PAR Technology Corporation — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Dollar amounts are in USD millions unless stated otherwise. PAR operates Restaurant/Retail and Government segments.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $85.1 (+23.4%) | $69.0 | $165.4 (+34.0%) | $123.4 |
| Gross profit / margin | $21.1 / 24.8% | $15.1 / 21.9% | $41.7 / 25.2% | $25.3 / 20.5% |
| Operating loss | $(16.1) | $(17.0) | $(28.9) | $(23.0) |
| Net loss | $(18.8) | $(10.0) | $(34.5) | $(18.2) |
| Net loss per share | $(0.70) | $(0.39) | $(1.27) | $(0.77) |
| Adjusted EBITDA (non-GAAP) | $(5.8) | $(3.6) | $(8.4) | $(8.9) |
Q2 revenue growth reflected higher hardware sales, SaaS and related services, and Government contract revenue. Restaurant/Retail revenue was $64.2 million (+25.5%); Government revenue was $20.9 million (+17.4%). For the first half, Restaurant/Retail revenue grew 40.3% to $123.0 million and Government revenue grew 18.6% to $42.4 million. Punchh, acquired in April 2021, contributed to the year-over-year service and SaaS growth.
Q2 service gross margin improved to 40.9% from 30.3%, supported by SaaS mix and cost initiatives; contract margin rose to 11.1% from 7.9%. Product margin fell to 14.7% from 22.8%, primarily due to a $1.5 million excess and obsolete inventory charge amid higher inventory costs. For the first half, total gross margin improved, but operating loss widened; the prior-year period included a $4.4 million insurance gain and a $12.3 million tax benefit that did not recur in 2022.
At June 30, annual recurring revenue was $98.6 million, up 28.5% year over year. Active sites were 17,700 for Brink POS, 6,400 for Data Central, and 62,300 for Punchh.
Cash flow, balance sheet and debt
- Cash and cash equivalents were $150.6 million, down from $188.4 million at December 31, 2021. Current assets were $261.2 million and current liabilities $61.6 million.
- Operating cash used in the first half was $31.6 million, versus $33.1 million a year earlier. Investing cash used was $5.0 million, compared with $381.7 million, largely reflecting the prior-year Punchh acquisition. Financing cash used was $1.8 million, versus $319.3 million provided in 2021.
- Long-term debt carrying value was $388.2 million; aggregate note principal was $398.75 million, comprising $13.75 million of 2024 Notes, $120 million of 2026 Notes, and $265 million of 2027 Notes. The notes are senior unsecured convertible obligations with fixed coupon rates.
- Management stated available cash was expected to fund operating needs for at least the next 12 months. Cash needs depend on growth, product investment, market acceptance, and other risks.
Material changes, outlook and risks
- Revenue rose substantially, with recurring revenue and SaaS growth contributing; however, GAAP net loss increased year over year, and adjusted EBITDA remained negative.
- PAR adopted ASU 2020-06 on January 1, 2022, recording an $81.3 million increase to convertible notes and reducing equity balances. The change eliminated the separate equity component and is expected to reduce future non-cash interest accretion; it did not affect cash flows.
- No specific numerical revenue, earnings, or margin guidance is provided in this filing. Management described cash sufficiency for at least 12 months.
- Risks include component shortages, shipping delays and inflation; potential recession, higher interest rates and weaker consumer spending; COVID-19 impacts; customer implementation or payment delays; staffing, cybersecurity, and execution risks; and geopolitical uncertainty. PAR said macroeconomic and geopolitical developments had not materially adversely affected operations to date, while noting future effects were uncertain.
- After quarter-end, PAR acquired MENU Technologies AG for $25.0 million: $18.7 million cash and $6.3 million in shares, with potential additional consideration tied primarily to future SaaS ARR.
- The court gave final approval on July 20, 2022, to a $790,000 settlement of a class action alleging violations of Illinois biometric privacy law. PAR had accrued and funded the preliminary settlement by June 30; the final amount was unchanged.
- Management concluded disclosure controls were not effective as of June 30 because previously identified material weaknesses in internal control over financial reporting remained unremediated.
Important facts for investors to verify
- Whether SaaS/recurring revenue and ARR growth continue, and how much reported growth reflects acquisition contribution versus organic expansion.
- Whether product margin recovers as inventory costs and obsolescence charges evolve, and whether gross-margin improvement translates into lower operating losses and positive cash flow.
- Cash burn, working-capital needs, and debt obligations, including potential dilution or cash settlement from convertible notes.
- Progress remediating internal-control material weaknesses and any subsequent changes to management’s liquidity outlook.
- MENU’s integration, purchase-price allocation, and any earn-out consideration; monitor supply-chain, macroeconomic, and customer-demand developments.