AGILYSYS INC (AGYS)

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

In “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”), management explains the general financial condition and results of operations for Agilysys and subsidiaries including:

— what factors affect our business;

— what our earnings and costs were;

— why those earnings and costs were different from the year before;

— where the earnings came from;

— how our financial condition was affected; and

— where the cash will come from to fund future operations.

The MD&A analyzes changes in specific line items in the Condensed Consolidated Statements of Operations and Condensed Consolidated Statements of Cash Flows and provides information that management believes is important to assessing and understanding our consolidated financial condition and results of operations. This Quarterly Report on Form 10-Q updates information included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2026, filed with the Securities and Exchange Commission (SEC). This discussion should be read in conjunction with the Condensed Consolidated Financial Statements and related Notes that appear in Item 1 of this Quarterly Report as well as our Annual Report for the year ended March 31, 2026. Information provided in the MD&A may include forward-looking statements that involve risks and uncertainties. Many factors could cause actual results to be materially different from those contained in the forward-looking statements. See “Forward-Looking Information” on page 25 of this Quarterly Report, Item 1A "Risk Factors" in Part II of this Quarterly Report, and Item 1A “Risk Factors” in Part I of our Annual Report for the fiscal year ended March 31, 2026 for additional information concerning these items. Management believes that this information, discussion, and disclosure is important in making decisions about investing in Agilysys.

Overview

Recent Developments

Macroeconomic Conditions

During the three months ended June 30, 2026, global macroeconomic and geopolitical conditions were, and continue to be, shaped by a number of factors, including, but not limited to, changes in global tariff and other trade policies, new and existing domestic and foreign laws and regulations, armed conflicts, foreign currency fluctuations, labor shortages and natural disasters. We believe such factors are negatively influencing customer spending and provider pricing decisions resulting in decreased demand, increased costs, and reduced margins with varying impact across our markets.

Our Business

Agilysys has been a leader in hospitality software for more than 45 years, delivering innovative cloud-native SaaS and on-premise solutions for hotels, multi-amenity resorts, cruise lines, casinos, corporate foodservice management, restaurants, universities, stadiums, and healthcare facilities. The Company’s software solutions include point-of-sale (POS), property management (PMS), inventory and procurement, payments, and related applications that manage and enhance the entire guest journey. Agilysys is also known for its world-class customer-centric service. Many of the top hospitality companies around the world use Agilysys solutions to improve guest loyalty, drive revenue growth, and increase operational efficiencies.

The Company has one reportable segment serving the global hospitality industry. Agilysys operates across the Americas, Europe, the Middle East, Africa, Asia-Pacific, and India with headquarters located in Alpharetta, GA.

Our top priority is increasing shareholder value by improving operating and financial performance and profitably growing the business through superior products and services. To that end, we expect to invest a certain portion of our cash on hand to fund enhancements to existing software products, to develop and market new software products, and to expand our customer breadth, both vertically and geographically.

Our strategic plan specifically focuses on:

•
Putting the customer first

•
Focusing on product innovation and development

•
Improving our liquidity

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•
Increasing organizational efficiency and teamwork

•
Developing our employees and leaders

•
Growing revenue by improving the breadth and depth of our product set across both point-of-sale and property management applications

•
Growing revenue through international expansion

The primary objective of our ongoing strategic planning process is to create shareholder value by capitalizing on growth opportunities, increasing profitability and strengthening our competitive position within the specific technology solutions and end markets we serve. Profitability and industry-leading growth will be achieved through tighter management of operating expenses and sharpening the focus of our investments to concentrate on growth opportunities that offer the highest returns.

Revenue - Defined

As required by the SEC, we separately present revenue earned as subscription and maintenance revenue, professional services revenue or products revenue in our condensed consolidated statements of operations. In addition to the SEC requirements, we may, at times, also refer to revenue as defined below. The terminology, definitions, and applications of terms we use to describe our revenue may be different from those used by other companies and caution should be used when comparing these financial measures to those of other companies. We use the following terms to describe revenue:

•
Revenue – We present revenue net of sales returns and allowances.

•
Subscription and maintenance revenue – Revenue earned from the ongoing delivery of software updates, upgrades, bug fixes, technical support, and transaction-based fees over the period covered by subscription or maintenance agreements with our customers for both proprietary and remarketed solutions.

•
Professional services revenue – Revenue earned from the delivery of implementation, integration, development and installation services for proprietary and remarketed products.

•
Products revenue – Revenue earned from the sales of software licenses, third party hardware and operating systems.

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Results of Operations

First Fiscal Quarter 2026 Compared to First Fiscal Quarter 2025

Net Revenue and Operating Income

The following table presents our consolidated revenue and operating results for the three months ended June 30, 2026 and 2025:

nm - not meaningful

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The following table presents the percentage relationship of our condensed consolidated statement of operations line items to our consolidated net revenues for the periods presented:

Net revenue. Total net revenue increased $11.0 million, or 14.3%, during the first quarter of fiscal 2027 compared to the first quarter of fiscal 2026. Subscription and maintenance revenue increased $9.1 million, or 18.8%, compared to the first quarter of fiscal 2026 driven by continued growth in subscription-based service revenue. Total subscription revenue increased 26.1% during the first quarter of fiscal 2027 compared to the first quarter of fiscal 2026. Professional services revenue increased $1.5 million, or 8.3%, due to higher service activity as our new and existing customers continue implementing technology to improve their operations. Products revenue increased $0.4 million, or 3.9%, due to the fulfillment of perpetual software licenses compared to the prior year quarter.

Gross profit and gross profit margin. Our total gross profit increased $8.4 million, or 17.7%, during the first quarter of fiscal 2027 and total gross profit margin increased from 61.7% to 63.5% compared to the first quarter of fiscal 2026 driven by changes in the composition of revenue by category. Subscription and maintenance gross profit increased $6.4 million, or 16.5%, and gross profit margin decreased from 79.5% to 78.0% as certain variable costs increased ahead of related subscription revenue. Professional services gross profit increased $2.0 million, or 41.5%, and gross profit margin increased from 27.1% to 35.4% reflecting improved utilization rates from efficiency gains on multi-solution implementations. Products gross profit decreased 1.2%, and products gross profit margin decreased from 37.7% to 35.9% due to the composition of hardware and proprietary software products delivered.

Operating Expenses

Operating expenses, excluding other (gains) charges, net, and legal settlements, net, increased $3.4 million, or 8.0%, during the first quarter of fiscal 2027 compared with the first quarter of fiscal 2026.

Product development. Product development increased $2.8 million, or 16.0%, in the first quarter of fiscal 2027 compared with the first quarter of fiscal 2026 due to hiring and increased salary, incentive and employee benefits rates across our development teams.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

In “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (MD&A), management explains the general financial condition and results of operations for Agilysys and subsidiaries including:

— what factors affect our business;

— what our earnings and costs were;

— why those earnings and costs were different from the year before;

— where the earnings came from;

— how our financial condition was affected; and

— where the cash will come from to fund future operations.

The MD&A analyzes changes in specific line items in the Consolidated Statements of Operations and Consolidated Statements of Cash Flows and provides information that management believes is important to assessing and understanding our consolidated financial condition and results of operations. This discussion should be read in conjunction with the Consolidated Financial Statements and related Notes that appear in Item 8 of this Annual Report titled, “Financial Statements and Supplementary Data.” Information provided in the MD&A may include forward-looking statements that involve risks and uncertainties. Many factors could cause actual results to be materially different from those contained in the forward-looking statements. See “Forward-Looking Information” on page 3 of this Annual Report and Item 1A “Risk Factors” in Part I of this Annual Report for additional information concerning these items. Management believes that this information, discussion, and disclosure is important in making decisions about investing in Agilysys.

Overview

Recent Developments

Macroeconomic Conditions

During the year ended March 31, 2026, global macroeconomic conditions were, and continue to be, influenced by a number of factors, including, but not limited to, political unrest, armed conflicts, changes to tariffs and trade policies, labor shortages and natural disasters. We believe such conditions are impacting customer spending and provider pricing decisions resulting in decreased demand, increased costs, and reduced margins particularly in areas outside of the United States.

Book4Time

On August 20, 2024, we acquired Book4Time Parent, Inc. (Book4Time), a global leader in spa management SaaS software, as further described in Note 16, Business Combination, to our consolidated financial statements included under Part II, Item 8 of this annual report. The cash consideration for the acquisition totaled $145.8 million of net cash, partially funded by a credit agreement (the Credit Agreement) we entered into on August 16, 2024 (the Credit Agreement Closing Date), with the lenders party thereto and Bank of America, N.A., as lender and administrative agent, as further described in Note 15, Debt, to our consolidated financial statements included under Part II, Item 8 of this annual report.

Our Business

Agilysys has been a leader in hospitality software for more than 45 years, delivering innovative cloud-native SaaS and on-premise solutions for hotels, multi-amenity resorts, cruise lines, casinos, corporate foodservice management, restaurants, universities, stadiums, and healthcare facilities. The Company’s software solutions include point-of-sale (POS), property management (PMS), inventory and procurement, payments, and related applications that manage and enhance the entire guest journey. Agilysys is also known for its world-class customer-centric service. Many of the top hospitality companies around the world use Agilysys solutions to improve guest loyalty, drive revenue growth, and increase operational efficiencies. The Company has one reportable segment serving the global hospitality industry. Agilysys operates across the Americas, Europe, the Middle East, Africa, Asia-Pacific, and India with headquarters located in Alpharetta, GA.

Our top priority is increasing shareholder value by improving operating and financial performance and profitably growing the business through superior products and services. To that end, we expect to invest a certain portion of our cash on hand to fund enhancements to existing software products, to develop and market new software products, and to expand our customer breadth, both vertically and geographically.

Our strategic plan specifically focuses on:

31

•
Putting the customer first

•
Product innovation and development

•
Improving our liquidity

•
Increasing organizational efficiency and teamwork

•
Developing our employees and leaders

•
Growing revenue by improving the breadth and depth of our product set across both point-of-sale and property management applications

•
Growing revenue through international expansion

The primary objective of our ongoing strategic planning process is to create shareholder value by capitalizing on growth opportunities, increasing profitability and strengthening our competitive position within the specific technology solutions and end markets we serve. Profitability and industry-leading growth will be achieved through tighter management of operating expenses and sharpening the focus of our investments to concentrate on growth opportunities that offer the highest returns.

Revenue – Defined

As required by the SEC, we separately present revenue earned as products revenue, subscription and maintenance revenue or professional services revenue in our Consolidated Statements of Operations. In addition to the SEC requirements, we may, at times, also refer to revenue as defined below. The terminology, definitions, and applications of terms we use to describe our revenue may be different from those used by other companies and caution should be used when comparing these financial measures to those of other companies. We use the following terms to describe revenue:

•
Revenue – We present revenue net of sales returns and allowances.

•
Products revenue – Revenue earned from the sales of software licenses, third party hardware and operating systems.

•
Subscription and maintenance revenue – Revenue earned from the ongoing delivery of software updates, upgrades, bug fixes, technical support, and transaction-based fees over the period covered by subscription or maintenance agreements with our customers for both proprietary and remarketed solutions.

•
Professional services revenue – Revenue earned from the delivery of implementation, integration, development and installation services for proprietary and remarketed products.

32

Results of Operations

Fiscal 2026 Compared to Fiscal 2025

Net Revenue and Operating Income

The following table presents our consolidated revenue and operating results for the fiscal years ended March 31, 2026 and 2025:

nm - not meaningful

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The following table presents the percentage relationship of our Consolidated Statements of Operations line items to our consolidated net revenues for the periods presented:

Net revenue. Total net revenue increased $43.7 million, or 15.9%, in fiscal 2026 compared to fiscal 2025. Products revenue decreased $0.2 million, or 0.4%, due to increasing customer preference for subscription-based software licenses instead of perpetual software licenses. Subscription and maintenance revenue increased $35.9 million, or 21.1%, driven by continued growth in subscription-based revenue including $21.3 million and $11.2 million of Book4Time subscription-based revenue during the years ended March 31, 2026 and 2025, respectively. Total subscription revenue, including Book4Time subscription revenue, increased 30.2% in fiscal 2026 compared to fiscal 2025. Professional services revenue increased $8.0 million, or 12.4%, due to higher sales and service activity as our new and existing customers continue implementing technology to improve their operations.

Gross profit and gross profit margin. Our total gross profit increased $27.9 million, or 16.2%, in fiscal 2026 and total gross profit margin increased from 62.4% to 62.6% compared to fiscal 2025 driven by changes in the composition of revenue by category. Products gross profit decreased $2.5 million, or 12.7%, and gross profit margin decreased from 46.6% to 40.9% due to the composition of hardware and proprietary software products delivered. Subscription and maintenance gross profit increased $30.8 million, or 23.3%, and gross profit margin increased from 78.0% to 79.4% as revenue increases outpaced variable costs as a result of cost optimization discipline. Professional services gross profit decreased $0.4 million, or 2.2%, and gross profit margin decreased from 31.3% to 27.3% reflecting lower utilization rates due to continued hiring and training of new staff and timing of certain large projects.

Operating expenses

Operating expenses, excluding the charges for legal settlements and other (gains) charges, net increased $20.4 million, or 14.2%, in fi

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