Radiant Systems, Inc. Q4 2008 Earnings Call Transcript

Feb.24.09 | About: NCR Corporation (NCR)

Radiant Systems, Inc. (RADS) Q4 2008 Earnings Call Transcript February 24, 2009 4:30 PM ET

Executives

John Heyman – Director, CEO

Mark Haidet – CFO

Andy Heyman – COO and President, Hospitality Division

Alon Goren - Chairman and Chief Technology Officer

Analysts

Terry Tillman - Raymond James

Chad Bennett - Northland Securities

Scott Stevens - Strata Capital

Brian Murphy - Sidoti & Co.

Gil Luria - Wedbush

Vincent Colicchio - Noble Financial

Operator

Ladies and gentlemen good day and welcome to the Radiant Systems fourth quarter earnings release conference call. At this time, I would like to turn the conference over to your host, Mr. John Heyman. Please go ahead sir.

John Heyman

Peter thank you very and thanks to everybody for joining us this afternoon. With me here today are Mark Haidet, our Chief Financial Officer, Andy Heyman, our Chief Operating Officer and Alon Goren and our Chairman and Chief Technology Officer. Before we get started I am going to let Mark read the forward looking caveats.

Mark Haidet

As always, certain statements contained in this conference call are forward-looking statements within the meaning of the Securities Act of 1995, such as statements relating to financial results and plans for future business development activities, and are thus prospective. Investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, many of which are beyond the company's ability to control. These risks are detailed in our most recent 10-K filed with the Securities and Exchange Commission.

During this call, we will also discuss certain non-GAAP financial measures. Reconciliation of these financial measures to comparable GAAP financial measures can be found in our earnings release and on our website at www.radiantsystems.com under Investor Relations.

Mark thanks a lot.

John Heyman

So much is changed in the world since October. Radiant has not stood still during this times and I had like to take this opportunity this afternoon to add more clarity about our business for each of you. Hopefully you will gain the same comfort and confidence I have in the business but in terms of our fourth quarter performance and our strong position for the future. Before I start let me first thank every single one of our employees.

The past few months had been tough on virtually all businesses and our people. Our employees have held their heads high, are working even harder to serve our customers and partners and had made sacrifices on behalf of the Company and share holders. Words can not express enough my gratitude towards each of them.

Here are some highlights for our quarter. Revenues despite the negative impact of currency fluctuations grew 7% versus last year. Excluding the negative impact of currency fluctuations, revenues were in line with guidance, our hospitality business to continue each strong growth up 4% from last year primarily due to the strength of our quick service restaurant business. Our convenience store business posted its strongest quarter for the year as this industry has benefited from lower oil prices. Our stadium and entertainment business had a record year. Specialty retail performed well given the environment turning in its second best revenue quarter ever. Our recurring revenues, foundational element of our operating model grew 44% from last year. In the quarter they represented over 40% of our revenues up significantly from 30% in the same period of last year and the strength of the fourth quarter led Radiant to its most successful year ever with revenues of over $300 million up 19% from 2007 and operating income growth from the prior year of 15% over $36 million on an adjusted basis.

For the quarter cash flow from operations totaled $6.4 million additionally DSS where in a low for the year at in industry best 54 days and especially impressive given this climate. This all netted out to an adjusted EPS that exceeded our guidance coming in at $0.19 due to lower cost and a lower cash tax rate.

If I take a step back to fourth quarter really tells two different stories. It was probably the biggest quarter ever in terms of wins and improvements to our pipeline. These wins included high profile wins such as Yankee Stadium and our selection by a multi-thousand site quick service restaurant chain which represents well over $75 million of business over the next few years. Other wins appear imminent as operators looked to improve the operating efficiency of their sites. Companies are buying out there, in fact just last week we signed a $7 million contract with a new customer to upgrade the restaurant systems but it is also no secret that some of our markets are suffering. So we saw deferrals from certain chains and a weakening in across our channel businesses. Traffic is down and consumer spending is down. Credit is tight etcetera. These challenges to all our industries translate to fewer sites opening and more closings than we have ever seen.

Some markets are still doing quite well. For instance quick service restaurants are continuing to perform well and convenience store businesses increased their investments in our solution in the fourth quarter. There is intense interest on behalf of all operators to improved efficiencies in their site whether it be the reduced labor cost, better managed working capital and food cost, eliminate fraud and theft, run their kitchens more efficiently and bringing new guest as weaker chains shut their stores.

Recognizing that they must continue to serve their customer better, leading operators are trying to reach the consumers in new ways, such as the web ordering applications being implemented by Chipotle and P.F. Chang. Of course those needs did very well without product line. In fact we have brought a number of new products to market and their helping fuel demand even in this environment Also our subscription products especially in this climate are in a high demand and we anticipate a continued revenue shift in this climate. Despites the wins we had during the quarter as we prepare our selves for uncertainty in the markets, we are taking a very conservative view of our revenues in 2009.

We have two goals in this economic climate. One, we want to insure we build an even stronger financial foundation in terms of cash flow, predictability of our business model and our balance sheets and two we want to strengthen our competitive position to continued focus on customer satisfaction and existing strategic product in marketing initiatives. To translate this, how it was sinking into our budgets let me make a few comment.

One, we are taking a very conservative view to our revenues based largely on our recurring revenues, our existing contracts, highly reduced channel run rates, affected industries etcetera. Two we have implemented significant cost reductions across the business to accommodate this conservatism with the goals I have mentioned earlier. Three, we have got a meaningful amount of variable cost in our budget which provides us with cushion around our operating income targets.

Given this budget philosophy, we have made the following adjustments to our cost structure already. We have reduced headcount and contractors by approximately 10% in lower value areas and areas that we have been able to drive synergies from acquisition. Two we reduced non-payrolls spending by over $5 million. We have implemented three salary freezes across the Company and finally fourth we eliminated the Company 401-K match which saved us over $2 million.

Mark will speak to the guidance in the most conservative outlooks, we can not promise growth in this environment. Growth is certainly possible, however were just not going to plan on it today. However we can commit to 2009 being a very strong year of earnings for the Company and it may yet be our best year regardless we intend to meet our goals while creating a more efficient and predictable profit machine when growth resumes, and let me take a few minutes to talk about growth because there are a lot of exciting things out there.

First of all, we have our largest pool of contracts and pipeline in the Company’s history, sitting in our direct clients at business. Some industries are more resilient than others. As we planned the year, we have excluded a higher percentage than ever before to conservatively take into account the risks associated with this climate. Q4 certainly was impacted by the pessimism in the overall economy and slower site openings. For Q1 we have planned even more conservatively than Q4 and that method was used for each successive quarter in 2009 and our planning process.

Second, our recurring revenue grows within the calendar year typically by more than $5 million. We view this revenue as a source we are highly confident in and can already point to high renewal rates as evidence this confidence is well placed.

Three, we are winning out there. Our investments lineup well with the industry’s needs, and while we are planning for a little upside in the business, we do have identified opportunities in hand. Customers are budgeting investments and we are working with each of them to ensure each project is carefully planned. However, we are not going to count on something if it is uncertain. The good news is there are several new products we sell, which perform functions’ customers already are spending on with other providers. With our high customer sat levels many of these customers are happy to move their spending over to Radiant and we are very fortunate to be in such a position.

Finally, our strength in recurring revenues, customer satisfaction and product fit is setting us apart from a number of weaker and smaller competitors. Demand is obviously declined in some areas of the market, but weaker competitors look much weaker in times like this. That can be good for our business over the short and long term. We will continue to gain share even at the pie is a bit smaller.

So, while we are providing you with a very conservative view towards 2009 upside exist. We are winning customers. New products are gaining traction and delivering high pay backs, and any uptick in the economy will be positively reflected in that performance.

I am going to now turn it over to Mark to run through the financials, run through guidance and then we will take questions. Thank you.

Mark Haidet

Thanks, John. As John mentioned, we are pleased with the quarter and our ability to meet our earnings guidance, as well as the strengthening of our balance sheet. Specifically with our balance sheet, I want to first talk about our debt facility. We are fortunate to have a very good long term debt facility in place with a strong bank group, a couple of key items to note about our debt facilities that consisted of $30 million term loan and an $80 million revolver. As of December 31st, the balance is worth $26 million on the term loan and $72 million on the revolver.

The term loan principal amortizes at $1.5 million per quarter in 2009 and the overall facility does not mature until 2013. Our interest rate on the facility ranges from LIBOR plus 125 to LIBOR plus 200.

Our primary debt covenants are leverage ratio, maintained less than three times trailing 12 months EBITDA. As of December 31, the ratio is 2.3 given us approximately $10 million of excess EBITDA within our covenant.

Our second covenant is a fixed charge coverage ratio of greater than 1.2 times. As of December 31, the ratio was 1.7 giving us approximately $8 million of excess EBITDA cushion of the covenant. Based on our 2009 plans, we expect to maintain similar ratios and cushions against our covenants.

From a working capital on cash flow standpoint, as John highlighted, our day sales outstanding during the quarter improved from 56 to 54 days and we expect to stay well within our targeted range of 60 days in 2009. Our inventory turns went from 3.4 to 3.1 in the quarter and we anticipate improving those back to the 3.5 level during 2009.

Our cash from operations was $6.4 million for the quarter and $17.2 million year-to-date. This resulted in free cash flow of $2.7 million for the quarter.

Overall, we are very pleased with our continued working capital management and increased cash generation and expect to see acceleration in cash generation with lower capital investments in 2009.

Now, I would like to spend sometime providing you details on our view of 2009. As John outlined, we have taken an approach of planning our cost structure base on high visibility revenues. While, we believe we have good upside potential. We have engineered our business to ensure we can deliver a strong profit and cash flow even with softer revenues.

Based on this approach, we are planning our business for a revenue range of $275 million to $280 million. We constructed this revenue from a bottoms-up process that was approximately 45% recurring revenue in excess of 30% contracted business. Approximately 20% channel sales, which is built off of our current reduced run rate in the business, and less than 10% from new contracts, the majority of which have already been selected and we are in the contracting stage with now.

This model represents a much higher visibility model than our typical guidance and serves as a conservative basis for planning our business and cost structure.

For the first quarter, we anticipate revenues in a range of $67 million to $68 million and we expect to see moderate quarterly growth during the year based on recurring services and planned customer rollouts.

From an earning standpoint, we expect to operate a minimum of 12% adjusted operating margin for the year, resulting in estimated adjusted earnings of $0.62 to $0.63 per share. Due to lower first quarter revenue and the timing of cost reductions, the operating margin in the first quarter is estimated to be closer to 10% and will expand over the course of the year. First quarter adjusted earnings are estimated to be $0.12 to $0.13 per share.

Finally, from a cash flow standpoint, we believe the guided level of performance will result in cash from operations ranging from $20 million to $25 million, free cash flow of approximately $15 million. This should position us to reduce our debt facility by $10 million to $15 million during the year between principal amortization and additional pay down of our facility.

Our cash flow model assumes conservative DSO of 60 days and inventory turns of 3.5. Other planning assumptions include improving gross profit margins to a range of 45% to 47% based on cost reductions and product mix. We also anticipate a cash tax rate of approximately 28%.

One final note, it is important to remember that all of our earnings guidance is on an adjusted basis, which excludes amortization of acquisition related intangible assets, employee stock comp expense and nonrecurring charges and includes the ongoing cash benefit of the utilization of net operating losses and tax credits. John?

John Heyman

Thanks Mark and thanks everyone. Peter, we will open it up for questions in just a moment and rather than let the audience ask the first question. I am actually going to ask myself the first question and that is a question that both our management team and I am sure other management teams has been looking at very hard over the past 90 days, which is how can we be comfortable with our plans in this environment of uncertainty and let me try to lay that out for each of you.

First of all, Mark has run through guidance that we are now through almost to the second month of the quarter and we are comfortable with the number, very close to $7 million in terms of operating profitability, and Q1 is typically our lightest quarter for lots of reasons that many of you understand and I can repeat it if any of you have questions about it. But, if we simply take the quarter would shed its seasonal lightness, which is got all the uncertainty and deferrals built into to and multiply it times four, that would lead us to believe we could easily deliver $28 million of profitability even in this climate.

Second, we have already taken a number of cost reductions, many of which are reflected but some of which are not fully reflected in the quarter and that amounts to another couple of million. So, if you annualize the quarter, you get $28 million and then you add $2 million of already implemented cost reductions and that is $30 million.

The third thing we have done is we have built a variable comp model around our management team, incentive compensation that provides us with another $4 million of cushion in meeting our number that is approximately $34 million of operating profits that would allow us to deliver against the guidance.

So, we feel exceptionally good about the guidance we are providing, and have every intention of delivering it for the year. The follow-on question would be how confident are you with this given revenues of the business and is Q1 really a light quarter in this environment, and I would cite a few things.

Number one, we always see recurring revenue growth and many of our products are must have products and new products that we have launched, such as the payments business. So that is number one.

Number two, the stickiness of those products is showing themselves because we have got typically high renewal rates that we see in the business here early in the year. Second, we have seen a number of deals that we have won and we have already reduced spending that customers are saying they are going to spend with us to be very conservative, but we have got new deals that we have won that will hit the numbers later in the year. We do see that channel could pick up later in the year, though we are not counting on it.

Finally, we are serving resilient markets. They are many markets we serve that are doing just fine and operators are either still adding sites or are really looking to upgrade the technology in their existing sites. The demand environment is clearly not as robust as it has been, but we think it is plentiful for us to deliver the numbers we have cited as well as hopefully deliver upside.

That is how we have viewed the business. That is why the strength of our operating model, strength of certain of our markets, the deals we are winning is allowing us to confidently provide guidance to the investment community this afternoon.

With that I will open it up for questions.

Question-and-Answer Session

Operator

(Operator instructions) Your first question comes from the line of Terry Tillman - Raymond James.

Terry Tillman - Raymond James

First question and I do not know who would want to take it, I will just store up there and maybe you can decide who answers it. In terms of the recurring revenue strength and that being a theme going forward. Could you all maybe provide us a little bit more detail, what are the actual product skews that are really maybe doing even better than the others? What are the real standouts to that recurring revenue? And then where do you see maybe recurring revenue as a percent of total business, beyond of this year? Where do you actually envision it over the next three through fiver years?

John Heyman

Terry, this is John. I will start off with that and then we can go from there. The revenues grew; if we look at ’08 versus ’07, really across the board probably the biggest area in terms of growth was what we call our hosted solution’s business, which is our Eservices, our payments business. So, that has been the strongest growth, but all the businesses are growing nicely. The maintenance businesses have seen very high renewal rates. We are more than pleasantly surprised that it made up 40% of the revenues versus 30% a year ago. Next year, we are forecasting 45%. A lot of these products still have very low penetration rates into our install base, number one and number two, in such high demand by prospects, I believe it can climb to over 50% of our revenue mix overtime and we will endeavor to do just that and it is fortunately also something that comes with strong profit margins and we have been increasing those from quarter-to-quarter.

Andy, do you want to add anything?

Andy Heyman

Just to give a couple more products, Terry. Obviously, we have web based reporting product, which is probably our most popular subscription base product. We have a loyalty system for restaurants that in this environment we are seeing much higher demand for companies that want to grab a higher percentage of customers in a higher spend per customer. We have gift cards and gift processing. We have a CP online store.

The restaurant contracts just so you know, we had 40% more contracts signed in the fourth quarter and any other quarter in the year, and none of those revenues are actually booked in the quarter because reoccurring in nature and they come unusually two or three months later. The CP online store, which is for counterpoint and specialty retail, we grew the customer base by 25% in 2008, again, many of those revenues are in front of us versus in the year that we just finished. So, those are some of the other products and some examples of metrics that are really important for us.

Terry Tillman - Raymond James

Okay. I appreciate that Andy. And then market, yes, in terms, in the past you have been helpful and in giving at least some directional commentary on how maybe some of the segments did within the two broader segmentations you have in your reporting and maybe what the assumptions would be, even if it is not like a specific number, just something directionally or relative growth rates in ’09. Thank you.

Mark Haidet

Terry, I will speak to the fourth quarter and some of the growth rates. In general in the quarter, the business was up 7%. The key businesses were up. Restaurants were up, and specialty retail was up a little bit. The other businesses were generally down, again, we are not going into the specifics, generally down other than restaurants and specialty retails were each up in a single digit percentage rate. As it relates to 2009, I would kind of paint a similar picture that we would expect. Overall, the restaurant industry to maintain a fairly consistent revenue stream, other businesses in our planning models as we are planning in the overall business down. We are really planning many of those downs and we can provide more specifics on that after we get into the first quarter and kind of recalibrate the year.

Terry Tillman - Raymond James

But I guess, Mark, it relates to puts and takes on restaurant which is still the biggest part. I do not want to put words in your mouth, is the idea that potentially that could be flattest to maybe slightly up and you just have all the other stuff that is being more impacted.

Mark Haidet

Yes. I would say generally, even it puts and takes within restaurant industry I would again we are not going up the detail model by each of those segments but I would think if it is generally flat for restaurants. There are areas that are up, areas that are down, and then the rest of the businesses somewhat down.

Operator

Your next question comes from the line of Brian Murphy - Sidoti & Co.

Brian Murphy - Sidoti & Co.

Mark or John, could you just give us more detail on the multi-thousand site QSR customer that you won in the fourth quarter. John, I think you mentioned that was about $75 million of business. If that’s an opportunity, how would that rollout? Is that rollout over several years? Is this a hunting license or do you have an exclusive deal there, just anything would be helpful? Thanks.

John Heyman

Yes. Obviously, this is a very sizeable deal. So, every major company was involved in it. We were picked after a multi site pilot. We will have a first kind of…, the way these things work, typically now a larger pilot. But a significant number of stores with them to get the rollout plan that rollout will start either that particular kind of many rollouts if you will that would be a kind of three digit number of sites is planned to expand significantly later in the year. We are not counting on it because of the environment, but that is what it is planned for. These things can take on a life of their own and then we would roll that out with them in their corporate locations, which are multi-thousand, over a number of years and then we have had a hunting less license on the franchise channels.

Brian Murphy - Sidoti & Co.

Okay great. I guess Mark or John, how do we think about the service gross margin here with your maintenance subscription and transaction services growing more rapidly? I would think that those are relatively higher margin.

Mark Haidet

Yes. They grew from 41% or so, in Q3 the 43%. In Q4, obviously, I should get more revenues on in some of those businesses. You are leveraging some overhead. That is number one. Number two. There is number of products that feed into that.

The fastest growing products are also the highest gross margin products. So, I think those revenues will continue to improve significantly over 2009 certainly at the mid-single digits.

Brian Murphy - Sidoti & Co.

Okay. Can you just give us some color on just how much quest in the Orderman contributed for the quarter and did most of that hit the product line or imagine it was hit the product line, just anything to be helpful? Thanks.

Andy Heyman

Yes. This is Andy. I would just say in general, it had nominal impact in the fourth quarter and I would consider 90% plus of those businesses at this point hitting the product lines.

Operator

Your next question comes from the line of Chad Bennett - Northland Securities.

Chad Bennett - Northland Securities

A couple of questions, in the recurring revenue line, the maintenance subscription and transaction services piece, can you give us any idea, Mark or John, for that matter. How much to that is maintenance versus kind of hosted offerings? Percentages or anything?

John Heyman

It is about a third are hosted solutions businesses and it is about 2/3 on maintenance businesses.

Chad Bennett - Northland Securities

Okay. You guys seem to be laying out, a pretty conservative, well, I guess in this environment who knows what conservative is, forecast in ’09, what did you assume both from a service or maintenance standpoint and just new business and contracted business standpoint in terms of just overall customer attrition and either customers that go away altogether or store accounts that are kind of drastically reduce. Anyway, I do not want to have you give out any specifics but how conservative were you there?

Andy Heyman

Yes. This is Andy. It is a great question. As we thought about the business and we spent a lot of time to think about this. First of all on the direct side of the business where we are managing customers directly, we feel very confident. We know what their plans are in terms of openings and closings. We can have customer-by-customer conversations there, and we have done that.

On the channel side, it gets trickier because you are talking about thousands of customers and to understanding what plans are and the health of those businesses is more difficult, and as we have had these discussions, we felt it was prudent to consider a much different scenario than historically we had considered in terms of normal closings and also openings when it comes to system sales. So, we have been much more conservative than in the past and then you might hear in the past 10% of sites might go out of business. We were more conservative than that in terms of where the closings may occur and so that is the kind of situation that we have planned on into the future or something greater than 10% over, call it the normal periods.

I would also add that in the year more than for the first time since we have owned Aloha, more than 50% of our sales in restaurants actually came from quick service. In some ways, we actually believe attrition rates will be lower than normal in quick service relative to the last few years, probably higher in table service but we have still been more conservative than the historical 10% rates.

Chad Bennett - Northland Securities

That is great color, thanks. Then, last, maybe more direct question for Mark. Mark, I think kind of back end but I have not run the numbers, can you give me gross margin by your revenue lines, systems, maintenance and professional services?

Mark Haidet

Yes. Do you want them on basically on an adjusted basis?

Chad Bennett - Northland Securities

Yes, adjusted percentages.

Mark Haidet

Yes. So, from a system standpoint, gross profit margin was approximately 44%, and for services, in total, it was approximately 42% and look, I do not have a breakout of the recurring versus nonrecurring on an adjusted basis.

Chad Bennett - Northland Securities

Okay. That gives me an idea. So, it appears that in our guidance for ’09, we are expecting relative to Q4 levels, obviously, some of our cost saving measures to improve the gross margin line, I guess decently relative to Q4 and maybe I am looking at the numbers wrong but can you give me any idea of kind of how we get that improvement relative to Q4 and where it is coming from and what not?

John Heyman

Chad, this is John. I would say there are a few things. One is where, in an environment like this. Hardware revenues are impacted more than software revenues. The acquisition cost is higher and typically the higher paybacks come from the software module. So, we are assuming a better mix on the systems line.

Second, we are assuming continued improvement on the recurring services because the fastest growing products are these hosted solutions and their gross margins are much higher than the maintenance. So, that will help our margin line along with scale on that business unit, and then third is we have been able a lot of our actions has been around driving efficiencies. As you guys aware of combined a couple of business units like our petroleum and C-Store business with the retail business, like our sports and entertainment business. So, we have been able to actually drive and will continue to drive better services, utilization on the services line and get improvements there, plus, because new deals are not as plentiful as they have been in the higher demand environments. We have not had to devote as much of those consulting resources to upfront sales cost.

Chad Bennett - Northland Securities

Okay. That is great color. And then just lastly, Mark, on the availability on the credit line both on the term and revolver side. Is the entire credit facility available to you guys right now or are there some restrictions?

Mark Haidet

No. There are no restrictions. The revolver is available. The term loan amortizes down. So, it is not. We cannot borrow back up against the term loan, but the full revolver is available with no restrictions.

Operator

Your next question comes from the line of Gil Luria - Wedbush.

Gil Luria - Wedbush

First question is I think you called out the currency impact on the fourth quarter. What was the total currency impact on full year 2008?

Mark Haidet

Gil, this is Mark Haidet. The currency impact was roughly $2.5 million for the year. The fourth quarter specifically was about $1.7 million.

Gil Luria - Wedbush

So, it was $2.5 million dragged for the year?

Mark Haidet

Correct. There were some positives earlier and negatives in the second half.

Gil Luria - Wedbush

Okay. And then in the past you talked about within your recurring business, a payment processing business and I think even said that you foresee getting into the eight figures. Could that has already happened in 2008?

Mark Haidet

Yes. We definitely expect the payment business to be in the eight figures in 2009.

Gil Luria - Wedbush

Great, and then, on the convenience, I think you mention that is a possible positive going forward. Obviously, there were a lot of declines when gas prices were high and now that gas prices were lower, those guys were more profitable and able to spend. So, could that mean that 2009 is a year of stabilization or maybe even growth over a very weak 2008?

John Heyman

I will let Andy to take that.

Andy Heyman

Yes. We believe in the convenience retailing sector for 2009. What we are planning on is slight softness but we, I believe that we have a tremendous upside there, but right now, we are just not planning on it.

Mark Haidet

I think let me just add a bit color to that which is I definitely see increased interest in that industry. I think operators are still cautious by around oil prices and what they might do later in the year, and so that would be the reason we are a little bit cautious about how demand might roll out in that industry but it could be a bigger year for us.

Operator

Your next question comes from the line of Scott Stevens - Strata Capital.

Scott Stevens - Strata Capital

Thanks guys for giving all the color and clarity. I think this will be a very helpful for a lot of investors who are looking at the business and trying to get more comfort and also for a lot of the people I think with some misperceptions about the revenue and how you drive your business.

One question I had was on the international segment. What the percentage was for the quarter and then you announced recently that China office opening up in terms of what the timing of that and how big that opportunity to be?

Andy Heyman

International for the quarter was about 17% and that is the type of range that we think holds through for the future in the short term. Long term, there is several major opportunities I will talk about it when you ask about China. That economy has certainly been hit similar to lot of the economies that we see out there.

The addressable market and the growth though of sites that need a solution like the one we have got for the restaurant business, there is a big opportunities there. We are still being very cautious but we are starting from a pretty good base of a couple of partners. We have about 10 customers there. Most of those are fairly healthy and opening sites, so we are taking a five to ten year view in China. We are trying to be profitable every year between now and when we think it is going to be a meaningful part of our business. So we remain cautiously optimistic in China although I think the short term is a lot like other economies just a touch on it because I open the door a little bit on Europe.

Obviously when we bought Orderman we were not taking on a diluted business just for the heck of it. There is a huge opportunity of 400 distributor partners of Orderman that loved that Company. They loved the designs of products and we have products that will be delivering in the third and fourth quarter of 2009 that will start to be material in 2010 and you saw about a distribution channel that touches more restaurants in Europe than the Aloha channel touches in the US. There is an enormous opportunity for us there as well.

Scott Stevens - Strata Capital

When you guys talk about some of the conservatism that you are baking in for this year, is that also a carrying over towards the International segments?

Andy Heyman

Yes. It does carry over the International segments. We do not see a hiding place in this economy right now in term of geography.

Scott Stevens - Strata Capital

Just one other thing, I am glad that Mark went to the detail but a lot of people obviously would companies all have in a medium to higher debt loads are worried. So I think explaining exactly but there is no risk or what so ever in terms of the covenants having plenty of cash flow to pay that down obviously it is important for a lot of investors who are hopefully looking at the Company? What else are you guys thinking? You are trading now at less than four times earnings with a lot of occurring revenue. What other steps are you guys thinking about? Obviously the market is a little choppy but is there anything that you guys are going proactively to say, now we are getting the business in a great position what else can we do to get even more awareness or get investor interest to the Company?

Andy Heyman

It a great question and we continue to stay focused on the long term in what we are creating here and we feel like we are doing a really good job but we have been the most frustrated set of investors probably in terms of the stock. So obviously we have not been able to highlight for the market the fourth quarter performance until we finish the audit.

We have not been able to speak to 2009; there have been questions as you have laid about the debt and the cash flow of the Company. So what we are doing today is laying all that out for our investors I think what you can expect us to be doing in the very near future is getting out and being more active with the investment community and telling the story because we actually feel really good about the core of the business and its ability to perform even in a market like this and the strategic initiatives, the acquisitions, the operating model we built when growths starts to return and the economy picks back up, we feel like we built an even stronger growing more predictable profit machine and we believe people just need to understand that story.

So we have been hampered a little bit because we have not been able to speak about our performance for the end of the year and our guidance for this year but we feel we will be out there telling a story a lot more here in the coming months.

Operator

(Operator instructions)

Your next question comes from the line of Vincent Colicchio Noble Financial

Vincent Colicchio - Noble Financial

Question on pricing on the restaurant market, Channel versus chains, what does the pricing looks like in the quarter and what it looked like so far in the March quarter compared to the three Q period?

Andy Heyman

Pricing has been certainly a top spot. It has been a street battle up there for years. I would say the last 90 days it has gotten tougher and I believe throughout 2009 we will continue to get tougher and I am speaking now about the Channel part of your question and so we have built that into our plans. We are also certainly working with our vendors to make sure that they understand the situation and we feel like we are being conservative with the pricing and I think the good news there is customer is more than ever sense desperation and they do not want their mandatory technology in the hands of desperate companies. So that is the good news but we are expecting more pressure than we have had in years past.

On the direct side, we are definitely seeing a situation where there is basic products which I think is where we see a lot of pricing pressure and then there is what I would called products that we have got that are mostly sold in the forms of subscription recurring model were pricing pressure is not as tough and the reason pricing pressure is not as tough is because that there is not a whole lot of competition any in these areas.

So were certainly not trying to take advantage of that with customers by selling it for higher than we have in the past but we are doing is we feel like we are holding more steady in those parts of the business that truly had the value that customers are able to see and we are in position to sell that directly.

John Heyman

I just want to add to that, two things. One is often times our re-sellers are competing with our smaller competitors who cannot compete on price from a standpoint of price itself or on long term maintenance models that frankly do not make sense and are unprofitable and so I can point to one significant player in the retail industry who has declared Chapter 11 and when customers see that with their technology providers that does not give them a warm feeling and so I think there is a flight to quality and there is an understanding of the importance of doing business with Companies that have good business models.

Andy then I will just reiterate Andy’s point on the larger competitors and the direct deals. When you have products that other Companies do not have that let operators drive high quick pay backs out of their sites there is not just going to be as much price competition around those types of solutions.

Vincent Colicchio - Noble Financial

John you have mentioned on the convenience stores that there is a lot of opportunity but the purchasers process, could you give us some color in terms of the pipeline where it stands because it is just kind of record level?

John Heyman

I will let Andy get into the pipeline.

Andy Heyman

Record levels, I have to go back into some long lost files there but I think there were some days in the late 90s where it was higher. I would say that is it at higher levels on the span of four years and that is true globally in the C store business and somebody alluded to it earlier but I think, the oil scare last year, the good news is it probably increased the urgency for companies that are in the petroleum and retail business to focus more on whether it will be food or convenience products and you need good higher end systems versus cash registers that control pumps to be able to do that effectively and that place is a very well sweet spot and we have in the stable steady force in the petroleum and convenience retail industry around the world towards companies. We seem to be a Company that a lot of customers out there are attracted to.

Operator

Your last question comes from the line of Brian Murphy Sidoti & Company

Brian Murphy - Sidoti & Company

Guys, historically I think about one third of your business has come through the channel. Can you give as a sense for how much business came through the channel in 2008?

John Heyman

In 2008 it was a similar mix. We are planning that to be down some in 2009 just as we look over our mix but on 2008 it was similar to our kind of previous few years’ mix.

Operator

(Operator instructions)

John Heyman

Thank you Peter and thanks everyone again for joining us this afternoon. Just in conclusion, thanks for your support, thanks to our people. Radiant is a Company that we feel great about the operating model we build and it shown itself over the past few years and we really feel like its showing itself even more in tough times. The strong recurring revenues, the resilient markets that we serve and even in weak markets we are gaining share given our customer satisfaction, our products, the work of our channel partners and I just want to thank each one of them and again our people who make all this happens. So we look very much forward to speaking to you at the end of the first quarter and we will talk with you later. Thanks again for your time.

Operator

Once again this does conclude today’s Radiant’s Systems, Incorporated Teleconference. Thank you again for joining us today.

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!