PAR Technology's (PAR) CEO Karen Sammon on Q4 2015 Results - Earnings Call Transcript

| About: PAR Technology (PAR)

PAR Technology Corporation (NYSE:PAR)

Q4 2015 Earnings Conference Call

March 30, 2016 04:45 PM ET

Executives

Chris Byrnes – VP, Business & Financial Relations

Karen Sammon - CEO

Matt Trinkaus - Chief Accounting Officer

Matthew Cicchinelli - President of PAR's Government Business

Analysts

Sam Bergman - Bayberry Asset Management

Gary Siperstein - Eliot Rose Wealth Management

Operator

Good day, ladies and gentlemen and welcome to the PAR Technology Full-Year 2015 Fourth Quarter and Yearend Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later there will be a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder this conference is being recorded.

Now I would like to hand the conference over to Chris Byrnes, Vice President of Business and Financial Relations. Please proceed, sir.

Chris Byrnes

Thanks Brain and good afternoon, everyone. I’d like to welcome you today to the call for PAR’s fourth quarter and yearend 2015 financial results review. At this time I'd like to take this opportunity if I can take care of certain issues and regards to the call today. Participants on the call should be aware that we are recording the call this afternoon and it will be available for playback. Also we are broadcasting the conference call via the World Wide Web. So, please be advised if you ask a question it will be included in both our live conference and any future use of the recording.

Joining me on the call today is PAR’s CEO and President, Karen Sammon; Matt Trinkaus PAR's Chief Accounting Officer, and Matthew Cicchinelli President of PAR's Government Business.

At this time I'd like to tell you that this conference call includes forward-looking statements that reflect management’s expectations based on currently available data. However, actual results are subject to future events and uncertainties. The information on this conference call related to projections or other forward-looking statements may be relied upon and subject to the Safe Harbor statement included in our earnings release this afternoon and in our annual and quarterly filings with the SEC.

I’d now like to turn the call over to Karen Sammon for the formal remarks portion of the call, which will be followed by General Q&A. Karen?

Karen Sammon

Thanks, Chris. Good afternoon and thank you for joining us today for our fourth quarter and year-end 2015 conference call. During this call I will review our results for the quarter. Matt Trinkaus, our Chief Accounting Officer will give the financial details. I will then give a brief summary following which we will open the call for Q&A.

I begin this afternoon by commenting on the recent circumstances surrounding determination of PAR's former CFO Mike Bartusek. As you may already know Mr. Bartusek's employment with PAR was terminated for cause, as a result of unauthorized transfer of company's funds. The CFO did this in contravention of the company's policies and procedures. I am confident that this was one individual acting alone in making unauthorized investments. These unauthorized transfers occurred during the period between September 25, 2015 and November 6, 2015. This activity does not involve customer billings, accounts receivables or account payables nor our operations in anyway and PAR is not making any restatements or filings of prior quarter earnings.

I am proud of the way our company reacted or responded once they became aware of the situation, I notified the audit committee which took the necessary steps quickly and decisively. The company's audit committee and entire Board of Directors approved an internal investigation which was commenced under the audit committee's supervision. That investigation has been completed, although the company continued to pursue recovery of the transferred funds. The investigation was led by outside counsel to engage an independent forensic consultant to assist in the matter. As directed by the audit committee the company has reported this matter to federal law enforcement agencies including the U.S. Securities and Exchange Commission.

In lieu of this situation we wrote down $776,000 in the fourth quarter of 2015 that was reported in our GAAP earnings this afternoon, the actual amount of the unauthorized investments. It is our intention to remediate this issue and have the funds in question returned to the company. We look forward to putting this event behind us and fully concentrating on transforming our company.

I'm pleased now to review our results from the fourth quarter 2015. This afternoon we announced the company reported fourth quarter revenues from continuing operations of 56.8 million compared to 59.3 million in the fourth quarter last year, a 4.2% decrease. This decrease was due to higher than normal government contract Task Orders in the fourth quarter of 2014 associated with our Eagle Intel-X IDIQ contract that were not duplicated in the fourth quarter of 2015. We recorded GAAP net income of $1.3 million and diluted earnings per share of $0.08 in the quarter which included the write off of 776,000 and compared to a net loss of $1 million and a $0.07 loss per share in the same quarter in 2014.

On a non-GAAP basis, PAR reported net income from continuing operations of $2 million and earnings per diluted share of $0.13 in the quarter. This compares to non-GAAP net income of $1.8 million and $0.11 per diluted share last year, an 18% increase in EPS year-over-year. For our fiscal year 2015 our Company grew revenues 5.1% and were reported at $229 million compared to the $217.8 million in 2014. GAAP net income from continuing operations improved dramatically to $4 million or $0.26 diluted earnings per share in 2015 compared to net income of 71,000 or 0 per diluted share for all of 2014. On a non-GAAP basis, net income from continuing operations was $6.1 million, a 61% increase from the non-GAAP net income of $3.8 million in 2014 and earnings per share on an adjusted basis rose 63% to $0.39 when compared to the $0.24 adjusted earnings per share reported in 2014.

My comments from here on will focus solely on our non-GAAP results. I will first address highlights for the quarter in our restaurant retail business. We continue to make progress executing our diversification strategy for our restaurant and retail business by focusing on designing and delivering software led solutions that expand our customer base throughout the lower tier multi-unit organization in our target markets. Our diversification strategy also includes growing our installed base with Tier 1 accounts and we now count nine out of the top 20 restaurant organizations as PAR customers. Importantly, within our Tier 1 customer base is the opportunity to extend and expand our relationship by introducing them to PAR’s various software platforms, Brink, SureCheck, and PixelPoint and the related software delivery services.

In this past quarter, we are pleased to report that our restaurant retail technology business revenues increased 4% to $36.4 million from the previous year’s fourth quarter reported at $34.9 million. This growth demonstrates the strength of our business with our global Tier 1 customers along with the growing number of Brink and SureCheck clients. The expansion of our portfolios with an emphasis on cloud solutions positively impacted our performance and will transform our Company. The pipeline for Brink and SureCheck continue to grow.

Other indications of success of our strategy are evidenced by the growing number of RFPs, pilots and implementation engagement along with the quality of our new channel and integration partners. PAR’s Brink POS portfolio remains key to our diversification strategy and we are targeting and winning new customers in all restaurant segments that include fast casual, quick serve and table service dining. These new Brink customer wins are methodically increasing our recurring revenue that as of the end of 2015 with 22% of our restaurant segment revenues. Brink doubled its recurring revenue contribution in the fourth quarter over last year and added nearly 650 new customer sites in 2015.

Leveraging the market momentum captured with wins like Five Guys, Pita Pit and others, we are executing aggressive growth plans. We are carefully managing the pipeline and are gaining confidence in our ability to achieve our annual recurring revenue and backlog goals for 2016. High quality restaurant companies select Brink for their businesses as a result of Brink’s features and functions along with its enterprise multi-unit design. Brink’s performance, increased reliability, faster access to data and cost structure as a monthly operating expense make it a compelling solution. As a result, the Brink Solution has an extremely low churn and our retention rate is near 100%.

The true benefits Brink provides include increased redundancy, lower infrastructure cost, and entire economies of the solutions that have created a distinct advantage of our older server based POS systems. Brink’s multi-unit design also gives us an edge over tablet POS providers that focus on SMBs one to five store configurations. We are also seeing reduction in the sales cycle as compared to our legacy platform and as our Web based Brink sales team continues to grow.

We are experiencing increased interest in our cloud based food safety solutions SureCheck and have recently signed on Festival Foods and Lunds & Byerlys food stores as new customers. All new customers are deploying SureCheck in the SaaS model and are adopting PAR’s new SureCheck advantage all in one hardware solution. PAR’s SureCheck advantage is a patent pending IoT mobile solution designed for food quality and task management. SureCheck software and hardware addresses a costly and cumbersome business challenge from multi-unit food retailers specifically the recording of an employee's proper preparation and handling of foods to reduce the threat of food borne illness.

SureCheck enables passive compliance which is the FDA mandated regulatory process while improving operational efficiencies through the automated of outdated traditionally pen and paper processes. We are expanding our relationship with our largest customers such as Walmart, as they continue to deploy the SureCheck Solutions through their entire international markets and in new store openings. To date Walmart has deployed our solution in all 5,224 U.S. and Walmart and Sam's Club and in nearly 700 of their international network of stores including those in Canada, China, India, Mexico, South America and in the UK. The remaining stores will be deployed through 2017.

Restaurants, grocery stores and contractors and providers are all looking for better ways to manage the preparation and handling of food items in the consistent manner with visibility and transparency across multi units chains for seamless reporting brand protection and most important customer confidence.

In the fourth quarter we launched our eight generation hardware platform or EverServ 8000 family of terminals. The EverServ 8000 was designed with the current business needs of our customers in mind. The terminal maximizes power and performance using the newest Intel technology. The design allows the terminal to the used in a standard POS configuration as a customer facing kiosk, a low profile version of eliminating any barrier with the customers or in a wall mounted fashion for space constrained areas. I'm also pleased to report that our company is restoring final assembly to our headquarters in Upstate New York with this new hardware release.

New York State has recognized and awarded our restoring efforts with an economic development grant that is tied to capital investment in PAR's central New York facility, upgrade to our internal IT infrastructure and new job creation. This important initiative demonstrates our commitment to the quality of our products ensuring tighter inventory controls and our commitment to our employees and community. As the result show in Q4 and throughout 2015 we are strengthening the foundation of our restaurant and retail segment to support our strategy. In 2016, we are focused on optimizing our current investments and our leveraging our momentum to accelerate growth of our Brink and SureCheck portfolios in our target markets.

Now turning to our government segments. I'm pleased to report that our newly appointed President for our government business Matt Cicchinelli is having a positive impact on our business. His business acumen and people skills are a solid combination and I'm confident in his leadership of this segment. Above our government business reported 16% lower quarterly revenue of 20.4 million compared to fourth quarter last year, we are able to manage our business adeptly and grow net income by 27% over the same period.

The revenue decrease was primarily attributed to a reduced volume of lower margin Eagle Intel-X IDIQ Task Orders and Q4 this year compared to the same period in 2014. Growth in net income was earned through increased software development support for customers using tactical situational awareness and mission planning tools.

During this past quarter we successfully secured additional contract awards for satellite, radio antenna and telecom facility operations and maintenance with the U.S. Navy at Dixon, California and Jacksonville, Florida. We also secured a 12.9 million subcontract award with BAE to provide similar support services to various types in Hawaii and the Western Specific. We continue to focus new business development efforts to support intelligence agencies, armed services and tactical edge war fighters with specific emphasis on Tampa, Florida, Wright-Patterson Air Force Base Ohio and the national capital D.C. region.

I'd now like to turn the call over to Matt Trinkaus for further details of our financial performance.

Matt Trinkaus

Thank you, Karen and good afternoon, everyone. Product revenue in the quarter was $24.3 million, an increase of $1.5 million and 6.6% compared to the fourth quarter of 2014, during the quarter the increase in product revenue was mostly driven by hardware sales sold through our network of dealers and increased hardware cash and sales of Brink POS and deployments to our largest global customers. Highlights for the quarter includes strong growth within the company’s international markets noting a 9.3% increase over 2014.

The majority of the increase within PARs international markets was driven by the company’s largest global customers as they continue to upgrade their technology platforms. The company’s domestic operations accelerated deployments to Jack in the Box are new Tier 1 customer. In addition you have experienced increased hardware sales with the adoption of Brink POS within the vast casual restaurant market.

Service revenue was down slightly during the quarter generating a 12.1 million versus a 12.2 million in 2014. The decrease was largely due to lower professional service revenue as a large statement of work was executed in 2014 in congruence with the deployment of our PixelPoint software platform. Offsetting this decrease was an increase in recurring revenue of our software related services primarily revenue streams generated from software sold as a service, through deployment of Brink POS a higher software maintenance revenue generated from our PixelPoint product and increased hosting revenue from the international deployment of SureCheck. In addition, service revenue generated by the Company’s hardware repair center has increased compared to prior year driven by higher volume of contracts.

The Company’s recurring revenue base represents both software related service contracts and hardware support. Software related services continues to grow, increasing 38% compared to the same software related services revenue streams in Q4 2014. Overall recurring revenue represents 22% or 7.9 million of the total restaurant retail technology revenue during the quarter, an increase of 3% on a sequential quarter basis.

Contract revenue from our government business was unfavorable year-over-year decreasing 3.9 million to 20.4 million in 2015 from 24.3 million in the fourth quarter of 2014. The decrease from Q4 2014 is mostly due to past quarters receipt with certain ISR contracts. Contract backlog continues to be significant noting a total backlog of over 101 million as of December 31st, a slight increase from the 98 million reported at the end of the third quarter 2015.

Product margin for the quarter was 25.7% in Q4 2015 versus 28.4% in Q4 2014. The decrease in product margin percentage primarily related to a large deployment of our pixel software in 2014 for a specific customer that did not reoccur in 2015, and an increased demand from our lower margin product mix as compared to 2014. Service margin for the quarter was 34.5% compared to the 24.7% reported in fourth quarter of last year. Service margins have been favorably impacted by an increase in software related services during the period primarily driven by higher SaaS revenue and favorable performance with the Company’s call center operations and hardware and repair center.

Government contract margins increased 250 basis points to 8% as compared to 5.5% for the fourth quarter 2014. This increase is the result of favorable contract mix with a higher volume of revenue earned through higher margin contracts. SG&A was 7.3 million, an increase of 809k from Q4 2014. The increase was primarily due to investments within our sales force related to our Brink and SureCheck products and increase in expenses related to their collectability of certain customer receivable balances and bonus accruals relating to 2015 performance. Net R&D expense was 2.4 million down from 2.6 million during 2014. The majority of the decrease is due to software investments that recorded higher capitalization based on the Company’s policy and respective accounting guidance.

Now to provide some information on the Company’s cash flow and balance sheet position. Cash provided by continuing operations during the 12 months ended December 31st was 2.2 million mostly due to the add-back of non-cash charges offset by changes in working capital requirements. Cash generated from investing activities of approximately 7.5 million noting the company closed on the sale of its hotel resort and spa reporting unit and received 12.1 million at the time of close. Offsetting the cash increase was investments with capital expenditure of 1.7 million and capital software of 2.1 million.

Cash used in financing activities was 7.7 million noting a net reduction of our buy [ph] wins of 5 million and deferred guaranteed payment of 3 million relating to the acquisition of Brink. Inventory decreased from December 31, 2014 by 4.4 million mostly related to the deployment of inventory to new customers and increased inventory turns within our international locations.

Additionally, accounts receivable increased compared to December 31, 2014 primarily due to timing of revenues associated with the restaurant retail technology business. These outstanding decrease for restaurant retail technology business noting 51 days at December 31, 2015 compared to 55 days in 2014. And the government reporting unit remained consistent at 42 days respectively.

This concludes my formal remarks and I would like to turn it back to Karen for her closing comments.

Karen Sammon

Thanks Matt. 2015 was a busy and largely successful year for PAR. In our restaurant retail business our Tier 1 customers including McDonald’s and Jack in the Box were solid contributors to our growth. We experienced early and sustained success with our Brink Solution and investments to our SureCheck team in the platform increased our rate of success with global deployments including the complexity of language, hosting, and localization.

We launched our new hardware platform and transformed our international operations. We drove out costs and eliminated expense. Our government business once again exceeded our internal profit targets for the quarter and sustained its operational excellence. Similar to our restaurant and retail business, we are pursuing opportunities that will provide near term improvement while simultaneously building a foundation of growth in our business to deliver higher profitability in the future.

In closing, a lot of work remains ahead of us to fully transition the Company and we are encouraged by the progress we have made. PAR’s focus on delivering contemporary technical solutions that solve complex business problems faced by our global customers.

We are fine tuning our operations on a worldwide basis to eliminate unnecessary cost and are investing in new ERP platform that will provide us within increase visibility into our processes, so we can continue to streamline and scale the business to grow. We're investing in our teams and we're committed to attracting the best talent and positioning them for success in a proactive dynamic conscious culture. I'm grateful to our Board for their confidence in my ability to lead our organization through its transformation. It is my objective to ensure that the stakeholders within PAR’s ecosystem, our employees, customers, partners, our communities and you, our shareholders receive value.

This concludes my remarks and I'd now like to open the call for questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Our first question comes from the line of Sam Bergman with Bayberry Asset Management. Your line is now open. Please go ahead.

Sam Bergman

Good afternoon, Karen and Chris, very, very nice quarter and ending to the year. I have a couple of questions. First question I have is, can you supply to us any type of metrics in the Brink’s business or Brink’s division in terms of units already installed or pilots that are ongoing?

Karen Sammon

Sam, I mentioned that we deployed nearly 700 sites in 2015 and so that bring our total over a thousand and we're continuing the momentum into Q1; while I can't provide you with the metrics now, it's my intention to start giving you quarter-over-quarter growth as we go forward. In terms of pilots that we have going on with Brink, the Brink interest is very high and we have a number of implementations occurring simultaneously and the backlog is growing significantly.

Sam Bergman

So, can you give us any idea around backlog, if you can't give us a complete metric account of what you have in the first quarter, give us an idea of backlog going into the first quarter.

Karen Sammon

The backlog going into the first quarter include sites for Five Guys and Pita Pit and those are names that we announced last year, they're quite large and we have deployed little over 100 Five Guys stores to date, they are ramping up their deployment to start in the later part of April and so that gives us a good runway going forward and Pita Pit likewise was waiting for our release of our 3.6 [ph] version of software that has been delivered to them and we are now in the process of deploying those sites. So, those sites alone exceed 1,300 and there is others that I've haven’t mentioned, but that should give you a good idea.

Sam Bergman

Do you have a count of how many Five Guys were implemented in the fourth quarter and did you give that out?

Karen Sammon

We didn't give it out, there was a slowdown in the fourth quarter due to one of our partner’s product, we have a third party product that was required and we're waiting for them to resolve some issues. So, it slowed down the fourth quarter due to that issue in the holidays, picked up in the first quarter and it will continue throughout '16.

Sam Bergman

So, the only way the implementation is going to quicken the pace is in April, do you expect the whole company and Five Guys to implement 1,200 stores in 2016 or do you expect it to carry over in 2017 at this time?

Karen Sammon

I definitely expect it to carry into 2017 and we've been very conservative in our estimates and so our growth targets are significant for this year but we used a small number of Five Guys.

Sam Bergman

Okay, in the recent announcement on Jack in the Box, could you tell me what percentage of that has been installed, if any?

Karen Sammon

That is -- will wrap up in the end of this quarter. So, I think maybe it rolls into the first week of April. So, we deployed roughly 2,200 stores, 2,100 stores from around June through April. June 15th.

Sam Bergman

So, if in Tier 1 and Tier 2, what's the opportunity for Brink’s to be installed in Tier 1 or Tier 2 accounts and have you at this time any pilots ongoing?

Karen Sammon

There is several Tier 2 accounts we are talking to -- we're in early stages with a number of Tier 1 accounts, I would say that they’re early stage and they're going to move a lot slower than Tier 2, Tier 3 and we have a number of Tier 3 accounts that are in various stages including contract complete.

Sam Bergman

And can you give us any backlog in defense?

Matt Trinkaus

Sam, that’s 101 million at the end of the year.

Operator

Thank you [Operator Instructions]. Our next question comes from the line of Gary Siperstein with Eliot Rose Wealth Management. Your line is now open, please go ahead.

Gary Siperstein

Karen congratulations on a wonderful year, just an amazing improvement in operating income and non-GAAP income.

Karen Sammon

Thank you, Gary.

Gary Siperstein

Just following up on a couple of book keeping items, so the roughly $750,000 write off from the CFO maleficence that you took in the fourth quarter, so Matt, did that reduce the operating income by $750,000 so that your GAAP earnings of $0.08 would have actually been $0.13?

Matt Trinkaus

Yes, without the investment it would have been -- without the write off it would have been $0.13, it is included within our GAAP numbers, and it’s $776,000 Gary.

Gary Siperstein

And what would that -- would that have had an equal effect on the non-GAAP $0.39 or no?

Matt Trinkaus

It would have, yes.

Gary Siperstein

So you would have then $0.13 on a GAAP basis, that’s remarkable. In terms of the roll outs and the ongoing business, I think Matt I think you gave two figures, 22% of restaurant business is now cloud software subscription model and I think you specified that that was just $8 million. So, if that’s accurate and I know you’ve been building up to it and it's increased over the last few quarter, but at least at the current fourth quarter run rate that’s roughly $30 million business. Is that correct?

Matt Trinkaus

So Gary there is two figures in there, there are the hardware support contracts which right now is the larger portion of that $8 million. The software that’s 38% growth that we’ve seen compared to Q4 of 2014. But the larger component of our recurring revenue right now of that 22% in total is our hardware support contracts.

Gary Siperstein

And that figure also includes Pixel works?

Matt Trinkaus

It does, yes.

Gary Siperstein

And Karen can you give us some color on why -- you mentioned some of the silent features of the Brink software. But why is it having so much success? And can you give us some color on who the competition is and why you’re winning versus the competition? In other words who did the Five Guys look at besides you folks, for example?

Karen Sammon

So the answer to your question, the first question the product is gaining traction for a number of reasons. It's designed for multi-unit operators. It's a true hosted platform. We sell it as a subscription model so it's an OpEx not a CapEx. And it's a totally integrated solution with POS, loyalty, mobility, kitchen systems. So it provides our customers with better visibility and management of their systems in a much faster fashion. It's also because it's a lower investment that makes it really attractive for upgrading and we’re finding that our customers really, the technical side of our customers appreciate the ability for us to interface to other third party platforms because of the modern technology and the modern platform.

We compete against Oracle, Symphony, we compete again -- these are the traditional, the more traditional competitors Oracle, Symphony, NCR, Aloha sometimes NCR Silver, XPIENT. The new competition includes Toast and Rebel and Task, there is a number of tablet based POS that will show up. And we win because we have a great system. We also have the infrastructure and the depth of knowledge of how to work with multi-unit restaurant chain and the experience. So we have those coupled together are making us successful.

Gary Siperstein

And what kind of things is Brink going to do in the future to stay in front? Can you give us any direction on future releases or future features?

Karen Sammon

I can give you an idea of the things that we’re working on. In addition to not so sexy things like ensuring that our platform stays competitive from a technical perspective and that we are able to support high availability meaning the support of many systems operating in the cloud so there is no degradation in performance. That’s really important to us. More other things that we are working on that we think are of major importance to our customers, it’s around digital. And so we increase -- we already have integrated loyalty in mobility and we’re focused on augmenting that part of our portfolio.

Gary Siperstein

Okay and you've talked about many opportunities with Tier 3 some opportunities with Tier 2 and maybe one or two early talks with Tier 1 and so is that starting to progress quicker than you would have that they are earlier imagined we know Tier 1 is slow to move but it seems pretty quick after you guys acquired Brink and one Five Guys to be already talking the Tier 1 about it.

Karen Sammon

It's definitely exceeded our expectations. We're rolling out Five Guys right now we're talking to several other Tier 1s and they are in different stages of maturity but it has been surprising for us to see the demand within Tier 2 into Tier 1 and internationally and so we are being very intentional on where were going, ensuring that we can invest in the platform to be able to ensure our success as we moved through the tiers. I want to make sure that, that our platform is ready and that we don’t get consumed by any Tier 1.

Gary Siperstein

Alright that's sounds prudent. And just staying with restaurants on the hardware side it seems like you had a nice revenue increase from your Tier 1. Is there any factor in that in terms of seasonality and it was if the new EverServ product what do you think accounted for the uptick?

Karen Sammon

We have the good portion of winning Jack in the Box and so that was very great our ISD partners, we put -- we concentrated on expanding our ISD partners and they contributed to our gross in the fourth quarter and throughout last year. We also increased our revenue due to major products with McDonald's some of it has to do with terminals some of them had to do with other products that we delivered along with our services so we had a nice year with McDonalds both in terms of terminal delivery and project delivery with third party products in the U.S. and around the globe.

We saw an uptick in McDonalds business in Southeast Asia, Australia and in the UK and Middle East as well as in the U.S. I think that McDonalds as they’re going through their own transformation they’re investing in technology to be able to achieve things like all day breakfast and to create new taste, so that has been good thing for us.

Gary Siperstein

Is there any opportunity for PAR with Yum talking about separating their Chinese business from the domestic business?

Karen Sammon

I hope so and so I'm following that closely. We've been talking to KFC about being a more significant partner outside U.S. Throughout 2015 and we are starting to see an uptick in our business in different areas and so we don’t have anything firm in China, but certainly on our radar.

Gary Siperstein

And circling back to Jack in the Box and Qdoba, I think you guys displaced NCR there. So if that's correct, why, if NCR was their vendor before and they were used to that, what allowed you guys to win?

Karen Sammon

We've displaced NCR many times and then they are a good competitor and they've got a good products. In this round with Jack we had the right product, the right services and the right team structure to work with them as they went through this transition. It's really hard to change supplier, so either questions are really good one and we’ve put a full focus on winning jack and there was just right time what the other element they really were looking for a service partner that could support them and all their franchises they have gone through a refranchising efforts over last two years and it changes the dynamic, we need to be very aware and strong in franchises support and its part of us that very well.

Gary Siperstein

I think just sticking with [indiscernible] for a minute, so it seems like we are at a point where all three parts of the company are profitable the software and services, the hardware and government. Historically we didn’t seem to make a lot of money on the hardware and you talked about ensuring or doing more in New York as opposed to off shoring like Apple does with Faxcon and Sharp, et cetera. Tell us what you are going to bring to the table in terms of getting a hardware appropriately profitable, it's been a great product for your customers but historically just hasn’t returned a lot for PAR shareholder.

Karen Sammon

Yes that's been challenging for us. We have -- this is a competitive field and as you know, when we're delivering hardware without software and we get pretty beaten up on the price and the margin suffer.

So couple of things and I'll get to reassuring in a minute. So, we are really focused on delivering software lead solutions which include our hardware, our hardware is well, respected in the industry. As we move through the Tiers and we're able to achieve a higher price which then in turn will return a higher margin for the company and for our shareholders. The restoring of the product, that's took a couple of years for us to make this decision and we're planning and advances of EverServ 8000, we found that our cost of reworking terminals when they’re based in our forecast, our forecast would fluctuate between Subway and McDonald, as example, and we would get higher order from McDonald's and so we'd have to rework terminals that where Subway terminals to McDonald terminal.

So when we look at the 8,000 we designed it to be able to do the assembly here in the U.S. and we have our suppliers consigning the material to us and so we can then due the assembly based on order, so we'll have as much of lag time in delivering products, we'll be able to assemble the product that our customers are demanding just in time and we should be able to review our inventory cost through consignments. So, we were early on in this effort and we believe that is going to be the best for our customers and for our shareholders.

Gary Siperstein

Just a couple of more then I'll give someone else the chance, just moving on SureCheck, did I hear you correctly, so the Walmart International rollout will continue through a portion of 2017?

Karen Sammon

It will definitely, they have something like between 7,500 and 8,000 sites outside the U.S., they’re larger outside the U.S. than they are here and so we're at the tip of the iceberg. As a matter of fact I think that we said we rolled out 700 which is about -- it was just 10%, so it's about 7,000 sites outside the U.S.

Gary Siperstein

Okay and certainly with all the publicity with Chipotle and others with a problem in their food chain and different things happening, is that accelerated your conversations in that area and leading to additional trials?

Karen Sammon

That is certainly, I was going to say that, we don't want to be an ambulance chaser but its’ certainly increasing the number of conversations. Couple of things, the Chipotle issues, we have created more awareness and it's really unfortunate, because they’re a terrific brand and they will get their arms around their processes then SureCheck fits really well into -- it’s their go forward solutions because they have to change the process through the distribution and right into their stores.

And we also participated in a major Food Safety Conference in Berlin this quarter and that was really well received and so we have increased interest outside the U.S. mainly in Europe and in the U.S. and grocery it’s growing, contractors and restaurants. In restaurants as you might expect the table service fine dining chains are expecting more interest than as we go into QSR. In the QSR, they will come around but they really through their own processes, through their distribution channel, they eliminate risk but it doesn't get all the way to what we do in the store, so we're targeting to a number of chains and more in table service.

Gary Siperstein

Alright and because of the Walmart win, are there other -- I guess you'd consider Walmart is a Tier 1, are there other Tier 1 that are looking at us on the store side, and on the restaurant side, is that mostly you said table served that Tier 1, Tier 2 or is it Tier 3?

Karen Sammon

So, in grocery, yes, there is many Tier 1, that are on various stages of our pipeline and contracts food and you may know, companies like Aramark, Compass and Sodexo, so we have interest with them and the business is that they work with and [technical difficulty]. When you breakdown the Tiers and table services and that casual, there is some larger chains, but yes it’s this largest chains in those restaurant

Gary Siperstein

Okay, great and Matt, going over to the government side, so government again, I guess similar to hardware is always contributed but it seems to have been stuck in its 80 million to 90 million revenue range, what's the process, I know Karen you mentioned, a date in Ohio, you mentioned different investments we’ve made, to try to get that going and it's a wonderful backlog, but what are our aspirations for that? Can that be a $100 million business, $150 million, $125 million business in three to five years, and what would it take to get there?

Karen Sammon

This is another good question. We have included our government business in our strategy for an accelerated growth and I have Matt Cicchinelli here, he’s the President of our government business unit and I am going to let him take the question.

Matt Cicchinelli

Sure Gary. We do have a three year minimal and longer range strategy designed towards doing those vary things you described and we feel pretty comfortable in providing the rational and the basis based on who we are and what we can continue to grow. We have some really strong foundational components, on a couple of levels and I’ll highlight them quickly. But one is we are really well understood for our technical competencies in certain areas that are really relevant in today’s defense and intelligence market.

There are vagaries and uncertainties to the government budget but the intelligence and surveillance and reconnaissance, the ISR world will remain a high area of government investment as we move forward. And then the specific customers in the world of special operations and intelligence analysis are actually areas that the government will continue to focus on as they think about what their investment priorities are in a variety of defense postures going forward. So there is some stability to our customers’ intentions that is really helpful for us to project growth going forward.

On top of that, our past performance and our reputation for delivering results and for solving challenging problems gives us a certain stickiness with our current customers, and our growth strategy is predicated on actually leveraging that to a broader set of audiences and they are real and they are approachable and they do have budgets and intentions going forward. So we’ve made some initial forays into that, feel comfortable that we’re on track and on progress. We’ve really had the capacity to invest within our current rate structure and 2016 will be a demonstration of that.

We’re out engaging more customers with relevant discussions and are being invited into the types of conversations we expect and feel pretty good about. What we’ve been discussing with Karen about where the government company can go and I know the team is pretty energized and excited to deliver.

Gary Siperstein

And last question Chris could you give us some color on the IR plan for this calendar year? I know you’re at Sidoti I guess tomorrow. Do you have a PowerPoint at Sidoti that will end up on PAR’s Web site and what’s sort of the game plan now that the noise is coming out of the numbers and the PAR story is getting clearer and its brand new again, and the fact that -- I think you did $0.7 or $0.08 GAAP earnings in Q3 and $0.13 adjusted for the CFO situation in Q4. It seems it's a pretty interesting story to tell going forward.

Chris Byrnes

Absolutely Gary and you’re correct. We are I think we’ll be more aggressive than we had been earlier I think we’re getting confidence behind the story. There is still some seasonality in our business it's not all sequential growth but our focus and our goals have improved quarter-on-quarter and apples-to-apples comparison. But certainly I think we’ll be much more aggressive in our outreach program, our targeting program, and listening some sell site analysts and getting much more exposure than we have been of late. And I think we’ve earned that distinction and now we’re looking to make sure that the right people hear the right story.

Operator

Thank you. We have follow up question from the line of Sam Bergman with Bayberry Asset Management. Your line is now open, please go ahead.

Sam Bergman

Just one last from me question on McDonalds have their conference coming up in June. Can you talk about any co-engineering development you have with the McDonald’s on a POS hybrid system for that conference, if any? And if you don’t have any at this time, is it your expectations that they’re going to pick up the new EverServ product with the franchise owners?

Karen Sammon

I am not sure about the co-engineering. We work really closer with McDonald’s on a lot of products. We did co-engineer a new product for their kitchen system which we are selling in different parts of the global market. But for the conference we’re going to be showcasing the EverServ 8000, we’ll be showcasing our tablet and our SureCheck platform.

So they have embraced our new platform, they’ve had in their labs and it's in their store I think tomorrow. And so we are going towards the process of certification and they have been well aware of what we've been doing for many months for year.

Sam Bergman

Can you talk about any feedback you are planning from them like SureCheck?

Karen Sammon

So SureCheck is very interesting to them McDonalds has as they are a major massive organization so different parts of the organization have different levels of interest but we have been talking to their global food safety executive about SureCheck and are receiving endorsement for it. So they are looking -- they’re reviewing in the U.S., in the UK and Australia in China and so while were still in early stages there is definitely interest and there is different kinds of interest even different levels of interest from different regions and then from franchises to the corporation so were we've been talking to McDonalds SureCheck for nine or 10 months.

Sam Bergman

Thank you very much. Speak to you in four weeks.

Karen Sammon

Thank you.

Operator

Thank you there are no further questions. So now at this time I'd like to hand the call back to Karen Sammon for closing comments.

Karen Sammon

Thank you. I appreciate all of your time this afternoon. Thank you for attending and with this I will conclude the call.

Operator

Ladies and gentlemen this does conclude today’s program and you may all disconnect. Everybody have a wonderful day.

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