Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

MICROS Systems (NASDAQ:MCRS)

Q2 2013 Earnings Call

January 24, 2013 4:45 pm ET

Executives

A. L. Giannopoulos - Executive Chairman

Peter J. Rogers - Executive Vice President of Investor Relations & Business Development

Cynthia A. Russo - Chief Financial Officer, Executive Vice President and Principal Accounting officer

Peter A. Altabef - Chief Executive Officer, President and Director

Thomas L. Patz - Executive Vice President of Strategic Initiatives, General Counsel and Corporate Secretary

Analysts

Gil B. Luria - Wedbush Securities Inc., Research Division

Mayank Tandon - Needham & Company, LLC, Research Division

Terrell Frederick Tillman - Raymond James & Associates, Inc., Research Division

Ross MacMillan - Jefferies & Company, Inc., Research Division

Keith M. Housum - Northcoast Research

Bhavan Suri - William Blair & Company L.L.C., Research Division

Daniel R. Perlin - RBC Capital Markets, LLC, Research Division

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Fiscal Year 2013 Second Quarter Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, Thursday, January 24, 2013. I now have the pleasure to turn the call over to Mr. Tom Giannopoulos, Executive Chairman. Please go ahead.

A. L. Giannopoulos

Okay. Thanks, Kim, and good afternoon, everyone. Again, thanks for attending this conference call. This is the Q2 FY 2013 conference call. As we all know by now, our fiscal year goes July through June, as -- this is the second quarter through December of 2012.

With me are Cindy Russo, who is, of course, our CFO; Tom Patz, Legal Counsel and Product -- I mean, Business Development; of course, we have Peter Rogers, EVP of Investor Relations; and last but not least, we have Mr. Peter Altabef, we have to be careful how we say the Altabef, who is, as you know, effective this year, January 1 or 2, he was appointed the new Chief Executive Officer, President and CEO of MICROS Systems Inc., taking over for me that particular job as I march towards retirement.

So we'll begin with Peter Rogers and the disclaimer.

Peter J. Rogers

Thank you, Tom. Good afternoon, ladies and gentlemen. Some of the comments today are forward-looking statements that involve risks and uncertainties, such as uncertainties of product demand and market acceptance, impact of competitor products and pricing on margins, the ability to obtain on acceptable terms the right to incorporate in MICROS products and services, technology patented by others, environmental and health-related events, unanticipated tax liabilities and the effects of terrorist activity and armed conflict.

MICROS undertakes no duty to update any forward-looking statements that conform to actual results or changes in MICROS' expectations. Other risks and uncertainties associated with MICROS’ business are identified in the management's discussion and analysis of financial condition and the results of operations and business investment risk sections of MICROS' SEC filings. Tom?

A. L. Giannopoulos

Thanks, Peter. The financial results, as you can see from the press release, second page there, for the quarter, the December quarter and year-to-date, the first 6 months are excellent and consistent with our internal, external expectations and very encouraging for our future performance considering the global economic conditions.

Again, if you go down the line, revenue, it came in at $324 million, which is an increase of plus 20% over last year, and year-to-date, our revenue stands at $624,371,000, which is an 18.4% -- 18.5% increase over last year's $526,961,000.

Gross margin for the year -- for the quarter was $172 million or 53.1% versus last year's $152,321,000 or 56.33%, which was obviously a very, very good number last year. Gross margin for the 6 months of $325,379,000 or 51.1% and then versus $296,737,000 or 56.31%. The lower gross margin normally is attributed to the acquisition of Torex as their margins are lower than ours and as we reconcile our organization, we'll be in our -- our overall gross margin will be affected by the numbers from Torex.

Going down the line, operating expenses for the quarter were $110 million. This includes -- this is on a GAAP basis, $110 million versus $98 million, a modest increase and consistent with our expectations. And then income from operations came in at $61,591,000, this is on a GAAP basis, and net income of $44 million versus $38 million. If you go down the line and adjusted numbers for the GAAP non-GAAP basis, our net income increased by 11.6% from $42 million to $46 million over the quarter. Over the first 6 months, a 14.7% increase from $81 million to $93 million, and then the EPS increased by 13.73% for the quarter from $0.51 to $0.58 and then plus 15.1% -- 15% from $0.99 to $1.14.

Overall, a very excellent performance as far as the numbers are concerned. And then I will ask Cindy to read -- to go over the rest of the numbers from the balance sheet.

Cynthia A. Russo

Thanks, Tom. The highlights of the balance sheet for the quarter are as follows. Cash on hand at December 31, 2012, totaled $637.4 million, an increase of $21.8 million over the previous quarter or $62 million excluding the repurchase of common stock. During the second quarter, we purchased a total of 920,000 shares at an average price of $43.70 per share. Thus far in Q3, MICROS has repurchase an additional 225,000 shares of common stock for $9.7 million.

I am pleased to announce that the MICROS Board of Directors has approved a new buyback plan. The company has received the authorization to purchase an additional 2 million shares. The total shares available to purchase stand at 2.2 million as of today's call.

Moving to the cash flow statement. In the second quarter of fiscal 2013, MICROS generated a free cash flow of $37.4 million, a 39% increase over the same period last year. As I will elaborate shortly, much of this success is due to the decrease in our accounts receivable balance. Year-to-date, the company has generated $65.7 million from operating activities while spending $23.3 million on the net purchases of investments.

During the 6-month period, the company capitalized $2.2 million in internally developed software costs and expended $10 million on property, plant and equipment primarily related to the continued expansions and redundancy of our global data centers.

Finally, the company received $6.1 million on the exercise of stock options and the related tax benefits. MICROS cash split by segment stands at U.S. and Canada, 58%; international, 42%. Day sales outstanding at quarter end were 59.8 days, consisting of international DSOs at 69.8 days and U.S., Canada day sales outstanding of 43.2.

Net inventory on hand at December 31 totaled $52.7 million. The $3.9 million over -- increase over Q1 represents licenses and hardware purchased to support the back half of fiscal 2013 as well as inventory procured for specific customer global roll out. Inventory turns in the period were 9.3, in line with last year's Q2 record of 9.5.

The combined current and long-term deferred revenue balance of $167.8 million has increased $26.6 million or 19% over last year. As we stated earlier this fiscal year, we have enacted a 2% maintenance increase domestically beginning January 1 with a slightly larger increase internationally. The impact of this escalation would not yet be included in any of the 2Q financials.

Turning to the income statement. We will continue to give Torex results separately from MICROS for the remainder of the fiscal year. However, as we continue down the road of product, infrastructure and sales team integration, we will no longer be able to extrapolate such results.

On a constant currency basis, MICROS Q2 sales increased 20.4% year-over-year, affected by a foreign exchange decrease announcing to $917,000. Year-to-date, foreign exchange has decreased as reported revenues by $9.1 million or $0.02 per share.

The subsidiary formerly known as Torex Retail, produced revenues of $48 million for the quarter and $96 million year-to-date. Pre-acquisition, constant currency revenues increased 2.6% and 2%, respectively over this timeframe. The revenue split by segment for the quarter was U.S. Canada, 39%; international, 61%.

In addition to our strong software performance, total recurring revenues in the 3-month period increased 33% from the prior year to $142.6 million. The staff and hosting portion of recurring revenues grew nearly 30% over the parallel quarter to $23.5 million or $43 million year-to-date.

MICROS finished the financial period with company gross margins of 53.1%, up 200 basis points from last quarter's 51.1%, resulting from a normalized product mix and the company's ForEx assimilation strategies. Research and development continued throughout all of our markets and verticals, with net expenses increasing 44% over Q2 2012 and 7% over the previous quarter. MICROS is currently capitalizing innovative and next-generation products in retail, restaurants and hotels.

Total operating expenses as a percentage of revenue in Q2 were down 290 basis points over the comparable period as we continue to monitor our costs. The company continues to budget full year OpEx at normalized levels near the 32% to 33% mark. Nonoperating income for the quarter was $0.5 million. This figure includes $1.2 million in interest income offset by a $0.1 million in interest expense.

The currency loss this quarter amounted to $600,000. From a GAAP perspective, MICROS has sold 5 of the 6 auction rate securities held as of our last release. As a result of these sales, the company recognized a gain of approximately $4.1 million. An offsetting $600,000 impairment has been taken on the remaining security which is expected to settle in the coming months.

Looking to the tax rate, the Q2 non-GAAP tax rate of 33.5% is in line with expectations and slightly higher than the prior year due to the global earnings mix. For forward taxing purposes, as the company was able to derive the statute expiration debt benefit, typically seen in our third quarter in our Q1 financials, I would forecast a Q3 tax rate of 30% to 31%.

Finally, as we discussed last quarter, I will continue to forecast an effective GAAP and non-GAAP full year tax rate of approximately 28% to 29%, which could be impacted by certain proposed but not yet enacted tax law changes in selected international jurisdictions. Further details and disclosures can be found in the MICROS' 10-Q, which will be filed no later than tomorrow, Friday, the 25th. Tom?

A. L. Giannopoulos

Okay. Thanks, Cindy. As far as the next 2 quarters are concerned, as the end of the year guidance, I think it's appropriate at this time to introduce again Peter Altabef and have him make a couple of statements in regards to the future. Peter?

Peter A. Altabef

Thank you, Tom, and good afternoon to everyone on the call. It is a privilege to speak to you as President and CEO of MICROS, building on the 20-year record of growth, which Tom Giannopoulos and the MICROS team have created. Looking at the quarterly results, I'm pleased to see good growth in our software license sales and SaaS revenue. Software applications sold as a license or in a Software-as-a-Service hosted model are core drivers of our businesses. Growth in these product lines support the sales of our MICROS hardware and related services.

Looking forward, my initial efforts will be focused on growing revenue and on product development. In terms of sales, we will be looking to successfully close sales opportunities with global chains in all 3 of our market verticals: Hotels, restaurants and retail.

Specific to product development, speed to market, especially in the areas of mobility solutions, product innovation, business analytics and SaaS services, will be of prime importance. The additional functionality we are adding to our platforms across all 3 verticals will help drive sales and enhance value to our clients. Yes, we have macroeconomic challenges in 2 of our largest markets, North America and Europe, Africa, Middle East. With that said, we need to enhance our marketing and selling efforts and increase our market share. We are reiterating our guidance for fiscal year 2013 for revenue of between $1.3 billion and $1.325 billion and non-GAAP EPS of between $2.40 and $2.44. Tom?

A. L. Giannopoulos

Okay. Thanks, Peter, and Kim, we'll take questions now, please.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from the line of Gil Luria from Wedbush Securities.

Gil B. Luria - Wedbush Securities Inc., Research Division

Wanted to get a sense for the second half of the year. Obviously, you don't provide quarterly guidance. But based on the first half and your annual guidance, it appears that you're guiding for high single digit organic growth for the second half of your fiscal year. Can you give us a little bit of a sense about the breakout between Q3 and Q4? Is the seasonality in the growth trends going to be similar to last year? Or is it going to be an acceleration from your fiscal second quarter to the third and then an acceleration to the fiscal third to the fiscal fourth?

Peter J. Rogers

In Q3, we will see an increase over Q2. It runs somewhere generally about $8 million to $10 million historically in terms Q3 being above Q2. And then clearly in Q4, it ramps up, which is pretty significant, somewhere in the range of about $30 million over Q3. Remind people that's the kind of a fiscal year from the northern hemisphere, it's just naturally our strongest quarter, with a significant amount of installations plus we're off to replace in year end.

Gil B. Luria - Wedbush Securities Inc., Research Division

Got it. And then for Torex, thank you for the revenue. Is there -- are you -- we have $48 million first quarter, $48 million second quarter. Is that the expectation that will, at least for the kind of short term, next couple of quarters, be relatively close to that? And then could you also tell us what the operating income contribution was from Torex?

Cynthia A. Russo

I would expect very similar revenue for the next -- for the remainder of the year. And I'm sorry, your second question was operating margins, is that correct?

Gil B. Luria - Wedbush Securities Inc., Research Division

For Torex in the fiscal second quarter.

Cynthia A. Russo

Approximately $0.5 million.

Gil B. Luria - Wedbush Securities Inc., Research Division

And then last one, the small one, could you repeat what the currency impact on revenue was for the quarter?

Cynthia A. Russo

Impact for the quarter was $917,000.

Gil B. Luria - Wedbush Securities Inc., Research Division

A benefit or a drag?

Cynthia A. Russo

Drag.

Operator

Our next question is from the line of Mayank Tandon with Needham.

Mayank Tandon - Needham & Company, LLC, Research Division

Tom and Peter, could you give us some sense in terms of how the 3 verticals performed in the quarter? And what are your expectations across them as we look forward over the next 2 quarters?

Peter J. Rogers

Mayank, I don't see what the exact number is for the verticals because it's sometimes hard to be precise because of this year's certain product line, but all 3 verticals grew as did our geographies. So it's actually very good quarter from that perspective. Right now, I think if you look at our split, restaurants and hotels are practically 37% each and retail reflecting the Torex acquisition is now 26%. It's part of that long-term plan to get retail up for some of the business, so we're really moving in that target.

Peter A. Altabef

In terms of the product line going forward, we have updates and new functionality across all 3 of those verticals and so we are optimistic about growth potential on all 3 verticals.

Mayank Tandon - Needham & Company, LLC, Research Division

So is it fair to say that's the growth over the next 2 quarters? As you ramp organic growth, it will be pretty evenly spread across the 3 verticals?

Peter J. Rogers

We're expecting all 3 verticals to grow.

Mayank Tandon - Needham & Company, LLC, Research Division

Excellent. And then Cindy, just to clarify, I think you said 2.6% was the constant currency organic growth and 2% was the organic growth including currency, am I correct?

Cynthia A. Russo

2.6% is constant currency for the quarter. 2% was constant currency on a year-to-date basis.

Mayank Tandon - Needham & Company, LLC, Research Division

Got it. Okay. And then one last question. You saw a nice uptick in software license sales, maybe you could just give us some sense in terms of what drove that momentum, and how should be that be spending as we look ahead into the second half of the fiscal year?

Cynthia A. Russo

Software growth was nice on all verticals. Retail was primarily the main driver on the software side.

Peter A. Altabef

This is Peter. Going forward, obviously, as I indicated in my comments, we're very focused on both software and SaaS revenue because it really is the leading edge of our sword, and hardware and other services will all follow. But we're going to be focusing on both software license revenue and SaaS.

Mayank Tandon - Needham & Company, LLC, Research Division

So for this building down further into that 12% growth in the software license line item, was that all organic or was there a contribution from Torex as well?

Cynthia A. Russo

The contribution for Torex was up $2.8 million.

Operator

Our next question is from the line of Terry Tillman with Raymond James.

Terrell Frederick Tillman - Raymond James & Associates, Inc., Research Division

I did want to follow-up to some of the previous questions on -- particularly on the software side, but just the overall business as well. Maybe just drill further into the 3 verticals in terms of -- any of them feel like there was an inflection point or anything that seemed a little bit more surprising in terms of maybe any demand perking up and/or just improved close rates or willingness to go forward with projects, any of your 3 major verticals stand out there?

A. L. Giannopoulos

You -- I think you answered the question yourself. The bottom line here is that all 3 represent basically the business cycle around the world. The -- if you look what's happening in the hotel sector, they're delaying major purchases of the IT technology as far as they can do, and we're hopeful that, that's going to end sometime even in this particular quarter. On the restaurant side, we see activity on the -- what we call street business, the low end of the spectrum as far as that vertical is concerned. And the major upgrades or major updates or major changes in those products have not really happened. And of course, that's good as long as you survive like we had survived profitably, and then we can change that into a revenue growth because of the pent-up demand that you have. On the retail side, you have a little bit more activity, especially because of the telephones and the mobile devices and mobile activities and -- so it's consistent with what we have said before, and Tom Patz is the -- wants to...

Thomas L. Patz

Well, Terry, let me just note this one other thing. Looking at the numbers, MICROS retail had its best quarter ever. And in the quarter, we signed 6 major retailers. It also had a terrific show at NRF last week, many new and promising leads. I should note that most of this 6 -- 5 of the 6 have a global footprint. And the products that we sold as part of that included Xstore, which, of course, is our flagship POS; Relate, which is our CRM and loyalty application; and XBR, which is our loss prevention product. Additionally, as Tom just noted, out of the 6, 5 also embraced what we call the miStore product, which is our mobile POS application.

Terrell Frederick Tillman - Raymond James & Associates, Inc., Research Division

I guess just another question related to you talking about product cycles, can you guys remind us, did you or are you about to deliver or release the multi-tenant version of Simphony? And maybe any update on that beyond the success you've had with Starbucks and whether it's just pipeline commentary, and/or any other successes or milestones that we should look for in Simphony near-term?

Peter A. Altabef

Sure. With respect to Simphony, the multi-tenant version is expected to rollout within a few months. So it is very, very close to delivery. With respect to some of the mobile applications, those are also continuing to rollout. Our Xstore product which is already, I would characterize as very mobile-savvy, is entering into a brand-new release in the next several months which will be even more mobile-savvy. On the hardware side, we are releasing both updated applications to run on third-party tablets as well as our own tablet which is hardened for use really across the verticals, and I think you've already heard some of that. So we're going to be offering those hardware solutions that are industry-specific as well as on third-party platforms. There's really a lot going on in all 3 verticals, frankly, over the next 3 months.

Terrell Frederick Tillman - Raymond James & Associates, Inc., Research Division

And I guess Peter, as the CEO, I have a question -- another question for you and then I'll stop. In terms of -- I'd like to get your perspective since you're now on the job here in terms of embracing the cloud. I mean, I think for investors and us analysts, I'd like to get your perspective on is this a more gradual potential development or could it be more rapidly in terms of how it materializes? Because it does have significant revenue and EPS implications. So maybe help us -- give us your perspective on how cloud starts to affect the model?

Peter A. Altabef

First thing I would say is there's more cloud here than you might expect. The cloud, and by cloud, I'm really referring to our SaaS-hosted revenue. So SaaS-hosted revenue has increased markedly over the past couple of years, interestingly, really doing it across all 3 verticals. And in terms of our future rollout, we're just doubling down on that. Ultimately, it's really up to our clients to decide whether they want to use a license approach or a SaaS approach. We're going to continue to offer both. But we think that there are real advantages to a SaaS business from our standpoint. Yes, the revenue doesn't come upfront in the same respect as a license, but it ramps up, and I think there's advantage to ramping. In terms of the recurring revenues, we are marching quarter-on-quarter to a succession of all-time highs in terms of our percentage of recurring revenues. I think, Cindy, it's up to 44% now?

Cynthia A. Russo

30% -- 33%.

Peter A. Altabef

33%. Okay. Well, I apologize for the wrong number. But it's expanding and we expect that to continue to expand. And I think that's a good model for us. But I guess what I would say to you is, yes, we're fully embracing the pilot, but partially, that's not new here. We're going to focus on telling the story and we're going to focus on enhancing the story.

Operator

Your next question is from the line of Ross MacMillan with Jefferies.

Cynthia A. Russo

I just want to clarify -- I'm sorry, I thought Peter was talking about the growth. He was talking about the overall percentage, and Peter was correct at 43%.

Ross MacMillan - Jefferies & Company, Inc., Research Division

Maybe I could just drill down into -- on the recurring revenues, this quarter, it seemed to be another sort of reacceleration of the SaaS revenue. I think it grew 30% this quarter, and last quarter it had decelerated a little bit. So I was just wondering if there's some dynamic to this? Are you changing go-to-market? Are you pushing Simphony and other SaaS solutions more aggressively? Just trying to understand the variability that we've seen in the growth on that SaaS revenue line?

A. L. Giannopoulos

The answer to this is very simple. Those customers of ours that we go non-SaaS, let's say on-premise and so forth, are not really purchasing equipment at this particular time, they have delayed it. And as a result, what you see is instead of getting the license revenue upfront, you see customers that want a SaaS subscription model, let's say, of revenue this way. Instead of paying $30,000 or $50,000 for a system upfront, they only pay whatever the ratio is and continue to pay over X number of months. This is what I have said over and over again, this is not inconsistent with the business being had by the low end of the market rather than the high end of the market. At the high end of the market, the potential customers would we buying on-premise, they would be buying a selection, let's say, of systems rather than -- and because they can afford it.

Peter A. Altabef

And I would emphasize the word selection. So we are actually giving and it's our intent to give a choice across the product spectrum, across the verticals. And we are seeing large customers choose both. We're seeing large customers choose the licensing model and we're seeing large customers choose the SaaS model, and I expect they will continue to. Our job is to provide a compelling value proposition for each.

Cynthia A. Russo

If you look at the individual growth over all the products, in the 30%, it is across all the products this quarter. You'll see also, as we talked about before, the expectation of the 25% to 30% growth that we talked about in previous quarters is still on target for this fiscal year.

Ross MacMillan - Jefferies & Company, Inc., Research Division

That's helpful. I actually had a question on the consulting line, not that it's that material for profitability, but it's grown pretty materially this quarter compared to last quarter. And I guess that I -- I guess just I don't understand what would have driven that big swing in the consulting revenue line sequentially?

Peter A. Altabef

I'll take that, Ross. Just for the, I think, the audience, I think Ross is defining you take service, deduct maintenance recurring revenue, let's call them consulting. That's really a whole range of services. But a key under that other service lines really are installation labor either on-site or labor down remotely. And that's really just a reflection of increased activity and that's good news. More installations, the more labor we're expending on behalf of the customer's due in installing the systems to operate the platforms, that's the key driver.

Ross MacMillan - Jefferies & Company, Inc., Research Division

Okay. And then maybe just a last one, just so I understand how you're thinking about Torex. I guess, 2 questions. One is was there any material change in the revenue mix within Torex this quarter compared to last? And then secondly, is that $48 million number we've seen for the last couple of quarters a reasonable assumption as we think about the performance of Torex into Q3 and Q4?

A. L. Giannopoulos

Okay. Q3 and Q4, we've already answered by saying yes and...

Cynthia A. Russo

The revenue mix modified slightly this quarter compared to last quarter, there is more software revenue, slightly less hardware revenue and a larger service revenue base, so it's almost 72% of their revenue this quarter is in the service.

Operator

Our next question is from the line of Keith Housum with Northcoast Research.

Keith M. Housum - Northcoast Research

But my question, I did happen to miss Gil's question in terms of the operating margins from Torex, do you ever mind repeating in that?

Cynthia A. Russo

So you want the total -- the margin by -- okay. So the total product margin this quarter did increase up to 39.2%. Last quarter, we stated it was 32%.

Keith M. Housum - Northcoast Research

Okay. Great, thanks. And then with the organic growth being 2.6 on a constant currency basis, can you guys rank the growth by the verticals, like which one was best, which one was the worst? I heard you say that Retail was best, but is it -- retail had its best quarter ever, but that was excluding the Torex expedition acquisition?

Peter A. Altabef

As I said, I don't break out the specific vertical, but yes, retail had one of its best quarters ever, even when you've taken out Torex. Especially driven by North America having an outstanding quarter, as Tom Patz said, in a number of contract signings. As Tom said, 6 major retailers. So I would say clearly, retail was the best. Hotel actually had a pretty good quarter, it was second, then restaurants was third. Somewhat need it clearly because of recession, but we still continue to see in Europe. And even in the U.S., the channels are up but it's still somewhat constrained in terms of capital spending in restaurants and really, the last half of calendar year '12. Activity is very strong but.

Keith M. Housum - Northcoast Research

Okay. And then finally, the rollout of project Vienna. Do you guys have a date for when you guys plan on rolling that out?

Peter A. Altabef

As I indicated on the comments, we're very excited about it. It shouldn't strike anyone as a surprise, by the way. The fact that tablet formats are out there and widely available, this company has made customized industry-specific hardware forever and this has just been another example of that but we are expecting that to rollout certainly in the first half of this calendar year.

Operator

Our next question is from the line of Bhavan Suri with William Blair & Company.

Bhavan Suri - William Blair & Company L.L.C., Research Division

Just the first one, Europe seemed to be doing okay given sort of all the macro issues there. Just any sense -- I know, Peter, you commented on even the restaurant business there being okay and hotels were reasonable. Are you seeing a more steady pick up there? Or was there sort of onetime things that happened there with certain clients? Just a little more color on that.

Peter A. Altabef

Yes, for me, EMEA actually had -- though EMEA was slightly down December year-to-year excluding Torex, we did see a pickup, clearly, over the September quarter. I mean, first of all the September quarter, remember a lot of those country's are on vacation for 6 to 8 weeks, so but Europe did pick up. But I also want to emphasize that our best growth is really Asia Pacific had an outstanding quarter, as did Latin America. So yes, EMEA has improved slightly down from last year, but both Latin America and Asia-Pacific had growth rates in the mid-double digits.

Bhavan Suri - William Blair & Company L.L.C., Research Division

And I know you don't really break it out, but any sense on sort of exposure there? And when you're selling there, is it just the large hotel chains and the large retail, or are you starting to penetrate the local businesses there, too?

Peter A. Altabef

Oh, great question. We're actually been -- for 20 years, they're actually going to 25 years-plus, we did work from the high-end large down to the smaller restaurant chains and hotels. And I would say when you look at our hotel base, 30% of our hotel installations are outside the U.S. So it's really across the board out of Europe. But just from out of southern Europe I think just creates this tail overall concern just causes chains, even individuals, to be somewhat constrained in capital spending. And the platforms are so good that people will differ upgrades for a definite period time because of the durability.

A. L. Giannopoulos

The latest reports on Europe basically are very simple. Last week or the week before last, they were really worrying about imploding and not really having a Eurozone, but they have settled this and now, they're talking about growth again. And that's where we are and that's encouraging news as far as that region is concerned. But still, we still have to understand that they have high unemployment and that they have much reduced GDP growth. Our positive strength is that the majority of the hotel chains that were talking about and the majority of the restaurant chains we're talking about are located in the States and they have good plans for expanding their presence in Europe as we go forward.

Bhavan Suri - William Blair & Company L.L.C., Research Division

Okay. And then you did a roadshow over the last, I guess, couple of weeks with resellers showing them some of the new products and things like that. I guess as you look at project Vienna, which I assume you showed to those folks, just what was the interest there and sort of how do you think that replacement cycle of the existing POS with Vienna happens even if you simplified it with an existing customer with 10 terminals, replace them with Vienna? Just -- if you could help us understand how that might impact the revenue from that customer?

Peter A. Altabef

I guess the first comment on that is we've had a lot of interest in it and a lot of excitement, both across the board from our teams, as well as the dealer network. And secondly is, it is -- it complements the existing platforms. So it doesn't have to replace the existing platforms. So if someone wants to add that mobility and both by the way indoors and outdoors, from a visibility standpoint, they can add that mobility to the existing setup and framework. And we think that's actually very important. We're not asking people to have to replace existing systems, we're asking them to consider enhancing them. And we think that's going to be very effective.

Bhavan Suri - William Blair & Company L.L.C., Research Division

And I think that makes sense Peter, but I guess my question is if you are at the end of your 10-, 12-year cycle and you look at replacements, at least the tablet, the Vienna gives you all the functionality and have that factor that you can slip it out of the case, carry it around, there's sort of a coolness factor to it as well as a functionality factor. So if you were to get to that replacement cycle and you would replace those 10 systems with Vienna, sort of how do you guys think about that?

Peter A. Altabef

We're excited about it. But it's -- until it's out there and we see exactly how quickly the market embraces it, we're going to wait to see what the growth from that will be. But we think it's an excellent product and we're excited about it.

Bhavan Suri - William Blair & Company L.L.C., Research Division

Great. And then one quick one. Just you guys are talking about consolidating some of Torex's product lines, maybe eliminating a couple, that may not be as effective. Just some sense of what impact that has to Torex's revenue as you think through that plan over the next 6 to 12 months?

Thomas L. Patz

We -- this is Tom Patz. We've actually spent a lot of time, especially over the last 2 months, focusing on the product portfolio and rationalizing our North American portfolio with the Torex portfolio. We are mapping those products we will bundle and invest heavily in. And our customers have been involved in this process as well. One of the key drivers, obviously, of the Torex acquisition was the rounding out of our Retail Technology portfolio, and this has actually been largely accomplished. So where we are right now, and we're about halfway through the whole process. And then articulating the strategy to the entire customer base is -- most of the products remain -- a few of the legacy products will be discontinued and some of the Torex products are now going to be introduced here in North America. And Torex has, with open arms, embraced some of the North American products, which it's now starting to introduce internationally. So far, so good.

Peter A. Altabef

And the only thing I would add to that is the team here has done a terrific job. And by the team, I mean, the historic MICROS and the historic Torex team on this integration. It's a major acquisition for the company. There's still a lot of work to be done. But the teams have done extremely well, and from a marketing branding standpoint, the Torex name which we've used on this call, has actually now been sunset and we're using MICROS across-the-board. That was actually embraced by the Torex team members themselves because they know going forward, from a marketing standpoint, this is the brand that we're rallying around. So I'm very pleased with what I have seen and the conversations I've had from this team.

Bhavan Suri - William Blair & Company L.L.C., Research Division

So would it be fair to say that you don't really expect any material negative impact to Torex's revenue stream from the rationalization process?

Thomas L. Patz

That is correct.

Operator

In the interest of time, our last question for today is from the line of Dan Perlin with RBC Capital Markets.

Daniel R. Perlin - RBC Capital Markets, LLC, Research Division

So I had a couple questions. But first, if I could start with Peter Altabef. You talked about product development and you listed a very long kind of list of ideas. Sometimes we worry about that as kind of leaning heavy into the investment side and I wanted to get your thoughts about how you think about that strategically marrying the opportunity to go to market quickly, but also maintaining the margin profile of the company today over the next, call it, 6 to 12 months.

Peter A. Altabef

The answer is yes. And I -- that's absolutely true. You always have to do both and this is never -- you can't sacrifice long-term for short-term or vice versa and we don't intend to sacrifice either.

Daniel R. Perlin - RBC Capital Markets, LLC, Research Division

Okay. The strategy around gaining incremental share to help drive revenue growth, would you consider sharing a little bit more on how you are thinking about that as well?

Peter A. Altabef

Well, I want to just emphasize, I listed that as well as the product as my initial emphasis, and I have been here 3 weeks. And a lot of my time in the last 3 weeks has been understanding where the near-end sales opportunities are, what the teams are driving, doing with loss analyses. We are and we'll remain very committed to driving and closing sales. And I really think after 3 weeks, that's pretty much all I can say about the subject other than there's a lot of activity.

Daniel R. Perlin - RBC Capital Markets, LLC, Research Division

Okay. Can you just also -- and I'll leave you alone after this. Can you just talk about how you are thinking about capital allocation? I mean, I understand you've been here 3 weeks, but usually there's a little bit more of a philosophical view point that you're bringing with that and you've got a balance sheet that's welcoming you, I'm sure, with open arms and a fair bit of capital on the cash side, and I know you're leaning in now with a little bit of harder share repurchase programs. So I would, again, just like to get their views how you think about capital redeployment.

Peter A. Altabef

Well, I think the company has been very careful and appropriately so, in the way it has handled capital. There has been an active share repurchase program. I think the company has handled it very well. You saw today that we have now effectively redoubled that share repurchase program, so we have the ability to do that going forward. I think we'll handle it going forward and with the same methodology we have in the past. With respect to use of capital for mergers and acquisitions, you implied the company has also historically done those. And the company has had a history of mergers and acquisitions when it was appropriate to do it, it hasn't felt forced to do it or do it unless it thought it was the right opportunity. And I think we have exactly the same philosophy going forward. So you know I will tell you, we do have a good balance sheet. I think the company is very proud of that balance sheet. And we will -- we understand that we have a responsibility to use it carefully.

A. L. Giannopoulos

And as I have said before, unfortunately or fortunately, it doesn't matter. The cash doesn't all reside in one area. The cash resides in -- around the world, and until the government allows us to repatriate that cash back here, and to use for a dividend payout or something like that, we'll continue to look at acquisitions in the areas where the cash is like we did with Torex, and that's the way it works. So the capital allocation is basically stock buyback program, mergers, mostly acquisitions, and then save the rest of it for a rainy day.

Daniel R. Perlin - RBC Capital Markets, LLC, Research Division

Understood. And then on these large 6 new major retailers, 5 of the global footprint, I just wanted to get an understanding and if you find it in the quarter, does that mean that all of the revenue is recognized in this quarter? Or is that something that we should really expect to continue throughout the other quarters?

Thomas L. Patz

No, Dan. Dan, Tom Patz. No, those have not been recognized in the quarter and that's the beauty of some of these contracts. As you know, in the retail arena, there's a large element of professional services and consultation. We're in the process of providing those, and we also have to do some modifications to the software as is typical in this space. And once it's accepted by the customer, the modified software, then that's recognized. That will be recognized over the next 4 to 6 quarters.

Daniel R. Perlin - RBC Capital Markets, LLC, Research Division

Excellent. I just want to make sure that it wasn't just all in retail on the software side. And then just lastly and then I'll jump off, Cindy, how are you thinking about the visibility in the second half of '13 relative to what you had going into the first half of your fiscal year?

Cynthia A. Russo

The visibility? I mean, we're still reiterating our forecast. We feel very strongly with our forecast. And we have a lot of visibility and everything is progressing very nicely.

A. L. Giannopoulos

Are we all done?

Operator

We are. Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines. Have a good day, everyone.

A. L. Giannopoulos

Thank you.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: MICROS Systems Management Discusses Q2 2013 Results - Earnings Call Transcript
This Transcript
All Transcripts