PAR Technology Corporation — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. PAR operates Restaurant/Retail and Government segments. Amounts below are in millions of dollars unless noted.
Financial performance and position
| Metric | Q1 2021 | Q1 2020 / prior period |
|---|---|---|
| Revenue | $54.5 | $54.7; down 0.5% |
| Gross profit / margin | $10.2 / 18.7% | $11.0 / 20.2% |
| Operating loss | $(6.0) | $(5.7) |
| Net loss | $(8.3), or $(0.38) per diluted share | $(10.9), or $(0.61) per diluted share |
| Cash used in operating activities | $(3.4) | $(15.1) |
| Cash and cash equivalents | $173.1 at March 31 | $180.7 at December 31, 2020 |
| Long-term debt, balance-sheet carrying amount | $106.9, plus $0.7 current portion | $105.8, plus $0.7 current portion |
Revenue comprised $18.6 product, $18.0 service, and $17.9 contract. Product revenue was roughly flat year over year; service revenue declined 4.3%, primarily from lower implementation revenue, partly offset by software growth; contract revenue rose 3.5%, supported by stronger ISR backlog. Product, service, and contract margins were 19.8%, 29.6%, and 6.7%, respectively, each below the prior-year quarter.
Restaurant/Retail revenue declined 2% to $36.6 million, and its operating loss widened to $9.3 million from $6.1 million. Government revenue increased 3% to $17.9 million, with operating income of $1.2 million, about flat year over year.
Changes, unusual items, and outlook
- SG&A increased 24.9% to $14.5 million, including higher variable compensation and $0.7 million of Punchh acquisition-related costs. R&D rose to $5.8 million, mainly reflecting Brink POS and Data Central development.
- A $4.4 million insurance recovery related to settlement of a legacy claim reduced operating expenses. This nonrecurring benefit partly offset weaker gross profit and higher operating expenses.
- Interest expense was $2.2 million, up from $2.0 million, primarily due to the 2026 convertible notes. The prior-year quarter included an $8.1 million debt-extinguishment loss, contributing to the year-over-year improvement in net loss.
- Management said revenue had been in line with or above prior-year results since the second half of 2020, recurring revenue had increased quarter over quarter, and at least 1,181 new Brink POS sites had been booked in each of the last three quarters. Government operations had not been materially affected by COVID-19. The filing gives no numerical revenue or earnings guidance.
- Management expected available cash to fund operating needs for the next 12 months. Operating cash use improved year over year, primarily because of working-capital changes. Investing cash use was $1.7 million; financing cash use was $2.1 million.
- Subsequent event: On April 8, 2021, PAR acquired Punchh for approximately $500 million, comprising about $390 million cash and 1,594,202 PAR shares. Funding included a $180 million term loan, approximately $160 million of equity financing, and approximately $66 million of company cash, including transaction costs. The new four-year term loan bears interest at the Eurocurrency rate plus 4.75%.
- Following the Punchh transaction, the filing reports $180 million outstanding under the term loan as of May 10, in addition to $180 million principal outstanding on the 2024 and 2026 convertible notes. The new credit agreement includes a minimum $20 million liquidity covenant and a first-lien net ARR leverage covenant, initially capped at 2.60 to 1.00 and declining over time; it also restricts certain activities.
Risks, contingencies, and controls
- COVID-19 may still disrupt customer demand, deployments, supply chains, collections, and operations; management said the extent of future effects remained uncertain.
- Management concluded disclosure controls and procedures were not effective at March 31 because previously identified material weaknesses in internal control over financial reporting remained under remediation.
- PAR described ordinary-course legal matters, a biometric-data class action it believes is without merit, and a potential Singapore-related penalty; it said estimated liabilities were not material. U.S. Government contract costs remain subject to audit and adjustment.
- The company cited risks from debt service, refinancing and access to capital, and the restrictive covenants on the post-quarter acquisition loan. It also disclosed exposure to currency movements, though their impact had not been material as of March 31.
Important facts for investors to verify
- Review Punchh’s final purchase-price allocation, financing terms, and subsequent effect on cash, debt, interest expense, share count, and covenants.
- Track Restaurant/Retail segment margins and operating losses, recurring revenue, new Brink POS site bookings, and implementation activity.
- Assess whether operating cash flow improves sustainably and whether liquidity remains above the term-loan covenant minimum.
- Monitor remediation and testing of the disclosed material weaknesses in internal control.
- Evaluate the insurance recovery’s nonrecurring nature and the status of disclosed legal and government-contract contingencies.