PAR Technology Corporation

Good day and thank you for standing by. Welcome to the Fiscal Year 2021 Fourth Quarter Financial Results Conference Call. At this time, all participants are in the 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, press star 0. I would now like to hand the conference over to your speaker today, Mr. Chris Burns. Please go ahead.

Thank you, Chino, and good afternoon, everyone. I'd also like to welcome you today to the call for PARS 2021 Fourth Quarter and Year-End 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, a.k.a. 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 during the call to better communicate the momentum in our software business. Unfortunately, we're experiencing a minor technical difficulty that should be resolved in the next few minutes to access the slide deck. The presentation and review slides will have been furnished in the 8K that we filed this afternoon. Individuals today on the webcast should have access, for those just dialing in, to the call this afternoon. I'm sorry, one second. 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. If you ask a question, it will be included in both our live conference and any future use of the recordings. I'd also 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, and the information on this conference call related to projections or other forward 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 Menard, 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, and thanks to everyone for joining us to review PAR's fourth quarter and year-end 2021 results. As always, there's a lot we want to share with all of you today in our prepared remarks, so we'll kick off now. During the fourth quarter, we continued to drive growth in our strategic recurring revenue platform and saw continued margin expansion as we began to get the benefits of scale. As a company, we delivered a strong fourth quarter with reported total Q4 revenues of $81.6 million, a 39% increase from one year ago. The revenue growth is driven across all business lines and specifically around our software recurring revenues, resulting in $88.2 million of total live error at quarter end and a year-over-year growth rate of 35% when adjusting for the punch acquisition. This increase is driven by a 47% growth in error coming from punch and 30% coming from brink. Contracted error now totals more than $111 million as of December 31st, paving the way for a strong 2022. Equally important as we scale ARR is the dramatic improvement we have been able to drive in gross margin within our subscription services revenue. When new management stepped in a little over three years ago, recurring revenue gross margins were well below 45%. At the end of Q4, we're now at 70% and expect this to continue to expand over time. This growth has been driven by an intense effort on ROI-focused engineering and improved brink architecture in economies of scale. 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've established strong momentum and have continued to build on that throughout 2021. In Q4, we activated 1,075 new Brink sites, a very solid number when considering two significant holiday periods in the quarter, where very little, if any, deployments occur. On a net basis, after churn, Brink's total store count now totals near 15,830, a 35% increase from one year ago. Brink bookings totaled near 1,200 stores in the quarter and saw improved cadence in Q4. Brink continues to report extremely low churn, and this quarter was no different, as churn was 3.2% annualized. Now turning to Punch. We continued to outperform with Punch and added more than 3,200 sites in the quarter that now total more than 56,000 sites, a 36% increase in the last 12 months. We signed eight new customer logos in Q4 that added to our impressive contracted store list. Digital loyalty programs are critical to the future of restaurant marketing. Applications like Punch make it easier for brands to connect with their most loyal customers and increase customer lifetime value where it counts most. The National Restaurant Association suggests that if restaurants are focused on increasing their order flow through phone or tablet, whether it's delivery, online ordering, or even your table-side POS, those restaurant businesses will struggle to compete. With the rapid growth of digital ordering during the pandemic, the demand for a leading loyalty app has never been stronger. As the number of channels expand, the need to understand customer LTV expands, thereby pulling more punch demand. Restaurants are moving to understand individual customer lifetime value versus individual stores' unit profitability. We're also beginning to see momentum within the C-store segment as the industry seeks a more robust loyalty solution similar to restaurants. PAR payment services pipeline grew significantly in the quarter, and we were extremely pleased to recently announce the selection by Smoothie King to use PAR payments engine in all 1,000-plus stores. We continue to see increased interest broadly across the Brink and Punch customer bases. I am confident additional upsell and new customer opportunities will accelerate this year as more and more enterprises are seeking an integrated payment offering from a trusted technology partner with competitive and transparent pricing. PAR is all of those things and more. Although still early in our payments initiative, we have seen notable acceleration in our customer wins during 2021 and believe this revenue stream will be meaningful to our future financial performance. Moreover, it's given our team confidence in our ability to upsell new products. Our product business continues to perform well in a difficult and challenged environment. Product revenues in the quarter continue to strengthen year over year and improve sequentially as well. Product sales were reported at $32.2 million in this recently ended quarter, a 48% increase. The capital purchase environment for restaurants is always tricky, and that is even more so during the pandemic and the global supply chain difficulties thrust upon several end markets. As I mentioned previously, we're not immune to those challenges around the supply chain, and we've experienced some margin impact with the costs associated with the current realities. However, as witness to our margins, we were actually able to expand margins over the year, given the strong work of our operations and procurement teams. Regarding the supply chain specifically, we will continue to diligently manage our partners and vendors through any shortages, price inflation, and increase in freight charges. We believe we were uniquely positioned to create a greater diversity of supply sources while at the same time technology enabling operations and management of supply inventory. We anticipate continued volatility in our sourcing channels and expect to closely monitor real-time upstream and downstream visibility across the supply chain to help us predict and plan for adverse events. Now to briefly report on our government business. In the quarter, we reported revenues of $18.8 million, a 2% increase when compared to Q4 of last year. With a large new contract we announced in November, we anticipate acceleration in revenues in 2022 as task orders are assigned. As a reminder, the U.S. Air Force Research Lab awarded a single award of $490.4 million IDIQ contract for counter small unmanned aircraft system work on software, hardware, and technical documentation. The award has a contract term of six-year ordering period with additional two-year order of performance beyond the original six. We will recognize revenue as task orders are assigned, but we are seeing an immediate impact on our contract backlog that grew to $195.3 million at the end of Q4, a direct result of the new contract award. In addition to our accelerated revenue growth in 2022, we'll continue to seek out additional contract opportunities where we can leverage our decades-long experience and performance excellence, specifically in value-added revenue contracts that include direct labor and high-tech contract work within our Intel Solutions business line. Let me now talk a bit about where we see things going from a business perspective. Looking back on my time at PAR, there's been significant progress in driving operational improvement and an accelerated focus on meaningful growth and innovation. We believe that in order for a business to benefit all of its stakeholders, its employees, its customers, its suppliers, its shareholders, and its communities, that business has to win. Winning to us is driving a very profitable business for a very long time. While we are in an aggressive investment period given the TAM we serve, we're also constantly focused on driving operating leverage on every expense line of our recurring revenue cost item. This focus has led to a dramatic growth in gross margin and demonstrable efficiency on our sales, marketing, and R&D line. In addition, we continue to solidify the senior leadership team, adding individuals with proven track records of delivering efficiency improvements, cost discipline, and growth. We reorganize and integrate our product engineering teams to bring needed focus on our unified commerce platform, while at the same time better structuring the organization to move quicker to address customer needs. These changes are designed to foster collaboration across the entire product portfolio and establish linkages critical to bringing innovative new ideas to markets quickly and cost-effectively, while ensuring we are aligned with the needs of our customers. As we continue to make these organizational changes, we recognize the need to maintain our focus on bringing operational discipline and accountability to the business while realizing sustainable long-term revenue growth. As I mentioned earlier, a big part of this focus is on driving profitable growth, specifically on our subscription revenue streams. Our goal is not only to grow ARR consistently, but to drive operating leverage within every line of our P&L every single year. A great example of this is within Brink, where in 2021, we grew ARR in excess of 30%, while SG&A stayed almost flat, excluding our acquisition. Combining this focus with a formulaic revenue model, we expect new customer signings along with upsell and cross-sell opportunities to deliver consistently 30% to 40% year-over-year ARR growth and will help define PAR as the industry leader. While we've grown ARR almost 8x in three years, we're very cognizant that we're still at the very beginning of our transformation, as is the industry that we serve. Our goal in building our unified commerce platform is not to create a bundled solution, but to deliver a product back to the customer that puts the power back in their hands. We hope our platform allows our customers to stop focusing on vendor management and instead spend that energy on delivering a unique customer experience. In closing, I and the PAR team wanted to send our support to our team members based in Ukraine and to their broader community. Our primary concern is their safety and their family's safety, and we are monitoring the situation closely and in contact with them to offer assistance. I'd also like to thank all of PAR's employees for their dedication and effort over the past quarter. We've gotten a few key items wrong and a few wrong, a few key items right, excuse me, and a few wrong, but our continued focus on winning together has allowed us to move quickly when we veered off course and focus on our future. It's not been easy, but it's worked because we've done it together. With that, I'd like to hand it off to Brian, who will review our financial performance in greater detail.