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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

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

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

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

Ross MacMillan - Jefferies LLC, Research Division

Eric Lemus

Keith M. Housum - Northcoast Research

MICROS Systems (MCRS) Q2 2014 Earnings Call January 30, 2014 4:45 PM ET

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the MICROS Systems Inc. Fiscal 2014 Second Quarter Conference Call. [Operator Instructions] As a reminder, this conference is being recorded Thursday, January 30, 2014. It is now my pleasure to turn the conference over to Peter Rogers. Please go ahead, sir.

Peter J. Rogers

Thank you, Claudine. Good afternoon, ladies and gentlemen. This is Peter Rogers, EVP of Investor Relations. On behalf of the entire MICROS team assembled here today, let me thank you for joining us to discuss our fiscal 2014 second quarter results.

I'm here today with Peter Altabef, our President and CEO; Cindy 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 then turn the call over to Peter Altabef for his comments.

Safe Harbor statement. 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 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 file our fiscal year 2014 second quarter 10-Q this evening. Peter?

Peter A. Altabef

Thank you, Peter, and good afternoon, everyone. We reported revenue of $345.6 million, an increase of 6.5% over the year-ago quarter. On a constant currency basis, we grew 6.7%. For the 6-month period, we reported revenue of $660.2 million, an increase of $35.9 million, or 5.8%, over a year ago and 5.9% in constant currency. The revenue growth is all organic, spurred by improving macro conditions in most of our markets and by sharpened sales execution.

Our second quarter non-GAAP income was 43 point -- excuse me, $48.3 million, producing an EPS of $0.63, in line with expectations. We experienced balanced revenue growth around the world this quarter, with the U.S./Canada growing 6.2% and international growing 6.7%. On a constant currency basis, U.S./Canada grew 6.4% and international grew 6.8%.

Looking at the 3 regions of our international reporting segment. We had revenue growth for EAME, that's Europe, Africa, Middle East, of 7.2%; Asia Pacific of 5.6%; and Latin America of 5%. On a constant currency basis, EAME grew 4.1%, Asia Pacific, 13.8%; and Latin America, 11.5%.

On a vertical market basis, food and beverage grew 7.8% this quarter, driven by strong demand. By way of example, we just installed our 100th SONIC restaurant. Major new Simphony client wins in the quarter were Compass of Canada with more than 200 sites, Ovation brands with more than 325 locations and MAC Services, an Australian company, which selected Simphony and our Materials Control application for use in 9 employee mining camps.

Our food and beverage offerings can be provided either on-premise or in a SaaS hosting model, and we think that our flexibility is an important differentiator.

Our hotel vertical grew 4.6% versus last year. We're experiencing good demand as many clients are undertaking new projects. We see growing demand for a broader range of MICROS applications such as the MICROS Payment Gateway, Sales & Catering and channel management.

Significant client wins include the new SLS Casino in Las Vegas, with OPERA and Simphony, a 40-plus hotel chain in Croatia, the CABINN hotels in Denmark with OPERA and several prominent independent hotel wins in the U.S. and Canada such as the Sea Island Resort of Sea Island, Georgia.

While our front office application is central solution that hotels deploy, we have a broad portfolio of applications, and our large install base of front office applications enables us to cross-sell many additional applications.

Our retail vertical grew 7.4% versus last year. Significant client wins include a Fortune 100 media communications company, deploying Xstore and several other applications in their retail stores and service centers, Sally Beauty with Xstore, Joules Clothing chain in the U.K. with our Retail-J enterprise platform and multinational -- multi-channel demand management; and our MICROS Payment Gateway with a payments partner in China for use in hundreds of retail outlets.

Similar to the other verticals, an improved macro environment and strong interest among retailers to upgrade their systems and e-commerce applications are important demand drivers.

Looking now at our lines of business. We saw strong growth in software licenses across all 3 verticals, with revenue of 15.5%. Hardware grew 5.7%, while services grew 5.1%. With respect to services, both our SaaS hosting and recurring maintenance revenue grew 5.6%.

We believe the SaaS hosting revenue growth will accelerate based upon our growing pipeline of client deployments. For example, we are in the opening stages of a global hosted deployment of Simphony with Starwood Hotels in over 1,000 sites, the most recent being a property in Latin America.

Importantly, we are completing our current data center footprint expansion as we recently opened data center capability in Denver and São Paulo, Brazil, and we will bring our Mexico data center online this quarter.

With respect to hardware, we are expanding our family of tablets with different price points and a variety of operating characteristics. Our tablets provide direct accessibility to additional MICROS-branded hardware, software and SaaS hosting solutions. To this effect, we recently announced a collaboration with Microsoft, Dell and Intel. We see an attractive opportunity for all 3 of our vertical teams to sell our expanding family of hardware solutions.

All 3 of our lines of business are important to us, as we continue to invest in our software services and hardware. Significantly, we also continue to grow licensed software sales and SaaS hosting revenue concurrently.

We have recently added Jay Upchurch and Carlos Echalar to our executive team. Jay is both leader of our Global SaaS Hosting Operations and CIO, and Carlos is our Chief Human Resources Officer. Jay brings extensive experience to our SaaS hosting business. Carlos adds important expertise in helping MICROS enhance our associate workforce to address an evolving marketplace and new ways of providing services. These important -- these appointments are important as we enter a new period of growth for the company.

I will now turn the call over to Cindy to review our financials.

Cynthia A. Russo

Thank you, Peter, and good afternoon to all of you.

First, some highlights from our income statement. Second quarter revenues increased 6.5% or $21 million to $345.6 million, driven principally by another strong quarter in software licensing and the associated ancillary services. The increase in sales this quarter was diverse, both by geography and by vertical. And while foreign exchange played a small role in the consolidated results, there were large currency swings between our regions. Therefore, I will again discuss our segment results on a constant currency basis and subsequently shed some light on the foreign exchange impact.

Both of our segments performed above expectations in the quarter, with the U.S./Canada segment exhibiting 6.4% growth over the prior Q2, and international, 6.8%. U.S./Canada increases were balanced across all of the verticals, with the largest increases in retail and hotels at 8.7% and 8.5%, respectively.

Food and beverage sales in the U.S./Canada remained strong, growing over 4% in the quarter and more than 7% year-to-date.

Breaking down the International segment, we first turn to Asia Pacific, where 13.8% growth in the quarter was spawned by strength in China and India. Year-to-date, Asia-Pac is up 9.4% over 2013.

In Latin America, revenues increased 11.5% over the prior year, attributable to market share growth and customer refreshes in the hotel vertical.

And finally, Europe, Africa and the Middle East put forth a healthy 4.1% increase in the quarter. In the United Kingdom, which represents approximately 14% of our consolidated revenues, we are starting to see the impact of an improving economy. Rollouts in the Middle East this quarter also helped drive the region's return to growth.

In the aggregate, foreign exchange triggered a $600,000 decrease to our reported revenues when compared to rates in the prior year. The strength of the euro and pound helped our European region by $4.2 million on an as-reported basis, but this was more than offset by currency swings in the other 3 geographies. Year-to-date, FX swings have negatively impacted our sales by $1 million and have had a very nominal impact to earnings per share.

Our subscription-based SaaS and hosting revenues increased 10.9% over the prior quarter to $24.8 million. Maintenance revenues in the quarter amounted to $125.8 million, bringing total recurring revenues to $150.6 million or nearly 44% of sales.

The company has implemented moderate support increases throughout the globe in calendar 2014, the effects of which are not yet seen in our financials.

Turning to gross margins. Profits on our hardware lines of business were strong at 35.8% due to a favorable mix of internally designed hardware sales. Expenses relating to the delivery of our services were up 6.4% over the comparable quarter, causing a 58 point decrease in our margins here. We feel strong about the additional investments we've made to establish our hosting platform and to decrease delivery lead times across our verticals.

Non-GAAP operating expenses of $111.6 million amounted to 32.3% of revenues, in line with our investment expectations at the beginning of the year. Year-to-date, expenses amounted to 32.2% of reported sales.

A few items to note in this section of our financials. In the 6-month period, we have been able to leverage approximately $4 million to $5 million in pretax cost synergies due to the integration of Torex into our existing infrastructure. We've increased spending in R&D 22% year-to-date, paying close attention to ensure our innovation dollars are spread across the business. In fact, net R&D spend this quarter, at 6.2% of revenues, is an all-time high for our company and we're really excited about the innovation occurring across the globe.

Net operating income in the quarter included $900,000 of interest income, offset by $100,000 of interest expense.

For the full year, we expect a tax rate of 32.5% on a GAAP and non-GAAP basis. The December year-to-date effective tax rate of 34.6% is inflated due to one-time events in Q1 and will compress as we finish out the second half of the year.

Now turning to cash management. MICROS generated $101.2 million from operating activities, thus far, in fiscal 2014. This figure represents a 54% increase over last year, attributable in part to lower compensation and interim income tax payments, as well as an increase in customer deposits during the 6-month period.

Capital expenditures, thus far, this year, totaled $20.9 million, and we've capitalized $3.8 million in software development. Subsequently, our free cash flow has increased over 43% to $76.6 million year-to-date. As mentioned in the Q&A last quarter, we forecast a spend of approximately $40 million on property, plant and equipment in fiscal 2014.

In the second quarter, the company repurchased 395,000 shares of common stock for $19.7 million. Thus far in Q3, we have repurchased 150,000 shares for $8.3 million. Our Board of Directors have -- has approved the repurchase of an additional $200 million of MICROS stock. Together with our pre-existing repurchase authorization, we have the ability to repurchase up to $288 million of stock as attractive buying opportunities arise.

We continue our efforts to optimize the use of capital through internal reinvestment, M&A and stock repurchases.

Some final highlights from the balance sheet. Cash and investments on hand at December 31 were $627.3 million, an increase of $31.7 million since our prior release. Approximately 61% of our cash resides outside of the United States, and we continue to review models in which to deploy our international cash reserves that will generate the greatest return for our shareholders.

Days sales outstanding at quarter end were 57.8 days, down 2 days from a year ago. Improvements in collections in Europe were encouraging, and triggered the decrease of our international DSOs from 69.8 days to 65.3 days. U.S./Canada DSOs were 45.2.

Finally, our inventory balance of $57.6 million is an increase of $3.3 million from the prior quarter. The increase is due to a mixture of foreign exchange and additional inventory en route to satisfy our stadium and hospitality backlog in the third quarter. Back to you, Peter.

Peter A. Altabef

Thank you, Cindy. Given our results for the first 6 months of fiscal 2014, we are raising our fiscal 2014 guidance for revenue to be from $1.32 billion to $1.345 billion, and expanding our non-GAAP EPS from $2.46 to $2.51. The original guidance was for revenue of $1.295 billion to $1.32 billion, and non-GAAP EPS from $2.46 to $2.50.

Finally, we look forward to hosting an Investor Day in New York City on Thursday, February 20 from 10:00 a.m. to 3:00 p.m. at the Millennium Hotel. Interested investors can request an invitation by visiting our website at www.micros.com.

We'll now open the call to questions.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from the line of Dan Perlin at RBC Capital Markets.

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

I wanted to ask a few questions. I guess, first of all, the tablet expansion that you mentioned with these 3 partners, is that indicative of a message that you're going move down downstream? I know in the past, Peter, you talked about not sure if you wanted to invest kind of empty calories to go after the little guys. But that partnership expansion makes me question them.

Peter A. Altabef

No, Dan, it's not. But thank you for the question and giving me a chance to clarify. So we launched a tablet solution kind of mid-last year called our mTablet, which also has an M stand. And it is a purpose-built tablet that is pretty rigorous. It withstands drops, it's hardened, it has the ability to have a special screen that is visible from outside. It works in temperatures beyond the typical tablet, so both high and low. So I don't know if you were in Chicago during a recent Chicago Bears game this season, but it was mighty cold and those tablets kept on ticking. But it is not the least expensive tablet in, out there because of all of that special work. So what we're doing now is keeping the mTablet and keeping that price point and those special qualities, but we're adding a range of tablets that will be somewhat less expensive. Interestingly, though, they'll still work with that M stand so they'll still have direct connectivity to all of other peripherals and everything else. They'll still have our hardware preloaded -- rather, our software preloaded. So it's not a question of going down market for customers at all. We expect to be able to market this across our customer base. We're just going to give customers more choices for when they need a more expensive tablet, when they need a less expensive tablet. I hope that helps.

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

Sure. I also wanted to ask a question, this quarter, it sounds like retail and hotel in U.S./Canada were quite strong. And it seemed like last quarter, it sounded more like restaurants across-the-board were kind of picking up and smaller ones in particular. Can you just explain the dynamic that may have shifted quarter-to-quarter as you actually saw improvements across your client base? It just sounds like a shift.

Peter A. Altabef

Yes, I think it's a bit of serendipity. I think it's a bit of -- at our size, scale, company, you're going to have differences quarter-to-quarter between the verticals and you're going to have differences quarter-to-quarter between the geographies. So if you look at our first quarter numbers, I thought we had good healthy growth that outpaced what we expected. And we had especially good healthy growth in food and beverage in the U.S. We had a little less healthy growth than I would have actually wanted in both Asia Pacific and Latin America, for instance. But what we saw this year -- this quarter was Asia Pacific picking up, Latin America picking up, food and beverage still doing well, but not the standout that it had first quarter and the other verticals picking up in the U.S. So I really don't think at this point, there's any takeaway from that, other than for a company of our size, we have some nice diversification, both geographically and vertically. And that tends to balance out a bit between quarters.

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

And is there any information you can give us kind of inter-quarter how it trended? Any early reads kind of through the first part of January that could make us feel like this growth curve is sustainable and potentially accelerating?

Peter A. Altabef

Well, the only thing I would say is you have our -- we re, if you will, published our yearly numbers just now. And you see what I would categorize as a modest increase in revenue and the potential for an extra $0.01 in terms of EPS. So I would say to you we are very much sticking to the script of this company this year, and that script is to reverse what was a flat year last year organically into what is a growth year this year and put in place the kinds of investments we need to have sustainable and hopefully increasing growth going forward. And that's our script. And I would say to you, so far in the first 6 months, we're sticking to that script. We've had a slight uptick on revenue, but, by and large, we're sticking to that script.

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

And then just 2 quick ones. The implicit margin expansion that you had kind of stuck with in the beginning of the year -- you told us about in the beginning of the year, that still feels like that's possible despite the fact that the first couple of quarters have had some operating margin degradation. And then the pace of play in terms of your buyback was significantly reduced this quarter relative to last. So I'm just wondering is there commentary that needs to be shared about just because the stock was up 15%, you're not going to opportunistic? Or are there deals that you're looking at and contemplating for use of capital? And I'll jump off.

Peter A. Altabef

Okay. Well, I'll answer the first part of that and I'll hand it over to Cindy for the stock repurchase part of it. Again, we are pretty much sticking to our script. I will say that what that script envisioned was a slight uptick in gross margins and a slight uptick in operating margins. We're still modeling a slight uptick in both, but the uptick has actually reduced a little bit. So while they're both still a little higher, they're a little higher less. And they're a little higher less frankly because that revenue is coming in a little higher. But -- and we are continuing to make investments and making sure that we're making the right investments and, frankly, taking a little bit of advantage of that. So I would tell you, yes, we expect our margins to go up year-on-year but only very slightly. And we are really driving toward increasing the top line growth, which will drive over time bottom line growth through several mechanisms. With respect to stock repurchase, I'd hand it over to Cindy.

Cynthia A. Russo

Sure. Dan, as you know, we were very aggressive in Q1, buying back over $92 million in shares. Now we did slow this down in Q2. Our share price did hit an all-time high. However, by -- as evidenced by the new authorization, we expect to continue an aggressive buyback strategy. Now of course, you know in our capital allocation, I can't tell you if we are in any potential acquisitions but we are constantly and always looking at M&A both domestically and abroad.

Operator

And our next question comes from the line of Gil Luria with Wedbush Securities.

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

I wanted to follow up on the mTablet. Though it seems like we're hearing in the market that it's doing very well. It's not yet available everywhere, but it seems to be doing well where it is. I was wondering whether you guys could quantify any measures or metrics that you have around that so far? And if some of those initial sales are incremental, are completely instead of another system, are sold more on hosted basis, more on an installed basis? What's the nature of the first 6 months of sales of the mTablet?

Peter A. Altabef

Yes, thanks, Gil, for the question. I would tell you I think it has been well-received by customers. We don't give out quantity sales data for any of our hardware. But -- and clearly, what distinguishes it are the things that I talked about. I mean, you put that in the stadium environment and/or you put that on a seashore or you put that in an outdoor café and it's a very powerful driver of revenue for our customers. I think what we're doing with expanding the product line to include more types of tablets will also ultimately really benefit us. So all I could tell you is yes, we think it's been successful. I think that it's a flagship product. I think we'll probably over time get more volume at some of the other price points. But that's what it takes when you have a more well-rounded set of offerings. With respect to whether or not it replaces kind of a traditional network station, I think some clients are using it for that because it sits on a stand that is detachable and on the stand, it basically has full functionality of a traditional workstation. But more often than that, I think what you're seeing clients use it on are for execs. So if you're a retail store going forward, we expect great interest in our tablets going forward because you'll be able to supplement Christmas lines, et cetera, without having to build new solid lines. So we see a lot of upside in our expanded products. As I said, it was an important message for me to tell you guys that hardware continues to be alive and well at MICROS. But we are sticking to our knitting and in that we're providing hardware in those specific solutions where we think we can drive value and therefore, margins. Because at the end of the day, we do consider ourselves a premium hardware provider because we're providing industry-specific solutions.

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

And then in terms of services gross margins, those were a little lower this quarter and you mentioned about the hosting capacity. Is that -- did you take a step up there and now you can scale into that? Or are those margins what we should expect going forward?

Peter A. Altabef

Well, there are a lot of moving pieces there. So one of the things that we started early last calendar year was to really look at our hosting and SaaS capabilities from an infrastructure basis and see what we thought we needed to have in-house. And so we did that modeling. We looked at what we needed. We decided we needed another center in the U.S., specifically we put that in Denver to supplement Virginia and Chicago. We thought we needed centers in Latin America and we have just stood up Brazil and Mexico is coming online this month. We enhanced Singapore and we enhanced Frankfurt. That was our plan, and we're -- by the end of this month, all of those centers will be live. Now Denver is just lights on, São Paulo is just lights on and Mexico is turning on. But at that point, you should not see us for certainly the near or even midterm having to build out more physical data centers. That's what we needed to do and we got it done. Beyond that, I think you'll see us putting excess capacity into the cloud as our applications become more robust and more capable in the cloud. And then we'll start giving our clients more choices about whether they want us to host those applications inside our centers or using cloud. So the short answer to your question, which turned into a long answer, is with all things infrastructure, there are step changes. We've gone through a step change now in physical plant in terms of those -- of where those centers are. We're finishing that out this quarter. There'll still be software to back into that, there'll still be some hardware to back into that. There'll still be tools to back into that. But we're -- we've been working through a step change.

Operator

And now our next question comes from the line of Arvind Rajamohan with Stifel.

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

Peter, just 2 quick questions. I guess, the first one, The Wall Street Journal had an article about Amazon potentially getting into the retail business with a point-of-sale or I guess, something that it could sell with its Kindle. I guess if you could just give us your thoughts on that product? And I know it's still early, but maybe how that would impact you guys?

Peter A. Altabef

Yes, thanks, Arvind. I did see the article. And Amazon is a significant player in almost everything they turn their attention to. So we clearly, and I thank everybody in the market takes them very, very seriously. I think, frankly, it's a little too early to tell. I've read the same article that you read. In terms of companies coming into what I would categorize as the Tier 4, Tier 5 retail point-of-sale environment, there are a lot of them doing that. As you know, that part of the market is not one that we, frankly, play in today. That does not mean we won't decide to play there in the future and we're constantly looking at that part of the market. But if we enter that market and how we enter that market, we're not there today. So I would tell you that our primary purpose is to make sure in the areas of the market that we're in that we've got the best functionality and the best price points and the best capabilities to dominate our parts of the market. But whether or not we decide to go into that part, we'll see.

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

Great. And then I guess just a clarification. You made a maybe comment about how your margins were a little bit lower than you expected because of the revenue upside. Are you implying that you guys are spending faster, to try to reaccelerate growth? Or just a little bit of clarification there would be helpful.

Peter A. Altabef

Not a lot of change in really any of those numbers. It's really around the edges. So I wouldn't categorize this as a significant change in any event. The revenue did go up a little bit. We had a couple of increases in spending and some dynamics that Cindy's going to go through. But again, I wouldn't consider that a sea change in any event. We're largely sticking to our plan in terms of the amount of profit we expect to generate this year, and I think the guidance is pretty clear on that. We are sticking to our plan this year. But Cindy, why don't you elaborate a little bit?

Cynthia A. Russo

No, I mean, as Peter, you said, that we're really heavily investing in our data center infrastructure. And in addition to that, with our revenue uptick and due to the pace of some of our client rollouts, we're utilizing some more third-party contractors this year than initially anticipated. So that does -- is putting a little bit more pressure on our service gross margins.

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

Great. And then just quickly on your license margin. I know 2Q maybe get us -- help me remind me, did you guys sell a lot more proprietary software that quarter? Or why was there kind of the degradation in the gross margin on the license front?

Cynthia A. Russo

In this quarter, yes, as you could see, our software margin has increased quite a bit. We're actually up to 13% of our revenue. There is a little bit of decrease in the overall margin and it's primarily related to some of our third-party software sales.

Operator

And our next question comes from the line of Ross MacMillan with Jefferies.

Ross MacMillan - Jefferies LLC, Research Division

Peter, with the Dell, Microsoft, Intel deal, is there anything strategically changing as you think about your hardware business? You mentioned that mTablet was available for retail and I think historically, most of your own branded hardware has really been focused on restaurants. I'm just curious as to whether there's a set of new expanded hardware potential across the 3 segments of your business that maybe you haven't really capitalize on before?

Peter A. Altabef

So Ross, thanks for asking the question. And if I -- I may have misspoke. What I intended to say was that for the retail marketplace that the new tablets would be attractive to retail. You put your finger on a nice point and one that I want to elaborate on. So traditionally at MICROS, the vast majority of our proprietary hardware sales, the MICROS hardware, has been sold through our food and beverage organization. And it was specifically built to suit for that food and beverage marketplace. What we are doing now, starting with the mobile solutions, but then going beyond our mobile solutions into other hardware products that we will offer in the future, will be hardware products that will work in all 3 of our verticals and we will market in all 3 of our verticals. So the mobile solutions, the mTablet today is being marketed in our -- in largely in food and beverage. But the new tablets will be marketed in food and beverage, in hotels and in retail as well our next-generation other hardware products. So one of the conversations we've traditionally had about hardware is where does hardware fit into our picture going forward? And I think I've said on a couple of calls, in some ways, hardware is a more challenged environment for MICROS than the other 2 lines of business. That's still the case. You're on this treadmill of how are you bringing more and more value to have a higher margin hardware product in a market where hardware can commoditize pretty quickly? So one of the answers to that is we're actually expanding our addressable market in hardware. So rather than in the old days, focused largely on food and beverage for MICROS products, we're actually building products now with hotels and retail in mind as well. And I think that will help us going forward.

Ross MacMillan - Jefferies LLC, Research Division

That's helpful and it's interesting change. Just 2 quick ones, follow-ups. The corporate PC market has seen a bit of an uplift here recently and there's some different views on what might be causing that. But one view is the XP end of life. And I know you have certain systems like the 3700, which is historically based on XP. There could be an easy way to solve for that, which is a just a OS upgrade. But there could also be an opportunity for you to upgrade those customers with different hardware and software. So I was just curious as we're seeing that sort of uplift as we come into this very last few stages of the XP support time frame. Are you seeing some benefit across your business from that? Do you sense that it's acting as an incremental uplift in any way?

Peter A. Altabef

Yes. No, Ross, it's a very good question. I think the short answer is yes, in food and beverage. I think you are seeing -- some of what we saw -- and again, food and beverage, for the first 6 months, is up about 7% for us in the U.S. and Canada. And I think you're seeing that there is -- some of that push is coming from people who are moving away from XP and onto more modern systems. I wouldn't call it the overwhelming reason but it's clearly there.

Ross MacMillan - Jefferies LLC, Research Division

A very last one, if I could. Just -- I know Simphony is available and you can run Simphony both on a hosted form but on a non-prem form. But as I understand a bit, the true multi-tenant version of Simphony is still in the wings. Do you have any view on the timing of a true multi-tenant product that could then be distributed through the dealer network where the core software is run on a multi-tenant basis out of your own data center?

Peter A. Altabef

Ross, you are correct. There are pieces of our food and beverage operations that are true multi-tenant, mymicros is one of them. We're developing them really across the company. Simphony is one of those that is under development. But to categorize it, the released product today as full multi-tenant would be a stretch. It is under development. And no, I -- we would tend not to give dates for release dates on future versions of products. But we are actively working on it.

Operator

Our next question comes from the line of Erich Lemus at Raymond James.

Eric Lemus

My first question, recently, we've heard there's been some overall organizational changes whereby each vertical is operating more as an independent accountable business. Can you guys comment on that? And I guess, if so, have you guys seen better execution because of these changes?

Peter A. Altabef

Yes, Eric, thanks for the question. Probably more inside baseball than some of you on the call want, but since you asked the question, I'll answer it. Going back a few years, certainly before I arrived, the company very much was organized on a geographic basis with both geographic P&Ls and a very geographic-centric approach. When I looked at the company and said, okay, how do we want to organize? What I found was that still made a whole lot of sense in a whole lot of ways. So we are still geographic based on our P&L and on the way we effectively run the company. So from a client standpoint, from an in-region implementation standpoint, from an intimacy standpoint with respect to knowing our markets, the geography is the center and, in fact, is one of the things that contributed to the success of MICROS to be client responsive and to have a truly global sales and support system. On the other hand, there are certain horizontal functions such as data centers and some support that -- it goes along with managed services such as research and development -- that really can be leveraged when you look at them more globally. So we've taken a more horizontal approach to some of those leverageable delivery or factory elements, if you will. And then to answer your question specifically about verticals, one of the things we have created are global vertical leadership teams. And what that is intended to do is to give a global approach to our strategy, to our mergers and acquisitions, to our solutioning, so that as we make investments in research and development and in our hosting and SaaS capabilities, we're doing it with a view of what will drive maximum revenue and profits across the globe? Where are the markets across the globe? More from a strategy standpoint than from an execution standpoint. The actual P&Ls stay in the geographies. So we've kind of evolved a little bit, but -- and it's a little more complicated, but we think it's a more effective and more efficient approach.

Eric Lemus

Great. I appreciate the detail there. Just one last quick one here. In the Food & Beverage business, if you guys could just segment out your National Accounts business versus the Street business. Can you make any sort of comments as far as demand or win rates in those particular segments?

Cynthia A. Russo

We overall look at the business that way but we don't keep track of it. I mean, all of the -- as we've seen across -- all of the regions have seen good growth, each of the verticals have seen very good growth throughout the year. But we're not specifically looking at individual major accounts at the financial statement level.

Operator

And I have a last question from the line of Keith Housum.

Keith M. Housum - Northcoast Research

If I could just drill down a little bit more on the R&D. Obviously, the R&D increased quite a bit year-over-year. If you could fully shed a little bit more light, I guess, on where the focus of the R&D is? And is that more the expectation we should have for the rest of the year at current levels? And then finally, is it more internal versus external resources? Just any more clarity you can throw on that would be great.

Peter A. Altabef

A little bit of a combination of all. In terms of enhanced focus on R&D, 2 platforms in particular. We have enhanced the level of investment in, certainly, in the past year, is our Simphony platform, as well as our OPERA platform. Both of those are getting substantial amounts of new investment. They are both platforms that have been extremely well-received by the marketplace. And frankly, we think long term, will enhance our revenue growth by getting more of those upgrades in faster. With respect to your question about whether we're doing that through internal or external resources, that's not information that we tend to disclose. But we -- part of what we are doing now that we have kind of centralized -- centralize is the wrong word, but we're looking on a global basis at our R&D -- is to make sure that were spending that money as effectively as possible. We have an amazingly qualified team of wonderful domain experts in this company that have been doing and will continue to do that research and development effectively forever. But we're also supplementing that with some lower-priced resources as well. And we think that gives us a real leg up in the marketplace to be able to have both that legacy domain knowledge and experience and to bring in some lower cost resources at the same time.

Keith M. Housum - Northcoast Research

Got it, and I appreciate the color. I think it was last quarter, you guys may have mentioned that you were looking on taking OPERA to a little bit lower class of hotels in order to broaden, I guess, the revenue opportunity. Is that where probably R&D spend is occurring?

Peter A. Altabef

It is, and 2 of the -- 2 of what -- we have a flavor of OPERA called OPERA Xpress. And OPERA Xpress is getting what you may -- if you've listened to the calls that we had before, the OPERA 9 treatment. And that is going to our next-generation form of OPERA. And OPERA Xpress is one of those platforms that is very much earmarked for a smaller hotel.

Keith M. Housum - Northcoast Research

Got it. And then a final follow-up. Should we expect the same level, I guess, or increase that we saw this quarter for the rest of the year in the R&D?

Cynthia A. Russo

Yes, as you can see on a year-to-date basis, we've spent 6.1% on R&D for the quarter, it was at 6.2%. Considerable increase compared to last year. And yes, I would expect to spend somewhere between the 6.2%. It may even a few quarters go up somewhere to 6.5%. So it'll be right within that range.

Operator

And we have no further questions.

Peter A. Altabef

All right. Claudine, thank you very much. I want to thank everyone for joining us on the call. I do hope if your schedules permit, that you find your way to New York either by subway, taxi or airplane. And we will host our Investor Day on Thursday, February 20, at the Millennium and I look forward to seeing many of you there. And for the MICROS team, thank you for your spending your time with us this afternoon.

Operator

Ladies and gentlemen, that concludes today's conference call. We do thank you for your participation and ask that you please disconnect your line. Have a good day, everyone.

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