PAR Technology Corporation — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited. PAR operates Restaurant/Retail technology and Government systems and services businesses. Unless otherwise noted, financial figures are in U.S. dollars.
Financial results and position
- Revenue: $80.3 million, up 47.4% from $54.5 million. Product revenue was $25.1 million (+35.1%), service $33.8 million (+87.3%), and Government contract revenue $21.4 million (+19.9%). Service growth included $11.2 million from Punchh, acquired in April 2021; product growth reflected hardware refreshes, including refreshes delayed during COVID-19.
- Profitability: Gross profit was $20.6 million, up from $10.2 million; gross margin improved to 25.7% from 18.7%. Operating loss widened to $12.8 million from $6.0 million, and net loss widened to $15.7 million from $8.3 million. Basic and diluted loss per share was $0.58 versus $0.38. Adjusted EBITDA, a non-GAAP measure, was a loss of $2.9 million versus a loss of $4.9 million.
- Margins and expenses: Product, service, and contract gross margins were 20.2%, 41.4%, and 7.3%, respectively, compared with 19.8%, 29.6%, and 6.7%. Higher service margin was attributed primarily to SaaS mix from Punchh and cost improvements. SG&A rose 53.9% to $22.4 million, and R&D rose 86.6% to $10.8 million, mainly reflecting Punchh-related costs and additional product investment.
- Segments: Restaurant/Retail revenue increased 60.9% to $58.8 million; its operating loss narrowed to $5.2 million from $9.3 million. Government revenue rose 19.9% to $21.4 million and operating income increased to $1.5 million from $1.2 million. Corporate and other operating costs were $9.2 million, versus $2.1 million of income in Q1 2021.
- Cash flow and liquidity: Operating cash use was $21.2 million, compared with $3.4 million in Q1 2021; management cited the net loss, working-capital needs including inventory and Government receivables, and annual bonus payments. Investing cash use was $3.1 million, including $1.2 million for a Q1 acquisition and $1.6 million of capitalized software costs. Financing cash use was $1.4 million. Cash and equivalents fell to $163.2 million from $188.4 million at year-end.
- Debt and balance sheet: Convertible notes had $398.8 million aggregate principal outstanding: $13.8 million due 2024, $120.0 million due 2026, and $265.0 million due 2027. Long-term debt carrying value was $387.7 million, plus $0.5 million current debt. The notes are unsecured and fixed-rate. Current assets were $270.1 million and current liabilities $58.3 million. Total assets were $871.7 million and shareholders’ equity $411.5 million.
- Operating indicators: Annual recurring revenue was $94.4 million, up 172.8%, including Punchh ARR of $50.2 million. Brink POS ARR rose 38.5% to $35.5 million; Data Central ARR declined 3.0% to $8.7 million. The company reported 16.9 thousand Brink POS active sites and 58.8 thousand Punchh active sites.
Material changes and unusual items
- Revenue growth and the change in revenue mix reflect Punchh’s inclusion in Q1 2022; the filing reports $11.2 million of Punchh revenue for the quarter. Punchh-related costs also contributed to higher operating expenses.
- Q1 2021 included a $4.4 million insurance gain from settlement of a legacy claim; no proceeds were received in Q1 2022, affecting the year-over-year operating-loss comparison.
- Effective January 1, 2022, PAR adopted ASU 2020-06 for convertible debt accounting. Adoption increased reported convertible debt by $81.3 million and reduced additional paid-in capital by $66.6 million and accumulated deficit by $13.4 million, with a $1.3 million reduction in deferred tax liability. It also reduces non-cash interest accretion in future periods; prior-year debt presentation was not restated.
- PAR acquired substantially all assets and liabilities of a privately held restaurant technology company during the quarter; cash consideration was $1.2 million and preliminary goodwill increased by $1.2 million. Punchh purchase-accounting adjustments reduced goodwill by $1.1 million.
Outlook, risks, and contingencies
- No specific revenue or earnings guidance is provided in the filing. Management expects available cash to meet operating needs for at least the next 12 months, while noting that cash needs depend on growth, product investment, launches, market acceptance, and other risks.
- Disclosed risks include COVID-19 effects, inflation and broader macroeconomic conditions, the Russia-Ukraine conflict, component shortages and supply-chain or logistics disruptions, hiring and retention, cybersecurity and data protection, international currency exposure, and execution of the unified commerce cloud strategy and acquisitions.
- Management reported that disclosure controls and procedures were not effective as of March 31, 2022 because previously identified material weaknesses in internal control over financial reporting remained unremediated. Remediation is ongoing.
- PAR said it was not aware of legal proceedings expected to have a material adverse effect; Government contract costs remain subject to periodic audit and adjustment. The company reported no material changes to the risk factors in its 2021 Form 10-K.
- Customer concentration is notable: the U.S. Department of Defense represented 27% of total revenue, while Yum! Brands and McDonald’s each represented 10% in Q1 2022.
Important facts for investors to verify
- How much of reported growth and recurring-revenue expansion is attributable to Punchh versus organic growth, and whether service-margin improvements persist.
- Whether operating cash use and working-capital investment moderate, particularly inventory and Government receivables.
- The terms, conversion exposure, and future cash or dilution implications of the $398.8 million principal amount of convertible notes.
- Progress and testing of remediation for the internal-control material weaknesses.
- Exposure to customer concentration, component availability, inflation, and other disclosed macroeconomic and execution risks.