Agilysys Q3 2025 Earnings Report

Lithia Motors EPS Results

• Actual EPS: $0.38
• Consensus EPS: $0.34
• Beat/Miss: Beat by +$0.04
• One Year Ago EPS: $0.35

Lithia Motors Revenue Results

• Actual Revenue: $69.60 million
• Expected Revenue: $73.15 million
• Beat/Miss: Missed by -$3.55 million
• YoY Revenue Growth: +14.90%

Lithia Motors Announcement Details

• Quarter: Q3 2025
• Date: 1/21/2025
• Time: After Market Closes
• Conference Call Date: Tuesday, January 21, 2025
• Conference Call Time: 4:30PM ET

Lithia Motors (NYSE:LAD) operates as an automotive retailer worldwide. It operates in two segments, Vehicle Operations and Financing Operations. The company's Vehicle Operations segment sells new and used vehicles; provides parts, repair, and maintenance services; vehicle finance; and insurance products. Its Financing Operations segment provides financing to customers buying and leasing retail vehicles. The company sells its products and services through the Driveway and Greencars brand names through a network of locations, e-commerce platforms, and captive finance solutions. Lithia Motors, Inc. was founded in 1946 and is headquartered in Medford, Oregon.

Agilysys Q3 2025 Earnings Call Transcript

Presentation

[Operator]

Good day, ladies and gentlemen. Welcome to the Agilysys 2025 Third Quarter Conference Call.

[Operator]

As a reminder, today's conference may be recorded. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. 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.

[Jessica Hennessy, Senior Director of Corporate Strategy & Investor Relations at Agilysys]

Thank you, Twanda, and good afternoon, everybody. Thank you for joining the Agilisys 2025 Q3 conference call. We will get started in just a minute with management's comments. But before doing so, let me read the Safe Harbor language. Some statements made on today's call will be predictive and are intended to be made as forward looking within the Safe Harbor protections of the Private Securities Litigation Reform Act of 1995, including statements regarding our financial guidance.

[Jessica Hennessy, Senior Director of Corporate Strategy & Investor Relations at Agilysys]

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 actual 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, 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 Agilysys made the transformation to an entirely hospitality focused software solutions company in fiscal year 2014. With that, I'd now like to turn the call over to Mr. Ramesh Srinivasan, President and CEO of Agilysys.

[Jessica Hennessy, Senior Director of Corporate Strategy & Investor Relations at Agilysys]

Ramesh, please go ahead.

[Ramesh Srinivasan, President and CEO at Agilysys]

Thank you, Jess. Good evening. Welcome to the fiscal 2025 Q3 earnings call. Joining Jess and me on the call today at our Atlanta headquarters is Dave Wood, CFO. As is our usual practice in these calls, let me cover sales first before discussing revenue and other details.

[Ramesh Srinivasan, President and CEO at Agilysys]

We measure sales or selling success in annual contract value terms. Fiscal 2025 Q3 was our 3rd highest sales quarter ever, slightly below the sequentially preceding Q2, which was the 2nd highest. Just like how the previous quarter was our best ever July to September sales period, this one was the best ever October to December sales quarter. Fiscal 2025 Q3 October to December was a successful sales quarter despite point of sale POS sales coming in below expectations. Sales of POS and POS related products during Q3 was better than Q1, but less than Q2.

[Ramesh Srinivasan, President and CEO at Agilysys]

Fiscal 2025 sales and revenue levels fell well short of our expectations, mainly due to disappointing POS sales levels in the managed food services vertical. The very tough process of crossing the technology old to new transformation bridge turned out to be a lot more challenging with POS than we bargained for. We are currently working on several significant near term POS sales opportunities. We remain confident we will get past this current challenging phase soon. We expect POS sales to return to normal levels during the next few quarters and then improve further on from there.

[Ramesh Srinivasan, President and CEO at Agilysys]

With the exception of installations for one customer, who has not approved the newer versions for their properties yet, virtually all our current POS implementations involve only the combined, modernized and unified new versions and are going very well. As we move into the new calendar year, many customers are coming back to the table for conversations on moving from old to new versions now that they have had the time to plan and budget for these upgrades. On the other hand, Q3 was the all time best quarter for sales of property management systems, PMS, and PMS related add on modules, even excluding sales pertaining to book for time. Sales of PMS and related modules, excluding book for time, measured in annual contract value terms, was 70%, that is 70%, 70% higher than sales during the comparable prior year quarter. None of any PMS sales reported so far includes anything from the Marriott PMS agreement.

[Ramesh Srinivasan, President and CEO at Agilysys]

With one full quarter left to go, fiscal 2025 is already a record best sales year for PMS and related modules, ahead of the previous best full year by as much as 33%. The transformation process from old to new modernized cloud native technology has proven to be a lot more straightforward and simpler to manage with respect to PMS compared to POS. Fiscal 2025 Q3 was another excellent sales quarter for U. S. Domestic sales, including the gaming casinos vertical, with the turnaround beginning to happen in the managed food services vertical.

[Ramesh Srinivasan, President and CEO at Agilysys]

Sales levels in the APAC and MER regions remained at about the same disappointing levels as before. However, we are currently working on several substantial sales opportunities in both these international regions, and it will not surprise us if this current January to March Q4 quarter is a record one for international sales. We are continuing to build our brand reputation and a base of good solid referenceable customers in international regions and are making slow but steady progress. More opportunities will come as we make progress with these efforts. Despite ongoing challenges with POS and international sales, overall global sales at the end of the first three quarters of fiscal 2025, April to December was well ahead of last year's record pace through 3 quarters, and we continue to see sales momentum as we move into the final quarter of the fiscal year.

[Ramesh Srinivasan, President and CEO at Agilysys]

During fiscal 2025 Q3 October to December, we added 12 new customers and 11 of them were fully subscription based. These new customers signed up for an average of 6 products each, which is a record high. In addition, we added 76 new properties, which did not have any of our products before, but the parent company was already our customer. Of the 88 new properties added during the quarter across new customers and new properties of current parent customers, 86 were either partially or fully subscription based. With respect to new product sales, there were 86 instances of sales to properties, which have at least one of our other products already in use.

[Ramesh Srinivasan, President and CEO at Agilysys]

These 86 instances involve sales of a total of 204 new products. With 1 quarter remaining in the year, fiscal 2025 is already the best full year in our history for new product sales. Customers using at least one of our products continue to trust us, buying additional products at a record pace. We continue to work hard to translate that success we are having with customers who know us well to new customers who have not known us well before and are only now becoming more familiar with our recent history of product innovation. Like we said in our last earnings call, much of the hospitality industry has not fully discovered the new Agilysys yet.

[Ramesh Srinivasan, President and CEO at Agilysys]

We have a long promising runway of short and medium term sales and revenue growth ahead of us, both with the existing customer base and with new customers. Our current global demo plus sales pipeline measured at 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 20% higher as of December end compared to the same time the previous year. This demo plus sales pipeline was 22% and 37% higher for POS and PMS opportunities respectively as of December end compared to the same time 1 year ago. Our sales momentum remains strong, but it can be even stronger. Our installations are getting better, but we should be doing a lot more of them.

[Ramesh Srinivasan, President and CEO at Agilysys]

Our number of new customers is good, but can be far higher. These are the areas we are focused on as we move into the final quarter of this year and continue our work on growth plans for the next fiscal year. On to revenue and profitability. Fiscal 2025 Q3 revenue was a record $69,600,000 the 12th consecutive record revenue quarter, 14.9%, that is 1 4, 14.9% higher than the comparable prior year quarter. Product revenue was $10,700,000 which was 15.8%, that is 15.8% lower than Q3 last year.

[Ramesh Srinivasan, President and CEO at Agilysys]

Product revenue continues to be challenged due to 3 main factors. 1, an increasing proportion of business expansion is now based on the cloud involving subscription licenses. Perpetual software license revenue, which forms a portion of product revenue, is not expected to be one of our future growth engines. Factor number 2, the hardware portion of product revenue is dependent on POS sales, which has been challenged in the recent past. And factor number 3, each unit of POS sales now has a reduced hardware attach rate because the recent software versions of our POS terminals support all major operating systems, Windows, iOS and Android, enabling customers to buy devices like iPad directly and not through us.

[Ramesh Srinivasan, President and CEO at Agilysys]

While we expect POS sales levels to improve in the near term, we expect product revenue levels to remain challenged for the foreseeable future. Fiscal 2025 Q3 services revenue was $14,500,000 $14,500,000 $14,500,000 $13,500,000 that is $13,000,000 again, 13.5 percent higher than the comparable prior year quarter, but below our expectations and back to more realistic levels. Services revenue and margin this quarter was affected by three reasons. 1, billable PMS product enhancement development work for the major project we've been working on for several quarters has been substantially completed as that project now moves into the deployment planning phase. Reason number 2, a few significant implementation projects were postponed by customers during December to subsequent months to a larger extent compared to previous December months.

[Ramesh Srinivasan, President and CEO at Agilysys]

And reason number 3 was our inability to meet our hiring goals during the past few months as we continue to expand the size and strength of the implementation services teams. Services backlog is now at a record high level, and we expect services revenue to grow along a more realistic path for the foreseeable future. We are currently working on ways to increase the hiring pace for the services teams. Fiscal 2025 Q3 recurring revenue was a record $44,400,000 26.4 percent higher than the comparable prior year period. The year over year increase in recurring revenue of $9,300,000 is a record high.

[Ramesh Srinivasan, President and CEO at Agilysys]

Recurring revenue was 63.8% of total revenue this quarter. Within recurring revenue, subscription revenue was a record $28,300,000 45.1 percent higher than the comparable prior year quarter. This was the 6th consecutive quarter of subscription revenue year over year growth of at least 29%. Organic subscription revenue year over year growth was 23%. The overall subscription revenue year over year increase was a record 8,800,000 dollars Subscription revenue is now 63.8 percent of total recurring revenue, which is the highest level reached till now.

[Ramesh Srinivasan, President and CEO at Agilysys]

Subscription revenue pertaining to point of sale POS and POS related modules grew by close to 20% year over year, while subscription revenue pertaining to PMS and PMS related modules, not including book for time, grew by 35% year over year. PMS related subscription revenue grew during the 1st 3 quarters of fiscal 2025 by a lot more than the sum of the growth during all of the previous full fiscal year. Removing book for time subscription revenue from both the numerator and the denominator, subscription revenue from only add on modules across both POS and PMS, most of which were created during the recent past several years, constituted 22% of total subscription revenue. Including book for time in the equation, add on modules are now 34% of total subscription revenue. Over the past several years, our product development teams have done a masterful job of completing the extremely onerous and difficult product modernization projects, achieving a near 100% success rate with each product reengineering and new module creation effort.

[Ramesh Srinivasan, President and CEO at Agilysys]

This kind of success rate is not often seen with such massive reengineering exercises in the enterprise software world. All recent installations, which are based only on the modernized versions, are going very well. The transformation from old to new had to be done in stages for the POS products and became more challenging than we expected. We underestimated those transition related sales challenges this fiscal year. Most of the top line revenue headwinds we have faced this fiscal year are related to these POS sales challenges, mainly in the managed food services vertical.

[Ramesh Srinivasan, President and CEO at Agilysys]

We now expect full fiscal year 2025 total revenue to be $273,000,000 We expect to achieve the previously provided guidance for profitability levels and subscription revenue growth. Before handing the call over to Dave for more on our financial results, a quick update on the Marriott PMS project. As we mentioned earlier in the call, we have now moved past the initial significant development phase of the project. All vendors are working collaboratively towards the next phase and there is a high degree of transparency regarding all project details among all involved parties. This includes detailed end to end ecosystem and system performance testing across all vendors and preparing for a few test properties, which will be followed by pilot property installations expected in the second half of this calendar year.

[Ramesh Srinivasan, President and CEO at Agilysys]

With that, let me hand over the call to Dave.

[Dave Wood, Senior VP & CFO at Agilysys]

Thank you, Ramesh. Taking a look at our financial results, beginning with the income statement. 3rd quarter fiscal 2025 revenue was a quarterly record of $69,600,000 a 14.9% increase from total net revenue of $60,600,000 in the comparable prior year period. One time revenue consisting of product and professional services was down 1.1% compared to the prior year quarter, while recurring revenue was up 26.4%. We continue to work through challenges of transforming the new versions of our modern products.

[Dave Wood, Senior VP & CFO at Agilysys]

We are also seeing revenue impact this quarter as we move beyond the development phase and start planning for the rollout of a major customer. However, our sales momentum remains strong with Q3 bookings at healthy levels for future revenue growth. Our total backlog remains at near record levels. One time product revenue, which has been a significant challenge during the second half of the fiscal year, will continue to be the biggest headwind in the business through the Q4. The full fiscal year product revenue will be 15% to 20% down compared to the last fiscal year, a larger year over year reduction than we originally expected.

[Dave Wood, Senior VP & CFO at Agilysys]

Although short of expectations, point of sale bookings are still up over the low point in Q1 of fiscal year 2025. Professional services increased 13.5% over the prior year quarter to $14,500,000 with services gross margin at 26.7 percent. Professional services reduced by $1,800,000 when compared to Q2 fiscal year 2025. The drop was largely related to the large development effort we've been working on during the past couple of years. We have now wrapped up the majority of the initial development progress.

[Dave Wood, Senior VP & CFO at Agilysys]

We are moving past the major development phase and shifting our focus to the rollout phase of the project. We will continue to see some development services related revenue associated with the large project, but at a significantly reduced level, bringing services revenue more in line with normal growth rates. Typical professional services projects also caused some revenue impact during Q3, where the timing of holidays caused several large projects to delay into the Q4 more than in prior years. Professional services backlog once again increased to record levels. Total recurring revenue represented 63.8 percent of total net revenue for the fiscal Q3 compared to 58% in the Q3 of fiscal 2024.

[Dave Wood, Senior VP & CFO at Agilysys]

Fiscal 2025 Q3 subscription revenue grew 45.1% over Q3 last fiscal year. Subscription revenue comprised 63.8% of total recurring revenue compared to 55.6% of total recurring revenue in the Q3 of fiscal 2024. Subscription revenue increased sequentially $3,300,000 from the Q2 of fiscal 2025. Organic subscription growth was 23% for the quarter and trending to 25% for the full fiscal year. Q3 was the best subscription sales quarter in our history.

[Dave Wood, Senior VP & CFO at Agilysys]

The subscription backlog continues to increase over our fiscal year 2024 exit rates. Moving down the income statement. Gross profit was $43,900,000 compared to $37,800,000 in the comparable prior year quarter. Gross profit margin was 63% compared to 62.5% in the Q3 of fiscal 2024. Overall, total gross margin should remain just north of 60% for the full fiscal year.

[Dave Wood, Senior VP & CFO at Agilysys]

Combined, the 3 main operating expense line items, product development, sales and marketing and general and administrative expenses when excluding stock based compensation were 42.1 percent of revenue in the fiscal 2025 Q3 compared to 43.1 percent of revenue in the prior year quarter. Excluding stock based compensation, product development decreased to 18.2 percent of revenue during Q3 of fiscal 2025 compared to 20.9% of revenue in the comparable prior fiscal year Q3. General and administrative expenses decreased to 11.7 percent of revenue compared to 12.4% in the comparable prior fiscal year, while sales and marketing increased from 9.8% of revenue to 12.2 percent of revenue. Operating income for the Q3 of $7,400,000 net income of $3,800,000 and GAAP diluted share of $0.14 compares to the prior year Q3 gain of $7,800,000 76,900,000 and $2.85 The reduction in net income was primarily due to the release of a $65,000,000 valuation allowance in the prior year quarter. Adjusted net income normalizing for certain non cash and non recurring charges of $10,700,000 and adjusted diluted earnings per share of $0.38 were both improvements over the prior year Q3 result of $9,300,000 $0.35 respectively.

[Dave Wood, Senior VP & CFO at Agilysys]

For the 2025 Q3 adjusted EBITDA was $14,700,000 compared to $11,800,000 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 21.2 percent of revenue. Moving to the balance sheet and cash flow statements. Cash and marketable securities as of December 31, 2024 was $60,800,000 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.

[Dave Wood, Senior VP & CFO at Agilysys]

As a reminder, we also utilized $50,000,000 through our credit revolver to fund the book for Tom acquisition. As of fiscal Q3 end, we have paid down $12,000,000 of the associated debt. Subsequent to December 31, 2024, we paid down an additional $14,000,000 Free cash flow in the quarter was $19,700,000 compared to $11,300,000 in the comparable prior year quarter. For the 1st 9 months of fiscal year 2025, free cash flow was $25,900,000 compared to $10,700,000 in the prior year. As we said in the past, adjusted EBITDA and free cash flow continue to be good proxies for health of the business over the course of the fiscal year.

[Dave Wood, Senior VP & CFO at Agilysys]

One time revenue challenges have led us to lower our annual guidance to 2 73,000,000 dollars though subscription growth remains at least 38%. Despite this, profitability is above plan due to lower costs associated with reduced revenue expectations. In closing, our Q3 fiscal year 2025 financial results reflect some short term challenges that affirm the solid foundation for current and future revenue growth. With that, I will now turn the call back over to Ramesh.

[Ramesh Srinivasan, President and CEO at Agilysys]

Thank you, Dave. In summary, let me reiterate that the top line revenue related headwinds we have faced this fiscal year are only related to the tough transition phase we are in now as we leave behind older technologies we were dependent on for a couple of decades and have entered a new era of cloud native modernized technologies using which we have created an integrated set of a unified ecosystem of hospitality focused software modules, which have given us a distinct and tough to duplicate competitive advantage. Fiscal 2025 was a pivotal year in that massive transition and we underestimated the sales challenges on the point of sale POS side of the equation. We should keep in mind that fiscal 2025 is still a record sales year for us, but could have been a lot better. In addition, we could have also done a lot better with the speed of hiring for the implementation services teams.

[Ramesh Srinivasan, President and CEO at Agilysys]

We are focused on that now and expect professional services revenue to return to more realistic growth levels moving forward. We cannot blame these challenges on any other significant reason. There are no external headwinds that have caused these challenges, no macroeconomic issues, no changes in the competitive environment, no structural issues, our business fundamentals are stronger now than ever before. Nothing that will require us to rethink any of our ongoing business and growth investment strategies, none of any of that. Our profitability levels are good and can be improved further as our operating leverage continues to be steadily more effective over the medium and long term.

[Ramesh Srinivasan, President and CEO at Agilysys]

We have not sacrificed any growth related needs to fuel profitability. The total addressable market size remains huge. We have now a credible presence in the PMS, property management systems arena, where our growth journey is only getting started. We remain confident in our ability to run a world class enterprise software disciplined growth organization, which knows how to balance growth and profitability. The major PMS project we've been working on continues to progress well.

[Ramesh Srinivasan, President and CEO at Agilysys]

We are working through this transition phase and are in a good position to thrive and grow. We underestimated some of the short term old to new transition challenges this fiscal year. That is it, nothing more and nothing less. The newer, modernized, unified versions of our product sets are doing well in the field. They are easier to implement, support and enhance.

[Ramesh Srinivasan, President and CEO at Agilysys]

They give us excellent reasons to be very bullish about our future for our employees, customers and shareholders. With that, Tuwenda, let's open up the call for questions.

[Operator]

Thank you. Our first question comes from the line of George Sutton with Craig Hallum. Your line is open.

[George Sutton, Senior Research Analyst at Craig-Hallum Capital Group LLC]

Thank you. Ramesh, I wondered if you could just walk through this development process that you talked about that we're now going to be in with our major project. What does it tell us about the overall project? Have there been any scope changes? I believe we were pursuing a train the trainer model, which would suggest at some point we have less services component to this.

[George Sutton, Senior Research Analyst at Craig-Hallum Capital Group LLC]

But if you could just give us a little sense of that? And then also you mentioned that there will be a few test properties than a pilot base. Can you just give us a little more detail on the significance of those phases?

[Ramesh Srinivasan, President and CEO at Agilysys]

Yes. George, the good news about this project is there are no major changes from what we have been telling you all this time. Given how big a project is it, it is with a major customer, it's a massive transformational project for them that involves multiple vendors. And considering all the moving parts, it has gone remarkably well so far and almost exactly on plan. So there was a lot of development needs, product development needs that needed to get done, which are all substantially over now.

[Ramesh Srinivasan, President and CEO at Agilysys]

And we are now moving into the ecosystem, system performance testing and deployment planning phases, which is exactly what where we thought we would be at this time. And what we expect in the second half of this year is test properties followed by pilot sites to go live in the second half of calendar twenty twenty five, and then we proceed from there. So all that is going exactly the way it was planned. And one thing to note that it is being managed very well by Marriott. There's a lot of transparency across all parties.

[Ramesh Srinivasan, President and CEO at Agilysys]

There are obviously multiple vendors involved in this. And we and the other vendors have good seats at the table. We are all aware, the details are transparent. We are all aware of what is going on. And there's a remarkable degree of cooperation and coordination among all the parties.

[Ramesh Srinivasan, President and CEO at Agilysys]

So things are going on well.

[George Sutton, Senior Research Analyst at Craig-Hallum Capital Group LLC]

You mentioned that you won't be surprised if international is a record this quarter, which would be suggestive of some near term pipeline opportunities. What is that dependent on this quarter? Is it dependent on you winning something that you are anticipating winning? Or is it the timing of the decision that's more important?

[Ramesh Srinivasan, President and CEO at Agilysys]

See, the characteristic of international sales for the last few quarters, which is sort of both good news and bad news, George, is that it is still dependent on a few home loans and not enough singles and doubles. And there are a couple of significant sales opportunities that we have been working on that I think hopefully should come to fruition during the next few months. So, there is a chance that this quarter, January through March, could be a record quarter for international sales, but that still doesn't get out of the doldrums. We still need to build a solid pipeline of singles and doubles, which we are working on. We are building our reputation.

[Ramesh Srinivasan, President and CEO at Agilysys]

We are increasing our relationships. But these kinds of big wins when they happen do matter because it increases our presence. But the dependence is still on the big hits, the big home runs. We need to develop more singles and doubles in the international regions.

[George Sutton, Senior Research Analyst at Craig-Hallum Capital Group LLC]

One other thing if I could. You mentioned the new Agilysys is still not necessarily appreciated as broadly as you would like. I'm curious if you can bifurcate that to domestic versus international or do you feel you're known better domestically and therefore seeing the opportunities you should see? And then on the other side, on the international side, my assumption is you're not seeing as many opportunities as you think you should based on the new Agilysys?

[Ramesh Srinivasan, President and CEO at Agilysys]

Yes. In terms of the reputation of the new Agilysys, Jars, we do have 2 hills to climb, 1 domestic and 1 international. And there is no question that the domestic hill is a lot shorter to climb. We already have a reputation domestically. We are well known, reasonably well known.

[Ramesh Srinivasan, President and CEO at Agilysys]

Now we are trying to spread the message of the new Agilysys. And for that, a lot of the new installations, meaning installations based on the new modernized and unified versions, we are getting more and more of them done. And as they continue to go well, the message of the new Agilysys, the modernized cloud native solutions keeps spreading. Internationally, that hill is a lot higher to climb, because we just didn't have that much of a reputation before. Not only do we have to establish the name of Agilysys there and then we have to establish the name of new Agilysys as well.

[Ramesh Srinivasan, President and CEO at Agilysys]

And a lot of the big projects, the big sales opportunities we're working on will provide us that news, right, will provide us those referenceable customers around whom we can build. To answer your question, it is definitely an easier process domestic than in internationally.

[George Sutton, Senior Research Analyst at Craig-Hallum Capital Group LLC]

Got you. I'll leave it to others. Thank you very much.

[Ramesh Srinivasan, President and CEO at Agilysys]

Thank you, Josh.

[Operator]

We stand by for our next question. Our next question comes from the line of Sam Selves with Needham and Company. Your line is open.

[Sam Selves, Equity Research Associate at Needham & Company]

Great. Thanks.

[Sam Selves, Equity Research Associate at Needham & Company]

Hey, guys. I'm just hopping on for Mayank here tonight. I wanted to touch on the POS sales in the quarter. I know you said they were better than the Q1, but they still declined sequentially. So I'm just curious if you guys could talk about what gives you the confidence that these trends are going to get better in the coming quarters and throughout the coming year?

[Ramesh Srinivasan, President and CEO at Agilysys]

Yes. So our confidence that POS sales will continue improving is based on the pipeline we are working on now, Sam. Like we told you, there is one crucial metric of pipeline that we manage internally that we refer to as demo plus pipeline. So our sales pipeline runs into 100 of 1,000,000 of dollars. But within that, we focus on a subset that we call demo plus, which is the pipeline of sales opportunities where we have at least reached the product demonstration stage where the customer has asked for product demos and those product demos are going on.

[Ramesh Srinivasan, President and CEO at Agilysys]

Now that pipeline for PMS is something like 37% higher than the same time last year, meaning compare December end calendar 2024 with December end calendar 2023, PMS is like 37% higher, but POS is 22% higher. We are working through a lot of significant POS sales opportunities. Now I would not put too much focus on the fact comparing sales of Q1 versus Q2 versus Q3. One thing is clear to us, Q1 was the definite bottom point. We have struggled with POS sales for a couple of quarters.

[Ramesh Srinivasan, President and CEO at Agilysys]

Q1 hit a low point and since then we are climbing back upwards. And there are significant POS sales opportunities we are working on now, which gives us the confidence that things will improve reasonably quickly during the coming few quarters.

[Sam Selves, Equity Research Associate at Needham & Company]

Got it. Okay. That's helpful. And then just a quick follow-up on the 11 new subscription logos you guys signed in the quarter. Can you just quickly talk about what markets these were

[Sam Selves, Equity Research Associate at Needham & Company]

in, which verticals and maybe parse out

[Sam Selves, Equity Research Associate at Needham & Company]

how many were POA? Verticals and maybe parse out how many were POS versus PMS?

[Ramesh Srinivasan, President and CEO at Agilysys]

A good portion of them were POS like it usually is for us. Many of them involve both POS and PMS together. And probably the main highlight of that was that each of them involved purchase of 6 products, which is a record high for us. We have never been anywhere close to that 6 number on an average across all the new customers and 6 was a record high for us. So each customer who came to us purchased several products and most of them involved both POS and PMS.

[Ramesh Srinivasan, President and CEO at Agilysys]

So POS was more than PMS in that. In terms of verticals, I don't know exactly which vertical they were more off, but it involved all verticals. There was no particular vertical where I could highlight for you. It involved all our sales verticals. There were new customers across all of them.

[Sam Selves, Equity Research Associate at Needham & Company]

Yes. Okay. Good to hear. All right. Thanks, guys.

[Sam Selves, Equity Research Associate at Needham & Company]

I'll jump back in.

[Ramesh Srinivasan, President and CEO at Agilysys]

Thank you, Sven.

[Operator]

We'll stand by for our next question. Our next question comes from the line of Eitan Gutkheim with Oppenheimer. Your line is open.

[Brian Schwartz, Managing Director and Senior Analyst at Oppenheimer & Co. Inc.]

Hi. This is Brian Schwartz for Oppenheimer. Thanks for taking my questions. Ramesh, in terms of the point of sale bookings weakness that you talked a lot about, is that mostly contained in the managed foods category? Or is it happening in those other categories?

[Ramesh Srinivasan, President and CEO at Agilysys]

It is to answer your question, Brian, it's mostly large part, huge majority of it is mostly because of the managed food service vertical. Though I would say that in the other verticals, which are doing well, it could be better. But in terms of the challenges we've had, they have been for the large part in the managed foodservices vertical. And in that vertical and also in the lower end of the markets in the other verticals as well, these are all major restaurants, cafeterias, F and B places that don't have the greatest IT support, right. They cannot afford huge IT departments.

[Ramesh Srinivasan, President and CEO at Agilysys]

So the products have to be simple to install. They have to be simple to support. They have to be very simple to upgrade. Those are all requirements in the POS. Now that's how our POS systems used to be, but we took on this massive transformation of reengineering it completely into cloud native products and also unify staff facing and guest facing feature sets.

[Ramesh Srinivasan, President and CEO at Agilysys]

And it became more complicated than it should be and that cost pause in some of the opportunities coming through, which we are now getting passed since a lot of the new installs are back to being simple to upgrade to enhance and support. But it was the damage was mostly in the managed foodservice vertical.

[Brian Schwartz, Managing Director and Senior Analyst at Oppenheimer & Co. Inc.]

Okay. Moving on Ramesh, in your introductory comments, sounds like you're putting a greater focus on the go to market on the new customer acquisition. And I know that that hasn't been the primary source for bookings, more of that comes from the installed base. My question for you is, does that change the cadence of your sales rep hiring for next year? Are you looking to scale up the capacity of more hunters?

[Brian Schwartz, Managing Director and Senior Analyst at Oppenheimer & Co. Inc.]

Or are you planning to make any other changes either the organizational structure or the leadership to support a greater focus on the customer acquisition motion next year?

[Ramesh Srinivasan, President and CEO at Agilysys]

Yes. So Brian, the customer acquisition focus, yes, is more on getting more newer customers. And the fundamental thing we are doing now we are focused on is ensuring full territory coverage, which is where we have been lacking before. Now we are continuing to we are going to get a lot of sales from our current customers. We have great relationships with them.

[Ramesh Srinivasan, President and CEO at Agilysys]

They are all very happy that we have modernized our products and they have been with us for a very long time. So the new product sales, selling more products to customers with at least one of our products is going to continue to increase. Like I said in my opening remarks, in 3 quarters this year, this is already our best year. We have 1 quarter to go and we are far ahead of full previous year. So that is going to continue.

[Ramesh Srinivasan, President and CEO at Agilysys]

But our success has to come a lot more from new customers and new sites as well. Now couple of things. Number 1, we have plenty of room for sales growth with the current sales team. We did expand our sales team over the last 1 or 2 years, and we still have what I would call the second half of the sales team that can do a lot better than they are doing today. So the focus is on that.

[Ramesh Srinivasan, President and CEO at Agilysys]

They've all gone through the ramp time and now that the products are there to sell, we are expecting a lot more from them. So the first thing is there is plenty of room for sales growth with the current sales team. Now, Joe Youssef is also focused on expanding the sales teams, especially in the hotels and resorts area, and we are focused on making sure we cover the territory. There are still thousands of properties that we are not touching properly at the moment, and we are focused on expanding our sales team to ensure full territory coverage. Now, the rest of all the teams are focused on helping sales.

[Ramesh Srinivasan, President and CEO at Agilysys]

We want to make sure we create a lot more referenceable customers with the newer versions so that it becomes easier for sales to sell. So we are focused on all those areas, Brian.

[Brian Schwartz, Managing Director and Senior Analyst at Oppenheimer & Co. Inc.]

Thank you. And one follow-up for Dave. Just on the guidance, are you taking the same methodology as you've had before? Or are you injecting a little more conservatism given the guidance has been walked down here a couple of times? I'm just getting a lot of questions whether this is a new guide or still kind of the same pipeline that you're looking at.

[Brian Schwartz, Managing Director and Senior Analyst at Oppenheimer & Co. Inc.]

If you could share any color on that methodology, I'd appreciate it. Thanks for taking my questions.

[Dave Wood, Senior VP & CFO at Agilysys]

I think it's a consistent way of guiding. I mean, we feel very strong about the short and medium term opportunities through the pipeline. I mean, Ramesh gave a lot of commentary about how well our pipeline is doing. But obviously, with only a couple of months left in the quarter, we're likely not going to make up some of the services shortfall and some of the product shortfall. I mean, I would expect product revenue to kind of remain about where it is today, maybe up a little bit.

[Dave Wood, Senior VP & CFO at Agilysys]

Services obviously will improve next quarter as we without the holiday impact and then the normal subscription growth you're used to seeing to kind of get you to the 25% guide. But I would say there's not a change in methodology. I mean, we feel as strong as we ever have about our pipeline in the medium and short term of Agilysys, but with just 1 quarter left, it's going to be hard to make up the one time revenue.

[Brian Schwartz, Managing Director and Senior Analyst at Oppenheimer & Co. Inc.]

Thank you.

[Operator]

Thank you. Please standby for our next question. Our next question comes from the line of Nehal Chokshi with Northland Capital Markets. Your line is open.

[Nehal Chokshi, Managing Director at Northland Securities, Inc]

Thank you. Ramesh, in your prepared remarks, you said something was up 70% year over year. I didn't catch what that something was. Could you repeat that, please?

[Ramesh Srinivasan, President and CEO at Agilysys]

We said are you referring to the sales pipeline comment we made, Nehal?

[Nehal Chokshi, Managing Director at Northland Securities, Inc]

I believe so, yes.

[Ramesh Srinivasan, President and CEO at Agilysys]

Yes.

[Nehal Chokshi, Managing Director at Northland Securities, Inc]

So You think it's

[Nehal Chokshi, Managing Director at Northland Securities, Inc]

the PMS bookings or some sort of bookings?

[Ramesh Srinivasan, President and CEO at Agilysys]

Yes. We are referring to the sales pipeline or you are referring to the bookings or you are referring to the subscription revenue growth. So let me just cover that very quickly. Let's talk about bookings first. PMS and PMS related add on modules, sales booking at the end of 3 quarters is already a record full year for us.

[Ramesh Srinivasan, President and CEO at Agilysys]

So in terms of sales bookings of PMS and PMS related add on modules are a record for us, record as far as full year is concerned. Now without book for time, if you remove book for time numbers out of it, the sales of PMS and related modules is about 70% higher this Q3 than last Q3. So you take this October to December and just add up all our PMS. By the way, there is no Marriott PMS sales included in all this because we have not yet started including that in sales. The sales of PMS and add on modules this Q3 was 70%, 7 0%, 70% higher than sales during last year's Q3.

[Ramesh Srinivasan, President and CEO at Agilysys]

That's one thing we mentioned. We also mentioned that including book for time, sales of PMS and related modules in 3 quarters is already our best ever year, higher than 33% compared to the previous best full year. We mentioned both those aspects. And we also said that sales pipeline, and we only count pipeline that have reached the demonstration stage of products, PMS this year is about 37% higher than PMS at the same time December end last year. I think those are the three things we mentioned.

[Nehal Chokshi, Managing Director at Northland Securities, Inc]

Yes, that's great. And just to be clear, PMS bookings excluding book for time is up 70% year over year, which is tracking way ahead of your pipeline growth. Is that just a result of timing or is that a result of increased win rates?

[Ramesh Srinivasan, President and CEO at Agilysys]

It is because of additional signings with new customers. That is customers who didn't have our PMS products before signing up to buy PMS products. Yes, you compare Q3 this year that we just completed with Q3 last year, it is 7.0, 70% higher in terms of actual sales signed with customers.

[Nehal Chokshi, Managing Director at Northland Securities, Inc]

Okay.

[Ramesh Srinivasan, President and CEO at Agilysys]

And that is tracking ahead of pipeline. And that is where we wish POS sales had also done well. We would be flying a lot higher now.

[Nehal Chokshi, Managing Director at Northland Securities, Inc]

Yes. And then in the past, you had talked about module attach rate for PMS bookings. Can you give out that metric again for the December quarter?

[Ramesh Srinivasan, President and CEO at Agilysys]

Yes. Mostly for the newer customers, the new what we said the new customers who have signed bought an average of 6 products from us, which is a record high for us. And generally, the PMS attach rate of add modules is about 8 modules. It's about 8.5 modules per PMS deal that we sign. Every time we sign a PMS deal, it goes along with about 7 to 8 attached add on modules.

[Nehal Chokshi, Managing Director at Northland Securities, Inc]

And then my last question is that

[Ramesh Srinivasan, President and CEO at Agilysys]

And we have more sorry, Nehal. We have more add on modules with PMS than we have with POS. Go ahead, Nehal.

[Nehal Chokshi, Managing Director at Northland Securities, Inc]

Yes. Understood. And then you've got a new TAM slide where you're going from what used to be a $5,000,000,000 ARR TAM that you used to cite 6 months ago to now $16,000,000,000 Can you take us through the confidence level that Agilysys really is addressing this incremental $11,000,000,000 and whether or not the expectations of

[Nehal Chokshi, Managing Director at Northland Securities, Inc]

the type of market share you think

[Nehal Chokshi, Managing Director at Northland Securities, Inc]

you can get in your core markets, is it the same for these adjacencies that you've identified?

[Dave Wood, Senior VP & CFO at Agilysys]

Yes. Hey, Nehal. We feel like the new TAM represents our current market. I mean, the old TAM we had not rolled in a lot of the add on modules. I mean, keep in mind, most of these add on modules are we call them add on modules, but they're really standalone products that are competing with 5 to 10 people in the market at any given point.

[Dave Wood, Senior VP & CFO at Agilysys]

So we had kind of as a practice weighted tool, they were had the ability to compete on a best of breed to roll that in. But most of the TAM expansion is really just rolling in our add on modules that after 3 or 4 years are now competing on a best of breed methodology.

[Nehal Chokshi, Managing Director at Northland Securities, Inc]

Okay. And then implicitly, currently you have lower market share on this incremental TAM and that's expected. But on a longer term basis, would you expect the market share on that incremental TAM to continue to be far less than your market share of your core markets current core markets?

[Dave Wood, Senior VP & CFO at Agilysys]

No, I mean, we expect

[Dave Wood, Senior VP & CFO at Agilysys]

I mean, whether you're talking about add on or PMS core, I mean, we're such we have such low market share today. I mean, we still have less than 300,000 rooms in a 20 near 20,000,000 room market. So there's plenty of expansion in our core solutions. And obviously, like we've talked about a lot over the last couple of years, we're just starting to compete on a best of breed in our Tier 2 core and our add on modules. So we don't feel like we're butting up against any kind of market penetration limitations and we think across the board we'll take more market share over the short and medium term.

[Nehal Chokshi, Managing Director at Northland Securities, Inc]

All right. Thank you.

[Operator]

Thank you. Please standby for our next question. Our next question comes from the line of Stephen Sheldon with William Blair. Your line is open.

[Matthew Filek, Equity Research Associate at William Blair]

Hey, everyone. You have Matt Fialik on for Stephen Sheldon. Thank you for taking my questions. Wanted to start with a couple

[Matthew Filek, Equity Research Associate at William Blair]

of quick model questions for Dave. Number 1, how

[Matthew Filek, Equity Research Associate at William Blair]

should we be thinking about gross margins in the 4th quarter and into next year in light of the challenges with the point of sale sales activity? And then 2, can you just clarify what you mean by more normalized growth rates for the professional service line item looking into next year?

[Dave Wood, Senior VP & CFO at Agilysys]

Yes. So I mean for us, we kind of look at the business as it's been the gross margins obviously have been growing over the last 4 or 5 years as we've made transition to more of a subscription base. I mean we went into this year kind of thinking they would cross over into the 60% gross margins for the first time. Now, I mean, we're trending closer to the 63% gross margin. That feels more normal to us.

[Dave Wood, Senior VP & CFO at Agilysys]

I mean, so going into next year, I would assume you would see gross margin expansion incrementally. I don't think there's going to be a 5% or 6% jump, but I would think gross margins will continue to grow up a point or 2% from where they are today at 62%, 63%. So with the change in product mix, I don't think we'll go back down to the low 60s or high 50s in gross margin. Question about service. And then the normalized service is I mean, so really the way we think about professional services is professional services is the line that kind of grows with top line revenue.

[Dave Wood, Senior VP & CFO at Agilysys]

And obviously, the last couple of quarters we've had the major development and we've had some 37%, 39% type services growth, which is not normal for us. We expect professional services to grow in line with top line. So if top line is growing 15% to 20%, professional services probably grows around the same level. Obviously, once kind of backing out some of the one time anomalies we've had this fiscal year.

[Matthew Filek, Equity Research Associate at William Blair]

Got it. Thank you, Dave. Helpful context on both of those. And then this question was somewhat addressed already, but I just wanted to circle back on it. So for the Marriott rollout, is there anything you can share on the planned pace of rollout from a location perspective?

[Matthew Filek, Equity Research Associate at William Blair]

And then are there any regions in particular that you may initially focus that deployment?

[Ramesh Srinivasan, President and CEO at Agilysys]

Unfortunately, Matt, no, we cannot. So the best we can tell you now is the project is going well. There's a high degree of transparency across all the parties and it is being managed very well. And what we expect in the second half of calendar twenty twenty five, our test properties and following that pilot sites to go live. That is the best we can tell you now unfortunately.

[Matthew Filek, Equity Research Associate at William Blair]

Okay. Thank you, Ramesh and team. Appreciate the time.

[Ramesh Srinivasan, President and CEO at Agilysys]

Yes. Thank you, Matt.

[Operator]

Thank you. Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to Ramesh for closing remarks.

[Ramesh Srinivasan, President and CEO at Agilysys]

Thank you, Towanda. Thank you for all your interest and support. Best wishes to all of you for a very happy, healthy, safe and successful 2025. Look forward to catching up again around the middle to end of May when we will be reporting Q4 and full fiscal year 2025 results. Thank you.

[Operator]

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.

Participants

Executives

• Jessica Hennessy, Senior Director of Corporate Strategy & Investor Relations
• Ramesh Srinivasan, President and CEO
• Dave Wood, Senior VP & CFO

Analysts

• George Sutton, Senior Research Analyst at Craig-Hallum Capital Group LLC
• Sam Selves, Equity Research Associate at Needham & Company
• Brian Schwartz, Managing Director and Senior Analyst at Oppenheimer & Co. Inc.
• Nehal Chokshi, Managing Director at Northland Securities, Inc
• Matthew Filek, Equity Research Associate at William Blair