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Executives

John Heyman - CEO

Andy Heyman - COO

Mark Haidet - CFO

Analysts

Terry Tillman - SunTrust Robinson Humphrey

Gil Luria - Wedbush

Brian Murphy - Sidoti & Company

Paul Kaump - Northland Securities

Vincent Colicchio - Noble Financial

Radiant Systems Inc. (RADS) Q4 2007 Earnings Call February 14, 2008 4:30 PM ET

Operator

Good afternoon and thank you all for standing by. All participants will be able to listen only until the question-and-answer session of today's conference call.

And now, I will turn the call over to Radiant Systems' Chief Executive Officer, Mr. John Heyman. Sir, you may begin.

John Heyman

Thank you, Angie, and thank you to everyone for joining us this afternoon. Happy Valentines Day. With me here today is our Chief Operating Officer, Andy Heyman and Mark Haidet, our Chief Financial Officer. Alon Goren is traveling and not with us this afternoon.

Before getting started, I am going to let Mark run through our 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 prospective. 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 ability to control. These risks are detailed in our most recent 10-K filed with the Securities and Exchange Commission.

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

John Heyman

Thank you, Mark. Obviously, we were exceptionally pleased with our results for the year and for the fourth quarter specifically. In addition to our strong financial performance, we made significant progress against many of our growth initiatives that will fuel continued success in 2008 and beyond.

I would like to try to accomplish five agenda items this afternoon. First, I would like to give an overview of our financial highlights. Second, I would like to comment on the state of our industry groups. Three, because I know it is on investor minds, I would certainly like to provide some commentary on what we see in the economy. Four, profile the Quest acquisition for you. And then Finally, Mark will go through financials in a more detailed manner and provide 2008 guidance in some more detail.

A quick overview of our financial highlights, revenues were record $70.3 million and grew approximately 16% in the quarter compared to last year. For the year, we generated over $253 million, our best year ever, which represents approximately 14% growth from 2006. Adjusted operating income for the quarter was a record $9.6 million, an increase of 29% from last year. For the year, our adjusted operating income was $31.4 million, which represents approximately 30% growth from last year.

Finally, adjusted operating margins for the year expanded to 12.4%, up from 10.9% in 2006, as we continue to see leverage in our operating model. Of course that's now all history. Looking ahead, new channel partners and expanded sales capacity, new products, enabling even higher value add to our customers and new businesses that let us reach even more markets will help us drive growth in the years ahead while continuing to expand our operating margins.

Let me comment briefly on each of or industries. Our hospitality business continues to grow at a rapid rate with revenues up more than 30% in the quarter and more than 25% for the year. The growth is across segments, channels, geographies and products. Our success with brands such as Dunkin Brands, PF Chang's, Chick Filet, Burger King, Chipotle and others, and our initiatives to increase sales capacity and our introduction of new products have combined to provide us with strong momentum across the business.

Our c-store and entertainment businesses continue to sustain their businesses consistent with or ahead of our internal expectations. Within the Petroleum & Convenience Store group, we were selected at year-end by one of the largest, most respected c-store chains in the industry and are already in the midst of implementation planning with the customer.

And finally, our retail business closed the year up 30% as the channel sales efforts we've spoken to in the past continue to pay off.

I'd like to also comment a bit on our operating model that is prevalent across our industries. We've invested heavily over the past five years to develop a highly predictable growth model founded upon the high satisfaction and the loyalty of our customer base. This predictability will continue with a high percentage of our business coming from subscription revenues, support and maintenance, strong contractual backlog from large chains and the entrepreneurial spirit and sale success of our channel partners. One metric supporting this predictability that I look at is the progress of our subscription business, which grew 22% in the quarter. This operating model has led to and will lead to continued growth and predictability while we expand margins.

In summary, we are energized by the state of our business and have multiple growth platforms that we continue to cultivate. Our strategic direction will continue to focus on adding more value to every customer we serve, while at the same time, seeking to expand the markets for our products.

Let me now address our views on the economy, because I know these questions exist in the mind of analyst and investors who follow Radiant. First of all, let me say, we are currently seeing a very robust spending environment for our products. And while no company in our space is completely insulated from a slower economy, I believe we can continue to grow and meet our plans for a number of reasons.

One, we are well-diversified and serve a number of industries. The c-store industry has typically done well in recessionary times and a number of the companies in this space are large oil companies, who are making record profits. Our balance focused on all restaurants, including quick service, table service and fast casual allows us to be somewhat indifferent when consumers shift their preferences towards more budget-oriented concepts and entertainment, of course, has already seen the worst of times in their industry.

Two, our value proposition offers a strong proven payback to customers. We provide mission-critical systems that help increase revenues, drive down food and labor costs and significantly reduce the cost of maintaining old and obsolete technology. We have seen numerous operators who have addressed slowing sales over the years with increased attention on cost. This is one reason, a large portion of our sales are to existing sites.

And third, our operating model has been structured for consistent and predictable performance. Our recurring revenue models built upon support, maintenance and subscription-based revenues, our channel continues to expand its share given the large runway in our markets and our direct customers continue to rollout our technology, as their standard for their existing sites and new ones that they build.

We have an incredibly entrepreneurial group of channel partners who have market shares in their geographies that they believe they can increase in good times and in times that are less robust. Early in 2008, we continue to see very strong growth from our channel partners and our key metrics all point to another year of substantial growth at Radiant.

In summary, consumers may very well eat out at fine dining restaurants less, but they will most likely eat out at fast casual and quick service places more. Budget-oriented retailers may outpace high-end fashion shops. People are still driving their cars and filling up, theatre attendance remains steady and stadiums are still being built.

Store openings may in fact slow in 2008, but the appetite for better tools for existing sites continues to increase more than offsetting any impact of an economic slowdown. And our retail business is so diversified and our market share is so small that we believe we will continue to build on the solid growth from 2007 throughout this decade and beyond.

Of course, there is a benefit to the current business climate, smaller competitors are less stable, do not have the staying power, may cause concern amongst potential customers and thus become more willing sellers. There seems to be a pullback from them in some areas and an appetite to sell in other sectors at prices that are much more reasonable that at any time we have seen in the past ten years. As such, we brought our first company in two years, which was Quest, and we've built a solid pipeline of other businesses that fit our strategy as well.

And now, before I turn it over to Mark, let me talk about the Quest acquisition. In summary, we view Quest as a tremendous asset. The stadium and large venue space is one Radiant has sold in to over the years with some success, but our product has not been the perfect fit for most operators. Quest is the leader in this industry and their products and focus combined with our scale and sales reach creates another strong platform for us in a sizeable industry.

As I mentioned, Quest is the market leader in the stadium and arena space and they also have a strong position in the restaurant industry in Australia and New Zealand. They employ approximately 60 people and they have multiple growth opportunities in front of them. While, we are still converting their books to US public company accounting, we believe their revenues for 2007 will approximate $18 million.

They have a strong history of earnings and revenue growth. Because there is some overlap in our sales pipeline, we may see a little cannibalization in 2008, but we've built this into our revenue models. And additionally, we are ramping up, what has been a very limited sales and marketing effort on their part to drive even stronger growth.

Despite these investments and overlaps, the acquisition will be accretive to our earnings, and accretive to our growth rates, over the short-term and longer horizon, as well.

Early in the acquisition, I can tell you, we are unbelievably pleased with the strength of their people, their product line, and the reputation they have in the marketplace with their customers. In addition to propelling us into the stadium space, the acquisition significantly enhances our expertise in what we call the pub market, and increases our channel capacity in both Australia and New Zealand.

Mark will speak specifically to our guidance in a bit, but we continue to forecast strong organic growth in 2008, and the years ahead; while we continue to work on expanding our operating margins. Additionally, we intend on complementing these growth platforms with small to medium-sized acquisitions, that we believe can help accelerate our strategy.

So, thanks again. And now I will turn it over to Mark.

Mark Haidet

Thanks, John. I'll do some highlights on the income statement, the balance sheet, and then we'll talk more about the guidance, that John alluded to. Our revenue in the quarter increased 16% over 2006, resulting in 14% growth year-to-date. Specifically, our restaurant business continued to see strong growth exceeding 30% in the quarter. This was driven by a new client wins, as well as, additional sales into existing customers and the strength of our small business channel.

Our service revenue grew 22% compared to the fourth quarter of 2006, while our systems revenue increased by 11%. Our gross profit margins remained relatively flat, and our adjusted operating income grew 29% compared to the fourth quarter of 2006, which resulted in adjusted operating margin of 13.7%, an increase of 150 basis points from the same quarter last year, and an increase of 80 basis points from the previous quarter.

Year-to-date, our adjusted operating income has grown 30%, and our adjusted operating margin has increased to 150 basis points to 12.4%.

Our adjusted net income for the quarter was $9.2 million or $0.27 per diluted share, and $25.9 million or $0.78 per diluted share for the year. This represents an improvement of $0.07 over the same quarter last year, and a $0.20 improvement over 2006.

The adjusted net income includes a reduction in our tax provision due to a true-up in the annual estimated cash tax rate from our original estimate of 15%, to a revised 10.2%. This change increased our adjusted net income by approximately $900,000 in the fourth quarter, providing a benefit of $0.03 per diluted share.

In addition, we booked an $800,000 gain as a result of entering into a forward exchange contract for currency hedge on the Quest acquisition. We expect to book an additional gain of approximately $200,000 in the first quarter under this contract; neither of these amounts have been included in our adjusted earnings or in our guidance.

Now, I'll turn to the balance sheet. Our working capital was $51.7 million, an increase of $6.5 million from the third quarter. The improvement was driven primarily by increased cash and current asset generation. Our cash from operations was $11.9 million for the quarter, and $25.2 million year-to-date. The resulting free cash flow was $9 million for the quarter and $18.4 million for the year.

Our working capital metrics remained within our target levels with inventory turns at four and our days sales outstanding at 56, which is a decrease from our 59 days in Q3. In conjunction with the acquisition of Quest, we also restructured our credit facility at the beginning of 2008. We currently have a facility with a $30 million term loan and a $60 million revolver. In addition, the facility has an expansion option of $20 million.

With our current balance of roughly $65 million, this gives us adequate access to short-term capital to support our ongoing M&A pipeline.

Now, I would like to turn to the future and discuss our guidance. As John mentioned, we are providing our guidance with the Quest acquisition taken into account. We closed that transaction in early January of this year. And while the Quest business has historical revenue of around $18 million, we do anticipate several million dollars of overlap with the pipeline and cannibalization with our restaurant and entertainment groups, also add a caveat that we are still in the process of converting the 2007 financials to GAAP basis accounting, and assessing the full integration cost and investments for 2008. But given our current view of those financials and our estimates, we are providing the following guidance: For the first quarter of 2008, we expect our revenue to range from $69 million to $70 million, which represents a growth rate of approximately 21% over last year. We expect this to result in adjusted earnings in the range of $0.15 to $0.16 per share.

For the year, we are estimating revenue in the range of $305 million to $308 million representing a growth rate of 20% to 22% over 2007. We estimate adjusted earnings of $0.84 to $0.88 per diluted share. The earnings range is based on an estimated cash tax rate of 25%, and interest expense for the year of approximately $5 million subject to rates and balances. Our guidance is based on adjusted operating income growth of approximately 40% with adjusted operating margin in excess of 14% to 14.5%, which is an increase of 150 to 200 basis points over 2007, and in line with the long-term economic model we developed five years ago for the company. And while we are pleased with meeting this goal, we believe there is an opportunity to get continued margin expansion as we grow.

To ensure this, we've initiated a significant project in 2008 to improve our scale and infrastructure. We plan to invest several million dollars in our processes and internal technology infrastructure during the year to support our growth and generate an even higher level of operating margin in the coming years.

In addition to efficiency gains, it will further advance our goal of being a remarkable company to work with, to work for, do business with and invest in.

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 compensation expense, and non-recurring charges and it includes the ongoing cash benefit of utilization of net operating losses and tax credits. John?

John Heyman

Thanks, Mark. And Angie, I think now we're ready for questions.

Question-and-Answer Session

Operator

Okay. Thank you. (Operator Instructions). Our first question comes from Terry Tillman with SunTrust Robinson Humphrey. Your line is open.

Terry Tillman - SunTrust Robinson Humphrey

Hey guys. Good afternoon. Thanks for taking my question.

John Heyman

Terry, how are you doing?

Terry Tillman - SunTrust Robinson Humphrey

Pretty good. I guess, I should say Happy Valentine's Day. Anyways, nice quarter; just had a few questions. The one thing John in terms of Dunkin' Donuts, I know that it was a little bit stymied in the last quarter. Can you talk about in the fourth quarter, which is like a 100% ramped, or it was ramped but not still where it will get to? Could you talk a little bit about that?

John Heyman

I would say, by Q4 it was a 100% ramp, Andy?

Andy Heyman

Yeah.

Terry Tillman - SunTrust Robinson Humphrey

Okay, okay. And I guess, I know you all are careful not to isolate too much on individual customers. But, Dunkin' Donuts, I know you had already been doing business, but now you are the sole supplier, the recommended supplier. Does this become potentially one of your top five customers or was it already a top five customer?

John Heyman

Andy?

Andy Heyman

Yeah. Terry. They are top five customer and they will continue for years, as far as we can see it being a top five customer. It's also probably worth noting that they have growth plans to triple their business between now and 2015 to go from roughly 5,000 U.S. sites to about 15,000 U.S. sites. So, we are hopeful of expanding as they expand as well.

Terry Tillman - SunTrust Robinson Humphrey

Okay. Well, and I guess, Andy does this make it a little bit different, though. I mean, John talked about one of the strengths in the business is it not so levered to square footage growth every quarter. So, is this kind of more of a unique example where it is a lot of new Greenfield square footage growth? Is this more of the exception?

Andy Heyman

I would say that with Dunkin, the majority of the business that we've been looking at with them has been existing sites, and I think that's going to still be the case over the next couple of years. The growth plans that they have are really kind of beyond that, a little bit this year but they've been doing a lot of remodeling, and a lot of investment to try to bring on more dayparts into their business beyond just a coffee and doughnut sales. And as those remodelings have been taking place, the point-of-sale has been replaced as well.

So that's been the majority of what the business has been and parallel with that, they are trying to expand rapidly. So hopefully for years to come that will be an addition to what our sales have been.

John Heyman

Let me just quickly summarize that, I think our view on it is for the next two, three years, we have tons of runway with their existing sites. Subsequent to that it will begin to depend more on their site growth.

Terry Tillman - SunTrust Robinson Humphrey

Okay. And then I don't know John or Andy, I don't know who'd want to take this or Mark, but with counterpoint we try to track that pretty closely and I guess maybe I am just being hard on you all but 30% growth, I actually thought it would be a little bit higher. Is that more of a specific to economic trends in some of these local markets and maybe those folks are seeing a little bit more pressure or am I just off base for thinking 30% because I thought you all talked about 30% to 40% growth?

John Heyman

Yeah, Terry, first of all we feel good about 30% growth. It's still a small business roughly, so a few hundred thousand dollars can actually make a pretty big difference in its growth rate. So, I think we feel good about it. We're always reaching for more. I will say that business - you might say that is a business you might be a little bit more concerned about in slower times, but it had a big January. January is probably our biggest year-over-year kind of growth month we've seen, so in the meantime because the business is still small, a few hundred thousand dollars can throw the percentages in different directions.

Terry Tillman - SunTrust Robinson Humphrey

Okay. And then in terms of -- earlier you talked about maybe the three segments in restaurant, QSR and then quick-casual and then table service, I was getting the impression really over the last, I don't know six to 12 months you all have been letting people know that the business had been moving more towards the QSR and quick-casual. At this point aside from like the PF Chang example maybe there are some outliers, is that almost kind of dormant right now or is there is still some table service going on in this environment?

Andy Heyman

Terry this is Andy. The sales for us in the hospitality business are really 50-50 between quick service and table service. No it's not at all dormant on the table service side.

Terry Tillman - SunTrust Robinson Humphrey

Well then a quick casual, maybe I don't know if all of my definitions are right but to me it seems like, a little bit higher end than QSR is that fit into your table service or would that be more on the QSR side?

Andy Heyman

QSR.

Terry Tillman - SunTrust Robinson Humphrey

Okay, and then just I'll turn it over but Mark I didn't want to leave out in the cold

Mark Haidet

Thank you, Terry.

Terry Tillman - SunTrust Robinson Humphrey

So you had better get ready. I guess the four businesses in '08, you have given us the overall growth rate, could you at least maybe give us a rough kind of range planning parameter for the four segments and how you roll that up to the total growth? Thank you.

Mark Haidet

Terry to clarify you're saying for '08 what are we expecting from industry growth rates?

Terry Tillman - SunTrust Robinson Humphrey

Well yeah, like and I know actually you all moved to I think two segment reporting I don't where arenas will go into it but is it possible to tell us when there is 20% and 22% top line growth rate what is the range you expect in terms of growth or lock their oven tea store, then restaurants or food service, then especially retail and then maybe the stadium arena?

Mark Haidet

Yeah, what you will see is some consistent growth rates in each of our segments to what we had, kind of looked at in general this year. The convenience store business will continue to be kind of low single-digit growth. The entertainment market will be down. In our guidance we are anticipating that being down, again in '08 as it was in '07 and from that point we feel like it will level out. Within our restaurant business, we expect to see 15% to 20% growth and obviously that's becoming a bigger part of our overall financials.

So that has a higher impact on our company growth rate as it's now over 60% of our total company revenue. And then we add the Quest acquisition, that is a little bit of a wild card as far as expected growth rate in year one. I would say right now we're planning that a bit conservatively and about a 10% growth rate. But that's a little bit to be determined as we go throughout the year.

Terry Tillman - SunTrust Robinson Humphrey

Okay, thanks.

John Heyman

And to be clear we believe we can grow that business faster 10% or we wouldn't have bought it. But there, we have already been selling in to this market, so if you match up the two company's sales pipeline for '08 there is some cannibalization. So we'll see that in year one unless we can grow through that and then from there we should be able to grow better than 10%.

Operator

And it looks like our next question comes from Gil Luria with Wedbush. Your line is open.

Gil Luria - Wedbush

Thank you for taking the question. So just to back up from that last answer so in the quarter can you imagine the convenient store low single-digits and entertainment was -- it was down a little?

Mark Haidet

In the fourth quarter, you are referring to Gil?

Gil Luria - Wedbush

Yes.

John Heyman

Yeah. So in the fourth quarter the entertainment was actually, the industry was actually up a little bit from last year quarter-over-quarter. C-store was up from the third quarter but down slightly from the previous year, but I think as we talked about last quarter there was some decline in the C-store industry in the third quarter and we did get back on track kind of per year-to-date where we expected to be about even for the year on C-Store, which is about where it ended up for the year. And then both our restaurant and retail businesses were up. Restaurant was up fairly significantly over 30%, and retail was up in the kind of the low single-digit range for the quarter, but for the year it was up over 31%.

Gil Luria - Wedbush

Got it. Now, can you help us out, Micros just announced a win with the corporate locations for Burger King, but obviously that's only part of the picture, you just had a win in Canada, can you just help us out with what the global layout is for Burger King, where you're at, and where you still have an opportunity?

Mark Haidet

Yeah, Hey Gil, this is Mark. I want to clarify the same and I said retail grew in the low single-digits; I meant the low double-digits. And I'll let Andy address the Burger King question.

Andy Heyman

Thanks. Gil, Burger King for us is a very strategic account. They have about 11,000 sites around the globe. And the U.S. corporate business, which appears not to going our way was less than 800 of those 11,000 sites. For us, we've got contracts in a variety of places, including inside the U.S. with several major franchises that have more than 100 sites a piece as well as some very successful relationships in Canada, Turkey, Spain, Hong Kong and some other areas that we are not yet announcing. So, we've signed contracts for north of a 1,000 sites at this point and we're real pleased with our growth prospects with Burger King. And so that's our outlook there.

Gil Luria - Wedbush

Great, then one last question, there was a large sequential increase in G&A could you talk about what that's attributable to?

Mark Haidet

Sure Gil, this is Mark again. There are couple of factors one is as we reached our performance levels for the quarter, we had some additional accruals we put on the books for bonuses as we hit the higher levels of our plans, our compensations plans graduate up with earnings and profits. So we were able to exceed where we thought we would be for the year and that drove up some of our compensation expense which is obviously a good way to drive up expense for the company. And then there were also a couple one-time items, there were some legal expenses in the quarter that we had around some times that were outstanding that got resolved by the end of the year that were one-time items. So I don't expect to see that kind of sequential increase each quarter. That was -- there were couple of one-time items and then just the normal expansion of the business with volume.

Gil Luria - Wedbush

We should expect the absolute level to go down into Q1?

Mark Haidet

Barring the acquisition which will bring on additional costs obviously, I think the answer would be yes, it would be either flat or go down slightly in Q1. Obviously as we bring Quest onto the books, our cost structure will increase both in G&A and across the other line items.

Gil Luria - Wedbush

Makes sense. Thank you.

Operator

Our next question comes from Brian Murphy with Sidoti & Company.

Brian Murphy - Sidoti & Company

Hi, thanks for taking my call. I think maybe this for John or Andy, obviously some of the publicly traded restaurant operators continue to reference slowing traffic and rising food costs. Increasingly I am hearing them publicly reference on their conference calls initiatives to upgrade the point-of-sales systems. I mean this seems almost counterintuitive, but are their circumstances out there that you guys are seeing that deteriorating economic conditions could actually accelerate the demand or adoption for some of your products?

John Heyman

Hey Brian, this is John. Let me say, first of all, there are operators that have announced differing results out there, because obviously we track them as well. We're seeing our existing customer set as well as new prospects, just be really hungry for our technology. I think part of it is, if you've got an old point-of-sale system, it's exceptionally expensive to maintain. I think operators have been hit by food costs and as freight costs for instance have gone up and other costs of supply, so when we have thousands of sites who are seeing lower food costs because of the use of, say, our MenuLink product, that's an important part of the value proposition.

So even when sales growth is slowing, or even if it's flat or may be even if it's in a little bit of decline, we find operators typically to get even more focused on the cost side of the equation and so I think at the heart of it, that's why we're seeing such a robust spending environment right now is because the systems we offer have such a high payback associated with them.

Andy, you have got anything to add to that?

Andy Hayman

Yeah, I agree with that. I think we were lucky when we bought MenuLink at the time we bought MenuLink and I also think we were fortunate several years ago when we kicked off three or four major R&D efforts to help operators grow their top-line and will that be in hard times or in good times and those products are now coming to market and they have been difference makers and some other recent contracts that you've seen us announce in terms of company investing within our point-of-sale system as well as some of the peripheral modules that we're bringing in the market and so we're finding right now it's our time.

Brian Murphy - Sidoti & Company

Thank you, and Mark, you may have touched on this, what drove the strength on services line in the quarter? Is that more of a subscription revenue hitting that line?

Mark Haidet

Part of it is subscription. We also had a bit more demand in projects as it relates to consulting and customer development with some of our customers and the normal increase in our support & maintenance growth with the business, but it was a combination of line items actually that increased in the quarter.

Brian Murphy - Sidoti & Company

Great, thanks very much.

Operator

Our next question comes from Paul Kaump with Northland Securities. Your line is open, sir.

Paul Kaump - Northland Securities

Good afternoon, gentlemen. Quick question for you with respect to MenuLink, last quarter I believe you had a number of clients or handful clients that opted for subscription model versus license model. Did you see a similar situation this quarter or in the fourth quarter?

Andy Heyman

Yes, this is Andy. We saw what I would call normal course of business when it comes to demand for subscription versus license. There is nothing that was abnormal about the quarter.

Paul Kaump - Northland Securities

Okay. Going forward, is that something that's just going to be hit and miss, and is just going to go quarter-by-quarter? Is there a discernible trend that you are seeing?

Mark Haidet

Well, this is Mark. I'll just point out that when we had the discussion on the third quarter, I'd say the trend was more around we had forecasted some larger deals to be license-based versus being subscription-based and when it came to fruition, they came to fruition in a subscription base. And so we have I think been more critical now of how we forecast the business and give guidance as it relates to making assumptions around how much of the business will be subscription versus how much will be license and that's more of the change I would say than the buying habit.

So, there will always be customers that may change their mind during the sales process or go towards one model or another. So, yes, it could be lumpy in that regard. But we've adopted our forecasting to prevent ourselves from having a negative surprise on those decisions.

Paul Kaump - Northland Securities

Got you. And then, you spoke of some internal investments to increase efficiencies. Can you elaborate a little bit on what you might be doing there? And then also, what the costs might be and how those costs might be spread across the year?

Mark Haidet

Sure, this is Mark again. We are in the process of doing a lot of work around just improving our business processes to have better touch points with customers, provide our employees with better tools. The primary nucleus behind that is our ERP system, in which we're doing a pretty significant upgrade throughout the year as well as adding some additional modules. That will also position us to better bring on acquisitions in the future and to expand globally, more rapidly and efficiently.

So it's a comprehensive effort, most of those costs in 2008 will be capital costs whether that's acquisition of software modules or some of the consulting help to get those modules to go live that there will be some expenses that we've already built into our guidance and our budget, as it relates to kind of the cost of our teams participation, training et cetera and that will actually, much of that will happen earlier in the year. And then the capitalization will begin to amortize in our depreciation in the next coming years. We'll go live with the first set of modules early next year. We'll start amortizing those costs over quite likely five to seven year life overtime.

And as far as range of costs, we're still going through the evaluation of the full scope of the activities, but we are planning on spending anywhere from, call it $3 million to $6 million on the infrastructure initiatives this year.

Paul Kaump - Northland Securities

Okay. And then, I know you haven't closed the books or the acquisition of Quest in terms of going through their P&L, but CapEx, depreciation, amortization, what should we be expecting for fiscal '08 there?

Mark Haidet

As it relates to Quest?

Paul Kaump - Northland Securities

As it relates to the entire organization, I don't know whether or not you had that given where you were with Quest?

Mark Haidet

Yeah, I mean we could give some ballparks to that. The amortization will be dependent on the appraisal that we're in the process of having done on the intangibles, but we would estimate that moving from I think in '07 it was roughly $4.3 million, my initial estimate that it would move to $8 million in total in '08.

As far as capital expenditures it will be similar to -- besides the ERP implementation, which I already talked about, the normal capital expenditures of the business will be on a similar level, to what we saw in 2007 with some kind of increases in line with growth of the business. And then, our software capitalization will probably based on the current projects, we have in front of us capitalize about a $1 million more in software development in '08 than we did in 2007.

Paul Kaump - Northland Securities

Okay. And then final question, with respect to Quest, how should we allocate expenses there? Is it going to be more heavily weighted towards G&A, or where would you see that showing up in the P&L?

Mark Haidet

That's a fairly good question because that's a big part of the converting their books to GAAP right now. So, I would say for planning purposes, I would for modeling purposes, I would expect -- I would for now put it in a similar ratio as our business. And we will be publishing their 2007 audited financials when we have that complete in mid-March, so that detail will be available once that audit is complete.

Paul Kaump - Northland Securities

Okay.

John Heyman

I would just add from that audit, they spend a minimal amount on sales and marketing and I think that we will and we already are starting to expand those efforts and therefore we'll spend more money, probably more in line with kind of the spending that you see at Radiant in sales and marketing.

Paul Kaump - Northland Securities

Okay, terrific. Thanks, guys.

Mark Haidet

Thank you.

Operator

Our next question comes from Vincent Colicchio and the company is Noble Financial.

Vincent Colicchio - Noble Financial

Nice quarter, guys. There is a question for John. I think that I heard you say that acquisitions are getting more attractive from a pricing standpoint. Could you please remind us what types of acquisitions look especially interesting to you?

John Heyman

Well I think there's two, the strategy is, add more value to every customer we serve, and that's primarily we do that through either building, buying or partnering with other companies to bring new products to market. So, while we've been building a lot of products we have been able to acquire products like MenuLink that were great products that we know well in the market, and we can then take those, integrate with them with our own and feed them to our distribution platforms.

So we are continuing to look at that and seek companies in that regard and then I would say our distribution is not strong everywhere, most notably it's weak outside the U.S. and we are going to continue to look for companies that may be bring both to the table, may be can bring us a product as well as some additional distribution capacity.

Vincent Colicchio - Noble Financial

And this one's for John or Andy. In the areas of the restaurant markets, which are relatively weak, I suppose it would be the table service side. Are competitors getting a lot more aggressive on the pricing side?

Andy Heyman

This is Andy. First of all, I think it's important to know just with table service, there is the casual dinning table service and then there is truly fine dinning table service and not all sectors are being, are in the same level of health right now. I just want to point that out. The casual dinning sector is depending on the operators having mixed results right now, not necessarily negative results.

With regard to your question, we're actually seeing more of a pullback from some smaller competitors right now and the retraction seems to be both in the sales and marketing side and R&D side. So, we think that's another reason that perhaps there has been more favorable spending that's gone our way.

Vincent Colicchio - Noble Financial

Okay. My other questions were answered. Thanks, guys.

John Heyman

Thank you.

Operator

And at this time, there are no further questions.

John Heyman

All right. Well, I would like to again thank everybody for their time this afternoon. I know it's a busy season and I would just like to say the types of results we are delivering for our customers and for our shareholders are only possible because of the people here at Radiant, and they continue to amaze me with the work they do, day in, day out and I just like to thank each one of them. I look very forward to speaking with you guys after our first quarter call and take care.

Operator

And this will conclude today's conference call. You may now disconnect.

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Source: Radiant Systems Q4 2007 Earnings Call Transcript
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