PAR Technology Corporation

Good afternoon. My name is Dai Hanna and I will be your conference operator today. At this time, I would like to welcome everyone to the FY 2020 first quarter financial results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. At this time, I would like to turn the conference over to Mr. Chris Byrnes. You may begin, sir.

Thank you, Diana, and good afternoon, everyone. I hope during these crazy days that everyone is safe, healthy, along with their families. I'd like to take this opportunity to welcome you today also to the call for part of 2020 first quarter results review. Complete disclosure of our results today can be found in our press release issued this afternoon, as well as in our related form 8K to the SEC. To access the press release and the financial result details, please see the investor relations and news section of our website at www.partech.com. At this time, I'd like to take care of certain details in regards to the call today. Participants on the call should be aware that we're recording the call this afternoon, and it will be available for playback. Also, we are broadcasting the conference call via the World Wide Web, 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. I'd also like to remind participants that this conference call includes forward-looking statements that reflect management's expectation based on currently available data. However, actual results are subject to future events and uncertainties, especially during these times, for example, statements relating to our business and financial condition and to our expectations are subject to the uncertainties about the future impact of the COVID-19 pandemic. And there can be no assurance that the COVID-19 pandemic will not have a material or adverse effect on our business. 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 the earnings release this afternoon and in our annual and quarterly filings with the SEC. Joining me on the call today is PAR's CEO and President, Savneet Singh, and Bryan Menar, PAR's Chief Financial Officer. I'd now like to turn the call over to Savneet for the formal remarks portion of the call, which will be followed by general Q&A. Savneet?

Thank you, Chris, and good afternoon, everyone. Thank you for joining our call today. I hope that all of you and your families are staying healthy and safe. These are unprecedented times, so we will be taking somewhat of a different approach to our call commentary today. On today's call, we'll not only review our business performance and financial results for the first quarter, but we'll also share with you the impact that the coronavirus pandemic has had on our business, what we are doing to address the associated challenges, and how the strength of our business model positions us for long-term success. To begin and to review our Q1 performance, our total revenues grew 22.4% to $54.7 million and reported a gap net loss of $10.9 million and a loss per share of 61 cents. as compared to a net loss of $2.7 million in a loss per share of 17 cents in the same period last year. On an adjusted basis, the non-GAAP net loss for the quarter was $5.1 million in a loss per share of 28 cents versus a net loss of $1.5 million in a loss per share of 9 cents in Q1 2019. Details on the GAAP to non-GAAP adjustments are included in today's press release. Bryan will give additional color on the numbers for the quarter. Now to address the current business environment. Our company is addressing the challenges associated with COVID-19 with the same seriousness, intellectual rigor, and fast-paced analysis that we've employed for over 50 years since PAR was founded. We are focused on three things, the health and safety of our team members, demonstrating leadership by continuing to solve our customers' most pressing issues, and building long-term value to shareholders. Our unique capabilities include an adaptable business model and a robust client base that has shaped PAR's leading market position. Despite the expected near-term headwinds for restaurants, we are serving thousands of essential businesses and their customers as they continue to operate to serve the general public. Our brand promise is to deliver solutions that connect people to the restaurants, meals, and moments they love. We're doing our best to hold true to that promise in 2020. Our customer base has been extremely resilient in this difficult time. Most of our customers are quick service or fast casual restaurants, and a high number, approximately 85%, have been able to remain open and maintain their operations through drive-thru, counter service, and delivery, even while in-store dining rooms are closed. With the initial impact of the COVID-19 restrictions, our customers' same-store sales have been impacted by as much as 40% versus prior year. However, over the last four weeks, we are seeing a rebound in sales for our customers as they streamline their operations and drive efficiencies with drive-through pickup and delivery, along with limited menus, reduced operating hours, and maximizing staff levels. Every day, we are seeing closed stores start to reopen. PAR entered this crisis in a position of great strength. We ended the quarter with $60 million in cash and cash equivalents in short-term investments. We feel very comfortable with our cash position. In addition, we initiated a cost savings plan totaling more than $10 million in savings against our annual plan, designed to protect our liquidity flexibility and enable us to increase investment and growth areas of our business. Most of our employees have been working from home since the initiation of shelter-in-place orders in mid-March, with the exception of our operations team that have valiantly continued to work on-site to continue delivering hardware platforms to our global customers. New York State has deemed PARA as an essential business due to the strategic and critical services we provide to restaurants. For over 40 years, PARA has serviced restaurant clients across the globe in times of crisis. We have long demonstrated our ability to pivot quickly to address our clients' most compelling issues, and we are demonstrating that agility amid the coronavirus once again. Now I'd like to turn the call over to our Chief Financial Officer, Bryan Menar, for a review of the quarter's financials.

Bryan? Thank you, Savneet, and good afternoon, everyone. I would now like to take this opportunity to provide some additional details surrounding our first quarter results. As Savneet previously stated, reported revenues of $54.7 million for the quarter of 22.4% from $44.7 million reported for Q1 2019. Our net loss was $10.9 million or $0.61 per diluted share for the quarter versus a net loss of $2.7 million or $0.17 loss per diluted share for Q1 2019. Unfavorable year-over-year results from operations was primarily driven by corporate financing charges including an $8.1 million loss on extinguishment of debt related to the partial repurchase of the 2024 notes and an additional $1.8 million of interest expense related to the 2024 notes and the 2026 notes. Operating segment revenue for the three-month ended March 31st, 2020 were $37.4 million for the restaurant retail segment, an increase of 27% from $29.6 million recorded for Q1 2019. and 17.3 million for the government reporting segment and increased 15% from the 15.1 million reported for Q1 2019. Restaurant retail revenue for Q1 2020 by business line consisted of 19.9 million for core, which included 3.5 million for drive-through, 17.5 million for brink, which included 2.2 million for restaurant magic. Restaurant retail revenue for Q1 2019 by business line was $18.7 million for core, $9.5 million for brink, and $1.4 million for sure check. Government revenue for Q1 2020 by business line consisted of $8.1 million for ISR, $8.5 million for mission systems, and $0.1 million for product sales compared to Q1 2019 revenue by business line of $6.3 million for ISR, 8.5 million for mission systems and 0.3 million for product sales. Product revenue for the quarter was 18.6 million, up 3.1 million, or 20% compared to Q1 2019. Our hardware sales in the restaurant retail reporting segment grew up versus prior year, primarily driven by Brink and also hardware sales from our new drive-through product line. Product revenue related to Brink for the quarter ended March 31, 2020 was $6.7 million, an increase of 49% from $4.5 million recorded for the quarter ended March 31, 2019. Drive-thru product revenue for the quarter ended March 31, 2020 was $3.4 million. Service revenue for the quarter was $18.8 million, up $4.8 million, or 34% compared to June 1, 2019. The increase was primarily due to growth in recurring software and hardware installation revenues. Service revenue associated with Brink includes recurring software revenues of $5.2 million, an increase of 40% from $3.7 million recorded for the quarter ended March 31, 2019. Restaurant Magic's service revenue includes recurring software revenue of $2 million. Contract revenue from our government operating segment. was $17.3 million, up 2.2 or 15% as compared to Q1 2019. This increase was driven by contracts entered into during the first quarter of 2020 relating to ISR. The contract backlog totaled $136 million as of March 31st, 2020, and a trailing 12-month book-to-bill of 1X. In regards to GAAP margin performance for the quarter, product margin for the quarter was 20%, compared to 27.6% in Q1 2019. The reduction in product margin was primarily due to unfavorable product mix shift and increases in freight and reserve costs. Service margin for the quarter was 32.6% compared to 26.9% in Q1 2019. The improvement in service margin was primarily due to the continued shift and revenue mix to SAS revenue with Brink and Restaurant Magic. partially offset by $0.6 million increase in amortization expense of acquired developed technology costs resulting from the recent Restaurant Magic acquisition. Government contract margin for the quarter was 6.9% compared to 9.7% in Q1 2019. The decrease in margin was primarily due to lower product services business fund revenue and increased investment in product services. Now to operating expenses. GAAP SG&A was $11.4 million, up $2.8 million versus Q1 2019. The increase was primarily driven by an additional $0.7 million of brink sales and marketing expense, an additional $0.8 million in stock-based compensation, and the inclusion of $0.7 million of SG&A expense from the recently acquired Restaurant Magic. Non-GAAP SG&A was $10.3 million, up $2.5 versus Q1 2019. Non-GAAP SG&A adjustments for Q1 2020 included $1.1 million for stock-based compensation as compared to $0.2 million in Q1 2019. Q1 2019 also included $0.3 million of severance costs and $0.2 million related to the internal investigation of conduct in our China and Singapore offices. Restaurant and development expenses were $4.9 million, up $1.8 million versus Q1 2019. given by increased investment in Brink Development of $1.8 million, inclusion of Restaurant Magic R&D of $0.3 million, offset by R&D no longer invested for with the disposition of assets of SureCheck. Now to provide information on the company's cash flow and balance sheet position for the three months ended March 31st, 2020. Cash used in the operation of $15.7 million, primarily driven by an increase in network and capital needs due to increases in inventory and prepaid assets and payment for annual variable compensation. Inventory levels were strategically increased to support the rollouts of projects to brink and to mitigate risk of supply chain disruption due to the COVID-19 pandemic. This compares the cash used in operating activities at 3.2 million for the three months ended March 31st, 2019. Cash used in investing activities was 2 million for the three months ended March 31st, versus cash used of $1.9 million for the three months ended March 31, 2019. During the three months ended March 31, 2020, we capitalized $1.9 million of costs associated with investments in a restaurant retail segment software platforms compared to $1 million for the same period in 2019. Non-software capped costs were $0.2 million for the three months ended March 31, 2020, down $0.7 million versus 2019 due to a decrease in costs associated with IT infrastructure. Cash provided by financing activities from continuing operations was $49.4 million for the three months ended March 31st, 2020 versus $5.8 million for the same period in 2019. Increase was primarily driven by proceeds of $115.9 million from the 2026 notes net of issuance costs offset by The $66.3 million partial repurchase of the 2024 notes. As of March 31, 2020, the inventory balance was $23.3 million, an increase of $4 million from December 31, 2019. Inventory returns were four times for both our domestic and international operations. Cash receivable, $41.4 million, increased $0.4 million compared to December 31, 2019. The receivable balance is broken down between the government segment of $9.1 million and the restaurant retail segment of $33.7 million. I would now like to turn the call back over to Savneet.

Thanks, Bryan. Now to quickly review our segment performance for the first quarter. Annual recurring revenue for Brink at the end of Q1 was $22.2 million, an increase of $6.6 million and a 42% increase from a year ago and a $3 million increase from the sequential fourth quarter. This ARR number is built off restaurants being invoiced as of March 15, 2020. In the quarter, we completed the installation of 970 new stores with break. New bookings in the quarter totaled 725 sites, and our open order backlog now stands at 1,180 stores. This lower bookings number is directly related to the initial spread of COVID-19. As the spread intensified, we saw a meaningful amount of new business to attend and purchase decisions to not hold for the time being. Unfortunately, a significant number of these deployments have been delayed due to new safety guidelines instituted by restaurants to limit who is physically allowed inside their stores. We believe this situation is temporary and we are proactively working with our customers to deploy solutions as safely as possible. Regarding churn, we ended the quarter on a positive note with an annualized rate of 4.9% for the quarter. We are proud that the work we completed in 2019 continues to result in lower churn. We will continue to invest aggressively in R&D for Brink in 2020 as we make the necessary move to an agile development environment which will allow us for faster releases of new versions and a much more seamless experience for our customers. Now shifting to Restaurant Magic's performance in the quarter. ARR for Restaurant Magic at the end of March was $8.6 million, a 28% increase from Q1 2019. In the quarter, we implemented 507 new store sites and now have 5,408 active restaurants utilizing Restaurant Magic. Bookings in Q1 totaled 596 stores. I am pleased at the continued momentum of Restaurant Magic since we closed in December. In the quarter, the Restaurant Magic team has signed three new MSA deals alongside Brink and have initiated a significant pilot with a Tier 1 customer. Our core business that sells hard-run services to Tier 1 restaurant organizations performed well in Q1 as we expanded distribution channels and we deployed new terminals to our largest customers in anticipation of refreshments being driven by the end-of-life Windows 7 by Microsoft. Unfortunately, this part of our business is being most impacted by COVID-19 restrictions and the overall downturn in the economic landscape. All major customers have paused most projects, new construction, and scheduled deployments. We are confident these are not lost opportunities but being pushed into the second half of this year depending on a specific concept and the timing restrictions being reduced. We are seeing some renewed business interest in specific international regions that are ahead of the U.S. on the infection curve. Now to review our government segment. Our government business delivered a solid quarter evidenced by the 15% increase in revenues compared to Q1 2019. Our backlog at the end of Q1 was $136 million. Our Intel Solutions business was a driving force behind the growth in the quarter, as ISRA revenues increased 39.5% from last year's Q1. We continue to seek out contract opportunities where we can leverage our decade-long experience and performance excellence, specifically in value-added revenue contracts that include more direct labor and high-tech contract work within our Intel Solutions business line. In summary, we are in the midst of a shift in the way restaurant organizations evaluate, purchase, and implement restaurant technology. I believe that while our business will no doubt feel substantial impact from COVID-19, the crisis will accelerate the underlying secular trends propelling for it today. The flexibility of a modern restaurant platform has been proven out to an extreme degree. We believe we can not only withstand this crisis but grow share during this time. Par's market of customers has historically been and likely will continue to be heavily weighted to the QSR and fast casual markets. This market generally performs better in flowing economies as customers tend to shift towards these concepts. In addition, these franchise-based businesses tend to withstand crisis better as their business models tend to be more mature and enjoy brand recognition. Second, there is a potential that the virus' spread is accelerating the need for digital and drive-thru spend. As restaurants experience closed table service traffic, we are seeing off-premise dining, online ordering, and delivery become the most important priority, all of which require a modern restaurant platform. Third, we are seeing valuations of potential M&A targets become more attractive in this market. As venture funding has paused and growth stopped for many, we are seeing an increasing number of companies look towards an exit. This, combined with the fact that many of our competitors are pulling back, could provide an entry point for PAR as a consolidative. It is in PAR's DNA to help our customers solve some of their most complicated operational challenges. And these challenges have only intensified during this COVID-19 period. We know that this pandemic has made life challenging for everyone, for both our customers and our employees for the past few weeks and months. A reminder that we're all in this together. All of us are empowered by the dedication of our employees, particularly their willingness to go above and beyond for our customers in this unprecedented time. This experience has challenged us to get better, pushed us to work harder, and developed a deep desire to serve our customers. It will have lasting implications on our business and industry, but in many ways, it's elevated our culture and mission. With the value we continue to provide our customers and the trust they place in us, I'm fully confident that we can emerge from this stronger than ever. We'll now open up the call to question and answer.

Diana, we're ready for Q&A now.

At this time, I would like to remind everyone, if you would like to ask a question, please press star, then the number one on your telephone keypad. Once again, that's star followed by the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Adam Wyden of ADW Capital.

Hey, guys. Wow, really remarkable. You know, and thank you for taking my questions. So a lot going on in the restaurant industry. Can you talk a little bit about the competitive environment and enterprise? I mean... Obviously, work from home and quarantine has hurt your customers, you know, given most of them are focusing on SMB and the lion's share of their revenues are from merchant processing. So, and then we've heard that your largest competitor, I guess, has laid off their entire enterprise sales team. You know, I'd imagine there'd be some positive implications for pricing as well, since they were kind of giving away SaaS in exchange for merchant processing and obviously the availability of talent. I mean, can you provide some color on some of this?

Sure. So I won't talk about individual competitors, but do it categorically. You know, I would say that we feel relative to competition, we are probably in the strongest suit in that our base of customers are larger than enterprise and they're still open. And that has led to the opportunity for us to acquire talent faster and potentially better than we could have historically. And in many ways, proved out our model of our focus on sort of high quality, high enterprise customers as a secure place to be. So we have seen a number of competitors pull out of what's called the enterprise market. And we think that market has actually expanded for us during this time. At the same time, I do believe that our ability to win will still be tied to our ability to deliver on the solutions that we've talked about for the last couple of quarters. And so I feel we're sort of hitting an interesting point where we're getting through the big technology development we need to to really accelerate and be agile. And at the same time, we do see competition retreating, which has led to the opportunities that are growing and our available talents are growing as well.

Great. Yeah, it's super, super exciting. And that was helpful. It's kind of our understanding that you guys signed up to kind of, you know, four-figure unit chains with payments. Obviously, I'm not expecting to confirm that, but I was hoping you might be able to give us some color on payments, the progress you've made thus far on payments, and kind of the opportunity going forward.

Sure. I can't provide too much color on this, but I can say we are excited the opportunity to expand our payment business. I think part of our challenge in the payment business will be that the table service market in 2020 will be, I think, relatively small, which was a big part of our payment plan. That said, we've been encouraged that a couple of our larger organizations are interested in taking or looking at our payment products. I'd say we feel encouraged out of our existing base picking up the product and maybe expanding it further than at least I had expected. And, you know, the balance of that is that the table service market probably won't be here in 2020 with COVID-19. So, you know, we feel encouraged by where we are. We've got a lot of work to do before we can really get it out there. But from a customer adoption perspective, I think all of us feel like there's a really, really big opportunity here. All right. I have two more questions.

You know, you've talked a lot about your microservices, you know, kind of replatforming, which has kind of been the bottleneck to, you know, basically rolling out more units per quarter. Obviously your bottleneck now is actually being able to get into the restaurant. Can you talk a little bit about kind of the progress you've made on microservices and kind of your ability to kind of replatform and how that kind of will be manifested, you know, in terms of rolling out more units once kind of the restaurants open up?

Sure. You know, I think we are incredibly happy where we are in the transition to being agile to microservices and honestly just a more modern infrastructure. We've got an amazing leader at Brink who's really driven this from the top and it spreads throughout the ethos of the organization. You know, we're probably still a quarter or so away from really running, maybe a quarter and a half, but we're already seeing great progress. You can see it in our numbers. You can see it in the quality of talent that we've attracted. You know, and I think that's, you know, I hate to say that, you know, this crisis is good for anything, but in many ways, we as a firm sort of live on this idea that our goal is not to survive, it's to thrive during this time, and so we're taking this time to to continue to push very, very hard on our R&D spend. We did not cut $1 of R&D spend with the microservice project, and we'll continue to get that right because, as you suggested, it's been the only reason we haven't grown the business faster. It's the only reason. So we are deep into that work today, and I think we're still a quarter or so away from really getting up the job, maybe, but there's real signs of progress.

Well, I mean, look... I've been, obviously you guys with me on this call for a few years now. I mean, it's super exciting now that we have basically an intersection of your ability to, you know, take on these customers and now I guess, you know, these QSR customers realizing that they actually need that product. And I think it kind of leads me to my next question, which is, you know, I look at your customers and I say to myself, wow, they're super well capitalized. Popeye is comp 30%, Jack in the Box is 93% off-premise. On some level, just talking to some of these QSRs that we talked to, COVID slash the pandemic, on some level, should accelerate the adoption of Brink because it allows to get the loyalty and the online ordering and obviously the drive-through and you know I think on some level people might have been dragging their feet before and seems like you know not having it is kind of at a risk to your sales in this kind of world so super exciting on that front and you know I think kind of the intersection of you know the microservices and now these guys realizing that they need this I think you know I think the growth will be explosive once they're letting you know let you out into the restaurants but you know I want to ask about something else you know I you know the company has not really ever broken out Brink from Core and we saw in the proxy that finally you broke out Core in terms of hardware and service and you know I was pretty stunned actually you guys generated 11 million dollars in operating profit and that wasn't really with your drive-thru consumables business which is just I'm sure just kicking friend so if I put those two together that's like a 15 million dollar operating profit business and a lot of that service and consumables. That's got to be worth at least $120 million. Government's ramping back up. I put $100 on that. That's $220. Assuming Brink and Restaurant Magic, Brink and Restaurant Magic, Q1 was about $31 million. Assuming we're in our houses for the rest of our lives, you guys only get to $35 or $40 million at the end of this year. At today's share price, Brink effectively is the cheapest enterprise SaaS company that's actually growing in the market today. Your closest comp light speed with almost 100% SMB exposure is trading for 15 times ARR. I guess my question to you is, what do you think people are missing? I mean, some of the disruptors like Wayfair or Chegg are skyrocketing because people think their competitors will go out of business. I mean, clearly, coming out of the pandemic, you know, we should be in that bucket. I mean, why do you think PAR isn't in that bucket? And, I mean, what are we doing to kind of solve this valuation disconnect?

So, you know, I'd say, listen, I think we, as a business, got sort of thrown out with restaurants, right? I think there was just something that everything tied to the restaurant would struggle. And I think what investors or all of us are missing is the fact that we have a very, very resilient client base. These are the best restaurant organizations in the world. And in many ways, we can... actually accelerate these organizations. You know, we have certain organizations that depend on us for their mobile apps, for their online ordering. And so I think what was lost was that we were just considered another restaurant tech company without maybe the rigor around who do we actually service. And so I think that's what happened. You know, how do we sort of rectify evaluation gap if there is one? You know, listen, I think we need to execute, right? We installed more stores this quarter in quite some time. We'll continue to push to growth during this time. and we'll start telling our story. I can't stress to you what a shock the COVID experience was to see our customers' sales drop so precipitously, but now we see it rally back. And so I think we ourselves are coming to terms with we've got to keep winning in this environment, we've got to be aggressors, and I think that will help bridge this valuation gap. So it's part of us executing and part of us telling the story.

So, I mean, high level, just to summarize, I mean, Your peers who are merchant processors, they have exposure to table service. Their ARR is down, yet they trade at 15 times ARR. And you trade at, you know, three or whatever the number is, and you're resilient. So are you confident that, you know, that the market will eventually see the valuation disconnect? I mean, is that what you're saying? I mean, obviously I know $10 where we were last quarter is a little bit different. and we are up here. But I mean, are you confident that the market is going to be able to see the valuation disconnect? I mean, obviously, as you continue to execute and get bigger?

I think so. I do think markets eventually get relatively efficient and it's just a function of how soon we can bridge that gap. But, you know, I think the fact that we as a management team, as a company, are cognizant of that also puts more focus on it.

Good. Well, look, I mean, I got to imagine... You spoke to M&A on a couple occasions. I'm sure there's probably some really interesting assets out there, both domestically and internationally. Getting your cost of capital to a point where you can execute on another restaurant magic, I've got to imagine is a priority for you.

We definitely see the M&A landscape expanding. I think I said this on other calls, but the number one reason we don't go forward in M&A has been price, historically. I think and maybe that was my own arrogance or luck but you know I would assume that we have a higher quality business model than others and that we service this enterprise customer base. We are truly enterprise software where I think maybe we're getting multiple servicing small businesses and not realizing that that business will have churn in any type of recession and obviously of course the pandemic recession and so you know we are looking to be you know opportunistic when and if the opportunity comes but we're going to see very disciplined and I would say we are product people. We are not going to sort of acquire something to acquire something. We need a product that works, a culture that meshes with us, and one that we truly believe we can scale. And if we see that, we will be incredibly aggressive.

Yeah. Well, look, it's super exciting having been an investor and bystander, just looking back to where we were in early 18, I mean, where the company is and where it's going. I'm very happy and pleased that I've been able to be part of the journey, and I hope that you guys – You guys figure out a way to get your cost of capital up because I think there's probably a lot of M&A to do. So congratulations on a wonderful job and I look forward to seeing more.

Thank you. Your next question comes from the line of Andrew Scutt of Roth Capital.

Hey guys, thanks for taking my questions. I just want to say congrats on the quarter. You guys were executing really well until COVID popped up, so great to see that. My first question for you guys is just revolving around Brink. As far as the installs go, do you guys have any idea of what the rate of the rebound is going to be once everything starts opening up? And secondly, do you kind of see the activation run rate kind of normalizing to what you guys had in the quarter moving forward?

So on your first question, you know, I think it's really hard. We don't have good visibility on where things are going to, when things are going to look up. I'd say, you know, a couple of our largest rollouts are on pause, not because the customer actually wants it on pause, it's just there's a mandate that we can't actually enter stores yet and help them install and roll out. So there's a bit of a limitation, you know, sometimes to call it regulatory compliance, and some of it tied to customers. So we don't have great visibility yet. I would expect that as states reopen, we will see some rebound. And I think that rebound can come for two reasons. The first is, it's no doubt in my mind that customers that have Brink have clearly seen those stores outperform versus their stores that didn't have Brink, whether it be for online ordering, mobile access, so on and so forth. Second, as I mentioned, the chains that we service have really fought back. We have a number of chains that I'm sure are doing better this year than last year. And I'm guessing there, but I think we've seen real progress in these organizations. And so I think if your sales are back or close to where they were, you want to push forward on these technology initiatives because this crisis is only heightened the need for what we offer, not slow it down. So I think you'd see some pull forward of demand. Now, that's all tempered by the ability for us to enter stores, for states to reopen, and for the restaurant organizations themselves to feel confident on their own businesses going forward. So we're there. Your second question, you know, if things are to reopen, of course, I think we'll get back to where we were and I think we'll do better, right? We missed the last two weeks of last quarter, which is generally the biggest weeks of a quarter. And so I hope we can get back there, provided that, you know, the country gets back there.

Great, thanks. And then just another quick question. Really healthy backlog, Brink, once again. Just Are you able to give a breakdown between new and existing customers or just a rough estimate there?

We can't do that now. I would say most of the backlog, though, is still probably existing logos we've signed. We don't put something in backlog until we have a purchase order. So, you know, it's real backlog. It's not sort of, you know, something that we can't tie to an individual store. So it's predominantly existing logos that we're signing, you know, individual franchisees.

Great, thanks. That's all for me.

Your next question comes from the line of Ishafi Farooq.

Hi, good afternoon, guys. Congrats on a good quarter. A couple of questions from me, and I apologize in advance because I missed the first few minutes of the call. And that is, Savneet, can you give a sense for what your outlook for the second quarter is? I know your Q1 numbers are Terrific, but your Q2 numbers, especially for bring bookings, can you give a sense for that?

Yeah, it's going to be a little bit similar to the last answer, which is we don't really know. April will be, obviously, I think just like almost every season, it's probably going to be one of our slowest on record. But like I said, we're seeing a rebound every single day. It's a little bit hard to look through our stores. We're able to book stores, it's hard to install them. So You know, I won't really have good visibility for another three or four weeks. I don't have it shaping up. But right now, I'd say it's very slow. You know, everyone's on pause or close to pause. But the green shoots of it are that we're having real conversations with customers around when they want to restart the role.

What I would ask is that... From our standpoint, what's helped break also in the attachment that we have in the hardware that we've seen over actually in the past four quarters, that's one thing as rollout, depending on the phasing when that comes back in, that's where our risk is, right, on the revenue top side. But we are happy to see how our customers have fared over the past, call it, four to six weeks. As I needed to mention earlier, that approximately 85% of them are still open. So from a servicing standpoint, We're feeling a little bit better than we are from the product standpoint going forward in Q2.

And Savneet, like you mentioned, you guys are able to do bookings, right? But you already have a pretty sizable backlog, right? As Q2 progresses and you add more bookings, how fast do you think your team will be able to get those bookings activated as soon as possible. Can you give a sense for like maybe the run rate on a monthly basis maybe?

So we feel we've cleared most of the bottlenecks and been able to get stores out the door quickly. Our service team has really been revamped and has great leadership and attention to work. This is honestly going to be more tied to opening up and then our customers opening up than it is something tied to us. So, you know, we have a number of changes. We have, you know, Many bookstores that they want rolled out, we want rolled out. They have a moratorium on e-bookstores right now. And so we need to sort of work with them to figure out how they want to restart. So once things get back to any form of normal, you know, we should be able to install at least what we did the last quarter and hopefully a lot more. But it's now more tied to quality than anything that we can do.

Got it. Thank you, guys.

Your next question comes from the line of Kelvin Siech of Flingshoot Capital.

Hey Savneet, I just want to find out from you guys, for the Brain POS, is it a self-service product or just to paraphrase, can a customer deploy Brain without having any formal training?

Hey Kevin, thanks for joining. So it can be a self-service product. Today, most of our Thank you very much. Our own focus on how do we make this as seamless as possible. So it can be installed by an individual. We've had people do that. But I'd say most of our installs are still very much tied to someone coming into the store.

All right. Thank you. Just want to finalize as well. I missed the earlier part of this earnings call. I think since more QSR senior executives are actually staying at home these days, do you find it easier to reach out to them to discuss whether BRIN could help them during this period or even post-COVID-19?

You know, I would say, you know, during the COVID experience, it's not the best time to go pitch to these CIOs and CEOs right now as they're, you know, they're going from, you know, seeing sales drop 40, 50, 60 percent in some cases overnight. And so, you know, what we've become is a resource for our existing customers and ones that we sort of had the finish line on helping them provide services to them. So we created a program called Park It. which is a virtual drive-thru, it's pick up and we're giving it to our customers to help them survive. So I think what we've found is that this experience has in many ways bound us, not physically but emotionally to our customers and the pains that they've gone through and ourselves. And so we are trying to stand by them, I guess in a virtual sense, helped them deal with this crisis. And I think they'll see that our intent is sincere and our product has worked and we'll convert them going forward. So for those potential customers that are not our existing customers, I think for them it's much more of a, I'm sure some of them are saying, gosh, I wish I installed this or pushed this out in 2019, 2018, because they would have been limited in some of the opportunities to fight back during COVID. whether it be online ordering, third party delivery, so on and so forth. My hope is that the way that we've carried ourselves, the character that our team has pushed forward, the empathy we've shown has come through to our customers and our potential customers and then our solutions have delivered the value that they have.

Alright, thank you very much. Just one last question. Obviously I'm just figuring out for the restaurants in terms of the unit economy. So obviously QSRs care a lot about protecting their bottom line and of course the sales as well. So just by installing Brink, could you talk about maybe some form of cost savings or how fast would they get ROI on installing Brink?

So, you know, it's not something we disclose. And I'd say Brink, in general, I think buying a point of sale has changed a lot. And I think, you know, point of sale is going to be a message of the past. We're moving to a world of a platform, right? And I think historically when you would install a point of sale system it was the world of the CTO and CIO and today that decision is very much the CEO, CIO, the whole team and the ROI is significant in that A, I think it's been proven that a modern technology enabled restaurant outperforms one that is not sort of up to date and I think you can look at all the great organizations that we service and others and see their sales growth versus those that haven't sort of adapted to change. and I think that ROI is self-explanatory now. At the same time, there are endless reasons on the cost saving side including the data integrity issues of having multiple point of sale systems, the ability to actually have data to go push out promotions, save money on the back office and so I guess we don't have the equation to say, hey, you're gonna save, pay us, Thanks, Calvin.

Your next question comes from the line of Adam Wyden of ADW Capital.

Sorry, guys. I didn't mean to... I forgot. There was one last question I didn't ask. So, I mean, obviously, you spoke about getting the baby out with the bathwater and restaurants, and this is a stock that's been the target of a lot of short sellers. I think it might be helpful for you guys to talk about... Thank you very much. I think it might be helpful for you to kind of talk about the capital investment required to do Brink because I think a lot of guys are walking around saying, well, the restaurant isn't making any money, they can't take Brink. And it might be helpful to kind of outline how much dollars and what the franchisors are doing to basically subsidize that and also what initiatives you guys are doing to basically defray that cost such that once you're open and microservices is going, we can do $2,000, $3,000 a quarter.

Sure, so... You know, today, I'd say to get Brink launched in your organizations, you sign up for, obviously, our software product. Historically, it's about $2,000 a year, depending on how many terminals you have. And, you know, the actual cost of a physical terminal isn't, you know, fairly expensive. It's not so different than a computer. You know, you're anywhere from $700 to a few thousand bucks. And depending on how many terminals, whether you've got a kitchen system, you know, for the quick service and fast, casual customers that we service, It's maybe $5,000 to $10,000 if you're really doing a lot. But in many cases, it's a relatively small CapEx. Now, in today's world, you may say, hey, I don't want to do any CapEx. I don't want to upgrade my terminal. But I think what we've realized at Brink is, A, we can install Brink on pretty much anything, any Windows device. And so you don't necessarily need to make the hardware purchase. But B, as I suggested, the customers now say, hey, I need all this technology to grow my revenue. The customer's mind is much more focused, obviously focused on cost, they don't want to spend the capex, but how fast they can get paid back given all the stuff that they can launch. And what we're seeing from the concept level is a lot of focus on trying to push out one standardized platform because it provides an immense value to them. We will see certain concepts put out through financial incentives to convince the franchisees to move to our products faster. We've also seen, let's call it, instead of the carrot and the stick, we've seen others say, listen, if you don't roll out the Modern Point Sales System, we're not going to give you the new loyalty app. And so, you know, the commitment from the concepts is significant, and that's because they're getting real value from it. you know, I think the upfront cost isn't as high as many people think and I think the push from the concept level is significant given the value they get from it.

Right. And it sounds like also with the balance sheet, you know, some of the things that your creators were doing vis-a-vis, you know, giving the hardware for free in exchange for payment, I mean, you've got a really big balance sheet now. I mean, presumably if the restaurant doesn't want to make the investment or The franchisor isn't giving the hardware for free like one of your big QSR chains. You guys are in a position to work with these customers to defray the upfront costs as well, right?

Correct. I'm not saying it's going to be from a high level. Yeah, of course. I think we are looking for ways to make the be solution-oriented for our customers. And we'll finally do that. And, of course, we are, I think, very excited that competition has become more rational. And I used to say that if competitors are irrational, it's still our reality. And today, I think that a rational customer, we could be the ones who are pushing the envelope here.

Great, great, great. This is super exciting. All right, that's it for me.

Your next question comes from the line of Samad Samana of Jefferies.

Hi, thank you. This is Ryan Bresser, Andre Samad here. Just a couple questions here, if I may. First, you talked a little bit earlier about the broader environment, but if I could just maybe follow up on that. How are your customers thinking about store reopenings in the context of the broader consumer behavior in terms of demand recovery out of this? What's the thought there?

You know, I think our customers are still figuring it out. I don't think there's anyone that said this is our – Thank you for joining us. respond after that. So right now, unfortunately, we just don't have enough information to answer that intelligently. I think what we have seen that might be encouraging is that our larger organizations that we're rolling out, we're in active dialogue with them about when do we restart, how do we restart, how do we do it safely. And so I don't think they've said this is the date yet, but I think the plans, they're hopefully in active planning with us to figure out when that may be.

Okay, thank you. Helpful. Just secondly, can you give some more color on how efforts across all restaurant magic have been going? And also in your comments about Park It earlier, how do you view this particular opportunity and drive-through evolving after COVID and how's that playing out?

Yeah, good question. So on the Restaurant Magic side, you know, I'm very proud. We're still extremely early. We closed on Restaurant Magic at the end of December. And I think we barely scratched the surface of building up a team and the efforts there. So we've signed three customers together already. And as I mentioned, we have been pilot in one of our largest logos that they were not in before. So that partnership, I think, will continue to get better from a very, very, very are all in the early stage right now, and it's still very early. Obviously, with COVID, the focus has not been so much on trying to partner up and sell right now. As it relates to Parkit, I think, call it traditional drive-through after we had this crisis, we'll no doubt see more acceleration. We got into the drive-through because we truly believe it was where we're going to see everyone from coffee shops to pizza chains start to expand into. I think this crisis will make that go faster. you know on Parkit in some of the calls they're virtual drives they're virtual pickups I would be shocked if you were an organization that had you know any decent size quantity of stores if you didn't have something like this by the end of the year. I think there's no CEO or CIO who's not going to build some sort of product in the fear that this may happen again. And so I think we'll see a lot of interest here, and us and our competitors are all working on solutions to sort of make this as easy as possible for them.

Okay, thank you. And maybe just finally, on M&A, are there any verticals in particular you've seen opportunity evolving in, and how would you proceed there?

I can't share exactly what we're looking for, but we've always started at a high level, which is we'll only buy something where we truly believe there's a value to the end customer. It's not just to consolidate. To consolidate is if we brought that product in, can we add more value to our customers? Then we look at it and say, if we brought that product in, how does it actually integrate into bringing restaurant magic? Does it actually create more, can we create a better product? And so if you kind of look through that lens, there's a ton of stuff that we think is interesting today, right? At a very, very high level. all the off-premise dining areas, the place we want to be a part of as that will continue to grow even after the world hopefully goes back to normal. So we're looking at stuff like that. And at the same time, I think it's not lost on us that having more scale and point of sale may make sense as well. So I think our M&A efforts are across the board. Okay. Thank you. Appreciate your time. Of course.

And there are no further questions from the phone lines.

Well, thank you everyone for joining this afternoon.

We'll be certainly available in the coming days and weeks for callbacks and follow-up. And please stay healthy to you and your families. And again, thank you for your time today.

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