AGYS - NASDAQ

Good day, ladies and gentlemen, and welcome to the Agilysys 2025 Fourth Quarter and Full Fiscal Year Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] As a reminder, today's conference is being 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, Carmen, and good afternoon, everybody. Thank you for joining the Agilysys' 2025 fourth quarter and full fiscal year 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 the impact macroeconomic factors may have on the overall business environment, 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 or 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 Agilisys. Ramesh, please go ahead.

Thank you, Jess. Good evening. Welcome to the fiscal 2025 fourth quarter and full year earnings call. Joining Jess and me on the call today at our Alpharetta, Atlanta headquarters is Dave Wood, our CFO. Let me cover sales first before moving to revenue and other details. Please note that all our sales and selling success related values are measured in annual contract value terms. Please also note that all the sales values reported in this narrative, including subscription and services sales, do not include anything from the Marriott Property Management System, PMS project that we continue to make good progress with and remains on the planned trajectory. Further, all the fiscal year 2026 guidance and other future projection numbers and narratives assume no material subscription revenue from this project. Fiscal 2025, the year that ended March 2025 was a record global sales year overall and a record year for practically every sales vertical other than managed food services. It was a record sales year for international regions, gaming casinos, hotels and resorts, and overall North America domestic sales. Across product categories, it was a record sales year by a significant distance for subscription SaaS software and services. Full fiscal year 2025 was also a record sales year for PMS and PMS related add-on modules, excluding Book4Time sales, 58% higher than the previous best year. We continue to make great progress on the PMS side of our business. Overall, the January through March period, fourth quarter of fiscal 2025 was our best sales quarter ever. With respect to point-of-sale, POS sales, fiscal 2025 Q4 was the best quarter of the fiscal year, 27% higher than the sequentially preceding Q3 and 16% higher than the previous highest Q2 quarter. Q4 was also the best sales quarter of the year for sales in the managed food services, FSM vertical. FSM sales during the second half of fiscal 2025, that is Q3 plus Q4, was close to twice as high as the first half, Q1 plus Q2. With the newer modernized and unified POS platform performing well at more than 150 customer properties currently and growing rapidly, we have turned the corner and are now past the recent POS sales challenges. Implementations of the new POS platform in the field during the past several months are progressing exponentially better than when we were working through the old to new transformation phase previously, when we had to work with combinations of modules spanning across a couple of generations of technologies. This quarter would have been a record overall sales quarter by a good distance, even excluding sales from Book4Time. Sales during the second, third, and fourth quarters of fiscal 2025 were, respectively, the third, fourth, and best sales quarters on record. Fiscal 2025 fourth quarter was the all-time best sales quarter for both North America domestic and international sales in terms of regions, and with respect to product sales categories, for subscription software and services sales. Our current selling success momentum is excellent any way one looks at it, especially with respect to subscription software and services. International sales are beginning to show positive signs of consistent growth, though they are still a bit too dependent on home run big wins. With respect to signed sales agreements during January to March Q4, all not including Book4Time sales, we added 16 new customers. All these 16 sales agreements were subscription-based and averaged six products each, which equals the previous quarter record high. POS sales agreements featured an average of four products each, and PMS an average of 11 products. We also added 50, that is 5-0, we also added 50 new properties during the quarter, which did not have any of our products before, but the parent company was already our customer. Of the 66 new properties added during the quarter across new and current customers, 63 were subscription software license-based. There were also 126 instances of selling at least one additional product to properties already running at least one of our other products. These 126 instances involved sales of a total of 287 products. Both these numbers and the total value of new product sales to current properties were all-time best quarter levels. Full fiscal year 2025 new product sales to current properties running at least one other Agilysys product was also a record high, more than 50%, that is 5-0, more than 50% higher than the previous best year. The current global demo plus stage sales pipeline measured as the annual contract value sum of all sales opportunities we are currently working on, which have reached at least the product demonstration stage, is now at a record level since we started tracking this value a couple of years ago and was 18%, 18% higher as of March end compared to the same time the previous year. As of March end, this demo plus sales pipeline was 16%, 16% and 32% higher for POS and PMS opportunities, respectively, compared to the same time one year ago. As more customers get to this demo plus stage, and get a better understanding of the product ecosystem, the groundbreaking innovations being delivered now, including intelligent guest profile, single itinerary across multiple amenities for guests, artificial intelligence based revenue upsell and conversational ordering tools, and the unique benefits the combined software modules can bring through operational efficiency and guest experience improvements. As more customers reach this product demonstration stage, the better our win ratios seem to get. Such sales opportunities are understandably considerably higher with customers who are already using at least one of our other products, who know us reasonably well, have a close view of our recent advancements, and trust us more. One quick comment on our Inspire user conference held a couple of weeks ago at Hilton Austin, Texas, it did seem like it was our best one yet with the main highlight being eight different customer led sessions on main stage, including some of the biggest operator names in hospitality and covering the gamut of software solutions we offer, explaining the benefits we have gained recently from our accelerating product innovation. Now, on to revenue and profitability. Fiscal 2025 fourth quarter revenue was a record $74.3 million, 19.4%, that is 1-9, 19.4% higher than the comparable prior year quarter. This was our 13th consecutive record revenue quarter. Q4 subscription revenue of $29.8 million was a record and grew by 42.7% from the comparable prior year quarter. Q4 subscription revenue was also a record 64.4% of total recurring revenue. In absolute number terms, Q4 subscription revenue grew by $8.9 million year-over-year, which is the highest level of year-over-year growth we have seen until now. In addition, services revenue of $17.8 million, that is 1-7, $17.8 million, was also a record. Fiscal 2025 Q4 was an excellent quarter of implementation execution by the professional services teams. Apart from being a record quarter for services revenue, it was also a record quarter for the combined annual recurring revenue value of subscription revenue based projects implemented in the field. We also made excellent progress with hiring for the professional services teams during the quarter, achieving our hiring goals and making up for the lack of progress during previous Q2 and Q3. We have now set ourselves up well for continued good progress with project deployments. Despite all that breadth and depth of implementation success during the quarter, the sum of product services and recurring revenue backlog again grew to record levels because it was an even better sales success quarter. Product backlog consisting of perpetual license software, and hardware resold but yet to be shipped, improved greatly during the quarter, but was still at only about 60%, 6-0, about 60% of previous peak levels as of March end. The decreasing sales trends for perpetual software licenses and hardware, keeping product backlog at reduced levels, is not entirely unexpected and serves as a confirmation of the continuing transformation of this business into a cloud and subscription based enterprise software entity. Full fiscal 2025 revenue was a record $275.6 million, 16%, that is 1-6, 16% higher than the previous year, despite a 16%, 1-6 again, 16% decline in one-time product revenue consisting of perpetual software licenses and hardware resold. Fiscal 2025 revenue included $170.1 million, that is 1-7-0, $170.1 million in recurring revenue, 23.2% higher than the previous year. Full fiscal year 2025 subscription and services revenue were both records, and 39.5% and 27.7%, respectively, higher than the previous year. Fiscal 2025 was the fourth consecutive year with year-over-year overall subscription revenue growth of at least 27% and organic subscription revenue growth of at least 25%. Shifting the focus to fiscal 2026, we expect only limited growth in the one-time product revenue line this year. One-time product revenue, which used to be about 25% of our total revenue a few years ago has now reduced to 15%, 1-5, 15% of total revenue during fiscal 2025. With respect to tariffs, we expect limited direct effects on our business, if any. Reselling of hardware has now reduced greatly to only a bit more than 10% of total revenue. Further, and perhaps the most important detail, is that the POS platform has been modernized completely, making it more open and easily adaptable to various kinds and makes of terminal hardware, giving us additional flexibility to manage the supply chain across multiple vendor partners. While macroeconomic headlines give us some caution for the second half of fiscal 2026, we have a lot of reasons to remain bullish on our progress regardless of the macro circumstances, given our relative small size compared to the humongous total addressable hospitality market, and the recent progress we have made with the modernized solutions and the additional competitive ecosystem advantages we have created for ourselves. Duplicating our modern cloud native ecosystem of software solutions is not going to be easy for other technology vendors in hospitality. This is about as good a barrier to entry, or let's call it, as good a barrier to excel as it gets. We will continue to make all the required investments across various business areas to fuel future revenue growth, including in information security, product cyber security, sales, marketing, services, customer support, cloud infrastructure, artificial intelligence and product innovation. We are not going to sacrifice any of our medium-term and long-term revenue growth possibilities for the sake of short-term profitability increases. We will continue to remain disciplined with growth, growing profitability steadily, while remaining ambitious with medium and long-term top line growth plans. Given all that, we expect full year fiscal 2026 revenue to be in the range of $308 million to $312 million, driven among other factors, by year-over-year subscription revenue growth of 25%. We also expect adjusted EBITDA to be 20% of revenue for the year. Despite continuing good progress by all parties involved in the massively transformational Marriott PMS project, we have assumed no material subscription revenue contribution from this project in our projections and guidance for fiscal 2026. With that, let me hand over the call to Dave for further color on our financial and operational results. Dave?

Thank you, Ramesh. Taking a look at our financial results, beginning with the income statement, fourth quarter fiscal 2025 revenue was a quarterly record of $74.3 million, a 19.4% increase from total net revenue of $62.2 million in the comparable prior year period. One-time revenue consisting of product and professional services was up 9.5% over the prior year quarter, while recurring revenue was up 26.3% over the prior year quarter. As a result of the continued momentum in our business, we are pleased to see 16.1% of total revenue growth compared to fiscal year 2024. During fiscal 2025, compared to the previous year, professional services increased by 27.7%, and recurring revenue increased 23.2%. Overall, FY ‘25 came with its share of operational challenges as we continued to implement and transition to the new products. However, sales of these new solutions during the year performed well, especially in Q4, with record sales levels to end the year. It was nice to see our POS sales back to healthy levels during fiscal Q4 FY ‘25, up 23% over the prior year Q4 FY ‘24 and 28% over the sequential prior quarter. We are confident we have now moved past the volatility in POS sales and expect to see continued POS growth moving forward. Professional services and subscription sales exited the year at record levels as well. As such, we are exiting the year with a materially larger backlog, up 26% over fiscal year 2024 exit. Professional services increased 21.7% over the prior year quarter to a record $17.8 million. Despite the record professional services revenue, our services backlog increased and remained at record levels on the back of record services sales during the quarter and fiscal year. Total recurring revenue represented 62.2% of total net revenue for the fiscal fourth quarter and 61.7% for the full year compared to 58.8% and 58.1% of total net revenue in the fourth quarter and full year fiscal 2024. We continue to be pleased with subscription sales and revenue growth levels. Subscription revenue grew 42.7% for the fourth quarter of fiscal 2025 and 39.5% for the full fiscal year. Organic subscription growth was 22.2% for the quarter and 25.3% for the full fiscal year. Subscription sales and backlog have us set up well for our FY ‘26 plan. Moving down the income statement. Gross profit was $45.1 million compared to $38.3 million in the fourth quarter of fiscal 2024. Gross profit margin was 60.7% compared to 61.5% in the fourth quarter of fiscal 2024, mostly due to product mix changes during the quarter. For the fiscal year, gross margin was 62.4% compared to 60.7% in the prior year period. The full year increase in gross margin is mostly due to increases in recurring revenue, which now represents 61.7% of revenue compared to 58.1% of revenue in fiscal year 2024. Combined, the three main operating expense line items, product development, sales and marketing, and general and administrative expenses, when excluding stock-based compensation, were 41% of revenue in the fiscal 2025 fourth quarter compared to 43.9% of revenue in the prior year quarter and ahead of our FY ‘25 plan. Excluding stock-based compensation, for the full fiscal year 2025, product development decreased to 19% compared to 20.8% of revenue in the prior fiscal year. General and administrative expenses reduced slightly for the year from 12.8% to 12.6% of revenue. Sales and marketing decreased slightly from 11.6% of revenue to 11.4% of revenue, mostly due to timing of events. Combined, the three main operating expense line items, product development, sales and marketing, and general and administrative expenses, excluding stock-based compensation, were 43% of revenue this fiscal year compared to 45.2% of revenue in FY ‘24. Operating income for the fourth quarter of $5.3 million, net income of $3.9 million, and gain per diluted share of $0.14 are higher than the prior year's fourth quarter gain of $3.5 million, $3 million, and $0.11. Adjusted net income normalizing for certain non-cash and non-recurring charges of $15.2 million compares favorably to adjusted net income of $9 million in the prior year fourth quarter, and adjusted diluted earnings per share of $0.54 compares favorably to $0.32. For the 2025 fourth quarter, adjusted EBITDA was $14.8 million compared to $11 million in the year ago quarter. And for the full year fiscal 2025, adjusted EBITDA was $53.8 million compared to $37.1 million. We are pleased to see our profitability levels end up well ahead of the original FY ‘25 plan, with adjusted EBITDA coming in at 19.5% of revenue. Moving to the balance sheet and cash flow statement. Cash and marketable securities as of March 31, 2025 was $73 million compared to $144.9 million on March 31, 2024. As a reminder, we utilized $100 million in cash for the Book4Time acquisition in August, along with utilizing $50 million on our credit revolver. We have paid off $26 million of the revolver by March 31, and since the end of the fiscal year, we have paid an additional $12 million against the outstanding debt balance. As it relates to free cash flow, we are pleased to see an increase for the full fiscal year. Free cash flow in the quarter was $26.5 million compared to $29.3 million in the prior year quarter and $52.3 million for the full fiscal year compared to $40.1 million in the prior year. As we've said in the past, adjusted EBITDA and free cash flow after normalizing the impact of CapEx continue to be good proxies for health of the business. For fiscal year 2025, free cash flow was slightly less than adjusted EBITDA due to capital expenditures offset by timing of working capital adjustments. For fiscal year 2026, we expect revenue to be in the $308 million to $312 million range, excluding any material upside from the upcoming large PMS rollout. We expect product revenue to increase by 5% to 10% over fiscal year 2024. Professional services should grow in the range of 5% to 10% as well. Recurring revenue will continue to grow around 15% with subscription growth of 25%. Adjusted EBITDA will increase moderately to 20% of revenue as we continue to invest in growth-related initiatives and large customers before receiving subscription revenue. In closing, we are pleased with our 2025 financial results and the solid business fundamentals for future revenue growth. With that, I will now turn the call back over to Ramesh.

Thank you, Dave. In summary, the last few years of this massive business transformation phase have been difficult to state it mildly. All such massive transformations are difficult to accomplish, while keeping the business not just running but also growing with improving profitability levels. Carrying customers along the path of a generational change in how POS and PMS systems are run has worked out well by any reasonable measure, but the process has not been without its challenges. Despite all the difficult challenges managing a couple of revenue J-curves and other quantum leap progress steps, in the three years since fiscal year ended March 2022, we have increased annual revenue by $113 million, or 70% and subscription revenue by $60 million, or 130%. So, let me repeat that. In the last three years, since March 2022, we've increased annual revenue by $113 million or 70% and subscription revenue by $60 million or 130%, and we are only getting started now. For much of the hospitality industry, we are still a story that is hiding in plain sight, especially in international regions, which is unfortunate, but okay. It gives us a solid good growth path ahead. During the recent six months, we have significantly expanded our sales teams, especially in the hotels and resorts vertical, and expanded the services teams, attracting leadership, sales, and other talent from other highly rated hospitality technology providers, had 1,300 plus installations in the field featuring only the modernized solutions, and discount is rapidly expanding, carrying with it the unmistakable message that this is not your grandfathers or fathers Agilysys anymore. And we are now a hospitality technology force that has to be reckoned with. An increasing number of hospitality corporations are now seeing in us the kind of end-to-end ecosystem technology provider with true modern and connected solutions they have always wanted, and we are well-positioned for a bright future. It is tough not to be bullish about our future prospects. With that, Carmen, let's open up the call for questions, please.

Thank you so much. [Operator Instructions] And give one moment for our first question. And it comes from Stephen Sheldon with William Blair. Please proceed.

Hey. Thanks for taking my questions. Just first one here on the POS bookings. It sounds like you saw much more success there this quarter, including, I think you noted, a pickup in the managed food service vertical. So, just curious what you attribute that to. How much is being driven by better execution or improvement with specific customers, versus how much is just generally a better backdrop, if at all?

Yeah. Hi, Steven. I would say, the improvement is because, for the last year or so, just short of a year, we've only been installing the newer version. Now the newer version is not only fully modernized, Steve, but is also completely unified, meaning guest facing and staff facing feature sets are now on one unified POS platform. And we are about the only vendor, only major vendor in this industry that provides a unified platform. So, modernized and unified is a lot easier to implement. And those are the only implementations we are doing for the most part for the last year or so. And that is now improving our status as a premium POS provider, and we are now the wanted product. What happened before that was, it got a little bit complicated because we were trying to transform from old to new, and a lot of the implementations became a combination of old and new, and these are two generations of technologies. So, I think we have turned the corner now. The Q4 momentum is not going to be a one-time thing. It is going to continue now. And hands down, these are the best -- this is the best POS platform out in the field now, and we expect this momentum to continue.

Got it. That's good to hear. On the implementation side, can you just update us on the mix of customers using Agilisys implementation teams versus using third-party support from SIs, etc.? Do you expect that mix to evolve at all over time, and is that playing at all into -- I think, Dave, you mentioned, 5% to 10% expected revenue growth for professional services this year, or in fiscal 2026, is that playing into that guidance at all?

I don't think so, Steve. Most of our implementations are done by our teams because these are complex implementations, and you have a 1,500 person R&D team that is driving innovation forward. So, in terms of keeping even our own teams trained and up to speed on the newer versions is not easy. It's very difficult doing it for external SIs. So, our implementations, for the most part are done by our teams. Now, the 5% to 10% growth has to do with the fact that part of our services revenue, we have customer-paid R&D efforts as well. And as we become bigger, these customer paid R&D efforts will be there, based on my experience of three decades in enterprise software, but they can't be predicted quarter-to-quarter. So, this is normal services revenue growth that we are seeing, but we do it with our own resources. In this kind of complex enterprise software business, it is not easy handing things over to external SIs.

Got it. That makes sense. And then just one last one for me. Just curious, with the 2026 guidance, for subscription revenue in particular, what does that imply for organic subscription revenue growth? I think just roughly ballparking it, we're calculating high teens. Is that right? And just any sense on what you baked in for organic growth on the subscription side between POS and PMS solutions? Any additional context there would be helpful.

Yeah. So, we typically don't break out the point-of-sale and property management subscription growth. I meant, I think we're at a point where they're both, as Ramesh has talked a lot about, both products are ready and we're kind of past the point-of-sale challenges. I mean, we certainly expect PMS to be a higher growth percentage because it's coming from a lower base. But point-of-sale is back to growing in line with where it's grown in the past. But to answer your question, I mean, the 25% growth includes about four months of benefit from the Book4Time acquisition. So, we would be in the closer to the 22%, 23% range. We wouldn't be in the teens from an organic standpoint.

Okay. Great. Thank you.

Thank you. Our next question comes from the line of Sam Salvas with Needham and Company. Please proceed.

Hey. Thanks, guys. I'm just jumping on for Mayank tonight. Good to see the nice results here. I wanted to touch on the momentum you're seeing in add-on sales. Could you guys talk about what's driving the improvement here, and also maybe talk about which products you're seeing the strongest adoption rates.

Yes. Hi, Sam. So, in terms of add-on modules, they add a lot of value to the core product. So, no one else has really invested this much in hospitality software to create an ecosystem of products. And in general, the add-on modules add a lot of value on the PMS side, more value on the PMS side than the POS side, just because of the sheer number of add-on modules that are there, about four, five times more add-on modules on PMS than POS. So, together, it has created now an ecosystem that customers can put to good use. So, a customer can either buy it from seven or eight different vendors or they can buy it from one vendor. You buy it from one vendor, it comes with a lot of advantages. Like, there have been some implementations recently, Sam, where the customer needed a quick change to be done but it involved three different products. And we could get the changes done in all the three different products. One of them is core PMS, and two of them are add-on modules of PMS. We could get all of that done in the next couple of months. Those all bring huge value to customers. So, more and more customers are buying this ecosystem, connected modules. And these add-on modules get us good margins and together, are even more valuable than the core products for us. So, to answer your question, most of the PMS add-on modules are adding great value to our bookings. And on the POS side, the add-on modules make it a unified architecture. So, it is now a unified POS platform, and that by itself has great value. So, yes, the add-on modules are big contributors to our bookings momentum now.

Okay. That's helpful. And then just a quick one, Dave, I was wondering, just on the '26 guide, you gave some good commentary across the revenue streams. And I know you guys are excluding the big PMS rollout, but is there anything you could give us in terms of the quarterly cadence and anything we should be mindful of outside of the acquisition, of course, in terms of either the revenue cadence or margins?

Yes. So, on the revenue cadence, I mean, everything will be pretty similar to what you've seen in the past. I mean, products and professional services could nominally go up or down on a given quarter, like you would expect with one-time revenue. And then on the recurring revenue, it's kind of similar to what you would expect. I mean, the numbers are just obviously getting a little bit bigger, and so there's likely a $1.3 million to $1.6 million sequential increase a quarter, is pretty much how the revenue is laying out. And then on the profitability side, I mean, I think we're still in a bit of a transition year, so there's not going to be a ton of operating leverage in OpEx. You'll see some in -- G&A will probably show a little bit of operating leverage, but that'll likely be offset by sales and marketing just due to timing of some events that fell this calendar year -- or fiscal year versus last calendar year. So, pretty much I mean similar to what you've seen in the past with recurring being the biggest driver, and one-time revenue will tick up and down on a quarterly basis.

Yes. Okay. All right. Thanks, guys.

Thank you, Sam.

Thank you. Our next question comes from Brian Schwartz with Oppenheimer. Please proceed.

Thank you for taking my questions this afternoon. Ramesh, in terms of the POS business and kind of the modernizing of the install base, is there anything that you can do internally to accelerate the migrations of maybe your larger legacy POS customers to the newer cloud model? And then I have a follow-up.

Yes. So -- hi, Brian. So, in terms of the conversions, Brian, please keep in mind, many of the older customers are also on a subscription revenue basis. They are also in SaaS. So, just because they're in an older platform doesn't necessarily mean they are on-premises. And many of them who are on-premises, even when they move to our modern solutions, might choose to be on the on-premises again. So, this is not so much in our hands. All of them are now aware that this is a modernized unified platform. All of them are keen to move towards the new platform, but it will be in their timelines. And many of those customers, when they move to the new platform, might use that as an event to move from on-premises to cloud. All those are possible. But the customers control the timelines, Brian. Beyond a point, we cannot force them into the new POS platforms. But one good thing we are doing is when a customer comes with a request of some major enhancement request that they have on the older platform, we are telling them, sorry customer, to get that enhancement, you have to move to the newer platforms. So, that is beginning to happen. So, we are doing less and less changes on the older versions. And that, by the way, helps our R&D be more effective as well because we are reducing our investments on the older platforms and increasing it on the newer ones. So, we are doing a lot of things that push customers along this curve, and newer installs are only done on the newer ones. So, all that is going on. But beyond a point, we can't push customers, Brian. We are, by nature, a customer-centric organization. So, we have to let customers work out their pace. But they are now accelerating. More and more customers are converting, and more and more of them are converting to cloud as well. All that is happening, but we can't force a greater pace, Brian, I don't think so.

Thank you. And then the follow-up question, Ramesh, I wanted to just ask you on maybe what the early readings are with the beta testing with Marriott. Realizing we don't have any financial guidance there, but what are you seeing among these early beta testers? Is the value that's being created, is it achieving goals? Is there anything else that you can just share with us, qualitatively, on how the beta testing program is going on over at that large PMS opportunity? Thanks.

Yes. So -- yes, so no change from our previous updates, Brian. The testing is going well. This is a transformational project, Brian. This is a difficult project for the customer. It involves multiple vendors, and they are transforming the entire face of what their users in their hotels use, and it's gone remarkably well so far. The deep testing, they are now deep into testing, and the testing is going well, but the test properties have not yet started. We are getting close to a few test properties getting installed. But one thing I will tell you, there was a recent conference that involved a lot of their property personnel, senior personnel from their properties, and all these products, including our PMS product, were shown there, and the feedback was remarkably good. So, there is excitement among their properties. They have waited for this technology transformation for quite a long time. So, all signals are good so far. The ecosystem testing, the end-to-end testing involving products across multiple vendors, all that is going well, and now their testing is moving to the beta testing that you are talking about of test properties. So, so far, so good, Brian. We should feel positive about this project. Always keep in mind, it's a very complex transformational technology project, so it is always good to be cautiously optimistic about it, but so far, so good, Brian.

And then the one question I have for Dave is, in terms of the line item guidance, specifically with the product line items, is there any way of how -- to share how you're thinking about that say over a multi-year period? Clearly the comps are going to be easier on that line this year, but do you think that that business has stabilized and sustaining, just growth in general is achievable for the products line? Thanks.

Yes. No, we think -- I mean, I think we talk about it a lot during fiscal year '25 where that was kind of resetting with the less -- the lesser attach rate on the new modernized solution, so we feel like that line is stabilized, and it's probably not going to grow with top-line in the out years, but we do look at it as kind of a, in the call it medium term, a single-digit type grower.

Thank you for taking my questions.

Thank you, Brian.

Thank you. [Operator Instructions] The last question I see is from Nehal Chokshi with Northland Capital Markets. Please proceed.

Yes. Thank you, and good to hear that point of sales has turned a pipe -- has turned a corner here. Ramesh, you talked about the demo plus pipeline, I think second quarter in a row. I think in the December quarter, you said it was up 22% year-over-year, and I believe you said it was up 18% year-over-year for the March quarter. So, is this a 20% or so growth rate at which demo plus pipeline -- is that the right rate to be thinking about that -- how that pipeline should be growing going forward?

At the moment, Nehal, yes. In the -- as things stand now, assuming a 20% steady growth in the pipeline is a good thing to assume, but I'm optimistic that it will improve. One of the reasons is, things are improving internationally for us, especially among the multi-amenity, higher-end resorts. There is less and less competition because we have invested and created an ecosystem of products that our competition just hasn't. They -- I mean, they -- it is not much more complicated than that because when you want a fully connected system and you are running a multi-amenity resort, there are not that many players out there. So, that's one reason why I'm offering sales pipeline will increase. And also in the all-important hotels and resorts sales vertical, Nehal, we have significantly expanded the sales team size in two ways. Number one, a lot of recent hiring in the last five, six months and also now the Book4Time sales team is selling all the Agilysys products as well. So, that process has also started. So, you add those two together, a majority, right, more than half of the hotel resorts sales team now has started selling the product only in the last three to six months, all the Agilysys products. So, that should contribute to increasing pipeline in the hotels and resorts sector which is our biggest sector, biggest sales vertical now. And also we are turning the corner with FSM, right, Managed Food Service Providers or Food Service Management is really turning the corner since we have turned the corner with POS. Now they are taking a serious look at our POS as well. So, all these things together, Nehal, the current expectation would be 20% growth in sales pipeline, but I'm optimistic that will start improving soon.

Okay. And then I believe that you guys have a target model for subscription growth of 25% to 30%. So, A, is that target model still applicable? And then B, how does pipeline plus growth of 20%, flip with subscription growth of 25% to 30% on an organic basis, presumably?

Yes. The sales pipeline 20% is all across the board, right? But that is just sales opportunities that we are working on, Nehal. Within that, the win ratio continues to improve. So, the sales pipeline being 20% is no indication that the subscription revenue growth will only be that much. Subscription revenue growth could be more than that. So, I wouldn't equate the two exactly, but I understand your point. But for FY ‘26, our guidance is, the subscription revenue growth we expect to be 25%.

Okay. And then if I may speak one more, a couple more actually, sorry. So, I understand, and it's actually consistent with my thinking that Marriott is excluded from fiscal year '26. But given commentary that the development phase appeared to have largely finished back in the September quarter, which would be fiscal third quarter, can you just walk us through the rationale on why exclude that from the fiscal year '26 guidance?

Yes. I mean, most of it is -- I mean, we'll enter the rollout phase, but it won't be overly material to the P&L as we work through pilots. And so, once we hit the mass rollout, it probably makes more sense to update the guidance or give the guidance in next year's results. But it's mostly just because it's not overly material because we'll be -- even though we'll get into the rollout, we'll still be in the pilot phase of the rollout.

And it's a big transformation project, Nehal. So, plus or minus a few months -- I mean, this well, these kinds of big technology transformation projects, plus or minus a few months, it is just tough to predict, right? But the good news is it's going well now. We are close to getting the test properties, and then we'll see how it goes, right? We will see how it goes. But it's not -- I mean, we provide our guidance based on what we see and what is reasonably predictable. We just cannot include this now, and plus or minus a few months, it could go either way, right? We just don't know yet.

Yes. Understood. And then my final question is that, given projecting EBITDA margin being flattish fiscal year '25 to fiscal year '26, that implies OpEx will grow about 14% year-over-year. So, is that enough to ensure that even your pipeline, your demo plus pipeline, grows about 20% per year here?

Yes. I mean, we think of it on a percentage of revenue basis. And pretty much, I mean, sales and marketing will go up just a tick in fiscal year '26, mostly just due to timing of events. We had a user conference in May instead of March. And like you've seen the last couple of years, we'll continue to see operating leverage in the G&A line on a percentage of revenue basis. And then R&D, it'll stay reasonably flat this year because, I mean, as we talked a lot about, we're still carrying multiple R&D teams as we continue through the transformation of old products to new products and until we start the large PMS rollout. So, it's really on a percentage of revenue. It's going to be kind of similar to what you've seen in the past with maybe sales and marketing going up a little bit.

And Nehal, when you're thinking of the 14% and the revenue growth and all that, keep in mind, a lot of the expansion has happened. R&D over the years, we have expanded it quite a bit. We recently went through a big expansion of services and sales. So, we have sort of set ourselves up for future growth now.

Got it. Okay. Thank you very much. Great job.

Thank you, Nehal.

Thank you. And we have a question from the line of George Sutton with Craig-Hallum. Please proceed.

Thank you. Ramesh, you talked a lot about international and the opportunity there. I'm wondering if you could just talk about what your white space is. How significant do you think international could be for you?

As these -- Hi, George. As these newer modernized versions settle down, George, international is a huge growth area for us. We are seeing more sales opportunities than ever before, but still not great, right? It is at the moment progressing well, but not great. And we are still dependent on big home run kind of wins. The one very positive sign with international is that current customers are spending a lot more with us now because now they have new products they can invest on than ever before. So, the current customers are spending more with us. We have more reference customers that we are building up now. So, it's progressing well, but that exponential curve has not yet taken off, George. But I think your first question is a massive growth area for us. And the products are now there. Now it is a matter of spreading ourselves there.

Thank you. And then just lastly on Book4Time, because a lot of the presentations you gave were ex-Book4Time. Can you just give us a sense of how that acquisition has gone?

That acquisition has gone very well, George. Thank you for asking. We are very happy with the acquisition. The best way I would express it is given a chance we would do it again without a doubt. Great people added tremendous talent value to the team, good product, a very respected, well-regarded brand name, global reach. So, every aspect of the Book4Time business, the sales and implementations of the Book4Time product, the spa product is going very well. That continues to do very well. And the cross-selling piece is beginning to take shape now. We always thought it would make a difference in FY ‘26. And I think it is going to make a reasonable difference in FY ’26, which was the plan all along. So, we have expanded the hotel resort sales team by a significant number in the last five, six months. Now the Book4Time sales team is also part of the hotel resort sales team. So, all that adds considerable strength to selling there. So, all around, the Book4Time itself is an excellent acquisition. We are very happy with it. Now, Book4Time sales team contributing to selling all the Agilysys product, that process is just getting started now. And we think we'll do well in fiscal '26.

Perfect. Thank you very much.

Thank you, George. Appreciate it.

And as I see no further questions in queue, I will conclude the Q&A session and turn it back to Ramesh Srinivasan for closing remarks.

Thank you, Carmen. Thank you all for participating and for your interest and support. We look forward to talking to you again in a couple of months from now, towards the end of July, when we will be reporting on fiscal 2026 Q1 results. Thank you.