PAR Technology Corporation — FY2022 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2022; it is not a standalone Q4 report. PAR operates Restaurant/Retail technology and services, and Government technology and contracting businesses. Restaurant/Retail provides restaurant software subscriptions, payment services, hardware and professional services; Government supports U.S. defense, intelligence and other federal customers. The MENU Technologies acquisition closed in July 2022, adding omnichannel ordering capabilities.
Financial results and key metrics
| Metric | FY2022 | FY2021 |
|---|---|---|
| Revenue | $355.8 million | $282.9 million |
| Gross profit / margin | $89.3 million / 25.1% | $62.1 million / 22.0% |
| Operating loss | $(58.0) million | $(53.9) million |
| Net loss | $(69.3) million; $(2.55) per share | $(75.8) million; $(3.02) per share |
| Cash used in operating activities | $(43.1) million | $(53.2) million |
| Cash and cash equivalents | $70.3 million | $188.4 million |
| Short-term investments | $40.3 million | None reported |
| Senior notes principal outstanding | $398.8 million | $398.8 million |
Revenue rose 25.8%. Subscription service revenue grew 55.6% to $97.5 million; hardware revenue increased 8.9% to $114.4 million; professional services rose 18.2% to $50.4 million; and Government contract revenue increased 28.8% to $93.4 million. The Restaurant/Retail segment generated $262.3 million of revenue and a $53.5 million operating loss; Government generated $93.4 million of revenue and $7.5 million of operating income.
Overall gross margin improved, led by subscription service margin, which increased to 51.4% from 38.3%; adjusted subscription service gross margin, a non-GAAP measure, was 73% versus 66%. Hardware margin declined to 19.4% from 23.0%, partly due to excess and obsolete inventory charges. Adjusted EBITDA was a loss of $18.8 million versus a loss of $17.8 million in 2021; this is a non-GAAP measure. The filing reports no positive operating cash flow.
Material changes versus FY2021
- Revenue growth reflected subscription-site expansion, additional months of Punchh revenue compared with 2021, MENU acquisition contribution, and higher Government ISR revenue. Government ISR revenue increased 69.2%; Mission Systems revenue declined 7.4%.
- ARR increased 26.4% to $111.4 million. Guest Engagement, Operator Solutions and Back Office active sites rose 24.6%, 22.6% and 11.1%, respectively.
- Net loss narrowed by $6.5 million, while operating loss increased by $4.2 million. Higher gross profit was offset by higher selling, general and administrative and R&D expenses.
- Operating cash use improved by $10.1 million, but cash and cash equivalents fell substantially. Investing cash use was $66.7 million, including acquisition spending and $40.3 million for short-term investments.
- Debt principal was unchanged. Adoption of accounting guidance for convertible debt increased reported debt carrying value and reduced equity at the start of 2022; it also reduced subsequent non-cash interest accretion.
Liquidity, debt, outlook and risks
At year-end, cash, cash equivalents and short-term investments totaled approximately $110.6 million, excluding $7.2 million of cash held on behalf of payment-processing customers. Management stated available cash and cash equivalents would be sufficient for operating needs for at least 12 months. Contractual obligations for the next 12 months were estimated at $39.2 million, including $29.6 million of purchase commitments, $8.0 million of interest and $1.6 million of facility leases.
The $398.8 million of senior notes comprise $13.8 million of 4.500% notes due 2024, $120.0 million of 2.875% notes due 2026 and $265.0 million of 1.500% notes due 2027. The notes are unsecured and convertible; conversion, repurchase or refinancing requirements could create material cash needs. The filing provides no numerical revenue, earnings or cash-flow guidance and cautions that profitability is not assured.
Principal disclosed risks include continued operating losses and negative operating cash flow; supply shortages, component cost inflation and inventory obsolescence; dependence on major Restaurant/Retail customers (two customers and their franchisees represented 22% of consolidated revenue); competition and execution/integration risks from acquisitions; cybersecurity, data privacy and service-provider disruptions; and Government contract funding, cost-overrun, audit and termination risks. Goodwill was $486.8 million; the annual impairment test found no impairment, but valuations depend on growth and other estimates. The MENU earn-out liability was measured at $9.8 million at year-end, down from $14.2 million initially.
Management said previously identified material weaknesses in internal controls had been remediated as of December 31, 2022, and management and the auditor reported effective internal control over financial reporting. However, the assessment excluded MENU, which was still being integrated. The auditor issued unqualified opinions on the financial statements and internal controls; its critical audit matter concerned valuation of MENU contingent consideration. Management reported no pending litigation believed likely to have a material adverse effect, while noting Government contract costs remain subject to audit and adjustment.
Investor verification priorities
- Assess the sustainability and quality of subscription growth, including ARR, active sites, churn, and the contribution from acquired businesses.
- Reconcile GAAP operating losses and cash burn with non-GAAP adjusted EBITDA, and evaluate the path to sustained profitability.
- Review liquidity assumptions, working-capital needs, the 2024 note maturity and potential conversion or refinancing obligations.
- Test customer concentration and the durability of major customer hardware and service purchases, as well as Government backlog funding and contract economics.
- Review hardware inventory reserves and margin trends, goodwill impairment assumptions, MENU earn-out valuation, and the integration and control environment for MENU.