Agilysys (AGYS) Q2 2026: Subscription Revenue Jumps 33%, Driving Ecosystem Expansion
Agilysys delivered its 15th consecutive record revenue quarter, as subscription revenue growth accelerated and the company’s hospitality software ecosystem continued to gain traction across global markets. Execution on multi-product deals, international expansion, and AI-enabled efficiencies are amplifying competitive advantages, with management raising full-year guidance and signaling a long runway for sustained growth.
Summary
- Multi-Product Momentum: Ecosystem sales are driving higher attach rates and deeper customer relationships.
- AI-Enabled Efficiency: Automation and product modernization are accelerating implementations and margin leverage.
- Visibility Strengthens: Record backlog and recurring revenue position Agilysys for continued outperformance.
Performance Analysis
Agilysys posted record Q2 revenue of $79.3 million, up 16.1% year-over-year, marking its 15th consecutive record quarter. Subscription revenue, the company’s primary growth engine, surged 33.1% and now makes up 65.5% of total recurring revenue. Notably, this is the seventh straight quarter with subscription growth above 30%, reflecting robust demand for the company’s cloud-native hospitality suite.
Growth was broad-based across verticals and geographies, with international sales up more than 35% and food service management (FSM) sales doubling year-over-year. The average number of products per new customer deal hit a new high at seven, and when property management system (PMS) was included, the average rose to 14 products per deal—evidence of cross-sell strength. Backlog increased 49% sequentially, offering strong revenue visibility. Operating leverage improved, with operating expenses as a percentage of revenue declining across product development, G&A, and sales and marketing.
- Recurring Revenue Mix Shift: Recurring revenue now accounts for 64.3% of total revenue, up from 60.7% a year ago.
- Backlog Acceleration: Product backlog ended the quarter up 49% sequentially, supporting raised guidance.
- Free Cash Flow Surge: Free cash flow reached $15 million versus $5.9 million in the prior year quarter, aided by operational efficiency and debt paydown.
Subscription ARR installed during Q2 was up 79% year-over-year, and the company remains debt-free after paying down $24 million on its revolver, reinforcing balance sheet strength.
Executive Commentary
"All the years of diligent re-engineering of the core products and the addition of 20 plus add-on software modules to create a comprehensive ecosystem of cloud-native, world-class, hospitality-focused software solutions have created considerable competitive advantages for us in a hospitality technology environment that otherwise seems starved of genuine innovation and significant R&D investments."
Ramesh Srinivasan, President and CEO
"Sales momentum remained robust during Q2, leaving total backlog at record levels despite the strong project implementation and revenue start to the year. Subscription sales exceeded planned for the second consecutive quarter. Subscription bookings were up 41% over the prior fiscal year second quarter and continue to trend ahead of our original subscription guidance."
Dave Wood, CFO
Strategic Positioning
1. Ecosystem Scale and Attach Rates
Agilysys’ unified software ecosystem is enabling larger, multi-product deals, with new customers averaging seven products per agreement and PMS deals averaging 14. This breadth increases switching costs and embeds Agilysys deeper into customer operations, driving higher lifetime value and referenceability.
2. AI as a Competitive Lever
AI-driven automation is accelerating product implementations, enhancing service delivery, and enabling new product features. The company’s GetSense.ai platform is powering dynamic pricing, revenue management, and guest personalization, which management cites as a growing source of differentiation and efficiency gains.
3. International Expansion
Global sales rose 36% in the first half, with EMEA and APAC both contributing to record international results. Investments in local go-to-market and marketing are yielding more large-scale wins, and management expects further upside as major global hospitality chains increasingly consider Agilysys for unified deployments.
4. Margin and Operational Leverage
Operating expenses as a percentage of revenue declined across all major categories, reflecting scale benefits and disciplined investment. Gross margin ticked down slightly due to one-time revenue mix and ramping new services staff, but the margin profile remains robust, with subscription revenue growth set to drive further accretion.
5. Backlog and Visibility
Backlog reached record levels, up 49% sequentially, providing strong visibility into future quarters. Management highlighted reduced implementation delays and improved services capacity, positioning the company to convert backlog into revenue more efficiently as demand accelerates.
Key Considerations
Agilysys’ Q2 results underscore the power of a modernized, tightly integrated software platform in a fragmented hospitality tech market. The company’s ability to drive multi-product adoption, leverage AI for product and operational gains, and expand internationally is reshaping its growth profile and competitive moat.
Key Considerations:
- Ecosystem Depth: Cross-sell rates are rising as customers increasingly seek single-vendor solutions for complex hospitality needs.
- AI-Driven Productivity: Automation is reducing implementation time and freeing resources for innovation, enhancing both customer value and internal efficiency.
- International Growth Engines: EMEA and APAC are delivering record results, with local investments and global account wins fueling expansion.
- Backlog Conversion: Improved services capacity and process automation are enabling faster backlog burn, supporting guidance raises and future growth confidence.
Risks
Execution risks remain around the pace of backlog conversion, especially as large, complex implementations can be delayed by customer readiness. Competitive threats from both smaller point-solution vendors and legacy incumbents persist, particularly as the company seeks to raise its profile in a market where brand perception lags product capability. Macroeconomic pressures and customer budget cycles could also impact deal timing.
Forward Outlook
For Q3 2026, Agilysys guided to:
- Professional services revenue to decrease by more than 5% sequentially due to fewer billable days in the holiday season.
- Continued strength in subscription revenue and backlog conversion.
For full-year 2026, management raised guidance:
- Revenue range increased to $315–$318 million.
- Subscription revenue growth target raised to 29% (excluding Marriott PMS project).
- Adjusted EBITDA target maintained at 20% of revenue.
Management emphasized that guidance raises are driven by broad-based sales momentum, not reliant on the Marriott PMS rollout, which remains on track but is excluded from current outlook.
- Strong backlog and sales pipeline underpin confidence in sustained growth.
- AI adoption and operational improvements expected to drive further efficiency gains.
Takeaways
Agilysys is executing on a clear strategy to become the unified software backbone of the hospitality industry, with subscription growth, product breadth, and AI-driven differentiation as key levers.
- Multi-Product Adoption: High attach rates and ecosystem breadth are increasing customer stickiness and average deal size.
- Efficiency and Margin Leverage: AI and process improvements are enabling faster implementations and supporting margin expansion, even as the company scales.
- Long-Term Visibility: Record backlog, international traction, and a clean balance sheet provide a strong foundation for continued outperformance and defensible growth.
Conclusion
Agilysys’ Q2 results demonstrate a business accelerating on multiple fronts, with subscription growth, operational leverage, and AI-driven innovation driving both top-line and bottom-line momentum. With record backlog and rising international presence, the company is well-positioned to extend its lead in hospitality technology.
Industry Read-Through
Agilysys’ performance signals a broader shift in hospitality tech toward unified, cloud-native platforms with high attach rates and deep integration. The accelerating adoption of AI for both guest personalization and back-office automation is becoming table stakes, and vendors unable to match this pace of innovation risk losing share. International expansion and cross-vertical wins highlight a growing appetite for end-to-end solutions, suggesting that point-product providers and legacy incumbents may face increasing pressure as buyers consolidate around ecosystem leaders. For the sector, operational efficiency, backlog visibility, and AI-driven differentiation are emerging as key competitive battlegrounds.