Agilysys, Inc.

Ladies and gentlemen, today's conference will begin in two minutes. Thank you for standing by. Again, the conference will begin in two minutes. Thank you. Good day, ladies and gentlemen, and welcome to the Agilis' 2026 second quarter conference call. As a reminder, today's conference may be recorded. I would now like to turn the conference over to Jessica Hennessy, Vice President of Operations and Investor Relations at Agilis. You may begin.

Thank you, Carmen, and good afternoon, everybody. Thank you for joining the Agilisys 2026 Second Quarter Conference Call. We will get started in just a moment 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 Forms 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 2026 second quarter earnings call. Joining Jess and me on the call today at our Alpharetta Atlanta headquarters is Dave Wood, CFO. As has become customary in these updates, let me cover the details pertaining to sales and selling success first. before switching to revenue, profitability, guidance increases, and other business updates. We measure sales in annual contract value terms. We continue to exclude from our sales numbers all aspects of the Marriott PMS project, including those pertaining to services sales. Fiscal 2026 second quarter was our best ever July to September period of sales, and the second best of any quarter so far. The first half of this fiscal year was the best first half sales start to a fiscal year in our history. We can slice the sales numbers in various ways, but the long and short of the sales story is our current business momentum is excellent. All the years of diligent re-engineering of the core products and the addition of 20 plus add-on software modules to create a comprehensive ecosystem of cloud-native, world-class, hospitality-focused software solutions have created considerable competitive advantages for us in a hospitality technology environment that otherwise seems starved of genuine innovation and significant R&D investments. It's becoming easier for prospective customers to see the obvious pace of innovation benefits of working with one provider for as much of the required ecosystem as possible. When customers come up with an enhancement that involves changes to multiple software modules, they can clearly see who the only provider is who is capable of getting the required innovation done across all the pertinent modules in quick time. These advantages have been showing up in our sales numbers during recent quarters. In addition, the tailwinds of AI are helping us improve all areas of the business, especially the modernized software solutions, which are well positioned to take on the engineering of groundbreaking innovations that AI tools are now helping enable and increasing our competitive advantages at an even faster rate. Sales levels during the quarter were good across the various sales verticals, especially gaming casinos and international regions. Looking at sales levels during the first half of fiscal 2026, Q1 plus Q2, compared to the first half of last year, fiscal 2025, overall global sales were up 17%, 1.7, were up 17%, but more importantly, Subscription sales were up 59%. Food service management, FSM sales were up more than 2.5 times. International sales were up 36%. Gaming casino sales were up 15%, 1.5, were up 15% despite last year being a big record sales year. Point of sale POS products, including add-on modules, were up 23%. Property management systems, PMS products, including add-on modules, were up 34%. Inventory procurement for food and beverage products more than doubled. I will spare you recounting the entire list. Suffice to say that our current business momentum is good, fueled by increasing sales success levels, which are in turn driven by growing product ecosystem superiority which is sustainable and getting more pronounced and visible with every passing quarter. The modernized set of software solutions has now been in the field for anywhere from one to three years, and we continue to grow the number of reference customers who have good return on software purchase investment stories to tell. Considering that the total addressable market we serve is something like a couple of orders of magnitude bigger than our current size, we still have a long growth path ahead of us as we continue to solve the challenge of today's agilises not being known well enough in large swaths of the hospitality market. International sales levels had another strong quarter during Q2, growing by more than 35% over the prior year. The ecosystem is resonating across global markets and customer needs for a unified solution set is driving more awareness and more global wins. One such win during Q2 was Rudding Park in Harrogate, England. This beautiful family-owned luxury resort, which I had a chance to visit recently, located in Northern England, includes multiple golf courses, an award-winning spa, upscale dining, and even space. They selected as many as 21 Agilis' software solutions, including POS, PMS, service optimization, booking engine, sales and catering, golf, and spa. Fiscal 2026 Q2, food service management, FSM sales, was twice as high as Q2 last fiscal year. The new modernized and unified POS platform is performing well in the field, And given we no longer need to mix old and new technologies in new implementations, they are becoming increasingly simpler to implement and manage, giving a strong credibility within the FSM vertical to execute on promises made. FSM sales results have not only been great during the first half of this fiscal year, but we are also seeing good momentum for continued good performance through the rest of the fiscal year. We are pleased to see FSN customers renewing and deepening their trust in our POS solutions again. The other sales verticals also generated strong results. Both gaming and hotel resorts and cruise ships HRC verticals returned strong sales quarters. A few notable multi-product new customer wins during the quarter within HRC included Naturally Pacific Resort on the coast of Vancouver Island, Canada, who selected 15, one five, who selected 15 Agilis' products, including PMS, POS, golf, reserve, and spa, to manage all their luxury, amenity, guest experience options. And Waco Surf Water Park and Hotel Resort, the largest inland surfing and sports facility located in Waco, Texas, who selected 13, one, three, selected 13 Agilis' products, including PMS, POS, mobile ordering, membership, and the recently introduced guest app to increase operational efficiencies and provide exceptional guest experiences. During Q2 fiscal 2026, July to September, we added 18, one, eight, we added 18 new customers, excluding Book4Time. and all of them were subscription-based sales agreements. Each of these new customer sales wins included an average of seven products per deal, which is a new high for us. PMS customers continue to invest in the multi-product ecosystem with an average of 14 products per deal when PMS was part of the purchase suite. We also added 87 new properties which did not have any of our products before, but the parent company was already our customer. Of the 114, that's 114, of the 114 new properties added during the quarter across new customers, new properties of current parent customers, and book for time, 108 were either partially or fully subscription-based. In addition, there are 93 instances of selling additional products to properties which are already running at least one of our other products. These 93 instances involve a total of 241 new products sold at the rate of 2.6 products per new product sales agreement, which is the highest level we have seen so far. Now on to revenue. Fiscal 2026 Q2 revenue was a record $79.3 million, the 15th consecutive record revenue quarter, 16.1% higher than the comparable prior year period. Overall, revenue during the first half of fiscal 2026 Q1 plus Q2 was 156 million, 18.4% higher than revenue during the first half of last fiscal year. Fiscal 2026 Q2 recurring revenue grew 23% year over year and 4.8% sequentially quarter over quarter to a record $51 million. This recurring revenue year over year increase was driven mainly by subscription revenue increase of 33.1%. This is now the seventh consecutive quarter of overall subscription growth of greater than 30%. Subscription revenue now constitutes 65.5% of total recurring revenue compared to 60.5% Q2 last year. Subscription revenue from POS and related add-on modules grew by 18%, that is one eight, grew by 18% year over year, and organic subscription revenue from PMS and related add-on modules grew by 55%. Fiscal 2026 Q2 was the best quarter on record with respect to the sum of annual recurring revenue, ARR, of all subscription projects implemented during the quarter. The extent of subscription ARR installed during fiscal 2026 Q2 was 79% higher than the comparable period last year. And total subscription ARR installed during the first half of fiscal 2026 Q1 plus Q2 was 50% higher than during the first half of last fiscal year. The increased velocity of project implementations have been a strong contributor to the acceleration of subscription revenue growth during fiscal 2026. Despite the current overwhelming customer preference for cloud SaaS installations, annual maintenance pertaining to perpetual on-premises software licenses was once again a record this quarter, 7.5% higher year over year. Our current subscription revenue growth levels are coming for the most part from new incremental projects and are not dependent on cannibalization of annual maintenance installations. Virtually all the modernized software solutions and recent product versions are designed to be cloud native, but can also work equally effectively in on-premises installations if that happens to be the customer preference. The fact that we allow hospitality customers several of whom need to keep their critical business software applications on premises for good reasons. The fact we are offering the required flexibility and allowing them to control the timing of their move to the cloud without sacrificing the benefits of ongoing innovation is a competitive advantage for us. Fiscal 2026 Q2 product revenue was 10.1 million. right in line with our expectation of product revenue levels on a quarterly basis for the rest of the year. Product backlog at the end of Q2 improved substantially during the quarter, ending up 49% higher than at the end of Q1 and 74% of previous record levels, thereby giving us better visibility for the rest of the fiscal year than we have had in quite a while. We expect product revenue levels to remain around current levels. Fiscal 2026 Q2 July to September services revenue was a record 18.2 million, that is one eight, 18.2 million, 12% higher than the comparable prior year quarter. We continue to make good progress in our efforts to find ways to reduce customer implementation delays. Services revenue backlog reduced by 10% between the end of Q1, which was a record, and the end of Q2. This reduction is welcome as services revenue is now driven increasingly by project implementations with customer paid product development work becoming less of a contributor compared to recent previous quarters. Given the strong sales momentum during the first half of fiscal 2026, our expectations for full fiscal year 2026 have increased. We started the fiscal year with a full year revenue range expectation of $308 million to $312 million, and subscription revenue growth of 25%, which was then increased to 27% last quarter. We now expect the full year revenue range to be $315 to $318 million, that's $315 to $318, $315 to $318 million, and full year subscription revenue growth to be 29%. No change in the 20% adjusted EBITDA by revenue expectation. One other highlight is the increasingly positive impact AI is having on our business and competitive positioning. To begin with, virtually all our software licensing is based on number of rooms for PMS and related add-on modules, number of terminal endpoints for POS, and number of sites or locations or profit centers within sites for inventory procurement for food and beverage products, and certain other add-on modules. Virtually all our license structures are not based on number of users. As customers increase their operational efficiencies using AI tools and reducing user counts, that does not affect our software licensing fees. On the other hand, such customer internal efficiency improvements tend to free up more technology investment room and increase the need for modernized software solutions. Our product ecosystem software solutions have been created through tacit domain knowledge gathered and developed over decades of field work in hospitality, working closely and learning from thousands of customers and tens of thousands of product implementations. The current ecosystem of complex software solutions include in them a vast amount of customer requirement nuances and complications, which cannot be generalized by any automation tool. Product development efficiencies can definitely be greatly improved through the use of UI, through the use of AI, as we are seeing with our own teams now. But domain expertise and complex decision making of what and how to build the complex pieces of each software solution, and then Stitching them into a complex ecosystem, enabling customers to buy 7, 8, 10, 12 such modules together presents a formidable barrier to both entry and more crucially, to reaching a stage of excellence. About 18 months ago, we launched our GetSense.ai umbrella technology brand to group the AI initiatives in the Agilis' ecosystem of products. Since then, we've launched several features that are powered by AI, including a dynamic pricing engine for room upgrades, unique revenue management capabilities based on demand across spa, golf, dining, and other activities, and invoice automation and inventory procurement for food and beverage products. For AI to function well in a hotel hospitality context, it requires data. Using the ecosystem we have built over the past several years, we have now created an intelligent guest profile module that captures and surfaces consolidated guest data across all resort touchpoints, helping us deliver unique AI-enabled features, making personalization at scale possible across the entire guest experience, not just at one or two touchpoints, but across the entire guest experience. There are good reasons today why each of our successful sales efforts, which include BMS, are adding up to 14, one fourth, 14 products per win. We are currently actively working on delivering several additional AI-driven capabilities in the upcoming product version releases. AI tools working in conjunction with the already modernized solutions are currently helping us increase the competitive advantage gap. Apart from increasing product development and other efficiencies across various operational areas, including faster automated product implementations and easier and quicker identification of cybersecurity threats. Overall, we love the tailwinds AI is currently providing us to get better and improve the pace of innovation. We have conviction that AI is making our products and overall business better rapidly. We are realistic and pragmatic about managing it well and are optimistic about AI's potential to increase our current competitive advantage distance. One other quick note before handing the call over to Dave. The Marriott PMS project continues to make good progress and is proceeding according to plan. We are currently in the midst of beta implementations. With that, Dave.