Agilysys, Inc. Q1 FY2026 earnings call

Sales Success - Q1 fiscal 2026 April to June sales was the second best quarter on record. Sales was 24% higher than the comparable prior year period and was the best Q1 April to June period sales level. Combined overall sales of the last 2 quarters was 19% higher than the preceding 6 - month period. Combined sales of only recurring fee bookings was 34% higher than the preceding 6 - month period. Q1 was the best sales quarter in food service management vertical in the last 2.5 years, and the second highest sales quarter for international sales. Casino gaming sales vertical had its best Q1 April to June period on record, 15% higher than the previous best Q1 quarter. Q1 fiscal 2026 professional services sales was 20% higher than the comparable prior year quarter. Q1 was the best ever quarter for subscription software sales by a wide margin, 25% higher than the previous this quarter and 79% higher than the comparable prior year period. Added 24 new customers, excluding Book4time, all signed subscription license - based sales agreements. Added 69 new properties that were not using any of our software solutions before but the parent company was already a customer. Of the 105 new properties added during the quarter, 104 were either partially or fully subscription software license base. There were 93 instances of selling at least one additional software solution to properties already using one or more of our other products, involving a sale of 224 products. ### Revenue - Q1 fiscal 2026 overall revenue was $76.7 million. Subscription revenue grew 44.3% for the first quarter of fiscal 2026. Professional services revenue increased 16% over the prior year quarter to a record $18.1 million. Total recurring revenue represented 63.4% of total net revenue for the fiscal first quarter compared to 59.9% in the first quarter of fiscal 2025. ### Marriott PMS Project - The Marriott PMS project continues to progress well. Testing of all integrations and connectivity across platforms in the lab test property is close to being completed, and implementation at a handful of test properties is expected to start in a few months, with all guidance details excluding significant subscription revenue from this project during fiscal 2026.

Fiscal 2026 Q1 overall revenue was $76.7 million, a record for the 14th consecutive quarter. Overall revenue was close to 21% higher than the comparable prior year quarter, driven by 44% year-over-year growth in subscription revenue and 16% growth in professional services revenue. Recurring revenue including both subscription and annual maintenance grew to a record $48.6 million in Q1, 28% higher than the comparable prior year period and 63.4% of total revenue. Subscription revenue was a record 65.6% of total recurring revenue. Q1 subscription revenue grew by $9.8 million year-over-year. Annual maintenance recurring revenue was also a record high this quarter, about 5% higher year-over-year. One - time product revenue consisting of perpetual software licenses and hardware revenue was just shy of $10 million. Q1 profitability was below annual expectations mainly due to several once - a - year cost items. Subscription sales growth guidance for full fiscal year 2026 was increased from 25% to 27%.

Subscription Revenue Growth - Raised subscription growth guidance for full fiscal year 2026 from 25% to 27% based on current backlog and sales momentum. ### Annual Revenue Guidance - Remain comfortable with the already provided annual revenue guidance of $308 million to $312 million for fiscal 2026. ### Adjusted EBITDA - Remain confident that adjusted EBITDA will be 20% of revenue for the full fiscal year in line with original expectations.

Important factors that could cause actual results to vary materially from forward - looking statements include the ability to achieve the provided guidance levels, maintaining sales momentum, the company's ability to convert the backlog into revenue 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. Also, while using AI tools, need to be careful and cautious to ensure no exposure of internal data to the outside world.

Q: First, just on the sales capacity. I think, Ramesh, you just said that sales capacity, if I heard correctly, up 45% year - over - year. Can you give more detail about where you're adding that capacity and how productivity has been trending for new additions? And is there still a ways to go before the added capacity is at full production?

A: Yes, so. Hi Stephen, number one, we can do more, both with this I'll expand your question to answer services as well, both with respect to sales and services, we can do more productivity improvement. That is the current sales team can do more and the current services team can do more. So the bulk big increases that we wanted to do, we have gotten them done. Here after, there will be normal increases to both sales and services capacity as we go along since it's a growing business and as business expands, we expect to hire more and more. Now the recent sales expansion has been mostly in the area of hotel resort in that sales vertical and also an inside sales team. We have created an inside sales team. We never had a dedicated inside sales team before. We have one now, which is very handy to create more opportunities. And a lot of our expansion has been in the hotel and resorts vertical. Now it is already showing good results for us because, number one, we are knocking on more doors and number two, we are opening more doors for us, which is crucial for us because our success rate once customers take a detailed look at our company and our products, is very high, even more than what I can believe. So it's a matter of opening more doors for us and that's happening successfully. A lot of the sales success we have had in the recent 6 months has to do with the newer hires who are knocking on more doors and opening more doors. And the biggest thing we have achieved with the hiring of the sales team, Stephen is that we are covering the entire territory now, which we didn't do a great job of before. So a lot more discipline in territory coverage. We are knocking on more doors. We are opening more doors. So the recent sales expansion has really worked out well for us. but we have ways to go with respect to sales productivity. In terms of further expansion, that will happen as the business continues to grow.

Q: On the international side, I mean, it sounds like you're seeing momentum there pick up. As we think about what you need to do to keep that going, I guess, is it more about marketing and adding sales capacity? Or is there still a lot of work to do in terms of the product, in terms of integration and localization needed on the product side, I guess. What are kind of the holdups for that to become a bigger part of the revenue mix over time?

A: Yes. Product wise, there is not much more work to get done. Our products are in a good state now. Now both domestic and international, Stephen, if you -- if I'm asked to provide you one big -- the biggest advantage that we have, it is our ecosystem. It's the fact that we have invested and created an ecosystem of hospitality products, which is going to be very difficult to duplicate. You buy our competition. You just can't go create a modernized ecosystem of hospitality solutions just like that. It doesn't happen overnight. So that's our single biggest advantage now wherever we are selling and that is resonating in international regions now because our international business momentum is now happening in 2 areas. One, our current customers are spending a lot more with us because they see the product sets we have; and two, with the bigger deals that involve multiple products. Both those are going well. The one negative about international momentum is still dependent on bigger home runs, and we are focused on the singles and doubles now in winning more medium and smaller - sized deals as well where the competition is higher. But our success currently is with larger customers who are buying multiple products from us because there, there is virtually no competition to us now. Now what do we need to do to maintain that momentum. We need to install these new projects that we have done well, create more reference customers and that's going to create more business. And as the business improves, we will expand sales and marketing as well.

Q: Just on the Inspire user conference this year falling in 1Q. I think it was 4Q in March of last year. Any sense on how much of a cost that was just as we think about the year - over - year trend in profit margins this quarter?

A: Yes. It was -- I mean, it was most of the difference between the kind of normal percentage of sales and marketing as a percentage of revenue. We still look at that line around 13% of revenue for the year. So -- and sales and marketing was about 15% of revenue this quarter. So most of that was the user conference. So for the year, we'll normalize back to similar percentages of what you saw last year. So almost all of the sales increase was associated with that.

Q: Maybe another follow - up on sort of the improvement in the overall sales organization and the growth there. But as you think about what Joe and even Terry joining on the marketing side, in terms of what their multiyear plan is to up - level the entire go - to - market team and sort of drive more top of the funnel as well. Where do you feel like we are in terms of them rolling out their respective plans that you've come up with? Is there still more to be done in terms of programmatic improvements? Or do we have most of the plan in place and this is the beginnings of the execution on that showing better results?

A: Yes. I would say, Matt, as far as sales is concerned, I think we have a good plan in place, and we have implemented what we wanted to do this year and the structure, the territory coverage and the fundamental structure is there, and that is beginning to yield good results for us. But we are only in the beginning stages of seeing the benefits of that structure of better territory coverage, better organization of sales more discipline around that in terms of how we knock on doors. All that is improving now. I think that the sales structure is in a good place now. Now we will continue building on top of that foundation. Sales will continue to expand, but I think the structure is there. Marketing, we are it's a matter of putting more investments into marketing. We have expanded our presence, which is the main thing we have to do in this B2B vertical business, we have to show more presence, and we are doing that. We are attaining a lot more trade shows than we ever have. There's a lot more thought leadership presence now where you see, see Agilysys now. And that will continue to improve as we make more investments in marketing as well. Our content has improved a lot over the last year or so. So marketing, I think there are more investments to come to expand that. I think the sales structure is in a pretty good place. So we will continue expanding that from them.

Q: As you get Book4time more fully integrated, how I guess, how are you seeing that as a potential entry into customers that don't have any Agilysys products today? Is it -- is it helping win deals, whether they were from existing customers or just new to Book4time that are then discovering more offerings for Agilysys and sort of winning deals that way? Or is it just another kind of tool in the toolkit here?

A: It is a conduit to winning more deals because there are hundreds of customers who use Book4time and don't use any of the other Agilysys products. That is still in the beginning stages, right? It has turned out to be a bit more difficult than we thought because selling one product versus selling multiple products. That takes a little bit more training and adjustment time. In fact, recently, we won one significant sales agreement that involve multiple Agilysys products, which is a Book4time customer. So all that is beginning to happen now, but we are still in the beginning stages of that. In terms of tapping into the Book4time customer base and selling more products to those customers, we are still in the early stages of that game.

Q: On the EBITDA expectations for the year, just profitability in general. What would you see in the business over the next couple of months maybe that you might look and say we're going to hit the gas pedal and invest a little bit more in long - term growth? Is there a scenario that we could see that 20% level, maybe getting pressed a little bit lower because you have such good opportunities? Or are we far enough along in the year now that even if top line performance was strong enough. Those costs would be more realized in fiscal '27?

A: We don't see a risk of going below 20%, if that is your question, Matt. We are making significant investments. We continue to make significant investments we will not sacrifice our long - term growth possibilities for short - term profitability. But having said that, we are comfortable. We are a growing company. We are generating more revenue, and that is feeding into increasing resources where we need to increase. So we are comfortable with the 20% level that the other way I would answer your question is, we are comfortable feeding the areas we need to feed to continue our growth without sacrificing on the 20% mark.

Q: In terms of the success that you're having with the bookings, is it possible to maybe look a little bit under the covers between your core verticals, the HRC, food and management and then, obviously, the smaller cruise segment. But does the performance vary at all between new logos expansion and ARPU gains with the bookings among those 3 different segments.

A: Overall, the big news about this quarter is we made a great comeback with FSM. We really are beginning to see momentum with international sales. Having said that, hotel resorts casino gaming and the verticals that we are normally strong at continue to do well. Cruise ships again, had a good quarter in Q1 as well. So this was the broadest - based sales success that we have seen in our history, in fact, in terms of this many verticals doing well at the same time in the same quarter was very encouraging to us. Now on the other hand, this was also a good quarter for sales from new customers. And sales from current customers who continue to buy more products from us continues to be at record levels. So the only one where we can say we could improve further that was not a great quarter. It was a good quarter. It was for new sites. And for that, as we sign more multi - property big customers, that will also make a comeback during the subsequent quarters. So now in terms of new customer in each vertical, A lot of new customers are signing up with us in hotel resorts. In gaming is more skewed towards current customers buying a lot more from us. And we are beginning to sign a lot of new customers in FSM and international as well.

Q: The subscription revenue growth in the quarter, it accelerated very slightly. And I was just wondering, was that reflective that maybe a faster go - lives to recognize revenue a little bit faster or you had a stronger start to the quarter. I'm just wondering what drove a little bit of the faster growth in the subscription revenue in the quarter?

A: Yes. I mean, it was really both. I mean, we gave a lot of commentary. Obviously, the subscription bookings did a lot better than we expected. So sales that obviously always starts with sales, and that was really strong for the quarter. And then we always look at the professional services line as a good leading indicator. So I would say professional services being north of $18 million was -- gave us a very strong start to the quarter too with SAP go live. So it was really both. I mean it was a tremendously strong sales quarter. And it was kind of 6 months of some of the operational hiccups we had in our 2025 fiscal year kind of being behind us. And I'd also point out that it's also good even despite those numbers being really strong. Our subscription bookings still our subscription backlog still went up 23% over our March 31 exit. So sales were really good this quarter.

Q: Ramesh, you talked about some interesting ways that you guys are leveraging AI kind of for end customers through the product set. Can you maybe just give us a sense for where you think that road map goes into next year? And sort of what kind of different tier you think that can be for you?

A: Hi Logan, yes. So before we talk about AI, the lucky part is and the good part is that we did the modernization over the last few years and also create an ecosystem of products. Both of them have placed us in a very good position where you can now infuse AI into our products in a very in a very effective way that gives us competitive advantages that are going to be difficult to duplicate for the competition. So we are now -- so you think of AI in sort of 2 different ways. One, what are we doing with our products. So there are a lot of enhancements in almost each of our -- every one of our products that we are introducing now that are AI based, and they are adding tremendous advantages to the product. They are enhancing the product significantly. And there are various different things that we are doing, and ability to do intelligence revenue upsell for customers, a way to do voice recognition when you do F&B ordering invoice recognition and approval processing in that inventory procurement products a natural language processing in our data analysis product. So the -- and conversational ordering in our booking engine and while doing spa and golf bookings. So there are various different ways in which we are able to infuse AI into our products now. And thankfully, the products are modernized and it is easy for us to do that. In our internal operations, also various departments are using AI and they're able to get a lot more done now with the current resource strength we have. So we -- our products already have a competitive advantage and now the use of AI infusion of AI - related tools is going to make that even better.

Q: Ramesh, great to hear about the sales momentum coming into this year and continuing into this quarter. I was just wondering, is it safe to say that your subscription revenue is all under contract? Or is there a business that you still have to win to hit your guidance. And just to extend the question further, I would ask你, if there is upside to the growth acceleration on the subscription side, where would that upside potentially come from? Is it from new logos going live faster than expected? Is it from better cross - sale success? If you could just expand on that.

A: Yes. So the start is great, Mayank. We have started the year very well. As a general rule, we are happy to have this kind of visibility, right? In enterprise software, you can't ask for much more. So we have excellent visibility in terms of our subscription revenue backlog of projects that we have. And also, we have increased our services teams now, and we are in a good position to increase their level of implementations as well. So we saw an inflection point about a couple of quarters ago. When both subscription sales and the level of implementation of subscription projects took a clear inflection upwards from what it was for the previous many quarters. So that inflection is really helping我们 now and is helping us get this year of -- started off very well. But in terms of achieving the annual revenue and other targets, it depends on both. It depends on the starting backlog. It depends on continuing good sales levels. And for us, we are lucky and happy that both of them are going very well. Our current sales momentum especially with respect to subscription software sales is going very well. And our rate of implementations of subscription products has also increased very well because the products are easier to implement now. They have been in the field for 2, 3 years, and they are becoming easy to implement. So as long as we continue the current rate of improvement and what we have been doing for the last 6 months or so, I think we will do well and the rate of growth will continue to increase.

Q: Given that you've had some early success with Book4time, just curious, is this maybe a reason to pursue further M&A? Are you being opportunistic? And if you were to do more M&A, what would be potentially your focus area, would it be around expanding your geographic reach? Would it be expanding your capability set? If you could just provide any color around that, that would be helpful.

A: Yes, Mayank, there are more opportunities that are coming our way than usual in M&A, but we remain patient. We've always said we remain patient. We remain conservative. We remain opportunistic. So this is an organic growth company. We have done all the product investments. We have done all the investments to expand sales and services, and our products are in a great state now. The ecosystem is a big advantage for us. So there is enough organic growth ahead of that -- and the organic growth ahead of us is huge. We are just beginning to scratch the PMS area and we have long, long way to go as far as our growth is concerned. So we can comfortably grow well organically. There is no reason for us to do anything desperate as far as M&A is concerned. But there are lots of opportunities coming our way. We look at them frequently, patiently, conservatively. We are not going to do anything dramatic. Now to answer your question of what kind of M&A, they fall into 2 broad categories. One could be complementary to our product set. That fills a couple of gaps that we have in the ecosystem if a good opportunity comes along. On the other hand, it could also be for market share gain. There could be companies that could take advantage of the fact we have modernized our system and give their customers an upgrade path that helps我们 build on our market share. So it could fall into 1 of those 2 broad categories. And we look at each opportunity with a very patient and conservative lens, Mayank.