Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
In “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (MD&A), management explains the general financial condition and results of operations for Agilysys and subsidiaries including:
— what factors affect our business;
— what our earnings and costs were;
— why those earnings and costs were different from the year before;
— where the earnings came from;
— how our financial condition was affected; and
— where the cash will come from to fund future operations.
The MD&A analyzes changes in specific line items in the Consolidated Statements of Operations and Consolidated Statements of Cash Flows and provides information that management believes is important to assessing and understanding our consolidated financial condition and results of operations. This discussion should be read in conjunction with the Consolidated Financial Statements and related Notes that appear in Item 8 of this Annual Report titled, “Financial Statements and Supplementary Data.” Information provided in the MD&A may include forward-looking statements that involve risks and uncertainties. Many factors could cause actual results to be materially different from those contained in the forward-looking statements. See “Forward-Looking Information” on page 3 of this Annual Report and Item 1A “Risk Factors” in Part I of this Annual Report for additional information concerning these items. Management believes that this information, discussion, and disclosure is important in making decisions about investing in Agilysys.
Overview
Recent Developments
Macroeconomic Conditions
During the year ended March 31, 2026, global macroeconomic conditions were, and continue to be, influenced by a number of factors, including, but not limited to, political unrest, armed conflicts, changes to tariffs and trade policies, labor shortages and natural disasters. We believe such conditions are impacting customer spending and provider pricing decisions resulting in decreased demand, increased costs, and reduced margins particularly in areas outside of the United States.
Book4Time
On August 20, 2024, we acquired Book4Time Parent, Inc. (Book4Time), a global leader in spa management SaaS software, as further described in Note 16, Business Combination, to our consolidated financial statements included under Part II, Item 8 of this annual report. The cash consideration for the acquisition totaled $145.8 million of net cash, partially funded by a credit agreement (the Credit Agreement) we entered into on August 16, 2024 (the Credit Agreement Closing Date), with the lenders party thereto and Bank of America, N.A., as lender and administrative agent, as further described in Note 15, Debt, to our consolidated financial statements included under Part II, Item 8 of this annual report.
Our Business
Agilysys has been a leader in hospitality software for more than 45 years, delivering innovative cloud-native SaaS and on-premise solutions for hotels, multi-amenity resorts, cruise lines, casinos, corporate foodservice management, restaurants, universities, stadiums, and healthcare facilities. The Company’s software solutions include point-of-sale (POS), property management (PMS), inventory and procurement, payments, and related applications that manage and enhance the entire guest journey. Agilysys is also known for its world-class customer-centric service. Many of the top hospitality companies around the world use Agilysys solutions to improve guest loyalty, drive revenue growth, and increase operational efficiencies. The Company has one reportable segment serving the global hospitality industry. Agilysys operates across the Americas, Europe, the Middle East, Africa, Asia-Pacific, and India with headquarters located in Alpharetta, GA.
Our top priority is increasing shareholder value by improving operating and financial performance and profitably growing the business through superior products and services. To that end, we expect to invest a certain portion of our cash on hand to fund enhancements to existing software products, to develop and market new software products, and to expand our customer breadth, both vertically and geographically.
Our strategic plan specifically focuses on:
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Putting the customer first
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Product innovation and development
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Improving our liquidity
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Increasing organizational efficiency and teamwork
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Developing our employees and leaders
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Growing revenue by improving the breadth and depth of our product set across both point-of-sale and property management applications
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Growing revenue through international expansion
The primary objective of our ongoing strategic planning process is to create shareholder value by capitalizing on growth opportunities, increasing profitability and strengthening our competitive position within the specific technology solutions and end markets we serve. Profitability and industry-leading growth will be achieved through tighter management of operating expenses and sharpening the focus of our investments to concentrate on growth opportunities that offer the highest returns.
Revenue – Defined
As required by the SEC, we separately present revenue earned as products revenue, subscription and maintenance revenue or professional services revenue in our Consolidated Statements of Operations. In addition to the SEC requirements, we may, at times, also refer to revenue as defined below. The terminology, definitions, and applications of terms we use to describe our revenue may be different from those used by other companies and caution should be used when comparing these financial measures to those of other companies. We use the following terms to describe revenue:
•
Revenue – We present revenue net of sales returns and allowances.
•
Products revenue – Revenue earned from the sales of software licenses, third party hardware and operating systems.
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Subscription and maintenance revenue – Revenue earned from the ongoing delivery of software updates, upgrades, bug fixes, technical support, and transaction-based fees over the period covered by subscription or maintenance agreements with our customers for both proprietary and remarketed solutions.
•
Professional services revenue – Revenue earned from the delivery of implementation, integration, development and installation services for proprietary and remarketed products.
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Results of Operations
Fiscal2026Compared to Fiscal2025
Net Revenue and Operating Income
The following table presents our consolidated revenue and operating results for the fiscal years ended March 31, 2026 and 2025:
Year Ended March 31, Increase (decrease)
Net revenue:
Cost of goods sold:
Gross profit margin 62.6 % 62.4 %
Operating expenses:
Amortization of internal-use software and intangibles 5,745 3,859 1,886 48.9 %
Operating income percentage 13.5 % 8.2 %
nm - not meaningful
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The following table presents the percentage relationship of our Consolidated Statements of Operations line items to our consolidated net revenues for the periods presented:
Year Ended March 31,
Net revenue:
Subscription and maintenance 64.5 61.7
Professional services 22.6 23.3
Cost of goods sold:
Subscription and maintenance 13.3 13.6
Professional services 16.5 16.0
Total cost of goods sold 37.4 % 37.6 %
Operating expenses:
Product development 22.8 % 22.6 %
General and administrative 13.2 14.8
Depreciation of fixed assets 1.2 1.3
Amortization of internal-use software and intangibles 1.8 1.4
Other (gains) charges, net (2.5 ) 1.7
Legal settlements, net 0.1 0.4
Operating income 13.5 % 8.2 %
Net revenue. Total net revenue increased $43.7 million, or 15.9%, in fiscal 2026 compared to fiscal 2025. Products revenue decreased $0.2 million, or 0.4%, due to increasing customer preference for subscription-based software licenses instead of perpetual software licenses. Subscription and maintenance revenue increased $35.9 million, or 21.1%, driven by continued growth in subscription-based revenue including $21.3 million and $11.2 million of Book4Time subscription-based revenue during the years ended March 31, 2026 and 2025, respectively. Total subscription revenue, including Book4Time subscription revenue, increased 30.2% in fiscal 2026 compared to fiscal 2025. Professional services revenue increased $8.0 million, or 12.4%, due to higher sales and service activity as our new and existing customers continue implementing technology to improve their operations.
Gross profit and gross profit margin. Our total gross profit increased $27.9 million, or 16.2%, in fiscal 2026 and total gross profit margin increased from 62.4% to 62.6% compared to fiscal 2025 driven by changes in the composition of revenue by category. Products gross profit decreased $2.5 million, or 12.7%, and gross profit margin decreased from 46.6% to 40.9% due to the composition of hardware and proprietary software products delivered. Subscription and maintenance gross profit increased $30.8 million, or 23.3%, and gross profit margin increased from 78.0% to 79.4% as revenue increases outpaced variable costs as a result of cost optimization discipline. Professional services gross profit decreased $0.4 million, or 2.2%, and gross profit margin decreased from 31.3% to 27.3% reflecting lower utilization rates due to continued hiring and training of new staff and timing of certain large projects.
Operating expenses
Operating expenses, excluding the charges for legal settlements and other (gains) charges, net increased $20.4 million, or 14.2%, in fiscal 2026 compared with fiscal 2025. As a percent of total revenue, operating expenses have decreased 0.8% in fiscal 2026 compared with fiscal 2025.
Product development. Product development includes all expenses associated with research and development. Product development increased $10.3 million, or 16.6%, during fiscal 2026 as compared with fiscal 2025 due to hiring and increased compensation rates across our development teams and increased travel.
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Sales and marketing. Sales and marketing increased $6.6 million, or 20.0%, in fiscal 2026 compared with fiscal 2025 due to hiring and increased compensation rates across our sales teams, sales team additions from the Book4Time acquisition, continued expansion of marketing event and trade show activity, and increased bad debt expense.
General and administrative. General and administrative increased $1.4 million, or 3.4%, in fiscal 2026 compared to fiscal 2025 due to increased compensation rates across our administrative teams.
Depreciation of fixed assets. Depreciation of fixed assets increased $0.2 million or 4.4% in fiscal 2026 as compared to fiscal 2025 due to the timing of asset additions and assets reaching their useful life.
Amortization of internal-use software and intangibles. Amortization of internal-use software and intangibles increased $1.9 million or 48.9% in fiscal 2026 as compared to fiscal 2025 due to the addition of certain intangible assets resulting from the Book4Time acquisition.
Other (gains) charges, net. Other (gains) charges, net changed $12.3 million due primarily to significant gains from employee retention credits during fiscal 2026 compared to significant acquisition costs related to business combinations during fiscal 2025.
Legal settlements. Legal settlements decreased $0.6 million during fiscal 2026 compared to fiscal 2025 due to a decrease in certain customer settlements.
Other Income (Expense)
Year Ended March 31, Favorable (unfavorable)
Other income (expense):
Interest income. Interest income consists of interest earned on cash equivalents including short-term investments in commercial paper, treasury bills and money market funds.
Interest expense. Interest expense consists of interest charges and unutilized commitment fees under our Credit Agreement and amortization of related debt issuance costs.
Other income, net. Other income, net mainly consists of movement of foreign currencies against the U.S. dollar.
Income Taxes
Year Ended March 31, Favorable
Effective tax rate 19.9 % 9.4 %
For fiscal 2026, the effective tax rate was different than the statutory rate due primarily to excess tax benefits associated with share-based compensation, Net Controlled Foreign Corporation Tested Income (NCTI), previously global intangible low-taxed income (GILTI), and U.S. R&D credits.
For fiscal 2025, the effective tax rate was different than the statutory rate due primarily to the benefit of U.S. R&D credits and the release of valuation allowances recorded against foreign deferred tax assets, consisting primarily of Net Operating Losses.
We are consistently subject to tax audits. Due to the nature of examinations in multiple jurisdictions, changes could occur in the amount of gross unrecognized tax benefits during the next 12 months that we cannot anticipate.
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The ultimate realization of deferred tax assets depends on various factors including the generation of taxable income during the future periods in which the underlying temporary differences are deductible. As of March 31, 2026, we had $10.5 million of federal net operating loss carryforwards that expire, if unused, in fiscal year 2039, and $42.5 million of federal net operating loss carryforwards that can be carried forward indefinitely. We also had $112.2 million of state net operating loss carryforwards that expire, if unused, in fiscal years 2027 through 2046. We maintain valuation allowances for deferred tax assets until we have sufficient evidence to support the reversal of all or some portion of the allowances. Based on recent earnings and anticipated future earnings, we released valuation allowances previously maintained against our businesses in Singapore and Hong Kong.
Fiscal2025Compared to Fiscal2024
Net Revenue and Operating Income
The following table presents our consolidated revenue and operating results for the fiscal years ended March 31, 2025 and 2024:
Year Ended March 31, Increase (decrease)
Net revenue:
Cost of goods sold:
Gross profit margin 62.4 % 60.7 %
Operating expenses:
Operating income percentage 8.2 % 6.6 %
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The following table presents the percentage relationship of our Consolidated Statements of Operations line items to our consolidated net revenues for the periods presented:
Year Ended March 31,
Net revenue:
Subscription and maintenance 61.7 58.1
Professional services 23.3 21.2
Cost of goods sold:
Subscription and maintenance 13.6 13.0
Professional services 16.0 15.2
Total cost of goods sold 37.6 % 39.3 %
Operating expenses:
Product development 22.6 % 23.9 %
General and administrative 14.8 15.3
Depreciation of fixed assets 1.3 1.6
Amortization of internal-use software and intangibles 1.4 0.6
Other charges, net 1.7 0.7
Legal settlements, net 0.4 0.0
Operating income 8.2 % 6.6 %
Net revenue. Total net revenue increased $38.2 million, or 16.1%, in fiscal 2025 compared to fiscal 2024. Products revenue decreased $7.8 million, or 15.8%, due to increasing customer preference for subscription-based software licenses instead of perpetual software licenses and to their decreasing need for hardware due to improvements we have made to our technology enabling more support for consumer grade devices our customers can source elsewhere. Subscription and maintenance revenue increased $32.0 million, or 23.2%, driven by continued growth in subscription-based revenue including service to Book4Time customers. Total subscription revenue increased 39.5% in fiscal 2025 compared to fiscal 2024. Professional services revenue increased $13.9 million, or 27.7%, due to higher sales and service activity as our new and existing customers continue implementing technology to improve their operations.
Gross profit and gross profit margin. Our total gross profit increased $27.7 million, or 19.2%, in fiscal 2025 and total gross profit margin increased from 60.7% to 62.4% compared to fiscal 2024 driven by changes in the composition of revenue by category. Products gross profit decreased $3.5 million, or 15.4%, and gross profit margin increased from 46.4% to 46.6% due to the composition of hardware and proprietary software products delivered. Subscription and maintenance gross profit increased $25.4 million, or 23.7%, and gross profit margin increased from 77.6% to 78.0% as revenue increases outpaced variable costs due to certain cost control measures. Professional services gross profit increased $5.8 million, or 40.9%, and gross profit margin increased from 28.4% to 31.3% reflecting improved utilization rates from efficiency gains on multi-solution implementations and revenue associated with a large development service contract.
Operating expenses
Operating expenses, excluding the charges for legal settlements and other charges, increased $17.2 million, or 13.6%, in fiscal 2025 compared with fiscal 2024. As a percent of total revenue, operating expenses have decreased 1.1% in fiscal 2025 compared with fiscal 2024.
Product development. Product development includes all expenses associated with research and development. Product development increased $5.7 million, or 10.0%, during fiscal 2025 as compared to fiscal 2024 due to hiring and increased compensation rates across our development teams and increased travel.
Sales and marketing. Sales and marketing increased $4.7 million, or 16.5%, in fiscal 2025 compared with fiscal 2024 due to hiring and increased compensation rates across our sales and marketing teams, and continued expansion of marketing event and trade show activity.
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General and administrative. General and administrative increased $4.6 million, or 12.5%, in fiscal 2025 compared to fiscal 2024 due to investments in our information security and information technology infrastructure, increased compensation rates across our administrative teams and, during the quarter ended June 30, 2024, payroll taxes associated with certain exercises of stock-settled appreciation rights.
Depreciation of fixed assets. Depreciation of fixed assets decreased $0.2 million or 5.6% in fiscal 2025 as compared to fiscal 2024 due to the timing of assets reaching their useful life.
Amortization of internal-use software and intangibles. Amortization of internal-use software and intangibles increased $2.5 million or 182.5% in fiscal 2025 as compared to fiscal 2024 due to the addition of certain intangible assets resulting from the Book4Time acquisition.
Other charges, net. Other charges, net increased $2.9 million due to a significant increase in acquisition costs related to business combinations and a reduction of gains on asset disposals during fiscal 2025 compared to fiscal 2024.
Legal settlements, net. Legal settlements, net increased $0.8 million during fiscal 2025 compared to fiscal 2024 due to an increase in certain customer settlements.
Other Income (Expense)
Year Ended March 31, Favorable (unfavorable)
Other income (expense):
Interest expense $ (1,529 ) $ — (1,529 ) nm
nm – not meaningful
Interest income. Interest income consists of interest earned on cash equivalents including short-term investments in commercial paper, treasury bills and money market funds.
Interest expense. Interest expense consists of interest charges under our Credit Agreement and amortization of related debt issuance costs.
Other income (expense), net. Other income (expense), net mainly consists of movement of foreign currencies against the U.S. dollar.
Income Taxes
Year Ended March 31, Unfavorable
Effective tax rate 9.4 % nm
nm – not meaningful
For fiscal 2025, the effective tax rate was different than the statutory rate due primarily to the benefit of U.S. R&D credits and the release of valuation allowances recorded against foreign deferred tax assets, consisting primarily of Net Operating Losses.
We are consistently subject to tax audits. Due to the nature of examinations in multiple jurisdictions, changes could occur in the amount of gross unrecognized tax benefits during the next 12 months that we cannot anticipate.
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The ultimate realization of deferred tax assets depends on various factors including the generation of taxable income during the future periods in which the underlying temporary differences are deductible. As of March 31, 2025, we had $29.7 million of federal net operating loss carryforwards that expire, if unused, in fiscal years 2036 to 2039, and $42.5 million of federal net operating loss carryforwards that can be carried forward indefinitely. We also had $111.5 million of state net operating loss carryforwards that expire, if unused, in fiscal years 2026 through 2043. We maintain valuation allowances for deferred tax assets until we have sufficient evidence to support the reversal of all or some portion of the allowances. Based on recent earnings and anticipated future earnings, we released valuation allowances previously maintained against our businesses in Singapore and Hong Kong.
Liquidity and Capital Resources
Overview
Our primary recurring source of cash is the collection of proceeds from the sale of products and services to our customers, including cash periodically collected in advance of delivery or performance.
Our cash requirements consist primarily of working capital needs, capital expenditures, and payments of contractual obligations. Our contractual obligations consist primarily of operating leases for office space and our Credit Agreement. We disclose our lease obligations in Note 6, Leases, to our Consolidated Financial Statements included under Item 8 of this Annual Report.
The Credit Agreement provides for a revolving credit facility in the initial maximum aggregate principal amount of $75.0 million (the Revolving Facility). The Revolving Facility includes the ability for the Company to request an increase in the commitments under the Revolving Facility by an additional aggregate principal amount of up to $25.0 million. On the Credit Agreement Closing Date, we drew $50.0 million on the Revolving Facility, the proceeds of which we used to fund the Business Combination described below. We disclose our Revolving Facility in Note 15, Debt, to our Consolidated Financial Statements included under Item 8 of this Annual Report.
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, including $145.8 million of net cash, partially funded by our Revolving Facility, during the year ended March 31, 2025, to complete the acquisition of Book4Time. We completed no business combinations during the years ended March 31, 2026 and 2024.
At March 31, 2026, 100% of our cash and cash equivalents, of which 94% were held in the United States, were deposited in bank accounts or invested in highly liquid investments including treasury bills with original maturity from the date of acquisition of three months or less and money market funds. We also invest in commercial paper. 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.
We believe that cash flow from operating activities, cash on hand of $116.9 million as of March 31, 2026, and access to our Revolving Facility and the broader capital markets will provide adequate funds to meet our short- and long-term liquidity requirements.
Cash Flows
Year Ended March 31,
Net cash provided by (used in):
Effect of exchange rate changes on cash 171 (340 ) 23
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Cash flows provided by operating activities. Cash flows provided by operating activities were $70.0 million in fiscal 2026 due to cash-based earnings of $77.8 million and a decrease of $7.8 million from the changes in operating assets and liabilities during fiscal 2026. Cash-based earnings is net income of $38.8 million and $39.0 million in non-cash adjustments including depreciation, amortization, share-based compensation, and deferred income taxes.
Cash flows provided by operating activities were $55.1 million in fiscal 2025. The provision of cash was due to cash-based earnings of $49.4 million and an increase of $5.7 million from the changes in operating assets and liabilities. Cash-based earnings is net income of $23.2 million and $26.2 million in non-cash adjustments including depreciation, amortization, share-based compensation, and deferred income taxes.
Cash flows provided by operating activities were $48.2 million in fiscal 2024. The provision of cash was due to cash-based earnings of $38.2 million and an increase of $10.0 million from the changes in operating assets and liabilities. Cash-based earnings is net income of $86.2 million and $48.0 million in non-cash adjustments including depreciation, amortization, share-based compensation, and deferred income taxes.
Cash flows used in investing activities. Cash flows used in investing activities in fiscal 2026 were $1.8 million consisting of property and equipment purchases.
Cash flows used in investing activities in fiscal 2025 were $148.6 million consisting primarily of $145.8 million in cash paid for business combinations, net of cash acquired, and property and equipment purchases, which decreased during the year ended March 31, 2025 compared to the year ended March 31, 2024 due primarily to leasehold improvements and equipment purchases for our new office lease in Chennai, India during fiscal 2024.
Cash flows used in investing activities in fiscal 2024 were $7.6 million due to $8.1 million in purchases of property and equipment, including internal use software and $0.5 million in cash received from the sale of fixed assets located at our India research and development center.
Cash flows provided by (used in) financing activities. Cash flows used in financing activities in fiscal 2026 were $24.5 million due to debt repayments of $24.0 million, proceeds from Employee Stock Purchase Plan purchases of $1.5 million, and share repurchases of $2.0 million to satisfy employee tax withholding on share-based compensation.
Cash flows provided by financing activities in fiscal 2025 were $21.9 million due to $49.6 million in debt proceeds, net of issuance costs, debt repayments of $26.0 million, proceeds from Employee Stock Purchase Plan purchases of $1.0 million, and share repurchases of $2.7 million to satisfy employee tax withholding on share-based compensation.
Cash flows used in financing activities in fiscal 2024 were $8.6 million due to share repurchases of $6.9 million to satisfy employee tax withholding on share-based compensation, and $1.7 million in preferred stock dividends.
Investments
Investments in Corporate-Owned Life Insurance Policies
Agilysys invests in corporate-owned life insurance policies for certain former executives, for which some are endorsement split-dollar life insurance arrangements. We entered into agreements with each of the former executives, whereby we must maintain the life insurance policy for a specified amount and split a portion of the policy benefits with their designated beneficiary. Our investment in these corporate-owned life insurance policies were recorded at their cash surrender value, which approximates fair value at the balance sheet date. On the Consolidated Balance Sheets at the balance sheet date, the cash surrender value of $1.1 million for the remaining policies were held in “Other non-current assets,” and the present value of future proceeds owed to those executives’ designated beneficiary of $0.1 million, which approximates fair value, were recorded within “Other non-current liabilities” in the Consolidated Balance Sheets at the balance sheet date.
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements that have had or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.
Critical Accounting Policies
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Managements’ Discussion and Analysis is based upon our Consolidated Financial Statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenue, and expenses and related disclosure of contingent assets and liabilities. We regularly evaluate our estimates, including those related to bad debts, inventories, investments, intangible assets, income taxes, restructuring, contingencies and litigation. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
Our most significant accounting policies relate to the sale, purchase, and promotion of our products and services. The policies discussed below are considered by management to be critical to an understanding of our Consolidated Financial Statements because their application places the most significant demands on management’s judgment, with financial reporting results relying on estimation about the effect of matters that are inherently uncertain. Specific risks for these critical accounting policies are described in the following paragraphs.
For all these policies, management cautions that future events rarely develop exactly as forecasted, and the best estimates routinely require adjustment.
Revenue recognition. We derive revenue from the sale of products (proprietary software licenses, third party hardware and operating systems), subscription and maintenance, and professional services.
Our customary business practice is to enter into legally enforceable written contracts with our customers. The majority of our contracts are governed by a master service or universal agreement between us and the customer, which sets forth the general terms and conditions of any individual contract between the parties, which is then supplemented by a customer order to specify the different goods and services, the associated prices, and any additional terms for an individual contract. Performance obligations specific to each individual contract are defined within the terms of each order. Each performance obligation is identified based on the goods and services that will be transferred to our customer that are both capable of being distinct and are distinct within the context of the contract. The transaction price is determined based on the consideration to which we will be entitled and expect to receive in exchange for transferring goods or services to the customer. Typically, our contracts do not provide our customer with any right of return or refund; we do not constrain the contract price as it is probable that there will not be a significant revenue reversal due to a return or refund.
Typically, our customer contracts contain one or more of the following goods or services which constitute performance obligations.
Our proprietary software licenses typically provide for a perpetual right to use our software. Generally, our contracts do not provide significant services of integration and customization, and installation services are not required to be purchased directly from us. The software is delivered before related services are provided and is functional without professional services, updates and technical support. We have concluded that the software license is distinct as the customer can benefit from the software on its own. Software revenue is typically recognized when the software is delivered or made available for download to the customer.
We recognize revenue for hardware sales when the product is shipped to the customer and when obligations that affect the customer’s final acceptance of the arrangement have been fulfilled. Hardware is purchased from suppliers and provided to the end-user customers via drop-ship or from inventory. We are responsible for negotiating price both with the supplier and the customer, payment to the supplier, establishing payment terms and product returns with the customer, and we bear the credit risk if the customer does not pay for the goods. As the principal contact with the customer, we recognize revenue and cost of goods sold when we ship or are notified by the supplier that the product has been shipped. In certain limited instances, as shipping terms dictate, revenue is recognized upon receipt at the point of destination or upon installation at the customer site.
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Our subscription service revenue is comprised of fees for contracts that provide customers a right to access our software for a subscribed period. We do not provide the customer the contractual right to license the software at any time outside of the subscription period under these contracts. Our subscription service revenue is primarily based on rates per location, including rates per points of sale and per room. We recognize certain subscription service revenue on a per-transaction basis. The customer can only benefit from the software and software maintenance when provided the right to access the software. Accordingly, each of the rights to access the software, the maintenance services, any hosting services, and any transaction-based services are not considered a distinct performance obligation in the context of the contract and should be combined into a single performance obligation to be recognized over the contract period. The Company recognizes subscription revenue over monthly periods based on the typical service, invoicing and renewal cycle in accordance with our customer agreement terms.
We derive maintenance service revenue from providing unspecified updates, upgrades, bug fixes, and technical support services for our proprietary software. These services represent a stand-ready obligation that is concurrently delivered and has the same pattern of transfer to the customer; we account for these maintenance services as a single performance obligation. Maintenance revenue includes the same services provided by third-parties for remarketed software. We recognize substantially all maintenance revenue over the contract period of the maintenance agreement. We also recognize certain maintenance service revenue based on the volume of payment transactions processed by third parties through access to our software.
Professional services revenue primarily consists of fees for consulting, implementation, installation, integration and training and are generally recognized over time as the customer simultaneously receives and consumes the benefits of the professional services as the services are being performed. Certain professional development services are recognized upon delivery of the developed solutions to the customer. At the end of each reporting period, we recognize the most likely amount of variable consideration on any contract holdbacks we expect to bill for development services delivered. Professional services can be provided by internal or external providers, do not significantly affect the customer’s ability to access or use other provided goods or services, and provide a measure of benefit beyond that of other promised goods or services in the contract. As a result, professional services are considered distinct in the context of the contract and represent a separate performance obligation. Professional services that are billed on a time and materials basis are recognized over time as the services are performed. For contracts billed on a fixed price basis, revenue is recognized over time using an input method based on labor hours expended to date relative to the total labor hours expected to be required to satisfy the related performance obligation.
We use the market approach to derive standalone selling price (SSP) by maximizing observable data points (in the form of recently executed customer contracts) to determine the price customers are willing to pay for the goods and services transferred. Shipping and handling fees billed to customers are recognized as revenue and the related costs are recognized in cost of goods sold. Revenue is recorded net of any applicable taxes collected and remitted to governmental agencies.
Share-based compensation. We have an equity incentive plan under which we may grant non-qualified stock options, incentive stock options, stock-settled stock appreciation rights, restricted shares, restricted stock units and performance shares. Shares issued pursuant to awards under this plan may be made out of treasury or authorized but unissued shares.
We record compensation expense related to stock-settled stock appreciation rights, restricted shares, restricted stock units, performance shares, and employee stock purchase plan shares granted to certain employees and non-employee directors based on the fair value of the awards on the grant date. The fair value of restricted share and restricted stock unit grants subject only to a service condition is based on the closing price of our common shares on the grant date. For stock option and stock-settled appreciation right grants subject only to a service condition, we estimate the fair value on the grant date using the Black-Scholes-Merton option pricing model with inputs including the closing market price at grant date, exercise price and assumptions regarding the risk-free interest rate, expected volatility of our common shares based on historical volatility, and expected term as estimated using the simplified method. For employee stock purchase plan grants, we estimate the fair value on the grant date using the Black-Scholes-Merton option pricing model with inputs including the closing market price at grant date and assumptions regarding the risk-free interest rate, expected term, and expected volatility of our common shares over the offering period based on historical volatility. For restricted share, restricted stock unit and SSAR grants subject to a market condition, we estimate the fair value on the grant date through a lattice option pricing model that utilizes a Monte Carlo analysis with inputs including the closing market price at grant date, share price threshold, performance period term and assumptions regarding the risk-free interest rate and expected volatility of our common shares based on historical volatility. Inputs for SSAR grants subject to a market condition also include exercise price, remaining contractual term, and suboptimal exercise factor. Forfeitures of awards are recognized as they occur. Additional information regarding the assumptions used to value share-based compensation awards is provided in Note 13, Share-Based Compensation, to our Consolidated Financial Statements included under Item 8 of this Annual Report.
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Accounting Pronouncements
See Note 2, Summary of Significant Accounting Policies, to our Consolidated Financial Statements included under Item 8 of this Annual Report for additional information about accounting pronouncements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
We have assets, liabilities, and cash flows in foreign currencies creating foreign exchange risk. We sell products and services internationally and enter into transactions denominated in foreign currencies. As a result, we are subject to the variability that arises from exchange rate movements. For the fiscal years 2026, 2025 and 2024, revenue from international operations was 7%, 10% and 6%, respectively, of total revenue. The effects of foreign currency on operating results did not have a material impact on our results of operations for the 2026, 2025 and 2024 fiscal years. Fluctuations in the value of other currencies could materially impact our revenue, expenses, operating profit and net income.
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Item 8. Financial Statements and Supplementary Data.
Agilysys, Inc. and Subsidiaries
ANNUAL REPORT ON FORM 10-K
Year EndedMarch 31, 2026
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Notes to Consolidated Financial Statements 52
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Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
Agilysys, Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of Agilysys, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of March 31, 2026 and 2025, the related consolidated statements of operations, comprehensive income, cash flows, and shareholders’ equity for each of the three years in the period ended March 31, 2026, and the related notes and financial statement schedule included under Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2026 and 2025, and the results of its operations and its cash flows for each of the three years in the period ended March 31, 2026, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of March 31, 2026, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated May 21, 2026 expressed an unqualified opinion.
Basis for opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical audit matters
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2015.
Atlanta, Georgia
May 21, 2026
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Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
Agilysys, Inc.
Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of Agilysys, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of March 31, 2026, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of March 31, 2026, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended March 31, 2026, and our report dated May 21, 2026 expressed an unqualified opinion on those financial statements.
Basis for opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and limitations of internal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ GRANT THORNTON LLP
Atlanta, Georgia
May 21, 2026
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AGILYSYS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data) March 31,2026 March 31,2025
ASSETS
Current assets:
Prepaid expenses and other current assets 12,201 9,260
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Operating lease liabilities, current 5,323 5,658
Operating lease liabilities, non-current 13,721 17,304
Debt, non-current — 24,000
Other non-current liabilities 5,762 5,170
Commitments and contingencies
Shareholders' equity:
Accumulated other comprehensive loss (13,061 ) (13,282 )
Total liabilities and shareholders' equity $ 481,528 $ 434,370
See accompanying notes to consolidated financial statements.
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AGILYSYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year EndedMarch 31,
Net revenue:
Cost of goods sold:
Operating expenses:
Amortization of internal-use software and intangibles 5,745 3,859 1,366
Other income (expense):
Series A convertible preferred stock dividends — — (1,204 )
Net income per share - basic: $ 1.39 $ 0.84 $ 3.31
Net income per share - diluted: $ 1.37 $ 0.82 $ 3.17
See accompanying notes to consolidated financial statements.
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AGILYSYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Year Ended
Other comprehensive income (loss):
Unrealized foreign currency translation adjustments 221 (9,112 ) (140 )
See accompanying notes to consolidated financial statements.
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AGILYSYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended
Operating activities
Loss (gain) on asset disposals 9 25 (1,145 )
Amortization of internal-use software and intangibles 5,745 3,859 1,366
Amortization of developed technology acquired 665 461 159
Changes in operating assets and liabilities:
Prepaids and other current assets (2,898 ) (84 ) (291 )
Investing activities
Cash paid for business combination, net of cash acquired — (145,756 ) —
Proceeds from sale of assets — — 552
Additional investments in corporate-owned life insurance policies — (27 ) (27 )
Financing activities
Payment of preferred stock dividends — — (1,663 )
Debt proceeds, net of issuance costs — 49,645 —
Proceeds from Employee Stock Purchase Plan purchases 1,476 1,026 —
Principal payments under long-term obligations — — (2 )
Net cash provided by (used in) financing activities (24,467 ) 21,928 (8,558 )
Effect of exchange rate changes on cash 171 (340 ) 23
Net increase (decrease) in cash and cash equivalents 43,853 (71,850 ) 32,049
See accompanying notes to consolidated financial statements.
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AGILYSYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Common Shares Capital in Accumulated
Issued In Treasury excess of other
Shares issued upon exercise of SSARs — — 211 63 (63) — — —
Other common stock issuances, net — — 185 55 (55) — — —
Series A convertible preferred stock dividends (1,204) (1,204)
Unrealized translation adjustments — — — — — — (140) (140)
Shares issued upon exercise of SSARs — — 630 190 (190) — — —
Unrealized translation adjustments — — — — — — (9,112) (9,112)
Shares issued upon exercise of SSARs — — 62 19 (19) — — —
Unrealized translation adjustments — — — — — — 221 221
See accompanying notes to consolidated financial statements.
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Agilysys, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Table amounts in thousands, except per share data)
1. Nature of Operations
Agilysys has been a leader in hospitality software for more than 45 years, delivering innovative cloud-native SaaS and on-premise solutions for hotels, multi-amenity resorts, cruise lines, casinos, corporate foodservice management, restaurants, universities, stadiums, and healthcare facilities. The Company’s software solutions include point-of-sale (POS), property management (PMS), inventory and procurement, payments, and related applications that manage and enhance the entire guest journey. Agilysys is also known for its world-class customer-centric service. Many of the top hospitality companies around the world use Agilysys solutions to improve guest loyalty, drive revenue growth, and increase operational efficiencies. Agilysys operates across the Americas, Europe, the Middle East, Africa, Asia-Pacific, and India with headquarters located in Alpharetta, GA.
The Company has one reportable segment serving the global hospitality industry.
Reference herein to any particular year or quarter refers to periods within the fiscal year ended March 31. For example, fiscal 2026 refers to the fiscal year ended March 31, 2026.
2. Summary of Significant Accounting Policies
Principles of consolidation. The consolidated financial statements include the accounts of Agilysys, Inc. and subsidiaries. Investments in affiliated companies are accounted for by the equity or cost method, as appropriate. All inter-company accounts have been eliminated.
Use of estimates. Preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported periods. Actual results could differ from those estimates.
Cash and cash equivalents.100% of our cash and cash equivalents, of which 94% were held in the United States, were deposited in bank accounts or invested in highly liquid investments. Certain bank account balances may exceed federally insured limits. We consider all highly liquid investments purchased with an original maturity from date of acquisition of three months or less to be cash equivalents. Other highly liquid investments considered cash equivalents with no established maturity date are fully redeemable on demand (without penalty) with settlement of principal and accrued interest on the same or following business day after instruction to redeem. Cash equivalent investments are readily convertible to cash with no penalty and can include certificates of deposit, commercial paper, treasury bills, money market funds and other investments. We determine the fair value of certificates of deposit, treasury bills and money market funds using quoted market prices in active markets for identical assets (level 1 inputs). We determine the fair value of commercial paper using significant other observable inputs (level 2) 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.
Allowance for expected credit losses. We maintain allowances for expected credit losses for estimated losses resulting from the inability or unwillingness of our customers to make required payments. We base our expected credit loss model on historical experience, adjusted for current conditions and reasonable and supportable forecasts. To help mitigate the associated credit risk, we perform periodic credit evaluations of our customers.
Customer credit allowance. We maintain allowances for estimated customer credits. Credits are typically due to the timing or amount of customer invoices processed for specific services, including professional and subscription, and maintenance coverage. In certain cases, there has not been clear or timely communication of the need to adjust coverage or service at a location in advance of when we invoice for the associated coverage or service. We will issue a credit after agreeing to the service or coverage adjustment as requested by the customer within the terms of our contract.
Inventories. Our inventories are comprised of finished goods. Inventories are stated at the lower of cost or net realizable value, net of related reserves. The cost of inventory is computed using a weighted-average method. Our inventory is monitored to ensure appropriate valuation. Adjustments of inventories to the lower of cost or net realizable value, if necessary, are based upon contractual provisions such as turnover and assumptions about future demand and market
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conditions. If assumptions about future demand change and/or actual market conditions are less favorable than those projected by management, additional adjustments to inventory valuations may be required. We provide a reserve for obsolescence, which is calculated based on several factors, including an analysis of historical sales of products and the age of the inventory. Actual amounts could be different from those estimated.
Leases. We determine if an arrangement is or contains a lease at inception. Operating leases are presented as Right-of-Use (ROU) assets and the corresponding lease liabilities are included in operating lease liabilities – current and operating lease liabilities – non-current on our Consolidated Balance Sheet. ROU assets represent our right to use the underlying asset, and lease liabilities represent our obligation for lease payments in exchange for the ability to use the asset for the duration of the lease term.
ROU assets and lease liabilities are recognized at commencement date and determined using the present value of the remaining lease payments over the lease term. We use an incremental borrowing rate based on estimated rate of interest for collateralized borrowing since our leases do not include an implicit interest rate. The estimated incremental borrowing rate considers market data, actual lease economic environment, and actual lease term at commencement date. The lease term may include options to extend when it is reasonably certain that we will exercise that option. ROU assets include lease payments made in advance, and exclude any incentives received or initial direct costs incurred. We recognize lease expense on a straight-line basis over the lease term.
We have lease agreements with lease and non-lease components which we account for as a single lease component. We also have leases which include variable lease payments, which are expensed as incurred. Our variable lease payments are not based on an index or rate and therefore are excluded from the calculation of lease liabilities. We have elected to not recognize short term leases that have a term of twelve months or less as ROU assets or lease liabilities. Our short-term leases are not material and do not have a material impact on our ROU assets or lease liabilities. Additionally, we do not have any covenants, residual value guarantees, or related party transactions associated with our lease agreements.
Goodwill and other indefinite-lived intangible assets. Goodwill represents the excess purchase price paid over the fair value of the net assets of acquired companies. As of March 31, 2026 and 2025, the carrying amount of goodwill was $133.9 million and $130.6 million, respectively. Goodwill is tested for impairment on an annual basis, or in interim periods if indicators of potential impairment exist, based on our one reporting unit. The Company evaluates whether goodwill is impaired by comparing its market capitalization based on its closing stock price (Level 1 input) to the book value of its equity on the annual evaluation date. The Company is also required to compare the fair values of other indefinite-lived intangible assets to their carrying amounts at least annually, or when current events and circumstances require an interim assessment. The Company concluded that no impairment of its goodwill and other indefinite-lived assets has occurred for the years ended March 31, 2026, 2025 and 2024.
Acquired intangible assets. Acquired intangible assets include identifiable customer relationships, non-competition agreements, developed technology, and trade names. We amortize the cost of finite-lived identifiable intangible assets over their estimated useful lives, which are periods of 20 years or less, primarily on a straight-line basis, which we believe approximates the pattern in which the assets are utilized. The fair values assigned to identifiable intangible assets acquired in business combinations are determined primarily by using the income approach, which discounts expected future cash flows attributable to these assets to present value using estimates and assumptions determined by management.
Long-lived assets. Property and equipment are recorded at cost. Major renewals and improvements are capitalized. Minor replacements, maintenance, repairs, and reengineering costs are expensed as incurred. When assets are sold or otherwise disposed of, the cost and related accumulated depreciation are eliminated from the accounts and any resulting gain or loss is recognized.
Depreciation and amortization are provided in amounts sufficient to amortize the cost of the assets over their estimated useful lives using the straight-line method. The estimated useful lives for depreciation and amortization are as follows: buildings and building improvements – 7 to 30 years; furniture – 7 to 10 years; equipment – 3 to 10 years; software – 3 to 10 years; and leasehold improvements over the shorter of the economic life or the lease term. Internal use software costs are expensed or capitalized depending on the project stage. Amounts capitalized are amortized over the estimated useful lives of the software, ranging from 3 to 10 years, beginning with the project’s completion. Depreciation for capitalized project expenditures does not begin until the underlying project is completed.
We evaluate the recoverability of our long-lived assets whenever changes in circumstances or events may indicate that the carrying amounts may not be recoverable. An impairment loss is recognized in the event the carrying value of the assets
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exceeds the future undiscounted cash flows attributable to such assets. Our long-lived assets and impairments considerations are discussed further in Note 4, Property and Equipment, Net.
Foreign currency translation. The financial statements of our foreign operations are translated into U.S. dollars for financial reporting purposes. The assets and liabilities of foreign operations whose functional currencies are not in U.S. dollars are translated at the period-end exchange rates, while revenue and expenses are translated at weighted-average exchange rates during the fiscal year. The cumulative translation effects are reflected as a component of “Accumulated other comprehensive income (loss)” within shareholders’ equity on the Consolidated Balance Sheets. Gains and losses on monetary transactions denominated in other than the functional currency of an operation are reflected within “Other income (expense), net” in the Consolidated Statements of Operations. Foreign currency gains and losses from changes in exchange rates have not been material to our consolidated operating results.
Revenue recognition. We derive revenue from the sale of products (proprietary software licenses, third party hardware and operating systems), subscription and maintenance, and professional services.
Our customary business practice is to enter into legally enforceable written contracts with our customers. The majority of our contracts are governed by a master service or universal agreement between us and the customer, which sets forth the general terms and conditions of any individual contract between the parties, which is then supplemented by a customer order to specify the different goods and services, the associated prices, and any additional terms for an individual contract. Performance obligations specific to each individual contract are defined within the terms of each order. Each performance obligation is identified based on the goods and services that will be transferred to our customer that are both capable of being distinct and are distinct within the context of the contract. The transaction price is determined based on the consideration to which we will be entitled and expect to receive in exchange for transferring goods or services to the customer. Typically, our contracts do not provide our customer with any right of return or refund; we do not constrain the contract price as it is probable that there will not be a significant revenue reversal due to a return or refund.
Typically, our customer contracts contain one or more of the following goods or services which constitute performance obligations.
Our proprietary software licenses typically provide for a perpetual right to use our software. Generally, our contracts do not provide significant services of integration and customization, and installation services are not required to be purchased directly from us. The software is delivered before related services are provided and is functional without professional services, updates and technical support. We have concluded that the software license is distinct as the customer can benefit from the software on its own. Software revenue is typically recognized when the software is delivered or made available for download to the customer.
We recognize revenue for hardware sales when the product is shipped to the customer and when obligations that affect the customer’s final acceptance of the arrangement have been fulfilled. Hardware is purchased from suppliers and provided to the end-user customers via drop-ship or from inventory. We are responsible for negotiating price both with the supplier and the customer, payment to the supplier, establishing payment terms and product returns with the customer, and we bear the credit risk if the customer does not pay for the goods. As the principal contact with the customer, we recognize revenue and cost of goods sold when we ship or are notified by the supplier that the product has been shipped. In certain limited instances, as shipping terms dictate, revenue is recognized upon receipt at the point of destination or upon installation at the customer site.
Our subscription service revenue is comprised of fees for contracts that provide customers a right to access our software for a subscribed period. We do not provide the customer the contractual right to license the software at any time outside of the subscription period under these contracts. Our subscription service revenue is primarily based on rates per location, including rates per points of sale and per room. We recognize certain subscription service revenue on a per-transaction basis. The customer can only benefit from the software and software maintenance when provided the right to access the software. Accordingly, each of the rights to access the software, the maintenance services, any hosting services, and any transaction-based services are not considered a distinct performance obligation in the context of the contract and should be combined into a single performance obligation to be recognized over the contract period. The Company recognizes subscription revenue over monthly periods based on the typical service, invoicing and renewal cycle in accordance with our customer agreement terms.
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We derive maintenance service revenue from providing unspecified updates, upgrades, bug fixes, and technical support services for our proprietary software. These services represent a stand-ready obligation that is concurrently delivered and has the same pattern of transfer to the customer; we account for these maintenance services as a single performance obligation. Maintenance revenue includes the same services provided by third-parties for remarketed software. We recognize substantially all maintenance revenue over the contract period of the maintenance agreement. We also recognize certain maintenance service revenue based on the volume of payment transactions processed by third parties through access to our software.
Professional services revenue primarily consists of fees for consulting, implementation, installation, integration and training and are generally recognized over time as the customer simultaneously receives and consumes the benefits of the professional services as the services are being performed. Certain professional development services are recognized upon delivery of the developed solutions to the customer. At the end of each reporting period, we recognize the most likely amount of variable consideration on any contract holdbacks we expect to bill for development services delivered. Professional services can be provided by internal or external providers, do not significantly affect the customer’s ability to access or use other provided goods or services, and provide a measure of benefit beyond that of other promised goods or services in the contract. As a result, professional services are considered distinct in the context of the contract and represent a separate performance obligation. Professional services that are billed on a time and materials basis are recognized over time as the services are performed. For contracts billed on a fixed price basis, revenue is recognized over time using an input method based on labor hours expended to date relative to the total labor hours expected to be required to satisfy the related performance obligation.
We use the market approach to derive standalone selling price (SSP) by maximizing observable data points (in the form of recently executed customer contracts) to determine the price customers are willing to pay for the goods and services transferred. Shipping and handling fees billed to customers are recognized as revenue and the related costs are recognized in cost of goods sold. Revenue is recorded net of any applicable taxes collected and remitted to governmental agencies.
Comprehensive income. Comprehensive income is the total of net income, as currently reported under GAAP, plus other comprehensive income (loss). Other comprehensive income considers the effects of additional transactions and economic events that are not required to be recorded in determining net income, but rather are reported as a separate statement of comprehensive income.
Fair value measurements. We measure the fair value of financial assets and liabilities on a recurring or non-recurring basis. Financial assets and liabilities measured on a recurring basis are those that are adjusted to fair value each time a financial statement is prepared. Financial assets and liabilities measured on a non-recurring basis are those that are adjusted to fair value when a significant event occurs. In determining fair value of financial assets and liabilities, we use various valuation techniques.
Investments in corporate-owned life insurance policies. Agilysys invests in corporate-owned life insurance policies, for which some are endorsement split-dollar life insurance arrangements. We entered into agreements with certain former executives, whereby we must maintain the life insurance policy for a specified amount and split a portion of the policy benefits with their respective designated beneficiary. Our investment in these corporate-owned life insurance policies were recorded at their cash surrender value, which approximates fair value at the balance sheet date. In the Consolidated Balance Sheets at the balance sheet date, the cash surrender value of $1.1 million for the remaining policies were held in “Other non-current assets,” and the present value of future proceeds owed to those executives’ designated beneficiary of $0.1 million, which approximates fair value, were recorded within “Other non-current liabilities.” Additional information regarding the investments in corporate-owned life insurance policies is provided in Note 10, Employee Benefit Plans.
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Income Taxes. Income tax expense includes U.S. and foreign income taxes and is based on reported income before income taxes. We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities. The deferred tax assets and liabilities are determined based on the enacted tax rates expected to apply in the periods in which the deferred tax assets or liabilities are anticipated to be settled or realized.
We regularly review our deferred tax assets for recoverability and establish a valuation allowance if it is more likely than not that some portion, or all, of a deferred tax asset will not be realized. The determination as to whether a deferred tax asset will be realized is made on a jurisdictional basis and is based on the evaluation of positive and negative evidence. This evidence includes historical taxable income, projected future taxable income, the expected timing of the reversal of existing temporary differences and the implementation of tax planning strategies.
We recognize the tax benefit from uncertain tax positions only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized from uncertain tax positions are measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. No tax benefits are recognized for positions that do not meet this threshold. Interest related to uncertain tax positions is recognized as part of the provision for income taxes and is accrued beginning in the period that such interest would be applicable under relevant tax law until such time that the related tax benefits are recognized. Our income taxes are described further in Note 9, Income Taxes.
Advertising and Promotion Expense. We expense advertising and promotion expense as incurred. Advertising and promotion expense was $8.3 million, $7.2 million and $6.7 million in fiscal 2026, 2025 and 2024, respectively.
Recently Adopted and Issued Accounting Pronouncements
In December 2025, the Financial Accounting Standards Board FASB issued ASU No. 2025-10, Government Grants (Topic 832): Accounting for Government Grants Received by Business Entities (ASU 2025-10) to establish authoritative guidance on how to recognize, measure, and present government grants received by business entities. ASU 2025-10 is effective for annual periods beginning after December 15, 2028, or our fiscal 2030, and interim reporting periods within those annual reporting periods. The ASU may be applied using a modified prospective, modified retrospective or retrospective approach with early adoption permitted in an interim or annual reporting period. If an entity early adopts in an interim reporting period, it must adopt as of the beginning of the annual reporting period that includes that interim reporting period. We adopted ASU 2025-10 under the modified prospective approach effective as of April 1, 2025 – see Note 9, Income Taxes.
In September 2025, the FASB issued ASU No. 2025-06, Intangibles-Goodwill and Other-Internal Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software (ASU 2025-06), which removes all references to software development stages and clarifies the threshold entities apply to begin capitalizing costs. ASU 2025-06 is effective for annual periods beginning after December 15, 2027, or our fiscal 2029, and interim reporting periods within those annual reporting periods. The ASU may be applied prospectively, retrospectively or through a modified transition approach with early adoption permitted. We are currently evaluating the potential impact the ASU may have on our Consolidated Financial Statements upon adoption.
In November 2024, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2024-03 Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (ASU 2024-03) to expand expense disclosures by requiring disaggregated disclosure of certain income statement expense line items, including those that contain purchases of inventory, employee compensation, depreciation and amortization. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, or our fiscal 2028, and subsequent interim periods, with early adoption permitted. The amendments should be applied prospectively, but retrospective application is permitted. The ASU will likely result in additional disclosures upon adoption.
In December 2023, the FASB issued ASU No. 2023-09 Income Taxes (Topic 740): Improvements to Income Tax Disclosures (ASU 2023-09) to update income tax disclosure requirements primarily by requiring specific categories and greater disaggregation within the rate reconciliation and disaggregation of income taxes paid by jurisdiction. The amendments in the ASU also remove disclosures related to certain unrecognized tax benefits and deferred taxes. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, or our fiscal 2026. We adopted ASU 2023-09 prospectively during the fourth quarter of our fiscal 2026. Since the standard only impacts disclosure requirements, the adoption of the standard did not impact our consolidated financial statements. See Note 9, Income Taxes.
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3. Revenue Recognition
For in depth discussion regarding our revenue recognition procedures for our revenue streams, see Note 2, Summary of Significant Accounting Policies.
Disaggregation of Revenue
We derive and report our revenue from the sale of products (proprietary software licenses, third party hardware and operating systems), subscription and maintenance, and professional services. Revenue recognized at a point in time (products) totaled $41.2 million, $41.3 million, and $49.1 million during fiscal 2026, 2025 and 2024, respectively. Subscription, maintenance, and substantially all professional services revenue recognized over time totaled $278.1 million, $234.3 million, and $188.4 million during fiscal 2026, 2025, and 2024, respectively.
Contract Balances
Contract assets are rights to consideration in exchange for goods or services that we have transferred to a customer when that right is conditional on something other than the passage of time. The majority of our contract assets represent unbilled amounts related to products and professional services. We expect billing and collection of our contract assets to occur within the next twelve months. Payment terms and conditions vary by contract and customer, although terms generally include a requirement to pay within 30 days after invoicing. We receive payments from customers based upon contractual billing schedules, and accounts receivable are recorded when the right to consideration becomes unconditional. Contract liabilities represent consideration received or consideration which is unconditionally due from customers prior to transferring goods or services to the customer under the terms of the contract.
Revenue recognized from amounts included in contract liabilities at the beginning of the period was $69.5 million and $55.1 million during fiscal 2026 and 2025, respectively. During fiscal 2026 and 2025, we transferred from contract assets at the beginning of the period, $4.5 million and $2.3 million, respectively, to accounts receivable because the right to the consideration became unconditional.
Remaining Performance Obligations
Remaining performance obligations represent the transaction price of contracts for which products have not been delivered or services have not been performed. As of March 31, 2026, the aggregate amount of the transaction price allocated to remaining performance obligations for contracts greater than one year was approximately $152 million. The Company expects to recognize 42%, 30%, and 17% of the transaction price allocated to remaining performance obligations within the 12, 24, and 36 months following March 31, 2026, and the rest thereafter in our Consolidated Statements of Operations. The majority of our professional services are expected to be recognized over the next 12 months but this is contingent upon a number of factors, including customers’ needs and schedules. We exclude remaining performance obligations for contracts where variable consideration is directly allocated based on usage or when the original expected duration is one year or less.
Assets Recognized from Costs to Obtain a Contract
Sales commission expenses that would not have occurred absent the customer contracts are considered incremental costs to obtain a contract. We have elected to take the practical expedient available to expense the incremental costs to obtain a contract as incurred when the expected benefit and amortization period is one year or less. For subscription contracts that are renewed monthly based on an agreement term, we capitalize commission expenses and amortize as we satisfy the underlying performance obligations, generally based on the contract terms and anticipated renewals. For first year support and maintenance service contracts, commission expenses are immaterial and therefore are expensed as incurred. Other sales commission expenses are not material or have a period of benefit of one year or less, and are therefore expensed as incurred in line with the practical expedient elected.
We had $8.1 million and $5.8 million of capitalized sales incentive costs as of March 31, 2026 and 2025, respectively. These balances are included in other non-current assets on our Consolidated Balance Sheets. During fiscal 2026 and 2025, we expensed $4.9 million and $4.0 million, respectively, of sales commissions, which included amortization of capitalized amounts of $2.3 million and $1.8 million, respectively. These expenses are included in operating expenses – sales and marketing in our Consolidated Statements of Operations. All other costs to obtain a contract are not considered incremental and therefore are expensed as incurred.
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4. Property and Equipment, Net
Property and equipment at March 31, 2026 and 2025 is as follows:
Year Ended March 31,
Facilities construction in progress 63 286
Accumulated depreciation and amortization (29,045 ) (26,255 )
Total depreciation expense on property and equipment was $3.8 million, $3.7 million, and $3.9 million during fiscal 2026, 2025 and 2024, respectively.
The Company capitalizes internal-use software as property and equipment under ASC 350-40, Internal-Use Software. Total amortization expense on capitalized internal-use software was $0.3 million, $0.3 million, and $0.3 million during fiscal 2026, 2025, and 2024, respectively.
5. Intangible Assets, Goodwill, and Software Development Costs
The following table summarizes our intangible assets and software development costs at March 31, 2026, and 2025:
Gross Net Gross Net
Finite-lived intangible assets:
Patented technology 80 (80 ) — — 80 (80 ) — —
(In thousands)
During the year ended March 31, 2026, goodwill increased $3.3 million due to foreign currency translation. During the year ended March 31, 2025, goodwill increased $104.0 million due to business combination activity and decreased $6.2 million due to foreign currency translation.
During the year ended March 31, 2026, finite-lived intangible assets decreased $6.1 million due to amortization expense and increased $1.7 million due to foreign currency translation. During the year ended March 31, 2025, finite-lived intangible assets increased $61.0 million due to business combination activity and decreased $4.0 million and $3.1 million due to amortization expense and foreign currency translation, respectively. We recognize amortization expense of developed technology in cost of goods sold.
See Note 16, Business Combination, for more information on business combination activity.
Estimated future amortization expense on finite-lived intangible assets is as follows:
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(In thousands) Estimated Amortization Expense
Fiscal year ending March 31,
Indefinite-lived intangible assets, comprised of our purchased trade name InfoGenesis as of March 31, 2026 and 2025 are tested for impairment upon identification of impairment indicators or at least annually. An impairment loss is recognized if the carrying amount is greater than fair value. The InfoGenesis indefinite-lived purchased trade name impairment testing resulted in a fair value exceeding the carrying amount for each of the years ending March 31, 2026, 2025 and 2024.
6. Leases
The majority of our leases are comprised of real estate leases for our respective offices around the globe. We have no residual value guarantees or restrictions or covenants imposed by or associated with our active leases.
As of March 31, 2026, we have additional operating leases that have not yet commenced of approximately $1.4 million. These operating leases are expected to commence in fiscal year 2027 with initial lease terms of approximately 2 to 5 years. We do not have any related party leases. We have variable payments for expenses such as common area maintenance and taxes. We do not have variable payments that are based on an index or rate. As a result, we do not include variable payments in the calculation of the lease liability. Any variable costs are expensed as incurred.
The components of lease expenses, which are included in operating expenses in our Consolidated Statements of Operations, were as follows:
Year Ended March 31,
Short term lease expense 775 563
We had no finance leases during fiscal 2026 or 2025. Other information related to operating leases for fiscal 2026 and 2025 was as follows:
Year Ended March 31,
Supplemental cash flow information 2026 2025
Weighted average remaining lease terms 5.21 5.78
Weighted average discount rates 7.04 % 6.91 %
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The table below reconciles the undiscounted future minimum lease payments (displayed by year and in the aggregate) under non-cancelable leases with terms of more than one year to the total lease liabilities recognized on the Consolidated Balance Sheet as of March 31, 2026:
(In thousands) Operating leases
Fiscal year ending March 31,
Total undiscounted future minimum lease payments 22,588
Total lease liabilities $ 19,044
7. Supplemental Disclosures of Cash Flow Information
Additional information related to the Consolidated Statements of Cash Flows is as follows:
Year Ended March 31,
Cash payments for interest 435 1,379 —
Cash payments for finance leases — — 5
8. Additional Balance Sheet Information
Additional information related to the Consolidated Balance Sheets is as follows:
Prepaid expenses and other current assets:
Employee retention credits receivable (see Note 9, Income Taxes) 3,020 —
Accrued liabilities:
Salaries, wages, employee benefits, and payroll taxes $ 21,014 $ 17,007
Income and indirect taxes payable 2,059 1,512
9. Income Taxes
For the year ended March 31, income before income taxes consisted of the following:
Income before income taxes
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For the year ended March 31, income tax expense (benefit) consisted of the following:
Income tax provision (benefit)
Current:
Federal $ — $ — $ —
Deferred:
For the year ended March 31, income taxes paid consisted of the following:
Income taxes paid
U.S. Federal $ —
U.S. State and Local
Foreign
Total income tax paid $ 2,066
*For the year ended March 31, 2026, there were no other individual jurisdictions with cash taxes paid that equaled or exceeded 5% of total income tax paid.
The following tables present the principal components of the difference between the effective tax rate and the U.S. federal statutory income tax rate for the years ended March 31:
(In thousands) 2026 %
Income tax expense at the U.S. federal statutory rate $ 10,165 21.0 %
Expense for state taxes, net of federal effect 1,264 2.6
Impact of foreign operations - India 585 1.2
Impact of foreign operations - other (775 ) (1.6 )
Share-based compensation (1,710 ) (3.5 )
U.S. federal R&D credits (808 ) (1.7 )
Effects of cross border tax laws: NCTI 1,338 2.8
Change in valuation allowance - U.S. state (361 ) (0.7 )
Change in valuation allowance - foreign 39 0.1
Change in liability for unrecognized tax benefits (45 ) (0.1 )
Provision to return - U.S. federal (263 ) (0.5 )
Provision to return - U.S. state (434 ) (0.9 )
Provision to return - foreign (158 ) (0.3 )
Deferred adjustments - U.S. federal 993 2.1
Deferred adjustments - U.S. state 113 0.2
The fiscal 2026 tax provision was different than the statutory rate due primarily to excess tax benefits associated with share-based compensation, Net Controlled Foreign Corporation Tested Income (NCTI), previously global intangible low-taxed income (GILTI), and U.S. R&D credits.
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Income tax expense at the U.S. Federal statutory rate $ 5,383 $ 4,344
Expense for state taxes 768 293
Impact of foreign operations (673 ) (250 )
Change in valuation allowance (1,610 ) (65,023 )
Change in liability for unrecognized tax benefits — (1,044 )
Share-based compensation (60 ) (1,823 )
Provision to return (884 ) (219 )
Income tax provision (benefit) $ 2,410 $ (65,511 )
We have elected to account for GILTI inclusions in the period in which they are incurred.
The fiscal 2025 tax provision results primarily from the benefits of U.S. R&D credits, GILTI, the rate change of Special Economic Zone deferred taxes and the release of the valuation allowances against foreign deferred tax assets. The fiscal 2025 tax provision differs from the statutory rate primarily due to the release of foreign valuation allowances and the benefit of U.S. R&D credits.
The fiscal 2024 tax provision results primarily from the release of the valuation allowances against U.S. Federal and State deferred tax assets.
Deferred tax assets and liabilities as of March 31, are as follows:
Deferred tax assets:
Allowance for expected credit losses and doubtful accounts 220 121
Federal losses and credit carryforwards 17,218 20,429
Foreign losses and credit carryforwards 2,916 3,325
State losses and credit carryforwards 6,238 6,261
Goodwill and other intangible assets (520 ) (574 )
Less: valuation allowance (958 ) (1,340 )
Deferred tax liabilities:
Operating lease right-of-use assets (3,204 ) (3,961 )
Goodwill and other intangible assets (13,105 ) (13,958 )
Property and equipment and software amortization (1,746 ) (2,007 )
At March 31, 2026, we had $10.5 million of federal net operating loss carryforwards that expire, if unused, in fiscal year 2039, and $42.5 million of federal net operating loss carryforwards that can be carried forward indefinitely. Our Hong Kong, Singapore, and the U.A.E. subsidiaries have $0.6 million, $0.6 million, and $0.1 million of net operating loss carryforwards, respectively. The losses for Hong Kong, Singapore and the U.A.E. can be carried forward indefinitely. Our India subsidiary operates in a “Special Economic Zone” (SEZ). One of the benefits associated with the SEZ is that the India subsidiary is not subject to regular India income taxes during its first 5 years of operations which included fiscal 2018 through fiscal 2022. The India subsidiary is then subject to 50% of regular India income taxes during the second five years of operations which
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includes fiscal 2023 through fiscal 2027. The aggregate value of the benefit of the SEZ during the current fiscal year is $4.1 million as of March 31, 2026. The Company has paid minimum alternative taxes during the period of regular tax relief resulting in a credit of $1.6 million as of March 31, 2026.
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 year ended March 31, 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. The amendment and extension does not impact our recognition and measurement of credits under ASU 2025-10.
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. We filed our employee retention credit claims under the CARES Act during January 2024. In accordance with ASU 2025-10, which we adopted early effective as of April 1, 2025, as permitted, we record any credits for which collection is probable after considering all facts and circumstances including whether any statutes of limitations apply. We consider collection probable once we receive confirmation that the Internal Revenue Service has processed our claim for the credit, and we know the amount of the credit plus any associated interest to be refunded. During the years ended March 31, 2026 and 2025, we recorded $9.2 million and $0.5 million, respectively, of employee retention credits including associated interest received or expected to be received in cash as other (gains) charges, net, in the Consolidated Statements of Operations. As of March 31, 2026, we recorded $3.0 million of employee retention credits receivable in "Prepaid expenses and other current assets" on the Consolidated Balance Sheet. We expect no future employee retention credit claims under the CARES Act.
At March 31, 2026 we also had $112.2 million of state net operating loss carryforwards that expire, if unused, in fiscal years 2027 through 2046.
We have recorded valuation allowances offsetting certain deferred income tax assets due to the uncertainty of the ultimate realization of the future benefits from those assets. At March 31, 2026, the total valuation allowance against deferred tax assets of $1.0 million was comprised of $0.9 million for U.S. state deferred tax assets, and $0.1 million associated with deferred tax assets in the U.A.E. The ultimate realization of deferred tax assets depends on various factors including the generation of taxable income during the future periods in which the underlying temporary differences are deductible. We consider the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carryforward periods), projected earnings, and tax planning strategies in our assessment of positive and negative evidence supporting the likelihood of deferred tax asset realization. We maintain valuation allowances for deferred tax assets until we have sufficient evidence to support the reversal of all or some portion of the allowances.
The undistributed earnings of our foreign subsidiaries are not subject to U.S. federal and state income taxes unless such earnings are distributed in the form of dividends or otherwise to the extent of current and accumulated earnings and profits. The undistributed earnings of foreign subsidiaries are permanently reinvested and totaled $53.6 million and $32.8 million as of March 31, 2026 and 2025, respectively. We made the determination of permanent reinvestment on the basis of sufficient evidence that demonstrates we will invest the undistributed earnings overseas indefinitely for use in working capital, as well as foreign expansion. The determination of the amount of the unrecognized deferred U.S. income tax liability related to the undistributed earnings is not practicable.
Uncertain tax positions as of March 31, are as follows:
Beginning gross unrecognized tax benefits $ 1,063 $ 562 $ 575
Decreases related to prior year tax positions (46 ) — (575 )
Increases related to current year tax positions 189 235 562
Increases related to prior year tax positions — 134 —
Increases due to business acquisitions — 132 —
Decreases related to settlements with tax authorities (133 ) — —
Ending gross unrecognized tax benefits $ 1,073 $ 1,063 $ 562
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We recognize interest accrued on any uncertain tax positions as a component of income tax expense. Penalties are recognized as a component of general and administrative expenses. For the year ended March 31, 2025, we accrued interest and penalties of $0.3 million and a corresponding indemnification asset. For the year ended March 31, 2024, we reduced accrued interest and penalties by $0.6 million.
We are consistently subject to tax audits. Due to the nature of examinations in multiple jurisdictions, changes could occur in the amount of gross unrecognized tax benefits during the next 12 months that we cannot anticipate.
In the U.S. we file federal and state income tax returns where statutes of limitations generally range from three to five years. Although we have resolved examinations with the IRS through tax year ended March 31, 2010, U.S. federal tax years are open from 2011 forward due to attribute carryforwards. The statute of limitations is open from fiscal year 2021 forward in certain state jurisdictions. We also file income tax returns in international jurisdictions where statutes of limitations generally range from three to seven years. Years beginning after 2019 are open for examination by certain foreign taxing authorities.
10. Employee Benefit Plans
Defined Contribution Plans
We maintain a 401(k) plan for employees located in the United States meeting certain service requirements. Generally, the plan allows eligible employees to contribute a portion of their compensation, and we match 100% of the first 1% of the employee's pre-tax contributions and 50% of the next 5% of the employee's pre-tax contributions. We may also make discretionary contributions each year for the benefit of all eligible employees under the plan. Agilysys matching contributions were $2.3 million, $2.1 million, and $1.9 million in fiscal 2026, 2025, and 2024, respectively.
We also maintain defined contribution retirement plans for employees located in Canada, the United Kingdom and in the Asia Pacific region in accordance with local statutory requirements and business practices.
Defined Benefit Plans
We maintain certain defined benefit plans covering eligible employees of our India subsidiary in accordance with local statutory requirements and business practices. The Gratuity Plan provides a lump-sum payment to vested employees at retirement, death, incapacitation, or termination of employment, of an amount based on the respective employee’s salary and the tenure of employment with the Company. The Leave Encashment Plan provides a lump-sum payment to employees when they leave the Company based on a multiple of their final monthly salary. Both the Gratuity and Leave Encashment Plans are unfunded with obligation amounts determined by actuarial valuations. These obligation amounts are recorded on the Consolidated Balance Sheets as “Employee benefit obligations” within “Other non-current liabilities”. All expenses associated with these plans are recorded in the Consolidated Statements of Operations within “Operating expenses”.
Employee benefit obligations and related changes for the years ended March 31 are as follows:
Employee benefit obligations as of April 1 $ 5,059 $ 4,315 $ 2,742
Endorsement Split-Dollar Life Insurance
Agilysys provides certain former executives with life insurance benefits through endorsement split-dollar life insurance arrangements. We entered into agreements with each of the former executives, whereby we must maintain the life insurance policy for a specified amount and split a portion of the policy benefits with their designated beneficiary.
Our investment in these corporate-owned life insurance policies were recorded at their cash surrender value, which approximates fair value at the balance sheet date. On the Consolidated Balance Sheets as of March 31, 2026 and 2025, the cash surrender value of $1.1 million for the remaining policies were held in “Other non-current assets,” and the present value of future proceeds owed to those executives' designated beneficiaries of $0.1 million, which approximates fair value, were recorded within "Other non-current liabilities."
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Changes in the cash surrender value of these policies related to gains and losses incurred on these investments are classified within “Other income (expense), net” in the accompanying Consolidated Statements of Operations and are immaterial.
11. Commitments and Contingencies
Legal Contingencies
We are involved in legal actions that arise in the ordinary course of business. It is the opinion of management that the resolution of any current pending litigation will not have a material adverse effect on our financial position or results of operations.
12. Earnings per Share
The following data shows the amounts used in computing earnings per share and the effect on earnings and the weighted average number of shares of dilutive potential common shares.
Year Ended March 31,
Numerator:
Series A convertible preferred stock dividends — — (1,204 )
Denominator:
Dilutive unvested restricted stock units 71 40 10
Dilutive unvested restricted shares 103 227 235
Net Income per share - basic: $ 1.39 $ 0.84 $ 3.31
Net Income per share - diluted: $ 1.37 $ 0.82 $ 3.17
Anti-dilutive restricted shares and restricted stock units 195 132 175
Basic net income per share is computed as net income available to common shareholders divided by the weighted average basic shares outstanding. The outstanding shares used to calculate the weighted average basic shares excludes 74,792, 229,710 and 436,177 of restricted shares at March 31, 2026, 2025 and 2024, respectively, as these shares were issued but were not vested and, therefore, not considered outstanding for purposes of computing basic earnings per share at the balance sheet dates.
Diluted net income per share includes the effect of all potentially dilutive securities on earnings per share. We have stock-settled appreciation rights (SSARs), unvested restricted shares, restricted stock units, employee stock purchase plan (ESPP) shares, and performance shares, that are potentially dilutive securities. When we report a net loss, the denominator of diluted earnings per share cannot be adjusted for the dilutive impact of share-based compensation awards because doing so would be anti-dilutive.
13. Share-based Compensation
We may grant incentive stock options, non-qualified stock options, SSARs, restricted shares, restricted stock units, and performance shares under our shareholder-approved Amended and Restated 2024 Equity Incentive Plan (the 2024 Plan). We have equity awards outstanding under the 2024 Plan and under our prior 2020 Equity Incentive Plan, as Amended and Restated (the 2020 Plan, together with the 2024 Plan, the Equity Incentive Plans). The maximum aggregate number of common shares available for issuance under the Equity Incentive Plans is 3.2 million. We may also grant shares under our shareholder-approved Employee Stock Purchase Plan (the ESPP) for up to 0.5 million common shares.
We may distribute authorized but unissued shares or treasury shares to satisfy share option and SSAR exercises or grants
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of restricted shares, restricted stock units, performance shares, or ESPP shares.
For SSARs, the exercise price must be set at least equal to the closing market price of our common shares on the date of grant. The maximum term of SSARs is seven years from the date of grant. The Compensation Committee of the Board of Directors establishes the vesting period over which SSARs are subject to a service condition and the vesting criteria for SSARs subject to a market condition.
Restricted shares and restricted stock units, whether time-vested or performance-based, may be issued at no cost or at a purchase price that may be below their fair market value, but are subject to forfeiture and restrictions on their sale or other transfer. Performance-based grants may be conditioned upon the attainment of specified performance objectives and other conditions, restrictions, and contingencies. Restricted shares have the right to receive dividends, if any, upon vesting, subject to the same forfeiture provisions that apply to the underlying grants.
We record compensation expense related to SSARs, restricted shares, restricted stock units, performance shares, and ESPP shares granted to certain employees and non-employee directors based on the fair value of the awards on the grant date. The fair value of restricted stock unit and restricted share grants subject only to a service condition is based on the closing price of our common shares on the grant date. For stock option and SSAR grants subject only to a service condition, we estimate the fair value on the grant date using the Black-Scholes-Merton option pricing model with inputs including the closing market price at grant date, exercise price and assumptions regarding the risk-free interest rate, expected volatility of our common shares based on historical volatility, and expected term as estimated using the simplified method. We use the simplified method for SSAR grants because we believe historical exercise data does not provide a reasonable basis upon which to estimate the expected term. For restricted stock unit, restricted share, and SSAR grants subject to a market condition, we estimate the fair value on the grant date through a lattice option pricing model that utilizes a Monte Carlo analysis with inputs including the closing market price at grant date, share price threshold, performance period term and assumptions regarding the risk-free interest rate and expected volatility of our common shares based on historical volatility. Inputs for SSAR grants subject to a market condition also include exercise price, remaining contractual term, and suboptimal exercise factor.
We record compensation expense for restricted stock units, restricted shares, and SSAR grants subject to a service condition using the graded vesting method. We record compensation expense for ESPP shares on a straight-line basis over the applicable offering period. We record compensation expense for SSAR grants subject only to a market condition over the derived service period, which is an output of the lattice option pricing model.
The following table summarizes the share-based compensation expense for grants included in the Consolidated Statements of Operations for fiscal 2026, 2025 and 2024:
Year Ended March 31,
Stock-Settled Stock Appreciation Rights
SSARs are rights granted to an employee to receive value equal to the difference between the price of our common shares on the date of exercise and the exercise price. The value is settled in common shares of Agilysys, Inc. There were no SSARs granted in fiscal 2026, 2025 or 2024.
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The following table summarizes the activity during fiscal 2026 for SSARs awarded under our Equity Incentive Plans:
(per right) (in years)
Granted — —
Forfeited — —
Cancelled/expired — —
The following table presents additional information related to SSARs activity during fiscal 2026, 2025 and 2024:
Compensation expense $ — $ — $ —
Total fair value of SSARs vesting $ — $ — $ —
As of March 31, 2026, there was no unrecognized share-based compensation expense related to SSARs.
A total of 62,748 shares, net of 14,838 shares withheld to cover the employee’s minimum applicable income taxes, were issued from treasury shares to settle SSARs exercised during the twelve months ended March 31, 2026. The shares withheld were returned to treasury shares.
Restricted Shares
We granted restricted shares to certain of our Directors, executives and key employees, the vesting of which is service-based. The following table summarizes the activity during the twelve months ended March 31, 2026 for restricted shares awarded under our Equity Incentive Plans:
Numberof Shares Weighted-AverageGrant-Date FairValue
(per share)
The weighted-average grant date fair value of the restricted shares includes grants subject only to a service condition. As of March 31, 2026, a total of 74,792 shares were issued from treasury.
The following table presents additional information related to restricted share activity during fiscal years 2026, 2025, and 2024:
Total fair value of restricted share vesting $ 9,831 $ 13,182 $ 6,595
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As of March 31, 2026, total unrecognized share-based compensation expense related to non-vested restricted shares was $1.8 million, which is expected to be recognized over a weighted-average vesting period of 1.0 years. We do not include restricted shares in the calculation of basic earnings per share until the shares are vested.
Restricted Stock Units
We granted restricted stock units to certain of our Directors, executives and key employees, the vesting of which is service-based. Certain restricted stock units are also subject to a market condition. The following table summarizes the activity during the twelve months ended March 31, 2026 for restricted stock units awarded under our Equity Incentive Plans:
Numberof Shares Weighted-AverageGrant-Date FairValue
(per share)
The following table presents additional information related to restricted stock unit activity during fiscal 2026:
Total fair value of restricted stock unit vesting $ 8,980 $ 932 $ 900
As of March 31, 2026, total unrecognized share-based compensation expense related to non-vested restricted stock units was $23.9 million, which is expected to be recognized over the weighted-average vesting period of 2.4 years.
Performance Shares
Upon approval of the Compensation Committee of our Board of Directors, after achieving the performance conditions associated with our annual bonus plan, we grant common shares to our Chief Executive Officer that vest immediately. Once attainment of the performance conditions becomes probable, we recognize compensation expense related to performance shares ratably over the performance period. The number of performance shares granted will be based on the closing price of our common shares on the grant date and settlement date, which are the same under the Equity Incentive Plans.
Based on the performance conditions achieved as they relate to our annual bonus plan, management estimates a liability of $0.6 million as of March 31, 2026, to be settled through the granting and vesting of performance shares after March 31, 2026. We recognized compensation expense related to performance shares of $0.6 million, $0.5 million, and $0.6 million in the fiscal years ended March 31, 2026, 2025, and 2024, respectively.
Employee Stock Purchase Plan Shares
The ESPP permits participants to purchase common stock through regular payroll deductions, up to a specified percentage of their eligible compensation. The ESPP is compensatory because, among other provisions, it currently allows participants to purchase stock at up to a 15% discount from the lower of the closing price of a share of our common stock on the first or last trading day of the ESPP offering period. We measure share-based compensation expense for the ESPP based on the fair value of the ESPP grant at the beginning of the offering period. The fair value includes the value of the discount and the value associated with the call and put options that take advantage of the variability in the common stock price during the offering period. We estimate the value of the call and put options using the Black-Scholes-Merton option pricing model with inputs including the closing market price of our common stock on the first date of the offering period and assumptions regarding the risk-free interest rate, expected term, and expected volatility of our common shares over the offering period based on historical volatility. We used the following inputs including principal assumptions for the following offering period reflected in our consolidated financial statements:
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Risk-free interest rate over contractual term 3.62 % 4.30 % 4.31 % 4.91 % 5.36 %
The risk-free interest rate is based on the yield of a zero coupon U.S. Treasury bond whose maturity period approximates the expected term of the ESPP shares. The expected term is the offering period, which is typically six months.
We record amounts withheld from participants during each offering period in accrued salaries, wages and related benefits on the Consolidated Balance Sheets until such shares are purchased. Amounts withheld from participants for the offering period ending June 30, 2026 totaled $0.4 million as of March 31, 2026.
As of March 31, 2026, total unrecognized share-based compensation expense related to ESPP shares was $0.1 million, which is expected to be recognized on a straight-line basis over the remaining term of the offering period ending June 30, 2026.
14. Segment Information
Operating segments represent components of an entity for which discrete financial information is available to the entity’s chief operating decision maker (CODM). Our Chief Executive Officer is our CODM.
We operate as a single reporting segment providing software solutions to the global hospitality industry as our CODM reviews the financial information presented on a consolidated basis to allocate resources, assess financial performance, and make operating decisions. During our budgeting and forecasting process, our CODM allocates resources including employees, equipment and financial resources. Our CODM regularly considers forecast-to-actual variances to assess financial performance and to make operating decisions around product development, pricing, employee compensation, and for investments in information security and technology infrastructure, and in market development. The Company’s measure of segment profit or loss is net income as shown in our Consolidated Statements of Operations.
Our CODM reviews segment assets, reported as total assets on our Consolidated Balance Sheets, and capital expenditures, as reported in our Consolidated Statements of Cash Flows.
The segment accounting policies are the same as those we describe in Note 2, Summary of Significant Accounting Policies, except that certain expense allocations we make for presentation of Cost of goods sold as reported in our Consolidated Statements of Operations in accordance with U.S. GAAP, primarily for employee compensation, are not applied to cost of revenue as reported in the table below.
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The significant expense categories and consolidated net income provided to the CODM for the years ended March 31, 2026, 2025, and 2024 are as follows: