Agilysys delivered the kind of quarter growth investors look for. Adjusted earnings of $0.67 per share beat the $0.56 consensus by 13.6% and cleared the $0.59 Earnings Whisper number. Revenue of $93.36 million topped expectations by 2.2%. Earnings grew 67.5% year over year, and revenue rose 17.7% to a 19th consecutive record. More important than the beat was the direction of travel. Subscription revenue growth accelerated to 32.6% from 26.1% in Q1 and 24.1% in Q4 FY26. Total revenue growth has stepped up for three straight quarters, from 11.7% to 14.3% to 17.7%. Management raised full-year guidance for the second consecutive quarter. Revenue is now expected at $374 million to $378 million, subscription growth at least 34%, and, for the first time this year, adjusted EBITDA margin at 25%, up from 24%.

The quality of the beat holds up better than the GAAP line suggests. Diluted GAAP EPS rose only to $0.46 from $0.41. However, the prior-year quarter was flattered by a $5.5 million gain in other (gains) charges, which makes the year-over-year GAAP comparison look weaker than the operating improvement really was. Gross margin expanded to 64.6% from 61.7%. Subscription cost growth lagged subscription revenue growth, and adjusted EBITDA reached $24.1 million, a 25.9% margin, versus $16.4 million a year ago. The adjusted figures do exclude $6.3 million of share-based compensation, a meaningful and growing add-back. Cash generation was steady rather than spectacular. Q2 free cash flow was essentially flat at $14.8 million, but first-half free cash flow more than doubled to $22.1 million, and cash climbed to $137.6 million with no debt repayments needed.

The call reinforced that demand, not just execution, is driving the numbers. PMS-related subscription growth surged to 53.8% from 39.7% in Q1, and management said both Marriott and non-Marriott customers contributed. It was the best-ever July-to-September sales period. Domestic hotels, resorts and casinos rose 33%, food service management 42%, and Asia-Pacific 47%. The quarter included a large multi-property competitive PMS replacement spanning roughly 15 modules. Cross-sell hit a record 2.8 products per deal, and product backlog is up about 90% year over year. That backlog prompted management to lift its second-half product revenue outlook to $20 million to $22 million. Management also guided to a Q4 subscription exit growth rate of roughly 38% to 39%, which implies acceleration continues through the fiscal year.

Bears still have legitimate ammunition:

• **Q3 margin dip.** Management expects Q3 adjusted EBITDA margin to fall to slightly above 22% because of cost timing, including professional fees, before recovering toward the unchanged ~30% Q4 exit target.
• **Professional services.** Services revenue slipped sequentially to $19.2 million on go-live timing, and services gross margin eased to 30.9% from 35.4%.
• **New customer additions.** New customer wins of 14 fell short of the 15-to-20 comfort range cited last quarter.
• **Lower-quality revenue mix.** Part of the upside came from one-time product revenue, while hardware attach rates per POS unit continue to decline.
• **Marriott visibility.** The Marriott rollout has passed 2,000 live properties, but it is now shifting to more complex full-service hotels, and management declined to quantify progress.
• **AI monetization.** More than 30 AI features are in pilot or production, but none are monetized yet.

The market setup is more complicated than the surprise implies. Investor sentiment slid to -0.19 from -0.06 heading into the report, a moderate shift that pushed it further into negative territory even as the fundamentals strengthened. Price action tells the opposite story. Shares have gained 14.4% since the open following the July report and sit roughly 34% above the 200-day moving average. The Earnings Whispers trend signals are uniformly positive across price, sequential growth, momentum and AVWAP. That combination suggests a crowd that has watched the stock run and grown wary of how much good news is already in the price, rather than one doubting the business.

That skepticism will be tested by the near-term margin dip. A Q3 EBITDA margin near 22% could read as a stumble to investors anchored on the 25.9% just printed, even though management has flagged it in advance and raised the full-year target. The guidance math is also notable. With $181.0 million booked in the first half, the raised range implies second-half revenue of roughly $193 million to $197 million. Hitting that depends on services go-lives normalizing and backlog converting on schedule.

The bottom line is that Agilysys turned in a genuine beat-and-raise quarter. Accelerating subscription growth, a record sales period, and a higher margin target make the growth story more credible than it was three months ago. The soft spots are real but modest: a pre-announced Q3 margin dip, choppy services revenue, light new-logo additions and unmonetized AI. The bigger question is whether a stock trading well above its long-term average, with sentiment drifting lower, can keep rewarding execution that investors increasingly expect.