Good day, ladies and gentlemen, and welcome to the Agilysys 2026 First 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, Victor, and good afternoon, everybody. Thank you for joining the Agilysys Fiscal 2026 First 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 provided guidance levels, maintaining sales momentum, the company's ability to convert the backlog into revenue 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 focus 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 our fiscal 2026 First Quarter earnings call. Joining Jess and me on the call today is Dave Wood, CFO at our Alpharetta, Atlanta headquarters. Let me cover sales and selling success first before moving to revenue, profitability, guidance increase and other details. We measure sales in annual contract value terms. We continue to exclude from our sales numbers, all aspects of the Marriott property management system, PMS project, including those pertaining to services. Fiscal 2026 Q1, April to June sales was the second best quarter on record following the preceding fiscal 2025 fourth quarter which was the highest. Sales during Q1 was 24% higher than the comparable prior year period and was easily the best Q1 April to June period sales level we have seen. Combined overall sales of the last 2 quarters, we had 19%, that is 1-9, 19% higher than the preceding 6-month period, while combined sales of only recurring fee bookings consisting of SaaS annual fees and annual maintenance fees were 34% higher than the preceding 6-month period. Fiscal 2021 April to June was our broadest and widest sales success quarter ever, with several different sales verticals achieving good to excellent sales levels. Q1 was the best sales quarter in food service management, FSM vertical in the last 2.5 years. As reported during our previous calls, we went through a tough period with FSM sales during late fiscal 2024 and the first half of fiscal 2025. We are happy to report that we are now back in full form with point of sale, POS sales in the FSM vertical. Q1 was also the second highest sales quarter for international sales. While the sequentially preceding quarter was the highest. We have seen good signs of our international business picking up steam…

Thank you, Ramesh. Taking a look at our financial results, beginning with the income statement. First quarter fiscal 2026 revenue was a quarterly record of $76.7 million, a 20.7% increase from total net revenue of $53.5 million in the comparable prior year period. One- time revenue consisting of product and professional services was up 10.1% over the prior year quarter and in line with our expected 5% to 10% increase in onetime revenue. . Professional services revenue is running slightly ahead of plan through the first quarter. However, despite point-of-sale bookings being up 29% over the prior fiscal year, product sales, which include proprietary software and third-party products, which are mainly hardware, were low, causing product revenue for Q1 to be below expectations. Recurring revenue was up 27.8% over the first quarter of the prior year and comfortably ahead of plan. Sales momentum was strong through Q1, leaving total backlog at record levels despite implementation velocity continuing to grow. Many of the operational challenges seen in our fiscal year 2025 with point-of-sale, sales and backlog deployment seem to be behind us. subscription sales were up a staggering 79% over the prior fiscal year quarter, giving us a major head start to the current year. While we still have plenty of work left to do with sales, visibility into our business and fiscal year remained at all-time highs. Professional services revenue increased 16% over the prior year quarter to a record $18.1 million. Despite record professional services revenue, our services backlog remained at record levels. As a reminder, professional services revenue remains a good leading indicator for future subscription revenue growth. Total recurring revenue represented 63.4% of total net revenue for the fiscal first quarter compared to 59.9% of total net revenue in the first quarter of fiscal 2025. Subscription revenue…

Thank you, Dave. In summary, we are pleased with the fiscal 2026 Q1, April to June period results. Our overall sales and business momentum, the continuing surge in subscription software sales and the pace of project installations. The challenges with onetime product revenue remain positive indicators of the successful transition of the business into a cloud subscription-based software unit involving lesser levels of perpetual software licenses and hardware resell, continuing increase in implementation-related professional services revenue is a good indicator of the increased levels of project installations happening in the field now, which in turn augurs very well for future recurring revenue growth. Almost all our current implementations involve only the new state-of-the-art modernized product versions, which are becoming increasingly smoother and enabling us to steadily reduce the need to maintain and enhance 2 different product sets, spanning different generations of technology and instead increase resource levels, focused on the use of next-generation technologies to enhance product offerings, including through smart use AI tools. One final note. Compared to the same time last year, our current global quota carrying sales personnel and global professional services personal strength are about 45% and 38% higher, respectively. Armed with a strong superior set of products which are easier to sell and implement, we are well positioned for continued solid disciplined and profitable revenue growth, especially with respect to cloud subscription revenue. With that, Victor, let's open up the call for questions.

[Operator Instructions] Our first question will come from line of Stephen Sheldon from William Blair.

First, just on the sales capacity. I think, Ramesh, you just said that sales capacity, if I heard correctly, up 45% year-over-year. Can you give more detail about where you're adding that capacity and how productivity has been trending for new additions? And is there still a ways to go before the added capacity is at full production? I mean, obviously, you just had another really good sales quarter. But is that still I guess, on the come the new hires kind of ramp the production?

Yes, so. Hi Stephen, number one, we can do more, both with this I'll expand your question to answer services as well, both with respect to sales and services, we can do more productivity improvement. That is the current sales team can do more and the current services team can do more. So the bulk big increases that we wanted to do, we have gotten them done. Here after, there will be normal increases to both sales and services capacity as we go along since it's a growing business and as business expands, we expect to hire more and more. Now the recent sales expansion has been mostly in the area of hotel resort in that sales vertical and also an inside sales team. We have created an inside sales team. We never had a dedicated inside sales team before. We have one now, which is very handy to create more opportunities. And a lot of our expansion has been in the hotel and resorts vertical. Now it is already showing good results for us because, number one, we are knocking on more doors and number two, we are opening more doors for us, which is crucial for us because our success rate once customers take a detailed look at our company and our products, is very high, even more than what I can believe. So it's a matter of opening more doors for us and that's happening successfully. A lot of the sales success we have had in the recent 6 months has to do with the newer hires who are knocking on more doors and opening more doors. And the biggest thing we have achieved with the hiring of the sales team, Stephen is that we are covering the entire territory now, which we didn't do a great job of before. So a lot more discipline in territory coverage. We are knocking on more doors. We are opening more doors. So the recent sales expansion has really worked out well for us. but we have ways to go with respect to sales productivity. In terms of further expansion, that will happen as the business continues to grow.

Got it. I really appreciate that detail. And then on the international side, I mean, it sounds like you're seeing momentum there pick up. As we think about what you need to do to keep that going, I guess, is it more about marketing and adding sales capacity? Or is there still a lot of work to do in terms of the product, in terms of integration and localization needed on the product side, I guess. What are kind of the holdups for that to become a bigger part of the revenue mix over time?

Yes. Product wise, there is not much more work to get done. Our products are in a good state now. Now both domestic and international, Stephen, if you -- if I'm asked to provide you one big -- the biggest advantage that we have, it is our ecosystem. It's the fact that we have invested and created an ecosystem of hospitality products, which is going to be very difficult to duplicate. You buy our competition. You just can't go create a modernized ecosystem of hospitality solutions just like that. It doesn't happen overnight. So that's our single biggest advantage now wherever we are selling and that is resonating in international regions now because our international business momentum is now happening in 2 areas. One, our current customers are spending a lot more with us because they see the product sets we have; and two, with the bigger deals that involve multiple products. Both those are going well. The one negative about international momentum is still dependent on bigger home runs, and we are focused on the singles and doubles now in winning more medium and smaller-sized deals as well where the competition is higher. But our success currently is with larger customers who are buying multiple products from us because there, there is virtually no competition to us now. Now what do we need to do to maintain that momentum. We need to install these new projects that we have done well, create more reference customers and that's going to create more business. And as the business improves, we will expand sales and marketing as well.

Great. And then just one quick follow-up. And maybe for Dave, I think you called out the Inspire user conference this year falling in 1Q. I think it was 4Q in March of last year. Any sense on how much of a cost that was just as we think about the year-over-year trend in profit margins this quarter.

Yes. It was -- I mean, it was most of the difference between the kind of normal percentage of sales and marketing as a percentage of revenue. We still look at that line around 13% of revenue for the year. So -- and sales and marketing was about 15% of revenue this quarter. So most of that was the user conference. So for the year, we'll normalize back to similar percentages of what you saw last year. So almost all of the sales increase was associated with that.

So we'd be right in thinking maybe roughly $3 million.

Yes, a little bit higher than that, but that's pretty close. Think of it as 12% to 14% of revenue.

So he's talking about only the user contract.

Yes, the user conference less than $3 million. Yes.

It would be less than $3 million.

Yes, sorry.

But overall, for the year, the guidance provided, EBITDA, 20% of revenue, we are comfortable with that, Steve.

Our next question will come from the line of Matt VanVliet of Cantor Fitzgerald.

Maybe another follow-up on sort of the improvement in the overall sales organization and the growth there. But as you think about what Joe and even Terry joining on the marketing side, in terms of what their multiyear plan is to up-level the entire go-to-market team and sort of drive more top of the funnel as well. Where do you feel like we are in terms of them rolling out their respective plans that you've come up with? Is there still more to be done in terms of programmatic improvements? Or do we have most of the plan in place and this is the beginnings of the execution on that showing better results?

Yes. I would say, Matt, as far as sales is concerned, I think we have a good plan in place, and we have implemented what we wanted to do this year and the structure, the territory coverage and the fundamental structure is there, and that is beginning to yield good results for us. But we are only in the beginning stages of seeing the benefits of that structure of better territory coverage, better organization of sales more discipline around that in terms of how we knock on doors. All that is improving now. I think that the sales structure is in a good place now. Now we will continue building on top of that foundation. Sales will continue to expand, but I think the structure is there. Marketing, we are it's a matter of putting more investments into marketing. We have expanded our presence, which is the main thing we have to do in this B2B vertical business, we have to show more presence, and we are doing that. We are attaining a lot more trade shows than we ever have. There's a lot more thought leadership presence now where you see, see Agilysys now. And that will continue to improve as we make more investments in marketing as well. Our content has improved a lot over the last year or so. So marketing, I think there are more investments to come to expand that. I think the sales structure is in a pretty good place. So we will continue expanding that from them.

All right. And then as you get Book4time more fully integrated, how I guess, how are you seeing that as a potential entry into customers that don't have any Agilysys products today? Is it -- is it helping win deals, whether they were from existing customers or just new to Book4time that are then discovering more offerings for Agilysys and sort of winning deals that way? Or is it just another kind of tool in the toolkit here?

It is a conduit to winning more deals because there are hundreds of customers who use Book4time and don't use any of the other Agilysys products. That is still in the beginning stages, right? It has turned out to be a bit more difficult than we thought because selling one product versus selling multiple products. That takes a little bit more training and adjustment time. In fact, recently, we won one significant sales agreement that involve multiple Agilysys products, which is a Book4time customer. So all that is beginning to happen now, but we are still in the beginning stages of that. In terms of tapping into the Book4time customer base and selling more products to those customers, we are still in the early stages of that game.

And then just one quick follow-up on the EBITDA expectations for the year, just profitability in general. What would you see in the business over the next couple of months maybe that you might look and say we're going to hit the gas pedal and invest a little bit more in long-term growth? Is there a scenario that we could see that 20% level, maybe getting pressed a little bit lower because you have such good opportunities? Or are we far enough along in the year now that even if top line performance was strong enough. Those costs would be more realized in fiscal '27?

We don't see a risk of going below 20%, if that is your question, Matt. We are making significant investments. We continue to make significant investments we will not sacrifice our long-term growth possibilities for short-term profitability. But having said that, we are comfortable. We are a growing company. We are generating more revenue, and that is feeding into increasing resources where we need to increase. So we are comfortable with the 20% level that the other way I would answer your question is, we are comfortable feeding the areas we need to feed to continue our growth without sacrificing on the 20% mark.

And our next question will come from the line of Brian Schwartz from Oppenheimer.

Ramesh, in terms of the success that you're having with the bookings, is it possible to maybe look a little bit under the covers between your core verticals, the HRC, food and management and then, obviously, the smaller cruise segment. But does the performance vary at all between new logos expansion and ARPU gains with the bookings among those 3 different segments.

Overall, the big news about this quarter is we made a great comeback with FSM. We really are beginning to see momentum with international sales. Having said that, hotel resorts casino gaming and the verticals that we are normally strong at continue to do well. Cruise ships again, had a good quarter in Q1 as well. So this was the broadest-based sales success that we have seen in our history, in fact, in terms of this many verticals doing well at the same time in the same quarter was very encouraging to us. Now on the other hand, this was also a good quarter for sales from new customers. And sales from current customers who continue to buy more products from us continues to be at record levels. So the only one where we can say we could improve further that was not a great quarter. It was a good quarter. It was for new sites. And for that, as we sign more multi-property big customers, that will also make a comeback during the subsequent quarters. So now in terms of new customer in each vertical, A lot of new customers are signing up with us in hotel resorts. In gaming is more skewed towards current customers buying a lot more from us. And we are beginning to sign a lot of new customers in FSM and international as well. .

And then one follow-up for Dave. The subscription revenue growth in the quarter, it accelerated very slightly. And I was just wondering, was that reflective that maybe a faster go-lives to recognize revenue a little bit faster or you had a stronger start to the quarter. I'm just wondering what drove a little bit of the faster growth in the subscription revenue in the quarter.

Yes. I mean, it was really both. I mean, we gave a lot of commentary. Obviously, the subscription bookings did a lot better than we expected. So sales that obviously always starts with sales, and that was really strong for the quarter. And then we always look at the professional services line as a good leading indicator. So I would say professional services being north of $18 million was -- gave us a very strong start to the quarter too with SAP go live. So it was really both. I mean it was a tremendously strong sales quarter. And it was kind of 6 months of some of the operational hiccups we had in our 2025 fiscal year kind of being behind us. And I'd also point out that it's also good even despite those numbers being really strong. Our subscription bookings still our subscription backlog still went up 23% over our March 31 exit. So sales were really good this quarter. .

[Operator Instructions] Our next question will come from the line of Logan Lilly from Craig-Hallum Capital Group.

This is Logan hopping on for George this afternoon. Ramesh, you talked about some interesting ways that you guys are leveraging AI kind of for end customers through the product set. Can you maybe just give us a sense for where you think that road map goes into next year? And sort of what kind of different tier you think that can be for you?

Hi Logan, yes. So before we talk about AI, the lucky part is and the good part is that we did the modernization over the last few years and also create an ecosystem of products. Both of them have placed us in a very good position where you can now infuse AI into our products in a very in a very effective way that gives us competitive advantages that are going to be difficult to duplicate for the competition. So we are now -- so you think of AI in sort of 2 different ways. One, what are we doing with our products. So there are a lot of enhancements in almost each of our -- every one of our products that we are introducing now that are AI based, and they are adding tremendous advantages to the product. They are enhancing the product significantly. And there are various different things that we are doing, and ability to do intelligence revenue upsell for customers, a way to do voice recognition when you do F&B ordering invoice recognition and approval processing in that inventory procurement products a natural language processing in our data analysis product. So the -- and conversational ordering in our booking engine and while doing spa and golf bookings. So there are various different ways in which we are able to infuse AI into our products now. And thankfully, the products are modernized and it is easy for us to do that. In our internal operations, also various departments are using AI and they're able to get a lot more done now with the current resource strength we have. So we -- our products already have a competitive advantage and now the use of AI infusion of AI- related tools is going to make that even better.

Our next question will come from the line of Mayank Tandon from Needham.

Ramesh, great to hear about the sales momentum coming into this year and continuing into this quarter. I was just wondering, is it safe to say that your subscription revenue is all under contract? Or is there a business that you still have to win to hit your guidance. And just to extend the question further, I would ask you, if there is upside to the growth acceleration on the subscription side, where would that upside potentially come from? Is it from new logos going live faster than expected? Is it from better cross-sale success? If you could just expand on that.

Yes. So the start is great, Mayank. We have started the year very well. As a general rule, we are happy to have this kind of visibility, right? In enterprise software, you can't ask for much more. So we have excellent visibility in terms of our subscription revenue backlog of projects that we have. And also, we have increased our services teams now, and we are in a good position to increase their level of implementations as well. So we saw an inflection point about a couple of quarters ago. When both subscription sales and the level of implementation of subscription projects took a clear inflection upwards from what it was for the previous many quarters. So that inflection is really helping us now and is helping us get this year of -- started off very well. But in terms of achieving the annual revenue and other targets, it depends on both. It depends on the starting backlog. It depends on continuing good sales levels. And for us, we are lucky and happy that both of them are going very well. Our current sales momentum especially with respect to subscription software sales is going very well. And our rate of implementations of subscription products has also increased very well because the products are easier to implement now. They have been in the field for 2, 3 years, and they are becoming easy to implement. So as long as we continue the current rate of improvement and what we have been doing for the last 6 months or so, I think we will do well and the rate of growth will continue to increase.

Got it. Very helpful. And then I wanted to ask you also about the M&A strategy going forward given that you've had some early success with Book4time, good to hear. So just curious, is this maybe a reason to pursue further M&A? Are you being opportunistic? And if you were to do more M&A, what would be potentially your focus area, would it be around expanding your geographic reach? Would it be expanding your capability set? If you could just provide any color around that, that would be helpful.

Yes, Mayank, there are more opportunities that are coming our way than usual in M&A, but we remain patient. We've always said we remain patient. We remain conservative. We remain opportunistic. So this is an organic growth company. We have done all the product investments. We have done all the investments to expand sales and services, and our products are in a great state now. The ecosystem is a big advantage for us. So there is enough organic growth ahead of that -- and the organic growth ahead of us is huge. We are just beginning to scratch the PMS area and we have long, long way to go as far as our growth is concerned. So we can comfortably grow well organically. There is no reason for us to do anything desperate as far as M&A is concerned. But there are lots of opportunities coming our way. We look at them frequently, patiently, conservatively. We are not going to do anything dramatic. Now to answer your question of what kind of M&A, they fall into 2 broad categories. One could be complementary to our product set. That fills a couple of gaps that we have in the ecosystem if a good opportunity comes along. On the other hand, it could also be for market share gain. There could be companies that could take advantage of the fact we have modernized our system and give their customers an upgrade path that helps us build on our market share. So it could fall into 1 of those 2 broad categories. And we look at each opportunity with a very patient and conservative lens, Mayank.

Thank you. I'm not showing any further questions in the queue at this moment. I would now like to turn the call back over to Ramesh, CEO, for closing remarks.

Thank you, Victor. Thank you all for your continued guidance and support. Please take great care. Enjoy the rest of the summer, and we'll catch up with you all again soon. Thank you.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.