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spk11: Good afternoon, and thank you for standing by. Welcome to PAR Technologies' first quarter 2023 financial results. 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 1-1 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, simply press Star 1-1 again. As a reminder, today's conference is being recorded. I would now like to hand the conference over to your host today, Chris Burns, Senior Vice President of Business Development. Go ahead, Chris.
spk00: Thank you, Eric, and good afternoon, everyone. And thank you for joining us for Part Technology's first quarter 2023 financial results call. Following the close of trading this afternoon, we released our financial results. The earnings release is available on the investor relations page of our website at partech.com, where you can also find the Q1 financial presentation, as well as in our related form, 8K Furnished to the SEC. During our call today, we will reference non-GAAP financial measures, which we believe to be useful to investors and exclude the impact of certain items. A description and timing of these items, along with a reconciliation of non-GAAP measures to the most comparable GAAP measures, can be found in our earnings release. I'd also remind participants that this conference call may include 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. Finally, I'd like to remind everyone that the call is being recorded, and it will be made available for replay via a link available on the investor relations page of the website. 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 general Q&A. Savneet?
spk04: Thanks, Chris, and good afternoon. PAR is off to a solid start in 2023, delivering strong results in our first quarter. Restaurants of all types and at all stages are using PAR as their growth enabler, leveraging our unified commerce technology to solve their most challenging business obstacles. These restaurants range from emerging growth brands all the way to established enterprises. Today, I'd like to focus my comments on our recent quarter performance, a view of what our customers are looking at for their technology initiatives, And then finally, a look forward to the rest of 2023 and beyond, touching on the macro environment we're observing and our own internal initiatives. We continue to deploy our unified commerce platform to help restaurants of all sizes improve operations and enhance the restaurant guest experience. Unified commerce drives our most important KPI, customer satisfaction, which leads to longer LTVs and a greater TAM over time. At the end of Q1, ARR reached $116 million delivering a 23% year-over-year increase, demonstrating the continued growth and scaling of our subscription services engine, and contracted ARR now stands at $131 million. Importantly, when adjusting for one-time items such as severance, this growth came with no increase to operating expenses from Q4 2022. Operator Solutions ARR grew 27.4% to $45.2 million in Q1 when compared to the same period last year. During Q1, Operator Solutions added more than 1,100 new store activations and new bookings total approximately 1,200. Churn continues to be extremely low at 4% annualized for Brink in the quarter. With the recent wins in table service and significant strength in our new customer pipeline, Brink is positioned well to continue scaling. The table service momentum is real, and the first two deals I mentioned on the Q4 call are gearing up for launches at the very end of this year and into 2024. While the ramp up to take these customers' lives is long, the AR contribution will be meaningful. In addition, we find ourselves with the largest spring customer pipeline in our history, suggesting continued resiliency within our customer base. Payments continues to be an important part of our growth for operator solutions and unified commerce. Rolling out new payment customer sites is slower in Q1 than we expected, but we're recouping some of that delayed business in Q2. Progress is being made, and we should see improvement through the remainder of this year. We are confident that as we cross-sell and up-sell payments to all new Brink deals and existing customers, we will continue to see significant customer wins and ARR acceleration. Combined with a set of new payment offerings, including one tap loyalty and an improved gateway, this is a strong indication for continued momentum. Moving to guest engagement ARR, that includes our leading customer engagement platform, Punch, and newly acquired menus. Guest engagement ARR grew 18% in Q1 when compared to Q1-22, in total $59.4 million. As we talked about last quarter, Punch, while being the leader in loyalty for restaurants, is currently experiencing a slowdown in the marketplace as marketing development funds have been impacted, in turn delaying rollouts and slowing down new customer opportunities as RFPs are deferred for later in the year. We also recognize some expected churn in the quarter. This was well mapped out, and we'd argue in the bucket of healthy churn for both us and the customer. Active store count on a year-over-year basis still increased by 16%, and we believe business will improve as the year progresses. In the quarter, we signed some return customers, customers who, for whatever reason, had in previous years churned and are now re-signing with Punch as they've realized Punch is best in class. We are also having success upselling additional Punch modules to existing customers as they build out their loyalty and customer engagement priorities. New leadership in Punch has started to build a foundation that we can begin to leverage and take Punch to the next level. Now to update you on Menu. We've been impressed by the early response Menu has received from prospective customers this year. We have signed nearly 500 locations to date in the United States, and this was in advance of any real sales effort. We had previously planned to wait until the second half of this year to bring Menu to the U.S., but it's clear starting earlier is the right decision. We have aggressively started tooling the business for the U.S. domestic market, and we expect revenue to start matriculating in Q3 for these deals. We feel more confident now than we did at the time of the acquisition that menu could grow into a dominant product line. The demand isn't a problem, as the RFP environment is ripe with opportunities as restaurants realize the operational benefits menu can bring to their off-premise orders, while enhancing customer satisfaction and building real customer loyalty with a deep integration into Punch. We are very early in menus introduction to the domestic U.S. market, but the early response and reaction has been nothing but overwhelmingly positive. Our teams are focused on operationalizing the business in the U.S. so that we can blitz the market later this year. SAC office continues its turnaround. Reported ARR of $11.3 million in Q1 was a 30% increase from last year's Q1. We had activations of 355 stores in the quarter and now have more than 7,000 active stores. New store bookings remain on a strong pace as we continue to penetrate a large national chicken QSR, with new stores being signed in the quarter. In summary, PAR has seen continued market traction with the execution of Unified Commerce in Q1, with various net new enterprise customers purchasing multiple products across our software ecosphere, and legacy customers opting to expand their footprint with PAR. Underpinning our Unified Commerce platform are four discrete requirements. First, best-in-class standalone products. our products must be able to stand on their own. Second, best-in-class integrations. Third, unique lighthouse functionality. And fourth, a truly open ecosystem that empowers restaurants to make choices that are best for their business. While the term unified commerce has become increasingly commoditized by our mostly single-product competitors, our multi-product offering gives PAR a strategic advantage. Innovation requires coordination, and optimal coordination requires control. Unlike competitors, we are able to sync multi-quarter roadmaps between products, own all sides of an integration, and thereby dictate quality and unlock operational efficiencies, such as singular contracts, singular account management, better SLAs, and more. Ultimately, what we offer is seamlessness and a unified experience that is scalable. As a platform, revenue may not be linear in 23, given the number of large deals we are involved with, and the rollout schedule is being worked with the customer, but the scale of our pipeline is expanding and notable. At our core, we're in the customer data business, and PAR's unified commerce value for users is in the massive amount of real-time transactional data captured via Unified Commerce for Brink, via customer identity data through Punch, and business data, including employees, inventory, and menu items through Data Central. As an example, PAR processed 4.7 billion transactions through Punch in 2022. We enrich this raw data based on machine learning to dedupe, standardize, and transform it to make it more actionable. This includes tracking the activity of each guest from multiple channels of engagement and assigning them into the right segment for analytics, targeting, and attribution purposes. PAR makes these analytical insights and data available to our customers in a variety of ways. Customers can perform self-service analytics right in the product itself, including campaign performance analytics, employee and business reporting, and guest analytics. Customers can export this data on demand for their own self-analysis and visualization. For advanced analytics, we also provide an automated ECL of raw data into their own environments through a data pipeline. This data culture sets up nicely for the wave of artificial intelligence entering our world. Most consistently, we hear that there are three distinct ways restaurants see AI as being beneficial to their business. AI can make restaurant visits more consistent and predictable. AI can improve the speed of service. And AI can improve order accuracy. It also minimizes human interaction and lets experts focus their time and skill on other tasks. AI can be a lot of things to a lot of different restaurants. For some, it may be utilizing voice-recognizing kiosks or tools for cost-cutting and reducing labor costs. For others, they are seeing conversational AI tech that improves order accuracy, while even others need tools to track employee performance and sales data along with inventory forecasting. The possibility of AI adoption is endless, and restaurant owners wanting to stay ahead of the game and those wanting to match the market are embracing yearly benefits. We believe PAR's core advantage is that we are the only enterprise firm with data across customer identity, transaction, menu, and COGS. This allows PAR and our customers to create real value as we have complete internal data to match with external sources, thereby having a stronger foundation to build large models that lead to insights and automation. The real exciting part of this is that PAR's unified commerce allows us to have these firsthand conversations with our enterprise customers, near-time integration with technology partners, and a very aggressive product roadmap that includes AI that enterprise restaurants rely on PAR to consistently deliver. Underlying all this, though, is that while our industry gets caught up in the excitement around the technology, we will never get lost that in the end we must deliver to a franchisee who must deliver an incredible experience to a guest. that the franchisee or store owner could care less what model they use or what algorithm we built. They just want the technology to work. The grit of PAR, combined with our deep understanding of the customer, along with our data advantage, set us up nicely to capitalize. Brian will now review the numbers in more detail. Brian?
spk03: Thank you, Sabneet, and good afternoon, everyone. Total revenues were $100.4 million for the three months ended March 31, 2023, an increase of 25.1%. compared to the three months ended March 31st, 2022, with growth coming from both restaurant retail and government segments. Net loss for the first quarter of 2023 was 15.9 million, or 58 cent loss per share, compared to a net loss of 15.7 million, or 58 cent loss per share reported for the same period in 2022. Adjusted net loss for the first quarter of 2023 was 12.7 million, or 46 cent loss per share compared to an adjusted net loss of 7.1 million or 26 cent loss per share for the same period in 2022. Adjusted EBITDA for the first quarter of 2023 was a loss of 8.8 million compared to the adjusted EBITDA loss of 2.9 million for the same period in 2022. Included in our results for the first quarter of 2023 was a charge of 2.6 million to our hardware margin related to inventory. Including this charge, adjusted net loss for the quarter was $10.1 million or $0.36 loss per share compared to $7.1 million or $0.26 loss for 2022. And adjusted EBITDA was $6.2 million compared to $2.9 million for 2022. We continue to focus on driving improved EBITDA performance with continued top-line growth while managing strong cost controls. Hardware revenue in the quarter was 26.8 million, an increase of 1.7 million, or 6.8%, from the 25.1 million reported in the prior year. We continue to see strong hardware sales, both with our Tier 1 legacy customers and across our Brent customer base. Subscription service revenue was reported at 28 million, an increase of 6.7 million, or 31.4%, from the 21.3 million reported in the prior year. The increase came across our unified commerce. The increase in revenues was driven by both site growth and an increase in average revenue per unit as we continue to cross-sell into our existing customer base. The annual recurring revenue exiting the quarter was $116 million, an increase of 23% compared to Q1 2022, with operator solutions up 27%, guest engagement up 18%, and back office up 30%. Professional service revenue was reported at $13.8 million, an increase of $1.3 million or 10.8% from the $12.5 million reported in the prior year. Our total recurring revenue base, which includes both subscription services and hardware support contracts within professional services, continues to expand with $35.3 million reported Q1 2023, an increase of 23.4% compared to the $28.6 million in Q1 2022. Contract revenue from our government business was $31.9 million, an increase of $10.4 million, or 48.6% from the $21.4 million reported in the first quarter of 2022. The increase in contract revenues was driven by a $9.9 million increase in government's ISR solution product line. The increase was substantially driven by continued growth of counter UAS task orders. Contract backlog associated with our government business as of March 31st, 2023 was $324 million, an increase of 66% compared to the $196 million backlog as of March 31st, 2022. Total funded backlog as of March 31st, 2023 was $86 million, 105% increase compared to the funded backlog of $42 million for the prior year. Now turning to margins. Hardware margin for the quarter was 16.4% versus 20.2% in Q1 2022. The decrease in margin was driven by a charge to our inventory. Excluding the adjustment, hardware margins were over 20%, and we expect hardware margins of at least 20% going forward consistent with recent trending. Subscription services margin for the quarter was 50.2% compared to 50.1% reported in the first quarter of 2022. Subscription service margin during the three months ended March 31st, 2023 included $5.7 million of amortization of identifiable intangible assets compared to $5.1 million of amortization during the three months ended March 31st, 2022. Excluding the amortization of intangible assets, total adjusted subscription service margin for the three months ended March 31st, 2023 was 71% compared to 74% for the three months ended March 31, 2022. Our rate of acceleration of continued margin improvement slowed this quarter as we absorbed the initial growth of par payment services and menu, which are both in the early phase products. Professional services margin for the quarter was 17.9% compared to 26.5% reported in the first quarter of 2022. The decrease in margin was driven by a decrease in margins related to our implementation and hardware repair services. Government contract margins were 7.2% compared to 7.3% for the first quarter of 2022. In regards to operating expenses, GAAP SG&A was $27.5 million, an increase of $5.1 million from the $22.4 million reported in Q1 2022. The increase was driven by increases in internal technology infrastructure costs and sales and marketing expense. The variance also includes 1.5 million of expense related to menu, which was acquired in Q3 2022. Sequentially, net R&D expense of 14.3 million in Q1 2023 was down 0.6 million from the 14.9 million reported in Q4 2022. Compared to prior year in the first quarter, net R&D increased 3.5 million from the 10.8 million recorded in Q1 2022. Increase is related to personnel hired in 2022 as we continue to improve and diversify our product and service offerings, including 1.9 million for menu. Included in operating expenses for Q1 2023 was a 5.2 million reduction to the fair value of the contingent consideration liability for the menu acquisition. This contra expense is a non-GAAP adjustment. Total operating expenses, including the contingent liability adjustment, total 42.3 million versus Q4 2022 operating expenses of 41.2 million. Net interest was 1.7 million compared to 2.5 million recorded in Q1 2022. The decrease is driven by increased interest revenue from our short-term investments, during the three months ended March 31st, 2023. Now to provide information on the company's cash flow and balance sheet position. Three months ended March 31st, cash used in operating activities was $16.7 million versus $21.2 million for the prior year. Operating cash needs during Q1 2023 were primarily driven by net loss, net of non-cash charges, and additional networking capital requirements. Increase in networking capital requirements was primarily due to the annual variable comp payout in Q1 and increased accounts receivable within the restaurant retail operating segment. Cash used in investing activities was $1.8 million for the three months ended March 31st versus $3.1 million for the prior year. Investing activities during the three months ended March 31st, 2023 included 0.5 million for purchases of short-term health and maturity securities and capital expenditures of 0.8 million for internal use software. Capitalized software for developed technology costs for the three months ended March 31st was 0.5 million. Cash used in financing activities was 2.4 million for the three months ended March 31st compared to 1.4 million for the prior year. Funding financing activities for 2023 was driven by stock-based compensation related transactions. Day sales outstanding for the restaurants and retail segment increased from 53 days as of December 31st, 2022 to 60 days as of March 31st, 2023. We expect the ESO levels to come back to historical levels closer to 50 days in Q2. Day sales outstanding for government segment decreased from 55 days as of December 31st to 51 days as of March 31st, 2023. I'll now turn the call back over to Savneet for closing remarks prior to moving to Q&A.
spk04: Thanks, Brian. To comment briefly on the economic environment, while we can't predict what the future holds at a macro level, we're forging ahead with conviction and vigilance as we look to continue to fuel durable growth over the long term and deepen our strategic advantages. Today, while there are pockets of weakness within the restaurant industry, broadly speaking, the market is still showing signs of strength. Outside of Punch, we continue to see robust pipelines, and in particular, we see more RFP activity for Brink than we ever have before. Par's internal execution, matched with the macro worry, creates the stage for a more aggressive M&A environment. If we can continue to deliver, we should be able to leverage our currency to effectuate creative transactions that add unique product or additional market share to our businesses. As I've mentioned for the past several quarters, we've been able to go revenue and ARR while not increasing overhead. While adjusting for one-time items such as severance and inventory adjustments, we were successful in maintaining our operating expenses quarter over quarter as we implement our plans on becoming a profitable company. We're focused on executing against our long-term goals and we're eager to take this momentum and build upon it for the rest of the year and the out years to come. As always, I'd like to thank all of PARS employees for the dedication and efforts over the past quarter and for never forgetting our mission. to enable personalized experiences that connect people to the brands, meals, and moments they love. At PAR, we have a demanding environment, and we ask a lot from our team members. We are constantly striving to increase our growth without increasing OPEX spend, all the while expecting each and every one of us to do more to deliver for our customers. I thank you and have the utmost confidence that all your hard work will be rewarded. With that, I'll open the call for Q&A. Operator?
spk11: Thank you. At this time, we'll conduct the question and answer session. As a reminder, to ask a question, press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, simply press star 1-1 again.
spk08: Please stand by while we compile the Q&A roster.
spk11: And our first caller is Samad Samana with Jefferies. Samad, your line is open. Please go ahead.
spk07: Hi, great. Hey, good afternoon. Thanks for taking my questions. Maybe, Sabneet, first one for you. Just looking at the metrics, the X punch, you actually added the most dollars of operator solutions there are quarter over quarter that you've done and kind of as far back as my model goes. So I think you're seeing pretty good strength there and you had a pretty tough year over year comp. I'm curious how much of that is just the timing of go lives versus payments adoption versus just new customer acquisition. If you could just maybe break that apart and help us understand what's driving that strength and how much of it is company specific versus maybe seasonal.
spk04: It's definitely company specific and not seasonal. In fact, it's actually understated because as I mentioned or said quickly, you know, our payment should have been higher this quarter. Some of it slipped into Q2 and it shouldn't have. And so it's definitely a trend that I think will continue throughout the year. It's resulting really from the continued growth of Brink and the cross-sell of payments that we're really starting to figure out on a more consistent basis. So it's a combo of Brink adding more customers at higher ARPU and us doing a good job of stapling payments to every deal we can.
spk07: Great. And then maybe, Brian, one for you. Just as I think about the gross margins, and, you know, operator solutions and restaurant magic growing faster. How should we think of maybe the subscription revenue gross margin either mixing or changing as punches growth has been a little bit slower? Should we think about that as having a material impact going forward or should it be in a fairly consistent range as what we've seen over the last few quarters?
spk04: I'll take the high level and give it to Brian. So the short answer is, you know, the margins are muted now because of primarily menu and to a degree payments. We put a lot of investment into menu, as you heard, given the unexpected customer demand in the U.S. and payments because we have a buildup there. The margins of Punch, Data Central, and Brink are all relatively high, not all the same, but all very high. And so as menu and And payment scale, it'll bring the gross margin up because the rest of them all are relatively high. But Brian, anything else you want to add?
spk03: Yeah, the only thing I want to add there is, as you know, Samad, over the past couple of years, we have also saw a deep improvement in Brink as we improved margins there on the hosting costs. I think we've gotten ourselves to a pretty good level, though. There's still some opportunity. And the next area is doing something similar on the punch side. So we will see improvements there, but you're not going to see the drastic. It'll be each quarter, but we have to absorb a couple more quarters of the early growth of menu and payments as they get critical mass.
spk07: Okay, I'm going to break the rules and squeeze in a third question. Cassadny, your closing remarks you mentioned, it sounded like you might have been hinting at that there may be M&A on the horizon where you're going to attempt to be opportunistic. I'm curious, one, that's what you were trying to intimate, and two, how we should maybe consider that with the backdrop of trying to get to profitability.
spk04: So, you know, I think I don't know if I was hinting or ostensibly saying, you know, I think we're going to see a lot of M&A in our category. There was a lot of venture capital money that came in that I think is stranded in companies that either really didn't deserve venture capital money or can't raise at prices that make sense anymore. And so, you know, we're seeing a lot of deal flow today. The interesting part is that we see that both in the small startups, but also in the large part of the market. And what I think is interesting is that I believe we will have outperformance as an organization and as a result have a better multiple than the deals we're looking at. And I think if we look to be the consolidator, we will be in a very, very strong position. So I think it was there. As it relates to the points of being profitable, I don't think you'll see us do a deal that doesn't get us to profitability faster or similar unless it added tremendous growth where the ROI would have made sense But, you know, I think the deals we're seeing today not only can be accretive to our growth, but also to our margins.
spk07: Great. Appreciate you taking all my questions. Of course.
spk11: Stand by for our next caller. And Will Nance is here with Goldman Sachs. Will, your line is open. Please go ahead.
spk05: Hey, guys. Good afternoon. I appreciate you taking the question. I'm wondering if you can talk about maybe the outlook for ARR growth in the context of some of the comments you made on the various segments. It sounds like maybe a little bit more positive on Brink. It sounds like pulling forward some of the menu rollout and then still some of the ongoing weakness and punch. I guess when you put it all together, how are you thinking about the outlook for ARR growth and growth Could the net of the demand in Brink and pulling forward menu lead us to be sort of outperforming or even accelerating over the course of the year?
spk04: Yeah, I think we'll be in the range we put at 20% to 30%. Where we are, we still have a long way to go. In particular, we've got a couple opportunities. We've won and signed, as I mentioned, these table service initiatives. The date they go live has a tremendous swing in our revenues for the year because of the sheer quantity they are. So it's obviously all good. If we can pull those in earlier, it does have a big impact. As you said, menu winning ahead of schedule certainly gives us an opportunity for upside. Now, it takes a little bit of time to get every deal live because building on online ordering, Website is not an overnight process, but it's not also nearly as long as it is to take a brand customer live. So those are really positive things. And like I said, we see really strong stabilization of Punch, better than I expected. If you ask me how I felt this quarter about Punch versus last quarter, I'd say we feel much better. Where we need to pick up the pace is on payments because the opportunity is too large. And while it's working, it should be better. And, you know, I think menu needs to really, you know, capture this opportunity, and it's right given where our competitors are and where we are. We've got to pick that up. But, you know, I think in aggregate we feel pretty good about where we are. And like I said, you know, quarter to quarter, we don't have – you know, perfect visibility, but there are levers we have into your year that do add some nice potential upswings for us, particularly the large table service deals that I mentioned. And, you know, if we can land one of the larger menu RFPs we're in, you know, those will have pretty nice impacts for us.
spk05: Got it. Very helpful. And then maybe as a follow-up, I think at your quarter you made some comments around one of the big five chains potentially moving to upgrade some of their point of sale, potentially moving to a more modern platform. Obviously, we've seen the headlines around some of the big chains and the big cost-cutting efforts. Just maybe wondering if you could provide an update on the landscape for some of the tier one fast food chains. One, where do you see them in sort of, you know, closer or farther from the upgrade cycle? And, you know, maybe in the near term, you know, how that relates to sort of demand on the hardware side, which kind of continues to outperform at least your top line expectations, I would think, relative to the macro uncertainty that we're seeing.
spk04: Yeah, it might be the most interesting, you know, observable data point in that, you know, I've said on the call a few times, we've never had a brink pipeline so robust with large customers, right? You know, we've always had a robust pipeline with midsize customers, emerging customers, but we've never had so many, you know, large customers in RFP, not even sort of pipeline, real potential transactions. And, you know, why I think that's so interesting is that, you know, we are in a slowdown for restaurants, but the customers are still going forward on these technology initiatives around POS. So, you know, the short answer is we see this sort of secular shift to the cloud within POS really gaining share. Is it a flash in the pan or is it secular? I think there's enough in the pipeline that makes me think that this is just the snowball building. And as you sort of referenced, we are seeing more large, large, large brands opening the door now. I'd say probably a little bit ahead of schedule from what we expected. Now, we'll see if any of them actually do anything. We'll see if it comes through. But purely from a pipeline and RFP perspective, I think it's highlighting the strength of those customers, but also their commitment to upgrading technology no matter what the environment is.
spk08: Got it. Makes sense. Appreciate you taking the questions. Stand by for our next caller.
spk11: And with Patrick McIlwee with William Blair. Patrick, your line is open. Please go ahead.
spk10: Hi, thanks for taking my questions. So I think you said that you attached payments to roughly 80% of your break signings last year. And I wanted to ask, one, are you still seeing that level of attachment this year? And two, given some of those payment deals recently, were pushed out a little bit, it sounds like, potentially back a quarter. Are you still thinking that you can generate somewhere around that $15 million in payments ARR this year? Or have your thoughts changed there?
spk04: So I think we'll continue to hit sort of that 80% plus attachment rate on new BRINC deals. The real velocity for us will be the upsell into the base where we haven't done as good of a job. As far as where the revenue would land, You know, I think it's probably between 10 and 15. You know, I think 15 would be, you know, a stretch today. But, you know, if one of these large POS deals lands and they take our payments offering, you know, then that would be an underestimate. But I think to be conservative, you know, I wouldn't go that high.
spk10: Understood. Thanks. And then on menu, it sounds like things are going really well there.
spk04: Okay. The deals aren't being pushed. The rollout was being pushed. This is a quick clarification. It wasn't a deal being pushed. It was a deal signed, papered. It's the rollout that got slowed down.
spk10: Got it. Got it. Thanks. And then my second one on menus. So can you – it sounds like things are going really well there. Gus, can you just provide any more context on how early conversations are going there and how far along you are in terms of building out those third-party integrations that you had needed?
spk04: Yeah, that's a great question. So, you know, it's been surprising. We had not planned to bring Menu to the United States really until the second half of this year, as you suggested, because of, you know, desire for us to build out these integrations more fully and to focus on some of the international business that had already been signed. And, you know, essentially what happened was enough customers, you know, literally pulled us into their RFPs and then started giving us business that we sort of reassessed and said, this is clearly where the market opportunity is. where we can, you know, win customers, you know, against the biggest and the best, roll out, you know, inter-year, and then create the opportunity for a real unified commerce experience where we are the POS loyalty and online ordering. And so we have been retooling the business to focus on the U.S., which has created an acceleration in those integrations. What's been amazing is that, you know, a number of these customers, as I mentioned, we've almost signed 500 stores already, which, you know, putting that perspective, you know, we signed, you know, 1,000, you know, 1,100, 1,200 bring sites a quarter. We're already at 500 for menu. You know, many of those are waiting for us to finish a specific point-to-point integration to go live. And I think that just highlights the quality of the product, that the customers truly want the product and are waiting for us. So, you know, we're excited. You know, we could be wrong, but... I think we now see enough pipeline and also, you know, candidly enough signed deals against, like I said, great competitors that, you know, it would behoove us not to continue to push on the U.S. and also be smart about how we stage that. You know, we could win a lot more deals right now, but we need to go slower and make sure we service those deals, do a good job on those deals, and let our reputation kind of compound from there.
spk10: God, I think to me that's very encouraging and really helpful. Thanks for taking my question.
spk08: Stand by for our next question. And our next question comes from Menak Tandon with Needham.
spk09: Thank you. Good evening.
spk11: Yes, go ahead.
spk09: Thank you. Good evening. Subneet, could you sort of give us a sense of where you are on the journey, the cross-sell journey? and maybe share any data points in terms of, you know, how many customers are using multiple products versus where you could, you know, penetrate over time. And I guess the broader question is, you know, how much of the growth in ARR is coming from the land and expand versus new logos as we look out over 2023?
spk04: We have a long way to go on the cross-sell and up-sell within our organization. In fact, I think it's the singular most exciting and biggest opportunity we have is that technology The average Brink customer has two to three modules. So that's the average. So usually a Brink customer on average has at least one of our other products. But we need to really take that into three, four, five products now. And it's clear that Brink is the land and expand product for us. But the amount of underpenetration is significant. is enormous. Payments is probably not even in 10% of brand customers yet. Data Central is not even half of brand customers yet. Menu is obviously in almost no brand customers yet. And so there's an incredible opportunity to push that forward, not to mention the 70,000 stores that Punch is in where Menu is a really, really perfect fit. And so the ability for us to grow revenue going forward will be as much driven by our ability to cross-sell and up-sell as it will be for net new sites. Today, most of our growth, though, is still net new sites, but we are seeing a continued pickup in driving cross-sell as being more and more of our revenue contribution. And that will continue to get higher this year as menu gets rolled out and as payments gets rolled out because of the both upsell products.
spk09: Got it. And then I want to ask about the government businesses given the pickup in revenue here. Any sort of directional guidance on where we should see that trend in at least over the current year, and then if you could maybe give any updates on your plans for that business, if there's anything incremental that you can share with us.
spk04: No public update yet. I think, as we said, we're one year into where we said we would be when we would look at the strategic alternatives again. You know, when we have an update, we'll come back to you. But the business is delivered, you know, as we expected. And in the event we wanted to do something, you know, I think there would be no better time both from what we're executing on internally and also the macro environment.
spk03: And just to follow up to that, you know, we talked about in the call, you know, the large growth year over year in there. A lot of it comes from the county UAS. We've now gotten to, I think, a big part of that past quarter growth. critical mass, right? So we've seen that build up over the past five quarters. And I think the growth that you're going to continue to see is going to be solid. But, you know, having that 50% year over year, it's going to get down to a more muted level as we've gotten kind of critical mass within that real large contract that we have. Great. That's helpful, Colorado. Thank you so much.
spk08: And stand by.
spk11: Our next question comes from Adam Wyden with ADW Capital. Adam, your line is open. Please go ahead.
spk02: Okay. Three questions. I'll start with the easiest one. You had said, I guess, inter-quarter or perhaps last quarter that PAR was going to have the greatest improvement in their Rule of 40 score of sort of any SMIDCAP software company. And I guess you were basically talking about just the part software segment. Can you talk about sort of, you know, exiting the year at, you know, whatever X percent growth rate and X percent margin such that, you know, you're exiting the year at rule of 40 or close to it or sort of can you sort of elaborate sort of on the, you know, efficiency improvement throughout the year and whether you're on track or ahead of that?
spk04: Yeah, our guidance is relatively wide as it relates to revenue growth. What I can say is we are executing on a plan to grow within the range we said while holding our operating expenses flat. As you saw, R&D actually came down quarter over quarter, which is our biggest line item. And so I do expect us to be able to have nice growth rate with a tremendously improving cost structure along that and be a large mover on the rule of 40. Will we be the largest or not? I don't know. We have to look at everybody else, but I think we're executing on that plan. Nothing's really changed, which is continue to grow the revenue between 20 and 30, and then keep the OPEX slot, and hopefully we have some accretive M&A on there that accelerates revenue and or accelerates profitability.
spk02: Okay, good. Second question, rep three. Second question is around M&A. You know, when you first got in, you did the tuck-in of Restaurant Magic, which is now Data Central. That's doing well. You know, sort of was growing, then slowed down, now growing again. Sort of talks to the portfolio approach. You know, Menu is an R&D box, which you guys are excited about. I am as well. But, I mean, what is the timing and likelihood of sort of substantial M&A? I mean, you've done it in the past. You did punch. You have not done a meaningful ARR slash EBITDA contributor in two years. Obviously, the market has changed from a public markets perspective. Is the issue cost of capital significant? What is sort of holding it back? I mean, there's lots of private market assets that are sort of up for sale. And I'm just, you know, trying to understand what the bottleneck is in terms of, you know, getting sort of what I would call, you know, more substantial ARR deals done, you know, sort of in the 10 to 50. And then there's obviously the larger, you know, public companies that could be merger candidates.
spk04: Yeah. So, you know, as I said in my commentary, we think now is the time. You know, we see, I think what you see is, in the public markets and the private markets. You know, what I mean by that is there are a number of assets now where a year ago, you know, I wouldn't say it was a cost of capital problem. I think it was an expectation problem from, you know, 2020 and 2021 where people were sort of hoping for prices that we didn't feel were appropriate for the risk. I think today two really interesting things have happened. One is I think partly or primarily because of our POS business, but probably because of our unified platform, It is understood that our company deserves a premium multiple to any single product. What I mean by that is if you are a company that's solving one particular need within the restaurant industry, I believe we can very comfortably argue with you and your shareholders that we should deserve the premium multiple relative to you given the resiliency of our business and the growth of that business. And so I don't think it's a cost of capital problem. I think the market actually now appreciates that. And in my conversations, we get very comfortable there. The second thing that's happened, which I think clearly happened in the public market, is the quantity of deals available has changed. There are many companies that we went after the last 18 months that it was a chase, where today we see numerous companies not only be up for business, but hire investment bankers and change the conversation. I think we feel excited about the M&A opportunity set, primarily in actually the larger deals that you're talking about. Most of the small deals, I don't think you'd see us do a menu-like deal. That was a very unique product with a very unique hole that we needed to fill. But I think we feel more excited about the larger deals than the smaller deals because the smaller deals are a ton of work, and we don't have a massive product gap we're trying to fill like we did with menu. Here, we're trying to build market share, more cash flow, and more growth.
spk02: Right. So let me build on that. This is the final part of my question. Obviously, this has been a long journey when you joined on the company. It was subscription revenue of $7 million. Whether we finished the year at $140 or $150, government is bigger, hardware is now profitable. But the company arguably trades at the lowest multiple. Private equity firms are out there buying different businesses, 20%, 25% growers, 30% growers, a double-digit revenue multiple. I mean, if you are unable to scale this business in the public markets, I mean, how do you think about creating shareholder value for folks? Because I mean, I would make arguments that this would be an amazing platform for any private equity firm or another, you know, sort of larger strategic public player, because there seems to be a very large dichotomy between sort of what private market value is for an asset like this or strategic market value and where you're trading. And so, obviously, I appreciate, you know, your willingness and interest to sort of buy companies and be the consolidator. But if people don't want to dance with you, I mean, how do you think about sort of, you know, being the consolidated? Because right now, you know, interest rates are 5%. And you know you know if you're not trading 50 million dollars of revenue you're trading at a fraction of what your private market bet or if you're not you know trading 50 million dollars a day in the public markets you're not microsoft you know you can't get valued in the in the public market so i'm just sort of thinking you know what is your willingness to extract value for shareholders if you know you you're unable to sort of do a transformational merger or acquire enough businesses to sort of get scale in the public markets
spk04: Yeah, so I'll break it to you. I think there's three or four questions I jotted down. So the first is, I think PAR is a great platform, whether it's private or public, to have an incredibly successful run for a long period of time. As you heard in my comments, you know, while we've grown a lot, our pipeline has never been bigger. And I believe that, you know, we may not be the 100% grower, but the durability of long-term, high-quality growth is here for a long run. And so I think it's very attractive, whether it's public or private. To your question of our ability to extract value, I believe PAR is up for sale every single day. Every single day we are available to create value for our shareholders. And if there's an opportunity for that to be where we are not the consolidator and we are the consolidated, we're not running from that. I think we have to drive value wherever value can be found. And so we wouldn't run from that. Now, do I think it's the right long-term fit for shareholders for you know, it depends on price. And we see a really strong path for us to be the consolidator and to drive higher returns on capital. But if someone comes in at a price that defeats that, no problem are in. We're not going to, you know, hold on to anything because our job is to create value for our shareholders. On your sort of last part about size, you know, you and I have debated about this, but, you know, I think that if we can get to the property numbers that we think we can get, and become a Rule of 40 company, the market will reward us. And I think there are good examples in the public markets of that. And so, you know, I would call that sort of the path we're going on, you know, with M&A alongside of that. But, again, we're open to creating value in any which way we can. So, you know, I guess that would be my answer. Okay.
spk08: Thank you. Okay. Stand by. Our next question comes from George Sutton with Craig Hallam.
spk11: George, your line is open.
spk06: Thank you. This is Adam on for George. Thanks for taking my questions. Savneet, it's great to hear the menu is off to such a strong start, but I'd be curious to know if there's anything specific you've heard from the signed customers that's really driving that enthusiasm and whether or not that's something you think is persistent through the industry landscape or if this is really more of a unique or operator-specific move.
spk04: It's a product move. So, you know, I think when we show a demo of the back end of Menu, it's, you know, it reminds me of when I first became the CEO and people would see a demo of Brink and they would say, you know, how did you crawl in my head and know exactly what I wanted? You know, Menu was built to be the modern version of the legacy online ordering companies exist today. And, you know, what I see is our customers quickly see that. You know, our customers are moving from a world from a templated online ordering site to something that configures and makes them feel like it's their brand. I've used examples. If you go to different large brand online ordering websites, they relatively look quite similar. And I think back in the day when online ordering was an acute problem, i.e. during the pandemic, it didn't really matter. But today, where competition is fierce, we're in a recession, you really need that online ordering presence to match the brand, the feel, the look, the ethos, the culture that you built in-store. And with Menu, you have that ability. It's beautiful, it's configurable, you control it. But the backend then makes your life so much simpler. And tying that all together into Punch and into Brink, you know, it really is a beautiful and winning combination. And so it's very much product-led, and I think that's very much being driven by PAR. And I do think we get credit from our customers for having done a good job on Punch, having led this transformation of Brink to say, okay, we can try to trust PAR to do this. Over time, we'll add other layers, the sort of unified service, unified contract, Unified support, all these things I think will come. But right now, I do believe we're winning because of the product. And over time, I think we'll add more layers to that. Now, there are amazing companies that are in this space that we look up to and have envy of. But in the end, we believe that our sort of gritty nature, our ability to empathize with the operator, not the CIO, but the actual operator on the ground, will continue to help us win business here.
spk06: That's great. And I was hoping you could also provide a little more detail on the pipeline. I know you mentioned that there's more large QSRs than ever before, but any other detail would be appreciated.
spk04: You know, it's hard to give detail on pipeline, but, you know, what I think we see happening is that every year I used to say, we want to get, you know, one or two large customers. And, you know, and today what we see is this, This pipeline filled up with, you know, very, very substantial brands that I would have thought would be the late adopters. That's maybe the best way to explain it. There are late adopters now that are active in evaluating upgrades to their technology infrastructure that are way ahead of the schedule I would have had. And, you know, so much so that it stressed us internally to figure out how do we service this best. And I think what's happened is that they've seen the success of other brands adopting the cloud. They've also seen the challenges of homegrown systems and the ability to kind of build POS or loyalty on your own and how hard it is to maintain that in a world of the cloud where you're doing an update every month or every two weeks where before it was static. And then I think there is some ability where I think our reputation and We may not be the greatest company in the world, but I do believe our customers know that they can trust us. They can call me at any time and I will pick up the phone and we'll get to a solution. They can text anyone on our team, they'll get a response. And in the restaurant business, it's a real-time business. If something goes down, you need a response. You need someone to care for you. And I think we've done a really good job of, while we've had, I think, good success and we feel like we've accomplished a lot, we haven't lost that gritty nature of when you're a store operator and you're in that store and that POS is down, the last thing you want you to hear is, hey, we'll get back to you tomorrow. And so I think it's that combination of they're saying, all right, we're now at a scale where we can continue to operate, but they see the success of other people doing it. And I think they see the potential failures in trying to do it themselves, given how much technology has changed over the last decade.
spk06: Thanks. And I'm going to squeeze in one more, if that's all right. I'd be remiss if I didn't ask at least one question on AI. And I appreciate the tempered enthusiasm that Obviously, it's very early, but without getting ahead of ourselves, it would be great to hear your thoughts on what may be the lowest hanging fruit for restaurant operators and how you think about that in terms of development.
spk04: I don't know if I've got the perfect answer for that. I think we see test cases happening everywhere. I think the industry answer would be the highest area of artificial intelligence usage would be on voice AI. calling in for phone orders, using voice at the kiosk, or using voice at the drive-thru. But that, I would say, isn't sort of industry-wide. But I think that would be the most common answer you'd see because those solutions have kind of been out in the market for some time. And you're now sort of getting, I think, customer acceptance that that's just the way we operate. The stuff that I think could be a lot more interesting for our operators is actually leveraging this data to redo their scheduling to manage their labor force, manage their inventory more efficiently, optimize their menu in ways that they didn't think about, maybe real-time pricing of a menu. You know, things like, you know, maybe our burger prices change 5 cents, 10 cents, depending on the time we go to a store. You know, those are the areas I think that could be more interesting for the restaurant. In the end, we operate in a market that is highly ROI-focused. And so I don't see restaurants being... the early adopters of AI until we can give them a use case that we can say, this is the return on that investment we're giving you. And that was sort of my point, which is if I went to our customers and said, hey, we're spending 20% of our budget on AI products, I think they would shoot me. And they'd say, what are you talking about? Like, we want this stuff to work better in the store. We want more delivery. However, given that we are, I think, have so much data gravity across all of our products, we have more data, I think, than anybody else in the enterprise When that innovation happens, we are the perfect place for that to be built out of. And so we have a ton of initiatives internally to build great products, but we can't lose sight of the fact that we still need to deliver every single day. And so we're trying to walk that line carefully, which is we do have a lot of initiatives going on, but we have to do a great job on our core products on its own. I'll be remiss if I didn't add, internally at PAR, I think you'll see really cool tools. We're going to use AI, obviously, for our things like our chatbots, our support for our customers, our support internally. We're using it to understand how we manage our own resources to make our developers more efficient. And so AI, it will be used within PARP, but I think we have to sort of watch how the industry ends up adopting and getting to a point where we can actually prove ROI.
spk08: Okay. We have time for one last question. Stand by. We have
spk11: Anja Søderström with Sidoti. Anja, your line is open. Please go ahead.
spk01: Okay, thank you. And I actually only have one question as most of my other questions have been addressed. But I'm just curious, when you upsell or cross-sell, do you often displace other providers or is it selling into an empty space?
spk04: Hey, Anja, good evening. It is, we're almost always displacing other providers. There's once in a while where I think punch is going into an organization that may not have a loyalty product or it may have something home-built. But for the most part, we're just placing an existing vendor.
spk01: Okay. And is it most often the same vendor or various?
spk04: It's various, although if you think of the categories we operate in, online ordering, POS, loyalty, there are some large competitors that we see more often, but it's various.
spk01: Okay. Thank you. That was all for me.
spk04: Thanks, Anya.
spk11: Okay. That does conclude our Q&A. I would like to turn it back to Sanvit Singh, CEO, for closing remarks.
spk04: Thanks, everyone, for joining. We look forward to updating you on your progress as we go forward.
spk11: Thank you for your participation in today's conference. This does conclude our program. You may now disconnect.
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