Prepared remarks
Good day, ladies and gentlemen, and welcome to the Agilysys 2026 First Quarter Conference Call. As a reminder, today's conference may be recorded. 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.
Thank you, Victor, and good afternoon, everybody. Thank you for joining the Agilysys Fiscal 2026 First Quarter 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 U.S. Private Securities Litigation Reform Act of 1995, including statements regarding our financial guidance. 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 results to differ materially. Important factors that could cause actual results to vary materially from these forward-looking statements include our ability to achieve the provided guidance levels, maintaining sales momentum, the company's ability to convert the backlog into revenue, and the risks set forth in the company's reports on Form 10-K 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. Ramesh, please go ahead.
Thank you, Jess. Good evening. Welcome to our fiscal 2026 First Quarter earnings call. Joining Jess and me on the call today is Dave Wood, CFO at our Alpharetta, Atlanta headquarters. Let me cover sales and selling success first before moving to revenue, profitability, guidance increase, and other details. We measure sales in annual contract value terms. We continue to exclude from our sales numbers all aspects of the Marriott property management system, PMS project, including those pertaining to services. Fiscal 2026 Q1, April to June sales was the second-best quarter on record following the preceding fiscal 2025 fourth quarter which was the highest. Sales during Q1 was 24% higher than the comparable prior year period and was easily the best Q1 April to June period sales level we have seen. Combined overall sales of the last 2 quarters, we had 19%, that is 1-9, 19% higher than the preceding 6-month period, while combined sales of only recurring fee bookings consisting of SaaS annual fees and annual maintenance fees were 34% higher than the preceding 6-month period. Fiscal 2021 April to June was our broadest and widest sales success quarter ever, with several different sales verticals achieving good to excellent sales levels. Q1 was the best sales quarter in the food service management, FSM vertical in the last 2.5 years. As reported during our previous calls, we went through a tough period with FSM sales during late fiscal 2024 and the first half of fiscal 2025. We are happy to report that we are now back in full form with point of sale, POS sales in the FSM vertical. Q1 was also the second highest sales quarter for international sales. While the sequentially preceding quarter was the highest. We have seen good signs of our international business picking up steam during the last 2 quarters and are continuing to see good momentum, especially with respect to large multiproduct deals. The casino gaming sales vertical also had its best Q1 April to June period on record. 15%, that is 1-5, 15% higher than the previous best Q1 quarter. There are several large sales wins during the quarter in gaming, including the Boyd Gaming subscription POS deal we announced in the middle of May. We continue to see strength in the casino gaming sales vertical as customers broaden their portfolio of Agilysys products and expand investments in modern software solutions that help with improving guest experience and operational efficiency. Most of the sales verticals performed very well in Q1 and across the last 2 quarters. The highlights of this recent 6-month period have been the impressive turnaround in the food service management, FSM vertical and international business picking up good momentum. Q1 fiscal 2026 professional services sales were 20% higher than the comparable prior year quarter. Q4 fiscal 2025 and Q1 fiscal 2026 are our 2 best services sales quarters on record and combined 21% higher than the immediately preceding 6-month period. Q1 fiscal 2026 was the best ever quarter for subscription software sales by a wide margin, 25% higher than the previous this quarter, which was the preceding Q4 fiscal 2025, and 79% higher than the comparable prior year period. Q1 was the fourth consecutive record sales quarter for subscription sales. Subscription software sales specific to POS and POS related modules were 61% higher than the sequentially preceding fiscal 2025 Q4 quarter. There is ample evidence that our modernized set of cloud-native software solutions is gaining serious traction in the hospitality industry which has never been keener to improve technology solutions running their operations. Our current pace of innovation, following many years of product modernization efforts, does seem to be creating a serious competitive advantage, which is becoming wider with each passing month. With respect to sales deals won during Q1 fiscal 2026 April to June, we added 24 new customers, excluding Book4time. All of whom signed subscription license-based sales agreements. Q1 was one of our highest quarters with respect to total annual contract value of new customer wins. These 24 customers purchased an average of 6 products each. New customer deals, which included PMS solutions, involved an average of as high as 14 products deals. The ability to provide an integrated ecosystem of software solutions that work well together and offer unique, functional and feature advantages is becoming a fast-growing differentiator for us. Our extensive investment in the development of an integrated product ecosystem has already become one of the primary reasons for our excellent current sales win ratio. Such an ecosystem also creates enormous amounts of connected data for a multi-amenity resort or a similar customer property, which lends itself well to extracting significant differentiated value through use of AI and other tools. We are lucky to have completed all the required foundation modernization work across the product sets while also creating an interconnected ecosystem of products, both of which are making the adoption of AI tools easier, more relevant, and effective. Various AI-based product enhancements are now being included in the recent and upcoming version releases such as enabling personalized upselling through a dynamic PMS upgrade engine to suggest appropriate room upgrades and add-on amenities during check-in, based on real-time factors like current occupancy, guest loyalty status, past stay behavior, and even staffing levels. AI-assisted concierge services, AI-powered natural language processing, AI-enabled booking of a curated set of guest-specific preferred amenities and creation of itineraries, AI-driven demand and availability-based pricing decisions, AI-based conversational food ordering, AI-enabled mechanisms for fulfillment of various guest-requested tasks, enhanced data analysis, and creation of AI agents that can help with various analysis and execution tasks within the customer property. All such AI-based enhancements currently being added to the product sets should produce tangible value for our customers and additional convenience for the guests they serve, thereby strengthening our growing competitive advantages. In addition, the use of AI tools is permeating across our internal business operations as well, making execution better and more efficient across several departments, including product development and professional services to improve coding and implementation efficiencies, quality, and accuracy. AI agents driven virtual-assisted mechanisms for our customer support personnel and other such improvements across sales, marketing, IT, information security, finance, and legal. We are also being careful and cautious, though, while using various AI tools to ensure no exposure of our internal data to the outside world. Getting back to sales success during the quarter. We also added 69 new properties that were not using any of our software solutions before, but the parent company was already a customer. Of the 105 new properties added during the quarter, across new and current customers, 104 were either partially or fully subscription software license base. In addition, we have 93 instances of selling at least one additional software solution to properties that are already using one or more of our other products. In total, these 93 deals involve a sale of 224 products. This was the second highest quarter with respect to total annual contract value sales of new products to current customer properties. The sequentially preceding fiscal 2025 Q4 quarter was the highest. Moving on to revenue. Q1 fiscal 2026 overall revenue was $76.7 million, a record for the 14th consecutive quarter. Overall revenue was close to 21% higher than the comparable prior year quarter, driven by 44% year-over-year growth in subscription revenue and 16%, that is 1-6, 16% growth in professional services revenue. Organic subscription revenue grew by 24% year-over-year, which in turn was driven by a 48% increase in subscription revenue pertaining to property management systems, PMS, and PMS-related add-on software modules and a 16%, 1-6, 16% increase in point-of-sale, POS and POS related add-on modules. We expect the year-over-year subscription revenue growth rate pertaining to POS to increase going forward, given the recent turnaround in POS sales levels and the ongoing pace of POS implementations. Overall, recurring revenue including both subscription and annual maintenance grew to a record $48.6 million in Q1, 28% higher than the comparable prior year period and 63.4% of total revenue. Subscription revenue was a record 65.6% of total recurring revenue. In absolute dollar terms, Q1 subscription revenue grew by $9.8 million year-over-year which is the highest level of year-over-year growth we have seen until now. While understandably not surging higher like subscription revenue is currently annual maintenance recurring revenue was also a record high this quarter, about 5% higher year-over-year. This is a good indication of the fact that our subscription revenue growth is coming from new and additional projects for the most part and is not based on cannibalization of annual maintenance. We continue to allow our customers to make their own decisions regarding their timing of moving to the cloud. Customer centricity is a big part of our organization culture. We exist to help our customers achieve their goals without any unnecessary pressure from their technology partner. Along with seeing record high quarters for subscription software sales, Q4 fiscal 2025 and Q1 fiscal 2026 were also the best 2 quarters for subscription project implementations measured as the sum of annual recurring revenue, ARR, of all subscription projects implemented during the period. The extent of subscription ARR installed in the field during the recent 6 months was 47% higher than the immediately preceding 6-month period. Both subscription sales and implementations in the field have been off to a faster start this fiscal year than we anticipated going in. We are, therefore, increasing the subscription growth guidance for full fiscal year 2026 from the originally stated 25% to 27%. One-time product revenue consisting of perpetual software licenses and hardware revenue was just shy of $10 million, a bit less than our already low ongoing expectations of this revenue line. Q1 was the lowest quarter in about 4 years with respect to perpetual software licenses in the one-time product revenue bucket. An overwhelming number of customers are choosing the cloud option which is reflected in the subscription revenue growth levels. The current versions of the POS products have a reduced hardware attach rate since we also work well on consumer-grade hardware devices, like the iOS operating system-based iPad. We expect the one-time product revenue line to remain around this level for the foreseeable future. We also expect services revenue to remain around the levels of this quarter during the remainder of the fiscal year. As services revenue related to product development work on a couple of major projects has tapered off and is being replaced by growing normal implementations related to professional services work. Despite excellent improvements in project implementation levels and record services revenue, strong sales drove the recurring and services revenue backlog to record levels. Fiscal 2026 Q1 profitability was below annual expectations, mainly due to several once-a-year cost items falling in this quarter, including the high-cost user conference. We remain confident that adjusted EBITDA will be 20% of revenue for the full fiscal year in line with the original expectations. We also remain comfortable with the already provided annual revenue guidance of $308 million to $312 million for fiscal 2026. The Marriott PMS project continues to progress well and is proceeding according to plan. The testing of all integrations and connectivity across platforms in the lab test property is close to being completed, marking the completion of one of several rollout milestones. We expect implementation at a handful of test properties to start in a few months, which will be the next step in the project. All guidance details provided continue to exclude any significant subscription revenue from this project during fiscal 2026. With that, let me hand over the call to Dave for more color on financials and other business details.
Thank you, Ramesh. Looking at our financial results, starting with the income statement, first quarter fiscal 2026 revenue reached a record $76.7 million, representing a 20.7% increase from $53.5 million in the same period last year. One-time revenue from product and professional services rose by 10.1% compared to the prior year quarter, aligning with our anticipated growth of 5% to 10%. Professional services revenue slightly surpassed our expectations for the first quarter. However, even with a 29% increase in point-of-sale bookings compared to the previous fiscal year, product sales, which include proprietary software and primarily hardware from third parties, were below expectations, resulting in lower product revenue for Q1. Recurring revenue increased by 27.8% compared to the first quarter of the previous year, exceeding our plans. Strong sales momentum throughout Q1 left our total backlog at record levels, even as we continued to see growth in implementation velocity. Many of the operational challenges we encountered in fiscal year 2025 related to point-of-sale sales and backlog deployment now appear to be resolved. Subscription sales experienced an impressive 79% increase over the same quarter last year, giving us a strong start to the current fiscal year. Although we still have work to do in sales, our visibility into the business and fiscal year is at historic highs. Professional services revenue rose by 16% year-over-year to a record $18.1 million. Despite this record in professional services revenue, we maintained a high services backlog. It's worth noting that professional services revenue typically serves as a reliable leading indicator for future subscription revenue growth. Total recurring revenue accounted for 63.4% of total net revenue for the fiscal first quarter, up from 59.9% in the first quarter of fiscal 2025. Subscription revenue grew by 44.3% for the first quarter of fiscal 2026, with both subscription sales and backlog at record highs in Q1, well ahead of our fiscal year 2026 plan. Even with subscription revenue greatly exceeding our 25% guidance, the backlog still increased by 23% over the fiscal year 2025 exit rates. We are satisfied with our levels of subscription sales and revenue growth. Moving down the income statement, gross profit was $47.3 million compared to $39.9 million in the first quarter of fiscal 2025, with a gross profit margin of 61.7% versus 62.8% a year earlier. The slight decline in gross margin was due to the margins related to one-time revenue, as we're onboarding new professional services team members and experiencing a downward trajectory in on-premise proprietary license revenue. The three main operating expense categories—product development, sales and marketing, and general and administrative expenses—excluding stock-based compensation, comprised 45.6% of revenue in the fiscal 2026 first quarter compared to 43.8% in the prior year quarter. Excluding stock-based compensation, product development slightly decreased to 18.8% from 19% of revenue in the prior fiscal year. General and administrative expenses fell from 14.2% to 12% of revenue for the quarter, while sales and marketing expenses significantly rose from 10.5% to 14.7% of revenue, primarily due to the timing of our user conference and the ramp-up of our sales team in fiscal year 2025. The user conference is generally our most costly event of the year, and we expect sales and marketing as a percentage of revenue to return to normal levels for the fiscal year despite the higher Q1 figure. Operating income for the first quarter was $4.5 million, net income was $4.9 million, and earnings per diluted share was $0.17, all lower than the previous year’s figures of $5.7 million, $14.1 million, and $0.50 respectively. Adjusted net income, after normalizing for certain noncash and nonrecurring charges of $9.3 million, compared favorably to $8.3 million in the first quarter of the previous year, while adjusted diluted earnings per share of $0.33 showed a slight increase from $0.30 a year ago. For the first quarter of 2026, adjusted EBITDA was $12.5 million, compared to $12.1 million in the same quarter last year. As anticipated, Q1 FY 2026 adjusted EBITDA was below our annual guidance due to previously planned one-time expenses linked to sales and marketing. We remain on track for 20% adjusted EBITDA for the entire fiscal year. Turning to the balance sheet and cash flow statement, cash and marketable securities stood at $55.6 million as of June 30, 2025, down from $73 million on March 31, 2025. Q1 is often our lowest cash quarter due to the timing of working capital events at the start of the fiscal year. In addition to working capital adjustments, we have reduced our credit revolver by $12 million prior to June 30 and have since fully paid off the remaining $12 million, putting us in a debt-free position as of July. Free cash flow for the quarter was a loss of $5 million compared to an increase of $0.2 million in the previous year quarter. As previously stated, adjusted EBITDA and free cash flow over a full fiscal year, after normalizing for capital expenditures, remain good indicators of the business's health. We expect full fiscal year 2026 free cash flow to normalize in the second half. For fiscal year 2026, we are raising our guidance for subscription revenue growth from 25% to 27%, based on our current backlog and sales momentum. We maintain our top-line revenue guidance of $308 million to $312 million, along with adjusted EBITDA at 20%, unchanged for fiscal year 2026. In conclusion, we are very pleased with the beginning of fiscal year 2026. Now, I'll turn the call back over to Ramesh.
Thank you, Dave. In summary, we are pleased with the fiscal 2026 Q1, April to June period results. Our overall sales and business momentum, the continuing surge in subscription software sales and the pace of project installations. The challenges with one-time product revenue remain positive indicators of the successful transition of the business into a cloud subscription-based software unit involving lesser levels of perpetual software licenses and hardware resale, continuing increase in implementation-related professional services revenue is a good indicator of the increased levels of project installations happening in the field now, which in turn augurs very well for future recurring revenue growth. Almost all our current implementations involve only the new state-of-the-art modernized product versions, which are becoming increasingly smoother and enabling us to steadily reduce the need to maintain and enhance 2 different product sets spanning different generations of technology and instead increase resource levels focused on the use of next-generation technologies to enhance product offerings, including through smart use AI tools. One final note. Compared to the same time last year, our current global quota carrying sales personnel and global professional services personal strength are about 45% and 38% higher, respectively. Armed with a strong superior set of products which are easier to sell and implement, we are well positioned for continued solid disciplined and profitable revenue growth, especially with respect to cloud subscription revenue. With that, Victor, let's open up the call for questions.
Questions and answers
Our first question will come from Stephen Sheldon from William Blair.
First, just on the sales capacity. I think, Ramesh, you just said that sales capacity, if I heard correctly, is up 45% year-over-year. Can you give more detail about where you're adding that capacity and how productivity has been trending for new additions? And is there still a ways to go before the added capacity is at full production? I mean, obviously, you just had another really good sales quarter. But is that still, I guess, on the come the new hires kind of ramping up production?
Yes, so. Hi Stephen, number one, we can do more, both with this I'll expand your question to answer services as well, both with respect to sales and services, we can do more productivity improvement. That is the current sales team can do more and the current services team can do more. So the bulk increases that we wanted to do, we have gotten them done. Hereafter, there will be normal increases to both sales and services capacity as we go along since it's a growing business and as business expands, we expect to hire more and more. Now the recent sales expansion has been mostly in the area of hotel resort in that sales vertical and also an inside sales team. We have created an inside sales team. We never had a dedicated inside sales team before. We have one now, which is very handy to create more opportunities. A lot of our expansion has been in the hotel and resorts vertical. Now it is already showing good results for us because, number one, we are knocking on more doors and number two, we are opening more doors for us, which is crucial for us because our success rate once customers take a detailed look at our company and our products is very high, even more than what I can believe. So it's a matter of opening more doors for us, and that's happening successfully. A lot of the sales success we have had in the recent 6 months has to do with the newer hires who are knocking on more doors and opening more doors. The biggest thing we have achieved with the hiring of the sales team, Stephen, is that we are covering the entire territory now, which we didn't do a great job of before. So a lot more discipline in territory coverage. We are knocking on more doors. We are opening more doors. So the recent sales expansion has really worked out well for us, but we have ways to go with respect to sales productivity. In terms of further expansion, that will happen as the business continues to grow.
Got it. I really appreciate that detail. And then on the international side, I mean, it sounds like you're seeing momentum there pick up. As we think about what you need to do to keep that going, I guess, is it more about marketing and adding sales capacity? Or is there still a lot of work to do in terms of the product, integration, and localization needed on the product side, I guess. What are the kind of hold-ups for that to become a bigger part of the revenue mix over time?
Yes. Product-wise, there isn't much left to be done. Our products are in a good place right now. In both domestic and international markets, our biggest advantage is our ecosystem. We have invested in and built a suite of hospitality products that will be very challenging to replicate. Competing companies cannot easily create a modern ecosystem of hospitality solutions; it takes time. This is our main advantage regardless of where we are selling, and it is beginning to resonate in international markets. Our international business is gaining momentum in two main areas. First, our existing customers are increasing their spending with us as they recognize the value of our product offerings. Second, we are seeing success with larger deals that involve multiple products. However, the downside of our international momentum is that we still rely on larger deals, so we are also focusing on securing more medium- and smaller-sized deals where competition is stiffer. Our current success is primarily with larger clients who are purchasing multiple products from us, where we face almost no competition. To sustain this momentum, we need to effectively implement the new projects we have successfully executed, generate more reference customers, and this will lead to additional business. As our business grows, we will also expand our sales and marketing efforts.
Great. And then just one quick follow-up. And maybe for Dave, I think you called out the Inspire user conference this year falling in Q1. I think it was Q4 in March of last year. Any sense on how much of a cost that was just as we think about the year-over-year trend in profit margins this quarter?
Yes, the difference was primarily due to the sales and marketing expenses as a percentage of revenue. We expect that to be around 13% for the year, while it was about 15% this quarter, largely because of the user conference. For the year, we anticipate returning to similar percentages as last year, so nearly all of the sales increase can be attributed to that event.
So we would be right in thinking maybe roughly $3 million.
Yes, a little bit higher than that, but that's pretty close. Think of it as 12% to 14% of revenue.
It would be less than $3 million.
Yes, sorry.
But overall, for the year, the guidance provided, EBITDA, 20% of revenue, we are comfortable with that, Steve.
Our next question will come from the line of Matt VanVliet of Cantor Fitzgerald.
Maybe another follow-up on sort of the improvement in the overall sales organization and the growth there. But as you think about what Joe and even Terry joining on the marketing side, in terms of what their multiyear plan is to up-level the entire go-to-market team and sort of drive more top of the funnel as well. Where do you feel like we are in terms of them rolling out their respective plans that you've come up with? Is there still more to be done in terms of programmatic improvements? Or do we have most of the plan in place and this is the beginnings of the execution on that showing better results?
Yes. I would say, Matt, as far as sales is concerned, I think we have a good plan in place, and we have implemented what we wanted to do this year and the structure, the territory coverage and the fundamental structure is there, and that is beginning to yield good results for us. But we are only in the beginning stages of seeing the benefits of that structure of better territory coverage, better organization of sales more discipline around that in terms of how we knock on doors. All that is improving now. I think that the sales structure is in a good place now. Now we will continue building on top of that foundation. Sales will continue to expand, but I think the structure is there. Marketing, we are it's a matter of putting more investments into marketing. We have expanded our presence, which is the main thing we have to do in this B2B vertical business, we have to show more presence, and we are doing that. We are attaining a lot more trade shows than we ever have. There's a lot more thought leadership presence now where you see Agilysys now. And that will continue to improve as we make more investments in marketing as well. Our content has improved a lot over the last year or so. So marketing, I think there are more investments to come to expand that. I think the sales structure is in a pretty good place. So we will continue expanding that from there.
As you fully integrate Book4time, how are you viewing it as a way to reach customers who currently don't use any Agilysys products? Is it helping in winning deals, whether from existing customers or new ones who discover more Agilysys offerings through Book4time, or is it simply an additional tool in your toolkit?
It is a conduit to winning more deals because there are hundreds of customers who use Book4time and don't use any of the other Agilysys products. That is still in the beginning stages, right? It has turned out to be a bit more difficult than we thought because selling one product versus selling multiple products. That takes a little bit more training and adjustment time. In fact, recently, we won one significant sales agreement that involved multiple Agilysys products, which is a Book4time customer. So all that is beginning to happen now, but we are still in the beginning stages of that. In terms of tapping into the Book4time customer base and selling more products to those customers, we are still in the early stages of that game.
And then just one quick follow-up on the EBITDA expectations for the year, just profitability in general. What would you see in the business over the next couple of months maybe that you might look and say we're going to hit the gas pedal and invest a little bit more in long-term growth? Is there a scenario that we could see that 20% level, maybe getting pressed a little bit lower because you have such good opportunities? Or are we far enough along in the year now that even if top line performance was strong enough, those costs would be more realized in fiscal '27?
We don't see a risk of going below 20%, if that is your question, Matt. We are making significant investments. We continue to make significant investments and we will not sacrifice our long-term growth possibilities for short-term profitability. But having said that, we are comfortable. We are a growing company. We are generating more revenue, and that is feeding into increasing resources where we need to increase. So we are comfortable with the 20% level that the other way I would answer your question is, we are comfortable feeding the areas we need to feed to continue our growth without sacrificing on the 20% mark.
And our next question will come from the line of Brian Schwartz from Oppenheimer.
Ramesh, in terms of the success that you're having with the bookings, is it possible to maybe look a little bit under the covers between your core verticals, the HRC, food and management, and then, obviously, the smaller cruise segment. But does the performance vary at all between new logos expansion and ARPU gains with the bookings among those 3 different segments?
Overall, the big news about this quarter is we made a great comeback with FSM. We really are beginning to see momentum with international sales. Having said that, hotel resorts, casino gaming, and the verticals that we are normally strong at continue to do well. Cruise ships again, had a good quarter in Q1 as well. So this was the broadest-based sales success that we have seen in our history, in fact, in terms of this many verticals doing well at the same time in the same quarter was very encouraging to us. Now on the other hand, this was also a good quarter for sales from new customers. And sales from current customers who continue to buy more products from us continues to be at record levels. So the only one where we can say we could improve further that was not a great quarter. It was a good quarter. It was for new sites. And for that, as we sign more multi-property big customers, that will also make a comeback during the subsequent quarters. So now in terms of new customer in each vertical, a lot of new customers are signing up with us in hotel resorts. In gaming, it's more skewed towards current customers buying a lot more from us. And we are beginning to sign a lot of new customers in FSM and international as well.
Yes, it was really both. We provided a lot of commentary, and the subscription bookings performed much better than we anticipated. Sales, which always drive our results, were exceptionally strong for the quarter. We also consider the professional services line as a good leading indicator, and with professional services exceeding $18 million, we had a very strong start to the quarter, especially with the SAP go-live. Overall, it was a tremendously strong sales quarter, and we are moving past the operational challenges we faced in our 2025 fiscal year. Notably, even with these impressive numbers, our subscription backlog still increased by 23% compared to our March 31 exit. Sales this quarter were very good.
Our next question will come from Logan Lilly from Craig-Hallum Capital Group.
This is Logan hopping on for George this afternoon. Ramesh, you talked about some interesting ways that you guys are leveraging AI kind of for end customers through the product set. Can you maybe just give us a sense for where you think that roadmap goes into next year? And sort of what kind of different tier you think that can be for you?
Hi Logan, yes. Before we discuss AI, it's fortunate that we've modernized our systems over the past few years and built a product ecosystem. This positions us well to effectively integrate AI into our offerings, providing us with competitive advantages that are hard for others to replicate. We view AI in two main aspects. First, we are enhancing nearly all of our products with AI-driven improvements, offering significant benefits. We have various applications, such as intelligent revenue upselling for customers, voice recognition for food and beverage ordering, invoice recognition and approval processing in our procurement solutions, natural language processing in data analysis, and conversational ordering in our booking engine for spa and golf reservations. Our modernization allows us to seamlessly incorporate AI into our products. Additionally, several departments in our internal operations are utilizing AI to increase productivity with our existing resources. Our products already possess a competitive edge, and the integration of AI tools will enhance that further.
Our next question will come from the line of Mayank Tandon from Needham.
Ramesh, great to hear about the sales momentum coming into this year and continuing into this quarter. I was just wondering, is it safe to say that your subscription revenue is all under contract? Or is there a business that you still have to win to hit your guidance? And just to extend the question further, I would ask you, if there is upside to the growth acceleration on the subscription side, where would that upside potentially come from? Is it from new logos going live faster than expected? Is it from better cross-sale success? If you could just expand on that.
Yes, we've had a strong start to the year. Generally, we're pleased with this level of visibility in the enterprise software sector. Our subscription revenue backlog looks excellent, and we've expanded our services teams, enabling us to enhance our implementation capacity. We've noticed a turning point in subscription sales and project implementations over the past couple of quarters, which is contributing positively to our strong start this year. Achieving our annual revenue and targets will depend on both our starting backlog and maintaining good sales levels. We're fortunate that both aspects are performing well. Our current sales momentum, particularly in subscription software sales, is robust, and implementation rates have improved significantly because our products have become easier to deploy after being in the market for a few years. If we keep up the current pace of improvement as we've seen over the last six months, I believe we'll continue to grow. Yes, Mayank, we are seeing more opportunities in M&A than usual, but we are maintaining our patience. We've consistently emphasized the importance of being patient, conservative, and opportunistic. As an organic growth company, we have made significant product investments and expanded our sales and services, positioning our products very well. Our ecosystem provides a strong advantage, and there is substantial organic growth potential ahead of us. We are just starting to explore the PMS area, so we have a long way to go regarding our growth. We can comfortably achieve good organic growth and have no need to engage in any desperate M&A activities, despite the many opportunities that present themselves. We assess these opportunities frequently, but always with patience and conservatism; we won’t be making any dramatic moves. To address your question about the types of M&A, they generally fall into two categories. One is complementary to our product set, filling gaps in our ecosystem if a promising opportunity arises. The other is aimed at gaining market share, potentially involving companies that could leverage our modernized system to offer their customers an upgrade path that enhances our market position. We evaluate each opportunity carefully with a patient and conservative perspective, Mayank.
Thank you. I'm not showing any further questions in the queue at this moment. I would now like to turn the call back over to Ramesh, CEO, for closing remarks.
Thank you, Victor. Thank you all for your continued guidance and support. Please take great care. Enjoy the rest of the summer, and we'll catch up with you all again soon. Thank you.
Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.