PAR Technology Corp (PAR) 2006 Q4 法說會逐字稿

Good day, ladies and gentlemen. And welcome to the Par Technology Fiscal Year 2006 Fourth Quarter Earnings and Year End Financial Results Conference Call. My name is Cheryl, I will be your audio coordinate are for today. [OPERATOR INSTRUCTIONS]

I would now like to turn our presentation over to your host for today's call, Mr. Christopher Byrnes, Director of Financial Relations.

Good morning, everybody. I would like to welcome you to our conference call this morning. The press release that went out this morning for the fourth quarter and year end results in 2006. Here on the call today to discuss the results are Par Chairman and CEO, John Sammon and Ron Casciano, the Company's Chief Financial Officer. Before John begins his formal remarks, however, I would like to first read our disclaimer. Statements made on this call may be forward-looking statements. Any statements made on this call that do not describe historical fact are forward-looking statements and are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. I now would like to turn the at all over to Par Chairman and CEO, John Sammon, for his remarks.

Thanks, Chris. Good morning. Today, I will be presenting the results of our fourth quarter and year ending December 31, 2006.

Fourth quarter revenues from operations were $54.2 million, an 1.4% increase from the 53.5 million reported in the same period 2005. Although the increase was small, it nevertheless established a new quarterly record. Net income for the quarter was $820,000, or $0.06 per diluted share, compared to 3.2 million or $0.22 per diluted share reported last year. For the year-ended December 31, revenues reached an all time record of 208.7 million up 1.5% compared to the 205.6 million reported one year ago. Net income was 5.7 million or $0.39 per diluted share compared to 9.4 million, or $0.64 reported in 2005. We finished the year pretty much in line with the top line guidance given in October, with the bottom line somewhat lower, attributed to the little dilutive SIVA acquisition which occurred in early November.

Now looking at the quarterly results, product revenue for the quarter was 19.5 million, down 19.8% compared to the fourth quarter of 2005. This decrease was in line with our update provided at the end of Q3 and below plan due to delayed hardware sales caused to software slippages. Service revenue for the quarter was 18.3 million, up 18.2% compared to Q4 of last year. This increase is largely the result of the new service contract with CKE which we announced in October. Contact revenue was up 19.9% to 16.4 million as a result of several new contracts.

Looking at margins, product margins were 40.2% versus 44.8% last year. This decrease of 460 basis points resulted from a decrease in software content in our product mix, as well as lower manufacturing absorption associated with the the shortfall in hardware shipments against plan. Service margins were essentially unchanged at 26.6% versus 26.7% a year ago. Contract margins were excellent at 8.3% compared to 7.8% 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 for the quarter was up slightly to 8.9 million as compared to 8.7 million last year. R&D expenses were 3.5 million, up 967,000, due primarily to our investments in the new web based software acquired from SIVA.

Now turning to the year, revenues were up 1.5% to 2.87 million, at compared to 205.6 million in 2005. Hospitality was down 3% while government was up 13%. Net income for the year was 5.7 million, down 3.7 compared to the 9.4 million in 2005. Earnings per share were $0.39 per diluted share, compared to $0.64 per diluted share last year.

Product revenue was down 8.7% to 83.2 million, due to a significant reduction in hardware sales attributed to a decision by one of the major accounts to move to a multi vendor policy and to delays in purchasing hardware awaiting the delivery of third party software to another one of our major accounts. Service revenue was up of 6.3% to 62 million, reflecting the start up of a multi year service contract with CKE. Government contract revenue was on plan with revenue up 12.9% to 63.5 million reflecting new contracts in both the IT outsourcing and applied technology.

Product margins improved 100 basis points to 42.4% due to the increase in software content in our product mix. Service margins improved 100 basis points to 25.2%, primarily due to the increase again in the software maintenance in our service revenue. Contract margins were good running 7.2%, up 50 basis points over 2005.

SG&A increased by 2.6 million to 33.4 million reflecting a significant investment in the following three areas. First, start up costs associated with the new service contract with CKE. Second, investments associated in expansion of our third party distribution channels. And finally, investments in growing our China infrastructure.

R&D expenses increased 2.4 million to 11.8 million due to investments related to expanding our restaurant chain market business. Specifically, we are investing in building out our next generation web based enterprise software acquired from SIVA, which is targeted at the chain restaurant market.

As we exited the year, the government backlog continues to be quite healthy, standing at 97 million.

In summary, I would say that 2006 was not a great year when viewed from the short term perspective. We missed our internal plan, principally for two reasons. First we were caught off guard early in the year by an unexpected decision by a major customer to move from the sole source procurement of our hardware to a two vendor policy. Then beginning in the third quarter, hardware shipments begin to slip due to software delays, a smaller amount was attributed to our own software. but the majority was due to the software slippage to one of our major accounts. A slippage I might note, is continuing even today. The combination of these two causes were detrimental to our annual plan. Naturally as the top line missed the bottom line was strained even more.

While we did take actions to reduce some expenses we nevertheless made the decision to stay with our strategic plan and continue to invest in our future. It is our contention to continue the long term view and with it continue our investment strategy all through 2007, a subject I will be saying more about in the next few months. With the top line barely increasing and the continuation of our investment plan, the bottom line suffered, resulting in the $0.39 EPS versus the $0.64 in 2005.

Nevertheless, there are several positive achievements in 2006 which bear notice. First, international revenues grew 22%, reflecting a benefit of our international investments, especially in China. We won a significant multi-year service contract with CKE, thereby expanding our industry unique service infrastructure. We completed a two year search to acquire a next generation enterprise software platform via the acquisition of the SIVA product. In doing so, we picked up several important accounts, including Dardan, which is the largest casual dining chain, Legal Seafood, and most recently Universal Studios in Orlando. Our government business grew 13% in accordance with our internal plan, achieving a remarkable record of 142 consecutive profitable quarters and 15 straight years of on plan performance. All margins increased, both product and service margins improve 100 basis points due to the increase in software content. And finally, contract pre-tax margins were up 50 basis points to a record 7.2%.

As we move into 2007, our principal focus will be on creating the products, the services, and the channels necessary to return our business to double-digit growth. To do this, we need to execute on three principal parts of our strategy.

First we need to complete the next generation solution for the primary market which is the QSR restaurant chain market. We have a good start with SIVA web based enterprise table service software product, now we need to complete its QSR functionality to address our primary market.

Secondly, we are investing in growing our distribution channels to sell our considerable array of solid products currently installed in thousands of restaurants around the world. We feel that we have the products but have lacked the channels of distribution. To this end, we will be introducing new programs in 2007 to expand the channels of distribution, both domestically and internationally. With success in this area over the next few years, we will take a major step forward in reducing the dependency on our very large accounts, resulting in a smoother, more predictable revenue stream.

Lastly, we continue to invest in our international business, where both resorts, spas, and restaurants are rapidly growing. We are gratified by the progress made to date, particularly in China. As we look to the future, we have set an internal goal to grow our international business to 30% of our hospitality business over the next five years.

All of these initiatives will require investment and over the short term, they may impact both the top line and certainly the bottom line performance in 2007. Also, impacting 2007 will be the continuing delay of hardware sales pending better success in rolling out third party software to one of our major accounts. Since we can not control the timing of this rollout, we are hard pressed to forecast with any certainty, the extent or timing of the acceleration of shipments. However, we have been informed by our major client, that they expect to ramp up installments of the third party software beginning in the second half of this year. Considering both our investments and this uncertainty, we have constructed an internal plan for single digit revenue growth, with possibly flat earnings for 2007.

This completes my formal remarks and I will open it up for questions at this point.

[OPERATOR INSTRUCTIONS] Our first question is from the line of Tony Brenner of Roth Capital Partners. Please proceed, sir.

Thank you. John, I think that third party software was applicable to two of your clients, if I am right. Are they both now anticipating delivery in the second half of the year?

Tony, I believe it was to one major account that we were referring to and our best, the best information we have from the major account is that they expect to increase installations beginning in the second half of the year.

What about your own software delivery that was delayed?

There was, in the third quarter, we mentioned there was some software that was an upgrade to an existing customer of ours. That software has been completed and we will see an increase in our 2007 plan.

When in 2007? In the first half, second half?

It will be distributed across the year. It is an upgrade of software into an existing account and we will be replacing the hardware over the year.

Thank you.

You are welcome.

Our next question is from the line of Brian Murphy of Sidoti and Company.

Good morning, could you let us know what percentage of revenue came from McDonalds this quarter?

Ron, you want to get that.

Sure, good morning, Brian. From the quarter, 24% of the revenue was from Mcdonald's.

Okay. And do you have YUM as well?

And YUM was 19%. Let me add for the year Mcdonald's was 26 and YUM was 14%.

As for the major customer and that software rollout, I know you have limited visibility there. Has anything changed relative to the prior quarter in that visibility? For instance, is there anything, are you aware of anything new happening with that third party software provider that might cause the software rollout to slip out even further into the future? And maybe fourth quarter of '07 and maybe some of that slipping into '08. Any color there?

There are some issues associated with that company, but as far as we are informed and to the best of our knowledge, those difficulties will not impact in any way, the rollout of the software. Mcdonald's is actually the customer and they are having enormous investment in the software and they are not going to let this software problem develop into anything serious. It will be completed. The uncertainty remains, Brian, and exactly the timing of when that is going to happen. As I said earlier in my formal remarks, we expect that we have been told that there will be an acceleration beginning in the second half of the year. So, I think the issues that surround this are not going to be impacting eventually the delivery of the software. It is just the problems that exist within the software and the traditional software bugs that are being cleaned up and there is going to be a new release of that software, sometime in the beginning of the second quarter and with anticipation of successful pilots it will be rolling in the beginning of the third quarter.

Okay. That is food news. And looking at the first half of '07, or just looking at it, would you anticipate most of the hardware, deferrals to occur in the first half of '07? I am just trying to, you know, get my mind around what revenue growth is going to look like in '07 in terms of how it is going to ramp up throughout the year.

It would definitely be back on loaded. The delays will continue through the first half and with success with the pilot test, the second half will be accelerating.

Thank you. One last question. You guys really ramped up your R&D expense in Q4. Is that sort of a good run rate to use going into '07, at the Q4 level?

Yes, I believe it is.

Okay. Thank you.

You are welcome.

Our next question is from the line of L.N. Ganti of Thomas Weisel.

I wanted to know your thoughts on the other accounts. Burger King accounts or even some of the other vendors, the contract mix [INAUDIBLE] some follow up on that.

Well, there is, the market itself is quite healthy and there are quite a few opportunities that are presenting themselves as we are looking at 2007. I think the independent market spaces particularly hot. The chain markets are moving forward. There is a sea change occurring relative to the large accounts in terms of what kind of software they are looking for, there's a definite trend moving forward towards web based implementations, which is exactly the software we acquired from SIVA. So I would say that, in general, the marketplace is quite healthy and there are many opportunities that are presenting themselves in 2007.

Okay. That's useful. And can you tell us more on the Burger King accounts, specifically, are you seeing, is it still continuing to be in flux, you know, or is there some clarity in terms of your shipment to them?

I think consistently, it it has been our point of view that the Burger King account is an active, it's heavily franchised as you probably know, and each and every franchise owner makes their own decision as to when they will be investing in the point of sale software. It's been evolving slowly, we did not predict any major jump in sales to Burger King, and we have a steady state business with Burger King. I with say there is nothing terribly exciting about the Burger King account. It is business as usual.

The third question, which will be my last question. On international sales growth, are you seeing anything there with the YUM account that is promising for the future or anything like a break through?

Well, we have very strong relationship that goes back almost 25 years with YUM and particularly YUM International, we are supplier of both hardware and software to the YUM organization. We have an excellent relationship with that organization. We are talking to them constantly about opportunities around the world. We feel that our future with YUM is a very strong one.

Thanks guys.

You are welcome.

Our next question is from the line of Vincent Colicchio of Noble Financial.

Hi, guys. A question on YUM. If I've got my numbers correctly, it looks like it declined sequentially. What is going on there and the outlook for the year domestically?

Vince, this is Ron, YUM was actually up in the fourth quarter.

Okay.

I think you are --

What was the --

YUM was 19% of total revenue.

I heard 12.

Yes, 19 and for the year is 14. So the run rate as we exited the year was higher than it was for the previous three quarters.

I guess it is safe to assume YUM had a good year and can you give us color on the outlook domestically for '07?

As I said earlier, Vince, I think our relationship with YUM is excellent and so we are our expecting the traditional amount of business that we've had over the last several years. There is nothing specific that we are looking at that is going to be a bump in the revenue. So we are planning on pretty much of a constant flow of revenue out of the YUM account.

Okay. Looks like you are going to continue to invest quite significantly in China. Should we see continued growth in '07? You have got a goal out there in terms of the international side, over the next five years. Do we expect more of the same in '07 from China?

I think as, China is going to be a growing year 2007, over 2006. Our major account there is Mcdonald's. We also do business with Burger King which is a small footprint in China and has plans for growth. We are looking at the chain market within China. Our focus is then to serve the customers well and to build up an infrastructure within China that is nearly parallel to the infrastructure that we have in North American over the next five years.

I think we are well on our way to achieving that. We established an office in China. We are planning assembly and manufacturing in China. And we are doing some software development in China at the present time. We are building up a help desk in China. So we are moving forward aggressively with a plan to fulfill that vision we have of achieving an infrastructure that is parallel to the infrastructure here.

The China market is on fire. The growth rate is forecasted at 15% over the next 15 years. And it has been growing extraordinarily rapidly. Especially in the chain area. There is many U.S. chains that have growth plans in China and there's many Chinese entrepreneurial chains that are learning from the processes and procedures of the major U.S. chains. And so there is significant opportunities in the home grown chain market. So we see China as a prolific market for us.

In China, with Mcdonald's, has your win rate remained steady from the 3Q to the current quarter?

Yes, it has. We are sole source of Mcdonald's in China.

The high contract, the contract gross margin were quite relatively high in the quarter. Should we expect it to continue or drop back down to the more normal levels in 1Q?

That's what you always like to forecast about 6% in that business in the gross margin line.

Okay. Thanks, guys.

You are welcome.

[OPERATOR INSTRUCTIONS] Our next question is from the line of Karl Dorff of Dorff Asset Management.

Can you explain why one of your major vendors went to a multi-source, is my first question.

I think that subject was in depth covered earlier in 2006. And this is an account that we have had for a very long time, continue to have. And the account had planned and told us that they were going to move to multi-vendor. What was the surprise to us is the timing of it. We were in the midst of a transition of management on that account and basically, we dropped the ball in the transition of that management, our management relative to that account which opened up the door to the initiation of a pre-planned multi-vendor policy. That account had been sole source for some time, but they had told us and informed us they intended to bring in a second vendor. So it was the timing of that caught us off guard and threw our plan off in 2006.

Did they tell you they brought it in -- was it a price issue or was it the service issue? And were you dropping the ball before that.

No, think it was neither of those. I believe it was just simply a policy that many of our major accounts have. Where they will have two vendors and sometimes, three and four vendors. Typically, in major accounts they will have, depending on the size, they will try to have three vendors if they can and most often they have two vendors. So it's the size of the chain determines how many vendors that they will have and I don't think it was a deficiency, neither in our pricing, our hardware, reliability -- certainly not in the reliability of our hardware since we have the best reliability record in hardware of anybody. And it certainly had nothing to do with our service organization. So I think it was simply the plan that the major accounts normally follow that they have mull multiple vendors.

Can you discuss your tracking system, the contract that you announced, any prospects for any others and the amount of revenue and/or i any profitability from this?

Well, this business, the logistics management business is conducted under our government sector, because we do have long term contracts with the Department of Transportation. We signed a long term contract last year, that is a five year contract to do certain demonstrations for the Department of Defense, Department of Transportation, and Homeland Security. And so we have a funding stream that comes in which funds this development activity. As part of this program, we are to develop technology that can be demonstrated for the use and the intermodal transportation system, which is a particular commercial function of ours.

Now on the commercial side, we have focused on the refrigerated reefers. These are refrigerated trucks that carry perishable food around. And we have certified interfaces with both Carrier and Thermal King, which supply the vast majority of the refrigerated units for these so-called land reefers. This market, I would describe is in the earlier adopter phase and we have announced an important win, a competitive situation where we won the JB Hunt account and we won a second account competitively, a TLR account. We are in numerous pilots with with the owners of fleets of these refrigerated units. And so we are looking forward to an opportunity to create a commercial business. The commercial revenue is minor at this point in time, and therefore we continue to classify this as a government sector business.

Since you have finally broken into the commercial side, do you have time for anyone that may be generating any revenue of any significance?

We think 2007 is a building year. I think we have seven pilots out at the current time, representing a substantial number of units. If we are successful in winning those deals, and then after winning, we have to go through rollouts, these fleets are moving around all the time. They're not in one place to just go and instrument these trucks. It would take time for us to get all 28,000 and if we are fortunate enough to win all the accounts and they gave us a contract to install all of them. Looking forward, we think 2007 is a building year and that we're looking for turning the corner as a commercial business in 2008.

Any idea how much more revenue could possibly be generated in 2008.

It is a huge market. There is practically a million refrigerated land refers in the U.S. and there's probably three times as many across the globe. It is an enormous market. It is in its very early infancy. Frost and Sullivan has a report out on it, and it describes it as a totally untapped market.

Okay. Thank you.

You're welcome.

We have a follow up question from the line of Brian Murphy of Sidoti and Company.

Hi guys, one follow-up on the government business. As you look out to '07 and '08, are you seeing any changes in the funding environment?

That's a really good question. There is something called a war tax that we have from our perspective have been enduring over the last few years because of the amount of money that is going into Iraq. But I would say I am not aware of any changes. There has been a strain on funding that has been exhibited the last couple of years. It is not to say the strain couldn't be more going forward. But we seem to be able to grow our business in spite of it and seems every year comes along and there will be a so-called war tax where a particular sector of the government is taxed 5% or 10% that they are mandated that they have to take their budget down by that amount. If history is any indicator, I would say, no, there would be no impact relative to squeezes on budget. The budget has been squeezed and we are able to grow our business in the range of 13 to 15%.

Could you give us some color, how do you view the type of work you do for the government, would you say it is in a relatively safe harbor, relative to maybe other types of projects and government spending.

Yes, there is basically two sectors. There is IT outsourcing business, where we take over the operations of various communications sites and primarily Navy but some Army and Air Force as well. And there, the budget isn't being impacted particularly because the communication sites have to operate and the government has a policy to outsource to civilian organization those functions that can be done by the civilian organization. That has been the genesis of this IT outsourcing business for us. That sector of our business, which is more than half of the government business, about 55% is not particularly influenced but the war tax.

The other side of the business, the 45%, is applied technology. And there were some very important areas where the government want to continue the funding. And it is in command of the control symptoms. it's also in information assurance. And in the area of information assurance, it is protecting the database and the networks that are subject to cyber attacks, and so that's a particularly sensitive area. Therefore, funding tends to be solid.

So, I think that what I said earlier is going to hold in the future. That is the areas we do participate has been able to absorb whatever tax that the government has put out to support the war. And we are some what protected because of the areas and the sectors we are in. The combination of all that would indicate to me, it will be a --- government business will continue to prosper and and 10 to grow, probably at the traditional rates that we've seen over the last few years.

Thanks, that's very helpful.

Thanks, Brian.

Our next question will be from the line of Madhu Kodali of Fertilemind Capital.

Thank you for taking my question. I was wondering if you can give us an overview of what you see for the business and if look to two to three years out. You understand the short term fluctuations, we want to see what the long time plan for the management, where do you see your hospitality business? What is the long term operating model in terms of margins? and what it is for the government business? Thank you.

Well, I would say the outlook is extraordinarily positive from my perspective. I that I that Par in its hospitality business has a unique position. We have developed an infrastructure for the creation, delivery, and support of IT solutions for major chains across the globe. It is undeniable that we do an excellent job. We have gone through six generations of solutions for major restaurant chains. So we have an infrastructure in place and it as strong one.

So, we put together a strategy of growth based upon building on the infrastructure, recognizing that software was the key to higher margins, higher profitability, but also the key of winning the new accounts. And so we have made a couple of acquisitions of software companies, and we have also made a a notable acquisition of the assets of SIVA Corporation, which we feel has the next generation software architecture that that we can build on for the future for our chain markets. We are going through a sea change relative to what's happening in major chains, in their interest in software. The software they need is software that's web based. And with that comes a lot of benefits to the owner of such software, the major recognize these benefits in lower costs, perhaps as lower in cost as much as 25% over the life of the solution that you are putting into these environments. And so, we have made the proper investments we think in the software.

Now we are investing and building out the software for our QSR accounts and we also now through the acquisition have made the largest casual dining chain, that's Dardan. And we have excellent table serve software running on web based technology.

With winning of software accounts, the hardware in the services become drag along. We have excellent hardware and superb reputation and service. Therefore, we feel that we've positioned ourselves well through the acquisition and the investments we are at that at making. In the international sector, which is where the growth is, in all hospitality, it is as high as 8% in the international market space, we are leveraging our represents with our major restaurant accounts. Namely YUM and Mcdonald's, that have given us the privilege to serve them throughout the globe in 105 countries, and we are investing in the countries that exhibit the highest growth, namely China and India. We are doing a good, job, making progress in growing our infrastructure there. We think we are doing all the right things relative to our major chains.

Then another area of investment that we have started the investment in 2006 and we will continue in 2007 has to do with building out of our channels of distribution to third parties. We have hardware and software running in thousands of restaurants around in the world. The products that we have will fit quite well, we believe, in the market space known as the independents. Not the chains, but the independents. And these are individual restauranteurs, that 70% of all the restaurants in the independent market space are owned by the individuals that have a single facility. We have virtually no access to those restaurants at this point in time, or very small access, and so we have decided that we need to invest in building out some channels of distribution. And we have started that, that investment and we will continue it. We think we have unique things to offer to dealers and third party partners, relative to the infrastructure and we are coming up with some unique and clever ways I think in terms of attracting dealers to our products. We are investing, therefore, in building our channels of distribution.

And the international, I mentioned that we are doing quite well in international and growing our business internationally and we have made investments that will indicate that we will participate in the fast growing international market space.

Our government business, I think it is very strong. It continues to perform and I think we have strong management and strong leadership there and we will continue to do well there.

And then we have a potential Bluebird coming along in the logistics management area.

And so I think all in all, my view, looking to the future is quite optimistic. It is unfortunate we have a lumpy quarter to quarter performance. It comes part and parcel with major chain business. But you have to look more globally at the longer term and understand that that business can be smoothed out over longer periods of time, and then with success in doing a better job through the channels, third party channels of distribution. I think We will see some tendency towards smoothing of that revenue stream. I hope that answers your question.

Yes, it does. Thank you. One other follow up question on the international business. When you model out your business, and plan for it, could you give us an idea how international market is trending in terms of profitability for the entire business? Is that -- do you have pricing pressure, do you have to offer lower prices in international markets, is that profitable?

We don't break up the profitability of our international investments, but as you he well understand, as you are building up in places like China, it is going to be a cost. While we have, we are very, very fortunate to have the accounts that we do in China, which gives us our revenue stream, nevertheless, there is an investment behind that in order to grow out the infrastructure that nearly parallels what we have in North America. So, we don't look at at it so much from the competitive aspect of it, but more from the perspective of what we need to do to put ourselves into the unique position, into the dominant position in the rapidly growing market space.

Okay. One last question. I keep hearing quite a bit of investments being made in different areas, especially in the hospitality sector, both domestically and internationally. Could you give us an idea, when do you see realistically to reap benefits from these investments and what kind of operating margins would you anticipate two or three years out?

I think the benefits will start becoming evident in 2007. You see, you have to look at it from, at least from my perspective. As we start winning major chain business, we are talking about revenue streams that will derive for the next 20 years. If we're looking at our major business right now with YUM and McDonalds and several other chains. This business was won many years ago and we continue to derive revenue streams from these sources. So I think we're going to see benefits of our investments in 2007 which are going to develop over time and they will last over the next 20 years. As far as his building to the bottom line and specifically, I looked at 2008 as a year where we will see more benefit directly to the bottom line. But we are going to see benefits that are, if you can imagine are going to be quite good over long periods of time and I think you will see some of those things happening in 2007.

Thank you, very much.

You are welcome.

Our next question is a follow up from the line of Vincent Colicchio of Noble Financial.

Yes, two questions for Ron. What was the cash from operations and depreciation and amortization on the quarter?

Vince, the cash flow for the quarter was positive. It was about $5 million. And depreciation and amortization was about $1 million for the quarter.

The 5 million, is that net, net, or is that cash from operations?

It's cash from operations for the fourth quarter.

Okay. And on capital spending, what did you spend in the quarter and what did you expect to spend for the year of '07?

For the quarter, we only spent about $200,000 in capital. For next year in '07, that will grow. That will increase. We had always trended on either side of the $2 million mark. Of course, that's subject to change if there's any big projects that might happen next year, which we are considering a couple. But right now, we always budget $2 million a year.

Okay. Thanks a lot.

Our next question is from the line of Ross Berner of Weintraub Capital.

Couple quick questions. We have heard that the third party software development guys have had significant issues in attrition of developers and one of their affiliated businesses, maybe, I think I recall maybe there being a bankruptcy issue. Can you maybe just elaborate on that. You said it wasn't, development wasn't going to be a problem, and delivery wasn't going to be a problem. It was more must working out the bugs. Sounds as if you are pretty confident at that point?

My confidence is derived from what our major account tells us. And I can only say based upon with a they have said, they feel they will work out their issues. Based on history, I can tell you they will work out their issues. They are just too large large an organization not to solve the software issues. It is the timing of it that concerns me more than anything. And there I rely on what the account has told us. And they have told us they feel they will have the answer to some of their problems solved by the second half of the year and we can expect some acceleration in our shipments in the second half of the year.

And international is still growing, kind of in the 20% range, is that what you said?

Correct.

And that it 17% of revenues in '06. Is that fair?

Approximately.

International revenue grew 22% for the year. It represents 13% of our total revenue for the year, but about 19% of our hospitality revenue.

Okay. In terms of the orders that got kind of, the business lost in Q2, Q3, Q4. The delayed delivery issue. If that starts to come back in end of Q2 and more deliberately in Q3 and Q4, how significant of a snap back could you see in order activity?

I think it is small. That's just because that actually just represented a small number in general.

That's correct. The majority slip is not our software, which has been finished. The majority of it has to do with this major account.

Okay. Great. Thanks so much.

Thank you.

Our next question will be from Joe Badger of Piepquat Capital.

Hey, guys. Just a point of clarification. If your guidance, where you said that the earnings per share would be possibly flat when compared to '06, Is that your base line assumption, that they'll be flat from '06 or is that sort of your, call it maybe a stress target, or a goal to be there?

I would say that's our target and possibly could be on either side of that target.

Okay. Thank you.

You're welcome.

[OPERATOR INSTRUCTIONS] We have a follow up question from Karl Dorff of Dorff Asset Management.

For awhile now, your G&A expenses have been rising fairly rapidly and I hear all the investments you are making. Can you give us a feel as to how long this kind of increase will go on? One year, two years, five years?

G&A expense ended up 16% of total revenue for the year. And as we continue to make investments next year, especially in our distribution channels, you will see probably a little increase in the percentage. But not probably not quite as dramatic as the jump from '05, so it will start to level off a little bit as we grow our business. But with the investments that we have planned for '07. you will see that go up a little bit.

How about by '09? Will we start to see, hopefully, revenue rising at a greater rate than the G&A by then? If you can go out that far.

If he can go out that far. Certainly, we expect that as we get over the investments that we are making and start to reap the benefits from those investments, the G&A certainly will trend downward a little bit.

The time frame for that?

I would say, in '08 and '09.

Thank you.

You're welcome.

There are no further questions in queue. I would like to return the call over to management for closing remarks.

The only closing remark is thank you for dialing in and listening to our report. Bye.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes our presentation. You may now disconnect. Good day.