PAR Technology Corporation

closing on March 11, 2024, and therefore our reported first quarter results include 20 days of Stuzo results as well. At times during this call, we may discuss organic or standalone results, which excludes Stuzo, to help listeners understand our organic performance. Now I'll turn the call over to Sabneet for the formal remarks portion of the call, followed by Q&A. Thank you, Chris.

We had a strong start to 24, achieving 25% growth in ARR while closing one M&A transaction and announcing a second. Our subscription services business is clicking, and we feel confident we'll be able to continue to drive growth while turning EBITDA positive in Q3. Crucially, our products continue to be validated as standalone best-in-class while working better together, helping prove the value of our unified solution, and demonstrating to our customers that buying more from PAR does not sacrifice functionality but rather generates better outcomes. This is a point that I really wish to underscore again. Each of our products generates better experiences on other PAR products, thereby enhancing total stickiness and expanding sales opportunities beyond what a single product sale could generate. The flywheel at PAR is real. For the first quarter, subscription services ARR organically grew by 25% when compared to Q1 23. When we asked to do those contributions, ARR now stands at $185.7 million, a 60% increase from the first quarter last year. Additionally, once TAS closes, our current ARR would be over $225 million on a pro-former basis. In Q1 24, all of our products grew and par-achieved 25% organic year-over-year expansion without material contribution from large developers we've signed the past few months, notably Burger King and Wendy's. As I mentioned last call, we're going to be reporting in two segments, Operator Cloud, which includes Brink, Data Central, and Payments, and Engagement Cloud, which includes Menu, Punch, and SUSO. Simply put, we are reporting in the same manner as we are organized internally. Our Operator Cloud solutions predominantly work with IT and operations teams, while our Engagement Cloud solutions work with marketing and digital teams. Operator Cloud ARR grew 39% to $78.5 million in Q1 when compared to the same period last year. Operator cloud growth is being driven by increased win rates at Brink and continued ARPU improvement. Operator cloud ARPU increased by 22% from the same period last year due to higher value deals, API monetization, price increases, and PAR payment services go live. We expect the growth in ARPU to continue given current white space and existing high value accounts, as well as a robust pipeline. Brink is our most strategic product, and when selected by an enterprise, it presents an opportunity to cross-sell additional PAR products. POS remains the heartbeat of the restaurant, where scalability, stability, and extensibility are central tenants of successful operations. This is demonstrated by the fact that Brink receives almost 1 billion API pings per month across a relatively small number of stores. The mission-critical nature of POS for in-store, above the store, and kitchen is where we feel the true mission criticality of our solution lies. We've ramped up our teams for the BK project, where we expect rapid and solid velocity to start as of Q2. PAYMENTS CONTINUES TO ACCELERATE ITS GROWTH AND MORE THAN DOUBLED YEAR-OVER-YEAR. WHILE Q1 IS A SEASONALLY SLOW PERIOD WITH LOWER PROCESSING VALUE, PARP PAYMENTS MANAGED TO ACHIEVE ITS HIGHEST ANNUALIZED GROWTH PROCESSING VOLUME RUN RATE OF $2.4 BILLION. WE ACHIEVE THIS VIA THE FULL ROLLOUT OF AN 1100 STORE CHAIN AND FOUR ADDITIONAL RESTAURANT CONCEPTS. EACH OF THESE ENTERPRISES BENEFIT FROM OPERATIONAL EFFICIENCIES, COST SAVINGS, AND INCREASED CUSTOMER ENGAGEMENT BY LEVERAGING PARP RATE ACROSS MULTIPLE PARP PRODUCTS. LOOKING FORWARD Parpay is becoming a native infrastructure across all of our products, which has led to very high growth and the strongest pipeline we have ever had. With the recently announced acquisition of Stuzo and Task, the team is fully engaged in expanding Parpay into new verticals, which will continue to drive deal volume, customer adoption, and materially or higher margins. Data Central delivered a strong Q1. The quarter includes the go-lives of Love's Travel Center. We continue to build out a robust pipeline of business opportunities for Data Central through the attachment to Brink and Parpayment deals. with multiple Tier 1 concepts in the funnel. We feel very bullish about our ability to drive cross-sell, especially as Brink works through its very large pipeline of deals this year. Our operator cloud offerings provide less complexity, lower total cost of ownership, enhanced security, and reliable payment processing. Operator cloud products remain highly sticky, which we expect only to be strengthened in difficult macroeconomic times. Our engagement cloud, which includes Punch, Menu, and now Suzo, continues its momentum with a stronger-than-expected quarter. Deals closed in the second half of last year are starting to go live, and our year-over-year ARR growth, excluding Stuzo, was 11%. Meanwhile, our platform and tech debt investments are helping lower customer return, improve customer satisfaction, and expand hosting margins. We also continue solid sales momentum in Q1 with some strong brand winners, including Wendy's and a leading national chicken chain. Looking ahead, we expect Punch to be a strong profit contributor to Parve and the engagement cloud solution to drive stable growth. At the same time, we're announcing the launch of exciting new functionality in our Punch Wallet. This solution will help enable seamless payment and redemption flows and drive material cross-sell opportunities, further increasing the value and implied stickiness of the par product suite. Menu, our digital ordering application, also delivered an improved Q1 by going live in more than 1,200 sites across five new logos, including major chains like Beefo Brady's, Burger King, and a 700-store coffee chain. The newest part of Engagement Cloud is our recent acquisition of Stuzos. Just as a refresher, Suzo is a leading digital engagement software provider to the convenience and fuel retailer industry, including its open commerce platform, which empowers C-Stores to gain more share of customer wallet and drive customer lifetime value. The combination of Punch and Suzo allows us to offer best-in-class loyalty and digital engagement products across two food service markets, restaurant and C-Store. Additionally, with Suzo, Par is now the leading technology provider for convenience stores with over 25,000 customer sites, and substantial opportunities for innovation in the C-store industry, with a TAM of 150,000 stores domestically. Stuzo also provides the opportunity for additional cross-sell opportunities for other par products into a new customer base with material-stronger unit economics. Engagement Cloud AR now totals more than $107 million with Stuzo's contribution at the end of Q1. Also, as we previously reported, Stuzo's trailing 12-month adjusted EBITDA was $14 million. Although Q1 only had revenue contributions from Stuzo for around three weeks, the positive impact for the full Q2 and full year 24 will certainly be meaningful. We continue to see PARs uniquely positioned in the food service technology sector with best-in-class software across key operational and engagement pillars. Our ability to guarantee better together experiences across our products while separately enabling a robust integration infrastructure keeps us ahead of single product competitors that only control one part of the better together equation and are dependent on third-party integrations for customer experiences. Moving to hardware. We had a softer-than-normal Q1 due to increased seasonality issues and a shifting demand environment in our legacy restaurant, non-brink-based. Hardware sales are always hard to predict given their sensitivity to the macro environment, and as such, we'll continue to forecast conservative numbers to protect us from getting ahead of ourselves. We are focusing our efforts to make up this shortfall and believe there are opportunities to drive sales in hardware, namely increased McDonald's sales during their convention year and with the recent favorable industry response to our newly released terminal, the ParWave. Additionally, we're focusing on selling hardware to the few concepts who use Brink who have not historically used our hardware, as well as current Brink customers that will benefit from an updated equipment. Additionally, with a near 100% attachment rate of hardware to upcoming Brink projects, hardware will be able to tap into new large-cap customers in the near future. Hardware white space will only continue to grow, and this is truly an issue of when, not if. Moving to expenses. Our non-GAAP operating expenses grew 7% when compared to Q1 last year and excluding Stuzo. Almost the entire OpEx increase is associated with the Burger King and Wendy's rollout that will have significant return on investment, and that cost will then rationalize downward. In addition, earlier this year, we right-sized our go-to-market team, giving us additional expense tailwinds, and we expect to end 2024 at a lower quarterly OpEx than we started, excluding our acquisitions. So similar to last year, where we expect ARR to grow meaningfully without adding operating expense. This rigid expense management combined with consistent organic ARR growth will allow our company, as we sit today, to be EBITDA positive by the third quarter of this year. What I'm most proud about, though, as I just mentioned, is that we also expect par FX, excluding SUZO, to actually come down through 24. Said differently, I expect us to grow at the rates we're growing without additional operating expenses. And of course, Any accretive M&A only accelerates profitability. To provide more detail, I want to walk through the underlying margin for our subscription services business, which will provide clarity on how healthy our unit economics are becoming. These numbers exclude tasks which, if added, would only help prove the point. At the very top, our adjusted subscription services gross margin this quarter was 66%, flat quarter over quarter. As we get scale, we want to drive this to 70% plus. We feel confident we can get this done and think we'll see improvements this year. We estimate our sales and marketing expense as a percentage of ARR this quarter, when including the annualized contribution from STUSO, would be around 21%. This number will continue to improve as we get the benefit of the cost cuts I mentioned earlier this year. As I flagged last call, we want this number to get to 15% or lower. We estimate our R&D expense as a percentage of ARR, again, including the annualized contribution from STUSO, was around 35%. This number continues to get better and we have our sights on our target of 25%. As I hope investors can see, we're focused on driving towards our long-term goals, and the intense focus on keeping our OpEx flat has led to a strong acceleration in margin. What's more, as we bring TASK into PAR, we'll be adding another $6 to $8 million to EBITDA and a large pipeline of deals and a strong base of customers to cross-sell PAR products, creating the same flywheel internationally. To recap, We're executing a strategy that we established several years ago, and we're seeing the benefits of that strategy. We have a business model with strong organic fundamentals that positions us well to drive shareholder value while continuing to acquire new products to cross-sell into our base. We partner with some of the largest and most innovative restaurant companies in the world and have established ourselves as a trusted technology partner at these companies as they undertake their digital journey. We've executed a disciplined M&A strategy that is accretive to our journey towards profitability and rule of 40 while crucially expanding our TAM into the markets into markets with greater margin and cross-sell potential. And finally, we have a talented and dedicated employee base across the globe who are committed to helping our customers and our company win the industry. Brian will review the numbers in more detail, and then I'll come back to offer some guidance for the rest of the year. Brian? Thank you, Stephanie.

Good morning, everyone. Total revenues were $105.5 million for the three months ended March 31, 2024. an increase of 5% compared to the three months ended March 31st, 2023, with growth coming from increases in sufficient services and contract revenue, partially offset by decreases in hardware and professional service revenue. Net loss for the quarter of 2024 was $18.3 million, or a $0.62 loss per share, compared to a net loss of $15.9 million, or a $0.58 loss per share reported for the same period in 2023. Adjusted net loss for the first quarter of 2024 was $10.8 million, or $0.36 loss per share, compared to an adjusted net loss of $12.7 million, or $0.46 loss per share, for the same period in 2023. Adjusted EBITDA for the first quarter of 2024 was a loss of $7.2 million, compared to an adjusted EBITDA loss of $8.8 million for the same period in 2023. driven by increased margin contribution from subscription services, partially offset by reduction in hardware revenue and margin. Now for more details on revenue. Subscription service revenue was reported at $38.4 million, an increase of $10.4 million, or 37.2% from the $28 million reported in the prior year. The increase was substantially driven by increased subscription service revenues from operator cloud services of $5.9 million, driven by a 20.7% increase in active sites and a 22.2% increase in average revenue per site, and from our engagement cloud services of $4.5 million, primarily driven by $2.7 million of post-acquisition STUSO revenues. The residual increase of $1.8 million from our engagement cloud services was driven by a 5.8% increase in active sites and a 7.5% increase in average revenue per site, Excluding STUSO, organic substitution service revenue grew a meaningful 27% compared to prior year. The annual recurring revenue exiting the quarter was $185.7 million, an increase of 60.2% from last year's Q1, with engagement cloud up 80.5% and operator cloud up 38.8%. The acquisition of STUSO contributed $41 million to ARR, included within Engagement Cloud as of March 31st. Excluding Stuzo, total organic annual recurring revenue was up 24.8% year-over-year. Hardware revenue in the quarter was $18.2 million, a decrease of $8.6 million, or 31.9%, from the $26.8 million recorded in the prior year. The decrease was substantially driven by timing of enterprise customer hardware refreshes and timing of next-generation PAR terminal and headset rollouts. We continue to be optimistic of our hardware business as we address the growing demands from both legacy hardware customers as well as attached hardware sales within our expanding software customer base. Professional service revenue was reported at $13.5 million, a decrease of $0.4 million, or 2.7%, from the $13.8 million reported in the prior year. 7.7 million of the professional service revenue in the quarter consisted of recurring revenue primarily from our hardware support contracts. Contract revenue from our government business was 35.4 million, an increase of 3.6 million, or 11.2%, from the 31.9 million reported in the first quarter of 2023. The increase in contract revenue was driven by a 4.5 million increase in government's ISR solution product line. Contract backlog associated with our government business continues to be strong and appropriately funded. As of March 2024, backlog was 315.4 million, a decrease of 3% compared to 326 million as of December 2023. Total funded backlog as of March 2024 was 72 million. Now turning to margins. Gross profit was 28.6 million, an increase of 5.4 million for 23%. from the 23.2 million reported in the prior year. The increase was driven by subscription services with gross profit of 19.8 million, an increase of 5.7 million, or 41%, from the 14 million reported in the prior year. Subscription service margin for the quarter was 51.6% compared to 50.2% reported in the first quarter of 2023. The increase in margin is driven by a continued focus on efficiency improvements with a hosting and customer support cost for operator cloud services, as well as improved margins stemming from Stuzo's post-acquisition operations. Excluding the amortization of intangible assets, total adjusted subscription service margin for the three months ended March 31st was 66% compared to 71% in the first quarter of 2023. Sequentially, Q1 2024 adjusted subscription service margin is consistent with Q4 2023. Hardware margin for the quarter was 22.3% versus 16.4% in Q1 2023. The improvement in margin year over year was substantially driven by improved inventory management and price increases. Our focus of demonstrating value for our price with improved operational efficiency has allowed us to continue to improve hardware margins year over year. Professional service margin for the quarter was 16.5% compared to 17.9% reported. in the first quarter of 2023. The decrease in margin is driven by a decrease in margin for hardware-related services. We expect professional service margins to remain in the upper teens for the remainder of 2024. Government contract margins remained essentially flat at 7.1% as compared to 7.2% for Q1 2023. In regard to operating expenses, GAAP sales and marketing was $10.9 million an increase of $1.5 million from the $9.4 million reported in Q1 2023. As Stephanie mentioned, during the quarter we made changes to the Sales and Marketing Organization to enable more efficient growth. GAAP G&A was $25.6 million, an increase of $7.5 million from the $18.1 million reported in Q1 2023. The increase was driven by an increase in M&A transaction fees as well as stock-based compensation, severance costs, and post-acquisition STUZO. GAAP R&D was $15.8 million, an increase of $1.5 million from the $14.3 million recorded in Q1 2023. The increase was primarily driven by post-STUZO acquisition costs. Q1 2024 operating expense excluding non-GAAP adjustments was $42.3 million, an increase of $3.7 million or 10% versus prior year Excluding STUSO costs, the increase was 7%. As Stephanie explained earlier, we expect organic operating expenses to be flat for the remainder of the year as we continue to drive ARR and revenue growth, consistent with how we managed operating expenses last year. Now to provide information on the company's cash flow and balance requisition. With the three months ended March 31st, cash used in operating activities was $23.6 million versus $16.7 million for the prior year. Cash used for the three months ended March 31st was essentially driven by a net loss from operations and additional net working capital requirements due to an increase in accounts receivable resulting from revenue growth. Cash used in investing activities was $151.9 million for the three months ended March 31st versus $1.8 million for the prior year. Investing activities during the three months ended March 31st included $166.3 million of net cash consideration in connection with the STUSO acquisition and capital expenditures of $1.4 million for developed technology costs associated with our restaurant retail software platforms. This is all partially offset by $15.9 million of proceeds from net sales and short-term investments. Cash provided by financing activities was $190.8 million for the three-month end of March 31st, compared to cash used in financing activities of $2.4 million for the prior year. Financing activities during the three months ended March 31st was substantially driven by a private placement of common stock. I will now turn the call back over to Stephanie for closing remarks prior to moving to Q&A.