Agilysys, Inc.

Good day, ladies and gentlemen, and welcome to AGILISIS 2025 Second Quarter Conference Call. As a reminder, today's conference may be recorded. I would like to send the conference over to Jessica Hennessy, Senior Director of Corporate Strategy and Investor Relations at AGILISIS. You may begin.

Thank you, Marvin, and good afternoon, everybody. Thank you for joining the AGILISIS 2025 Second 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 our ability to meet the provided guidance levels, our ability to increase sales and market share, our ability to maintain profitability levels, 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 Agilisys 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 Agilisys. Ramesh, please go ahead.

Thank you, Jess. Good evening. Welcome to the fiscal 2025 second quarter earnings call. Joining Jess and me on the call today at our Alpharetta Atlanta headquarters is Dave Wood, our CFO. Let me first cover brief details about the Book for Time acquisition we completed during the quarter, followed by a summary of our recent selling success, before moving on to revenue and other details. We acquired the leading spa management software provider, Book for Time, and its excellent high-talent team a little more than midway during the quarter. Book4Time is the number one enterprise SaaS solution for spas within hospitality, currently serving more Forbes five-star rated spas than any other competing product. Book4Time has enjoyed a good reputation in hospitality over the last couple of decades for its superior product and world-class customer service. Book4Time's revenue is almost entirely based on subscription licenses. Their customer base is similar to ours and includes many resorts, casinos, golf, private member clubs in more than 100 countries, and major brand hotel chains including Marriott and Hilton, who are common customers with Agilisys. And also other chains like IHG, Hyatt, Accor, and Four Seasons, who are at best only partial Agilisys customers currently at a small portion of their properties. In this narrative, we will do our best to highlight sales, revenue, and other details separately applicable to Book for Time, with the caveat that such differentiation is going to become increasingly more difficult during subsequent quarters. The process of integrating Book4Time into the fabric of Agilisys has moved along faster than we anticipated during the couple of months since the acquisition, and it is soon going to be difficult for us to attribute various business metrics separately to Book4Time and Agilisys. Agilisys sales personnel now have an additional spa management product to sell to various customers where applicable, and Book4Time sales personnel in coordination with the bigger Agilis' sales team have an entire smorgasbord of hospitality software products they can sell to their current customers and to new ones in their sales territories. As you will see from the numbers we discussed during this call, we are having considerable success selling additional products to current customer properties. Our win-loss ratio remains high when we reach the product demonstration stage in our sales process. The book for time acquisition by itself in one stroke has increased the number of customer properties currently running at least one of our software products or modules by as much as 30%, three zero, by as much as 30%. Less than 15, that is one five, less than 15% of book for time's customer properties are common with Agilis prior to the transaction. One of Book4Time's significant strengths is a strong sales team which is experienced and accomplished in selling to the global hospitality industry. The Book4Time sales team was eager for a broader base of products to sell to hospitality even before the acquisition happened. They have certainly come to the right place now and have an entire ecosystem of state of the art technology based and feature rich set of software products and modules, they can sell into more or less the same buyers they are used to selling to. Overall, we are happy we got this opportunity to add a world class professional team and product that further enhances our improving competitive positioning within hospitality. During the quarter, around the same time, almost to the date of the Book for Time acquisition, we welcome Mr. Joe Youssef to our executive team as chief commercial officer. Joe comes to us after a close to two decade tenure at Amadeus Hospitality, focused on hotel technology products like CRS, business intelligence, sales and catering, and PMS, where he led the expansion of that division by a couple of orders of magnitude. When Joe joined Amadeus, its hospitality division was generating annual revenue of less than $10 million. And by the time he left about 18 years later, it was knocking on the doors of being close to a billion dollar business unit. We are obviously thrilled to add such a senior accomplished growth mindset officer to our team. who shares our DNA of employee and customer-centric, disciplined, profitable growth. Perfect executive at the right time. On to a few details regarding our recent selling success. We measure sales in annual contract value terms. One slight additional nuance, we actually measure it in net annual contract value. The net represents our conservative practice of counting only additional incremental sales generated in transactions with current customers. That's an important distinction as we continue to see more growth in subscription sales from our current customer base. Excluding additional sales generated for the Book for Time product since late August after the acquisition, fiscal 2025 second quarter was our best ever July to September second quarter of sales, and the second best of any sales quarter. Sales levels this quarter were excellent for the gaming casinos, resorts, hotel, and cruise ship verticals in the US, and for overall EMEA. Sales in the US food service management vertical continued to be disappointing, and APAC had a challenging quarter following a strong sales quarter during Q1. Fiscal 2025 second quarter July to September sales of property management systems, PMS, and related add-on experience enhancers software solutions surpassed first quarter sales and also matched our previous record established about nine years ago when we were selling mostly chunky perpetual licenses. We are seeing a clear trend of increasing sales in the PMS category for more than a year now. Fiscal 2025 second quarter PMS and PMS-related product sales nearly doubled year over year compared to the second quarter of last fiscal year. The number of field implementations of the fully modernized set of PMS solutions are increasing, giving us a growing number of reference customers who are willing to discuss their success stories with others in the industry. One recent example of the power of integrated PMS solutions was at a major popular resort where the combination of express check-in, check-out kiosks and our core PMS solution reduce guest check-in wait times during peak holiday check-in times from a few hours to a matter of minutes. The value of such powerful customer testimonials about the recently modernized PMA solutions cannot be overstated. Fiscal 2025 April to September was the best ever first half of a fiscal year with respect to sales. ahead of last year's record first half pace by a comfortable distance. We have a long runway of sales growth ahead of us across all sales verticals. The sales verticals where we are performing well can sustain a lot more growth due to current low market share levels, and the verticals which are still not performing well will scale great heights once we turned the corner with the newer version of the products now available to sell and increased market awareness. Our market share remains low in most of our sales verticals, and we are at only the early innings of effectively bringing to all relevant marketplaces an entire ecosystem of hospitality-focused products, each of them based on state-of-the-art cloud-native technology that can also perform well on-premise for the many hospitality customers who still prefer on-premise implementations. We are expanding our marketing efforts, have greatly increased our thought leadership presence, are establishing a good presence in a lot more trade shows, have increased our global quota carrying sales personal strength by 50%, that's five zero, by 50%, as at the end of September compared to a year ago, and added to the executive team an accomplished senior sales and commercial leader who has an established track record of driving growth, is well respected, and wields great influence in the hospitality industry. Having said all that, the present truth is much of the hospitality industry has not discovered the new Agilis yet. The Lajitas Golf Resort in Texas recently implemented 14, that is one fourth, 14 modern technology-based Agilis software solutions, and all of them went into production use over a two-day window, replacing several competitive solutions. The hospitality industry in general is just not used to such realities yet, and it is going to take us more time to be more convincing about what can be accomplished today. with an integrated ecosystem of modern solutions. We do not see the possibility of any external factors slowing us down. If the global customer base and hospitality experiences any slowdown due to the economy, interest rates, elections, inflation, or any other external factor, we believe that will only increase the need for technology that can help improve operational efficiencies and provide ways to enhance guest experience and guest loyalty without increasing operational costs. During Q2 of fiscal 2025, July to September, we added 18, that is one eight, we added 18 new customers and all but one of them was subscription-based. Each of these new customer sales wins involved an average of 5.4 products per deal, which is a new high for us, and was driven by PMS New Customer Wins, which featured an average of 13, one, three, 13 products per deal. In addition to the 18, five new customers signed up for the Book for Time Spa product from the time of the acquisition during the third week of August. We also added 85 new properties which did not have any of our products before, but the parent company was already our customer. Of the 108 new properties added during the quarter across new customers and new properties of current parent customers, about 90% of them were either partially or fully subscription-based. In addition, there were 102 instances of selling at least one additional product to properties which were already running at least one of our other products. These 102 instances involved a total of 247 new products sold to current customer properties. The average deal size across these 102 instances of new product sales was about 14%, one fourth, 14% higher than the sequentially preceding Q1 quarter. Annual contract value of new product sales sold to current customer properties during the first half of fiscal 2025 increased 84% year over year compared to the first half of last year. Now on to revenue. Fiscal 2025 Q2 revenue was a record $68.3 million. The 11th consecutive record revenue quarter, 16.5%, that is one six, 16.5% higher than the comparable prior year quarter. 2.2 million of the $68.3 million was attributable to book for time, meaning it would have been a record revenue quarter even without revenue from book for time. Overall revenue during the first half of fiscal 2025 was $131.8 million, 15%, that is one five, 15% higher than revenue during the first half of last fiscal year. Fiscal year 2025 Q2 recurring revenue grew 21% year over year and 8.9% sequentially quarter over quarter to a record 41.4 million. Recurring revenue year over year increase of $7.2 million and sequential quarter over quarter increase of 3.4 million are both record best increases. This recurring revenue increase was driven mainly by a 36.6% increase in subscription revenue, which grew to $25.1 million during fiscal 2025 Q2. This 25.1 million included 2.1 million of subscription revenue attributable to Book for Time since the acquisition. Without the Book for Time contribution, subscription revenue year-over-year growth would have been 25.2% during Q2 and 28.5% during the first half of fiscal 2025. Second quarter fiscal year 2025 was the third consecutive quarter of year-over-year subscription revenue growth of 30%, three zero, 30% or higher. Subscription revenue constituted 60.5%, that is six zero, 60.5% of total recurring revenue compared to 53.6% Q2 of last year. Subscription revenue is becoming a significant portion of our total recurring revenue now and consistently one of our fastest growing revenue lines. Annual maintenance revenue, which is about 40%, 40% of total recurring revenue currently, will remain a low to no growth revenue line as the preference for subscription-based agreements and cloud-based implementations by both new and existing customers is driving the vast majority of our sales currently. Excluding book for time, subscription revenue from add-on experience enhancer software modules, most of which were developed during the past few years, constituted 21.1% of total subscription revenue, the highest level reached so far. These add-on software modules working with each other and with the core POS, PMS, and inventory procurement modules are adding immense value to customer operations. When customers like the Lajitas Resort in Texas buy multiple such modules from us, along with core POS and PMS products, not only do they get the benefit of far less integration work they have to manage across multiple vendors, but a lot more valuable than that they also get the benefit of a far higher pace of future innovation. When there is a new innovative feature set we have to create that cuts across multiple software modules, it is far easier for customers. When we can get that coding done in multiple integrated products simultaneously in the subsequent release of each of them, than for customers to go about convincing multiple vendors about the need for such an enhancement and dealing with various different product roadmap timelines. The hospitality industry is only beginning to embrace such distinct advantages. Excluding book for time, subscription revenue from property management systems, PMS and PMS-related add-on modules during Q2 grew by 32% year over year. while subscription revenue from point-of-sale POS and POS-related add-on modules during Q2 grew by 25%. Our POS business continues to work through a tough transition phase as we discussed last quarter. The good news is implementations involving only recently modernized versions are going well, and we expect to get our point-of-sale POS mojo back in short order. Our current POS modernized and unified solution set is vastly superior and carries tangible competitive advantages. The POS project we completed at a prestigious well-known Las Vegas property a couple of months ago, replacing a major well-established competitor who just could not match the benefits of our modernized POS solution set brought to the customer is one such recent example. We've worked through a tough phase with our POS business for the past several quarters and are cautiously optimistic that we are turning the corner now. Sales of point of sale POS and POS related modules during fiscal 2025, July to September second quarter was 17%, one seven, 17% higher than the sequentially preceding Q1 quarter and was the best quarter of POS sales in about a year giving us increasing confidence that we have worked through the low point of our POS business challenges related to the period of transformation from old to new technology. At a major theme park international site, the fully modernized POS solutions, which were installed recently at one food outlet, helped increase guest transactions by more than 15%, one five, by more than 15% through the use of self-service kiosks, and also drove a 5% increase in upsell rates while freeing up their employees to provide more attention to guests. These kinds of numbers, when applied on huge, high-volume theme parks and other resort sites, make a real difference to customer bottom line results. Driving additional revenue while also increasing guest satisfaction levels is an extremely valuable combination for customers. This was also one of the fastest executed software projects this customer has experienced, thanks to the power of modern technology solutions, which enable relatively faster implementations and easier ongoing maintenance and management. Product revenue, which has been affected by the POS transformation from old to new difficulties during the past few quarters, improved slightly sequentially from Q1 to $10.5 million, but was still 16.7%, that is one sixth, 16.7% less year over year compared to Q2 last fiscal year. Fiscal 2025 Q2 July to September services revenue was a record 16.3 million, that is one sixth, $16.3 million, 39.2% higher than the comparable prior year quarter. Services revenue continues to be a good indicator of future subscription growth. Services and subscription revenue are two main growth engines comprised 60.6% of total revenue in the second quarter compared to only 51% of total revenue during Q2 last fiscal year. These two revenue drivers continue to support strong top line growth. Fiscal 2025 Q2, being the second best sales quarter on record, drove combined product recurring revenue and services backlog levels, not including book for time, to 94% of peak record levels. Product backlog improved slightly, but remains far short of previous peak levels. Services backlog grew to record levels, with customers continuing to sign up for projects faster than implementations are getting scheduled. Recurring revenue, and within its subscription revenue backlog, is at about 90% of record levels. Sales momentum, strong in Q1 and even better in Q2, along with the book for time acquisition, has been positive for subscription revenue growth. As a result, our expectations for full fiscal year 2025 itself have increased, enabling us to raise all three guidance levels. We now expect the full year revenue range to be $280 million to $285 million. Subscription revenue growth to be better than 38%. And EBITDA as a percentage of revenue to be 18%, that is one eight, to be 18% higher than the 16% expectation at the beginning of the fiscal year. With that, let me hand over the call to Dave for further color.