PAR Technology Corporation — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015; comparisons are with Q1 2014 unless otherwise noted. Amounts are U.S. dollars. PAR operates Hospitality technology and Government technical-services businesses.
Financial performance
| Metric | Q1 2015 | Q1 2014 | Change/comment |
|---|---|---|---|
| Revenue | $59.6 million | $56.5 million | Up 5.5% |
| Gross margin | $13.0 million; 21.8% | $12.0 million; 21.2% | Margin improved |
| Operating loss | $(0.7) million | $(1.1) million | Improved |
| Net loss | $(0.4) million; $(0.02) per share | $(1.0) million; $(0.06) per share | Improved |
| Operating cash flow | $0.8 million | $1.9 million | Lower year over year |
| Cash and equivalents | $6.0 million | $10.2 million at Dec. 31, 2014 | Down $4.2 million during the quarter |
| Debt | $7.0 million total carrying value, including $1.2 million line-of-credit borrowings | — | Includes $4.8 million carrying value of Brink acquisition notes |
Investing cash outflow was $0.9 million, including $0.3 million of capital expenditures and $0.6 million of capitalized software costs. Financing cash outflow was $3.8 million, primarily from repaying line-of-credit borrowings. Current assets were $76.5 million and current liabilities were $56.6 million at quarter-end.
Business and material changes
- Hospitality revenue rose to $35.8 million from $32.8 million; segment operating loss narrowed to $1.6 million from $2.1 million. Product revenue grew 16.6%, supported by tier-one accounts, dealer-network sales, and software licenses. Service revenue declined 1.0% as some customers shifted field-service models.
- Government revenue increased slightly to $23.8 million from $23.7 million, while segment operating income declined to $1.2 million from $1.5 million. Growth in ISR activity, particularly Eagle Intel-X, was offset by completed fixed-price contracts.
- Product and service margins improved to 31.6% and 33.9%, respectively. Contract margin declined to 5.7% from 6.9%, reflecting unfavorable mix and prior-year gains on modified fixed-price contracts.
- PAR acquired Brink Software in September 2014 to expand its cloud-based POS offerings. The purchase includes $5.0 million of scheduled remaining payments and contingent consideration with an estimated fair value of approximately $5.0 million, up to a $7.0 million maximum. A $3.0 million payment is due at the first anniversary in September 2015.
Liquidity, outlook, and risks
PAR had a $25 million asset-based revolving credit facility, with $1.2 million drawn at March 31, 2015. The facility bears interest at the applicable bank rate plus a spread or LIBOR plus a 1.5%–2.0% spread. A March 2015 amendment reduced the EBITDA requirement and extended the fixed-charge coverage ratio; PAR reported compliance with covenants at quarter-end. Management expected fiscal 2015 capital requirements of approximately $1 million to $3 million and believed cash, credit availability, and anticipated operating cash flow would cover requirements for the next 12 months, while noting additional financing might be sought or elected.
No specific revenue or earnings guidance was provided. Management cited continued investment in cloud software, Brink, next-generation hardware, and sales channels, alongside cost-reduction efforts. It noted weakness among some smaller QSR customers and potential adverse effects from economic uncertainty, customer purchasing, government contract funding, competition, technology execution, and foreign currency movements. Management warned that weaker results could affect asset and goodwill valuations and potentially lead to future impairment. The U.S. Department of Defense represented 40% of quarterly revenue; McDonald’s represented 16%. No material changes to previously disclosed risk factors were reported.
Other notable items: a $0.6 million income-tax benefit helped reduce the net loss; foreign-currency translation reduced comprehensive results by $0.3 million. Other expense increased to $0.2 million, primarily due to currency adjustments and lower rental income. PAR reported effective disclosure controls and no material change in internal control over financial reporting. It had no off-balance-sheet arrangements.
Investor verification priorities
- Confirm execution and economics of Brink’s September 2015 payment, remaining note obligations, and contingent-consideration assumptions.
- Track Hospitality operating performance, software adoption, and whether improved product and service margins can offset weak contract margins.
- Monitor operating cash generation, working-capital movements, line-of-credit availability, and compliance with amended loan covenants.
- Assess customer and contract concentration, particularly DoD exposure, and any changes in government funding or major-customer demand.
- Review assumptions supporting goodwill and intangible-asset valuations, including the risk of impairment if markets or results weaken.