Agilysys, Inc. (AGYS) Earnings

Management highlights

- Sales and Backlog Performance * Q4 FY2026 was the highest annual contract value (ACV) sales quarter on record (excluding the Marriott PMS project), and FY2026 was a record full-year for global sales. Key vertical and product sales records: managed food services (FSM) sales more than doubled the prior year, international sales hit a record, subscription SaaS sales grew 29% over the prior record (gaming subscription sales grew 27%), POS and PMS product lines both set annual sales records, with POS completing a full recovery from prior years' challenges. * Full-year net retained recurring bookings (net of churn) hit an all-time record, exceeding the prior year by 43%, while customer retention rates remain at world-class levels. Q4 added 20 new customers (19 subscription-based, 7 products per deal on average) and 105 new total properties, 103 of which were partially or fully subscription-based. Cross-selling also set a quarterly record, with 129 instances of additional product sales to existing properties totaling 345 new products sold. - AI Strategy and Product Innovation * AGILISIS's AI advantage is built on two unique, hard-to-replicate assets: a modern cloud-native unified product ecosystem built over several years, and decades of deep hospitality domain expertise paired with rigorous data privacy and governance controls required for enterprise hospitality operations. The company has four core AI pillars: Agentic AI, multimodal interfaces, hyper-personalization, and intelligent revenue optimization. * Two new AI-native modules (revenue intelligence and CRS) were launched at the recent Inspire User Conference, with first beta customer deployments scheduled for later in FY2027. The revenue intelligence layer spans the full product ecosystem to deliver real-time, cross-departmental optimization for total guest revenue (not just isolated room or F&B revenue), a unique value proposition only possible with a natively integrated ecosystem. Agentic AI tools, such as the PMS front desk digital agent, automate routine tasks to free staff for guest-facing interactions. * AI has significantly improved internal development efficiency, with the unified ecosystem foundation amplifying these gains to accelerate innovation velocity. Product pricing is based on operational metrics (number of rooms, terminals, venues) rather than user counts, so AI-driven efficiency gains do not reduce revenue per customer. - Operational Progress * The modernized unified POS ecosystem is now deployed at hundreds of sites, reestablishing AGILISIS as a strong competitive player in hospitality POS. The Marriott PMS transformation project (one of the largest and most complex tech projects in hospitality history) remains on plan and progressing well. * Implementation speed and efficiency have improved dramatically due to mature modernized products and AI tools, and the company is currently sufficiently staffed across product development, sales, and professional services to support near to medium-term growth. Gross margin expanded to 64.4% in Q4 FY2026, marking the start of the expected gross margin expansion phase as product mix shifts to higher-margin recurring subscription revenue. Full-year FY2026 operating expenses as a share of revenue declined to 42% from 43% in FY2025, with product development and G&A both declining as a percentage of revenue.

Guidance

- Full-year FY2027 total revenue is guided to a range of $365 million to $370 million, representing approximately 14-16% YoY growth over FY2026's record result. - One-time product revenue is expected to remain flat at ~$40 million for the full year, as customer demand continues to shift toward cloud SaaS subscriptions and consumer mobile devices for POS. Services revenue is expected to grow 5-10% YoY, with no material contribution from large custom development projects (prior projects are now in deployment). - Recurring revenue is expected to grow ~20% YoY, with subscription revenue growth targeted at 30% or higher, in line with the accelerated growth momentum from strong sales and backlog conversion in FY2026. Q1 FY2027 subscription growth is expected to be similar to Q4 FY2026's 24% exit rate, rising throughout the year as the Marriott PMS rollout accelerates. - Adjusted EBITDA margin is guided to 24% of revenue for full-year FY2026, up from 21.2% in FY2026. Q1 adjusted EBITDA margin is expected to be 16-17% due to one-time costs (including the annual user conference), rising sequentially through the year to a Q4 exit rate near 30%. A 30% full-year adjusted EBITDA margin is expected to be achieved in the near future as product mix continues to shift toward recurring revenue. - Product development operating expenses (excluding share-based compensation) are expected to decline to the high teens percentage of revenue in FY2027, down from ~22% a few years prior.

Segment performance

For Q4 FY2026: Total revenue was a record $82.9 million, up 11.7% year-over-year. Subscription revenue hit a record $36.9 million, growing 24.1% YoY, and accounted for 68% of total recurring revenue and 44.5% of total Q4 revenue. Overall recurring revenue (including perpetual license maintenance fees) was a record $54.4 million, representing 65.5% of total Q4 revenue. Q4 POS/POS-related module subscription revenue grew 19% YoY, while PMS/PMS-related module subscription revenue grew 34% YoY; add-on modules across both segments made up 38% of total subscription revenue. Q4 services revenue was $18.2 million, tied for the highest quarter on record, with software implementation services revenue reaching a new peak. For full year FY2026: Total revenue was a record $319.3 million, up 15.9% YoY, beating the initial full-year guidance range of $308-$312 million. One-time product revenue (perpetual licenses and hardware resale) remained flat YoY at $41.2 million, accounting for 12.9% of total full-year revenue. Full-year services revenue was a record $72.2 million, up 12.4% YoY, representing 22.6% of total revenue. Full-year recurring revenue was a record $205.9 million, up 21.1% YoY, representing 64.5% of total revenue. Full-year subscription revenue was a record $137.1 million, growing 30.2% YoY (beating the initial 25% growth target), representing 42.3% of total revenue; 0.2% of this full-year subscription growth came from the Marriott PMS project, with organic growth hitting 30% excluding the project. Full-year maintenance-related recurring revenue was a record $68.9 million.

Risks & headwinds

- The Marriott PMS large-scale rollout has varying legacy product migration requirements across properties, so a perfectly consistent cadence cannot be guaranteed, and future variances from the current plan are possible. The rollout will take at least two years (potentially longer), so full benefits will not be realized in a single fiscal year. - All forward-looking statements are inherently subject to risks and uncertainties that could cause actual results to differ materially from guidance, including risks related to achieving projected growth, maintaining customer retention rates, delivering planned AI innovation, and operational execution, as detailed in AGILISIS's SEC filings.

Analyst Q&A

• Q: What is the current progress and ramp timeline for the Marriott PMS rollout, and how much of it is included in FY2027 guidance? /

  A: The project is progressing well with all parties executing effectively, but non-uniform legacy system migration across properties means a perfectly consistent rollout cadence cannot be guaranteed, and future variances are possible. A conservative estimate of the rollout's FY2027 contribution is included in guidance, and the rollout will take at least two years (potentially longer), so it will not be completed in FY2027 alone.

• Q: What drove the strong Q4 gross margin step-up, and what is the gross margin trajectory expected to be in FY2027? /

  A: The gross margin improvement is almost entirely product mix driven, as higher-margin subscription recurring revenue becomes a larger share of total revenue. For FY2027, gross margins will follow the same pattern as adjusted EBITDA: full-year average margins will be higher than FY2026, with the Q4 exit rate expected to reach the mid-to-high 60% range as product mix continues to shift through the year.

• Q: Are you seeing AI anxiety among hospitality customers that is slowing sales cycles, and how is AI impacting customer buying decisions? /

  A: AGILISIS has not seen any meaningful AI anxiety among its customer base. Instead, the company's aggressive, tangible rollout of 30+ AI-enabled features and two new AI-native modules has shortened sales cycles: customers are curious about the company's actual AI capabilities (not just hype), which has increased demand for the company's integrated ecosystem.

• Q: How can the company reach a 30% adjusted EBITDA margin while still investing aggressively in new AI products like revenue intelligence and CRS? /

  A: AI has dramatically improved R&D efficiency, allowing the current R&D team to handle development of the new modules without requiring large proportional increases in R&D spending. Continued gross margin improvement from the ongoing shift to higher-margin recurring subscription revenue also supports margin expansion, even with continued investment in new product innovation.