PAR Technology Corporation — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. PAR provides restaurant and retail technology, including SaaS, hardware, payments and loyalty solutions, and technology services to U.S. government agencies.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $92.8m (+19.1%) | $77.9m | $258.1m (+28.3%) | $201.3m |
| Gross margin | $21.4m; 23.1% | $18.2m; 23.4% | $63.1m; 24.5% | $43.5m; 21.6% |
| Operating loss | $18.4m | $14.1m | $47.4m | $37.1m |
| Net loss | $21.3m; $0.79 per share | $31.9m; $1.23 per share | $55.8m; $2.06 per share | $50.2m; $2.05 per share |
| Cash used in operations | Not separately stated | Not separately stated | $33.6m | $43.6m |
Q3 service revenue rose 25.3% and contract revenue rose 35.3%; product revenue increased 3.5%. For the first nine months, service revenue grew 42.6%, product 16.5%, and contract 24.2%. Restaurant/Retail generated $68.4m of Q3 revenue and Government $24.4m. PAR reported ARR of $106.6m at September 30, up 29.2% year over year; the filing’s ARR and active-site figures include MENU in 2022 but not in the comparable 2021 figures.
Q3 gross margin percentage edged down as lower product margins offset improved service margins. Nine-month margin improved, driven chiefly by service mix and cost initiatives. Operating expenses grew 23.3% in Q3, faster than revenue. Q3 net loss improved year over year, partly because 2021 included an $11.9m debt-extinguishment loss. Nine-month net loss increased despite lower pretax loss, in part because 2021 included a $12.3m tax benefit and $4.4m insurance gain.
Cash, debt and liquidity
- At September 30, cash and cash equivalents were $89.5m, including $4.0m held for customers; PAR also held $40.0m of short-term investments. Management cited $85.5m of cash excluding customer funds.
- Long-term debt had $398.8m principal outstanding across convertible notes due 2024, 2026 and 2027; its balance-sheet carrying amount was $388.7m, plus $0.2m current debt. Total liabilities were $481.7m and shareholders’ equity $383.1m.
- Cash decreased $98.9m during the first nine months to $89.5m. Investing activities used $64.3m, including $18.8m for acquisitions and $40.0m for Treasury investments; financing activities used $2.0m.
- Management said available cash and cash equivalents were expected to cover operating needs for at least the next 12 months. No formal revenue or earnings guidance is provided in the supplied filing text.
Material developments, commentary and risks
- PAR acquired MENU Technologies in July for approximately $18.4m cash and $6.3m in shares, with an additional earn-out liability valued at $14.2m. MENU adds omnichannel ordering capabilities.
- Operating growth included higher SaaS and hardware sales and increased Government ISR work. Government remaining contract value was approximately $344.8m, of which $94.9m was funded; the DoD accounted for 26% of Q3 revenue.
- Product margins were pressured by mix and higher excess/obsolete inventory charges. The filing also identifies potential risks from macroeconomic conditions, inflation, supply and component constraints, logistics, COVID-19, cybersecurity, hiring and international operations.
- Disclosure controls and procedures were deemed ineffective at quarter-end because previously reported material weaknesses in internal control over financial reporting remained under remediation.
- A court approved a $790,000 settlement of an Illinois biometric privacy class action; PAR said it had accrued and funded the settlement. Management reported no other pending litigation it believed would materially adversely affect results.
- PAR adopted convertible-debt accounting guidance in January 2022, increasing reported convertible-note debt and reducing additional paid-in capital and accumulated deficit; prior-year debt presentation was not revised.
Most important facts for investors to verify
- Whether cash burn, working-capital needs and acquisition spending remain consistent with management’s stated 12-month liquidity expectation.
- Progress toward remediating the internal-control material weaknesses and the timing of effective-control testing.
- Revenue quality and durability: ARR growth, active sites, recurring revenue, and MENU’s contribution versus acquisition-related comparability effects.
- Debt terms, potential dilution or settlement choices on convertible notes, and the MENU earn-out’s eventual value and payment.
- Whether product-margin pressure, inventory reserves and supply-chain constraints improve or persist.