PAR Technology Corporation

This conference is scheduled to begin shortly. Please continue to stand by. Thank you for your patience. Again, today's conference is scheduled to begin shortly. Please continue to stand by. Thank you for your patience. Thank you. Thank you. Thank you. Thank you. Thank you. Good day and thank you for standing by. Welcome to the FY 2021 third quarter financial results conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your first speaker today, Chris Burns, Vice President of Business Development. Sir, please go ahead.

Thank you, Peter, and good afternoon. I'd also like to welcome you today to the call for PARS 2021 Third 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, AK Furnace to the SEC. To access the press release and the financial details, please see the investor relations page 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 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 can be accessed again on the investor page of our website. And we also included it as an attachment on the 8-K we filed this afternoon. At this time, I'd like to take care of certain details in regards to the call. 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 streaming the conference call today on the internet, 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 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 Brian Minar, 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 a general Q&A. Savneet?

Thanks, Chris, and thanks to everyone for joining us to review PAR's third quarter results. There's a lot we want to share with all of you today in our prepared remarks, so let's get started. As a company, we delivered a strong third quarter. We reported total Q3 revenues of $77.9 million, a 42% increase from one year ago. This revenue was motivated across all business lines and specifically around our software recurring revenues, resulting in $82.5 million of live ARR at quarter end, and year-over-year growth of 35% when compared to Q3 last year, which includes Punch performance from Q3 2020. This increase was driven by a 46% growth in ARR by Punch and 29% from Brink from Q3 last year. What's very encouraging is that contracted ARR now totals approximately $97 million as of September 30th. Our strong results this quarter were driven by a high level of execution across the business and continued demand for PAR's unified commerce cloud platform. We have established strong momentum and have continued to build on that throughout 2021. In Q3, we activated 1,739 new Brink sites, a single quarter record for PAR. On a net basis after churn, Brink's active store count now totals nearly 14,900, a 35% increase from one year ago. Brink's bookings totaled 782 stores in the quarter as we manage supply chain issues plaguing the industry today. We expect bookings to rebound in Q4 and ARR growth to continue to accelerate sequentially as well. In Q3, we were successful in activating some of our oldest backlogs, many of whom were legacy price customers, which modestly brought down ARPU across our network of customers, both offset by very strong activations. We expect this impact to balance out next quarter as new customers are signed at higher subscription rates. Now turning to Punch. We continued to outperform with Punch and added more than 4,500 live sites in the quarter that now total more than 52,900, a 54% increase in the last 12 months. We signed 14 new customer logos in Q3 that included over 3,000 stores and went live with Jack in the Box and their network of restaurants. New mobile experience and pickup products are seeing traction from customers, and I also want to relay that we are beginning to see momentum within the C-store segment as the industry seeks a more robust loyalty solution. We added six important new integration partners in quarter, and our business outlook and pipeline remain very strong. Data Central added 168 stores in Q3, and we're beginning to see renewed interest in our leading back-office applications. Active sites now total almost 6,200, and ARR is at 9.1 million at the end of the quarter. Part payment services pipeline grew significantly in the quarter, and we expect to announce new wins in our next quarterly call. We're seeing payment success broadly in Brink, Punch, and non-existing part customers. Our product and hardware business continues to perform well in difficult and challenging environments. Product revenues in the quarter continue to strengthen year over year and improve sequentially as well. Product sales were reported at 30.3 million in this recently ended quarter, a 48% increase. The capital purchase environment for restaurants is always tricky, and that has been even more so with the pandemic and the global supply chain difficulty thrust upon several end markets. As I mentioned last quarter, we're not immune to these challenges around supply chain, and we've experienced some margin impact with the costs associated with the current realities, including the dramatic growth in shipping charges. We're taking direct steps to mitigate these issues, including price increases and other actions and already reported product margin improvements in Q3, which I expect to continue in Q4. Regarding the supply chain specifically, we'll continue to diligently manage our partners and vendors throughout any shortages, price inflation, and increase in freight charges. Now to briefly report on our government business. In the quarter, we reported revenues of $18 million, a 3% increase when compared to Q3 last year. Last week, we announced the largest award in our company history by 8X. The U.S. Air Force Research Laboratory Information Directorate awarded a single award of $490.4 million, IDIQ contract, for counter-small unmanned aircraft system work on software, hardware, and technical documentation. This award has a contract term of six years and an additional two-year order of performance beyond the original six years. We'll recognize revenue as task orders are assigned, but we are seeing immediate impact upon contract backlog that grew to $192 million at the end of Q3, a meaningful $51 million increase from three months ago. We are gratified by the confidence the Air Force has shown in PAR with this award, and we have always prided ourselves on the critical role we play in supporting our operational customers and their requirements. Let me now talk a bit about where we see things going forward from a business perspective. Last week, we spent time meeting with dozens of customers and partners. I love hearing directly from our customers and users, which we call our voice of the customer sessions, because it helps us to validate and sharpen our strategic plan, as well as providing the PAR team with direct feedback on the trends and issues our customers are seeing today. The foundational belief of our thesis is built on the idea of creating a unified commerce platform, one that delivers power back into the hands of the restaurant. Today, we see many restaurant tech companies winning at the expense of restaurants rather than in service to them. We believe technology should be built to serve operators and their end customers. But today, in our industry, it's become extractive. The challenge is rooted not in something dubious, but from a structural flaw in the restaurant technology stack. the absence of an integrated platform. Dozens of disparate applications are being cobbled together in the hope of building a simple and beautiful experience. But unfortunately, that premise has challenged the experience of operators and their customers' experience is suboptimal. As a result, the job of the restaurant CIO today has become one of getting dozens of different products to work seamlessly rather than focusing on growing market share and delivering differentiated guest experiences. What is perhaps worse, is that all the operational and customer data insights that might otherwise be available to the brands is being trapped in the silos of these disparate applications. This is the problem PAR is working to solve and the greatest opportunity for our clients. We're moving from a world of bodies to bits. Historically, every challenge of a restaurant was solved by the addition of more labor. If you have too many cars in your drive-thru lane, you send out a line buster. If you have too many orders, you add a line chef. Too many quality issues, you add a spot checker. Every challenge could be solved with more bodies. but in a world where restaurants are expected to not only deliver great in-store experiences and also deliver Amazon-like digital experiences off-premise, the model of running multiple platforms breaks down. Enterprise restaurants need a truly unified platform to make this work, and this is what we are building at PAR, one that natively brings all transactions in-store and off-premise along with all customer data into a unified open cloud platform with enterprise scale. Our goal is to be the foundational technology that provides our customers the organizations we are built to serve with the ability to fulfill their own technology destinies and to build differentiation and competitive advantage through unique experiences. Such technologies remain open to working with other vendors and allow our clients to choose which features to turn on and off to build their own proprietary capabilities and to manage and support their own implementations. We're at the inception of this vision. Our new CPTO, Raju Malhotra, is driving this platform vision, and I have immense confidence in his abilities to deliver on transforming PowerPunch and DataCentral. Alongside this internal development is a highly focused M&A program narrowing in on a couple key gaps we are looking to fulfill in short order as witnessed by our recent capital raise. While all markets are competitive, PAR occupies a very unique place. We service a customer base above the size of where most of the venture capital has flown into restaurant technology. On a daily basis, we compete against more traditional competitors, from those that are still building on-premise to those who believe that a platform is the equivalent of a bundled solution. Our ability to grow in this market is completely supply-driven, not demand. Our ability to grow at current levels is driven by store count. Today, we're at around 15,000 stores of a tan that's almost 30x the size. Yet our ability to grow at higher rates will be driven by the deployment of new products. This is the next leg of our transformation and our major focus in 2022. In closing, I'd like to thank the entire PAR team for their contributions. At PAR, we live by four values. One, speed. We like to say we look for those who don't wait for the elevator. Two, ownership. We look for those that are owners and not renters of PAR, people who treat PAR like their own car and not a rental car. Three is focus. We always try to remember that 80-20 wins. And four is winning together. This is the belief that all stakeholders of PAR must win, our team, our customers, our suppliers, our community, and our shareholders. We take these values seriously, and every day we work hard to develop and hire on these values so that we can deliver for all stakeholders. With that, I'd like to hand it off to Brian, who will review our financial performance in greater detail.

Brian? Thank you, Stephanie, and good afternoon, everyone. Total revenues were $77.9 million for the three months ended September 30, 2021, an increase of 42% compared to the three months ended September 30, 2020. Net loss for the third quarter of 2021 was $31.9 million or $1.23 loss per share compared to the net loss of $3.7 million or $0.20 loss per share reported for the same period in 2020. Adjusted net loss for the third quarter of 2021 was $9.3 million or $0.36 loss per share compared to an adjusted net loss of $2.4 million or $0.11 loss per share for the same period in 2020. Product revenue in the quarter was $30.3 million, an increase of $9.8 million or 48% from the $20.5 million reported in the prior year. The strong growth was primarily driven by hardware refresh investments by our domestic and international Tier 1 accounts, in part from delayed hardware refreshes in 2020 due to COVID-19. Service revenue that includes revenue streams from our subscription software was reported at $29.5 million, an increase of $12.6 million, or 75%, from the $16.9 million reported in the prior year. The increase was primarily driven by revenues from Punch of $9.7 million and an increase of $1.8 million for other software revenue and $0.8 million for repair services. The company continues to expand a recurring revenue base, which includes both software-related services and hardware support contracts. The recurring revenue streams contributed $11 million of the increase in service revenue. Of the $29.5 million of service revenue reported in Q3 2021, $25 million is comprised of recurring revenue contracts as compared to $14 million in Q3 2020. Contract revenue from our government business was $18 million, an increase of $.5 million, or 3 percent from the $17.5 million reported in the third quarter of 2020. The increase in contract revenues was driven by a 0.7 million increase in our ISR solutions product line, partially offset by a 0.3 million decrease in our product services product line. Contract backlog, as Sabine mentioned, continues to be significant, noting a total backlog of 192 million as of September 30th, a 51 million increase from Q2 of this year. Now turning to margins. Product margin for the quarter was 24.8 percent, versus 21.9 percent in Q3 2020. The increase in margin was primarily due to favorable product mix and favorable absorption of overhead costs due to increased sales. Service margin for the quarter was 29.6 percent compared to 33.3 percent reported in the third quarter of 2020. The decrease in margins was driven by an increase in amortization expense for acquired developed technology of $2.9 million recognized as a result of the punch acquisition and incremental costs incurred while transitioning our field operations organization. Service margin during the three months ended September 30th, 2021 included 3.7 million of amortization of acquired intangible assets compared to 0.9 million during the three months ended September 30th, 2020. Excluding the amortization of acquired intangible assets, Service margin for the three months ended September 30th, 2021 was 42.3 percent compared to 38.5 percent for the three months ended September 30th, 2020. Government contract margins were 10.9 percent compared to 9 percent for the third quarter of 2020. The increase was due to improved margins in both ISR and Mission Assistance product lines. GAAP SG&A was $21.7 million, an increase of $5.9 million from the $10.5 million reported in Q3 2020. These numbers include stock-based compensation, and the increase was primarily driven by $7.2 million in total punch operational expenses, of which $1.9 million is stock-based compensation. Other drivers included increase of $2 million in corporate expenses, $0.6 million of variable compensation, and 0.4 million for sales and marketing. Net R&D was 10.1 million, an increase of 5.9 million, or 140 percent, from the 4.2 million recorded in Q3 2020. The increase is driven primarily by 2.2 million for punch and 2.7 million related to additional investments in our existing product development organization. Net interest expense was 5.4 million, compared to 2.2 million recorded in Q3 2020. The increase is primarily driven by the Owl Rock Term Loan. Net interest expense for the quarter included $2.1 million of non-cash accretion of debt discount and amortization of issuance costs, compared to $1.1 million for the same period last year. In Q3 2021, we recorded a loss on extinguishment of debt of $11.9 million as a result of a repayment of the Owl Rock Term Loan. There was no loss on extinguishing the debt during Q3 2020. Now to provide information on the company's cash flow and balance sheet position. For the nine months ended September 30th, 2021, cash used in operating activities was $43.6 million versus $14.4 million for the prior year. Cash used for the nine months ended September 30th, 2021, was primarily driven by an increase in net loss, net of non-cash charges, and additional net working capital requirements driven by an increase in accrued compensation, and an increase in other current assets. The increase in other current assets reflects an increase in our prepaid assets as the company took advantage of repricing opportunities with key strategic partners. Cash used in investing activities was $381.1 million for the nine months ended September 30th, 2021, versus $6.9 million for the nine months ended September 30th, 2020. Investing activities during the nine months ended September 30th, 2021 included 374.7 million of cash consideration in connection with the punch acquisition. Capitalized software for the nine months ended September 30th, 2021 was 5.5 million, was associated with the investments for various restaurant software platforms versus 6.4 million for the nine months ended September 30th, 2021. Cash provided by financing activities was $444.3 million for the nine months ended September 30th, 2021, versus $48.7 million for the prior year. On April 8th, 2021, we received net proceeds of $155.7 million from the private placement of a common stock to PAR Act III LLC and certain funds and accounts advised by T. Rowe Price Associates, in addition to net proceeds of $170.7 million from the Owl Rock Term Loan. On September 17, 2021, we received net proceeds of $256.8 million from our offering of the 2,027 notes and $52.5 million from our equity offering. We used approximately $187 million of the proceeds of these offerings to repay the Allorock term loan in full. Repayment of the Allorock notes in exchange for our convertible debentures will result in a $5.5 million annual reduction in cash interest. During the nine months ended September 30th, 2020, we received net proceeds of 49.5 million from our offering of the 2026 notes, which reflects our use of 66.3 million to repurchase a majority of the 2024 notes. Inventory increased from December 31st, 2020 by 12.4 million. We increased our inventory in hand to mitigate supply chain shortages and delays while ensuring we can meet our enterprise customers' demand for installations. Accounts received will increase $5.9 million compared to December 31, 2020, due to increased sales volume. Day sales outstanding improved within restaurants and retail from 74 days at December 31, 2020 to 50 days at September 30, 2021. This is tremendous progress and complements our team's hard work and management's focus on operational excellence. Day sales outstanding increase within government from 51 days at December 31st, 2020 to 55 days at September 30th, 2021. This concludes my formal remarks, and we will now move to Q&A.

Thank you. As a reminder, to ask a question, you will need to press star 1 on your attached phone. Again, that is star, then the number 1. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. And your first question will come from George Sutton with Craig Halem. Your line is open.

Thank you. This is Adamant for George. Great results, guys. Savneet, in the past, you've talked about par payments and the potential for it to potentially become one of your largest revenue segments. Would love to get an update on your thinking from what you've seen early on and what the initial feedback has been so far.

We're feeling very good about it. The pipeline grew tremendously in Q4, sorry, Q3. And I think on our next quarterly call, we'll be able to announce some of those logos that we expect to sign. So we feel really good about momentum there. And then I think we've just started the push of using our payments product within punch customers. And so we're seeing one or two test customers that I think should lead to quite a bit more And then I think surprisingly, we've actually, you know, found a couple non-existing Brink customers, non-Brink customers, excuse me, who we expect to come onto our payments product that will also be a good shoe-in for us to then sell Brink or Punch to. So pipeline grew across all three of those categories. And on the next call, I think we'll have some exciting announcements.

And then with respect to 2022 being a year focused on product, would love to get your update, your thoughts post-raise on, you know, internal versus external development, and then how the digital order management project is going and what else you think might fall on that internal roadmap.

Great. Yeah, digital order management is coming out in Q1. Very, very excited, and we've got, you know, a pilot customer already lined up, so it will have great feedback and be able to iterate quickly to drive revenue. And that's our big new release. which is really the beginning of our foray into building the platform I talked about in the call. We'll certainly look to be acquisitive. We raised money on that premise, and we've got a couple of key holes we're looking at, and so we've got a very, very active M&A team that works on this. And so we will build both organically and inorganically, and our goal is really to have the sketches of the platform done by the end of next year but start selling the platform in advance of that.

Great, thank you.

And your next question will come from Steven Shelton with William Blair. Your line is open.

Hi, this is actually Pat McAleon for Steven, but I wanted to ask how the recent Air Force contract you won impacts your thoughts on what you plan to do with the government business over the near term and just your thoughts on that going forward.

You know, obviously I can't say anything too specific, but I'd say, you know, it certainly makes the business more attractive, which gives us an optionality on what we want to do and, you know, certainly makes the business more valuable.

Okay. Okay. And then I also wanted to ask about the R phase hardware POS that you recently announced and just how that ties into the general hardware software strategy and, you know, how it might be complementary to the existing Brink offerings.

Yeah, absolutely. It's the next version of our internally designed terminals. It's gotten really strong customer feedback so far. And, you know, I think the tie here is twofold. One is, you know, Brink runs on really anything that's out there, any Windows device. I think it works fantastic. But we do think that Brink on our own devices works a little bit better, particularly on design, if you look at the phase, it's a beautiful product. It's not sort of a copycat product. And Brink works really elegantly there. But it also allows us to service it better. So you've got a challenge with a product. You can ship it back, advance exchange, warranty, so on and so forth. It allows us to give our customers the full solution, which more and more of them want. I think what we're finding is, similar to our thesis on software, our customers don't want to, you know, there's not enough value in them having, you know, a different hardware vendor if they have different hardware contracts. So you're seeing movements to things like Haas, hardware as a service, put it together. So, you know, I think it helps, and obviously when you have a new product to market, it helps build excitement with customers because, you know, while enterprise customers are different, you know, there's still that excitement of getting a new device, just like when new products come out for consumer things.

That's very helpful. Thanks, Amit. Again, if you would like to ask a question, that is star one on your telephone keypad. Again, that is star, then the number one. Your next question will come from Samad Sanana with Jefferies. Your line is open.

Hey, guys. This is actually Jeremy Saylor. I'm on Persimmon. So a question on activations. You guys are coming off with a record high number of activations in Q3. How should we think about the shape of activations going forward? Does the company need to invest in more capacity to bring on new bookings, or how should we think about that?

So, you know, I think, like we said in the remarks, you know, bookings will come back in Q4. Some of this is, you know, supply chain dependent, but we feel pretty good about that right where we are now, you know, a lot of the years in building up the pipeline for next year. So I do think we'll see strong bookings in Q4. And, you know, I think – As it relates to activation, you know, we activated an incredible amount of stores in Q3, and, you know, we didn't really expand the team. And so I think we feel pretty good about, from a capacity perspective, our ability to handle spikes in activation volume.

Thank you. And so now that we have a little more clarity in kind of the reopening following the pandemic, is there any change to your internal forecasting or targets? Can you provide any more color on that?

Sure. You know, we don't give great guidance or guidance at all. So I guess that's not great guidance because there's no guidance. But, you know, I think that from an internal perspective, we just feel really convicted in the belief that, you know, our vision of a unified commerce platform is the way that our industry is going. And so I think a lot of our success will be driven so much more by our customers adopting this idea where, you know, it's sort of an easy tell, which is, you know, talk to any restaurant CIO and they'll tell you their life is managing vendors. It's not about building great experiences. And we're really trying to give that power back to them. And I think that's actually what's driving, will drive our internal forecast. But without question, we are not living in a world where, you know, the Delta variant spikes and activations fall off a cliff. We feel like we're kind of at a level where we've got great visibility. But, you know, that can all change. That's what we've learned in the last year.

Gotcha. Great, guys. Thank you, and congrats on the quarter.

Your next question will come from Anja Soderskrom with Sidoti. Your line is open.

Hi, thank you for taking my questions, and congratulations on the strong quarter. I'm just curious, for the punch, you mentioned you had 14 new logos. Is that new logos to par technology, or is that new logos for punch as a result of cross-selling?

It's a mix. I mean, I don't have the breakdown on top of my head, but it's definitely a mix. We absolutely saw head customers that we brought from Brink over to Punch, and then we had net new logos. So it's a very healthy mix.

Okay, thank you. And then also... What do you think in magic now when we see this inflationary environment and labor costs going up and food prices are going up, you would think there would be a stronger demand for the companies or the restaurants to run that more smoothly?

Yeah, we are seeing that, and I think that's why we saw a good rebound here that I think will continue. It's just making it more of a priority. It also allows us to sell more of what's in Restaurant Magic. There are parts of Restaurant Magic that, you know, modules that specifically address, you know, labor efficiency, even things like scheduling that we don't sell today or don't sell a lot of, and so it will create some more module expansion for us there. But I think, Anya, the rebound we see in Restaurant Magic is completely driven by the points that you mentioned. That's really what's pulling it through.

Okay. And then just lastly on the supply chain, it seems like you build up some inventory to be able to continue on the pace you're doing with installments. But what are you seeing in the supply chain currently? Is it easing or is it becoming worse?

I would say, honestly, we thought a few quarters ago it would be better by the end of the year. I would say it's not getting worse, but it's it's kind of flatlined to this area where we, you know, if you said, hey, I need to install 500 stores, you know, in December, we'd say, that's going to be very hard for us to get that to you. You know, our orders are now being, our installs, and particularly for large customer orders, are now, you know, Q4. We're normally, sorry, excuse me, in mid-Q1 because of the visibility. Early on, you know, the challenges around shipping, you know, getting cargo capacity. You know, later, it was around chips. You know, now it's around LCD screens. So, you know, it's sort of, continues to be a challenging environment. But I think, you know, one of the smartest things we did this year from a capital allocation perspective is we advanced purchase and put deposits down. And I think we're the only company on our slate to do that, which allowed us to fulfill a lot of the product sales that you saw that great growth in when others didn't have supply available. But, you know, from our standpoint, from Q2 to Q3, we saw no change. And what I mean by no change is no visibility of it getting better or worse.

Okay. Thank you. That was all from me.

Again, if you would still like to ask a question, you may press star 1 on your telephone. And your next question will come from Adam Whedon with ADW Capital.

Hey, guys. Thanks for taking my call. Just kind of revisiting the government, you know, contract. It sounds like, you know, you guys are talking about the backlog increasing by 50 million. I mean, how do we think about that incremental profitability? I mean, do we expect to earn similar margins? I mean, is it fair to assume that this contract over time kind of doubles the government business, or how should we think about it?

Yeah, so the margin of this contract should be very similar to our existing direct and indirect labor margins. So we don't expect it to swing margins any which way.

You know, I noticed on your profitability, obviously you took some adjustments for the banking deals, but you guys lost about $4 million in the quarter, which given, you know, the scope of, of SAS and the growth, I mean, it looks like you guys are going to be profitable a lot sooner than the market expects. I mean, I remember a time when I was buying shares and government was worth more than the entire market cap. I mean, it seems like the business has gotten scaled between hardware and the SaaS that you guys could probably divest this. And I read something in terms of record M&A multiples 13 times for defense contracting businesses. I mean, why would you guys wait? I guess is what I'm saying. I guess you guys had communicated that You know, that you guys had to get this contract under your belt, and this is something you guys have kind of been waiting for for the last two years or so. I mean, you know, obviously you're not going to give it away, but, I mean, is there any reason today why you wouldn't move with it, given that the contract's behind you and multiples are at record highs?

So I won't say anything forward-looking, but I would say, you know, in the past we've talked about wanting to win this contract. And so, you know, I sort of go to those comments we've said in the past, which is, and I think we sort of, you know, I think people understand now kind of why we had some pause given just the enormous scale of this contract. But, you know, I won't say anything forward-looking about it. So, you know, we've kind of communicated in the past that this was an important part of our process.

Right. And I guess you guys feel more confident. I mean, obviously, from a profitability standpoint, you guys are probably a, ahead of schedule, so, you know, that would probably make it easier in some capacity, would it not?

Yeah, I don't think we've ever looked at it as, you know, do we need the profitability? I think we've always looked at it as it's a business that has very little management distraction, and if we were on the verge of a large, you know, contract, it would be silly for us to sell given how valuable that one contract is, right? This one contract could grow our backlog beyond the existing backlog, right, in a very short period of time. Um, and so it sort of was, you know, as much as it doesn't make sense for this to be under us, it was sort of giving money away. And so we didn't think that made sense. Um, you know, we look at our business, um, you know, very cleanly and I don't think the profitability restaurant business would have any impact. We've got plenty of liquidity and liquidity to also execute our M&A strategy. And so, um, you know, we've kept it not because we wanted the cashflow, but because, you know, there was this, it would be leaving a ton of money on the table. Sure.

Uh, so, so just going back to it, I mean, if you, if you, look at the business kind of pre COVID, you know, Q1, 2020, you know, you guys did, you know, call it, you guys were on pace for like doing close to 1700 activations and, or 1800. And you kind of got through that. And that's, that's really, you know, powerful and exciting. I mean, you know, today, you know, you're still burdened. I would think from some COVID restrictions and States and being able to get in and, obviously, from the semiconductor shortage and supply. I mean, you know, I know you don't give forward-looking guidance, but I mean, you know, I guess the question is, like, what would, you know, could you communicate a little bit about what the organic growth you expect out of these assets in kind of a normal environment and something that, you know, would be suitable to you so people can kind of think about you know, uh, you know, a multi-year kind of growth trajectory in terms of like what your expectation is. I mean, obviously COVID can happen, things can happen, but I mean, you know, kind of like what your cost of capital is from a growth perspective when you acquire assets, you operate assets.

Um, There's a lot in that question. I think from a cost of capital perspective, we're very conscious that we've used our stock to acquire businesses or raise capital to buy businesses, and we are sensitive to that. It does change the deal dynamics if we don't feel that there's a win there. And so we're pretty, you know, careful there. You know, from an activation perspective, you know, we're, you know, I feel like we did a great job this quarter. And, you know, we expect to continue to do a great job. You know, I don't think these double overnight. I think that we feel really good about how many we pulled through this quarter. And, you know, I think what's exciting about next quarter is that this quarter had a significant amount, as we mentioned on our transcript, of our legacy, you 2016 or 17, you know, very favorable pricing. And, you know, as we go forward, we're now moving into our deals that are sort of our traditional price point or higher. So, you know, we'll see that the benefit of that as well.

I mean, without getting too, you know, kind of ambitious, I mean, if COVID continues to abate, do you think that, you know, the punch obviously is different, but I mean, do you think that Brent can return to doing a couple thousand a quarter? Is that unreasonable? I mean, if, if, if the, kind of supply chain semiconductor stuff abates and kind of the COVID restrictions kind of cool down? I mean, is that an unreasonable outcome?

I don't think it's a reasonable outcome if, you know, we've got these restrictions, particularly the supply chain, and we continue to build a pipeline, which we feel pretty good about. So, you know, I expect us to continue to grow at these rates or more for the next couple years, you know, exclusive of M&A. And, you know, I do think that, you know, as we look at M&A, you know, we very much do focus on something that's accretive to growth. So, you know, that probably gives it a little color, too.

Last question, and I'll let you go. If you read TOSA S1... they basically talk about, you know, the, the, the investment, you know, in the restaurant industry of about 80 to a hundred billion. And if you think about that, you know, not that much of that is being spent annually on hardware because hardware lives a long time. And so you kind of, you know, Toast kind of has a back of the envelope calculation of somewhere between 60 and $80,000 of software spend per store. And obviously we haven't captured that. I mean, is, I mean, when you think about the TAM, I mean, is that unreasonable that long-term that that's kind of the addressable market for PAR within their existing verticals?

I think what we've always said is that our TAM of enterprise, you know, call it tier one, tier two, tier three, two-star fast casual is about half the restaurant market in the United States. You know, whether that's 700,000 or 800,000 restaurants is to be debated. And we've always believed that you know, from going back, you know, a couple years ago from Brink being, you know, at the time $2,000 per year, that there is a clear path for us to get from $2,000 to $10,000 based on, you know, what we see in front of us, right? And so we've taken it up from $2,000. We added Data Central, which is about $1,500. We added Punch, which is $1,000 to $1,500. And, you know, and then we come out with Digital Order Management System, a couple more of our, you know, product enhancements acquisitions and payments, and you're, you know, you can really clearly walk to $10,000. But for me, you know, it's exciting. A lot of what I was suggesting in the remarks on the call is that we're at the inception of this transformation of the restaurant. You know, all of a sudden, restaurants have this unfair proposition of, like, having a great in-store experience, and then you're like, hey, we also want you to be Amazon.com. And, you know, that is a really tough thing without a lot more product, a lot more software, and without a unified platform. And so, you know, today that's how we look at it, but I wouldn't be surprised if it changed a lot given how fast the market's moving, and that would certainly probably mean a little more spend.

Right. Yeah. Have you guys explored, you know, you guys talk about, you know, hitting, you know, hitting, you know, pinging your API. I mean, have you guys explored adding a transactional element to it where other people plug into your point of sale and, and you start, you know, paying for ping for transaction? I mean, I just, you know, there's, there's so much, uh, people are accessing our system so much. I just, I wonder, you know, if there's, you know, more in terms of either selling back the data or charging to access the API, because, you know, you look at a $2 million restaurant and, You know, charging $40,000 a store, you know, across all subjects doesn't seem that crazy if it brings people the efficiencies. I mean, clearly the software is driving a lot of efficiency at the restaurant. So I'm curious how you think about other kind of revenue mechanisms.

Yeah, so listen, in the short run, we've got a couple of interesting levers, right? We've got a new product, digital management systems. We've got payments, which I mentioned. We're going to have hopefully some nice announcements come out. But, you know, we've also put through our first price increases on Brink in 10 years. And so we'll have, you know, we'll build a dry price. And as we've talked about on other calls, you know, we are, you know, having a new API product launching that is transactional. So, you know, the way I look at PAR is... We are not in a, you know, demand-constrained environment. We've been in a supply-constrained environment where we, as par, have been unable to fulfill all the demand of our customers yet. And so we've solved that first through M&A, but now through organic product build. And that's where, like, the engines get us all excited because, you know, I'd say we're two and a half years into this journey, maybe a little more than that now, and, you know, the first year and a half plus was just getting the product stable, getting the trust of our customers. The next year was getting the motion together, and then obviously COVID kind of through a curve ball. And now it's about, you know, monetizing at the benefit of our customers. You know, the key part of the unified commerce platform is not that we're trying to extract and bundle a bunch of products and cram it down your throat. We're actually trying to give you a platform to take that back. And I think we're taking a left turn when industry is turning right. where restaurant tech companies have gone the complete other way. It's like bundle, bundle, bundle, extract, extract, extract, but they haven't actually built something that the restaurants value. I challenge anybody on this call anywhere to go find a restaurant manager, a restaurant CEO who says their job is better, who says that ROI is better, and says that the lifestyle of their restaurant employees is better now than it was when they bought all this technology. it's extremely hard to find that case. And so the technology has become extractive. It hasn't been built to serve the actual constituents. And so while it's a meta point, it's what we believe in and that if we can build that. And so, so much of this journey is about giving them that platform. So it's a long answer, but it's, it's the way we look at the world.

All right. Last thing I'll get last one in. Oh, there's, you know, with toast recently going public, a lot of people have said, you know, what is the difference between par and toast? And, you know, obviously the, You know, I've studied it and, you know, developed relationships across the ecosystem. I mean, can you comment about, you know, a little bit about, you know, NCR abandoning their Aloha product and, you know, basically that, you know, no large enterprises, you know, put out an RFP and actually given it to anybody else? I mean, because I think it's unclear to a lot of new people to the story that, Like you said, this is a supply constraint, not a demand constraint, and that the large logos that aren't integrating Brink, it's not like they're going somewhere else. It's just they haven't elected to kind of cross the Rubicon yet or PAR hasn't prioritized them. I mean it would be really important to kind of explain to people the technical moat that the PAR universe has built.

So I think I won't talk about anybody specifically, but I'll talk about it categorically, which is we occupy this very special space, which is all the dollars that have flown into this space have primarily focused on the small business, the restaurant-found market. And it makes a ton of sense, right? You can cram a bunch of payments and product to a small restaurant they don't really know, and you're making, you know, $10,000 a box. We are in the enterprise market where it's par and then primarily legacy products. These are products, like I said, that are almost, you know, half of them are on premise, right? So they haven't really caught up to the times. Or they sort of have been, again, extracted to their customers where the trust is not there. And so we've been very lucky that we kind of swim in this pool where our competitors are not Silicon Valley yet. I'm sure they're coming, but they're not Silicon Valley yet. And so we've been able to take share and continue to grow partly because they're a great product, but also because the competition is quite weak. Now, what's exciting about our end market is that they are not a $10,000 a box yet, but it's coming because they are the ones who could use this technology. Today, you know, there are restaurants that exist, you know, large restaurants are outspending, you know, medium restaurants by so much that it's creating, you know, massive disparity. And so technology is what's going to sort of create disparity there. and we'll sort of fill that void. But to answer your question specifically, there are amazing companies in restaurant technology. Very few of them are in the category that we play in, and very few of the ones that are in our category are actually looking to grow and expand and make the commitment to R&D that we are.

Right, which makes you guys attractive as an M&A player because you can buy these little companies and, you know, give them the resources and the sales and distribution. I mean, if you look at Punch and Restaurant Magic, I mean, These are companies where you can deploy resources and help, you know, leverage your 40 years' worth of relationships.

I think that's exactly right, and that's what we've done. And, you know, we're just at the beginning, right, because now we've worked through a lot of the challenges that have slowed us down, and we sort of feel like we're hitting that moment of acceleration. Good.

Well, look, I've owned this thing for four years, and I look forward to owning it for the next 40 years. So keep up the good work.

Thanks, Adam. Thanks, everybody.

And I'm seeing no further questions at this time. I will now hand it back over to Savnit Singh for any closing statements.

Thank you, everyone, for joining. We look forward to updating you on our Q4 results next quarter. Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect.