What They Do
Agilysys provides specialized software solutions for the hospitality industry, serving hotels, resorts, casinos, and restaurants with property management systems (PMS), point-of-sale, and other operational software. They're transitioning from traditional software licenses to a subscription-based model, capitalizing on the industry's digital transformation needs. The company generates revenue through recurring subscriptions (67% of recurring revenue), professional implementation services, and legacy product sales.
Investment Thesis
**Subscription momentum is accelerating** — 17 consecutive quarters of 23%+ subscription growth, with Q3 hitting 23.1% YoY growth and subscription bookings up 37% year-to-date**Marriott partnership provides massive scale opportunity** — successful pilot implementations completed, with implementation waves beginning across one of the world's largest hotel chains**Margin expansion trajectory is clear** — adjusted EBITDA margins hit 19.5% YTD trending toward 20% target, with management explicitly guiding "definitely higher" profitability in FY2027Key Risks
**Earnings execution has been inconsistent** — recent quarters show mixed EPS performance with 3 out of 4 quarters missing estimates, indicating potential profitability challenges during the transition**Heavy dependence on hospitality sector cyclicality** — concentrated exposure to travel and leisure spending makes the business vulnerable to economic downturns or travel disruptionsGrowth Story
Revenue growth remains robust at 16.5% for CY26, driven by the ongoing shift to subscription-based recurring revenue models in hospitality technology. The company has delivered 16 consecutive quarters of record revenue, with subscription revenue growing 23%+ for 17 straight quarters. Management expects the "next couple of fiscal years will turn out to be the most exciting ones in our history," driven by ecosystem sales averaging 5 products per customer and accelerating Marriott implementations.
Profitability Profile
Agilysys is in active margin expansion mode with gross margins stable at 62.5% and adjusted EBITDA margins approaching the 20% target (currently 19.5% YTD). The subscription transition is driving operating leverage, with combined operating expenses declining as a percentage of revenue (41.2% vs 42.1% prior year). Strong free cash flow generation of $22.7M demonstrates the cash-generative nature of the recurring revenue model.
Competitive Position
Agilysys occupies a strong niche position in hospitality-specific software, competing against broader enterprise software players and specialized point solutions. Their competitive moat stems from deep hospitality industry expertise and an integrated ecosystem approach, with customers now purchasing an average of 5 products per deal. The successful Marriott partnership validates their technology stack against enterprise-grade requirements and provides significant reference value for future sales.
Recent Momentum
Q3 delivered another record revenue quarter at $80.4M (+15.6% YoY), marking the 16th consecutive quarterly record, though revenue came in slightly below expectations (-0.6% miss). The company raised full-year guidance to $318M and maintained confidence in 20% EBITDA margins, with management expressing unusually strong optimism about future growth prospects. Professional services revenue surged 22% YoY, indicating accelerating customer implementations.
What Wall Street Thinks
Wall Street appears cautiously optimistic given the consistent revenue growth and margin expansion, though recent EPS misses suggest some concern about profitability execution during the subscription transition. The raised revenue guidance and management's confident commentary about FY2027 being "definitely higher" profitability likely reinforces the long-term growth narrative. Analysts are projecting continued strong growth with CY27 revenue expected to reach $364M (+14.5% from CY26).
The Bottom Line
Agilysys is a well-positioned vertical software play benefiting from hospitality's digital transformation, with accelerating subscription growth and expanding margins, though investors should monitor EPS execution as the business scales toward its ambitious profitability targets.
