PAR Technology Corporation — FY2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018. This is an annual filing, not a standalone fourth-quarter report; the supplied filing text does not provide clear standalone Q4 financial results.
Business context
PAR operates in two segments: Restaurant/Retail, providing POS software, hardware and services, and Government, providing defense and federal-agency technology and mission support. Brink cloud POS is a stated growth focus. Interim CEO Savneet Singh took the role in December 2018.
Financial performance and liquidity
| Metric | FY2018 | FY2017 |
|---|---|---|
| Revenue | $201.2 million | $232.6 million |
| Gross profit / margin | $38.5 million / 19.1% | $51.0 million / 21.9% |
| Operating loss | $9.9 million | $0.1 million |
| Net loss | $24.1 million; $1.50 per diluted share | $3.4 million; $0.22 per diluted share |
| Cash from operations | Use of $3.8 million | Provided $0.3 million |
| Cash and cash equivalents | $3.5 million | $6.6 million |
| Line-of-credit borrowings | $7.8 million | $1.0 million |
| Current assets / current liabilities | $55.7 million / $40.9 million | $62.6 million / $35.9 million |
- Restaurant/Retail revenue fell 21.9% to $134.1 million; segment operating loss widened to $14.4 million from $2.8 million.
- Government revenue grew 10.1% to $67.2 million; segment operating income increased to $6.9 million from $6.5 million.
- Product revenue declined 31.6% to $78.8 million; service revenue fell 2.1% to $55.3 million, despite a $3.5 million increase in Brink SaaS revenue. Contract revenue rose 10.1% to $67.2 million.
- Product margin declined to 23.0% from 25.4%; service margin to 23.8% from 26.6%; contract margin to 10.7% from 11.0%.
- Investing activities used $6.7 million, including $3.9 million of capital expenditures and $3.9 million of capitalized software costs. Financing activities provided $7.3 million.
- Government contract backlog was approximately $138.6 million at year-end, of which $30.2 million was funded. About $53.6 million was expected to be completed in 2019, subject to funding and other contingencies.
Material changes and unusual items
- Revenue decreased 13.5%, mainly because large Restaurant/Retail customers had completed significant hardware refresh projects in 2017 that did not recur in 2018. Government growth and Brink expansion partly offset the decline.
- FY2018 included a $14.9 million deferred-tax-asset valuation allowance charge; the filing also reports a $16.7 million increase in the valuation allowance. The resulting tax provision was $14.1 million despite a pretax loss.
- Restaurant/Retail results included a $1.4 million SureCheck hardware inventory write-down and a $1.6 million impairment of SureCheck software. SG&A declined to $35.0 million from $38.2 million, partly due to lower investigation-related and other costs.
- The company adopted ASC 606 in 2018; it reported no material adoption impact and no retained-earnings adjustment.
Outlook, risks and contingencies
- Going concern: The auditor included an explanatory paragraph citing substantial doubt about PAR’s ability to continue as a going concern. PAR reported operating losses in four of the last five quarters and insufficient operating cash flow. Management said near-term funding was expected to be available but acknowledged that meeting obligations over the next 12 months depended on additional cash sources, improved operations, financing or equity issuance.
- Credit covenants: PAR was not in compliance with financial maintenance covenants at December 31, 2018. On March 4, 2019, Citizens Bank waived the default and temporarily suspended leverage and EBITDA covenants through the quarter ending September 30, 2019, subject to interim monthly liquidity and EBITDA requirements. The $25 million revolving facility is secured by substantially all company and guarantor assets; outstanding borrowings were $7.8 million at year-end. Future covenant compliance and available borrowing capacity remain material uncertainties.
- Customer concentration: McDonald’s represented 19% and Yum! Brands 13% of FY2018 revenue, compared with 33% and 14% in FY2017. The U.S. Department of Defense represented 33%, up from 26%.
- Regulatory matter: PAR continued cooperating with the SEC, DOJ, and China and Singapore authorities concerning an investigation into improper customs and documentation practices. The company could not estimate potential fines or penalties, which could be material; it recorded $1.1 million of related expenses in 2018.
- Other stated risks include competitive pressure and technology execution, cybersecurity and privacy, supplier concentration and tariffs, government contract funding and termination, fixed-price contract cost overruns, ERP implementation, and the ability to hire and retain skilled personnel.
- No specific earnings or revenue guidance is provided. Management emphasized Brink growth and investment, Government contract renewals and business development, and the need to secure adequate capital. The company did not expect to pay dividends in the foreseeable future.
Most important facts for investors to verify
- Whether PAR sustains adequate liquidity, meets the amended monthly requirements, and complies with financial covenants after temporary relief ends.
- Progress toward positive operating cash flow and improved Restaurant/Retail margins, including whether Brink growth can offset lower legacy hardware sales.
- Whether Government backlog converts to funded work and revenue, and how customer concentration changes.
- Developments and potential financial consequences of the SEC, DOJ, and foreign-authority investigation.
- Whether the tax valuation allowance, SureCheck impairments, and other estimates require further charges.