Christopher Byrnes - VP, Business and Financial Relations Ron Casciano - President and CEO Matt Trinkaus - CAO.

Sam Bergman - Bayberry Asset Management Bill Lauber - Sterling Capital Management Anthony Hammill - Broadview Capital Management.

Good day, ladies and gentlemen and welcome to the quarter one 2015 PAR Technology Corporation Earnings Conference Call. My name is Laura and I’ll be your operator for today. At this time, all participants are in listen-only mode and we will conduct a question-and-answer session towards the end of the conference.

[Operator Instructions] As a reminder this call is being recorded for replay purposes. Now I'd like to turn the call over to Christopher Byrnes, Vice President for Business and Financial Relations. Please proceed sir..

Thank you, Laura and good afternoon everyone. I’d like to welcome you to the call today for PAR’s first quarter 2015 financial results review. At this time I'd like to take this opportunity if I can to take care of certain issues in regards to the call today.

Participants on this call should be aware that we are recording the call this morning and it will available for playback. Also we are broadcasting the conference call via the World Wide Web as well. 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, Ron Casciano; and Matt Trinkaus, the Company’s Chief Accounting Officer. 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 morning and in our annual and quarterly filings with the SEC.

I’d now like to turn the call over to Ron Casciano for the formal remarks portion of our call, which will be followed by general Q&A..

Thanks Chris, good afternoon everyone, thank you for joining us today. I would also like to welcome you to our first quarter 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 give additional comments regarding the organizational realignment we announced this morning and then we'll open the call for Q&A. So now let me start with our results from the first quarter.

This morning we announced that the Company reported first quarter revenues of 59.6 million compared to 56.5 million in the first quarter last year, a 5.5% increase. On a non-GAAP basis PAR reported net income of $57,000 in breakeven earnings per diluted share in the quarter.

This compares to a non-GAAP net loss of 644,000 and a $0.04 loss per share in Q1 last year. We recorded a GAAP net loss of 385,000 and a loss per share of $0.02 in the quarter versus a GAAP net loss of 989,000 or a loss per share $0.06 last year. My comments from hereon will focus solely on the non-GAAP results.

Our primary goal continues to be creating increased value for our shareholders. Our strategy for accomplishing this goal is setting on diversifying the Company's revenues in its Hospitality segment toward a broader range of customers and generating a higher mix of revenue from sales of software and solutions.

This approach is a key component that will result in a more consistent financial performance for PAR. For our Government segment we're investing in business developing capabilities with a focus on securing additional federal contracts and apply technology in the technical services area.

Now first let me review our Hospitality segment performance for the quarter. Overall hospitality technology revenues for the first quarter were 60% of total revenues and were reported at $35.8 million, a 9% increase from the same period in 2014.

Our diversification strategy continues its momentum as indicated by the strong performance of our channel organization which grew over 19% in that quarter. In addition overall software and software related services grew 19% in the quarter, as both restaurant and hotel software solutions contributed to the increase.

The increase in the first quarter revenue is also attributed to a stronger than planned quarter with our larger restaurant customers.

We continue to focus on expanding our business with new customers in the first quarter we were pleased to announce a new win for our recently acquired Brink POS software solution as fast growing Tom and Chee selected our Cloud POS solution for their growing network of stores.

Building on net success last week we announced the selection of Brink POS by Sonny's BBQ for their nearly 120 restaurants.

The restaurant industry has recognized the value of Brink POS as it delivers with operation of excellence, flexibility and integrated mobility, royalty and real-time reporting, and we will look forward to reporting additional exciting wins surrounding this cloud-based solution.

Furthermore, with additional wins in the quarter coupled with a strong near-term pipeline, I'm pleased to report the Company has exciting multiyear opportunities with new customers totaling approximately 4,500 stores.

Fast food safety and task management, cloud-based software solutions SureCheck was recently deployed by a Fortune 50 retailer for use in their 250 plus hypermarket stores. We are encouraged by this win and we're pleased to report that new opportunities are growing along with international expansion with our largest customer Wall-Mart.

On the hotel side of our Hospitality segment our cloud based ATRIO software solution made additional progress in the quarter. At the end of March we had over 120 hotel properties currently installed foreign backlog and that number is growing every month. Cloud solutions are becoming the platform of choice for the hotel industry. The U.S.

hotel industry continues to show strength, with record ADR or average daily rates and RevPAR revenue per available room and there is a real reason for optimism that hotel organizations will invest and upgrade from the use of on-promise technology to cloud-based solutions for their profits.

In the first quarter we also signed on several new customers for our legacy host and SpaSoft software products to properties located in the U.S. Italy and China. It continues to be market demand for these feature rich application. And our installed customer base provides a substantial source of recurring revenue.

Now transitioning to our Government business. I'm pleased with the performance we delivered in Q1 as revenues increased to $137,000 in a difficult contracting environment. Our government segment revenues were reported at 23.8 million and comprise 40% over Company's total for the quarter. We continue to benefit from our large contract with the U.S.

Army’s Eagle Intel-X program. Our backlog remains strong in this segment and we continue to grow a contract funnel available to our Company and intelligence, surveillance, and renascence and other DOD contracts. I'd now like to turn the call over to Matt Trinkaus our Chief Accounting Officer for his report.

Matt?.

Thanks, Ron and good morning everyone. Product revenue in the quarter was 21.7 million, an increase of 3.1 million or 16.6% compared to first quarter of 2014. During the quarter, the Company experienced an increase in revenue primarily from three drivers.

First, I like this customer continue to strength in their commitments of PAR by the way of increased volume through additional sites. Additionally, sales executed through our network of partners were up during the quarter, noting a 19.4% increase year-over-year.

Lastly, our software license revenue increased 27% as compared to Q1 2014 driven by higher sales of our restaurant products as well as higher deployments of the Company's property management solution and spa products. Service revenue was down slightly during the quarter generating 14.1 million versus 14.3 million in 2014.

Although total service revenue was down to mix of revenue has improved noting an increase in software related services driven by higher recurring revenue. This was accomplished due to higher content of software related services associated with the Company's Brink and PixelPoint software solutions.

In addition to the growth and software related services, service revenue generated by the company's repair center has increased compared to prior year driven by higher volume from the company's timing material related contracts with our tier 1 customers.

The company’s recurring revenue base, which represents both hardware support and software related service contracts continues to grow noting 73% or 10.3 million of the service revenue from the quarter being recurring in nature.

Contract revenue from our government business was favorable year-over-year increasing slightly to 23.8 million and 23.7 million in the first quarter of 2014. The increase from Q1 2014 is mostly due to activity within the company's ISR contracts.

The increases were offset with the decrease in revenue from certain fixed price technical service contracts that were completed in 2014. Contracts backlog continues to be strong noting the total backlog of over 83 million as of March 31, 2015. Product margin for the quarter was up 100 basis points achieving 31.6% in Q1 2015 versus 30.6% in Q1 2014.

The margin has primarily improved due to the increased in software license sales and lower overhead costs. Service margin for the quarter was 33.9% an increase of 90 basis points from the 33% reported in first quarter of last year.

Service margins have been favorably impacted by an increase in software related services during the period, primarily driven by software sold as a service and professional services. Government contracted margins were at 5.7% in the quarter, a decrease in 6.9% reported in the first quarter of last year.

This range is the result of unfavorable contract mix noting a high volume of revenue earned through lower margin contracts. In addition during fiscal year 2014, the company realized increased margin on certain fix price technical service contracts that were modified during that year.

Non-GAAP SG&A was 8.6 million, a decrease from 8.7 million recorded during Q1 of 2014. The company continues to monitor its cost structure including strategic initiatives to reduce our fixed cost. R&D expense was 4.3 million up from 3.8 million recorded during Q1 2014.

The majority of the increase is due to R&D associated with the company's Brink POS cloud-based software application. Now to provide information on the company’s cash flow and balance sheet position. Cash generated from operations was 912,000 mostly due to the add-back of non-cash charges and changes in networking capital.

Changes in networking capital generated cash of 393,000 mostly due to increases in deferred revenue and customer deposits based on timing of billings related to support contracts. This was offset by payments made to reduce the company's borrowings and the timing of payments to vendors for inventory purchases.

The company executed a repatriation of cash from its Chinese subsidiary to reduce our line of credit balance which was incurred to help finance, the Brink acquisition as discussed in the fourth quarter.

Inventory increased slightly from December 31st, mostly related to new product offering that have expected to be depleted over the remainder of the year. Additionally our accounts receivable increased compared to December 31st due to the timing of the government billings and billings related to our annual software support contracts.

Days outstanding remained consistent with December 31st for hospitality and government at 57 and 53 days respectively. Capital expenditures were 303,000 and capitalized software was 622,000. Depreciation and amortization was $1.1 million during the quarter. This concludes my formal remarks and I'd like to turn it back to Ron for his closing comments..

Thanks Matt. Before opening the call for questions I would like to speak about the realignment we announced earlier today regarding our hospitality business segment. We're focused on streamlining our global operations to improve processes and remove complexity from our business.

Our overall approach is to proactively manage our cost structures so that we can deliver better performance by investing in areas that will fundamentally drive revenue by taking these steps it better positions our company to execute on long-term growth and profitability objectives.

Our company is going to be leaner and more agile organization as we aggressively market our cloud solutions to the hospitality marketplace. I believe we can spend less and deliver greater and more effective results as a company. This realignment will deliver annual savings of at least $2 million.

Due to the realignment and associated costs the company will incur a charge in the second quarter of approximately $500,000. I've covered a lot today, so let me leave you with a few final thoughts on our company, PAR's taken aggressive steps to strengthen the company for the long-term.

We are building our company into a more efficient and effective organization that can compete successfully in our industries.

We're creating the capacity to invest in innovation and deliver cloud solutions and advance our businesses, also deliver better return for our shareholders, the two takeaways from today's call are one, the positive signs in the first quarter indicate we're stabilizing our performance and two, realignment is being implemented to improve our financial results.

Once again I'd like to express my sincere appreciation to the employees of PAR for their efforts and dedication. That concludes our remarks and I'd now like to open up the call for questions. Thank you..

Thank you. [Operator Instructions] Please stand-by for your first question and that question comes from Sam Bergman from Bayberry Asset Management. Please proceed..

A couple of questions, first of all on R&D, it seems like R&D was flat for the quarter over the fourth quarter, what are your expectations for that going forward for the rest year?.

Sam as the rest of the year unfolds, you'll see a modest increase in that area and maybe more significant in Q2 and then leveling off we're investing in some new hardware products as well as ramping up the investment in our Brink software..

Can you talk about the [HVO] division I know last quarter you've mentioned you'd a backlog of 50 hotels and there were no announcements this quarter, I'm just wondering how many were installed in the first quarter and how many add-ons did you get or new accounts?.

Well, we installed several in the quarter Sam and as I said in my remarks total install base plus backlog is over 120 properties, I think at year-end it was maybe around 90 or so.

So it is progressing nicely, we do have a growing near-term pipeline, we certainly expect some announcements in the second quarter regarding some additional successes with that product..

Last call I believe, the previous CFO gave us a recurring revenue amount for the quarter, do you have that amount?.

Yes, Matt, I think he covered that in his remarks, glad to go over it again.

Matt?.

Yes, Sam that was about 10.3 million for the quarter..

10.3 million?.

Yes..

In terms of the defense area it seems like the backlog I don't remember the backlog below 100 for a long-long time, is there anything in particular going on their or do you have some great opportunities that should be announced soon?.

It's the latter we're working on some nice opportunity Sam. We have a good pipeline growing there. Just with the timing of everything, we had some smaller wins in the first quarter but not enough to keep the backlog over 100 million.

Remember the Eagle Intel-X contract still has quite a bit ago and we don't put that in backlog until we get a particular award under that contract. So, there is a lot of that left that we haven't got the order yet so therefore it is not a backlog..

And last question McDonald's and Yum!’s were they surprising better for the quarter over what you expected and do you have their numbers for the quarter?.

Yes, McDonald's was actually better than we had planned for the quarter and contributed to the growth over the prior year. Yum! on the other hand was as expected and was down for the year-over-year comparison.

So McDonald's revenue in the quarter was 16% of the total company revenue and Yum! brands was only 7% of the total revenue of the company for the quarter and that's the lowest that has been in quite some time.

We expect that to pickup throughout the balance of the year though as there will be some nice replacement business starting in Q2 with the Yum! brand..

Do you have any color on the McDonald's business for the rest of the year?.

McDonald's is going to be surprisingly good for the next couple of quarters and probably tail off in the end of the year. So, overall it's doing better than we had anticipated..

[Operator Instructions] I think we have no further questions. I'd now like to turn the call over to Ron Casciano for closing remarks..

Laura, I think there is one question in the queue..

One just question, yes, thank you, that's come from Bill Lauber from Sterling Capital Management. Please proceed..

You mentioned that the restructuring cost would save at least 2 million how will that fall -- have you begun the process?.

Yes, we actually have begun the process in Q1 and we have more to do to complete in the second quarter, so the full impact of that will begin in Q3..

So the annualize savings of at least 2 million that would annualize beginning next year, is that pretty much what you're saying?.

But it will start in Q3 at that rate and as I said in my remarks, it's going to be at least 2 million on an annual basis, we have some I think we're a little conservative right now in our estimate and then top of that Bill there are some additional projects that we haven’t included in that estimate that we're going to be working on over the balance of the second half for the year.

So it's going to be an ongoing process. I think we've taken a nice adjustment so far with what we've announced and we're determined to improve the profitability of the company beginning in second half of the year to be more consistent, so..

Can you be a little bit more specific on the areas that you're obviously cutting back and I'm assuming that it is not in the ATRIO and for SureCheck area which is hopefully your big drivers of growth going forward?.

Yes, it is not in those areas, it is not in any area of R&D. It is primarily in support and G&A. And addition to that we're also looking for some other operational efficiency that will help grow our margins in products as well..

And in your remarks you mentioned, new opportunities and I think you've subsided 4,500 stores, can you give us a little bit more explanation on that?.

Yes as we said before a couple of things, we've had some wins that we haven't been able to announce yet at least a couple of those wins we started to deliver at the end of Q1 and the requirements will continue plus the near-term pipeline represents opportunities we expect to sign in the second quarter, to begin delivery in 2015 as well.

So, the multiyear estimate for the restaurant is the 4,500 stores..

Is that a combination of hardware and software or?.

Yes, it is. Hardware, software services the whole solution..

Thank you. Your next question comes from Anthony Hammill from Broadview Capital Management. Please proceed..

Ron, you've mentioned in answering that last question, that that's and I'm going to paraphrase there this is bit of a first step there is more project, I just want to confirm that this is not this realignment is not the end all and be all of the efforts of the new Board to and management to significantly improve the profitability mix and call it simplicity of the company as a public company and that once this realignment is finished there will be further steps at the if it's not a silver bullet to suddenly improve everything that will be more significance steps considered and hopefully taken by the company?.

That's correct Anthony. This is -- we're planning the current activity as we entered the year, we're spending a lot of time being very careful is to what make sense to do and there will be some additional projects that will come to the top of the list once this current activity is fully executed and in place.

So, we're going to constantly look at the way we do business, look at where we spend our money, we want to certainly allow for the right level of investment in R&D which will be primary revenue generator in the future but there is other areas that we're going to be cutting back on as we just announced and we're going to continue to look at that.

We have to become more consistent with our profitability quarter in and quarter out for we're doing everything that we can to accomplish that goal..

And I understand there -- you might be able have a good for specifics on the 2 million but are there any facilities closures or product lines that are going to be discontinued? [Multiple Speakers]..

Ron, this is time now..

Yes, mostly headcount and some operational efficiencies but mostly headcount..

Okay, thank you. I'd now like to turn the call over to Ron Casciano for closing remarks..

Well thank you for participating in the call today and we appreciate your interest in PAR. Everyone have a good day..

Thank you for your participation in today's conference. Ladies and gentlemen, this does conclude the presentation. You may now disconnect. Have a good day..