Agilysys, Inc.

Good day, ladies and gentlemen, and welcome to the AGILISIS 2026 First 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 AGILISIS. You may begin.

Thank you, Victor, and good afternoon, everybody. Thank you for joining the AGILISIS Fiscal 2026 First 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 U.S. 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 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. 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 our fiscal 2026 first quarter earnings call. Joining Jess and me on the call today is Dave Wood, CFO at our Alpharetta, Atlanta headquarters. Let me cover sales and selling success first before moving to revenue, profitability, guidance increase, and other details. We measure sales in annual contract value terms. We continue to exclude from our sales numbers all aspects of the Marriott Property Management System PMS project, including those pertaining to services. Fiscal 2026 Q1, April to June sales, was the second best quarter on record, following the preceding fiscal 2025 fourth quarter, which was the highest. Sales during Q1 was 24% higher than the comparable prior year period and was easily the best Q1, April to June period sales level we've seen. Combined overall sales of the last two quarters were 19%, that is one nine, 19% higher than the preceding six month period. While combined sales of only recurring fee bookings consisting of SAS annual fees and annual maintenance fees were 34% higher than the preceding six-month period. Fiscal 2021 April to June was our broadest and widest sales success quarter ever, with several different sales verticals achieving good to excellent sales levels. Q1 was the best sales quarter in food service management, FSM vertical, in the last two and a half years. As reported during our previous calls, we went through a tough period with FSM sales during late fiscal 2024 and the first half of fiscal 2025. We are happy to report that we are now back in full form with point of sale POS sales in the FSM vertical. Q1 was also the second highest sales quarter for international sales, while the sequentially preceding quarter was the highest. We have seen good signs of our international business picking up steam during the last two quarters and are continuing to see good momentum, especially with respect to large multi-product teams. The casino gaming sales vertical also had its best Q1, April to June period on record. 15%, that is one five, 15% higher than the previous best Q1 quarter. There were several large sales wins during the quarter in gaming, including the Void Gaming subscription POS deal we announced in the middle of May. We continue to see strength in the casino gaming sales vertical as customers broaden their portfolio of Agilis' products and expand investments in modern software solutions that help with improving guest experience and operational efficiencies. Most of the sales verticals performed very well in Q1 and across the last two quarters. The highlights of this recent six-month period have been the impressive turnaround in the food service management FSM vertical and international business picking up good momentum. Q1 fiscal 2026 professional services sales was 20% higher than the comparable prior year quarter. Q4 fiscal 2025 and Q1 fiscal 2026 are our two best services sales quarters on record and combined 21% higher than the immediately preceding six month period. Q1 fiscal 2026 was the best-ever quarter for subscription software sales by a wide margin, 25% higher than the previous best quarter, which was the preceding Q4 fiscal 2025, and 79% higher than the comparable prior year period. Q1 was the fourth consecutive record sales quarter for subscription sales. Subscription software sales specific to POS and POS-related modules was 61% higher than the sequentially preceding fiscal 2025 Q4 quarter. There is now ample evidence that our modernized set of cloud-native software solutions is gaining serious traction in the hospitality industry, which has never been keener to improve technology solutions running their operations. Our current pace of innovation, following many years of product modernization efforts, does seem to be creating a serious competitive advantage, which is becoming wider with each passing month. With respect to sales deals won during Q1 fiscal 2026, April to June, we added 24 new customers, excluding Book for Time, all of whom signed subscription license-based sales agreements. Q1 was one of our highest quarters with respect to total annual contract value of new customer wins. These 24 customers purchased an average of six products each. New customer deals, which included PM solutions, involved an average of as high as 14 products per deal. The ability to provide an integrated ecosystem of software solutions that work well together and offer unique functional and feature advantages is becoming a fast growing differentiator for us. Our extensive investment in the development of an integrated product ecosystem has already become one of the primary reasons for our excellent current sales win ratio. Such an ecosystem also creates enormous amounts of connected data for a multi amenity resort or a similar customer property which lends itself well to extracting significant differentiated value through use of AI and other tools. We are lucky to have completed all the required foundation modernization work across the product sets while also creating an interconnected ecosystem of products, both of which are making the adoption of AI tools easier, more relevant, and effective. Various AI-based product enhancements are now being included in the recent and upcoming version releases, such as enabling personalized upselling through a dynamic PMS upgrade engine to suggest appropriate room upgrades and add-on amenities during check-in based on real-time factors like current occupancy, guest loyalty status, past day behavior, and even staffing levels. AI-assisted concierge services AI-powered natural language processing. AI-enabled booking of a curated set of guest-specific preferred amenities and creation of itineraries. AI-driven demand and availability-based pricing decisions. AI-based conversational food ordering. AI-enabled mechanisms for fulfillment of various guest-requested tasks. Enhanced data analysis and creation of AI agents that can help with various analysis and execution tasks within a customer property. All such AI-based enhancements currently being added to the product sets should produce tangible value for our customers and additional convenience for the guests they serve, thereby strengthening our growing competitive advantages. In addition, The use of AI tools is permeating across our internal business operations as well, making execution better and more efficient across several departments, including product development and professional services to improve coding and implementation efficiencies, quality, and accuracy. AI agents driven virtual assistant mechanisms for our customer support personnel and other such improvements across sales, marketing, IT, information security, finance, and legal. We are also being careful and cautious though, while using various AI tools to ensure no exposure of our internal data to the outside world. Getting back to sales success during the quarter, we also 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 across new and current customers, 104 were either partially or fully subscription software license based. In addition, there were 93 instances of selling at least one additional software solution to properties which are already using one or more of our other products. In total, these 93 deals involve the sale of 224 products. This was the second highest quarter with respect to total annual contract value sales of new products to current customer properties. The sequentially preceding fiscal 2025 Q4 quarter was the highest. Moving on to revenue. Q1 fiscal 2026 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. Organic subscription revenue grew by 24% year-over-year, which in turn was driven by a 48% increase in subscription revenue pertaining to property management systems, PMS and PMS-related add-on software modules, and a 16% increase in point-of-sale POS and POS-related add-on modules. We expect the year-over-year subscription revenue growth rate pertaining to POS to increase going forward, given the recent turnaround in POS sales levels and the ongoing pace of POS implementations. Overall 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. In absolute dollar terms, Q1 subscription revenue grew by 9.8 million year over year, which is the highest level of year over year growth we have seen until now. While understandably not surging higher like subscription revenue is currently, annual maintenance recurring revenue was also a record high this quarter. about 5% higher year over year. This is a good indication of the fact that our subscription revenue growth is coming from new and additional projects for the most part and is not based on cannibalization of annual maintenance. We continue to allow our customers to make their own decisions regarding their timing of moving to the cloud. Customer centricity is a big part of our organization culture. We exist to help our customers achieve their goals without any unnecessary pressure from their technology partners. Along with being record high quarters for subscription software sales, Q4 fiscal 2025 and Q1 fiscal 2026 were also the best two quarters for subscription project implementations, measured as the sum of annual recurring revenue, ARR, of all subscription projects implemented during the period. The extent of subscription ARR installed in the field during the recent six months was 47% higher than the immediately preceding six-month period. Both subscription sales and implementations in the field have been off to a faster start this fiscal year than we anticipated going in. We are, therefore, increasing the subscription growth guidance for full fiscal year 2026 from the originally stated 25% to 27%. One-time product revenue consisting of perpetual software licenses and hardware revenue was just shy of $10 million, a bit less than our already low ongoing expectations of this revenue line. Q1 was the lowest quarter in about four years with respect to perpetual software licenses in the one-time product revenue bucket. An overwhelming number of customers are choosing the cloud option, which is reflected in the subscription revenue growth levels. The current versions of the POS products have a reduced hardware attach rate since they also work well on consumer-grade hardware devices like the iOS operating system-based iPads. We expect the one-time product revenue line to remain around this level for the foreseeable future. We also expect services revenue to remain around the levels of this quarter during the remainder of the fiscal year. As services revenue related to product development work on a couple of major projects has tapered off and is being replaced by growing normal implementations related professional services work. Despite excellent improvements in project implementation levels and record services revenue, strong sales drove the recurring and services revenue backlog to record levels. Fiscal 2026 Q1 profitability was below annual expectations, mainly due to several once a year cost items falling in this quarter, including the high cost user conference. We remain confident that adjusted EBITDA will be 20% of revenue for the full fiscal year in line with the original expectation. We also remain comfortable with the already provided annual revenue guidance of $308 million to $312 million for fiscal 2026. The Marriott PMS project continues to progress well and is proceeding according to plan. The testing of all integrations and connectivity across platforms in the lab test property is close to being completed, marking the completion of one of several rollout milestones. We expect implementation at a handful of test properties to start in a few months, which will be the next step in the project. All guidance details provided continue to exclude any significant subscription revenue from this project during fiscal 2026. With that, let me hand over the call to Dave for more color on financial and other business details.