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

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

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

Mayank Tandon - Needham & Company, LLC, Research Division

Matthew V. Roswell - RBC Capital Markets, LLC, Research Division

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

Thomas C. McCrohan - Janney Montgomery Scott LLC, Research Division

Keith M. Housum - Northcoast Research

MICROS Systems (MCRS) Q1 2014 Earnings Call October 24, 2013 4:45 PM ET

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Fiscal 2014 First Quarter Call. [Operator Instructions] As a reminder, this conference call is being recorded, Thursday, October 24, 2013.I will now turn the conference call over to Peter Rogers, Executive Vice President, Investor Relations. Please go ahead, sir.

Peter J. Rogers

Good afternoon, ladies and gentlemen. On behalf of the MICROS team assembled today, we thank you for joining us to discuss our fiscal 2014 first 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 Altabef for his comments.

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. We will post our financial fact and data sheets in the Investor Relations section of our website, www.micros.com, after this call. We will also file our fiscal year 2014 first quarter 10-Q this afternoon. Peter?

Peter A. Altabef

Thank you, Peter, and good afternoon, everyone. We are pleased with the results of our first quarter of fiscal 2014. We reported revenue of $314.7 million, an increase of 5% over the previous year. On a constant currency basis, we grew 5.1%. The revenue is all organic. Our revenue growth is being spurred by our focused sales efforts and the recovery in our end markets, most significantly in the U.S./Canada segment in all 3 verticals.

Our first quarter non-GAAP income was $38.6 million, with an EPS of $0.50, in line with expectations. As Cindy will explain, our GAAP and non-GAAP net income and EPS are lower than a year ago, primarily due to tax changes in the United Kingdom and the charge with respect to a settlement for a lawsuit dating back to 2000. The change in tax rate was expected and is consistent with the explanation we've provided in our last conference call.

On a geographic reported basis, U.S./Canada returned to growth with a strong 9.5% increase, while international grew 2%. Our international segment revenue was affected by currency swings. EAME grew a reported 3.6% and 0.8% on a constant currency basis. Asia Pacific declined 3.3% on a reported basis, yet grew 4.4% on a constant currency. Latin America grew a reported 2.1% and 7.6% on constant currency.

On a vertical revenue basis, food and beverage grew 11.1% quarter-over-quarter. The growth was spurred by the U.S./Canada and EAME regions. In the U.S./Canada, we are seeing improved demand in all 3 food and beverage sub-verticals: independents, major accounts and leisure and Entertainment.

We are now recognizing revenue from the food and beverage major account chain wins we reported in our August conference call.

For hardware, the launch of our mTablet and mStation platforms early in the quarter is creating excitement with our client base. In software, we have globally deployed several pilot sites with our MICROS Payment Gateway PayPal integration with a targeted release in the first quarter of 2014.

Our client activity was broad-based across all 4 regions, encompassing new clients and an expansion of existing relationships. And most notably, we saw an increase in client wins in the small independent food and beverage market.

Our hotel vertical grew 4.7% quarter-over-quarter. Globally, we are seeing good demand and winning many new clients. We also signed an important agreement with a long-standing global hotel client. This agreement provides for the installation of OPERA Xpress front office, OPERA Mobile and Simphony in the client's limited service brand of over 200 sites, many of which will be hosted by MICROS.

This agreement demonstrates the increasing recognition by hotel chains of the significant benefits gained from deploying both OPERA and Simphony. Additionally, we received approval from 2 large global hotel chains to offer these applications on a hosted basis to their franchisees.

In terms of software, we're excited about our OPERA Mobile solution, which can run on both Android and Apple devices. Our hotel development teams are also enhancing our sales and catering, customer information and business intelligence offerings.

Our retail vertical revenue declined 3.3% this quarter versus a year ago. The drop was primarily due to a difficult revenue comparison in the EAME region. A year ago this quarter, we had a large European hardware deal with low margin. Our EAME team is focused on transforming our retail operations to higher quality wins with application software, service and higher quality margin hardware deals.

The U.S./Canada retail segment had an outstanding quarter, as we ramp up many of our client wins. In the quarter, we also signed a new client, Event Networks, an operator of over 90 zoos, aquariums and museums. Event Networks will deploy our Xstore, Relate and omni-channel inventory locator solutions.

We also signed several agreements for our loss prevention solution, XBR. Several of the new XBR clients are in the food and beverage and hotel verticals. Our loss prevention solution is a good example of our cross-selling solutions developed in one vertical to other verticals.

We also released a new version of our Relate customer relations application management solution. This is a browser-based application, which allows retailers to provide personal service to their customers via multiple devices, including tablets.

On a line-of-business basis, we saw strong growth in software licenses with revenue up 11.6%. Hardware grew 4.4%, while services grew 4.1%. The license revenue growth was driven by the hotel and food and beverage verticals. Our SaaS hosting revenue grew 15%, with recurring maintenance revenue growing 2.1%. Total recurring revenue grew 3.9% quarter-over-quarter. As we've stated before, we believe we can grow our licensed software sales and SaaS hosting revenue concurrently, and our first quarter results are good example of this.

I have now traveled to all of our regions, most recently having spent 2 weeks with our Asia Pacific team. When I joined MICROS in January, I believe that it possessed a first-rate distribution channel. My visits have demonstrated to me that our distribution channel is broad and deep, including infrastructure and people. It is clear that we have strong growth potential in front of us.

In food and beverage, there are many chains which are not clients. We are now positioning our sales and product efforts to win their business when these prospective clients are ready to move to a next-generation platform such as Simphony.

In hotels, we have executed well, penetrating the business and resort-oriented hotel chains and we have opportunities to increase our market share in 3-star hotel chains.

In retail, we are in the early stages of taking our extensive product and service portfolio on a broader global basis.

In closing, I can reiterate that our outlook for fiscal 2014 remains unchanged. Now Cindy, over to you.

Cynthia A. Russo

Thank you, Peter. Good afternoon, everyone, and thank you for joining us again.

Our revenue in the quarter was $314.7 million, a Q1 record. As compared to our prior year results, revenue increased by 5% or $14.9 million, driven by 15% increase in SaaS and hosting and an 11.6% increase in software licensing sales.

In terms of geographies, consistent with our segment reporting, we will provide a breakdown based upon the locations of our clients around the globe. I will discuss these figures on a constant currency basis and subsequently shed some light on the foreign exchange impact.

As Peter highlighted, the U.S. and Canada exhibit strong growth in the quarter of 9.7% on a constant currency basis, driven by strengths across all 3 verticals. Food and beverage in the U.S. and Canada expanded 10.9%, propelled by strong demand in the independent street business. Hotels in the region grew 8.2%, while retail grew 8.6%.

The Latin American region grew by over 7.6% year-over-year. Double-digit increases in Panama and the Caribbean were offset by declines in Colombia and Chile, where we had a few major rollouts in the year-ago quarter.

Constant currency sales in Asia Pacific increased 4.4% over the prior year, spurred by revenues in emerging markets. Based upon the current pipeline, we expect a stronger second quarter for this team.

Finally, Europe, Africa and the Middle East, which represent 43% of our reported sales, grew 0.8% in the quarter. Food and beverage sales in the region were strong, with the hotel vertical also displaying positive growth. The EAME retail numbers were down due in large part to a onetime hardware deal in the comparable period.

Foreign exchange played a minor role in the presentation of our consolidated financial this quarter. However, it had a larger effect on our individual geographies. The revenue decrease of $332,000, included a $3.6 million positive impact in EAME, offset by currency weaknesses in all 3 of the other regions. Foreign exchange rendered 0 impact on reported earnings per share.

Hosting and SaaS revenues totaled $22.4 million in the quarter, and we are on track to achieve our $100 million fiscal year 2014 target. Maintenance revenues in the quarter amounted to $121.6 million, bringing total recurring revenues to $144 million or nearly 46% of sales.

Gross margins in the fiscal 2014 first quarter improved by 50 basis points to 51.6% year-over-year. Favorable margins on our sales of internally developed and external hardware, as well as increases in software margins, were partially offset by a decrease in service margins. The decline in service margins relates to our mix of service offerings.

Turning to expenditures. The non-GAAP operating expense of $101.3 million was down $8.4 million from the sequential quarter and up $8.2 million over the prior Q1. Gross R&D expense increased this quarter to $20.9 million, while the capitalization of our future software offerings totaled $2 million.

Research and development expenses at 6% of revenues and total operating expense at 32.2% of revenues are consistent with the guidance given in August. I would continue to model non-GAAP OpEx in the range of 32.25% to 33% for the remainder of fiscal 2014.

On a GAAP basis, the company entered into a settlement agreement to resolve certain litigations dating back to the year 2000. This onetime charge, as well as an accrued interest allotment, bring this matter to a conclusion.

Non-operating income in the quarter included $1 million of interest income, offset by $100,000 of interest expense.

As discussed on the previous call, the impact of certain onetime events and jurisdictional tax loss changes created an $0.11 EPS differential between Q1 of 2013 and Q1 of the current year.

The 37.9% effective tax rate in the quarter is in line with expectations, and we forecast a tax rate of approximately 33% for the full fiscal year on a GAAP and non-GAAP basis.

Now on to cash management. We are pleased with our strong operating cash flow at $49 million, a large improvement over last Q1's $6 million. This increase was primarily due to improved cash collections, as well as lower compensation and interim income tax payments during the 3 months ended September 30.

As I've previously mentioned in my remarks, we continue to invest for strategic growth in the long term. CapEx for the period was $11 million. This quarter, the majority of our CapEx was spent on production equipment, data center build-out and global leasehold improvements. Consequently, our free cash flow was $36 million, very strong for MICROS' Q1.

Moving to share repurchase. The company spent $91.6 million during the 3-month period on repurchase of 1.9 million shares of common stock at an average price of $49.52. Thus far in Q2, we returned $18.4 million to shareholders on the repurchase of 370,000 shares. There is currently $97.3 million remaining in the current authorization.

Some additional highlights from the balance sheet is cash and investments on hand at September 30 were $595.6 million, of which approximately 62% resides outside of the United States. Our deferred revenue balance increased 14.5% over the sequential quarter and approximately 6% over the previous September. As you recall, fiscal quarters 1 and 3 are when the deferred revenue balance is at its highest due to the timing of our international maintenance billings.

Days sales outstanding at quarter end were 66.4 days, down from 73.2 days a year ago. Improvements in collections span the globe, with international DSOs decreasing from 84.9 days to 79 days and U.S./Canada DSOs decreasing from 54.7 days to 47.6.

Okay. Thank you very much. And George, we will -- are now ready to take questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Gil Luria with Wedbush Securities.

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

So it sounds like a lot of strength in food in the U.S. vertical, and you called out the independent small businesses. The intersection of the 3, can you share with us how much U.S. small restaurant grew in the quarter?

Peter A. Altabef

Yes, Gil, this is Peter. Thanks for the question. I don't think we typically give that kind of sub number. I can tell you that, as I said in the comments, all 3 of those, both the leisure and entertainment, the, if you will, independent distribution to major accounts, they -- all 3 of them had very strong growth. So it wasn't as if one of those was a huge outlier compared to the others. But independents clearly were an area of weakness last year. And it has been very reassuring to see that market coming back very strongly for us.

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

Absolutely. And by the way, we appreciate the level of detail that you're now providing. It's very helpful. I just wanted to make sure we hit that point that sounds like that was double-digit growth.

Peter A. Altabef

Yes, and I appreciate it. We are trying to give you more detail. And I would refer to the same document that Peter Rogers referred to earlier, which is we're now putting out data sheets on our investor websites, which I hope are helpful and interesting to you and you'll see more detail there as well.

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

And I'll use my follow-up to ask about the mTablet. At what point should we expect a chain of some sort to roll out the mTablet? It sounds like it's in pilot in a few different places. At what point do we expect that there'll be maybe even one chain that we can walk in the store and see how it works?

Peter J. Rogers

Gil, it's Peter. I think what we'll see, I mean, I think within the next really several months, maybe even sooner when we issue a press release. I think what we'll see with the tablet will be a combination of some of the fixed workstation tablets. So I'm not sure when can we go all tablets, but it's really going to be a mix.

Peter A. Altabef

It's going to be a mix. I mean, you can see mTablets today, the first users and the early users, and we wanted to make sure they got into their hands quickly, are sports stadiums and sports arenas. And I think we have 4 sports arenas now that are all using mTablets in connection with ordering. And that number may be 5. So that's really kind of the first way you will see that. We can get you the names of those without providing advertisements for them, but we can get you the names for those, Gil, if you'd like them. In addition, we are broadening the mTablet itself. So that currently, it works on the CE operating system and we have plans in the works to take that to the Android operating system as well, which will give us more opportunities to get it out on a broader base.

Operator

Our next question comes from Mayank Tandon with Needham Company.

Mayank Tandon - Needham & Company, LLC, Research Division

Peter, as you look at your deal pipeline currently, what does it look like in terms of size and scope of opportunities? And how does that compare to, say, 6 or 12 months ago? And then related to that, do you expect the pipeline to convert into revenue at a faster clip from here on? Can that potentially drive an improvement in organic growth?

Peter A. Altabef

Well, as I said, we're reconfirming our guidance for the year. So we think that's our best estimate today of organic growth for the year. One of the things I would keep in mind is that in addition to some of our larger sales being lumpy, some of them are deferred gratification. So for instance, the Marriott deal, which we signed earlier this calendar year, still is on the hotel side. You won't see any real revenue of any real kind on that until fiscal 2015. So our sales don't necessarily immediately result in growth. But I would say in terms of the general pipeline, I think our general pipeline is very healthy. And it's very healthy across all 3 of our verticals. It is also, as I said, increasingly healthy in the U.S. and Canada. We're really -- hopefully that kind of performance we saw this year, well, we may not be able to replicate 9.5% every quarter. We have -- we think we have turned the corner in terms of positive growth compared to last year, which, of course, was a challenge for us.

Mayank Tandon - Needham & Company, LLC, Research Division

Sure, that's helpful. And I know there were some large deals in the pipeline that I don't know if you've named them publicly. But maybe you could comment on some of those opportunities, both on the hotel side and on the restaurant side? Where they're at? And similar to the Marriott type deal, I think there was another large hotel deal and also large retail or, sorry, restaurant chain deal that was, I think, being piloted. Maybe you could comment on where those deals stand today?

Peter A. Altabef

Yes, I would say that your memory is very good. But it goes back a couple of quarters because one of the things I said last quarter is that we kind of are out of the business of talking about deals before we sign them and before we really announce them. So we're kind of walking that back. I will say that with respect to deals we have signed and announced, for instance, the Marriott deal, we're progressing according to schedule. The SONIC deal in the food and beverage world, one of the references I made in my remarks was that we're now getting and recognizing revenue. The food and beverage deals tend to be faster in revenue recognition than the hotel deals. And part of that bump you see in our food and beverage is related to the SONIC deal. But again, I want -- my emphasis is really while that's wonderful and appreciated and great, I am equally excited about the more broad-based, both pipeline and results that we've seen this year. It's wonderful to get large clients, but it's also reassuring to know that your base foundation is strong with a lot of smaller deals.

Operator

Our next question comes from Matthew Roswell with RBC.

Matthew V. Roswell - RBC Capital Markets, LLC, Research Division

Was the 5% organic growth that you saw on the quarter, should we expect similar levels through the rest of the year or -- I'm just trying to get a feel for kind of sequential comparison based on the fact that last quarter you saw a decline. I believe it was in the fiscal third quarter.

Peter A. Altabef

Right. So again, what I would say is that our total revenue growth for the year is estimated at somewhat less than 5%. So I can't say that we would be estimating the same growth every quarter or we'd be at 5%. And there is some lumpiness to our numbers. But I do believe, again, one of our missions this year and Matt, you're right on, we had a contraction last year. And the mission this year was to turn that corner into positive growth and to stabilize that growth, I think that we are doing that to hopefully accelerate that growth into fiscal year '15 and beyond.

Matthew V. Roswell - RBC Capital Markets, LLC, Research Division

And if I could ask a question on the cash flow, the cash flow from operations generation. You mentioned that collections were better kind of across the board. Was that something that you all did or just kind of a timing factor? And should we expect cash flow to remain strong for the remainder of the year?

Cynthia A. Russo

Cash, yes, cash flow did improve. Cash collections improved. We're still on target for estimated cash flow from operations about probably 20% growth from last year, somewhere around the range of $240 million, $245 million.

Matthew V. Roswell - RBC Capital Markets, LLC, Research Division

Okay. And I guess, final question, around free cash flow as well. What is the priority in terms of uses of that cash?

Cynthia A. Russo

What's the priorities? I mean, obviously, our cash, we've been global -- our global cash has been used on a lot of -- from an internal investment standpoint, you can see it in the R&D, you can see it in the capital expenditures. We've also been making sure that we've been utilizing our cash flow to buy back an aggressive stock plan. I spent over almost $92 million of our cash flow to buy back stock this quarter. And of course, we're making sure that we keep an eye on acquisitions that will fit our long-term strategy as we believe that we operate in a consolidating industry.

Operator

Our next question comes from Arvind Rajamohan with Stifel.

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

Can you guys maybe talk about how Torex did? Did that improve from last quarter? I know it had a quarter of sequential decline, just trying to see if that business stabilized and just a quick follow-up.

Cynthia A. Russo

Right. If you remember last year, we acquired Torex back in May time frame over a year ago. And now with the integration, I don't even have precise numbers because all of the sales groups from Torex are cross-selling with our MICROS team. So it's now impossible to break out and we will not be breaking out any of those figures anymore for you this year.

Peter A. Altabef

The color I would give you, Arvind, on Torex and I think it is important that we have consolidated it and so we're not breaking it out separately. All of those have to be sun set at some point in our reporting or they never go away. But the color I would give you on Torex and you saw it a little bit in my remarks, obviously, in discussing retail in EAME, which is where the bulk of the Torex revenues are, that there was a challenge that was -- the preponderance of that challenge was all around that onetime hardware sale, which was a very, very low-margin sale. The general approach toward Torex, obviously, has been to increase the profitability of Torex over time. We are continuing to do that. We are also looking at, I would say, an increase in the level of our licensing there. And we expect that to happen over the course of this year. So I think if it's helpful for you, I can give you that color.

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

Yes, that's helpful. And then I guess, just on that vein and on the gross margin, should we expect that to kind of walk up throughout the year? I know you guys mentioned around 53.5%, so you guys are looking for and a lot of that was from Torex efficiencies. Can you maybe -- some commentary around how to think about gross margins for the rest of the year?

Cynthia A. Russo

Okay. Sorry, Peter. Okay. Yes, gross margin was slightly lower this first quarter, but it was an increase compared to last year. And we still expect an overall gross margin right on target on what we said about 53%, 53.5%.

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

Great. And then just final last question, if I can sneak one in. On your CapEx, is that a level we should expect to kind of continue as you guys build out your cloud and your SaaS offering? Or is this just kind of a onetime step up?

Cynthia A. Russo

No, we do. If you noticed on our 10-K and also our Q that's going filed this evening, our capital expenditures will increase. We estimate it's going to be around $40 million this year, and we just continue to invest in our infrastructure to make sure we have capacity to deliver to our critical systems, to our global customers all around the world.

Operator

Our next question comes from Tom McCrohan with Janney.

Thomas C. McCrohan - Janney Montgomery Scott LLC, Research Division

A question on hosting and SaaS. Does that offering increase your adjustable market, say, to maybe smaller firms that otherwise could not justify a MICROS solution in the past?

Peter A. Altabef

Yes, I think it does, Tom. It will do that over time. As Cindy mentioned, we're in the process of building out our hosting SaaS infrastructure delivery capacity. At the same time we're doing that, our core applications are really still in the process of building out their capabilities. So what I would say to you is from a hosting standpoint, particularly in hotels and in food and beverage, we are doing hosting now, as you see. We are doing a limited amount of true multi-tenant SaaS. And I think that as multi-tenant applications really come on board for us, you'll be able to see us reach down market. That's an important part of us continuing. And by down market, I'm still not referring to the single stores market, but I'm referring to the much more limited chains, the closer to a start-up but not start-up organizations. So it's a long-term process for us. It's a simultaneous equation. We have to get the infrastructure right, we've got to get the applications, the billing mechanism and the sale cycle right. So it's not going to happen overnight. I'm encouraged by the growth that we have and a lot of that growth is in hosting. As we get our SaaS capabilities to market, I think that growth can accelerate.

Thomas C. McCrohan - Janney Montgomery Scott LLC, Research Division

And just as a follow-up, your recurring revenue stay about 45%. Peter, what's your view long term on what you think recurring revenues can be at MICROS?

Peter A. Altabef

Well, I think the driver for the recurring revenue number will really be the SaaS and hosting number component. I think the non-recurring and the support and maintenance numbers will not necessarily change. I don't think you'll see them moving the percentages. I see over time, you'll see the SaaS hosting moving the percentages. And that's really the way we look at it. I would like to see some faster growth on the support and maintenance side. You saw in the numbers, we grew that about 2.1% this quarter-on-quarter. We're going to look at that hard and see if we can accelerate that growth. But that growth won't be anywhere near as strong long term as the SaaS hosting growth.

Operator

[Operator Instructions] Our next question comes from Keith Housum with Northcoast Research.

Keith M. Housum - Northcoast Research

A question for you here on RFP. As the quarter progressed, how is the activity in terms of the RFPs and the large national chains? If I remember correctly, there really hasn't been a huge amount of those over the past few years, and it seems like there's an opportunity there for that to start growing at least in my eyes. What did you guys see in the quarter?

Peter A. Altabef

Well, I would say, if you're looking at food and beverage, I think we have some nice opportunities with that business, in the very, very large deals are rather spotty and lumpy. But I think we have a nice food and beverage pipeline. I think we also have a very nice hotel pipeline. So I would say to you, it looks good. But again, this is more -- in terms of our sales pipeline, I see this more as a broad-based recovery than as to be overly reliant on 1 or 2 very large deals coming in. Those deals are spotty and maybe they happen and maybe they don't. I would love for them to come in as an additional benefit. But we're more focused on making sure we've got a broad-based sales recovery.

Keith M. Housum - Northcoast Research

Okay. So I guess overall, would you say the RFP environment is improving as you're seeing more come across your guys' desks? Or is those pretty lumpy and inconsistent?

Peter A. Altabef

Both.

Keith M. Housum - Northcoast Research

Okay, okay, got it. And then just a follow-up, if you can remind me, what's the profitability of your recurring revenue compared to the rest of the services element? Will I think of that above services average or below?

Cynthia A. Russo

It's hard to say because it's above our average. The other large piece of our service revenue is the labor, so -- and it's above the labor.

Peter A. Altabef

Yes, it's what you'd expect. In the professional services, the implementation type of work, the custom software modification work, that's unlikely to carry the same margin that our maintenance would or even that a hosting SaaS business would.

Operator

Our next question comes from Gil Luria with Wedbush Securities.

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

I figure if you still have time, if you wouldn't mind talking a little bit about your product pipeline in the different verticals. The level of R&D spend has been a little elevated, although it's plateaued. And you've seem to have really focused it on newer solutions in all those 3 verticals since the beginning of the year. Can you even broadly talk about what are some of the strategically important products that you're working towards over the next couple of years in the verticals?

Peter A. Altabef

I can. And I'm happy to. Any time I can put out a commercial is a good thing, Gil, I'll take it. But seriously, one of the things that we announced in the last quarter, which is a very big deal for us, is the consolidation of our applications team globally. Russ Butler, who joined us from IBM, has now been in that newly created role for about 6 weeks, and I will tell you that the reaction from the entire company is very positive. So we're really looking at that entire spend, which is now about 6% of revenue, and we're looking at that strategically now and saying, "Exactly how does that evolve over time? Where do we focus that spend to get the biggest sales impact and the biggest strategic impact?" We're really doing that now at a level across the company that is very welcomed. So I think we're going to spend our money more effectively. And I think from an infrastructure standpoint, if I could use that term in a different way, I think we're going to evolve the efficiency with which we spend that money. And it's all about making sure that our application teams are aligned with our business teams on what do we really need to be focusing on. So that said, the things that we are focusing on in the food and beverage world is pretty obvious. I've talked about it a couple of times, but it's worth repeating, and it's really 2 elements. It's our next-generation Simphony platform, and that -- and it is the enterprise applications that really sit on top of that Simphony platform. So it goes beyond what I would consider a POS world in food and beverage. It really is going to restaurants now and saying, "Aside from HR and aside from finance, we can and we'll increasingly be able to deliver you pretty much everything you need to run a restaurant." And that's back office, that's front office, that's on top of the store. We think long term that differentiates us from some of the entry-level POS systems that they don't have our capabilities or our domain insight or, frankly, the energy or need to do what we're doing, because this is kind of our business. On the hotel side of the world, and ultimately, as we talked about a couple of minutes ago, we do intend to increasingly take that business down market, as over time that business becomes more SaaS multi-tenant enabled. But that is a process. In the hotel world, we really attacking this from a couple of standpoints. The OPERA 9 suite from an architecture standpoint and a technical standpoint is clearly the right application for the industry going forward. It just is. The client wins have supported that, and the interest supports that. So I think we will successfully transfer our leadership position over time in OPERA 5 to OPERA 9. That's important for us to maintain that position. More importantly, OPERA 9 is giving us the advantage of being more capable to provide hosting and SaaS solutions. So if you talk about moving from OPERA 5 to moving to OPERA 9, one of the things we can do now is, frankly, provide hosting and SaaS on a wider range than we could have with our clients before. That will increase revenue, even if we're not necessarily increasing our ownership of the high-end hotel market where we have right now, frankly, a very high percentage. But OPERA 9 and Suite 8, which is another product we have in the hotel market, will also allow us to go down market. And as we roll out OPERA 9 Xpress, we think we'll be very, very well positioned in the 3-star market, where we have sizable market share today but we don't have kind of the dominance we have in the 4- to 5-star market. So I think we're well positioned and our application spend is going exactly there. Retail is a little different in the sense that retail is our newest vertical, and where we are really ramping up is in the specialty retail area. So the specialty retail area is global. Our clients are global, but there is still a large number of professional development and customizations done in that area because these global retail shops really want the systems run exactly the way they want. So our mix in retail is a little different. It's a little more highly weighted towards those professional services. And therefore, the development is to really strengthen the core of those products from an R&D standpoint but realizing there's going to be a fair amount of development alongside of it. So that we -- as we look at all 3 verticals, I will tell you, I think we're accelerating our ability to get new versions out with speed. The frameworks and roadmaps are a little different, but we're getting into a rhythm now that I think is very healthy for the company, and I think the level of spend that is healthy for the company.

Operator

There are no further questions at this time. I'll turn the call back to you.

Peter A. Altabef

George, thank you very much for acting as the Master of Ceremonies. I'd like to thank everyone for joining the call. Cindy, thank you for really giving a lot of insight into what we're doing. And Peter Rogers, of course, is available for you after the call and on an ongoing basis. It is our attempt to continue to provide more transparency, not only into our numbers, but into our strategy. We are proud of both, and we're excited to make sure that we get you on this call in a quarter. Thanks again.

Operator

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

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

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

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

Source: MICROS Systems Management Discusses Q1 2014 Results - Earnings Call Transcript
This Transcript
All Transcripts