Raymond James Research

U.S.
Research
Published by Raymond James & Associates
June 30, 2010

Technology
Industry Brief
Terry Tillman, (404) 442-5825, Terry.Tillman@RaymondJames.com
Application Software: Industry Overview _________________________________________________________________________
Surveyed 1500 Restaurants; Positive Takeaways for RADS and MCRS
♦ We have completed a comprehensive survey focused on point-of-sale (POS) market share in the U.S. restaurant industry as well
as looked at adoption rates of value-added hosted solutions that complement core POS. When possible, we asked a broader set
of questions such as restaurant operators’ spending intentions on new solutions, whether they were looking to replace current
POS providers, and overall positive/negative feedback pertaining to their current POS technology provider.
♦ The survey includes 1,508 restaurants across 28 metropolitan statistical areas (MSAs) in the United States. We were very
specific of our target restaurant audience. We wanted to focus on “Street business” restaurant operators: locally-owned,
single- or multi-unit, entrepreneur-style restaurant operators not affiliated with chains. We canvassed all restaurant types from
fast casual, quick service, family dining, and fine dining restaurants. The reason for the Street business focus is the sheer size of
the market on a unit basis and our belief that a combination of pent-up demand and reliance on legacy POS technology could
unleash a strong wave of spending over the next three to five years, barring any new economic catastrophe.
♦ We are by no means done with this grass-roots style research, but after polling restaurant operators in some of the largest
MSAs nationally and across a broad geographical footprint, we believe we have enough survey data to draw reliable
conclusions. We spoke with at least 50 Street-oriented restaurants in each MSA with two cities, New York and Los Angeles,
somewhat unique in that we polled closer to 100 respondents in each market. Positively, we believe there are a variety of
actionable takeaways for investors in both Radiant Systems (RADS/$14.47/Strong Buy) and MICROS Systems (MCRS/$30.11/
Outperform), namely, the fact that they both possess strong and growing market share and the erosion of a large installed base
of legacy cash register infrastructure and regional POS providers that lack scale and comprehensive solution sets. In addition,
we conclude that Radiant and MICROS are experiencing strong adoption of value-added hosted solutions with likelihood for a
strong growth tailwind considering still-low adoption rates.
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Within our survey we asked a series of questions, including current POS technology provider (asked for both hardware and software,
if not a single provider). We asked whether the operator is utilizing its current POS providers’ non-POS solutions, which are often
hosted, and focus on value-added areas such as back-office management (food and labor management) and loyalty/gift card
programs. Finally, we asked about future spending intentions, including whether the operator may be in the market over the near-
to-intermediate term to either upgrade or switch POS technologies or purchase additional solutions from their current POS
providers.
Market Share Leaders in a Highly Fragmented Market. What stood out in our initial point-in-time market share survey is a tale of
haves and have nots, with three large market share leaders each with over 20% market share, then a group of five POS providers
with 1.7-5.3% market share, and then another large group we defined as other, which entails a group of over 100 vendors each with
minimal market share under 1.6% each. Included in the other category are paper-based or homegrown solutions. Radiant Systems
came out on top in our survey, with 22.7% of respondents (342 individual restaurants) indicating they use either Radiant POS
hardware, Radiant/Aloha POS software, or a combination of both. In second place with 21.3% market share was what we combined
into a single category called cash registers, or for those that like to talk more sophisticated, electronic cash registers (ECRs). Within
this group we did not decipher particular make and model of the cash register. We do not really care about particular cash register
providers and believe what we call “legacy” installed base is apt to transition. Over time, we believe cash registers as a POS category
in the restaurant business will increasingly erode, owing to increasing price competitiveness of computer-based POS solutions, the
scale and total solution set that several computer-based POS providers are able to bring to bear (e.g., Radiant and MICROS), and
realization that actionable data is much more attainable in a standards, computer-based delivery model, thus allowing for more
optimal back-office processes, above store analytics and customer relationship management (CRM) opportunities all fully integrated
with the core POS system. In third place, only slightly trailing Radiant Systems and cash registers, was MICROS Systems, with 20.8%
market share (313 individual restaurants).
Figure 1
POS Provider Market Share Other Includes:
Squirrel Systems, 30 Paper Based - 1.6% NEC - .1% Manual POS - .1%
Digital Dining, 45 Par Pixel Point - 1.5% Odyssey - .1% Matrix - .1%
2.0% Maitre'D, 25
3.0% Aldelo - 1.3% Opus - .1% MCS System - .1%
Restaurant Manager, 1.7% Future POS - 1.1% Pause POS - .1% Metro POS - .1%
48 Dinerware - .9% System3 POS - .1% Newroll POS - .1%
3.2% RMS - .8% Foodtech - .1% Newsable - .1%
Radiant Systems, 342
Focus - .7% Interstate Business Systems - .1% Order Matic - .1%
POSitouch, 80 22.7%
EZ Dine - .5% Microsoft - .1% Peanuckle - .1%
5.3% Custom Development - .5% AccuPOS - .1% Pioneer POS - .1%
Hot Sauce - .4% Anatront - .1% Prism POS - .1%
2Touch - .4% Angel POS - .1% Plexis Pro - .1%
SoftTouch - .4% Arcom - .1% Posinet - .1%
onePOS - .4% Arrow POS - .1% Pulsar - .1%
Restaurant Pro Express - .4% Asfal - .1% Quick Dinner - .1%
Fire Fly - .3% BES POS - .1% Quickbooks POS - .1%
NCR - .3% BMI - .1% Row Express - .1%
Local Provider - .3% Cash Control - .1% RPS Worldpay - .1%
Other, 304
Business Software Solutions - .3% Chinese Program - .1% Rynn Service - .1%
20.2% Diamond Touch - .3% Coffee shop manager - .1% Samsung - .1%
First Data - .3% Commercial Data Systems - .1% Septor - .1%
Halo - .3% Crystal Point - .1% Sharp POS - .1%
Pinnacle - .3% Dataware - .1% Sons of Trench - .1%
RPOWER - .3% DPM software - .1% Techmark - .1%
DirecTouch - .2% Edge Studios - .1% Thermal Paper - .1%
Cash Register, 321
Open Table - .2% ESI Technologies - .1% Tiger POS - .1%
21.3%
Posiflex - .2% Essential POS - .1% Total Merchant Services - .1%
Revention - .2% First POS - .1% Uniwell - .1%
SilverWare POS - .2% FreePOS - .1% Vale Biz - .1%
True Bottom Line - .1% Guestbridge - .1% Versitouch - .1%
CRS - .1% Harbortouch - .1% Vital Link POS - .1%
MICROS Systems, 313 DCR - .1% Hewlett Packard - .1% Winpos - .1%
20.8% Elo - .1% Information Systems - .1% Xyng - .1%
FoodTronix - .1% Lexpos - .1% Zonal - .1%
InTouch POS - .1% Linus - .1%
Source: Raymond James.
As Figure 1 shows, market share positions decline precipitously to the next relevant group of five providers of POS solutions into the
Street business. Following that group is the other category, which accounts for 20.2% market share. Similar to the cash register
situation within the restaurant industry, we believe market share leaders such as Radiant and MICROS Systems are likely well
positioned to chip away at the other category going forward. Often this other group includes small niche providers, some of which
may only be serving one or a few regional markets, some of which were more notably impacted through the downturn given the
lack of recurring revenue which would have been able to help pay bills and keep investing in products. Just as the Street restaurant
business always seems to have a high degree of natural churn, we suspect newer small POS entrants could replace some of the
current class that potentially go away into obscurity. That said, we believe Radiant Systems and MICROS in particular stand to gain
© 2010 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved. 2
on the market share side at the expense of cash registers and the other category over time. We believe a prolonged slow economic
recovery with numerous fits and starts could create an attractive market share gain scenario for the dominant POS providers as they
would likely be able to further leverage their existing market presence, broad product sets, sales capacity, and balance sheet
capabilities in driving additional share gains.
Figure 2
Cities Surveyed:
Atlanta, GA
Baltimore, MD
Charleston, SC
Charlotte, NC
Chicago, IL
Columbus, OH
Denver, CO
Hartford/New Haven, CT
Indianapolis, IN
Kansas City, KS
Lexington, KY
Los Angeles, CA
Miami, FL
Milwaukee, WI
Minneapolis, MN
Nashville, TN
New Orleans, LA
New York, NY
Oklahoma City, OK
Orlando, FL
Phoenix, AZ
Pittsburgh, PA
Sacramento, CA
Salt Lake City, UT
San Antonio, TX
San Diego, CA
St Louis, MO
Washington, DC
Note: This analysis excludes cash registers and focuses on market share leaders among computer-based POS providers
One concluding point on the market share snapshot is that despite Radiant’s much smaller size from a reported revenue basis, the
company often compares quite favorably in some of the largest and most dynamic regional Street business POS markets. Its survey
leadership did not actually surprise us, as we believe the company benefits from a strong and well established dealer network that
helps differentiate at the local city level. By the way, if all of the dealer revenue associated with restaurant sales were included into
Radiant’s P&L, the revenue picture would likely look materially larger for Radiant. We believe another important competitive
dynamic aiding Radiant has been a strong and growing presence with value-added hosted solutions, which a fair number of
respondents pointed out as key to their business and help drive meaningful return on investment (ROI). In the rare situation where
we were either able to get hold of a key decision maker or senior manager at the restaurant we were surveying, the conversation
occasionally became more in depth and we could ask more probing questions like how happy they are with their current POS
provider or whether they were looking to switch to another vendor. What was interesting was that Radiant had the most positive
comment responses (60% higher than the nearest POS provider with positive feedback) and also had the most affirmative responses
to new spending intentions on either more POS technology or value-added hosted solutions.
We should note that the market share survey could have looked meaningfully different if we polled regional or national restaurant
chains and/or polled restaurants closely affiliated with hotel properties. In both of these situations, MICROS likely would have
benefited from its installed base strength in these markets. But again, given the sheer unit size opportunity in the restaurant Street
business and seeing this segment as likely one of the largest revenue growth swing factors in an improving environment, we focused
all our energies on the Street business.
Large Base of Cash Registers in Market, Some of It Long in the Tooth. We do not suggest cash registers or ECRs will ever completely
disappear from the restaurant technology scene. Restaurants with less than $500,000 in annual revenue or that have limited menus
and requirements, and generally are strapped for cash more than the typical Street restaurant may continue to maintain reliance on
cash registers as their key operational system. That said, we believe the current market share of cash registers is likely to be chipped
away over time. We were pleased to see a healthy number of respondents that currently utilize cash registers indicate they were
formally planning or hoped to replace their existing cash register-based POS provider and move to a computer-based POS provider.
The number of respondents in this camp was 31. This seems low in comparison to our total survey size but no other respondent
group came close to our hit rate when asking this question. It should be noted that, in general, survey respondents were often not
the restaurant owner who often doubles as the technology buyer. Also survey respondents were typically hesitant to answer
questions related to future technology spending intentions or would altogether avoid answering the question. We believe a
contributor to this phenomenon was the likely belief of respondents that we may actually be doing more than a survey and trying to
drum up leads or sell them something.
In general, we believe there is a lot of legacy POS technology in the U.S. Street business market (cash registers as well as earlier
generation computer-based POS). We believe that in an environment with at least modestly positive economic activity, a large wave
of technology refresh will occur over the next three to five years. Either restaurant operators will simply upgrade their existing
technology vendor’s hardware and/or software solutions or will look more in-depth at whether a vendor switch makes more sense.
We believe this technology upgrade/reinvestment cycle could provide a further impetus to share gains for large established market
share leaders.
Restaurants Increasingly “Get It” – Leveraging Value-Added Solutions Beyond POS. We were pleased by respondents’ awareness
of value-added, often hosted solutions offered by their POS technology solution providers. We suspected adoption rates for key
solutions such as back-office software (e.g., food and labor management), kitchen display systems, and loyalty/gift card solutions
would be relatively low but actually response rates indicating usage of back-office software, kitchen display systems, and loyalty/gift
card solutions were higher than we expected. We have included survey results for these three categories, which were the ones
where we received comprehensive survey data to work with. For Radiant Systems POS respondents, 26.9% of respondents indicated
they are currently leveraging the company’s food and labor management back-office solutions, 17.3% are relying on the company’s
kitchen display system offerings, and 18.4% are leveraging the company’s loyalty/gift card solutions. MICROS equally had solid
penetration rates across these three product categories, with 22.4% leveraging the company’s back-office offerings, 19.7%
leveraging the company’s kitchen display system technology, and 17.8% leveraging the company’s loyalty/gift card solutions.
Considering how topical food and labor management is, especially in a tough sales comps environment, as an important earnings
and cash flow lever, it was not surprising that across a broader number of POS providers, back-office software was often cited as a
tool being relied upon.
Figure 3 Figure 4
% of Restaurants with Food/Labor % of Restaurants with Kitchen
Management Display Systems
30.0% 25.0%
25.0%
20.0%
20.0%
15.0%
15.0%
10.0%
10.0%
5.0%
5.0%
0.0% 0.0%
Radiant Restaurant MICROS POSitouch Digital Dining MICROS Radiant POSitouch Digital Dining Restaurant
Systems Manager Systems Systems Systems Manager
Source: Raymond James. Source: Raymond James.
Figure 5
% of Restaurants with Loyalty/Gift
Card Solutions
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
Digital Dining Radiant MICROS POSitouch Restaurant
Systems Systems Manager
We believe adoption rates of value-added hosted solutions will continue rising considering their ROI value proposition associated
with optimizing food and labor costs, making kitchen production workflows more efficient, and more actively engaging with
customers around CRM initiatives. Improving feature/functionality capabilities of these offerings and taking into account the pay-as-
you-go subscription model that works effectively even for cash-strapped Street restaurant operators likely will aid in adoption. In
the case of Radiant Systems, we anticipate strong growth in these value-added offerings to equal or surpass 20% over an extended
period, owing to an advanced go-to-market strategy, high channel partner involvement, and new solution innovation such as
employee theft prevention, which is also seeing strong uptake. With MICROS we anticipate similarly strong growth in value-added
services and point to increasingly aggressive sales, marketing, and promotional initiatives that could add in growth acceleration. We
believe the market is not accurately accounting for the positive financial implications associated with increasing rates of value-added
solutions adoption. These growing recurring revenue streams, along with improving POS system sales, could add a strong one-two
punch for top-line improvement for both Radiant and MICROS over a multi-year period.
Conclusion
We have drawn a handful of positive investment conclusions as it relates to Radiant Systems and MICROS Systems with our survey
work. First, both leading providers already have attractive market share that is likely to be further enhanced coming out of the
downturn owing to ongoing innovation, benefits from scale and struggles associated with smaller resource-constraint POS providers.
Second, there remains a large base of cash registers and legacy POS technology that is likely to see further market share erosion,
presenting incremental growth opportunities for Radiant and MICROS in the more value, price-oriented segment of the Street POS
market. Third, while adoption rates of value-added services like back-office software and loyalty/gift card solutions are respectable,
the incremental revenue opportunities from increased adoption rates are quite large, in our opinion. In summary, we believe
Radiant and MICROS are category killers in a very large buying segment – Street-oriented restaurants – and are well positioned to
further enhance market share, in our opinion.
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Ratings and Definitions

Raymond James & Associates (U.S.) definitions
Strong Buy (SB1) Expected to appreciate and produce a total return of at least 15% and outperform the S&P 500 over the next six months. For
higher yielding and more conservative equities, such as REITs and certain MLPs, a total return of at least 15% is expected to be realized over
the next 12 months.
Outperform (MO2) Expected to appreciate and outperform the S&P 500 over the next 12 months. For higher yielding and more conservative
equities, such as REITs and certain MLPs, an Outperform rating is used for securities where we are comfortable with the relative safety of the
dividend and expect a total return modestly exceeding the dividend yield over the next 12 months.
Market Perform (MP3) Expected to perform generally in line with the S&P 500 over the next 12 months and is potentially a source of funds for
more highly rated securities.
Underperform (MU4) Expected to underperform the S&P 500 or its sector over the next six to 12 months and should be sold.
© 2010 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. 6
Raymond James Ltd. (Canada) definitions

Strong Buy (SB1) The stock is expected to appreciate and produce a total return of at least 15% and outperform the S&P/TSX Composite Index
over the next six months.
Outperform (MO2) The stock is expected to appreciate and outperform the S&P/TSX Composite Index over the next twelve months.
Market Perform (MP3) The stock is expected to perform generally in line with the S&P/TSX Composite Index over the next twelve months and
is potentially a source of funds for more highly rated securities.
Underperform (MU4) The stock is expected to underperform the S&P/TSX Composite Index or its sector over the next six to twelve months
and should be sold.
Raymond James Latin American rating definitions

Strong Buy (SB1) Expected to appreciate and produce a total return of at least 25.0% over the next twelve months.
Outperform (MO2) Expected to appreciate and produce a total return of between 15.0% and 25.0% over the next twelve months.
Market Perform (MP3) Expected to perform in line with the underlying country index.
Underperform (MU4) Expected to underperform the underlying country index.
Raymond James European Equities rating definitions

Strong Buy (1) Absolute return expected to be at least 10% over the next 12 months and perceived best performer in the sector universe.
Buy (2) Absolute return expected to be at least 10% over the next 12 months.
Fair Value (3) Stock currently trades around its fair price and should perform in the range of -10% to +10% over the next 12 months.
Sell (4) Expected absolute drop in the share price of more than 10% in next 12 months.
Rating Distributions
Out of approximately 801 rated stocks in the Raymond James coverage universe, 54% have Strong Buy or Outperform ratings (Buy), 40% are
rated Market Perform (Hold) and 6% are rated Underperform (Sell). Within those rating categories, 21% of the Strong Buy- or Outperform
(Buy) rated companies either currently are or have been Raymond James Investment Banking clients within the past three years; 12% of the
Market Perform (Hold) rated companies are or have been clients and 15% of the Underperform (Sell) rated companies are or have been
clients.
Suitability Categories (SR)

For stocks rated by Raymond James & Associates only, the following Suitability Categories provide an assessment of potential risk factors for
investors. Suitability ratings are not assigned to stocks rated Underperform (Sell). Projected 12-month price targets are assigned only to
stocks rated Strong Buy or Outperform.
Total Return (TR) Lower risk equities possessing dividend yields above that of the S&P 500 and greater stability of principal.
Growth (G) Low to average risk equities with sound financials, more consistent earnings growth, possibly a small dividend, and the potential
for long-term price appreciation.
Aggressive Growth (AG) Medium or higher risk equities of companies in fast growing and competitive industries, with less predictable earnings
and acceptable, but possibly more leveraged balance sheets.
High Risk (HR) Companies with less predictable earnings (or losses), rapidly changing market dynamics, financial and competitive issues,
higher price volatility (beta), and risk of principal.
Venture Risk (VR) Companies with a short or unprofitable operating history, limited or less predictable revenues, very high risk associated
with success, and a substantial risk of principal.
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Raymond James expects to receive or intends to seek compensation for investment banking services from the subject companies in the
next three months.
Company Name Disclosure
Micros Systems, Inc. Raymond James & Associates makes a NASDAQ market in shares of MCRS.
Radiant Systems, Inc. Raymond James & Associates makes a NASDAQ market in shares of RADS.
Stock Charts, Target Prices, and Valuation Methodologies

Target Prices: The information below indicates target price and rating changes for the subject companies included in this research.
Micros Systems, Inc. (MCRS) 3 yr. Stock Performance
Update
Closing
Target
Rating
Price
Price
Date
MO2 $34.00 MO2 $39.00
$41.00
4/30/10 34.47 39.00 2
$39.00
10/26/09 27.51 34.00 2
$37.00
$35.00
Security Price
$33.00
$31.00
$29.00
$27.00
$25.00
$23.00
7/2/07
7/31/07
8/28/07
9/26/07
10/24/07
11/21/07
12/20/07
1/22/08
2/20/08
3/19/08
4/17/08
5/15/08
6/13/08
7/14/08
8/11/08
9/9/08
10/7/08
11/4/08
12/3/08
1/2/09
2/2/09
3/3/09
3/31/09
4/29/09
5/28/09
6/25/09
7/24/09
8/21/09
9/21/09
10/19/09
11/12/09
12/11/09
1/11/10
2/5/10
3/5/10
4/5/10
4/30/10
5/28/10
6/28/10
Analyst Recommendations & 12 Month Price Objective
SB1: Strong Buy NA: Not Applicable
MO2: Outperform NM: Not Meaningful
MP3: Market Perform UR: Under Review
MU4: Underperform
NR : Not Rated
Date: 06/28/10
Price Rating Change Target Price Change
Coverage Suspended Target Price and Rating Change Split Adjustment
Valuation Methodology: The Raymond James methodology for assigning ratings and target prices includes a number of qualitative and
quantitative factors including an assessment of industry size, structure, business trends and overall attractiveness; management effectiveness;
competition; visibility; financial condition, and expected total return, among other factors. These factors are subject to change depending on
overall economic conditions or industry- or company-specific occurrences. We utilize price/earnings (P/E) as a primary means to value the
stock. With the company laying out a balanced strategy and track record that combines above-average top-line growth and allows for
consistent margin expansion, we believe forward P/E will remain the most important valuation benchmark going forward. Other relevant
metrics include EV/EBITDA and EV/sales.
Radiant Systems, Inc. (RA

(RADS) 3 yr. Stock Performance
Update
Closing
Target
Rating
Price
Price
Date
MP3 NM SB1 $5.00 SB1 $12.00 SB1 $13.50 SB1 $14.50
SB1 $7.00 SB1 $16.00
$17.00 SB1 $9.50 SB1 $16.50

$16.00 5/7/10 13.70 16.50 1
$15.00
$14.00
3/29/10 13.61 16.00 1
$13.00 2/24/10 11.23 14.50 1
$12.00
$11.00 10/30/09 10.17 13.50 1
Security Price
$10.00
$9.00
7/31/09 9.01 12.00 1
$8.00 5/1/09 7.37 9.50 1
$7.00
$6.00 4/6/09 5.35 7.00 1
$5.00
$4.00
3/2/09 2.81 5.00 1
$3.00 10/14/08 7.11 NM 3
$2.00
$1.00
7/2/07
7/31/07
8/28/07
9/26/07
10/24/07
11/21/07
12/20/07
1/22/08
2/20/08
3/19/08
4/17/08
5/15/08
6/13/08
7/14/08
8/11/08
9/9/08
10/7/08
11/3/08
12/2/08
12/31/08
1/29/09
2/25/09
3/23/09
4/20/09
5/14/09
6/12/09
7/10/09
8/6/09
9/3/09
10/2/09
10/29/09
11/24/09
12/23/09
1/25/10
2/22/10
3/19/10
4/15/10
5/12/10
6/9/10
Analyst Recommendations & 12 Month Price Objective

SB1: Strong Buy NA: Not Applicable
MO2: Outperform NM: Not Meaningful
MP3: Market Perform UR: Under Review
MU4: Underperform
NR : Not Rated
Date: 06/28/10
Price Rating Change Target Price Change
Coverage Suspended Target Price and Rating Change Split Adjustment
Valuation Methodology: We utilize price/earnings (P/E) as a primary means to value the stock. With the company laying out a balanced
strategy and track record that combines above-average top-line growth and allows for consistent margin expansion, we believe forward P/E
will remain the most important valuation benchmark going forward. Typically the stock has proven to be an attractive buy and provided strong
appreciation under either a scenario in which it trades at a discount to its traditional POS peers or trades well below its long-term forward P/E.
The stock has historically been highly volatile on a relative basis but we suggest it has been a consistently strong performing stock and
snapped back quickly when buying on dips given the strength of the company’s growth franchise and ability to recover quickly from perceived
quarterly slip ups.
Risk Factors
General Risk Factors: Following are some general risk factors that pertain to the projected target prices included on Raymond James research:
(1) Industry fundamentals with respect to customer demand or product / service pricing could change and adversely impact expected
revenues and earnings; (2) Issues relating to major competitors or market shares or new product expectations could change investor attitudes
toward the sector or this stock; (3) Unforeseen developments with respect to the management, financial condition or accounting policies or
practices could alter the prospective valuation; or (4) External factors that affect the U.S. economy, interest rates, the U.S. dollar or major
segments of the economy could alter investor confidence and investment prospects. International investments involve additional risks such as
currency fluctuations, differing financial accounting standards, and possible political and economic instability.
Company-Specific Risks for Micros Systems, Inc.
End Markets are Cyclical

The company’s business is highly concentrated in the cyclical restaurant and hospitality industries. As the current and previous economic
downturns have proven, these industries are hyper-sensitive to fluctuations in the unemployment rate and GDP growth figures. While our
research suggests that many of its products are essential to hotel, restaurant, and retail operations, Micros’ results could be adversely affected
by weakness in end markets.
International Exposure
With an increasing percentage of revenue being driven by international operations (52% in FY09), the company’s results can be substantially
impacted by volatility in foreign exchange rates. While its international footprint has proven to be a competitive advantage, international
operations provide a slew of logistical and operational complexities that could create execution risk.
Varying Mix of Business and Revenue
The company offers total solutions for the industry segments it serves, including hardware, software, hosted solutions, and
maintenance/support contracts. Shifts in business mix, particularly between hardware and software, in a given quarter can have significant
implications on gross margins, profits, and earnings. Over time, we suspect licensed software and recurring-oriented solutions will grow in
increasing importance. Large orders for hardware in a given quarter could significantly impact margins and earnings.
Acquisitive Posture
With at least 16 deals since 1993, the company has been fairly acquisitive. Given the growing number of, smaller competitors, as well as the
company’s strategy of continuously adding to its product base, we would expect M&A activity to remain a constant. While the company has
had a successful track record of acquiring and integrating companies, future acquisitions could be dilutive to earnings, reduce the company’s
cash balance and/or increase debt, and create operational difficulties.
Company-Specific Risks for Radiant Systems, Inc.
Industry Concentration
The company’s business is heavily concentrated in a small number of vertical markets, with restaurant/food service representing the largest
segment exposure. In addition, the company has sizable revenue exposure in the petro/C-store segment, whose recent industry woes have
impacted Radiant’s overall business. In addition, the company will increasingly have exposure and expand revenue concentration in emerging
markets, including sports/entertainment venues and specialty retail. While we believe the company’s strong product sets and ability to take
market share even in tough end markets could help mitigate end-market weakness, industry concentration is a notable perceived risk and
could impact top-line growth, particularly if economic conditions worsen.
Managing Growth
The company has experienced a 28% CAGR in revenue since its transformation in late 2003 and early 2004 whereby it jettisoned a non-core
enterprise software business and bought Aloha Software to solidify its restaurant leadership. Along with managing industry-leading organic
growth in its hospitality segment, the company has executed on a number of acquisitions to accelerate product build-out and expand into new
markets. As a result of its strong growth and numerous acquisitions, the company could increasingly be challenged in managing a much larger
internal infrastructure and increasingly complex channel networks. The company is in the process of investing aggressively in new systems and
infrastructure to support its growth; however, managing rapidly growing businesses in distinct markets could increasingly challenge the
company’s ability to execute.
Acquisition Mindset
While the company has experienced solid organic top-line growth in recent years, acquisitions have remained a centerpiece in terms of
building out the company’s breadth of products, entering new end markets, and expanding distribution channels. In 2008, the company was
especially active, acquiring Quest Retail Technology in January, along with two small reseller acquisitions, and more recently, acquiring
Orderman GmbH. These acquisitions present additional execution risk and we would not be surprised to see the company remain acquisitive
longer term owing to its focus on building scale, rounding out its product leadership in existing markets, and entering new growth markets.
Such acquisitions could be dilutive to earnings, reduce its cash balance and/or increase debt, and strain the company’s existing resources and
infrastructure.
International Expansion
International business is an especially important growth initiative for the company going forward. However, international expansion will
require meaningful upfront investments without a guarantee on their return and presents additional complexities in managing an extended
international business. A growing international business represents additional challenges and complexities associated with volatile foreign
exchange movements and reported financial results.
Competition
Our research suggests the company continues to solidify its already strong market position in the restaurant POS market, in table service as
well as QSR, and take market share. While much larger hardware-focused POS competitors such as IBM and NCR seem to remain relatively
dormant in terms of offering total solutions, inclusive of POS software, they could become more aggressive either through acquisitions or
organic development and pressure best-of-breed players like Radiant Systems in its core restaurant/foodservice markets. In other markets
served by the company, such as sports/entertainment venues, specialty retail and petro/C-store, larger competitors could amplify their
competitive positioning and impact the company’s revenue, profitability, and market share position in these markets, as well.
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U.S.

June 30, 2010

Application Software: Industry Overview _________________________________________________________________________

Surveyed 1500 Restaurants; Positive Takeaways for RADS and MCRS

Source: Raymond James.

Source: Raymond James. Source: Raymond James.

Source: Raymond James.

Important Investor Disclosures

Ratings and Definitions

Raymond James Ltd. (Canada) definitions

Raymond James Latin American rating definitions

Raymond James European Equities rating definitions

Suitability Categories (SR)

Raymond James Relationship Disclosures

Stock Charts, Target Prices, and Valuation Methodologies

Micros Systems, Inc. (MCRS) 3 yr. Stock Performance

Radiant Systems, Inc. (RA

$17.00 SB1 $9.50 SB1 $16.50

Analyst Recommendations & 12 Month Price Objective

End Markets are Cyclical

For clients in the United Kingdom:

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