Agilysys: Riding the Subscription Wave to Scalable Growth and Cash Flow Dominance

Agilysys Inc. (AGYS) is undergoing a transformative shift from a hardware-centric business to a subscription-driven software powerhouse, positioning itself to capitalize on the $150 billion hospitality tech market. With record revenue growth, expanding margins, and a relentless focus on recurring revenue streams, the company is primed to deliver outsized returns for investors. Let’s dissect the data and uncover why now is the time to act.

Subscription Revenue: The Engine of Scalability

Agilysys’ subscription revenue has become the linchpin of its growth strategy. In Q2 2025, subscription revenue surged to $25.1 million, a 36.6% year-over-year jump, driven by its cloud-native Property Management Systems (PMS) and Point of Sale (POS) solutions. Even excluding the $2.1 million boost from the Book4Time acquisition—a strategic move that expanded its customer base by 30%—subscription growth remained robust at 25.2%, signaling organic momentum.

The company has set an ambitious full-year 2025 subscription growth target of >38%, with recurring revenue now accounting for 60.5% of total revenue. This shift is no accident: Agilysys is leveraging its 14+ integrated software modules to cross-sell to existing clients. For instance, new PMS customers now average 13 products per deal, compared to 5.4 products for general subscriptions. This “land-and-expand” strategy creates compounding revenue streams, reducing reliance on one-time hardware sales.

Cash Flow: The Foundation of Sustainability

Agilysys’ transition to software isn’t just about growth—it’s about profitability. In Q2 2025, free cash flow hit $5.9 million, a 136% improvement over the prior year’s $2.5 million, while Adjusted EBITDA rose to $12.2 million (17.9% of revenue). Management projects full-year 2025 free cash flow to exceed $45 million, with EBITDA margins expanding to 18% of revenue.

This financial strength stems from high gross margins (60.7% in 2024) and operational leverage. The company’s sales team, expanded by 50% globally, is now closing deals faster and at higher margins. Meanwhile, the Book4Time acquisition—though initially dilutive—has already added 100+ countries to its footprint and $2.1 million in quarterly recurring revenue, proving accretive over time.

Scalability: The Next-Level Playbook

Agilysys isn’t just growing—it’s building a moat. Key scalability drivers include:
1. Cross-Selling Mastery: With 102 upsell instances in Q2 alone, the sales team is capitalizing on existing relationships, driving average deal sizes 14% higher sequentially.
2. Modernized Product Stack: The shift to cloud-native software has reduced integration headaches. A Las Vegas property using the new POS system saw 15% higher guest transactions via self-service kiosks, showcasing the value proposition.
3. Leadership Experience: The hiring of Joe Youssef, a veteran of Amadeus Hospitality’s $1 billion scale-up, signals intent to replicate that success.

The company’s backlog of subscription revenue remains near record levels, ensuring visibility into 2026. While 2026 revenue estimates have been trimmed to $318.8 million (from $329 million) due to 2024’s soft POS transition, the 2025 trajectory—with 18% EBITDA margins and accelerating free cash flow—suggests these targets are achievable with minimal risk.

Risks? Yes—but They’re Being Mitigated

Critics point to lingering challenges in U.S. food service and APAC markets, as well as a 12% drop in legacy POS hardware sales. However, these are offset by gains in gaming, cruise lines, and resorts. The POS transition, while painful, is nearing completion, with Q2 sales rising 17% sequentially. Management’s focus on APAC sales (up 45% in 2024) and Marriott’s POS vendor approval—a $1.5 billion opportunity—underscores its ability to pivot.

Why Invest Now?

Agilysys is at an inflection point. Its subscription model is delivering 38%+ growth, free cash flow is accelerating, and the balance sheet is strengthening (debt reduced to $38 million post-Q2). With a $2.5 billion market cap and a stock price hovering near $83 (vs. a consensus target of $122), the upside is compelling.

Final Call: Act Before the Rally

Agilysys is a hidden gem in the software sector, with a subscription flywheel that’s just gaining momentum. Its 2025 results—record revenue, margin expansion, and strategic wins—set the stage for 2026 and beyond. For investors seeking scalable growth and cash flow resilience, this is a no-brainer.

The risks are manageable, the catalysts are clear, and the valuation is attractive. Don’t wait—Agilysys is about to take flight.