AGILYSYS INC

Previous wording

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.

Current wording

During the three and six months ended September 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 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.

Previous wording

First Fiscal Quarter 2026 Compared to First Fiscal Quarter 2025

Current wording

Second Fiscal Quarter 2027 Compared to Second Fiscal Quarter 2026

Previous wording

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.

Current wording

Net revenue. Total net revenue increased $14.1 million, or 17.7%, during the second quarter of fiscal 2027 compared to the second quarter of fiscal 2026. Subscription and maintenance revenue increased $11.2 million, or 22.0%, compared to the first quarter of fiscal 2026 driven by continued growth in subscription-based service revenue. Total subscription revenue increased 32.6% during the second quarter of fiscal 2027 compared to the second quarter of fiscal 2026. Professional services revenue increased $1.0 million, or 5.3%, due to higher service activity as our new and existing customers continue implementing technology to improve their operations. Products revenue increased $1.9 million, or 18.8%, due primarily to the fulfillment of hardware compared to the prior year quarter.

Previous wording

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.

Current wording

Operating expenses, excluding other (gains) charges, net, and legal settlements, net, increased $4.7 million, or 11.8%, during the second quarter of fiscal 2027 compared with the second quarter of fiscal 2026.

Previous wording

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.

Current wording

Product development. Product development increased $2.0 million, or 11.3%, in the second quarter of fiscal 2027 compared with the second quarter of fiscal 2026 due to hiring and increased salary, incentive and employee benefits rates across our development teams.

Previous wording

Sales and marketing. Sales and marketing increased $0.4 million, or 3.4%, in the first quarter of fiscal 2027 compared with the first quarter of fiscal 2026 due to hiring and increased compensation rates across our sales teams offset by timing of marketing event and trade show activity.

Current wording

Sales and marketing. Sales and marketing increased $1.7 million, or 17.4%, in the second quarter of fiscal 2027 compared with the second quarter of fiscal 2026 due to hiring and increased compensation rates across our sales teams and on timing and extent of marketing event and trade show activity.

Previous wording

General and administrative. General and administrative increased $0.4 million, or 3.3%, in the first quarter of fiscal 2027 compared with the first quarter of fiscal 2026 due to increased compensation rates across our administrative teams.

Current wording

General and administrative. General and administrative increased $1.1 million, or 11.1%, in the second quarter of fiscal 2027 compared with the second quarter of fiscal 2026 due to increased compensation rates across our administrative teams and ongoing investments in our information technology infrastructure.

Previous wording

Depreciation of fixed assets. Depreciation of fixed assets remained consistent with the first quarter of fiscal 2026.

Current wording

Depreciation of fixed assets. Depreciation of fixed assets decreased $0.1 million, or 11.9%, in the second quarter of fiscal 2027 compared with the second quarter of fiscal 2026 due to the timing of assets reaching their useful life.

Previous wording

Amortization of internal-use software and intangibles. Amortization of internal-use software and intangibles remained consistent with the first quarter of fiscal 2026.

Current wording

Amortization of internal-use software and intangibles. Amortization of internal-use software and intangibles remained consistent with the second quarter of fiscal 2026.

Previous wording

For the three months ended June 30, 2025, income tax provision and the effective tax rate were primarily driven by the impact of discrete excess tax benefits associated with share-based compensation.

Current wording

For the three months ended September 30, 2026 and 2025, income tax provision and the effective tax rate were primarily driven by the impact of discrete excess tax benefits associated with share-based compensation and NCTI, respectively.

Previous wording

On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) was signed into law. The legislation includes several changes to federal tax law that generally allow for more favorable deductibility of certain business expenses beginning in the Company’s fiscal 2026, including the restoration of immediate expensing of domestic research and development expenditures, reinstatement of accelerated fixed asset depreciation and modifications to the international tax framework. We applied the relevant changes to the Company’s income tax provision for the period ended June 30, 2026, which did not materially impact the Company’s consolidated tax position. We expect future cash tax savings resulting from the full expensing of U.S. research and development expenses under the OBBBA. OBBBA also amended and extended to calendar year 2030 the statute of limitations for employee retention credits under the CARES Act for certain employment taxes incurred during the three months ended September 30, 2021.

Current wording

On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) was signed into law. The legislation includes several changes to federal tax law that generally allow for more favorable deductibility of certain business expenses beginning in the Company’s fiscal 2026, including the restoration of immediate expensing of domestic research and development expenditures, reinstatement of accelerated fixed asset depreciation and modifications to the international tax framework. OBBBA also amended and extended to calendar year 2030 the statute of limitations for employee retention credits under the CARES Act for certain employment taxes incurred during the three months ended September 30, 2021.

Previous wording

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.

Current wording

Gross profit and gross profit margin. Our total gross profit increased $19.7 million, or 20.5%, during the first half of fiscal 2027 and total gross profit margin increased from 61.7% to 64.1% compared to the first half of fiscal 2026 driven by changes in the composition of revenue by category. Subscription and maintenance gross profit increased $15.8 million, or 20.1%, and gross profit margin decreased from 79.1% to 78.9% as certain variable costs increased ahead of related subscription revenue during the six months ended September 30, 2026 compared to the six months ended September 30, 2025. Professional services gross profit increased $3.2 million, or 32.7%, and gross profit margin increased from 26.7% to 33.2% reflecting improved utilization rates from efficiency gains on multi-solution implementations and reduction of costs associated with a large development service contract. Products gross profit increased $0.7 million, or 9.1%, and products gross profit margin decreased from 39.0% to 38.2% due to the composition of hardware and proprietary software products delivered.

Previous wording

For the three months ended June 30, 2026, income tax provision and the effective tax rate were primarily driven by the tax effects of share-based compensation, Net Controlled Foreign Corporation Tested Income (NCTI) and the mix of earnings in the U.S. and India.

Current wording

For the six months ended September 30, 2026 and 2025, income tax provision and the effective tax rate were primarily driven by the impact of discrete excess tax benefits associated with share-based compensation and NCTI.

Previous wording

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) is a stimulus bill which was in response to economic consequences of the COVID-19 pandemic. The CARES Act provided an employee retention credit, which is a refundable tax credit against certain employment taxes. During the three months ended June 30, 2025, we recorded $0.2 million of employee retention credits under the CARES Act including associated interest received or expected to be received in cash as other (gains) charges, net, in the condensed consolidated statements of operations. As of June 30, 2026, we have recorded $3.0 million of employee retention credits receivable as other current assets on the condensed consolidated balance sheet.

Current wording

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) is a stimulus bill which was in response to economic consequences of the COVID-19 pandemic. The CARES Act provided an employee retention credit, which is a refundable tax credit against certain employment taxes. During the six months ended September 30, 2026, we received in cash $3.0 million of employee retention credits. During the six months ended September 30, 2025, we recorded $6.1 million of employee retention credits including associated interest received or expected to be received in cash as other (gains) charges, net, in the condensed consolidated statements of operations.

Previous wording

We have expanded our business in part by investing in strategic growth through business acquisitions. We have used cash as consideration in our business acquisitions partially funded by our Revolving Facility. We completed no business combinations during the three months ended June 30, 2026 and 2025, respectively.

Current wording

We have expanded our business in part by investing in strategic growth through business acquisitions. We have used cash as consideration in our business acquisitions partially funded by our Revolving Facility. On September 1, 2026, we acquired all the issued and outstanding shares of Gaming Hospitality Solutions, Inc. (“GHS”), a hospitality software company based in Denver, Colorado, as further described in Note 12, Business Combination, to our condensed consolidated financial statements included under Part I, Item 1 of this quarterly report. The cash consideration for the acquisition totaled $0.9 million funded with cash on hand. We completed no business combinations during the six months ended September 30, 2025.

Previous wording

At June 30, 2026, 100% of our cash and cash equivalents, of which 90% were located in the United States, were deposited in bank accounts or invested in highly liquid investments including commercial paper and treasury bills with original maturity from the date of acquisition of three months or less and money market funds. 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 September 30, 2026, 100% of our cash and cash equivalents, of which 87% were located in the United States, were deposited in bank accounts or invested in highly liquid investments including commercial paper and treasury bills with original maturity from the date of acquisition of three months or less and money market funds. 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 $123.7 million as of June 30, 2026, and access to 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 $137.6 million as of September 30, 2026, and access to capital markets will provide adequate funds to meet our short- and long-term liquidity requirements.

Previous wording

Cash flow provided by (used in) operating activities. Due to cash-based earnings of $18.7 million and a decrease of $10.9 million due to changes in net operating assets and liabilities. Cash-based earnings is net income of $9.0 million and $9.7 million of non-cash adjustments.

Current wording

Cash flow provided by operating activities. Due to cash-based earnings of $42.5 million and a decrease of $19.5 million due to changes in net operating assets and liabilities. Cash-based earnings is net income of $22.2 million and $20.3 million of non-cash adjustments.

Previous wording

Cash flow used in investing activities. Consists of property and equipment purchases.

Current wording

Cash flow used in investing activities. Consists of $0.9 million in cash paid for business combination and property and equipment purchases.

Previous wording

Cash flow used in financing activities. Consists of the repurchase of shares to satisfy employee tax withholding on share-based compensation and, for the three months ended June 30, 2025, $12.0 million in debt repayments.

Current wording

Cash flow used in financing activities. Consists of proceeds from Employee Stock Purchase Plan purchases, the repurchase of shares to satisfy employee tax withholding on share-based compensation, and, for the six months ended September 30, 2025, $24.0 million in debt repayments.