Executive Summary / Key Takeaways

• Agilysys is demonstrating robust growth, driven by its comprehensive cloud-native software ecosystem and a strategic shift towards subscription-based revenue, with fiscal 2026 revenue guidance raised to $315 million-$318 million and subscription revenue growth projected at 29%.
• The company's significant investment in product modernization and the integration of AI-powered features, such as Intelligent Guest Profiles and dynamic pricing, are creating substantial competitive advantages and enhancing operational efficiencies for hospitality clients.
• Despite past challenges in its Point-of-Sale (POS) segment, Agilysys has "turned the corner" with its modernized and unified POS platform, contributing to strong sales momentum across various verticals, including Foodservice Management (FSM) and international markets.
• Agilysys maintains a strong balance sheet, becoming debt-free as of July 2025, and is committed to disciplined, profitable growth, with adjusted EBITDA targeted at 20% of revenue for fiscal year 2026, while continuing to invest heavily in innovation.
• The ongoing Marriott PMS project, a major transformational initiative, is progressing according to plan with beta implementations underway, though its material subscription revenue contribution is conservatively excluded from fiscal 2026 guidance.

The Evolution of Hospitality Technology

Agilysys, Inc., founded in 1932 and focused entirely on hospitality software solutions since a pivotal transformation in fiscal year 2014, has emerged as a critical technology partner for hotels, resorts, cruise lines, casinos, and various foodservice operations globally. The company's strategic pivot involved a multi-year, six-to-seven-year effort to reengineer its core products and develop over 20 add-on software modules, culminating in a comprehensive ecosystem of cloud-native solutions. This foundational work has been instrumental in establishing significant competitive advantages within an industry often "starved of genuine innovation and significant R&D investments."

The company's overarching strategy centers on customer-centricity, continuous product innovation, and expanding its market reach both vertically and geographically. This approach is designed to improve operational efficiencies and enhance the guest journey for its clients. Agilysys operates as a single reportable segment, serving the global hospitality industry across North America, Europe, the Middle East, Asia-Pacific, and India.

In the competitive landscape, Agilysys distinguishes itself through specialized expertise and an integrated ecosystem that offers a unified platform for property management (PMS), point-of-sale (POS), inventory, and payments. While larger technology conglomerates like Oracle and Microsoft offer broader enterprise solutions, Agilysys's focused approach allows for greater agility and customization tailored specifically to hospitality needs. For instance, Agilysys's solutions are often perceived as more user-friendly for mid-sized operations, potentially offering faster deployment compared to some of Oracle's more complex systems.

Agilysys's ecosystem also creates a formidable barrier to entry and excellence, as duplicating a modern, cloud-native, and interconnected suite of hospitality solutions is a complex and time-consuming endeavor for competitors. This differentiation is particularly evident in multi-amenity resorts, where the need for a unified guest experience across various touchpoints drives demand for integrated solutions. In contrast, competitors like Amadeus (AMADY) and Sabre (SABR) are more focused on global distribution and booking systems, while Toast (TOST) specializes in restaurant-specific POS. Agilysys's ability to provide a single vendor for multiple modules allows for rapid innovation across pertinent systems, a critical advantage when customers require enhancements involving several software components.

Technological Edge and AI-Driven Innovation

Agilysys's core technological differentiation lies in its cloud-native, modernized, and unified software ecosystem. This includes its Property Management Systems (PMS), Point-of-Sale (POS), and inventory and procurement solutions, complemented by over 20 add-on modules. These solutions are designed to work seamlessly together, providing a holistic view and control over the entire guest journey and operational workflows. The tangible benefits for customers are significant: easier implementation, streamlined support, and enhanced capabilities that drive operational efficiency and guest satisfaction.

For instance, new customers in Q2 fiscal 2026 purchased an average of 7 products per deal, a new high for the company. When PMS was part of the purchase suite, customers acquired an average of 14 products per deal, highlighting the strong attach rates for its integrated offerings. Additionally, sales of additional products to existing properties saw 93 instances involving 241 new products, at a rate of 2.6 products per new sales agreement, the highest level recorded. This demonstrates the value customers find in expanding their use of the Agilysys ecosystem.

A significant strategic initiative is the company's GetSense.ai umbrella technology brand, launched approximately 18 months prior to Q2 fiscal 2026. This initiative is infusing Artificial Intelligence (AI) across the product suite, further widening Agilysys's competitive advantage. Key AI-powered features include:

• Dynamic Pricing Engine for Room Upgrades: Enables personalized upselling during check-in based on real-time factors like occupancy, guest loyalty, and past behavior.
• Intelligent Guest Profile Module: Captures and consolidates guest data across all resort touchpoints, facilitating personalization at scale across the entire guest experience.
• Revenue Management Capabilities: Unique features based on demand across spa, golf, dining, and other activities.
• Invoice Automation and Inventory Procurement: Streamlines back-office operations for food and beverage.
• AI-assisted Concierge Services and Conversational Ordering: Enhances guest convenience and operational efficiency.

These AI-driven enhancements are not only producing tangible value for customers but also strengthening Agilysys's competitive moat. Importantly, Agilysys's software licensing is primarily based on rooms, terminal endpoints, or sites, rather than the number of users. This means that as customers leverage AI tools to increase operational efficiencies and potentially reduce user counts, it does not negatively impact Agilysys's licensing fees. Instead, such efficiencies often free up more technology investment room for customers, increasing the demand for modernized software solutions.

The company's R&D efforts are actively focused on delivering additional AI-driven capabilities in upcoming product releases, aiming to increase product development and operational efficiencies, accelerate automated implementations, and enhance cybersecurity threat identification. This continuous innovation, coupled with a disciplined approach to data security, positions Agilysys to capitalize on the "tailwinds of AI" and further solidify its market leadership.

Financial Performance and Operational Momentum

Agilysys has demonstrated consistent financial strength and operational momentum, particularly in its transition to a subscription-based model. For the second quarter of fiscal 2026, the company reported record total net revenue of $79.3 million, a 16.1% increase over the comparable prior-year period. The first half of fiscal 2026 saw total net revenue reach $156 million, an 18.4% increase year-over-year.

Subscription and maintenance revenue continues to be the primary growth engine, reaching a record $51 million in Q2 fiscal 2026, up 23% year-over-year and 4.8% sequentially. This marks the seventh consecutive quarter of overall subscription growth exceeding 30%. For the first half of fiscal 2026, subscription and maintenance revenue increased by 25.3% to $99.58 million, including a $10.4 million contribution from the Book4Time acquisition. Subscription revenue now constitutes 65.5% of total recurring revenue, up from 60.5% in Q2 fiscal 2025. Organic subscription revenue from PMS and related add-on modules grew by an impressive 55% year-over-year in Q2 fiscal 2026, while POS and related add-on modules saw an 18% increase.

Conversely, products revenue decreased by 4.1% to $10.1 million in Q2 fiscal 2026, and by 1.7% to $20.05 million for the first half of fiscal 2026. This decline reflects a deliberate shift in customer preference towards subscription-based software and a reduced need for hardware, as Agilysys's technology increasingly supports consumer-grade devices. Management expects product revenue to stabilize around current levels. Professional services revenue, a key indicator for future subscription growth, reached a record $18.2 million in Q2 fiscal 2026, up 11.8% year-over-year, driven by increased sales and implementation activity.

Profitability metrics reflect the evolving revenue mix. Gross profit increased by 13.3% to $49 million in Q2 fiscal 2026, with the overall gross profit margin at 61.7%. While the total gross profit margin saw a slight decrease due to changes in revenue composition, the subscription and maintenance segment maintained a strong gross profit margin of 78.7% in Q2 fiscal 2026, increasing to 79.1% for the first half of fiscal 2026 due to cost optimization. Operating income saw a significant jump of 242.9% to $14.15 million in Q2 fiscal 2026. Adjusted EBITDA for Q2 fiscal 2026 was $16.4 million, up from $12.2 million in the prior year quarter.

Operationally, Agilysys is experiencing excellent sales momentum. Q2 fiscal 2026 was the best-ever July-September sales period and the second-best quarter in the company's history, contributing to the best first-half sales start ever. Overall global sales were up 17% in the first half of fiscal 2026, with subscription sales surging 59%. The company added 18 new customers in Q2 fiscal 2026 (excluding Book4Time), all on subscription agreements, averaging 7 products per deal. International sales also showed strong growth, up 35% year-over-year in Q2 fiscal 2026.

The Book4Time acquisition in August 2024, a strategic move to expand solutions-per-customer globally, has been highly successful, adding valuable talent, a respected brand, and global reach. The integration and cross-selling efforts are beginning to yield results, with the Book4Time sales team now contributing to selling all Agilysys products.

Liquidity and Outlook

Agilysys maintains a robust financial position and a clear outlook for continued growth. The company's cash and cash equivalents stood at $59.34 million as of September 30, 2025.

Notably, Agilysys repaid $24 million in debt during the first half of fiscal 2026, becoming debt-free as of July 2025.

Net cash provided by operating activities for the six months ended September 30, 2025, was $10.87 million, with free cash flow reaching $15 million in Q2 fiscal 2026. Management is confident that its cash flow from operations, current cash reserves, and access to capital markets will adequately meet both short- and long-term liquidity requirements.

For fiscal year 2026, Agilysys has raised its revenue guidance to a range of $315 million to $318 million, up from the previous range of $308 million to $312 million. The company also increased its full-year subscription revenue growth projection to 29%, an upward revision from its initial 25% and subsequent 27% guidance. Adjusted EBITDA is expected to remain at 20% of revenue for the full fiscal year, reflecting a commitment to disciplined, profitable growth while continuing strategic investments.

A key assumption in this guidance is the conservative exclusion of any material subscription revenue contribution from the ongoing Marriott (MAR) PMS project. This large-scale, transformational initiative is progressing according to plan, with beta implementations currently underway and pilot property installations expected in the second half of calendar year 2025. The cautious approach to guidance for this complex project underscores management's pragmatic view of large-scale deployments.

Risks and Competitive Positioning

While Agilysys's growth trajectory is compelling, investors should consider several factors. Macroeconomic and geopolitical conditions, including trade policies, armed conflicts, and labor shortages, could influence customer spending and impact demand, costs, and margins, particularly in international markets. The company also acknowledges inherent limitations in its internal control systems, which, despite being well-conceived, cannot provide absolute assurance against all errors or fraud.

Historically, Agilysys faced challenges during the transition of its Point-of-Sale (POS) products from older to modernized, unified platforms, particularly impacting sales in the managed food services vertical. However, management asserts that these "tough transition phase" challenges have been largely overcome, with the new POS platform now performing well and implementations progressing exponentially better. The company also experienced temporary setbacks in meeting hiring goals for its professional services teams, which affected services revenue, but is actively addressing this to ensure adequate capacity for project deployments.

From a competitive standpoint, while Agilysys boasts a strong, differentiated ecosystem and a clear technological lead in specific hospitality niches, it operates alongside formidable competitors like Oracle (ORCL) and Microsoft (MSFT), which possess significantly larger scale and broader financial resources. Some analysts have expressed concerns about Agilysys's valuation, noting that the stock "looks rich at ~7x forward revenue" and questioning organic growth drivers beyond acquisitions like Book4Time. However, Agilysys's management emphasizes that its organic subscription growth was 24% year-over-year in Q1 fiscal 2026, demonstrating strong underlying expansion. The company's strategy to attract and retain talent from other highly rated hospitality technology providers, coupled with expanded sales and services teams, is aimed at intensifying its competitive presence and capturing market share.

Conclusion

Agilysys stands at a pivotal juncture, having successfully transformed into a cloud-native, hospitality-focused software powerhouse. The company's relentless pursuit of product innovation, particularly through its integrated ecosystem and the strategic infusion of AI, has created a formidable competitive moat that is increasingly difficult for rivals to replicate. This technological leadership is directly translating into robust financial performance, marked by consistent record revenues, accelerating subscription growth, and improving profitability.

The strong sales momentum across diverse verticals, coupled with a healthy backlog and a debt-free balance sheet, provides a solid foundation for future expansion. While challenges related to market awareness and the inherent complexities of large-scale technology transitions persist, Agilysys's disciplined investment strategy and clear vision for leveraging AI position it for sustained, profitable growth within a vast and technology-hungry hospitality market. The company's ability to convert its technological superiority into continued customer adoption and expanding revenue streams will be key to realizing its long-term potential.