PAR Technology Corporation

Good day, and thank you for standing by. Welcome to the PAR Technology Fiscal Year 2024 Second 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 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Chris Burns, Senior Vice President of Investor Relations and Business Development. Please go ahead.

Thank you, Amy. Good morning, everyone, and thank you for joining us today for Power Technologies' 2024 Second Quarter Financial Results Call. Earlier this morning, 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 Q2 financials presentation, as well as in our related form, aka, Furnace 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. The 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 like to 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 morning and in our annual and quarterly filings with the SEC. Finally, I'd like to remind everyone that this call is being recorded, and it will be made available for replay via a link available on the investor relations section of our 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?

Thank you, Chris. Good morning, and welcome to everyone on the call. Q2 marked an inflection point for PARP. We delivered meaningful growth on a near-flat OpEx space, launched our Burger King rollout, integrated Stuzo, completed the work to close the task acquisition, and launched Wendy's in July. Equally important is that we divested our government business, clearing the way for us to be a pure-play food service technology business. We are marching towards becoming a very profitable business while increasing our ability to effectuate change at our customers. Subscription services continues to be the growth engine of our company, and subscription services revenue grew by 48% in the quarter versus the same period last year. Our relentless focus on customer success, along with a commitment to delivering best-in-class products, continues to drive our results. Excluding Stuzo, now branded par retail, second quarter ARR grew organically by 24% when compared to Q2-23. This is an impressive number given we're just kicking off Burger King, launched Wendy's in July, And as you know, we recognize payments revenue on a net basis. At the end of Q2, ARR stood at $192 million, a 57% increase in the second quarter last year. Additionally, post Q2, we closed our acquisition of TASK, which will contribute an additional $40 million of ARR. Operator cloud ARR grew by 37% to $84 million in Q2 when compared to the same period last year. Operator cloud growth is being driven by increased win rates at Brink with stronger multi-product attachment of data central and par payments, as well as continued ARPU improvement. ARPU increased by 14% from the same period last year due to higher value deals, API monetization, upsell, 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 very robust pipeline of tier one deals. To put this into perspective, the successful attachment of both data central payments into a brink concept increases the ARR opportunity by over 3x. As I mentioned, we officially launched the Burger King rollout on April 1st, and Burger King is extremely pleased with the progress made to date, including both from a product as well as an implementation perspective. We feel confident that Park can be the enabler of BK's digital success and are giving them every reason to accelerate our rollout and hopefully add additional products down the road. It is critical Burger King meets their implementation thresholds for the year, and we are partnering closely to ensure that they do. As we mentioned in the last call, whatever we don't install this year will get quickly rolled out in 2025 and the early parts of 2026. Turning to PAR payments. In Q2, PAR payments achieved our highest-ever gross processing volume run rate of $2.5 billion. Pipeline execution led to the signing of several new concepts, such as Chow Time Canada, Wings Over, and Miami Grill, to name a few. which will be going live before the end of the year. In Q2, we went live with three new customer logos and continued our rollout with Smoothie King. Importantly, many of our new wins include processing for above-store transactions, not just our traditional in-store POS processing. Our pipeline of new customers is strong, and we expect continued momentum following the launch of our Punch Wallet offering at the start of Q3. I'll give more details on Punch Wallet later in the call. Looking forward, The team is fully engaged on integrating payment capabilities into part retail and tasks to unlock further growth. Adding payments to the part retail sales bag is very exciting. Data Central also delivered a strong Q2. This quarter included the signing of seven new customers across the restaurant and C-store space, including pilot travel stops and the ongoing rollout of Love's Travel Centers. We continue to build out a robust pipeline with four new Tier 1 concepts, and see additional opportunities for Data Central to be attachment to bring deals. Data Central is winning off the strength of Brink's tremendous growth and reputation, creating a roadmap for future upsell of new products. The enterprise market is seeing how the connection of the POS, back office, and payments processing delivers improved operations, enhanced data capture, and significant value to their business. This trend will continue. Our engagement cloud, which includes Punch, Menu, and now ParRetail, continue to study growth trajectory in Q2. After a period of rapid change, our near-term goal for Punch is to drive stable new business wins of 500 to 1,000 new locations quarterly. Our exciting new product launch with Punch Wallets demonstrates better together innovation and is driving new revenue with Punch plus ParPay. This has amazing potential to enable Starbucks-like payment experiences for all Punch brands. Plunch Wallet is a clear demonstration of PAR's better together strategy and providing improved outcomes for our customers. Features include saved payment options, stored value balances, digital wallets, and subscriptions. Plunch Wallet allows for up to two and a half times faster checkout times, a 23% increase from repeat store visits, and an increase in customer lifetime value of more than 150%. Year-over-year AR growth for Engagement Cloud was 11%, driven by the deals we signed at the end of 2023 and very early in 2024. This past quarter saw significant new customer growth with nine new brands launching on the Punch platform, and we also saw 12 upsell deals to existing customers. In early July, we went live with Wendy's, a deal that we announced in Q1. Record time for a go live for a large enterprise deal. Looking ahead, we expect Punch to be a strong profit contributor to PARC. The newest part of Engagement Cloud is Stuzo, which has been rebranded as ParRetail. ParRetail is a leading digital engagement software provider to convenience and fuel retailers. The product is in 20,000 stores, in over 20,000 stores, and provides a beachhead to cross-sell additional products across like payments and back office. Our pipeline looks strong for the second half of the year, and importantly, we hope to launch our first payment product for this market, which will continue to improve our better together strategy. Menu, our digital ordering application, also delivered an impressive Q2. We continued launching new customers and have officially reached more U.S.-based active sites than our international base, highlighting a key initiative we had entering the year, which is getting Menu to be U.S.-ready. We launched five new concepts in Q2, and every new customer is an existing customer of another PAR product, proving that our customers desire a more unified experience. Additionally, some of our customers continue to test additional modules of Menu, We are encouraged by the progress so far with Menu and expect a solid second half of 2024. Engagement Cloud ARAR now totals $108 million at the end of Q2 and has approximately 95,000 food service outlets utilizing our software. We continue to see PAR as uniquely positioned in the food service technology sector with best-in-class software across key operational and engagement pillars. Our ability to deliver better outcomes across our products and producing a better together experience with multiple products sets PAR up to be the industry standard. Q2 hardware revenue grew 10% quarter over quarter and is starting to claw back some of the challenges we had in Q1. Hardware is always hard to predict as 40 to 50% of our business is outside of Brink. But given the strong pipeline of Brink, we expect hardware to stabilize and hopefully start growing while our team works to upgrade our base of long-term hardware-only customers. Stepping back to review our consolidated results. In Q2, our adjusted EBITDA was negative $4.3 million. This number, though, includes $2.5 million of one-time charges related to customer credits and SUSO purchase price accounting adjustments. When further adjusting for these charges, our adjusted EBITDA came in at negative $1.8 million, giving us tremendous confidence in our previously communicated goals of inflecting the adjusted EBITDA positive in Q3. This fast slope in EBITDA is impressive, especially in light of the over $10 million of annual EBITDA we gave up as part of our government sale. the team is proving that our customer flywheel is leading to dramatic operating leverage. Our EBITDA swing is being driven by both subscription services revenue and stringent expense management. On the expense side, our non-GAAP operating expenses, including part retail, grew by only 3% year-over-year, continuing our trend of intense expense controls while scaling AR quickly and simultaneously launching both Burger King and Wendy's. This is not easy to do, and I commend the team for their commitment to only spending in areas where we can improve ROI. I think it bears repeating that this is the sixth quarter in a row where operating expenses were near flat, while ARR grew organically greater than 20%. Drilling down into the components of expenses, subscription sales and marketing expense as a percentage of revenue this quarter is 18%, a significant sequential 300 basis point improvement from the 21% we had in Q1. Sales and marketing expenses actually decreased $1.1 million organically. As I noted on the last call, we want this number to get to 15% or lower and are sprinting our way there. This is being driven primarily by our ability to take price and upsell while continuing to realize just how many products an individual AE can sell. Our subscription R&D expense as a percentage of revenue was 31%. This number improved 400 basis points sequentially, and our organic R&D spend actually decreased $1 million. We have our sight on eventually taking this number to 25% and lower. Brink, in particular, is leading the charge here, proving that we can launch large and diverse concepts off of one core platform. The work we did to retool Brink is now paying significant dividends. These numbers don't include tasks, which, as most of you know, is a very profitable business that we're rapidly integrating into PARC. While the path to profitability is very clear, we understand that in the end, our success will be dictated by the success of our customers. So while we've done a commendable job becoming efficient, our team will not lose sight of the fact that our ability to drive these unit economics is predicated on our customers winning. As I've said in the past, words like consolidation and bundling have had negative connotations, and I think for the right reasons. Prior attempts to consolidate were not done around industry-leading products. It required customers to trade off functionality for simplicity. This is explicitly what we are not doing at PARP. Our products must stand on their own, be best in class, integrated natively, and when unified, deliver surprise and delight. This is what's truly driving the financial outcomes you are seeing today. To recap, Q2 was a very successful quarter across many fronts for our company. I'm energized by the Better Together experiences and what that means for our customer relationships and outcomes, both existing and prospective. The combined effort of the PAR team around the globe has put us in a unique position to further our mission of fueling the future of food service and retail. We're at day one of a massive opportunity. Brian will now review the numbers in more detail. Brian?