PAR Technology Corporation — FY2014 Form 10-K
Reporting period: Fiscal year ended December 31, 2014. The filing is an annual report; the provided text does not give standalone fourth-quarter results. PAR operates Hospitality (restaurant, hotel and related technology) and Government (U.S. defense and federal technical services) segments.
Financial performance
| Metric | 2014 | 2013 |
|---|---|---|
| Revenue | $233.6 million | $241.4 million |
| Gross margin | $51.3 million; 22.0% of revenue | $52.8 million; 21.9% of revenue |
| Operating loss | $2.2 million | $0.7 million |
| Net income (loss) | $(3.7) million; $(0.24) per share | $0.36 million; $0.02 per share |
| Cash from continuing operations | $6.3 million provided | $2.8 million used |
| Cash and cash equivalents at year-end | $10.2 million | $10.0 million |
- Hospitality revenue was $145.9 million, down from $152.4 million; segment operating loss widened to $5.3 million from $5.0 million.
- Government revenue was $87.7 million, down from $89.0 million; segment operating income fell to $4.9 million from $5.9 million.
- Product revenue declined to $87.2 million from $90.8 million; service revenue declined to $58.7 million from $61.5 million. Contract revenue was $87.7 million versus $89.0 million.
- Product margin improved to 31.8% from 31.4%, and customer-service margin to 31.1% from 29.0%; Government contract margin declined to 6.1% from 7.2%.
- Operating cash flow improved year over year, but investing used $10.0 million, including $5.0 million for Brink and $2.9 million of capitalized software. Financing provided $4.8 million, principally from $5.0 million of credit-facility borrowings.
- Year-end current assets were $76.6 million and current liabilities were $56.4 million. The balance sheet reported $5.0 million drawn on the revolving credit line, $3.2 million current and $2.6 million long-term debt, and shareholders’ equity of $69.5 million.
Material changes and unusual items
- PAR acquired cloud POS provider Brink Software in September 2014. The purchase price was recorded at $14.9 million, including $10.0 million of guaranteed payments and contingent consideration with an estimated fair value of $5.0 million (maximum potential contingent payment: $7.0 million). Brink contributed $0.8 million of revenue after acquisition.
- The 2014 tax provision was $1.6 million despite a pretax loss. PAR attributed the tax expense in part to a $5.0 million dividend repatriated from its Chinese subsidiary, generating $2.2 million of tax expense, and to a $1.6 million increase in the deferred-tax-asset valuation allowance.
- PAR’s new three-year, asset-based credit facility provides up to $25 million. It had $5.0 million outstanding at year-end. A March 2015 amendment relaxed the EBITDA requirement and extended the fixed-charge-coverage ratio; management expected covenant compliance during 2015.
- Goodwill was $17.2 million and identifiable intangible assets were $23.0 million at year-end, substantially increased by Brink. No goodwill or long-lived-asset impairment was recorded in 2014; management cited the possibility of future impairment if growth assumptions are not achieved.
Outlook, risks and contingencies
- Management estimated 2015 capital requirements of approximately $1.0–$3.0 million and believed cash, available credit and anticipated operating cash flow would meet requirements for the next 12 months, while noting additional financing might be needed or chosen.
- Government contract backlog was $100.4 million at December 31, 2014, of which $53.9 million was funded; approximately $67.5 million was expected to be completed in 2015 as funding is committed.
- Key risks include customer concentration and order timing, hospitality-industry weakness, intense competition and technology execution, government budget or contract changes and terminations, fixed-price cost overruns, supplier dependencies, foreign-exchange exposure, and potential goodwill or intangible-asset impairment.
- McDonald’s and Yum! Brands represented 16% and 12% of total revenue, respectively; the U.S. Department of Defense represented 38%. PAR paid no cash dividends and said it expected to retain earnings for reinvestment.
- Management reported effective disclosure controls and internal control over financial reporting. The auditor issued an unqualified opinion on the consolidated financial statements; it was not engaged to audit internal control effectiveness.
Important facts for investors to verify
- Whether Hospitality revenue, margins and operating losses improve, and whether Brink and other cloud products gain adoption.
- Availability and funding of Government backlog, renewal and award outcomes, and contract profitability.
- Liquidity and covenant headroom after the Brink-related payments due in September 2015 and September 2016, including the contingent consideration exposure.
- Assumptions supporting deferred tax assets and the valuation of goodwill and acquired/software-related intangible assets.
- The effect of major-customer concentration, inventory and receivables needs, and any changes in customer purchasing patterns.