PAR Technology Corp (PAR) 2005 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the 4th quarter, 2005 PAR Technology earnings conference call. My name is Michelle and I'll be your audio coordinator for today. [OPERATOR INSTRUCTIONS] I would now like to turn the presentation over to your host for today's call, Mr. Chris Byrnes, Director of Financial Relations for PAR Technology. Please proceed, sir.

Thank you, Michelle, and good morning, everyone, and welcome to PAR Technology's 4th quarter and year-end earnings conference call. By now, all of you should have received a copy of our Q4 results. Here with me to discuss those results is John Sammon, who is, traveling on business today, but will be joining us remotely, who is Chairman and CEO of the company, Ron Casciano, PAR's Chief Financial Officer, and Greg Cortese, CEO and President of ParTech Inc. Before John begins with his formal remarks, I'd like to remind everyone that certain company information on this call may contain forward-looking statements. Any statements on this call that do not describe historical facts are forward-looking statements. Forward-looking statements are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. I now would like to turn the call over to PAR Chairman and CEO John Sammon for his formal remarks. John?

Thanks, Chris. Good morning, everyone. This morning I will be presenting the results for our 4th quarter and the year ending December 31st, 2005. 4th quarter revenues from operations were $53.5 million, a 4% increase from the $51.4 million reported for the same period in 2004. This represents the highest quarterly revenue ever. That income increased 74% for the period to $3.2 million or $0.22 per diluted share, compared to $1.9 million or $0.13 per diluted share reported last year. Both these EPS numbers reflect the additional shares issued following our split 3-for-2 effective last month.

For the year ended December 31st, revenues reached an all-time record of $205.6 million, up 17.6% compared to the $174.9 million reported one year ago. Net income increased 67% to $9.4 million or $0.64 per diluted share compared to $5.6 million or $0.41 per diluted share reported last year. Again, both these EPS numbers are post-split numbers. We are very pleased with our record performance for both the quarter and the year.

It is also gratifying to note that the results were entirely consistent with our earlier guidance. At the start of 2005, we provided guidance related to the revenue growth between 15% and 20% with accelerated earnings. With revenue growth of 17.6% and net income up 67%, we feel we achieved our goal. Again, at the beginning of Q4, we explained that due to the impact of hurricanes, revenues in Q4 would be lower than analyst's forecast, yet earnings would nevertheless hit the consensus forecast of $0.19 per share adjusted for the split. With earnings-per-share of $0.22, we exceeded our goal by $0.03.

Our strategic initiatives aimed at accelerating growth across our business segments and improving the fundamentals in our hospitality business specifically, led the way to achieving our record results. For the year, we increased product sales in our hospitality business by 18%, and service revenues grew at 23%. Our government contract revenues rose 13% with both our IT outsourcing and the applied technologies sectors contributing about equally to the on-going success.

Turning to quarterly results, product revenue for the quarter was $24.3 million. That's up 4.5% compared to the 4th quarter of 2004. This increase was in line with our update, provided at the beginning of Q4. However it was below our plan due to slippages related to Katrina and Rita. Specifically, several planned sales to the cruise industry and to properties located in Louisiana, Mississippi, Texas, and Cancun, were delayed by the storm. We estimate that these slippages reduced quarterly growth by about 6 percentage points.

Service revenue for the quarter was $15.4 million, up 3.1% compared to Q4 of last year. And again, installation revenue was less than planned, due to the impact of the hurricanes. Contract revenue was up 3.9% to $3.7 million for the quarter. Low growth this quarter is an aberration due to timing of revenue recognition on a few contracts. Comparatively, quarter to quarter, contract revenue growth has averaged 17% over the last 16 quarters, and we expect future growth to average in the 15% range throughout all of 2006.

Looking at margins for the quarter, product margins for the quarter were 44.8% versus 36.1% last year. This increase of 8.7 percentage points resulted from increases in software content in our product mix. We feel especially good about this increase in product margins because it reflects the positive results of our strategy to increase the software content. We believe that this is not a one-time blip, but rather a sustainable achievement as we move into 2006. Service margins for the quarter were 26.7% versus 21.9% a year ago. This increase of 4.8 percentage points resulted from improved margins in the field and installation services. Contract margins were 7.8% compared to 5.5% last year. This is higher than our traditional 6% pre-tax profit range and was due to higher profit on certain fixed-price contracts.

Looking at expenses for the quarter, SG&A as a percentage of total revenue was 16.3%, up from 13.5% last year. This increase resulted from increases in sales and marketing expenses, the PixelPoint acquisition, and Sarbanes-Oxley. R&D expenses were $2.5 million, up only slightly from last year.

Looking at the year as a whole, revenues were up 17.6% to $205.6 million. Both sectors of our business contributed to the increase with Hospitality growing at 19.6% and Government sector growing at 12.6%. Net income increased 67% for the year to $9.4 million or $0.64 per diluted share compared to $5.6 million or $0.41 per diluted share, of course post-split, as compared to last year. All compared, the statistics were excellent for 2005. Product revenue was up 17.6%; service revenue up 22.9% and Government contract revenue up 12.6%. Product margins were up 7.6 percentage points to 41.4%, due to the increase of software content. Service margins improved by 8 percentage points to 24.2%, primarily due to the increased content of professional services and software maintenance. Contract margins were very good, running at 6.7%, up 0.2 of a percentage point over 2004.

SG&A as a percentage of total revenue was up 2.4 percentage points to 15% for the year, largely due to the acquisition of Springer-Miller and PixelPoint Systems. But also contributing significantly to higher cost were expenses attributable to Sarbanes-Oxley compliance efforts. R&D increased absolutely and as a percentage of revenue. In 2005 we invested $9.4 million, up 49% over 2004. As a percentage of revenue, R&D increased from 3.6% of revenue to 4.5% of revenue in 2005. This increase resulted from acquisitions and new product investments. We expect to continue this trend of increasing new product investments over the next few years. As we exited the year, the Government backlog continued to be quite healthy, standing at $107 million.

Now summarizing, for the year 2005, we finished on plan, achieving a new record revenue. At the end of 2004, we had forecasted growth in the top line in the range of 15% to 20%, as I said before, with accelerating profits on the bottom line. With revenue growth right in the middle, 17.6%, and EPS up 56%, we achieved our financial goals. But beyond the financials, I think we've accomplished quite a lot.

In the Hospitality business in 2005, we completed -- we competed and were selected by McDonald's to become one of two vendors to supply POS systems to their Asia, Pacific, Middle East, and Africa regions. We view this win as very strategic, since it permits us to greatly extend our international presence. With this win, we are increasing our international sales and support staff and have opened offices, PAR offices, in China and Bahrain.

In 2005, we continued to pursue our growth strategy based upon the leveraging of our strongest asset, namely the infrastructure that we have built to develop and deliver and support IT solutions to major accounts located around the globe. We acquired PixelPoint Systems and have begun to leverage our infrastructure in several ways. First, our major account team has begun taking PixelPoint table-serve software product to tier 1 accounts, offering an innovative solution consisting of PAR hardware, software, and services. Based upon our strong reputation in the QSR market, we feel that the total solution philosophy will be well received in the table-serve market. To this end, we will soon announce the win of a tier 1 account of about 80 restaurants where we will be installing our new Pixel PAR integrative solution.

Secondly, we have released the Pixel product to our direct international channel. Since the product is already installed in 25 countries and supports five languages, we feel that our international sales team will do well with this new offering. Third, we are planning to strengthen the Pixel dealer channel by leveraging our strong service organization.

In 2005, we released our Hotel and Resort Hospitality software products and our popular SpaSoft product to our international offices now located in 17 strategic locations around the globe. One notable success of these efforts was our recently announced win of the prestigious Hamilton Island resort in Australia, where we will be installing our complete solution, consisting of Property management, Retail and restaurant POS and golf and spa management. In 2006, we will see our international channels strengthen and grow based upon sales to our global QSR accounts. This, coupled with the introduction of new Hospitality software products and the addition of sales and support staff, we anticipate significant growth in our international business over the next few years. In 2005, we saw the early success of our plan to improve margins by increasing software sales in our product mix.

Last year we have seen both product and service margins move significantly upward. Product margins were up 7.6 percentage points and service margins improved by 8 percentage points. As I mentioned earlier, we believe this is not a one-time blip, but it will be sustainable. Looking at our Government business, in 2005 our Government business performed very well, achieving record revenues and profits. Substantial gains were posted across both our Applied Technologies segment as well as our IT outsourcing segment. Margins were above average, reflecting profitable completion of certain fixed-price contracts.

In 2005, we were fortunate to secure a 5-year extension to our Logistics Management program with the Department of Transportation. This program provides valuable funding to create GPS tracking technology of intermodal assets, such as shipping containers, Gen sets, refrigerated containers and trucks. This program is conducted as a joint program with the Department of Defense and Homeland Security to test and evaluate container security concepts. It is our intent to continue this work with these Government agencies while pursuing commercial applications. We expect continued growth in the government business based on the current opportunity pipeline and our substantial current backlog of $107 million.

Another accomplishment of 2005 relates to our Financial Relations programs led by Chris Byrnes. With Chris's hard work and aggressive schedule and strong financial performance, the following things happened: Our stock price grew almost 2.5 times from $11.25 to close the year at $27.76, and, of course, this is on a pre-split basis. The average daily trading is up over 800% to 120,000 shares per day. Additional research coverage was initiated by two firms: Roth Capital and ENK. Institutional holdings have increased to 70% of the float. Our aggressive financial PR program will continue in 2006 and as part of this program, I will be presenting at the Roth Capital Investors Conference on February 22nd in California.

Last year we recruited a new member of our Board, Dr. Paul Nielsen. Paul is a retired Major General who ran all of the R&D for the Air Force prior to his retirement in 2004. Currently, he is CEO of Carnegie Mellon Software Engineering Institute. With Paul's extensive experience in software engineering and government systems technology, we feel that he is going to be a valuable addition to our board.

As we look forward to 2006, we plan to continue focusing on growth, on our Hospitality business, following our established growth strategy, which includes a significant expansion of our international business, strategic partnering with hospitality software companies, increasing investments in new products, a continuation of fundamental plan to leverage our infrastructure to create development and support IT solutions for our customers across the globe. We expect to continue to increase software content in our product mix, thereby extending the trend of improving product and service margins. Thus, in 2006, we expect to continue to grow the Hospitality revenues in a range of 10% to 15% with accelerating contributions to the bottom line.

Our plan for our Government business is basically to continue the growth, which has averaged about 15% per year over the last three years, and for 2006 we are planning for Government revenue and profit in the range of 13% to 15% growth. We feel we can continue the momentum of 2005, and accordingly have put together a total corporate growth plan based upon top line growth in the range of 10% to 15 -- 11% to 15% with success on the top line, we are again planning for accelerated bottom line growth due to natural leveraging in our commercial business in conjunction with improving margins. Based on these facts, we are looking forward to another good year in 2006, and with that, it completes my formal comments. I'd like to open a session to questions.

[OPERATOR INSTRUCTIONS] And our first question comes from the line of Tony Brenner of Roth Capital Partners. Please proceed.

Thank you. A couple questions. One is John, for the past two years, I think, you've been upgrading McDonald's in the U.S., McDonald's systems to accommodate debit/credit transactions. Is that upgrading now complete? And if so, I'm wondering how much that's contributed to the revenue growth this year, and what its absence might mean in '06?

Well, that program-- those programs that we were working on over the last couple of years have completed, Tony, and I think I'll turn it back over to both Greg and Ron to answer the second part of that question.

Tony, can you restate the second part?

Well, if it's completed, I'm just wondering how-- what that means for your McDonald's business in '06 and your total product revenue growth in '06, just what impact would that completion have?

I think it has -- this is Greg. We had very little actually in 2005 versus 2004. It has completed. However, they are upgrading. We're still upgrading some of the stores, and we really don't see much of an impact overall because of the additional international business we will be bringing in from McDonald's. So as a result, McDonald's overall year to year should be pretty consistent.

Okay. And you're not supplying Yum! in Asia, are you?

We are not yet.

I assume that means you're talking with them about it?

Yes.

Okay. Also, I'm sorry for the phone ringing. Kurt, the tax rate declined sharply in the 4th quarter. Is that 36% effective rate a good number for '06?

Tony, good morning, this is Ron.

Hello, Ron.

Hi. The favorable rate for '05 was due to the high volume of stock option exercises by employees, which it's tough to predict going forward, so we're sticking with the more traditional rate of 38% for '06.

Okay, and last question. John mentioned in passing the Logistics Management contract, but if he indicated what the prospects are for that turning into a significant contract for container protection, I missed it. Are we going to be in a development phase for that for an extended period of time or might there be some expansion that's possible there?

Tony, this is John. We did, we were notified by the Department of Transportation that we do have a 5-year funding program that has -- will be continued going forward. As you may recall, we had a similar program which ended in 2004, and so we have reinstituted that program, and it will be giving us -- providing funding for R&D. To date, what we're doing with both the Department of Defense and with Homeland Security is basically carrying out demonstrations of technology. We've done several of them where we'll put our, the tracking units on containers as they move around the world, and our units monitor the security of the container, and so we're providing this information back to Homeland Security and the Department of Defense. There is some potential for legislation. There's work in Congress right now to mandate similar technology. It may be something very close to what we have in our technology, or it might be a gated system. There's two fundamental approaches to the security issue. A gated system is basically RFID, and as the container moves past a post in a given location, information is read out by RFID. Our approach is to track the container as it moves across the land, the rail, and even on ships, giving continuous information about the security of the container. So both approaches are being evaluated, and there's some potential for some legislation in Congress. But Tony, as you know, our interest in this is not only as a government contract, but also as a potential commercial activity, and we're continuing to sell systems commercially, primarily in pilot stage, where we'll put in 50 to 100 units on various intermodal assets, and they could be chassis, they could be containers, they could be gen sets and they could be [re-pers], and so we are continuing that activity. It is self-funding; it even yields a little bit of a profit to our bottom line, so it's our objective is to continue to do what we have been doing, developing a technology for demonstration, and if there is legislation, we hope that we will be at the right place at the right time, but in any case, we're pursuing the commercialization of that technology under a business model where we would be selling information back to the owners of these assets that our units are deployed with.

All right, Tony, this is Greg Cortese again. Going back on the McDonald's issue, I wanted to clarify something. McDonald's is constantly coming out with new programs to roll out to their franchisees, and the credit/debit that we did indicated to them that we are sort of their go-to person for doing that. So as they come out with new programs, and they're constantly working on new programs with us, we will probably be the player that will take those out to the community, because we are the only of the two approved vendors, the only one that has a direct service and installation group that can handle projects of those size.

Okay. Fine, thank you.

Yep.

Thank you. .

And our next question comes from the line of Jim Yin of EKN. Please proceed.

Good morning,.

Good morning.

You mentioned something about 6% of the revenue was impact by Hurricane Katrina and Rita? Is that just on the product revenue or total revenue?

Yes, Jim that, was just the product revenue.

Okay. Do you expect to recover some of that revenue through 2006?

We do. Expect that that will be spread over the year, as the restaurants are rebuilt along the Gulf Coast and along in Cancun, we expect that revenue to come back on-line.

You mentioned in your prior conference call that one large project related to a cruise ships. When do you expect that project to start?

Greg, you want to take that?

Yeah. Jim, that should happen some time between the 1st and 2nd quarter of this year.

Okay.

Right now that's the indication we have. The cruise ships that we're involved had been hired by the Government to place people on, dislocated people and also some of the FEMA workers, and those contracts are now running out, or the leases, and they should be back at sea, and they'll be changing out the equipment that they had originally promised us.

Okay. And is that constitute a majority of the 6% revenue in the shortfall in the product revenue?

No, it's probably about 1/3 of it.

1/3 of it. Okay.

The remainder was in the Gulf states, as John mentioned, Texas and also Cancun. And Cancun, we're sort of unique in Mexico because PAR is basically the exclusive vendor of, to McDonald's in Mexico. We have 100% of the Mexican McDonald's stores.

Okay. You mentioned about software license revenue increasing. Can you quantify that a little bit more and was that mostly from the Springer-Miller division, or is it through a combination of just more software license revenue throughout the whole hospitality industry?

It's the latter, Jim. It was across the board. It's our restaurant software and our hotel software and our spa software.

And is there any seasonality to that? Should I expect that to be linear throughout the year, and therefore the gross margin to continue to improve, or is that some seasonality in that point? That respect? I know that software companies tend to do better in Q2 and Q4.

I don't think there would be necessarily a seasonality to it. You know, primarily, Jim, we are a tier 1 supplier, and so with tier 1 contracts, we can recognize the revenue as we would deliver the systems, and so I think it would tend to be correlated with signing up tier 1 accounts, and then with a rollout to those accounts, then the revenue would be recognized. And so I don't know that there would be a specific periodicity to it.

Okay. I'd like to ask some question about the Burger King account. How much is that factor into your guidance in terms of revenue for 2006, and what are roughly your expectation of revenue you expect to generate from the Burger King?

Well, we do have some revenue forecasted for Burger King, but you know, Jim, Burger King went out and solicited proposals from, I understand over 20 suppliers and narrowed it down to 4. We are one of four suppliers, and we will be competing for this business both domestically and internationally. I think that we are probably going to do reasonably well in this market sector since QSR is really our sweet spot of our business, and we have put together an organization to sell to QSR, which as you know is probably 85% owned by licensees, and so we have an organization with direct sales force that sell to licensees of QSR restaurant chains, and we have tailored a deployment system and support system for franchisees. We understand this business better than anyone else understands this business, and so we expect that we will do reasonably well in the Burger King account.

Are you planning to-- how many sales people do you have, and do you plan to hire any additional sales people for that?

We have increased our sales and marketing organization. Greg, I'd defer to you in terms of the specifics relative to Burger King, though.

As far as the Burger King account is concerned, we are adding maybe one or two people to concentrate pretty much on the Burger King accounts. However, though, we have a very strong and good-sized franchise sales group that will just add this to their particular list of accounts that they go after, and as Burger King has the capital to spend, we'll be there with both our direct sales and our direct service.

Okay. And one last question. What was-- do you break down your revenue by international and domestic?

Ron, you want to take that?

Yes. For the year 2005, about 15% of our hospitality revenue was in international markets, and for the entire consolidated company, was almost 11%. As a percent of total hospitality revenue. So that's product and service revenue when I say 15%.

That's all the questions I have now. Thank you.

Thank you, Jim. .

[OPERATOR INSTRUCTIONS] And our next question comes from the line of Steven Pinsk of Noble Financial Group. Please proceed.

Good morning, gentlemen.

Good morning.

Good morning.

A few questions for you. Regarding the lost revenue for the hurricane-- from the hurricane-- do you expect to recoup or recapture virtually all of that revenue that got delayed or lost?

Yeah, I think we expect to recover virtually all of it. I mean, there will no doubt be some restaurants that will not ever open again, but largely, I think we will recover it.

This is Greg. Also in addition to that, we might actually be able-- we're actually in the process of actually picking up some additional restaurants where restaurants were- were destroyed, and they happen to be installed with competitive equipment, and now we're finding that the owners are going back to PAR now that these-- because in some cases, these were unapproved vendors of McDonald's that were in those stores and now they have to buy from approved vendors, so, as a result, we may pick up actually some extras.

Okay. And in term of the 10% to 15% '06 guidance on the hospitality side of the business, does that factor in the recapture of this lost revenue that we're talking about, or would that be incremental?

No, that factors that revenue in.

Okay. On the margin side, hospitality sector, have we reached a point where margins have stabilized, or is there still room for more expansion?

Well, I think the precipitous increase we've seen will not continue at the same rate of increase, but as software becomes a larger portion of our product mix and our services, we will see some improvement in margins going forward.

Okay. And then switching to the contract side of the business, you've been running obviously at a higher margin rate, and I believe it was last quarter you said you expected it to be at the higher end of your 5% to 6% historical range. Is there anything going on fundamentally in that business in terms of execution or product mix that leads us to believe that it could be pushing north of 7%?

Well, I think for planning purposes, we feel comfortable with keeping it in the range of the 6% that we talk about. We've been, as you have no doubt noticed, that we have been running north of the 6% for the last couple years, and I feel comfortable that we're going to be running about the same margins going forward in 2006, but there is some fundamentals here. We are emphasizing the Applied Technology portion of our business, and we are putting various strategies in place to grow that business, and that business carries higher margins than the IT outsourcing does, so it's our strategic objective to improve margins going forward, but I think for the shorter term in 2006, I think we'll use the history as a guide for where we might end up in 2006.

Okay. Fair enough. When you talked about the Logistics program that you're working on with the Government, and that you are doing some commercial pilot programs, have any of those pilots extended into full commercial rollout, or are they all still in pilot phase?

Well, there's some small organizations that have put the units on all of their fleets, but these are small, local operators, and they might have 100 or 150 units that they're tracking, and I think that's probably the largest customer that we would have. More generally, there are numerous pilots that we're conducting on a variety of assets, and the market has not really opened up at this point in time. A lot of interest in the technology and what it can do, but it really hasn't developed at this point. And we think it's going to take at least another year before that would happen. We feel comfortable with that because we have government R&D funds that are basically paying the way for us to position ourselves both commercially and for the security issues that the government has.

Okay. Very good. A housekeeping item. Do you have the D&A or EBITDA number for either the 4th quarter or the full year?

Yes, Steve, this is Ron. The D&A number for the year was about $3.8 million.

3.8, okay. That's full year?

Correct.

Okay, and do you happen to have cash flow from operations?

Cash flow from operations is $11.2 million.

Also for the full year?

Correct.

Okay, very good. That's all I have, gentlemen. Thank you.

Thank you, Steve.

And our next question comes from the line of [Josh Holbert ]of Intrepid Capital. Please proceed.

Hey, guys. Nice quarter. Couple quick questions. How much did Springer-Miller contribute to this quarter?

We don't break out the Springer-Miller revenue. We combine it in our product and our services.

Okay. There's no-- I know you've talked about a little bit about how they've gotten you into some other businesses and opportunities. Have you been able to break that out in any way quantitatively?

Not on a quantitative basis. We're very pleased with Springer-Miller as an acquisition. It's been an accretive acquisition from the beginning. It is expanding its business as at rate that's comparable to our restaurant business. We are taking the product internationally, which is an exciting thing for us right now, is moving that product around the world. We are having success in smaller chains of hotels. The SpaSoft software is also being taken internationally, so we like the relationship that we've created with Springer-Miller, and I think we're running on all cylinders, really.

And how much did PixelPoint contribute this quarter?

We don't break that out either.

Okay.

I would say almost the same words for Pixel.

Okay, great. And then I think you said earlier in the call that you thought McDonald's business this year might be comparable to '05?

Correct.

And how much were they in the 4th quarter?

Well, we don't break that out either.

Okay. I think it's in your 10-Q, though.

Yeah, I think -- Josh, this is Ron.

Oh, hi.

For the 4th quarter, McDonald's total worldwide product and service business was 29% of consolidated revenue.

Okay.

Josh, this is Greg. Don't misunderstand. Overall, worldwide, our McDonald's revenue should increase this year over last year. Primarily because of the international elements.

Any sense on is that going to be comparable to your company growth, or do you think it could be even faster than that?

I think it might be faster than that as a percent of McDonald's revenue.

I think the important thing to think about, Josh, aside from just the specifics of the numbers, which I know are very important, but I think from the strategic aspect, I think you have to see this McDonald's expansion internationally in a very strategic sense. It is putting a foundation under a business. We've had a nice international business in the past, but this expansion with McDonald's is really strategic for us, and it's permitting us to expand our offices throughout the Asia-Pacific area. I think there's other good things that are going to come along as a consequence of this decision that McDonald's has made for Asia-Pacific. In other parts of the world we're already very dominant in the South America, Latin America area that Greg mentioned. So the footprint we're putting around the world with our international accounts, McDonald's primarily and also Yum!, we're doing quite well with them, that's a foundation. And with that foundation, we're doing something we haven't done in the past when we were selling quite a lot of equipment to the international market, to McDonald's and Yum!, and that is that we're bringing additional products into the international sector, and through the Pixel product and the Springer-Miller products, we feel that this footprint, it's going to help us move products that we haven't had before. So therefore, the international portion of our business we expect to grow disproportionately higher than the rest of the business.

Josh, this is Greg again. Also, there are two other factors too. This happens to be a convention year for McDonald's, which always ends up being a better year for sales. They have a convention every two years.

A convention year? You said a convention year?

Yeah, worldwide, McDonald's convention year, which every two years they have this. It's usually held here in the United States, in this case again Orlando. Well attended by all franchisees from all over the world. That combined with the fact that also they are rolling out throughout the international market and also now starting domestically their new software, which is [New Pause], which is by a company, [Sevista], which used to be [Emack] Digital, that will require new hardware in a lot of the places where they haven't changed out their hardware in a few years, such as China and India and some of the other Middle Eastern and Asian countries.

Got you. And just Yum! brands, how much are they as a percent of your revenue?

Josh, for the quarter they were 14%.

14. Okay.

Let me give you those numbers for the year. McDonald's was 28% for the year and Yum! was 13%.

Okay. And your thought that Yum! should grow similar to your corporate average next year, or do you think it could be slower or faster?

About the same. Corporate average.

Okay. I think it was down this year, though in total revenue from last year?

That is correct.

That was primarily because of the fact that the year before we were finishing up the KFC rollout, which was a significant rollout. So now it's more business as usual, but it should grow pretty much consistent with the rest of the average of the business.

Okay, great. Thank you very, very much. .

Our next question comes from the line of John Smith of Mosaic Capital. Please proceed.

Hi, guys, good quarter.

Thank you.

Can you repeat again what the growth guidance is for '06?

Yeah. The overall growth for the corporation is 11% to 15% on the top line with some accelerations on the bottom line.

Okay, and split between Government and Hospitality?

Hospitality, yes, Hospitality we expect the top line to be between 10% and 15%, and our Government, we think it's going to be in the 13% to 15% range. But overall, 11% to 15%.

Okay. Last quarter your international sales grew 35% year-over-year. What was it this quarter?

Ron, do you have that?

Yes, John. It was also 35% this quarter as well.

And then would you expect that to be for '06, do you expect the same amount or higher?

I would say probably the same amount and maybe slightly higher. Somewhere between probably 35% and 45%.

35 and 45. Okay. Going back to Yum!, the Yum! opportunity internationally, where are you guys with respect to that? Is it, you know, you mentioned earlier about Burger King, how they solicited 20 suppliers and now you're one of four. Where are you with Yum!? Is Yum! basically soliciting 20 suppliers, right now, and you're competing to be one of the four, or you are actually one of the four right now?

It's not one of the four in Yum!. It's more based on relationship, not necessarily competition or our fee on the Street. It just has to do with how well we're doing here in the States, and they're coming to us now and saying we're having problems internationally, can you possibly help us in other areas?

How many suppliers domestically are they using right now?

Domestically, well, PAR has -- let me just give you an idea, PAR has the only approved vendor, really, for them is really PAR from a hardware standpoint. And KFC and in Taco Bell. As far as software's concerned, their corporate solution is [Capri]. They're trying to push Capris throughout, but that's a struggle with their franchisees, so as a result, we're still winning significant business from the franchise side, who likes our software and has been comfortable with our software for many, many years.

Who is making the biggest -- the, bigger push internationally now? Who's expanding more compared to-- when you look at your two customers, McDonald's and Yum!, who's doing the strongest push internationally?

I think they're both about the same. They're both growing very, very, very fast. I think if you took it by countries, the one certainly in China, probably Yum! is growing or pushing faster than McDonald's is. They were there a little sooner. I think they have about twice the number of stores right now, and are growing faster. I think plus also chicken is a much more accepted product within China than burgers are at the present time.

So who's winning that business right now in China? You guys are not in there, right?

No, we were just approved-- you mean for Yum! or -or--

For - for - for Yum!

For Yum!, I think IBM is in there, and NCR is in there, and we're also moving in there. We are opening an office, we're actually opening two offices. One in Shanghai and one in the southern province where we're actually going to be producing product in China for the Chinese market.

Okay. And do you guys, how do you bill for your products in U.S. dollars? Is there any foreign exchange risk or--

The plan initially, John, is to bill in U.S. dollars for most of our international sales. There is some markets where we bill in local currency, but the foreign exchange risk has been very minimal up to this point.

Okay. All right, that's it. Thank you.

Thank you, John. .

[OPERATOR INSTRUCTIONS] Our next question comes from the line of [Chick] Cruice from Greenville Capital. Please proceed.

Good morning. Thank you for taking my question. Could you give us a sense-- I know you've talked about your overall revenue growth being 11% to 15%. I wondered if you could look at it on an organic basis, which would I guess essentially be removing the PixelPoint portion of it, to give us a sense of what the organic growth is? Because it seems on the surface, and I'm not sure this is correct, it looks like it may have slowed a little bit, but it's hard to tell because last year you had a lot of Springer-Miller in there that you didn't have for the full year the year before, correct?

That's correct.

I think that the growth is across the board, and I think it's very strongly organic growth.

Okay. So on top of that, you've got the Springer-Miller, and Springer-Miller brings you that other channel.

Can I correct that, Chick? I think of Springer-Miller as organic--

I'm sorry, I meant PixelPoint. I apologize, I meant PixelPoint, you're right.

PixelPoint would be new, non-organic, and that's a small part of our business at this point in time. So the growth you see is really organic growth.

Can you give me a sense or give us a sense of what the success has been in terms of incorporating the distributor channel that PixelPoint uses currently, in terms of just how has business grown year-over-year so far, and what does it look like in that distributor channel both for the software and also the opportunities I think that you all hope to sell your hardware into?

Yeah, I think that's a work in process. Our emphasis was not on the dealer channel right out of the chute. Our focus has been really on taking their product and taking it through our organization to tier 1 accounts and we're making nice progress along those lines, and then secondarily, we wanted to take that product, which is already an international product, and train our international sales force and service organizations to support that product, sell and support that product, and that has been accomplished, and so we expect that to drive revenue going forward. The third part of the puzzle is the one that you're referring to, and that is leveraging our organization to build a stronger dealer organization. We would like to do that, and we have numerous ideas on how that might be done, but that has not been our focus, and so that, I would say, Chick. is a work in process, and we'll see some results probably in the second half of this year, but not in the first half, I don't believe.

So it's be fair that you expect some growth year-over-year in the PixelPoint business from where it had been?

Oh yes, for sure.

Okay. Thank you.

You're welcome. .

And our next question comes from the line of Stephen Pinsk of Noble Financial Group. Please proceed.

Just a couple of follow-ups. Specific to KFC, any concerns there or impact that you're noticing because of the avian flu and people's growing concern about chicken supply?

This is Greg. We haven't seen any at all. Our sales haven't been affected in one way.

Okay. And are you still looking at acquisitions, have an appetite for that? And if so, what's that environment looking like, in terms of attractive targets and pricing?

Well, I think the M & A activity is -- are very active and healthy these days. And the answer, the direct answer to your question is yes, we have on-going M & A interest, and we are looking selectively at companies that would fit into our general strategy, whereby we have to find companies that are in a software niche in the hospitality market such that if we join our rather strong infrastructure, our ability to create solutions and deliver them around the world, when we put that company with ours, that we get something that accelerates the growth of both organizations, and so we're definitely interested in that, and there's a lot of activity out here.

Okay. And obviously, there's a lot of interest in both the restaurant and lodging resort sectors. Are you seeing multiples move up to the point where they're getting a little stretched and hard to justify, or there are still good situations out there to be unearthed?

Well, that's not my area of expertise. That's up to the analysts in the marketplace to decide what the right pricing is, but I think we're comfortable with the multiples that we have. I think as we compare against competition and peers, I think we are in line with the multiples that they are getting. I don't think they're unusually high relative to what I've seen over the past few years. So I wouldn't say that ours in particular is in any way peaking, but we feel comfortable with where it is.

Stephen, as far as the acquisition side though, I think notwithstanding valuations, we're finding, still, opportunities out there for accretive acquisitions in shoulder markets that John stated earlier, fits with our strategic plans.

Okay, great. And last question. Just clarifying on the recapture of the lost revenue business. Is that going to be more of a front-end loaded situation and taper off as the year goes on or the reverse? Can you give us some--

Stephen, this is Greg again. Really what we're seeing is the fact that as the-- right now still in the Gulf states in particular and also in Cancun, a lot of these customers that were destroyed are still working with their insurance companies, still do not have a determination yet as to how much money they're going to get, and as each of these negotiate their deals with the insurance companies or settle with the insurance companies, we're seeing them come back on-line. So it's being spread out based upon their particular situations with their insurance companies, and also whether or not they decide to rebuild that store in that particular location. Some cases they may be moving the store completely if it was totally destroyed, and in which case now you're talking about complete new build in a different area.

Okay, great. Thanks very much.

Yep.

And ladies and gentlemen, this does conclude the question-and-answer portion of today's conference call. I'd like to turn the presentation back over to Mr. Sammon for closing remarks.

Thank you very much for calling in and having interest in PAR. That's all I have for now. Good-bye.

Ladies and gentlemen, thank you for your participation in today's conference call. This does conclude your presentation, and you may now disconnect. Have a great day.