Agilysys, Inc. (AGYS) Q3 2026 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The company raised its revenue guidance and maintained strong subscription revenue growth. Despite a temporary slowdown in gaming and casino, the business returned to normal, and AI is enhancing efficiencies. The Q&A revealed no major concerns, and the Marriott PMS rollout is progressing well. Adjusted EBITDA and free cash flow have improved, suggesting good financial health. The market cap indicates moderate reaction potential, leading to a positive stock price outlook.

Key Financial Performance

Revenue Fiscal 2026 Q3 revenue was a record $80.4 million, 15.6% higher than the comparable prior year quarter. The increase was driven by strong subscription revenue growth and improvements in services revenue.

Product Revenue Product revenue was $10.7 million, about the same as Q3 last fiscal year, slightly ahead of expectations. The stability in product revenue reflects consistent demand.

Services Revenue Fiscal 2026 Q3 services revenue was $17.7 million, 22% higher than the comparable prior year quarter. This increase was attributed to improved project management and implementation efficiencies.

Recurring Revenue Fiscal 2026 Q3 recurring revenue was $52 million, 17.2% higher than the comparable prior year period. Subscription revenue within recurring revenue grew by 23.1% year-over-year, driven by new incremental projects and modernized product implementations.

Subscription Revenue Subscription revenue was a record $34.9 million, 23.1% higher than the comparable prior year quarter. Growth was fueled by new incremental projects and not dependent on cannibalization of annual maintenance revenue.

Annual Maintenance Revenue Annual maintenance revenue increased by 6.8% compared to Q3 last year, reflecting steady growth in this segment.

Subscription Revenue (POS) Subscription revenue related to POS and POS-related modules grew by 20% year-over-year, showing recovery from mid-teen growth levels in prior quarters.

Subscription Revenue (PMS) Subscription revenue related to PMS and PMS-related modules grew by 30% year-over-year, driven by strong demand for these solutions.

Adjusted EBITDA Adjusted EBITDA for Q3 fiscal 2026 was $17.3 million, compared to $14.7 million in the prior year quarter, reflecting improved profitability and operational efficiency.

Free Cash Flow Free cash flow in Q3 fiscal 2026 was $22.7 million, compared to $19.7 million in the prior year quarter, driven by strong revenue growth and operational improvements.

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Operating Highlights

New Customer Wins: Agilysys added 16 new customers in Q3 FY 2026, all fully subscription-based, averaging 5 products per customer. Notable wins include Bolt Farm Treehouse and Sands Resort.

Product Sales: 109 instances of sales to properties already using Agilysys products, involving 248 new products. Subscription revenue grew 23.1% YoY.

Marriott PMS Project: Pilot property implementations completed successfully in the U.S. and Canada. Implementation waves are expanding.

International Sales: Cumulative international sales for the first three quarters are close to making FY 2026 the second-best year. However, Q3 international sales were lackluster.

Foodservice Management (FSM) Sales: Year-to-date FSM sales are already higher than full-year sales for the past two years, with FY 2026 potentially being the best year.

Implementation Efficiencies: Improved software implementation efficiencies and reduced customer delays. Services revenue backlog decreased, indicating faster project completions.

AI Utilization: AI tools are improving product development, quality assurance, and implementation services efficiencies.

Revenue Guidance Increase: FY 2026 revenue guidance raised to $318 million, with subscription revenue growth expected at 29%.

Competitive Positioning: Agilysys' ecosystem of hospitality software solutions is described as unmatched in the industry, with increasing adoption by major customers.

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Risk or Challenges

Casino Gaming Sales Slowdown: Casino gaming, the company's strongest sales vertical for several years, experienced a relative sales slowdown during October and November, which impacted global sales levels during those months.

International Sales Volatility: International sales were described as 'somewhat lackluster' in Q3 and are expected to continue experiencing an up-and-down trajectory due to reliance on hit-or-miss big deals rather than a consistent mix of small, medium, and big wins.

Implementation Delays: While there has been improvement in implementation efficiencies, delays in customer implementation projects remain a challenge, impacting the ability to convert backlog into revenue.

Dependence on Key Customers: The company highlighted its reliance on major customers for references and sales momentum, which could pose a risk if these relationships weaken or if customer satisfaction declines.

Economic and Seasonal Challenges: The Q3 holiday period was noted as typically more challenging for project implementations, which could affect revenue and operational efficiency during similar periods in the future.

Regulatory and Competitive Risks: Forward-looking statements are subject to risks and uncertainties, including regulatory hurdles and competitive pressures, as outlined in the company's reports filed with the SEC.

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Guidance & Outlook

Revenue Guidance: Fiscal 2026 full year revenue is expected to reach $318 million, at the top end of the recent guidance range.

Subscription Revenue Growth: Subscription revenue growth guidance for fiscal 2026 is maintained at 29%, with organic growth trending near 25%.

Adjusted EBITDA: Adjusted EBITDA guidance for fiscal 2026 remains at 20% of revenue.

Professional Services Revenue: Q4 FY '26 professional services revenue levels are expected to return to the $18 million range like prior quarters.

Future Growth Expectations: The company anticipates increased top and bottom-line growth expectations for the next couple of fiscal years, with fiscal 2027 guidance levels to be shared in the next earnings call.

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Shareholder Return Plan

The selected topic was not discussed during the call.

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Key Q&A

Q:What were the reasons for the weakness in the gaming and casino space during October and November?

A:Ramesh Srinivasan stated that the reasons for the weakness were unclear and he would not speculate. He mentioned it could have been a temporary slowdown, possibly due to the holiday period, but the business returned to normal levels in December.

Q:What are the expectations for the Marriott PMS mass rollout?

A:Ramesh Srinivasan mentioned that the pilot phase was successful and the implementation waves are now underway, with the number of properties going live steadily increasing. He assured that most costs are well provided for and expects profitability levels to continue increasing on a fiscal year basis.

Q:What caused the lackluster international performance this quarter?

A:Ramesh Srinivasan explained that there were no sales capacity issues and the company is focused on sales productivity. He attributed the performance to the nature of international sales being dependent on larger ecosystem deals, which can cause quarter-to-quarter fluctuations. Overall, international sales are expected to have a very good year.

Q:How are Joe and Terrie impacting the sales pipeline and brand awareness?

A:Ramesh Srinivasan stated that Joe and Terrie have been effective in opening bigger opportunities, which are not yet included in the pipeline due to their size. The normal sales pipeline remains steady and continues to grow.

Q:How are AI capabilities resonating with customers and impacting competition?

A:Ramesh Srinivasan noted that AI is being integrated across the business and products, enhancing competitive advantage. However, there has been no significant impact from competitors related to AI. AI is improving internal operations and product features, such as natural language processing and automatic voice recognition.

Q:Why is there an implied deceleration in subscription revenue growth for Q4?

A:Dave Wood explained that the deceleration is due to year-over-year comparisons with the Book4time acquisition. The core business is still growing at over 25%, but the acquisition pulls the overall growth rate to the lower 20% range.

Q:What is driving the improvement in the POS business?

A:Ramesh Srinivasan attributed the improvement to the modernization of the POS system, which has settled down and provides a significant technology advantage. The business is expanding into new markets like higher education and healthcare, and win rates are increasing.

Q:Is there still catch-up demand in the gaming segment?

A:Ramesh Srinivasan confirmed that not all postponed deals from October and November were caught up in December. Some deals were postponed and are expected to be made up in the coming months.

Q:How are improved implementation efficiencies affecting sales and revenue?

A:Ramesh Srinivasan stated that improved implementation efficiencies are helping convert bookings to revenue faster and reducing services costs, making the company more competitive.

Q:How has the reference customer situation improved?

A:Ramesh Srinivasan explained that the number of customers willing to take reference calls has increased, especially for modernized solutions. Prestigious and larger customers are now more willing to provide references, which is helping sales.

Q:What is the reason for the lower professional services gross margins this quarter?

A:Dave Wood attributed the lower margins to seasonality and lower billable hours during the holidays. He clarified that most professional services are performed by Agilysys employees, not third parties.

Q:When can operational leverage from AI in product development be expected?

A:Ramesh Srinivasan stated that while AI is increasing efficiency, the demand for innovation from customers remains high. Operational leverage is expected to materialize in FY '27 and beyond.

Q:Review of Unclear Management Responses

A:Management avoided giving a direct answer to the reasons behind the October and November slowdown in the gaming and casino space, stating that they would not speculate and could not pinpoint the exact reasons.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

AGYS Transcript

Agilysys, Inc. (AGYS) Q3 2026 Earnings Call Transcript

Positive1-26

Agilysys, Inc. (AGYS) Q2 2026 Earnings Call Transcript

Positive10-27

The earnings call summary presents a positive outlook with strong financial performance, particularly in subscription revenue and free cash flow. The Q&A section highlights strong sales momentum, margin improvements, and international growth, with no major negative concerns raised. The guidance increase and positive sentiment from analysts further support a positive stock price movement. Given the company's market cap of $2.8 billion, a positive reaction of 2% to 8% is expected over the next two weeks.

Agilysys, Inc. (AGYS) Q1 2026 Earnings Call Transcript

Positive7-21

The earnings call highlights strong subscription revenue growth, a positive outlook for EBITDA, and successful sales across multiple verticals, despite a temporary free cash flow loss. The Q&A reveals ongoing improvements in sales capacity and product integration, with AI enhancing offerings. Although management was vague on some productivity details, the overall sentiment is positive, driven by strong subscription sales and optimistic guidance. The market cap suggests a moderate reaction, resulting in a 'Positive' sentiment prediction for stock price movement.

Agilysys, Inc. (NASDAQ:AGYS) Q4 2025 Earnings Call Transcript

Positive5-21

The earnings report shows strong financial performance with significant revenue growth and improved margins, despite minor declines in product revenue and gross profit margin. The Q&A reveals positive sentiment towards the company's strategic moves, such as the Book4Time acquisition and POS platform improvements. However, cautious guidance and uncertainties around the Marriott project and customer transitions slightly temper the outlook. Given the company's market cap, these factors suggest a moderate positive stock price movement, likely in the 2% to 8% range over the next two weeks.

AGYS Report

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