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Executives

John Heyman – CEO

Mark Haidet – CFO

Andy Heyman – COO and President, Retail Division

Analysts

Terry Tillman – Raymond James

Chad Bennett – Northland Securities

Vincent Colicchio – Noble Financial

Nick [ph] – Wedbush Morgan Securities

Radiant Systems, Inc. (RADS) Q1 2009 Earnings Call Transcript April 30, 2009 4:30 PM ET

Operator

Good day and welcome to the Radiant Systems First Quarter 2009 Earnings Release. At this time, I would like to turn the call over to your host, Mr. John Heyman. Please go ahead sir.

John Heyman

Thanks, Jessica, and thank you to everyone 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, our Chairman and Chief Technology Officer. Before I get started I’m going to let Mark run through the forward-looking caveats.

Mark Haidet

Thanks, John. 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 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. Reconciliations 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.

John Heyman

Thanks, Mark. As usual, I will make some opening remarks, Mark will run through the financials, and then we will take questions from you. We were certainly pleased with the quarter given the current economic environment.

For our investors in New York who’ve been to Yankee Stadium, you’ve probably seen our systems at work at this point. Our Aloha Point of Sale is running the restaurants inside the stadium, CounterPoint Point of Sale runs all of their retail shops, and Quest Point of Sale runs the concessions. This is the second Yankee stadium that has run our systems and certainly demonstrates one of our core values, Customers for Life, at work. We’ve been delighted to be part of this exciting new venue every part of the way.

That was one highlight of many during the quarter. Some others include our adjusted earnings of $0.14 per share exceeded our guidance of $0.12 to $0.13, our recurring revenues represented 46% of our overall revenue mix, up significantly from 33% last year. The current annual run rate for our recurring revenues is roughly $125 million.

Our gross margins improved, largely due to product mix, from 44% to 47%. We continue to gain share in an environment where companies are buying less as I will speak to in a bit. Cash flow from operations exceeded $11 million, and the retention of our support, maintenance, and subscription contracts remain exceptionally high.

Let me share just a few facts with each of you. The first is evidence of the share gains we are experiencing in the market. Restaurantowner.com conducts an annual survey of independent table service chains across the country. Over the past couple of years, Radiant’s share has grown from 16.7% to 18.4%. The next three largest competitors saw their shares decline in total from 30.4% to 26.3%. The facts are clear, we are now the leader in this sizable market and our share is growing at a very strong rate relative to our competitors.

The other interesting fact is the clear fragmentation demonstrated amongst our competition in this survey. Radiant and our next largest competitor serve 34% of the market, the next 10 serve 30% combined with no one having more than a 4% – 4.7% share. I’ll speak to this – importance of this soon.

The demand environment is different right now depending on the market we serve. Quick service restaurant operators and certain segments of retail have been less susceptible to the economic downturn. Alternatively, certain food service and retail markets and brands have been hit a bit harder by these.

Many concepts are adding sites. In fact, seven of the top 10 fastest growing food service chains are Radiant customers, but it’s clear the new site part of the business has declined. However, it’s equally clear that with operators focusing less on growth, they are focusing more on labor efficiencies.

For a long time, operators across our market have had labor management, food cost control, inventory management, loss prevention, and other areas of operational efficiencies on their agendas and now these challenges have become top priorities. Our customers tell us that we have the best products to address these needs.

We have a core competency in these areas and this is a major driver of the growth of our recurring revenue and our share gains. In fact, almost 1,500 new sites subscribed to one or more of our products during the quarter. The impact of this on our revenue models is significant. If we take a step back, we have obviously seen a decline in systems revenue as we expected. This can be attributed to fewer sites opening due to the economy and tougher credit markets.

But the overall quality of our revenues has improved drastically during this time. Our recurring revenue products allowed customers to drive improved performance and match the expense associated with these products to the benefits they see.

So, while overall revenues were lower than a year ago by 4%, the quality of our revenues is significantly better with the strong growth of the recurring products. And of course, our relationships now with our customers are that much stickier as we add more value to each one of their sites.

As I look back on our shift to a stronger recurring revenue mix, I know it slowed some of our growth over the past five years, but now this is such an important part of our foundation. Just five years ago, in the first quarter of 2004, recurring revenues represented about one-quarter of our overall revenues. Over the past couple of years, it’s been closer to a third of our revenues and now it’s approaching almost 50%. This is such a critical part of our foundation – financial foundation and as we continue to bring more products to the market, a shift we want to continue.

Our payments business continues to gain momentum and exceed our expectation. In the first quarter, we saw 18 of our top 20 channel partners embrace the service, we differentiate this offering with integrated services, price clarity, and proprietary software that helps operators gain efficiency and security in their sites.

Looking ahead, we expect our services businesses to continue to grow in this environment and we expect the systems business to pick up when the economic climate improves. Our pipeline remains strong, but we remain cautious. We have even had customers who deferred spending and inquire about possibly resuming rollouts, but we will remain cautious until orders are placed.

I do believe two of our biggest markets could contract by as much as 10% to 20% over time. However, I believe these end markets continue to be very large, multi-billion dollar opportunities and that we can continue to achieve significant share gains.

As I discussed earlier, we compete generally with one to two large companies in each base we serve and then dozens of smaller operators. These smaller companies emerged when it was easy to raise capital and many have come into existence by serving a small customer set or a narrow geography.

These same companies are finding the going very tough right now. Either they can no longer raise capital, do not have operating models that drive recurring revenues from a large installed base or they are poorly diversified in terms of products, customers, and markets. The fall-off of system sales that they have experienced is hurting them, deep layouts are occurring, their customer satisfaction is falling up precipitously, an ambitious circle occurs within their businesses.

Our biggest competitor in retail declared bankruptcy earlier this year. We are displacing systems of small competitors and restaurants and retail and restaurant operators now are looking to do business with providers that they know will be around for the long term. Thus, while the market is tougher and will perhaps shrink a bit over time, large players will gain share and we believe our value proposition will allow us to be the big winner in this regard. So, we very much like our position.

We have managed our expenses tightly, reducing approximately 100 positions across the company. This was completed in the first quarter and we currently do not foresee additional reductions. Of course, we have contingency plans in place and are prepared to reduce costs if necessary.

I’ll remind each of you that we have significant variable compensation built into our plans and accordingly, even if we fell behind our expected performance, we believe these plans provide us with a cushion to meet or exceed our guidance.

While we are managing expenses, we also continue to invest in the business, both in terms of new services, product, and market expansion opportunities. For instance, our sales and marketing costs have risen as we launched our Radiant Payments Services business and will continue to – we are continuing to invest in Europe through our acquisition of Orderman as we ready our European channel for expansion.

Mark will run through our covenant compliance, but sufficed to say our relationships with our banks are excellent, they remain willing to fund acquisition and understand very well our strategies and our plans. Our acquisitions are performing as expected; we’ve driven significant cost synergies around these from a growth standpoint while each of them is subject to the economic environment around the globe. They have performed to expectations, delivered on growth targets, and are well situated to help us grow when the economy rebounds.

Mark will speak to guidance, but we see a very clear uptick in the second quarter and we hope to see stronger demand in our channels throughout the year, but we will continue to base our forecast on a tough demand environment and have built that into the plans and into the guidance accordingly. Notwithstanding that, there were signs that we could see upside later this year.

Thanks again. Mark, I’ll turn it over to you for the financials.

Mark Haidet

Thanks, John. As John described, our revenues for the quarter was $67.6 million, a decrease of 4% from last year, but within the range that we provided in the last conference call.

As expected, our systems revenue was down 30%, but was partially offset by an increase in service revenue of 29%. The service revenue growth was lead by a 34% increase in recurring revenue from the first quarter of 2008 and made up approximately 46% of total revenue. Our gross profit margin increased 550 basis points from the fourth quarter to 47.2%. The systems profit margin increased due to an increase in the mix of software versus our hardware.

The recurring service margin increased due to increased revenue and improved efficiency from the consolidation of several support functions. And professional service profit margin increased due to improved utilization through both increased revenue and lower cost.

Our adjusted operating margin was 10%, which is in line with our budget and the guidance we provided, as well as our model to achieve a 12% annual operating margin for 2009. The resulting adjusted net income for the quarter was $4.6 million or $0.14 per diluted share, $0.01 over our guided range of $0.12 to $0.13 per share.

In relation to our balance sheet and our cash flow, the strong cash flow in the quarter allowed us to reduce our net debt position, that’s debt minus cash, by $6.9 million from the fourth quarter to a level of $77.3 million.

Our operating results continue to have us well within our debt covenants as John mentioned. Our leverage ratio was 2.2 versus our covenant of 3, trailing 12 months EBITDA, and our fixed-charge coverage ratio was 1.6 versus our minimum threshold of 1.3. Both of these have ample cushion against our current results and where we plan the business for the year.

From a working capital and cash flow standpoint, our day sales outstanding increased by one day during the quarter to 55 days and we expect to stay below our target range of 60 days for the year. Our inventory balance increased during the quarter due to the timing of some shipments and an increase in our international finished good warehouses and we expect inventory to return to fourth quarter levels during the second quarter.

Our cash from operations was $11.6 million for the quarter and this resulted in free cash flow of $9.3 million. Approximately $4 million of this amount was related to the collection of annual support and maintenance contracts.

Now, I’d like to talk about the guidance for the year. Based on our current visibility in the business, we are maintaining our revenue range of $275 million to $280 million. Overall, our confidence in this range has continued to strengthen and we continue to believe there are upside opportunities that could materialize as the year progresses.

Specifically for the second quarter, we anticipate revenue in the range of $68 million to $69 million and we expect to see moderate quarterly growth during the year based on recurring services and planned customer rollouts.

From an earnings standpoint, we are increasing our guidance for the year by $0.03 per diluted share to a range of $0.64 to $0.66 per share. For the fourth quarter – for the second quarter, we anticipate adjusted earnings of $0.14 to $0.16 per diluted share. And finally from a cash flow standpoint, given the first quarter performance we feel very good about our previously guided range of cash from operations of approximately $20 million to $25 million for the year and free cash flow of approximately $15 million.

On a final note, it’s important to remember that all of our earnings guidance is on an adjusted basis, which excludes amortization of acquisition related intangibles, employee stock option expense, non-recurring charges, and includes the ongoing cash benefit of the utilization of net operating losses and tax credits. John?

John Heyman

Mark, thank you and Jessica, we will open it up for questions now.

Question-and-Answer Session

Operator

Thank you. (Operator instructions) And our first question will come from Terry Tillman with Raymond James.

Terry Tillman – Raymond James

Hey gentlemen, good afternoon.

John Heyman

Hi, Terry.

Terry Tillman – Raymond James

Thanks for taking my questions. Nice job by the way on the quarter.

John Heyman

Thank you.

Terry Tillman – Raymond James

One thing John, in terms of – could you maybe give us some commentary, I know you gave us a little bit in the prepared remarks and the press release about kind of some of the positives that you are seeing maybe in end markets or a stabilization, but anything that’s interesting in terms of how the quarter played out in terms of close rates month to month and then into April? I mean, are you seeing close rates improve or predictability improving at all?

John Heyman

Well, I feel like we’ve – I feel like the business has been predictable. It’s just we saw business in the first quarter – in the fourth quarter and continuing into the first quarter decline, but the good news is we saw that decline stagnate during the quarter and the things actually settled and in some parts, actually did turn up.

So, we are continuing to base our forecast on that kind of lower level of demand, but there are some good signs out there in terms of the channel. In terms of direct business, why don’t I let Andy speak to that and you can add any color to my comments?

Andy Heyman

Sounds good. Yes, I think in terms of the specific question of close rates and staying on schedule for any kind of material rollouts for the year, the way I see things right now is it – it’s been in the direct side of the business, pretty much business as usual. Some areas are – we see some acceleration in some areas and push-offs, but as John said on the channel side, we are being ultra-conservative as we look at the next few quarters in terms of what we are anticipating to occur.

John Heyman

The only other thing I would add is on a couple of major rollouts that were deferred. We are in discussion with one of the customers who is now trying to – they would like to get the rollout back scheduled. We are again not counting on that as of yet and another one is looking to see if they could get some creative financing. So, they could kind of match it up as an operating lease and we are working with them on that. So, the signs are good, but we are going to continue to be cautious.

Terry Tillman – Raymond James

Okay. And then in terms of last quarter, you gave us some granularity in terms of some stuff that it closed early in the quarter and then maybe some opportunities that you weren’t necessarily banking on, but you kind of almost felt like throwing it out as a carrot or an upside potential. And what was the really large pilot? Any update on the large pilot, is it still pilot status and/or any further monetization there?

Andy Heyman

Yes, this is Andy. Terry, I – we are talking about a very large, very long-term relationship there and the status really hasn’t changed. I would just say three months later from the last time we gave a formal public update it appears that we could not be happier with the relationship right now and all of the upside and more that we saw in that relationship, we still see.

Terry Tillman – Raymond James

Okay. And then John, in terms of – in our research it sounds like when there is – the channel partners, you said 18 of 20 have kind of bought into this message around payment processing and when we talked to some of these folks, the idea is Restaurant Guard attached to the payment processing seems to resonate well. Could that be something that just could help strengthen the channel business even if systems sales are made weak or is the reality systems sales are still such a bigger part of their stream that you are seeing some nice growth, but it’s still too small with this payment processing?

John Heyman

Well the channel partners businesses, I would say generally speaking, have strengths because they have such a rich services business within their installed base and that’s one of the things that let them continue to do pretty well even in this environment. I would say Restaurant Guard is a – along with some other – I’d just say, with the overall integrated solution approach we provide through our channels really helps differentiate the payments product and along with our service, et cetera.

And so, I think it’s going to give a boost, we launched it really fully at Focus, our big reseller conference in February and we did not think we’d get 18 of 20 on board so quickly and I think part of the reason it got such a – got off to such a good start was the restaurant product and how that could drive such a high return in the sites for operators. Andy?

Andy Heyman

Well, now I think the big thing that we are watching up for right now is along with everything John said, is the key thing is payment processing is an industry that is littered with high attrition rates and the idea that you walk into a year and was 30% of the customers that you had the prior year was not acceptable to us.

And so, our focus has been how can we create a solution where customers would never want to leave it because it adds so much value and so that’s what we’ve been doing is we are bundling products with payment processing and we are already seeing through those kind of things and a different kind of service model, attrition rates are reducing or definitely retention rates are increasing every single month. So, we are very proud of that.

Terry Tillman – Raymond James

Okay. And then, Mark, just last question in terms of the gross margin. Did I have that wrong – I mean it was stronger than expected? Could there be anything in terms of timing and/or things that could drive maybe downtick sequentially or how do we think about gross margins the rest of the year on both the systems sales side and the services side? Thank you, guys.

Mark Haidet

Yes, Terry. So, on the service side, I don’t expect a significant variation in margins throughout the year. Any given quarter, there can be some variation based on project timing and resource utilization, but in general, the level we are at is sustainable. From a systems standpoint, I would have the same answer with the caveat that there is a variability of hardware and software mix that can drive the systems margin. We had a bit more software in our systems this quarter than last quarter.

So, that is a variable from quarter to quarter, but in general we still believe that the general gross profit percentages that we guided towards to the year are appropriate, maybe plus or minus quarter to quarter, but in general, the Q1 levels are reasonably for where we think we should be.

Operator

Your next question will come from Chad Bennett with Northland Securities.

Chad Bennett – Northland Securities

Yes, hi. Just a couple of questions guys, following up on the gross margin questions, specifically on the maintenance and I guess subscription gross margin. Cost of goods sold dollar actually decreased sequentially and significantly decreased year-over-year in that segment of the business. Can you help me understand kind of why and how that happens?

Mark Haidet

Yes, Chad, this is Mark. One of the areas that we focused on in the planning process in Q4 and Q1 was improving our service margins and part of that was looking for efficiency opportunities in our service delivery. So, during the – some actions in the fourth quarter, some in the first quarter had us consolidating some groups, better utilizing new processes, and really getting cost out of the delivery cycle, both for professional services, as well as for support and maintenance services.

So, we’ve been pretty successful with that, we feel good about the sustainability of it, and I think that even into the future there is – with some improved technology and other tools that we could long term continue to see efficiency there. At the same time, we also had revenues go up. So, we were able to not only get the efficiency, but then on a higher revenue base, be able to deliver more to our customers.

Chad Bennett – Northland Securities

So, from a cost of goods sold dollar standpoint, do you think this is a level – is this kind of a run rate that we should look at going forward?

Mark Haidet

Yes, from a dollar standpoint it’s a little difficult because many of those costs are variable costs, particularly in the professional services side. So, I would say from a margin percentage standpoint, gross profit percentage standpoint, it’s a run rate from a dollar amount standpoint that’s going to be variable on the revenue.

Chad Bennett – Northland Securities

Okay. And should we take – I actually had you guys break out obviously professional services versus maintenance and subscription. I actually had professional services ticking down decently sequentially. The fact that it was up sequentially, would that be a decent indicator that implementations and what not are going better or how should I look at that?

Andy Heyman

Yes, this is Andy. I think you are on to the right message there, which is that demand in the direct business for systems has been very high as companies focus a little less on site growth and a little more about their own operating efficiencies within their operation and that’s driven a tremendous amount of demand that we can see in both our pipeline and our backlog over the last six months. And so, as you look into the financial side, before you see systems rollouts you see professional services and so, that’s what you are spotting.

Chad Bennett – Northland Securities

And it’s a decent indicator? Okay, all right. And then Mark, just going down the balance sheet a little bit here, I don’t know if this is timing or what, but capitalized software was or is up decently year-over-year. Just trying to understand if it’s a timing issue and I guess if we are on a different schedule in terms of capitalized software this year versus last due to the fact that I think we had a write-off last quarter of some capitalized software?

Mark Haidet

Chad, are you referring to the amount of software development that was capitalized in the period?

Chad Bennett – Northland Securities

Yes.

Mark Haidet

Yes. Year-over-year, we are projecting it to be about the same as 2008 and my – I don’t see that there is a significant variation from first quarter to – of ’08 to ’09. The only difference is the internal development we’ve done on our systems implementation.

So, we have both the external software development, we have our internal systems capitalized work on the project we’ve mentioned before, around our PeopleSoft implementation. Most of that capitalization did not start in the first quarter of ’08. So, there maybe a little difference there, but in general, our product development capitalization is fairly flat year-over-year.

Chad Bennett – Northland Securities

Okay. And then, I think you guys were trying to get away from this, but any type of end market breakdown that you care to give on the revenue side?

Mark Haidet

Right. You are correct, we were trying to get away from it a little bit and a part of it is because we’ve done a good bit of consolidation of groups in the company. So, it gets a little more challenging to break things out. In general, the mix of our business is fairly consistent with where it was last year with – if you look at our overall hospitality business, continue to be about 75% of total revenue and then retail was about 25% with pretty consistent breakouts down the line as we’ve had historically.

Chad Bennett – Northland Securities

Okay.

John Heyman

Chad, this is John. Just to give you – just some quick on the capitalized software, we capitalized about 1.9 in Q3, about 1.7 in Q4, and about 1.7 again in Q1.

Chad Bennett – Northland Securities

Okay. So, it’s been fairly consistent. Okay.

John Heyman

So, it’s been very consistent.

Chad Bennett – Northland Securities

Great. Okay, all right. And then maybe a question for you, John. You talked about market demand and following up on the first questioner, what – I guess how does the whole kind of commercial real estate environment and the fact that potentially that’s kind of the next shoe to drop, how does that impact your – both your direct customers, whether it’s hospitality, retail, whatever, and/or kind of what are your resellers saying about that? Is that a big deal? Maybe it’s actually favorable because you are getting better rates or –?

John Heyman

Well, that – it’s a great question. So, I would say three to six months ago, the mentality in the market was, gosh, we’d like some operators, gosh, we’d like to open up more sites, but we literally can’t because shopping centers not coming out of the ground and now, I’ll just give an anecdote with – which we heard at Focus with one of our direct customers, which was now there are many concepts that are looking at this as a big opportunity because there is vacancies that have been created by the economy. So, they are able to eye new geographic markets that they didn’t feel like they could get into and now they can get into existing space at much better rates.

So, I think it’s probably a net-net, it’s probably not making much of a difference in our business, but there have been some operators that have been talking about getting much more aggressive in terms of opening new sites in existing space that’s vacant. Andy, you heard anything else that might be interesting?

Andy Heyman

No, I think that type of anecdote I think covers the gambit of the types of things that we’ve heard. And I would just add, the bigger issue I think for operators in opening sites right now is just their ability to get credit and I think that’s probably as big or bigger watch-out for us right now.

Chad Bennett – Northland Securities

That’s true. Okay. And then one last question, Mark. Kind of a debt repayment plan this year, utilization of capital considering you are generating a lot of cash and have decent free cash flow, do you have a target for where you’d like debt to be kind of exiting the year or I know you are kind of juggling a few different ways to use capital. So, any insight there?

Mark Haidet

Yes. Well, in general, the majority of our facility is variable because it’s a line of credit. So, we can manage that very flexibly with the ebbs and flows of our business. So, we don’t have a debt pay-down goal per se although given the cash flow of the business that we expect for the year, barring significant investments like acquisitions or what not, we would expect to see that debt balance continue to work down probably in the neighborhood of $10 million plus, $10 million to $15 million for the year, assuming no other significant unplanned capital expenditures.

Chad Bennett – Northland Securities

Okay, thanks guys.

Andy Heyman

Okay. Thanks, Chad.

Chad Bennett – Northland Securities

Thanks.

Operator

(Operator instructions) Our next question will come from Vincent Colicchio with Noble Financial.

Vincent Colicchio – Noble Financial

This question probably for Mark. Last quarter when you gave us annual guidance on revenue, you provided a breakdown of in terms of how you came up with the number, what portion came from recurring revenue, contracted revenue, channel sales, and new contracts. Can you give us a similar breakdown?

Mark Haidet

Yes, Vince, really we – that was a general model for the year and we are on track with that general model. So, we are seeing the same – there is a little bit of an uptick as we talked about in the – on the recurring revenue percentage, which could drive a little bit more for the year, but in general those ratios are about the same as we expected.

Vincent Colicchio – Noble Financial

Okay. So, new contracts still only about 5%.

Mark Haidet

That’s right, between – somewhere between 5% and 10%.

Vincent Colicchio – Noble Financial

Okay. I forget if it was Mark or John mentioned at this – seeing a turn-up in one aspect of the channel market. What were you referring to? Will that be the restaurant market?

John Heyman

This is John. The first – the biggest area we’ve seen an upturn so far is in – actually is in Europe. So, the rest of businesses feel stable is the way I would characterize it.

Vincent Colicchio – Noble Financial

Okay. A question on Orderman. Where do we stand in terms of getting the European dealers to – in a position to sell Radiant product into their customer base? Has that started, we do we stand on that?

John Heyman

We’ve definitely started the plans. Andy actually just got back from Salzburg and meeting with a number of channel partners. So, I’ll let him answer that question.

Andy Heyman

Yes, the – we – there – we’ve been obviously been there for quite some time. I was there a couple of weeks and I was in London and Munich and in Salzburg and visiting with a variety of partners in Europe and it’s amazing how they are waiting for additional products from Radiant. So, the long-term opportunity is I think better than we thought it was.

What we want to make sure of is that a lot of the Orderman qualities of their products have some very powerful design factors for the restaurant businesses there and as we are trying to work with the Orderman to mimic those, it’s really important that we get these products right and really expand the Orderman brand. So, as we are doing that we are including a lot of the inputs from these partners and as we look to 2010 and beyond, we are very optimistic about what this can mean for our business.

John Heyman

The hardware terminal we are launching in Europe is a different one than we’ve been selling historically and capitalizes a lot on those features. So, by the time you complete design and tooling, et cetera, it will be late this year that that’s introduced to the market.

Vincent Colicchio – Noble Financial

Okay, thanks guys.

Operator

We’ll now hear from Gil Luria with Wedbush Morgan Securities.

Nick – Wedbush Morgan Securities

Hi, thanks. It’s actually Nick [ph] for Gil. What were your international revenues in the (inaudible) mix there?

John Heyman

International was about – Nick, international was about 14% of total revenue.

Nick – Wedbush Morgan Securities

Great, thanks. And how is the adoption of Orderman progressing in the US? Are you guys investing in that at all?

Andy Heyman

This is Andy. The – Orderman had – there was three parts to the strategy. One was let’s make sure that the core business of Orderman with a lot of the mobile ordering and payment devices in Europe continue to go well for the long term. So, it’s important that we protect that asset. The second one was bringing new products into the European channel, which we just talked about.

And then the third one, which we did not put a lot of money in the business case for, was the idea of bringing the solution here to the US, which is towards your question. We are continuing to work on a variety of – with a variety of partners and pilots. I think we are talking about a long-term cycle. It’s one that we think – if we were talking ten years from now, we think there would be thousands of them out there. What the adoption cycle is between now and ten years from now remains unclear to us, but we have a – we think there is a lot of potential there.

Nick – Wedbush Morgan Securities

Great, thanks. And I apologize for this, but would you mind repeating where you stand with respect to your debt covenants?

Mark Haidet

Sure. The EBITDA, trailing 12 months EBITDA leverage ratio is 2.2 versus a covenant of 3 and our fixed-charge coverage ratio was 1.6 versus a covenant of 1.3.

Nick – Wedbush Morgan Securities

Great, thanks so much.

Mark Haidet

Yes.

Operator

And this concludes today’s question-and-answer session. At this time, I would like to turn the conference back over to John Heyman for any additional –

John Heyman

Okay. Thank you, Jessica. And thanks, again, to everyone for joining us this afternoon and of course, thank you to each and every one of our employees who are going above and beyond to deliver these kinds of results for our customers and our company. We will speak with you next quarter.

Operator

This concludes today’s conference call. Thank you for joining us.

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