PAR Technology Corp (PAR) 2009 Q2 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the second-quarter 2009 PAR Technology earnings conference call. My name is Jim and I'll be your operator 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 the conference. (Operator instructions.) As a reminder, this conference is being recorded for replay purposes.

I would like to turn the presentation over to your host for today's call, Mr. Chris Byrnes. Please proceed, sir.

Thank you, Jim. And I'd like to welcome everyone on the call this morning for our second-quarter earnings results 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 World Wide 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 and member of 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 a general Q&A. Greg?

Good morning, everyone. Today I will be presenting the results of PAR's second-quarter ending June 30th, 2009. Revenues for the quarter were $54.5 million, a 4.8% decrease from the $57.2 million reported for the same period a year ago. Net income was $238,000 compared to a net income of $674,000 reported for the same period last year. The earnings per share were $0.02 per share compared to earnings per share of $0.05 reported last year.

Year-to-date revenues were $114.9 million, a 5.1% increase from the $109.3 million reported in 2008. Year-to-date earnings were $485,000 versus a net loss of $71,000 last year for the same period. Year-to-date earnings per share were $0.03 versus breakeven last year. Year-to-date cash flow from operations substantially improved to $6.6 million versus a negative $6.7 million for the same period of 2008.

Now looking at quarterly revenue breakdown, product revenue was $17.2 million, down 17.2% compared to the second quarter of 2008. This decrease was due to slower sales in our luxury hotel, resort, and spa software business and slower sales to specific concepts in restaurants, as rollouts in 2008 were not duplicated in 2009, due to the current economic conditions. Also impacting product revenue was a lower than expected sales through our dealer channel to the independent table-service restaurants.

Service revenue was $19.1 million, up 7.5% compared to the second quarter of last year. Contributing to this increase were services associated with McDonald's combined beverage initiative.

Contract revenue was $18.2 million, down 2.9 million -- 2.9 % -- for the quarter. This decrease was essentially due to timing, certain contracts ending before the commencement of new awarded replacement contracts.

Moving to quarterly margins and expenses, product margins were 33.1% versus 39.2% for the same period last year. Our Springer-Miller luxury hotel, resort and spa software sales have been significantly impacted and our restaurant software sales have slowed due to the current economic conditions. Therefore, software revenue as a percentage of total product revenue was reduced, thereby decreasing margins.

Service margins were 29.8% versus 27.4% for the same period last year. This increase resulted primarily from the improved utilization of our field service and installation resources, and ongoing services associated with McDonald's combined beverage initiative.

Contract margins were basically flat and on plan at 5.4% compared to 5.6% last year.

SG&A expenses for the quarter were $8.6 million versus $8.7 million last year. R&D expenses were $3 million versus $3.9 million last year, a decrease of $900,000. This decrease is due to our use of lower-cost initiatives to satisfy our current and planned product requirements and continued improvements in operational efficiencies.

Now looking at revenue and expense categories for the first six months of 2009, product revenues were basically flat at $37.4 million. Product margins decreased to 34.4% from 41.5% due to the previously mentioned decrease in the percentage of software revenue in our product mix.

Service revenues were up 14.4% to $39 million. Service margins improved by 300 basis points to 28.6%.

Contract revenues were up 2.4% to $38.4 million. Contract margins were essentially flat at 5.2%.

SG&A decreased to 15.9% of revenues. R&D decreased 20.6% to $6.3 million in the first six months of 2009 as we continued to employ lower-cost initiatives to satisfy our requirements.

To recap the quarter, Q2 2009 was a very challenging quarter as the recession's impact upon our hospitality segment continued. The segment's revenues decreased due to two factors -- one, the significant negative impact the recession has had on the business of our four-, five- and six-star luxury hotel, resort, and spa customers; and, two, the slower than planned sales to independent table-service restaurant concepts through our dealer channel.

However, on the positive side, during the second quarter domestic sales to McDonald's continued to be strong as we essentially completed the combined beverage rollout. McDonald's initiated their national coffee advertising program and McDonald's focus and priority began to shift to the new software initiative and the hardware upgrade cycle required by such software. Domestic sales were higher year over year, which we believe to be a very good indicator for the future.

PAR also grew its service revenues and improved its service margins. And our logistics management business continued to enjoy a very positive trend in their results. They completed the rollout of systems to several previously-announced trucking customers, commenced providing various recurring monthly reporting to these customers, and successfully completed -- competed for major new accounts. One large new refrigerated trucking customer, KLLM Transport Services, was formally announced during the quarter.

Government revenues for the quarter were down 2.9%, but up 2.4% year to date. Contract margins for the quarter were within our normal range of 5% to 6%. Our government business will remain a strong foundation for our business, as we continue to grow our pipeline and our current backlog of $102 million.

In summary, with respect to our restaurant business, we continue to observe that the QSR market remains strong in comparison to other restaurant sectors, casual and fine dining, as a result of the value and convenience they consistently offer to the dining public. Despite this strength, we are experiencing a slowdown in purchase decisions by some QSR owners, due to the prolonged recession and the uncertainty in their future business.

However, our customers in the QSR market segment are the largest in the world and their solid business comparatives, along with their international new-store initiatives, should provide PAR with a solid base upon which it can grow. McDonald's and Subway, two of our largest restaurant accounts, lead the restaurant industry by consistently posting outstanding performance results.

Turning to our luxury resort, hotel, and spa business, this business has experienced a sharp decline. Through the first six months of 2009, the broad hotel industry has seen major decreases in the three key metrics -- occupancy rate, average daily room rate, and revenue per available room, while the luxury hotel and resort segment has experienced pressures which actually exceed the broader industry decline. And therefore capital spending for the segment has been severely impacted and new system implementation decisions have been delayed.

As for our government business, we do not believe we will be impacted by the current recessionary threats.

With respect to our logistics management business, we continue to expect more good things to come from this business, as we aggressively expand our customer base. As the market realizes the value proposition associated with real-time use of location and environmental information in both asset management and cargo quality assurance, we are well positioned to take the lead position in this emerging market.

Now I would like to specifically comment on our McDonald's business. PAR's McDonald's business continues to improve from a year ago as our work to roll out the combined beverage initiative is essentially complete. There is a significant opportunity upcoming as the rollout of their new store software application and necessary hardware requirements to host this software takes priority. All indications are that this new initiative will begin to gain momentum by Q4 of this year and accelerate throughout the course of 2010. We are also exploring expanding our efforts to obtain additional penetration globally in countries where we have not traditionally had a significant presence.

In closing, we feel that our company continues to make progress during a very difficult period. We will continue to monitor our expenses closely, remain focused on our core markets and invest intelligently in new products and infrastructure to better position PAR to come out of this recession stronger and more competitive.

This ends my formal remarks and I now would like to move on to the Q&A.

(Operator instructions.) Tony Brenner; Roth Capital Partners.

Thank you. I have two questions. Greg, you talked about lower cost initiatives being responsible for the 20%-plus decline in R&D. What does that mean, "lower cost initiatives"?

Tony, this is Ron. Good morning. Tony, what we've been doing is finding more efficient and less expensive ways to do development of our products and by using some cheaper third-party resources for certain parts of our development effort.

I see. So is this a spending level that one could straight-line now, or are you going back to closer to $4 million a quarter?

I think -- no, we won't be at that $4 million a quarter level, Tony. However, I think in terms of gross dollars, we will be seeing an increase in the second half of the year as certain other new development initiatives kick off and increase. But we won't be at the $4 million level.

[Checking,] a couple of quarters ago Subway became a customer. It's one of the largest chains in the world, nearly all franchised. Is this yet a meaningful part of your revenues or has it kicked in at all? Can you update us on that?

Yes, Tony, we received a very nice large initial order from Subway in the first quarter that we fulfilled in the first quarter. And therefore the second quarter Subway business was not a significant factor. However, beginning in the third quarter we expect to see a nice uptick in that business for the remainder of the year and, of course, beyond.

Thank you.

(Operator instructions.) Vincent Colicchio; [Nova] Financial.

Good morning. Greg, I just want some clarity. I believe you said hardware upgrades will accelerate in the 4Q with McDonald's. Is that accurate?

That's what we're seeing right now, or foreseeing right now. As you know, we've been going through this beverage initiative rollout, or McDonald's has, which requires significant investment on the part of the franchisees. Now they've completed almost all of them. I think there's a couple thousand left they'll be dragging out over the next year essentially. But the remainder have already invested in this new initiative and are now seeing the results of that initiative. As they see a return on their major investment, which was somewhere around $100,000 to $150,000 per store, now the priority shifts from that initiative over to putting in the new software, which was originally going to be a higher priority about two years ago when they first came up with the coffee initiative.

So that is now starting -- we're starting to see signs of that shifting and when this new software starts being put in, which it's already started in some cases, but it will be accelerating, you'll s- --the hardware also has to be changed out in a significant number of these stores. And that offers a significant opportunity to us and Panasonic, who is our competitor. And we'll basically split the market with them as this progresses. Now, we don't see a significant uptick in that area in the third quarter, because I think there's sort of a lull here as people are somewhat digesting the investment they made in the coffee initiative. But we do see it really picking up in the fourth quarter and then really accelerating into next year.

Okay. On the overall quick-service market, I guess excluding McDonald's, do you think the market is -- you said it was relatively strong. Do you think the market contracted sequentially in the Q2 versus 1Q, or do you think that you're losing market share?

I don't think we're losing market share. And I don't know if the market really contracted. I think there's certainly been a slowdown in some of their initiatives to grow new stores, especially internationally. They've slowed that down.

I think the thing that we're seeing, or experiencing, is the fact that we're in a very good position with a lot of our major customers, whether they be Yum, McDonald's, and Subway, and with McDonald's and Subway being the probably the premier two companies that are growing probably the fastest. But the problem is the fact that, although their same-store sales have increased in a lot of cases and they're making money, they're still sitting back and delaying their decisions because they're still somewhat unsure as to what the recession is going to do and how long it's going to continue, and what is going to happen with commodity prices, and what's going to happen in oil prices. So we see these people with additional profits, but yet they're sort of holding on to them right now and slowing their decisions until they feel very, very comfortable with going forward with additional capital investments.

Okay. Thanks, guys.

(Operator instructions.) There are no further questions at this time. This concludes the Q&A session. I would like to turn the call back over to Mr. Chris Byrnes for closing remarks.

Okay. Thank you very much. I want to thank everybody for joining us this morning on the call and certainly we'll be available today for any follow-up questions you might have. Thank you.

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