MICROS Systems Management Discusses Q4 2013 Results - Earnings Call Transcript

Aug.22.13 | About: MICROS Systems, (MCRS)

MICROS Systems (NASDAQ:MCRS)

Q4 2013 Earnings Call

August 22, 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, Principal Accounting officer and Executive Vice President

Analysts

Mayank Tandon - Needham & Company, LLC, Research Division

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

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

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

Keith M. Housum - Northcoast Research

Brian Murphy - Sidoti & Company, LLC

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the fiscal year 2013 fourth quarter call with Peter Rogers. [Operator Instructions] As a reminder, this conference is being recorded, Thursday, August 22, 2013.

I would now like to turn the call over to Peter Rogers. Please go ahead, sir.

Peter J. Rogers

Thank you, Patra [ph]. Good afternoon, ladies and gentlemen. On behalf of the entire MICROS team assembled today, let me thank you for joining us to discuss our fiscal 2013 full year and fourth 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 will start by reading our Safe Harbor statement and turn the call over to Peter for his comments.

Safe Harbor statements. Some of the comments today are forward-looking statements that involve risks and uncertainties, such as the 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 patented by others; environmental and health-related events; unanticipated tax liabilities; and the effects of terrorist activity and armed conflict.

MICROS undertakes no duty to update any forward-looking statements 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 and analysis of financial condition and results of operations, and Business and Investment Risk sections of MICROS' SEC filings. Additionally, we will post our financial fact and data sheets in the Investor Relations sections of our website, www.micros.com, after this call. We'll also file our fiscal 2013 10-K this evening. Peter?

Peter A. Altabef

Thank you, Peter, and good afternoon, everyone. Let me start with a high-level review of our results before providing some color on what we are seeing in our businesses and then discuss our fiscal 2014 guidance. We finished fiscal year 2013 with revenue of $1.268 billion, an increase of $160.6 million over fiscal 2012, a growth rate of 14.5%.

Our fiscal 2013 non-GAAP net income was $191.9 million, an increase of $9.3 million over fiscal 2012, a growth rate of 5.1%. Our fiscal year 2013 non-GAAP EPS was $2.38, an increase of $0.16 over fiscal 2012, a growth rate of 7.2%.

Our revenue grew faster than our net income and EPS. The difference is primarily attributable to our acquisition of Torex, which has lower-profit margins than core MICROS. The fiscal year results are all records for MICROS.

For the fourth fiscal quarter, our revenue non-GAAP net income and non-GAAP EPS were $328.6 million, $48.9 million and $0.62, respectively. These results are in line with the guidance we provided in our April conference call. Particularly given the still challenging macro environment, our performance reflects the fact that we have built a balanced global business. Our multiple verticals and geographies provide a natural hedge against short-term volatility in any one area. Reflective of our global reach, in fiscal 2013, international represented 60.7% of our revenue while the U.S./Canada region represented 39.3%.

Geographically, the Europe/Africa/Middle East region referred to as EAME, grew 39.8% on a fiscal year basis and 24.4% quarter-over-quarter. Organically, EAME declined 1.8% on a fiscal year basis and grew 2.2% on a quarter-over-quarter basis. The Asia-Pacific region grew 10.7% on a fiscal year basis and 28.1% quarter-over-quarter. Latin America grew 11.8% on a fiscal year basis and 8.1% quarter-over-quarter. The U.S./Canada region declined 4.5% on a fiscal year basis and 8.6% quarter-over-quarter.

At first glance, the U.S./Canada quarter-to-quarter results leave much to be desired, but U.S./Canada had very strong numbers a year ago, so we had a difficult comparison. U.S./Canada results for the fourth quarter showed a sequential increase over the third fiscal quarter of $7.2 million, a growth rate of 5.9%; and as you'll hear in my commentary, there are good things happening in the U.S./Canada region in fiscal 2014. We expect all regions to grow organically in 2014.

In terms of our verticals, let me start with the food and beverage vertical, which we previously referred to as restaurants. This vertical's revenue grew 2.9% on a fiscal year basis and 5.4% quarter-over-quarter, and we are seeing increased demand in fiscal 2014.

For example, we are pleased that SONIC has selected MICROS as its strategic enterprise solution partner. The rollout will start in SONIC's corporate stores and in new openings and then extend to its franchise locations. SONIC has over 3,500 locations. SONIC is a new client, and we're thrilled to welcome them to the MICROS family. Del Frisco's restaurants is another new client win, where we were selected for their more than 30 high-end table service restaurants. Auntie Anne's Pretzels added our SaaS-based iCare loyalty solution globally to enhance our e7 platform. In addition, Compass Group North America signed with us for deployment of Simphony in their multiple food service divisions, and Simphony continues to gain momentum with over 10,800 sites installed.

Finally, we have installed our new mTablet hardware in several large football stadiums, such as Raymond James Stadium in Tampa; Soldier Field in Chicago; FedExField in Landover, Maryland; and Heinz Field in Pittsburgh. The mTablet has received a strong reception from our clients, and we expect solid demand for this new platform.

In the hotel vertical, revenue grew 0.8% on a fiscal year basis, with a 2.5% decline quarter-over-quarter. We think that this segment will grow modestly in fiscal year 2014 and accelerate its growth in fiscal year 2015. We recently signed contracts with international hotel companies, such as Outrigger and Morgans, each being new clients to MICROS. We're starting to see new hotel openings in the U.S./Canada region as the construction lull, post the recession of 2009, appears to be ending.

Internationally, we signed contracts with the Venetian and Sands casinos in Macau, Regal Hotels in Hong Kong and the Four Pillars Group in London, among others. Louvre Hotels of France signed a new 5-year agreement for OPERA hosting, and we're experiencing strong client interest in our OPERA Mobile hotel platform, using our OPERA 9 technology and have now installed it with Delta and Dolce hotels. Two other large hotel chains are certifying the platform for rollout later this fiscal year. We anticipate strong demand for OPERA 9 as additional mobile modules are introduced over the next 2 years.

Our retail vertical had a strong fiscal year and fourth fiscal quarter. Revenue grew 81.9% for the fiscal year and 40.9% quarter-over-quarter. On an organic basis, retail grew 3.5% for the fiscal year and 4.9% quarter-over-quarter. We're experiencing a strong quarter of retail client signings, including Steve Madden; C&A Brazil; a candy company; Cavender's; and Intimissimi. The client signings encompass a range of solutions, including store-based systems, mobile POS, item locator, e-commerce solutions and CRM. We see a great opportunity for MICROS to grow our retail business across all regions of the world. And our retail base today covers only 40 countries, as compared to the 180 countries where we have installed our food and beverage and hotel solutions.

Stepping back, I am confident that we're laying the foundation for accelerated growth in the future. We are moving across many dimensions, product, service, infrastructure and team. Our announcement this week with PayPal is an example of how we're leveraging our global installed base and one of our next-generation platforms, the MICROS payment gateway. We will be integrating PayPal into our widely deployed food and beverage and retail point-of-sale platforms. This collaboration will allow our clients to offer their customers the ability to pay via PayPal's mobile application. We will also work closely with PayPal to jointly develop new applications to optimize merchant and consumer experiences. Our MICROS payment gateway is a highly secured global payment platform, which we are using as a primary connector from our enterprise applications to regional and global payment networks.

We will continue to enhance our hosting and SaaS offerings. We have recently expanded our data center capacity in Brazil and Singapore, and we are starting to build out a new data center capacity in Denver.

Finally, we are also moving to increase the speed and efficiency of our development teams. As we announced earlier this week, I'm pleased to welcome Russell Butler to MICROS, effective this past Monday. Russ brings over 20 years of experience in engineering and leading large global research and development organizations. All MICROS product development will fall under Russell's responsibility. This appointment is an important evolution for MICROS, as we continue to scale and leverage our development team on a global basis.

Let me conclude with our fiscal 2014 guidance. We're looking at a revenue range of $1.295 billion to $1.32 billion. For non-GAAP EPS, we are looking at a range of $2.46 to $2.50.

At this point, I'll turn the call over to Cindy, and we'll follow her remarks with a question-and-answer session. Cindy?

Cynthia A. Russo

Thank you, Peter. Good afternoon, everyone. As you've probably already noted, our prior year results included one month of actuals from the Torex acquisition. This makes the typical quarter-on-quarter and year-on-year comparisons a little challenging this quarter, but I will provide some details throughout my comments. Let's start by reviewing the details of our overall business financial performance.

Our fiscal 2013 consolidated revenues totaled $1.268 billion, an increase of $160.6 million or 14.5% on an as-reported basis. On a constant currency basis, MICROS' revenue would have increased -- had increased by $172.7 million or 15.6% over the prior year. Revenue increases in the year were primarily driven by expansions in our service and hardware lines of business, up 17.7% and 13.3%, respectively. Hardware sales of $74 million in the quarter were a company record. Software revenues, typically 12% to 13% of our business, were $143 million or 11.3%. The shift in our mix this year is explained by the increase in our hardware sales contribution as well as an uptick in our SaaS revenues in the year. As mentioned previously, we continue to develop and provide both premise-based and hosted solutions, and we often contract for both types of offerings in the same deals with our customers.

Fourth quarter revenues were $328.6 million, up 8.6% over Q4 2012 with strengths across Asia Pacific and Latin America. Successes in these regions included 131% growth in China, a 47% revenue increase in India and continued growth of 42% in Brazil. In our European region, where Q4 revenues grew organically 2.2%, we continue to see weakness in the United Kingdom, where sales declined nearly 5% over the year-ago quarter. This was more than offset, though, by strengths in other areas of the region, including Sweden, Spain and Germany.

Finally, the U.S. and Canada declined compared to the fourth -- prior fourth quarter, however, increased sequentially. The U.S./Canada food and beverage team's [ph] business looks promising, finishing the year with double-digit increase in their backlog. Sales of our core retail systems were also up nearly 7% in the quarter, with big wins for our Xstore, Relate and XBR platforms and services.

Sales originating from the former Torex operations totaled $43.1 million in the quarter and $187.3 million in the year. Given Torex's contribution of $16.6 million last year, this brings consolidated constant currency organic growth to approximately 0.2% for fiscal 2013.

Recurring revenues totaled $143.9 million in the quarter or $568.4 million year-to-date. The SaaS and hosting portion of recurring revenues was $86 million in the year, a currency-neutral 16.3% growth, propelled in part by the successful release of the inMotion smartphone application to the food and beverage market. Our operations team reports that F&B managers are logging on to the app, on average, 4 times a day. And we're happy to provide our partners with the ability that truly manages the business on the go. On the other side of recurring revenues, maintenance services in the year amounted to $482.4 million, a constant-currency increase of 33.2% over 2012 or 9.8% organically.

Turning to gross margin, we saw increases organically across all of the international geographies in the quarter. Organic gross margin came in at 55.2% for the quarter and 55.3% for the year. Torex gross margins increased 30 basis points over the sequential quarter to 50 -- I'm sorry, to 35.8%, bringing the company's consolidated fourth quarter gross margins to 52.7%. Year-to-date, MICROS' reported gross margins are 52.4%.

Looking forward to fiscal 2014, for the aggregate business, we are modeling a gross margin improvement of 100 to 120 basis points and operating margin improvement of 50 to 60 basis points overall. Investments in research and development are crucial to our plan for growth acceleration in the near term. In fact, we've set aside additional capital in the 2014 budget for product development in all 3 verticals. The net R&D expense of $71 million in the year is a 39.7% increase over fiscal 2012, expect expenditures here of approximately 6% of revenues in fiscal 2014.

Moving down the income statement, Torex Retail contributed an additional $47 million to the SG&A balance in fiscal 2013. The company was able to make significant strides in reducing our costs organically, bringing the as-reported SG&A increase to just $20.2 million year-over-year. These reductions included both onetime and repeatable savings, and we'll continue our prudent approach to expenditures over time. The Q4 restructuring charge of $3.1 million is primarily related to the reorganization of the Torex service and maintenance team. As stated in the initial call, upon acquisition, expect additional restructuring charges to be taken in the first half of 2014 as we complete the integration. The company is benefiting from the ongoing cost savings relating to these charges.

From a guidance standpoint, I would model operating expenses from 32.25% to 33% for fiscal 2014. The increase in this percentage is predominantly led by the additional R&D expenditures previously mentioned but also include a few investments in our global marketing strategy, as well as our internal and client-facing systems architecture.

Non-GAAP operating margin in the year of $259.5 million was a company record. Excluding restructuring charges and amortization, this figure was impacted by a $3.9 million loss from the Torex Retail subsidiaries and a $2.4 million decrease due to foreign exchange. Nonoperating income for the quarter was $400,000. The figure includes $1.1 million in interest income and a currency loss amounting to $700,000.

Our full year 26.8% effective tax rate is in line with internal expectations, following the onetime additional relief of FIN 48 reserves in our first quarter and a beneficial mix of our jurisdictional earnings. Fiscal 2014 will include 3 noteworthy tax-related items when compared to the prior year. First, as discussed, the company received a benefit of favorable tax settlements in fiscal 2013, which will not be repeated in fiscal 2014. Second, the tax rate will be unfavorably impacted by decreases in interest rate deductions due to law changes in the U.K. Lastly, as stated in the Q3 earnings call, we will have an unusual tax rate in the first quarter of 2014. Upon acquisition of Torex Retail last year, the company recorded a deferred tax asset related to the net operating loss carryforwards of certain subsidiaries. Due to the July announcement of the United Kingdom tax rate reduction, the company is anticipating a $3.7 million onetime write-down of this asset in Q1 of 2014.

In summary, we forecast 2014 effective GAAP tax rate of approximately 32.5% and a non-GAAP tax rate of approximately 32%. The Q1 tax rate is forecasted at 39.5% on a GAAP basis and 38% on a non-GAAP basis. This reduces our first quarter EPS by $0.05.

Now let me turn to cash management. We continue to be pleased with our free cash flow, which was strong this quarter at $55.1 million, a 28.4% increase over the prior year. In the full year, the company generated a free cash flow of $176 million, an increase of 13.3% over the prior year.

The company has taken an aggressive stance on capital return in the form of share buybacks, as attractive buying opportunities have emerged. During the fourth quarter, we spent $85.7 million on share repurchases, buying back a total of 2 million shares at an average purchase price of $42.86 per share. In fiscal 2013, MICROS returned $176.6 million to our shareholders, acquiring 4.1 million of common -- shares of common stock. Thus far, in Q1, we've spent $40.5 million on the repurchase of 830,000 shares. This leaves us with $167 million remaining in the current authorization.

A few final highlights from the balance sheet. Cash and investments on hand at June 30, 2013, were $634.1 million. This represents a 32% increase in our cash balance before share repurchase. Approximately 51% of the company's cash resides offshore.

Days sales outstanding at quarter end were 62.6 days, down slightly from last year's 63.1. U.S./Canada DSOs were 51.3 days, while international DSOs were 69.6.

The company's backlog as of June 30, 2013, is a record $561 million. Approximately 1/3 of this figure is built from our deferred revenue balance, with the remainder comprised of contracts signed but not yet delivered.

In closing, the company continues to be a strong cash generator and intends to make the right investments in the coming year for a return to growth. We will continue our aggressive capital return strategy as opportunities exist and, as always, we'll continue to keep an eye on the acquisition of assets that fit our long-term strategy. More detail and management commentary can be found in our Form 10-K, which will be filed this evening. Peter?

Peter J. Rogers

Thank you, Cindy. We will now open up the call to questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Mayank Tandon with Needham.

Mayank Tandon - Needham & Company, LLC, Research Division

I wanted to get a sense from you, why you sound a little bit more positive versus 3, 4 months ago. I wanted to get a sense of what's changed from MICROS specifically, is it the competitive landscape? Is it purely just the macro environment? Maybe just give us a sense of what are some of the shifts you've seen over the past 3 or 4 months to make you more positive.

Peter A. Altabef

Well, thank you. Obviously, I am 3 months longer into my tenure here, and so some of that may be just the confidence that I have in terms of understanding the business, which has grown. Secondly, I think we're seeing -- we could talk about it on a vertical-by-vertical basis or geographic basis, but we really are seeing, I think, more confidence in our ability to go out and win new business and more confidence that there's a market there that is slowly beginning to grow. So let's just break it down into a couple of segments for a second. When we look at the U.S. and Canada, I think we are beginning to see more demand in the U.S. and Canada, really, across the board. I think, in 2013, we had a very strong year in retail, especially our core retail, and I think we see a continuation of that. In hotels, obviously, you had a large signing last quarter with Marriott. You have multiple signings this quarter. We are beginning to roll out the OPERA 9 technology this quarter. OPERA 9 or OPERA Mobile officially went live, and I think we're very encouraged by the response. With our hotel business, in particular, it's going to take a while both for those modules to continue to come out and for companies to certify and adopt them and then for us to roll them out. That's why you see that I'm -- I have a more modest view on our growth in hotels in 2014, with a clear acceleration of that growth in 2015. Finally, in food and beverage, we're seeing in the U.S. and Canada really increased demand in all of the ways we look at food and beverage, whether it's major accounts; whether it's our L&E, which represents, for instance, the stadium business I mentioned; or our distribution business, which is the rest. So we really are seeing across each of the verticals real good expansion. As you look internationally, in -- obviously, in Asia Pacific and in Latin America, we have very strong growth across the board. I expect that, that will continue, hurt a little bit by some currency fluctuations toward the end of last year with the change in the dollar's valuation, but strong nonetheless. The toughest challenge for us going into this upcoming year is going to be Europe, where I think we are well positioned competitively, but the market is still not what we would like to see; and Europe represents 44% of our revenues. So if you will, we have some headwinds in Europe, given the overall economy and the size that it represents for MICROS. But long term, we believe that Europe will -- especially in the verticals where we are, in terms of hotels, food and beverage and retail, we think Europe will ultimately strengthen. But we're not really counting on that in 2014.

Mayank Tandon - Needham & Company, LLC, Research Division

That's great color. Just to probe a little bit further on the food and beverage side, I think I remember last quarter, you had called out smaller restaurant deals as being a factor for some of the weakness, and also that some of these customers were pushing out the implementation phase. Has that changed on the food and beverage front?

Peter A. Altabef

Well, as I said, I -- we feel stronger about the food and beverage business going into FY '14 than we did in FY '13. We're still only 45 days into FY '14, so I think it's preliminary to make too much of a pronounced indication [ph] there. And we had challenges in that business, so we are going from, as a company as a whole, basically a no-growth scenario in 2013 to what I would consider to be a modest-growth scenario in 2014, and that's important. And it's important that we get back into a growth mode, and then I see us accelerating that growth in 2015. And I think that will likely be true for all of our verticals.

Mayank Tandon - Needham & Company, LLC, Research Division

That's fair. And just one final question, if you could, could you give us an update on 2 deals that have been talked about in the past? One is the Tim Hortons on the food and beverage side and then Hilton on the hotel front.

Peter A. Altabef

Well, I will say they have been talked about in the past and consider this a change if -- in direction, if you want, but it is not my style for us to comment on deals that have not been -- that have -- that we're not -- that have not been signed, and we're not prepared to comment on. So I think we're going to wean ourselves off of that. The one thing I will say is that we have discussed in the past that we were in some piloting for Tim Hortons and that continues to be the case.

Operator

Our your next question comes from the line of Dan Perlin with RBC.

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

I'm wondering if you guys could just help us maybe walk through the margin expansion that you're kind of putting out there in the guidance for next year, certainly happy to see it. I'm wondering if this is kind of a function of garnering some efficiencies in the business. I mean you got this new global head of R&D, is that part of the plan? Is it better margins out of Torex that you can kind of redeploy into R&D and then drive some margin expansion there? Or is it just that you got some organic growth coming back in the business that you're now starting to feel some leverage from that?

Cynthia A. Russo

This is Cindy. It's a combination, Dan. But primarily, as we've discussed on prior calls, we are working as the integration almost will complete this fiscal year, in 2014, we will see margin improvement related to the acquisition of Torex and -- as we integrate. So a lot -- the majority of it is related to that. I mean, we're talking about 100 to 120 basis points and, of course, with some growth comes some margin -- very small margin improvement. But most of it, as we discussed in the past, is primarily related to the full and complete integration of Torex.

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

Okay. And then I don't know that I heard it, but the constant currency organic growth for you guys this quarter, can you just give that to us? You threw a bunch of numbers out. I think it was down modestly, but I didn't get the exact number.

Cynthia A. Russo

Constant currency organic growth for the year is 0.2% as I said. For the quarter, it's 0.1%.

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

0.1%, okay. And then the SONIC deal, obviously a competitive win, what was it that -- and here, again, you guys are going to wean yourself off, as you talked about, business opportunities down the road. And so this, obviously, came to fruition. I'm just wondering what was the differentiation here that kind of put you guys back on the map for QSR. Any kind of color around that would be helpful.

Peter A. Altabef

Well, thanks, Dan. I think I mentioned in the last call that with respect to QSR, we were reinvigorating our efforts to grow in that business, and we've done a lot, both in connection with SONIC and really refocusing on what it takes to be a major player in QSR. So that's what we've done. I think we -- I will let the press release, which I think we issued yesterday, speak for itself. But we are very excited about the relationship we've developed with SONIC. It is a terrific company. And I think we have really -- as you can see, we are well positioned to expand pretty dramatically with that organization. So I would say, with respect to QSR, consider us back.

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

Got it. And then one last quick one, if I could. The PayPal announcement, we've gotten a lot of questions around that and -- so my understanding is you got the payment gateway, I think, in Asia. You want to bring it to North America, and it sounds like -- is this the opportunity to do that? Like, will PayPal be connecting to your payment gateway in North America? Or will it be something that kind of plays out over the next year or 2 to bring that there?

Peter A. Altabef

That's -- Dan, that's a great question, too. The -- we have been already expanding that payment gateway technology. It did start in Asia Pacific. We have actually already expanding it -- already expanded it to Europe. And this quarter, we expanded it to Canada, and we expect as part of the PayPal initiative, as well as discussions we're having with multiple other parties, to expand it in North America. One of the advantages of that gateway technology for us, it is EMV compatible and compliant. So as EMV gets established in the United States over the next couple of years, one -- as I think I mentioned on the call last quarter, one of our advantages to being truly global is that we can kind of develop items in one part of the world that ultimately roll around to the next. This is an example where it developed outside of the U.S. and is rolling around to the U.S. So we expect having the payment gateway to be a real advantage for us going forward. And one of the significant things about the PayPal initiative, there are a couple. One is we are not connecting it simply to one third-party application. We're actually integrating into the PayPal application itself with multiple systems of ours, both in food and beverage and retail, and we're integrating into multiple functionality in PayPal. So we're doing -- it's quite an aggressive, if you will, connection with the PayPal app so -- and it is global. So we're not doing this just in one geography. We're, again, leveraging MICROS' global capability to roll this out across multiple countries. So it's actually -- we're very excited about it, first, because we're -- to be working with PayPal; and secondly, because it does provide a clear opportunity for us to establish the MICROS payment gateway in North America.

Operator

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

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

Just a couple of questions for me. I guess the first question is on Simphony, in terms of that being an important product cycle catalyst. It looked like the site count, in terms of how many customers or sites are up and running on it, was up -- only up 100 or 200. Is that just a seasonal thing? And how should we think about that progressing as we move into FY '14? I know you all signed Starwoods last quarter -- Starwood, but how do we see that site count growing with Simphony in the next year?

Peter J. Rogers

Well, Terry, this is Peter. Actually, the site count is actually 10,800 and I report that annually. Last year was a little over 9,000, so we added about 1,800 sites the past fiscal year. The announcement of Starwood was actually just starting so really, there was -- I don't know if there was any Starwood international in that number. So we're actually seeing a lot of interest in that platform following the move forward. Of the 10,800, approximately 9,000 are Starbucks internationally. So it's really 1,800 non-Starbucks but that represents over 100 different organizations.

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

Okay, yes. I meant, though, from last quarter, I thought Peter had given us an update that it was 10,600. I don't know if this is kind of a detail question, but I meant sequentially.

Peter J. Rogers

So approximately 200-plus for the quarter would be [indiscernible]. I mean, but then again, we do that annually.

Peter A. Altabef

Yes. And so -- and Terry, we can get back to you separately and give you a breakdown of that if you'd like. I think what I would add to what Peter just said is that we do expect, as I again indicated at the last call, Simphony for us is really a family of applications. There are several, if you will, POS applications as part of Simphony. And we are seeing an acceleration of adoption of those applications. So with respect to growth of adoption of Simphony, I would expect that you will see that accelerating now in terms of units and acceptance. It does take a while, as Peter indicated.

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

Got it, okay. And then on SONIC, it was great to see that win. I'm curious if you could provide any details in terms of, going into that sales cycle, were they focused on doing more of a subscription model? Or did it evolve that way? And I'm curious then, as you look at your pipeline activity in the backlog, that seems to be stronger at the end of the year here. How much of your activity seems to be percolating more around a subscription kind of pay-as-they-go model versus kind of paying for it upfront?

Peter A. Altabef

Well, it really depends on the business model. The -- SONIC is, like many of the quick service companies, has a combination of both corporate-owned stores and franchisees. And so, especially when you get into the franchisee model, the pay-as-you-go is an important part of that. But what I would say from a technology standpoint, and one of the things that's interesting about the SONIC model, is while they are using -- SONIC itself is a very sophisticated organization. And their business model, if you've ever been to a SONIC, is quite specific in terms of the drive-up appeal and the technology that goes into that. We were able to, in relatively short order, be able to take our existing systems and adopt it for use in that special environment, which I think was an example of both the flexibility of our systems and the depth of knowledge of our people to be able to do that. But beyond the point-of-sale system, what's happening with SONIC is they're really taking our, if you will, above-store enterprise applications as well. So all of those applications that go across the SONIC -- in the SONIC business, we are providing, and we're providing that on a hosted basis or a subscription basis, if you will. So it's a good example of how we're evolving from a more traditional point-of-sale application, which is still important and it's still an important part of our value proposition, but we're supplementing that now in a very fulsome way with a whole host of enterprise applications that are sitting across the platform for SONIC to do really manage the business across their entire enterprise, and we're doing that in a hosted-SaaS fashion.

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

Okay. And just the last question, Cindy -- if maybe Cindy or Peter could provide us an update, just to recall what the -- your prior backlog was at the end of the prior fiscal year. I know it's $561 million at the end of this year. I just don't have it in front of me.

Cynthia A. Russo

Last year's backlog was about $470 million, so it was significant -- $470 million, so it was a 19.4% increase.

Operator

Our next question comes from the line of Arvind Rajamohan with Stifel.

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

Did you guys say that Torex was $43.1 million for the quarter?

Cynthia A. Russo

That is correct.

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

Is there a reason why it was down, I guess, 10% sequentially? Is that all currency? Or is it just more challenging environment?

Cynthia A. Russo

They have had, obviously, a solid quarter for the first 3 quarters. They had a lot of hardware. As you can see, a majority of their revenue is hardware and so they had solid hardware. In addition to that, within the quarter, Germany -- Torex Germany had a slight decrease there, but we expect them to be right on -- to come back.

Peter A. Altabef

Yes. I will, obviously, agree with Cindy and just highlight the geography point that Cindy just made. We have now -- as of the end of the fourth quarter, we have completed our integration of Torex U.K. into our U.K. operations. The Torex Germany operation, which is also a substantial part of Torex, is still in the works, which is why we had an 18-month integration plan. We will finish that in the first 6 months of this year. But Torex itself is the result of several acquisitions, particularly in Germany. And so it did take us -- it's taking us a little while, frankly, to get our hands around the entirety of Germany. We do consider this to be more of an aberration. And over the course of the rest of the 6-month integration plan, we expect to fully get our hands around Germany as well. So I would say, you're right to point it out. It is not something that we have a long-term concern with. But for the next 6 months, we're working through it.

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

Is your expectation, I guess, for next year for that business to stabilize or grow? Or what's kind of the sense for that?

Cynthia A. Russo

I would expect it to continue to grow, as it will be fully integrated throughout the company, right along the same line as MICROS'. So our revenue, we expect to grow from 2% to 4% next year.

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

And then I guess, just a kind of high-level question for you, Peter. Now that you've been there for, call it 7 months, what kind of opportunities do you think that MICROS have to improve on? And kind of where do you think you guys have some capability gaps that maybe M&A can help you fill?

Peter A. Altabef

Well, from a -- opportunities to improve and capability gaps, I would say the 2 that we are working on most vigorously, you see the specific results on in my comments. So we brought in Russ Butler this week to lead our application development team globally. He's an outstanding executive. He has a history of responsibility for leading development centers across the world in scale and in kind of next-generation technologies in social media, in cloud. So I really expect that we'll be able with that move to create, not only operating efficiencies, but really can -- to accelerate kind of our next-generation focus on application development. It's a big change for us and a positive change. The second -- yes, the second for us -- and I believe, by the way, that there are opportunities there to create efficiencies. But as you saw from Cindy's comment about our R&D spend, we're going to maintain our spend, which came in this year just a little shy of 6%. And we're expecting to be approximately 6% next year as well. So as we obtain those efficiencies, we're rolling those back into the business, in R&D, which I think is a very important thing for our long-term growth and our long-term strength of offerings. The second thing we're doing is we are increasing our investments on what I would consider our -- one of the key ways that we will deliver our products in the future. So in addition to licensing on the software, we do intend to become a bigger player over time in hosting and SaaS. It won't be immediate, because we still will be very willing to sell our business on a license basis. And because when you do move from hosting -- from licensing to hosting and SaaS, as you know, the revenue recognition takes a while to catch up with your activity. Nonetheless, we think hosting and SaaS is a growing and important part of our business. And we need, frankly, to make sure that we have the capacity to deliver. And the last thing we want to do is to sell ahead of our capacity, which we won't do. So we are building our capacity. We expanded in the last quarter in Singapore. We expanded in Latin America. We are building out new data center capacity in the West Coast of the U.S. in Denver. So those 2 initiatives, I would say, are both very important for us as we build for the future. In terms of mergers and acquisitions, which was the second half of your comment, I would say we will be careful and prudent. I do believe, as I said in the last quarter, that we will be an acquirer. I think that this is a consolidating market, but we're not rushing to it. We're not overly eager to it. We're going to take our time and make sure that as we do it, we purchase companies that we think will be helpful for us strategically and that will work for us economically.

Operator

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

Keith M. Housum - Northcoast Research

I was hoping you could provide a little bit more color in terms of the revenue mix during the quarter. Certainly, according to my model, hardware was probably a little bit more than I expected and actually the area of software and services were a little bit lower. Can you guys describe, I guess, the mix during the quarter? And how does that come in compared to your expectations as you went into the quarter?

Cynthia A. Russo

I mean, overall, the mix for the quarter was 22.6% for hardware; obviously, 11.2% for software; and service was down a little bit, 66.3%. So we did have one of the strongest quarters, it was a record from a hardware perspective. So that was up slightly. Software is pretty consistent, and the offset is a little bit -- service is down. I would expect and model out very similar from -- as our total year of 21%, 11% and 68%. We've been pretty consistent overall.

Keith M. Housum - Northcoast Research

Okay. In terms of the services number being a little bit lower in the quarter compared to the rest of the year, is that because of lower installations? Or what happened to the quarter that was a result of that?

Cynthia A. Russo

Well, with the -- overall, for the year, the restaurant -- the food and beverage business has been slightly lower. And most of the service decrease relates to some of the related PDT [ph] with that. However, the MSA number and the continuing maintenance continues to grow very nicely.

Keith M. Housum - Northcoast Research

Okay. And if I could ask just one more follow-up question, on your gross margin guidance for FY '14 of 100, 120 basis points, if I compare that to -- you guys -- when you guys acquired Torex and your guidance was that Torex was going to bring down gross margins by 2%. Does that mean that there's still a good amount of efficiency still to be gained even after FY '14 from Torex?

Cynthia A. Russo

Yes, there are still some, and I think it was 2 calls ago that we talked about from the service side, Torex has a very high percentage from the service. It's about 70% of their overall business. And when we acquired them, they outsourced a large majority of their service contracts and the contacts come up primarily in 2015. So as we get new business, we rolled them into our existing model, and the third-party contract has a much lower, lower margin. So as they roll off, we will continue to improve. However, of course, as it is integrated into the MICROS, it will continue to improve.

Operator

Our your next question comes from the line of Brian Murphy with Sidoti & Co.

Brian Murphy - Sidoti & Company, LLC

Cindy, did you give us the SaaS revenue for the fourth quarter?

Cynthia A. Russo

For the fourth quarter, no, I did not specifically. SaaS revenue overall was $21.4 million. For the year, it was $86 million. So overall, it was over a 15% growth for the year.

Peter A. Altabef

And Brian, not to get too technical on those numbers, but we don't cut that number between hosting and SaaS. Different people have different definitions, and we just combine both in that.

Brian Murphy - Sidoti & Company, LLC

Right, got it. And what's the sort of outlook there? Is that going to continue to grow in the mid-teens? Or should we expect that to accelerate?

Cynthia A. Russo

For this coming year, I expect it to continue on 15%, 16%, just like it did this year.

Brian Murphy - Sidoti & Company, LLC

Okay. And Peter, last quarter, you talked about deal activity picking up and you also talked a little bit about the longer implementation cycles that you guys were seeing. What are your thoughts here on implementation capacity? And do you expect those implementation cycles to maybe normalize a little bit in fiscal 2014?

Peter A. Altabef

That's a great question. And Brian, let me start with the first part of your sentence about deal activity. So while I think we do see deal activity picking up in North America, I would not say, at this point, we're seeing deal activity picking up in Europe or in EAME. And obviously, we have some areas of EAME, including parts of the Middle East, where there isn't much deal activity at all. So I think on the deal activity, it's more of a balance. And you're seeing that reflected in our guidance, I believe. So on the second issue about implementations, what I would say to you is I think it's a great opportunity for us both to help our customers or our clients, as well as to help ourselves. And it's largely related to -- we have 2 initiatives under way. One is how do we create efficiencies in our existing implementation models, which we're working on, but that's difficult. And then the second is how do we create efficiencies in our new models. So for instance, our implementation plans associated with OPERA 9 are very different than the implementation models associated with OPERA 5. So much more can be done remotely, much more can be done with automation. eLearning becomes a much, much bigger part of that. So one of the things we're bringing to the table with our next-generation products, and it's not just in hotels, but also in restaurants and also in retail, is we're upping our game, if you will, not just in the application itself, but how our customers experience that application and how quickly we can put that application in. It varies between the verticals, but the theme we're driving inside the company is that it is not business as usual with respect to any part of our business, particularly as we roll in new applications. And so I hope that helps, but that's kind of the way we're approaching it. And by the way, in some cases, as we do these implementations faster, they will result in cost savings to our customers. But those should not be at the expense of margin percentage, and it should allow us to bring in more customers more quickly. So it's going to work out just fine for us over the long term.

Brian Murphy - Sidoti & Company, LLC

That's great color. And I know you're doing a lot of development work around some of these deals. Could you talk a little bit about -- and I think you touched on part of this, but the nature of the development work you're doing, is this stuff that gets productized in the form of better features and functionality? Or is it mostly customization related to specific customer business processes?

Peter A. Altabef

Well, again, a great question. With respect to the development work, the first thing I would say is we are accelerating and we are investing in more development capability. That has really only started in the last quarter and not even in a fulsome way in the last quarter. So it's really -- we're at the beginning of that. And so as we said, you could expect that number of ours to be approximately 6%. And while we will gain efficiencies in our current system, there may be some timing lag there, where we're spending a little ahead of the efficiencies that we're going to gain. We think that's important, but it's not a fulsome change in our roadmaps. Our OPERA 9 roadmap is extremely strong. The roadmap for Xstore, for instance, which is one of our flagship products in retail, as well as Relate, as well as XBR, are all very strong. And our Simphony roadmap was actually very strong. So the good news is this is not a reworking of our strategy. It's really a focus on how do we increase the quality of the deliverables that we're getting out there and do it faster. And that's a lot easier than having to rework the strategy and the roadmap, which, I think, frankly, is very strong here and has been very strong.

Operator

At this time, there are no further questions from the phone lines.

Peter J. Rogers

Well, this is Peter Rogers. I appreciate everybody's participation today. On that note, we'll close and we'll talk in 2 months at the end of October when we relay our first quarter fiscal '14. Well, thanks very much for your participation. Good day.

Peter A. Altabef

Thanks, everyone.

Operator

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.

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