Agilysys, Inc. Common Stock (DE) 2027 Q2 Earnings Call

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 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 fell sick a few days ago while in Austin, 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.

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 was 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 seven 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 two 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.

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. Our 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 older technology solutions or from competitive ones.

Several such customers now have excellent return on software investment stories to share with the industry. Considering we are 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 deal. New PMS customers continue to invest in the multi-product ecosystem from day one of their partnership with us. New customer deals featured an average of 9.3 products per deal 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 119 instances of selling additional products to properties already running at least 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, excuse me, 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, 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 he picked up his company as a way to protect the interests of mutual customers, a list that includes about 40, 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 revenues. We continue to make good progress with AI initiatives and with our objective to be the AI leaders in hospitality. Earlier this year, during the April customer user conference, we announced 30-plus AI-based features. That is 30-plus AI-based features, which are 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 four pillars of AI-driven usage: agentic AI, multi-modal user experiences, guest hyper-personalization, 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 guest 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.