PAR Technology Corp (PAR) 2007 Q2 法說會逐字稿

Good day ladies and gentlemen, and welcome to the PAR Technology 2007 second quarter results conference call. My name is Letisha, and I will be your coordinator for today. At this time all participants are in a listen-only mode. We will be facilitating a question and answer session towards the end of this conference. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded for replay purposes.

At this time, I will turn the presentation over to Chris Byrnes, Director of Financial Results. Please proceed, sir.

Thank you Letisha and good morning everyone. I'd like to welcome you to our conference call this morning. I hope by now everyone has received a copy of our Q2 results press release. Here on the call today to discuss those results are PAR Chairman and CEO, John Sammon, the Company's Chief Executive Officer, Ron Casciano, the Company's CFO, and Greg Cortese, CEO and President of ParTech, Inc.

Before John begins his formal remarks, however, I would like to read our disclaimer. Statements made on this call today may be forward-looking statements. Any statements made on this call that do not describe historical facts 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 call over to PAR Chairman and CEO, John Sammon, for his remarks.

Thank you, Chris. Good morning. Today I will be presenting the results for our second quarter ending June 30th, 2007. Second quarter revenues were $49.9 million, a 6.5% decrease from the record $53.3 million reported for the same period a year ago. Net loss for the quarter was $1 million compared to a net income of $2.3 million reported last year. The loss per share for the period was $0.07 compared to earnings per share of $0.16 reported last year.

Looking at the quarterly revenue breakdown, product revenue for the quarter was $18.3 million, down 19% compared to the second quarter of 2006. This decrease is attributed to two issues, lower sales to our largest account and software issues delaying rollouts. Domestic sales to our largest account continued to be delayed pending release of third-party software. The impact of the third-party software delay, which began last year, may persist through Q1 of next year, thereby potentially depressing both our hardware and our service revenues. A limited number of stores will be allowed to install an interim software release, which will somewhat mitigate the situation. The targeted software is scheduled for field trial late this year, with general availability by early Q2 of next year, at which time we expect to experience strong pent-up demand over the following few years.

Additionally, product revenue was down because we were unable to replace revenue associated with last year's rollouts of Corner Bakery and Papa Murphy's, due to internal software delays.

Service revenue for the quarter was $16.1 million, up 8% compared to Q1 of last year. Although service revenue was negatively affected by fewer installations, it was more than offset by the increase related to the new CKE service contract awarded last October. Contract revenue was on plan at $15.5 million, down 1.9% for the quarter. This slight decrease was caused by timing of new starts versus completion of existing projects.

Looking at margins, product margins for the quarter were 41.6% versus 42.4% last year. This decrease resulted from lower manufacturing absorption associated with lower hardware sales and lower software content in the product mix as compared to last year. Service margins were 26.2% versus 27.2% a year ago. This decrease resulted primarily from lower installation revenue associated with fewer system sales.

Contract margins, or in our case pretax profits, were 5.2% compared to 7.8% last year. This margin is below the normal range of the 6 to 7% associated with our government contracting business, but was not unexpected. We traditionally run lower profits at the start of new fixed-price contracts, which gradually improve over the course of the job. Since we have just begun a multi-year contract with the Navy, our margin is temporarily depressed.

Looking at expenses, SG&A expenses for the quarter were $9.2 million versus $8.2 million last year, an increase of $1 million. This increase, among other things, reflects our investments in both the expansion of our dealer channel and our international infrastructure. R&D expenses were $4.4 million versus $2.8 million last year, an increase of $1.6 million, associated with investments in software.

Summarizing, although Q2 was not a good quarter, it came in as expected. We correctly anticipated slower sales to our largest account, due to delayed third-party software. Last year we achieved record sales from rollouts to new customers, and this year we are unable to replace this business, not because of lack of opportunity as the market remains healthy, but rather due to internal software delays. System sales are being delayed while we work to complete and deliver customized enterprise solutions for some large customers. We are being cautious in pursuing new customers for our next gen product. We are taking this disciplined approach because we want to focus on and complete a few specific development projects for large strategic accounts, which we feel in the long run will serve us better.

Government revenues for the quarter and the first half were down slightly due to timing of new contracts. Contract margin was low by historical standards due to lower profits associated with the early stages of fixed-price contracts and, as I mentioned earlier, these margins will gradually improve over the course of the jobs.

With lower revenue caused primarily by depressed product sales, gross profit decreased by $2.3 million. This, coupled with investment increases, resulted in a decrease in operating income of $4.9 million, as compared to 2006, and a loss for the quarter of $1 million or $0.07.

As to the long-term outlook for the business, the news is mostly positive for the following reasons. The hospitality market continues to be healthy and we enjoy excellent long-term relationships with our hospitality customers. Our major account slump is not caused by lost sales, but rather due to delays of third-party software and thus these sales will recover with pent-up demand over a two-to-three year period once this software becomes available.

Our international hospitality business continues to grow, reflecting some success in our international investment strategy. Year-to-date growth is 10% above the corresponding period of last year. Our government business continues to perform on plan, marking its 144th consecutive profitable quarter and 16 straight years of on-plan performance. We anticipate announcing a win of a large contract, which will soon bring our backlog in the range of $120 million, guaranteeing continued success of this business.

The first half of 2007 has been a struggle. While Q2 was slightly better than Q1, we do not expect much improvement until both the third-party and internal software delays are successfully resolved. We are confident that these issues will be resolved and have established a goal to be profitable by Q4. We will be taking actions to hold down expenses, but do not intend to cut back on our investment strategy. Specifically, we will continue to invest in software development, global channel expansion, and international infrastructure expansion.

That completes my formal remarks. I'd like to open the session to your questions.

(OPERATOR INSTRUCTIONS). And your first question comes from the line of Tony Brenner, representing Roth Capital Partners. Please proceed.

Thank you. I've got a couple of questions. Regarding -- John, regarding the contract, government contract business and the declines in revenues in the first couple of quarters due to timing issues, I think after the first quarter you indicated that for the full year you anticipated that revenues in that business would be up at a high single digit rate. Is that still what you anticipate, because that would require roughly 20% gains in the third and fourth quarters?

There is still a strong possibility that we will be having the high single digits growth, but for our planning purposes right now, we think that it will be about the mid-single digits range for growth.

I see.

It depends on timeliness of certain contracts really.

So when you keep saying every quarter that you beat plan, you're really saying you beat your most recently revised forecast. It's sort of like analysts' estimates, I guess. That wasn't a question, I'm sorry. The internal delays -- you earlier had internal software delays and these had been resolved by the first quarter. Are these new delays in software production?

Tony, it's not a single particular customer. Let me try to give you a broader answer to that question. The -- for the existing software products we have we are targeting chains. These are usually branded accounts. And in these accounts they very often, if not always, require some customization. And when we get into the customization of features and functions or databases or reports for these chains, it involves working with them, especially if it's an enterprise solution where we're interfacing into the corporate structure, their IT infrastructure. And due to the complexity of the delivery, it's difficult to forecast exactly when we're going to be successful. So that's a general statement. It's the nature of the business that we're in and the targeted customers.

Now as far as what is going to turn around these delays, it's not just one specific thing. It's a combination -- it's a sum of the total, if you will. Now we have RFP's that we're responding to. We've had some success in some RFP's. We've been selected for pilots. We're in pilots. We have lab tests. We have field trials, and we even have, beyond field trials, accounts or two that have a large number of our systems in, but require some additional features or database changes that are delaying our ability to continue rollouts to the chains and they are our accounts.

And so, when we add up all those possibilities, each of which are on their own time schedule, we feel confident that we're going to be able to restore this aspect of our business, but exactly when is difficult for me to predict. So, we have a goal that we're going to, through our activities, achieve profitability in the fourth quarter and it's largely dependent upon success in these areas.

Yes, Tony, this is Greg also. Along John's line, one of the things we're trying to really do this year is really be very targeted and selective in choosing the right customers we're going to go after because, as John stated, each one requires some significant customization. So we're trying to insure the fact that we're selective in the strategic accounts we're going after, they can truly offer us some strategic advantage in the long term, which is our goal. We're seeing this as an investment for the future, that really will make us the key software solution provider to restaurants in the world. And some of those investments that we're making, and some of that time that we're taking in order to do this, as a result ends up delaying some other of the projects that we're having. But the wins are there, the business is there. It's just ours now to just finish it up and start taking it and getting our guys out there.

As John had stated, a lot of these customers are large corporations that have what we call branded sales, have franchisees. We've been approved. We have to finish up the software and then basically we turn it over to our sales staff, who then go and capture the franchisees in each of these accounts.

Is any -- are any of these accounts related to the -- to your new SIVA software in the casual dining sector?

Yes, actually, two of them are.

Actually, Tony, we have been very disciplined, as Greg is pointing out, as far as our next generation products are concerned because there we wanted to make sure that we're going after the right accounts and we wanted to put a specific focus on achieving our objectives with these major strategic accounts. But we have a roadmap for our products involving the existing software products moving on to our next generation products. And so, the strategies that we have are -- involve both the existing products and the next generation products. And so, there is a -- the products hang together and the strategy we have are targeted at specific accounts. And we're putting in software that exists today, and working with accounts that are strategic in our mind, and at the same time building a path to the future with those accounts as well. And so, the answer to your question, they are strategic and they are selective.

Yet our plan basically is a plan to, as John stated, use existing products as we're also developing the next generation, but then have a convergence on these accounts that we're winning at some point in the future.

Good enough. This is my last question. The timing of the software delivery to McDonald's has been pushed back at least three times that I can recall. You're now saying the impact would last through the first quarter. How hard is that timing, or is this just a rolling delay that could extend even further?

Well, I'm not sure that we have revised our statements relative to this. We report accurately. We understand from our major accounts, relative to the software, and they have consistently told us that there would be an interim software release available in the second quarter, and it has been made available. There's a limited number of sites that they are authorizing, which is the basis for our forecast, moving through Q3, Q4 and Q1. They have consistently told us that they are on schedule for the targeted software to be released at the beginning of Q2 at their major convention. They have a two-year convention and that's their focal point for the release of this software. So we, Tony, we stay in this limbo state until that software is available, and they have consistently told us that it would be at the beginning of Q2 of next year.

The uncertainty that comes in has to do with the interim software and how many of the sites that they are going to allow us to put that interim software in. They prefer to wait until the final product is available. There has been some progress, giving us some confidence that they are on schedule with the targeted software. While in my formal remarks I reported what they previously had told us, that they would be going into field trial with the final version of the software at the -- in Q4 of this year, I understand that they've actually put a few stores in this month, and that they feel very good about what the results that they're seeing.

So, from our perspective, we've been consistent in terms of saying that the software for this major account is going to be available in the Q2 of next year. And, from the evidence that we have available to us from statements from that account, they seem to be on schedule. Now you say, can that further slip? Yes, of course it could slip, but all indications right now is that we are on track.

Tony, this is Greg again. The information John just gave you was confirmed by me last night with the CIO of McDonald's North America. And he is feeling very confident that he is going to be able to make his date this time and that they will have a general release in a -- a major release of this product at the convention next year and they're moving forward. He feels very confident. It's the first time I've seen him as confident as he was last night.

Thank you very much. I appreciate it.

You're welcome.

From the line of Mayberry Capital with the next question, we have Sam Bergman. Please proceed.

Good morning, John, Ron and Chris. How are you? It's Bayberry Capital.

Good morning, Sam.

How are you, Sam?

Good, and yourself?

Good

A couple questions. First of all, who is the third-party software company McDonald's is using?

I think it's generally understood that it's Torax. It's actually -- it's a subdivision of Torax. And Torax was bought by a venture capital firm, which I don't remember the name of, just recently. And the company is called Savista, and the product is known as NewPOS.

Okay. In terms of the R&D and the increases in '07, how many extra employees have been devoted to R&D since the first of the year? Do you have that number?

Sam, we picked up at least 30 people since the comparable quarter last year, or we added in the fourth quarter of last year.

Okay.

So it's a substantial increase and the increase in R&D is very much the investment that we are making in the new SIVA software that we acquired last year.

Is that R&D number of 4.3 to 4.5 the range for the upcoming quarters or is it going to drop somewhere in the fourth quarter?

No, it should stay within the current run rate, Sam.

Okay. International business -- is there a breakout of those numbers in the quarter?

International business, as John said in his remarks, is up 10% for the year, Sam, and as a percent of total corporate-wide revenue it's running 14% through the six months. So, our international business is 14% of total company revenue.

Now you expanded the SG&A so you could pick up some business in China, is that correct?

That's correct, as well as we are making investments in building out our dealer organization.

What would you say the pipeline is for China business currently?

Well, Sam, the accounts that we have in China are -- basically it's McDonald's at this point in time. We are the sole source provider to McDonald's and so our business will grow with their business. And we're putting in -- replacing old equipment that's already installed and we're getting 100% of all the new restaurants that are opened up. We have sole source to Burger King as well, but they only have a handful of restaurants. That's not a significant amount of business. There are other opportunities that are coming forward simply because of our presence in China, and we opened up our Shanghai office. And I think we all feel that we're on track with our plans for expansion in China.

And the last question I have is with the long delays right now in the third-party software and internal software, are there any chances that one or more customers would walk away from PAR, or do they have so many systems outstanding right now that that's not a possibility?

Well, I think that the latter part of your question there, I think, is realities. I mean, it's always possible that customers can walk away if things get delayed too long. That has not happened, in my memory, so it's not something that we're thinking about, but it's always a possibility.

Well also, I think in the situation where these branded sales we're talking about, these larger accounts with branded sales, the delay there is a delay in recognizing the revenue for us, but definitely very little chance of us actually losing the potential there because it's primarily the franchisees that we have been approved to go with the sell-to now. So we just need to get the software and go out there and do it. The corporation itself is not going to pull its approval because of any delay we have in those situations.

Well nevertheless to your question though, Sam, is it a possibility? Sure, it is a possibility, because as we're working with these accounts we have to work within a timeframe. But as Greg is pointing out, there's commitments as these chains go through the long process. I mean the way you get to the point that we were discussing here, you have to go through an RFP process. You have to go through all those steps that I discussed before, lab tests and pilot tests and field trials, extended field trials, and getting to a point where you really have established a relationship with the account. And then you need to -- as there is further requirements you have to respond to those requirements. Now it's a big step for such an account to turn around and go in a different direction, but I've seen it happen in a competitive -- to a competitor. But it hasn't happened to us. So it's possible, but it's not in our plan that that's going to happen.

Okay. And just going back -- one more question. Going back to China, are there any pilot or beta tests with any other casual dining restaurants in China other than McDonald's, currently? Because you've been there a little while, so I'm just wondering if there's been any implementations of any pilots or beta tests.

Greg, do you -- can you answer that one?

Nothing of substance right now. We are working on those right now, though, and I think there's some good possibilities. The only other area we've expanded into there is in our hotel business. Mandarin Oriental has been buying our hardware there for all their -- for their hotels in China and will continue to buy our hardware for their hotels within the China market, which I think they're going to have ten within the next few years.

Thank you very much.

You're welcome, Sam.

Your next question comes from the line of Brian Murphy representing Sidoti & Company. Please proceed.

Good morning. Thanks for taking my question. Could you quickly break out revenue from McDonald's and Yum for the quarter?

Brian, this is Ron. How are you?

Good, thanks. How are you, Ron?

Good. For the quarter, McDonald's is 27% of the total business and Yum is 14%.

Okay, great. Thank you. And just swinging back to the year-over-year decline in contract revenue, it sounds like you weren't all that surprised by that and -- but -- so things maybe pushed out a little bit for '07. Given the large contract win that you referenced and the increase in backlog, looking out into '08, do you think that the government business could get back to double digit gains in revenue in '08?

We have not built out a bottoms-up plan for 2008 at this point, and so it's premature to answer that question. We have enough backlog to sustain our business going forward, and we have several bids out that we're awaiting adjudication of the contract. And so that will depend upon the success in winning some jobs that have not been adjudicated quite yet.

Okay. And it was my understanding that PAR was going to do the installation of the third-party software. From your comments it sounds like you did not do the installation for the interim third-party software. Could you just comment on that for a second?

Brian, you're referring to the McDonald's third -- McDonald's account?

That's right.

We do the installations for our equipment for McDonald's.

And we will be doing the installations of the equipment and also the software itself. I mean, that's all part of the solution sale to McDonald's.

So the interim third-party software that was rolled out to McDonald's in Q2, you did the installation for that as well?

No, no. The interim software was not -- has not been rolled out. The interim software is being selectively released. McDonald's is allowing a certain number of restaurants to have the interim software. And the condition under which they get it is because there's specific needs in those restaurants. And McDonald's is also working with us in order to make sure that we have sufficient business, and so it's an area where there's an imprecise number. We can't -- we could not tell you exactly how many licenses of the interim software are going to be released, but we're working with McDonald's every week on this issue. But it hasn't been rolled out. And when we do -- when we put in the interim software it's a total solution. It's our hardware and it's the interim solution and our training that goes along with it.

I see. Okay, and one last question. Could you just give us an update on the logistics business?

Yes, we have not closed any commercial accounts in this last quarter. We continue to be in pilot with a large number of opportunities. No decisions have been made in the quarter. As I indicated last time, we feel that we're in the very early adopter stage in this business, and so we're awaiting decisions relative to these opportunities. We did have a win of a contract with New York State, a $500,000 win, and that's a win to demonstrate our technology relative to a homeland security issue involving New York State.

Okay, great. Thank you.

You're welcome.

(OPERATOR INSTRUCTIONS). And your next question comes from the line of Ross Berner, representing Weintraub Capital. Please proceed.

Morning, guys. A quick -- couple quick questions. Can you, John, walk us through if the interim software is going out, even on a kind of a targeted basis, where does the pent-up demand come from when you -- when this finally does get implemented in Q2 '08? I mean, if you're a store or operator and you need a replacement product, I mean you're going to -- you've got to do it, so maybe -- I mean it's all real time stuff, right? It just --

Okay. The reason for the pent-up demand is that there's been a delay in replacing of old equipment awaiting the new software. And the new software, of course, does -- has features and functions in it that are beneficial to the account --

Mm hmm.

-- and so there's -- the only business that's going on is, as you may be suggesting, is that when you need a system because it's old and it's failing and the cost of support has gone up, in those cases the equipment has to be replaced, and we get our share of that business. As new stores open, there's a need for equipment and so we do our share of that business as well. But, in terms of the general replacement of the 13,000 systems that are out there, it's been delayed pending the release of the new software. And there's thousands of stores that are going to be replaced, in addition to the normal business, over the next few years after the new software becomes available in Q2 of next year.

How will you handle -- if there is such a ramp, how will you handle that from a logistics perspective? How do you -- it sounds like your deliveries will go up to a level that you haven't seen before then, so how will you handle that?

Well that is correct. But over the years we have established relationships with certified partners who absorb the excess capacity of our installation business. So we have our own installation business of employees that give us a core capability, and then through these relationships with third parties we are able to expand our capability to deliver. Now we've done this successfully many times over the last several years. We've done major rollouts with McDonald's where we've upgraded certain equipment within the restaurants, and taken on responsibilities for, I believe, as many as 9,000 of the 13,000 stores and did that over a short period of time, over maybe a six month, eight or nine month period of time. And we did it by -- with our own people and then managing our certified partners.

Okay. And the backlog that you mentioned? You talked about a backlog that you expected to ramp to $120 million? Can you just clarify what you said?

That's correct.

When do you expect to get there, and can you sort of put that into context where it's been historically? Because if I recall correctly, you never really operated off of much of a backlog.

Well in our government business we're talking about the backlog --

Oh, that's the government business, okay.

That is correct.

Yes, okay. And that's up from what, about $100 million?

No, I think it was about $87 million, and I think it's going to be ramped up into the range of about $120 million.

Okay. Your -- McDonald's partner in China-- is it Sinopec? Was that the gas company that they're going to get to -- the service stations they're going to get to put their freestanding stores next to?

Yes, Ross, that's -- McDonald's has forged a marketing agreement with Sinopec. They are the petroleum staging company, but that's strictly McDonald's and Sinopec outside of us.

Okay, but okay -- right, I understand that, but have they started putting any McDonald's in those locations and are you benefiting from that at all?

Yes, yes. We are benefiting and they have started.

Okay, and given that this is such a big issue in terms of the software rollout with the McDonald's franchisees and supposedly it's got the new technology that's going to enhance their business, they'll get a return on that investment for the first time. I mean, at what point does McDonald's take this in-house, just decide that this is not the right approach to sort of leave their franchisees and put their business sort of hang in the whim, as a function of some third-party development company or software company that is having all kinds of legal financial operational issues?

Well, I suppose McDonald's has had to think of all options relative to delays in that software, but as Greg reported, they feel that they are on track with getting the software that they have targeted. And, by the way, they have the software already in over 10,000 restaurants running in the international community, so there is a major commitment, strategic commitment, to this particular software. And by the way, they've been working on the software for probably ten years. And so I think the premise of your question is probably not applicable, because I can't imagine McDonald's walking away from this project, and I can't possibly imagine them ever letting their franchisees hang out in the wind. It's just not the corporate culture. It's not, it's just not the way they operate.

And what's the difference again between getting -- so the rollout and the pent-up demand you're talking about is exclusively a U.S. based --

That's correct.

-- situation.?

Well, not just U.S. It'll be U.S. and Canada.

And Canada, okay. And the difference between the international requirements for the software versus the domestic requirements again are what?

Well these are the features and functions are -- actually the features and functions are determined by geographic regions and so each geographic region has its own requirements. And so the 10,000 systems that I mentioned are meeting the requirements of that part of the world where they're installed. There were special requirements for North America, and it's these requirements beyond the ones that are in the international, that are the ones that are causing the delay.

A little more on that is the fact that international is a little easier for them because in most countries internationally they pretty much -- McDonald's corporate dictates what takes place in those markets. In the United States, the older base of franchisees and licensees, they need a lot more flexibility in their software because they can't dictate quite as much exact items and exact things they are going to be selling in each particular store. So there's more flexibility needed in the U.S. market from the software and that's what's delayed this for the U.S. market.

And given kind of the moving time frame -- this is my last question -- what is sort of -- what gives you the confidence that that is actually -- that a Q2 is realistic at this point?

Ross, this is Greg. My conversation last night with the CIO of North America -- he has this software now in, I think he said, about six stores. It's running very, very well. They feel they are ahead of schedule actually, from the standpoint that it appears to be working a lot better than they thought it was going to work without any bugs right now, or very little bugs. So he's very, very confident and they've got every focus on this because their conventions only come once every two years and they've got to make this convention. That is a major strategic move for them. They've got to make this convention with this software.

And when's the convention, guys?

April, next year.

Okay. Thanks very much.

(OPERATOR INSTRUCTIONS). And your next question comes from the line of Lakshminarayan Ganti with Thomas Weisel Partners. Please proceed.

Hi, guys. Just a couple of questions. First, can you elaborate on your efforts to improve penetration in independent restaurant space? I know you talked about deepening your channel penetration and so on, so can you give us some update on that?

Yes. We're seeing some very nice progress in our channel expansion, particularly in Europe, as well as through our bar channels, as well. We're seeing some nice possibilities for growth. So I would say that we're on track relative to our expectations in this area.

Are you seeing any pick-up in the stripped down version of (inaudible) as we speak, for the last quarter?

Want me to answer it John?

The question is --

The product that we develop for the dealer channel -- the hardware product we develop for the dealer channel -- that product is just being released now. So it's been in field trial and in limited amounts, but it's performed exceptionally well and it is now going to be released in about a week to the dealer channel in larger volumes.

Okay. And when do you think this could add meaningfully to your top line? I mean how many quarters or sales from your independent restaurants?

I would think probably significant improvement would probably take place probably by second quarter of next year again. At the same time we're doing is we're also expanding the overall dealer channel itself. We have made some significant investments in people and organization infrastructure in order to support that channel and are now taking that and expanding that channel. And, as John had indicated earlier, on some of these large scale installations, we're forming this channel in a way whereby they become part of that alliance. So they not only partake and sell our equipment and our software, but also can help us in services, which makes it attractive for them to also come on board with us.

Okay. And on the McDonald's pent-up sales, can you sort of quantify that in terms of dollar amount or probably in terms of profit growth that you would see in 2008? And can you give us some indication of the source of your confidence, given our understanding is that a lot of it is going to come from franchisees and so -- and then why do you think that's going to materialize in Q2 '08?

Well I think the answer is the one that we've been giving all along, and that is that there is this pent-up demand. There are thousands of systems that will be installed over a period of probably two to three years, beginning in the second quarter of next year. That business will be split with a competitor. We will get our fair share of that business no doubt. And I hesitate to put a dollar amount on it at this point in time, but I think it's a rather significant increment to our business.

Okay. And the last question -- what do you think is your outlook from the Yum's domestic business after the previous setback in the first quarter?

Well we have seen a return of the business. We did have a setback in the tail end of Q4 last year and again in Q1. I think those problems, as we had predicted, that they'd be temporary, and I think, Greg, you can add some color to this, but I think those problems have largely been eliminated.

Yes. Except for the Northeast area, where there is still some remnants of same-store sales being down for some of the franchisees. In some cases we have some of our major clients in the Northeast that are down maybe only single digits. There's still some that are down double digits. But other than the Northeast, it's pretty much changed. I think everybody else is pretty much back to normal.

Okay. Thanks a lot guys.

You're welcome.

And your next question comes from the line of Craig Hoagland with Anderson Hoagland and Company. Please proceed.

Hi there. Just a follow-up on the dealer channel. You mentioned that the hardware product was just being released. Is there a software component to go along with that coming from PAR?

Yes, that's our Pixel -- our Pixel product is the primary product we put through the channels. That, plus the SIVA product will be going through the channel also, but right now it's primarily the Pixel product. And we have also developed a -- what we call a lighter version of the Pixel product that would be sort of an embedded version that will go with the hardware as a bundle.

Okay. And is that lighter version just being released also?

Yes.

Okay. Thank you.

You're welcome.

And your next question comes as a follow-up from the line of Brian Murphy representing Sidoti & Company. Please proceed.

My questions have been answered. Thank you.

You're welcome.

Ladies and gentlemen, this does conclude the question and answer session. At this time I would turn the call over to Dr. John Sammon for his closing remarks.

Well thank you for calling in, and goodbye.

Thank you for your participation in today's conference. Ladies and gentlemen, this concludes the presentation. You may all disconnect and have a good day.