Micros Systems, Inc.

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Micros Systems, Inc.

12000 Baltimore Avenue
Beltsville, Maryland 20705-1291
U.S.A.
(301) 210-6000
Fax: (301) 490-7077
Web site: http://www.micros.com

Public Company
Incorporated: 1977 as Picos Manufacturing, Inc.
Employees: 653
Sales: $178 million (1996)
Stock Exchanges: NASDAQ
SICs: 3578 Calculating & Accounting Machines, Except Electronic Computers; 7372 Prepackaged Software

Micros Systems, Inc. is a leading worldwide designer, manufacturer, supplier, and servicer of point-of-sale (POS) computer systems for hospitality providers, principally full-service and fast-food restaurants, including restaurants located in hotels and other lodging establishments. In 1995 the company’s POS systems were in more than 35,000 restaurants. Micros also was marketing and distributing property-management information systems (PMS) products, supplied by a German subsidiary, Fidelio Software GmbH, to hotels and other lodging establishments. These systems had been installed in more than 4,200 sites. Both companies also were producing the software for these systems. In 1996 Micros was one of 14 companies recognized by Forbes as among “the world’s best small companies” for five consecutive years, each year ranking higher than the previous year.

The Start-Up Years, 1977–81

Micros Systems was founded by Louis Brown, Jr. The son and grandson of Maryland dairy farmers, he recalled sweltering on a summer day in his childhood and wishing he could be in the air-conditioned Westinghouse Electric Corp. building not far away. Brown attended Johns Hopkins University on a scholarship and earned an engineering degree. “I knew right out of college that three geeks in a basement with a silicon chip could create some very dangerous products,” he told a Forbes interviewer in 1994. “I don’t mind being a geek. It’s easier than farming.”

With $20,000 in savings Brown, then 26, started a company called IDEAS, Inc. to design computers for the government. He was acting as a consultant for MKD, an electronic cash-register company, when its vice-president, Bernie Silverman, suggested there was a future in making “smart” cash registers, that is, point-of-sale terminals. Brown founded PICOS Manufacturing in 1977 to produce these machines for restaurants; the company was renamed Micros Systems the following year. Located in Beltsville, Maryland, in the Washington-Baltimore corridor, Micros found it relatively easy to recruit the needed software engineers. Revenues rose from $1.4 million in fiscal 1978 (the year ended July 1, 1978) to $4.2 million in fiscal 1979 and $6.7 million in fiscal 1980. The company lost $88,000 and $109,000 in its first two years, respectively, but had net income of $142,000 in 1980.

Making Progress, 1981–85

Micros Systems made its initial public offering in February 1981, raising nearly $7 million. Information Development & Applications, Inc. (the successor to IDEAS) retained 35 percent of the stock. The company ended the fiscal year with a solid $9.1 million in sales and net income of $303,000. The following year, however, Micros’s opening of district offices in five new metropolitan markets failed to pan out. Caught in a national recession, the company recorded an $868,000 loss on sales of $12.6 million and sustained a 78 percent increase in debt. Some $300,000 of the loss was due to a technical problem in the company’s 400-series terminals. A $1.25-million loan from a Baltimore bank was placed in jeopardy as Micros’s net worth fell below the stipulated $3.7 million.

Undiscouraged, the company’s management, headed by Jeffrey Rice, introduced a series of POS and electronic cash-register products aimed at the lower end of the hospitality and food-service markets in 1982. This line combined two remote order-entry integral printers and an alpha numeric display made by a Japanese manufacturer with Micros’s own software. For full-service restaurants, Micros offered a system providing daily food-cost percentages and inventory information, payroll processing, and the management of accounts-payable functions. For the fast-food industry, Micros was offering fully interactive terminals that processed customer orders and provided comprehensive information to management. In fiscal 1983 the company earned $470,000 on revenues of $15.3 million.

By the end of the calendar year Micros was supplying more than 2,000 front-desk accounting systems to lodging properties throughout the world, connecting a hotel’s front desk with POS terminals in food and beverage areas and providing instant authentication and electronic transfer of charges to guests’ bills. These systems also communicated with Micros call-accounting systems, which recorded and instantly entered a guest’s telephone charges on the bill. In October 1983 the company introduced a Petroleum Management System, activated by credit card, for retail and convenience stores that also sold gasoline. Toward the close of the year it acquired ASTEC, Inc., a leading producer of microcomputer software specializing in back-office accounting programs tailored to the needs of the restaurant industry.

Major Food-Service Player, 1985–93

After eight years of administration by its founding engineers, Micros came under the management of Reay Sterling, Jr., an experienced corporate executive who was named president and chief executive officer in 1985. The following year the company introduced its 4700, the first system for food-service operations based on an industry-standard personal computer: IBM’s landmark PC. POS terminals, keyboards, remote printers, video display units, and guest-check printers were configured to each customer’s specifications. Sterling later called the Micros 4700 “the product that saved the company.”

The bottom line did not immediately support this assessment, however. After net income passed $1 million for the first time in fiscal 1985, revenues plummeted, and Micros lost money in the next two fiscal years. A small profit was recorded in fiscal 1988, largely due to growing overseas sales, but company assets fell to a four-year low of $14.3 million. Nevertheless, Micros found a backer in Westinghouse Electric, which was on the lookout for small technology companies. It bought 19 percent of Micros’s shares in 1986 for $2.8 million, shoring up the firm’s credibility, and acquired another 2.3 million shares in 1988 from two major stockholders for $5.3 million, raising its stake to 58 percent. By this time Micros had installed more than 50,000 terminals in more than 40 countries.

During fiscal 1989 Micros Systems raised its revenues to $25.5 million and its net income to $1.3 million. It introduced the 2700 Hospitality Management System, a new terminal for use in table-service restaurants rather than fast-food outlets, opened a dealership in Germany in July 1989, and another in Great Britain in November 1989. Overseas sales now accounted for 25 percent of the total, up from eight percent in three years. Westinghouse raised its stake in the company to 66 percent in October 1989.

The figures were even sweeter in fiscal 1990: $2.6 million profit on revenues of $35.2 million: a return on equity of 27.6 percent. In January 1990 Micros added a lower-cost 1700 system for small restaurants. The company earned $3.3 million on revenue of $39.6 million in fiscal 1991, acquired a 15 percent interest in its French distributor, opened an office in Boston, and introduced a new touch-screen product. Financial World ranked it number one among the 500 fastest-growing publicly traded companies in the United States, based on growth in earnings per share over the past five years. During fiscal 1992 Micros introduced an advanced touch-screen system for the 2700 and a 2400 fast-food system, featuring a remote printer and video-screen subsystem accommodating a wide variety of kitchen-production and order-routing schemes. The company earned $4 million on revenue of $44.3 million. Overseas sales reached about one-third of the total, with operations in Europe, Asia, and Mexico.

The Micros machines were being designed for a hostile food-preparation environment, with no flat surfaces on which to sit a drink and few seams or openings, if any, in order to protect against potential disasters like a spilled soft drink. Software had dozens of features that could be turned on and off to meet a broad range of service and order requirements. The company’s packages were designed to limit training time, since typical fast-food restaurant chains could experience an employee turnover rate of 200 to 300 percent a year. Most of Micros’s orders were in the $20,000 range, with some large hotels running to $60,000. A high-quality system to a restaurant needing perhaps only one terminal and one kitchen printer could be delivered for about $5,000.

During 1993 Micros launched a new generation of software and equipment, including an 8700 system smaller, cheaper, and easier to use than the 4700 and a Manager Workstation for management analysis of sales and operational trends at fast-food restaurants. By the fall of 1994 it had an installed base of 4,000 terminals at 750 sites, with major clients including Circus Enterprises, Planet Hollywood, and MGM Grand Hotel’s Las Vegas casino. It also introduced a new version of the 2700 and a hand-held terminal, integrated with the 4700, that waiters could use to send a diner’s order via radio from the table to the kitchen. This device found application in many sports arenas as well as pool-side restaurants.

Company Perspectives:

The mission of MICROS Systems, Inc. is to profitably design, manufacture, market and support world-class information-technology solutions for the global hospitality industry.

Reaching the Hotel and Casino Market, 1993–96

Revenues reached $55.3 million in fiscal 1993, with net income rising to $5.8 million. Sterling died suddenly in July 1993, and Brown, the chairman, temporarily assumed his duties as president and chief executive officer. Subsequently the post went to A. L. Giannopoulos, a Westinghouse executive who was a member of Micros’s board of directors. Also in 1993, Micros took a 15-percent stake in Fidelio Software GmbH of Munich, Germany, with an option to acquire all of the company by 2000. The share in this supplier of property-management systems (PMSs) and the world’s leading developer of hotel computer information systems included majority interests in three subsidiaries responsible for the distribution and service of Fidelio products in the United States and Europe. A Micros manager said the acquisition provided “seamless integration”; when interfaced with a Fidelio system, the 8700 would be able to notify the front desk when a guest was dining, making it possible for the guest to receive messages or calls in the hotel’s restaurant.

The Fidelio partnership also gave Micros some of the tools it needed to enter the lucrative gambling industry. At MGM Grand, it was offering, in addition to POS and PMS services, interfaces to liquor-dispensing systems, credit authorization and—most important—the casino-management system. In place of the tedious but vital chore of tracking complimentary items manually, the 8700 was capturing this data electronically and sending it via an interface through a chosen identification number to a tracking system, for verification with casino management and posting as such on a guest’s folio at the hotel’s front desk.

During 1995 Micros installed about 300 cash-register work stations in the restaurants, bars, and shops of MGM Grand and the Luxor Hotel in Las Vegas. Part of Micros’s rapid revenue and profit growth in the second half of 1993 was attributed to sales of its touch-screen terminals to casinos.

Restaurateurs were grateful to Micros for enabling them to compare profit margins on every item on the menu, allowing them to decide which ones to promote and which to drop, and also to track the sale of every item and cross-check that record against the system’s inventory-tracking system. “You must remember one thing,” the operator of the “44” restaurant in New York City’s fashionable Royalton Hotel told a Forbes reporter. “Every single person in your restaurant is trying to steal from you. These machines make that nearly impossible.”

Micros had net income of $8.7 million on revenues of $79.3 million in fiscal 1994, both records. In fiscal 1995 these figures surged again, to $11.6 million and $112 million, respectively. In September 1995 Westinghouse sold its stake in Micros, which it had acquired for $11 million to $12 million, for $161.9 million. (Its stock, selling for $2.08 a share when Westinghouse acquired most of its holdings in 1988, reached an all-time high of $41.25 in December 1994.) Micros bought the remaining 70 percent of Fidelio, which had estimated revenues of $57 million in 1995, for about $28.8 million in December 1995.

Micros stock reached $50.75 a share before suddenly dropping to $25 on Monday, March 25, 1996, after the company announced that it “anticipated significantly lower earnings” in the third quarter of fiscal 1996, which was coming to a close. A broker said the firm had infuriated investors by making the announcement on the previous Friday evening. The company’s stock was trading in the range of $30-$35 a share during the fall of 1996. Final figures for fiscal 1996 reported revenues of more than $178 million—a 59-percent gain over the previous year—but net income of $10.5 million, a nine-percent drop that the company attributed to the acquisition of Fidelio and other key distribution channel locations it believed would have a favorable financial impact in the future. Long-term debt rose nearly $10 million, to $15.5 million.

In 1995 Micros was distributing the ProHost Table Service Management System, designed by Rock Systems Inc. ProHost, which interacted with the 8700 and 2700 systems, had a touchscreen terminal enabling the host or hostess to stay informed on the status of all tables. An optional page ranger allowed waiting customers to wander as far as two miles until the pager alerted them that their table was ready and allowed both guests and the kitchen staff to page servers.

In 1996 MasterCard International announced it had teamed with Micros to develop an integrated-systems solution enabling full-service restaurants to accept automated teller machine cards enhanced with Maestro, its global on-line POS debit program, for payment directly at the table. As a result, Micros was developing a driver within the 8700 system and planned to integrate the driver with the systems of other payment-industry hardware providers. Micros introduced, in May 1996, its new 3700 POS, which it said combined the most advanced POS capabilities for table-service restaurants with management tools like labor and inventory management and guest-services applications in one system.

Micros in the Mid-1990s

In mid-1995 Micros POS systems were in more than 32,000 full-service restaurants or operators of restaurants, including T.G.I. Friday’s, Family Restaurants, Perkins, Planet Hollywood, Ruby Tuesday’s, and Whitbread, and in full-service restaurants in hotel chains, such as Hilton, Hilton International, Hyatt, Inter-Continental, Marriott, Radisson, and Ritz-Carlton. Its more than 3,000 fast-food customers included Arby’s, Burger King, and Woody’s. The 600 Fidelio PMS systems had been installed in lodging establishments that included various Radisson Hotels, Red Roof Inns, and Wyndham Hotels and Resorts. Fidelio products were in more than 3,600 sites worldwide, including certain Ciuga, Fote, Hilton International, Inter-Continental, Movenpick, Peninsula, and Ramada Europe locations.

Micros also was offering service and support for its POS and PMS products, including installation, training, hardware and software maintenance, spare parts, media supplies, and consulting services. Service revenue accounted for about 23 percent of the company’s total revenue in fiscal 1995.

Micros’s chief base of operations was in Beltsville, Maryland, where it owned one building and leased two others. The company’s administrative, manufacturing, sales, marketing, customer-service, and product-development facilities were all located here. Manufacturing at Beltsville consisted primarily of assembly and testing of various purchased components, parts, and subassemblies. The company was leasing nine domestic and seven foreign sales, service, and support offices: in Boston, Chicago, Dallas, Denver, Las Vegas, Los Angeles, Miami, Portland (Oregon), and San Francisco in the United States, and in Dusseldorf and Frankfurt, Germany; London; Madrid; Paris; Singapore; and Zurich, Switzerland.

Principal Subsidiaries

Fidelio France S.A. (France); Fidelio Software Corp.; Fidelio Software U.K. Limited; Micros of Delaware, Inc.; Micros Foreign Sales Corp. (Barbados); Micros of South Florida, Inc.; Micros Systems AG (Ltd.) (Switzerland); Micros Systems Deutschland GmbH (Germany); Micros Systems Hispania (Spain); Micros Systems Holdings GmbH (Germany); Micros Systems (U.K.) Ltd.; Micros Systems Services GmbH (Germany); MSI Delaware, Inc.