Q1 2022 PAR Technology Corp Earnings Call

May 10, 2022

[music].

Good day, and thank you for standing by and welcome to the fiscal year 2022 first quarter financial results Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press star one on your telephone.

Please be advised that today's call is being recorded if you require any further assistance. Please press star zero.

The conference over to your Speaker today, Mr. Chris Byrnes, Vice President of business development. Please go ahead.

Thank you Sarah and good afternoon, everyone. I'd also like to welcome you today to the call. So far is 2022 first quarter financial results review.

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 <unk> Dot com.

I also want to be sure all participants today have access to our earnings presentation and business review slide deck.

We use later in the call to better communicate the momentum in our software business into.

Individuals on the webcast should have access to the deck when they logged onto the call. This afternoon for those just dialing in on the conference call. The presentation can be accessed on the Investor page of our website and we also included as an attachment on the 8-K, we filed this afternoon.

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 the call and it will be available for playback.

If you ask a question it will be included in both our live conference and any future use of the recording.

Also like to remind participants that this conference call includes forward looking statements that reflect management's expectations based on currently available data.

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 a CEO and President <unk> Singh and Bryan Mannar Par's Chief Financial Officer.

I would now like to turn the call over to <unk> for the formal remarks portion of the call, which will be followed by general Q&A.

70.

Thanks, Chris and thanks to everyone for joining us to review <unk> first quarter 2022 results.

As always there's a lot we want to share there.

Our prepared remarks, so let's get started.

Q1 saw us continue to hit our.

Our growth target to 30% to 40% growth with consistent margin expansion every quarter continues to prove out the long term growth and profitability of our unified commerce initiatives.

As a company we delivered a strong first quarter reported total Q1 revenues at $83 million, 47% increase from one year ago.

This revenue growth was driven across all business lines, and specifically around our software recurring revenues or there'll be a $94 $4 million of total life.

At quarter end and a year over year growth rate of 172% from Q1 last year when adjusting for the punch acquisition.

34% year over year.

<unk> continues to be driven by 40% growth and Eric I think the country is 35% from great.

Contract.

Yes.

$16 million as of March 31, paving the way for a strong rest of the year and beyond.

Equally important is the scale.

Dramatic improvement, we've been able to drive the gross margin expansion on our subscription revenues.

When you measure that in a little over a year ago two years ago recurring revenue gross margin was in the low <unk>.

At the end of Q1 2020, you now achieved a 72% we've now achieved 72%.

Significant improvement in just one year ago.

We expect this positive trajectory to continue to expand over time, let's grow it isn't driven by intense our LIFO, because engineering and by a dramatic improvement and bring scalability.

I'll start with US this quarter continued to be driven by high level of execution across the business and continued demand departure unified commerce cloud.

We have established strong momentum and we have continued to build on that throughout the quarter. In Q1, we added 12012 1244, new brink sites.

At the start for the year at stores go lives.

On a net basis after churn bring active store count now totals nearly 17000, a 40% increase from one year ago.

Brink bookings totaled nearly 1100 stores in the quarter.

And more detailed great strong first quarter with <unk>.

Headlined by strong activation numbers with higher MLR.

Selling a bring plus payments to new accounts and operational improvements, resulting in margin gains.

<unk> increased by 50 to $62 in the quarter as new deals.

Increases are now having a favorable impact.

We added 76% increase in grocery store Activations from Q1 last year.

We continue to see improvement compared with low churn rates by approximately 3% annualized and are encouraged by the progress in deals attaching par payment services to bring that validates our unified commerce platform.

We continue to be hyper focused on margin expansion by scaling with new customers and also driving operational efficiencies bring continues to be the distinguished leader in cloud Pos for enterprise kits are in fast casual restaurants.

Now turning to punch.

We continue to outperform and punch and added in excess of 500 sites in the quarter and now total more than 58800 active site 20.

29% increase in the last 12 months.

We signed 12 10, new customer logos in Q1 to add it to our impressive contracted solar including C stores and are beginning to build out the grocery pipeline.

Loyalty programs.

Are critical to the future restaurant marketing applications like punch to make it easier for brands to connect with their most loyal customers increased customer lifetime value where it counts.

As the number of channels grow the needs to understand customer LTV expand thereby pulling more punch nib.

I want to highlight that punches just crossed an important milestone showing a strong momentum and leadership in the market.

There are over 200 million loyalty guests unpledged.

Each of these guests relationship is unique to O'brien the number includes getting to get.

On a daily basis punch. It now has over $150 million and you'd get guest profile that is approximately 50% of adults in United States are participating in a loyalty program powered by price clearly showing our market.

Par payment services pipeline grew significantly in the quarter as well and we are extremely encouraged by the early performance in new customer interest.

Although working out the quality are associated payments grew by 60, 163% for Q1 last year.

We are now engaged with a steady stream of new customers.

Got out par for payment services due to our transparent and competitive pricing along with the integration of with breakthrough Punch Park continues to.

To see increased interest in the pipeline broadly across brink and punch customer basis.

I'm confident additional upsell and new customer opportunities will significantly accelerate this year as more and more enterprises are seeking integrated payments offering from a trusted technology partner with competitive and transparent pricing.

Although still early our payments initiative, we have seen notable customer wins during 2022 and believe this revenue stream will be meaningful and accelerated to our future financial performance.

We expect a dramatic increase car in 2022 payments alone.

To update you on data central.

We could create higher than normal churn in the quarter due to a onetime unfavorable neoplasm.

This turned negatively impacted the number of active stores for Q1, and we are now working hard to reverse this quickly.

Also impacting data central as it workflow interruptions to our development team based in the Ukraine and sadly the clause with their new product.

Element enhancement team initiatives have been impacted by 12% to 30% due to the war and this is having impact on data central sale.

For the last two plus years restaurants that focus tech spend on the front of house with CRM loyalty digital and delivery now most restaurants to upgrade the funds withheld tech stack and theyre struggling the operational issues and profit and margins looking out the back door via food and labor challenges.

We added three new logos in Q1, with California, Pizza kitchen, and they're 150 plus sites being the most notable.

Data Central had significant senior private lease in January also focus on labor management, and we have signed deals where we went head to head, leading labor solutions, and one which shows our labor solutions and product that we can now sell them.

Our product and hardware businesses continued to perform well in difficult intelligent <unk> product revenues in the quarter continued to strengthen year over year and were reported at $25 $1 million. In this recently ended quarter at 35% increase the capital purchase environment for restaurants is always tricky and this has been even more set with the pandemic and the global supply chain difficulties vest upon several end market.

As I mentioned previously we are not immune to these challenges around the supply chain and we've experienced some margin impact with the cost associate with the current realities.

We continue to monitor the supply environment closely and specifically realities in Asia, and specifically, China in regards to the pandemic and the impact of wide shutdowns.

We will continue to diligently manage our partners and vendors do these sort of price inflation and increases in freight charges, we're constantly seeking a greater diversity of supply sources, while at the same time technology and technology enabled operations and management of supply chain inventory.

We could anticipate.

Continued volatility in our sourcing channels and expect to closely monitor real time upstream and downstream visibility across the supply chain to help us predict and plan for adverse events.

While we don't like to carry excess inventory.

Usually added inventory over the last year and will continue for parts of this year to ensure rollouts are not delayed.

Now to briefly report on our government business.

Government had a solid Q1 financial performance as evidenced by the 20% increase from Q1 last year and reported revenues of $21 4 million.

Our government segment performed above plan for both revenue and earnings.

Our ISR group had a solid quarter driven by increased demand for our services.

Government segment also delivered improved performance from our mission systems and products and product business lines and I'm confident this segment will continue to outperform from stable future with a solid contract backlog and future award opportunities.

In addition to our solid revenue growth in 2022 solid revenue growth in 2022, we will continue to seek out additional contract opportunities, where we can leverage our decade long experience and performance excellence.

Let me now talk a bit of where we see things going forward from a business perspective.

We continue to work it.

Advance the enterprise restaurant industry vision of autonomous restaurants, with our focus on creating a single cloud based platform that is designed to enable SaaS and tech enabled restaurant operations.

Unified Commerce connects all the guest facing channels web site App in store third party deliveries with one common technology platform that is built on the open web standards.

This is an evolution in the industry for multichannel omnichannel platforms, which still require bands to do the heavy duty integration.

And at their own peril.

With the current state of technology, achieving a personalized guest experience through unified Commerce is no longer a holy Grail.

In fact mega brands to create their own custom technology stacks to the proprietary investments to achieve it.

Pardon me, if I'd Congress democratized access to that opportunity for thousands of brands through a SaaS model. This.

This is similar to what Salesforce did some CRM market almost two decades ago.

No longer have to become a system integrator to band a disparate systems and still end up with a tablet nightmare.

They can focus on delivering unparalleled guest experiences and building better employee engagement.

To achieve our goals, we continue to solidify our senior management team and recently added an experienced chief marketing officer, and SVP of human resources.

These individuals have proven track records in these new contributors are designed to foster collaboration across our company and to establish linkages to critical.

When she is critical to bringing innovative new products to market quickly and cost effectively while ensuring we are aligned with the needs of our customers avoid.

I also want to reiterate my message from last quarter's call. We will seek to continue to deliver 30% to 40% year over year <unk> growth driven by new customer signings, along with upsell and cross sell opportunities that will deliver the strong operational performance of our company.

In summary, we are pleased with our results in the first quarter of 2022, and we believe we're executing well in what continues to be a challenging and dynamic environment. Our revenue growth is strong and we expect our margins to continue to improve and institutional services typically we have a.

Strong balance sheet and solid cash position to execute our strategic plan and most importantly, we believe our unified commerce cloud distinguishes us from the competition and positions us well for long term growth.

As I mentioned on our last quarter's call. It a fairly large portion of our day central teams based in Ukraine.

Location for us despite the ongoing work I want to report that our entire Ukrainian based team has remained productive with high morale I admire the courage and dedication and our single minded focus that they put into their work without being asked to do so.

For our part we're providing and we'll continue to provide support to our data central team and their families. This is a behavior that is central to the culture and integrity of our company.

As always I would like to thank all of our employees for their dedication and effort over the past quarter.

Across the organization people have stepped up to ensure we meet our customers' needs while at the same time embracing the challenge the changes necessary to create a platform for more sustainable perhaps apart.

With that I'd like to hand, it off to Brian who will review our financial performance in greater detail.

Thank you Stephanie and good afternoon, everyone.

Total revenues were $80 3 million for the three months ended March 31, 2022, an increase of 47, 4% compared to the three months ended March 31 2021.

Net loss for the first quarter of 2022 was $15 7 million or <unk> 58, net loss per share compared to a net loss of $8 3 million or <unk> 38 loss per share reported for the same period in 2021.

Adjusted net loss for the first quarter of 2022 was $7 1 million or 26 net loss per share compared to an adjusted net loss of $7 6 million or <unk> 34 loss per share for the same period in 2021.

Product revenue in the quarter was $25 1 million and.

An increase of $6 5 million or 35% from the $18 6 million reported in the prior year.

Strong growth was primarily driven by hardware refresh investments by our domestic tier one accounts.

Service revenue was reported at $33 8 million, an increase of $15 8 million or <unk>, 87% from the 18 million reported in the prior year.

Increase was primarily driven by revenues of punch of $11 2 million, which included SaaS and related recurring services of $10 8 million and other services of $1 4 million.

Total subscription services revenue reported in Q1 2022.

$21 7 million compared to $8 4 million in Q1 2021.

The annual run rate of subscription services exiting the quarter was $94 4 million.

The company continues to expand our total recurring revenue base, which includes both software related services and hardware support contracts.

Of the $33 8 million of service revenue reported in Q1 2022.

$29 2 million is comprised of recurring revenue contracts as compared to $15 2 million in Q1 2021.

Contract revenue from our government business was $21 $4 million, an increase of $3 5 million or 20%.

$17 9 million reported in the first quarter of 2021.

Increase in contract revenue was driven by a $2 7 million increase in our ISR solutions product line.

Contract backlog continues to be significant.

Noting a total backlog of one.

<unk> hundred $95 7 million as of March 31, 2022.

Compared to $140 1 million backlog as of March 31, 2021.

Now turning to margins.

Product margin for the quarter was 22% versus 19, 8% in Q1 2021.

This margin growth was driven by our price increases.

In 2021, partially offset by a favorable product mix we.

We continue to monitor our pricing to properly reflect changes in the cost structure.

Service margin for the quarter was 41, 4% compared to 29, 6%.

In the first quarter of 2021.

The increase in margin was driven by higher mix of SaaS software and continued cost improvements with our hosting costs and support services, which has enabled to bring scalability.

Service margin during the three months ended March 31 2022.

Included $5 2 million of amortization of identifiable intangible assets.

Third a $2 1 million during the three months ended March 31 2021.

Excluding the amortization of intangible assets.

Service margin for the three months ended March 31, 2022 was 56, 8%.

<unk> to 41, 1% for the three months ended March 31 2021.

Government contract margins were seven 3% as compared to six 7% for the first quarter of 2021.

The increase was driven by a mission systems product line.

In regards to operating expenses.

GAAP SG&A was $22 4 million.

An increase of $7 9 million from the $14 5 million reported in Q1 2021.

The increase was primarily driven by $6 6 million and total punch operational expenses of which $1 4 million stock based compensation.

Other drivers included increases of $1 8 million in corporate expenses of which <unk> 4 million in stock based compensation.

This quarter again highlighted how our core business continues to scale with minimal incremental SG&A expense.

In fact in Q1, our revenues grew at the rates highlighted yet with only approximately $1 million of true incremental steps.

Net R&D was $10 8 million, an increase of $5 million from the $5 8 million recorded in Q1 2021.

The increase was primarily driven by $3 4 million for punch and $1 6 million related to additional investments in our other existing products.

Net interest expense was $2 5 million compared to $2 2 million recorded in Q1 2021.

The increase was driven by an increase in debt with the issuance of the 2027 notes in September 2021.

Partially offset by the reduction of accretion, resulting from our January one 2022.

The option of a recent accounting pronouncement.

Prior to our adoption, we accounted for our convertible notes by bifurcated between debt and equity, which resulted in noncash accretion of debt discount within interest expense over the life of the respective notes.

Upon the adoption all nodes are now accounted for as 100% debt.

Please see note seven in that footnote in our Q1 10-Q filing for additional information.

Now to provide information on the company's cash flow and balance sheet position.

For the three months ended March 31, 2022 cash used in operating activities was $21 2 million versus $3 4 million for the prior year.

Cash used for the three months ended March 31, 2022 was primarily driven by additional net working capital requirements due.

Due to a $5 million increase in accounts receivable related to our government segment.

A $5 million increase in inventory.

And the payout of our annual cash bonus.

These increases will be temporary.

As we expect accounts receivable and inventory to revert back closer to.

December 31, 2021 levels during Q2.

In regards to inventory.

Our balance as of March 31, 2022 was $40 9 million and we have a planned target for the company to exit this year at $30 million, while managing supply chain needs for our customers are.

Our increase in inventory has been a strategic investment over the last 18 months to ensure product delivery and a supply challenged market.

We are also confident that we can support customer demand, while managing inventory down to more modest levels.

Cash used in investing activities was $3 1 million for the three months ended March 31 2022.

Versus $1 7 million for three months ended March 31 2021.

Investing activities during the three months ended March 31, 2022 included $1 2 million of cash consideration.

Connection with the small tech tough acquisition to complement our drive through offering.

Capitalized software for the three months ended March 31, 2022 was $1 6 million was associated with the investments for various hospitality software offerings versus $1 5 million for the three months ended March 31 2021.

Cash used in financing activities.

<unk> was $1 4 million for three months ended March 31 2022.

Versus $2 1 million for the prior year.

Finance activities for both periods was driven by stock based compensation related transactions.

Days sales outstanding increased within restaurants, and retail from 58 days at December 31, 2021.

Nine days at March 31, 2022.

Days sales outstanding increase was in government from 55 days at December 31, 2021% to 62 days.

At March 31 2022.

At this time I would like to recognize the importance of continuing to provide a clear financial performance data and metrics as we execute to our strategy and the transformation of par.

As such in the future reporting we will disaggregate the services reporting line between subscription services and professional services.

These distinct revenue streams will give a more accurate and transparent a trail of the increased velocity and momentum of our software subscription services initiatives.

This concludes my formal remarks, and we'll now move to Q&A.

Ladies and gentlemen, if you have a question at this time please press the star and the number one key on your Touchtone telephone.

Question has been answered or you wish to remove yourself from the queue. Please press <unk>.

Ladies and gentlemen, if you have a question at this time. Please press Star then the number one on your Touchtone telephone.

Your first question comes from the line of Mike Dunn Dawn with Needham Your line is open.

Good afternoon, guys. This is actually Kyle Peterson on for Mark I. Appreciate you guys, taking our questions.

I wanted to touch on client conversations, particularly in this kind of higher inflation environment kind of everyone's dealing with it differently.

Seems like at least a lot of restaurants anecdotally, we've been able to push on some some prices through higher menu costs and such.

Are you guys being are you guys able to kind of push similar pricing increases through especially given some of the supply concerns on the hardware side.

Yes, I mean, we've been able to.

So I think there's two questions there so.

Client conversations, it's probably consistently even hearing which is restaurants have had been able to.

Pathilon without.

A major impact to their bottom line yet.

Until we've seen and been able to do that without a ton of traffic impact.

On our business we have been.

Pretty good at passing on the particularly the hardware inflation to our customers.

If you look at our hardware margins into expanding the last two quarters, which is a combination of product mix, but passing on the price increases to our customers. So so far we've been able to withstand it.

Part of that I think we made the investment in inventory part of that we've been able to pass on prices, but.

We sort of feel like now we've kind of.

Figured it out up until this point and we'll see things.

It is going forward.

Got it that's helpful. And then I guess, just a quick follow up.

On the <unk> strength, particularly on the hardware side was the was there any pull forward.

With some of the plan.

Hardware investments from some of your clients into the first quarter or is some of that strength and momentum due to that pricing that you were kind of just touching on just wanted to see if you had any more any more color on the really strong hardware growth.

Yes. This is Brian we've been seeing over the past couple of quarters, some really strong hardware sale.

Results that we've had some of that is actually love. It actually is timing of some of our tier one accounts that were kind of delayed out in 'twenty in the early part of 'twenty one.

And so.

We actually we had very good year over year this quarter actually lower than the past two quarters.

That's what really drove that and we did not see any kind of pushback from price increases that we implemented in.

In the mid part of last year as an impact on our on our shelf the past three quarters.

Thanks, guys nice quarter.

I'm sorry.

Hi, just thought thanks, guys nice quarter. Thank.

Thank you all for me.

Okay.

Your next question comes from the line of Samad Samana with Jefferies. Your line is open.

Hi, good afternoon.

Thanks for taking my questions 70, there was a lot in your prepared remarks, I'm going to try to unpack it.

As best as I can maybe first just when I think about the.

For brink in the quarter, it's clearly continuing to get better then and then some of the last few quarters you've posted.

Much of that is a function of better activations versus pipeline conversion that's happening from prior deals versus new deals that are coming into the pipeline that are closing in period, let's maybe start there.

Great question generally what you see in this quarter is a reflection of sales were six months to a year ago.

So.

It's really executing on deals, we signed and getting them out the door.

So the success we've had the last few quarters is a lot of the work that happened during the pandemic.

In prior quarters, and I was just becoming really really programmatic about getting activations out the door, we got it.

Some.

New leadership kind of run our Activations for the last few quarters, and it's really made a big difference and we've been able to burn down that backlog from the strong sales we had the prior year.

Okay, Great and then just I wanted to make sure I understood the developer impact.

Is that specific to data central itself or is that more broadly on your software portfolio that youre seeing a bit of a headwind I think it's understandable that there is obviously a much bigger concerns and theres a lot of companies that are being impacted by this but I'm. Just curious if you could help us understand what kind of more specifically what you are calling out.

Good.

Yes.

Yes, the data central product line.

The other product lines.

I think we've been able to move a lot of the team.

But I think our team estimate there's about a 20% 30% hit on production.

So the team is still performing really really well better than we all expected.

But.

There's no doubt that it.

Just given the situation there are limitations on how we're going to get done, but it's just that product line and we expect that to get better given the relocation that we've been able to push through.

Okay, Great and then just maybe on the pricing in the quarter I know you mentioned that <unk>.

Melted upward is that.

Primarily due to payments attaching more and more or is that.

Is that just better pricing like for like for <unk>, maybe just help us understand.

What's driving that upward dynamic for our food.

Yes, it's without question better pricing.

We've been talking a little bit last year.

We activate a lot of stores, but as you saw the price point per activate store with lower than average and that was very much driven by <unk>.

Legacy deal.

What youre seeing now is the deals that we signed over the last year that came in at the pricing that we've been telling folks that is better than our legacy deals and so you should continue to see see that happen as we kind of lap. Some of these legacy deals that have kept pricing down.

Got you that's all for me Thanks, guys I appreciate it.

Your next question comes from the line of Stephen Sheldon with William Blair. Your line is open.

Hey, Thanks for taking my questions and really strong results here.

Firstly with the three assets that you have I guess, where are you at in terms of integrating them from a backend technology perspective, if you look between bringing punch in data central are they.

Fully integrated now or there is there a lot more work to do on that Tom.

So from a.

Residential perspective, they are all within the same product.

Technology organization, which is.

Super important because the all reporting to the same person.

They had been hearing that a product.

And so that really creates a sense of unification across what we're doing.

We're constantly working on how you make if you buy all three products, what you would get someone who doesn't have that.

Thats constantly get better and better but from a backend perspective it is.

And one of the things we're most excited for this year.

Exactly what youre talking about where we're coming out with.

The products or features that you cannot get if he didn't buy those products altogether.

And it's all in the effort to say, Hey, Theres value if you buy.

The suite of products as opposed to just one.

Got it that's helpful. And then just on Frank really strong Activations, there again, this quarter and especially I think in light of <unk> during the quarter, but the bookings did slow a touch I guess anything to call out there in terms of the bookings slowdown.

And how much visibility do you still have in terms of sign concepts, where the franchise to new locations are not yet showing up in the booking metrics.

Good question.

Looking at our.

We've historically said, we wanted to at least 1000 bookings quarter, and there will be volatility from quarter to quarter because it's.

Sort of you sign the corporate and then you are.

The individual franchisees, which is.

A bit of a sale to a small business and.

That process generally becomes heavier at the quarter end and so you don't have a ton of visibility always.

We feel very good about.

Constantly exceeding our target for the year.

Yet there and like I said, it won't be consistent quarter to quarter, but we kind of unclear that 1000 every quarter at least.

Great. Thank you.

Your next question comes from the line of George Sutton with Craig Hallum. Your line is open.

Thank you Stephanie I wanted to go a little bit more into the.

<unk>.

The whole concept of the unified sale and you talked about closing several large brands, who chose multiple solutions and use separately talked about what you'd get if you buy all three products can you just give us a little bit better picture as to what that means to the.

The buyer of those multiple products.

Yes, absolutely.

It's a core part of what we're looking to deliver but.

I can.

I'm trying to unpack that a bit so.

The simplest way that I think the software Stuart's unsold as it's very much a bundle hey, you get this and you get a price discount and we are very much against that because the idea that the foundation of all of this is if you put it together.

You actually.

We're able to have the holistic picture of your store of your business and that is impossible today. So ill give you. One example.

When youre running a restaurant you have got your in store transactions, which are people coming in your store people going through the drive through and potentially people.

Coming in and.

Using some sort of a QR code pick up but you also have your online orders coming from your digital ordering partner loyalty orders hopefully coming in through punch.

Reorders you don't ask borders and so one of the advantages of having a unified commerce across bar is that you can get the data across every single order.

Allows you to and to do something that we call Omni Slotting Army throttling.

Throttle orders to make sure that you can fulfill the orders that are coming in so as an example, you may want to shut off your third party delivery options like a door dash.

Because you are concerned that you can't handle within the kitchen.

Conventionally you may want to turn on that channel because <unk> got capacity in the kitchen and you can only figure that out if you know what's happening.

Every single point of order within the restaurant and you also know what's happening in the kitchen and with your labor and so as an example of some value that we can provide that we can't really do without.

Being unified.

I'll give you a second one which sounds very silly, we want surveyed our largest customers and ask them for their biggest technological lead.

Number one and number two on everyones list, which is shocking.

They wanted a better integration between their online ordering system and their Pos and between their loyalty system in their online ordering system and.

The idea here is that the integration is actually very hard to get right and when you. When you build a natively together you don't have to worry about integration and so that one product is updates and thats not the way that an update cascading, causing problems for all of the product so thats integrated into.

So that ease of use that simplicity is really really powerful to our end customers.

That is a fabulous set.

Set of details I appreciate that one other question you gave a number that was very encouraging you have a 150 million unique profiles I did a little.

A quick Google search there is 322 million people in the country. So that's about half.

Help me understand the value you get when you bring that number of unique profiles to your potential customers.

So I was highlighting more than just sort of the breadth of how wide punches stupidity, but there's certainly opportunity there as we think over time.

The focus on that yet, but I think without question.

The.

The amount of data we have is hard to ignore.

Yes.

Great. Thank you.

Your next question comes from the line of Andrea <unk> with Sidoti Your line is open.

Hi, yes. Thank you for taking my questions and congratulations on the great quarter again.

Follow up on that.

<unk> data you said, you're collecting from those unique profiles.

You be owning that data our desktops along to you.

Our customers.

So it's customer by customer dependent and unfortunately, not consistent across everybody.

We'd never do anything without our customers approval, but.

One of the things that it obviously gives us a ton of anonymised data to share back to our customers and provide value on.

Is there offers campaigns promotion loyalty program working versus.

Comp.

It should be going so it really helps.

Yes.

Them run their business better and maybe down the road there is an opportunity to do something else there but.

That's still a little bit out there.

Okay. Thank you and then I have some follow up on the data Center I understand you have some challenges there with the development team in Ukraine.

But you also have that being a little bit of that Jim called it but any sort of pickup in the demand there what do you see in terms of the demand for data center now.

And.

We think it will turn.

The second half of this year, we've got a great new leader in there who has been driving really wonderful change, we see a pipeline, which we hadn't seen.

Candidly in the last couple of years and we've started to win the real logos. We're talking about <unk>. There are a couple of very good local is after that.

So we think we feel pretty good about the opportunity for that business.

Going forward.

And this year.

So that tailwind in that business to help by the inflationary environment maybe.

Absolutely one of the things I mentioned was that it.

We recently broke out a module on the labor side, and we've been able to sell that as an individual product.

Think that highlight the challenges of labor that you're talking about and so we haven't seen that we've been able to kind of create a little bit of a monetization effort.

So it gives you a consulting that one labor challenge that we see today.

Okay. Thank you and just one last question then about the M&A market. What do you see there and are you actively looking and sort of what's the environment like.

Yes, we're always very active in that environment given.

However, the punch acquisition has gone and how much it's pulled forward.

The M&A market is.

I'd say.

Depending where our stock prices our cost of capital is very expensive, but what we're seeing for the first time is that the market is also trading rational.

As it relates to private businesses, we spend most of our time with.

I don't think that anyone who is kind of holding out any more for for 2021 prices. If you will so it is we expect to be active we think we'll be successful.

In that endeavor.

Because I think the market also come around to the belief that the public market is the anchoring for future private market exits.

Okay. Thank you that was company.

Again, ladies and gentlemen, if you have a question at this time. Please press star and then the number one on your Touchtone telephone.

Your next question comes from the line of Adam Wyden mid <unk> capital. Your line is open.

Thanks, guys I've got a few questions here. So just make sure the operator doesn't cut me off but but the first question is.

There's been a lot of talk about inflation.

And I think.

Software is in technology in general has been rather deflationary. When you guys talk about bodies to bitch I think it might be helpful. For you guys and by the way a lot of technology companies. They were beneficiaries of Covid and they brought forward demand I think our growth was somewhat stalled during COVID-19 I think it might be helpful for you to talk about.

Ability to accelerate adoption is a function of bodies to bits lowering and lowering costs lowering labor lowering food I mean, do you think that Thats, a reality has something changed or I mean is this an opportunity for you guys to really accelerate revenue growth, even in a softer economic environment or an inflationary environment.

Yes without question I think.

Our customers are.

Feeling the pressure of inflation across the board, whether it's labor or food and they are looking for more technology that less the data. Central example is a good one where we were able to pull out of labor module.

I don't know if we could have done that before this environment because I don't know if that would have an appetite.

Today, it's probably the number one issue our customers face.

I think technology is deflationary.

<unk>.

That trend to be very helpful for us.

I think particularly for <unk> restaurants that are.

Actually enabled to putting all of this technology.

Them, they can actually provision that's much faster than 10 downmarket.

Okay.

My second of three questions is as it relates to engineering, a fishing engineers, we've done some kind of work on engineering and engineering efficiency.

It looks to me that we've been I think you might've mentioned on one of your calls or Fireside chats.

We're overstaffed from an engineering perspective, and that was basically the tail end of solving technical debt.

We havent done with the exception of payments, which isn't really technology, we haven't really rolled out a new module can you talk about reallocating those engineering resources.

To kind of roll out new modules, and how that affects <unk> and kind of.

Our our trends over the next couple of years.

Yes.

Sure. So I think without question if you look at our engineering spend.

Two weighted towards.

Technical debt and.

Randy.

The backward looking stuff not the forward looking stuff, but that's also what's led to the ability to build out this platform and vision that we've talked about.

And so it's been river with Wild said differently without those changes we couldnt have acquired pints, we cannot maintain revenue growth and we couldnt have grown the gross margin.

As high as we've got and then just a very short period of time.

I think that.

And particularly in this year, we've talked about new product releases coming and Thats only possible because we now have the ability to take on new product, where historically, we haven't and we are very.

Very very.

Just to think about this with our own engineering leadership, where we know on every product how much money is going to technical debt. How much is going into infrastructure. How much is going to new product development, how much is going to enhance it. So that we can manage it in a way where.

We can be dynamic about that spend and also be transparent.

Got it Okay. This is my third question.

<unk> holds around capital allocation. So look its not lost on us that no software companies and technology companies kind of.

Broadly speaking.

Have been somewhat.

Kind of call it attacked or have gone down interest rate fears.

This is a little bit like Deja vu, because I think I remember, having a similar conversation with you in may of 2020, and I think March and on that quarter.

You said.

I don't Colgate, It's unchartered territory I don't have a ton of visibility and I think now having gone through COVID-19 and everyone realizes they need software I kind of do the same math and I'm going to do it for everybody. So just hang in there with me for a second but there's 27 million shares outstanding it's an $800 million market cap the government business effectively signed the <unk>.

<unk> to double so if it was worth 100, maybe it's worth 200 today.

Hardware as hardware maintenance has grown precipitously as a function of brink you've got the headset. The best you can do this tuck in drive thru Blah Blah Blah, you got call it $400 million of noncore asset value against $200 million of debt. So you got $200 million of noncore value on the $800 million.

Whatever $600 million and 120 million of contracted they are plus or minus not including a lot of other things that don't go into it. So youre trading at five times revenue, you've got a huge cash balance.

What is the what is the opportunity.

We didn't really get that moment in time during COVID-19 really put our cash to work I mean, what is the opportunity.

To use that cash to repurchase shares.

I think M&A seems to be hard I mean look obviously, if you can get some guidance I'll use business or two or two or three times revenue, great, but I mean.

The way to create lasting shareholder value and you called the outsiders is giving it to people.

On the backside when they're when they're when they're giving it to you and we never really got our stock price, where we could put it to work in now.

Now we have an opportunity to kind of catch everybody upsides I mean, what are you prepared to do whether it be selling government.

Doing a share buyback I mean, you know us being long term shareholders is there an opportunity to kind of play offense.

And how do you kind of think about all of that.

Yes, I think so first of all I think we've been pretty good applicators, we sold shares at the top when we used to finance the <unk> acquisition and then we showed faros literally six weeks before the crazy software sales.

You've allocated capital intelligently, but you've never really got them.

The cost of capital that although people data sharing.

Your point, we want to drive shareholder value as an organization.

Just had our first ever global leadership off site.

So the company and the vast majority was on it.

Driving shareholder return and how do we build the ROI and of course, if we think an investment in our shares at a higher return than an acquisition, we will pull that lever we have plenty of cash our margins are expanding there's not a reason we wouldn't do that.

It relates to M&A it.

To me, it's all about.

As it is accretive and there are deals that are not accretive.

<unk> that are very accretive in year, two three and Conversely, there are deals that are accretive in year, one that could be disruptive in year, two and three and so you've always had a kind of balance that I think is.

The last caller talked about we are seeing deals that we think are very accretive to par and now it's about deciding if we want to pull that trigger but.

Yes, we're very committed to.

Driving driving value with us through a share repurchase or through an acquisition or continued mesentery existing products, but.

We feel very good from a cash decision, which gives us that flexibility to make that decision.

And the government business I mean, now with now seen that government backlog ramp up in.

In light of what's going on.

Owning a government asset that is somewhat economically kind of.

Invincible I mean, what is the what does the opportunity look getting that cash from government today is more valuable for M&A and buybacks than it might've might've been 12 months ago. I mean, now you've got the revenues coming in you've got the backlog I mean can we finally pull report on that.

Yes.

Can't talk too much about that but I think it is also at a time, where our margins continue to expand outside.

The government business. So the company will also be well, but.

I can't talk too much about it but.

As I've been saying now that we've demonstrated.

The growth of that large contract we won.

I suspect, we'll be able to get the multiple in the price that we want.

Yeah. Good luck.

Good work, it's been a roller coaster, but I'd love to see you guys find ways to play offense.

Magnify the shareholder return over time.

Thank you.

I am showing no further question at this time I would now like to turn the conference back to Mr. <unk>.

Thanks, everyone and we look forward to updating you on our progress next quarter.

Yes.

Ladies and gentlemen. This concludes today's conference call. Thank you for your participation and have a wonderful day.

Disconnect.

Okay.

[music].

Okay.

[music].

Good day, and thank you for standing by and welcome to the fiscal year 2022 first quarter financial results Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone.

Be advised that today's call is being recorded.

Any further assistance please press star zero.

You had a conference separate to your speaker today, Mr. Chris Byrnes, Vice President of business development. Please go ahead.

Thank you Sarah and good afternoon, everyone. I'd also like to welcome you today to the call. So far is 2022 first quarter finance.

Results review.

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 <unk> Dot com.

I also want to make sure all participants today have access to our earnings presentation and business review slide deck.

Do you use later in the call to better communicate the momentum in our software business individuals on the webcast should have access to the deck when they logged on to the call. This afternoon.

Are those just dialing in on the conference call. The presentation can be accessed on the Investor page of our website and we also included as an attachment on the 8-K, we filed this afternoon.

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 the call and it will be available for playback.

If you ask a question it will be included in both our live conference and any future use of the recording.

I'd also 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.

Joining me on the call today is pars CEO , and President 70, Tim and Brian Mannar Par's, Chief Financial Officer.

I would now like to turn the call over to <unk> for the formal remarks portion of the call, which will be followed by general Q&A.

70.

Thanks, Chris and thanks to everyone for joining us to review <unk> first quarter 2020 results.

As always there's a lot we want to share that.

My prepared remarks, so let's get started.

Q1 saw us continue our.

Our growth targets of 30% to 40% growth with consistent margin expansion every quarter continues to prove out the long term growth and profitability of our unified commerce initiatives.

As a company we delivered a strong first quarter with 400 total Q1 revenues of $83 million, 47% increase from one year ago.

This revenue growth was driven across all business lines and specifically around our software recurring revenues, resulting in $94 $4 million of total lives at quarter end and a year over year growth rate of 172% from Q1 last year when adjusting for the punch acquisition.

The 34% year over year. This acceleration continues to be driven by 40% growth and are coming from is 35% from Greg.

Contract.

Until Atlanta $116 million as of March 31, paving the way for a strong rest of the year and beyond.

Equally important is the scale is a dramatic improvement we've been able to drive gross margin expansion on our subscription revenues.

When new measures have been a little over a year ago three years ago recurring revenue gross margin was in the low <unk> at.

At the end of Q1 2022 has now achieved a 72% we've now achieved 72% a significant improvement in just one year ago. We.

We expect this positive trajectory to continue to expand over time, let's go ahead, and driven by intense RLI folks engineering and by a dramatic improvement and bring scalability.

I'll start with also this quarter continued to be driven by high levels of execution across the business and continued demand for parts of unified Commerce cloud.

We have established strong momentum and we have continued to build on that throughout the quarter. In Q1, we added 12000 201244, new brink sites.

Solid start.

Start for the year historical life.

On a net basis after churn bring active store count now totals nearly 17000, a 40% increase from one year ago.

<unk> bookings totaled nearly 1100 stores in the quarter.

And more detailed brings strong first quarter was headlined by strong activation numbers with higher MLR, the cross selling of brain plus payments to new accounts and operational improvements, resulting in margin gains.

<unk> increased by $62 in the quarter as new deals.

Increases are now having favorable index.

We added 76% increase in grocery store Activations from Q1 last year.

We continue to see improvement compared with low churn rates by approximately 3% annualized and are encouraged by the progress in deal of attaching par payment services to great validates our unified Commerce platform.

We continue to be hyper focused on margin expansion by scaling with new customers and also driving operational efficiencies Brent continues to be to distinguish leader in cloud Pos for enterprise <unk> and fast casual restaurants.

Now turning to <unk>.

We continue to outperform and punch and added in excess of 500 sites in the quarter and now total more than 58800 active site the 29% increase in the last 12 months.

We signed 12 10, new customer logos in Q1 to added to our impressive contracted solar including C stores and are beginning to build out the grocery pipeline.

Loyalty programs.

Are critical to the future of the restaurant marketing applications like point to make it easier for brands to connect with their most loyal customers increased customer lifetime value of our accounts.

As the number of channels grow the needs to understand customer LTV expands, thereby pulling more punch nib.

I want to highlight that punches just crossed an important milestone showing a strong momentum and leadership in the market.

There are over 200 million loyalty guests.

Each of these guests relationship is unique to our brand number included they get on.

On a daily basis punch. It now has over 150 million unique guest guest profile that is approximately 50% of adults in United States are participating in a loyalty program powered by price clearly showing our market.

Par payment services pipeline grew significantly in the quarter as well and we are extremely encouraged by the early performance in new customer interest.

Although working out the quality associated payments grew by 60, 163% for Q1 last year.

We are now engaged with a steady stream of new customers.

Thought out par for payment services due to our transparent and competitive pricing along with the integration of brake and Punch Park continues to.

To see increased interest in the pipeline broadly across <unk> endpoints customer basis.

I'm confident additional upsell and new customer opportunities will significantly accelerate this year as more and more enterprises are seeking integrated payments operating from a trusted technology partner with competitive and transparent pricing.

Although still early our payments initiative, we have seen notable customer wins during 2019 and believe this revenue stream will be meaningful and accelerated to our future financial performance.

We expect a dramatic increase car in 2020 with some payments alone.

To update you on data central which.

We experienced higher than normal churn in the quarter due to a onetime unfavorable video process.

This turned negatively impacted the number of active stores for Q1, and we are now working hard to reverse this quickly.

Also impacting data central is a workflow interruptions to our development team based in the Ukraine and sadly the consulate there <unk>.

New product development enhancement team initiatives have been impacted by 20% to 30% due to the war and this is having impact on data central sale.

The last two plus years restaurants that focus tech spend on the front of house with CRM loyalty and digital and delivery now most restaurants upgrade the funds withheld tech stack and theyre struggling the operational issues and profit and margins looking out the back door via food and labor challenges.

We added three new logos in Q1, with California, Pizza kitchen, and they're 150 plus sites.

Most notable.

Data Central had significant had a CIO priorities in January also.

On Labor management, and we have signed deals where we went head to head, leading labor solutions, and one which shows our labor decisions and product that we can now sell on its own.

Our product and hardware businesses continued to perform well in difficult intelligent <unk> product revenues in the quarter continued to strengthen year over year and were reported at $25 1 million and this recently ended quarter at 35% increase the capital purchase environment for restaurants is always tricky and this has been even more so with the pandemic and the global supply chain difficulties vest upon several.

And market.

As I mentioned previously we are not immune to these challenges around the supply chain and we've experienced some margin impact with the costs associated with the current realities. We continue to monitor the supply environment closely and specifically realities in Asia, and specifically, China in regards to the pandemic and the impact of wide shutdowns.

We will continue to diligently manage our partners and vendors to these shortages price inflation and increases in freight charges, we're constantly seeking a greater diversity of supply sources, while at the same time technology and technology enabled operations and management of supply chain inventory.

We need to anticipate.

Continued volatility in our sourcing channels and expect to closely monitor real time upstream and downstream visibility across supply chain to help us predict and plan for adverse events.

While we don't like to carry excess inventory, we have strategically added inventory over the last year and will continue for parts of this year to ensure rollouts are not delayed.

Now to briefly report on our government business.

Our government had a solid Q1 financial performance as evidenced by the 20% increase from Q1 last year and reported revenues of $21 4 million.

Our government segment performed above plan for both revenue and earnings our ISR group had a solid quarter driven by increased demand for our services.

Government segment also delivered improved performance from our mission systems and products and product business lines and I'm confident this segment will continue to outperform.

<unk> future with <unk>.

Our solid contract backlog and future award opportunities.

In addition to our solid revenue growth in 2022.

Revenue growth in 2020 will continue to seek out additional contract opportunities, where we can leverage our decades long experience and performance excellence.

Let me now talk a bit where we see things going forward from a business perspective.

We continue to work to advance the enterprise restaurant industry vision of autonomous restaurants, with our focus on creating a single cloud based platform that is designed to enable SaaS and tech enabled restaurant operations.

Unified Commerce connect all the guest facing channels web site App in store third party deliveries with one common technology platform that is built on the open web standards.

This is an evolution in the industry for multichannel omnichannel platforms, which still require bands who did heavy duty integration.

And at their own peril.

With the current state of technology, achieving a personalized guest experience through unified Commerce is no longer a holy Grail.

In fact mega brands that create their own custom technology stacks to the proprietary investments to achieve it.

Parse unified Commerce democratize access to that opportunity for thousands of brands through a SaaS model. This is similar to what Salesforce did to the CRM market almost two decades ago brand no longer has to become a system integrator to band a disparate systems and still end up with a tablet nightmare that can focus on delivering unparalleled guest experiences and building better employee engagement as debt.

To achieve our goals, we continue to solidify our senior management team and recently added an experienced chief marketing officer, and SVP of human resources.

These individuals have proven track records in these new contributors are designed to foster collaboration across our company and to establish linkages to critical.

It links is critical to bringing innovative new products to market quickly and cost effectively while ensuring we are aligned with the needs of our customers avoid.

I also want to reiterate my message from last quarter's call. We will seek to continue to deliver 30% to 40% year over year AOR growth driven by new customer signings, along with upsell cross sell opportunities that will deliver the strong operational performance of our company.

A strong balance sheet and solid cash position to execute our strategic plan. Most importantly, we believe our unified commerce cloud distinguishes us from the competition and positions us well for long term growth.

As I mentioned on our last quarter's call a fairly large portion of our data central team faced in Ukraine.

Port location for us despite the ongoing work I want to report that our entire Ukrainian based team has remained productive with high morale.

The card and dedication and our single minded focus that they put into their work without being asked to do so.

For our part we're providing and we'll continue to provide support to our data central team and their families. This is a behavior that is central to the culture and integrity of our company.

As always I would like to thank all our employees for their dedication and efforts over the past quarter across organization people have stepped up to ensure we meet our customers' needs. While at the same time embracing the challenge the changes necessary to create a platform for long.

Annabelle has apart.

With that I'd like to hand, it off to Brian who will review our financial performance in greater detail.

Thank you <unk> and good afternoon, everyone.

Total revenues were $80 3 million for the three months ended March 31 2022.

An increase of 47, 4% compared to the three months ended March 31 2021.

Net loss for the first quarter of 2022 was $15 7 million or <unk> 58, net loss per share compared to a net loss of $8 3 million or <unk> 38 loss per share reported for the same period in 2021.

Adjusted net loss for the first quarter of 2022 was $7 1 million or <unk> 26 loss per share compared to an adjusted net loss of $7 6 million or <unk> 34 loss per share for the same periods in 2021.

Product revenue in the quarter was $25 1 million.

An increase of $6 5 million or 35% from the $18 6 million reported in the prior year.

Strong growth was primarily driven by hardware refresh investments by our domestic tier one accounts.

Service revenue was reported at $33 8 million, an increase of $15 8 million or <unk>, 87% from the 18 million reported in the prior year.

The increase was primarily driven by revenues of punch of $11 2 million, which included SaaS and related recurring services of $10 8 million and other services of <unk> 4 million.

Total subscription services revenue reported in Q1, 2022 was $21 7 million compared to $8 4 million in Q1 2021.

The annual run rate of subscription services exiting the quarter was $94 4 million.

The company continues to expand our total recurring revenue base, which includes both software related services and hardware support contracts.

Of the $33 8 million of service revenue reported in Q1 2022.

$29 2 million is comprised of recurring revenue contracts as compared to $15 2 million in Q1 2021.

Contract revenue from our government business was $21 4 million, an increase of $3 5 million or 20%.

<unk> 9 million reported in the first quarter of 2021.

Increase in contract revenue was driven by a $2 7 million increase in our ISR solutions product line.

Contract backlog continues to be significant.

Noting a total backlog of one.

<unk> hundred $95 7 million as of March 31, 2022, compared to $140 1 million backlog as of March 31 2021.

Now turning to margins.

Product margin for the quarter was 22% versus 19, 8% in Q1 2021.

This margin growth was driven by our price increases.

Hey, effected in 2021, partially offset by unfavorable product mix.

Continue to monitor our pricing to properly reflect changes in the cost structure.

Service margin for the quarter was 41, 4% compared to 29, 6% reported in the first quarter of 2021 to.

The increase in margin was driven by higher mix of SaaS software and continued cost improvements with our hosting costs and support services, which has enabled bring scalability.

Service margin during the three months ended March 31 2022.

<unk> included $5 2 million of amortization of identifiable intangible assets compared to $2 1 million. During the three months ended March 31 2021.

Excluding the amortization of intangible assets.

Service margin for the three months ended March 31, 2022 was 56, 8%.

<unk> to 41, 1% for the three months ended March 31 2021.

Government contract margins were seven 3% as compared to six 7% for the first quarter of 2021.

The increase was driven by our mission systems product line.

In regards to operating expenses.

GAAP SG&A was $22 4 million, an increase of $7 9 million from the $14 5 million reported in Q1 2021.

The increase was primarily driven by $6 6 million and total punch operational expenses of which one 4 million is stock based compensation.

Other drivers include increases of <unk> 8 million in corporate expenses of which <unk> 4 million in stock based compensation.

This quarter again highlighted how our core business continues to scale with minimal incremental SG&A expense.

In fact in Q1, our revenues grew at the rates highlighted yet with only approximately $1 million of true incremental steps.

Net R&D was $10 8 million, an increase of $5 million from the $5 8 million recorded in Q1 2021.

The increase was primarily driven by $3 4 million for punch and $1 6 million related to additional investments in our other existing products.

Net interest expense was $2 5 million compared to $2 2 million recorded in Q1 2021.

The increase is driven by an increase in debt with the issuance of the 2027 notes in September 2021.

Partially offset by the reduction of accretion, resulting from our January one 2022.

The option of a recent accounting pronouncement.

Prior to our adoption, we accounted for our convertible notes by bifurcation between debt and equity, which resulted in noncash accretion of debt discount with an interest expense over the life of the respective notes.

Upon the adoption all notes are now accounted for as 100% debt.

Please see note seven in that footnote in our Q1 10-Q filing for additional information.

Now to provide information on the company's cash flow and balance sheet position.

For the three months ended March 31, 2022 cash used in operating activities was $21 2 million versus $3 4 million for the prior year.

Cash used for the three months ended March 31, 2022 was primarily driven by additional net working capital requirements due to a $5 million increase in accounts receivable related to our government segment a.

A $5 million increase in inventory.

And the payout of our annual cash bonus.

These increases will be temporary.

As we expect accounts receivable and inventory to revert back closer to <unk> to December 31, 2021 levels during Q2.

In regards to inventory the ban.

<unk> as of March 31, 2022 was $49 million and we have a planned target for the company to exit this year at $30 million, while managing supply chain needs for our customers.

Our increase in inventory has been a strategic investment over the last 18 months to ensure product delivery and a supply challenged market.

We are also confident that we can support customer demand, while managing inventory down to more modest levels.

Cash used in investing activities was $3 1 million for the three months ended March 31 2022.

Versus $1 7 million for the three months ended March 31 2021.

Investing activities during the three months ended March 31, 2022 included $1 2 million of cash consideration in connection with a small tech tuck acquisition to complement our drive through offering.

Cash used in financing activities.

<unk> was $1 4 million for three months ended March 31, 2022 versus $2 1 million for the prior year.

<unk> finance activities for both periods was driven by stock based compensation related transactions.

Days sales outstanding increased within restaurants, and retail from 58 days at December 31, 2021.

Nine days at March 31, 2022.

Days sales outstanding increase was in government from 55 days at December 31, 2021% to 62 days at March 31 2022.

At this time I would like to recognize the importance of continuing to provide a clear financial performance data and metrics as we execute to our strategy and the transformation of par.

As such in the future reporting we will disaggregate the services reporting line between subscription services and professional services.

Breaking out these distinct revenue streams will give a more accurate and transparent a trail of the increased velocity and momentum of our software subscription services initiatives.

This concludes my formal remarks, and we'll now move to Q&A.

Ladies and gentlemen, if you have a question at this time. Please press the star and the number one key on your Touchtone telephone question has been answered or you wish to remove yourself from the queue. Please press <unk>.

Again, ladies and gentlemen, if you have a question at this time. Please press Star then the number one on your Touchtone telephone.

Your first question comes from the line of Mike Dunn Dawn with Needham Your line is open.

Good afternoon, guys. This is actually Kyle Peterson on for <unk>.

You guys, taking our questions.

I just wanted to touch on client conversations, particularly in this kind of higher inflation environment kind of everyone's dealing with it differently.

It seems like at least a lot of restaurants.

Anecdotally, we've been able to push on some some prices through higher menu costs and such.

Or are you guys seeing are you guys able to kind of push similar pricing increases through especially given some of the supply concerns on the hardware side.

Yes, I mean, we've been able to so I think there's two questions. There. So from client conversations has probably consistently even hearing which is restaurants have had been able to.

Pathilon without.

A major impact to their bottom line yet.

And so we've been we've seen and been able to do that without a ton of traffic impact.

On our business we have been.

Pretty good.

<unk> on the particularly the hardware inflation to our customers.

So if you look at our hardware margins have been expanding the last two quarters, which is a combination of product mix, but passing on the price increases to our customers. So so far we were able to extend it.

Part of that is that we made the investment in inventory part of that we've been able to pass on prices, but.

We sort of feel like now we've kind of.

Figured it out up until this point and we'll see things.

This is going forward.

Got it that's helpful. And then just a quick follow up.

On the <unk> strength, particularly on the hardware side was the was there any pull forward.

Some of the planned hardware investments from some of your clients into the first quarter or is some of that strength and momentum due to that pricing that you were kind of just touching on just wanted to see if you had any more any more color on the really strong hardware growth.

Yes. This is Brian we've been seeing over the past couple of quarters, some really strong hardware sale.

Results that we've had some of that is actually a lot of it actually is timing of some of our tier one accounts that were kind of delayed out in 'twenty and in the early part of 'twenty one.

Covid and so.

We actually we had very good year over year this quarter actually lower than the past two quarters.

That's what really drove that and we did not see any kind of pushback from price increases that we implemented in.

In the mid part of last year as an impact on our on our shelf past three quarters.

Thanks, guys nice quarter.

I'm sorry.

Hi, Thanks, guys nice quarter. Thank.

Thank you all for me.

Okay.

Your next question comes from the line of Samad Samana with Jefferies. Your line is open.

Hi, good afternoon.

Thanks for taking my questions 70, there was a lot in your prepared remarks, I'm going to try to unpack it.

As best I can maybe first just when I think about the.

Growth for brink in the quarter, it's clearly continuing to get better than some of the last few quarters you've posted how.

Much of that is a function of better activations versus pipeline conversion that's happening for from prior deals versus new deals that are coming into the pipeline that are closing in period, let's maybe start there.

Great question generally what you see in this quarter is a reflection of sales were six months to a year ago.

So.

It's really executing on deals, we signed and getting them out the door.

So the success we've had the last few quarters is a lot of the work that happened during the pandemic.

And in the prior quarters and us just becoming really really programmatic about getting activations out the door we've had.

Some.

New leadership kind of run our Activations for the last few quarters, and it's really made a big difference and we've been able to burn down that backlog from the strong sales we had the prior year.

Okay, Great and then just I wanted to make sure I understood the developer impact.

<unk>.

Yes.

Yes, the data central product line.

The other product lines.

I think we've been able to move a lot of the team.

But I think our team estimate there's about a 20% 30% hit on production.

So the team is still performing really really well better than we all expected.

But.

There's no doubt that it.

Just given the situation there are limitations on what we can get done, but it's just that product line and we expect that to get better given the relocation that we have been able to push through.

Okay, Great and then just maybe on the pricing in the quarter I know you mentioned that <unk>.

Melted upward is that.

Primarily due to payments attaching more and more or is that.

Is that just better pricing like for like for <unk>, maybe just help us understand.

What's driving that upward dynamic for our food.

Yes, it's without question better pricing.

We've been talking a little bit last year.

We activate a lot of stores, but as you saw the price point per activate store with lower than average and that was very much driven by <unk>.

Legacy deals.

Got you that's all for me Thanks, guys I appreciate it.

Your next question comes from the line of Stephen Sheldon with William Blair. Your line is open.

Hey, Thanks for taking my questions and really strong results here.

Firstly with the three assets that you have I guess, where are you at in terms of integrating them from a backend technology perspective, if you look between bringing punch in data central are they.

Fully integrated now or is there is there a lot more work to do on that front.

So from a.

Early nasal perspective, they are all within the same product.

Technology organization, which is <unk>.

Super important because they're all reporting to the same person.

The same has been hearing the same metal product.

And so that really creates a sense of unification across what we're doing.

We're constantly working on how you make if you buy all three products, where you get that someone who doesn't have that is that constantly get better and better but from a backend perspective, it is United and one of the things. We're most excited for this year is exactly what youre talking about where we're coming out with.

Products or features that you cannot get if he didn't buy those products altogether.

And it's all in the effort to say, Hey, Theres value if you buy.

The suite of products as opposed to just one.

Got it that's helpful. And then just on branch really strong Activations. There again, this quarter and especially I think in light of <unk> during the quarter, but the bookings did slow a touch I guess anything to call out there in terms of the bookings slowdown.

And how much visibility do you still have in terms of sign concepts, where the franchise to new locations are not yet showing up in the booking metrics.

Good question.

Looking at our.

We've historically said, we wanted to at least 1000 bookings quarter, and there will be volatility from quarter to quarter because it's.

Sort of you signed the corporate and then you are.

Starting at the individual franchisees, which is.

A bit of a sale to a small business and.

That process generally becomes heavy at the quarter end and so you don't have a ton of visibility always we.

We feel very good about it.

Constantly exceeding our target for the year.

There and like I said, it won't be consistent quarter to quarter, but we kind of want to clear that 1000 every quarter at least.

Great. Thank you.

Your next question comes from the line of George Sutton with Craig Hallum. Your line is open.

Thank you Stephanie.

Wanted to go a little bit more into the.

The whole concept of the unified sale and you talked about closing several large brands, who chose multiple solutions and use separately talked about what you get if you buy all three products can you just give us a little bit better picture as to what that means to the.

The buyer of those multiple products.

Yes, absolutely.

A core part of what we're looking to deliver but.

I can.

I'm trying to unpack that a bit so.

The simplest way that I think the software storage and sold as it's very much a bundle hey, you get this and you get a price discount and we are very much against that because the idea that the foundation of all of this is if you put it together.

You actually.

We're able to have a holistic picture of your store of your business and that is impossible today. So ill give you. One example.

When youre running a restaurant you got your in store transactions, which are people coming in your store people going through the drive through and potentially people.

Coming in and.

Using some sort of a QR code pick up but you also have your online orders coming from your digital ordering partner loyalty orders hopefully coming in through punch.

Reach orders <unk> orders and so one of the advantages of having a unified commerce across bar is that you can get the data across every single order.

Allows you then to see something that we call omni slotting omni throttling, where you can throttle orders to make sure that you can fulfill the orders that are coming in so as an example, you may want to shut off your third party delivery options like a door dash.

Because you are concerned that you can't handle within the kitchen.

Or Conversely, you may want to turn on that channel because <unk> got capacity in the kitchen and you can only figure that out if you know what's happening.

Being unified.

I'll give you a second one which sounds very silly, we want survey of our largest customers and asked them for their biggest technological need.

Number one and number two on everyones list, which is shock you with it.

They wanted a better integration between their online ordering system and their Pos and between their loyalty system in their online ordering system and.

The idea here is that the integration is actually very hard to get right and when you have when you build a natively together you don't have to worry about integration and so if one product is updates and that's because you don't have to worry about that and update cascading, causing problems for all of the product so thats integrated into.

So that ease of use of complicity is really really powerful to our end customers.

One is a fabulous set.

Set of details I appreciate that one other question you gave a number that was very encouraging you have 150 million unique profiles I did a little.

A quick Google search there is 322 million people in the country. So that's about half.

Help me understand the value you get when you bring that number of unique profiles to your potential customers.

So I was highlighting more than just sort of the breadth of how wide punch distributed but there's certainly opportunity there as we think over time.

And focus on that yet, but I think without question.

The.

The immense amount of data we have is hard to ignore.

Yes.

Great. Thank you.

Your next question comes from the line of Andrew <unk>.

<unk> with Sidoti Your line is open.

Hi, yes. Thank you for taking my questions and congratulations on the great quarter again.

Just have a follow up.

That data you said, you're collecting from those unique profiles.

Would you be owning that data our desktops along to your customers.

So it's customer by customer dependent unfortunately, not consistent across everybody.

We would never do anything without our customers approval, but.

One of the things that it obviously gives us a ton of anonymised data to share back to our customers and provide value on.

How is their offers campaigns promotions loyalty program working versus.

Our comp or how it should be going so it really helps.

Them run their business better and maybe down the road there is an opportunity to do something else there but.

That's fair.

A little bit out there.

Okay. Thank you and then I have some follow up on the data Center I understand you have some challenges there with the development team in Ukraine.

But you also had that.

A little bit that's not on there Jim called impact any pickup in the demand there what do you see in terms of the demand for data center now.

We think it will turn.

In the second half of this year, we've got a great new leader in there who has been driving really wonderful change, we see a pipeline, which we hadn't seen.

Really in the last couple of years and we've started to win some real logos. We're talking about <unk>. There are a couple of very good logos after that.

So we think we feel pretty good about the opportunity for that business.

Going forward.

And this year.

So that tailwind in that business to help by the inflationary environment maybe.

Absolutely one of the things I mentioned was that.

We recently broke out a module on the labor side, and we've been able to sell that as an individual product.

That highlight the challenges of labor that you are talking about and so we haven't seen that we've been able to kind of create a little bit of a monetization effort.

So it gives you a consultant at one labor challenge that we see today.

Okay. Thank you and just one last question about the M&A market, what do you see there and actively.

Actively looking and sort of what's the environment like.

Yes, we're always very active in that environment given how.

The <unk> acquisition has gone and how much it's pulled forward.

The M&A market is.

Hey.

<unk>.

Listen as depending where our stock prices our cost of capital is very expensive, but what we're seeing for the first time is that the market is also turning rational.

As it relates to private businesses, we spend most of our time with.

We think that anyone is kind of holding out any more for for 2021 prices. If you will so it is we expect to be active we think will be successful.

In that endeavor.

Because I think the market also come around to the belief that the public market is the anchoring for future private market exits.

Okay. Thank you that was company.

Again, ladies and gentlemen, if you have a question at this time. Please press Star then the number one on your Touchtone telephone.

Your next question comes from the line of Adam Wyden.

With <unk> capital your line is open.

Hey, Thanks, guys I've got a few questions here. So just make sure the operator cut me off but the first question is.

There's been a lot of talk about <unk>.

Inflation.

And I think software is in technology in general has been rather deflationary. When you guys talk about bodies to bitch I think it might be helpful. For you guys and by the way a lot of technology companies. They were beneficiaries of Covid and they brought forward demand I think our growth was somewhat stalled during COVID-19 I think it might be helpful for you to talk.

About the ability to accelerate adoption is a function of bodies to bits lowering and lowering costs lowering labor lowering food I mean, do you think that Thats, a reality has something changed or I mean is this an opportunity for you guys to really accelerate revenue growth even in the softer economic environment or an inflationary environment.

<unk>.

Yes without question I think.

Our customers are.

Feeling the pressure of inflation across the board, whether it's labor or food.

And they are looking for more technology that less the data. Central example is a good one where we were able to pull out of labor module.

Don't know if we could have done that before this environment because I don't know if it would have an appetite.

Today, it's probably the number one issue our customers face. So I think technology is deflationary and we'd expect.

That trend to be very helpful for us.

I think particularly for <unk> restaurants that are.

Actually enabled to putting all of this technology.

For them, they can actually provisioning thats much faster than 10 Downmarket.

Okay and my second of three questions is as it relates to engineering fishing engineers, we've done some kind of work on engineering and engineering efficiency in.

It seems to me that we've been I think you might've mentioned on one of your calls or Fireside chats that Youre overstaffed from an engineering perspective, and that was based at the tail end of solving technical debt.

We havent done with the exception of payments, which isn't really technology, we haven't really rolled out a new module can you talk about reallocating those engineering resources.

Kind of rollout new modules and how that affects <unk> in kind of the.

<unk> trends over the next couple of years.

Sure.

Without question, if you look at our engineering spend at two.

Two weighted towards.

Technical debt and.

Andy Yes sort.

The backward looking stuff not the forward looking stuff, but that's also what's led to the ability to build out this platform and vision that we've talked about.

And so it's been very very worthwhile.

Said differently without those changes we couldnt have acquired punch, we cannot maintain revenue growth and we couldnt have grown the gross margins.

As high as we've got and then just a very short period of time.

I think that.

As we continue to get better with our technical debt, particularly on the brink product, we should be able to switch those percentages around to where more and more of that spend is going to new product development as opposed to the historical work of fixing the cost and particularly in this year, we've talked about new product releases coming and that's the only possible because we now have the ability to take on new product, where historically we haven't.

And we are very.

Becoming very very.

Specifically about this with our own engineering leadership, where we know on every product how much money is going to technical debt. How much is going to infrastructure. How much is going to new product development, how much is going to enhancement.

We can manage it in a way where.

We can be dynamic about that spend and also be transparent.

Got it Okay. This is my third question.

It revolves around capital allocation. So look its not lost on us that no software companies and technology companies kind of.

Broadly speaking.

Have been somewhat.

Kind of call it attacked or have gone down interest rate fears look.

This is a little bit like Deja vu, because I think I remember, having a similar conversation with you in may of 2020, and I think March and on that quarter.

Said.

Colgate, It's unchartered territory I don't have a ton of visibility and I think now having gone through COVID-19 and everyone realizes they need software.

Do the same math and I'm going to do it for everybody. So just hang in there with me for a second but there's 27 million shares outstanding it's an $800 million market cap the government business effectively signed the contract to double so it was worth 100, maybe it's worth 200 today hardware.

Hardware is hardware and maintenance has grown precipitous leaves the function of brink, you've got the headset Division do this tuck in drive thru Bauble bar, you've got call it $400 million of noncore asset value against $200 million of debt. So you got $200 million of noncore value on the $800 million cap.

Yes.

What is the what is the opportunity.

We didn't really get that moment in time during COVID-19 to really put our cash to work I mean, what is the opportunity.

To use that cash to repurchase shares.

I think M&A seems to be hard I mean look obviously, if you can get some guidance I'll use business or two or two or three times revenue, great, but I mean.

The way to create lasting shareholder value and you called the outsiders is giving it to people.

The backside when they're when they're when they're giving it to you and we.

We never really got our stock price, where we could put it to work in.

Now we have an opportunity to kind of catch everybody upsides I mean, what are you prepared to do whether it be selling government.

Doing a share buyback I mean us being long term shareholders is there an opportunity to kind of play offense.

And how do you kind of think about all of that.

Yes, I think so first of all I think we've been pretty good applicators, we sold shares at the top when we used to finance the <unk> acquisition and then we showed sorrows literally six weeks before the crazy software somewhat.

You've allocated capital intelligently, but you've never really got.

The cost of capital that although people data sharing.

To your point, we want to drive shareholder value as an organization.

We just had our first ever global leadership off site.

The company and.

The vast majority was on it.

All about is it is it accretive and there are deals that are not accretive in year. One that are very accretive in year, two three and Conversely, there are deals that are accretive in year, one that could be.

<unk> in year, two and three and so you've always had a kind of balance that.

As the last caller talked about we are seeing deals that we think are very accretive to par and now it's about deciding if we want to pull that trigger but.

Yes, we're very committed to.

Driving driving value with us through a share repurchase or through an acquisition or continued necessary existing products, but.

We feel very good from a cash decision, which gives us that flexibility to make that decision.

And the government business I mean, now with now seen that government backlog ramp up and obviously in light of what's going on.

Owning a government asset that is somewhat economically kind of.

Invincible I mean, what is the.

What does the opportunity look getting that cost for government today is more valuable for M&A and buybacks than it might've might've been 12 months ago now you've got the revenues coming in you've got the backlog I mean can we finally pull report on that.

Yes.

Can't talk too much about that but I think it's also at a time, where our margins continue to expand outside.

The government business. So the company will also be well, but.

I personally can't talk too much about it but.

As I've been saying now that we've demonstrated.

The growth of that large contract we won.

I suspect, we'll be able to get the multiple in the price that we want.

Yes, good well look good.

Good work, it's been a roller coaster, but I'd love to see you guys find ways to play offense.

Magnify the shareholder return over time.

Thank you.

I am showing no further question at this time I would now like to turn the conference back to Mr. <unk>.

Thanks, everyone and we look forward to updating you on our progress next quarter.

Yes.

Ladies and gentlemen. This concludes today's conference call. Thank you for your participation and have a wonderful day you may.

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Q1 2022 PAR Technology Corp Earnings Call

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