Agilysys: Fueling Growth Through Subscription Dominance and Strategic Execution

Agilysys (NASDAQ: ARIS) is positioned as a high-growth software leader in the hospitality sector, leveraging its cloud-native solutions and subscription-based business model to drive sustainable expansion. With FY2025 results showcasing record revenue and recurring income, the company’s FY2026 guidance points to a compelling reacceleration story. But how durable is this momentum, and what risks might cloud its path? Let’s dissect the numbers to uncover the investment thesis.

The Subscription Engine: Why Agilysys’ Revenue Mix Matters

Agilysys’ shift to recurring revenue—subscription and maintenance—has been nothing short of transformative. In Q4 FY2025, subscription revenue surged 42.7% year-over-year, accounting for 64.4% of recurring revenue. For the full fiscal year, subscriptions grew 39.5%, now representing 61.9% of total recurring revenue—a structural shift from traditional software licensing. This model reduces reliance on one-time sales and creates predictable cash flows, a key driver for investor confidence.

The FY2026 outlook projects subscription revenue to grow 25% year-over-year, a deceleration from FY2025’s torrid pace but still robust. This slowdown is rational given the maturing subscription base, but management’s focus on upselling and cross-selling to its hospitality clients—hotels, casinos, and restaurants—suggests there’s ample room to expand. A critical data point: Agilysys’ backlog hit record levels in FY2025, fueled by strong sales of its cloud-native solutions like MICROS and Infor Hospitality. This pipeline bodes well for future revenue recognition.

Execution Risks: Can Agilysys Deliver on Its Services Roadmap?

The company’s success hinges on converting backlog into revenue—a process dependent on flawless execution of services projects. In Q4 FY2025, services revenue hit record levels, but scaling implementation teams poses a risk. Agilysys has invested heavily in hiring professional services personnel, which is critical to avoiding bottlenecks.

Another wildcard is the large-scale PMS project, which management explicitly excluded from FY2026 guidance. If this project materializes, it could provide a significant upside. However, delays or cost overruns could pressure margins. Meanwhile, the company’s Adjusted EBITDA margin is projected to hold steady at 20% of revenue—a slight dip from FY2025’s 19.5%—highlighting the need for disciplined cost management.

Valuation: A Hidden Gem in the Software Sector?

Agilysys trades at a P/S ratio of 3.5x (based on FY2025 revenue of $275.6M), below industry peers like Oracle (cloud P/S ~10x) or Workday (P/S ~6x). This discount reflects skepticism around execution risks, but it also creates an opportunity. With FY2026 revenue guidance implying $308M–$312M, even a modest multiple expansion could unlock 12–15% upside.

The company’s strong free cash flow—$52.3M in FY2025—supports share buybacks or acquisitions, though management has prioritized reinvestment in growth. Meanwhile, the subscription gross margin of ~75% provides a moat against competitors, ensuring profitability as scale grows.

Conclusion: A Buy Signal for Agilysys?

Agilysys is at an inflection point. Its recurring revenue model, bolstered by a record backlog and accelerating subscription growth, positions it to outperform in a sector hungry for predictable cash flows. While execution risks exist, management’s track record—evident in FY2025’s record sales and Adjusted EBITDA—suggests they’re prepared.

With shares down 18% year-to-date despite strong fundamentals, now is a prime entry point. Investors seeking exposure to the cloud migration wave in hospitality should take note: Agilysys isn’t just a growth story—it’s a high-conviction opportunity to capitalize on a reaccelerating revenue machine.

Final Call: Agilysys’ FY2026 trajectory is underappreciated by the market. With subscription dominance, a fortress balance sheet, and a clear path to EBITDA expansion, this is a stock to buy while it’s still overlooked.