MICROS' 2Q Decent, View Affirmed


MICROS Systems Inc. (MCRS) posted adjusted earnings per share (EPS) for the second quarter of fiscal 2013 of 53 cents, matching the Zacks Consensus Estimate. The quarter’s result was 13.5% higher than the year-ago quarter.


Revenues were $324.5 million, up 20.0% year over year and above the Zacks Consensus Estimate of $321.0 million. The year-over-year improvement was driven by the company’s organic growth as well as its acquisition of Torex Retail (acquired in June 2012).

On a segment basis, Service revenues came in at $218.5 million, rising 22.5% from $178.4 million in the previous-year quarter. Hardware revenues came in at $67.2 million, increasing 17.1% from the year-ago quarter. Software revenues came in at $38.7 million, up 12.1% year over year owing to higher sales in retail vertical.

Operating Results

Reported gross margin was 53.0%, down from 56.3% in the year-ago quarter. The year- over-year decline was due to low margin Torex business.

Selling, general and administrative expenses came in at $80.0 million, increasing 4.4% from the year-earlier quarter. Research and development expenses amounted to $17.5 million, up 44.0% year over year. Operating margin dropped 110 basis points year over year to 19.0%.

On a GAAP basis, earnings came in at 54 cents per share versus 47 in the year-ago quarter. Adjusting one-time items and including stock-based compensation expenses, non-GAAP earnings were 53 cents versus 47 cents in the year-ago quarter.

Balance Sheet

MICROS ended the quarter with cash and cash equivalents and short-term investments of $631.8 million versus $582.0 million at the end of the previous quarter. Receivables decreased 8.4% sequentially to $215.5 million. Inventory increased 19.1% from the prior quarter to $52.7 million.

Share Repurchase

The company has repurchased nearly 920,000 shares at an average price of $43.70 during the second quarter of fiscal 2013.

MICROS board of directors also approved a new buyback plan. Now the company has been authorized to purchase an additional 2 million shares. The total shares available to purchase stand at 2.2 million.


The company reiterated its guidance for fiscal 2013. The company continues to expect revenues in the range of $1.3 to $1.325 billion. MICROS projects non-GAAP earnings per share to be within $2.40 to $2.44.

Additionally, management stated its long-term view of focusing more on sales increase and product development (especially software). Apart from this, the company also seeks to spend more on marketing and selling efforts to increase its market share in the two large regional markets (North America and Europe, Africa, Middle East), which are facing macro economic challenges.

Our Take

The company’s second quarter results were modest, with EPS matching the Zacks Consensus Estimate and revenue beating the same. Though maintaining fiscal guidance is not encouraging, we believe that MICROS’ growing focus on developing enhanced software solutions could help it to outperform.

Despite its positive commentary and existing solutions for Apple Inc.’s (AAPL) iPad, we are somewhat unsure about MICROS’ growth potential, which is being overshadowed by innovative (tablet-based) Point-of-Sales (:POS) solutions by its peers Square, Revel, Groupon Inc. (GRPN) and NCR Corp. (NCR).

Difficult pricing environment and declining margins keep us bearish on the stock. Currently, MICROS has a Zacks Rank #4 (Sell).

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