Agilysys Inc (AGYS) 2025 Q2 法說會逐字稿

Good day. Ladies and gentlemen and welcome to Agilysys 2025 Second quarter conference call. As a reminder, today's conference may be recorded. I would like to send the conference over to Jessica Hennessy, senior Director of Corporate Strategy, and investor relations at Agilysys. You may begin.

Thank you Marvin, and good afternoon, everybody. Thank you for joining the Agilysys 2025 2nd quarter conference call. We will get started in just a minute with management's comments. But before doing so, let me read the safe harbor language. Some statements made on today's call will be predictive and are intended to be made as forward-looking within the safe harbor protections of the private Securities Litigation Reform Act of 1995, including statements regarding our financial guidance.

Although the company believes that its forward-looking statements are based on reasonable assumptions, such statements are subject to risks and uncertainties that could cause results to differ materially. Important factors that could cause actual results to vary materially from these forward-looking statements include our ability to meet the provided guidance levels, our ability to increase sales and market share, our ability to maintain profitability levels and the risks set forth in the company's reports on form 10-K and 10-Q and other reports filed with the Securities and Exchange commission.

As a reminder, any references to record financial and business levels during this call refer only to the time period after 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 2025 2nd quarter earnings call. Joining Jess and me on the call today at our Alpharetta, Atlanta headquarters is Dave Wood. Our CFO. Let me first cover brief details about the Book4Time acquisition we completed during the quarter, followed by a summary of our recent selling success, before moving on to revenue and other details.

We acquired the leading spa management software provider Book4Time and its excellent high talent team. A little more than midway during the quarter.

Book4Time is the number one enterprise SaaS solution for spas within hospitality.

Currently serving more Forbes five star rated spas than any other competing product. Book4Time has enjoyed a good reputation in hospitality over the last couple of decades for its superior product and world class customer service. Book4Time's revenue is almost entirely based on subscription licenses.

Their customer base is similar to ours and includes many resorts casinos, golf, private member clubs in more than 100 countries and major brand hotel chains including Marriott and Hilton, who are common customers with Agilysys, and also other chains like IHG, Hyatt, Accor and Four Seasons who are at best only partial Agilysys customers currently at a small portion of their properties.

In this narrative, we will do our best to highlight sales revenue and other details separately applicable to Book4Time with the caveat that such differentiation is going to become increasingly more difficult during subsequent quarters.

The process of integrating Book4Time into the fabric of Agilysys has moved along faster than we anticipated during the couple of months since the acquisition, and it is soon going to be difficult for us to attribute various business metrics separately to Book4Time and Agilysys.

Agilysys and sales personnel now have an additional spa management product to sell to various customers where applicable and Book4Time. Sales personnel in coordination with the bigger Agilysys sales team have an entire (inaudible) of hospitality software products. They can sell to their current customers and to new ones in their sales territories.

As you will see from the numbers we discussed during this call. We are having considerable success selling additional products to current customer properties.

Our win-loss ratio remains high when we reach the product demonstration stage in our sales process.

The Book4Time acquisition by itself in one stroke has increased. The number of customer properties currently running at least one of our software products or modules by as much as 30%

Less than 15% of Book4Time's. Customer properties are common with Agilysys prior to the transaction.

One of Book4Time's significant strengths is a strong sales team which is experienced and accomplished in selling to the global hospitality industry.

The Book4Time sales team was eager for a broader base of products to sell to hospitality. Even before the acquisition happened, they've certainly come to the right place now and have an entire ecosystem of state of the art technology based and feature rich set of software products and modules they can sell into more or less the same buyers they are used to selling to.

Overall, we are happy we got this opportunity to add a world class professional team and product that further enhances our improving competitive positioning within hospitality.

During the quarter around the same time, almost to the date of the Book4Time acquisition, we welcome Mr. Joe Yusuf to our executive team as Chief Commercial Officer. Joe comes to us after a close to two-decade tenure at Amadeus Hospitality focused on hotel technology products like CRS, Business Intelligence, sales, and catering and PMS, where he led the expansion of that division by a couple of orders of magnitude.

When Joe joined Amadeus; its hospitality division was generating annual revenue of less than $10 million. And by the time he left about 18 years later, it was knocking on the doors of being close to a billion-dollar business unit.

We are obviously thrilled to add such a senior accomplished growth mindset officer to our team who shares our DNA of employee and customer centric disciplined profitable growth. Perfect executive at the right time On to a few details regarding our recent selling success, we measure sales in annual contract value terms.

One slight additional, we actually measure it in net annual contract value.

The net represents our conservative practice of counting only additional incremental sales generated in transactions with current customers.

That's an important distinction as we continue to see more growth in subscription sales from our current customer base

Excluding additional sales generated for the Book4Time product since late August after the acquisition fiscal 2025, 2nd quarter was our best ever July to September 2nd quarter of sales and the second best of any sales quarter sales levels. This quarter were excellent for the gaming casinos, resorts, hotel, and cruise ship verticals in the US. And for overall sales in the US food service management vertical continued to be disappointing and APAC had a challenging quarter following a strong sales quarter during Q1.

Fiscal 2025 2nd quarter, July to September sales of property management systems PMS and related add on experience enhancer software solutions surpassed first quarter sales and also matched our previous record established about 9 years ago when we were selling mostly chunky perpetual licenses.

We are seeing a clear trend of increasing sales in the PMS category for more than a year now. Fiscal 2025 2nd quarter, PMS and PMS related product sales nearly doubled year over year. Compared to the second quarter of last fiscal year.

The number of field implementations of the fully modernized set of PMS solutions are increasing, giving us a growing number of reference customers who are willing to discuss their success stories with others in the industry.

One recent example of the power of integrated PMS solutions was at a major popular resort where the combination of express check in checkout kiosks and our core PMS solution reduces guest check in wait times during peak holiday check in times from a few hours to a matter of minutes.

The value of such powerful customer testimonials about the recently modernized PMS solutions cannot be overstated.

Fiscal 2025 April to September was the best ever first half of the fiscal year, with respect to sales ahead of last year's record first half pace by a comfortable distance.

We have a long runway of sales growth ahead of us across all sales verticals.

The sales verticals where we are performing well can sustain a lot more growth due to current low market share levels and the verticals which are still not performing well will scale great heights. Once we turn the corner with a newer version of the products now available to sell and increased market awareness.

Our market share remains low in most of our sales verticals. And we are at only the early innings of effectively bringing to all relevant marketplaces, an entire ecosystem of hospitality focused products. Each of them based on state-of-the-art cloud native technology that can also perform well on premise for the many hospitality customers who still prefer on premise implementations.

We are expanding our marketing efforts have greatly increased. Our thought leadership presence is establishing a good presence in a lot more trade shows have increased our global quota carrying sales personal strength by 50% as at the end of September compared to a year ago, and added to the executive team, and accomplished senior sales and commercial leader who has an established track record of driving growth is well respected and (inaudible) great influence in the hospitality industry.

Having said all that, the present truth is much of the hospitality industry has not discovered the new Agilysys yet.

The Lajitas Golf resort in Texas recently implemented 14 modern technology-based Agilysys software solutions. And all of them went into production use over a two-day window, replacing several competitive solutions.

The hospitality industry, in general, it's just not used to such realities yet. And it is going to take us more time to be more convincing about what can be accomplished today with an integrated ecosystem of modern solutions.

We do not see the possibility of any external factors slowing us down.

If the global customer base and hospitality experiences any slowdown due to the economy, interest rates, elections, inflation or any other external factor, we believe that will only increase the need for technology that can help improve operational efficiencies and provide ways to enhance guest experience and guest loyalty without increasing operational costs.

During Q2 of fiscal 2025 July to September, we added 18 new customers and all but one of them was subscription based.

Each of these new customer sales wins involved an average of 5.4 products per deal which is a new high for us and was driven by PMS, new customer wins which featured an average of 13 products per day.

In addition to the 18, 5 new customers signed up for the Book4Time spa product from the time of the acquisition during the third week of August. We also added 85 new properties which did not have any of our products before, but the parent company was already our customer of the 108 new properties added during the quarter across new customers and new properties of current parent customers. About 90% of them were either partially or fully subscription based.

In addition, there were 102 instances of selling at least one additional product to properties which were already running at least one of our other products.

These 102 instances involved a total of 24/7 new products sold to current customer properties.

The average deal size across these 102 instances of new product sales was about 14% higher than the sequential preceding Q1 quarter.

Annual contract value of new product sales sold to current customer properties during the first half of fiscal 2025 increased 84% year-over-year compared to the first half of last year.

Now on to revenue, fiscal 2025 Q2 revenue was a record $68.3 million, the 11th consecutive record revenue quarter. 16.5%, that is 1-6, 16.5% higher than the comparable prior year quarter. $2.2 million of the $68.3 million was attributable to Book4Time, meaning it would have been a record revenue quarter. Even without revenue from Book4Time.

Overall revenue during the first half of fiscal 2025 was $131.8 million. 15%. That is 1-5. 15% higher than revenue during the first half of last fiscal year.

Fiscal year, 2025 Q2, recurring revenue grew 21% year-over-year and 8.9%. Sequentially quarter, over quarter to a record $41.4 million recurring revenue year=over-year increase of $7.2 million and sequential quarter over quarter increase of $3.4 million are both record best increases.

This recurring revenue increase was driven mainly by a 36.6% increase in subscription revenue which grew to $25.1 million during fiscal 2025 Q2.

This 25.1 million included $2.1 million of subscription revenue attributable to Book4Time since the acquisition. Without the Book4Time contribution subscription revenue year over year growth would have been 25.2% during Q2 and 28.5% during the first half of fiscal 2025.

Second quarter, fiscal year, 2025 was the third consecutive quarter of year-over-year subscription revenue growth of 30% or higher subscription revenue constituted 60.5% of total recurring revenue compared to 53.6%.

Q2 of last year. Subscription revenue is becoming a significant portion of our total recurring revenue now and consistently one of our fastest growing revenue lines annual maintenance revenues, which is about of total recurring revenue currently will remain a low to no growth revenue line as the preference for subscription-based agreements and cloud-based implementations by both new and existing customers is driving the vast majority of our sales currently.

Excluding Book4Time subscription, revenue from add on experience enhancer software modules, most of which were developed during the past few years constituted 21.1% of total subscription revenue. The highest level reached so far.

These add on software modules working with each other and with the core POS PMS and procurement modules are adding immense value to customer operations.

When customers like the Lajitas resort in Texas buy multiple such modules from us along with core POS and PMS products. Not only do they get the benefit of far less integration work, they have to manage across multiple vendors, but a lot more valuable than that.

They also get the benefit of a far higher pace of future innovation.

When there is a new innovative feature set, we have to create that cuts across multiple software modules. It is far easier for customers when we can get that coding done in multiple integrated products simultaneously in the subsequent release of each of them.

Then for customers to go about convincing multiple vendors about the need for such an enhancement and dealing with various different product road map timelines.

The hospitality industry is only beginning to embrace such distinct advantages excluding Book4Time subscription revenue from property management systems. PMS and PMS related add on modules during Q2 grew by 32% year-over-year.

While subscription revenue from point of sale, POS and POS related add on modules during Q2 grew by 25%.

Our POS business continues to work through a tough transition phase as we discussed last quarter.

The good news is implementations involving only recently modernized versions are going well and we expect to get our point-of-sale, POS Module back in short order.

Our current POS modernized and unified solution set is vastly superior and carries tangible competitive advantages.

The POS project we completed at a prestigious well known Las Vegas property a couple of months ago, replacing a major well established competitor who just could not match the benefits of our modernized POS solution set brought to the customer is one such recent example.

We've worked through a tough phase with our POS business for the past several quarters and are cautiously optimistic that we are turning the corner now.

Sales or point-of-sale; POS and POS related modules during fiscal 2025 July to September 2nd quarter was 17% higher than the sequentially preceding Q1 quarter and was the best quarter of POS sales in about a year.

Giving us increasing confidence that we have worked through the low point of our POS business challenges related to the period of transformation from old to new technology.

At a major theme park international site, the fully modernized POS Solutions which were installed recently at one food outlet helped increase guest transactions by more than 15% through the use of self-service kiosks and also drove a 5% increase in upsell rates while freeing up their employees to provide more attention to guests.

These kinds of numbers when applied on huge high volume theme parks and other resort sites make a real difference to customer bottom line with us, driving additional revenue while also increasing guest satisfaction levels is an extremely valuable combination for customers.

This was also one of the fastest executed software projects this customer has experienced thanks to the power of modern technology solutions which enable relatively faster implementations and easier ongoing maintenance and management.

Product revenue which has been affected by the POS transformation from old to new difficulties during the past few quarters improved slightly sequentially from Q1 to $10.5 million but was still 16.7% less year over year compared to Q2 last fiscal year.

These two revenue drivers continue to support strong top line growth fiscal 2025 Q2 being the second-best sales quarter on record drove combined product recording revenue and services backlog levels, not including Book4Time to 94% of peak record levels.

Product backlog improved slightly but remains far short of previous peak levels.

Services backlog grew to record levels with customers continuing to sign up for projects faster than implementations are getting scheduled recording revenue. And within its subscription revenue backlog is at about 90% of record levels.

Sales momentum strong in Q1 and even better in Q2. Along with the Book4Time acquisition has been positive for subscription revenue growth as a result. Our expectations for full year full fiscal year 2025 sales have increased, enabling us to raise all three guidance levels.

We now expect the full year revenue range to be $280 million to $285 million subscription revenue growth to be better than 38%.

And EBITDA as a percentage of revenue to be 18% higher than the 16% expectation at the beginning of the fiscal year.

With that, let me hand over the call to Dave for further color.

Thank you, Ramesh. Taking a look at our financial results beginning with the income statement. Second quarter, fiscal 2025 revenue was a quarterly record of $68.3 million. A 16.5% increase from total net revenue of $58.6 million in the comparable prior year period.

One time revenue consisting of product and professional services was up 10.2% over the prior year quarter. While recurring revenue was up 21%. As a reminder, the Book4Time acquisition during August added $2.2 million in total revenue. Without Book4Time, total revenue increased 12.8% over the prior fiscal year.

Despite a 16.7% decrease in product revenue, we continue to see significant positive momentum in the business.

Our sales momentum remains strong with Q2 bookings at near record levels. Our backlog is also at near record levels and we have significant visibility into revenue for the remainder of the year.

Product revenue will continue to be the biggest headwind in the business and pose the biggest challenge during the second half of the fiscal year.

However, POS bookings are improving and up 17% over the prior quarter with product bookings at the highest level in the last four quarters, providing additional confidence and acceleration through the second half.

Professional services increased 39.2% over the prior year quarter to a record $16.3 million with services gross margin at 32.4%.

We expect the service margin to remain in the high 20% or low 30% range during the next few quarters as we work to catch up to sell velocity.

Professional service backlog once again increased to record levels despite record professional services revenue.

Total recurring revenue represented 60.7% of total net revenue for the fiscal second quarter compared to 58.4% in the second quarter of fiscal 2024 fiscal 2025.

2nd quarter, subscription revenue grew 36.6% over Q2. Last fiscal year subscription revenue comprised 60.5% of total recurring revenue compared to 53.6% of total recurring revenue. In the second quarter of fiscal 2024 subscription revenue increased sequentially $3 million from the first quarter of fiscal 2025 which included $2.1 million in Book4Time subscription revenue.

Subscription growth when excluding Book4Time was 25.2% for the quarter. With the first half of the year 28.5% higher than the first half. Of fiscal year 2024.

This was the second-best quarter for subscription sales when excluding Book4Time subscription backlog remains high and increased over our FY24 and Q1 FY25 exit rates.

Moving down the income statement, gross profit was $43.2 million compared to $35.1 million in the comparable prior year quarter. Gross profit margin was 63.3% compared to 59.9%. In the second quarter of fiscal 2024. Overall total, gross margin should remain just north of 60% for the full fiscal year combined. The three main operating expense line items, product development, sales and marketing and general and administrative expenses. When excluding stock-based compensation were 45.6% of revenue in the fiscal 2025. 2nd quarter compared to 46.2% of revenue in the prior year quarter, excluding stock-based compensation, product development decreased to 20.3% of revenue during Q2 of fiscal year 2025 compared to 22.8% of revenue in the comparable prior year.

General and administrative expenses remained steady at 12.7% of revenue. While sales and marketing increased from 10.8% of revenue to 12.5% of revenue operating income for the second quarter of $4.1 million net income of $1.4 million and gain per diluted share of $0.05 compares favorably to the prior year. Second quarter gain of $3.6 million, $4.1 million and $0.16.

The reduction in net income was primarily due to tax expense in the quarter along with lower operating income associated with one-time costs for the Book4Time acquisition adjusted in income normalizing for certain non-cash and non-recurring charges of $9.5 million and adjusted diluted earnings per share of $0.34 were both improvements over the prior year. Second quarter, results of $6.6 million and $0.25 for the 2025 2nd quarter adjusted but it was $12.2 million compared to $8.1 million in the year ago quarter.

We are pleased to see our profitability levels being well ahead of the original FY25 plan with adjusted EBITA coming in at 17.9% of revenue

Moving to the balance sheet and cash flow statement, cash and marketable securities. As of September 30th 2024 was $54.9 million compared to $144.9 million.

As of March 31st 2024, the cash decrease was related to the portion of the Book4Time acquisition paid with cash on hand.

As a reminder, we added $50 million in debt for the Book4Time acquisition subsequent to Q2, we paid down $12 million of outstanding debt leaving the current debt balance at $38 million free cash flow in the quarter was $5.9 million compared to $2.5 million in the comparable prior year quarter.

As we've said in the past adjusted EBITA, and free cash flow continue to be good proxies for health of the business over the course of a fiscal year.

Due to working capital fluctuations, our free cash flow tends to be significantly better during the second half of each fiscal year compared to the first half with the inclusion of Book4Time revenue. We are increasing our top line revenue guidance to $285 million with subscription growth of at least 38%.

Our profitability levels are coming in above our original plan and so, we are increasing our expectations to 18% full year adjusted EBITA as a percentage of revenue ahead of the 16% full year guidance provided earlier in closing, we are pleased with our Q2 fiscal year, 2025 financial results and the solid business fundamentals for future revenue growth.

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

Thank you, Dave.

In summary, we are happy to post good results and increase guidance levels. Despite several areas of the business not yet firing on all cylinders, we are confident the point of sale. POS business will move up a couple of years from its low point during the past few quarters.

Now that we have moved fully to modernize solutions for new implementations and gone past the challenges of having to work with combinations of old and new technologies at various implementations.

We are growing the list of reference customers who are gaining significant value from the ecosystem of modernized property management system. PMS solutions Book4Time is a great addition to our team talent level and portfolio of products.

The number of customer properties running at least one Agilysys product increased by about 30% during the quarter because of the acquisition. The hundreds of Book4Time properties currently running. No other Agilysis product opens up another major area of possible sales and revenue growth.

We are not seeing any challenges to our business momentum due to any external factor.

Our combined product, recurring revenue and services backlog levels are at close to record levels, giving us good visibility into the second half of the fiscal year.

We continue to increase investments in sales and marketing while maintaining a healthy level of spend on products and innovation.

In conclusion to repeat what we have said before, while our overall business remains in excellent shape, we are only beginning to scratch the surface of the kind of progress and growth possible in this industry. For a well-run technology vendor with a modernized integrated set of products driving must have business functions at customer sites. And the size of the total addressable market remains orders of magnitude bigger than our current size.

With that, Marvin. Can we open up the call for questions, please?

Thank you. At this time

(Operator Instructions)

Mayank Tandon, Needham & Company LLC

Thank you. Good evening, Ramesh Dave, and Jess. I wanted to just clarify the guide first and foremost. So, the subscription revenue guidance that goes from 27% to 38%. Just to be clear how much of that is booked for time versus what is organic? And then related to that (inaudible), Dave would be what is embedded in terms of the growth for both point of sale and for a PMS and the second half guide.

Yes, so, the guidance is, there's about $10 million in this year's guidance on the subscription. So, the 38% would be a little over 25% organic and then the remaining would be the Book4Time acquisition.

And as far as the point-of-sale guidance goes and property management and we're not guiding to that. But we expect the property management to be growing faster than overall subscription guidance because we're starting from a much lower base and then the POS should pick up from here as well.

Got it. Okay. That's actually clear and then I just wanted to ask about margins to Dave.

You obviously outperforming margins pretty consistently over the course of time. Just want to understand given the scale in the business and some of the leverage in the model. I would think margins would actually ramp up from here.

So, anything that we should note in terms of why the second half margins might be,

You know, not scaling faster, just given the leverage in the model that's inherent, just given the mix shift as well and some operating leverage. So, any just factors you could point out is why margins would not be better than the first half and the second half.

Yeah, I mean, we think margins will be consistent. I mean, most of it is related to the product revenue coming back into the business. So, you know, we're at a pretty high mark right now at 63% gross margins as product continues to increase through the year. That'll pull-down margins.

So, I mean, we're seeing, we're definitely seeing operating leverage in our OpEx and obviously our subscription revenue, but the slow first half start to the year kind of attributes to a lot of the better than expected, even a percentage. So, we expect gross margin to come down a tick or two from the 63% where we're at today.

Got it. I'll get back in the queue. Thank you so much.

Thank you, one moment for our next question.

Matt VanVliet, BTIG

Yeah, thanks for taking my question. Good afternoon. I guess when you look at the success of both time so far that it's been in the portfolio, you mentioned, you know, amount of opportunities that you've already uncovered but curious what the expectations are.

What kind of market size you've sort of calculated in terms of their existing customers that you can sell some of your own products into.

You know, maybe short term, obviously long term, maybe the entire stack can go into some of those. But where, where do you think there's the most opportunity? How big of an opportunity do you think that is? And then one of the key factors in terms of the timing around that impacting the model.

Yeah. Hi Matt. It is difficult to specify an exact timing matt. But the way to think through that is we are having obviously terrific success in what we call new product sales that is selling additional products to properties that have at least one other product already there. And that new product sales has increased 84% year-over-year when you compare this first half with last time, first half.

So, fundamentally, the larger picture is met that when we can get customers to the demonstration stage of seeing the products, we are having very good success.

And it is a higher probability for us to get current customers with whom we have a relationship to take a look at the ecosystem we have built. Now you extend that to the Book4Time properties, literally hundreds of properties. It's well more than 1,000 that are Book4Time properties that do not have a single other Agilysys product.

And we have sales, Book4Time sales and customer success team that has built good long-standing relationships with those customers.

So, if you extend the new product sales success, we've been having with our own properties who don't have too many Agilysys products. We think we'll have good success, convincing a growing percentage of Book4Time customer properties to just take a look at the ecosystem we have built, and we think that will lead to good success.

Now, the book for product itself has a lot of growth ahead of it because the market share in the overall spa market is, is still nothing overwhelming. And also, spa is a growing presence in hospitality resorts. And in terms of guest satisfaction and all that spa is a growing presence.

And in terms of getting introduced to hospitality properties, spa is a pretty good side door. It's not a small door, it is a pretty good side door to get into hospitality properties and then convince those customers about looking at other products.

So, all to match revenue synergies is a big part of the upside we are looking at but can't put a particular time on it. It will continue to enhance over time. And in fact, even during these two months, there is one particular deal we have sold where our membership module was brought along with the Book4Time Spa product that will continue to grow month after month, quarter, after quarter.

Very helpful. And then as you look at sort of the early returns from this deal and how those are I guess measuring up to the initial diligence around the deal.

How does this impact your M&A strategy going forward?

Do you anticipate maybe being a little more acquisitive than you have over the last couple of years now that the product at the core level is all modernized and, and sort of in a full cloud-based structure?

How should we think about this deal relative to future M&A?

Yes, but the way I think I would recommend we think about this deal is that the resort suite acquisition close to three years ago was very successful for us.

And the Book4Time acquisition is showing all signs of being successful. It's too early to judge it's only two months down, but it's showing all signs of being successful. And we think the reason for that is that we've been very careful. We've been conservative. We've been patient. We've been opportunistic.

We can't be considered an acquisitive company. We are not going after these acquisitions, but when opportunities come, we are very careful with our Agilysys. We take our time, which I think has to do with the fact that we have done two successful acquisitions so far. So, that attitude is not changing.

We are going to remain conservative. We're going to remain patient. We're going to remain opportunistic, keep our eyes and ears open for. And we have a couple of, you know, product gaps to fill in our ecosystem.

Geographic expansion is always possible. And now that we have a completely state-of the-art, modern set of ecosystem products.

Yes, you know, the market expansion, market share, roll up those kinds of opportunities also are attractive to us. But the reason why we have been successful so far, we think is because we've been careful and not going after everything. And I think that attitude will remain great. Thank you.

Thank you one moment for next question.

Neha Chokshi, Northland Capital Markets.

Yes, thank you. And congrats on good results, raise guidance.

All the and the acquisition talking on the acquisition first in the spa booking space.

What are the other companies out there that also provide spa booking with tight integrations with PMS and POS systems? Like Agilysys spa software does as well as Book4Time software does.

Yeah. Hi Nehal.

So, it is fair to say I'm trying to be conservative here, Nehal. It is fair to say that between Book4Time which was far and out the number one spa product in the industry. Agilysys spa, which is a little bit new to the space but has been completely modernized and its state-of the-art cloud technology and all that which was introduced say 34 years ago.

between the two of them, it is fair to say that those two are the leading products in the spa market. There is one other product that is also pretty widely used but not of the most modern technology that you can find.

So, when you combine cloud native modern technology along with a very rich feature set, it's fair to say that Book4Time and Agilysys are the two leading products in the industry, and we are happy to have both of them with us now.

And in terms of spa products being tightly integrated, most of them are well integrated to POS, PMS. I don't think that is a differentiating factor but in terms of the state of the art of the technology and the feature set within spa, these are the two leading products Book4Time and Agilysys Spa. And we are happy to have them both. Integration to POS, PMS everybody offers. That's not a differentiator there.

I see. Okay. You know, when we looked at the spa market, it looked like midbody is, you know, a really big player in that space but not necessarily in the hotel spa space. How do you guys view that particular competitor and how will your PMS and point of sale competitors likely react to this acquisition as well?

Yeah, but good point, we are only competing for the spa market within the market space that we are focused on hotels, resorts, cruise ships, you know, that kind of area is all we are focused on. We are not going after the general open to all spa product.

So, within this hospitality, hotel resorts, casinos, that kind of ecosystem, these are the two leading products Book4Time and a spa and in this kind of a marketplace where we are focused on the fact that both core POS, core PMS and the spa product comes from one vendor has its integration advantages. Though the other products are also integrated with POS and PMS, our pace of innovation will be much higher just because we own, we own both ends of that functionality space, but we are only focused on the hospitality space. We're not going after the general spa business.

Okay. And then Dave last quarter, you guys lowered your overall revenue guide due to the shift towards commodity product not needing the Agilysys terminals here. It is, does that continue to be a dynamic that potentially is weighing on total revenue? Because it seems like the Book4Time acquisition should bring more than the $5 million raise that you're raising the overall guidance by.

Yeah, I mean, the product revenue has and will continue to be a challenge throughout the year. I mean, we originally gave the guidance, we were expecting to be down a little bit in product revenue and we're, we're trending last quarter. We said we're trending in the 5% to 10% reduction range and, and, you know, at the moment, it's like last quarter, it looks like we're, we're trending closer to 10% down in, in product. So, yeah, most of the, most of the lower top line revenue number is directly associated with the product revenue mix.

So, what's the other portion related to if there's, if it's not all product related?

Yeah, I mean, it's mostly, I mean, with the product revenue had it stayed consistent with last year, obviously, we would have been, you know, above our range at this point.

Okay.

Thank you one moment for next question.

Brian Schwartz, Oppenheimer & Co. Inc.

Yeah, hi. Thanks for taking my questions this afternoon. Ramesh, one question on the acquisition. I'm just trying to understand the go to market strategy between the two sales forces. Is it your plan o over a whatever period of time to unify the two sales forces or are you planning to keep them both discrete?

Yeah, So, I think what the, the short answer to the back end of your question is we will be unifying both the sales forces at the moment. The go to market strategies is a bit different because Book4Time is a smaller single product company for the most part.

So, they've been very successful doing remote selling even to global customers, but they were selling one single product. So, the approach the go to market strategies have all been very different but very effective. While we, our sales is a lot more complex sale because we are trying to sell multiple products.

Sometimes it is only one core product, but most of the time it is multiple products and a lot more complex sale and Book4Time has been used to so far. But over the next six months or So, before we start the next fiscal year, we will be unifying the two salesforces as best as we can because now the combined sales force will have an ecosystem of products.

They can sell. Now, we are going to do our best, Brian not to lose the aggressiveness, the advantages of the Book4Time sales force while we do that unification. But it is fair to think that over the next six-month period, it will become a unified sales force going into fiscal 2026.

Thank you. And Ramesh, I wanted to ask you how you're feeling your comfort level with your services capacity. Because you're, you're giving us a lot of feedback and data points that your backlog is near record levels. So, but then again, there's guidance that the service margin may come down in the second half of the year. So, how are you feeling about the capacity and the ability to implement that backlog in a timely manner?

We are feeling good about our services capacity though, we continue to increase it. So, our services personnel capacity, you compare this September end to last September and has gone up by 20%. And since September we have continued to hire so, we are continuing to expand our services team.

But one thing to keep in mind, Brian, the services backlog number is going to increase as the business becomes better as the business becomes not better, bigger, right, bigger businesses, have bigger backlogs. That's just the nature of how it works.

So, when you think about a metric, if you make up a metric of backlog to revenue services revenue ratio, it is it has been fairly consistent over the last 1.5-2 years or so. If you just take the backlog and compare it to services revenue, it's around the same kind of ratio.

Now, the backlog increasing is not just a matter of services personnel, it also is dependent on customer readiness. These are complex multi-product installs.

Customers sign for it, sign for a purchase of multiple systems, and then they realize there is more work to do. There is more preparation work to do so, those kinds of things also tend to increase the backlog and postpone implementations.

Now, the positive aspects are we are increasing services resources. They have gone up by 20% in the last year and will continue to go up in the next quarter or two because our business is expanding.

The newer versions of the product have now been in the field for a while. The modernized versions and they're becoming easier to install. so, we are spending less non billable time on those implementations.

So, that also in a way is increasing services, personal strength that can focus on products. So, overall, yes, we are watching the backlog increase. We are not extremely worried by it. It is in proportion to the services revenue going up. But we are taking steps to keep that backlog in control as best as we can. But please keep in mind it's not all dependent on us. It's also dependent on customer readiness. For projects.

Thank you and last question, 11 per day, just in terms of the EBITDA guidance raise. Is any of that have to do with a Book4Time or maybe another way of asking it, is Book4Time. Is that (inaudible) of to the business this fiscal year? Thanks.

Yeah, it'll be their profitability levels. Post acquisition are pretty similar to ours. I mean, there's some slight nuances where they spend a little bit more on sales and marketing, a little bit less on product development. But you know, it was break even before the acquisition

And now it's, you know, slightly above our adjusted EBITA even today. And we would have raised guidance on EBITDA with or without the Book4Time acquisition.

Thank you for taking my questions.

Thank you. Bye.

Thank you one moment for the next question.

Stephen Sheldon, William Blair.

Hey, thanks. So, it sounds like you're bringing down the full year organic subscription revenue expectations to touch versus the prior guidance. I think it was over 27% before now. It's closer to 25%. So, can you just talk about talk about what's driving that is that tied to the slowdown in APAC that you mentioned? Lower POS trends versus what you'd assume just any colour there on what changed versus the prior guidance.

Yeah. Hi Steven. So, when you look at the first half subscription results FY2025 of 28.5% year-over-year increase during the first half was in line with expectations, if not slightly above that.

So, the first half subscription revenue of 28.5% growth worked out quite well, even not including the Book4Time subscription revenue increase.

Now the second half, you are correct. There were some concerns about that and all of that almost is attributable to this POS transformation difficulties that we are going through that affected product revenue and that also affected POS sales during the last few quarters.

Now Q2 was a good pick up in POS sales. But the effect of the last few quarters of going through this whole POS transformation from old to new and a combination of old and new paths has had an effect but cannot exactly predict.

The second half might still work out quite well based on our initial fiscal year expectations. But you're right. The concerns have been caused by this POS transformation process.

Got it that's helpful. And then just in the APAC, I guess, is there anything to call out there in terms of the market backdrop becoming more challenging or any changes in execution or, or is that more just timing?

I wouldn't say just timing we are having up and down challenges in APAC. The deals are taking a lot more time. The good news is we are working on a lot more sizable opportunities in APAC than we ever have done before. More bigger customers are taking a look at our current ecosystem of products.

But there are, you know, bridges to cross there before we establish ourselves well. So, it’s a little bit up and down in APAC and it's all a matter of establishing ourselves as a name, as a technology vendor who can be trusted, who truly has the best state of the art products today, who truly has an integrated set of system of products.

We are going through. We are doing a lot of thought leadership work there. We have increased our marketing efforts. We are in the process of establishing ourselves and we are competing against a couple of pretty big, well established competitors there who have been well established for a couple of decades. So, it’s a process that we are going through. APAC is a bit frustrating. It's a bit up and down, but we are making progress. We like the opportunities we are working on now.

All right. Thank you.

Thank you, Stephen.

Thank you one moment for next question.

(Operator Instructions)

George Sutton, Craig-Hallum Capital Group.

Thank you, Ramesh. I wondered if we could get a little more clarity on the Book4Time sales opportunity for your current customers. So, you had mentioned and specifically called out a couple of large players like IHG and Accor.

Given that the salespeople are selling remotely, is it realistic to think that they might have some permission at the level of some of these larger players or is this really more of a smaller or unit level type of an opportunity?

Yeah, the larger players, not only Book4Time, George, but also Joe Yusuf who is joined as a Chief Commercial Officer, have a lot of influence, know a lot of people that you couldn't have said about Agilysys before. So, those in terms of introduction, opening the doors and all that, there are a lot of opportunities with the bigger players.

But the bulk of the opportunity has to do with independent similar size resorts who are our customers and a whole lot of other hotels and all in between and there are literally hundreds of such properties. It's not only the sales team. It is also their customer success team that has very close relationships with a whole bunch of customers.

With whom now introducing our products and talking to them about the POS, PMS and other products we have are definitely good opportunities for us that will continue building over the next 36, 12 months. It is not just a matter of the bigger change.

Understand. And just one other for me coming off the G2E show and you obviously had a lot of demos, had a lot of meetings with customers, potential customers.

Any surprises there? any things that you would want to kind of pass along at this point to us.

Oh, no negative surprises. if any surprises are, they were all positive because as an enterprise software professional, you're always, you know, ready for tough conversations with customers in those shows and it was completely absent of tough conversations.

Virtually all the conversations were positive. First of all, it was a very busy, positive show for us.

We were busy from the beginning till the end and all the operate. All the conversations were about helping customers with their operations, about their interest in our ecosystem.

It was literally night and day from, you know, from three years ago when it was always mixed with some complaints, certain things we can do better and all that.

This was almost uniformly positive so, that was a good, positive surprise in the show. Busy and positive is a great combination. And a lot of follow up conversations have been happening since the G2E show and we are feeling very positive.

You know, any of these customers get togethers where customers get together are surprising even us as to how positive they are. In fact, that's one of the reasons, George, why for our next user conference, not a trade show but for our next user conference where hundreds of customer users are there.

They're going to invite, you know, you and all the other analysts are covering us to come and attend the user conference. We feel confident enough that you will think much better of us. George, if you just attend and talk directly to customers as well, so, please mark it on your calendar. We look forward to seeing you at the next user conference.

Well, having done though, I definitely see why you're successful. So, congratulations.

Thank you.

Thank you. I'm showing no further questions at this time, and I'd like to turn it back to Ramesh for close remarks.

Thank you, Marvin. Hey, thank you for participating in this call and for your interest in Agilysys.

Please enjoy the holiday season, Merry Christmas, and happy holidays. We look forward to talking to you again in about three months from now. Thank you.

Thank you for your presentation in today's conference. This does conclude the program you may now disconnect.