PAR Technology Corp (PAR) 2009 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first quarter 2009 PAR Technology earnings conference call. My name is Dan, and I'll be your coordinator for today. (Operator instructions.) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the call over to your host for today's call, Mr. Chris Byrnes, Vice President for Business and Investor Relations. Please proceed, sir.

Thank you, Dan. And I'd like to welcome everyone on the call this morning for our first quarter earnings call.

I'd like to take this opportunity to take care of certain bookkeeping issues in regards to the call. We will be recording the call this morning, and it will be available for playback. We are broadcasting the conference call via the worldwide web, as well, so please be advised that if you ask a question it will be included in both our live conference and any future use of the recording.

Joining me on the call today is PAR Chairman and CEO, John Sammon, Ron Casciano, the Company's Chief Financial Officer, and Greg Cortese, Executive Vice President, Office of the Chairman.

I'd like to take this opportunity to tell you that this conference call includes forward-looking statements that reflect Management's expectations based on currently available data. However, actual results are subject to future events and uncertainties, and the information in this conference call related to projections or other forward-looking statements may be relied upon subject to the Safe Harbor Statement included in our earnings release this morning and may continue to be used while this call remains available for replay.

I'd now like to turn the call over to Greg Cortese, Par's Executive Vice President, for the formal remarks portion of our call, which will be followed by general Q&A. Greg?

Good morning, everyone. Today I will be presenting the results of PAR's first quarter ending March 31st, 2009. Revenues were $60.5 million, a 16% increase over the $52.1 million reported for the same period a year ago.

Worldwide hospitality revenue was up 13.5% for the quarter. Domestic hospitality revenue was up 18.5%, while international hospitality revenue was down 8.8% due to currency conversion. After this currency conversion actual growth was 6.4%.

Government revenue increased 7.7% for the quarter. Net income was $247,000 compared to a net loss of $744,000 for the same period last year. Earnings per diluted share were $0.02 compared to a $0.05 loss last year.

Now, let's look at the quarter's detailed results. Product revenue was $20.2 million, a 19.8% increase over the first quarter of 2008. This increase was primarily the result of higher sales to McDonald's, Subway, and sales from our logistics management business. Offsetting this increase were slower sales to the table service restaurant and the hotel resort and spa markets.

Service revenue for the quarter was $20 million, up 21.7% compared to the first quarter of last year. This increase was primarily the result of the McDonald's combined beverage initiative.

Contract revenue was $20.2 million, up 7.7% for the quarter with new contractual business.

Moving on to margins, product margins for the quarter were 35.4% versus 44.2% last year. This decrease was a result of several factors, lower software content, in particular to this table service restaurant market, the ongoing McDonald's combined beverage initiative, and a stronger U.S. dollar.

Service margins were 27.5% versus 24% a year ago. This increase is attributed to the ongoing McDonald's combined beverage initiative. Although this initiative negatively impacts our overall product margin, it has a favorable impact on our service margins.

Contract margins were flat, 5% compared to 5.1% last year. This is consistent with our historical 5% to 6% range.

Now turning to expenses, SG&A expenses were $9.6 million versus $9.1 million for the same period last year. This increase resulted from the commercialization of our logistics management business and an increase in our stock based compensation under financial accounting standard 123R. However, as a percentage of revenue they were significantly lower, 15.9% versus the 17.4% last year.

R&D expenses were $3.3 million versus $4.1 million for the same period last year. This decrease was a direct result of our continued outsourcing through strategic relationships. This decline was partially offset by the commercialization of our logistics management business.

In summary, our first quarter revenue came in above plan in spite of challenging economic conditions. We anticipate that the slowdown in the table service segment of our business will continue until the recovery, until the economy and the buyer sentiments improve. Once that occurs, we believe there will be a very positive upward momentum as many data systems which were originally scheduled to be replaced during this difficult economic period are quickly replaced.

With respect to the hotel resort and spa business, this area will continue to be impacted by the reduction in the discretionary spend of both individuals and businesses. As a result, we currently anticipate a reduction in our 2009 revenues from this business area.

Notwithstanding the current economic impacts on our business, we are continuing to invest in the strategic elements of our business. In fact, we view this as an opportunity to take advantage of the temporary pause in buying decisions to emphasize our strategic investments in new products and in the organization in all areas of our hospitality business.

PAR's goal is to be stronger and more competitive as the economy and our markets improve. Additionally, we are closely monitoring all of our costs and cutting expenses in all nonessential areas through various means.

Offsetting the slowdown in the table service and hotel resort and spa markets is our recently announced win of the Subway account, and the general performance of our overall quick service restaurant business, which is the largest segment of our hospitality business.

Although there has been some recent minor weaknesses reported by a few companies in this segment, our two largest customers and their franchisees are continuing to do well during this economic downturn.

Absent the fear by some to refrain from spending, notwithstanding the improvement in their businesses, we do see a continuing opportunity for increased sales in this area throughout 2009 and accelerated into 2010. Especially with those large QSR concepts which possess a broad and growing international presence. PAR's products, brand, and worldwide infrastructure place us in a very favorable position, as these concepts grow globally.

Our government business continues to be strong and we anticipate continuous success in this segment. Recessionary issues and potential government spending cutbacks in this segment should not have an impact upon our areas of business.

Taking a closer look at McDonald's, McDonald's continues to lead the restaurant industry by consistently posting outstanding performance results. And this past quarter was no exception as they continued to leverage their value and convenience offers.

However, most system sales continued to be impacted by the domestic rollout of their high priority coffee beverage initiative. Except for approximately 1,000 domestic stores, which are late adopters of this beverage program and which will be installed by PAR during the third and fourth quarter, the combined beverage rollout is scheduled to be completed by the end of the second quarter.

McDonald's just passed an 11,000 store threshold with the combined beverage initiative and national advertising is scheduled to begin on May 5th. The number of stores that PAR is allowed to deploy with systems is no longer being limited by McDonald's. The issue is now simply one of capital expenditures. If franchisees have invested a significant sum in the new initiative and as a return on this investment is realized, the necessary upgrading of POS systems will accelerate.

In fact, a large McDonald's opportunity for new POS systems to run their new software will be a significant business driver for PAR over the next three plus years. In addition to the anticipated growth of our McDonald's business, domestic McDonald's business, we also expect to win a significant share of our new business as McDonald's pursues their growth strategy to an aggressive plan to open new stores internationally.

Now, turning to our logistics management business, our logistics management business has been enjoying a very positive trend in their results as the business transitions from a government contract business to a commercial entity, with industry leading companies as their customers.

The past quarter we announced new customers, [C.R. England], the largest refrigerated shipper of goods in the U.S., as well as [Hot Pot Lloyd], a large international company based in Germany. We expect more of good things to come from this business as we expand our customer base.

As the market realizes the value proposition associated with the real-time use of location and environmental information in both asset and management and cargo quality assurance, we can expect growth in this sector. We believe we are well positioned to take a leading role in this emerging market. However, the timing of substantial growth remains uncertain as we transition from early adopters to the general market.

In conclusion, despite these unprecedented economic times, we are confident in the strength of our major customer QSR chain business worldwide. In addition, our government business continues to be a healthy, positive contributor, and we're looking to build upon recent commercial success in our logistics management business.

Our McDonald's business continues to be a significant contributor and will be a strong business driver for PAR for the foreseeable future. In addition, our recent Subway win again validates our continued long-term success in providing in store technology to the largest restaurant organizations in the world.

We will continue to focus on our strategic initiatives of next gen software, channel expansion and infrastructure growth outside of the U.S., but will continue cautiously in light of the current economic landscape.

PAR will continue to actively work to manage our costs, both on the SG&A line and in R&D without sacrificing the progress of our strategic initiatives and, or compromising our goal to come out of this restructuring stronger and more competitive.

This ends our formal remarks, and now we would like to move on to Q&A.

(Operator instructions.)

Your first question comes from the line of Tony Brenner from Roth Capital Partners. Please proceed.

Thank you. I have two questions. One is as you install equipment in McDonald's stores what is typically the breakout between product revenues and service revenues as they update their PAR equipment?

I would say with McDonald's, with respect to McDonald's, product revenue is probably somewhere around 75% of the new system and 25% would be the service revenue associated with that, which would primarily be in the installation training.

Okay, so net, net McDonald's, as that McDonald's business picks up it'll be at least a slight depressant to overall profit margins? Is that fair?

No, I don't know -- I don't see that, basically it's the continuation. I mean it's not any different than what it's been up to this point in time. In our past, normal business has always been around 25% for service or installation training and 75% for the product.

Tony, this is Ron, as the McDonald's full systems increase and the beverage initiative declines, the product margin should increase because the beverage initiative as it impacts the product margin line is a drag right now.

Okay. And the second question I had is I wonder if you could give some indication as to the size of the logistics management business? I mean basically you've simply moved it from one line to another, but how meaningful is it in terms of its revenues and what kind of profit margins does it import?

Tony, this is John. Right now it's a small business and it's just a startup in a commercial activity. As you know, we have been funded by the government for a number of years to develop technology that is applicable to the tracking of assets, transportation assets. And over the last couple of years we've been working towards the commercialization of this business. We've made significant progress in the last year and particularly in this last quarter as represented by some nice wins that we have achieved.

The size of the market is rather large. Our focus in this market is on tracking and reporting information on reefers, and these are vehicles that contain cargo which is perishable and it has to be refrigerated and, therefore, the name "reefer," comes from that refrigeration aspect.

The market for reefers in North America on an annual basis, we feel is about $750 million a year. So it's a rather substantial market in itself. Our participation right now is very small. In fact, the uptake in terms of this technology in this market space is negligible, it's only around 4% of all the reefers in North America are instrumented with this technology.

So at this point in time we view it as a very potentially interesting business, but we're at the very early end of the development of this business, and we're hesitant to really project acceleration at this point in time, and we're basically in the learning mode of the uptake of this technology in this marketplace, but we're very encouraged by this because of the recent wins that we've had. We're winning the major owners of these refrigerated assets, we're winning their business, and they are early adopters.

So we're almost in a classical situation where we're at the front end or with the right technology at the right time and the early adopters and large corporations are buying this technology, having tested this technology for a couple of years. So we're very, very encouraged by the activities that we have within this market space.

We have won the C.R. England account, which is the largest owner of refrigerated assets in North America. We have [Alan Kay], which is a large shipper. And we have the J.B. Hunt account. We have the Ryder account, which is the largest leaser of transportation assets in the world.

We've recently won the [Hot Pot Lloyd], which is -- one of the top five shippers in the world, doing intermodal refrigeration tracking for them. And we have a very strategic relationship with Carrier Corporation, where we're selling our systems to them and working with them on joint projects in utilization of information that's derived from the refrigeration units, and that carrier supplies more than half of the refrigerated units in the world.

So on that basis we're very, very encouraged by this business, but again I'm being very cautious in saying that it's a very early development in the business, itself, and while we're very excited about the opportunities and the size of the market, we, yet do not understand the take-up of this technology within this market space.

John, there's a $750 million market, does that figure represent instruments for 4% of the market, or with the current annual suppliers or what exactly is that number?

Well, we'd have to really get into the detail to build-up the number, but what I've tried to do is to scope the market space as if it was in steady state. You see, this business is, Tony, is a recurring revenue business.

There's a frontend component of revenue where we install the hardware that tracks the assets, it's got GPS and it's got a lot of sensors which measure things, such as temperature, tire pressure, fuel gauges and so forth. This information then is communicated via cellular or satellite back to our servers, and then we provide information on a monthly basis to our customers.

So that's the recurring aspect of the revenue, every month the customers get reports, well, they get reports real-time but they pay on a monthly basis for those reports, and it's under long-term contracts that this recurring revenue derives.

So there's a frontend revenue and then there's a recurring revenue. So in order to try to give you some idea of the size of the market, what we've done is we've just looked at the total number of assets that are out there and then normalize it as if all the equipment was installed on those assets and then said, "Well, how much money would you get from frontend installations and how much money would you get from recurring revenue"? You get most of the revenue comes from recurring revenue, which makes it a very, very interesting business.

So as the take-up in the market increases and we install more and more equipment then the recurring revenue increases and in a steady state model if everybody that had a refrigerated unit was -- had to install the equipment then that marketplace would be the $750 million a year.

I get it. Thank you.

You're welcome.

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

Hi, thanks for taking my questions. Greg, as you talk to the folks at McDonald's do you have a good sense for what their expectations are in terms of how long it's going to take them to sort of get a meaningful ROI from this coffee initiative?

The discussions I've had so far with McDonald's people, those that have been in over a year in the coffee initiative are already seeing a very good return on investment, and they anticipate that going forward, they especially anticipate a real growth once they start their national advertising next week. That, they've been waiting for that for quite awhile and the 11,000 store number was a number that they were looking to reach before they went with national advertising.

So really up to this point in time the return on investment they've had has been without any real advertising on a national basis, they've had some slight local advertising but in general it should really progress and should progress very fast.

Okay, and let's see, you seemed to have called out the demand environment on the table serve side and the business as kind of a key variable to performance, just wondering what percentage of the hospitality business is table serve at this point?

Brian, we haven't traditionally broken that out, but as Greg said in his remarks QSR is the major component of our hospitality business, so while certainly table service contributes it's not the major portion, QSR is.

Well, is it -- do you see the table serve side as maybe having an outsized potential for growth going forward, is that why it's such a key variable?

This is John. I think one of the comparisons is Q1 over Q1 and last year we delivered our table serve product, which is an excellent product, to the Catalina account, which drove quite a lot of revenue. Now with the slow-down in the economic situation, the slow-down in the table serve market, sales and to this sector have been depressed, and so, therefore, in a comparative way table serve is significantly down.

As far as growth in the future is concerned, yes, we feel that the table serve market is a very large market, and our approach to this market is both through this excellent product that we delivered to Catalina and through the dealer channels, which we have been investing in.

Okay, thank you.

And maybe one for you, Ron? What was cash flow from operations and CapEx and [cap] software for the quarter?

Brian, cash flow from operations was a little over $700,000 for the first quarter. CapEx was $300,000, and depreciation and amortization was about $1 million, which is what we've been running.

Okay, thanks very much. I'll hop back into queue.

Your next question comes from the line of Vincent Collicio from Noble Financial. Please proceed.

I have a question on the QSR market, I apologize if you've mentioned this, but do you expect that market to grow sequentially to this next quarter year? That's the first question, and the second is there any large QSR deals that are in the process of being delayed that could potentially be a significant contributor the balance of 2009?

I think as far as the QSR market in general is concerned they are from a business standpoint the majority of the larger customers, which are the customers that we primarily have as our customers and focus on. Their business is improving, has been doing very, very well.

I think the issue that we fight at times is although their business is doing well and they're making money it's the overall CNBC syndrome, in a sense, whereby they're somewhat refrained from spending possibly some of this money as they wait to see how the market is doing.

But the investment capital is there. We're able to get financing for them if they need financing, so we do see QSR continuing to grow, and both domestically and internationally. And, of course, internationally is the area where the majority of a lot of the QSR customers are placing their efforts.

In addition, we see this most recent win from Subway as being another very good indication of how we are looked at in the market. I mean we are looked at as the company you come to if you're a very large corporation and you're looking for a long-term relationship with a company who can deliver quality product and quality service.

And, Ron, this one is for you. Yum and McDonald's, what was the contribution in the quarter?

McDonald's was 25% of the total revenue for the quarter, and Yum was 11%.

Okay. And DSOs, Ron, do you have that one?

Yes, their hospitality business we're running around 64 days, and government business is 63 days. We had a nice improvement there in the hospitality business from last quarter.

And, John, this one maybe for you. The government pipeline, what can you tell us there? Does it remain steady, is it, are we still, are we on track for -- maybe you can give us a sense for what kind of growth we can see this year? Will it be sort of upper single digit like it has been in recent quarters?

I think it's a function of timing. We have quite a lot of contractual possibilities in our pipeline right at this point in time, and we are quite bullish on our position relative to winning those jobs. The timing of the jobs will determine what the growth is going to be in 2009 over 2008, but as we look to the future we see an increasing backlog of business, so we're quite confident in this sector of our business.

Okay, thanks, guys.

You're welcome.

(Operator instructions.)

Your next question comes from the line of Craig Hoaglund from Anderson, Hoaglund & Company. Please proceed.

Hi. On the contract business, I know we're in the early stages of several contracts, what is your outlook for margin in that business?

Craig, we've constantly say that those margins will fluctuate between 5% and 6%, and that's been our history and that's our outlook, as well. You might have a quarter every now and then where it might spike one way or another outside of that range, but for the large majority of our quarters it runs between that, 5% or 6%.

I think it averages over the years, so as contracts are initiated they run at a lower rate, and as they mature they tend to grow in margin, and if you look at the average I think it would be probably closer to the 6% than the 5% we're currently running, but I think we'll be running in the 5% range throughout the current year.

Okay, that's helpful. On the product revenue side, close to 20% growth, if McDonald's is emphasizing or hitting your revenue line on the service business, what are the gives and takes that are going to be providing them growth on the product business?

This is Greg. The McDonald's revenue is split, part of it is on the service side and but the majority of it is on the product side.

Okay, so your McDonald's product revenue is growing?

Oh, yes.

Okay.

And so is McDonald's service revenue.

And so is the service revenue. Okay. And I understand that as their mix shifts more product and less service, if you just look at McDonald's as a customer that will help your margin there, but as McDonald's grows as part of your product revenue that would push the software mix down. Do you expect that to continue to put pressure on product margins?

Certainly as the McDonald's revenue continues to be a large part of our overall business, that is hardware, and therefore is a lower margin than software. Although we plan to increase the software element of our business it remains to be seen how the overall mix will end up in the future between hardware and software.

What's -- this will maybe just clarify what you were referring to earlier, this McDonald's beverage program which we've talked about, there's a part that goes into the product margins, and that piece is at a very low margin, and when that program is completed the margins and products will increase as we sell more full systems to McDonald's and the beverage program will go away. And there's also a part of the beverage program in our service revenue and, therefore, our service margins which today is having a favorable impact on the service margins.

Right, okay, so the product you're selling to McDonald's will go in at a higher margin than the product you're selling now?

Correct.

Okay, thanks.

Your next question comes from the line of [Sam Bergman] from [Bayberry Asset Management.] Please proceed.

Good morning, gentlemen.

Good morning, Sam.

a couple of questions, can you discuss your China initiative right now and where is that heading?

China is --

I know there was a lot of money devoted to ramping up expenses last year for that area.

Yes, China is still a very much of a focus point for us in our international growth. We see China as being a very much a lynch pin overall as far as growth in the whole Asia market. We have an office there, we've invested a considerable amount of money into developing out this office, along with the ability to be able to manufacture there. We are now trying to expand beyond the McDonald's market in that area. We are right now the exclusive for McDonald's for China and for Chinese growth, which they, this year they're expecting 175 new stores in China.

In addition, though, we've also tried to move outside of McDonald's and we've been successful in Hong Kong in winning the [CKE, Carl's Junior] account, both from a hardware and software standpoint, as they grow into China, and we're looking for more opportunities because our infrastructure is strong there and is growing.

And what would you say is the overall pipeline right now in the U.S. for software, hardware, RFPs?

I probably couldn't give you an answer on that. We're constantly out there, we're consistently receiving RFPs, although there has certainly been a slow-down in RFPs at this point. I don't think any of us, any of both PAR or any of its competitors are seeing significant RFPs that are on the street right now. We were lucky enough in the Subway account whereby the RFP was done awhile ago in a sense, and we were selected early on to probably be the vendor of choice.

As far as others are concerned, we are seeing some that are opening up, but in most cases we try not to wait for an RFP, we get in there and try to win it before an RFP even hits the street.

And this is John. Also, if you look at our sales model, we in the restaurant area, we focus on chains and franchisees of those chains, and what we do is we develop our software to meet the requirements of that particular chain. And every chain has its own peculiar requirements or unique requirements.

And so we come up with what we call "branded solutions," and we have branded solutions for a number of QSR accounts. And then we -- our salespeople target those particular franchisees, and so we already, it's not sort of a -- it's not really an RFP driven business, primarily, it's more driven by targeting large QSR accounts and going after them.

So as we look at a pipeline there, we have already got solutions for a number of QSR accounts, there the forecast is difficult, even though we're talking QSR, and even though these brands are all doing quite well in QSR, there is -- it's not a uniform pattern in terms of buying because some of the franchisees are located in places like California, where business is slow and so, therefore, even though the brand is doing well those franchisees are reluctant to buy.

And then as Greg said in his formal remarks, there are franchisees that are doing well within these branded accounts that we've targeted, but they're simply reluctant to spend money at this particular time.

I think as the economy improves and people understand their business future better, I think we would expect that given the position we have in the market and given the fact we had the branded solutions, we would expect that our solution sales, which include hardware, software, and service would be increasing.

Table serve is a different pattern, and there we do respond to RFPs, and there -- those RFPs really have slowed down. We haven't seen a lot of RFPs in the table serve market sector.

As far as software is concerned, outside of the restaurant marketplace in the hotel space, as Greg indicated, that -- the high end of hotel and spa market space has been significantly hit by the economic conditions, and as a consequence there that we are not anticipating growth in that particular sector of our market space.

And so the picture then is one that there are pockets of our business that are very, very strong, and especially in the QSR large, the two larger accounts that we have and now Subway is very strong. And as the economy improves I think that there'll be a lot more software being sold into that market space. And we'll have to wait for the hotel and spa market space to turn around before we can see any significant increases in that business.

I don't know, I hope that's helpful?

It is, thank you very much.

You have a follow-up question from the line of Brian Murphy from Sidoti & Company. Please proceed.

Thanks, yes, I just have sort of a high level question on margins, and I'm not sure who this is for. Just sort of looking at prior cycles, when we've seen your major accounts in sort of a major upgrade cycle, you guys have been able to deliver mid to high single digit operating margins.

Just looking at the trend over the past five quarters here with your operating margin sort of trending upward, and it looks like your major accounts are on the verge for another major upgrade cycle here, how comfortable are you guys that you're going to get to that 5%, 6%, 7% operating margin this year or next year?

Brian, really it's our goal to get to 5% and above with the economy impacting some of the smaller sectors of our business this year, it's going to be difficult to do this year, but certainly that would be our goal next year.

Okay, and, John, if I can just follow-up on the comments that you made earlier on the reefer business? I'm just trying to get a sense for what might need to happen here in terms of a tipping point? I mean you already have some large players that are early adopters.

Does one of these large players need to deploy on sort of a wide scale or does an industry standard need to emerge, does there need to be a government mandate? I'm just trying to figure out what you think needs to happen to sort of spark-up this reefer business?

Yes, that's a good question. The value proposition is basically -- has two complements to it. One complement is very appealing to the people that town the assets that move the cargo, and that has to do with asset management. Secondarily, important to them is preserving the cargo that they are transporting. But somebody else owns the cargo, and that's the second value proposition to the owner of the cargo, itself.

So dividing then the reasons that people will buy into two categories, the people that own the asset that get return on investment because of the efficiencies of the use of their asset, they use our technology to reduce their cost of operation by understanding tire pressure which is a major factor in transportation in terms of cost of transportation relative to the fuel consumption. And they are secondarily interested in a good reputation, that they preserve the contents of the vehicles that they are running, but that's -- those contents are owned by somebody else.

And the people that own the contents, these are pharmaceutical companies and food companies, they are much more interested in having real-time information about the environment which -- that their products are being transported in. And then that comes into regulatory issues. And even brand issues, preserving brand information, brand quality concern.

So there's -- so the tipping point that you're asking about has to do somewhat with the regulatory side of things, especially in Europe, I think they're ahead of the U.S. relative to these regulatory issues, relative to the quality.

But I think the overall answer that I have for you and I must say that this is to be discovered because I've said earlier we are in the learning phases of understanding what the take-up will be in this technology. But it's my best understanding is that even though this a rather large industry there's an enormous amount of communication amongst the asset owners and even the people that own the products that are being refrigerated.

And so the industry looks to the leaders in that industry as the early adopters to determine the value of proposition. We've gone through tests for a couple of years with the accounts that I've talked about, and they have made the determination that there is a value proposition and, therefore, they have adopted the technology in spite of the economic times. And, of course, everybody faces some pressures in this economic situation that we're in.

So we're encouraged by that fact. Also, we have very strong relationships with Carrier Corporation that understands the refrigeration market exceedingly well, and they basically tell us that there will be a take-up of this what they call Telematics technology at about an 85% level. And so they're telling us that having looked at this market space for over 10 years themselves they feel that they are at a point where we're going to see some uptake in the technology.

Those are all positive comments, but our approach to this is to make sure that we're running a profitable business, because we are in a very strong position. We have the right strategic relationships going.

Our focus, quite frankly, is on quality, to make certain that to say it bluntly that we don't blow the position that we're in right now. We've got some major accounts that are using our technology and are happy with it, and we want to make sure that we do what we did at McDonald's in the early days, and that is make sure that we meet the needs of these early customers so that by reputation we then dominate this market space.

Well, given the level of detail in that color, John, it sounds like you guys are on top of what's happening in the industry. Thanks very much for all that.

And just one more question, for you -- maybe this is for Greg -- I know it's sort of early days for the Subway account, but when I just do some kind of back of the envelope math here, I get that that can be maybe on reasonable assumptions maybe a $10 million revenue account per year eventually, am I sort of in the ballpark there?

Yes, I think it's a long-term relationship. There's 33,000 restaurants out there of which 27,000 are in the U.S. and I think back of the envelope I think your numbers are definitely in the ballpark.

Okay, thank you very much.

You're welcome.

at this time there are no further questions. I would like to turn the call back over to Management for closing remarks.

Okay, thank you, everyone, for joining us this morning, and we're always available for follow-up questions. Thank you.

Thank you for your participation I today's conference. This concludes the presentation. You may now disconnect. Good day.