Agilysys , Inc. (NASDAQ: NASDAQ:AGYS), a leading global provider of next-generation hospitality software solutions and services, reported a strong second quarter for fiscal year 2025, with record revenue of $68.3 million, marking a 16.5% increase from the previous year. The company's strategic acquisition of Book4Time contributed to this growth, enhancing its spa management software offerings. Subscription revenue saw a significant rise of 36.6% to $25.1 million, reflecting the company's successful expansion and modernization efforts.
Key Takeaways
- Agilysys achieved a record $68.3 million in revenue for fiscal 2025 Q2.
- Subscription revenue climbed to $25.1 million, a 36.6% year-over-year increase.
- The acquisition of Book4Time has expanded the customer base by 30%.
- Full-year revenue guidance has been raised to between $280 million and $285 million.
- Agilysys is experiencing strong sales in the gaming, casino, resort, hotel, and cruise ship sectors.
- The company has doubled sales of Product Management Systems (PMS) and related products year-over-year.
Company Outlook
- Agilysys has raised its full-year revenue forecast to $280-$285 million.
- The company is confident in the recovery of its Point of Sale (POS) business and sees significant potential for market expansion.
- Investment in sales, marketing, and product innovation will continue.
- Agilysys is open to making more strategic acquisitions in the future.
Bearish Highlights
- Agilysys faces challenges in the U.S. food service management and Asia-Pacific (APAC) markets.
Bullish Highlights
- The company has seen nearly double the sales in PMS and PMS-related products year-over-year.
- Agilysys is focusing on integrated, cloud-native technology solutions.
Misses
- There were no specific financial misses reported in the earnings call.
Q&A Highlights
- President and CEO Ramesh Srinivasan expressed optimism about the industry's growth potential.
- Srinivasan highlighted the substantial size of the total addressable market compared to Agilysys's current size.
- The company believes that a potential slowdown in the global hospitality customer base would increase the demand for efficient operational technology.
In summary, Agilysys's fiscal 2025 Q2 results have shown robust growth, driven by strategic acquisitions and a focus on subscription-based revenues. Despite some challenges, the company's leadership remains optimistic about future growth and market opportunities.
Full transcript - Agilysys Inc (AGYS) Q2 2025:
Marvin, Conference Call Operator: 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 Agelisys. You may begin.
Jessica Hennessy, Senior Director of Corporate Strategy and Investor Relations, Agilysys: 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 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 ks 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 Agilisys 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.
Ramesh Srinivasan, President and CEO, Agilysys: Thank you, Jess. Good evening. Welcome to the fiscal 2025 Q2 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 book for time 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 5 star rated spas than any other competing product. Book for Time has enjoyed a good reputation in hospitality over the last couple of decades for its superior product and world class customer service. Book for Time'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 Adilysys and also other chains like IHG, Hyatt, Akor and Four Seasons, who are at best only partial Adelisys 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 book for time 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 Book for Time and Agilysys. Agilysys sales personnel now have an additional spa management product to sell to various customers where applicable and Book for Time sales personnel in coordination with the bigger Agilysys sales team have an entire smorgasbord 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%, three-zero, by as much as 30%. Less than 15 that is 15 less than 15 percent of book for Time's customer properties are common with Agilysys prior to the transaction. One of book for Time'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 Book for Time acquisition, we welcome Mr. Joe Youssef to our executive team as Chief Commercial Officer. Joe comes to us after a close to 2 decade tenure at Amadeus (BME:AMA) 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 $10,000,000 and by the time he left about 18 years later, he was knocking on the doors of being close to a $1,000,000,000 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 nuance, 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 Book for Time product since late August after the acquisition, fiscal 2025 Q2 was our best ever July to September Q2 of sales and the 2nd best of any sales quarter. Sales levels this quarter were excellent for the gaming casinos, resorts, hotel and cruise ship verticals in the U. S. And for overall EMEA.
Sales in the U. S. Food service management vertical continued to be disappointing, and APAC had a challenging quarter following a strong sales quarter during Q1. Fiscal 2025 Q2 July to September sales of Property Management Systems, PMS, and related add on experience enhancer software solutions surpassed 1st 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 second quarter PMS and PMS related product sales nearly doubled year over year compared to the Q2 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, check out kiosks and our core PMS solution reduce 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 a 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 the 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, are establishing a good presence in a lot more trade shows, have increased our global quota carrying sales personnel strength by 50%, that's 50, by 50% as at the end of September compared to a year ago and added to the executive team an accomplished senior sales and commercial leader who has an established track record of driving growth is well respected and wields 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, that is 14, 14 modern technology based Agilysys software solutions and all of them went into production use over a 2 day window replacing several competitive solutions. The hospitality industry in general is 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, that is 18, 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, 13, 13 products per deal. In addition to the 18, 5 new customers signed up for the Book for Time spa product from the time of the acquisition during the 3rd 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% 90% of them were neither 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 247 new products sold to current customer properties. The average deal size across these 102 instances of new product sales was about 14% 14% higher than the sequentially preceding Q1 quarter. Annual contract value of new product sales sold to current customer properties during the first half of fiscal twenty twenty five increased 84% year over year compared to the first half of last year. Now on to revenue.
Fiscal 2025 Q2 revenue was a record $68,300,000 the 11th consecutive record revenue quarter, 16.5%, that is 1 6, 16.5% higher than the comparable prior year quarter. $2,200,000 of the $68,300,000 was attributable to Book for Time, meaning it would have been a record revenue quarter even without revenue from Book for Time. Overall revenue during the first half of fiscal twenty twenty five was $131,800,000 15% that is 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 $41,400,000 Recurring revenue year over year increase of $7,200,000 and sequential quarter over quarter increase of $3,400,000 are both record best increases. This recurring revenue increase was driven mainly by a 36.6 percent increase in subscription revenue, which grew to $25,100,000 during fiscal 2025 Q2.
This $25,100,000 included $2,100,000 of subscription revenue attributable to Book for Time since the acquisition. Without the Book for Time contribution, subscription revenue year over year growth would have been 25.2% during Q2 and 28.5% during the first half of fiscal twenty twenty five. 2nd quarter fiscal year 2025 was the 3rd consecutive quarter of year over year subscription revenue growth of 30%, 30%, 30% or higher. Subscription revenue constituted 60.5%, that is 60, 60.5 percent 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 revenue, which is about 40%, four-zero, 40% 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 book for time, subscription revenue from add on experience enhancer software modules, most of which were developed during the past few years, constituted 21.1 percent 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 inventory procurement modules are adding immense value to customer operations. When customers like the La Jitas 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 roadmap timelines. The hospitality industry is only beginning to embrace such distinct advantages. Excluding book for time, 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 Mojo 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 of point of sale POS and POS related modules during fiscal 2025 July to September 2nd quarter was 17% 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 1 Food outlet, helped increase guest transactions by more than 15% 1 5 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 results. 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 $10,500,000 but was still 16.7 percent that is 1.6 percent, 16.7 percent less year over year compared to Q2 last fiscal year.
Fiscal 2025 Q2 July to September services revenue was a record $16,300,000 that is $16,300,000 $39.2 percent higher than the comparable prior year quarter. Services revenue continues to be a good indicator of future subscription growth. Services and subscription revenue are 2 main growth engines, comprised 60.6%, that is 60, comprised 60.6% of total revenue in the 2nd quarter compared to only 51% of total revenue during Q2 last fiscal year. These two revenue drivers continue to support strong top line growth. Fiscal 2025 Q2 being the 2nd best sales quarter on record drove combined product recurring revenue and services backlog levels, not including book for time, 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. Recurring revenue and within its subscription revenue backlog is at about 90%, nine-zero, about 90% of record lists. Sales momentum, strong in Q1 and even better in Q2, along with the book for time acquisition has been positive for subscription revenue growth. As a result, our expectations for full year full fiscal year 2025 results have increased, enabling us to raise all three guidance levels.
We now expect the full year revenue range to be $280,000,000 to $285,000,000 subscription revenue growth to be better than 38 percent and EBITDA as a percentage of revenue to be 18%, that is 1.8% 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.
Dave Wood, CFO, Agilysys: Taking a look at our financial results, beginning with the income statement, Q2 fiscal 2025 revenue was a quarterly record of $68,300,000 a 16.5% increase from total net revenue of $58,600,000 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 book for time acquisition during August added $2,200,000 in total revenue. Without book for time, 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 4 quarters providing additional confidence and acceleration through the second half. Professional services increased 39.2% over the prior year quarter to a record $16,300,000 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 sales velocity. Professional service backlog once again increased to record levels despite record professional services revenue. Total (EPA:TTEF) recurring revenue represented 60.7% of total net revenue for the fiscal 2nd quarter compared to 58.4% in the Q2 of fiscal 2024. Fiscal 2025 second quarter subscription revenue grew 36.6% over Q2 last fiscal year. Subscription revenue comprised 60.5 percent of total recurring revenue compared to 53.6% of total recurring revenue in the Q2 of fiscal 2024.
Subscription revenue increased sequentially $3,000,000 from the Q1 of fiscal 2025, which included $2,100,000 in book for time subscription revenue. Subscription growth when excluding book for time was 25.2 percent for the quarter with the first half of the year 28.5 percent higher than the first half of fiscal year twenty twenty four. This was the 2nd best quarter for subscription sales when excluding book for time. Subscription backlog remains high and increased over our FY 2024 and Q1 FY 2025 exit rates. Moving down the income statement.
Gross profit was $43,200,000 compared to $35,100,000 in the comparable prior year quarter. Gross profit margin was 63.3% compared to 59.9% in the Q2 of fiscal 2024. Overall, total gross margin should remain just north of 60% for the full fiscal year. Combined, the 3 main operating expense line items product development, sales and marketing and general and administrative expenses when excluding stock based compensation were 45.6 percent of revenue in the fiscal 2025 Q2 compared to 46.2 percent of revenue in the prior year quarter. Excluding stock based compensation, product development decreased to 20.3 percent 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 percent of revenue, while sales and marketing increased from 10.8% of revenue to 12.5 percent of revenue. Operating income for the Q2 of $4,100,000 net income of $1,400,000 and gain per diluted share of $0.05 compares favorably to the prior year's 2nd quarter gain of 3,600,000
Ramesh Srinivasan, President and CEO, Agilysys: dollars $4,100,000 $0.16
Dave Wood, CFO, Agilysys: 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 book for time acquisition. Adjusted net income normalizing for certain non cash and non recurring charges of $9,500,000 and adjusted diluted earnings per share of $0.34 were both improvements over the prior year 2nd quarter results of $6,600,000 $0.25 For the 2025 second quarter, adjusted EBITDA was $12,200,000 compared to $8,100,000 in the year ago quarter. We are pleased to see our profitability levels being well ahead of the original FY 2025 plan with adjusted EBITDA coming in at 17.9% of revenue. Moving to the balance sheet and cash flow statements. Cash and marketable securities as of September 30, 2024 was $54,900,000 compared to $144,900,000 as of March 31, 2024.
The cash decrease was related to the portion of the book for time acquisition paid with cash on hand. As a reminder, we added $50,000,000 in debt for the book for time acquisition. Subsequent to Q2, we paid down $12,000,000 of outstanding debt, leaving the current debt balance at $38,000,000 Free cash flow in the quarter was $5,900,000 compared to $2,500,000 in the comparable prior year quarter. As we've said in the past, adjusted EBITDA 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 book for time revenue, we are increasing our top line revenue guidance to $280,000,000 to 285,000,000 dollars with subscription growth of at
Marvin, Conference Call Operator: least
Dave Wood, CFO, Agilysys: 38%. Our profitability levels are coming in above our original plan, and so we are increasing our expectations to 18% full year adjusted EBITDA 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.
Ramesh Srinivasan, President and CEO, Agilysys: Thank you, Dave. In summary, we are happy to post good results and increased 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. Book for Time is a great addition to our team talent level and portfolio of The number of customer properties running at least 1 Agilysys product increased by about 30%, 30% during the quarter because of the acquisition.
The hundreds of book for time 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?
Marvin, Conference Call Operator: Thank you. At this time, we'll conduct a question and answer session. Our first question comes from the line of Mayank Tandon of Needham. Your line is now open.
Mayank Tandon, Analyst, Needham: 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 book per time 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 in the second half guide?
Dave Wood, CFO, Agilysys: Yes. So the guidance is there's about $10,000,000 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 book for time 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.
Mayank Tandon, Analyst, Needham: Got it. Okay. I'll that's actually clear. And then I just wanted to ask about margins too, Dave. You obviously outperformed on 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 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 and the second half?
Dave Wood, CFO, Agilysys: 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 attributes to a lot of the better than expected EBITDA percentage. So we expect gross margin to come down a tick or 2 from the 63% where we're at today.
Mayank Tandon, Analyst, Needham: Got it. I'll get back in the queue. Thank you so much.
Marvin, Conference Call Operator: Thank you. One moment for our next question. Our next question comes from the line of Manbeth Leit of BTIG. Your line is now open.
Matt Leit, Analyst, BTIG: Yes. Thanks for taking my question. Good afternoon. I guess when you look at the success of over time so far that it's been in the portfolio, you mentioned 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?
Ramesh Srinivasan, President and CEO, Agilysys: Yes. 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 book for time properties, literally hundreds of properties, it's well more than 1,000 that are book for time properties that do not have a single other Agilysys product. And we have a sales a book for time 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 Time 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 resource and in terms of guest satisfaction and all that, spa is a growing presence. And in terms of getting introduced to hospitality properties,
Marvin, Conference Call Operator: spa is
Ramesh Srinivasan, President and CEO, Agilysys: 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 toll 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 2 months, there is one particular deal we have sold where our membership module was bought along with the book for Time Spa product. That will continue to grow month after month, quarter after quarter.
Matt Leit, Analyst, BTIG: 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 and 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 and A?
Ramesh Srinivasan, President and CEO, Agilysys: Yes, Matt. The way I think I would recommend we think about this deal is that the ResourceSuite acquisition close to 3 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 2 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 analysis and we take our time, which I think has to do with the fact that we have done 2 successful acquisitions so far. So that attitude is not changing. We are going to remain conservative. We are going to remain patient.
We are going to remain opportunistic, keep our eyes and ears open for 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 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.
Matt Leit, Analyst, BTIG: Great. Thank you.
Marvin, Conference Call Operator: Thank you. One moment for next question. Our next question comes from the line of Neha Dokshi of Northland Capital Markets. Your line is now open.
Neha Dokshi, Analyst, Northland Capital Markets: Yes. Thank you. Congrats on good results, raised guidance 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 Joseph SpA software does as well as book for time software does?
Ramesh Srinivasan, President and CEO, Agilysys: Yes. Hi, Nehal. So it is fair to say I'm trying to be conservative here, Nehal. It is fair to say that between book for time, 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 is state of the art cloud technology and all that, which was introduced say 3, 4 years ago. Between the 2 of them, it is fair to say that those 2 are the leading products in the SPAR 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 book for time and Agilysys SpA are the 2 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 2 leading products, Book for Time and Angelisys SPA, and we are happy to have them both.
Integration to POS PMS everybody offers. That's not a differentiator, Neha.
Neha Dokshi, Analyst, Northland Capital Markets: 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 particular competitor? And how will your PMS and point of sale competitors likely react to this acquisition as well?
Ramesh Srinivasan, President and CEO, Agilysys: 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, resource, casinos, that kind of ecosystem, these are the 2 leading products, book for time 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.
Neha Dokshi, Analyst, Northland Capital Markets: Okay. And then Dave, last quarter, you guys lowered your overall revenue guidance due to the shift towards commodity product, not needing the Agilisys terminals here. Does that continue to be a dynamic that potentially is weighing on total revenue? Because it seems like the book for time acquisition should bring more than the $5,000,000 raise that you're raising the overall guidance by?
Dave Wood, CFO, Agilysys: 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 number is directly associated with the product revenue mix.
Neha Dokshi, Analyst, Northland Capital Markets: So what's the other portion related to if there's if it's not all product related?
Dave Wood, CFO, Agilysys: Yes. I mean, it's mostly I mean, with this product revenue had it stayed consistent with last year, obviously, we would have been above our range at this point.
Neha Dokshi, Analyst, Northland Capital Markets: Okay. Thank you.
Marvin, Conference Call Operator: Thank you. One moment for next question. Our next question comes from the line of Brian Schwartz of Oppenheimer and Company. Your line is now open.
Brian Schwartz, Analyst, Oppenheimer and Company: 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 a whatever period of time to unify the 2 sales forces? Or are you planning to keep them both discrete?
Ramesh Srinivasan, President and CEO, Agilysys: 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 Book for Time is a smaller single product company for the most part. So they were they've been very successful doing remote selling even to global customers, but they were selling 1 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 lot more complex sales and book for time has been used to so far. But over the next 6 months or so, before we start the next fiscal year, we will be unifying the 2 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 book for time sales force while we do that unification. But it is fair to think that over the next 6 month period, it will become a unified sales force going into fiscal 2026.
Brian Schwartz, Analyst, Oppenheimer and Company: 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. 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?
Ramesh Srinivasan, President and CEO, Agilysys: 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 end 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 has been fairly consistent over the last one and a half, 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 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 2 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 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 personal 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 projects.
Brian Schwartz, Analyst, Oppenheimer and Company: Thank you. And last question, one for Dave. Just in terms of the EBITDA guidance raise, is any of that have to do with our book for time or maybe another way of asking it is, is book for time, is that EBITDA accretive to the business this fiscal year? Thanks.
Dave Wood, CFO, Agilysys: 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 book for time acquisition.
Brian Schwartz, Analyst, Oppenheimer and Company: Thank you for taking my questions.
Ramesh Srinivasan, President and CEO, Agilysys: Thank you, Ben.
Marvin, Conference Call Operator: Thank you. One moment for next question. Our next question comes from the line of Stephen Sheldon of William Blair. Your line is now open.
Mayank Tandon, Analyst, Needham: Hey, thanks. So it sounds like
Neha Dokshi, Analyst, Northland Capital Markets: you're bringing down the full year organic subscription revenue expectations attached 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 assume? Just any color there on what changed versus the prior guidance?
Ramesh Srinivasan, President and CEO, Agilysys: Yes. Hi, Stephen. So when you look at the first half subscription results, FY 'twenty five, of a 28.5 percent 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 book for time 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.
Neha Dokshi, Analyst, Northland Capital Markets: 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?
Ramesh Srinivasan, President and CEO, Agilysys: 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. More 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 thought leadership work there. We have increased our marketing efforts. We are in the process of establishing our sales 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.
Neha Dokshi, Analyst, Northland Capital Markets: All right. Thank you.
Ramesh Srinivasan, President and CEO, Agilysys: Thank you, Stephen.
Marvin, Conference Call Operator: Thank you. One moment for our next question. Our next question comes from the line of George Sutton of Craig Hallum. Your line is now open.
George Sutton, Analyst, Craig Hallum: Thank you. Ramesh, I wondered if we could get a little more clarity on the book for time sales opportunity for your current customers. So you had mentioned and specifically called out a couple of large players like IHG and Atkore. 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?
Ramesh Srinivasan, President and CEO, Agilysys: Yes. The larger players not only book for time, George, but also Joe Youssef, who has 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 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 3, 6, 12 months. It is not just a matter of the bigger chains.
George Sutton, Analyst, Craig Hallum: 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? Any things that you would want to kind of pass along at this point to us?
Ramesh Srinivasan, President and CEO, Agilysys: No, no negative surprises. If any surprises, Jars, 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 3 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 customer 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, 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, Josh, if you just sat 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, Josh.
George Sutton, Analyst, Craig Hallum: Well, having done demos, I definitely see why you're successful. So congratulations.
Ramesh Srinivasan, President and CEO, Agilysys: Thank you, Josh.
Marvin, Conference Call Operator: Thank you. I'm showing no further questions at this time. I'd now like to turn it back to Ramesh Ranirasan for closing remarks.
Ramesh Srinivasan, President and CEO, Agilysys: Thank you, Marlon. 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 3 months from now.
Thank you.
Marvin, Conference Call Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
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