PAR Technology Corp (PAR) 2004 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to PAR Technology's Second Quarter 2004 Earnings Conference Call. My name is Alicia and I will be your operator. At this time, all participants are in a listen-only mode. We will be facilitating a question–and-answer session towards the end of your conference. If at anytime during the call you require assistance, please press "*" followed by "0" and an operator will assist you. As a reminder, this conference call is being recorded for replay purposes. I would now like to introduce your host for today's call, Mr. Chris Byrnes, Director of Financial Relations. Mr. Byrnes, you may proceed sir.

Thank you, Alicia, and good morning, ladies and gentlemen and welcome to the PAR Technology second quarter results conference call. By now all of you should have received a copy of our earning results that was sent out this morning. Here today with us on the call are company CFO, Ron Casciano; Greg Cortese, ParTech Inc. President and CEO; and John Sammon, Chairman, President and CEO PAR Technology. Before we begin with John's formal remarks, I would like to remind everyone that any forward-looking statement on this call is made pursuant to the safe harbor provisions of the Private Securities Litigation Reformat Act of 1995. I'd now like to turn the call over to PAR Chairman and CEO, John Sammon, for his formal remarks.

Good morning. Today I will be presenting the results of our second quarter ending June 30, 2004. Second quarter revenues were $42.9 million, a 34.1% increase from the $32 million reported for the same period a year ago. This represents the highest quarterly revenue in our company's history. Net income for the quarter was $1.3 million, an increase of 326% over the $308,000 reported last year. Earnings per share for the period were 14 cents per diluted share compared to 4 cents per diluted share reported last year.

Looking at the quarterly revenue breakdown, product revenue for the quarter was $19.5 million, up 49.1% compared with the second quarter of 2003. This increase generally reflects a healthy hospitality market with strong sales to McDonald's, CKE and KFC. Service revenue for the quarter was $10.6 million, up 22.4% compared to Q2 of last year. This increase resulted from more installations and a growing install base. Contract revenue was up 24.9% to $12.9 million for the quarter. This growth derived from increases in image technology and IT outsourcing contracts.

Moving to margins, product margins for the quarter were 32% versus 34.7% last year. This decline was caused by lower software content and lower margins on certain special integration projects conducted for one of our major accounts. Service margins were 14.1% versus 16.1% a year ago. Two factors contributed to this decrease -- increased contribution to profit sharing and bonuses and a modest increase in E&O reserves. Contract margins, or in our case pre-tax margins, were 6.3% compared to 4.1% last year. This increase resulted from the exceptional performance in our imagery technology business.

Turning to expenses, SG&A expenses for the quarter were $5.2 million, up 11.6% from a year ago resulting from an expansion of our sales staff and higher earned commissions. However, as a percent of revenue, SG&A was 12.2% versus 14.7% last year; so it's down 2.5 percentage points. R&D expenses were $1.3 million, up 3% from last year as a result of modest increases in new product investments. I'll now turn over the discussion to Ron for some comments relative to our current balance sheet. Ron

Thank you John. Good morning everyone. Just some very brief comments regarding our balance sheet. First, our cash position has improved by nearly $1.2 million from year-end to $2.6 million at June 30. We have reduced our receivable balance by $2.4 million over the last six months due to improved collection efforts. Our days outstanding for our hospitality business are now 59 days and our government business is running approximately 55 days. We have also reduced our inventory balances from year-end by $1.5 million.

And looking at our short-term debt position at June 30, we are very pleased to report that we have paid off our bank lines of credit from nearly $7 million at the end of last year. We have $20 million available currently under these lines. The debt payment was possible due to cash flow from continuing operations of nearly $9.4 million through the first six months of this year and was primarily due to the inventory and receivable improvements and the operating profits for the six-month period.

Now I would like to turn it back over to John for concluding remarks. Thank you.

In summary, we are very pleased with our record second quarter revenue performance. This is the highest revenue quarter ever which follows our highest first quarter revenue and our second highest fourth quarter. Both our government and our hospitality businesses contributed to this accomplishment.

Our restaurant business is being driven by several factors which we expect will continue. First, the restaurant market is enjoying strong growth as people increasingly eat outside the home. With a good economy, this trend is expected to continue. Second, there is a large population of old point-of-sale systems installed in our customers' restaurants, which must be replaced over the next few years to support these programs as credit, debit, gift cards, and wireless. Thus, we are the primary supplier to McDonald's and Yum, the two largest restaurant chains in the world; we expect strong sales to continue. We are engaged in rollouts with CKE and KFC, which will continue throughout the remainder of this year. On completion of these rollouts, we expect -- the rollouts are with the corporations, and with the completion of those corporate rollouts, we expect to continue the strong sales to the franchisees of both CKE and KFC.

Product margins were somewhat soft this quarter for two reasons. First, the software content was down due to timing. We are engaged in several software trials and we are hopeful to close some of these opportunities in the near future. Secondly, this year we took on two large integration programs involving upgrading restaurants for a major customer. These programs require the delivery and integration of the third party peripherals which inherently carry lower margins. Absent these programs, product margins would have been 2.5 percentage points higher. For the long-term, we do expect product margins to grow as software content increases; however, as I'd said before, this will not happen every quarter as we cannot control nor predict the timing of large software sales.

Our government businesses performed quite well this quarter, posting substantial gains across both our high-tech segment as well as our IT outsourcing segments. Margins were above average reflecting excellent performance in our imagery technology business. We continued -- we expect continued growth in our government business based upon current opportunity pipeline and the substantial backlog of a $102 million.

Before leaving the subject of our government business, I want to provide a brief update on our logistics management program since there has been considerable interest in this area. As I have announced earlier, we have been notified that we will be awarded $2 million contract to conduct a joint technology demonstration with both the Department of Transportation and the Department of Homeland Security. Specifically, we will be working with MARAD, which is the marine administration within DoT responsible for ports and a TSA subgroup which is responsible for port security. Under this contract, we will create an interface between our Cargo Watch system and TSA's National Terrorist Risk Assessment system known as the Integrated Intermodal Information system. Our interface will provide real-time tracking and container security information to a centralized database for the purposes of counter-terrorism, intelligence indicating -- indicators and warning and real-time risk assessment. We expect this contract to commence in this quarter.

Returning to the financials, while the SG&A and R&D were up for the quarter, we are not planning any substantial increases for the remainder of the year and thus expect a significant earnings improvement as revenues increase. At the end of last year, we forecasted 2004 revenue growth in the range of 15% over 2003; this objective will easily be achieved. Looking forward to the second half, we feel comfortable with the analyst forecast of revenue growth in the range of 13% with continuing accelerated earnings due to the inherent leveraging in our commercial business. This ends my formal remarks and I'd like to open the session to questions.

Alicia, we are ready for questions now.

Ladies and gentlemen, if you would like to ask a question, please press "*" followed by "1" on your touchtone telephone. If your question has been answered, or you wish to withdraw your question, please press "*" followed by "2". Again, ladies and gentlemen, it is "*" followed by "1" to ask your question. The first question is from Sam Bergman (phonetic) with Bayberry Capital Management. Please go ahead, sir.

Good morning gentlemen, very exciting quarter, great numbers.

Thank you Sam.

Thank you Sam.

Couple of questions. Can you give us some idea on the software pipelines, I know you have a pipeline number for deals in the rest -- in the regular POS system, but is there anyway we can -- put them in a special category so we can get a better idea of where the beta testing is and how that's going to develop as we go into the third and fourth quarter?

Sam, we don't breakout the software as part of our reporting as you probably know. Suffice to say that we have our software tested in a number of brands -- different brands, with franchisees, some from our small franchisees, some from our quite a lot larger. We have been doing some corporate test as well. We expect that based upon the performance in these tests that are ongoing that we will be signing some significant programs over the remainder of this year. So, I think that generally speaking, we are on track with the second half with our software sales and we will look forward to having some success with our InFusion Suite and as well as our old DOS-based product, the result; [DOS] suite of software.

Also, can you give me idea of how much of your [head] McDonald’s was in terms of their business, is it too high for the quarter or has it been pretty much average in terms of what you've expected?

This is Ron. Good morning.

Good morning.

McDonald’s business for the quarter was quite strong, as John mentioned in his remarks, and represents about 34% of the total revenue for the second quarter.

Okay. Thank you.

You are welcome.

The next question is from Jeremy Holland with E*Capital Corporation. Please go ahead sir.

Good morning, gentlemen.

Good morning, Jeremy.

Congratulations on the excellent quarter. Could you give us a little more detail on the strategic alliance with Clarity that you announced in June? I was just trying to understand a little bit more about the nature of that relationship, contractual if there is any length of time attached to that etc.?

Jeremy, this is Greg Cortese. No, there is not. It really wasn’t a formal strategic alliance in some -- which you might expect; it was a significant award that we received from Pacer/CATS which is owned by them for our terminals to be used in the interchange throughout world. And they continue to order from us. We've just developed a very strong relationship with them for our hardware and services and we hope that will continue and grow as we go forward.

Great. Thanks guys and congratulations again.

Thank you.

Again ladies and gentlemen, if you wish to ask a question, please press "*" followed by "1". We have a question from Matthew Kempler with Diplomat Capital. Please go ahead.

Thank you. Good morning. My question concerns to the strength that you are seeing in the retail market, we’ve seen obviously across board retail -- some pretty strong pullback in IT spending. I am wondering if you are seeing the restaurant sector, in particular, see more resilient and if so why you think that's happening?

We have not seen any indication of a pullback in spending and in fact there is a survey that is done by Nations Restaurant News which is a monthly survey basically asking restaurateurs about the health of their business and they have a composite index based upon the forward-looking investment; thus one of the areas of query is the plan for future investments -- capital investments in restaurants and the index is at a record high at this point in time. All of the public restaurant chains are posting record sales and on top of all that is the fact that quite a lot of our equipment that’s installed in our customers facilities is quite old and needs to be replaced. There is new technology coming into our market space unlike retailed credit [endeavor] that's new to the fast food industry and is being widely adapted as you can read in the press in McDonald's case and this is driving the replacement of old point sales system. And there is quite a large number of systems that have to be replaced over the next couple of years and so we are not seeing any pullback in our space and fact is quite the opposite.

Great. Thank you.

You are welcome.

We have no more questions in the queue at this time.

Well, there are no more questions. I thank you for joining in this call. Bye, bye.

Ladies and gentlemen, thank you for joining in today’s conference. This concludes the program, you may now disconnect. Good day.