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MICROS Systems (NASDAQ:MCRS)

Q3 2013 Earnings Call

April 25, 2013 4:45 pm ET

Executives

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

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

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

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

Analysts

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

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

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

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

Keith M. Housum - Northcoast Research

Arvind Rajamohan - Stifel, Nicolaus & Co., Inc., Research Division

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the MICROS Systems Fiscal Year 2013 Third Quarter Review. [Operator Instructions] Quick reminder, this conference is being recorded April 25, 2013.

It's now my pleasure to turn the conference over to Peter Rogers, Executive Vice President of Investor Relations. Please go ahead, sir.

Peter J. Rogers

Good afternoon, ladies and gentlemen. Thank you, David. This is Peter Rogers. On behalf of the entire MICROS team assembled here today, thank you for joining us to discuss our fiscal 2013 third quarter results. I'm here today with Peter Altabef, our President and CEO; Cynthia Russo, our CFO; and Thomas Patz, our Chief Legal Counsel and EVP of Strategic Initiatives.

I'll start by reading our Safe Harbor statement and turn the call over to Peter Altabef for his comments.

Some of the comments today are forward-looking statements that involve risks and uncertainties, such as uncertainties of product demand and market acceptance, the 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 patent 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 to conform to actual results or changes in MICROS expectations. Other risks and uncertainties associated with MICROS business are identified in the management's discussion, analysis of financial condition and results of operations and Business and Investment Risk sections of MICROS SEC filings.

Peter?

Peter A. Altabef

Thank you, Peter, and good afternoon, everyone. I join Peter in thanking you for your participation on the call today. In addition to answering your questions, I'd like to accomplish 3 things on today's call: first, I will review our results for the quarter; second, I'd like to share with you some of my observations for my first several months with the company; and finally, I'll discuss where we are going and what you should expect from us.

Our revenue for the quarter was $315.1 million, a 13.3% increase over the year-ago quarter. While this is a record level of revenue for our third fiscal quarter, we came in below our expectations. Excluding Torex, which we acquired at the end of May last year, our revenue declined 4% on an as reported basis, 3.1% in constant currency.

Our focus on controlling costs drove strong margin and earnings results. Our non-GAAP earnings were $0.62 a share, which is a record for our fiscal third quarter.

The biggest negative contributor to our revenue performance in the quarter was the global macro environment, particularly in North America and Europe. We clearly saw the impact of the macro environment on our clients' willingness to invest, as well as longer sales cycles associated with new deals.

In addition, in the restaurant industry, we continue to see average sales per unit under pressure in some sub-segments, as well as a relative shift in emphasis from table service to fast casual and quick service restaurants, which often have lower technology spend per store.

Finally, because the U.K. represents about 14% of our revenue, the ongoing subpar economy there has had an important negative effect on us.

With respect to our operations, EAME now represents 45% of our total revenue, with the U.S. and Canada, 39%; Asia Pacific, 12%; and Latin America, 4%.

We signed a meaningful number of important new contracts in the quarter. In restaurants, we signed contracts covering more than 1,000 sites from 7 major restaurant chains around the world. And we are in active discussions with other major chains representing several thousand additional sites.

We're also happy to announce that Starwood has selected our Simphony cloud solution as its next-generation global point-of-sale platform.

In hotels, we're clear to announce that Marriott International has elected Opera for its hotel brands worldwide. As you know, this is a major win for the company, one that we have been working on for more than 2 years. While it will take time for the financial returns of this relationship to become apparent, it is a major advance for Opera 9, our next-generation web-based hotel enterprise platform.

Tom Patz, who led our efforts with Marriott, is on the call and can answer questions about the announcement in the Q&A portion of the call.

In addition, we had 2 major hotel chain wins in South America, one in Africa and numerous large and independent hotel wins in North America and EAME.

In retail, we had 11 significant contract wins. We signed our first software license contract for the Lucas enterprise platform in South America with a major retailer. This deal was made possible by our acquisition of Torex and reflects the fact that, in addition to making excellent progress integrating Torex into our operations, we're also integrating Torex's products into the broad suite of MICROS' offerings.

Torex was a significant acquisition for us, representing approximately 15% of revenue for the quarter, with a large concentration in EAME.

But before moving off this part of the discussion, I'd like to speak about the rest of fiscal 2013.

Based on our Q3 results and our current view of Q4, we are today revising our guidance for fiscal 2013. We now expect fiscal 2013 revenue of between $1.256 billion and $1.272 billion and non-GAAP EPS from $2.37 to $2.39, with resulting fourth quarter revenue of between $317 million and $333 million and non-GAAP EPS for the quarter of between $0.61 and $0.63. This reflects our best estimate of the near-term demand outlook.

In addition, we are introducing preliminary revenue guidance for fiscal 2014 of between $1.29 billion and $1.315 billion.

Moving to my second topic. Since arriving in MICROS just after the first of the year, I've spent much of my time speaking with our clients and associates around the world.

In addition to being energized by the quality and enthusiasm of our people, 2 things become very clear to me. First, there is significant innovation taking place at MICROS. Notwithstanding our successful history and our strong position in our target markets, no one here is standing still.

We're working hard to address and stay in front of the technology shifts that are impacting our business and our clients' businesses. By way of just a few examples, in restaurant, we released inMotion, our mobile application for restaurant managers, with realtime actionable information. inMotion has been very well received by our client base and substantially enhances the value of our mymicros.net web-based software platform.

We are also continuing to work on our tablet platform and workstation, which we expect to be ready for market release in July. And our Simphony platform continues to gain momentum with over 10,600 sites now installed.

With our emphasis on mobility, data analytics and enhancements to our software platforms, we should be in a stronger position to expand our market share in the changing restaurant environment.

In our hotel segment, we launched the beta of a new mobile module for Opera 9, with the release scheduled for this quarter. Mobile is a driving force in our markets, and we will continue to make investments required to ensure that it is an integral part of our offerings.

In retail, we introduced our new merchandising planner software suite and have secured our first launch customer. We also introduced XBR Ingenium, a web-based successor to our product of XBR data analytics, which is a -- which is -- excuse me, to our XBR data analytics driven loss prevention solution. We also released new versions of Xstore and Retail-J, each industry-leading enterprise applications.

Our retail business is performing well, growing 7.8% quarter-to-quarter even before Torex.

Across each of our segments, we are also continuing to evolve the MICROS product suite to a recurring revenue model. Today, recurring revenue represents 45.4% of our total, of which hosting and SaaS revenue was $21.7 million for the quarter. And we will continue to focus on growing our hosting and SaaS portfolio and capabilities, as well as our other recurring revenue offerings.

My second observation is just how critical what we do is to what our clients do. Without our systems, hotel rooms go unoccupied, tables go unbilled and retail merchandise goes unsold. Moreover and importantly, our clients have welcomed our development of enterprise applications in their markets, and I believe this will be an increasingly important part of our business. So despite the current environment, I am convinced that we have significant meaningful opportunities to continue to grow and enhance the MICROS franchise.

Let me speak about the future. We are already working towards several important new initiatives. First, we are enhancing and leveraging our software development teams around the world. Our time-to-market for new platforms and releases will be accelerated. And our visibility and efficiency inside and between our 3 sets of vertical software platforms, hotels, restaurants and retail, will be improved.

Second, our hosting and SaaS capabilities are being enhanced and broadened. Our global software, sales and service capabilities are a major strategic asset for our company, and our hosting and SaaS services will continue to follow suit.

Third, our balance sheet is an important strength and a competitive asset. It has always been my philosophy as a CEO that return of capital to shareholders sits alongside internal investment and M&A as key components of an overall strategy. MICROS' track record in this area is quite strong, having returned approximately $195 million of cash via share repurchases in the past 12 quarters.

Having said that and consistent with our focus on being prudent stewards of our shareholders' capital, our board has approved an expanded share repurchase authorization of an additional $225 million of stock. This authorization is in addition to the current stock repurchase plan now in effect, which has 1.4 million shares remaining. In total, at today's closing price, this gives us the authorization to repurchase approximately $285 million of stock. We will take advantage of this flexibility when we see attractive buying opportunities.

With that, let me turn the call over to Cindy to discuss our financial aspects in greater detail. After that, we'll open the call for questions.

Cynthia A. Russo

Thank you, Peter, and good afternoon, everyone. As Peter reported, our total revenue in the third quarter was $315.1 million, up 13.3% versus Q3 2012. On a constant currency basis, Q3 sales increased 14.2% year-over-year.

Fluctuations in exchange rates negatively impacted revenues by $2.3 million and earnings by a nominal amount. Year-to-date, currency movements have decreased reported revenues by $11.4 million and earnings per share by $0.02.

Recurring revenues for the quarter increased 31.1% to $143.2 million. This equates to more than 45% of total revenues.

In addition, the investments we have made in our hosting infrastructure continues to pay off, both for our customers and our shareholders. SaaS revenues this quarter came in at $21.7 million, up 19.7% year-to-date on a constant currency basis.

Let me provide you some additional color as we break down -- of our revenues. First, geographically, approximately 61% of our revenues came from outside the U.S. and Canada, EAME accounted for $142.6 million; Asia Pacific, $38.3 million; and Latin America, $13.1 million.

As Peter mentioned, Europe was a difficult environment, particularly the U.K., which represents 14% of our business. We saw good growth in our Eastern and Southern European subsidiaries, though not enough to compensate for the U.S. -- U.K.

We've seen strong growth in Latin America, up 13.2% year-to-date, and driven by sales in the restaurant hospitality vertical.

Revenues in Asia Pacific were down in the quarter due to timings of installations. Importantly, though, we view this as a timing issue rather than a secular decline. The region is still expected to hit its 2013 target of 10-plus percent growth.

Though our executive team manages the company by these geographical segments, we also review our enterprise solutions sales through our 3 main verticals: restaurants, hotels and retail. From this standpoint, we continue to move towards a nicely balanced distribution among our 3 markets. In the third quarter, our restaurant business accounted for 38% of revenues; and hotels were 37%; retail accounted for the remaining 25%.

In the U.S. and Canada, hotels and retail exhibited moderate growth over the prior Q3. Restaurant deliveries in the quarter were weak, primarily a result of longer sales cycles in our major account division and flat demand from the street business.

Our subsidiary, formally known as Torex Retail, contributed revenues of $48.1 million in the quarter and $144.1 million year-to-date.

Moving down the income statement, gross margin continues to be a great story for the company. Organic gross margins improved 70 basis points over last year's Q3, coming in at 55.6%. The expansion in our organic margin was primarily driven from increased proceeds on our hardware and software sales, combined with the favorable mix of higher service related revenues.

Including Torex, with gross margins in the period of 35.5%, reported third quarter gross margin was 52.5%. As we continue to onboard new Torex customers onto our maintenance model and legacy outsourcing contracts come to term in the second half of calendar 2014, we anticipate Torex margins to progressively increase.

As Peter stated, the company continues to invest significantly in research and development to drive product innovation and keep us ahead of our clients' needs. Net R&D expense of $18 million is up 34% over the prior year, and we plan to continue our investment here. Year-to-date, R&D as a percentage of revenue was approximately 5.5% compared to 4.5% in the comparable period.

SG&A expenses in the period totaled 24.8% of revenues compared to 27.3% last year. While management continues to invest in sales and R&D, we continue in parallel to review the timing of certain discretionary expenses to scrutinize carefully and cautiously the expansion of our workforce.

Q3 of the year-ago period also included onetime expenditures related to external royalties in our M&A activity.

Non-GAAP income from operations was $65.3 million in the third quarter, up 9.8% on a constant currency basis. Torex operating income excluding amortization and restructuring charges was $1.3 million in the quarter.

From a GAAP perspective, we've taken a restructuring charge of $800,000 in the period, as we assimilate the retail operations purchased last year into our existing global infrastructure. Through this cost-reduction program, which is well underway, we will begin to see savings in the coming quarters. Additional restructuring expenses are anticipated to be taken as needed.

Non-operating income for the quarter was $1.6 million. This figure includes $0.9 million in interest income and a currency gain amounting to $700,000. As disclosed last quarter, we have now finalized the settlement of all of our auction rate security holdings and no longer carry these investments on our balance sheet.

The GAAP and non-GAAP tax rate of 25.7% in the quarter was favorably affected by the retroactive extension of the R&D tax credit and the company's jurisdictional mix of earnings. For fiscal 2013, I would forecast an effective GAAP and non-GAAP tax rate of approximately 27% to 28%.

Third quarter earnings per share increased 10.7% over the comparable period to $0.62 versus last year's $0.56.

Turning to the balance sheet. Cash and investments on hand at March 31, 2013 was $669.4 million. Approximately 45% of this cash is offshore.

Day sales outstanding at quarter-end were 68.2 days, with the U.S., Canada DSOs at 49.7 and international DSOs at 79.7 days.

Our net inventory balance has increased 3.4% over the prior period and is again related to the timing of our customer rollout. Specific customer rollouts in Brazil, Germany, The Netherlands, Macau and the United States make up most of the increase in the last 6 months and are allotted for Q4 delivery.

Our combined current and long-term deferred revenue balance of $204.3 million has increased $29.4 million or 16.8% year-over-year. As you recall, our deferred revenue balance is at its largest in our third quarter, as many of our domestic and international calendar year contracts come up for renewal.

MICROS continues to be a strong cash generator. In the third quarter of fiscal 2013, we generated a free cash flow of $67.3 million, a 29% increase over the prior quarter and a 10% increase over the same quarter last year.

Capital expenditures in the 9-month period totaled $15.7 million. The majority of the spend was hosting related to -- for the aforementioned increases in our SaaS revenue and is amortized into our services cost of sales over the life of the hosting hardware.

During the quarter, we spent $37.5 million on share repurchases, buying back a total of 861,000 shares at an average price of $43.59 per share. Thus far in Q4, MICROS has repurchased an additional 164,000 shares of common stock for $7.3 million.

For today's press release, we will have the ability to be even more aggressive going forward with our expanded share repurchase authorization.

As a supplement to the fiscal 2014 preliminary guidance already provided by Peter, I would also recommend that you model a tax rate between 32% and 33% for next year, with a significantly higher rate in the first quarter.

Additional management commentary and details can be found on our Form 10-Q, which will be filed this evening. Furthermore, we have published an additional financial fact sheet on the company's Investor Relations website.

Peter?

Peter A. Altabef

Thank you, Cindy. Before beginning the Q&A portion of the call, I would especially like to recognize and thank Tom Giannopoulos for his exemplary leadership as President and CEO of MICROS for almost 2 decades. All of us at MICROS owe Tom a very big thank you for his leadership and his drive in building MICROS into one of the most respected technology partners in the markets we serve.

On a personal note, Tom has also been quite generous with his time and support in assisting me as I join the MICROS team a few years back -- excuse me, a few months back, and for that, I'm personally grateful.

Operator, we'll now open the call to questions from listeners.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question today comes from the line of Dan Perlin from RBC Capital Markets.

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

So a couple of things, I guess, I'll give Tom Patz a chance to talk. Tom, can you talk through some of the -- how we should be thinking about the financial implications on Marriott now that you've got it announced and under your belt?

Thomas L. Patz

Hey, Dan, how are you? Well, as you can imagine, we can't really right now get into the financials. Marriott's, for good reasons, sensitive about it. So I can't comment on the economics. Let me give a little background as to where we are. At the start of the negotiation over 2 years ago, it became clear that Marriott and MICROS did share this common vision of the nature and direction of our enterprise hotel management system, both from an architectural and operational standpoint, okay? That's the good news. What does this all mean? What does this entail? Well, it's a multipart contract, okay? The first part obviously is a further development of our Opera suite of products to address the specific Marriott required functionality. Once that development is completed over the next 18-plus months, okay, we then launch into a multi-phase pilot, okay? Once that pilot is completed, that's when the fun starts and we begin the deployment of Opera at over 3,200 sites here in the U.S. and Canada. And this right now will take several years, okay, once we get into the meat of the deployment. It's important to note, this is a true SaaS offering and SaaS arrangement. This is a service we are offering in the cloud that includes our hosting of all the applications, of course, our help desk and our support and the initial implementation and training at all the 3,200-plus sites. Needless to say, we're quite excited about this new and broadened relationship with Marriott for multiple increases. And as you can imagine, Marriott did perform a highly comprehensive due diligence of our software, our development processes and our hosting capabilities. We received very good grades as part of that process, validating both our technology and approach. Second, Marriott has some terrific resources, both from a hosting and industry domain standpoint, and we believe everyone will benefit from this type of cooperative working relationship. Third, the Marriott relationship, by virtue of its size, allows us to accelerate, not only Opera development, but also our deployment and hosting capabilities. And finally, needless to say, from a philosophical standpoint, this alliance validates our long-held and strong-held belief that our solutions play perfectly in the cloud.

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

That's great. The other thing I wanted to touch on, you were kind enough to give us a kind of a quick look into fiscal '14 on the top line.

And I know you probably don't want to get in all the details. But I would be interested -- I mean, the organic growth looks pretty benign considering all of the announcements and obviously, we'll move Marriott aside. But all of these announcements that you've talked about in retail in particular and some of these other ones would sound like cross-selling opportunities as a result of Torex. One would've thought you would've been able to achieve something greater than 3% type of organic growth? So can you at least help us understand what you're thinking was in order to kind of put these numbers out and what ultimately we need to be aware of as we build that out?

Peter J. Rogers

Dan, I think our approach is we're really -- we want to be conservative looking to -- given the uncertainties of the global economy. Secondly, a lot of the contracts we announced, there is a fair amount of development we have to go through. We've gone anywhere from 3 to 9 months and the Marriott's still a little bit further out 18 to 24. Just because it's not a contract, it doesn't mean we get revenue right away. There's a process development and then we generally recognize the revenue site by site. So we're just taking a very cautious approach for next fiscal year.

Operator

Our next question today comes from line of Ross MacMillan from Jefferies.

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

Maybe 2 questions. As we think about the Q4 guidance and the construct, could you help us at all in terms of hardware, software, if you will, the move down relative to where you had been previously. Is it mostly going to show through on hardware, software or consulting revenues? Could you give us any sense of the magnitude across the line items? Any color there would be great.

Peter A. Altabef

Ross, thank you. Cindy's going to give that to you in just a second. Just -- this is Peter. Just a quick note, by the way, and Dan, thank you for leading off with Marriott. I just want to underline the tremendous job that our team has done on that. Tom Patz is on the call in particular, but our entire team. And he said it clearly, so I won't repeat it. Other than to again emphasize briefly the importance of that in terms of our positioning as a provider of hosting and SaaS services and the technology architecture for Opera 9, which is our next-generation system. So it's a very big deal for us. Cindy, go ahead.

Cynthia A. Russo

Okay. Ross, so we gave our Q4 guidance for revenues, $317 million to $333 million. And as you've seen over the past 3 quarters, the percentage for hardware sales, software sales and service sales has been relatively consistent. So I expect in Q4 to remain that consistent percentage of the revenue. I don't expect any spikes in any of the business lines.

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

Okay. I'll maybe follow up on that. Maybe just 2 quick other ones. I did notice it's a small thing, but the SaaS revenue line was down sequentially. Was there any reallocation this quarter? Anything that would drive that?

Cynthia A. Russo

No. As you recall, I think we have discussed that there was a reclass last quarter between the SaaS and the maintenance. And so it increased and bumped up the SaaS last quarter and came out of maintenance. So it was all still within the service line. So now you've seen the true accurate figures without any reclasses. So last quarter, that was a spike.

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

Okay, that's helpful. And then just -- I know you've given us the first look into next year from a revenue standpoint. I know you haven't given us any thoughts around margins or earnings. But I was curious as we think about the sort of the pace of investments that you're making coupled with cost savings maybe in SG&A, is there any color you could provide to help us think about profitability next year, margins next year?

Peter A. Altabef

Yes, this is Peter. It's -- obviously, we -- it's very premature for us to give that in our cycle. We did want to give some top line revenue note. There are clearly some things we are looking at. We're looking at the level of R&D spend and whether we're at the right level. On the other side of the equation, we're looking at how to become more efficient, and we do expect that over time, the gross margins at Torex will increase. So you've got some puts and takes there. And it's simply too early for us to give any indication of the actual number. Cindy, anything else?

Cynthia A. Russo

No. we're just -- we're going through -- we'll give you obviously more detailed guidance next quarter. It's just going from the timings of the savings and the additional spending that we've said we were going to do and making sure -- so we'll give you more detailed guidance next quarter.

Peter A. Altabef

The only other thing I would highlight is the tax rate change.

Cynthia A. Russo

Right, I wanted to specifically to indicate the tax rate because that is -- it is unusual and it is much higher for us, okay? So that's why I specifically mentioned not only for the full year rate, but I also mentioned Q1. I expect a very significant increase in Q1 for our tax rate. And it's unusual, but there are some tax -- potentially, some tax enactment changes in an international perspective. And until they're enacted, that's when you do the calculation. So we're not 100% sure, but we highly believe we've been told that they're going to be enacted in Q1.

Peter J. Rogers

Ross, I also want to say that the group that -- we really took the initiative. We had to take a look at the fiscal '14 revenue. Now we generally did that on August. We did things important to give some clarity, the best we can see at this point in time. As Peter said, it's too early for an ETS, but we do want to give our best estimates for revenue fiscal '14.

Operator

We'll move to our next question coming from the line of Terry Tillman from Raymond James.

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

The first question just relates to maybe closing the loop on the Marriott front. So there's going to be a fair amount of development work. Would any of that show up on the income statement such as maybe certain milestones would actually see, recognize software? Or should we really not think about any revenue from this domestic contract hitting the revenue lines in FY '14?

Cynthia A. Russo

This is Cindy, Terry. The Marriott contract, there is a significant amount of development. We said -- stated it's going to take 18 to 24 months. The difference with SaaS accounting is that you do not recognize it until the rollout starts occurring. So there will not be any revenue until that rollout starts to accrue and roll out. So it will be -- so there will be no revenue anticipated or very little anticipated for the next 18 to 24 months related to this contract.

Thomas L. Patz

Terry, in the fiscal year '14 number we've provided, it does not include any incremental revenue from Marriott associated with this large contract we just signed.

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

Okay. And I guess, Peter, the CEO Peter, you provided a lot of color in terms of new wins. Simphony, I think you said that maybe you're up to 10,600 or 10,700 sites. I mean Starbucks is still clearly the kind of the guidepost there or the lighthouse customer for you. I mean, I'd love to get some more color, maybe you talked about 1,000 new sites that you've won. How much of that is actually Simphony? How relevant is it in the pipeline now?

Peter A. Altabef

That's a good question. I don't have the exact number of the 1,000. I will tell you from a -- obviously, the announcement I just made about Starwood, that's a -- this quarter's signing, it was not a signing from last quarter. In addition, as I look at our pipeline and importantly as I look at our pipeline really around the world, particularly in EAME, as well as Asia Pacific and the U.S., that Simphony platform, which is really a next-generation platform for us, still -- I mean there's a lot of development going on in that platform -- is gaining traction. And we think from a competitive standpoint going forward, we are really well situated as a global provider of a next-generation platform like that. So when you get to a company like Starwood, which is looking for a global platform, that's a significant competitive advantage for us, we believe. As I said, that Simphony product is still undergoing a great deal of development, but we're getting a lot of interest in it.

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

Okay. And just my last question relates to looking at the midpoints of the ranges for FY '13 and '14, I'm calculating over 4% organic growth. I guess, though, I mean, Peter Rogers, you talked about caution and just being conservative given the macro. But what is also in the thinking about this initial guidance in terms of just the shift in your business naturally over time to more of a recurring story? And how have you accounted for that whether it's Simphony traction or hosted Opera traction in the FY '14 model? Did some of that play also in this initial guidance in terms of potentially impacting growth?

Peter J. Rogers

Well, yes, I'll be candid. I mean, it's very hard to be that precise trying to gauge what the customers, in terms of their timing of installations, you start recognizing it. So we are cautious, that -- the world's probably about 2% to 4% total growth organically. We're just taking a cautious view. But we've seen some accounts that we think we land the rollout starts from the 3 months, it could take 6 to 9 months. It could be a function of economy, at a particular account, having to hire people. We're just taking a very cautious approach. The SaaS one, we looked at that software front, and there was a gradual shift for business. But coming back to fiscal '14 is just a cautious approach of what we can see today. [indiscernible] It's about 2% to 4% next year, Terry, not higher than that.

Operator

Our next question today comes from line of Gil Luria from Wedbush Securities.

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

Close enough. First of all, I wanted to ask a question. When you lowering the guidance -- you're lowering the guidance for fiscal '13 by about 5 percentage points versus your original guidance. And you talked about macro factors and you also mentioned one secular factor, the fact that the deal size is going -- is getting a little smaller for the restaurants. If you were to break down that 5-percentage-point difference from the original guidance to today's guidance for the year, how much of it is related to the macroeconomic environment versus the secular type factors?

Peter J. Rogers

Gil, I think that the secular trend probably is about 75%, and the smaller units, in terms of restaurants, about 25% in that range. Interesting, in restaurants, we're actually doing more sites this year than a year ago. So we're probably gaining market share. But as I said, the average deal size is down significantly just a function of the sites we're doing or any unit expansion and conversions much smaller. So I'd say 75% secular, 25% in terms of smaller revenue per site.

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

Do you mean 75% related to the economy and 25% related to the smaller size?

Peter J. Rogers

25% [ph] of the economy.

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

Okay, got it. That makes sense. And then Starwood, you talked about a Simphony deployment. Starwood has their own platform for managing their hotels. Could we read into the future that possibly they'd reconsider that?

Peter A. Altabef

Well, the reference was solely to the Simphony as our restaurant platform. There was no intent to read anything other than that.

Peter J. Rogers

But I want to clarify. Starwood International uses Opera. Starwood North America uses an internal platform, just to be clear on that point. And Starwood International continues to host with Opera globally.

Thomas L. Patz

And we should note, Starwood International also is in the cloud with Opera version 5 as well via our hosting center.

Operator

Next question coming from the line of Keith Housum from Northcoast.

Keith M. Housum - Northcoast Research

Question, Peter Altabef, you mentioned a lot of wins in your script earlier, and it's really more than we -- I guess we've been hearing from past calls. Can you perhaps compare the number of wins that you announced today perhaps with what you experienced in prior quarters and what it looks like going forward?

Peter A. Altabef

Well I'm probably not the best person given my 115-day status to do that. I will tell you, just in terms of the way we are approaching these calls, as well as the way we're approaching the data. I would say our effort is to be as wholesome and transparent as possible. So that's why you're hearing a lot of information from me on this call. You can expect to do that in the future. Cindy referenced a new datasheet that we have put on our Investor Relations site today. Again, that's a new format. So I guess, what I would say to you is you'll continue to see a lot of information from us. I'll defer to Cindy or Peter as to whether from a prior period the number of wins.

Peter J. Rogers

Yes, I would think historically -- it's actually -- was a very good quarter of wins, especially in the retail side. And I know that we had a significant number of wins in December. But we are also seeing both and even in the restaurant segment, there's a fair amount of deals we have to do. So at this time, the deal started installing. So we are seeing more customization we're getting paid for as part of the global platform. I think the good news is the outlook is actually very positive for it's a very high-deal activity despite the global economy. Then again, these deals are anywhere from 1 to 5 years out. The good news is activity is really picking up, though the general independent restaurants, hotels is still pretty flat -- or are flat if not down on North America and Europe, Africa and Middle East.

Peter A. Altabef

I mean, if we feel very good about our positioning in all 3 of our verticals. So we feel as if we should be gaining market share, although in the hotel business, we already have very significant market share. But we feel as we should be gaining market share in our verticals and are working very hard to make that happen.

Keith M. Housum - Northcoast Research

So as I hear your responses, it sounds like that your wins though, you got -- it's a good quarter for wins, but part of the issue is that you may not be able to recognize some of this revenue for 6, 9, 12 months because of the amount of work that needs go into it before they can be deployed.

Peter J. Rogers

That's absolutely correct.

Peter A. Altabef

And that's true on some of the business. Now keep in mind on Marriott, that's the signing from this quarter as opposed to last quarter. But they will -- there is a deferred aspect to some of it.

Thomas L. Patz

And I think going into the future, as our hosting and SaaS business becomes more important, which it should, it will again be something of a deferred gratification mode.

Keith M. Housum - Northcoast Research

Okay. And a follow-up question. With the comments regarding the restaurant space, I think I've got to ask it. What do you think the impact is of the consumer devices with, I guess, the flat to declining sales with the tabletop restaurants?

Peter A. Altabef

No, I mean, I think there are -- as I indicated in my comments, I think there are a lot of moving pieces in the restaurant world. Clearly, if you look at the consumer section, the smallest start-up restaurants, you have much more competition there from start-up devices or very, very inexpensive kind of self-improvisation devices. That's never been a market that MICROS actually targeted. So you have that market, I think, from -- those who used to use cash registers are now moving more quickly into other electronic means. But again, it was never core markets for us. I think what you are seeing for us and what's directly affecting our business is fewer of the full table service business is opening up, those tend to be more elaborate, more expensive facilities with more technology. As you go down to the light casual, as you go down to the quick service, you're going to make less money per market. In addition, I would say we're seeing a lot of competition for that business. That business is becoming more competitive. As I said, we are out there working that very hard, but you're seeing some secular changes that is resulting in a lower revenue per restaurant for us. And what Peter said is very true.

Operator

And we have room for one more question coming from the line of Arvind Rajamohan from Stifel.

Arvind Rajamohan - Stifel, Nicolaus & Co., Inc., Research Division

Close enough. Just trying to sneak in 2 quick ones. Can you guys talk about your current sales team and your capacity and as you look into fiscal '14, do you think that's an area you're happy with, Peter, is that something that you think you have some room to add to?

Peter A. Altabef

Well, in terms of the 2 largest initiatives that I highlighted in my comments, the first was about our R&D capability. The second was about our hosting and SaaS capability. It's really making sure that we've got the right products in a timely fashion and that we have the right way to distribute it. I think our sales teams are things that always evolve. Ours will continue to evolve. But at this point, I'm not willing to say we're making wholesale changes to our sales team or our structure. Sales teams are one of those things you have to be careful with. And you just have to make sure that you're continuing to get better everyday. That said, when you get into things like hosting and SaaS, there are some structural changes you need to make to how you compensate people, how you target people. We have to make sure we're on top of that.

Arvind Rajamohan - Stifel, Nicolaus & Co., Inc., Research Division

Got you. And then...

Peter A. Altabef

Arvind, if you have a second question, I'm happy to take it.

Arvind Rajamohan - Stifel, Nicolaus & Co., Inc., Research Division

Great. Just maybe, I don't know how much you guys can talk about your mTablet [ph] and mStand. I know it's been in pilot for a couple of customers. Maybe if you can just talk about how that traction has been going and how we should think about distribution for that and pricing eventually?

Peter A. Altabef

Well, the first thing I would say is we've gotten a lot of client interest in it. But as far as we're concerned, that hardware and all of our hardware, those are the things that we are designing industry-specific pieces of hardware, which generate good margin for us. And that's important to us. We continue to focus on very industry-specific, purpose-built hardware with good margins, less of a volume play, if you will, more of a margin play. And what that means is alongside of our custom hardware, we are perfectly happy to sell software that is unrelated to our hardware. So we're not focusing on our custom tablet at the expense of iPad apps or Android apps or XML apps. We intend to be able to deliver our software on each of those platforms. That said, on the hardware side, as I noted in my comments, we're expecting the mTablet [ph] release in July. I have seen it. It's a good-looking piece of hardware. And I think we are coming out with 2 versions of it. One version that is less expensive and is an indoor tablet similar to the other tablets that you've all seen. One version that is quite interesting technology that is extremely visible outdoors. Again, it's custom-built, but for people who have outdoor restaurants or people who are selling in an outdoor environment at a resort, it's going to be a very distinctive piece of hardware. And so that's kind of our strategy. And we expect that strategy to continue to be successful.

Operator

Mr. Rogers, I'll turn the call back to you.

Peter J. Rogers

Maybe we can take 2 more questions. I know there's a lot of interest, but we have time for 2 more questions.

Operator

Certainly, we have no questions registered. [Operator Instructions] A question from Ross MacMillan from Jefferies.

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

I just had one on Marriott. Congratulations, by the way. It's a great win. Can you talk to -- it sounds like it's an all-hosted deal and I was just curious, did that mean that all the franchisees are likely to be consuming Opera under that deal on a hosted basis, as well as the corporate-owned sites?

Thomas L. Patz

Yes, Ross, everyone in the Marriott estate, the franchise, the properties, the managed properties and the owned properties. 100% of the entire estate will be on hosted Opera in our data center. And by the way, this is a good time to just give everyone kind of a quickie update. As excited as we are about the Marriott, and it's been baking, as you know for a long time, we actually have a few other customers now who fully embrace the hosted cloud PMS including, for example, Wyndham, where we're now in pilot, which is a large customer of ours. Best Western, where we're going to pilot now with Opera in the cloud. And I would be remiss to mention that, of course, that one of the largest hotel chains in the world, Accor, over in Europe has now 300 plus sites that is -- that remain in our hosting center in Frankfurt, and we have other core sites that are now in the queue to go into data center in Frankfurt.

Operator

And at this time, we have no more further questions registered. Mr. Rogers, I'll turn the call back to you, sir.

Peter J. Rogers

Well, David, thank you very much. Ladies and gentlemen, MICROS shareholders and others, thank you very much for listening to our call. I'm available clearly for calls tonight and tomorrow ongoing. And we'll talk again at the end of August. Thank you very much.

Peter A. Altabef

Thanks, everyone.

Cynthia A. Russo

Thanks.

Operator

And ladies and gentlemen, that will conclude our conference call for today. We thank you for your participation, and you may now disconnect your lines.

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