PAR Technology Corporation (NYSE:PAR) Q2 2023 Earnings Call Transcript August 9, 2023

PAR Technology Corporation misses on earnings expectations. Reported EPS is $-0.52 EPS, expectations had been $-0.32.

Operator: Good day and thanks for standing by. Welcome to PAR Technologies’ Second Quarter 2023 Financial Results. At this time, all members are in a listen-only mode. After the audio system’ presentation, there can be a question-and-answer session. [Operator Instructions] Please be suggested, at the moment’s convention is being recorded. I’d now like at hand the convention over to your speaker at the moment, Chris Byrnes, Senior Vice President of Business Development.

Christopher Byrnes: Thank you, James, and good afternoon, everybody. Thank you for becoming a member of us for PAR Technologies second quarter 2023 monetary outcomes name. Our earnings press launch was issued on the shut of market this afternoon and is posed on our web site. With me on the decision at the moment are Savneet Singh, PAR’s Chief Executive Officer; and Bryan Menar, the corporate’s Chief Financial Officer. After preliminary remarks, we’ll open the decision to a question-and-answer session. During this name we might make statements associated to our enterprise that may be thought-about forward-looking statements underneath Federal Securities legal guidelines, together with projections of future working outcomes. Due to plenty of components, precise outcomes might differ materially from these set forth in such statements.

These components are set forth within the earnings press launch that we issued at the moment underneath caption forward-looking statements, and these and different essential threat components are described extra absolutely in our studies filed with the Securities and Exchange Commission. We encourage all buyers to learn our SEC filings. Additionally, non-GAAP monetary measures can be mentioned on this convention name. A reconciliation for probably the most straight comparable GAAP monetary measures can also be accessible in our second quarter 2023 earnings press launch and investor presentation, which could be discovered at www.partech.com within the Investor Relations web page. With that, I wish to flip the decision over to our Chief Executive Officer, Savneet Singh. Savneet.

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Savneet Singh: Thanks, Chris and good afternoon. In the second quarter, PAR once more delivered robust outcomes. Restaurants of every type and in any respect levels are utilizing PAR as their progress enabler, leveraging our choices to create a extra seamless, price efficient and easier infrastructure. In my place as PAR CEO, I’ve the privilege and alternative to sit down down face-to-face with our clients our prime integration companions commonly. The message I’m listening to is remarkably constant. Again and once more, I hear that enormous enterprise eating places are targeted on creating constant buyer experiences throughout a number of ordering channels. But in at the moment’s world, they’re additionally making an attempt to scale back prices, mitigate threat and convert price facilities to revenue facilities.

For years, they considered expertise as a capital funding, and at the moment, they’re coming round to the concept that software program is now a key funding within the OpEx line of their P&Ls. We imagine PAR is properly located to take share with these dynamics. At the tip of Q2, subscription providers income elevated by 31.2% from final yr’s second quarter and ARR topped $122.5 million, a 24.3% year-over-year enhance, demonstrating the continued progress and scaling of our subscription providers engine. Contracted annual recurring income ended the quarter at $140.2 million, a robust 7% sequential enhance from Q1. Importantly, we’re holding working bills flat from our This autumn 2022 run fee. Operator Solutions ARR grew 38.4% to $50 million in Q2 in comparison with the identical interval final yr.

Even extra spectacular is that Operator Solutions ARR elevated 11% from the sequential prior quarter. During Q2, Operator Solutions added 115 new shops and new bookings totaled roughly 1100. Churn continues to be extraordinarily low at 3.6% annualized for Brink within the quarter. Brent continues to be our land and increase product, and this enlargement is demonstrated by a rise of over 14% in ARR per website for Operator Solutions from Q2 final yr. With alternatives in desk service persevering with to floor, and curiosity from the biggest of fast service restaurant organizations growing, the brand new buyer pipeline for Operator Solutions continues to drive new enterprise. The Operator Solutions weighted pipeline continues to be at an all time excessive.

Payments is a vital a part of our progress for Operator Solutions. Rolling out new funds buyer websites return to the tempo we had anticipated and was a lot quicker than Q1. We proceed to supply a compelling and clear pricing mannequin together with a robust set of integrations and matched with the convenience of doing enterprise with PAR that’s successful for our clients. We noticed momentum within the second quarter, which resulted in report quarterly activations and gross processing volumes, together with buyer adoption throughout our in retailer, on-line and loyalty platforms. This is highlighted by the total rollout of our one faucet loyalty resolution powered by Apple Pay with Salsarita’s in Q2. We are assured this momentum will ship robust outcomes for the remainder of the yr.

Moving to visitor engagement ARR that features our main buyer engagement at Punchh and our digital ordering platform MENU. Guest engagement ARR grew 14 a half p.c in Q2, when in comparison with Q2 2022 in whole roughly $61 million. We proceed to work laborious to ship in our present surroundings our hyper targeted on delivering scalability and innovation on the similar time. In the quarter, we efficiently kicked-off the deployment of a 2400 unit quick informal chain, and we launched our new subscriptions product. Active retailer depend on a year-over-year foundation elevated by 13% and we imagine enterprise will proceed to enhance because the yr progresses. We did this throughout the quarter, the place we noticed report marketing campaign utilization on the Punchh platform properly past something we’d ever seen.

Usage has elevated 4 instances in simply the final 12-months, creating each great alternatives and challenges for PAR. This progress has challenged us to scale up our infrastructure rapidly, whereas additionally considering via the optimum long-term enterprise mannequin for Punchh. We are humbled by the belief given to us by our clients and are dedicated to serving to them to drive ROI from our merchandise. MENU continued its migration to the United States this quarter. We have been impressed by the early response MENU has obtained from potential clients this yr. We are signing clients at a brisk tempo, and I’m happy to report, we’re within the closing levels of signing three extra manufacturers this quarter that can greater than double the variety of shops signed thus far.

As we scale up our operations, I count on the emblem and retailer depend to develop meaningfully. These early signings validate our funding thesis with MENU, and the product options and performance which might be driving this early success will proceed to present us the chance to unify our clients ordering channels. MENU is a particular product and we imagine really the following technology ordering, permitting us to develop our footprint exterior the shop and set us up for the anticipated proliferation and ordering channels to come back. As I discussed final quarter, we’ve aggressively began tooling the enterprise for the U.S. home market and we count on income to begin significantly in Q3. We really feel extra assured now than we did on the similar time of the acquisition that MENU will develop right into a dominant product line in consequence, we elevated our infrastructure investments within the quarter.

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We are doing this methodically by specializing in clients that we will take lives sooner, in balancing our want to construct extra for purchasers with our perception that we must always first ship on at the moment’s guarantees. Demand isn’t the issue as our current clients see the ability of MENU coupled with Punchh. So it’s on us to construct up our operations, help and repair groups to ship on these trusting us at the moment. Back workplace and information middle delivered a robust quarter as properly. Reported ARR of $11.6 million in Q2 was a 25.3% enhance from final yr’s Q2. We had activations of 221 shops within the quarter and now have greater than 7200 energetic shops. Before handing the decision over to Brian to assessment the financials, I wished to the touch briefly on our gross margins within the quarter and particularly margins for our prescription providers enterprise.

We reported decrease than regular adjusted gross margins for subscription providers at 61% for the quarter and 65% year-to-date. This decline was pushed by two components. First, as talked about above, we made a big funding in MENU and PAR funds upfront of income we count on to take dwell later this yr and all through 2024. These investments, whereas short-term painful, are wanted so as to construct out our pipeline after which future income. We imagine we’re at peak of that spend and investments to reasonable from right here. Second, as I referenced, we skilled a dramatic progress in utilization throughout our merchandise and particularly, Punchh. This utilization was past something we had deliberate for and resulted in us having short-term disruptions which led to one-time buyer credit to sure clients.

To guarantee we will help this new baseline of utilization, we’ve ramped up spend and importantly tooling in order that we don’t encounter these points once more. As CEO, unplanned spend just isn’t enjoyable, however I’m assured this funding spend is extra essential partly with the ability to ship for our clients. And I imagine we’ll make up for it many instances over, as I imagine we’re doubtless the one participant in our class capable of deploy at such a big scale. To summarize on margins, we count on constant future progress, as PAR funds and menu revenues proceed to scale. While it’s difficult to have given out credit, these are one time in nature, and we’re going all in on our infrastructure and now to benefit from the spoils of 2024 and past. Our spend in margins will normalize as we ship on core investments that can once more enhance our effectivity.

In abstract, we’re heading into the second half of the yr with vital momentum and a robust pipeline, and as we’ll method 2024 with the identical focus, ambition and values which have formed our firm. Bryan will now assessment the numbers in additional element. Brian.

Bryan Menar: Thank you Savneet and good afternoon everybody. Total revenues had been 100.5 million for the three months ended June 30, 2023 a rise of 18.2% in comparison with the three-months ended June 30, 2022, with progress coming from each restaurant retail and authorities segments. Net loss for the second quarter of 2023 was 19.7 million or $0.72 loss per share in comparison with a web lack of 18.8 million or $0.70 loss per share reported for a similar interval in 2022. Adjusted web loss for the second quarter of 2023 was 14.1 million or $0.52 loss per share in comparison with an adjusted web lack of 9.8 million or $0.36 loss per share for a similar interval in 2022. Adjusted EBITDA for the second quarter of 2023 was a lack of 9.9 million in comparison with an adjusted EBITDA lack of 5.8 million for a similar interval in 2022.

Hardware income within the quarter was 26.4 million, a lower of two million or 7% from the 28.4 million reported within the prior yr. Sequentially, Q2 {hardware} income was flat in comparison with Q1 and forward of our forecast as we proceed to see robust {hardware} gross sales, each with our Tier 1 legacy clients and throughout our Brink buyer base. Subscription providers income was reported at 30.4 million, a rise of seven.2 million or 31.2% from the 23.2 million reported within the prior yr. The enhance was considerably pushed by elevated subscription providers income from our Operator Solutions enterprise of three.3 million, pushed by a 21% enhance in energetic websites and 19% enhance in common income per website. The residual enhance of two.9 million was pushed by enhance subscription service income from our visitor engagement enterprise pushed by a 13% enhance in energetic websites, a 7% enhance in common income per website, and 0.5 million of post-acquisition menu income.

The annual recurring income exiting the quarter was 122.5 million, a rise of 24.3% from final yr’s Q2 with Operator Solutions up 38%, visitor engagement up 14% and again of home up 25%. Professional providers income was reported at 12.8 million, a rise of $0.2 million or 1.1% from the 12.6 million reported within the prior yr. 7.1 million of the skilled providers income within the quarter consisted of recurring income, primarily from our {hardware} help contracts. Contract income from our authorities enterprise was 31 million at enhance of 10.1 million, or 48.2% from the 20.9 million reported within the second quarter of 2022. The enhance in contract revenues was pushed by a 12.6 million enhance in authorities ISR Solutions product line.

The enhance was considerably pushed by continued progress of counter SUAS process orders. Contract backlog related to our authorities enterprise as of June 30, 2023 was 297 million. An enhance of 61% in comparison with the 184.5 million backlog as of June 30, 2022. Total funded backlog as of June 30, 2023 was 96.6 million, 102% enhance in comparison with the funded backlog of 47.9 million for the prior yr. Now turning to margins. Hardware margin for the quarter was 19.2% versus 14.7% in Q2 2022. The enhance in margin year-over-year was because of a listing cost in Q2 2022. We proceed to count on {hardware} margins of 20% as we go ahead. Subscription providers margin for the quarter was 43.3% in comparison with 53.9% within the second quarter of 2022. The lower in margin is mirrored of a continued progress inside our early section merchandise.

In addition to elevated internet hosting price ensuing from vital utilization of our visitor engagement merchandise, we made the extra investments to make sure the standard of our buyer’s expertise was not impacted. Sequentially, subscription providers margin throughout the three months ended June 30, 2023, included 5.3 million of amortization of identifiable intangible property in comparison with 5.7 million for Q1. Excluding the amortization of intangible property, whole adjusted subscription service margin for the three months ended June thirtieth was 61% in comparison with 71% in Q1. Professional providers margin for the quarter was 7.7% in comparison with 16.8% reported within the second quarter of 2022. The lower in margin was pushed by one-time expenses. We count on skilled providers margin to transition again to the mid-teens for the second half of the yr.

Government contract margins had been 4.3% as in comparison with 11.1% for the second quarter of 2022. The lower in margin was associated to decrease combine in direct labor related to the Counter-UAS income. We count on contract margins to development again to greater single digit margins as we progress via the second half of the yr. In regards to working bills, GAAP SG&A was 25.6 million, a lower of 0.8 million from the 26.4 million reported in Q2 2022. The lower was pushed by decrease acquisition prices and company bills. Net R&D was 14.9 million, a rise of 4.8 million from the ten.1 million recorded in Q2 2022. Backing out menu and non-GAAP changes, the expansion in R&D is 2.4 million or 24%. The will increase associated to personnel employed as we proceed to enhance and diversify our product and repair choices.

Sequentially, web R&D expense of 14.9 million in Q2 was up 0.6 million from the 14.3 million reported in Q1. Total non-GAAP working bills was 36.9 million a rise of 4.2 million versus Q2 2022. Menu accounted for 3.9 million of the rise as we indicated on the finish of 2022, we’ll proceed to handle the expansion of our enterprise, whereas holding working bills flat throughout 2023. Net curiosity expense was 1.7 million, in comparison with 2.5 million recorded in Q2 2022. The decreases pushed by elevated curiosity income from our short-term investments in 2023. Now, to supply info on the corporate’s money move and stability sheet place. For the six months ended June thirtieth, money use and working actions was 12.8 million versus 31.6 million for the prior yr.

Operating money move for Q2 was 4 million web optimistic because of environment friendly administration of our community and capital wants. Cash utilized in investing actions was 6.2 million for the six-month ended June thirtieth versus 5 million for the prior yr. Investing actions throughout the six month ended June 30, 2023 included capital expenditures of three.2 million for inside use software program, two million for developed expertise prices related to our restaurant retail software program platforms and 0.9 million for reinvestment of short-term investments. Cash utilized in financing actions was 2.5 million for the six month ended June thirtieth in comparison with 1.8 million for the prior yr. Financing actions for 2023 was pushed by stock-based compensation associated transactions.

Day gross sales excellent for the eating places and retail section elevated from 53-days as of December 31, 2022 to 62-days as of June 30, 2023. We count on DSO ranges to come back again to historic ranges throughout the decrease 50-day vary. Day gross sales excellent for the federal government section decreased from 55-days as of December 31, 2022 to 52-days as of June 30, 2023. I’ll now flip the decision again over to Savneet for closing remarks previous to shifting to Q&A.

Savneet Singh: Let me wrap up with just a few key messages earlier than we open the decision for Q&A. PAR’s enterprise, organizational mannequin and progress technique are robust, resilient and dependable. I imagine that is most demonstrated in our means to proceed to keep up our progress with out rising working investments. This high quality stability is a results of a deep give attention to working effectivity, recruiting prime expertise and an expectation that we will do extra. While there’s at all times an opportunity finish markets might proceed to be unstable, we really feel our progress engine is on robust footing. We get up excited on the alternatives in entrance of us. Whether it’s unification of their tech stack or vendor consolidation, our clients proceed to look to simplify their life and we imagine PAR is well-positioned to assist.

As I mentioned in Q1, we imagine that the M&A surroundings can also be ripe to boost our price creation. Today, we’re pushing on plenty of alternatives, all of which we thank add new product and expertise to PAR, whereas growing our monetary profile. M&A has been a robust worth driver to PAR and it’ll proceed to be as we go ahead. I sit up for holding you updated on our progress. Lastly, I wished to move on an worker replace. While we work to drive outcomes for the client, alongside this focus can also be desired to drive a satisfying and rewarding work expertise. Earlier this yr, PAR was named by Energage, as a Top Workplace in 2023 for the expertise trade. Their survey touched virtually each worker at PAR, and we’re humbled by the worker response, and motivated to not keep static and enhance from right here.

As at all times, I wish to thank all of PAR’s workers for his or her dedication and energy over the previous quarter. With that, I’ll open the decision for Q&A. Operator.

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