Q2 2021 PAR Technology Corp Earnings Call
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Good day, and thank you for standing by welcome to the par technology fiscal year 2021 second quarter financial results call at the time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.
I ask a question during the session you will need the press Star then the number 1 on your telephone. Please be advised that today's conference is being recorded if you require any further assistance. Please press star Zero I would note of lifetime the conference over to your first speaker for today, Mr. Chris Byrnes, Vice President of business development. Please.
Go ahead.
Thank you Jay and good afternoon.
I'd also like to welcome you to date of the call for Par's 2021 second quarter financial results review.
The complete disclosure of our results can be found in our press release issued this afternoon as well as in our related form 8-K furnished to the SEC.
To access the press release and the financial details. Please see the Investor Relations and news section of our website at Www Dot par Tech Dot com.
At this time I'd like to take care of certain details in regards to the call today participants on the call should be aware that we are recording this call. This afternoon and will be available for playback.
Also we are broadcasting the conference call via the worldwide web. So please be advised if you ask a question. It will be included in both of our live conference and any future use of the reported.
I'd like to remind participants that this conference call includes forward looking statements that reflect management's expectations based on currently available data.
However, actual results are subject to future events and uncertainties. The information on this conference call related to projections or other forward looking statements may be relied upon and subject to the safe Harbor statement included in our earnings release, this afternoon and in our annual and quarterly filings with the SEC.
Joining me on the call today as part of CEO, and President of <unk> Singh and Bryan Mannar Par's Chief Financial Officer.
Now I'd like to turn the call over to Stephanie from the formal remarks portion of the call, which will be followed by general Q&A.
7.8.
Thanks, Chris and good afternoon, everyone and thank you for joining our call today to begin I first want to welcome the punch team and share of list of par.
Together, our firms are working quickly towards building a unified commerce platform.
The police report on our continued progress in this quarter as we reported sequential of strong year over year, the breath of the business and see strong momentum within our bearing business lines early in Q3.
First update you on the punch acquisition and our success in the first 3 months post closing and move on to review the quarters results.
As you know we completed the acquisition of punch during the second quarter on April 8 with the purchase price of approximately $500 million plus the assumption of stock based compensation interest by far our largest acquisition to date punch is a leading provider of loyalty and customer experience solutions that serves approximately 40 of the largest hundreds of restaurant company.
I believe of the combination of pension part of at par provides tremendous opportunities for incremental growth in both business lines.
The combined company as the market leader in providing a unified commerce cloud platform for large enterprise accounts.
We plan to use the punches technology suite to expand our customer reach.
He also had an opportunity to leverage punch of strong brand and customer relationships to deliver the par platform at the enterprise level the restaurants.
We discussed our vision for those opportunities on the Investor call in early May.
I am pleased with the progress we've made towards the initial objective and a 3 months from the 3 months of a bunch of has been a part of part of our team to prioritize the opportunity in a very engaged working altogether in a regular cadence.
Pre acquisition <unk> questions regarding the dependability of the backlog came true and the high degree of compatibility between the cultures of the journey of the shape of thus far prevents the accurate.
Our product teams have begun to work together and we're excited as we learn more about each company strength and how complementary of they are.
We will quickly beyond the combined roadmaps, combining guests transaction payment and back office the <unk>.
Golar seal of a platform to our customers that can run their restaurants, but also give our customers control of their destiny.
While the restaurant technology is proliferating tremendously over the last few years, most restaurant companies have yet to truly Michael wind in the technological journey.
Said differently, while restaurant technology companies of 1 the restaurant operator has not we aim to change that.
The other punch in the entire par platform can now provide the most expansive set of capabilities for enterprise restaurants.
As a result of those capabilities, we saw the manpower apart from offerings growth.
As I stated earlier restaurants are in the midst of the Michael will bounce back of their business from the hardships caused by the Covid pandemic. Many of Par's restaurant customers are experiencing record of growth in same store sales, but traffic and average ticket price. These conditions, providing an environment of investment per restaurant and technology of the top of that list.
Now to briefly review the second quarter reported numbers the for Brian just further details.
In Q2, we reported revenues of $69 million of 51% increase from 1 year ago.
Today, We also reported a GAAP net loss of $10 million of 39 loss per share compared to a GAAP net loss net loss of $9 million of 49 loss per share from the same period in 2020.
On the adjusted basis non-GAAP net loss for the second quarter of 2021 with $9.2 million of 36 cents loss per share compared to a non-GAAP net loss of $4 million or 21 cents loss per share for the same period in 2020.
Now moving to our business performance.
Reported <unk> of $76.7 million of 166, 6% increase aided by the acquisition of punch the.
The growth was led by punch and brings the data central still in a period of recovery.
Adjusting for punches Q2 contribution Q2, 2020 contribution the combined air growth would be around 42.5 per cent.
The underlying growth of punch of Q2.
Continued the strong momentum we saw in Q1.
The growth this quarter was notable as we activated 1000 of 99, new stores this quarter solid performance in the face of several challenges in the hardware supply chain.
More important though is the velocity of activations in the brain exiting Q2 and should lay the foundation for strong AUR growth through the second half of the year, we're seeing record Activations and expect and hope that to continue.
In Q2, we reported <unk> of $27.6 million of 29% increase from Q2.2020. This growth growth came from improved activation and as I mentioned earlier exit velocity was very strong.
At the end of Q2, we now have 13234 act of stores and a reported open order backlog number within the second quarter was over 31 of the stores yet to be installed.
Brink bookings for Q2 came in at 1012 of 24% increase from Q2.2020 book.
Bookings are a signed purchase order and continue to be of significant kpis for our company the demonstrate the velocity of that visit.
Important to point out of this metric is not totally linear from quarter to quarter as order patterns from customer to customer vary, but our pipeline of deep not only with the non customers, but also new customers as well.
While lower than the number of reported Q1 and I'm very confident of our pipeline.
Turning to punch their contribution to Q2 results as of April 8 and as expected. They did not disappoint a bunch of product line added to thousands of 774, new lifecycle of Q2 and now has a total of nearly 48400 sites at the end of Q end of June.
A 56% increase of life sites of the last 12 months punch.
A bunch of <unk> at the end of Q2 was reported at $43 million of 61% year over year increase of $4.4 million increase since at the end of Q1.
Contract of ore at the end of Q2 totaled $60.5 million a significant number of that proves the value of the demand for loyalty and customer experience by restaurants.
We're extremely pleased and fortunate to have added this industry needed to the par platform.
Hey, the centralized back office software acquired in the restaurant Magic has actually saw improved bookings in the quarter at 300 plus day.
The 67% increase from last year of Q2.
Our reported at 8.8.
Combining the restaurant Magic is now $36.4 million at the end of Q2.
As I mentioned last quarter, we continue to see some near term weakness in demand from non customer facing technology of restaurant.
I'm encouraged by the bookings improvement within data central and expect more normal booking pace as 2021 progresses and so much of our expected growth in brink activations for the back half we expect data central to also improve as 2021 plays out.
Now I think with many of you our product business in the quarter that is a point of sale hardware and drive thru communication systems business.
Product revenue for the quarter improved dramatically from the Covid impacted Q2, 2020 quarter product sales reported the reported at $23.9 million in this recently ended the quarter and 94% increase.
We are seeing favorable impact of vaccine rules and improving capital purchase environment of restaurants, we will continue to see higher sales throughout 'twenty 1.
Important to note the current industry wide challenges such as supply chain constraints price inflation is significant increases the freight and logistic costs require ongoing management with the joy.
We experienced the margin impact was the cost associated with the current supply chain reality, including dramatic growth in shipping charges.
To mitigate this pain, we've put through price increases and other addressable actions and are already seeing margin from into Q3, which I hope to continue into Q4, but.
But we don't know how long the supply chain challenges exist are customers of stayed committed to us and allowed us to pass on parts of this challenge of that.
Now to review our government segment.
Our government business reported revenues of $17.8 million the minority piece of 1.1% when compared to Q2 of last year.
Contract backlog at the end of Q2 was $141.6 million.
We continue to seek out contract opportunities, where we can leverage our decade long experience of the performance excellence specifically in value added revenue contracts that include where direct labor and high Tech contract work with our Intel solutions business line.
In summary, we have considerable optimism as the entire restaurant industry in the midst of record store sales and customer traffic level. We had a busy of active second quarter. We closed out of transform of acquisition with punch announced large new customers and the new customer pipeline continues to be strong looking towards the second half of 'twenty 'twenty..1 we anticipate accelerated plenty from Q3 and 4 of brink, which should do.
The strong air growth given.
Given the success of the Punch acquisition, we will look to continue to build out of our platform both organically and inorganically that will increase our subscription rate and make us more attractive to more customers.
And with that I'll turn the call over to Brian for more details on the Q1 numbers and then take your questions.
Thank you Stephanie and good afternoon, everyone.
Product revenue in the quarter was $23.9 million an increase of $11.6 million were 94% from the $12.3 million reported in the prior year.
Our product revenue during the quarter was the highest compared to the preceding 12 quarters growth was driven by multiple factors, including continued growth in drive thru and kitchen display systems hardware refresh of investment by some of our tier 1 of legacy accounts.
Hardware revenue associated with the rollout of <unk> to new customers.
Service revenue that includes revenue streams from our subscription software was reported at $27.2 million an increase of $11.9 million from 77, 8% from the $15.3 million reported in the prior year.
The increase was primarily driven by the inclusion of the punch revenue $8.1 million of.
The $1.7 million increase from other software revenue of $1.7 million increase in implementation revenue.
The company continues to expand the recurring revenue base, which includes both the software related services and hardware support contracts.
In total the recurring software revenue streams contributed $9.6 million of the increase in service revenue.
Of the $27.2 million of service revenue reported in Q2 $2021.23 million were 85% is comprised of recurring revenue contracts as compared to $13.2 million or <unk>, 86% of service revenue in Q2.2020.
Contract revenue from our government business was $17.8 million a decrease of <unk> 3 million of 1.7%.
From the $18.1 million reported in the first quarter of 2012.
The decrease in contract revenues was driven by a $5 million decrease in our ISR solution product line.
Partially offset by a $3 million increase in our mission systems product line.
Contract backlog continues to be significant millions of total backlog of over $141 million as of June 30.
Now turn to margins.
Margin for the quarter was 22, 8% versus 19, 1% in Q2.2020.
The increase in margins, primarily due to more effective absorption of overhead fixed cost compared to Q2, 2020, which was a low product revenue quarter.
The favorable impact from absorption was partially offset by higher material material costs.
Service margin for the quarter was 33%.
Compared to 35, 2% reported in the second quarter of 2020.
The decrease of margin is primarily driven by an increase in amortization expense for the $2.9 million of acquired developed technology intangible from the Punch acquisition. In addition to incremental costs incurred while transitioning our field operations organization.
Important to note the service margin would be 48%, excluding the amortization of punched intangibles.
Government contract margin was 7.9% as compared to 7.4% from the second quarter of 2020.
The increase was driven by productivity improvements on existing contracts.
GAAP SG&A was $22.9 million, an increase of $12.9 million from the 10 million reported in Q2.2012.
The increase was primarily driven by $9.8 million in total punch related expenses of which $2.7 million were acquisition costs and $7.1 million were operational expenses.
The operational expenses included $2.5 million stock based compensation assumed as part of the transaction.
Other drivers included increases of $2.8 million per sales and marketing.
$1 million for variable compensation.
$7 million for internal technology infrastructure costs.
And <unk> 6 million for corporate management of expenses.
Net R&D was $8.6 million, an increase of $4.1 million or 91% from the $4.5 million reported in Q2.2020.
The increase was driven primarily by $2.9 million per punch and $1.1 million related to the additional investments in the existing product the government organization.
Net interest expense was $4.9 million compared to $2.1 million recorded in Q2.2020.
The increase is driven by the hour the credit agreement, we entered into as part of the punch acquisition.
Net interest for the quarter include $1.7 million of non cash accretion of debt discount and amortization of issuance costs compared to $1.1 million from the same period last year.
With regards to taxes, there was a net tax benefit for the quarter of $12.30 range driven by a $12.3 million partial release of the Companys deferred tax asset valuation allowance as a result of the deferred tax liability created by the punch acquisition.
The net tax provision of 1 million for Q2.2020.
Was driven by a $1 million adjustment to the deferred tax benefit recorded in 2020 through 2026 notes issuance.
Now to provide information on the company's cash flow and balance sheet position.
For the 6 months ended June 32021, net cash used in the operating activities was $33.1 million versus $13.6 million from the prior year.
Cash used for the 6 months ended June 32021 with price.
Really driven by net operating losses net of noncash charges and additional net working capital requirements, primarily driven by an increase in inventory of $8.8 million and another and other current assets of $11 million, which was driven by the increase in prepaid assets of the company took advantage of repricing opportunities.
The key strategic partners.
Cash used in investing activities was $381.7 million for the 6 months ended June 30 of 2021.
Versus the $4.6 million for the 6 months ended June 30 of 2020.
Investing activities during the 6 months ended June 30 of 2021 included $377.3 million of cash consideration in connection with the <unk> acquisition.
Capitalized software for the 6 months ended June 32021 was $3.8 million was associated with the investments from various hospitality software platforms.
Versus $4.6 million for the 6 months ended June 30 of 2020.
Cash used by financing activities was $319.3 million for the 6 months ended June 32021.
Versus $49.1 million for the prior year.
During the 6 months ended June 30 of 2021, we received net proceeds of $155.7 million from the private placement of our common stock with at 3 and certain funds and accounts advised by T Rowe price associates.
And net proceeds of $170.7 million.
From the term loan under the owl rock for the agreement.
During the 6 months ended June 32020, we received net proceeds of $49.7 million from the from the 120 million issuance of the 2026 notes offset by the repurchase of the majority of the 2024 notes.
Inventory increased from December 31, 2020 by $8.8 million, we increased our inventory on hand to mitigate some of the supply chain shortages and delays, while ensuring we can meet our enterprise customers' demand for installations in the second half of 2021.
Accounts receivable increased $1.5 million compared to December 31, 2020.
Due to increased sales volume.
Days outstanding improved within restaurants, and retail from 74 days at December 31, 2020.
The 61 days at June 32000.
In 'twenty 1.
Days outstanding increase within the government 51 days at December 31, 2020.
The 55 days at June 32021.
This concludes my formal remarks, and we will now move to Q&A.
As a reminder to ask a question if you would like to ask a question. Please press Star then the number 1 on your telephone keypad.
Again that is a start of the number of 1 because we draw of your question press the pause.
Or the hash key the standby, while we compile the Q&A roster.
Your first question comes from the line of Samad Samana from Jefferies. Your line is open.
Hi, good afternoon, and thanks for taking my question maybe first.
If I start with you when I think about maybe the demand environment and bookings I know you talked about activation trajectory, but can you maybe help us understand how the bookings environment has look.
Especially as now I think there's obviously concerns around the Delta variant and then to the extent.
You can comment on the first 30 days of the third quarter I think it would be helpful for us to understand maybe what bookings activity looked like.
But in <unk> and then so far into the third Q.
We haven't seen any impact yet on the delta of area as it relates to the.
The bookings of our Activations, obviously, we have a huge push on activations just given the backlog built up over the pandemic and so a lot of focus there and we haven't seen any change there nor on the booking strength.
Net.
Donald can all change as it did a year and a half ago I haven't seen any big changes there.
<unk>.
I would say the early in this quarter bookings of sort of fine they're on track a lot of our bookings come in the last months, though.
Happens in July is not is not super.
Illustrative of what could happen for the quarter, just because there's always the rest of the end of the quarter. So too early to say, but I would say where we were.
The first see the pain would be if the delta bandwidth cognizance of the on the activation side because that requires.
As of the coming to or part of going to store, we haven't seen that at all in fact like I mentioned, we're seeing incredible momentum on that with the size of this.
Moving on air.
Great.
This brings me to my follow up question, if I think about activations over.
Just the last 12 months, obviously that the low was the second quarter of last year, but.
In the past you guys have average or being able to do kind of well north of like 7 or 800. This quarter was really sharpen 1100, how should we maybe think about.
Site Activations.
Maybe for the next couple of quarters and again I think it would be helpful. If you help us understand what maybe that increased velocity. It looks like are we on track for another 1000, plus sites activated type of quarter or should we get kind of get back to that more of the 2 H 'twenty type of assumptions level in our model.
Yes.
That's the clear.
Q2, very easily in Q3.
And I think it will be a significant.
Quarter over quarter of growth in activation I hope that continues in Q4, obviously, we will see when we get closer but.
I think we're on pace for a very meaningful.
Continued upswing in the activation, which suggest the reflective of we have all of the fact that we built up over the pandemic. That's now just.
Ready to go so.
I wouldn't expect us to come anywhere back book.
I wouldn't expect the said from time to go back to where we were of second half of 'twenty 'twenty.
Okay, Great and then just as I think about the punch acquisition. It seems like the early folding them into the organization is off to a good start.
How should we think about maybe.
The technology integration, how long should we take that and think that that will take and then similar question on the go to market model.
Are you starting to kind of.
Give incentives to the 2 different companies sales organizations to go out there and sell just maybe an update on the on the integration process.
Yes.
We're 3 months in the first few months of it focus more on call of the G&A functions getting together theyre more strategic.
Kicking off in a month or 2 we'll combined product and <unk>. So that we have the combined red that's the most important part we want to make sure that the roadmaps.
Tied together.
And that will not only help us on the internal pocket of all of it also guide of lot of our M&A strategy.
That'll be net and then I think sales would be would be lost and the key will be us proving that we can make 1 of those clinical 3 on each 1 of those G&A product and Tech and then obviously sales.
I'd say we're.
We're doing the G&A, we're moving onto the product and tech.
Which is a long process, but the 1 we're most excited about and then 1 of the tails. We are certainly seeing the ability for strong upsell amongst that we haven't yet got to the point, where we're dramatically commentary because we haven't got to the point of sales force yet.
Great and then maybe maybe 1 more from me I don't want to.
Too much of the Q&A, but for the supply chain issues could you maybe double click into that a little bit more just is that is that impacting more of the kind of traditional point of sale of terminal business or is this is it impacting brink as well and how should we factor that into maybe the backlog I noticed that only modestly quarter over.
But is it having any impact of the ability to close deals for brink.
We're not yet there was a little bit of that in Q2, nothing now I noticed like that to continue where it has impacted the cost of what we input as to what we buy has gone up as all of the shipping and that.
Hitting margin.
Our margin in Q2, albeit because we had a strong revenue.
More than recovered and had the strong margin growth year over year, it would've been even stronger if not for 4 of those impacts.
That will be impacting margin in Q3, and 4 but I said it should get better as we've put through some price increases are customers of accepted at the newly supported and then sort of activity. So.
It's the margin where it has impact I think we feel pretty good now on bookings and activation of not being slow down. This is super dynamic dose of motto.
It could all change overnight, but we feel very good where we are now.
Understood and that leads me to my last question is just as I think about last quarter I think that the company had a lot of confidence in an accelerating brink.
<unk> <unk> growth in the back half of the year and as we kind of think forward. It's been 3 months you've done a transformative acquisition.
Did you say that your confidence is the same as it was.
This time a quarter ago more the less the same just how should we think about now that we're rounding August maybe the view on the next the next 6 months.
Yeah.
I'd say, we're more confident now than we were then just because I've seen.
July was a record book Activations.
Turning IRR I expect that the continue August hopefully September so I think we feel even more confident now in Q3 being super strong and I expect that would continue in Q4, unless there's some other ex transition we didn't predict so I think we feel even stronger that the.
<unk> second half will be very strong the other part of the brings second half is that in the first half we activate a decent number of stores and I would say those are sort of price of our historical pricing or below so there was some of that they.
They weren't the highest price customers the second half I feel that the.
The customer mix is also very positive price.
Great. Thanks, again for taking my questions I'll turn it over to the next analyst.
Thanks, a lot.
Your next question comes from the line of George Sutton from Craig Hallum. Your line is open.
Thank you I wondered if you could address the payment opportunity and we were excited to see that you signed your first customer I believe Mr. Pickle.
At least from a formal announcement perspective can you talk about the payment opportunity as you see it.
The year.
Yeah absolutely.
Just trying to get the momentum.
It is a good customer win for us.
They sort of buy all of our products.
That's fantastic to see.
I think we've now got a full time person focus on payments.
Payment sales. So we've had the product person, we just approved the development team.
Payments is going to be a meaningful part of the revenue next year, we're starting to momentum this year and as I mentioned in the.
A couple of months ago.
I hope I hope that by the end of the year will win.
Couple of at least the wanted to help me a couple of larger customers that we were unexpected there. So I think we'll see good revenue by Q by the end of the year and I think it'll be a decent part of our revenue in 2022 as the as we've learned a lot in the first 6 months everything I would suggest.
Well.
While it's taken us a little bit longer to get here I think the net of it is actually will be a better outcome than we expected going in.
You discussed the great quick service restaurant environment to sell into right. Now are there are a couple of what I would define as fairly significant trends occurring and I wondered if you could address those relative to your opportunity first of the digital design innovations that we're seeing are obviously.
Suggesting that <unk> are going to look very different than they have in the past and second the labor shortages and that issue and what your product can be doing for those issues.
Yes.
Absolutely so on.
The digital design side.
We win there right, where the platform the laws of stuff the salt.
It closed the data off of whether the inside the store outside of the store on your App.
All of that comes from products that we sell and where we want to be the platform that powers that the we are a huge beneficiary of that trend.
And I think that's it.
The exciting point part of the point I was making was that if.
If you look at the restaurants across par.
It's not just the the average restaurant has more same store sales when they did 18 months ago. They have higher average ticket of order volume.
It's not just the average at almost every single 1 of them. So it's pretty amazing to see the resiliency and strength.
Hopefully.
That allow them to reinvest in that digital.
Redesign the equal talked about and we will be absolutely net beneficiary of that because most of those products and build is coming off of the point of sale platform or are bundled into the.
Customer engagement loyalty product, we've ever launched clients pick up which is a good example of some of that change.
On your.
On your second question around the labor challenges.
That.
Certainly the opportunity for par.
Our restaurant management solution of our backup data central.
Part of taking that from scheduling labor, but.
I would say that it's something that we will.
I expect some point to address the byproduct builder acquisition and certainly as we sort of attacks per store they.
You talked about most of our M&A focus being on things like ease of ordering in the front of store.
I do think it's definitely given how strong our customers are talking about the labor challenges you.
You might see us faster address that that holding of our solution.
I think this is the promise of it could take the long time.
Lastly from me you had an interesting article I'm sure most people on the call we're not able to see this relative to the ambient technology can you just give us a quick summary of your thoughts there and your product set that will meet that opportunity.
For sure so a big part of the foundation of thesis of acquiring punches that.
The points, we sort of know the customer the par we know the payment information we of the transaction, we know what's going on in the back office in the kitchen and so.
Together this platform should be able to power an <unk> experienced the what I mean like that is George you should be able to walk into a restaurant 1 day and the restaurants that you said again, if you decide to opt into this should be of the Nova you or adjust the menu just all of your preferences for you and you should be able to sit down order your food that they were taking out your phone or your wallet all of your loyalty information.
If you're the punch cards your payments your gift cards, all sort of done through.
I think something like something like.
And so that's really the dream, how do you create that almost like that Amazon go store experience at the restaurants, such that the technology is actually enhancing the in store experience, it's not sort of taking the farther away from that brand and makes you feel closer to that brand because the economy.
And then also having that ability outside the store and so that's really what we want to create.
The uniform thank you very much.
Your next question comes from the line of Stephen Sheldon from William Blair. Your line is open.
Hi, This is actually Pat Mcinally on for Steven.
I think we covered a lot of it but I just had 1 more quick 1 here.
So you touched a bit on the upsell and the cross sell with punch, but just just curious on what kind of traction you're seeing there. If you could talk a bit more about that and then specifically what drove the strong <unk> growth this quarter.
So.
I would say across our businesses.
Assuming the punch with here in Q2, 2 months of money, we had sort of the <unk>.
From the 5% air growth.
A lot of that growth I think is coming from just the the point there.
We were talking about the George and the last question was just there was just a move to the digital quickly and we are a beneficiary of that I would say the first few months.
Theres definitely been cross sell Theres been customers that have been won on the pump side of that where that came from.
And eventually I think that'll happen by first of all of it and that will continue but the real impact of that will be later in this year as we continue to sort of get together in person under a more formal banner.
It.
We'll see it happen the other thing that I think was not.
I wasn't expecting that the.
The vast majority of customers and I spoke of them almost all of them.
We're very excited about the acquisition because the idea of consolidating vendors.
The attractive to them because today they are managing too many vendors are actually overwhelmed.
Managing a dozen different software products per stores with a lot of work and so I think there'll be interesting customer opportunities that may or not take pumps or not of pick brink and we could come into the solutions and of course, which I think of your points I think that'll happen later in the year of more next year, whereas right now of the obvious ones, where brings an RFP or punch of an RFP and we can bring in the other quickly.
Okay makes sense. Thanks for the question.
As a reminder to ask the question again over the phone line. Please press star followed by the number 1 on your telephone keypad against that.
Star then the number 1 your next question comes from the line of Adam Wyden from <unk> Capital. Your line is open.
Hey.
The need.
Look I had a couple of questions 1.
Would you give people a little bit of of clarity I know you've talked of certain conferences about gross margin and there's been some sort of I guess misinterpretation of confusion on Twitter and amongst the call me can you talk to people about the conservative nature of your accounting relative to your peer group and what that implies for gross margin modeling going forward.
And you're past the EBITDA profitability.
Sure. So we are very conservative in how we account for the gross margin as the business historically.
If I was to.
You just breakout brink software so our service line.
All sorts of the other stuff.
Thanks offer it's historically been sort of in the 50 years of gross margin as we talked about the past, it's gotta be 70, plus.
We've got a strong path there.
Chung path to get there I'd say over the next year or 2 as we get the benefits of scale, but also get the lap all of the relaunch of <unk> been doing over the last 2.2 years here and so we've over overspend to get better and I think we're obviously seeing the result of that the other huge tailwind we have is that our largest arrow.
Contributor punch is already.
Call of natural high sulfur margins and so.
I think we will have strong margin expansion just because we got the benefit of the punch revenue the brink.
The margins will continue will expand as we can.
Move forward.
And again, we don't think of the interesting benefit that as our hardware business growth and I just thought we had pretty tremendous growth this quarter.
Did that help everything kind of.
As of scale, including our service.
Which I would say, it's been very low margin and challenge over the last year.
That will now turn as well.
Yeah, I mean look I think of major part of the story for me is less about the AOR growth, although that's forthcoming but the fact that your churn is very low and that because of the enterprise nature of that once the thing gets going I mean, this really has the potential the best in class gross margin and EBITDA margins for that matter.
It'll be exciting Adam I think.
<unk> historically, a very tiny business and given as you get scale you see its impact and remember the last 2 years, none of the focus of management has been a margin its been 100% on getting the product right which was.
And 1 of these over engineered but it was a ton of focus on building out of product for a 1 billion of engineering teams, putting a ton of investment spend behind that.
And so we haven't got the benefit of that.
Of those investments, but those are to come particularly as we launch new products off of that same team you see the margin expansion from scaling your existing product, but also each additional product should be incrementally much higher gross margin, which I absolutely expect growth to be the case.
Right.
So the <unk>.
Of this valuation perspective, I think you've been pretty clear that.
If you think about the par opportunity holistically and from a macro view I mean brink is effectively the spinal cord of the restaurant called the Bloomberg call whenever you on the call it and whether it's restaurant magic date of central or Polish or euro.
X y and Z delivery company or payments I mean, all of these things are relatively easier upsells in the as you know.
On the call you don't you can if you can flip on the switch over over the over the cloud and you don't have to be on present, the doesn't require hardware and so to me. This is much much more about.
The M&A story buying modules and upselling to existing clients and it is kind of brink activations.
And then against the backdrop.
Par today, probably trades at the largest discount to what I would call analyst 12 months.
Sulphide targets from price, which means that it's the most mispriced relative to the sell side that we could argue whether they're right than it's ever been since the company has had research coverage and the fact is trading lower than it was trading pre the punch deal and then obviously on a combined basis rolling forward a quarter of its even cheaper how do you think about kind of solving.
The 4 that cost of capital now that you've got the scale of what is it that you think is missing from kind of getting that cost of capital because obviously incrementally it's going to be more expensive to do deals. Even though you are executing so just kind of curious how you think about narrowing the cost of capital GAAP and kind of of your M&A pipeline.
In terms of up selling these modules because I think the that's that's a super exciting story from me. If you can kind of get all of the volatile line there.
Yeah for sure so I think.
We are super cognizant of our cost of capital and I think we've demonstrated in our day of the acquisitions. We've done in the way that we've raised capital to be very sensitive to.
Hum.
That's the those numbers.
I think the way that you've.
Closing the gap.
As reported with execution, we've got to continue to grow and as I mentioned, we feel really excited about the second half I mean, I think we had.
The 5% <unk> growth this quarter I expect.
Good growth in second half of this year and I think thats the thing.
1.2 is also.
Can you get the story out I think because we've been successful in our M&A and we feel very good about it we're going to continue to do that and so it's vital that we do this well.
I think it's getting the message out that when we have used our capital.
Clearly the hurdles.
And of any of the last is kind of what you've talked about it is we gotta get the story out there we have to have people going to exist.
We do see the valuations of companies that are in our category and we really do like our position. So I think that's more of just getting the message out.
Yes.
With some of them of Goldman Sachs.
It was an M&A advisor for the company on the pumps deal and they don't they don't really have coverage I would say that the vast majority of these analysts on these kind of on this conference call I don't want to single anyone else target smaller investors and clear it's clear to me that at 1 billion of the half.
The market cap or whatever it is.
Kind of in between kind of micro cap and mid cap.
I think that this is the super exciting story I mean look as you know we purchased our first shares.
$8 of share I believe at 16 million shares outstanding. So we purchased this thing when it was left the debt of $128 million market cap of roughly 7 million of they are.
The other shambles and here, we are over $100 million of the year and they are in and.
We like the story more today than we did when we bought it I mean look you are there you have got sham and the restaurant magic team and he's really built the corporation.
And both the real entrepreneurial culture. So it's really astounding to me that that we are cheaper today than arguably we have been in kind of its modern history with this corporate governance, I mean, I'm just kind of flabbergasted. So.
Excellent execution I encourage you guys to find creative ways to kind of get that cost of capital and I look forward I look forward to the path of.
Well I'd say I don't get the 3 year. They are all gone from $7 million of $110 million Thats call. It 14 ex I mean, I don't see any reason why you cant 14 ex IRR over the next 3 to 5 years. So maybe between now and next 3 to 5 years will actually get our cost of capital, but unbelievable execution and.
Keep up the good work.
Great. Thanks, a lot of.
And there are no further questions over the phone line at this time I would now like to turn the call back to Mr sort of mid single share.
Thanks to everyone for joining we look forward to updating you.
Next quarter.
Ladies and gentlemen, this concludes today's conference call. We thank you all for participating you may now disconnect.
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