Good day, ladies and gentlemen, and welcome to the Agilysys Fiscal 2023 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, Josh, and good afternoon, everybody. Thank you for joining the Agilysys fiscal 2023 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 effects of global economic factors on our business, our ability to continue profitable growth, our ability to execute required product development and other deliverables before our PMS system can be rolled out to Marriott. Our ability otherwise to expand PMS market share 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 or 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 2023 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 sales and our selling success based on the annual contract value of sales agreements signed. Please note that the recent Marriott PMS selection that we announced a few weeks ago is not part of any of the sales and backlog numbers being discussed today. All the sales and backlog numbers being discussed do not have any benefit from that major win. I will come to the Marriott announcement a bit later in this commentary. During the last earnings call, we mentioned that after five consecutive solid sales quarters, the July to September Q2 of fiscal 2023 was a great sales quarter. That's what we reported last time. Well, October to December, Q3 of fiscal 2023 was even better. Q3 was our best sales quarter since the current management team started turning this company around about five to six years ago. We reported last time that our sales trends had picked up significantly since the beginning of August. That positive trend has remained consistent even through the month of January so far. January is normally our slowest sales month of the year coming out of the holiday season. From a selling success standpoint, even with one more week remaining, this is already our best January by a fair distance. And even better than December, which is normally a good sales month for us. And all of that despite the APAC and managed food services sales verticals being well short of previous pre-pandemic peak levels. The gaming casinos, resorts, and EMEA sales verticals are operating at exceptionally high levels. In Asia, the number of prospective customer meetings and product demo requests continue to be at good levels, but such positive activities have not translated to solid sales results yet, mainly due to greatly delayed technology purchase decision-making. Many prospective and current customers in Asia are preparing for the expected upcoming travel surge and are looking at various software solution sets they need today and for the future, but continue to be hesitant to finalize purchase decisions. Given the long way we have come with our software solutions during the last three years since the pandemic seriously started affecting business in Asia, we think our business levels in Asia will pick up steam soon. We have not seen any significant effects of the recent negative macroeconomic environment. In our view, the hospitality industry has been underserved with respect to world-class software solutions for a long time. This industry has lacked a technology provider who is willing and able to invest in end-to-end state-of-the-art cloud-native integrated software solutions, which can also work on-premise when required. Industry-focused product innovation has fallen short of operator and guest expectations for far too long. On top of that, the operators in this space are also facing escalating pressure from their guests who are increasingly seeing the benefits of modern technology across many areas outside the hospitality. They are enjoying the benefits of technology-enabled self-service and guest service across all channels, including mobile devices and integrated systems, wherein they don't need to enter the same piece of data multiple times. They now expect the same from hospitality as well. Over and above this, hospitality operators are also faced with the need for integrated systems to make it easier for their staff to serve guests well, across all amenities offered within their properties. Creating great experiences and increasing guest loyalty now requires both a superior guest service staff culture and integrated technology and solutions which are easy to use. It is now all about the returns operators can get from creating better experiences for their staff and for their guests. From our viewpoint, those needs are now imperative and urgent in the hospitality industry and should overcome any macroeconomic headwinds. Once they see relevant product demos and get to discuss future product plans with us, many customers seem pleasantly surprised by the breadth and depth of what we have to offer today and how much our products and end-to-end integrated software solutions vision can help them operate more efficiently and serve their guests better now and in the future. Further, we continue to operate in an enormous total addressable market relative to our current size. Now that we have made the required R&D investments and have done the hard yards to create an end-to-end set of state-of-the-art solutions while keeping our focus entirely on one industry, we think we are well-positioned and we have been seeing the selling success benefits starting around August last year. We remain cautiously optimistic in our expectations to continue to do well, no matter what the Wall Street Journal news headlines say each day. During Q3 fiscal 2023, October to December, we added 18 new customers, of which 16 were fully subscription-based. The deal size per new customer sales agreement during the quarter was the highest we've seen and was more than 50% higher than the sequentially preceding Q2 quarter. Compared to a couple of years ago, new customers who sign up with us now have a lot more products they could potentially license from us which meet their immediate and future needs. Many of them are using this opportunity to buy more from the same vendor partner thereby reducing the number of vendors they have to work with and lowering the cost of interfaces and deployment complexity. This was our best quarter in six years with respect to total annual contract value of sales agreements signed with new customers. We also added 87 new properties, which did not have any of our products before, but the parent company was already our customer. Business levels and the pace of technology investments among multi-property bigger current customers are improving but still not back to pre-pandemic levels. Of the 105 new properties added during the quarter across new customers and new properties of current parent customers, more than 85% were either partially or fully subscription-based. With respect to new product sales, there were 58 instances of selling at least one additional product to properties which already had at least one of our other products currently in use. These 58 instances involved sales of a total of 117 new products. With respect to overall competitive wins, which is the sum of new customers, new sites of current customers and new products sold to current customer sites in annual contract value terms. This was our best quarter for total sales value surpassing Q2 by about 17% and the next best previous quarter by nearly 8%. The average deal size for competitive win during the quarter was also the highest we have seen so far. We continue to have a long runway of growth available to us within our existing customer base through additional product sales. The number of products installed per customer property improved during the quarter but it's still only at about two now. There were seven new core property management system, PMS wins during the quarter. We are now a credible presence in the PMS space and increasing presence in most PMS RFP processes. We've had a solid presence in most point-of-sale, POS, RFPs during past years, but that's not been true with PMS projects. Once included in the RFP shortlist, our end-to-end PMS guest journey product presentations increase our chances of winning exponentially. In addition, the number of credible reference customers on the newer state-of-the-art core PMS products and additional software modules has increased during recent months. Increasing property management system PMS sales will also help us sell more additional software modules because there are about four times more such modules available for PMS compared to POS. With respect to sales across product categories, Q3 fiscal 2023 was our highest-ever sales quarter for services sales, software sales in general, and subscription software sales in particular. Q2 and Q3 of fiscal 2023, taken together, have been our best two-quarter six-month period of subscription software and services sales. The high level of sales success this quarter also drove the combined product services and recurring revenue backlog back to record levels. Before moving to revenue and financial performance during the quarter, a quick note on the recent Marriott PMS selection announcement. As mentioned in the press release, we were selected for a majority of Marriott's premium luxury and select-service properties across the US and Canada based on our participation in a global RFP for property management systems, PMS. As one would expect, we went through the highest level of scrutiny and analysis possible across product, people, implementation support, and other processes, culture, financial strength, and all other organizational aspects before being selected as the PMS providers for a majority of the 900,000 plus rooms across Marriott's luxury premium and select-service properties in the US and Canada, replacing for the most part several proprietary systems that have been in use at these properties for many years. We think this selection was a commentary on not just the current state of our PMS offering, but also our ability to work with one of the biggest and most innovative hospitality operators and execute well on their specific needs and overall future industry vision. The product development effort during the next one and a half years or so will include a mix of general features and Marriott's specific integration and other needs. This is a transformational win for us and adds immense credibility to what we have been reporting to you all these years about increased R&D investments and enormous advancements in our PMS and related modules, making us an increasingly compelling player in the PMS space to add to our traditional strengths in the point-of-sale, POS area. As we have mentioned before, our current PMS products are connected to approximately 300,000 rooms currently. If Agilysys and all others involved in this Marriott project execute well during the next 18 or so months along with all the other PMS market share expansion success we expect to achieve, we think there is a high probability that the number of rooms connected to our PMS products should expand to about three times that size during the next three years. In summary, on the Marriott PMS selection topic, I cannot overemphasis the fact that there is a lot of focused execution during the next approximately 1.5 years that will be required from our product development services and other teams by Marriott and by other involved third-party partners that will have to go well, before the system can be rolled out at any of the planned properties, that is before this win can get translated to real and substantial subscription revenue for us. Everyone involved in this project is working on it with the greatest level of diligence possible. And there is a lot to get done and get done right. Assuming all goes well, we expect this project to drive major subscription revenue growth for us beginning sometime during fiscal 2025. While we do expect to recognize services revenue directly attributable to this project during the next few quarters, it is possible that the extent of investment increases required to expand our customer support help desk, software monitoring tools, cloud engineering operations, information security, and other internal systems infrastructure to support the next phase of major revenue growth could happen ahead of the subscription revenue increased timeline, which could reduce our EBITDA percentage profitability levels by two or three percentage points during the short term. Now onto revenue and profitability. Fiscal 2023 Q3 revenue was a record $49.9 million. The fourth consecutive record revenue quarter, 26.5% higher than the comparable prior year quarter and sequentially 4.6% higher than Q2. We are on track to exceed our full year revenue guidance provided at the beginning of the year. We now expect full fiscal year 2023 annual revenue to end up between $195 million and $198 million. One-time product and services revenue, combined, was $19.8 million, that is $19.8 million, 38% higher than the comparable prior year period and 5.7% higher compared to the sequentially preceding second quarter of fiscal 2023. Services quarter revenue crossed the $9 million mark for the first time. Services sales booking had been at a record or close to record levels during the past couple of quarters, making us cautiously optimistic about future services revenue and margin levels. Fiscal 2023 Q3 recurring revenue grew to $30.2 million, that is $30.2 million driven by a 28.8% year-over-year subscription revenue increase. Overall, recurring revenue was 3.9% sequentially higher compared to Q2 and 20% higher than the comparable prior-year quarter. We've now added more than $1 million in recurring revenue sequentially quarter-over-quarter for five consecutive quarters. Subscription revenue generated from add-on experience enhancer software modules, most of which were developed internally from the ground up during the past few years, constituted 17% of total subscription revenue this quarter compared to 11% during the full previous year fiscal 2022. These innovative additional software modules, which are becoming increasingly better integrated with the core POS, PMS, and inventory procurement systems, are driving additional sales from existing customers and expanding deal sizes with new customers and new properties. Based on Q3 fiscal 2023 numbers, it feels good that the overall revenue and total recurring revenue annual run rates are now reaching $200 million and $120 million levels, respectively. We've worked hard and smart to reach this stage from where we were five to six years ago and in many ways are only getting started on the next growth phase now. Like I mentioned before, while we remain confident that EBITDA by revenue for full fiscal year 2023 will remain better than 15%, in line with our annual guidance provided, there is a possibility of a bit of margin compression over the next few quarters as we increase resources across various support internal systems, information security, and cloud infrastructure areas, getting ourselves well-prepared for future major cloud subscription and other revenue growth. Our progress towards previously planned increased adjusted EBITDA levels could get delayed by a few quarters. Such margin compression may or may not happen, and even if it does happen, it should not be more than 2% to 3% EBITDA by revenue. Though there could be a delay of a few quarters in our ability to get adjusted EBITDA as a percentage of revenue level into the 20s, the current reality makes that kind of profitability level a far greater certainty than before. So delayed, yes, probably, yes, but probability of significantly higher profitability levels in the medium-term is far higher. We will provide fiscal 2024 revenue and profitability guidance during our fiscal 2023 year-end and fiscal 2024 beginning earnings call around mid to late May. With that, let me hand the call over to Dave. Dave?

Thank you, Ramesh. Looking at our financial results, starting with the income statement. In the third quarter of fiscal 2023, revenue reached a record $49.9 million, reflecting a 26.5% increase from $39.5 million in the same period last year. All three product lines showed growth compared to the previous year, with product revenue rising 32% and professional services revenue increasing 45.7% compared to the prior-year quarter. Recurring revenue also grew by 20%, with subscriptions up 28.8% year-over-year. Sales momentum persisted into the third quarter, with sequential sales increases over the second quarter of fiscal 2023, reaching our highest quarterly sales in over six years, including another record in subscription sales. One-time revenue from products and professional services rose 38% compared to the previous year, totaling $19.8 million in the third quarter. The product backlog slightly decreased from the last quarter but remains above 80% of record levels. Professional services revenue increased 11% sequentially to $9.1 million, with both sales and backlog at record levels. Total recurring revenue comprised 60.4% of total net revenue for the third fiscal quarter, down from 63.7% in the same quarter of fiscal 2022. This shift in revenue mix was driven by increased professional services implementations and a resurgence in product revenue. We are also pleased with our subscription revenue growth of 28.8% in the third quarter. Subscription revenue accounted for nearly 50% of total quarterly recurring revenue compared to about 46% in the same quarter of the previous year. Add-on software modules made up 16.8% of subscription revenue in the third quarter of fiscal 2023, up from 11.5% in the prior year quarter, continuing to significantly contribute to subscription revenue. As noted earlier, there is still considerable growth potential for add-on software modules within our existing customer base. Examining the income statement further, gross profit was $30.8 million compared to $24.7 million in the third quarter of fiscal 2022. The gross profit margin slightly decreased to 61.7%, down from 62.6% in the previous year’s third quarter, primarily due to the return of product and professional services revenue, which altered the revenue mix. Together, the main operating expense line items—product development, sales and marketing, and general and administrative expenses, excluding stock-based compensation—were 45.6% of revenue compared to 45.9% in the year-ago quarter, consistent with our fiscal 2023 plan. Product development expenses decreased from 22.8% to 20.6% of revenue. General and administrative expenses declined from 14% to 13.7%, while sales and marketing expenses rose from 9.1% to 11.3% due to recent investments. Stock-based compensation as a percentage of revenue for the third quarter of fiscal 2023 was 6.9%, down from 9.7% in the previous year’s quarter. Operating income for the third quarter was $3.5 million, net income was $3.4 million, and earnings per diluted share were $0.13, all showing improvement compared to last year’s gains of $1.6 million, $1.1 million, and $0.04 per diluted share, respectively. Adjusted net income, accounting for certain non-cash and nonrecurring charges of $6.7 million, and adjusted diluted earnings per share of $0.26, compare favorably to adjusted net income of $4.9 million and diluted earnings per share of $0.19 from the prior year’s third quarter. For fiscal 2023, third quarter adjusted EBITDA stood at $8.1 million compared to $6.6 million in the year-ago quarter. Q3 adjusted EBITDA was 16.1% of revenue, aligning with our fiscal 2023 plan. Moving to the balance sheet and cash flow statements, cash and marketable securities as of December 31, 2022, were $105.8 million, up from $97 million on March 31, 2022. We generated $9.6 million in cash during the third fiscal quarter, with free cash flow for the quarter at $11.7 million, compared to $9.9 million in the prior year quarter. The increase in free cash flow from the previous year is mostly due to a rise in cash from operating activities, partially offset by higher capital expenditures related to our new Las Vegas office build-out. Capital expenditures for the new office will continue into our fiscal fourth quarter. In summary, we are satisfied with our third quarter financial results, trending above our revenue guidance of $190 million to $195 million. We anticipate our fourth quarter results will place us in the $195 million to $198 million revenue range, with adjusted EBITDA slightly exceeding 15% of revenue for the full fiscal year 2023. I will now turn the call back over to Ramesh.

Thank you, Dave. In summary, the significant turning point we have been working towards over the past five years feels like it began to materialize in the second half of last year. We are managing Agilysys with a strong sense of caution in our decision-making. Despite this cautious approach, we have many reasons to be optimistic about our future. We now feel confident in our ability to manage with a sense of cautious optimism despite the challenging macroeconomic news. Some of the reasons for our optimistic outlook include: first, we are operating in a vast total addressable market relative to our current size. Second, the hospitality industry has been long underserved in terms of technology and is eager for solutions, regardless of the tough economic environment. Third, our current pace of sales success is impressive, even though some sectors, like Asia's food service providers and hotel chains, have not yet returned to pre-pandemic levels, though they are showing signs of recovery. Fourth, we have established multiple avenues for growth. Our recent increase in sales and marketing efforts continues to attract new customers and properties to Agilysys each quarter. Sales and marketing expenses rose about 60% in the first three quarters of fiscal 2023 compared to the same period last year. The recent partnership with the world's largest hospitality corporation provides significant opportunities for subscription revenue growth in the coming years. With over 25 advanced software modules available, which offer significant value to customers, we see a large potential for selling more modules to our existing customers, who currently average about two of these products. Fifth, our property management systems journey is still in its early stages, with potential for high deal sizes thanks to various add-on modules. Sixth, our product services and recurring revenue backlog are back to record levels. Seventh, we are actively enhancing our research capabilities to seize significant growth opportunities ahead. Eighth, the competitive landscape has remained steady or may have improved for us, as we continue to invest in innovative cloud-native hospitality software solutions. Our R&D investments are proving to be high-value despite being cost-effective. Finally, our solid balance sheet and lack of significant debt allow us to explore other relevant growth options. Collectively, these factors present a robust outlook for the business's current state and future prospects. It’s rare to find an enterprise software unit with this level of revenue growth visibility for several future years. While navigating the pressures of transformation brings its challenges, we remain a disciplined growth-focused business. We will concentrate on fostering customer partnerships globally, built on a foundation of exceptional team members, compelling products, and world-class customer service. With that, let me open the floor for questions. Josh?

Thank you. Our first question comes from Matt VanVliet with BTIG. You may proceed.

Hi, good afternoon, thanks for taking the question. Nice job on the quarter. I guess first question, as probably expected. A couple more clarifying maybe comments on the Marriott deal and appreciate all the color you gave and the potential for some near-term margin headwinds. I wonder if you could just dive in a little bit more there. How much of that should be sort of headcount related to build out the project and potentially deliver it from more of a services component? And how much is sort of longer-term structural R&D or other components that presumably leveraged along the way?

Hi, Matt. So think of the Marriott deal, Matt, in sort of three major blocks. The first block of work is over the next 18 months or so, which involves a lot of additional development work that will make the product a lot stronger and also within that is a lot of Marriott's specific needs. And services work preparing for the conversion that will happen at high speed once the first property goes live. So the first block of work, development services should be a profitable part of work for us, meaning the services revenue that gets paid for that work should make it profitable for us. So no margin compression there with that block of work. The second block of the project or call it Phase Two is when after the property starts going live. There, of course, the subscription revenue will increase rapidly and significantly, and the company grows along with that. So that part is also profitable. So block three is preparing the company for being a much bigger cloud SaaS operating company. There's a lot of infrastructure buildup that has to get done in customer support, in help desk, in internal systems, and in software monitoring tools. So we are just going to a much higher level now in the next 18 months or so. That work could be margin compressing. Now the rest of the revenue growth that's going to happen during the next say two to six quarters should provide enough provision for that, but we are just warning you that there could be some margin compression, 2% to 3% of EBITDA by revenue, nothing more than that. And that margin compression may not happen as well due to the infrastructure and other buildups as we get prepared to be a much larger-scale cloud SaaS company. So think of it as three blocks. The first block of work, development services will be profitable. That's more or less paid, so that's not an issue. The second phase of work is once the go-live starts, subscription revenue will grow up substantially. So no issues there. The third block of work is getting the company to be a far larger-scale cloud company. That work may have to be done earlier, costs incurred earlier before the revenue starts coming through. So that's what could cause a 2% or 3% margin compression.

Okay, very helpful. When considering the 900,000 plus rooms in their network, what factors might prevent some of those rooms from transitioning to the Agilysys system, and what level of visibility do you currently have compared to what you anticipate gaining in the next few quarters?

Yes, I think it's important, Matt, we don't get too far ahead of our skis in this. This was a global process for selecting a PMS product, but we were selected for a majority of luxury premium select-service properties in the US and in Canada. So that's what we were selected for a majority of the 900,000 plus rooms. So that's our focus and we want to keep our heads down, focused and make sure we execute as perfectly as any software project has been executed and keep our focus on that. Now these kinds of big customer partnerships don't happen every day, Matt. You know that better than I do. So we are going to focus on the task given to us, deliver on that as well as possible, and like all customer partnerships, we will see where the next steps go. But our focus currently is on delivering well on what we have been selected for.

Okay, understood. And then, I guess on sort of the rest of the business you highlighted some areas of strength. I guess where do you feel like in terms of the recovery of business travel, is that impacting maybe the continued momentum especially in the gaming and resort space or is this really just still kind of pent-up demand that's finally working its way through the system and it's maybe not as reliant on what could swing back the negative way if the macro impacts travel further?

Yes, so in our opinion, Matt, the pent-up demand is more related to the fact that this industry has been underserved with the kind of integrated technology solutions it's always needed. The pent-up demand comes from there, not just from a temporary pandemic-related travel coming back or not coming back. This is a much larger story. It's the way it is more and more looking to us as we do product demos and we see how customers react to that. Then, a lot of the companies, a lot of the vendors who have dominated the space for decades have sort of not carried that innovation ball forward, and that is the gap that we saw, which is why we invested so much in R&D and created an offshore development center. We did all of that because we saw that gap. The pent-up demand in this industry, we don't think it's just related to whether travel comes back or goes down, it is a much larger question. They desperately need the kind of integrated tools to keep their staff happier and provide for much better guest experience. That's where the pent-up demand is, and that I think is long-term. That I think is here to stay regardless of whether travel goes up and down a little bit or not. And also, Matt, it's a big total addressable market. Relative to our size, relative to our size, it's a huge total addressable market. So what we are seeing now is the parts of the total addressable market that is hungry for these solutions. There could be a part of that market that we are not seeing, where probably technology decisions are not being considered, but the part of the market that we are seeing is big enough for us. It's huge for us. So we are seeing increasing opportunities, mostly driven by the fact we have improved our products, we have created like 25 to 30 software modules. We can now cater to end-to-end hospitality solutions; that's where the pent-up demand is coming from.

All right. Great. Thank you.

Thank you. One moment for questions. Our next question comes from George Sutton with Craig-Hallum. You may proceed.

Thank you. Ramesh, you gave a very compelling outlook relative to the number of PMS rooms that you will touch. You currently touch, we believe, around 300,000. You suggest that number could triple, which by our math would assume another Marriott-size addition in addition to the Marriott room. So with that as context, I wondered if you could talk about the pipeline outside of Marriott, anything that has changed relative to the discussions you are having with hotels and in particular we are all pretty conscious of the fact that there are other large operators with proprietary systems that have been heavily criticized in terms of capabilities. Are those the kinds of targets you're talking to?

Hi, George. So our current number of PMS rooms, like you said, is 300,000. And we expect that to probably triple in the next three years or so, and we expect a good portion of that to be based on the Marriott deal now. A good portion of that, but there are also a whole lot of PMS deals we are beginning to win now or are being strongly considered in our traditional strength areas like gaming casinos and resorts. Many of them are seriously considering our PMS products. And also remember there are many of our current customers who are moving from the old products they were with, whether it is our own old products or other old products they have been using for a long time. Those conversions to PMS are also beginning to happen more now that they see world-class PMS products that they can choose from. Now as far as the other large operators are concerned, I think they have been underserved with technology for a long time and as and when they come up for their own RFP processes, the good news now is there is a very high probability we will be included. A couple of years ago, there was a high probability we will not be included in those. So now as and when those large operators come up with the next cycle of software replacements, we expect to be a player there. It would be very unlikely that we have not included in that. And once we are included, we fancy our chances quite high, because of the state of the products now and how impressive our demos are. But this calculation of tripling our number of rooms connected in the next three years is largely based on the PMS deals we are working on now, plus of course the huge Marriott opportunity. That calculation does not take into account any possibility of another large operator running a similar RFP. Those will only be additions to the Marriott.

Understand. I wanted to hone in on your Block 3 spend that you referred to and you're effectively saying we are going to be a much larger organization, we need to build an expense base and capability base to meet that. I'm curious with this spend specifically what kind of ability it gives you to serve other customers in particular and also to cross-sell modules into the Marriott and other basis?

Yes, so this Block 3 spend that we talked about, is to make us ready for being a far bigger cloud SaaS company than we are today. That is to make sure that the number of rooms connected to PMS, the number of terminal endpoints connected to our POS system, with most of them going to the cloud as a subscription-driven SaaS operation, that is going to be an enormous increase in our business, all towards subscription revenue. That requires taking our infrastructure level support, information security for example, cloud monitoring tools. It takes a lot of those tools and beefing up our internal systems department. That is going to be a combination of CapEx and operating expenses. To kind of finally take the transformation to becoming a true cloud SaaS big company requires an order of magnitude jump in our infrastructure. Those are the expenses I am talking about, and that prepares us not only for this Marriott hundreds of thousands of rooms going live also for the rest of the business and also for possibly other large operators looking at us like you mentioned. It prepares the company to go to an entirely different level of a cloud SaaS-based software company. For the second part of your question, George, that has got nothing to do with selling more to Marriott. Like we are saying, we were selected for luxury, premium, select service in the US and Canada and our entire focus is on that. And it's a big partnership; it's a huge partnership. So far, there seems to be an excellent culture fit of the two companies working well together. Our focus is on executing what we have been selected for well. What that leads to in the future, we have no idea, and that is not our concern now.

All right. Congrats on the execution.

Thank you, Josh.

Thank you. One moment for questions. Our next question comes from Nehal Chokshi with Northland. You may proceed.

Yes, thank you, and congrats on the strong quarter and the Marriott deal. That's incredible. With respect to Marriott, are you already seeing any halo effect from the validation that this one should bring?

Yes, Nehal. I mean nothing transformational, but the simple fact that we are getting included in PMS RFPs now, that possibly before the announcement we may not have been included in those RFPs because now we have to be taken seriously in the PMS space as well. When the world's largest and most innovative hospitality operator selects you, you asked the question, how can we not include them when we do a PMS election? So we are getting those kinds of inquiries that are more than it was before.

So how is that going to impact your OpEx spend because presumably, that's going to materially increase your opening pipeline here. You only had a 3% Q-over-Q increase on your OpEx here in the December quarter, albeit, your sales and marketing was up 11% Q-over-Q. So just how should we think about that from that perspective then?

Hey, Nehal. We don't expect much of an increase in our sales and marketing spend. If you're looking at it as a percentage of revenue. I mean the way to think about the businesses, we'll stay in the 10% to 12%. We don't think the halo effect through the increased bookings is going to change that. I mean, obviously, the revenue number is going up, so the absolute dollars will go up, but we'll keep sales and marketing in the 10% to 12% range. So no major increase there.

Do you worry that you might be leaving demand on the table by not hiring more impressively then?

Yes, I mean. Go ahead.

No, one thing just to keep in mind that we talked about. I mean with the expansion of sales and marketing this year going from 9% up to 11% to 12%, we still have a lot of capacity level in our sales team. We haven't hit any kind of capacity where we feel more than incremental hiring is necessary at this point.

But sales and marketing, Nehal, it's going to continue to expand, but as a percentage of revenue, we think we'll stay in that range for now. That's how it seems like. And I don't think we are leaving much demand on the table, Nehal, because we are constantly watching, right? The capacity level and how much the current sales teams are contributing. If we need to expand that, if it is very clear that we need to expand that, we will not hesitate to do that, Nehal.

Okay, great. And does the Marriott contract include the add-on modules, and if not why not?

This RFP, Nehal, was a global RFP for PMS, and that's it. In that RFP, our PMS product was selected for the set of properties that we already described. That's all this process was. And therefore, we got selected for that plan.

Got it. What is the opportunity to get your add-on modules included, and would it be on a per-property basis or would it be coming through a corporate mandate if that opportunity does exist?

We have no idea, Nehal. I mean, we have no way of answering that question. Like I said, this was a particular selection process for a particular product, PMS, we participated in it and did extremely well with it. That's all we know at the moment.

Okay. And then for the portion of the Marriott properties that are not on a proprietary built system that are on or in-house built systems that are on a third-party system to no micros, I think they won the deal back in 2013. When does that portion of the Marriott properties come up for renewal and therefore presumably an RFP for you guys as well?

We don't know, Nehal, right? We don't know. Again, we were selected for hundreds of thousands of rooms across premium, luxury, and select service in the US and Canada. And that's all we're focused on at the moment.

Okay. All right. Well, great, congratulations again.

Thank you, Nehal. Appreciate it.

Thank you. And I'm not showing any further questions at this time. I would now like to turn the call back over to Ramesh for any closing remarks.

Thank you, Josh. Thank you all for your continued interest in our progress. 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 2023 results and also provide guidance for fiscal 2024. Until then please be safe, healthy, and happy. Thank you.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.