PAR Technology Corporation — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual report; the supplied filing text does not provide a separate Q4 income statement.
Business context
PAR operates Restaurant/Retail, providing restaurant and retail software, hardware, payments and services, and Government, providing technical services and systems to U.S. defense and other federal agencies. In April 2021, PAR acquired SaaS loyalty provider Punchh for approximately $507.7 million, extending its restaurant commerce platform. Restaurant/Retail represented 74.4% of FY2021 revenue; Government represented 25.6%.
Financial performance and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $282.9 million | $213.8 million |
| Gross profit / margin | $62.1 million / 22.0% | $39.3 million / 18.4% |
| Operating loss | $53.9 million | $23.9 million |
| Net loss | $75.8 million | $36.6 million |
| Net loss per diluted share | $3.02 | $1.92 |
| Adjusted EBITDA (non-GAAP) | $(17.8) million | $(12.5) million |
| Cash used in operating activities | $53.2 million | $20.2 million |
| Cash and cash equivalents at year-end | $188.4 million | $180.7 million |
- Revenue rose 32.3%. Product revenue increased 43.4%, service revenue 52.0%, and contract revenue 1.8%. Punchh contributed $27.7 million of revenue after its acquisition.
- Gross margin improved, including product margin of 23.0% versus 19.6% and service margin of 30.5% versus 27.9%. Management cited favorable product mix, higher sales volume, Punchh SaaS mix and cost improvements; inflationary material costs remained a headwind.
- Restaurant/Retail revenue was $210.4 million, up 47.6%, but its operating loss widened to $58.3 million from $28.1 million. Government revenue was $72.5 million, up 1.8%, with operating income of $5.8 million versus $5.6 million.
- Investing cash outflow was $383.0 million, primarily reflecting $374.7 million net cash paid for Punchh. Financing cash inflow was $443.6 million. Cash used in operations increased, partly from the larger loss and working-capital needs, including higher inventory.
- At year-end, long-term debt carrying value was $305.8 million; aggregate principal on the convertible notes was $398.8 million. Current liabilities were $60.5 million and current assets $283.0 million. The filing reports no separate current ratio.
Material changes and financing
- Punchh’s acquisition materially increased goodwill and intangible assets: goodwill rose to $457.3 million from $41.2 million and net intangible assets to $118.8 million from $33.1 million. No goodwill impairment was recorded in 2021.
- PAR issued $265.0 million of 1.50% convertible notes due 2027 and raised $52.5 million net from a September public stock offering. The proceeds, together with other funding, repaid and terminated the $180 million Owl Rock term loan. PAR also issued stock privately to help fund the Punchh acquisition.
- Research and development expense increased 79.6% to $34.6 million; SG&A increased 81.8% to $84.0 million. The company recorded an $11.9 million loss on extinguishment of debt and a $4.4 million insurance gain. A $9.4 million income tax benefit primarily reflected a valuation-allowance reduction associated with Punchh-related deferred tax liabilities.
- ARR, a company-defined non-GAAP operating measure, was $88.2 million, up 163.6%; this included Punchh ARR of $46.7 million. Brink POS installed sites grew to 15,897 from 11,722.
Outlook, risks and controls
- Management said existing cash and cash equivalents were expected to meet operating needs for the next 12 months. It also expects losses to continue for the foreseeable future while investing in growth, product development and acquisitions. The filing provides no specific revenue or earnings guidance.
- The Air Force Research Laboratory awarded a Government-segment IDIQ contract with a $490.4 million ceiling. Its value depends on government commitments; at year-end $42.8 million was committed and $5.8 million funded, net of work performed. Government backlog was $195.3 million, of which $38.6 million was funded; approximately $87.0 million was expected to be completed in 2022. Backlog is not assured revenue.
- Key disclosed risks include COVID-19 impacts, supply constraints and inflation, labor availability and wage pressure, customer concentration, competition, cybersecurity and third-party cloud dependence, acquisition integration, government funding and contract risks, and the possibility of impairment of significant goodwill and intangibles. Three largest Restaurant/Retail customers together generated 30.0% of consolidated revenue; the U.S. Department of Defense accounted for 26%.
- Management and the auditor concluded internal control over financial reporting was ineffective at December 31, 2021 because of material weaknesses in control and monitoring activities. The auditor issued an adverse opinion on internal controls, while issuing an unqualified opinion on the FY2021 financial statements. Punchh was excluded from the internal-control assessment pending integration. Remediation was ongoing for 2022.
- The filing describes an accrued $790,000 liability for an Illinois biometric privacy lawsuit. PAR stated it did not believe pending litigation would materially adversely affect its financial condition or results, based on information then available.
Important facts for investors to verify
- Whether recurring SaaS growth and Punchh integration improve Restaurant/Retail operating performance and cash generation.
- Progress in remediating the material weaknesses and whether future auditor assessments confirm effective controls.
- Debt principal, conversion and maturity terms, dilution potential, and cash available after operating and investment needs.
- Actual commitments, funding and revenue conversion under the $490.4 million IDIQ ceiling and reported Government backlog.
- Customer retention and purchasing levels, supply-cost trends, and the assumptions supporting goodwill and intangible-asset valuations.