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 now like to turn 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 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 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, Jes. Good evening. Welcome to the fiscal 2025 second quarter earnings call. Joining Jes 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 sales personnel now have an additional spa management product to sell to various customers…

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 remained 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 post 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 second quarter subscription revenue grew 36.6% over Q2 last fiscal year. Subscription revenue…

Thank you, Dave. In summary, we are happy to force 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%, 3-0, 30% during the quarter because of the acquisition. The hundreds of Book4Time properties currently running no other Agilysys 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 we will conduct a question-answer-session. [Operator Instructions] Our first question comes from the line of Mayank Tandon of Needham. Your line is now open.

Thank you. Good evening, Ramesh, Dave and Jeff. 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 Book4Time versus what is organic? And then related to that, Ramesh and Dave, would be what is embedded in terms of the growth for both point of sale and for 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 remainder would be the Book4Time acquisition. And as far as the point-of-sale guidance goes and property management, 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 too, Dave. You're 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 second half margins might be 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 just why margins would not be better than the first half than the second half?

Yes. 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 we're at a pretty high mark right now at 63% gross margins. As product continues to increase through the year, that will pull down margins. So I mean, 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 attribute to a lot of the better-than-expected EBITDA 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 queue. Thank you so much.

Thank you. One moment for our next question. Our next question comes from the line of Matt VanVliet of BTIG. Your line is now open.

Yes. Thanks for taking my question. Good afternoon. I guess when you look at the success of Book4Time so far that it's been in the portfolio, you mentioned some 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 maybe short term, obviously, long term maybe the entire stack can go into some of those. But where do you think there's the most opportunity? How big of an opportunity do you think that is? And then, what are the key factors in terms of the timing around that impacting the model?

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's first half. So fundamentally, the larger picture is, Matt, 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 a sales -- a 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 Book4Time product itself has a lot of growth ahead of it because the market share in the overall spa market 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 our other products. So all told, Matt, 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 bought along with the Book4Time's 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 sort of in a full cloud-based structure? How should we think about this deal relative to future M&A?

Yes, Matt, 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 have been very careful. We've been conservative, we've been patient, we've been opportunistic. We can't be considered an acquisitive company if we are not going after these acquisitions. But when opportunities come, we are very careful with our analysis and 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. And we have a couple of 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, the market expansion, market share rollup, 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 in not going after everything. And I think that attitude will remain.

Great. Thank you.

Thank you. One moment for our next question. Our next question comes from the line of Nehal Chokshi of Northland Capital Markets. Your line is now open.

Yes. Thank you. Congrats on good results, raised guidance and the acquisition. Talking about the acquisition first. In the spa bookings space, what are the other companies out there that also provides spa booking with tight integration with PMS and POS systems like Agilysys spa software does as well as Book4Time's software does?

Yes. 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, and 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 is introduced, say, three, four 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 Spa 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-artness 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, Nehal.

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

Yes. Good point. We are only competing for the spa market within the market space that we are focused on: hotels, resorts, cruise ships. 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 Agilysys 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 both ends of that functionality space. But we are only focused on the hospitality space. We are not going after the general spa business.

Okay. And then, Dave, last quarter, you guys lowered your overall revenue guidance due to the shift towards commodity products not needing the Agilysys terminals here. 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?

Yes. I mean the product revenue has and will continue to be a challenge throughout the year. I mean when we originally gave the guidance we were expecting to be down a little bit in product revenue, and we're trending -- last quarter, we said we're trending in the 5% to 10% reduction range. And at the moment, it's, like last quarter, it looks like we're trending closer to 10% down in products. So yes, most of the lower top line revenue numbers 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?

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

Okay. Thank you.

Thank you. One moment for next question. Our next question comes from the line of Brian Schwartz of Oppenheimer Company. Your line is now open.

Yes. 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 over whatever period of time to unify the two sales forces? Or are you planning to keep them both discrete?

Yes. So I think 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 are a bit different because Book4Time is a smaller single-product company for the most part. So they have been very successful doing remote selling even to global customers, but they're 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 sales 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 sales forces 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 giving us a lot of feedback and data points that your backlog is near record levels. 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 and 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 backlog. 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 has been fairly consistent over the last 1.5, two 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 multiproduct 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 that business is expanding. The newer versions of the product have now been in the field for a while, the modernized versions, and they are becoming easier to install. So we are spending less non-billable time on those implementations. So that also in a way is increasing services personnel strength that can focus on projects. 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 products.

Thank you. And last question, one for Dave. 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, is Book4Time, is that EBITDA accretive to the business this fiscal year? Thanks.

Yes. It will 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 it was breakeven before the acquisition and now it's slightly above our adjusted EBITDA even today. And we would have raised guidance on EBITDA with or without the Book4Time acquisition.

Thank you for taking my questions.

Thank you, Brian.

Thank you. One moment for our next question. Our next question comes from the line of Stephen Sheldon of William Blair. Your line is now open.

So it sounds like you're bringing down the full year organic subscription revenue expectations you touched versus the prior guidance. I think it was over 27% before, now it's closer to 25%. So can you just talk about what's driving that? Is that tied to the slowdown in APAC that you mentioned, lower POS trends versus what you'd assumed? Just any color there on what changed versus the prior guidance.

Yes. Stephen, so when you look at the first half subscription results FY 2025 of a 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 pickup 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 parts 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? Any changes in execution? Or is that more just timing?

I wouldn't say just timing. There are -- 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. Bigger customers are taking a look at our current ecosystem of products. But there are 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 taught 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.

Thank you.

Thank you, Stephen.

Thank you. One moment for our next question. [Operator Instructions] Our next question comes from the line of George Sutton of Craig-Hallum. Your line is now open.

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?

Yes. The larger players, not only Book4Time George, but also Joe Youssef, who has joined as the 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 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-sized 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 definite good opportunities for us. That will continue building over the next three, six, 12 months. It is not just a matter of the bigger change.

Understand. And just one other for me. Coming off of the G2E show, and you obviously had a lot of demos, had a lot of meetings with customers, potential customers, any surprises there? Anything that you would want to kind of pass along at this point to us?

No negative surprises. If any surprises, George, they were all positive. Because as an enterprise software professional, you're always 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 conversations were about helping customers with their operations, about their interest in our ecosystem. It was literally night and day 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, very positive. Any of these customers get together -- where customers get together are surprising even us as to how positive they are. In fact, that's one of the reasons, George, for our next user conference, not a trade show, but for our next user conference, where hundreds of customer users are there, we are going to invite you and all the other analysts who 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 sit in 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, George.

Having done those, I definitely see why you're successful. So congratulations.

Thank you, George.

Thank you. I'm showing no further questions at this time. I would now like to turn it back to Ramesh Srinivasan for closing remarks.

Thank you, Marvin. 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 participation in today's conference. This does conclude the program. You may now disconnect.