PAR Technology Corporation — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021; comparisons are with the corresponding 2020 periods. PAR operates Restaurant/Retail and Government segments. The Punchh acquisition, completed April 8, 2021, expanded its restaurant software and loyalty offerings.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $77.9m | $54.8m | $201.3m | $155.3m |
| Gross margin | $18.2m; 23.4% | $11.7m; 21.3% | $43.5m; 21.6% | $31.8m; 20.5% |
| Operating loss | $14.1m | $1.0m | $37.1m | $12.2m |
| Net loss | $31.9m | $3.7m | $50.2m | $23.6m |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $(43.6)m | $(14.4)m |
Q3 diluted loss per share was $1.23, versus $0.20; nine-month diluted loss per share was $2.05, versus $1.30. Q3 non-GAAP adjusted EBITDA was a loss of $4.0m, compared with income of $0.1m. Nine-month adjusted EBITDA loss was $12.9m, versus $3.8m. These are company-defined non-GAAP measures, not substitutes for GAAP results.
At September 30, cash and cash equivalents were $200.3m, current assets $296.3m, and current liabilities $60.5m. Total liabilities were $381.7m and shareholders’ equity $524.7m. Convertible notes had $398.8m aggregate principal outstanding and a $302.2m net carrying amount; the Owl Rock term loan had been repaid in September. Nine-month investing cash use was $381.1m, including $374.7m for Punchh net of cash acquired; financing provided $444.3m.
Changes and business drivers
- Q3 revenue increased 42.0%; nine-month revenue rose 29.6%. Restaurant/Retail revenue increased 60.2% in Q3 and 44.1% year to date, while Government revenue grew 3.1% and 1.6%, respectively.
- Punchh contributed $9.7m of Q3 revenue and $17.8m for the nine months since acquisition. Management attributed product growth partly to hardware refreshes, including purchases delayed during COVID-19, and service growth to Punchh and other software revenue.
- Gross margin percentage improved, but operating expenses rose substantially, including higher SG&A, R&D, stock compensation, and acquired-intangible amortization. Q3 service margin was pressured by Punchh-related amortization and field-operations transition costs.
- Annual recurring revenue was $82.5m, up 34.9% year over year. The company reported growth in Brink POS, Data Central, and Punchh ARR.
Outlook, risks and unusual items
- Management said available cash should be sufficient for operating needs for at least the next 12 months; actual needs depend on growth, product investment, market acceptance, and other factors. No specific revenue or earnings guidance was provided.
- Management cited COVID-19-related restaurant-sector challenges, supply-chain disruption, higher materials and compensation costs, and competition for qualified personnel. Government operations had not been materially affected by the pandemic.
- In September, PAR issued $265m of 1.50% convertible notes due 2027 and raised $52.5m net from a common-stock offering; proceeds helped repay the Owl Rock term loan. The repayment resulted in an $11.9m extinguishment loss. Nine-month results also included a $4.4m insurance gain and a $12.5m tax benefit primarily from releasing a valuation allowance following the Punchh acquisition.
- Disclosure controls were deemed ineffective because previously identified material weaknesses in internal control over financial reporting had not been fully remediated. Punchh’s inherited controls were under evaluation.
- Risks include debt-service and refinancing capacity, potential dilution or cash settlement associated with convertible notes and warrants, acquisition integration and valuation estimates, and possible customer, supply-chain, or deployment impacts from COVID-19. The filing also describes a biometric-privacy lawsuit, which the company said it believes is without merit and estimates is not material; Government contract costs are subject to audit.
Investor facts to verify
- How much future growth and recurring revenue is attributable to Punchh versus existing products, and whether acquisition synergies and integration progress meet management’s expectations.
- Whether operating cash burn, working-capital needs, and required investment remain consistent with management’s 12-month liquidity assessment.
- The effective debt burden and potential conversion dilution, including the terms and settlement choices for the 2024, 2026, and 2027 notes.
- Progress in remediating internal-control material weaknesses and evaluating Punchh’s controls.
- Whether supply constraints, input-cost inflation, and restaurant customer conditions affect margins, deployments, or demand.