PAR Technology Corporation

Good afternoon, ladies and gentlemen, and welcome to the fiscal year 2021 first 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. As a reminder, this conference is being recorded. I would like to turn the call over. to your host, Mr. Chris Burns, Vice President of Business Development. Sir, you may begin.

Thank you, Sarah, and good afternoon. I'd also like to welcome you today to the call for PARIS 2021 First Quarter Financial Results Review. The complete disclosure of our results can be found in our press release issued this afternoon, as well as in our related Form 8-K furnace 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 earnings presentation and 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 afternoon. For those just dialing in on the conference call this afternoon, the presentation will can be accessed on the investor page of our website, and we also included it as an attachment on the 8K we filed this afternoon also. 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 are 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 recordings. 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 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?

Thanks, Chris. Good afternoon, everyone, and thank you for joining our call today. Following a strong finish to 2020, we posted what I believe to be our best Q1 to date, and our optimism continues to build around the coming quarters and years for our business. The progress being made to distribute COVID vaccines, the decline in infection numbers, and the general reopening of the economy should lead to a strong 2021 for PAR. We began 2021 with strong bookings in Q1, continuing the strong momentum from Q4, and ending Q1 with our largest backlog of all time, which sets the groundwork for accelerated activations for the balance of 2021. While the last 12 months presented many difficult obstacles for PAR and our restaurant customers, many of those challenges created opportunities that PAR was well-positioned to take advantage of. We invested in our software platform, introduced new product innovations, added top talent to our team, completed a significant acquisition, and were able to improve our financial and competitive position. While we'll touch on the financials a bit later, I want to touch on our recent acquisition of Punch. I'm personally very excited about this deal, and Punch is a game-changer for Par and their customers. Punch is a market-leading customer engagement platform that provides cutting-edge software applications including loyalty, promotional campaigns, and marketing artificial intelligence for the restaurant and retail industries. We signed and closed the acquisition simultaneously on April 8th. Punch has more than 200 brand customers, 40,000 customer locations, and currently has $53 million in contracted ARR and 115% net dollar retention. Punch is a very high-quality business with a very high-quality team. On a pro forma basis, Punch ended Q1 with approximately $35 million in ARR and continues to accelerate growth even with the headwinds of COVID. There are many reasons we are excited by this deal. Punch extends PAR's cloud for enterprise restaurants. The addition of the industry-leading loyalty product now makes PAR a unified commerce cloud platform for enterprise restaurants, and our combined company further expands industry's largest integration ecosystem. This deal creates a unique opportunity to improve value within shared and targeted customers and significantly deepens our tech development team and increases our innovation horsepower. Adding Punch positions PAR to fast-track new customer wins with integrated point-of-sale, back-office payment, and guest engagement solutions, and is an exciting step in the evolution of both PAR and the restaurant industry. Customer loyalty in CRM SaaS has rapidly evolved from being a novelty for restaurants to now a business-critical form of managing the customer relationship and revenue generation for enterprise brands. Our existing PAR customers have been very positive regarding our acquisition of Punch and look forward to reaping the benefits of the enterprise-class unified cloud commerce platform. Restaurants are living through a dramatic change in their operating and business models. Technology will be at the center of that change. It is a specific reason that we believe PAR's new unified platform can and will be adopted by the enterprise. As technology continues to be deployed within the restaurant and in-store environments become more and more complex, enterprise restaurants are seeking true technology partners to manage this complexity. There's no question software required by restaurants will grow tremendously over the next decade. While this software trend is surging in restaurants, our company continues to focus on capital allocation and is directing our resources on transactions, products, and people that will have real impact upon our addressing this opportunity. Now, to briefly review the first quarter reported numbers, before Bryan gives further details. In Q1, we reported revenues of $54.5 million. Today, we also reported a gap net loss of $8.3 million or $0.38 per share compared to a gap net loss of $10.9 million or $0.61 per share for the same period in 2020. On an adjusted basis, non-gap net loss for the first quarter of 2021 was $7.6 million or a loss of $0.34 per share compared to a non-gap net loss of $4.7 million or $0.26 per share for the same period in 2020. Now moving to our business performance. If you jump to slide three of the presentation, you'll see a snapshot of Brinks' performance in Q1. I'm very pleased to report that we had 1,345 new store bookings in the quarter and 85% improvement from Q1 in 2020. I think this metric, more than any other, truly demonstrates the momentum and velocity of our cloud point of sale offering. And booking at par is a signed order from a store location pending rollout. The strong pace of Q1 Brinks bookings highlights the continued growth in demand for modern software within the restaurant. As the slide shows, we reported our error at $25.6 million, a 15.3% increase from the same quarter last year. As the pandemic continues to slow, we expect to see an acceleration in our activations as stores begin to open and normalize and return to our traditional activation pace. As restrictions have come down, we've seen activations pick back up, which will help us turning our signed backlog to revenue. I'm encouraged by the progress we've already seen in Q2. If you advance to slide four, You can see that we now have 12,141 active stores and our reported backlog and open order number at the end of the first quarter was 3,327 stores yet to be installed. This record backlog sets the foundation for a very strong 2021. Again, as vaccination rollouts continue to favorably impact restaurant customer traffic and reduce travel restrictions, we'll see an acceleration in activations that will lower the backlog number and drive more normal book-to-bill pace. We installed 718 new brink stores in Q1. We believe this is below where we want to be as installations earlier this year were being impacted by spikes in infections in specific regions and on state-mandated travel quarantines. We will continue to work with our customers regarding implementation schedules along with enhanced indoor safety protocols to ensure our book-to-bill sequence is as seamless as possible. On slide 5, you can see the ARR waterfall over the last five quarters as we continue to grow our ARR. Slide 6 shows the continued impact of COVID-related churn and proves out the phenomenal impact that COVID has had on store closures in our TAM and the inspiring strength of our customers. In Q1, COVID-related churn was 4% annualized at our overall base and will continue to work to assist these affected customers to get back on and open their stores. These metrics are very positive signs for our business and this is down from a peak of 15% during the early stages of the pandemic. Slide 7 shows restaurant magic bookings in the quarter were 231 and error was reported at $9 million. Combined error in Restaurant Magic is now $34.6 million at the end of the quarter. As I commented last quarter, Restaurant Magic and our Data Central application were impacted more by the pandemic than customer-facing technologies like Brink and Punch. We're encouraged by the sequential improvement and expect a more normal booking space as 2021 progresses and similar to our expected growth and activations in Q2. We expect Data Central to also accelerate. Now to quickly review our product and harbor of business in the quarter, that is our point-of-sale platforms and drive-through communication systems business. Product revenues in the quarter were basically flat when compared to Q1 2020. Product sales were delayed in January-February due to increased COVID spread. As we were seeing favorable impact of the vaccine roll and improving capital purchase environment for restaurants, we'll see higher sales throughout 2021. Now to review our government segment. Our government business increased revenue by 3.2% compared to Q1 2020. Our contract backlog at the end of Q1 was $140 million as of March 31st, 2021. Our Intel Solutions business is a driving force behind the growth in the quarter as ISR revenues increased 8.8% from last year's Q1. 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 takeaways on our company coming out of Q1. Restaurants are looking for a unified commerce platform to handle the rapid growth in digital transformation. Today, restaurants suffer from dozens of siloed, different, and disparate products that lack the modularity to make the solutions work. We've taken big steps in constructing that platform. Second, our acquisition of Punch marries the guests to the transaction. Restaurants are realizing that they don't need a singular loyalty program for their entire brand, but rather a loyalty program for each and every customer. While with the growth of digital and off-premise ordering, restaurants now need to look at profitability and ROI at the guest level rather than the individual store level. Digital orders make it hard to measure ROI on a store basis. Guest engagement helps fill that hole. Third, with our strength and balance sheet, we intend to continue our activity in the M&A space as we execute on our strategic initiatives. Our continued focus is on adding meaningful software products that will allow us to increase our subscription rates and add additional functionality and features for our restaurant customers. Early returns from the Punch acquisition are very encouraging, and we're beyond excited to leverage their team's experience across all PAR. In summary, we start 2021 with considerable optimism. I want to re-emphasize, they will continue to make bold bets going forward on future growth and you can expect us to focus investments across product innovation, marketing, and people initiatives. We believe this ambitious agenda at this time is warranted by the size of the market opportunity and where we stand today relative to it. In closing, I want to acknowledge the sacrifices being made by PAR employees across the globe in these difficult times. Specifically, our current thoughts are with our new Punch colleagues based in India. India is presently in the midst of the worst phase of the pandemic, and it's rare now to find a family that is not impacted by the disease in that country. Even in the face of the most difficult conditions, our business in India continues, and our employees are finding creative ways to do their best for our company while ensuring that our customers get the top-class uninterrupted service that Par and Punch are known for. We truly thank them for that. And with that, I'll turn the call over to Bryan for more details on the Q1 numbers, and then take your questions. Bryan?