PAR Technology Corporation — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. Unaudited results; amounts are in USD millions unless noted. PAR operates Restaurant/Retail and Government segments.
Financial performance
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $54.8 | $45.4 | $155.3 | $134.3 |
| Gross profit | $11.7 | $9.0 | $31.8 | $26.9 |
| Operating loss | $(1.0) | $(4.0) | $(12.2) | $(9.5) |
| Net loss | $(3.7) | $(5.9) | $(23.6) | $(9.7) |
| Diluted loss per share | $(0.20) | $(0.36) | $(1.30) | $(0.61) |
- Q3 revenue grew 20.7%; Restaurant/Retail revenue was $37.3 million, up 25%, and Government revenue was $17.5 million, up 13%. Nine-month segment revenue was $102.4 million and $52.9 million, respectively.
- Revenue growth reflected Brink recurring software and deployments, the Drive-Thru and Restaurant Magic acquisitions, and stronger Government ISR work. Acquisitions contributed $7.9 million of Q3 revenue and $19.4 million in the first nine months.
- Q3 product, service and contract margins were 21.9%, 33.3% and 9.0%, versus 22.9%, 32.0% and 5.8%. Nine-month margins were 20.5%, 33.6% and 7.8%, versus 24.3%, 28.1% and 8.5%.
- Q3 operating loss narrowed, while nine-month net loss increased. The nine-month comparison included an $8.1 million debt-extinguishment loss, higher interest and increased Restaurant/Retail investment and acquisition-related amortization.
Cash, debt and liquidity
- At September 30, cash and equivalents were $55.8 million, versus $28.0 million at December 31, 2019. Current assets were $126.4 million and current liabilities $41.5 million.
- Operating cash flow was negative $14.4 million for the first nine months, versus negative $9.6 million a year earlier. Investing cash use was $6.9 million; financing provided $48.7 million.
- Long-term debt carrying value was $104.9 million, with $0.7 million current. Notes outstanding included $120 million principal of 2026 convertible notes and $13.75 million of 2024 notes; the company also had a $1.5 million acquisition-related subordinated note.
- PAR issued $120 million of 2.875% convertible notes in February 2020 and used proceeds and treasury shares to repurchase approximately $66.3 million principal of 2024 notes. The repurchase generated the $8.1 million extinguishment loss.
- Management said available cash was expected to fund operating needs for the next 12 months. After quarter-end, an equity offering raised $131.3 million net, including the partial exercise of the underwriter’s option in November.
Outlook, risks and unusual items
- No numerical revenue or earnings guidance was provided. Management said the continuing COVID-19 impact was uncertain and could materially adversely affect results.
- COVID-19-related risks include restaurant closures or reduced capacity, delayed deployments and customer payments, demand volatility, supply-chain disruption, and work-from-home and cybersecurity challenges. PAR increased inventory to mitigate supply risk. Management reported no material adverse impact on Government operations to date.
- Management described continued investment in Brink, Data Central, new products and Government business development. It cited uncertainty in defense procurement, workforce policies and spending as factors affecting the Government segment.
- A $2.3 million reduction in the Restaurant Magic earn-out liability improved Q3 and nine-month operating results; the remaining liability was approximately $1.0 million, and the earn-out had no stated maximum payment.
- PAR disclosed a pending Illinois biometric privacy lawsuit, which it believes is without merit and for which it had not recorded an accrual, and a business-partner royalty claim it intends to resolve. Government contract costs remain subject to audit and adjustment.
Most important facts for investors to verify
- How much reported revenue growth reflects acquisitions versus organic growth, particularly for Brink and Government ISR.
- Whether Restaurant/Retail demand, customer collections and deployment activity recover or remain affected by COVID-19.
- Cash burn, working-capital and inventory requirements, and the use of proceeds from the subsequent equity offering.
- Convertible-note dilution and future interest costs, alongside the impact of the 2024-note repurchase.
- Progress and potential exposure related to the biometric privacy lawsuit, royalty claim and earn-out obligation.