Radiant Systems, Inc. Q1 2010 Earnings Call Transcript

May. 9.10 | About: NCR Corporation (NCR)

Radiant Systems, Inc. (RADS) Q1 2010 Earnings Call Transcript May 6, 2010 4:30 PM ET

Executives

John Heyman – CEO

Mark Haidet – CFO

Andy Heyman – COO

Analysts

Andrew Jeffrey – SunTrust

Terry Tillman – Raymond James

Rich Kugele – Needham & Company

Chad Bennett – Northland Securities

Gil Luria – Wedbush Securities

Scott Stevens – Strata Capital

Vincent Colicchio – Noble Financial

Brian Murphy – Sidoti & Company

Operator

Good day and welcome to the Radiant Systems first quarter 2010 earnings release. At this time, I’d like to turn the call over to your host, Mr. John Heyman. Please go ahead.

John Heyman

Tim, thanks a lot. And thanks to everybody for joining us today, especially on a day that was so kind of topsy-turvy in the market. With me here today are Mark Haidet, our Chief Financial Officer; Andy Heyman, our Chief Operating Officer; and Rob Ellis, our Vice President of Finance and Accounting. Before I get started, I’m going to let Mark run through the forward-looking caveats.

Mark Haidet

Thanks, John. As always, certain statements contained in this conference call are forward-looking statements within the meaning of the Securities Act of 1995, such as statements relating to financial results and plans for future business development activities, and are thus perspective. Investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, many of which are beyond the company’s control. These risks are detailed in our most recent 10-K filed with the Securities and Exchange Commission.

During this call, we will also talk about certain non-GAAP financial measures. Reconciliation of these financial measures to comparable GAAP measures can be found in our earnings release and on our website at radiantsystems.com under Investor Relations.

John Heyman

Mark, thank you. First quarter was obviously an outstanding one for the company. It’s a great start to what we think is going to be a great year for Radiant Systems. It was our biggest first quarter ever, up 18% from last year and up 13% from our first quarter in 2008, which was our best revenue year ever. Both revenues and profits were ahead of our budgets and previously issued guidance.

I think a simple set of ingredients are coming together right now to produce the results we have seen in the quarter, and the increased momentum that we see in the business right now. Number one, our products are working exceptionally well resulting in an increased rollout with our customer base, systems sales were up over 27% from last year. Number two, our customer satisfaction continues to be very strong, which when combined with our value proposition has driven big new wins and robust pipeline.

Third, our Software-as-a-Service products continue to gain traction based on their high impact to operate our sites and areas of entry and affordability, leading to growth in excess of 25% in the quarter in this product line. And fourth, and finally, the channel businesses we have are improving due to the share gains we have experienced. Our channel partners are slowly adding sales capacity back, which would help us jointly gain share in the future.

Profitability was also solid, growing 18% from Q1 of last year. Operating margins were 10.5% and they will improve throughout the year, as I’ll discuss below.

Some highlights during the quarter. Number one, our SaaS based offerings and other recurring lines of businesses have continued their strong growth. As I said, the business grew above our high expectations and we see this growth lasting for literally years ahead based on increased sales capacity, adoption of current products, and the introduction of new ones.

Number two, on the heels are some very big contract signings last year that are now in rollout phase. Some new wins have already positioned us to visibly grow the direct business again for years to come. Brinker and Macaroni Grill are two examples where large companies have signed long-term contracts to invest in our solutions. These companies represent over 1,000 corporate sites that will be rolling out a wide range of our offerings. The starting point would be our point-of-sale products that will expand to other software products as well as certain of our SaaS based offerings in the future.

As a side note, I think these wins reflect our market leadership and the relevance of our value proposition. There is a lot of very old technology out there that inhibits operators from controlling costs and growing the businesses. Even in uncertain economic times, operators are investing in our products to serve their customers better, operate their sites more efficiently and achieve what we have established as an exceptional return on their investment.

The third highlight during the quarter is our channel businesses are recovering from a very tough 18 months. Current data reflect the businesses are up substantially this year though some remain behind peak level still. This performance is ahead of our plans, and though we are not counting on it, we are hopeful a continued economic environment positively impacts investment in our products.

Fourth, new products are also gaining momentum. Our new hardware platforms are lowering the initial entry costs for our solutions, and our new software and SaaS offerings are in high demand. We’ve got some exciting new innovations on the drawing board as well.

So in summary, and importantly, all of these factors are helping us develop a view towards 2010 and even 2011 that is stronger than just three months ago when we last spoke with the investment community. Growth this year is evident and it’s highly visible. In fact, the wins we are having on the direct side will drive growth for us into 2011 and beyond. We believe this growth is sustainable over the long-term for three key reasons.

Number one, share gain and retail and hospitality. Over the past couple of years, while new system purchases have been depressed across the industry, our share has grown significantly. We believe we can continue to increase share. The economic crisis weakened many small competitors, and our products differentiate us from others. More than ever, operators that survived the storms of the past couple of years are investing in our solutions as they fight for market share.

Number two, again, the growth of our SaaS based offerings. I’ve spoken to this, but we believe this will be a $100 million-plus business for us in the foreseeable future through organic growth alone. This growth and the growth of our installed base will propel our overall recurring revenue foundation into the hundreds of millions of dollars.

And third, Europe and our new point-of-sale terminal. We believe our new POS family of products that we are introducing into Europe this year can be a major growth initiative for the company and generate significant revenues for us in the future. This is a major initiative obviously in Europe, and 400 channel partners are poised at this moment to add the product to their portfolio later this year.

Of course, given investor concerns this week over Europe, I do want to address Europe a bit proactively with you. Overall, Europe in the quarter represented well under 10% of our revenues primarily through the Orderman channel, which by the way was up 20% this quarter compared to this quarter last year, and our strongest markets in Europe are Italy, Germany and Austria. In other words, we do very little business in the more troubled spots in the region.

Our new initiatives there are in a Greenfield space. I call it Greenfield because it’s a whole new market for us and the products we are introducing. For this year, we are looking for very limited sales in Europe of the new product. Sales would become more significant next year, but it’s really a 2012 story and beyond more than anything in the next 18 months or so. We continue to believe we are going to be very successful there and perhaps we are actually fortunate that it’s not a more material part of our business today.

As to gross and operating margins going forward, rollouts of our hardware intensive point of sale systems drove significant growth early in the year. These rollouts are going exceptionally well, and they will be followed by additional rollouts within our customer base of new software modules and our SaaS-based offerings. So this passed higher revenues, higher profits, and higher operating margins are very clear to us in the near future, meaning this year.

I’m going to turn it over to Mark now. The business is on a stronger growth curve than we had laid out just a few months ago, and it’s obviously reflected in the updated guidance he will provide. Thanks again to everyone.

Mark Haidet

All right. Thanks, John. I’ll provide a few details on the Q1 financial results and then talk a little bit about our updated guidance. Revenue in the quarter was $79.5 million, which exceeded the high end of our guidance of $76 million. Overall revenue grew 18% over 2009, with recurring services driving it with a growth of 15% over prior year and contributed 45% of total revenue. We also had strong systems growth, with revenue growth of 27% due to increased rollouts in hardware shipments.

Our operating margin was 10.5% in the quarter, which was in line with our budget and expectations for the year – for the quarter I should say. And the resulting adjusted net income for the quarter was $5.8 million or $0.17 per diluted share, which is $0.02 over the high end of our guidance and the consensus estimates.

From a cash and balance sheet standpoint, we used approximately $600,000 of cash from operations in the quarter, which was primarily related to an increase in accounts receivable from revenue growth and the timing of certain cash collections. In addition, due to our success in 2009 we had annual bonus payouts during the quarter.

We’ve already seen some improvement in the second quarter as it relates to cash generation, and we anticipate – while we anticipate using working capitals we ramp up for higher growth, we feel good about hitting our targets for cash generation for the year. In the quarter, our capital expenditures were approximately $2.3 million and our net debt position remained relatively flat at $49 million.

Our operating results continue to have us well within our debt covenants, with a leverage ratio of 1.47 against a covenant of less than three times trailing 12 months EBITDA and a fixed charge coverage ratio of 1.99 versus a minimum of 1.35. This provides us both a favorable interest rate and capacity on our line for future investments.

So now I’ll update you on our guidance. Based on our current visibility in the business, we are increasing our revenue range by $12 million to a range of $322 million to $328 million of revenue for the year. This increase is due to the progress we have seen with the customer rollouts and increased sales in our small business channel across all industries. This guidance represents growth in the range of 12% to 14% over 2009 and 8% over 2008.

For the quarter, we anticipate revenue in the range of $80 million to $82 million. From an earnings standpoint, we are increasing our guidance for the year by $0.05 per diluted share resulting in a range of $0.81 to $0.84 per share, with second quarter EPS of $0.19 to $0.21. We anticipate our operating margin to increase throughout the year for an annual range of 12.5% to 13.0% depending upon specific sales mix throughout the year.

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

John Heyman

Mark, thanks. Tim will take questions in a moment. I do want to take – since I know some of you may drop off the call since you have other earnings calls to join, I did want to just take a second and plug what will be our first analyst day that we’ve ever had as a company, Tuesday in New York. Those of you who are attending will get a chance to meet a number of members of Radiant’s management team, also meet with three of our customers who are making significant investments in many of our products and learn more about the business, and very specifically, the hosted solution business. So I would encourage everyone to attend.

Tim, with that, we’ll take questions.

Question-and-Answer Session

Operator

We’ll take our first question from Andrew Jeffrey with SunTrust.

Andrew Jeffrey – SunTrust

Thanks for taking my question. I wanted to – I have a couple of questions actually. Can I start with the balance sheet, please? Looked like AR days were up a bit this quarter sequentially and year-on-year. Can you speak to that a little bit as it relates to revenue recognition and collectability?

Mark Haidet

Sure, Andrew. This is Mark Haidet. Yes. Accounts receivable days sales outstanding was up year-over-year. The primary driver was really around two areas. One, we did have, as we ramped up in the first quarter, a larger portion of our sales in the second half of the quarter. So that added from a DSO standpoint a short timeframe to collect it. Another factor is we did have a number of billings that we issued actually later in the quarter due to a cutover of our ERP system.

So as we were cutting over our system, we had a bit of a blackout window where we were not billing and then we initiated billing. So there is a bit of a one-time change in that that only impacted the first quarter. From an overall quality receivables, no change in that as far as the quality of revenue or receivables are concerned about collectability. So we see the – I think I mentioned in the earlier part, we have already seen the cash collections improve and the cash flow improve and expect that trend to continue throughout the year back to more of our normal levels.

Andrew Jeffrey – SunTrust

Okay, great. And then can you talk about the contribution of some of the bigger recent contract wins that you are currently rolling out to the 2010 guidance? In other words, build up for us the way you have in the past to the 2010 revenue guidance in terms of visibility and comfort?

Mark Haidet

Yes. This is Mark again. I will avoid talking about specific customers and revenue line items –

Andrew Jeffrey – SunTrust

In aggregate though, maybe.

Mark Haidet

Sure. In general, where you see the growth in the systems line is being driven significantly by new customer rollouts, but at the same time, our channel business is up. So there is a balance there. It’s not all from new customers. But if you look at our overall visibility model as we went into the year, we were talking in our guidance about 45% or so from recurring revenue sources; approximately 25% from committed business going into the year, customers who we had won; and then 20% or so from the channel, and I believe it was less than 10% or so was from new sales. And much of that new sales that we had in our initial guidance has come to fruition is now in the numbers and you’d shift that to the committed bucket.

In addition, the channel sales have increased. So that has improved. So overall, I’d say, the risk profile of our guidance is similar. We’ve got new sales opportunities in the pipeline, those that were in the pipeline if come to fruition. The overall mix between channel, direct sales, et cetera has not changed dramatically throughout the course of our projections for the year.

Andrew Jeffrey – SunTrust

Okay. So, has – just to clarify, has the new revenue guidance kind of maintained that 45%, 25%, 20%, 10% construct, hence the whole number moving higher, or can we think about the actual shifting among those buckets after the first quarter?

Mark Haidet

It’s roughly the same. I’d say the area that would have some shift would be depending on the upside and the upper end of the ranges. That’s all going to be more around system sales. So the recurring portion could be a few points below that. But from a dollar standpoint, right where we thought it would be, but from an upside standpoint, that would be more in systems.

Andrew Jeffrey – SunTrust

Great.

John Heyman

Andrew, one thing I want to add to what Mark said, that – I think as I reviewed the quality of the revenues in the quarter and not knowing each one of your individual models, each analyst models, but our recurring revenues were over $1 million – were $1 million-plus over our budget for the first quarter. And that’s a number that just continues to sustain itself throughout the year and is very encouraging to me both in terms of the quality of the revenues and the earnings power of the business.

Andrew Jeffrey – SunTrust

Terrific, thank you.

John Heyman

Thank you.

Operator

We will take our next question from Terry Tillman with Raymond James.

Terry Tillman – Raymond James

Yes, good afternoon, guys. Thanks for taking my questions. Just the first question, I don't know if it's for John or Andy, but as it relates to Orderman and thinking about how that could start to play out, either late this year or early next year, the one thing that was with all these resellers, I'm assuming they already have some point-of-sale solutions they are selling beyond just the handheld side, or maybe I'm wrong with that assumption, but I am assuming they have some existing technology. So what's the value proposition of your point-of-sale solution in selling into that reseller or VAR base versus maybe solutions they were already taking to market?

Andy Heyman

This is Andy, Terry. I would think about this, first of all, a little bit like six years with the Aloha channel where they were already selling competing technologies, but not necessarily terminals that were built specifically for the market designed with restaurants in mind. Very similarly in Europe, we’re doing the same thing competing against more generic horizontal providers. We’ve come up with something very distinctive not only for the restaurant market in Europe, but the European restaurant market in Europe. And the way it handles the transaction processing and this feedback we’ve gotten from showing this product to our reseller channel there gives us a very similar type of confidence as when we have launched our terminals in the Aloha channel.

Terry Tillman – Raymond James

Okay. And maybe another question. It relates to – just in terms of the attach rate of Restaurant Guard, with the variety of press releases we've seen and just things we've heard about anecdotally in terms of large new wins, what is the attach rate on that kind of thought-provoking solution around security and theft? Are you seeing a large attach rate on that or is it kind of more hit or miss depending on the operator in question?

Andy Heyman

Attach rate on the Restaurant Guard, are you asking?

Terry Tillman – Raymond James

Yes.

Andy Heyman

Well, it’s been a very successful launch for us. We released the product literally three quarters ago now, and we are already over the 2,000-site mark with it. It has probably been one of our top two or three launches we’ve had in our company’s history, and we continue to see tremendous growth potential for it for years to come.

Terry Tillman – Raymond James

Okay. And maybe, Mark, a question for you just related to – and maybe we'll hear more about this next week, but in terms of the hosted solutions, is there any way that you can segment out what the gross margin is on that business? I mean, is it typical of SaaS companies or is it lower? Just anything on where it stands today, if you could carve it out and then maybe how you see that over the next couple of years progressing. Thanks, guys.

Mark Haidet

Yes. Terry, SaaS business as a component of our recurring revenue – in total, our recurring revenue runs around 50% or so. The SaaS business runs significantly higher. We haven’t broken it out. So I probably don’t want to drill into the details, but if you think about the overall recurring revenue running at 50%, hardware support and maintenance runs much lower, SaaS runs quite a bit higher.

Andy Heyman

And very much in line with the SaaS-based universe, Terry.

Operator

And we’ll take our next question from Rich Kugele from Needham & Company.

Rich Kugele – Needham & Company

Thank you. Good afternoon, gentlemen. Two questions, first, I want to delve a little bit deeper into the improvement in the channel. Are your channel partners seeing actual just refreshes of existing hardware or is this actual building new sites? Are we starting to see any signs of life on that front? And then secondly, to maybe look at the SaaS side a little differently, can you give us an indication of what your existing customer base is doing in terms of asking for quotes on SaaS offerings? So maybe that would give us kind of a sense on what your inherent TAM would be even within your install base?

John Heyman

Andy, why don’t you take that?

Andy Heyman

Sounds good. On the first question, I think there has been a pretty good mix of refreshes versus, say, new site openings. First of all, we’re dealing with a technology population that – I'd say the average age of equipment and point-of-sale systems out there is more than five years old. So you’re dealing with operators who have survived, and now they are in a situation where they are trying to drive more profits through controlling costs and improving their top lines.

Technologies played very well into the idea of refreshes. And when I say refreshes, it’s not refreshes of our systems. It’s basically us converting competitive situations into our own solutions. We’ve been very encouraged by that, and we’re winning market share based on that. In terms of the point about new site openings, we have not seen tremendous health on the new site opening side. Capital is still tough for operators to get out there. So there has been some decent gain in terms of being able to win new site openings and winning business there. But we’re getting a lot of our businesses winning new market share of existing sites who are converting off of competitive technology.

In terms of the SaaS quote, every deal we provide out there – when I say every deal, probably 90% of our deals have quotes where the request is for SaaS offerings. We now have – it's probably a dozen different SaaS offerings in the company. And there is not a deal that we have where it’s not part of the quote. When I say not a deal, again, I’d say 90% of our quote out there include or request for something like gift card processing or loyalty functionality or enterprise reporting or theft control. Those are the types of things under our SaaS offering, and it’s probably the most popular driver of why companies are trying to make investments today.

John Heyman

And just to add to that, we’ve got – we saw this, Rich, as a really big opportunity for us to add value to the market. So we created this inside sales force, and we ramped that group from three people up to 10 people, Andy, now?

Andy Heyman

Yes. It’s probably – it's probably about 14 people now.

John Heyman

Okay. And we’re expanding it further because of the opportunity we see.

Rich Kugele – Needham & Company

That's great. Thank you very much and congratulations.

Operator

We will take our next question from Chad Bennett with Northland Securities.

Chad Bennett – Northland Securities

Yes. Nice quarter, guys. Couple questions. I guess this one could be for Andy or John. Someone eluded to it in the – I think you guys kind of answered this in an earlier question, but how much of the performance this quarter and in your upped guidance is recovering in the overall market in spending in hospitality versus kind of market share gains? Is there any way to kind of characterize the mix there?

John Heyman

I think it’s recovery in the market. Meaning, operators are investing, but it’s not, generally speaking, adding new sites. It’s we are taking sites away. You’ve seen a lot of the press releases we’ve had over the past three to six months. There is – those brands aren’t necessarily adding tremendous numbers of new sites. We’re replacing technology that existed in those sites.

Chad Bennett – Northland Securities

Okay. And in terms of the margin improvement you’re going to see throughout the year, system gross margins I think partly due to your new lower cost point-of-sale, we’re a little bit below where I was thinking. What’s going to really – I assume some of the margin improvement is improvement in system gross margin. What changes there and why would it change kind of looking into future quarters?

Andy Heyman

I think there is – it's a very good question. I think there are probably three factors that play. Number one, I think we’ve won a lot of new businesses lately. We’re starting to see the rollouts. And the rollouts typically begin with point-of-sale. Point-of-sale includes software and it includes hardware. So, of the systems we sell, it is typically lower – it's the biggest in terms of gross dollars. It’s the lowest in terms of gross margin percentage because of the hardware embedded in it.

Once we get those rollouts done, we’ll come back and add software to those sites. So kind of they’re going through a phase one of point-of-sale implementation. Phase two will be two things. One, more software, things like back office software that have very high gross margins, like 100%. And number two, there will be a SaaS-based component to those rollouts as well. Both of those product lines will have significantly higher margins than the initial point-of-sale rollout.

The second factor is the success of some of our newly introduced hardware platforms that will actually mean that – the point-of-sale itself, the hardware embedded in it, will be a lower part of the revenue base. So the higher margin products will obviously be a higher product margin mix. So that’s where – it's very clear to us based on the rollouts how the margins improve over the year.

Chad Bennett – Northland Securities

Got it. So, Mark, should we have systems – or John, for that matter, should we have system gross margin kind of gradually moving back up to the mid-40 range, kind of 45% to 47%, kind of fourth quarter-ish?

John Heyman

Yes, I think that’s reasonable.

Chad Bennett – Northland Securities

Okay. And then just last question for me, what – from a pricing standpoint, are you seeing your competitors do anything differently? You guys have obviously done a great job of winning deals and share, anything differently in terms of prices or anything different in the competitive landscape I should say?

John Heyman

Andy?

Andy Heyman

I think that it’s very much the same as it has been for as long as we can remember, and basically there are two types of solutions out there. Even within our portfolio, one is solutions that are very competitive in terms of where pricing and discounts are required, and that’s in the classic point-of-sale side of things. The other thing is where we’ve got systems and solutions, which very few other companies have, and even if they have them, there is not the track record they have as opposed to what we’ve got. So we are able to typically gain a premium in those. And so that’s what we’re seeing today. And so yes, it’s very competitive on the point-of-sale side. And in the more premium areas of more advanced above-store software and SaaS and hosted solutions, it is less competitive for us.

Chad Bennett – Northland Securities

Okay. Thanks guys.

Operator

And we will take our next question from Gil Luria with Wedbush Securities.

Gil Luria – Wedbush Securities

Yes, thank you. Good afternoon. Could you help us break down the hospitality versus retail results? And then within that, restaurants, in terms of year-over-year growth, are doing better than that segment. And on the retail side, is the petroleum and convenience doing better than that segment?

Mark Haidet

Hey, Gil, this is Mark. Just to give a quick view and a bit of a caveat that in our Q, which will be filed in the next few days, we are – we've changed the way we were organizing our segments and the way we’ll talk about things. So we have to have Hospitality Americas segment, which was about 61% of total revenue in the quarter. We have a segment that is Retail, Supports and Entertainment, which was 26% of revenue for the quarter. And then our International Group was 12% of revenue. So those are the three primary breakdowns. Within those, from a growth standpoint, Hospitality Americas was up over 20% from the prior year’s quarter; the Retail, Supports and Entertainment segment was up 14%; International was up 11%. So all groups were up. Hospitality Americas led the growth, but all three were strongly up.

Gil Luria – Wedbush Securities

Does international – just so we can map this back to your previous categories, does international all come out of hospitality or was it a mix of hospitality and retail?

Mark Haidet

It is a mix of convenience store, retail primarily, and restaurants.

Gil Luria – Wedbush Securities

Okay. So then back to the question about – within the Hospitality Americas, did restaurants do better than some of the other categories there or is Hospitality Americas now only restaurants?

Mark Haidet

It is now only restaurants.

Gil Luria – Wedbush Securities

Okay. Great. And within the rest, Petroleum and Convenience, is there anything unusual about the growth there? Is it higher or lower than that 11% of 14% range?

Mark Haidet

It typically runs – the higher growth areas in that division tend to be the specialty retail, which I believe was more than 20% growth range. Convenience store, I believe, would have been more – sub-10% growth, but growing positively.

Gil Luria – Wedbush Securities

Got it. And then finally, on the small business front, I think you said significant improvement from last year. How about sequentially? Have there been improvements sequentially for the last few quarters in that segment?

Mark Haidet

Andy, to clarify –

Andy Heyman

In the channel businesses?

Gil Luria – Wedbush Securities

Yes.

Andy Heyman

Yes. I think we’re seeing – we stated it last quarter, but we continue to see gradual improvement pretty much across the board in our channel businesses.

Gil Luria – Wedbush Securities

Perfect. Thank you.

Andy Heyman

Thank you.

Operator

And we’ll take our next question from Scott Stevens with Strata Capital.

Scott Stevens – Strata Capital

Hi guys. Could you talk a little bit about the Software-as-a-service you mentioned as a $100 million opportunity and just talk about how you're thinking about that, obviously lower penetration, getting more penetration into the customers, but just kind of some buildup or some time period of how you're thinking about that opportunity and how you quantified it?

John Heyman

Yes. I want to turn it over to Andy. This is John. I think it’s a $100 million opportunity over the next – in my mind, next four or five years, which it’s actually a much bigger opportunity than that. And we’ve been – if you dissect the ways we can grow the business, you’ve mentioned a few of them. So Andy, you want to talk to that?

Andy Heyman

Well, our roadmap has several different ways that we see growth for our SaaS offerings over time. And one of them obviously is just the natural growth of our install base increases our addressable market. We know what our attach rates are. And as we come out with new products, we have pretty good predictions as to what the attach rates are going to be. So based on our R&D pipeline and our natural track record of installs, it pretty much can model out a chunk of revenue that tens of millions of dollars of growth rate there over a five-year period.

Second area that you’ve got is we have the opportunity to build new products. And as we build new products that are not currently on the R&D roadmap, again, we know that we can add to the currently what is about a dozen products. We think we’ve got another handful over that five-year period that we can bring to market, adding tens of dollars per site per month to it. And you do the math on a population of what’s now 120,000 installs that we have out there and the numbers add up pretty significantly over a five-year period. That’s another tens of millions of dollar opportunity there.

And then there are other opportunities we have as well in terms of going outside of our install base where there are small competitors who don’t have such sophisticated offerings for small business retailers. Again, there is another sizable opportunity for us there already installed in about 5,000 sites with companies where it’s not our point-of-sale product. So we see that as a third leg of a growth opportunity for us. You put it all together, and I think John’s $100 million kind of number, as we put this map to a spread sheet, shows even a broader opportunity than that in the SaaS business over a five-year period.

Scott Stevens – Strata Capital

And could you guys talk about, obviously you're launching some products into Europe kind of in the back half of this year and then into next year, and talk about how that’s going to – how that potentially accelerates your international opportunity and then talk about potentially any other geographies that are not so much as on the product rollout, but how you are expanding in other geographies internationally as well?

John Heyman

Well, I’ll talk about Orderman and then Andy can talk about some other things. I mean, Orderman, just to remind everyone, we’ve had a fairly small hospitality business in Europe for over the years. The products working, as far as from a global perspective, in close to 100 countries, but we’ve never had the distribution network. So we acquired Orderman in the middle of 2008, one, for their technology, but the second was for their distribution channel. They have over 400 channel partners selling into restaurants around Europe. And so they sell a host of solutions into restaurants, including the Orderman products.

And the Orderman brand is an exceptionally powerful one in Europe. They have over 50,000 products being used in the market. And so we’re leveraging that brand. We’re leveraging that distribution network, and we’ve built a – we're building a family of point-of-sale products with the first one coming out late this year. It’s already out of production and is coming out this year, and the channel is super-excited about it. And that’s kind of our phase one introduction, if you will, of product lines into that channel that we expect to over time be a market force in the tens of millions of dollars.

So I think the first meaningful revenues will be next year, and again 2012 would be more maturation, very similar to the Aloha model where we kind of started out with 0% share and grew it to now – you know, we’re very close to 100% of the installs out there go out there with Radiant’s hardware. So from there, we’re already thinking about other types of products we can introduce into the market, SaaS-based products et cetera to add value to those operators. So that’s what’s going on in Europe. That’s our biggest focus internationally. But we’ve got some good things happening elsewhere. Andy?

Andy Heyman

Well, I’d say the other notable thing to talk about, although the dollars today are small as what we’re doing in China, we opened up an office in Shanghai. It’s been probably more than a year ago at this point. And the growth rates we have there are tremendous. It’s probably our highest growth business that we’ve got. Unfortunately, the dollars today are very low. But we think there is tremendous potential there. There is tens of thousands of new sites opening a year. We are slowly but surely building a brand there. And I’d say, my hope is over the next several years that it starts to be something that’s meaningful to our business in terms of how it hits the financials. But the overnight success is obviously they take – they can take five or ten years and we’re a couple years into it in China.

Scott Stevens – Strata Capital

Okay. Thanks.

Andy Heyman

Thank you.

Operator

And we’ll take our next question from Vincent Colicchio with Noble Financial.

Vincent Colicchio – Noble Financial

Nice quarter, guys. John, could you remind us if you have any new hosted products you expect to release in the domestic market this year?

John Heyman

We will be releasing – we'll be releasing two actually; one in retail and one in hospitality at least. And I’d rather not talk about the specifics around those products at this time just for obvious reasons. But we’re excited about both of them.

Vincent Colicchio – Noble Financial

And your reoccurring revenue this quarter was up I think 1% sequentially. Is that a seasonal factor? And should we expect nice growth rate in the 2Q?

John Heyman

I’m just – I'm looking at the numbers. Yes, I think second – well, to answer your question, Q2 is going to be a very strong quarter for recurring revenue products.

Andy Heyman

Yes. I would just add that there are some pieces of the recurring revenue model that fluctuate based on customer’s transaction volume. And so that’s typically why the first quarter had some softness to it relative to the prior fourth quarter.

John Heyman

And why fourth quarter is so high.

Andy Heyman

Yes. So we have a very good feel for Q2 and Q3 and Q4 look, and we would expect to see tremendous growth on the recurring lines.

Vincent Colicchio – Noble Financial

Andy, this may be for you. The channel market on the restaurant side, are you seeing a lot of refurbished products from closed facilities and is that creating some sort of overhang for new purchases?

Andy Heyman

Well, it’s a really good question. We definitely – the refurb market is a market that has certainly grown over the last five years where there is value in taking technology that’s used out, refurbishing it and then selling it into the market. We are in that business, by the way. We’re proactively in that business. We make deals with our customers to buy their equipment. We take that equipment, we refurbish it, and then we sell it in the market. So we like that market. When you look at the margin dollars in that market, it’s actually pretty similar for us. You’re obviously dealing with lower revenue, but the profit dollars end up being fairly similar to what a new site would be. So the more of that, the better to us. But yes, that market has definitely grown over the last five years, and I think it will modestly grow for the next few as well.

Vincent Colicchio – Noble Financial

And it's not so – the supply is not so large that it's really affecting your ability to grow your higher end product, right?

Andy Heyman

I think that’s exactly right. And I would just add to that that it was probably a bit of a one-time swell of available products out there due to site closings that have occurred in the last 12 to 18 months. And so, as – we would not expect that same rate of closures to occur over the next 18 months. So therefore we would see the refurb market probably slow down a bit for that reason.

Vincent Colicchio – Noble Financial

Okay. Thanks, guys. Nice quarter.

Andy Heyman

Thank you.

Operator

(Operator instructions) We’ll take our next question from Brian Murphy.

Brian Murphy – Sidoti & Company

Hi, thanks for taking my questions. Most of mine have been answered. I don't know who this is for. Outside of the United States, is Petroleum and Convenience store still sort of the biggest piece of the business?

Andy Heyman

What do you think that – do you have that handy, Mark? I think it’s not really any more. So it’s probably roughly 50/50, hospitality versus convenience stores.

Mark Haidet

That’s right.

Brian Murphy – Sidoti & Company

Got it. And just a follow-up on some of the questions about the Orderman channel and the new terminals you guys are introducing, it sounds like you have a differentiated product there and it sounds like it's probably going to be received pretty well. I'm wondering how you're going to introduce it to the channel. I mean, do you have sort of like – do you start it with like a top-10 channel partners? And then, how does it kind of ramp up from there and at what point do most of these guys start selling that stuff?

Andy Heyman

It’s going into pilot this summer with some larger channel partners. There’s always some learnings from that, and it will be fully launched by the end of the year.

Brian Murphy – Sidoti & Company

Sounds good. Thanks very much.

Operator

And we’ll take our next question from Gil Luria with Wedbush Securities.

Gil Luria – Wedbush Securities

Yes, just a very quick follow-up, Mark. Tax rate – cash tax rate for this year and early expectations for next year’s cash tax rate?

Mark Haidet

Yes, Gil. We expect to maintain 27% as this year’s cash tax rate. For next year, for ’11, we haven’t fully run that out yet, but I would expect it to be up in the range of low-30%.

Gil Luria – Wedbush Securities

Great, thank you.

Operator

And at this time, there are no more questions in queue. We’ll turn it back to the speakers for closing remarks.

John Heyman

Okay. Again, especially on such a tough day in the market, thanks to everyone for joining us. And again, the results of the quarter and the year look to be exceptional. And there are 1,300 people here at Radiant that make it look easy but it’s not and they are working super-hard on behalf of our customers and our shareholders. And I just want to take this opportunity to say thanks to all of them. Look forward to hopefully seeing many of you at the Investor Day in New York. Otherwise, we’ll talk to you in July.

Operator

This concludes today’s conference call. We appreciate your participation.

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