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MICROS Systems (MCRS)

Q3 2012 Earnings Call

October 23, 2012 5:00 p.m. ET

Executives

Tom Giannopoulos - Chairman, President, and Chief Executive Officer

Peter Rogers - Executive Vice President, Investor Relations and Business Development

Cindy Russo - Executive Vice President, Chief Financial Officer

Tom Patz - Executive Vice President, Strategic Initiatives, and General Counsel

Analysts

Gil Luria - Wedbush Securities

Mayank Tandon - Needham & Company

Dan Perlin - RBC Capital Markets

Tom McCrohan - Janney

Presentation

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the fiscal year 2013 first quarter conference call. [Operator instructions.] It is now my pleasure to turn the conference over to Mr. Tom Giannopoulos, chief executive officer at MICROS Systems. Please go ahead sir.

Tom Giannopoulos

Thank you operator, and good afternoon everyone. Thank you for attending today’s conference call. Again, to remind everyone, this is the first quarter of our fiscal year 2013, July 2012 to September 2012. As you know, our fiscal year 2013 goes from July 1 to June 30, 2013.

Here with me as always are Cindy Russo, our CFO; Tom Patz, our legal counsel and also EVP of strategic initiatives; and Peter Rogers, our EVP of investor relations. And we’ll begin with Peter and the disclaimer.

Peter Rogers

Thank you, Tom. Good afternoon, ladies and gentlemen. Some of the comments today are forward-looking statements that involve risks and uncertainties such as uncertain product demand and market acceptance, impact of competitor products and pricing on margins, ability to obtain on acceptable terms the right to incorporate in MICROS products and services technology patented by others, environmental and health related events, unanticipated tax liabilities, and the effects of terrorist activity and armed conflict.

MICROS undertake no duty to update any forward-looking statements to conform to actual results or changes in MICROS' expectations. Other risks and uncertainties associated with MICROS’ businesses are identified in the management's discussion analysis of financial condition, results of operations, and business investment risk sections of MICROS' SEC filings.

Tom?

Tom Giannopoulos

Thanks, Peter. Looking at the press release, our financial results for the quarter were very good, considering the business conditions that continue to be less than favorable over the past months. Revenue increased from $256,558,000 to $299,851,000, a 16% increase, some of it coming from organic growth and the rest coming from the acquisition of Torex, which we closed last May.

Hardware revenue was up from $48,409,000 to $63,759,000, a 31.7% increase. It’s a good news and a bad news story here, as you will see from the gross margin numbers. Software revenue was down from $33 million to $30 million, and service revenue was up from $174 million to $205 million, a 17.4% increase. But again, a good news, bad news story here recording the gross margin.

Gross margin came in on a non-GAAP basis at $153,373,000. That’s 51.1%. Last year it came it at $144,416,000, or 56.24%. Gross margin was negatively affected by the Torex acquisition and of course soft business conditions in the U.S. and Europe. And also total operating expenses were affected by the same factors, Torex and business conditions.

The bottom line on this page is that net income was $46,407,000 versus last year’s $39,204,000, an 18.1% increase. A very healthy increase percentage. And then EPS, at $0.57 versus $0.48 of last year, again, an 18.75% increase. Very good financial results across the board, exceeding our own expectations that we had budgeted.

Our cash stands at $650 million and then I will ask Cindy to give you the additional balance sheet information. Cindy?

Cindy Russo

Thanks, Tom. The highlights of the balance sheet are as follows. As Tom stated, cash and investments at September 30, 2012 totaled $615.6 million. In the first quarter of fiscal 2013, MICROS generated $6 million from operating activities while receiving $12.5 million from the net maturity of investments. Cash from operations in the quarter reveal the impact of tax prepayments and movements in our accrued expenses.

On the financing end, the company received $5.7 million from the exercise of stock options and the related tax benefits and spent $13.2 million on the repurchase of common stock. During the first quarter, we purchased a total of 2,000 shares at an average price of $47.63 per share. Thus far in Q2, MICROS has repurchased 195,000 shares of common stock, leaving board approval for an additional $1.2 million to be purchased by August 2013.

The company invested $3.8 million in property, plant, and equipment in the quarter, while capitalizing approximately $1 million in internally developed software costs. MICROS cash split by segment stands at U.S. and Canada 59%, international 41%.

Days sales outstanding at quarter end reflect the company’s new global sales mix, with over 60% of revenues coming from our international subsidiaries. DSOs at Q1 were 73.2 days, consisting of international DSOs at 84.9 days and U.S. Canada days sales outstanding of 54.7.

Net inventory on hand at September 30 totaled $48.9 million, an increase that represents stock purchased to satisfy our international hospitality and retail backlog. Inventory turns in the period were a company Q1 record 9.5, up from 8.5 in Q1 2012.

The combined current and long term deferred revenue balance of $194.7 million has increased $39 million, or 25%, year over year and represents our continued investments in recurring revenue streams that are of value to our customers.

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