PAR Technology Corporation

good day and thank you for standing by welcome to the par technology 2024 fourth quarter and year-end financial results conference call at this time all participants are in a listen-only mode after the speaker's presentation there will be a question and answer session to ask a question during the session you will need to press star 1 1 on your telephone you will then hear an automated message advising your hand is raised to withdraw your question please press star 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, Daniel. Good morning, everyone, and thank you for joining us today for Part Technology's 2024 Fourth Quarter and Year-End Financial Results Call. Earlier this morning, we released our Q4 financial results. The earnings release is available on the investor relations page of our website at parttech.com, where you can also find the Q4 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. 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 like to remind participants 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?

Thanks, Chris, and good morning, everyone. We reported $105 million in revenues in Q4, an increase of more than 50% year-over-year. Subscription services ARR more than doubled to $276 million from last year, and 21% organic growth when compared to Q4 2023. Alongside this revenue growth, our non-GAAP post-profit grew organically 30% year-over-year. Adjusted EBITDA came in at $5.8 million, more than doubling the sequential previous quarter, continuing to show the long-term margin expansion potential. The growth in profitability in the quarter was driven by both operator and engagement cloud. Operator cloud ARR grew organically by 26% in Q4 when compared to the same period last year. ARR for this business unit now totals approximately $117 million, including delegates. Operator cloud growth is being driven by increased new customer wins, upsells, and bookings from planned rollouts with existing customers. PAR POS signed eight new customer logos in the fourth quarter, with all of those new customers selecting multiple products from PAR. This continues to validate our better together thesis while increasing our LTV per customer meaningfully with no additional cost to acquire. We're excited about the projected velocity for Burger King as well in 2025 across both PAR POS and PAR Ops. Having recently expanded our partnership with Burger King to include our PAR Ops product line, we're working closely with BK and using Q1 to fine tune the sequencing of rollouts between both products to enable a combined and mutually agreed upon implementation rollout for 2025. We expect significant and accelerated implementations from Q2 onwards. This is an exciting change as it demonstrates our better together thesis working at one of our largest POS customers. We currently have approximately 1500 BK sites in backlog with a robust white space, ensuring excellent 2025 visibility and acceleration in potential. While combining a second product to the BK rollout temporary slows our pure POS rollout in Q1, adding a second module dramatically increases our LTV. We would make this trade every time, and importantly, a combined rollout is the right thing for franchisees as well. We will never sacrifice customer success for short-term gain. Partnership is what drives our long-term strategy. At the very end of the quarter, we announced the acquisition of Delegate, and we immediately kicked off a rebrand of our back office initiative into the new ParOps, which includes the Delegate and Data Center product modules. Our integration with Delegate and the team has been better than expected, and we are seeing strong customer interest, including among marquee tier one accounts, as we continue to build out our par data platform. Delegate not only boasts a highly synergistic product offering that will accelerate cross-sell, it also affords entry into more than 25,000 sites covering 40 of the top 50 restaurant concepts. Further, it comes with a seasoned management team now driving the combined par ops business. It's important to note that Data Central finished up the year with a strong Q4 through targeted cross-sell growth across our customer base. This growth will accelerate as we are forecasting ParApps to have its strongest growth year yet in 2025. We have begun the work on product unification efforts with Delegate that includes single sign-on and real-time data flow, a big step in building towards our data platform. The initiative is highly strategic and underscores our continued drive towards a better together platform that is not replicated anywhere else in the enterprise market. We will be sharing additional details as the year progresses on this exciting initiative. Now to report on our payments business. As we exit 2024, our payment services continue to drive high transaction counts and processing volumes across our customer base as we look to take more stores live while driving better payment processing economics. Notably, we continue to see strong interest in our Punch Wallet with more customers onboarding every quarter, including Paris Baguette, Gold Star Chili, and Runza and Q4. Additionally, we successfully cross-sold a Tier 1 customer with approximately 1,000 locations on our payment services. This customer's conversion will positively impact our results over the coming quarters and is a further example of our better together project win. As our customers continue to unify, they're above store and in-store processing with Parpay, The scale of our data sets across loyalty, ordering, and POS product puts PAR in a unique position to leverage tokenized information to drive actionable insights, mapping known and unknown customers, and personalizing communications to drive higher ROI and increased lifetime value. We are the only company in the enterprise who can link off-premise and on-premise tokenized data with loyalty data all the way to the back of house. This is a moat that is hard to replicate. There's a growing trend in the industry towards disjointed multi-vendor solutions that attempt to stitch together guest data, payments, and ordering across multiple third parties. But integrations alone don't create intelligence. First-party data does. Many attempt to take pieces of payment data and combine them with external systems, but because PAR owns the full technology stack, everything we do is first-party, ensuring true data integrity. Some would have you believe that restaurant technology should be run outside the POS, fragmenting operations across multiple platforms. We see it differently. POS is and will always be the true control center of the restaurant. After all, 80% of transactions still happen at the POS. It's where real-time transactions, menu data, and guest interactions all converge. Payments, loyalty, and ordering are not separate systems. They are part of a restaurant's mission-critical platform. That's what makes our approach fundamentally different from the rest. Rather than layering on third-party processors and intermediaries, we are removing inefficiencies, giving our customers lower processing costs, higher authorization rates, and full control over the guest relationship. Looking ahead for the year, our pipeline remains robust for our payment offering across both PAR clouds, ensuring we capture new growth opportunities. Moving to our engagement cloud. Engagement cloud ARR reported 15% organic growth in Q4 when compared to the same quarter last year. ARR now stands at approximately $159 million for the Engagement Cloud and includes Plexure and PAR Retail. Our strong execution in this business has led to several new Tier 1 customer wins. Our Engagement Cloud continues to exceed standards and dominate the loyalty, offers, and engagement market with consistently strong interest from existing and new customers. With increasing customer headwinds in 2025, many brands are doubling down on digital technology to drive increased consumer frequency and retention. notably through enhanced investments in loyalty programs. Punch is seeing continued product and sales consistency by delivering growth, both with new customers and expansion with existing brands. Punch is the market leader for restaurant loyalty and delivers stability and innovation to our customers. This quarter, we achieved multiple large customer win-backs who had previously churned from Punch for pure guest data platforms, but then returned back to Punch. Most notably, A Tier 1 table service chain and two well-known casual dining enterprises were part of this transition back to punch. Moving to par retail. In the convenience and fuel industry, our team executed the launch of a major multi-thousand unit brand and additional major upsells with our largest customer in Q4. We brought to market the first fully integrated major oil and branded retailer program in the industry. Beyond our exciting customer wins, the par retail product continues to expand to serve the fuel and convenience industry. In Q4, we successfully launched gamification, updated unified e-receipts, enhanced punch card functionality, and optimized member surveys with our focus on developing features that drive incremental outcomes like more visits, more gallons, and bigger baskets that continue to deliver value for our customers. As our customers look to us to expand our platform into the industry-specific white space, we are looking to accelerate innovation efforts in the retail vertical through M&A. We are targeting specific strategic opportunities in the near term that will add additional value to our customers and their members. Moreover, we're beginning to see our integration synergy efforts begin to flourish as we have streamlined our efforts across the retail and restaurant space. We've seen already that this is allowing us to focus our R&D and sales efforts between industries to maximize profitability, accelerate innovation, all while improving customer satisfaction. Briefly touching on hardware. I'm pleased to report that we have reversed recent trends and increased our hardware revenues by 7% in Q4 versus the same quarter last year. Several key global brands have approved our newest platform, the ParWave, and we are seeing increases in both domestic and global sales. Also contributing to the turnaround is our new ParClear drive-thru solution that is setting the standard for drive-thru comms. With an open architecture that will enable users to leverage the power of AI for the drive-thru Parclear is positioned to be not only the industry leader in QSR drive-thru systems today, but also the preferred platform for the future. Our hardware and POS software divisions are partnering closely on product to ensure that Parclear adds to our strategy of better together innovation. To summarize, we remain very bullish about the future of food service technology and Par's continued role as a leading enterprise provider. In 2025, we foresee our ability to execute on both our historical growth rates and deliver on the biggest M&A pipeline we've seen to date. I view this time as a great opportunity for us to make bold bets and strengthen our market position. I'm confident in our ability to consistently innovate and provide value to our customers for years to come. Persistence trumps everything, and I believe we'll come out as the winner in the enterprise. By raising the bar for execution and investing in our products and teams for the long term, We are well positioned to drive durable growth in the category where the opportunity will continue to grow for the foreseeable future. Brian will now review the numbers in more detail. Brian. Thank you, Sydney.

Good morning. We closed out 2024 with another successful quarter for PAR. Subscription services continue to fuel our organic growth while our team continues to execute with fiscal responsibility. As a result, Adjusted EBITDA for the quarter improved 3.4 million sequentially from Q3 and 13.1 million compared to Q4 prior year. This positive movement is indicative of our ability to continue to drive growth with profitability. Now to the financial details. Total revenues were 105 million for Q4 2024, an increase of 50% compared to the same period in 2023. driven by subscription services revenue growth of 95%, inclusive of 25% organic growth. Net loss from continuing operations for the fourth quarter of 2024 was 25 million, or 68 cent loss per share, compared to a net loss from continuing operations of 22 million, or 77 cent loss per share reported for the same period in 2023. Non-GAAP net loss for the quarter of 2024 was $37,000, or effectively zero cents per share, a significant improvement compared to non-GAAP net loss of $12 million, or 43 cent loss per share for the prior year. Now for more details on revenue. Subscription services revenue was reported at $64 million. an increase of $31 million or 95% from the $33 million reported in the prior year and now represents 61% of our revenue. Excluding our retail and task group, organic subscription services revenue grew 25% compared to prior year. ARR exiting the quarter was $276 million, an increase of 102% from last year's Q4. with engagement cloud up 150% and operator cloud up 60%. Excluding par retail, task group, and delegate, total organic annual recurring revenue was up 21% year over year. Hardware revenue in the quarter was 26 million, an increase of 2 million or 7% from the 24 million reported in the prior year. Sequentially, compared to Q3 this year, hardware was up 3 million or 15% driven by an increase in volume attached to our software customers. Professional service revenue was reported at $15 million, an increase of $2 million, or 17%, from the $13 million reported in the prior year. The growth was driven by recurring revenue service contracts. $9 million of the professional services revenue in the quarter consisted of recurring revenue, a 25% increase versus prior year. Now turning to margins. Gross margin was $45 million, an increase of $21 million or 86% from the $24 million reported in the prior year. The increase was driven by subscription services with gross margin of $34 million, an increase of $18 million or 116% from the $16 million reported in the prior year. Subscription services margin for the quarter was 53% compared to 48% reported in the Q4 of the prior year. The increase in margin is driven by a continued focus on efficiency improvements with our hosting and customer support costs, as well as accretive margin contributions from recent acquisitions. Excluding the amortization of intangible assets, stock-based compensation, and severance, total non-GAAP subscription services margin for Q4 2024 was 64.7% compared to 65.3% for Q4 2023. The modest tickdown was driven by a shift in product mix post-2024 acquisitions. Gross margin continues to improve across our products, and we expect total non-GAAP subscription services margin to continue to improve from this current baseline. Hardware margin for the quarter was 26% versus 29% in the prior year. Hardware margin in Q4 2023 was positively affected by one-time inventory adjustments. Our focus of demonstrating value for our price with improved operational efficiency has allowed us to improve hardware margins during the year and finish 2024 with full year hardware margin of 24%. Professional service margin for the quarter was 28% compared to 10% reported in the prior year. The increase primarily consists of increases in margins for field operations and repair services. substantially driven by improved cost management and reductions in third-party spending. In regard to operating expenses, gap sales and marketing was $10.5 million, an increase of $1 million from the $9.5 million reported for the prior year. The increase was primarily driven by inorganic increases related to our acquisitions, while organic sales and marketing expenses decreased $0.3 million year over year. GAAP G&A was $31 million, an increase of $12 million from the $19 million reported in the prior year. The increase was primarily driven by non-GAAP adjustment items for M&A transaction fees and stock-based compensation, as well as inorganic increases related to our acquisitions. GAAP R&D was $17 million, an increase of $3 million from the $14 million recorded in the prior year. The increase was primarily driven by inorganic increases related to our acquisitions, while organic R&D expenses decreased 0.5 million year over year. Our team was able to effectively drive cost efficiency and properly prioritize resource allocation, which enabled us to continue to drive innovative outcomes without incremental costs during 2024. Operating expenses excluding non-GAAP adjustments was $47 million. an increase of 9 million or 25% versus Q4 2023. And excluding inorganic growth, organic operating expenses increased a modest 2%. The organic increase was primarily driven by variable compensation and benefits. Exiting Q4, non-GAAP OpEx as a percent of revenue was 45%, a 900 basis point improvement from 54% in Q4 prior year. Now to provide information on the company's cash flow and balance sheet position. As of December 31st, 2024, we had cash and cash equivalents of $108 million and short-term investments of $0.5 million. For the year ended December 31st, cash used in operating activities from continuing operations was $21 million versus $32 million for the prior year, representing an improvement of $11 million. Cash flow metrics improved throughout 2024. and we exited the year with positive operating cash flow of $3 million for the fourth quarter. Cash used in investing activities was $180 million for the year ended December 31st, versus $8 million for the prior year. Investing activities included $309 million of net cash consideration in connection with our recent acquisitions, and capital expenditures of $6 million for developed technology costs associated with our software platforms, partially offset by $96 million of cash consideration received in connection with the disposition of our government, and $37 million of proceeds from net sales of short-term investments. Cash provided by financing activities was $279 million for the year ended December 31st, compared to cash used of $2 million for the prior year. Financing activities was substantially driven by a private placement of common stock to fund the STUSO acquisition, and the credit facility entered into to fund the task acquisition. Subsequent to the 2024 fiscal year end, the company issued $115 million of convertible notes and utilized the net proceeds from this offering to repay in full the credit facility. These transactions enhanced our capital structure by extending our debt maturity profile and significantly reducing our go-forward cash interest expense. I would now like to take a moment to reiterate and thank our PAR team on how they managed a successful and action-packed year. both from an operational and business development point of view. We pride ourselves on making accretive capital allocation decisions, and through our focus on operational execution, position PAR for sustained growth and success. As a result, the PAR exiting 2024 is a marked improved and better positioned organization than when we entered the year. This is clearly demonstrated by some key financial metrics. ARR more than doubled during the year, increasing 102%. Locations utilizing our SaaS solutions doubled with over 140,000 locations at the end of 2024. Non-GAAP consolidated gross margin increased by 720 basis points to 50.3%. Q4 non-GAAP OpEx as a percent of revenue improved 900 basis points compared to prior year. And Q4 adjusted EBITDA improved by 13.1 million compared to Q4 prior year. We are proud of what we have been able to achieve, but we are by no means content in where we stand and look forward to continue executing to our strategy as we progress through 2025. I'll now turn the call back over to Savneet for closing remarks prior to moving to Q&A.

Thanks, Brian. Let me wrap up with a few key messages before we open the call for Q&A. 2020 was a year of development and we are pleased to have closed it on a positive note with a strong cue for performance and maintaining category leadership in food service tech. We had a key objective in 2024, and that was to grow sustainably and efficiently to build our business for the long term. To this end, our team executed on three main areas. First, we focused on driving organic ARR growth and sustained momentum in our software business. We worked on initiatives to improve our products and operations, cross-sell our entire software portfolio, and sign new customers. As we spoke about earlier, all of our POS deals in the quarter were multi-product deals, and equally important was our upsell into our biggest POS customer. Our flywheel continues to expand through better together strategy, which is based on product innovation and ROI, not predatory pricing tactics. Second, we execute on a targeted and meaningful acquisition strategy to strengthen our product offerings, expand our TAM, and build out a global capability to serve food service enterprises. Our expansion into C-stores and international markets has created a truly new TAM for us, and our acquisition of Delegate is already accelerating our flywheel for existing customers, including our largest and most strategic. We also divested our legacy government business that now enables us to 100% focus on our core markets. M&A is core to our product strategy, and our integration efforts are what drive our robust cross-sell. PAR has, over many years, invested in building a deep leadership bench that can digest and optimize investments. As companies join, they become part of a cohesive, culturally aligned PAR where we add to, not detract from, their product aspirations and go-to-market motions. We cross-pollinate leaders quickly and unite core operating structures, and this synergistic approach to M&A is what sets us apart from other food service technology companies or sector investors who operate a collection of siloed entities and masquerade as multi-product, while really just being single threaded multiple times over. Better together is what we live every day at PAR, and I'm extremely proud that the vast majority of our executive leadership team has risen the ranks at PAR over many years and in multiple roles. This is our key to turning inorganic growth into sustained future organic growth. We are a team of seasoned operators with a holistic view of our business and industry. Finally, we remained fanatical about managing our operating expenses by continually optimizing our cost structure. As a result, we maintained top-line revenue growth and have now delivered two quarters of strong adjusted EBITDA growth. While I'm extremely proud of our revenue expansion, I'm equally proud that non-GRAP gross profit grew organically by 30% this quarter and our adjusted EBITDA well more than doubled quarter over quarter. Today, our sales and marketing R&D expenses are now well within our long-term goals of 15% and 25% respectively, far ahead of schedule, and I believe this shows the upside to our long-term margin goals for the company. With 2024 firmly in the rearview mirror, we look towards 2025 with confidence and optimism. For 2025, we feel confident in committing to continue to grow our business at 20-plus percent annual rates for the year. Our growth quarter-to-quarter will never be linear, but I feel confident that over the course of the year, we'll continue to hit our targets while continuing to drive EBITDA. What's more, we see a number of key levers that create upside to our year. While there's still a lot of work ahead of us, we are confident that our balance sheet, cost discipline, and execution strategies will enable us to continue to grow our business sustainably. As always, I want to thank my PAR teammates for their hard work in driving these results. Our shared belief that today is day one drives our collective hunger and ambition. I also want to express a deep appreciation to our customers, partners, and shareholders Thank you for your time this morning, and we will now open the call up to questions. Operator?

As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster. Our first question comes from Mayank Tandon with Needham. Your line is open.

Thank you. Good morning. Congrats, Subneet, Chris, and Brian on the quarter. Subneet, I wanted to start with the upsell into BK. Does this change the timeline of the rollout? I believe the rollout was expected to be completed sometime in spring of 2026. Does this in any way change the timeline of the 7,000 plus locations? And also does it change the ARR opportunity, which I believe was something in the order of low 20s, millions? Is that going to be meaningfully different based on the upsell?

Yes, yes to both. So it'll probably push us out a quarter, quarter and a half. You know, Q1, as I referenced, we're sequencing the rollout so that starting in Q2, we can do a combined rollout. So while it'll slow down, call it Q1, just a pure POS rollout, it'll really accelerate Q2 onward. As I mentioned, that's a trade with you all day long because to your second point, It significantly adds to the ARR in the ad opportunity. As you know, we've disclosed that the pure POS deal was around, you know, low 20s. This adds to that pretty meaningfully. We haven't disclosed that number quite yet. But, you know, we feel really excited. You know, as I said, while it pushes out the rollout a little bit, it, you know, dramatically increases the LTV and operating cash flow that this deal will generate over time.

Got it. And then maybe as a follow-up, I would just ask around the quarterly cadence. I get it. You said it's not going to be linear. There'll be some volatility, but any color you can provide in terms of the various revenue buckets, how we should think about the quarterly cadence and also the same question around margins, you know, should we expect sequential improvement or are there other factors we should consider as we're modeling for 2025?

Yeah, so I think that you should see, you know, meaningful margin expansion the second half of the year, as well as acceleration of revenue growth the second half of the year, tied to this, partly to this burgeoning question you just asked. You know, remember, we're going from one product to two products, so it's a lot more revenue opportunity and in a condensed period of time. So you'll see that. So Q1 and Q2 will be investing, you know, aggressively to make sure we can knock that rollout out. And again, you should take it and everyone else should take it. The fact that we're expanding our relationship is a hugely positive sign that we're hopefully doing a good job in earning their trust. So you'll see in the back end more revenue growth, significantly more EBITDA expansion because of that rollout accelerating. As we mentioned on the call, we have a large payment services deal rolling out that also hits the second half, as well as the convenience store deal that I mentioned on the call. These are all really exciting things, very forecastable. These aren't sort of like, let's hope. These are all in forecast. And as I mentioned, we've already booked over 1,500 VKs, and we're in January, right? Or February, rather. So there's a lot of room for excitement in the second half of the year here.

Great, that's all good to hear.

Congrats on the quarter.

Thanks, Mike. Thank you. Our next question comes from Steven Sheldon with William Blair. Your line is open.

Hey, thanks for taking my questions and a lot seems like to be excited about. I just want to follow up on Burger King. Can you just remind us what all is included in that contract now? Because I think it's initially par POS, potentially menu link. I think you're saying now the contract includes par ops. Obviously, as you talked about, very encouraging expansion. But when you say par ops, I mean, are they adding both data central and delegate? Or maybe just talk about all the products that they're actually going to be picking.

Sure. So there are core deals for POS and, you know, historically parts of menu link, but POS is the vast majority of it. And our expansion into par ops is on data central. But, you know, without question, you know, we're 60 days into the delegate acquisition, you know, we'll certainly be trying to bring that opportunity into that as well. No guarantee it happens, but I think, you know, the better together point is resonating with them and obviously all of our customers given the attachment rates right now. So it'll start with one product and hopefully we can add more if we do a good job.

Got it. That's helpful. And then just on 2025, you know, I appreciate the commentary that you're confident in 20% annual growth rates, but is there any way to roughly frame how you're thinking about organic ARR next year, just given what you can see in the pipeline and kind of current implementation schedules? Just any way to refine that a little bit more?

Yeah, I mean, I think from what we see today, like I said, the second half will have sort of higher growth rates than the first half. partly because of the three deals I mentioned, the payment services deal going live, Burger King, acceleration from end of Q4, and then the convenience store deal that goes live as well. So we have a lot of visibility into the second half of that acceleration. And so the way I think about it is, you know, You know, 20% plus, you should have higher than that in Q4, lower than that in Q1. And again, Q1 being the slowest one because of the hurricane coordination we talked about. But in aggregate, we feel really, really good about the year. We have never had so much visibility when it comes to the rollout of, you know, these deals that I mentioned. So we feel super confident in the year with the visibility we have today. And as I mentioned, you know, those three deals that I mentioned that are key for the second half of the year, these are signed, committed, booked.

These aren't sort of pipelines. Got it. That's helpful. Thank you.

Thank you. Our next question comes from Will Nance with Goldman Sachs. Your line is open.

Hey, guys. Good morning. Congrats on all the great things you guys have going on. I wanted to ask just on the restaurant space more broadly. There's been a lot of focus on the consumer space. and specifically the trends in restaurant sales, and you guys obviously have a very differentiated look into the different pockets of the restaurant space. What are you guys seeing on the ground, and what does it tell you about the health of the consumer?

I'd say it's not categorical. We see sort of a wide disparity of outcomes. In the full service dining space, we see a slowdown. Ironically, that's been really helpful in our punch business because those firms are really investing in loyalty. And I think you heard me say we had a couple of people that had previously left punch to try, you know, consumer data platform type products come back to punch. I think that's a direct result of what's happening in that sort of full service dining market. And then, you know, in our kind of core QSR fast casual space, It's certainly seeing a slowdown. It's not what it was, but we're not seeing negative comps across our base. In fact, our base is still up low single digits. So we've sort of been lucky in that the customers we sell to have tended to outperform the restaurant industry in aggregate. So in general, our base is still growing. There are bankruptcies happening, but they're a very small portion of our base. And again, that's just a little bit of luck in the makeup of our current customer base. Where we see the most disruption is and I would say it's significant, is in single stores and small chains. We see numerous chains, kind of sub-30 units, 40 units. Again, we don't play a ton here, but we see that space, and there are a lot of those ones that are experiencing tremendous pain. And I think the reason why is that when you're at that size, you don't yet have a big enough brand to sort of have those sticky customers. You haven't been around long enough generally. And then two, I don't think you have the investments in technology to fight back. And so the larger brands, I think, are going to do better because they have the ability to invest in Punch, as an example, the ability to invest in our data platform to bring customers back in. So, you know, in aggregate, our base is still growing, you know, single digits, which is great, and low single digits. So it's better than the rest of the industry. But there's a lot of disparity amongst the chains.

Got it. Super helpful. I appreciate all the thoughtful detail there. And just maybe a quick follow-up on the hardware inflection that you guys saw. We heard from one of your competitors yesterday that sounds like they're expecting around a 20% drop in hardware revenues. So I guess, what have you guys been able to do differently to reaccelerate that business? Is any of the momentum that you're seeing competitive wins? And just how are you thinking about the hardware refresh cycle?

So I think there's two parts to it. So one is we sell to enterprise. And I like to say enterprise is a product business. You've got to have the better product. And so I think if you look at the data, we think our products are winning because they are standalone best-in-class products. And so I think that really helps us. Specifically, we have had really strong attachments of our – hardware product to our software customers. So even, you know, I won't name it, but even, you know, a large dealer that we're not picking for hardware have now started to adapt more and more for hardware. And it's that better together functionality that I mentioned. The idea that your hardware company is also your software company, so it's also your service company, your call center, it makes life a lot easier. So it's the same better together thing that's happening. And so we continue to see, you know, call it attachment into the, you know, our core software customers drove it. On the legacy non-software customer side, it's not been a big change, but we've made some real investments into this drive-through product. And as you've probably read in all the restaurant companies, there's a big move to voice AI in the drive-through. And so we believe we'll be the preferred partner there, given that we are a software company that sells hardware now. And so I think that will be a nice driver of hardware growth going forward. Brian, anything else?

Yeah, I was just going to add, in regards to the software attachment, the fact that our location size has doubled, has then given us that much larger audience to be able to have that attachment to. And so that's happening as where some of the hardware-only type of competitors are actually seeing a downturn. Maybe in certain areas we actually continue to have a larger white space to be able to support that. So that's been able to help us against what you're seeing in other areas.

Awesome. Appreciate all the color guys. Nice job today. Thanks.

Thank you. As a reminder, to ask a question, please press star 1-1 on your telephone. Again, that is star 1-1 to ask a question. Our next question comes from Samad Samana with Jefferies. Your line is open.

Hey, good morning. Thanks for taking my questions. I know you mentioned the drive-thru hardware and how it's kind of like leading class. and allow your customers to leverage AI. My ears perked up a little bit about that. Is that AI that you guys have homegrown that will be embedded in that? Is that you guys working with third-party platforms that enable it? And then maybe help me understand, is the path to monetization there through APIs, or is it your own product that you're providing? And then I have one follow-up.

Yeah, fantastic question. So, yeah, so... Well, we build the drive-thru hardware, so think of that as the headsets, the base stations. But we are also, you know, in the part clear, it's a cloud offering. So we will be charging subscription software to allow you to manage your drive-thru. Now, why that's important is that through that, to your point, there will be an API that allows the voice AI companies, which there are dozens of them out there, plug in directly to the base station so that they can run their tech. So we aren't yet going to be the company that's sort of selling voice AI technology directly and trying to be an ordering company there yet. It might be something we explore in time, acquisition or not, but we're kind of watching it carefully. However, if you're plugging into our base station, you're going to be paying us fees to do that and to enable that. And so it's a way for us to you know, make money on the potential growth, but importantly, we're giving them a service that makes it a lot easier for them to run their platforms at these restaurants.

Great.

And then maybe just switching gears a little bit, on the punch side, it's great to hear about the customers boomeranging back. Maybe, could you give us a little bit of color of maybe what made them churn in the first place? And with that context in mind, what convinced them to come back, right? Just putting those pieces together, I think would be very helpful.

So, you know, we had a couple customers, I don't know exactly when, maybe a year ago, two years ago, sort of say, hey, we don't want to do a loyalty program. We want to use something more like a, you know, a CDP system or a guest data platform. The idea being, you know, we'll be targeting customers directly. Loyalty customers are, you know, 20% of our base. We want to target everybody else. And You know, Kenley, those are really good sales pitches, but in reality, they're not yet developed enough to drive the ROI that a loyalty program today. And in the end, I think brands need both. I think you need an awesome CDP system that can target customers on a very personalized level, but you still need these loyalty programs that build really engendered loyalty. Loyal customers are, you know, repeat visitors. They're high margin customers. They are the advocates of your brand, you know, everywhere you go. And so I think what those brands realized is, hey, we thought we're going to, you know, we're going to have loyalty across our entire set of customers. So why do we need just a loyalty product? And they ended up moving back realizing, you know, one, the products that exist today that are trying to build that promise aren't yet ready. And two, candidly, ROI went down dramatically. And so it really was validating that the punch product creates real true ROI back to the customer. And then I think as those customers continue to evolve data platforms, they'll end up picking the par data platform because when you can combine their loyalty, first party loyalty and par, plus they're sort of called tokenized data and a data platform, plus all the operations back office we have, you know, that's sort of the point that I was making. I think it's a real note that we have that nobody will be able to compete with.

Great. I'm going to squeeze a third one in here. Um, any, any type of information you have assigned delegates, financial profiles, maybe growth rate, margin structure, um, and, and how you're thinking about it for 2025.

Sure. So, um, when we closed the deal, it was about, um, um, 19 million of recurring revenue. Uh, historically the business had grown, uh, you know, well over 30%. Um, I want to say mid-30s. And so it's been a really fast-paced grower. It exited 2024 marginally profitable. And we're hoping for this year, obviously for that too, it to be our fastest-going product outside of payments and ordering. And we'll certainly drive meaningful EBITDA. You know, it's kind of exciting to have a product that we think we can push through quickly. And as you've kind of seen, when we acquire a business, we tend to ramp up revenue quickly. What's exciting about Delegate is that it's so synergistic that, you know, once we figure out single sign-on real-time data flow, it'll be hard for customers to say no. So, you know, I'm not saying it's going to keep growing 35%, but I certainly believe it will be additive to our growth rate.

Great, congrats on a really transformative 2024.

Thank you.

Thanks a lot.

Thank you. Our next question comes from Eric Martinuzzi with Lake Street Capital Markets. Your line is open.

I wanted to ask about the subscription service gross margin. That non-GAAP number was 64.7%. It was below what we were forecasting for Q4. In your commentary, it sounds like you expect that to be a trough, but I was just curious, where do you expect it, either for the full year 25 or a year from, you know, for Q4 25?

Eric, appreciate the question. Yeah, you're correct. It came down from a year ago. It was really driven by our most recent acquisitions and kind of absorbing that in. Across our products, we continue to see the margin improvement. that we've been driving towards. So nothing operationally changed. It may then kind of reset a baseline and as you continue to kind of grow off of that. So how you've been seeing the margin improve quarter over quarter, you know, not significant amounts, but call it your 50 to 150 basis points. We expect that to continue as we move forward here in the near to medium term.

Okay. And then just a housekeeping item here. Your performance share count You finished out Q4 with 37.2 million of diluted weighted average shares. What is that post-delegate?

Yeah, we're just north of 40, Eric. Thank you. Sure.

Thank you. Our next question comes from Adam Wyden with ADW Capital. Your line is open.

Hey, guys. Really, really, really good profit. So just a couple things. On the gross margin again, Brian, so some of this is from the purchase. So if you expect that gross margins are going to improve 50 to 150 basis points per quarter, you would expect your incremental gross margin rate to be materially higher on your subscription software pretty much every quarter throughout the year. Is that right?

Correct. And that's going to be, so both top line, right, decision services being a growth driver, like now it's 61% of our total revenue. And as you mentioned, you know, we expect, you know, call the 20% plus, you know, increase year over year. But then the margin actual improving itself would actually have a multiplier effect in regards to the gross profit margin increase.

Right. Yeah. I mean, look, I would think that payments and delegate and all these things, I mean, Stuzo, that you don't have a ton of like piloting and hosting. I mean, I would think that your incremental gross margins on some of these, I don't know cash very well, but I would think the incremental gross margins on a lot of these products should be, you know, 70, 75, 80, maybe even more something like menu. Also, you know, you're, you're sort of getting, you're leveraging all the R and D. And as you ramp menu, I would think you'd have really high gross margins on a lot of these on the organic, you know, sort of prospectively. So I know the last couple of quarters, you've had some sort of purchase accounting stuff and, and, I know you had something with Stuzo, that lower gross margin, that was sort of a purchase accounting thing. But I would think like sort of prospectively, you know, as you ramp 20% organic ARR+, you would get high incremental gross margins going forward.

Yeah, and it's not going to be like a significant increase from what we've seen trended over time, right? It's a nice, I wouldn't say it's modest. It's something we kind of pride ourselves on how we improve it. And as you know, it varies also depending upon the kind of types of products, right? Generally, a POS kind of product might have a little bit heavier R&D than a back office, and you can see that across the industry, right? But we focus on each of our areas to make sure that we see and push the teams in each of the areas to incrementally improve their margins.

Okay, great. And then my second question is back on M&A. You know, obviously, we've seen some other companies buying stuff, I guess, smaller stuff. But, you know, when I look at sort of other companies that sort of, you know, are sort of one-of-one assets in enterprise, I guess, you know, maybe one example would be like ServiceTitan, although, you know, they're sort of a sort of a vertical stack software for small businesses. They sort of are the only game in town, you know, sort of the vertical sort of end-to-end product. You know, those companies are sort of growing high teams and they're trading at like 12 times revenue. I'm sort of curious how you think about sort of doing M&A in the context of you know, where your cost of capital is. I mean, on our math, I mean, obviously going into today, you guys were sort of in the fives on an EV to ARR basis, depending on how you value the hardware business. I mean, it doesn't feel like you have a ton of spread on the companies that you're buying. I'm just curious, like, you know, how do you think about sort of getting your cost of capital up to do M&A? Is it, you know, do you think that you're going to get your multiple back up? You know, maybe comment on that and just sort of, you know, the duration of the growth that it's not just about 20% error growth this year, but that you have a multi-year runway to it. I mean, I'd love to sort of see how you think about sort of those two sort of concepts together, because the multiple structurally hasn't really expanded over the course of the last 12 months, right? I mean, if you really think about where the business was sort of 16 or whatever, 14 months ago, pre-government, pre-task, pre-delegate, your ARR per share has grown meaningfully faster than sort of the multiple. And so I'm just curious sort of how you think about all that.

Yeah, let me just jump in because we've got three more, four more calls after. So short answer is, in the end, numbers matter more than anything else. You know, accounting is the language of business, and our numbers will dictate how our stock performs. And I think our numbers are great and strong and getting better and better. And I believe that Marcus Reward is the durability of revenue, ostensibly believe in the durability of cash flow. And I think we are continuing to demonstrate that over and over again. And I believe we will get rewarded for that. In the end, software companies, multiples should contract when growth slows, when your TAM gets to the end of it and you become, your rule of 40 flips to all cash flow versus growth. We don't have that situation here. In fact, as you heard in my commentary, while our growth won't be linear, there's a lot of really nice upside here in the second half of the year that will also happen the following year. And so I think that, I don't know how you get to the five number, but I think we feel really confident that we're one of the few software companies in our size that will be able to continue to grow at rates that are higher, well above the median, if you will, and continue to drive impressive profit numbers. And so the multiple is rewarded. The numbers win in the end. It doesn't matter what I say or do. In the end, the numbers matter and we'll get there. Specifically, to your point on M&A, you and I have talked about this extensively, but when you're using multiples, it's a relative game. And so if we're trading at, I don't know, seven times current ARR, we will set the benchmark for the market. And there are very few companies that have metrics as good as ours, and so I suspect we will buy them at a discount to that multiple. Now, are there certain assets that we might not be able to buy because we're not trading at a wild multiple? For sure, but there's not a lot of those. and not a lot of those that we want, and not a lot of those that would make sense in our flywheel. So as I said in the script, you know, we've got a really strong M&A pipeline, you know, and every time I've said that, you know, we've executed upon that. So I think you'll see us continue to do that. And the critical part, you know, in my script was, you know, M&A for us is a product strategy. It's not a, you know, let's go buy a bunch of revenue. It's how do we create a product to increase our organic growth and then our long-term, you know, profitability. And so we feel really good about that today. And if I didn't, I would tell you, hey, M&A is not going to be part of our strategy, but we're on the first call of the year and we're talking about it here. So I think you can take that as don't feel the multiples holding us back from being acquisitive right now.

I was just going to clarify on the ARR multiple. When you look at ServiceTitan and even Agilis' post-sell-off, those companies are still trading at like, double digit sales multiples on this year. And I was talking about, you know, sort of a five, five and a half times on 26. And, you know, when you look at the company on a 26 ARR or 26 EBITDA, I mean, it's, there's a massive gap between companies like Toast and Service Titan and even Agilis as opposed to 40% decline. So I'm just highlighting the fact that like we're executing, you know, on many, on many levels better than these other companies from a growth and incremental margin perspective, but we continue to trade at a discount. So, You know, I hope we can figure out a way to narrow that discount because I think this is a best-in-class company.

And let the numbers drive that. So, you know, our numbers will drive it, and I feel confident we'll get there. All right. Thanks, Adam.

Thank you. Our next question comes from Andrew Hart with BTIG. Your line is open.

Hey, thanks for the question. Suneet, obviously, I think a big message today was the better together approach. that you were pushing on. I guess as ARR has doubled the past year, business has scaled, much more robust platform right now. Can you just discuss a little bit how some of your conversations with these larger enterprise CTOs have evolved just from a brand perspective and sales pipeline perspective?

Absolutely. And listen, I thank you for pulling out the script. You know, listen, like I said, we signed eight POS deals in a quarter, which is impressive in the enterprise space. All of them pick multiple products. We upsold our largest customer another product. You know, clearly the flywheel that I talked about is working, and Delegate is really going to accelerate it. You know, Adam, or sorry, the caller before Adam talked about it, but, you know, it's a beautiful thing that's working. You know, my conversations with these organizations, you know, I think we're setting up for a really interesting outcome. As consumers, you know, there's consumer uncertainty right now, and so restaurants are now really focusing on digital efforts because they're trying to create efficiencies in the back of house, and pull you in the front end. And so they're creating more investments in technology. However, they're making those investments in technology without increasing their staff. In fact, many restaurant companies, you know, are flat staffed, particularly in operations and IT space. And so how are they going to do that? They probably don't want to add three more vendors. They probably want to attach it into PAR. And so I've had, you know, a couple of sales processes I've been a part of where, you know, it's very clear that the reason why they love us is not just because our products are best in class, it's because they can just trust the existing PAR relationship. And so, you know, we've spent an incredible amount of time and effort rejiggering our teams, focusing on that account management side so that we can bring in those products. And I just want to be clear, we do not win because we bundle. We win because the products work better together. And, you know, my push to the delegate team that now runs combined PAR Data Central is the win for us is not a year from now or six months from now, a customer looks and says, oh, when I had delegate and PAR as two separate vendors, it was a different experience than when I had it under one roof at par. And I can't stress to you how powerful that is to the end customer. And we've had a lot of amazing examples of how we're winning deals by just showing that in a demo saying, hey, guess what happens? If you've got punch and brink, look at this unique functionality you can have at the POS that others can't. So it really is the theme. I think, candidly, we were probably really too early on this thesis. We've been talking about it for a long time. But it's certainly playing out. And again, I never would have dreamt that all of our deals in a quarter were multi-product deals. That's a really exciting change for us.

Thanks. And then thinking about 2025, you talked about the Burger King expansion, the payments deal, the convenience deal. I think there's a lot of moving pieces. Another one is I guess Stuzo gets layered into organic and TASC gets layered into organic. So can you maybe talk about some of the things that can drive much higher than 20% growth, some of the things that you really have to execute on? And when you think about TASC and Stuzo getting layered into organic, How have those businesses been coming along as we get ready for 25?

Great question. So one is getting our acquisitions to become organic will certainly help us. SUZO, I suspect, will grow faster than 20% a year. You know, the TASC has two businesses, TASC and Flexure. TASC itself will grow greater than 20% a year. Flexure will be sort of close to the engagement rate. cloud growth rates, and then delegate will go well above the 20%. So as we lap the acquisitions, you will have faster organic revenue growth because the acquisitions in general, we look to buy stuff that's growing faster than us. So that's just mathematically a nice part of it that happens. And actually, I didn't mention it on the other questions, but that will also help the back half of the year as we lap the acquisitions. Second, though, and listen, more importantly, it's our ability to execute upon the deals that we have in place. So our plan, if you will, to get 25% growth assumes a relatively conservative rollout at our largest POS customer. we want to blow through that. And I know our partners at that company think we can do even double of what we're going to do. And so that's number one. Can we execute on that? Number two is in par retail, the team has done an incredible job. I really think the leadership there has done a great job of driving that business, but we have tremendous levers in driving real upside to our deals there because in certain deals in par retail, our pricing increases based on our performance. And so as we have great performance, the pricing goes up quite meaningfully there. And then third is our ability to execute and get deals live and earlier than we expect. And that's something that I think our team is feeling really good about today. We'll see as it progresses. But there are a couple of really meaningful levers that I see out there. And then the last thing I'd say is that as we fold in these acquisitions, they do create an accelerated go-to-market motion because now we can pull in data central faster because the customer already uses delegate as an example. We can pull in stuff faster, and so it should shorten our sales cycle. That might not be the big lever, but I think over time it creates a nice ability to shorten sales cycles also.

Thanks, Regan.

Thank you. Our next question comes from Charles Nabon. With Stevens, your line is open.

Hi, good morning, and thank you for taking my question. I wanted to drill into the previous question a little further, specifically around TASC and the international opportunity. Clearly, that expands your TAM. It sounds like it's growing in excess of 20%, but I was wondering if you could speak more broadly about the international opportunity, how you see that playing out, and, you know, any more specific color around TASC could be helpful as well.

Absolutely. And give us another quarter because we're going to, we're making a lot of investments and changes there. We'll talk about the next quarter or so. But, you know, I think right now core markets we're focusing on are sort of, you know, the APAC region where we've got really strong foothold. You know, we are winning the sort of marquee brands in Australia and New Zealand and that part of the world. And we've got a long, you know, a really nice pipeline we've got to execute on. So what we're really kind of helping the team is operationalize that part of the business so that they can become as programmatic as we can, about getting sites out the door. It's a small business, so it hasn't gone through that scaling, if you will, of how do you add 1,000 sites a quarter or something like that. And so we're working to kind of implement that. We took one of our best leaders at PAR, put him in charge of tasks, and he is driving that. And so we're going to focus on that region first, pull that forward, do a great job. We have already, I think, brought in... one or two really high-quality brands that are U.S. brands that want to expand to that region to partner with us there. That's crazy exciting for us because then obviously we can grow them in other parts around the globe. But we're trying to master that one region, and then we'll kind of expand outside of that.

Got it. And as a follow-up, I wanted to ask about the hardware margin. Nice little uptick this quarter. I apologize if you touched on this already, but could you maybe talk about the drivers of that expansion there? during the fourth quarter, as well as how we should think about that margin within hardware going forward. Are we sort of at peak margins within that business, or could we potentially see more expansion as we move through 25?

So we've been, in both the hardware and some of the professional services actually linked to the hardware, we've been able to increase margin percents year over year, as you saw. We're now in the mid-20s for hardware, which we're proud of, right? Some of the best hardware products are out there in the low 30s. So we would like to continue to increase. We understand we'd only be modest where we're going to get from that. And then from the actual professional services, as you saw, we went up from a 10% last year to a 28%. And so now we've been consistently in the mid to upper 20s on professional services. And that's correlated as we continue to grow some of our hardware business, that that would also increase from a revenue perspective and then it's recurring revenue, so it gives consistent margins below that. But I would not expect us to have significant margin improvement in both in the hardware professional services, but we are proud of how we've improved that over the past couple of years.

Got it. Appreciate all the color, guys. Nice quarters. Thank you.

Thank you.

Thank you. Our next question comes from Anya Soderstrom with Sedoti. Your line is open.

Thank you for taking the question. Most of them have been addressed already, and congrats on the great year here. I have one question in terms of the Tier 1 pipeline. Have you seen that expanded, and how are you talking to those potential customers in terms of upselling as well? And how are you going to be able to take on a Tier 1 customer in the near future, given the expanded rollout with BK?

So POS pipeline remains strong. I think the change we've seen is clearly the mid-market is really picking up for us. So it's kind of nice to see that. You know, as far as, you know, being able to roll out additional concepts, we feel very good about that. You know, with BK, you know, this rollout's been planned. The additional part of the rollout is a new module, a new product. So it won't impact kind of the core POS pipeline that's been strong for some time here. So I don't think it'll have an impact. And, you know, as I said, in Q1 and Q2, we're making some real investments to, you know, make sure we don't have any stumbles there. You know, I think it's, you know, one of the mistakes I see our peers make and we used to make years ago is, you know, you spend all this time getting software right, but then you get the rollout because you didn't, you know, hire enough bodies or training. And so we're, you know, we overinvest in that now because I think getting that right, you know, pulls revenue in faster and, you know, you make it up in spades down the road.

Okay. Thank you. That was all for me.

Thanks, Anya.

Thank you. I'm showing no further questions at this time. I would now like to turn it back to Chris Burns for closing remarks.

Thank you, Daniel, and thank you to everyone for joining us today. We look forward to updating you further in the coming weeks and days. Have a nice day and a great weekend. Thank you.

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