AGILYSYS INC

Previous wording

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 Combinations, to our condensed 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 condensed consolidated financial statements included under Part II, Item 8 of this annual report.

Current wording

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.

Previous wording

Agilysys has been a leader in hospitality software for more than 45 years, delivering innovative state-of-the-art cloud-native SaaS and on-premise guest-centric technology solutions. Customers around the world include: branded and independent hotels; multi-amenity resort properties; casinos; property, hotel and resort management companies; cruise lines; corporate dining providers; higher education campus dining providers; food service management companies; hospitals; lifestyle communities; senior living facilities; stadiums; and theme parks. Agilysys offers the most comprehensive software solutions in the industry, including point-of-sale (POS), property management (PMS), inventory and procurement, payments, and related applications, to manage the entire guest journey. Agilysys is also known for its world class customer-centric service. Some of the largest hospitality companies around the world use Agilysys solutions to help improve guest loyalty, drive revenue growth and increase operational efficiencies.

Current wording

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.

Previous wording

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

Current wording

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

Previous wording

Net revenue. Total revenue increased $39.4 million, or 19.9%, in fiscal 2024 compared to fiscal 2023. Products revenue increased $5.4 million, or 12.5%, due to higher sales and deliveries to new customers and expansion with existing customers. Subscription and maintenance revenue increased $19.8 million, or 16.7%, driven by continued growth in subscription-based revenue, which increased 29.6% in fiscal 2024 compared to fiscal 2023. Professional services revenue increased $14.2 million, or 39.2%, due to higher sales and service activity as our new and existing customers continue implementing technology to improve their operations.

Current wording

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.

Previous wording

Gross profit and gross profit margin. Our total gross profit increased $23.4 million, or 19.4%, in fiscal 2024 and total gross profit margin decreased from 61.0% to 60.7% compared to fiscal 2023 driven by changes in the composition of revenue by category. Products gross profit increased $2.1 million and gross profit margin decreased from 47.3% to 46.4% due to the composition of hardware products delivered. Subscription and maintenance gross profit increased $15.2 million and gross profit margin decreased from 77.8% to 77.6% as certain variable costs increased ahead of related revenue. Professional services gross profit increased $6.1 million and gross profit margin increased from 22.6% to 28.4% reflecting improved utilization rates from efficiency gains on multi-solution implementations.

Current wording

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.

Previous wording

Operating expenses, excluding the charges for legal settlements and other charges, increased $19.6 million, or 18.3%, in fiscal 2024 compared with fiscal 2023. As a percent of total revenue, operating expenses have decreased 0.7% in fiscal 2024 compared with fiscal 2023.

Current wording

Operating expenses, excluding the charges for legal settlements and other (gains) charges, net increased $20.4 million, or 14.2%, in fiscal 2026 compared with fiscal 2025. As a percent of total revenue, operating expenses have decreased 0.8% in fiscal 2026 compared with fiscal 2025.

Previous wording

Product development. Product development includes all expenses associated with research and development. Product development increased $6.5 million, or 12.9%, during fiscal 2024 as compared to fiscal 2023 due to hiring and increased compensation rates across our development teams, increased travel, and higher rent.

Current wording

Product development. Product development includes all expenses associated with research and development. Product development increased $10.3 million, or 16.6%, during fiscal 2026 as compared with fiscal 2025 due to hiring and increased compensation rates across our development teams and increased travel.

Previous wording

Sales and marketing. Sales and marketing increased $5.7 million, or 25.2%, in fiscal 2024 compared with fiscal 2023 due to hiring and increased salary, incentive and employee benefits rates across our sales and marketing teams, and continued expansion of marketing event and trade show activity.

Current wording

Sales and marketing. Sales and marketing increased $6.6 million, or 20.0%, in fiscal 2026 compared with fiscal 2025 due to hiring and increased compensation rates across our sales teams, sales team additions from the Book4Time acquisition, continued expansion of marketing event and trade show activity, and increased bad debt expense.

Previous wording

General and administrative. General and administrative increased $5.6 million, or 18.3%, in fiscal 2024 compared to fiscal 2023 due to investments in our information security infrastructure along with hiring and increased compensation rates across our administrative teams, increased travel, and higher subscription charges for cloud computing arrangements.

Current wording

General and administrative. General and administrative increased $1.4 million, or 3.4%, in fiscal 2026 compared to fiscal 2025 due to increased compensation rates across our administrative teams.

Previous wording

Amortization of internal-use software and intangibles. Amortization of internal-use software and intangibles decreased $0.4 million or 21.6% in fiscal 2024 as compared to fiscal 2023 due to the full amortization of certain intangible assets.

Current wording

Amortization of internal-use software and intangibles. Amortization of internal-use software and intangibles increased $1.9 million or 48.9% in fiscal 2026 as compared to fiscal 2025 due to the addition of certain intangible assets resulting from the Book4Time acquisition.

Previous wording

Legal settlements. Legal settlements decreased $0.3 million during fiscal 2024 compared to fiscal 2023 due to a decrease in settlements of employment and other business-related matters.

Current wording

Legal settlements. Legal settlements decreased $0.6 million during fiscal 2026 compared to fiscal 2025 due to a decrease in certain customer settlements.

Previous wording

Other (expense) income, net. Other (expense) income, net mainly consists of movement of foreign currencies against the U.S. dollar.

Current wording

Other income, net. Other income, net mainly consists of movement of foreign currencies against the U.S. dollar.

Previous wording

The ultimate realization of deferred tax assets depends on various factors including the generation of taxable income during the future periods in which the underlying temporary differences are deductible. As of March 31, 2024, we had $78.5 million of federal net operating loss carryforwards that expire, if unused, in fiscal years 2033 to 2039, and $42.5 million of federal net operating loss carryforwards that can be carried forward indefinitely. We also had $111.8 million of state net operating loss carryforwards that expire, if unused, in fiscal years 2025 through 2043. We maintain valuation allowances for deferred tax assets until we have sufficient evidence to support the reversal of all or some portion of the allowances. Based on recent earnings and anticipated future earnings, during fiscal year 2024, we released a significant portion of the valuation allowances previously maintained against our deferred tax assets.

Current wording

The ultimate realization of deferred tax assets depends on various factors including the generation of taxable income during the future periods in which the underlying temporary differences are deductible. As of March 31, 2026, we had $10.5 million of federal net operating loss carryforwards that expire, if unused, in fiscal year 2039, and $42.5 million of federal net operating loss carryforwards that can be carried forward indefinitely. We also had $112.2 million of state net operating loss carryforwards that expire, if unused, in fiscal years 2027 through 2046. We maintain valuation allowances for deferred tax assets until we have sufficient evidence to support the reversal of all or some portion of the allowances. Based on recent earnings and anticipated future earnings, we released valuation allowances previously maintained against our businesses in Singapore and Hong Kong.

Previous wording

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

Current wording

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

Previous wording

Legal settlements. Legal settlements increased $0.8 million during fiscal 2025 compared to fiscal 2024 due to an increase in certain customer settlements.

Current wording

Legal settlements, net. Legal settlements, net increased $0.8 million during fiscal 2025 compared to fiscal 2024 due to an increase in certain customer settlements.

Previous wording

For fiscal 2024, the effective tax rate was different than the statutory rate due primarily to the release of valuation allowances recorded against U.S. Federal and certain State deferred tax assets, consisting primarily of Net Operating Losses.

Current wording

For fiscal 2025, the effective tax rate was different than the statutory rate due primarily to the benefit of U.S. R&D credits and the release of valuation allowances recorded against foreign deferred tax assets, consisting primarily of Net Operating Losses.

Previous wording

The Credit Agreement provides for a revolving credit facility in the initial maximum aggregate principal amount of $75.0 million (the “Revolving Facility”). The Revolving Facility includes the ability for the Company to request an increase to the commitments under the Revolving Facility by an additional aggregate principal amount of up to $25.0 million. On the Credit Agreement Closing Date, we drew $50.0 million on the Revolving Facility, the proceeds of which we used to fund the Business Combination described below. We disclose our Revolving Facility in Note 15, Debt, to our Consolidated Financial Statements included under Item 8 of this Annual Report.

Current wording

The Credit Agreement provides for a revolving credit facility in the initial maximum aggregate principal amount of $75.0 million (the Revolving Facility). The Revolving Facility includes the ability for the Company to request an increase in the commitments under the Revolving Facility by an additional aggregate principal amount of up to $25.0 million. On the Credit Agreement Closing Date, we drew $50.0 million on the Revolving Facility, the proceeds of which we used to fund the Business Combination described below. We disclose our Revolving Facility in Note 15, Debt, to our Consolidated Financial Statements included under Item 8 of this Annual Report.

Previous wording

At March 31, 2025, 100% of our cash and cash equivalents, of which 87% were held in the United States, were deposited in bank accounts or invested in highly liquid investments including treasury bills with original maturity from the date of acquisition of three months or less and money market funds. We also invest in commercial paper. We determine the fair value of commercial paper using significant other observable inputs based on pricing from independent sources that use quoted prices in active markets for identical assets or other observable inputs including benchmark yields and interest rates. We believe credit risk is limited with respect to our cash and cash equivalents.

Current wording

At March 31, 2026, 100% of our cash and cash equivalents, of which 94% were held in the United States, were deposited in bank accounts or invested in highly liquid investments including treasury bills with original maturity from the date of acquisition of three months or less and money market funds. We also invest in commercial paper. We determine the fair value of commercial paper using significant other observable inputs based on pricing from independent sources that use quoted prices in active markets for identical assets or other observable inputs including benchmark yields and interest rates. We believe credit risk is limited with respect to our cash and cash equivalents.

Previous wording

We believe that cash flow from operating activities, cash on hand of $73.0 million as of March 31, 2025, and access to our Revolving Facility and the broader capital markets will provide adequate funds to meet our short- and long-term liquidity requirements.

Current wording

We believe that cash flow from operating activities, cash on hand of $116.9 million as of March 31, 2026, and access to our Revolving Facility and the broader capital markets will provide adequate funds to meet our short- and long-term liquidity requirements.

Previous wording

Cash flow provided by operating activities. Cash flows provided by operating activities were $55.1 million in fiscal 2025. The provision of cash was due primarily to our net income of $23.2 million adjusted for $26.2 million in non-cash expense including depreciation, amortization, share-based compensation, deferred income taxes and an increase of $5.7 million from the changes in operating assets and liabilities.

Current wording

Cash flows provided by operating activities were $55.1 million in fiscal 2025. The provision of cash was due to cash-based earnings of $49.4 million and an increase of $5.7 million from the changes in operating assets and liabilities. Cash-based earnings is net income of $23.2 million and $26.2 million in non-cash adjustments including depreciation, amortization, share-based compensation, and deferred income taxes.

Previous wording

Cash flows provided by operating activities were $48.2 million in fiscal 2024. The provision of cash was due primarily to our net income of $86.2 million adjusted for $48.0 million in non-cash expense including depreciation, amortization, share-based compensation, deferred income taxes, gains on asset disposals and an increase of $10.0 million from the changes in operating assets and liabilities.

Current wording

Cash flows provided by operating activities were $48.2 million in fiscal 2024. The provision of cash was due to cash-based earnings of $38.2 million and an increase of $10.0 million from the changes in operating assets and liabilities. Cash-based earnings is net income of $86.2 million and $48.0 million in non-cash adjustments including depreciation, amortization, share-based compensation, and deferred income taxes.

Previous wording

Cash flow used in investing activities. Cash flows used in investing activities in fiscal 2025 were $148.6 million consisting primarily of $145.8 million in cash paid for business combinations, net of cash acquired, and property and equipment purchases, which decreased during the year ended March 31, 2025 compared to the year ended March 31, 2024 due primarily to leasehold improvements and equipment purchases for our new office lease in Chennai, India during the year ended March 31, 2024.

Current wording

Cash flows used in investing activities in fiscal 2025 were $148.6 million consisting primarily of $145.8 million in cash paid for business combinations, net of cash acquired, and property and equipment purchases, which decreased during the year ended March 31, 2025 compared to the year ended March 31, 2024 due primarily to leasehold improvements and equipment purchases for our new office lease in Chennai, India during fiscal 2024.

Previous wording

Cash flow provided by (used in) financing activities. Cash flows provided by financing activities in fiscal 2025 were $21.9 million due primarily to $49.6 million in debt proceeds, net of issuance costs, debt repayments of $26.0 million, proceeds from Employee Stock Purchase Plan of $1.0 million, and share repurchases of $2.7 million to satisfy employee tax withholding on share-based compensation.

Current wording

Cash flows provided by financing activities in fiscal 2025 were $21.9 million due to $49.6 million in debt proceeds, net of issuance costs, debt repayments of $26.0 million, proceeds from Employee Stock Purchase Plan purchases of $1.0 million, and share repurchases of $2.7 million to satisfy employee tax withholding on share-based compensation.

Previous wording

Agilysys invests in corporate-owned life insurance policies for certain former executives, for which some are endorsement split-dollar life insurance arrangements. We entered into agreements with each of the former executives, whereby we must maintain the life insurance policy for a specified amount and split a portion of the policy benefits with their designated beneficiary. Our investment in these corporate-owned life insurance policies were recorded at their cash surrender value, which approximates fair value at the balance sheet date. In the Consolidated Balance Sheets at the balance sheet date, the cash surrender value of $1.1 million for the remaining policies were held in “Other non-current assets,” and the present value of future proceeds owed to those executives’ designated beneficiary of $0.1 million, which approximates fair value, were recorded within “Other non-current liabilities” in the Consolidated Balance Sheets at the balance sheet date.

Current wording

Agilysys invests in corporate-owned life insurance policies for certain former executives, for which some are endorsement split-dollar life insurance arrangements. We entered into agreements with each of the former executives, whereby we must maintain the life insurance policy for a specified amount and split a portion of the policy benefits with their designated beneficiary. Our investment in these corporate-owned life insurance policies were recorded at their cash surrender value, which approximates fair value at the balance sheet date. On the Consolidated Balance Sheets at the balance sheet date, the cash surrender value of $1.1 million for the remaining policies were held in “Other non-current assets,” and the present value of future proceeds owed to those executives’ designated beneficiary of $0.1 million, which approximates fair value, were recorded within “Other non-current liabilities” in the Consolidated Balance Sheets at the balance sheet date.

Previous wording

Revenue recognition. Our customary business practice is to enter into legally enforceable written contracts with our customers. The majority of our contracts are governed by a master service agreement between us and the customer, which sets forth the general terms and conditions of any individual contract between the parties, which is then supplemented by a customer order to specify the different goods and services, the associated prices, and any additional terms for an individual contract. Performance obligations specific to each individual contract are defined within the terms of each order. Each performance obligation is identified based on the goods and services that will be transferred to our customer that are both capable of being distinct and are distinct within the context of the contract. The transaction price is determined based on the consideration to which we will be entitled and expect to receive in exchange for transferring goods or services to the customer. Typically, our contracts do not provide our customer with any right of return or refund; we do not constrain the contract price as it is probable that there will not be a significant revenue reversal due to a return or refund.

Current wording

Our customary business practice is to enter into legally enforceable written contracts with our customers. The majority of our contracts are governed by a master service or universal agreement between us and the customer, which sets forth the general terms and conditions of any individual contract between the parties, which is then supplemented by a customer order to specify the different goods and services, the associated prices, and any additional terms for an individual contract. Performance obligations specific to each individual contract are defined within the terms of each order. Each performance obligation is identified based on the goods and services that will be transferred to our customer that are both capable of being distinct and are distinct within the context of the contract. The transaction price is determined based on the consideration to which we will be entitled and expect to receive in exchange for transferring goods or services to the customer. Typically, our contracts do not provide our customer with any right of return or refund; we do not constrain the contract price as it is probable that there will not be a significant revenue reversal due to a return or refund.

Previous wording

We recognize revenue for hardware sales when the product is shipped to the customer and when obligations that affect the customer’s final acceptance of the arrangement have been fulfilled. Hardware is purchased from suppliers and provided to the end-user customers via drop-ship or from inventory. We are responsible for negotiating the price both with the supplier and the customer, payment to the supplier, establishing payment terms and product returns with the customer, and bearing the credit risk if the customer does not pay for the goods. As the principal contact with the customer, we recognize revenue and cost of goods sold when we ship or are notified by the supplier that the product has been shipped. In certain limited instances, as shipping terms dictate, revenue is recognized upon receipt at the point of destination or upon installation at the customer site.

Current wording

We recognize revenue for hardware sales when the product is shipped to the customer and when obligations that affect the customer’s final acceptance of the arrangement have been fulfilled. Hardware is purchased from suppliers and provided to the end-user customers via drop-ship or from inventory. We are responsible for negotiating price both with the supplier and the customer, payment to the supplier, establishing payment terms and product returns with the customer, and we bear the credit risk if the customer does not pay for the goods. As the principal contact with the customer, we recognize revenue and cost of goods sold when we ship or are notified by the supplier that the product has been shipped. In certain limited instances, as shipping terms dictate, revenue is recognized upon receipt at the point of destination or upon installation at the customer site.

Previous wording

Our subscription service revenue is comprised of fees for contracts that provide customers a right to access our software for a subscribed period. We do not provide the customer the contractual right to license the software at any time outside of the subscription period under these contracts. Our subscription service revenue is primarily based on rates per location, including rates per points of sale and per room. We recognize certain subscription service revenue on a per-transaction basis. The customer can only benefit from the software and software maintenance when provided the right to access the software. Accordingly, each of the rights to access the software, the maintenance services, any hosting services, and any transaction-based services are not considered a distinct performance obligation in the context of the contract and should be combined into a single performance obligation to be recognized over the contract period. The Company recognizes subscription revenue over a one-month period based on the typical monthly invoicing and renewal cycle in accordance with our customer agreement terms.

Current wording

Our subscription service revenue is comprised of fees for contracts that provide customers a right to access our software for a subscribed period. We do not provide the customer the contractual right to license the software at any time outside of the subscription period under these contracts. Our subscription service revenue is primarily based on rates per location, including rates per points of sale and per room. We recognize certain subscription service revenue on a per-transaction basis. The customer can only benefit from the software and software maintenance when provided the right to access the software. Accordingly, each of the rights to access the software, the maintenance services, any hosting services, and any transaction-based services are not considered a distinct performance obligation in the context of the contract and should be combined into a single performance obligation to be recognized over the contract period. The Company recognizes subscription revenue over monthly periods based on the typical service, invoicing and renewal cycle in accordance with our customer agreement terms.

Previous wording

Professional services revenues primarily consist of fees for consulting, implementation, installation, integration and training and are generally recognized over time as the customer simultaneously receives and consumes the benefits of the professional services as the services are being performed. Certain professional development services are recognized upon delivery of the developed solutions to the customer. Professional services can be provided by internal or external providers, do not significantly affect the customer’s ability to access or use other provided goods or services, and provide a measure of benefit beyond that of other promised goods or services in the contract. As a result, professional services are considered distinct in the context of the contract and represent a separate performance obligation. Professional services that are billed on a time and materials basis are recognized over time as the services are performed. For contracts billed on a fixed price basis, revenue is recognized over time using an input method based on labor hours expended to date relative to the total labor hours expected to be required to satisfy the related performance obligation.

Current wording

Professional services revenue primarily consists of fees for consulting, implementation, installation, integration and training and are generally recognized over time as the customer simultaneously receives and consumes the benefits of the professional services as the services are being performed. Certain professional development services are recognized upon delivery of the developed solutions to the customer. At the end of each reporting period, we recognize the most likely amount of variable consideration on any contract holdbacks we expect to bill for development services delivered. Professional services can be provided by internal or external providers, do not significantly affect the customer’s ability to access or use other provided goods or services, and provide a measure of benefit beyond that of other promised goods or services in the contract. As a result, professional services are considered distinct in the context of the contract and represent a separate performance obligation. Professional services that are billed on a time and materials basis are recognized over time as the services are performed. For contracts billed on a fixed price basis, revenue is recognized over time using an input method based on labor hours expended to date relative to the total labor hours expected to be required to satisfy the related performance obligation.

Previous wording

Shipping and handling fees billed to customers are recognized as revenue and the related costs are recognized in cost of goods sold. Revenue is recorded net of any applicable taxes collected and remitted to governmental agencies.

Current wording

We use the market approach to derive standalone selling price (SSP) by maximizing observable data points (in the form of recently executed customer contracts) to determine the price customers are willing to pay for the goods and services transferred. Shipping and handling fees billed to customers are recognized as revenue and the related costs are recognized in cost of goods sold. Revenue is recorded net of any applicable taxes collected and remitted to governmental agencies.