PAR Technology Corporation — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. PAR provides restaurant and retail technology, including subscription software, hardware and services, and government technology and contract services. Amounts below are in U.S. dollars; financial statement amounts are in millions unless noted.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $100.5 | $85.1 | $201.0 | $165.4 |
| Gross profit / margin | $20.5 / 20.4% | $21.1 / 24.8% | $43.7 / 21.8% | $41.7 / 25.2% |
| Operating loss | $(17.7) | $(16.1) | $(31.5) | $(28.9) |
| Net loss | $(19.7) | $(18.8) | $(35.6) | $(34.5) |
| Basic and diluted loss per share | $(0.72) | $(0.70) | $(1.30) | $(1.27) |
| Adjusted EBITDA, non-GAAP | $(9.9) | $(5.8) | $(18.8) | $(8.4) |
Q2 revenue rose 18.2%, led by subscription services (+31.2%) and government contract revenue (+48.2%); hardware revenue declined 7.0%. For the first half, revenue grew 21.5%. Subscription service growth reflected higher active sites and revenue per site, along with MENU acquisition contributions. Government ISR revenue benefited from continued counter-small-drone task orders.
Revenue growth did not translate into higher gross margin: consolidated margin fell 4.4 percentage points in Q2 and 3.4 points for the first half. Management attributed subscription margin pressure to the early-stage growth of MENU and PAR Payment Services. Professional-service margins weakened, and government contract margins were affected by lower-margin work and labor-rate overruns. Restaurant/Retail generated Q2 revenue of $69.5 million but an operating loss of $19.0 million; Government revenue was $31.0 million and operating income was $1.3 million.
Cash, liquidity and debt
- At June 30, cash and cash equivalents were $44.2 million and short-term investments were $41.2 million. A further $9.0 million was cash held on behalf of customers and is matched by customer payables.
- Operating cash use was $12.8 million in the first half, versus $31.6 million a year earlier. Investing cash use was $6.2 million and financing cash use was $2.5 million. Cash and customer-held cash together ended at $53.2 million, down from $77.5 million at year-end 2022.
- Total debt principal was $398.8 million: $13.8 million of 4.5% convertible notes due 2024, $120.0 million of 2.875% notes due 2026, and $265.0 million of 1.50% notes due 2027. The balance sheet reports $390.2 million net of issuance costs, including $13.6 million current debt.
- Management expects available cash and cash equivalents to meet operating needs for at least 12 months. It reported $52.8 million of contractual obligations due over the next 12 months, including $21.6 million of note principal and interest.
Changes, outlook and risks
- ARR reached $122.5 million at June 30, up 24.3% year over year. Active sites increased across Guest Engagement (13.1%), Operator Solutions (21.5%) and Back Office (12.5%). These are company-defined operating measures, not GAAP revenue or forecasts.
- The MENU earn-out terms were amended during Q2. PAR recorded a $7.5 million first-half reduction in its estimated contingent-consideration liability, including $2.3 million in Q2; it also recorded a $0.5 million insurance settlement gain. These items benefited reported operating results.
- No specific revenue, profit or cash-flow guidance is provided in the supplied filing text. Management says liquidity should cover at least the next 12 months but notes that cash needs depend on growth, product development, integration spending and market acceptance; additional financing may be considered, with no assurance of availability on acceptable terms.
- Risks include ongoing losses and cash use, declining margins, execution and integration of products and acquisitions, customer and contract concentration, labor and supply-chain constraints, cybersecurity, macroeconomic conditions, foreign currency exposure and government contract audits. The U.S. Department of Defense accounted for 31% of Q2 revenue. PAR states that existing litigation is not expected to have a material adverse effect, though some outcomes may not be estimable.
- Disclosure controls were assessed as effective at June 30, 2023; management reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether subscription growth and ARR gains can translate into improved subscription and consolidated gross margins.
- Drivers of continued operating losses and the widening first-half adjusted EBITDA loss, including which non-GAAP adjustments are excluded.
- Cash burn, customer-held cash restrictions, and funding for the $52.8 million of next-12-month contractual obligations.
- Liquidity and refinancing or conversion implications of the $13.8 million notes due in 2024, alongside later maturities.
- Sustainability and profitability of government ISR growth, including contract margins, labor overruns and DoD customer concentration.
- MENU earn-out assumptions and the effect of the amended milestones on the reported liability and future payments.