our fiscal Q4. As more customers choose commercial-grade devices and other all-in-one handheld devices to run our modernized POS software solution, we expect less contribution as a percentage of revenue from the one-time product revenue line. Professional services increased 40.9% over the prior period to a record $12.8 million. Professional services continued to be a strong leading indicator for the health of the business. Professional services backlog increased slightly back to record levels despite record professional services revenue during the quarter. We expect professional services revenue to increase sequentially in Q4 and grow north of 30% for the full fiscal year.
Most of our professional services revenue is related to implementation projects contributing to the acceleration of FY ‘24 subscription revenue. Development associated with larger projects with corresponding subscription revenue happening in future years has been less than 10% of services revenue during the past couple of quarters. Total recurring revenue represented 58% of total net revenue for the fiscal third quarter, compared to 60.4% of total net revenue in the third quarter of fiscal 2023. Recurring revenue as a percentage of total revenue decreased slightly because of a 28.8% increase in one-time revenue consisting of products and professional services. Fiscal 2024 Q3 subscription revenue grew 29.9% over the comparable prior-year period. Subscription revenue comprised 55.6% of total recurring revenue for the current period compared to 49.8% of total recurring revenue in the third quarter of fiscal 2023.
Subscription revenue increased sequentially $1.2 million and remains at the high end of our expectations. The subscription backlog remains strong and we expect subscription revenue to continue to increase between $0.9 million and $1.2 million sequentially during the fiscal fourth quarter, putting the full year 2024 subscription growth percentage between 28.7% and 29.3% for the year. Moving down the income statement, gross profit was $37.8 million, compared to $30.8 million in the third quarter of fiscal 2023. Gross profit margin was 62.5%, compared to 61.7% in the third quarter of fiscal 2023. We are pleased to see gross profit margin back in the 60%s largely due to an increase in professional services margins to 32.2%. Combined, the three main operating expense line items, product development, sales and marketing, and general and administrative expenses, excluding stock-based compensation, were 43.1% of revenue compared to 45.6% of revenue in the prior-year quarter.
Product development increased slightly to 20.9% compared to 20.6% of revenue in the prior fiscal year. General and administrative expenses decreased to 12.4%, compared to 13.7% of revenue in the third quarter of fiscal 2023. Sales and marketing decreased from 11.3% of revenue to 9.8% of revenue, mostly due to expenses related to trade shows and other events happening in different quarters this year, compared to the prior year. Operating income for the third quarter of $7.8 million, net income of $76.9 million, and gain per diluted share of $2.85, all increased compared to the prior year's third quarter gain of $3.5 million, $3.4 million and $0.13. Adjusted net income normalizing for certain non-cash and non-recurring charges of $9.3 million, was higher than adjusted net income of $6.7 million in the prior-year third quarter, and adjusted diluted earnings per share of $0.35 was more than $0.26 in the prior-year period.
In our fiscal third quarter, we had a release of a valuation allowance of $65 million, causing GAAP EPS to be higher than adjusted EPS after normalizing this one-time item out through adjusted net income. The release of the tax-related valuation allowance allows us to recognize existing U.S. federal net operating losses of around $175 million and associated state NOLs as deferred tax assets on our balance sheet. With our accumulated earnings in recent years plus our projected earnings going forward, it is now likely that we'll utilize the NOLs. As such, the valuation allowance was released this quarter. For the 2024 third quarter, adjusted EBITDA was $11.8 million compared to $8.1 million in the prior-year quarter. Adjusted EBITDA in Q3 FY '24 was 19.4% of revenue. Profitability for the quarter was better than expected, largely due to better than expected gross margin within our professional services and recurring revenue lines.
Moving to the balance sheet and cash flow statement. Cash and marketable securities as of December 31st, 2023, was $116.2 million compared to $112.8 million on March 31st, 2023. We remain comfortable with our current levels of cash. Free cash flow in the quarter was a gain of $11.3 million, slightly less than a gain of $11.7 million in the prior-year quarter. The decrease in free cash flow was largely attributable to an increase in accounts receivable balance and the associated impact on working capital. Our over 90 accounts receivable remains less than 10% of total AR. For fiscal year 2024, we remain comfortably in our revenue guidance range of $235 million to $238 million, inclusive of 28% subscription revenue growth. We are also raising our profitability guidance for the full-year from 14% to 15% adjusted EBITDA as a percentage of revenue. In closing, we are pleased with the sales momentum, professional services improvements, and revenue growth during the first three quarters of the year. With that, I will now turn the call back over to Ramesh.
Thank you, Dave. Our progress over the past six to seven years has involved, among other things, a massive overhaul of core products and the creation of an ecosystem of state-of-the-art world-class software solutions focused on the hospitality industry. The past years have therefore been a product development R&D story for the most part. We also took massive strides forward in many other areas, but the highlight was clearly product development. Product development strength is going to remain and grow in a more tempered fashion in the future, but starting now, our R&D efforts are going to be a lot more focused on customer acquisition and winning innovation now that the pressures of massive re-engineering efforts are no longer there. Now, the already built-up product development strength will focus on increasing our competitive advantages in each of the products and modules as they compete for best-of-breed selection versus a variety of competitors, and on enhancing the integrated ecosystem capabilities that very few competitors can match with us today.
We cannot think of many other competitors who can match the breadth and depth of our solution ecosystem, all based on modern cloud-native technologies with a versatile ability to also work at customer sites who want to remain on-premises for a while longer. We have done well to fill the technology and functionality feature set innovation gap in this industry and are now well-positioned to translate that into growth and business success. Also, now the business evolution will shift to the field. Now the focus will be more on services' implementation efficiencies and helping customer properties realize operational gains and guests and staff experience improvements through the use of these new integrated product versions. As we create more such successes, we expect quicker progress towards the flywheel stage in our business when this steadily improving engine will become an unstoppable force.
Our total addressable market remains huge relative to our size and this industry and market is hungry for world-class technology solutions. We are seeing good sales growth across sales verticals and product verticals where our market shares have been low in the past. We are now a credible presence in the PMS arena, where our journey is only in the initial beginning stages. Our balance sheet remains clean and strong and we remain disciplined with our growth plans. We believe all that adds up to a great probability of continued future success in creating solid good shareholder value during the short, medium, and long-term. With that, let's open up the call for questions, Justin.
分析師問答
And, thank you. Our first question comes from Mayank Tandon from Needham. Your line is now open.
Thank you. Good evening. Ramesh and Dave, I'm curious about the outlook for the fourth quarter. You've highlighted very strong sales momentum. However, the guidance for the fourth quarter seems to suggest a slight slowdown compared to the third quarter, and the margin guidance appears to be lower than in the third quarter. I'm interested in understanding some of the data points that are reflected in your fourth quarter guidance, particularly after the strong sales momentum you mentioned following the third quarter results.
Yes. Thanks for the question. So, we are expecting an acceleration in revenue in Q4. The commentary was really around the product line. We're seeing more of our products run on off-the-shelf products. So, we're seeing a little bit of a decline in the product, but we are still expecting professional services to increase sequentially and our subscription should still increase between $900,000 and $1.2 million, basically all leading to revenue being up probably around $1 million over where we are today. So, we're still expecting a sequential increase in revenue, but there will be a little bit of a pullback on the product revenue line.
So, Mayank, when we started the year, our revenue expectation was $230 million to $235 million. We then raised our guidance last quarter, $235 million to $238 million and nothing has changed there, that still remains the case that we expect revenue to be $235 million to $238 million just like how we guided at the end of the last quarter.
On the margin side, there will be a slight decrease in margin. Q3 is typically a lower cost quarter due to fewer trade shows and reduced accruals for unused PTO. These expenses will increase again in fiscal Q4 when there are more trade shows. So, while we expect a pullback, we anticipate ending the year with margins higher than last year's, exceeding 15%.
And again, as a reminder, we started the year thinking it will be 13%, Mayank. And then we increased guidance to 14% EBITDA by revenue and now we expect it to be 15% of revenue. So, the margin, our capabilities of the company have steadily improved throughout the year.
Got it. That's very helpful. And then, as a quick follow-up, Ramesh, on the international side, I'm just curious, I'm sure the competitive landscape is different. The growth challenges are different. So, what are the investments you're making to ensure that you win internationally? And you've had already good success, but to replicate what you've done in North America, so maybe if you could just talk about the investment levels and what are some of the key initiatives to, again, ensure that you have success abroad just like you've had in North America both on the PMS and the POS side.
Yes. The largest investments we've made over the past six to seven years have been in our products to ensure they are competitive in international markets. We designed them to be configurable and easily adaptable to the specific needs of different countries, while keeping the core product consistent. Thus, to enhance our competitiveness in APAC and EMEA, our primary focus has been on the products. As we advance, we are now shifting towards investing more in the services area, achieving one successful implementation after another. In the B2B enterprise software sector, having reference customers is essential. We have many reference customers for our older versions, but we need them for the newer ones as well. For instance, INSPIRE Resort in Korea is a significant example; they recently went live with all our modern versions and have become one of the leading resorts to do so. Our emphasis is now on creating successful implementations and generating more highly referenceable customers.
Additionally, we are boosting our marketing investments in international regions and have expanded our sales team, particularly in APAC, where we have added a couple of senior sales personnel, one of whom comes from a competing company. We are therefore investing in both sales and marketing. Our approach has been systematic: first, we improved the products to ensure they can be effectively implemented internationally, and that process is complete. Now, we are concentrating on successful implementations while simultaneously increasing our sales and marketing investments.
That's all very helpful. Again, congrats on the quarter, and thank you for taking my questions.
Thank you, Mayank. Yes.
And, thank you. Our next question comes from Matthew VanVliet from BTIG. Your line is now open.
Hey, good afternoon, and thanks for taking the questions. I guess as you look at, specifically on the PMS side of the pipeline here, I guess, how much of the build and sort of record levels that you're seeing there would you attribute to just sort of the product now being more modern and more easily deployed and integrated with other systems? And would you lend any support to the more halo effect of having won the Marriott deal and sort of getting into opportunities that might not otherwise have materialized?
Yes. Hi, Matthew. Yes, the Marriott deal has definitely given us credibility in the PMS area, no question, right? Because now, there was a time before when we were not included in many PMS RFPs and I can't blame customers for that. But now, with the Marriott deal, we have credibility, now it is tough to exclude us, and which is all we wanted. Now in the meanwhile, there are also two other factors, Matt. One of them is the fact the product is in a much, much better state now and you cannot ignore it, and once you see it, you get very interested in it. So, that's one factor. And a couple of other factors I would mention is, number one, the market is hungry for innovation. So, at least in our opinion, the providers who had dominated the space, the innovation speed has not been that great during the past few years. So, someone had to fill that innovation gap and customers find these products to be far ahead of the competition once they take a look at it.
And the biggest factor also is, we built an ecosystem of PMS products. It's not only the core PMS. It's also all, it's about 15 to 20 add-on Experience Enhancer modules around it, and many customers are preferring to reduce the number of vendors they deal with. It is not just a matter of making integrations easier, it is also a matter of pace of innovation. Like you come up with a good idea in golf or spa, and you want a corresponding change in the PMS, it's much easier for us to do all those changes in the next release and customers love the fact. So, I would say that the momentum that is building for us in PMS is attributable to all those reasons. One, the Marriott deal gave us credibility; two, the product is competitively at a much better state and we can answer yes to both being in the cloud and on-premise; third, this industry has always been hungry, it's become hungry for those kinds of good products; and fourth, of course, the ecosystem of PMS products we have built. All that is contributing to our momentum now, Matt.
Okay. Very helpful. And then, Dave, you mentioned that less than 10% of services revenue is coming from, I presume Marriott. But the contracts, that subscription will be in later years. Is that sort of the appropriate level we should think about in terms of the mix over the next several quarters as you get closer to the rollout there or should that uptick? And I guess with that, how would you correlate that with utilization rates across the services organization more broadly?
Yes. It stayed below 10%. As expected, it will fluctuate on a quarterly basis, but the vast majority of our services revenue, over 90%, comes from non-large deal services focusing on our subscription revenue. We do not anticipate it exceeding 10% in the coming quarters. The utilization of the services team has been very good. Notably, we have witnessed around a 10% increase in margin for the professional services team over the past few quarters, largely due to an increase in billable work and a reduction in non-billable work as we address previous implementation efficiencies and work through the backlog.
And the crucial thing to keep in mind, Matt, is this would have been a record services quarter for us regardless, even without the influence of that product development-related revenue, it would have been a record quarter for us. And year-over-year, it's improved by 41%, so only a part of that can be attributed to this product development work that we are doing. The main indicator here, Matt, the crucial thing is, it's an indicator that our new products are settling down well in the field and are becoming easier and faster to implement, which is the biggest thing we take out of our services revenue quarter.
Great. And then one last one quickly, if I could squeeze it in. As you look at the longer term, I guess, upside to margins that's potentially in the model here, anything limiting further upside as growth continues on the top-line? Any major investments that you foresee having to make that could impede that or should we expect, with appropriate top-line growth, a fair amount of leverage going forward? Thanks.
Yes, Matt. With continuing top-line growth, you should expect improving leverage across practically all our operating expenses categories. You should expect improving operating leverage as we go along. But remember, from a quarter to quarter, I would not apply those rules. But on a year-over-year basis, this fiscal year, the next fiscal year, and so on, you should expect profitability levels to continue improving as our revenue levels improve. And especially on the R&D side of it, we have a fair amount of leverage. I mean, it is not as if R&D is going to go down, but it's going to be tempered. The R&D increases are going to be tempered compared to the revenue growth. And also, our gross margin is improving now. As recurring revenue becomes a higher proportion of our total revenue and our services revenue becomes a higher proportion as well, you should expect, overall, our profitability to continue improving as our top-line revenue increases.
Great. Thank you.
And one moment for our next question. Our next question comes from George Sutton from Craig-Hallum Capital. Your line is now open.
Thank you. Ramesh, you mentioned that you grew subscription revenues 29.9%. I would like to give you a sell-side roundup and say congratulations for your 30% growth. I wanted to make sure, given that both Marriott and Hilton put out pretty positive indications about room growth today. So, obviously, the industry is growing very healthy. But with Marriott specifically is, they're announcing these big room increase numbers, can you just walk through how we think of that relative to what that means for your ultimate contract?
Yes. I mean, I tried to convince some of my manager team members to buy a little bit more subscription from us to push it over the 30% mark, but it didn't happen, George. It ended up at 29.9%. But yes, that trend continues to be good. Subscription revenue growth continues to be good, and we are encouraged by the direction. Now I did listen to that CNBC snippet today of the Marriott CEO commenting on the rooms growth and all that means, George, is expanding opportunities, alright? Nothing has changed as far as our Marriott PMS agreement goes. We continue to work towards it and both parties, both Marriott and us, continue to very diligently monitor and manage the project and it continues to progress well. But all this extra room announcements, Hilton on the POS side, Marriott on the PMS side, means more opportunities for us. That means if we execute well, if we do well with the opportunities we have today, there are more opportunities to be had.
We are in a good industry that is doing well, where there is a dearth of innovation, not much innovation going on. So, I think we are sitting on some very good opportunities and now that the major product work is done, we can actually focus on customer acquisition and innovation and those kinds of activities. So, I see that report as encouraging, George, and I see that report as more opportunities opening up for us, possibly, if we continue to do well.
So, in your prepared comments, you mentioned that we think the pace of sales will only get better. And you talked about it from a product perspective on why you do think things will get better. Can you talk about it from a sales efficiency/productivity or just go-to-market totality, give us a sense of why things will get better from that perspective?
Starting with sales efficiency, we have observed that the productivity of our new representatives, who joined recently, has tripled in the first nine months of this year compared to the same period last year. This reflects positively on our strategy to expand our sales team, particularly in the hotels, resorts, managed foodservice providers, and Asia. As we add more sales personnel, we've noted that the productivity levels continue to rise. Currently, these new representatives account for about 25% of our overall sales this year. Their enthusiasm often stems from seeing our new products, especially since many come from competitors in the industry. They are frequently surprised by the advanced technology products we offer. We plan to enhance our sales capacity and sustain the productivity improvements, which is a key reason why I believe sales will keep growing. Additionally, we're increasing our marketing efforts, and the results are encouraging. Our brand is gaining more visibility thanks to our thought leadership initiatives and participation in trade shows, particularly in Asia and EMEA. To establish our credibility further, we need more successful field examples and customers sharing their success stories, which we will support by bolstering our sales and marketing efforts.
Perfect. Thank you very much.
Thank you, George.
Thank you. Our next question comes from Nehal Chokshi from Northland Capital Markets. Your line is now open.
Good afternoon, and thank you for taking my question. Congratulations on a solid set of results here. Ramesh, at the beginning of your prepared remarks, I think you said fiscal year '24 year-to-date sales is progressing ahead of last year's pace. So, just wanted to make sure, when you say pace, you mean year-over-year growth, is that correct?
Correct, Nehal. So, just to expand on that answer a little bit, Nehal. FY '23, right, which is April '22 to March '23, was a record fiscal year sales for us. And this fiscal year, which is April '23 to March '24, at the end of three quarters, at the end of Q1, Q2, Q3, is ahead of last year's pace. That is correct.
Okay. So, basically, you're seeing accelerating sales pace, which is your definition of sales, I call it bookings, but you're seeing that accelerate independent of the…
Correct, correct. We are. I'm sorry?
Independent of the deal.
Correct. Yes, Nehal. Just to reiterate that, that deal is not counted in any of our sales numbers as yet. That we will start counting in sales when the individual properties start signing up with us. So that's not in any of our sales or backlog numbers that we generally report to you. So to come back to your original point, fiscal year 2024, when you compare Q1 to Q3 with fiscal year 2023, Q1 to Q3, this year is ahead. And by the way, fiscal year 2023 was our best fiscal year up to then.
Great, fantastic. And Dave, thoughts on free cash flow for fiscal year ‘24 now that we're basically 10 out of 12 months through fiscal year ’24?
Yes, I mean, no change to expectations in free cash flow, and that being free cash flow, less CapEx over the year should be pretty close to adjusted EBITDA. Certainly, there's a little bit more headwinds with timing of billing this year. So most of the free cash flow, typically, we get some pretty favorable working capital adjustments in Q3. And it wasn't the case this year, but no concern there, it was just timing of billing. We billed things earlier in the year, and we expect to collect on those next quarter. So no change to free cash flow. I mean, over a period of time, free cash flow less CapEx is, it'll remain pretty…
Adjusted EBITDA less CapEx.
Yes. So, just a bit of guidance is around, I think, like $36 million, $37 million. CapEx is trending around $9 million. And so, talking about $27 million free cash flow for fiscal year ’24?
Yes, that's right. And most of that will come just from working capital specifically related to accounts receivable.
Okay. And, you know, I mean, for fiscal year ‘21, fiscal year ‘22, fiscal year ‘23, $27 million of free cash flow each of those years. Yet your adjusted EBITDA, you know, is going to have increased about $10 million over that three-year period. And so your working capital requirements are increasing essentially then?
Well, this year there was a lot more CapEx related to our office moves. We talked about our office moves. We moved offices in our Chennai office, Alpharetta, and Vegas. So it's kind of the there was just a lot more CapEx this year related to office moves than there has been in the past. And obviously, you know, we'll be in these offices for a while. So the CapEx just starting normalizing back down next year.
Got it, great. And then look, your cash balance continues to accrete really nicely. You're doing a small level of share repurchases, but I mean, it's nowhere close to the rate of free cash flow generation. And you've proven to have a very prudent M&A task that you did a nice acquisition three years ago, but I mean, it's nowhere close to the three years of free cash flow that you generated since those last three years there? Why not go ahead and accelerate the rate of buybacks here?
So, Nehal, we are comfortable with our cash balance now, and it is not high enough to do anything significant, Nehal. And we have acquisition opportunities do come to us now and then, but we tend to be very conservative and we're very careful with what we look at. And organic growth is good for us, so we are not going to use inorganic growth as a crutch. But there are opportunities that now and then can come to us. So we are comfortable with our current cash balance, but as cash flow generation continues to accelerate, all options are open in front of us, right? We will be prudent, we will do the right thing for shareholders, and at the moment, we are at the early stages of accelerating our cash generation. At the current level of cash balance, we are comfortable with. In case there is a rainy day, or in case a good tuck-in acquisition kind of thing comes our way, we are well positioned to take advantage of it.
Okay, great. Thanks for taking my questions.
Thank you, Nehal.
And thank you. And I am showing no further questions. I would now like to turn the call back over to Ramesh for closing remarks.
Thank you, Justin. Thank you for all your interest and support. Best wishes to all of you for a very happy, cheerful, healthy, and successful 2024. Our next earnings call will be in about four months from now, around the middle to end of May, when we will be reporting Q4 and full fiscal year 2024 results. Thank you.
This concluded today’s conference call. Thank you for participating. You may now disconnect.