Agilysys, Inc. Stock

Good day, ladies and gentlemen, and welcome to the Agilysys 2027 Second Quarter Conference Call. [Operator Instructions] 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 Agilysys. You may begin.

Thank you, Latif, and good afternoon, everybody. Thank you for joining the Agilysys 2027 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 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 increased guidance levels, continue to improve profitability levels, the company's ability to maintain sales momentum, utilize AI to continue to increase competitive advantages 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 Agilysys has 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 Agilysys. Ramesh, please go ahead.

Thank you, Jess. Good evening. Welcome to the Fiscal 2027 Second Quarter Earnings Call. Joining Jess and me on the call today at our Atlanta Alpharetta headquarters is Dave Wood, CFO.

Before we get started, just a quick note that I've been on the road traveling quite a bit during the recent several weeks visiting customers and for other business purposes. And since I think a few days ago, while I asked in Texas before I got to Atlanta. So apologies for my very scratchy throat and voice today.

Let me start with sales. We continue to measure sales and selling success in annual contract value terms and continue to exclude subscription numbers pertaining to the Marriott PMS project from each of the general business update numbers, including sales, backlog and cumulative value of ARR, annual recurring revenue, implemented during the quarter. And they are included, of course, in all our usual revenue and overall financial results.

Fiscal 2027 second quarter was our best ever Q2 July to September period of sales following Q1, which shows the best ever Q1 April to June sales period. Sales levels during the quarter were good across the various sales verticals, especially in hotels and resorts. This was the best quarter on record by a fair distance for sales in the domestic HRC, hotels, resorts and cruise ships, vertical.

The sales highlight of the quarter was a major 7 figure on steroids multi property competitive replacement win in the HRC resort space featuring property management system, PMS, inventory procurement for food and beverage and as many as 15, 1-5, as many as 15 additional software modules. Happy to see our ongoing sales and marketing growth driving investments in the HRC hotels and resorts area beginning to result in such large-scale wins on a regular basis now and making this quarter the highest ever for domestic HRC sales, about 23% higher than the previous highest HRC sales quarter recorded a little more than 2 years ago.

Looking at sales levels during the second quarter of fiscal 2027 compared to the second quarter last fiscal year. Sales pertaining to the domestic HRC vertical was up 33%. Domestic food service management, FSM sales were up 42%. The modernized and unified POS platform continues to perform well in the field, driving POS sales up across several sales verticals, especially in FSM, which, for all practical purposes, is a POS-only vertical.

And Asia Pacific sales were up 47% year-over-year during the second quarter, showing continued sales momentum in the APAC region following a record Q1. Fiscal 2027 Q2 property management system, PMS product sales including add-on modules were also an all-time best record. This is, of course, without counting anything from the ongoing large PMS projects.

Overall, business momentum continues to be impressively good, fueled by increasing sales levels, which are in turn being driven by the growing product ecosystem superiority and a steadfast focus on the hospitality industry with no distractions whatsoever. Our product ecosystem competitive advantage continues to widen over time. The modernized set of interconnected software solutions has now been in the field for a few years, and we continue to grow the number of reference customers who have converted from our oldest technology solutions or from competitive ones.

Several such customers now have excellent return on software investment stories to share with the industry. Considering we're operating in a total addressable market that is far larger than our current size, the growing competitive superiority of the product ecosystem should continue to drive a long extensive growth path for us.

During Q2 fiscal 2027, July to September, we added 14, 1-4, 14 new customers excluding Book4time spa and 24 including Book4time, and all of them were subscription-based sales agreements. These 14 new customer sales wins included an average of 5.6 products per day. New PMS customers continue to invest in the multiproduct ecosystem from day 1 of their partnership with us. New customer deals featured an average of 9.3 products per day when PMS was part of the purchase suite.

We also added 83 new sites, which did not have any of our products before. But the parent company was already our customer, not including any of the hundreds of Marriott sites currently installing our PMS product. Of the 107 new properties added during the quarter across new and current customers, 104 were either partially or fully subscription-based. In addition, there were 119, that is 1-1-9, 119 instances of selling additional products to properties already running at each one of our products. This is the fourth consecutive quarter of the number of instances of such new product sales to current customer properties exceeding the 100 mark, our longest such streak. These 119 instances of new product sales involved a total of 331 new products sold, just shy of the previous highest quarter number. The average of 2.8 products per new product sales agreement this quarter is the highest on record.

All this data continues to confirm the thesis that nothing drives enterprise software revenue performance like true meaningful sustained product innovation, which creates real value for customers and their guests. Our investments in R&D, now further fueled by AI-driven productivity and quality improvements, are continuing to provide great reasons for both current and new customers to partner with us, stick with us and license an increasing number of software modules. In the ultimate analysis, nothing really wins like product innovation.

Before we move on to revenue, three quick updates regarding the Marriott PMS project, GHS acquisition and progress with AI initiatives. The Marriott PMS project continues to make good progress and remains on plan. Just as a quick reminder, this is a huge technology transformation undertaking, one of the biggest ever attempted in the hospitality industry. And such big, challenging technology projects cannot be expected to go completely smooth sailing every step of the way. So far, so very good.

The second, GHS acquisition completed during the quarter was minor to our revenue and profitability levels, but crucial in a tactical sense for a portion of casino gaming customers. Gaming Hospitality Solutions, GHS, is a 30-year-old software, 3-0, 30-year-old software company specializing in loyalty and offer management primarily for tribal casinos with the main purpose of connecting a casino's loyalty program to its gas pumps, enabling their guests to earn and redeem points across the casino floor, hotel, restaurants and fuel stations. In addition, GHS offers a loyalty promotions module specifically for Royal Caribbean.

The primary developer owner of GHS was planning to retire, and we picked up this company as a way to protect the interest of mutual customers, a list that includes about 40, 4-0, includes about 40 tribal gaming casinos and the Royal Caribbean Cruise Line Group. The overall revenue gain from this acquisition during fiscal 2027 will only be a few hundred thousand dollars of maintenance revenue.

We continue to make good progress with AI initiatives and with our objective to be the AI leader in hospitality. Earlier this year, during the April customer user conference, we announced 30-plus AI-based features, that is 3-0, 30-plus AI-based features which were in various stages of development and the creation of a couple of entirely AI-native software modules to round out our product ecosystem.

These 30-plus features are distributed across the 4 pillars of AI-driven usage: agentic AI, multimodal user experiences, guest hyperpersonalization and revenue optimization. Several of these new features are now in pilot testing at select customer sites, while several others are already in production use. The initial feedback from customers has been positive, and we expect these features to become deeply embedded in the daily operations of hospitality operators.

We are now into the development of the next wave of AI features that go beyond AI-based guests and operational insights, voice and chat capabilities, going beyond those features into agentic workflow automation and cascading intelligence, which will use demand signals to automate specific workflows to achieve efficient staff scheduling, product inventory levels, connected guest experience offerings and optimized pricing. Development of a couple of fully AI-native modules, CRS and revenue intelligence that we have recently renamed as total revenue management system is progressing on plan. We expect initial data implementations of these 2 new modules to happen at customer sites later this fiscal year. The initial versions of both these modules are designed to work only within the boundaries of our product ecosystem.

Now beyond all that, the most crucial AI-related development project completed during the quarter was the AI common framework, which provides the control centers for AI governance, privacy through tokenization of personal information, security, appropriate LLM model selections, value-based usage for each task, monitoring and auditing. We believe that the best way to achieve widespread traction with use of AI in the hospitality industry is to deliver rich functionality and feature sets that are also taken cost sensitive. We have focused our initial efforts on building a good control framework and infrastructure.

Based on our recent extensive participation in various hospitality industry AI conferences, roundtables and future-looking committees, it does seem like we are leading the industry in the AI journey for hospitality. The new and modern code base of each of our software solutions and the very presence of a product ecosystem that no competitor matches up with today have allowed us to make AI-based features a seamless part of the product sets compared to others with older code basis and only individual products. The ecosystem presence is becoming an even bigger differentiator in today's AI everywhere world.

Now on to revenue, profitability and raising guidance levels. Fiscal 2027 Q2 revenue was a record $93.4 million, the 19th, 1-9, the 19th consecutive record revenue quarter, 17.7%, that is 1-7, 17.7% higher than the comparable prior year period and 6.5% higher than the sequentially preceding quarter. Overall, revenue during the first half of fiscal 2027, Q1 plus Q2, was $181 million, 16.1%, that is 1-6, 16.1% higher than revenue during the first half of last fiscal year.

Fiscal 2027 Q2 recurring revenue grew 22% year-over-year and 7.7% sequentially quarter-over-quarter to a record $62.2 million. Q2 recurring revenue year-over-year and quarter-over-quarter increases of $11.2 million and $4.4 million, respectively, are both all-time high levels and were driven by increases in subscription revenue. Subscription revenue increased 32.6% year-over-year and 10% sequentially quarter-over-quarter to a record $44.2 million and now constitutes 71% of total recurring revenue, the first time subscription revenue has been more than 70% of total recurring revenue.

This is now the 20th consecutive quarter of subscription revenue growth of at least 23%. Growing subscription revenue each quarter year-over-year by between 23% and 45% over a period of 5 long years is a remarkable achievement that any enterprise software unit has a right to be proud of. That requires consistent performance across every operational role.

It is not a coincidence that it was around that time 5 years ago when we were at the beginning stages of releasing the completely reengineered and modernized product versions and getting started on the formation of a cloud-native set of hospitality-focused software solutions. Subscription revenue from POS and POS-related add-on modules grew by 18.4%, that is 1-8, 18.4% year-over-year, while subscription revenue pertaining to PMS and PMS-related modules grew by 53.8%. We expect subscription revenue growth in POS and POS-related modules to remain in the high teens, low 20s percentage levels for the foreseeable future. Add-on modules across both POS and PMS constituted 34% of total subscription revenue.

Fiscal 2027 Q2 was the best quarter on record with respect to the sum of annual recurring revenue, ARR, of all subscription products implemented during the quarter, not including the Marriott PMS installs. Fiscal 2027 Q2 annual maintenance was also a record $17.9 million, that's 1-7, $17.9 million. The current high subscription revenue growth levels are coming for the most part from new incremental installations and are not dependent on us pressuring customers to convert from their current on-premise installations to the cloud. Virtually all the modernized software solutions across each current and upcoming product versions are designed to be cloud native, but can also work equally effectively in on-premises installations if that's the customer preference. When the customer preferences for modern solutions and an on-premises install, we are currently almost the only game in town.

Fiscal 2027 Q2 product revenue consisting of hardware we sold and perpetual software licenses were just shy of $12 million, the highest level in close to 3 years. Excellent POS sales performance during recent quarters has driven higher hardware shipments during the quarter and has also driven the current quarter end product backlog to a level that is 90%, 9-0, 90% higher than at the same time last fiscal year, giving us good visibility for the second half of the fiscal year. Product revenue during the second half of fiscal 2027 should remain close to the first half level.

Fiscal 2027 Q2 July to September services revenue was $19.2 million, that is 1-9, $19.2 million, 5.3% higher year-over-year. Contributions to professional services revenue from customer based development work continues to decrease to very low levels and are not expected to be a factor going forward. Implementation services efficiencies continue to increase as the modernized solutions are becoming easier to implement, especially with increasing use of AI tools during the implementation process.

We are now selling more software recurring fees for every dollar of services sold compared to previous years, which is a good business trend that makes us more competitive in price sensitivities. We expect professional services revenue to remain around current levels during the second half of the fiscal year and grow steadily in the medium and long term along with overall business expansion.

Given the current strong sales momentum, pace of implementations and near record backlog levels, our expectations for full year 2027 financial results have increased further, and we are raising guidance levels again. We started this fiscal year with a full year revenue range guidance of $365 million to $370 million and subscription revenue growth expectation of at least 30%, 3-0, of at least 30% before increasing the respective guidance levels to $368 million to $373 million and at least 32% at the end of Q1. At the end of Q2, we now expect for the full year fiscal 2027 revenue range to be $374 million to $378 million and subscription revenue growth to be at least 34%.

Fiscal 2027 Q2 adjusted EBITDA was a record $24.1 million and 25.9% of revenue. Our first half profitability performance has done better than our original expectations going into the fiscal year, and we now expect full year adjusted EBITDA to be 25% ahead of the previous guidance of 24%. We continue to expect to exit the fiscal year with adjusted EBITDA during Q4 being close to 30% of revenue, that is 3-0, being close to 30% of revenue, though we expect that percentage to be only slightly north of 22% during Q3 due to unfavorable timing of certain costs, including [ professional fees ].

With that, let me hand over the call to Dave for further color on our business operations and financial results. Dave?

Thank you, Ramesh. Taking a look at our financial results, beginning with the income statement. Second quarter fiscal 2027 revenue was a quarterly record of $93.4 million, a 17.7% increase from total net revenue of $79.3 million in the comparable prior year period.

Q2 marked another quarter of strong momentum in our business. Sales levels were at a second quarter all-time high, with PMS bookings at record levels. The backlog, excluding the large rollout, remains at record levels, and revenue continues to pace ahead of our fiscal year FY '27 guidance.

Professional services increased 5.3% over the prior year quarter to $19.2 million, which is in line with the financial plan, but slightly lower than Q1 FY '27 due to timing of [indiscernible]. Professional services backlog increased over last quarter, leaving plenty of visibility into the remainder of the fiscal year. We are pleased to see our professional services gross margins remain above the 30% mark for the third consecutive quarter at 30.9%. We may see fluctuations on a quarterly basis, but we should be finishing the year over 30% gross margins for professional services.

Total recurring revenue represented 66.6% of total net revenue for the fiscal second quarter compared to 64.3% of total net revenue in the second quarter of fiscal 2026. As anticipated, recurring revenue is growing as a percentage of total revenue, which will continue to drive up gross margin and profitability levels. Subscription revenue growth was better than expected at 32.6% for the second quarter of fiscal 2027. Subscription sales and backlog levels, while maintaining low customer churn, have us trending ahead of the FY '27 plan.

Moving down the income statement. Gross profit was $60.3 million compared to $49 million in the second quarter of fiscal 2026. Gross profit margin was 64.6% compared to 61.7% in the second quarter of fiscal 2026. Product mix will continue to drive gross margin levels up to the mid- to high 60% range over the next several years. Combined, the 3 main operating expense line items, product development, sales and marketing and general and administrative expenses, excluding stock-based compensation, were 38.9% of revenue in the fiscal 2027 second quarter compared to 41.3% of revenue in the prior year quarter.

Operating income for Q2 FY '27 of $15.2 million, net income of $13.2 million and gain per diluted share of $0.46 compares favorably to the prior year gain of $14.1 million, $11.7 million and $0.41. Adjusted net income, normalizing for certain noncash and nonrecurring charges, of $19.1 million is well above adjusted net income of $11.4 million in the prior year, and adjusted diluted earnings per share of $0.67 is well above $0.40 in the prior year period.

For the 2027 second quarter, adjusted EBITDA was $24.1 million compared to $16.4 million in the year ago quarter. We are pleased to see our profitability levels end up well ahead of the original FY '27 plan, with adjusted EBITDA coming in at 25.9% of revenue for the quarter.

Moving to the balance sheet and cash flow statements. Cash and marketable securities as of September 30, 2026, was $137.6 million compared to $116.9 million on March 31, 2026. We remain comfortable with our current levels of cash. As it relates to free cash flow, we are pleased to see an increase for the first half of the fiscal year. Free cash flow in the quarter was $14.8 million compared to $15 million in the prior year quarter. Free cash flow for the first 6 months of FY '27 was $22.1 million compared to $10 million in the first 6 months of FY '26.

Like in previous years, we expect free cash flow to be higher in the second half of fiscal year '27. Full year adjusted EBITDA and free cash flow after normalizing the impact of CapEx continue to be good proxies for health of the business.

For our fiscal year 2027, we are raising our revenue guidance to be in the $374 million to $378 million range. We expect product revenue to remain in the $20 million to $22 million range for the second half of the fiscal year. Professional services started strong and should still grow in the 5% to 10% range.

We are again raising our subscription revenue guidance from at least 32% growth to at least 34% growth for the year due to faster deployment of our backlog than anticipated in the previous guidance. We are also raising our adjusted EBITDA expectations from 24% to 25% of revenue with the strong start to the year in revenue. We still expect to exit FY '27 close to 30% of revenue. Adjusted EBITDA excludes stock-based compensation, which will continue in the 6% to 7% range for the fiscal year.

In closing, Q2 continued the strong start to the fiscal year, leaving us with plenty of visibility into the remainder of the year. With that, I will now turn the call back over to Ramesh.

Thank you, Dave. The Agilysys success story continues to get better. This is a story of disciplined growth across both revenue and profitability driven by sustainable, extensive and difficult to duplicate product innovation. This success story has used no shortcuts, but has been built on top of the tough to get done foundation of a modernized set of software solutions that are based on a combination of model technology and decades of domain knowledge gathered from thousands of prior implementations, all focused on 1 industry.

This is a story which only gets further strengthened. I mean, technology breakthroughs like AI come along, which help add another layer of excellence on top of the structure already built on solid good bedrock of modern products, deep domain knowledge and employee- and customer-centric culture and financial discipline. This is a story of organic growth for the most part, with inorganic growth being used only sparingly to add additional breadth and strength with an opportunistic conservative and patient mindset and only as an addition to strong organic growth.

We are pleased with the fiscal Q2 July to September results and how well the high performance of sales, product development and implementation to this quarter and during the first half of the year have set us up to achieve our fiscal 2027 full year goals. To repeat one of our old phrases, our barrier to excellence in hospitality-focused technology is increasing significantly with time. We are lucky to be operating in a total addressable market that is about 50, 5-0, about 50x larger than our current size, and we intend to drive home that advantage with complete focus on hospitality and no distractions.

This industry is hungry for superior and better interconnected model technology solutions, and we expect to continue building on our pace of product innovation to be the primary technology partner who satisfies that need. We continue to see an increase in the number of customer properties seeing tangible operational and guest experience improvements directly attributable to our products and services. Our balance sheet remains clean with no debt, giving us the room to remain flexible and agile with future growth opportunities. We have good reasons to remain bullish about our future business prospects and our ability to bring to bear sustained good increases in shareholder value.

With that, Latif, can you please open up the call for questions?

[Operator Instructions] Our first question comes from the line of Mayank Tandon of Needham.

I wanted to start by just giving -- I guess, asking you a question on the Marriott progress. Ramesh, you shared some thoughts on that. But could you give us a little bit more detail in terms of -- is there a way to maybe talk about in terms of how many properties have rolled out, what percentage of rooms have you been able to go live? Any details that can give us some sense of sort of where you are in that implementation of the Marriott rollout.

the project is going well, Mayank, and we cannot get too much into the details because this is a Marriott project. This is not us. And it involves multiple vendors. And I think Marriott is going to be coming up with their earnings release pretty soon in a week or so, and it's best to rely on them for the results.

But we can tell you that well more than 2,000 properties are live, and the projects have gone well so far. Virtually all of the select service properties implementations have been completed. And this major project is going to go through a number of transitions, and now it is going through a transition from pretty much completing the select service properties and then moving on to the full service properties.

Now in terms of percentage of completion, Mayank, it varies, right, depending on whether you're looking at properties and -- or rooms or revenue, right? There are different numbers there. But I think we can tell you that we have not yet reached the halfway mark with any of that. Whether with properties or with rooms or with revenue, we are not close to the halfway mark.

Got it. That's helpful color. And just as a quick follow-up, I'll stay on the Marriott theme. I was just curious, is it too early to maybe see any progress on their ability to buy add-on modules? Are you there yet? Or is that something that you'll see later in the life cycle of this rollout? And is there any way to quantify the potential opportunity from the add-on modules that you may be able to sell into Marriott over and above the core PMS? Any way to size the opportunity over time?

It's going to be difficult to quantify that, Mayank. But in terms of add-on modules, please keep in mind, that has progressed quite well in the last few years. So even before we acquired Book4time spa, for instance, the Book4time spa product was the standard at literally thousands of Marriott properties. So that was already there.

And since these PMS implementations have started, we have made good progress with POS properties -- with POS at Marriott properties, and that has continuously increased the in pace over the last year or 2 years. And that's a huge opportunity ahead of us. We have not even scratched the surface of implementing POS in Marriott properties. And so that is true of a couple of other big brands as well.

I can't put a number on it, but that's a huge opportunity. We are already the gold standard at Marriott properties, but there are only so many such properties with golf courses. So we continue to make progress. Digital marketing, we have made progress. So there are various modules, we continue to make progress with that. Like whether it's Marriott or with other big brand opportunities, opportunities are huge in front of us, but can't put a more helpful number for you on that, Mayank.

Our next question comes from the line of Stephen Sheldon of William Blair.

First one, just on the -- maybe for Dave. In the full year guidance, just curious, what you're assuming in terms of sequential subscription revenue growth in 3Q and 4Q? And I guess, can you provide any ballpark on what year-over-year exit growth you've assumed in 4Q? Specifically for subscription revenue, it seems like you guys have a line of sight to very notable acceleration. So any detail there would be helpful.

Yes. So I think -- I mean, in Q1, we were about $3.3 million in sequential growth. In Q2, we were about $4 million. I mean, like we said, it was a good quarter in go-live. So we're expecting a little bit less than the $4 million in go-lives. So for the remainder of the year, call it, $3.5 million to $3.7 million in Govis go-lives. And that would kind of get you to the at least 34% growth. And that would put the exit rate in the kind of 38% to 39% growth rate for subscription. So again, we could do better than that, but that's kind of how we're thinking about it.

Perfect. That's helpful. And then just as a follow-up on the Central Reservation System progression. It sounds like that's still on track with beta testing later this fiscal year. So I guess, any updates on interest levels you're seeing from hospitality operators and thinking about your CRS? And associated with that, what's your view on Agilysys' opportunity to potentially help hospitality brands support more direct bookings over time? As consumer agentic functionality net of news, et cetera continues to expand, should we be thinking about that as a potential opportunity?

So Stephen, I wouldn't get too far ahead of ourselves, but we do have those medium, long-term vision aspects in mind when we started developing the CRS. But I don't want to get too ahead of ourselves. Does it set us up well to handle those kinds of inevitable future possibilities in hospitality? Absolutely, yes. Having our own CRS that to entirely AI-native module sort of built -- I wouldn't call it necessarily the right way, implying the other ones are not the right way, but built with the benefit of hindsight, built during the AI age.

So we are building towards all that, Stephen, but we are nowhere close to giving you any kind of an idea on that. Currently, our CRS is only focused to work with our ecosystem, especially our PMS products. And it is very -- it is created in the AI age. So it has -- it has taken all that into account.

And there is reasonable customer interest. We just finished our customer advisory board meetings, and they're all curious and interested. And there is no shortage of customers who are putting up their hands and saying we'd like to be the beta site. So we have all that lined up, both for the CRS and for the other total revenue management system we are developing. The beta site interests are there. We are strictly focused only within our product ecosystem. And then over the next year or 2, it is going to be one of the strong products in our product suite.

Our next question comes from the line of Matt VanVliet of Cantor Fitzgerald.

I guess, when you look at the momentum you're seeing in the HRC group, curious, how much of this -- do you feel like it's just getting more shots on goal from the investments you've made around marketing and some of the leadership there and then in the go-to-market team and sort of the additions you made to the team there versus the market just being maybe a little bit more willing to spend these days? So curious on how you'd sort of stack rank some of the improvements you've seen in the results and what you're attributing that to?

Yes, Matt. To start with both in HRC and SSM, the starting point is our market share was very low. The market share did not do justice to where we were. So that is to start with. But now we are getting good shots on goal. Not only are we getting shots on goal, but they are pretty good shots on goal because of extended marketing efforts, our marketing team is doing a lot better job of unearthing new opportunities.

We have expanded the sales team, not only in terms of quantity, but also in terms of quality of leadership. There's one more senior HRC leader who just joined us last month. So the team quality and quantity, the number of sales reps have also increased. And the product, now we have products. And we have ecosystem which is very crucial for hotels and resorts because they are mostly multi amenity. They typically have a golf course. They have spa facilities. They deal with group bookings. They have never really had a great loyalty promotions module before. And they want check-in, check-out and processes like that to be through the mobile a lot more automated.

So the needs are there. Our product ecosystem is there. We have very low market share in those verticals, and we have increased the sales and marketing investments as well. So altogether, I think the shots on goals are increasing now, and we have good high-quality shots on goal.

All right. Very helpful. And then when you look at the customers that you have and sort of what their initiatives are around implementing AI, both internally for sort of their operational side and anything customer-facing, how much is the context in the business-specific data that you're providing on your platform helping you sell some of your AI modules versus customers looking to build some of their own with various coding tools and things of that nature? So just curious on how your ability to monetize what you've developed so far internally is looking like? And ultimately, what do you think that looks like over the next 12 to 18 months?

I think it continues to help us push our sales levels higher with all the new AI features. So just to break down your question, though, a lot of our customer-driven AI initiatives that they are doing internally have to do with their internal workflows. Like even for us, example, we are using AI internally now to improve our workflows within our company that until now, we were managing with Excel spreadsheets and manual processes. AI is coming in very handy to automate those internal processes. So that's what a lot of our customers are focused on as far as their AI initiatives are concerned.

Now as far as core systems execution systems like us, like our systems that they are using, they are expecting these systems to contain a lot more AI features to make things easier for their staff and to improve guest experiences. And we are now providing them at a steady pace. So we are basically enhancing our products with more AI features that makes it more and more easier for them to improve operational efficiencies and provide a lot better guest experiences.

So it falls into two different categories. They do their own internal workflow improvements and improvements in data lakes and all that. They are providing -- they are looking for technology providers like us to use AI features to improve the products so that it further helps them in terms of improving such operational efficiencies. So you got to put that into two different buckets.

Our next question comes from the line of George Sutton of Craig-Hallum.

Ramesh, you mentioned that you've been with a number of roundtables and conferences and the like and you're seeing that your AI advantages are increasingly significant. I wondered if you can just go into a few more details there, what you're seeing competitively. And what has been the customer response? Is this part of why you're seeing the increased shots on goal?

That is one of the reasons, George. So just to be transparent with you, George, I have only attended here and there, most of the AI roundtables and future-looking committees and all that. The main participation comes from our Chief Marketing Officer, Frank Pitsikalis, and also supported by our strategy heads, Rohith Kori and Sudharshan Chary. They are the ones representing us in most of these, and they have done a great job so far. And a lot of the keynote speeches and a lot of the keynote presentations, the top 100 CIOs committees that we are participating in all.

During that participation -- I mean, I have to accept the fact, George, we are a little prejudiced. We are obviously prejudiced with the way we are integrating it. But even beyond that, it seems very clear to us that they are looking to us more and more about how is AI going to lead, what kind of AI-related leadership, AI-related products are we going to be providing to the industry. More and more, they seem to be looking towards us is how it feels.

And that definitely is one of the reasons why we are seeing increased sales levels, especially in the HRC and FSM verticals. And that's how it seems like because we are looking at the number of conversations we are leading. We are looking at the number of conferences where they are looking at us to provide the leadership role and to give them context as to what is going on with AI in the industry. That's how it definitely feels to us, George, based on the feedback we are getting from our marketing and strategy leaders who are attending these conferences.

Great. The big surprise number for us was on the product revenue side. We've been sort of underwhelmed, I'd say, in the recent past, given what you've talked about being open systems and open platforms, so enabling your customers to use whatever they need on the hardware side. What has driven the strength, in your opinion? Is it -- have you really improved the product leadership? Or is it really just the result of a handful of deals? Just curious, what's changed there?

Yes. Good question, George. So let me be clear on that. The hardware attach rate to POS sales continues to remain low. So what you stated, we have made the POS terminals in our modernized solutions more open in the sense that they support all the operating systems out there. They support Windows, iOS and Android. So customers can go buy their own iPads and don't need to buy hardware being sold by us. That fact is still true.

So per unit of POS sales, the hardware attach rate is lower than it was a year or 2 ago. So if there is an F&B outlet that used to require 10 terminals, 6 of them can be bought from us, 4 of them, they can use iPads. That state is still true. But what has improved our product revenue now is just the expansion in POS sales. Even though the hardware multiplying factor is low, the overall POS sales has increased so impressively in the last 2, 3 quarters since we released -- 1.5 years ago, we released the unified version, the modernized POS version. We went through our bumps in the road with POS and got past that. So overall POS sales has increased so much that even with the reduced hardware attach rate, the hardware product related product revenue has also increased for us beyond our expectations.

Our next question comes from the line of Nehal Chokshi of Northland.

Congrats on an amazing quarter. So subscription revenue growth accelerated from 26.2% in the June quarter. You said 32% or 32.4% in the September quarter. Is it fair to say that the principal driver of this acceleration is layering in revenue from Marriott?

Yes. I mean, really, I mean, it's everything. I mean, obviously, we're having record sales levels. I mean, everything is going well. I would say it's kind of across the board. I mean, Marriott is going as planned, and everything else is kind of doing a little bit better. But there's really been no change -- material change to the Marriott rollout. So it's really broad-based, that's non-Marriott and Marriott alike.

Okay. Just to be clear, you're seeing acceleration in subscription revenue from both Marriott and non-Marriott properties?

That's correct.

Okay. Fantastic. And then, given that you're raising subscription revenue guidance, recognizing the comment that the deployment from backlog has been faster than expected and that's providing that raise, how should we think about how bookings has proceeded year-to-date, fiscal year-to-date? Has that been ahead of expectations as well? Or is it just merely that you're deploying faster from backlog?

The sales bookings have also done better than we expected going into the fiscal year, Nehal. And the best proof of that is the fact our current backlog, despite the high subscription revenue we are reporting and despite the increased implementations and delivery at the end of the quarter, at the end of Q2, our backlog levels are very close to record high levels. Very close, within a tic of record levels, which happened at the end of Q1.

So while the implementation, execution delivery has increased, driving revenue up, the backlog remains at a very close to a decimal point less of the record level. So that means that the sales bookings have also gone better than expected.

And then finally, the number of Marriott properties you expect to deploy for this existing set of properties is around 6,000, right? So if you've deployed around 2,000 so far, you're about 33% the way through. Is that an appropriate characterization?

The number is well more than 2,000. And I don't want to get into the percentage of completion and all that, Nehal. I'd rather let our customers do that. But I can tell you, we are not close to the halfway point yet.

In terms -- and the numbers vary widely, Nehal. If you look at properties, it's 1 percentage number. If you look at rooms, it is different because the full-service properties coming up have a much higher number of rooms for property. And then if you look at it in revenue, it is different. So I would say that altogether, we have not yet reached the halfway point. We are not close to it.

Our next question comes from the line of Billy Fitzsimmons of Piper Sandler.

I know there have been a couple of questions on Marriott already. For me, for Marriott, can you just frame how the select service SKU is ramping versus the full service SKU, maybe relative to your expectations? Maybe a couple of details on where we are in the rollout of each of those things? Because I know historically, in quarters past, the select one has been ramping faster.

It is -- just to be clear, Billy, I want to be careful not to get too much detail on this. It is best to get the details from the customer. But I can tell you, it is not as if both started at the same time, Billy. That's what you're imagining in your head.

The initial portion of the project, the initial set of implementations were targeted to be select service. That was the first phase of the project. And that has gone as well as expected, that has gone well. And that is about at its end stage.

And now the next phase of the project starts, which is mostly about full-service properties. So it's not as if both started at the same time and one went better than the other. That's not the way it was. Initially, all the focus is only on select service. That's almost completed, went well. Now we're getting started on the full service program.

Crystal clear. And then my other question would be, you launched 30 AI features at Agilysys Inspire. What are customers' early indications of the -- what are the early indications of customers' willingness to pay for these capabilities? Because it seems like a material part of your opportunity is cross-selling into the existing base. You've mentioned in the prepared remarks today, 14 new customers had adopted an average of 5.6 products. And we know that that's kind of above your exit rate for products per customer last year. How do we think about the opportunity to get your existing base to where you're landing with these new customers?

Yes, Billy. So let's answer the question without talking about AI. Just as a normal process of our business growing, as you can see from our record new product sales, which is basically selling new products to current customer properties, is at a record level now. We have a long growth path ahead of selling our modernized solutions with or without AI to current customer properties.

Now if you look at that number and if you look at conservatively, each of our customer properties can use, say, somewhere whether -- somewhere between 5 and 8 products per property. And we are only like in the 2s now, right? If you don't include our major big brand customers, that number is probably at 2.8 now. So we have a long growth path ahead of selling our current modernized solutions to our current customer base. We've got a long growth path ahead in that.

But now let's talk about the AI-based features. The initial AI-based features that are in production use are in beta properties, and we are not charging customers for that. Customers are using those, giving us feedback, and so forth, the feedback has been very positive.

Now when it comes to the monetization stage of all these features, they will fall into various buckets, Billy. Some of these features will just be normal enhancements we do to our products because customers pay us hundreds of thousands, millions of dollars of recurring fees, expecting that we will invest in R&D and continue enhancing those products. AI will be part of those features. So some of the AI features will fall in that bucket.

Some of the AI features will fall in the monetizable bucket. And they will fall into various ways of monetizing it. There could be an increase in the SaaS fees for certain bulk usage. It could be transactional based on the level of usage. That falls into various categories. It is too early to comment on that now. The current beta properties are at no charge, and the customers are giving us feedback as to how it is improving their operations and guest experience. That's the stage we are in now.

[Operator Instructions] Our next question comes from the line of Brian Schwartz of Oppenheimer.

Ramesh, I just wanted to ask you about the broader opportunity with new logos. And we talked before about a potential halo effect because of the Marriott relationship. Are you seeing that happen yet with other hotel groups? Or do you still have to have other things happen in terms of implementation success to translate into greater commercial wins and opportunities? Is that still on the come for the business? Or are you starting to see that happen already?

I mean, big hotel brands and those big decisions will happen when the time is right for those hotel brands. It is just not going to happen just based on the fact that certain other implementations have gone well. Each of these big companies have their own cycles of technology renewal, if you will. And at that time, there will be RFPs. And I'm very confident that we will be a significant participant in the RFP.

Nobody is going to come directly to us, and nobody is just going to come just because we've had successful implementations. Right? All these companies have their own cycles and their own budgetary processes where different technology initiatives come up were done. But the next time it comes up for any of the big brands, I'm pretty confident that we will be one of the major players competing for it.

And as more and more of these implementations happen and as more and more of these implementations become more successful, the talk of the town, the talk in the town, the talk in the hospitality industry will increase, and it will increase our chances. That's the way we look at it.

And at the moment, we are not dependent on just the big brands. We have a large growth path ahead of us just based on our current customers and a whole lot of other customers who are investing more and more in us, especially in international regions. So the growth paths are there, and this is one of the growth paths that will open up when the time is right.

And the follow-up for Dave. I just wanted to ask maybe underlying the -- you talked about a record sales performance in Q2. How much is that coming from higher productivity among the existing reps versus adding more capacity, having bigger deals or shorter cycle durations? And then maybe the follow-up would be, how much further can productivity improve without materially having to increase headcount for the business?

Yes. No, it's a good question. I mean, I think the answer is both. I mean, obviously, especially in our hotels and resorts segment, we increased our quota-carrying sales reps. We almost doubled them a couple of years ago.

So there was a lot of ramp left on the team. This is the first year where we're really starting to see them carry full quotas. And obviously, they're filling up the bucket. So I think there's still ramp left to go on the team. I don't think we have any kind of big hiring coming up, and we can continue to grow the business. But it is nice because this year, we're really seeing pretty close to a ramp team.

Thank you. I would now like to turn the conference back to Ramesh Srinivasan for closing remarks. Sir?

Thank you, Latif. Thank you all for your guidance and support. Our best wishes for a great and safe holiday season. Merry Christmas, and happy holidays to you all. We look forward to talking to you again in about 3 months from now. Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect.

Good day, and ladies and gentlemen, and welcome to the Agilysys 2027 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, Vice President of Operations and Investor Relations of Agilysys. You may begin.

Thank you, Lisa, and good afternoon, everybody. Thank you for joining the Agilysys 2027 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 predicted and are intended to be made as forward-looking within the safe harbor protection 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 increased guidance levels, continue to improve profitability levels the company's ability to maintain sales momentum, utilize AI to continue to increase competitive advantages 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 in.

As a reminder, any references to record financial and business levels during this call, refer only to the time period after Agilysys 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 Agilysys. Ramesh, please go ahead.

Thank you, Jess. Good evening. Welcome to our fiscal 2027 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 discussing revenue, profitability, the decision to raise guidance levels provided a couple of months ago and other details. We continue to measure sales in annual contract value terms and exclude subscription sales pertaining to the Marriott Property Management System, PMS project from the overall sales numbers.

FY 2027 Q1 was an excellent overall business quarter for Agilysys, including with respect to sales, revenue and profitability. Each of which set a new Q1 quarter record. This was the best sales success April to June Q1 period on record. In fact, it was the best sales quarter in our history outside of the Q4 January to March sales period, which has tended to be the strongest during the recent several years. The last 2 quarters taken together constituted the best ever 6-month sales period in our history.

Fiscal Q1, April to June was an excellent sales quarter for several verticals. This was the best sales quarter ever for the Asia Pacific region and the highest Q1 sales period for each major domestic vertical, casino gaming, hotel resorts, cruise ships, HRC and food service management, FSS. Sales success this quarter featured 3 major 7 figures, multiproduct ecosystem wins, two in the casino gaming vertical and one in Australia, and all 3 are on battling against our main, most often seen competitor.

A major casino resort currently under construction in the Las Vegas strip shows Agilysys for point-of-sale, POS; property management systems, PMS; and several other software modules. Another major casino resort based in Arizona, who has been the customer of our main competitor for about 2 decades, chose to switch to Agilysys, lock, stock and barrel across POS, PMS and other software modules.

Despite these two big wins in the U.S., the main highlight of the quarter probably was a 9-property Resort Group in Australia, deciding to switch to duly PMS and other related supporting modules after being with our main competitor for more than a couple of decades. These are originally not included in this particular RFP process. It took a good reference recommendation from one of our current customers in Australia, along with dedicated persistent efforts by the sales team to get included in the game at the last minute.

And from that point forward, we serve forward quickly, thanks to the superiority of our best-in-class software modules and the obvious strength of the end-to-end ecosystem. Along with excellent product demonstrations and presentations conducted by our talented personnel in the Asia Pacific secretion and finalization of the customer selection process was completed in just a few weeks after that.

Our sales win-loss ratio remains high and impressive. Getting more at bats remains our main challenge. And we are getting better at being more persistent in getting included in more selection processes backed up by a growing number of positive reference customers for the modernized solutions. A couple of significant customers, including one in the U.K. recently reported achieving excellent revenue improvements, directly attributable to the use of the Agilysys ecosystem of modern interconnected solutions, especially the ability for their guests to book packages online.

A recent award-winning innovation, which would be virtually impossible for our competition to duplicate anytime soon. We expect our sales level to continue running forward with increased momentum as such differentiating value creation success for customers become more well known. Given the nature of our B2B business, even one such story that a customer is willing to talk about openly is worth $1 million in marketing spend.

While this was another excellent business quarter in various ways, I would be remiss if I don't remind everyone that it is always best to judge our business progress on an annual basis. There is no guarantee that each upcoming quarter will be a record. We can, however, state with a high degree of confidence that fiscal 2027 will be a record best year for sales, revenue and profitability. This is a business that should be judged on annual results and full year guidance levels.

With respect to sales deals won during Q1 fiscal 2027, April to June, we added 15, 1-5 -- we added 15 new customers, excluding book for time all of whom signed subscription license-based sales agreements. These 15 new customers licensed an average of close to 6 products each. We also added 87 new properties, which were not using any of our software solutions before, but the parent company was already a customer.

Of the 102 new properties added during the quarter across new and current customers, 101 were either partially or fully subscription license based. In addition, there were 106 instances of selling software solutions to properties, which were already using at least one of our other products. These 160 deals involved the sale of a total of 206 products. Additional product adoption by existing customers continues to be a big contributor to sales and revenue growth.

The Mariott CMS project continues to make good progress and remains on plan. It is remarkable to watch and learn from the success we have seen with this huge technology transformation project, one of the biggest ever attempted in the hospitality industry. We are proud to be associated with it and to be playing a leading role in it. Our AI adoption strategy is making good progress and is being executed as planned. We have been intentional and deliberate about first, establishing the necessary cost controls, customer data protection and operational discipline, guidelines and guardrails thereby creating a foundation that will allow us to continue accelerating AI adoption with confidence.

At the East customer user conference during April earlier this year, we had announced the development of 30-plus AI-based features that is 3-0 plus AI-based features. Several of these features are in the process of being deployed at pilot customer properties, while the remaining are nearing development and testing completion as scheduled and on plan. Many of these features require not just AI, but an integrated ecosystem of modern software solutions, modules like PMS, POS, SPA, golf, calls, inventory on communicating with each other real time or close to real time. That is a strength very few competing providers can offer.

We are seeing a need for AI for property-wide features, not just within point solutions. To enable such AI features at scale, we have built a central orchestration layer for all AI processing. This layer routes requests to the appropriate LLM for making intelligent decisions, optimizes stoke and usage and ensures adherence to our AI governance principles around security, privacy, compliance and responsible AI norms.

As we continue to scale up, we expect this central orchestration layer to provide the necessary controls around internal cost management, customer value creation and managing monetization levers. Development of a couple of fully AI-native modules, CRS and Revenue Intelligence is progressing on plan. We expect initial data implementations at customer sites later this fiscal year. The initial versions of both these modules are designed to work within the scope of our product ecosystem.

Now with respect to revenue and profitability. Q1 fiscal 2027 overall revenue was $87.7 million, a record for the 18th that is 1-8 for the 18th consecutive quarter and 14.3%, that is 1-4, 14.3% higher than the comparable prior year quarter, driven by 26.1% year-over-year growth in subscription revenue and 8.3% growth in professional services revenue. This was the 19th, that is 1-9. This was the 19th consecutive quarter of more than 23% year-over-year subscription revenue growth.

Growing subscription revenue at such a good clip consistently for about 5 years has been quite an accomplishment. Overall, recurring revenue was a record $57.7 million, 18.8%, that is 1-8, 18.8% higher than the comparable prior year period and 65.9% of total revenue. Q1 fiscal 2027 subscription revenue was a record $40.2 million, that is 4-0 -- $40.2 million and 69.7% of total recurring revenue. The 26.1% year-over-year growth in subscription revenue was driven by 39.7% growth in PMS and PMS-related modules and 18.5%, that is 1-8, 18.5% in POS and POS-related modules.

Q1 fiscal 2027 is the first quarter in our history when total subscription revenue pertaining to PMS products was higher than that of the POS ecosystem. We expect subscription revenue growth in POS and related modules to remain in the high teens, low 20s kind of percentage levels for the foreseeable future. Add-on modules across both PMS and POS constituted 36% of total subscription revenue. Q1 fiscal 2027 annual maintenance-related recurring revenue was $17.4 million, that is 1-7, $17.4 million, very close to record high levels.

Most of the subscription revenue growth is coming from new and additional projects and not based on cannibalization of annual maintenance. We continue to allow customers to make their own decisions regarding timing of moving to the cloud. Onetime product revenue, consisting of perpetual software licenses and third-party hardware was $10.3 million in line with our expectations. Hardware revenue remains at these levels despite excellent success in overall POS sales.

In fact, the last 2 quarters have been two of the top three on record for overall POS sales. And the recent 6-month period of POS sales has been the highest ever 6-month period. Despite such POS sales results, hardware revenue remains at current levels. The current versions of the modernized POS solutions continue to carry a reduced hardware attached rate since they also work on consumer-grade iPads and other smaller, less capital-intensive handheld devices.

We continue to expect onetime product revenue to stay around this general range for the remainder of the fiscal year. Q1 fiscal 2027 professional services revenue was a record $19.6 million, 1-9, despite a big drop off in customer-paid product development-related services revenue as those major projects are now past the coding phase and in the implementation stage. In addition, our services implement efficiencies have improved significantly due to the modernized solutions becoming exponentially easier to implement and through greater use of AI tools, which is a very good thing for us.

We are now selling more software for every dollar of services sold, which is another good leading indicator of a maturing, modern technology-based enterprise software business unit that is becoming more competitive, even in price-sensitive markets. We expect professional services revenue to remain around current levels during the rest of this fiscal year and continue to grow in the medium and long term as the overall business continues to expand.

Despite excellent improvements in project implementation levels during the quarter, and record implementation services revenue, strong sales success drove combined product services and recurring revenue backlog to record levels, giving us good ongoing revenue visibility. We continue to exclude the large -- ongoing large PMS rollout from backlog calculations. Q1 fiscal 2027 profitability was above our expectations going into the quarter and fiscal year.

Gross margin of $55.7 million is a record for any quarter in absolute dollar terms. An adjusted EBITDA of 20.8% of revenue made this quarter the most profitable Q1 April to June period in history. Given the better-than-expected start to the fiscal year, we are raising revenue guidance levels for fiscal 2027. We now expect full fiscal year revenue to be in the range of $368 million to $373 million compared to the $365 million to $370 million guidance provided a couple of months ago.

The new guidance implies an overall revenue growth level of 15% to 17%, that is 1-5 to 1-7, 15% to 17%. We are also raising the guidance level for full year subscription revenue growth to be at least 32% compared to the prior minimum 30%, 3-0, 30% expectation. Given the good profitability start to the year, we have increased confidence that full year profitability, adjusted EBITDA by revenue, even after accounting for any potential additional strategic investment needs that might emerge during test of the fiscal year will work to be 24%, in line with the guidance provided earlier. We continue to expect the adjusted EBITDA by revenue FY '27 exit rate during Q4 to be close to the 30%, 3-0, 30% mark.

With that, let me hand over the call to Dave for further color on financial and other operational execution details.

Thank you, Ramesh. Taking a look at our financial results, beginning with the income statement. First quarter fiscal 2027 revenue was a quarterly record of $87.7 million. a 14.3% increase from total net revenue of $76.7 million in the comparable prior year period. Q1 represented another quarter of strong momentum in the business. Sales levels were at first quarter all-time high. Total backlog when excluding the large PMS rollout remains at record levels and Q1 revenue was better than we expected just a couple of months ago.

Professional services increased 8.3% over the prior year quarter to a record $19.6 million. We are pleased to see our professional services gross margin remain above the 30% mark for the second consecutive quarter at 35.4%. Total recurring revenue represented 65.9% of total net revenue for the fiscal 2027 first quarter compared to 63.4% of total net revenue in the first quarter of fiscal 2026. As expected, recurring revenue continues to become a growing portion of top line revenue and a meaningful contributor to gross margin and profitability expansion.

Subscription revenue growth during the first quarter of fiscal 2027 was better than expected at 26.1%. Subscription sales and backlog levels while maintaining low customer churn have us set up well for execution on our FY '27 plan. Moving down the income statement. Gross profit was $55.7 million compared to $47.3 million in the first quarter of fiscal 2022. Gross profit margin was 63.5% compared to 61.7% in the first quarter of fiscal 2026. Product mix will continue to drive gross margin to the mid- to high 60% range.

Combined, the 3 main operating expense line items, product development, sales and marketing and general and administrative expenses, excluding stock-based compensation, were 42.8% of revenue in the fiscal 20 27 first quarter compared to 45.6% of revenue in the prior year quarter. Operating income for Q1 FY '27 of $9.7 million, net income of $9 million and gain per diluted share of $0.32 are well above the prior year gains of $4.5 million, $4.9 million and $0.17.

Adjusted net income, normalizing for certain noncash and nonrecurring charges of $14 million compares favorably to adjusted net income of $9.3 million in the prior year period and adjusted diluted earnings per share of $0.49 compared favorably to $0.33. For the fiscal 2027 first quarter, adjusted EBITDA was $18.3 million compared to $12.5 million in the year ago quarter. We are pleased to see our profitability levels end up well ahead of the original FY '27 plan for Q1 with adjusted EBITDA coming in at 20.8% of revenue.

Adjusted EBITDA performed very strongly on the back of higher-than-anticipated recurring revenue levels, while operating costs were in line with our expectations. Moving to the balance sheet and cash flow statements. Cash and marketable securities as of June 30, 2026, were $123.7 million, compared to $116.9 million on March 31, 2026. We remain comfortable with our current levels of cash.

As it relates to free cash flow, we are pleased to see an increase for the first fiscal quarter. Free cash flow in the quarter was $7.3 million compared to a loss of $5 million in the prior year quarter. As a reminder, free cash flow is typically lower in the first half of the year due to working capital adjustments that normalize throughout the fiscal year. Adjusted EBITDA and free cash flow after normalizing the impact of CapEx continue to be comparable and good proxies for health of the business over a fiscal year.

For fiscal year 2027, we are raising our revenue guidance to be in the $368 million to $373 million range. We expect product revenue to remain flat and continue to trend around $10 million per quarter or $40 million for the year. Professional Services started strong and is still expected to grow in the 5% to 10% range for the year. We are raising our subscription revenue growth guidance from 30% to at least 32% for the year due to faster deployment of the backlog than anticipated in the original guidance.

Subscription revenue growth in fiscal Q2 should be close to 30% growth range and continue to accelerate during Q3 and Q4. With respect to adjusted EBITDA, guidance will remain at 24% of revenue, even though Q1 profitability was better than expected. We still expect to exit FY '27 at nearly 30% of revenue. Adjusted EBITDA excludes stock-based compensation, which will continue to be in the 5% to 7% range for the year. In closing, Q1 represented an extremely strong start to the fiscal year, leaving us with plenty of visibility into the remainder of the year.

With that, I will now turn the call back over to Ramesh.

Thank you, Dave. In summary, we are off to an excellent start to the fiscal year, which has given us sufficient confidence in our business health to be able to raise revenue guidance levels. The Marriott PMS project continues to make very good progress. Other customer stories of real tangible value gain from switching to and using the Agilysys ecosystem of Hospitality Solutions are increasing both in quality and quantity.

The availability of AI tools came at just the right time for us. We continue to release AI-based features at a steady rate with appropriate gardens and control mechanisms in place further augmenting the value of the modern ecosystem of hospitality-focused software solutions that have been built diligently over the past several years. The Hospitality industry is showing every sign of being hungry for such a modern AI-enriched interconnected ecosystem of software solutions.

Being focused only on the huge total addressable market of hospitality with no other distraction or competing investment objectives is also turning out to be a significant competitive advantage for us. Our competitive positioning continues to get better as is reflected in the sales and revenue results. Many of the additional and revenue improvements covers have made recently, through use of various modules within the ecosystem cannot be replicated by our competition anytime soon.

The competitive advantage is being built are based on a strong modern technology ecosystem foundation that is going to remain difficult to recreate for the foreseeable future by the competition with or without the help of AI tools. Overall, we continue to be very well positioned for continued, disciplined revenue and profitability growth.

With that, Lisa, let's open up the call for questions, please.

[Operator Instructions] First question of today will come from the line of George Sutton of Craig Hallum.

Nice results. So -- we now have a couple of tangible examples, Marriott and the Australian deal, where you weren't included in the original mix, but once you got in front of them, you were able to win the business. Can you just talk about how common it is that you're not getting invited into these mixes? And how are we trying to squeeze that percentage down?

So that percentage -- that percentage of us not getting included in RFPs is very low with POS, like we already know. But with respect to PMS, I would say that percentage is going really down in domestic regions, U.S., Canada, but still remains uncomfortably high in Europe and APAC. And that percentage is beginning to reduce now with more and more good stories about customers using our PMS and getting -- PMS and the other add-on modules and getting good reserves. So that percentage is going down, but it's still higher than what we would like in APAC and EMEA.

Understand. You gave a little bit of a hint, I think, relative to expenses as the year goes on, you're including in the guidance the potential for some strategic investments. And I'm wondering if you're highlighting potentially accelerated work on CRS or RMS? Or was there something else that might account for those strategic investments?

Not trying to indicate any particular investments. With AI -- the AI tools that we now have, we don't expect any significant quantum investments, quantum increase in headcount or any other investment for CRS revenue intelligence or for any of the other products or if we win another major deal, we don't expect any more of those quantum jumps that we needed to do with our cost in the past.

I think our costs will grow up incrementally as required in sales, services, R&D and other areas. So I was not trying to -- we were not trying to hint at anything in particular jobs, all we were trying to say is we are comfortable with the 24% adjusted EBITDA by revenue. And even if here and there something pops up, we don't expect us to change that number.

Next question will be coming from the line of Mayank Tandon of Needham.

Ramesh, regarding the comment about the backlog converting faster, which drove the upside this quarter and also the raised guidance. would you be able to unpack how much of that is from the Marriott PMS rollout going better than planned versus how much of it is coming from the ramp-up of other accounts outside of Marriott. Just trying to separate the impact of these 2 drivers of the model. And if there is upside to the model going forward, what is that source of upside potentially? Is it going to be continued backlog conversion on the core or would it really come from the Marriott rollout going better than planned

We are not trying to differentiate between the two, Mayank. When we sit -- so let's just break this down. The numbers are going up because of better sales performance. We are selling more to current customers and to new customers, so that's the main reason for us the number is going up. By backlog conversion, what we mean is a general improvement in implementation services efficiency. Our modernized products have been now in the market for, say, 1.5 to 4 years or so. So they are becoming easier and easier to get implemented. So that is the general backlog conversion we were talking about.

And as far as the Maria project is concerned, Mayank, it is going on plan. It is going per schedule. Quality of the project-wise is making excellent progress. So everything is going according to schedule. So by backlog conversion, what we mean is, the implementations are going quicker now after the sale, even if it is a complex ecosystem sale because the products are settling down quite well. But the main reason for the number is going up, I would say, is better-than-expected sales success. And everything else is becoming more efficient in the organization is.

Got it. I had to try to ask, but I appreciate the response. Also, I wanted to just ask you about the international, given the flagship but in Australia, is this a precursor to maybe more such large property wins? I know in the past, you've talked about the challenge being -- getting your name out. So I'm just curious if you're seeing any signs across not only Asia Pacific but the broader international market that gives you comfort that this could be maybe more of a catalyst going forward in terms of winning large multiproduct opportunities like the one you did in Australia.

Yes, Mayank. Each one of these wins that form a catalyst in itself. In fact, the reason why we won this particular deal is because the previous deal, we had one in Australia and that previous customer had had good visibility to our products and ecosystem and the games they are getting from their pilot properties going live. So it is their recommendation that even got us into the gate here.

So each one of these big wins, whether in Australia or whether in any other place, does create a catalyst effect because the products are now at a stage where they actually create good value for them. So it is real that it creates real value for them. So they are able to talk about it to other customers. That definitely helps. So all this will continue one upon the other to speed up, but we just need a lot more of this.

Now in terms of concerned international markets, it still remains Mayank, that we don't have enough singles and doubles. We need to increase that as well. But these large deals, definitely one upon the other have an exponentially increasing effect.

Next question is coming from the line of Matthew VanVliet of Cantor.

The question is job on the quarter. I guess, first, going back to the commentary that property management was ahead of POS for the first time. I guess how much of that was the contribution from Marriott included there? And then how much, if any, of the raised guidance for the year is just maybe Marriott being slightly ahead of progress in terms of revenue contribution than what you're originally expecting?

The Marriott project did contribute. No question, Matt, but we are not breaking down that number. PMS and PMS-related add-on modules, the subscription revenue that we get from that has been increasing over a period of time, like we have shown 30-plus year-over-year percentage improvement. So -- for a while now, for quite a few quarters, even before the Marriott project really started going up. Marriott definitely contributed no question about it.

But the momentum that we have with PMS and related modules have been happening for quite some time now even before these projects started. So I think it's a general trend because PMS carries with it a lot more add-on modules, about 15 to 20 of them, while around POS, we have about 4 or 5 add-on modules. So it stands to reason that subscription revenue increases in PMS is going to happen more and more. And also in PMS, we start with a very low market share, Matt. So you should expect the PMS increases are due not only to Marriott, but to all the other projects that are going on as well.

Helpful. And then I guess as you look at some of the investments you've made around the implementation team and the broader professional services group, from both headcount and process improvements over the last few years. I guess how much are those contributing to the ability to grow that revenue even as the wind down of the one-off projects around Marriott sort of Part A and Part B, is there an inclination to add more capacity there given your record backlog now and bookings continue to have such strong momentum. Do you need additional headcount? Or is this just the normal cadence of project timing and with that is just a reflection of bookings success more so than needing to invest additional headcount?

Currently, we are in a good place, math when it comes to headcount across all departments, not only services but also in sales and also in R&D and also in other areas. They are in a good position with respect to headcount and more operating leverage, we can drive more revenue all kinds of revenue, including subscription revenue. We are in a good place to drive additional revenue, additional projects with the kind of headcount investments we have today. Now we will continue doing incremental increases.

That is across all departments because the business is growing. We will continue doing incremental additions to our head count as we go along, but no quantum increases investments are needed anymore like it used to be in the past. So we're in a good position now. We will continue incrementally increasing our capacity, but we don't need to do anything special no major cost increases are required in order to fuel the growing success that we are having.

Now while you think about the fact that our implementation and other efficiencies are getting better, the first thing that should come in the mind is product. The product quality is so much better today compared to 3, 4 years ago, not only in terms of best-of-breed each individual product, but the strength we bring as an ecosystem of solutions that no other competitor has invested this kind of money in.

So both the products individually and the ecosystem put together give us tremendous competitive advantage with which our current sales team can sell a lot more. And the products are so much more well settled in the field that our implementation teams can execute a lot faster. So all of that starts from the product quality and the advantages it is giving us. So to answer your question in short, no great quantum investments are required to push it further. We will just keep doing the incremental divisions as we go now.

Next question will come from the line of Stephen Sheldon of William Blair.

First one, just there's been more debate between investors on software in-sourcing versus outsourcing especially with AI-supported coding efficiency that could help enterprises hardly build their own custom software. So Ramesh, I just wanted to get your take on that topic. It seems like the Marriott PMS contract that you're implementing right now would be a clear signal towards outsourcing and enterprise hospitality, but how concerned are you about hospitality customers trying to build their own software stacks? Have you seen any signals that some might lean more that way in the future or are the signals continuing towards more enterprise software outsourcing? Just would love to get your take on what you're seeing out there?

Yes. Stephen. First, I always want to be careful while answering questions about AI. I never want to sound done bits. It's not as if we are not watching what is going on in the world. But so far -- and I don't think it will happen anytime in the foreseeable future, not seeing any signs or any signal of in-sourcing. And I don't expect it much in enterprise software, not just for us, Stephen, but in general, on behalf of all enterprise technology -- enterprise software technology providers, I don't expect it, right?

So for example, you take a medium-sized resort, right, that is using our software now. And if you look at the annual recurring fees they are paying us, if you take that recurring fees and say, "Invest it in creating your own team." I don't think that money is enough to pay for 3 developers and 3 testers, right? It is not enough to do that. And by the way, AI is not cheap. AI takes a lot of cost as well.

So that particular resort instead of spending, that's relatively small amount, tens of thousands of dollars or maybe $100,000, $200,000, instead of doing that, they get the benefit of tens of millions of dollars worth research by providers like us who also use AI. So I don't think they will get into their own in-sourcing because it is just too big a task. It is too complex a task just for one product. Now you add PMS, POS and 30 additional modules that have worked together, it's too difficult to ask for such a medium-sized result to take up. And if you even go to the bigger customers, those customers need the benefit of innovation across the industry.

There is no big customer who just wants the benefit of their own innovation, their own ideas. I don't think they have enough of those IDs to run. They want the benefit what the other big customers are doing, and that's our job. That is why we spend tens of millions of dollars gathering all the innovation ideas, putting it together in a product a customer pays us a fraction of the cost that it takes us to create it, and they get the benefit of it. That's how enterprise software works with or without So, so far, we are not seeing any signals.

In fact, the last 6 months is the best 6-month period we've ever had with sales before. We've never had such good -- back-to-back good sales quarters before. So we are in fact seeing opposite signals. We think the sales decision are getting sped up or get -- what is the word for it speeded up or getting faster now because of all the AI-based innovations we are doing and customers want the benefit of that. We are seeing the opposite effect. But I don't want to sound toned on this. All I can tell you is we are not seeing any signals of any such insertion.

Very helpful, and I agree with your take. I guess as a follow-up with win rates remaining high and the biggest bottleneck right now being getting in front of more prospective customers, has it impacted your thinking about sales capacity additions over the rest of the year? I know you pushed the pedal a lot there last year, but I guess with the success you're having and a lot of opportunity out there, why not push the pedal there even more going forward?

We will, Stephen. That's a conversation Dave and I have with Joe almost on a week basis. Any time Joe needs and our international leaders think they need extra capacity, we will approve it in a matter of 2 hours. We won't hesitate to increase our sales and marketing spend at all. But the catalyst has to be more value creation for customers. We need the good news to spend. Like I told you, one of our U.K. customers used the spend, it's called the spend. It's a package implementation process that you can do directly through the booking engine that a guest can go create an automated inventory for a package.

No one else can come close even if you give the idea a competitor cannot create that, that has created so much value for them and they are willing to talk about it openly. Our user conference has more sub stories. We need to spread those stories for Stephen. Currently, we have good geographical coverage domestically and in all the countries we want to focus on internationally. We are well placed as far as our sales team capacity is concerned. We will continue to increase it as we feel the need arises. We won't indicate from doing that. But we are doing it the right way now. We are creating the success stories first and as we feel the demand is increasing, we will absolutely not hesitate to spend more in marketing and sales.

Our next question is coming from the line of Nehal Chokshi Northland Capital Markets.

Congrats to the strong quarter. Ramesh, you talked about how you're having improved service delivery efficiency, which is making Agilysys more competitive and price-sensitive environment. How much are these price-sensitive environments? How much of a portion of that $16 billion TAM are these prices some markets?

I can't put a number on it, Nehal, but good question. I think a large part of it is quite price sensitive, especially in international regions. And the more our services becomes more efficient, Joe will tell you, as our revenue leader, he will tell you that more we can reduce our courts, especially with with respect to services, the more of those deals we will win.

So I would -- I can't put an exact number on it. I've not done that kind of analysis, Nehal, but at least half of it, right? At least half of the EUR 16 billion total addressable market, I think, is price sensitive, especially in international regions, and we are getting there. We are becoming more and more efficient where we are going to become more and more competitive in those markets.

And where those potential customers are price sensitive. Is it the same competitive landscape? Or are you going to be looking at different competitors?

Same kind of landscape may help. If we look at our admin ratio is very impressive. In enterprise software, I don't think it can get much better than that. But we remain disciplined with our pricing. We don't run to the bottom. We're just not that kind of company. But when you look at the reasons for the losses, the #1 reason always comes out as pricing. Of all the reasons that's by far, number one. So more we solve that issue, the better off our sales success effectively.

Next question is coming from the line of Brian Schwartz of Oppenheimer.

Good job on the quarter, guys. Maybe just starting out with the top line, with the guidance raise on that. I don't know if you can parse that or what your commentary would be. But how much of that raise is related to the faster conversion backlog versus improvements with sales cycles or deal sizes or just the sales efficiency of the business?

Brian, pretty much the entire raise is related to subscription revenue, which, like Ramesh said, is a mix of stronger sales than expected and stronger backlog conversion. Product and Professional Services should stay in our original guidance of flat for product year-over-year and 5% to 10% growth for professional services.

So -- and obviously, the current guidance provides for a little bit of pullback in professional services in Q3. But all of the guidance raise was related to the better subscription sales and backlog deployment than we expected just a couple of months ago.

And one follow-up for Ramesh, on the big PMS deployment. Is there anything that you can share with us from a learning standpoint, what you've learned so far from those early initial deployments? And how are those lessons influencing your implementation efficiency, the resource requirements and how you think about the future rollout time lines?

The main lessons we have learned, if I just put it in a few major categories. One thing we have learned is to get better at change management. Not -- these products are not rocket science, right? Hospitality software is not rocket science. So our customer users do learn the product quite fast and in a matter of a few months, settled down well. But the difficulty is in moving from where they were.

Now the main PMS vendors that the technology providers in this place have been dominant for 15 to 20 years. So these are all very well-settled products and they carry with them very well settled practices for a long time. It's the change management that proves difficult for us, and we are getting better and better at it.

Data migration moving from one system to the other. There are 100 good things that new products will give them, but there are 10 crucial things they are used to doing that they now have to do in a different way. So we are providing for that more and more in our PMS products -- so handling change management and reducing that level of friction there is in moving from one system to the other is one thing we are getting better and better at.

And this big PMS rollout we are involved in, we've also learned very good lessons from a great customer like Marriott. So that's one. The second thing we are focused on is making the integration strength among our ecosystem products a lot better because one of the main reasons customers choose us is the strength of our ecosystem, and we have to bring that to the surface, the advantages of the ecosystem. So we are now really focused on making sure our products create value across each other. And so that the joint value that the products create cannot be duplicated by competitors. So that's another area that we are really, really focused on to get better at.

And we are always focused on better customer user training to make sure they understand the products quicker, use of AI tools to make the grant work of implementation faster so that we can use more of the hours to actually train the users in the new system. So a lot of lessons like that we are learning, and we are becoming better with every passing market.

Next question will be coming from the line of Billy Fitzsimmons of Piper Sandler.

Perfect. Ramesh, appreciate the detail on the kind of AI adoption strategy. And I have to imagine it's still pretty early here, and we'll get more data points as customers go under data. But as we think about your new AI tools at a high level for those 30-plus AI products, how should we think about the eventual ARPU uplift from these versus some of your existing modules in your historical cross-sell averages? And then any early feedback from some of those initial pilots?

The initial feedback has been good. To answer your last question first, AI is really adding strength to the strengths we already have. And so -- okay, let me go to the first part of your question. Unfortunately, we are not going to be able to give you a separate AI-related ROI because the way we are thinking about AI, AI is not like a separate thing we are selling. -- but it's a natural part of all the product features, a lot of the product features. Now some of those AI features will carry and additional monetization cost because we have to pay extra cost for that. But a lot of the features are making our products easier to buy.

So we are not thinking of it as an entirely separate thing that we can assign a separate value to -- like the way we think of AI, we break it up into 4 major parts. One is hyperpersonalization. Like we now provide our customers guest insights. We provide an automated dinar agent. Like if you go to a hotel resort and book a package, it will automatically create an idea for you. Now it's not a separatable feature. We already had that idenary thing, but now the agent makes it a lot faster. We have a bunch of agent in process automation, checking agent, book offers agent. That's an agent will do a lot of the work for you.

That's all not a separate thing, but it's all part of the product. Revenue intelligence and CRS that we are going to introduce, we will be able to assign separate monetization, too. And a lot of our UX in our products are all AI-based now, conversational food ordering, conversational reservations, housekeeping assistant. Those all value to the product. So we are thinking of AI as an integral part of our thinking. So it is going to be difficult for us to give you a separate ROI on that. But we will try, once revenue intelligence and CRS and all that really hits the market, we will try and provide you those numbers as best as we can.

But currently, our focus on all the guardrails, what kind of LLM do we use for what kind of purpose? How do we manage costs so that it doesn't go out of control. So we are sitting all those guidelines and guardrails now and the 30-plus features we announced during our user conference are all sort of hitting the market now during these months, July, August and September.

Makes sense. I appreciate the commentary there. And then if I could sneak in a second one. Obviously, a notable milestone here with PMS surpassing POS and good to see the growth in PMS, but there have been a couple of questions on that already. I actually thought the color on how POS and related modules should still remain in that, call it, the high teens to low 20s growth for the foreseeable future. I know that's long-term directional color. But can we talk about maybe the assumptions that underpin that? Is that just TAM expansion potential, new customer adds, kind of what you've seen historically and extrapolating bet forward? How do we think about the sustainability of growth in that market?

POS will also continue to grow, Brian. Our market share is not great in POS. Even in the markets where we are strong at, like Food Service Management, our market share with POS is quite low. And even in areas international regions, Europe and APAC, our POS market share is quite low. Though POS, we are relatively a lot more well established compared to PMS when we have the underdog really coming up now.

We are well established with POS, but there's still a lot of areas of growth there as well. I think we should be able to maintain that high teens 20% kind of subscription revenue growth in POS as well, believe and that should continue to hang around that kind of range is what we expect in POS. But there's still a lot of growth left in POS as well.

Our next question is coming from the line of Alan Allan Verkhovski from Husky of BTIG.

Ramesh, last quarter, you indicated that the Marriott rollout could take around 2 years or possibly longer. Given the strong results again this quarter, along with Marriott's recent commentary, suggesting the rollout could be closer to 1 year. Can you update us on how your current view of the rollout time line is different from your view 3 months ago?

I don't -- I think you're seeing too much meaning into maybe his comments, Alan. The project is going well. No question about it. The project is making good progress. All the technical aspects have been thrown out quite well. Marriott and all the other vendors. We can't take all the credit for it. All the other ways have done a superb job as well. So the project is going well. But it's still a long way to go.

And a lot of the complex properties are coming up now. So far, most of the limitations are in select service. And now the major properties, the full service, the premium properties are all coming up, and they will bring their own challenges. So we are still expecting the time line to be somewhere in the next 18 to 24 months sort of completion time work is where we are working towards. But the project is going well. There is enough reason for optimism. But we are not expecting the kind of super fast implementation time line that you are thinking about, Alan.

Got it. Okay. That's helpful. And then just as a follow-up for you, Dave, if I can. On the 15 new customers that were added this quarter, it looks like that was down sequentially unlike past Q1 periods. Can you provide more color on what drove that? You highlighted several notable wins in the prepared remarks. So any additional context on factors such customer size mix or time of deals would be helpful?

Yes. The customer was on the lower end of the 15. But the way we think about the business as long as it's in that 15% to 20% range, we're pretty good. It kind of keeps us at or ahead of our FY '27 plan. So the number is a little bit low, but deal sizes were really large. I mean, Ramesh made a comment about how many 7-figure deals. So number was maybe one or two low, but the deal sizes are so much bigger. There's an area of concern. As long as we stay in that 15% to 20% range, we're in a very comfortable spot for our FY '27 plan and beyond.

We have a follow-up question. And the follow-up question is coming from Nehal Chokshi from Northland Capital Markets.

Two-part question, actually. So the first part is the $1 million software deals, would you consider these customers as the dolphins and charts? Or are those bigger than the Dolphin some trucks that you've talked about in the past?

There are a lot more than 1 million, Nehal. So I just called it 7 figures. Please don't think of them as is 1 million. Good question. So if I assigned the terminology of Wales, to the big brands, I would put this in the category of reasonably big sharks earlier.

Got it. And are there any major RFPs in the tens of millions of dollar ACD range that you're aware at this point in time?

Not going to go into that, Nehal. We are not going to discuss it RFP by RFP now. there are sales opportunities. See, I'll give you this kind of answer we have. The last 6-month period is the best 6-month period we've had in sales in our history -- and our sales pipeline now is larger than what it was before the 6-month period started.

So we're doing well with sales pipeline. And our sales pipeline considers all kinds of opportunities. If you go back to your Roche and see as all kinds of sizes of fishers out there. So I won't go into specifics on the RFPs, Nehal, but you can rest assured that the opportunity is very from the large to small in the sales pipeline .

Great. I do love your animal analogy, I keep on using it.

You will have to come up with a better one Nehal sometimes so.

And there are no more questions in the queue. I would like to turn the call back over to Ramesh for closing remarks. Please go ahead.

Thank you, Lisa. Thank you for all your interest and support. Please stay good care. Enjoy the rest of the summer, and we'll catch up with you again soon. Thank you.

Thank you for joining today's program. You may now disconnect.

Good day, ladies and gentlemen, and welcome to the Agilysys 2026 Fourth Quarter and Full Fiscal Year 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 Agilysys. You may begin.

Thank you, Victor, and good afternoon, everybody. Thank you for joining the Agilysys 2026 Fourth Quarter and Full Fiscal Year 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, increased implementation and operational efficiencies, the company's ability to maintain retention rates, utilize AI to continue to increase competitive advantages 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 Agilysys 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 Agilysys. Ramesh, please go ahead.

Thank you, Jess. Good evening. Welcome to the fiscal 2026 fourth quarter and full year earnings call. Joining Jess and me on the call today at our Alpharetta Atlanta headquarters is Dave Wood, our CFO.

Fiscal 2026 Q4 was an excellent overall business quarter for Agilysys, including with respect to sales, revenue and profitability, each of which set a new quarter record. We measure sales and selling success in annual contract value terms and fiscal 2026 fourth quarter was the highest sales quarter on record. All sales and backlog value is mentioned here for Q4 and full fiscal year 2026 do not include anything from the Marriott property management system, PMS project.

Fiscal 2026, the year ending March 2026, was a record global sales here overall. It was a record best sales year and well more than double the previous year's sales level for the managed food services FSM vertical. Our record best sales year for international sales. Our record sales here by a good distance for subscription SaaS sales 29% higher than the previous best prior year, including gaming subscription sales, which were 27% higher than the previous best gaming subscription sales here. And it was a record high sales year for both point-of-sale, POS and POS related modules and for property management systems, PMS, and PMS-related modules. While the PMS side of our business, obviously, continues to make great progress, Fiscal year 2026 was a particularly excellent year for POS, making a fantastic recovery from the challenges faced during the previous couple of years, and finishing at the best year for the POS product set in our history.

With the modernized and unified POS ecosystem now working well at hundreds of sites, we are back to being a very strong POS player in hospitality with growing product-driven competitive advantages. Addition of AI-driven voice and chat ordering features which are context aware like ordering inside Microsoft teams for our business and industry customers in FSN who serve corporate casters, which support for Slack coming up soon, ordering through Amazon Alexa for our senior living customers, ordering on a concierge app or tablet for hotel guests, such additions are bringing home with greater emphasis the competitive advantages of a unified POS ecosystem.

Fiscal 2026 full year retained recurring bookings, annual 12-month value of SaaS fees plus maintenance for perpetual licenses sold during the year, net of ARR lost through customer churn. This net number which is a crucial leading indicator of future recurring revenue growth. And a metric we constantly monitor internally was an all-time record by a long distance during fiscal 2026, exceeding the previous best prior year by an impressive 43%. While our recurring fee sales bookings are at the highest levels we've ever seen, the customer retention rate also being at better than world-class levels makes it a virtuous double benefit combination, driving recurring revenue levels forward at an excellent rate.

Overall, the January to March period, fourth quarter of fiscal 2026 was a blockbuster best sales quarter ever beating the previous best level which was achieved during Q4 last fiscal year. It was the highest ever sales quarter for the managed food services, FSM vertical. Gaming sales during the quarter improved sequentially by nearly 60%, that is 6-0, improved sequentially by nearly 60% over Q3 of fiscal 2026 and was also an excellent sales period for every other sales vertical.

This was an excellent overall business quarter in various ways, breaking records all over the place. However, it is always best to judge our business progress on an annual basis. There is no guarantee that each upcoming quarter will be a record. We can, however, stayed with a fair degree of certainty that next year, fiscal 2027 is well positioned to be a record best year for sales, revenue and profitability. This is a business that should be judged on annual results and full year guidance levels.

With respect to signed sales agreements during January to March Q4 fiscal 2026, we added 20 new customers, excluding book for Times par. These new customer deals average 7 products each and 19 of the 20 were subscription-based. We also added 85 new properties during the quarter, which did not have any of our products before, but the parent company was already a customer. Of the 105 new properties added during the quarter across new and current customers, excluding the 22 new customer properties who purchased Book for Times Spa, 103 were either partially or fully subscription software license based.

There are also 129 instances of selling at least one additional product to property is already running one or more of our other products. These 129 instances involve sales of a total of 345 products. Both these numbers 129 new product wins and 345 new products sold in those wins are quarter record levels.

There is ample evidence that our business levels and market share gains are operating at the best levels we've ever seen. To reiterate, while this was a record quarter in many ways, -- the more crucial fact is fiscal 2026 was a record year. It is best to judge our business on an annual basis. Sales win-loss ratios remained remarkably impressive during the quarter and during the entire fiscal year.

The record sales performance during fiscal 2026 reflects the compounding competitive advantage of our product ecosystem and AI has become a powerful accident on top of that solid foundation. The AI-based capabilities we've introduced during recent months and those planned for deployment in the quarters ahead are only possible because of 2 durable hard-to-replicate assets, a modern cloud-native product ecosystem built over the last several years and deep hospitality domain knowledge accumulated over decades as the industry trusted systems of record for mission-critical business operations.

This distinction matters. AI tools are widely available. What is not widely available is the combination of AI, domain expertise and a comprehensive trusted data foundation, structured by the governance, information security and personally identifiable information, PII, controls that are critical for hospitality enterprise operations. In an industry where guest identity preference and transaction data flows across every touch point, from check-in to spar to dining to go to activities to loyalty promotion systems and much more. Data privacy and governance are not just compliance check boxes. They are the basis of get trust and by extension, operator trust in us. Our AI strategy is built on that foundation: responsible, governed and grounded in real mission-critical hospitality data. We have defined 4 distinct pillars in understanding how our customers will use AI: Agentic AI, multimodal interfaces, hyper personalization and intelligent revenue optimization.

We have now crossed an important threshold, our systems of records are becoming intelligent systems of action. We are in the process of introducing an AI-powered revenue intelligence layer woven across the full product ecosystem, that converts transactional data from across the entire hospitality enterprise into proactive real-time operational decisions. What makes this possible is not just the intelligence layer itself, it is the architecture beneath it.

Our ecosystem is not just a collection of integrations or marketplace solutions. It is built with interoperability by design from PMS and POS to SPA, golf activities and inventory. That architecture allows us to optimize for what matters most at the property level. total revenue per guest, not just room revenue in isolation, not just F&B revenue as a separate metric, but the full economic value of every guest interaction across every department. That is a fundamentally different optimization target and value proposition, which requires the kind of last-mile system of action products that only a natively integrated ecosystem can deliver.

We are also deploying AI agents directly inside our products. The front that agent in our PMS, for example, functions as the digital twin of the Front Desk employee, handling routine operational tasks so that the hotel staff are free to focus entirely on the guest in front of them. That is the philosophy underlying our agent AI pillar, not automation for instance sake, but removing the cognitive overhead of routine operations, so the hospitality professionals can deliver the human experience, guess remember and will come back for. At our recently concluded Inspire customer user conference, we saw record customer attendance and 8 main state stations led by customers sharing measurable operation gains achieved through use of Agilysys products.

We launched two entirely AI-native modules, revenue intelligence and CRS. The first data implementations of these modules at customer sites are expected to happen later this fiscal year. The revenue intelligence tool has been designed to enable true operational intelligence across all sections of a property and it's not just about room rates. Such a tool can only be built on top of a modern ecosystem of software solutions that covers the entire gamut of property operations. We also believe that our well-integrated CRS, PMS set of solutions will become vital for hotel operations in the future, and we are well on our way towards making that possible. As the initial launch of these modules is only for current customers, -- these 2 solutions may not play a major part in our $300 million to $500 million annual revenue growth journey that is becoming increasingly more visible and real for us now. but could play a major role in future years as we work through the growth path from $500 million to $1 billion annual revenue level.

What would historically have taken years to develop will now get delivered in a matter of months. Like other enterprise software companies, we are seeing meaningful AI-driven improvements in development efficiency. But our situation carries an additional multiplier. The ecosystem foundation, the domain logic, the shared data fabric, the interoperability built across every product, acts as a compounding base that amplifies those efficiency gains with each release cycle. The result is an accelerating innovation velocity and 1 that supports our ability to sustain product pricing at levels that are both fair to us and to our customers. While on the subject of pricing, our software licensing models have never been user-based. They are based on parameters like number of hotel rooms, number of POS terminal endpoints, number of spa treatment rooms, golf courses, dining menus, retail outlets and sites, each of which do not decrease when user efficiencies improve through use of AI or due to any other reason.

With that, on to a few details on revenue and profitability. Fiscal 2026 fourth quarter revenue was a record $82.9 million. This was the 17th consecutive record revenue quarter. Q4 subscription revenue was a record $36.9 million and grew by 24.1% from the comparable prior year quarter. This was the 18th consecutive quarter of year-over-year subscription growth of at least 23%. Q4 subscription revenue was also a record 68% of total recurring revenue. Overall, recurring revenue, including maintenance fees for perpetual licenses was a record $54.4 million and 65.5% of total revenue.

Fiscal 2026 fourth quarter subscription revenue pertaining to POS and POS related modules increased by 19% year-over-year, while subscription revenue pertaining to PMS and PMS-related modules increased by 34%. The Add-on modules across both PMS and POS, including Book for time par constituted 38% of total subscription revenue.

Fiscal year 2026 Q4 services revenue of $18.2 million was tied with Q2 at the best services revenue quarter so far despite a significant decline in services revenue pertaining to customer paid product development efforts. Those development projects have, for the most part, gone past the product development stages and are in the deployment phase now.

Fiscal 2026 Q4 was the highest services quarter with respect to revenue only from software implementation services.

The sum of product services and recurring revenue backlog levels grew to record levels despite a record implementation services quarter and the volume of insulation success during the quarter because it was an even better sales success quarter. We continue to exclude the Maria PMS project from our backlog numbers. We are starting fiscal 2027 with excellent visibility into the year. Total subscription ARR installed during fiscal year 2026 was 32% higher than during fiscal year 2025.

The increased velocity of project implementations and resulting in recurring revenue growth has a lot to do with the modernized products becoming exponentially easier to implement, greater use of AI tools to improve implementation efficiencies and higher staffing levels compared to the past. We are currently, for the most part, sufficiently well staffed in various business areas, including product development, sales and professional services to fuel continued business expansion during the short and medium term.

After starting the year with a full year revenue guidance level of $308 million to $312 million. Full fiscal year 2026 revenue ended up at a record that $319.3 million, 15.9% higher than the previous full fiscal year, despite onetime product revenue, consisting of perpetual software licenses and hardware we sold remaining flat year-over-year at $41.2 million. We expect onetime product revenue to remain at these levels as customers continue to augment traditional hardware needs with consumer market available mobile devices taking advantage of the modernized POS terminals that allow it, and their preference for cloud-based SaaS software solutions, continuing to dominate demand and reduced need for perpetual software licenses. Lack of growth in the product revenue bucket is, in fact, a good positive indicator of our growth as a cloud-native SaaS-based enterprise software business unit.

Full fiscal year 2026 services revenue was a record $72.2 million, 12.4% higher than the previous year. Traditional implementation-related services revenue increased impressively year-over-year. We expect services revenue to remain on a steady growth path each year.

Full fiscal year 2026 revenue included a record $205.9 million in recurring revenue, 21.1% higher than the previous year. Of this recurring revenue, Subscription revenue was a record $137.1 million, 30.2%, that is 3-0, 30.2% higher than the previous year. well ahead of the beginning of the year guidance level of 25%. Fiscal 2026 was the fifth consecutive year of organic subscription revenue growth of at least 25% and total subscription growth of at least 27%.

Fiscal year 2026 full year maintenance-related recurring revenue was a record $68.9 million. Our subscription revenue growth continues to come from for the most part from new customer, new sites and new product sales success and is not dependent on cannibalization of annual maintenance generating on-premises installations.

The Marriott PFS project continues to make good progress and is on plan. All personally involved in this complex technology transformation project across all parties involved continue to do great work and execute extremely well. We are proud to be associated with this project. One of the biggest and most complex is not the biggest technology transformation project ever undertaken in this industry.

Having been effective thus far in contributing to the success of such a massive project, we have good reasons to believe that no future achievement in this hospitality industry will be beyond our reach. We expect full year fiscal 2027 revenue to be in the range of $365 million to $370 million, with product revenue remaining flat and steady growth in services revenue. We expect fiscal year 2027 to be the third consecutive year of subscription revenue growth of at least 30%.

Apart from increasing the pace of competitive product differentiation of our hospitality-focused software solutions ecosystem, sweeping AI-related changes across the entire organization are also helping us improve operating leverage across several business areas. We expect adjusted EBITDA by revenue to grow from 21.2% in fiscal 2026 to 24% in fiscal 2027. Q1 is always a heavy cost period for us with several onetime expenses happening during the quarter, including the high-cost customer user conference. We expect adjusted EBITDA by revenue during Q1 to be only 16% to 17%. We expect adjusted EBITDA by revenue during Q1 to be only 16% to 17% and build upwards from there as was the case during fiscal 2026. And we expect to exit fiscal 2027 at a rate well above the annual expectation of 24%.

At 30% full year adjusted EBITDA by revenue profitability level is not too far off for our business now as we continue to shift the product mix increasingly towards recurring revenue and also improve operating leverage. Thanks to various factors, including judicious use of AI to increase efficiencies. Fiscal 2027 should be the first year when product development-related operating expenses excluding share-based compensation, should be down to the high teens after being around the 22-person mark a few years ago.

With that, let me hand over the call to Dave for further color on our financial results and operational execution.

Thank you, Ramesh. Taking a look at our financial results, beginning with the income statement. Fourth quarter fiscal 2026 revenue was a quarterly record of $82.9 million, an 11.7% increase from total net revenue of $74.3 million in the comparable prior year period. As a result of the continued momentum in our business, we are pleased to see 15.9% total revenue growth compared to fiscal year 2025. During fiscal 2026 compared to the previous year, professional services increased by 12.4% and recurring revenue increased by 21.1%.

Fiscal year '26 was another great year regarding all aspects of our business: sales, backlog and operations continue to perform at an extremely elevated level. With or without the large PMS rollout, backlog and sales are exiting at record levels and plenty strong enough for our FY '27 plan.

Professional services increased over the prior year quarter to $18.2 million. Professional services revenue continues to perform well. We are also happy to see professional services gross margin return to slightly north of 30%. Total recurring revenue represented 65.5% of total net revenue for the fiscal fourth quarter and 64.5% for the full year compared to 62.2% and 61.7% of total net revenue in the fourth quarter and full year fiscal 2025. We continue to be pleased with subscription sales and revenue growth levels.

Subscription revenue grew 24.1% for the fourth quarter of fiscal 2026 and 30.2% for the full fiscal year. The large PMS rollout contributed to about 0.2% of the growth for FY '26. Subscription revenue outside of the large PMS rollout was 30% for the full fiscal year, well above our original expectation of 25% going into FY '26. Subscription sales during the year, along with excellent customer retention levels have us set up well for our FY '27 plan.

Moving down the income statement. Gross profit was $53.4 million compared to $45.1 million in the fourth quarter of fiscal 2025. Gross profit margin was 64.4% compared to 60.7% in the fourth quarter of fiscal 2025. For the fiscal year, gross margin was roughly flat at 62.6% compared to the prior fiscal year. We are extremely pleased to see us exit the year at 64.4% gross margin as product mix in the P&L catches up to sales. We have finally entered the beginning of the gross margin expansion part of our journey.

Combined, the 3 main operating expense line items, product development, sales and marketing and general and administrative expenses, excluding stock-based compensation, were 38.7% of revenue in the fiscal 2026 fourth quarter compared to 41% of revenue in the prior fiscal year.

Excluding stock-based compensation for the full fiscal year 2026, product development decreased to 18.6% compared to 19% of revenue in the prior fiscal year. General and administrative expenses reduced for the year from 12.6% to 11.2% of revenue. Sales and marketing increased slightly from 11.4% of revenue to 11.8% of revenue. Combined, the 3 main operating expense line items, product development, sales and marketing and general and administrative expenses, excluding stock-based compensation, were 42% of revenue this fiscal year compared to 43% of revenue in FY '25.

Operating income for FY '26 of $43 million, net income of $38.8 million and game per diluted share of $1.37 are well above the prior year gains of $22.6 million, $23.2 million and $0.82. Adjusted net income normalizing for certain noncash and nonrecurring charges, of $50.8 million compares favorably to adjusted net income of $43.8 million in the prior year and adjusted diluted earnings per share of $1.79 compares favorably to $1.55.

For the 2026 fourth quarter, adjusted EBITDA was $21.5 million compared to $14.8 million in the year ago quarter. And for the full year fiscal 2026 adjusted EBITDA was $67.7 million compared to $53.8 million in the prior year. We are pleased to see our profitability levels end up well ahead of our original FY '26 plan with adjusted EBITDA coming in at 21.2% of revenue.

Moving to the balance sheet and cash flow statement. Cash and marketable securities as of March 31, 2026, was $116.9 million compared to $73 million on March 31, 2025. We remain comfortable with our current levels of cash.

As it relates to free cash flow, we are pleased to see an increase for the full fiscal year. Free cash flow in the quarter was $35.4 million compared to $26.5 million in the prior year quarter. and $68.1 million for the full fiscal year compared to $52.3 million in the prior year. As we've said in the past, adjusted EBITDA and free cash flow after normalizing the impact of CapEx and continue to be good proxies for the health of the business on an annual basis.

Full fiscal year 2026 free cash flow was $500,000 greater than adjusted EBITDA, mostly due to timing of working capital adjustments.

For our fiscal year 2027, we expect revenue to be in the $365 million to $370 million range. We expect product revenue to remain flat and to continue to trend around $10 million per quarter or $40 million for the year as customers continue to choose consumer-grade devices and a larger portion of our business becomes PMS.

Professional services should grow in the 5% to 10% range as well. As a reminder, this year, professional services revenue will not have any significant benefit of large development projects as the ones we are working on in the past are now well into their rollout phases. Recurring revenue will continue to grow around 20%, inclusive of subscription revenue growth north of 30%. Subscription revenue growth in the fiscal Q1 should be similar to the FY '26 Q4 exit of around 24% and then increase from there throughout the year, as we accelerate the large TMS rollout, we continue to make good progress with.

Adjusted EBITDA will increase to 24% of revenue as we begin to see margin expansion from our current sales momentum and large project rollouts. As a reminder, fiscal first quarter profitability will be lower due to the beginning phases of the large PMS rollout and timing of our user conference expenses. We expect profitability to be in the 16% to 17% range in the first quarter and then increased sequentially, exiting Q4 at nearly 30% of revenue. Adjusted EBITDA, a excludes stock-based compensation, which will continue in the 5% to 7% range. Free cash flow and adjusted EBITDA will continue to be comparable for profitability after normalizing for CapEx, which is not a significant portion of our business.

In closing, we are pleased with our FY '26 financial results and the solid business fundamentals for future revenue growth and profitability growth.

With that, I will now turn the call back over to Ramesh.

Thank you, Dave. In summary, we are now about as bullish about our business as we've ever been. Our timing has been impeccable these last few years, unlike other technology providers in the industry, we made the tough decision to rewrite and modernize every product in our ecosystem a few years ago. The future-proof the system with the expectation that we would be ready to leverage the next wave of technology changes when they came.

We have rapidly made AI and integral part of everything we do. and the pace at which we are creating AI-based features has served as a good validation of the previous technology modernization efforts. The industry firmly believes in what we are doing and this is reflected by the fact that demand for our product ecosystem remains high. The high sales win ratio continues to point to increasing product superiority competitive advantages. Sales levels particularly pertaining to subscription side sales continue to get higher. Our customer retention rates remain world-class. A combination of selling more recurring fees and retaining them at such levels will continue fueling good levels of recurring revenue growth. The product mix is improving with a consistently increasing tilt towards recurring revenue which should continue to push gross margin levels upward. Our operating leverage continues to improve as well.

AI is making it easier to meet and exceed the long pending and underserved hospitality industry innovation demands, which currently very few technology providers are in a position to or are interested in serving. The modernized product ecosystem has settled down well in the field and continues to be a big competitive advantage. However, beyond all that, what gives us the most optimism and satisfaction is the increasing number of customer success stories, instances of customers seeing meaningful improvements with revenue generation, operational efficiencies and guest satisfaction levels enabled by the Agilysys integrated ecosystem of modern solutions.

Software development is one thing, but creation, maintenance and enhancement of a complex ecosystem of interconnected, innovative, robust and configurable software solutions that can create meaningful, measurable value for a widely diverse world of customers, each one using the product sits in a different way, is an entirely different level of challenge that we are making great progress mastering. Such customer success stories are increasing, both in terms of quality and quantity, and that is the progress that is now giving us momentum. When customers are willing to get up on main stage in front of hundreds of other customers and prospective other current and prospective customers as has happened in two consecutive user conferences now. to talk about the real tangible measurable improvements they have gained from switching to analytic systems, we know we are doing a lot of things right. We remain very bullish about our short, medium-term and long-term prospects.

With that, Victor, let's open up the call for questions.

[Operator Instructions] Our first question will come from the line of Mayank Tandon from Needham.

Congrats Ramesh, Dave and Jess on the quarter. Ramesh, I wanted to start with any updates on the large PMS rollout in terms of how it's progressing? I know it's early days. If you could share any feedback on how that's going? And then I don't know if you can, but I would definitely want to ask you, are you able to share any expectations on the ramp and what's embedded in the guidance? And lastly, is it expected to be done mostly in fiscal '27? Or do you think it's going to be a multiyear rollout?

The project is progressing well, Mike. By all accounts, it is progressing well. The customer is doing a fantastic job with the project, and so are all the other vendors involved. So like I said, we are extremely proud to be associated with it. It continues to progress well. However, I would be careful not to expect perfect rollout cadence. The only future variance is possible. Even though the technology that the properties are shifting to is common, the technology and the products they are shifting from is not all exactly the same, there are various sets of products that are being used today that are being converted to these modern technologies. So it's progressing well now. But I would be careful about not expecting a perfect rollout cadence because there are various phases to this.

Future variances are possible. We have taken -- we have included it in our guidance for FY '27 to a careful extent. We have been reasonably not too aggressive with anything. Whatever cadence we are expecting, we have included that in the FY '27 guidance, but it is not going to be a single year rollout for sure. It is going to be at least 2 years or possibly more than that. So I would not assume it to be a 1-year rollout under any circumstances, Maya. It could be 2 years, hopefully or a little bit more than that as pet. So far, going well, but I would be careful about not expecting a

Got it. That's helpful. I had to ask you. So I appreciate the response there. And then just in terms of the momentum that you're seeing, obviously, as you said, very broad-based and strong momentum coming into fiscal '27. So if there is upside and you have delivered upside in past years, where would that come from? Is that going to come from potentially the large PMS rollout maybe ramping up ahead of schedule? Or do you think it's going to come from some of your other areas that you called out in terms of gaming casinos managed services. Just would be curious in terms of where do you think the levers are in the model to drive potential upside to your initial guidance for 2027 fiscal?

Mike, we always provide guidance based on realistic assumptions of where we see the year going. So I would be careful not to get ahead of ourselves and already start thinking about we are in the early stages of the year. But the guidance we have given is based on what we are seeing in the market and what our current momentum is. But the upside we will see, right? If our sales levels continue to increase. Our sales team is now under Joe's leadership is doing an excellent job, keeping our focus on various areas, keeping the focus on bigger customers, making sure, at the same time, we also focus on our sweet spot multi-net resorts. We also have started focused attention on selling service the smaller properties. And we are also beginning to focus on the individual products because our individual products can also be sold as stat alone now, and there are competitors who are running big businesses just based on those individual products. So we have focused attention on all areas of sales, and we think our business will continue to do well. But we have taken all that into account while we gave you the guidance for this year.

Our next question will come from the line of Matt VanVliet from Cantor.

I guess, first, curious on where you are today in terms of total implementation capacity? I know that's been a focus of adding head count over the last few years and building a lot of efficiencies, whether it's from AI tooling and other processes in there. But with another record bookings quarter in the year, curious on how you feel about the capacity there and the speed at which you're going to work through the backlog going forward?

We feel good, Matt, about our implementation services capacity. I think we are in good shape for at least the rest of the fiscal year. And AI is obviously helping us improve the efficiencies -- and the other factor also, Matt, is that the products, the modernized products have settled down well. The implementation speed of the products has really picked up now because these products have been in the field for anywhere from, say, 1.5 to 4 years. So that also is improving implementation efficiencies. And AI is obviously contributing to increasing it further. So we are in good shape. We expected this kind of sales momentum. So as long as fiscal '27 is concerned, at least, we are in good shape with respect to most of our headcount, not just implementation services, also sales, also R&D, we are in good shape as far as our current headcount levels are concerned.

And then a quick follow-up on the discussion around the guidance. Last year, you started the year at about 25% subscription revenue growth expectations. Obviously, stepped that up this year to 30% plus -- maybe how much of that is just the better bookings performance that you have seen and the overall momentum in the business? How much of that increase in growth rate is attributable to the Marriott PMS rollout expectations that are embedded in the guidance?

Yes. Matt, in FY '26, the increase from 25% to 30% wouldn't be related to the large PMS rollout. It was almost exclusively related to much better sales than our initial expectations and much better operational efficiency than we've seen in the past. I mean a lot of what Ramesh talked about with installation, getting better with the modernized product and using the tools for configuration. So I would say it was really wasn't related to large PMS rollout. It was really related to sales being a lot better than expected and conversion of the backlog better than it's been in the past.

And the retention rates are also world class.

Yes.

Our next question will come from the line of Stephen Sheldon from William Blair.

Congrats on the strong end to the year. First question here on gross margins. They took a very strong step up this quarter. So would love more color on what drove that. I think, Dave, you might call that mix is a big factor. But anything else to call out there? And then how should we think about the gross margin trajectory in fiscal 2027? I think you talked about expecting an exit rate of 30% or more, I think for adjusted EBITDA margins. Are you expecting the same trend in gross margins where the exit rate should be stronger than what you averaged for the year? Just any detail on how you're thinking about the gross margin objective.

Yes, Stephen. No, I think you're right. I mean it's mostly product mix related. I mean, I think just generally, when you think about the EBITDA margin expansion for the year, it's -- about half of it is gross margin related based on mostly product mix, and then half of it is OpEx leverage throughout the year. Now in both scenario, it's kind of really a tale of 2 halves. Gross margin in the first half will be kind of more similar to our Q4 exit rate. But then we should be exiting the year kind of in the mid- to high 60% range and all of that's product mix related.

And kind of the same story for OpEx, where it's kind of marginally better for the year, but it will be significantly better in Q4 on an exit rate basis. So I would think of most of our kind of journey from the 17% in Q1 to the 30% EBITDA exit rate is have gross margin improvement and half operating leverage.

Got it. That's really helpful. And then just as a follow-up, with the two new products that you announced at Inspire -- it sounds like it might take a while for those to kind of get traction and start to move the financial needle. But I guess, above any early customer feedback you had on some of those new capabilities especially the revenue intelligence piece. I mean, I think that -- I would assume that a lot of customers out there don't have a similar solution. I guess the most have a central reservation system already in place. So curious what the feedback look like for those two new products.

Stephen, we discussed the two new products in detail at the customer advisory board meetings that happened before the customer user conference -- and the feedback was positive with a few customers volunteering to be beta sites to be the initial sites for the implementation. So when you think about product ecosystem that you have seen, the entire set of products around POS and PMS. These were always 2 gaps that we had. One was CRS and one was revenue intelligence. .

And when AI came along and the tools got really better, it gave us an opportunity to build these two. Now the revenue intelligence is possible only because we have the ecosystem. AI alone does not get it done. We have the data. We know exactly what is going on with the guest across the resort. So currently, the tools are just all about room rates is what they normally are about, and they're also not necessarily all real time. So this is a tool that can be real time. It really gives you all the switches on the configurability by which others can say that include this in the normal numbers but don't include it in your revenue intelligence. All that is possible -- so the short answer is initially, we are targeting it only to our customer base who already have the ecosystem, it will be of great value to them. As we go along in the future years, we will work on making it stand-alone and all that. So to answer your question, well received so far. We already have customers who are volunteered to be the initial sites for this, and we do expect both these products to be live before the end of the fiscal year at least a few customers out.

Our next question will come from the line of Allan Verkhovski from BTIG.

Congrats on the strong close to the year here. Ramesh, it's hard to see it in the numbers, but I want to ask you about AI anxiety, which seems to be everywhere to some extent. So I'm curious, what are you seeing today around the topic of AI anxiety being in your conversations with customers? And how is that playing out in sales cycles? And then I've got a quick follow-up for Dave.

I want to be careful in answering questions about AI. I want to make sure I don't sound -- about what is going on. It is transformational. It's going to make a huge impact. And we are determined to the AI disruptors. This is not just a matter of defending a moat or anything like that. AI is available to us as much as it's available to anyone else. And we are determined to be AI disruptors and AI is all over our company. But having said that, we are not seeing any significant AI anxiety among our customer base -- and based on the results you're seeing now, definitely, it is not slowing down or making it more anxious or anything like that. Again, I want to be careful not to sound tone-depth in this world, but we are not seeing that among our customer base and in our sales cycles. If anything, it is working the other way. Because of all the AI-enabled features and the fact we are an aggressive AI user, if anything is actually shortening the sales cycle for us. We had really good results in Q4 because the customers are curious. I wouldn't call them anxious. We are curious to know what we are doing with AI. And now that we have the power of the ecosystem already built, when we're showing customers what we are currently already doing with AI, what we are going to be releasing within the next 3, 4 months, not in the next 3, 4 years, it's coming up right now -- that is actually shortening sales cycles, if anything, for us. So I want to sound realistic with you, but AI so far has been our friend as far as sales levels are concerned. Because we are doing real work with it. This is not just hype. We are actually using AI in our products that are 30-plus features that have been released or in the process of being released within the next 3, 4 months, we have 2 entirely AI-native modules that are going to fill up our ecosystem. So customers see that it is actually helping our sales progress.

Got it. That's very helpful. And then Dave, can you just give us some guardrails on how to think about what the revenue contribution from the Marriott rollout for FY '27 as part of that 30% subscription revenue guide? And what we should keep in mind for how it can ramp beyond fiscal '27 into fiscal '28 in order to prevent what could be a pretty wide range of estimates from our own

Yes. I mean, we're not going to break out our organic revenue growth. I mean I think we set the guidance this year at north of 30%, which obviously includes a lot of Ramesh narrative around our commentary around non-Marriott doing better, but it also improves allows us -- if the Marriott rollout continues on this pace. So we don't have a plan to break out the revenue. So we just kind of -- we left the guide at north of 30% that could include -- that has a pretty conservative estimate of the Marriott rollout.

Your next question will come from the line of Brian Schwartz from Oppenheimer.

Ramesh, now that the large PMS rollout is progressing well. Do you expect that the progress that is happening to unlock a faster cadence to sales cycles with other hotels and resorts that may have been waiting to see that large PMS rollout proof points before choosing Agilysys?

Brian, if customers are waiting to see that it has not yet reached the stage where it is entirely visible. So what I will tell you, this Marriott PMS project is helping us is definitely put us on the PMS math. No question about it. we are now included in most of the major PMS RFPs. It's given us visibility. It's given us credibility. But in terms of us -- in terms of that becoming like the halo effect, it's not yet there. The properties have only gone live for 2, 3 months. There is a lot of good news coming out of those properties, but that's going to take time to become an even bigger and bigger light. Now I know you're not asking that, Brian. On the other hand, actually, some of the big POS installs we have done with Marriott have actually been good reference, 1 or 2 of them have been good reference customers for us. So overall, all this gives us big credibility. People are watching it. But in terms of it having a direct effect, it is stuck to attribute it to start with, but that will take some more time line.

Okay. And then I have one follow-up for Dave. How much of the fiscal '27 subscription revenue growth outlook relies on continued strength in the international markets and verticals like food service, which have recently outperformed versus, say, the core hotels and resort business?

Yes. I mean, a food service continues to do well, and we think it will continue to do well. That's pretty embedded in the in the guidance. As far as international, it's similar to the way we've guided in the past. I mean we have really large deals we win on a time-to-time basis. But we remain pretty conservative on the singles and doubles type deals, and we mostly build the business around the big deals, which are closing pretty regularly now but not every quarter, and they take a while to roll out. So you could take the managed food service is just a pipeline and momentum that we feel like it's going to give us a good number every quarter and that's baked into the guide. And you could take the international kind of as what we've said in the past. We think we'll keep winning the big deals. But they're large deals, and they take a what to roll out. So we're a bit conservative on the international side.

And even with respect to gaming, there is a lot of potential there with current customers buying a lot more. And both in FM and HRC, hotel resource, our market share is quite low now, and a lot of our growth comes from market share gains.

Your next question will come from the of Nehal Chokshi from North Bank Securities.

Congrats on a great quarter and strong guidance. The central reservation system that's being introduced, who do you see as being your typical competitors in this space? And what do you think is going to be required to have success there?

To start with Nehal, we think a tightly integrated CRS and PMS is going to be reasonably crucial in the coming years, let's call it, 2 to 3 years, where availability rates, inventory is controlled and managed in either place and the 2 systems talking to each other. We've always felt that are tightly integrated PMS and CRS is going to be fairly crucial, especially to the SMB market going in the future. So we've always had an eye on CRS and AI gave us the opportunity. So initially, it is going to be for our -- mostly for our PMS customers who can get the benefits of a tightly integrated CRS PMS. And then we will continue improving the product. And then we will see, right, where it takes us in terms of a real CRS presence in hospitality. At the moment, it is directed towards our PMS customers for whom we can give a benefit of a tightly integrated CRS as well. And there are many aspects of the CRS like a booking engine all that we have already had in our other products. So we are in a good position to drive the advantages forward. But this is the early phase -- it is focused on integration with PMS and then we will see in a couple of years where it goes.

Okay. Great. For my follow-up question, I know it was already addressed on the call, but I missed it. Could you just repeat the bookings color for the March quarter and how that has trended so far in the June quarter?

Did you say Bookings?

Yes, the ACV booking.

Basis or an annual basis.

I'm sorry, say it again?

The bookings for the quarter were a record for the quarter and the year. And obviously, Ramesh gave other commentary around. I mean, pretty much everything was pretty much everything in our business exiting the year, whether you look at a quarter or a year was at record levels.

And what about as far as the year-over-year growth numbers, how does that trend relative to prior quarters in terms of the bookings growth?

This was an annual sales record, Nehal. And this quarter was also the best quarter, beating the last Q4 of last year. So both of these were record sales numbers for us, both the quarter and the year.

Your next question is come from the line of George Sutton from Craig Hallum Capital Group.

Logging on for George. Congrats on a nice quarter here. So Ramesh, if I got the comment correctly, you mentioned that a 30% adjusted EBITDA margin is not too far off now for the business. And obviously, you're guiding to a nice expansion this year. I wondered if you could just walk through the steps to getting there a bit more and maybe help us understand sort of your ability to do that while also investing in the new products like revenue intelligence and CRS and kind of going on the aggressive AI road map?

Yes. So we guided the year adjusted EBITDA by revenue to 24%. And we also cautioned you because Q1 is where we incur a lot of the annual onetime costs and also, of course, the user conference happened during Q1, which is a very costly event for us. So we expect Q1 to be like 16%, 17% ish in that range. But we are confident about the year being 24% profitability, EBITDA by revenue, which implies and it will continue to pick up every quarter, and we expect to finish the year, Q4 exit rate profitability to be somewhere close to 30%. We expect to be somewhere close to 30%. So that's one fact.

When you look at our recent record when you just look at the last several years, you will find that given within a couple of percentage points, our exit rate in the fiscal year of profitability is a reasonably good proxy for profitability the following year. It's just -- that is the way it has been. And so it's a reasonably good proxy for what will happen next year. So now in terms of what we need for these two products and what we need for expansion, that's where AI comes in handy. We are able to do a lot more with the R&D team we have. There could be some minor increases here and there. But for the most part, with the R&D strength we have now, we are able to accommodate the development of two new modules as well because it's a lot more efficient with a lot more usage of AI. This is where AI comes in handy that improves our operating leverage even better. And gross margin continues to improve because our product mix is tilting more and more towards recurring revenue and subscription revenue. So that increases gross margin. So I think we are not too far away in terms of becoming a normal enterprise software profitability run rate of in the 30s.

Got it. Helpful. And then just as my follow-up, I wanted to kind of go back to when we were talking about sales cycles. I mean, you mentioned customers being curious about using AI products. Are you seeing that show up in budgets as well? Are customers making room for spending on some of these new AI capabilities -- and it seems like the ROI conversation tends to come up when we talk about AI adoption. So I'm just curious how you sort of frame that relative to some of the new stuff that you're coming out with.

If they find value, George, they are inclined to buy like with any of our add-on modules, Black view. They come to us for one product, and then they buy -- our deal sizes are high, they tend to buy 6 or 7. It is mostly replacing the other products they have. And we have now embedded AI features into our products. not necessarily separately monetized each time. Some of these innovations are within the product itself. It gives them a greater reason to buy the product as it is. And they always have budgets for that. So -- and the AI-specific products AI native products in terms of separate AI monetization, that's going to happen in the future, and we'll see how that works out. But if the customer finds value, George, they are finding the room for that. And remember, we are dealing with a middle to higher end ranges of resorts that have always wanted these kinds of innovations to serve their guests better. Like the AI inside that you saw at the user conference, that and those are all very handy, high-value things for them, and they are willing to pay fair pricing for that.

I'm not showing any further questions in the queue. I would now like to hand it back over to Ramesh for any closing remarks. .

Thank you, Victor. Thank you all for participating and for your interest and support. We look forward to catching up with you again in a couple of months from now when we'll be reporting on fiscal 2027 Q1 results. Thank you.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.

Good day, ladies and gentlemen, and welcome to the Agilysys 2026 Third 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 Investor Relations and Operations at Agilysys. You may begin.

Thank you, Lisa, and good afternoon, everybody. Thank you for joining the Agilysys Fiscal 2026 Third 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, increase implementation efficiencies, 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 Agilysys 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 Agilysys. Ramesh, please go ahead.

Thank you, Jess. Welcome to the Fiscal 2026 Third Quarter Earnings Call. Joining Jess and me on the call today at our Atlanta headquarters is Dave Wood, CFO. I hope all of you are staying warm and safe. As is our usual practice on these calls, let me cover sales and selling success first before discussing revenue, profitability, guidance increase and other business updates. We measure sales in annual contract value, ACV, terms.

Q3 fiscal 2026 was the second best Q3 October to December period sales quarter. This was the best Q3 sales quarter on record for the hotels, resorts and cruise ships, HRC sales vertical, highlighted by several significant new customer wins including Bolt Farm Treehouse in Tennessee, a 5-star luxury nature immersive wellness retreat property who selected Agilysys' property management system, PMS, Agilysys' web booking engine, Spa and 5 other Agilysys software solutions. To provide their guests the seamless -- exceed expectations experience we are looking for and [indiscernible] resort in Northern Myrtle Beach, South Carolina, who also selected various software solutions from our ecosystem of products, including PMS to help improve guest experiences at their ocean front gateway property.

Q3 sales also included a couple of big brand properties switching from a competing system to the Agilysys' POS platform ecosystem. Casino Gaming, our strongest sales vertical for several years now witnessed a relative sales slowdown during the months of October and November, pulling down global sales levels during those two2 months but recovered well during the month of December. With respect to overall global sales, this was the best December month in our history.

On a year-to-date basis, Food service management, FSM, sales over the first three quarters of fiscal 2026 is already higher than full year sales during each of the previous two years. Full fiscal 2026 may possibly end up being the best ever sales year or come close to it for FSM, which relies mostly on selling the point-of-sale, POS, family of products.

While cumulative international sales over the first three quarters is already close to making fiscal 2026 the second best international sales year with one full quarter remaining, Q3 international sales were somewhat lackluster. International sales will continue to experience this sort of up and down trajectory as we continue to establish our reputation across the globe and steadily exchange our current reliance in international regions on hit or miss big deals to a more consistent mix of small, medium and big wins like we see in the domestic market.

Cumulative subscription SaaS sales during the first three quarters of fiscal 2026 is already at 95% of previous best full year sales which happened to be last fiscal year. Fiscal 2026 year-to-date subscription sales is up 37% year-over-year. Calendar 2025 was the best calendar sales year in our history. Our win-loss ratio in competitive deals remains impressively high and far ahead of normal established enterprise software norms.

During fiscal 2026 Q3, October to December, we added 16, 1-6 new customers, excluding Book4time. All of them were fully subscription-based and involved an average of about 5 products per day. Nine of these new customers included purchase of PMS. In addition, 13, 1-3, 13 new customers signed up for Book4time Spa.

We also added 91 new properties, which did not have any of our products before, but the parent company was already our customers. Of the 120 new properties added during the quarter, across new customers, new properties of current parent customers and Book4time, 118, meaning all but 2 were either partially or fully subscription-based.

With respect to new product sales, there were 109 instances of sales to properties, which have at least one of our other products already in use. These 109 instances involved sales of a total of 248 new products.

Before moving on to revenue details, a quick word on the Marriott PMS project. We are happy to report that this project is being expertly managed by customer personnel and is making good progress. PMS pilot property implementations have been completed successfully across the U.S. and Canada. We are now in the exciting process of getting going on the implementation waves, which are expected to keep increasing in size and scope during coming months. We continue to exclude the Marriott PMS project from all our sales and backlog numbers.

Now with respect to revenue and profitability. Fiscal 2026 Q3 revenue was a record $80.4 million, 8-0, $80.4 million the 16th consecutive, that is 1-6, the 16th consecutive record revenue quarter, 15.6%, that is again on 1-5, 15.6% higher than the comparable prior year quarter. Product revenue was $10.7 million, which was about the same as Q3 last fiscal year, slightly ahead of our expectations. Product backlog at the end of Q3 was at about 85% of the previous Q2 quarter exit value and almost double the level it was at the end of Q3 last year, giving us good visibility for the rest of the fiscal year. Fiscal 2026 Q3 October to December services revenue was $17.7 million, that is 1-7, $17.7 million, 22% higher than the comparable prior year quarter and in line with our expectations for this quarter. This quarter was a record high for normal projects implementation services revenue. The sequential quarter-to-quarter decline was mostly due to the Q3 holiday period quarter being typically more challenging than Q2. We saw significant improvement in the management of projects during this period compared to the holiday season last fiscal year. We continue to make good headway in improving software implementation efficiencies and finding ways to reduce customer implementation delays.

Services revenue backlog at the end of Q3 was less than at the end of the previous quarter, which is a good indicator of improving implementation efficiencies. The quicker we implement the project signed up by sales, of course, the better off we are.

Fiscal 2026 Q3 recurring revenue was a record $52 million 17.2%, that is 1-7, 17.2% higher than the comparable prior year period. Recurring revenue was 64.7% of total revenue this quarter. Within recurring revenue, subscription revenue was a record $34.9 million, 23.1% higher than the comparable prior year quarter. This was the 17th, that is 1-7, 17th consecutive quarter of subscription revenue year-over-year growth of at least 23%. Subscription revenue quarter run rate has doubled in the last 2.5 years and has increased from 63.8% of total recurring revenue Q3 last year to 67% of total recurring revenue this quarter, the highest percentage level reached so far. Annual maintenance revenue was also 6.8% higher than Q3 last year. The current subscription growth levels are coming, for the most part, from new incremental projects and are not dependent on cannibalization of annual maintenance generating on-premises installations.

Subscription revenue pertaining to point of sale, POS and POS-related modules grew by 20% year-over-year, improving from the mid- to high teen growth levels reported during the past few quarters. We are taking normal growth sites again with our POS business with the modernized versions making an increasingly greater positive impact in the field.

Subscription revenue pertaining to PMS and PMS-related modules grew by 30%, 3-0, grew by 30% year-over-year. Add-on modules across both PMS and POS, including Book4time constituted 37% of total subscription revenue.

Despite all the challenges associated with the holidays filled October to December Q3 period, fiscal 2026 Q3 was the best quarter on record with respect to the sum of annual recurring revenue, ARR, of all subscription projects implemented. The extent of subscription ARR installed during fiscal 2026 Q3 was 40%, that is 4-0, 40% higher than during the comparable period last year. The increased velocity of project implementations has a lot to do with the modernized products becoming exponentially easier to implement over time, greater use of AI tools to improve implementation services efficiencies and far higher starting levels compared to the same time last year.

While we continue to expand team sizes as business levels improve in areas like sales and services, we are currently well staffed for the most part to fuel continued business expansion during the short and medium term. In general, the use of AI tools continues to improve various business areas, including product development and quality assurance initiatives AI-driven product enhancements, implementation services efficiencies, marketing, sales initiatives, finance, customer support and legal.

One other quick reminder, virtually all our software licensing is based on number of rooms for PMS and related 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. Virtually all our software license structures are not based on number of users. As customers increase their operational efficiencies using AI and we ourselves continue to embrace AI tools more and more, all of that is great for our business.

An excellent services implementation quarter has pushed down combined product recurring and services revenue backlog levels, excluding the Marriott PMS project to about 90%, that is 9-0, 90% of previous record levels, leaving us with considerable room to achieve our ongoing revenue and profitability growth goals. We started fiscal year 2026 with a full year revenue range expectation of $308 million to $312 million, then raised it to $315 million to $318 million, that is $315 million to $318 million, and we now expect fiscal 2026 full year revenue to be 3-1-8, $318 million at the top end of the recent guidance range.

Similarly, we started the year expecting subscription revenue year-over-year growth of 25%, then increased it to 27%, then again to 29% and we are currently expecting the year-over-year growth to be 29% as stated previously, not including any significant subscription revenue contribution from the Marriott PMS project. No change in the 20% adjusted EBITDA by revenue expectation, we started the year with.

With that, let me hand over the call to Dave for further color on the business and financial details. Dave?

Thank you, Ramesh. Taking a look at our financial results, beginning with the income statement. Third quarter fiscal 2026 revenue was a quarterly record of $80.4 million, a 15.6% increase from total net revenue of $69.6 million in the comparable prior year period. Onetime revenue consisting of product and professional services was up 12.7% over the prior year quarter and in line with our expected 5% to 10% increase in onetime revenue for the fiscal year. Recurring revenue was up 17.2% on the back of strong subscription revenue growth. FY '26 year-to-date revenue is $236.4 million, up 17.4% over the prior year-to-date period.

Q3 sales kept us on pace toward reaching the higher end of our annual revenue targets. Through the first 3 quarters of FY '26, subscription bookings have increased by 37% compared to the same period last year. Despite increasing subscription revenue growth guidance from the original 25% to 29%, the subscription backlog is still about 88% of it's all-time high. Thanks to our robust backlog and strong sales momentum, we continue to have considerable insight into our business for the final quarter of fiscal year 2026 and into fiscal year 2027.

Professional services revenue increased 22% over the prior year quarter to $17.7 million as we continue to see year-over-year improvements in backlog deployment compared to the low point during Q3 fiscal year '25. Professional services revenue remains a good leading indicator for future subscription revenue growth as the vast majority of services revenue is contributed from normal implementation type projects and activities. Professional services performed much better than expected in Q3 fiscal year 2026. We expect Q4 FY '26 professional services revenue levels to return to the $18 million range like prior quarters.

Total recurring revenue represented 64.7% of total net revenue for the fiscal third quarter compared to 63.8% of total net revenue in the third quarter of fiscal 2025. Subscription revenue grew 23.1% for the third quarter of fiscal 2026. Subscription sales and backlog remain at healthy levels, rising by 14% over the elevated FY '25 exit rates. Subscription revenue is trending comfortably towards our 29% subscription growth guidance with organic growth trending near 25%.

Moving down the income statement, gross profit was $50.2 million compared to $43.9 million in the third quarter of 2025. Gross profit margin was 62.5% compared to 63% in the third quarter of fiscal 2025. Gross margin was down slightly due to margins associated with onetime revenue, while we continue to ramp up our newly hired professional services team members.

Combined, the three main operating expense line items, product development, sales and marketing and general and administrative expenses, excluding stock-based compensation, were 41.2% of revenue in the fiscal 2026 third quarter compared to 42.1% of revenue in the prior year quarter. Excluding stock-based compensation for the third quarter of fiscal 2026, product development increased slightly to 19.3% compared to 18.2% of revenue in the prior year third quarter. General and administrative expenses reduced for the quarter year-over-year from 11.7% to 11.2% of revenue and sales and marketing decreased from 12.2% to 10.6% of revenue.

Operating income for the second quarter of $11.7 million, net income of $9.9 million and gain per diluted share of $0.35 were all well above prior year third quarter income of $7.4 million, $3.8 million and a gain of $0.14. Adjusted net income, normalizing for certain noncash and nonrecurring charges of $12.2 million compares favorably to adjusted income of $10.7 million in the prior year third quarter and adjusted diluted earnings per share of $0.42 increased compared to the prior year quarter of $0.38.

For the 2026 third quarter, adjusted EBITDA was $17.3 million compared to $14.7 million in the year ago quarter. FY '26 adjusted EBITDA continues to pace with our annual guidance of 20% of revenue. Through the first three quarters of the fiscal year, adjusted EBITDA was 19.5% of revenue and trending just north of 20% full year profitability guidance.

Moving to the balance sheet and cash flow statement. Cash and marketable securities as of December 31, 2025 was $81.5 million compared to $73 million on March 31, 2025. As a reminder, we paid down our credit revolver by $24 million in the first half of the fiscal year, leaving us debt-free now. Free cash flow in the quarter was $22.7 million compared to $19.7 million in the prior year quarter. As we said in the past, adjusted EBITDA and free cash flow over a full fiscal year after normalizing the impact of CapEx, continue to be good proxies for the financial health of the business.

For our fiscal year 2026, we are maintaining guidance for subscription revenue growth at 29% based on our current backlog and sales momentum. This quarter, we are also raising our top line revenue guidance to $318 million. Adjusted EBITDA of 20% remains the same for fiscal year 2026 as we continue to evaluate various strategic growth initiatives.

In closing, we are extremely pleased with how our business has performed during the first three quarters of fiscal year 2026 and how it's shaping up going into our last fiscal quarter.

With that, I will now turn the call back over to Ramesh.

Thank you, Dave. In summary, the business continues to march along the revenue and profitability growth paths we have created for ourselves like a relentless well-oiled machine. The modernized cloud-native product ecosystem and our top-notch sales leadership teams are opening up many exciting hospitality industry doors for us that were inconceivable a few years ago. The multiple growth path ahead of us are based on a solid foundation of a world-class product set and an ecosystem of hospitality software solutions that, taken together, has virtually no match in the industry.

We only need some of these growth parts to work out well to feed our increasing revenue and profitability growth ambitions. What gives us our current growing competitive advantages has taken us several years of sustained high-quality product development work to build and will be very tough to duplicate anytime soon. We are not seeing any signs of anyone else even trying to create such an ecosystem. And our pace of innovation is only getting faster with the availability of AI-based tools that are increasing development speed and providing us with product enhancement possibilities, which did not exist before. And there is absolutely no question about the fact that the total addressable market remains huge relative to our size and growing.

There are several PMS competitors whose installed base is currently many, many times our size. The extent of growth possibilities ahead of us in the coming years, especially on the PMS side of the business, which is completely software-based, is staggering. I could sit here and bore you with details of various sales successes accomplished during this quarter, including a global POS hunting license master sales agreement signed with one of the largest hospitality corporations in the world, major PMS and multiproduct ecosystem deals signed with several casino gaming corporations, including for a big water park project, expansion of business with several Ivy League universities in the SSM vertical, and I could go on. But for me, personally, the most heartening and promising highlight of the quarter was a couple of our best and biggest customers willingly taking reference calls with a couple of other big prospective customers. Talking about our development velocity, pace of innovation, willingness and ability to bring the product enhancement dreams of customers into reality in a matter of weeks and months, world-class levels of consistent customer service, thereby providing prospective customers the reasoning of why we are increasing the best technology provider partner any hospitality corporation can hope for.

One other significant highlight during recent months has been two of our major customers currently using multiple Agilysys products, including POS and PMS are in the process of taking on a couple of major brand flags, but have turned down and refused to take on the brand's mandated PMS product insisting that they will need to stick with Agilysys' PMS even after the brand flag changes to be able to maintain the kind of experience that guests have become accustomed to in the recent past. News nuggets like this, which may appear minor details for now are significant indicators of a promising future that is just beginning to take shape. The competing PMS products have been influenced in the field for decades, but we are well and truly climbing the charts now.

We remain confident in the current state of our business and our ability to continue driving top line growth while simultaneously improving profitability levels. It is highly likely that the next couple of fiscal years will turn out to be the most exciting ones in our history with increased top and bottom line growth expectations. We are excited and cannot wait to share fiscal 2027 guidance levels with you during the next earnings call, likely around the middle of May.

With that, Lisa, let's open up the call for questions.

[Operator Instructions] Our first question for today will be coming from the line of Mayank Tandon of Needham.

Ramesh, I wanted to start with your comments around some weakness that you saw in the gaming and casino space during the months of October, November. I wonder if that coincides with the government shutdown, and if that is the case, just given maybe some of the thought right now of a potential government shutdown in the next few weeks. Could that be something that might cause some of that December momentum to maybe slow down again? Just curious on some of your thoughts around that, what were the reasons and if that is the reason then something that we should be at least aware of as we go into the next few weeks and months.

Yes. I wouldn't speculate, Mayank, about what -- it was only for a couple of months. I guess it was due to happen in -- casino gaming sales has had such a good run across so many years. And then it came back -- it came rolling back in December. So I mean, there are various different reasons, Mayank, that could have caused this, but we are not going to speculate. We can't put our finger on it. So I'm just going to assume this was just a temporary slowdown. Sometimes the holiday period can be a little bit easy for us. But it was back in December, and we are back to normal levels now. So I don't think I would speculate on any particular reason, Mayank.

Understood. Okay. I thought I would just ask just to get any insights into it. For my follow-up question, I wanted to just see how much you could share in terms of your expectation on the Marriott PMS mass rollout expectations. Do you have a sense of timing? I know it's underway in some capacity. And then also maybe if you could comment on -- should we expect any impact on margins in the short term as you begin the mass rollout? Or has that already been absorbed into your expectations?

Yes. So Mayank, as far as Marriott is concerned, we are a little shy about sharing too many details because all that should come from the customer, not from us. But I think what we can tell you is the pilot phase went off very successfully, our products work very well. And once again, I will never get tired of reiterating how well it is being managed. I've been in -- like you know, Mayank, I've been in enterprise software for close to 3 decades now. And this is one of the best, most collaborative projects that I've seen managed by a customer. So excellent job by Marriott personnel.

So the pilot phase was successfully completed. So now we are into the process of implementation waves and these waves, meaning number of properties that go live each time will steadily increase over the coming months. So this is an exciting phase. So the rollout is going to get going now and we are very excited what this calendar year or the coming fiscal year is going to bring for us.

Most of the costs and other elements are well provided for, Mayank. So all I will tell you, I don't want to get ahead of ourselves and give you profitability guidance for FY '27 yet. We are not in that stage. But it is fair to believe that if this year is going to be 20% adjusted EBITDA by revenue, next year is going to be better. That much I will assure you. But I won't go that far to tell you exactly how much more it will be better. But we do expect our profitability levels to continue increasing on a fiscal year basis.

Here and there, there could be a quarter up or around, Mayank, when we are forced to invest in some infrastructure more than the other quarters. But if you take profitability of FY '27 as a full fiscal year compared to this fiscal year, it should definitely be higher. And this project will only be one of the contributing factors.

Next question is coming from the line of Matthew VanVliet of Cantor.

I wanted to narrow in a little bit on the international performance this quarter. You mentioned maybe a little lackluster. Curious if there was anything specific there, the holiday season, maybe just put more of an impact on selling than it historically has in the U.S.? Or are there more sort of selling capacity additions that you expect to make in the team maybe in local markets where you're seeing traction that could help revive the performance in the fourth quarter and into next fiscal year?

Yes. Matt, so let me address the sales capacity [indiscernible]. We have no sales capacity issues in any of our verticals, Matt. We have done a lot of sales hiring during last year. And sales capacity wise, we are in good shape. We are focused more on sales productivity increases. And in any of the verticals, including international, if we find that sales capacity reason, we will quickly hire. So we are ready to hire. We did a lot of hiring last year. But at the moment, there is no sales capacity issue, not only in international, but in any of our other verticals. So that's not an issue.

Now as far as international, I wouldn't assign any particular reason to it, like holidays or anything. We are now working on more bigger-sized deals internationally than we've ever done before. We've never had this kind of a big customer in terms of multiproduct ecosystem. It's definitely working very well internationally. There are multiple bigger opportunities we are working on now. But it is going to be a little bit up and down quarter-wise internationally. We've had a great year so far. Like we told you just in three quarters, this is already almost our second best fiscal sales year. We are doing well but you should expect some of these quarter-by-quarter ups and downs because currently, international sales is still dependent on the bigger ecosystem deals where we have a significant competitive advantage, not enough singles and doubles, if you will, to even it out. So these kinds of ups and downs could happen, Matt. But overall, international sales, this is going to be a very good year for us.

Helpful. And then as we get into the end of the year and you finalize all of the fiscal '27 outlook, curious on how you're doing at the very top of the funnel, how much of an impact have Joe and Terry had since they've been in their roles now for a little bit in terms of generating that initial demand, generating the brand awareness that maybe was lacking in certain markets in the past?

Yes, Matt. So when you think of our sales pipeline, Matt, you divide it into two broad categories. One is the singles, doubles and triples, right? That's what generally gets counted in the pipeline. That pipeline remains steady and continues to move forward. Now on the other hand, what we don't know how to include in the pipeline are some of these big doors that people like Joe Youssef have been so effective in opening for us. Those are all opportunities that are taking shape that are moving along the sales process. We don't include those in the pipeline because we just don't know what value to assign to them. These are the super big deals that we are working on. We announced one of those in the last quarter. So those doors, those bigger doors are really opening up well thanks to Joe and his team and the sales team really opening them up.

Now outside of those bigger opportunities, which is higher than we have ever seen in our company's history, the normal single double, triple pipeline continues to steadily move along and increase.

And the next question is coming from the line of Allan Verkhovski of BTIG.

Could you discuss how AI capabilities across the platform are resonating with customers? What shifts you're seeing in the competition as a result and maybe how that's potentially impacting sales cycles? And then I've got a quick follow-up.

AI is permeating all through the business, Allan. I wouldn't say that -- first of all, we are not seeing anything from the competition that is related to AI, nothing significant at least. But given that we modernized our products and now these modernized products are anywhere from 2 to 4 years old, it gives us a good scope to permeate AI all the way through. So you divide any of the AI into a couple of areas. One, improving our own operations, where all across the -- we now have a dedicated team on and we have a dedicated couple of leaders who wake up every day to AI-ize the company, if you will, more and more. So that's our internal operations. But as far as our products are concerned, there are various different ways in which we're implementing AI. There is natural language processing in our data analysis tool. There's automatic voice recognition in a lot of our tools, which lends itself to that like when you go to book a spa reservation or you go to a kiosk and order F&B items or you go to our web booking engine, where we have enabled guests to book multiple amenities at the same time. So there is a lot of ways in which we are beginning to use AI in our new product releases here and there. We can help with intelligent room upgrades. When you do it on your phone or you do it in a kiosk and image recognition in our kiosk. So there's a lot of different areas now where we are using AI, and we recently won an innovation award whereby -- when a resort does complex packages, instead of the guests calling the call desk and going through the process of what spa appointment they need, what golf appointment they need, how many rooms -- nights they need to stay in, an AI tool can manage all that. So these are all things that we are working on. Some of these have been released. Some of these have not yet been released. In general, they are increasing our competitive advantage. So I wouldn't assign things directly to AI as yet but it is permeating all our products, and it is making our competitive advantage a lot stronger.

That's helpful color. And then as my follow-up, the reiterated guide for 29% subscription revenue growth for the fiscal year suggests about 20% growth in Q4. Can you just talk through what's driving that implied deceleration for Q4? And then as we think about growth for next year, excluding potential contribution from the Marriott, what would you highlight as we consider extrapolating that Q4 implied growth for next year?

Thanks, Allan. Yes, the implied growth will be a little bit north of 20% for Q4. And a lot of that is just related to the Book4time acquisition. The core business is still growing at north of 25% or 25%, but the Book4time year-over-year comps are kind of pulling that down into the lower 20% range. And really going into next year, I mean, no change to how we talked about the story in the past. I mean, we'll stay in the 20% range with obviously some of our larger projects on top of that.

The next question will come from the line of Brian Schwartz of Oppenheimer.

Ramesh, I wanted to switch over to the POS business. That business seems to be improving here in the numbers that you're showing. And I know it's not like there's a lot of new opportunities that come up every year in the U.S. because those are longer duration contracts so it sounds like your win rates are going up there. My question for you is maybe you parse what's driving that? Is there something changing in the go-to-market you're doing? Is it the maturity of the POS? The modern product now? Or is it the referenceability like winning the Boyd Gaming that's having an impact on the win rates in POS? And then I have a follow-up.

Brian, I wouldn't say that the waiting time or the sales process time is any higher for POS. If anything, it's actually a bit faster than POS than PMS. But our POS business, like we explained to you like a year, 1.5 years ago, went through a tough phase when we were going through the modernization process. When we had an old system, and we completely modernized it and we had to do it part by part. But that is all done. Now the modernized solution has been in the field for now pretty close to two years, probably a quarter short of two years. It has settled down well and we are one of the very few vendors, Brian, maybe a couple of vendors who are capable of providing guest facing and staff-facing feature sets where normally POS is a staff-facing system, but now more and more guest facing, like you can order food on your phone, you can go to a kiosk and all that for us, they are combined into one system. And when a waiter is carrying an iPad in the hand, so we support iOS, Windows and Android, all in one code base. There are no competing systems to that. Now this did not show up as an advantage till recently because the modernized system had to settle down. Now that it has settled down, it gives us a massive technology advantage over competing POS systems. So we do expect our POS business to continue to do well. The fact it has improved from subscription revenue growth rate used to be in the [ 15 to 90 ] for a year or so is now back to 20% is a good sign, especially in SSM. We are expanding the business to higher education and health care as well and not just depending on business and industry.

So the POS opportunities are growing as much as our PMS opportunities are growing. The only difference is PMS carries with it a much larger ecosystem. There are about 20, 25 additional modules around PMS while POS has a smaller ecosystem, about 5 or 6 products around it. That's the main difference you're seeing in terms of PMS growing faster. Other way, there's a lot of promise in our POS business. We have turned the corner like Boyd Gaming, like in FSM, we are winning a lot of competitive deals now. And there is a lot of market share we still have to take from our competition in POS as well. So I wouldn't understate the promise of our POS business in any way.

And the one follow-up I had is maybe following up on Mayank's question in the beginning. Just kind of understanding on the gaming segment for the business. Is it your expectation that maybe the slower demand that happened in the beginning of the quarter that got caught up in the month of December, do you feel like all that demand got caught up in that December? Or is there opportunities that there still could be some catch-up demand in the gaming segment as we enter here the first half of the calendar year?

Thank you, Brian. There is a lot of catch-up still left. All of it was not caught up in December. December was back to normalcy. December was a good sales month for gaming. And I wouldn't read too much into this October, November slowdown. I don't know the exact reasons behind it, and there is really no point wasting energy speculating with it. Gaming still remains a very strong sales vertical for us. It's done well for several years. Maybe it was due for a slowdown in October, November. We couldn't really pinpoint -- we have some guesses, but there is no point spending time on those speculations. But to answer your question, December came back to normalcy, but no, all of it was not made up.

And just to be clear about one thing, Brian, it was not lost deals. We did not lose -- I mean, we do lose deals here and there in all our verticals, especially in the lower end. But in general, there was no major losses or anything like that. Just a lot of deals got postponed, part of which we made up in December, part of which we will make up during coming months. All of it was not caught up in December.

Our next question will be coming from the line of George Sutton of Craig-Hallum.

Ramesh, there was a good amount of discussion in your script on the implementations, and it sounds like that has started to improve. I know one of your challenges had been if you're out selling new business and you're behind on implementations, you have to push out the schedule of rollout. Now that you've done a better job on implementations, I'm curious, is that making its way into your ability to pitch new business?

Yes, to a certain extent, yes, George, but it was never coming in the way of sales, right? Our implementation efficiencies, we've always wanted to improve it. Now AI is helping it a lot. A lot of the configurations, product to product integrations and all that can be done much faster using AI tools, and we are beginning to get all that into the field.

Now to answer your question, what I would say is implementation efficiency is getting better is helping us with converting bookings to revenue faster. Normally, it's a one or two quarter gap between selling and implementing, which is what creates revenue. So that is becoming a bit faster because implementation efficiencies have increased.

Now one other way it actually helps increase sales is when your implementation efficiencies increase and you can implement using lesser hours, our services costs decreased, and we become even more competitive because we are not the lowest priced vendor. So that way, it is contributing to improve sales.

So just to summarize, implementation efficiencies increasing thus help increase sales because our services costs reduce. That is on the one hand. On the other hand, the fact we can implement faster, reduces the time it takes between booking and conversion to revenue.

Got you. So you did discuss -- and I know in past calls, you've talked about reference challenges. You had relatively new products out in the market, therefore, didn't have reference customers. You specifically referenced that some of your largest customers were now taking reference calls. Can you just give us a little bit more of a picture of that process?

Yes. The reference -- in general, the volume of customers willing to take reference calls, especially on our modernized solutions because we sort of lost hundreds of customers who would take a reference call on our older versions because we don't sell those older versions anymore for the last couple of years, and we sort of had to rebuild that world of reference customers which has now expanded in size, and it is expanding exponentially every month and every quarter. There are more and more customers who are willing to talk about our modernized solutions. So that is one aspect of it.

The other aspect, George, if there are customers who are getting real value from the ecosystem. They used to be dealing with 7 or 8 vendors. Now they are dealing with one vendor and a lot of the things we've automated, the modernized solutions are producing real business results, and customers are more willing to talk about. That is the second aspect to it.

The third aspect to it is the kind of customers who are now willing to take reference calls is becoming more and more prestigious. More and more, the prestigious big names are willing to take calls and talk about how good a partner we are and how easy it is to work with us.

So in all those aspects, the need for reference customers is becoming better in the -- is becoming more and more fulfilled. So our reference customer situation is improving dramatically every month now.

And our next question will be coming from the line of Nehal Chokshi of Northland Capital Markets.

Yes. Thank you for the question. Just following up on that prior questioning here. As you know, your best and biggest customer's willingness to take prospective customer calls as [indiscernible] this past quarter was one of your biggest takeaways. Is this because -- it's a newfound wellness from these customers? Or is it because you now have these new big type of prospective customers are in your pipeline that necessitate getting these large reference customers to take those calls?

I don't think it necessitates it, Nehal, but it is just a better situation we are in now. Because a lot of the successes we've had, Nehal, in the recent past, let's say, the last few quarters have involved ecosystem, multiple products working together has produced great value and by nature, they tend to be the bigger customers who have used our ecosystem products, and they are willing to take calls and tell them how much value they have created. So both the quality of the reference calls in terms of real value that they have got and also the prestige level of the customer, the bigger sized customer taking the calls are both being very helpful for us now.

And is there anything to do with the indentation that you now have a lot more grand plan type of customers in the pipeline, too?

Yes, generally, I mean, our pipeline involves both customers. There are some I wouldn't call it grand slam, there are some bigger sized customers, Nehal, in the pipeline, and there are also the single doubles and triples in the pipeline. So our pipeline continues to have a good mix of both. And the reference customer availability has increased now for our modernized solutions.

Our next question will be coming from the line of Stephen Sheldon of William Blair.

Matthew Filek on for Stephen Sheldon. It looks like professional services gross margins came in around the mid-20s this quarter, which was just a bit lower than we had expected. Curious if that was related to the use of more costly third-party labor to support product implementations or if there were other factors at play driving that compression?

Matt, there's -- no, it was really just with all the hiring we've had over the last year, we still have plenty of ramps and plenty of capacity left on that team. Obviously, with the holidays, billable hours and utilization is a little bit lower than some of the other quarters. So a little bit of seasonality in the number, but no third parties. I mean the far majority of all of our professional services is done by Agilysys' employees. So it was just mostly a utilization around the holidays.

Okay. Perfect, Dave. And then just one more, if I may. In the past, I think you have talked about product development spend declining from the low 20s to mid-teens as a percentage of revenue over time. And given you're now seeing a boost in product development speed from leveraging AI, could that operational leverage materialize sooner than initially expected? Just curious on when exactly we may start to see that play out, especially in light of the AI efficiency benefits?

Yes. Matt, as the AI efficiency benefits are increasing, so is the pressure, the innovation pressure from customers, right? So in general, a lot of the customers are using our modernized solutions are also coming up with a lot of new ideas, enhancement ideas, and we are able to get a lot more of them done that we've ever been able to do before because of AI tools, but the operating leverage in terms of using lesser R&D for the products is still a little bit of a moving target for us because the demand from customers because there are not many technology vendors innovating in this space. So that demand for innovation continues to be high. We are getting a lot more done than we have ever done before. And our products are 2 to 4 years in the field now. So they're fairly young. So that pressure continues to increase. So we think we will, in FY '27 and the year beyond that, we'll start increasing their operating leverage. But the pressure on us to continue innovating at a faster rate is reasonably high.

Thank you. And this does conclude today's Q&A session. I would like to turn the call back over to Ramesh for closing remarks. Please go ahead.

Thank you, Lisa. Thank you all for your interest in Agilysys and support. Best wishes to all of you for a very happy, healthy, safe and successful 2026. Look forward to catching up again around the middle of May when we will be reporting Q4 and full fiscal year 2026 result and providing guidance for fiscal year 2027. Thank you.

Thank you all for joining today's conference call. This does conclude today's meeting. You may now disconnect.

Good day, ladies and gentlemen, and welcome to the Agilysys 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 Agilysys. You may begin.

Thank you, Carmen, and good afternoon, everybody. Thank you for joining the Agilysys 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 protection 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 ability -- 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 Agilysys 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 Agilysys. 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 slide 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 reengineering 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 has 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 1 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%. Foodservice management, FSM sales were up more than 2.5x. 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 1 to 3 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 Agilysys 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 event space. They selected as many as 21 Agilysys software solutions, including POS, PMS, Service Optimization, Booking Engines, Sales and Catering, Golf and Spa.

Fiscal 2026 Q2 foodservice 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 and new implementations, they are becoming increasingly simpler to implement and manage, giving us 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 FSM 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 multiproduct new customer wins during the quarter within HRC included [ Naturally Specific ] resort on the coast of Vancouver Island, Canada, who selected 15, 1-5, who selected 15 Agilysys 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, 1-3, selected 13 Agilysys 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, 1-8, we added 18 new customers, excluding Book4time, and all of them were subscription-based sales agreements. Each of these new customer sales wins include an average of 7 products per deal, which is a new high for us.

PMS customers continue to invest in the multiproduct ecosystem with an average of 14, 1-4, 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 Book4time, 108 were either partially or fully subscription-based. In addition, there were 93 instances of selling additional products to properties which are already running at least 1 of our other products. These 93 instances involved 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, 1-5, the 15th consecutive record revenue quarter, 16.1%, 1-6, 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%, that is 1-8, 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, 3-0, greater than 30%.

Subscription revenue now constitutes 65.5% of total recurring revenue compared to 60.5%, that is 6-0, 60.5%, Q2 last year. Subscription revenue from POS and related add-on modules grew by 18%, that is 1-8, 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%, 5-0, 50% higher than during the first half of last fiscal year.

The increased velocity of project implementation has 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-premise installations, if that happens to be the customer prefers.

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 1-8, $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 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 an increase to 27% last quarter. We now expect the full year revenue range to be $315 million to $318 million. That's 315 to 318, $315 million to $318 million, and full year subscription revenue growth to be 29%. No change in the 20% adjusted EBITDA by revenue expectations.

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, including [ then ], 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 a complex piece of each software solution and then sticking 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 Guestsense.ai umbrella technology brand to group the AI initiatives in the Agilysys ecosystem of products. Since then, we have launched several features that are powered by AI, including a dynamic pricing engine for room upgrades, unique revenue management capabilities based on demand across par, golf, dining and other activities and invoice automation and the 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 data across all the shortage points, touch points, helping us deliver unique AI-enabled features, making personalization at scale possible across the entire guest experience. Not just at 1 or 2 touch points, but across the entire guest experience.

There are good reasons today why each of our successful sales efforts, which include PMS, are adding up to 14, 1-4, 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 [ dregs ].

Overall, we love the tailwinds AI is currently providing us to get better and improve the piece 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?

Thank you, Ramesh. Taking a look at our financial results, beginning with the income statement. Second quarter fiscal 2026 revenue was a quarterly record of $79.3 million, a 16.1% increase from total net revenue of $68.3 million in the comparable prior year period. Onetime revenue consisting of product and professional services was up 5.6% over the prior year quarter and in line with our expected 5% to 10% increase in onetime revenue. Recurring revenue was up 23% on the back of good subscription revenue growth.

FY '26 year-to-date revenue is currently at $156 million, up 18.4% over the prior year-to-date and currently at a higher level than the assumptions of our original full year guidance of $308 million to $312 million was based on. Sales momentum remained robust during Q2, leaving total backlog at record levels despite the strong project implementation and revenue starts to the year. Subscription sales exceeded plan for the second consecutive quarter. Subscription bookings were up 41% over the prior fiscal year second quarter and continue to trend ahead of our original subscription guidance. FY '26 year-to-date subscription bookings are up 59% over the prior year.

Despite the strength of subscription revenue through the first half of the fiscal year, subscription backlog remains at record levels and 26% higher than the same time last year. With the current product backlog strength and sales momentum, it's safe to say the visibility into our business and fiscal year is significantly better than at this time in the prior fiscal year.

Professional services revenue increased 11.8% over the prior year quarter to a record $18.2 million. Professional services revenue remains a good leading indicator for the future subscription revenue growth. In the upcoming fiscal third quarter, we expect professional services revenue to drop slightly sequentially due to less billable hours around the holiday season. Total recurring revenue represented 64.3% of total net revenue for the fiscal second quarter compared to 60.7% of total net revenue in the second quarter of fiscal 2025.

Subscription revenue grew 33.1% for the second quarter of fiscal 2026. Subscription sales and backlog were again both at record levels in Q2. Although subscription revenue exceeded our revised guidance of 27%, the backlog continued to grow, rising by 30% over FY '25 exit rates. We continue to be pleased with subscription sales and revenue growth levels.

Moving down the income statement. Gross profit was $49 million compared to $43.2 million in the second quarter of fiscal 2025. Gross profit margin was 61.7% compared to 63.3% in the second quarter of fiscal 2025. Gross margin was down slightly due to margins associated with onetime revenue while we continue to ramp up the newly hired professional services team members and continue to see a downward trend in on-premise perpetual license revenue.

Combined, the 3 main operating expense line items, product development, sales and marketing and general and administrative expenses, excluding stock-based compensation, were 41.3% of revenue in the fiscal 2026 second quarter compared to 45.6% of revenue in the prior year quarter. Excluding stock-based compensation for the second quarter of fiscal 2026, product development decreased slightly to 18.8% compared to 20.4% of revenue in the prior fiscal year second quarter. General and administrative expenses reduced for the quarter year-over-year from 12.7% to 10.8% of revenue, and sales and marketing decreased from 12.5% to 11.7% of revenue.

Operating income for the second quarter of $14.1 million, net income of $11.7 million and gain per diluted share of $0.41 were higher than the prior year's second quarter income of $4.1 million, $1.4 million and gain of $0.05. Adjusted net income, normalizing for certain noncash and nonrecurring charges of $11.4 million compares favorably to adjusted net income of $9.5 million in the prior year second quarter. And adjusted diluted earnings per share of $0.40 increased compared to the prior year quarter of $0.34. For the 2026 second quarter, adjusted EBITDA was $16.4 million compared to $12.2 million in the year ago quarter. FY '26 adjusted EBITDA continues to pace with our original annual guidance of 20% of revenue.

Moving to the balance sheet and cash flow statement. Cash and marketable securities as of September 30, 2025, was $59.3 million compared to $73 million on March 31, 2025. As a reminder, the first half of the year cash balance is typically lower due to timing of working capital events in the first half of the year. In addition to working capital adjustments, we paid down our credit revolver by $24 million in the first half of the fiscal year, leaving us debt-free down. Free cash flow in the quarter was $15 million compared to $5.9 million in the prior year quarter. As we have said in the past, adjusted EBITDA and free cash flow over a full fiscal year, after normalizing the impact of CapEx, continue to be good proxies for financial health of the business.

For our fiscal year 2026, we are raising guidance for subscription revenue growth again from 27% to 29% based on our current backlog and sales momentum. This quarter, we are also raising our top line revenue guidance range from $308 million to $312 million to $315 million to $318 million. As a reminder, we expect professional services revenue to decrease by more than 5% sequentially in Q3 due to less billable days available around the holidays before returning to normal levels in Q4. Adjusted EBITDA of 20% remains the same for the fiscal year 2026 as we continue to evaluate various strategic growth initiatives.

In closing, we are extremely pleased how our business has worked out during the first half of fiscal 2026 and how it is it shaping up for the remainder of the year. With that, I will now turn the call back over to Ramesh.

Thank you, Dave. In summary, we are pleased with the fiscal 2026 Q2 July to September results, our overall current sales and business momentum, the continuing surge in subscription software sales and the pace of project installations. It is tough not to feel bullish about our business. Compared to the same Q2 July to September quarter 4 years ago, the overall revenue has more than doubled, subscription revenue has tripled and services revenue has grown 170%, that's 1-7-0.

We continue to make great progress with our modernized solution ecosystem. Increased use of AI tools is helping us build sustainable and growing competitive advantages. Our barrier to excellence in hospitality-focused technology is increasing. We have done well with retaining top talent over the past several years and continue to add more, including those focused entirely on improvements and advancements using AI. Compared to the same time last year, the number of quota carrying sales personnel is 16%, 1-6, 16% higher now, and the global professional services team size is 23% bigger. We've recently added senior personnel strength to our global marketing teams.

We continue to do extremely well with customer retention and growing revenue across both current and new customers. We continue to be strong believers in sustained disciplined profitable growth. Major -- more major hospitality corporations are taking greater notice of us, and we are now engaged in meaningful conversations with more of them. We continue to maintain and improve on a clean balance sheet. We operate in a total addressable market that is a couple of orders of magnitude larger than us. And we continue to keep our focus undistracted and passionately on hospitality, an industry that is hungry for more technology innovation help. All that does sound like a good recipe for medium- and long-term defendable sustained good business growth.

With that, Carmen, can we please open up the call for questions.

[Operator Instructions] All right. The first question is from Mayank Tandon with Needham.

Congrats, Ramesh, Dave and Jess, on the quarter. Ramesh, I wanted to just ask about what's really changed given the record sales momentum. Would you say it's more a function of the market waking up to the adoption of cloud-based solutions that maybe they were slow to embrace? Or is it more a function of this is being now maybe better known in the market with all the product innovation that you've completed? So if you could just maybe speak to -- it could be both, but I'm just curious, what would you weigh it more towards in terms of what's changing and what's driving the record sales momentum?

When sales and business momentum prove like this, there's always a number of reasons. But I would say that the main reason why things are truly moving forward for us is because the product ecosystem is getting better. The product ecosystem is cloud native. And we went through a period of 6, 7 years when we had to go do the hard yards, lead engineering and converting all our products into modernized solutions. And also unifying them, integrating them into 1 ecosystem, that took us a lot of work over 6, 7 years. And now that all that is done. Those products are improving at a rapid rate.

And there is not much other innovation going on in this industry now, so the competitive advantages are also increasing. In addition to all that, we've also added significant sales and other staff, senior resources like [ Joe Yusuf ], who have joined us are opening up a lot of major doors for us. So a lot of factors are working together, mostly driven by our product improvements and the higher level of senior talent who have joined us.

Got it. That's helpful color. Then maybe I'll switch over to margins. And this is more of a longer-term question. I'm just curious, as the Marriott rollout does go live over time, do you expect a step back in margins? Do you have investments to make to ensure the go-live is on schedule and goes on plan? Or do you believe that as the rollout starts, it will be margin accretive to your business?

Yes, for the most part, we think it will be margin accretive to the business, especially if you look over a couple of quarters or maybe an annual basis. There certainly could be a quarter where maybe we have a little bit of investment prior to the rollout. But I think we're talking about a quarter here or there. But certainly, as you look over 2 or 3 quarters combined, we have most of the people on staff. And most of the revenue contribution going forward will be subscription revenue, which is at a higher margin.

So Mayank, both this major project and all the other major projects that we are continuing to sign are all going to contribute towards increasing growth and increasing margins.

Our next question comes from the line of Matt VanVliet with Cantor.

I guess I wanted to dig in a little bit on the international strength that you continue to see. I know you've made a lot of investments both on the go-to-market team in those regions as well as kind of the global marketing organization. But curious if you could give us a little bit more detail in terms of performance in Europe and EMEA versus APAC, and then maybe any rest of world contributions there? And do you feel like you're, in some of those markets, starting to get some of the halo effect of winning this Marriott deal? Or does that maybe come later once it's started to deploy, and you've sort of proven the success there?

If you ask me, Matt, it's more about product improvements than any particular halo effect from any particular project. Though as we continue to win more of these major customers who are global customers who have massive international presence, that will further add to our improving international performance. This year, so far, EMEA is working at record levels. We've really made good progress, especially in the U.K., and in other countries nearby as well.

APAC, we are now working through more big opportunities than we ever have. But all those opportunities still continue to be the bigger ones. We want to get better at more of the singles and doubles in APAC, especially. But we are generally pleased so far with how our international presence is picking up. We are involved in more conversations. And a lot of it has to do with the product improvements. A lot of it has to do with the need for an integrated ecosystem. And as we continue winning these bigger customers, Matt, like Marriott and hopefully, more customers like that, I think that will continue to improve for us. So international, we are very, very bullish on that being a major growth engine for us growing forward.

Okay. Helpful. And then it sounded like the investments in capacity around the delivery team are starting to actually kind of work through more backlog than you can book each quarter. Obviously, it's kind of a fine balance. It's great to have the strong bookings, but at a certain point, you need to get it delivered to your customers. So where do we stand in terms of capacity today? Have you primarily made the headcount and process investments to make sure that you can continue to sort of burn through the backlog just as quickly or maybe slightly more quickly than you're able to book? Or should we think about maybe a couple of other sort of bigger rounds of headcount additions over the next few quarters that kind of will create some ups and downs in the margin structure?

The capacity improvements that we needed in services, we have completed this calendar year. It was done more before April. So the bulk capacity increases we needed to make in our services team, we did complete them around the April-May time frame. So -- and we'll continue to expand it, like sales, services teams and our other teams will continue to expand as we are a growing company.

But in terms of giving ourselves the capacity to make sure there are no delays in projects, we have completed that. We do continue to face delays here and there because of customer delays because delays on the customer end. And there is only so much we can help that because these are all big product ecosystem kind of implementations, and customers have to be sure that they are ready for it.

So to answer your question, Matt, as far as we are concerned, we do have the capacity now in terms of services to take on what we are selling and continue improving on it. So we do have that capacity. That doesn't mean we stop growing, but we don't need to bulk grow anymore. We will steadily continue improving those teams. But that is not an issue. We are doing a good job of catching up with our backlog. But we have to do more to get past the customer delays, which there is only so much we can do to help.

Our next question is from Brian Schwartz with Oppenheimer.

Ramesh, following up on the last question on the growth that the company is experiencing in the sales and service capacity this year. My question is on where you are on the efficiency curve of this initiative. I know it's early, but are you seeing returns that you thought you would have expected at this point of the initiative? And are you expecting bigger efficiency gains to come in the second half of this fiscal year or more likely, next fiscal year? And then I have a follow-up for Dave.

Yes. So we are seeing efficiency improvements, Brian, all across the organization, partially due to AI and partially due to other reasons as well. So let me just break up the question into the various pieces. As far as services is concerned, we are seeing continuous efficiency improvements due to multiple reasons. One, the significant increase in personnel strength that we had at the beginning of the calendar year, on, let's call it, the first half of the calendar year. The training and the personnel getting more familiar with our products and becoming better with this has exponentially increased in the last 3, 4 months. So that is there.

In addition to that, the products are also becoming easier to install, Brian. Remember, we went through a massive amount of modernization of the products. Our products have been in the field for 1 to 3 years now, and they are becoming easier and easier to implement. And then you add the fact that you use AI tools to automate a lot of the implementations. A lot of the complex configuration setups of the products can now be automated using AI tools. So all of that is contributing to greater services efficiencies. People are getting better. The products are far easier to implement. There are tools available in technology, AI, otherwise, to speed up implementation. So all that is improving the efficiency of product implementations.

Now sales, even now, 75% or so of our sales comes from the top half of our sales team. So improvement in sales productivity, we still have a runway ahead of us. We increased our hotel resource sales team, our international sales team during the beginning of the year. And they have all built the pipeline, and so those efficiencies are getting better as we go. And product development efficiencies have really become much better, thanks to AI tools and a whole lot of other reasons. So product development efficiency have improved.

But it's a continuous game, Brian. There is no endgame to this. Efficiencies have improved a lot this year, and I think it will improve massively next year as well. It may not directly show up in P&L because we still need the resources, but we are getting a lot more done with the current resources we have.

And the follow-up I have for Dave, I just wanted to ask you about seasonality from the summer period in the quarter. We're seeing these outstanding sales results. Just wanted to check with you, did the business experience less seasonality this fiscal 2Q than it did last year? I remember last year, you called it out during fiscal 2Q.

I mean, I really think there's a couple of things going on in that question. And some of it will be kind of reiterate what Ramesh said. When you look at this year compared to last year, there's kind of 3 differences in where we sit. I mean, one, we have more sales capacity. We're still in the middle of that kind of ramp up our sales team, but we have a lot more quota-carrying sales reps on the team, which are helping with that.

The second end is our backlog just remaining at record levels. So when we think about backlog, we don't think of it in terms of weeks, we think of it in terms of months. So having a backlog. And then really touching on what Ramesh said, I mean just the capacity to deploy that backlog, specifically with our professional services team, just makes the year and the visibility a lot better than it was this time last year.

One moment for our next question. And it comes from the line of George Sutton with Craig-Hallum Capital Group.

Ramesh, you mentioned that more major hospitality players are looking at you. And I'm curious if that is -- that would include -- there was a trend here in the last couple of years, some of the large players basically working with very thin code-based software vendors that don't really seem like long-term decisions. Are you starting to get the attention of some of those folks who made that kind of a decision?

While I think, George, you are going to pick up on that more than anyone else, yes, George, the short answer for that is yes. There are -- we are getting the attention of larger players than, say, at the same time last year or 2 years ago. A lot of the credit has to go to the products, and the news is spreading that the product ecosystem is becoming more and more -- that is, the distance between us and the competition is increasing.

And also, a lot of the credit goes to [ Joe Yusuf ] and some of the senior sales staff he's hired as well, who are opening up some of the major doors for us, right? They have credibility. Joe and others have worked with these bigger customers for a long time. So those are opening up doors. And now is a great time to open our doors for us because the products are impressive. And if they see a demo, it really gives them pause. So short answer, George, yes, more conversations these days than we have ever had before, and that is increasing too.

So Ramesh, you mentioned you have considerable competitive advantages, and I think you did a good job of walking through what some of those are. But at the same time, you mentioned you're still not well known in key circles in some of your markets. And I just wondered how much progress do you think you're making on that latter piece? Is it predominantly going to be through reference customers? Or how do you see that kind of closing that gap?

We continue to close that gap, George. It's not going to -- it's not a magic bullet. It is not going to suddenly explode into everybody knows us. No, it is not just a matter of knowing Agilysys, George, it's knowing today's Agilysys. There is still large parts of hospitality who still think of us as the father or grandfather Agilysys. And that is not an easy challenge to get over in -- generally in enterprise software, but we are making good progress, like we are making significant impressive progress. Marketing has done great work for us across the international regions and domestic regions. There's a lot more thought leadership participation. The trade shows, of course, we continue to increase participating. But we are leading a lot more, participation in seminars. We are sponsoring a lot more of the bigger events. So we're doing everything we can.

One thing is to market Agilysys. The other thing is to make sure today's Agilysys status is well known. That's not an easy challenge that can just overcome in a matter of days or weeks, but we are making good progress with that, George. It is very encouraging, looking at the number of customers, especially the larger ones who are talking to us now.

I think the numbers are evidence of that. Congratulations. Thanks, guys.

Our next question is from Nehal Chokshi with Northland Capital Markets.

Congratulations on a great quarter, second best selling quarter, fantastic. Any customers as part of this [ ACV ] being the second best selling quarter represent more than 10% of that ACV?

No, Nehal. No customers over 10%. It was broad-based. I think Ramesh did a good job of pointing out all the different verticals, certainly, gaming, international, managed foodservice kind of led the way. So it was really a broad-based quarter, which is nice.

Okay. So kind of using the analogy that Ramesh had utilized in the past, getting attention from sharks and dolphins, that was not a part of the strong quarter again?

Yes, it was broad-based, Nehal. Now nobody came close to 10%, yes. My knowledge of -- what is it, oceanography is quite limited. I could -- sharks, dolphins, all kinds of fish, yes, all kinds of wins this quarter, Nehal, yes.

No? Well, we did so, right? All right. Given that the September quarter represented the second best-selling quarter, which was the case last quarter, it sounds like it's safe to say that ACV sales were up Q-o-Q, which is under a strong result. Can you give us a sense as to how much it was up Q-o-Q, actually?

Yes. Normally, Nehal, we don't get into that, but a little bit of extra color since you asked the question, the last 3 quarters are our best 3 sales quarters in our history. And so obviously, the last 4 quarters have been great for us. So it is a good trend. And each of these quarters have been the best for that particular period quarter. So it continues to do well. And the last 3 being our best ever sales quarter is a pretty good indication of our progress. So overall, positive, Nehal, but not going to go into the specifics of that.

Okay. I believe that you guys gave like sort of a midterm organic subscription revenue growth outlook in the past. Could you just reiterate what that is? And any incremental color with that?

Yes. It was a little bit over 25% for the quarter and trending to 25% for the year. I don't know, there's a whole bunch of additional color. I mean, we're really happy, like we said, with where our backlog sits. We have a lot of subscription backlog. We have a lot of momentum in the sales team selling subscription solutions. The 18 new customers we had this quarter were -- all had subscription. So I think we were a little over 25% for the quarter, and we're trending to about 25% organic for the year.

And we have a question from the line of Stephen Sheldon with William Blair.

First on just the guidance. I think you made it pretty clear that the guidance increase, it sounds like it's mostly due to better broad-based sales activity. But I just wanted to ask about -- did your assumptions on the Marriott rollout, did those change at all materially? And was that any notable portion of the guide increase? I mean, I think it was kind of a midpoint. Total revenue was up 2%. I think your subscription revenue is also up 2%. So was that -- would -- did Marriott play into that at all?

Stephen, no, Marriott did not play into it at all. And just as a reminder, our -- the raise of guidance and subscription revenue from 27% to 29% excludes all Marriott subscription revenue. So -- for the PMS. And so no, it didn't -- the guidance raise was not Marriott related. It was just general sales momentum because as a reminder to all the sales numbers that Ramesh talked about exclude Marriott as well. So...

It excludes the Marriott PMS project. The other Marriott product, we are selling products to Marriott is included, but not the PMS project directly. Go ahead, Dave.

Yes. No. It excluded Marriott. PMS.

Got it. Okay. That's encouraging. And then just on the POS side, can you talk some more about the factors driving the strength you're seeing in the managed foodservice vertical? How big that end market is as a mix of your total POS kind of subscription revenue? And do you generally see lower levels of competition in that space, just given more complex need from purchasers? I would think in that end market, there would be only a few software providers that a customer would consider. I mean, is that kind of a fair thought process on that end market? Just more context on what you're seeing there.

Yes, Stephen, let me address the first part of your question first. POS, like we told you before, like 1.5 years or so ago, we went through a tough transformation phase. We had completely reengineered the POS products. There are multiple parts to the POS products, so we had to do them in stages. So a lot of our implementations in the field became a mishmash of all the new technologies that caused a lot of technical challenges for us. So that's what affected POS sales, especially in the foodservice management, FSM vertical.

We are past that stage for the last year or 1.5 years. All our new implementations are all the modernized solutions and also unified, meaning [ gift ] facing and staff-facing feature sets are now in 1 system. Therefore, it's a lot easier for us to manage, a lot easier for us to implement, producing good results for the customers, including international customers. So the current new version of POS and all the new installs we've been doing, say, for the last 12 to 18 months, are going very well, as you would expect, a modernized unified solution to go well.

So that, in turn, has helped improve POS sales, especially in the FSM vertical, which is practically overall like a bubble only POS. So that's the reason. It's again, product driven. And also, some of the recent sales staffs we have added to FSM are doing incredibly good work. They are very influential, and they are doing good work. So that is 1 part.

I wouldn't say the competition is less, Stephen, in FSM. It is more from the smaller vendors. For a long time, FSM has been served more by the smaller technology vendors. You don't see the bigger ones there that much. So yes, there is competition in FSM as well, but our product sets are getting better. And our implementations are getting better. We are selling with a lot more conviction and strength there. So overall, I think FSM will continue to do well for us.

Very helpful. And maybe just 1 more, if I can, on the PMS product attachment. I mean, you've been seeing some customers sign up with very large packages with a lot of products at cash. I guess, can you just remind us which ones you're seeing the highest attach rates on new sales by product? And has anything overly surprised you on the types of add-on products that are being added on to some of these PMS contracts?

It's not surprising, Stephen. When we created this ecosystem around POS and PMS, we knew that the attach rates for PMS are going to be higher because they're just more add-on modules there compared to the POS number of add-on modules. So this is not surprising to us. Very often, customers come to us only looking for a core product or a couple of products, but they see the ecosystem working together. And it really is encouraging for them that they don't need to deal with disparate systems that are difficult to integrate. And not just difficult to integrate, the pace of innovation is very slow. Because a lot of what resort and hotel properties need now is a unified guest experience. And for that, if you come up with an innovation idea like, let's say, use of a [ risk band ] in a water park you have to change 4 different systems for it. And if you're dealing with 4 different vendors, it becomes impossible to innovate at a rapid pace.

So that pace of innovation is there. So we are not surprised that PMS has high add-on modules attached rate now. But we are also participating in some major deals where PMS itself, the core product itself is the primary player, and those customers have not yet considering the other products. So we are seeing a couple of them as well.

In terms of which products are most, Golf, Spa, Sales and Catering, products like that come to mind. The booking engine is always one of the leading products, but one of the best sellers for us this year is loyalty promotions. Now resorts have the ability to give guests points and help them redeem points at every touch point in a resort, that's a big strength they didn't have before. So it varies from deal to deal, but these are some of the more popular ones.

Very helpful. Appreciate the color, and great results.

Thank you so much. And this concludes our Q&A session for today, and I will pass it back to our CEO, Ramesh Srinivasan, for closing remarks.

Thank you. Thank you for your participation and interest in Agilysys. Please enjoy the holiday season. Merry Christmas, and happy holidays to all of you. We look forward to talking to you again in about 3 months from now. Thank you.

And thank you again for all who participated in today's conference. You may now disconnect. Everyone, have a great day.