PAR Technology Corporation

Good afternoon, ladies and gentlemen, and welcome to the fiscal year 2020 third quarter financial results conference call. At this time, all participants are in listen-only mode. Later, we will conduct a question and answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press star zero on your touchtone telephone. As a reminder, this conference call is being recorded. I would like to turn the conference over to your host, Mr. Christopher Byrnes, Vice President of Business Development. Sir, you may begin.

Thank you, Sahara, and good morning, everyone. I'd also like to welcome you today to the call for PAR's 2020 Third Quarter Financial Results Review. The complete disclosure of our results can be found in our press release issued this morning, as well as in our related form 8-K Furnished to the SEC. To access the press release and the financial details, please see the Investor Relations and News section of our website at www.partec.com. I also want to be sure all participants today have access to our business review slide deck that we will use later in the call to better communicate the momentum in our software business. Individuals on the webcast should have access to the deck when they logged on to the call this morning. For those just dialing in on the conference call this morning, the presentation can be accessed on the investor page of our website, and we also included it as an attachment on the 8K we filed this morning. At this time, I'd like to take care of certain details in regards to the call today. Participants on today's call should be aware that we are recording the call this morning 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 like to remind participants that this conference call includes forward-looking statements that reflect management's expectations based on currently available data. However, actual results are subject to future events and uncertainties. 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 our earnings release this morning and in our annual and quarterly filings with the SEC. Joining me on the call today as part of 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 morning to everyone on the call today. I hope you and your families are well and safe. As I communicated to you last quarter, the last several months have presented incredible challenges for our company and the global economy as a whole, and our thoughts go out to all those impacted by the global pandemic. Thank you for joining us. A notable highlight in our third quarter, and I want to mention it right at the top, was our more than $131 million equity offering that closed just this past week, a very important step for us that provides ample capacity to continue to drive our growth in the restaurant technology business. This offering was a milestone for us as it was our first straight equity offering since 1996. This capital raise provides us with liquidity and flexibility necessary to accelerate our growth initiatives, both through acquisition and specific internal investments. COVID-19 has shown the value of our current solutions, but also highlighted the dramatic need for a new product. We intend to be active in the M&A space as we continue to build out our software platform. We believe each additional product added will provide more incremental value to our customers, thereby making our platform stickier. Before Bryan gives details surrounding our Q3 numbers, I want to review with you our notable progress we've made in the software business. If you jump to slide three of the presentation, this is a snapshot of Brink's performance in Q3. I'm really pleased to report that we had 1,181 new store bookings in the quarter, a 45% improvement from the previous sequential quarter, and a 23% increase from Q3 last year. I think this metric, more than any other, truly demonstrates the momentum and velocity of our cloud point-of-sale offerings. Q3 Brink bookings were the most we've seen in all years and highlight how quickly enterprise restaurants are reacting to the COVID pandemic. Our customers have rushed to lock Brink in as they continue to address their operations to a technology-first world. As the slide shows, we reported ARR at $22.8 million, a 27% increase from the same quarter last year. As we accelerate activations coming out of Q3, we should continue to see an expansion in ARR. If you advance to slide 4, you can see that we have crossed the 11,000-store threshold with invoice stores, and our reported backlog at the end of Q3 was 1,977 stores yet to be installed. We installed 761 new brink stores in Q3, up 300 sites from Q2, and an 18% increase from Q3-19, a remarkable accomplishment during the pandemic. As our concepts continue to ease restrictions within their stores, we believe we'll be able to accelerate activations. This is all, of course, dependent on each concept's comfort and local geographic restrictions. On slide five, you can see the ARR waterfall of the last five quarters as we continue to grow ARR. I am proud of our incredibly low churn rate of 4.5% in Q3. This is the fourth consecutive quarter that our annualized churn rate is below 5%. It is a testament to the stickiness of our software offerings and the strength of our enterprise customers. Slide 6 shows the improvement in COVID-related churn and proves out the minimal impact that COVID has had on store closures in our TAM and the expiring strength of our customers. In Q3, 325 BRIN customers came back online from temporary churn. Not shown here, but important to note that Restaurant Magic also saw 174 customers come back online in Q3. Those metrics are very positive signs for our business. Slide 7 shows Restaurant Magic delivering a solid rebound from a challenging Q2 with bookings reported at 506, more than doubling the booking output in Q2. While Restaurant Magic was impacted more from temporary closures, the business has certainly started to come back. The average MRR for a new concept signed was $130, and ARR reported was $8.7 million, an 18% increase from the prior sequential quarter. This ARR figure includes waivers for temporary closed stores. Combined ARR with Brink and Restaurant Magic is now $31.5 million at the end of Q3. Slide 8 gives a current site count for Restaurant Magic with installed stores now totaling more than 5,700 restaurants as we went live with 600 new sites in Q3. On slide 9, we reported an approximate $3 million increase in Brink-related hardware revenues from the end of Q2. a 76% increase. We continue to see robust demand for the complete PAR solution and the capabilities it provides our customers. Our customers continue to rationalize vendors and we stand to benefit. Now to quickly review our product and hardware business in the quarter that is our point of sale platforms in the drive-thru communication assistance business. Product revenues in the quarter increased by 29% from Q3 2019 and recovered nicely with a 66% sequential increase from the COVID impact of Q2. As mentioned earlier, our integrated offerings and complete solutions continue to be adopted by our customers. I'm pleased to see the rebound in product sales from our Q2 number, and to deliver performance in a very challenged capital spend environment is nothing short of remarkable. Now to review our government segment. Our government business again delivered a solid quarter, evidenced by the nearly 13% increase in revenues compared to Q3-19. Our contract backlog at the end of Q2 was $162 million, increasing 25% in the last three months. Our Intel Solutions business was the driving force behind the growth in the quarter as ISR revenues increased 27% from last year's Q3. We continue to seek out contract opportunities where we can leverage our decades-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. Now some key takeaways on our company coming out of the quarter.