Q4 2022 PAR Technology Corp Earnings Call

Speaker 1: It.

Speaker 2: Thank.

Speaker 3: Good day and thank you for standing by. Welcome to the Power Technologies Fiscal Year 2022 Fourth Quarter Financial Results. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1-1 on your telephone.

Speaker 3: You will then hear an automated message advising you your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Chris Burns, Senior Vice President of Business Development. Please go ahead.

Speaker 4: Thank you, Catherine, and good morning to everyone. I'd also like to welcome you today to the call for PAR's 2022 fourth quarter and year-end financial results review. The complete disclosure of our results can be found in our press release issued this morning as well as in our related Form 8K furnace to the SEC.

Speaker 4: To access the press release and the financial details, please see the investor relations and news section of our website at www.partech.com.

Speaker 4: and records to the call this morning. Participants on the call should be aware that we are recording the call this morning, 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. Thank you very much.

Speaker 4: 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. 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 morning and in our annual and quarterly filings with the SEC.

Speaker 4: Joining me on the call today is part CEO and President, Sevni Tsing and Brian Minar, Parts Chief Financial Officer. I'd now like to turn the call over to Sevni for the formal remarks portion of the call, which will be followed by General Q&A.

Speaker 5: Stephanie? Thanks, Chris, and thanks to everyone for joining the call this morning. I'm pleased to report that our growth momentum continues as we aggressively expand our unified experience to new and existing customers, drive our business to cash flow positive, and deliver customer satisfaction rates that are the highest in the industry. As I've done on prior calls, I'm going to break today's call into three sections.

Speaker 5: First, a review of our recent quarter results. Second, a review of strategic highlights that will lead to future results. And finally, some thoughts on 2023.

Speaker 5: First, our results. As I stated previously, I'm convinced that ARR remains the best measure to measure our success as each dollar of ARR, as under each dollar of ARR, is considerable future cashflow. At the end of Q4, ARR reached $111.4 million, delivering a 26.4% year-over-year increase, demonstrating the continued growth and scaling of our subscription services engine. Contracted ARR now stands at $127.3 million, a 21% year-over-year increase from the end of 2021.

Speaker 5: and an 8% increase from sequential Q3. Today, our Unified Experience consists of operator solutions, guests engagement, and back office. Operator solutions, which is brink and payments, ARR grew 29.6% to $41.6 million in Q4 when compared to the same period last year.

Speaker 5: During Q4, operator solutions added 1183 new-store activations and new booking total approximately 1,611. Current continues to be extremely low at 4.3% annualized for a break in the quarter. We continue to be aggressive in attaching payments to all new brink deals and see a significant majority of our new customer wins in 2022 have done just that. In just this past quarter, we went live with 17 new customers. As we mentioned in the past, this impressive growth has been somewhat muted by supply chain limitations of payment devices, which we expect to clear up later this year.

Speaker 5: What I like most about payments is that it creates an avenue to consolidate transaction data across all channels, reframing conversations with their customers. Moving to guest engagement AR that includes our leading customer engagement platform punch and newly acquired menu. Guest engagement AR grew 26.2% in Q4 compared to Q421 in total of $58.9 million dollars.

Speaker 5: Punch Signs, several new customers in Q4, including a 3,000 store of fast casual enterprise, and went live in 10 new logos in the quarter. Punch continues to be best in class for loyalty, but we saw some softening and demand at the very end of Q4 in the beginning of 23, as restaurants rely on marking development dollars to fund loyalty rollouts and expansions. Questions around inflation and price-left city for restaurants have impacted marking development funds.

Speaker 5: In turn, we're expecting a minor slowdown in new customer demand for punch in the first half of this year. I continue to be very bullish on punch's opportunities going forward, but as always, we prepare for the reality we're given today. Even with this headwind, we're forecasting total error growth across our unified portfolio to be consistent with our 2022 year-over-year growth. Updating the progress of introducing MenU to the United States, we're very courage and excited in the early interest in rave reviews we have received from prospective menu customers. We're already participating in a fan number of RFPs and feel our opportunities for rapid acceleration of new customer demand.

Speaker 5: Brink & Punch customers.

Speaker 5: Notably in the quarter, we signed a popular casual dining wings brand that will add meaningfully to ARR in 23. Also in this deal, we displaced the market leader for labor scheduling, validating the work we did earlier to reinforce our own scheduling module. We had activations of 350 stores in Q4 and a strong booking space of new stores being signed this quarter. We continue to see increased demand for back of house technology and applications to control food and labor costs.

Speaker 5: that have a direct impact on improving margins and profitability as inflation, labor, and supply chain issues can seem to be ever present. Moving on from the result, I want to spend a bit of time on three of our strategic initiatives. Last quarter, I talked about our focus on freezing R&D spend and the shift of our R&D resources from technical debt to new product development. We continue to see momentum behind this journey and feel confidence the natural shifts from technical debt to future development will allow part to increase new products without adding new R&D spend. Alongside this R&D focus, though, is a go-to-market plan that allows part to increase the cost of the R&D spend.

Speaker 5: to have a 360-view of our customers that we can better effectuate cross-cell in the promotion of unified commerce. In Q4, we can sell out parts of our sales team to create an account management team to own each of our existing accounts. This allows our customers to have one sales contact across all part products, thereby giving our customers a more streamlined view of PAR and simultaneously our sales team of 360-view of the customers relationship with PAR to enhance our cross-cell. It also gives us accountability on an account by account basis to understand our performance with every concept we sell to you and help drive performance at the account level.

Speaker 5: These account managers are partnered with a direct sales team that is still in the hunt for people to provide strong product-specific knowledge to our customers. As the utility of a more unified and integrated offering becomes more evident, we'll see a greater and greater need to manage our accounts at a more strategic level, balancing price, LTV, and customer satisfaction, thereby also making this group the right point of contact for renewals and off-sales.

Speaker 5: A good example of this momentum is with our recent signing of Xaxby's, a large restaurant enterprise that has implemented both operator solutions and guest engagement with our Brink POS and Punch platforms in tandem to enhance their customer experience and drive efficiency in their 900 plus stores.

Speaker 5: As we roll out and deliver value, our account manager will be tasked with working closely with the Zaxpys team to find avenues for new products that can solve their needs and deliver our unified experience. The second large strategic move, PowerMating Q4, was brings entry into the table service market. We've been cautious in not over-promising too much, but in Q4, we received commitments from two notable and well-known table service chains. Table service opens up our addressable market to a large and new base that we previously have stayed out of. Table service clients in general pay higher monthly subscription rates as they require more terminals and functionality than our QSR customers. And we'll drive our continued RPU expansion.

Speaker 5: What's exciting about our first two commitments is that both customers also took our back office and payments offerings, highlighting the strategic fit of our products and candidly highlighting how simplicity wins. While much is made about new technology, the digitization of the restaurant and the move away from in-store, today our customers, more than anything else, want their products to work and work seamlessly. The third strategic update I wanted to touch on is data. In today's challenged global economy, PAR's unified experience is becoming a must-have for enterprise restaurants.

Speaker 5: Business complexity continues to increase, and home-grown solutions can no longer keep pace. This creates a sustained opportunity for PAR as restaurants adapt and change their business models and evolve their technology platforms. Digital transformation within restaurant enterprises is creating enormous volumes of data that are all but unmangible with conventional approaches to analytics and data analytics. As restaurants mature and their data analytics practices, the approach becomes unwieldy. PAR is delivering significant values for our customers to capture and manage of this data as the enterprise serves our customers day in and day out. To the unified experience offering, PAR has massive amounts of real-time, actionable data for customers to provide the foundation for machine learning based personalization and analytics.

Speaker 5: This includes transactional data for Brink, customer identity data for punch, and employee inventory data for data central. As an example of this scale, three out of every five years of DELC use a punch power loyalty program and generate 4.7 billion transactions a year. We make these analytical insights and raw data available to our customers in a variety of ways. Customers can form self-service analytics right in the product itself, including campaign performance analytics, employee, and yes analytics. Customers can export this data on demand for their own analysis and visualization. This capability allows enterprise restaurants to use this mission critical data to optimize customer engagement, drive operational efficiencies, and at the end of the day optimize their profitability. As the world embraces artificial intelligence, these datasets and models will, we believe, will become critical in that automation.

Speaker 4: Now, I'll turn the call over to Brian for more details on the numbers. Thank you, Sevanit, and good morning, everyone. Before going into the financial details, I'd like to highlight an important change to our financial reporting presentation. We have retroactively split the presentation of our services financial statement line items across new strategic services and professional services, FSLIs.

Speaker 6: This change is a result of parse transformation into a true technology platform provider. With our subscription services line items consisting of revenues and calls related to our SaaS solutions, recurring software support, and transaction-based payment processing services. Subscription services represent 100% of our annual recurring revenue metric. Professional services revenues and costs related to our portfolio.

Speaker 6: relate to our portfolio of other support services, including implementation, training, onsite and technical support, as well as hardware repair and installation. In addition to splitting the services line items, we have changed the product line items name to hardware. Now on to the financial performance.

Speaker 6: Total revenues were 97.7 million for the three months ended December 31, 2022. An increase of 19.7 percent compared to the three months ended December 31, 2021. With growth coming from both, restaurant retail and government segments.

Speaker 6: Net loss for the fourth quarter of 2022 was 13.5 million or 50 cent loss per share compared to the net loss of 25.6 million or 95 cent loss per share reported in the same period in 2021. Adjusted that loss for the fourth quarter of 2022 was 7 million or 26 cent loss per share compared to the adjusted net loss of 9.8 million or 36 cent loss per share for the same period in 2021. Adjusted that for the fourth quarter of 2022 was 7 million or 26 cent loss per share for the fourth quarter of 2022.

Speaker 6: was a loss of 2.8 million compared to the adjusted EBITDA loss of 4.9 million for the same period in 2021. Hardware revenue in the quarter was 29.6 million, a decrease of 2.6 million or 8.1 percent from the 32.2 million reported in the prior year. Both periods were historically high for hardware sales. We continue to see strong hardware sales both with our tier one legacy customers and across our bank bank customer base. The Sertzmann service revenue was reported at 27.9 million and increased of 8.9 million or 47 percent from the 18.9 million reported in the prior year.

Speaker 6: driven by revenue from our guest engagement solutions. Q4 subscription services revenue included approximately 0.6 million of year-to-date adjustments within our guest engagement solutions. The annual recurring revenue exiting the quarter was 111.4 million and increase of 26.4% compared to Q4 2021 with operator solutions of 29.6% guest engagement of 26.2% and back-of-house up 16%. Professional service revenue was reported at 13.5 million and increase of 1.9 million or 16.1% from the 11.6 million reported in the prior year driven by hardware repair services, guest engagement and operator solutions implementations.

Speaker 6: Our total recurrent revenue base, which includes both subscription services and hardware support contracts within professional services, continues to expand with 34.9 million reported in Q4 2022 and increased the 34.2% compared to the 26 million and Q4 2021. Contract revenue from our government business was 26.7 million and increased the 7.9 million or 42.1% from the 18.8 million reported in the fourth quarter of 2021. The increase in contract revenues was driven by a 7.5 million increase in our ISR solutions. The increase in ISR solutions was driven by test quarters resulting from the AASRL counter-small UAS contract awarded in 2021. Contract backlog associated with our government business as of December 31, 2022.

Speaker 6: was $334 million, an increase of 71%, compared to the $195 million backlog as of December 31, 2021. Total funded backlog as of December 31, 2022, was $86 million, $124% increased compared to the funded backlog of $39 million for the prior year. Now turning to margins. Hardware margins for the quarter was 23.8% versus 23.4% in Q4, 2021. We continue to strategically manage market changes in both supply chain and pricing so we can continue to provide premium product to our customers at competitive pricing while maintaining our margins.

Speaker 6: So, the SQS services margins for the quarter was 53% compared to 43.5% reported in the fourth quarter of 2021. We have been successful in driving multi years of SQS services margin improvement with improved hosting utilization, process improvements within support services, and more pricing rigor as we validate our value proposition to our customers. We continue to see additional opportunities for improvement as we entered 2023. SQS service margin during the three months ended December 31, 2022 included 5.3 million of ammarization of identifiable, intangible assets compared to 5.1 million of ammarization during the three months ended December 31, 2021. Excluding the ammarization of intangible assets total adjusted to subscription service margin for the three months ended December 31, 2022.

Speaker 6: 4.9 million reported in Q4 2021. 4.9 million reported in Q4 2021.

Speaker 6: SGNA decreased 0.6 million or 2.4 percent when excluding 1.6 million of expenses related to menu. Net R&D was 14.9 million and increased a 4.9 million from the 10 million recorded Q4 2021.

Speaker 6: backing out menu and non-gap adjustments, the growth in R&D is 1.8 million or 18%. Included in operating expenses for the fourth quarter was a 4.4 million reduction in the fair value of the contingent consideration liability for the menu acquisition. This contra expense is a non-gap adjustment. Total operating expenses excluding the contingent liability adjustment total 41.2 million. As said, the needs stated earlier are planned as to hold quarterly.

Speaker 6: for the conversion feature.

Speaker 6: Now to provide information on the company's cash flow and balance sheet position. For the 12 months ended December 31st, cash use and operating activities was 43.1 million versus 53.2 million for the prior year. Operating cash needs were primarily driven by net loss, net of non-cash charges, and additional net working capital requirements. Increase the net working capital requirements was primarily due to the growth of our business.

Speaker 6: included 40.3 million for the purchase of short-term U.S. Treasury bills and notes to be held to maturity. 18.4 million of cash consideration for the Q4 2000, sorry, the Q3 2022 menu acquisition.

Speaker 6: and $1.2 million of cash consideration for the Q1 2022 drive-through Tufton acquisition. Capitalized software for development technology costs for the 12 months ended December 31 was $6.5 million.

Speaker 6: Cash used in financing activities was 2.6 million for the 12 months end of December 31st. Versus cash provided by financing activities of 443.6 million for the prior year. Financing activities for 2022 was driven by stock based compensation related transactions. Day sales outstanding due to use within restaurant retail segment from 58 days as of December 31st 2021 to 53 days as of December 31st, 2022.

Speaker 6: Day sales outstanding within government segment as of December 31, 2022 was 55 days and consistent with the 55 days as of December 31, 2021. Before returning the call back to 70, I am pleased to report that we have fully remediated the material weaknesses and our internal controls over financial reporting are operating effectively. I will now turn the call back over to 70 for closing remarks prior to moving to Q&A.

Speaker 5: Thanks Brian . Transitioning to our outlook for 2023. We continue to see strong demand across our business apart. While we see expect to see some slowness from our punch product line given the macro environment, we feel strongly in the growth in every other segment of our business. Our operator solutions of brink and payments has become a dynamic combination and the attachment of data central and soon menu comes next. Our golden is yours to continue to grow our AR at rate similar to 2022 between 20 and 30% a year. As we look and see the decelerating growth around the sector, we think our ability to maintain our growth rates is differentiated to run by the unified approach. Our customers continue to buy more than one product and once unified, we're able to drive price and the value we provide.

Speaker 5: The macro is not an excuse at all and we will ensure our teams know that no matter what happens we must deliver a win for our shareholders. Part of this push is that we must continue to demonstrate ROI to our customers so that they are not looking at buying one product from PAR but the entire experience and thereby making our growth even more defensible. As we roll out new product offerings in 2023 I believe we will have strong proof points to show and clearly demonstrate this to our customers. As we roll out new product offerings in 2020 I believe we will have strong proof points to show and clearly demonstrate this to our customers.

Speaker 5: In addition to our efforts to maintain our revenue growth, we want to reaffirm our focus on driving to profitability. As we stayed on our last call, we are keeping operating expenses flat from Q4, 2022 to Q4, 2023, allowing every added dollar of gross margin to hit the bottom line. Our focus on cost control is not new. A good example to highlight is our historical cost controls run SG&A expense. Excluding menu acquisition during 2022, our SG&A declined while ARR grew 26.4%.

Speaker 5: We've been able to continually grow revenue while not increasing overhead. What this number hides though is that while costs have come down with this growth, we've been able to increase investments in needed areas of sales and internal IT. As we've proven our ability to hold SG&A costs, we now intend to demonstrate that same discipline on the R&D line. While the macro environment may be challenged for 23, we at PAR are hoped to continue to grow through the environment and do so in an incredibly efficient manner. As always, I'd like to thank all of PAR's employees for the dedication and effort over the past quarter. Across the organization, people have stepped up to ensure we meet the needs of our customers. While at the same time, embracing the changes necessary to create a company for long-term sustainable success. With that, I'll open the call for Q&A operator. Thank you. As a reminder, to ask a question, press Star 11 on your telephone and then wait for your name to be announced. To withdraw your question, press Star 11 again. Please stand by. And by while we compile the Q&A roster.

Speaker 5: Our first question comes from Will Nance with Goldman Sachs. Your line is open. Hey guys, good morning. Appreciate you taking the questions. So, Anita, what to follow up on some of the weakness that you called out towards the latter part of Q4 in early 2023 and punch? I guess could you maybe provide a little bit more color across what you're seeing in the market? And I guess could you talk about confidence level of the demand kind of coming back in the back half of 23?

Sure. So we saw, you know, deals pushed out in the very end of December for punch. And I, you know, most of it tied to the economy and, you know, punches funded through with called marketing development funds or basically the marketing world. He's that concept bring in from their franchisees. And during the challenge times, they tend to cut back on these expenses. And so we expect this to rebound from the conversations we have with our customers. As I said, I don't, we don't, I think you'll have a material impact on our growth for next year, but we wanted to be sort of transparent that there's, there is some slowdown on marketing expenses across all restaurant chains in 23. Got it. That makes sense. And then I guess just maybe can you talk through you mentioned table services and seeing it up, up size the RPO and some of those products. I'm just wondering if you could kind of talk through kind of RPO trends on the operator.

on the operator line and what you get to see sort of like bring RPU up a list on locations like that relative to a QFR. And then just maybe a quick follow up on the RPU guidance. I mean the lower range of RPU guidance this year kind of in line with last year, is that largely a function of some of the weakness you're seeing in ponchers? Is there somebody else that's changing the expectation? Yeah, I'll do the last one first. So I think we're trying to maintain our revenue to go through every year which I think is unique in this environment. And again if we, so we hadn't seen that slow as in ponch, obviously I think it would have been higher but we want to make sure that we hit the numbers. So that's kind of how we got to our guidance. On the first part of your question, we've been running what it was all? The image and higher RPUs on the table. Oh, sorry. Yeah, I'll run the

For sure. So on the table service side, we've had, you know, we've kind of kept this back pocket, but we've been working to sort of enable Brink to function in that market. We received our first two commitments. Table service change vary widely in price. Oftentimes POS is priced off of the number of terminals in the store. So you can have some table service concepts that will have, you know, you know, half a dozen terminals, you'll have some that have 20. So they do vary tremendously. You know, in general, you know, I'd say a table service chain will have an uplift between 40 and 100%, depending on the size of the concept.

What's, I think, extra-special or unique is that in the first two commitments we've gotten, they've also taken two of our other products. So, they're all bundle deals. And I think that's a trend we'll see going forward in the table service market. So, it's not just that I think we'll get the brink of RPU uplift, which is a function of the market. I think it's also that we have more ability to bundle in that market too. Awesome. Appreciate it taking the questions. Thank you. Thank you. One moment for our next question. It comes from Samad Samana, which definitely is your line is open. Hey, good morning. Thanks for taking my questions. So, maybe just follow up on the 2023 error outlook. How should we think about maybe what some of the underlying assumptions are between the different pieces? It sounds like punch, maybe a bit of a down-take. But I think that the core business is actually doing quite well. So, maybe just help us understand.

the assumptions now that there's several different products that are driving the growth. Yeah, for sure. So I think every other segment of PAR, sorry, the software side, I think has the potential and at least we're planning for acceleration from 22. So obviously payments and brink will have faster, should have faster error growth in 23 versus 22. Data Central will have meaningfully faster growth in 23 versus 22. And so the rest of the business is super, super strong and why we're so excited. And I said, punch rebound, there's reason for optimism, but we wanna be cautious given what we're seeing and really what the market's seeing.

That's helpful. And then maybe on the payment side, now that we're some time in and you've started to see the attach rate move up, any early takeaways that we can do that we can kind of think about on the go forward side, whether it's the average size of the chain that's willing to adopt payments, or if you're seeing within a chain is it typically all the franchises are using payments, just any kind of early observations that we can think through as we think about the potential there. So it's a great question. And so the first question is, you know, it's a really wide range of customers. We have customers that are, you know, from our channel segment, which are, you know, 20 stores, if you will, all the way up to, you know, smoothie thing, which we announced earlier in the year, which is, you know, well over 1000 stores. So it's a lot wider than we expected, which is obviously a positive thing. You know, I think as we roll into this year, you'll see a couple exciting things happening. One is our payment business is a lot more than just processing transactions, where we've expanded into a gateway business.

and we'll have some cool announcements around partnerships with Apple Vass and some really interesting ways to build software around our payments product. So I think the big trend you'll see is that not only will we have a relatively strong penetration this year, 80% of bring signings took on payments, but we'll also see the expanding product portfolio that are really natural upsells for the customer base. So we're seeing really strong upticks. On the last question, all the payments deals we've signed so far are for the entire concept. So there are a little bit different, which is a positive for us, that most of them end up taking, you know, they make a deal on behalf of all their franchises. Great, very helpful and congrats on this strong growth and on the healthy margins that as well.

and we'll have some cool announcements around partnerships with Apple Vass and some really interesting ways to build software around our payments product. So I think the big trend you'll see is that not only will we have a relatively strong penetration this year, 80% of brain signings took on payments, but we'll also see the expanding product portfolio that are really natural upsells for the customer base. So we're seeing really strong updates. On the last question, all the payments deals we've signed so far are for the entire concept. So there are a little bit different, which is a positive for us, that most of them end up taking, you know, they make a deal on behalf of all their franchisees. Great, very helpful and congrats on the strong growth and the healthy margins that as well. Thanks.

Our next question comes from Kyle Peterson with Needham and Company. Your line is open. Great. Good morning, guys. This is Kyle on from my own. This morning, thanks for taking the questions. I just wanted to touch on data central. Good to see the ARR is heading back in the right direction there after a little bit of a wall earlier in the year. Should we expect that to continue or is there still a little bit of chopping us ahead for that part of the business? You should expect it to accelerate, actually. So it'll get better from here. As I mentioned in the script, we find these table server streams that are also taking the data central. And in general, I think we've kind of hit our stride as far as figuring out product market fit. Attachment would bring new logos. So you should expect it to accelerate. I think we grew sort of 15, 16% this year in data central. We expect to grow meaningfully higher than that in 23. So as I mentioned in the last call, we expect all the product lines to actually do better this year from a percentage growth perspective outside of punch. Okay. That's helpful. And then I guess just kind of thinking about the seasonality of the year, I guess it sounds like the second after be a little better at least due to punch. But I guess we think about that kind of error growth rate across the whole business, maybe getting better is the year progresses or is really the only blip or change that you guys have seen so far is kind of within that punch product.

I think it will be consistent through the year. I think we feel like we will make up from punching the other parts of the business. We are not budgeting meaningful seasonality in our models. Thank you. One moment. Our next question comes from Adam Wyndon with APW Capital. Your line is open. Hey guys, thank you for taking my questions. I want to talk a little bit about table service because that's been a product that you guys have been talking about for a while. Obviously, a lot of guys, the flow as well as at least the Oracle and NTR. That's a super high product. Super high R2 product. I would like to

And then you mentioned two big chains. Like, one of them's probably Buffalo Wildlings. I mean, obviously it's great that you're getting a huge logo with lots of units and whatever terminals. I mean, can you talk about what the pipeline is for table service, what kind of arpeggies we could expect and have quickly you can roll that out? Because this is a big game changer, I think, in terms of your product roadmap. So we signed our first two deals at the end of Q4. We'll look to start rolling them out late first half, second half of the year. And as we talked on the last question, what's exciting is they are meaningfully higher arpegg. The average, again, it's very tremendously in this market. There are table service chains that are...

25-30% higher than the average cost, and there are table-servations that are 200-300% higher depending on the number of terminal configurations, so on and so forth. So it's a really wide range. And in general, even a low-priced table-servation will have a meaningful difference to our brink arful. But what I mentioned last question, I think it's really interesting here, is that in the pipeline we have, most of them are also almost the fact that we're taking our payments product. And the volume of payment transactions in a table-serv restaurant, excuse me, the G&V is meaningfully higher. And so it creates also a really strong payment opportunity, so we could potentially have higher payments arful within a table-servation. So there are a lot of nice tailwinds when you enter that market. And as far as strength of the pipeline, we've got our first two, we want to get those right. We've got a nice pipe pipeline of...

I mean, there should now that you're vertical and you have all these other products, there should be some sort of natural hedging mechanism. You're seeing sort of data central offset punch. I mean, can you talk about sort of the portfolio of new products, and then I got one last question. Sure. So, the portfolio is doing great. As I mentioned, we're not, we feel common, the rest of our portfolio can make up for any potential, so that we see in punch in 23. But we also have quite a bit coming after that.

about what's happening is the ability to leverage all this data to then create new insights back to the customer. At some point, these will enter, I hope we can create models such that they could leverage for our intelligence, but for today, that all that data allows us to actually have a much more strategic conversation with the customer. They no longer look at us as, hey, that's a POS product there, that's an online ordering product there, they're looking at the relationship for us to help them.

solve that data challenge because I think if you went to most restaurants, they have a lot of data. They truly do have endless amounts of data, but the insights they're pulling from it are still relatively limited because the lack of data integrity, linearity, none of it really connects well. And so I think by having the suite of products, we're able to change that conversation. And I think you're seeing the results, which is you know, you're seeing more and more customers choose multiple products and I think that will continue. I think that also to add to that as well is having the unified with the data, the fact that we also have a very large white space with their existing sites that we have is that it allows us to accelerate the cross-sell opportunity we have and now that we're aligning our sales organization for that, that's also going to be helping to drive and take, you know, and smooth out any kind of headwinds we have in any one individual product. Got it. And then, you know, going back sort of on the product portfolio, I mean when I think about sort of PAR when it's all grown up and adult, you know, I sort of look at it like a little market access or access.

S, S and C bought, you know, EGGS and all the rest. And I mean, you know, S, S and C is sort of the one stop shop for the asset manager. And, you know, as I think about PAR, you know, think about what the business was when I invested in it originally, it was just Brinket, you know, low net promoter and low gross margin. Now we've got, you know, God knows how many more products incoming online. Can you talk, you know, sort of I look at this as sort of like, you know, many, many products. I mean, can you talk, you know, a little bit about the M&A? I know you bought Menyoo, which was sort of, you know, sort of an aqua hire, tech hire. Can you talk a little bit about that ramp? And then, you know, what the M&A environment looks like because, you know, a lot of companies, you know, I know Punch thought about going into a SPAC originally, but sort of the free money, easy money days are over for companies that are doing 10, 20, 30 million ARR that basically are, you know, funded, you know, funded, you know, indefinitely. And now those companies sort of have that.

that we can leverage what we have today at PAR. You know, we don't want to buy something that's sort of really cool technology that we can't distribute through our sales force because that efficiency, as you can see, I think it's one of the things we haven't talked about a lot, but I think it's most impressive is, we haven't really grown our SG&A expense outside of acquisitions in a couple of years yet we've continued to grow the size of business meaningfully. And we want to be able to leverage that base. So there's a lot more to do there than there's been in previous years. The other part of the market though that you didn't ask about that I think is interesting is, I think over the next, I don't know, zero or two years, but there will be much larger strategic transactions that happen in our space because I think...

as the markets have gotten rational, the value and synergy of scale have come fruition. I think our customers want to work with larger partners, and I think the amount of R&D expense to keep up with the innovation is meaningful now, where previously, as you suggested, DCs and their capital was funding that, I think it's harder to do on small scale. And so, you know, big push of ours to get the profitability is also to continue the R&D investments. And if we were twice the size, you know, that creates a meaningful difference for a small competitor trying to come in. And so, I think scale will also become very valuable. And I think, you know, we could potentially see things, you know, loosen up in that end of the market as well, which, you know, really hasn't happened in a long time in our space. Adam, we've got to jump to two other questions up this, but thank you for the questions.

Thank you. One moment. We have a question from Steven Sheldon with William Blair. Your line is open. Hey, good morning. I just want to hear from me. What are the description services gross margin? Nice bounce back higher this quarter. I think that happened a little sooner than I would have expected given the drag from menu and payment. Can you just talk about moving pieces under that and how you're thinking about potential for subscription services gross margin in 2023? I think in 2023, we'll sort of be low 70s for the year. Again, a little bit ahead of schedule than we thought. We do still have, I think that hides though, is that payments and menu are meaningfully below the rest of our products from a gross margin perspective.

I think our run rate gross margins on our core products and our large products are meaningfully higher and we expect menu and payments to eventually get there too. And so there should be a really nice continued tailwind for gross margins in the coming years. So, came back quickly, a lot of it is some catch up from punch. And I think you'll see a sort of being the low seventies for the year. Again, a lot of it depending on when we roll out payments and potentially menu customers as that every dollar of revenue has a meaningful impact on the gross margin base there. So, you're starting to concubate there. Correct. And what we saw from Q3 to Q4, right, was that continued improvement on our operator solutions, both from a brink and on the efficiencies that we're getting in regards to those margins. And then in addition to that, we are starting to gather each quarter improvement on the payments as it gets more and more critical mass. Great, thank you. Thank you. This thing comes from George Sutton with Craig Hallam. Your line is open.

Thank you, Subneed. It's a great question. So we still have separate out the franchise team, which we internally called SAM, and then our enterprise team. So we will always keep those distinct because as you are suggesting in his right, selling to a franchisee is selling to a small business.

but to win a brink or a punch or a data central deal, you've got to win at the corporate level, which is an enterprise sale, which is, you know, months to years, depending on the size of the chain and the relationship we have. So we haven't disrupted the franchise process and we'll always have that. And that is an excellent team that just is automatic and great. On the question of results, it's way too early to talk about the impact of it, but I can tell you right now, what I enjoy about it is we do have a view now of the customer. So if we've got a customer that has three of our products, that salesperson now has to go and say, okay, hey, they don't have, you know, payments and their payments current contract ends in six months. And these are the pain points and this is the using, and it arms us to cross sell into our base much better. So I look at that team's ability to effectively create leads to cross sell into our existing base, where I think historically we've done it, but we haven't done it in a systematic way. Now we've mapped out every single account where the opportunities are, you know, when they're not when they're our piece come up, but when they're, you know, when the next expiry of a contract happens, and then we have so much more data now to build off of and say, okay, you know, they have brink, they have data central, they had menu, here's the opportunity for payments and here's how that picture works. So it's really a focus on cross sell. And as I said, it's completely delineated from the, you know, that.

On the data center side, a lot of the work in addition to strong leadership has also been around the product and effectively realizing that data central is more than inventory and cost, but also a beautiful labor and scheduling module. We did a lot of work over the year to highlight that. Now that we've got a marketing effort, as I mentioned, I expect the growth in this business to be meaningfully more than it was in 22. And part of that is...

It's also monetizing these modules within Data Central, which we used to kind of get for free or just bundle and customers never realized it was even there. And so it's kind of monetizing and pulling apart those products and realizing that our products are best in class. And so it's a much more strategic way of going to market. Super, thank you. Thank you. One moment for our next question. We have a question from Anja, Sotashram from Sadowdy. Your line is open. Hi, thank you for taking my questions. Actually, all of them have been addressed. But I'm just curious about the data. Do you own that data and can you use that sort of outside of your current customer base? It's a complicated question. And the third answer is it depends on the customer. But we are able to monetize that data in an unanimized way. Now, we don't have an intention to do that. And I think a lot of our excitement around the data is actually suggesting that we can build products for our customers leveraging that data. And so I think that's what's exciting to us. But as I mentioned in the transcript, it's also a way to change the conversation. Because, you know, we have a customer that has our products and payments. We know every single transaction. We can even pull up every single customer and those insights are hard to get.

I.

to the Power Technologies fiscal year 2022, fourth quarter financial results.

At this time, I'll participate in listening only mode. After the speaker's presentation, there'll be a question in after session. To ask a question during the session, you'll need to press star 11 on your telephone. You will then hear an automated message, advising you your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand a conference over to your speaker, Dave. Chris Burns, Senior Vice President of Business Development. Please go ahead.

Thank you, Catherine, and good morning to everyone. I'd also like to welcome you today to the call for PERS 2022, fourth quarter and year-end financial results review. The complete disclosure of our results can be found in our press release issued this morning, as well as in our related form, AK furnace 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.partech.com. At this time, I'd like to take care of certain details and records to the call this morning. Participants on the call should be aware that we are recording the call this morning, 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 use. 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 morning and in our annual and quarterly filings with the SEC. Joining me on the call today is part CEO and president, Stephanie Singh and Brian Minar, part's chief financial officer. I'd now like to turn the call over to Stephanie for the formal remarks portion of the call which will be followed by General Q&A. Stephanie? Thanks, Chris and thanks everyone for joining the call this morning. I'm pleased to report that our growth momentum continues as we aggressively expand our unified experience to new and existing customers. Drive our business to cash to a positive and deliver customer satisfaction rates that are the highest in the industry. As I've done on prior calls, I'm going to break today's call into three sections. First, a review of our recent quarter results. Second, a review of strategic highlights that will lead to future results. And finally, some thoughts on 2023. First, our results. As I stated previously, I'm convinced that ARR remains the best measure to measure our success as each dollar of ARR, as under each dollar of ARR, is considerable future cash flow.

At the end of Q4, ARR reached $111.4 million, delivering a 26.4% year-over-year increase, demonstrating the continued growth and scaling of our subscription services engine. Contracted ARR now stands at $127.3 million, a 21% year-over-year increase from the end of 21, and an 8% increase from sequential Q3. Today our unified experience consists of operator solutions, guests engagement, and back office. Operator solutions, which is Brink and Payments, ARR grew $29.6% to $41.6 million in Q4, when compared to the same period last year. During Q4, operator solutions added $1183 new-store activations and new booking total approximately $1,611. Current continues to be extremely low at 4.3% annualized for Brink in the quarter.

We continue to be aggressive in attaching payments to all new brink deals and see a significant majority of our new customer wins in 2022 have done just that. In just this past quarter, we went live with 17 new customers. As we mentioned in the past, this impressive growth has been somewhat muted by supply chain limitations of payment devices, which we expect to clear up later this year. What I like most about payments is that it creates an avenue to consolidate transaction data across all channels, reframing conversations with our customers. Moving to guest engagement AR that includes our leading customer engagement platform punch and newly acquired menu. Guest engagement AR grew 26.2% in Q4 with compared to Q421 in total $58.9 million. Punch signed several new customers in Q4 including a 3000 store of fast casual enterprise.

and went live in 10 new logos in the quarter. Punch continues to be best in class loyalty, but we saw some softening in demand at the very end of Q4 in the beginning of 23, as restaurants rely on marking development dollars to fund loyalty rollouts and expansions. Cautions around inflation and price-lapse city for restaurants have impacted marking development funds, and in turn, we're expecting a minor slowdown and new customer demand for punch in the first half of this year. I continue to be very bullish on punch's opportunities going forward, but as always, we prepare for the reality we're given today. Even with this headwind, we're forecasting total error growth across our unified portfolio to be consistent with our 2022 year-over-year growth. Updating the progress of introducing MenU to the United States, we're very courage and excited in the early interest and rave reviews we've received from prospective menu customers. We're already participating in a friend number of RFPs and feel our opportunities for rapid acceleration of new customer wins and

and a strong booking space in New Stores being signed in the squirt.

We continue to see increased demand for back-of-house technology and applications to control food and labor costs that have a direct impact on improving margins and profitability as inflation, labor, and supply chain issues can seem to be ever present. Moving on from the results, I want to spend a bit of time on three of our strategic initiatives.

Last quarter, I talked about our focus on freezing R&D spend and the shift of our R&D resources from technical debt to new product development. We continue to see momentum behind this journey and feel confident the natural shifts from technical debt to future development will allow PAR to increase new product without adding new R&D spend. Alongside this R&D focus, though, is a go-to-market plan that allows PARP to have a 360-view of our customers that we can better effectuate cross-cell in the promotion of unified commerce. In Q4, we can already part of our sales team to create an account management team to own each of our existing accounts. This allows our customers to have one sales contact across all PARP products.

And simultaneously, our sales team have 360-degree view of the customer's relationship with PARF to enhance our cross-cell. It also gives us accountability on an account-by-account basis to understand our performance with every concept we sell to you and help drive performance at the account level. These account managers are pardoned with a direct sales team that is still on the hunt for people to go to. And you provide strong product specific knowledge to our customers. As the utility of a more unified and integrated offering becomes more evident, we'll see a greater and greater need to manage our accounts at a more strategic level, balancing price, LTV, and customer satisfaction, thereby also making this group the right point of contact for renewals and off-cell. A good example of this momentum is with our recent signing of AZACS, a large restaurant enterprise that has been implemented, that has implemented both operator solutions and guest engagement.

with our Brink, POS, and Punched Platforms in tandem, to enhance their customer experience and drive efficiency in their 900-plus stores. As we roll out and deliver value, our account manager will be tasked with working closely with the Zaxby team to find avenues of for new products that can solve their needs and deliver our unified experience. The second large strategic move, PowerMating Q4, was Brink's entry into the table service market. We've been cautious in not over-promising too much, but in Q4, we received commitments from two notable and well-known table service chains.

Table service opens up our addressable market to a large and new base that we previously have stayed out of. Table service clients in general pay higher monthly subscription rates as they require more terminals and functionality than our QSR customers, and we'll drive our continued RPO expansion. What's exciting about our first two commands is that both customers also took our back all of us in payments offerings, highlighting the strategic state of our products, and candidly highlighting how simplicity wins. While much is made about new technology, the digitization of the restaurant, and the move away from in-store, today our customers more than anything else want their products to be set, want the products to work, and work seamlessly. The third strategic update I wanted to touch on is data. In today's challenge global economy, PART's unified experience is becoming a must-have for enterprise restaurants.

Business complexity continues to increase, and homegrown solutions can no longer keep pace. This creates sustained opportunity for PAR as restaurants adapt and change their business models and evolve their technology platforms. Digital transformation within restaurant enterprises is creating enormous follow-ins and data that are all but unmangible with conventional approaches to analytics and data analytics. As restaurants mature and their data analytics practices, the approach becomes unwieldy. PAR is delivering significant values for our customers to the capture and management of this data as the enterprise serves our customers day in and day out. To the unified experience offering, PAR has massive amounts of real time, actionable data for customers to provide the foundation for machine learning based personalization and analytics. This includes transactional data for Brink.

customer identity data for punch and employee inventory data for data central. As an example of this scale, three out of every five years of DELSE is a punch power loyalty program and generate 4.7 billion transactions a year. We make these analytical insights and raw data available to our customers in a variety of ways. Customers can form self-service analytics right in the product itself, including campaign performance analytics, employee, and yes analytics. Customers can export this data on demand for their own analysis and visualization.

This capability allows enterprise restaurants to use this mission-critical data to optimize customer engagement, drive operational efficiencies, and at the end of the day optimize their profitability. As the world embraces artificial intelligence, these datasets and models will, we believe, will become critical in that automation. Now I'll turn the call over to Brian for more details on the numbers. Thank you, Seventy, and good morning, everyone. Before going into the financial details,

I'd like to highlight an important change to our financial reporting presentation. We have retroactively split the presentation of our services, financial statement line items across new subscription services and professional services, FSLI's. This change has resolved a part of transformation into a true technology platform provider. With our subscription services line items consisting of revenues and costs related to our SaaS solutions, recurring software support, and transaction-based payment processing services. Subscription services represents 100% of our annual recurring revenue metric.

Professional services revenues and costs related to our portfolio relate to our portfolio of other support services including implementation, training, onsite and technical support as well as hardware repair and installation. In addition to splitting the services line items, we have changed the product line items name to hardware. Now on to the financial performance. Total revenues were 97.7 million for the three months ended December 31st, 2022. An increase of 19.7% compared to the three months ended December 31st, 2021. With growth coming from both restaurant retail and government segments.

or 50 cent loss per share compared to the net loss of 25.6 million or 95 cent loss per share reported in the same period in 2021. Adjusted that loss for the fourth quarter of 2022 was 7 million or 26 cent loss per share compared to the adjusted net loss of 9.8 million or 36 cent loss per share for the same period in 2021. Adjusted EBITDA for the fourth quarter of 2022 was a loss of 2.8 million compared to the adjusted EBITDA loss of 4.9 million for the same period in 2021. Hardware revenue in the quarter was 29.6 million, a decrease of 2.6 million or 8.1 percent from the 32.2 million reported in the prior year. Both periods were historically high for hardware sales.

We continue to see strong hardware sales both with our tier one legacy customers and across our bank bank customer base. The Sertian Service Revenue was reported at 27.9 million, an increase of 8.9 million or 47 percent from the 18.9 million reported in the prior year, driven by revenue from our guest engagement solutions. Two four subscription services revenue included approximately 0.6 million of year-to-date adjustments within our guest engagement solutions.

The annual recurring revenue exiting the quarter was 111.4 million and increase of 26.4% compared to Q4 2021 with operator solutions of 29.6%, guest engagement of 26.2%, and back-of-house up 16%. Professional service revenue was reported at 13.5 million.

an increase of 1.9 million or 16.1 percent from the 11.6 million reported in the prior year, driven by hardware repair services, guest engagement, and operator solutions implementations. Our total recurring revenue base, which includes both subscription services and hardware support contracts within professional services, continues to expand with 34.9 million reported in Q4 2022 and increased the 34.2 percent compared to the 26 million and Q4 for 2021.

Contract revenue from our government business was 26.7 million and increased the 7.9 million or 42.1 percent from the 18.18 million reported in the fourth quarter of 2021. The increase in contract revenues was driven by a 7.5 million increase in our ISR solutions. The increase in ISR solutions was driven by test orders resulting from the AASRL counter small UAS contract awarded in 2021. Contract backlog associated with our government business as of December 31, 2022 was 334 million and increased of 71 percent compared to the 195 million backlog as of December 31, 2021.

124% increase compared to the funded backlob of $39 million for the prior year. Now turning to margins. Hardware margins of the quarter was 23.8% versus 23.4% in Q4 2021. We continue to strategically manage market changes in both supply chain and pricing so we can continue to provide premium product to our customers at competitive pricing while maintaining our margins.

Subscription services margins for the quarter was 53% compared to 43.5% reported in the fourth quarter of 2021. We have been successful in driving multi-year subscription services margin improvement with improved hosting utilization, process improvements within support services, and more pricing rigor as we validate our value proposition to our customers. We continue to see additional opportunities for improvement as we enter 2023. Subscription service margin during the three months ended December 31, 2022 included $5.3 million of amortization of identifiable and tangible assets compared to $5.1 million of amortization.

during the three months ended December 31st, 2021. Excluding the amazement of intangible assets, total adjusted subscription service margin for the three months ended December 31st, 2022, was 72%, compared to the 70% for the three months ended December 31st, 2021. Professional services margin for the quarter was 23.3%, compared to 13.2% reported in the fourth quarter of 2021. The improvement was driven by hardware repair margins.

Government contract margins were 4.3 percent as compared to 6.7 percent for the fourth quarter of 2021. The decrease in margin is driven by an increase in mission system direct material and labor costs, along with an increase in loss reserves. We expect margins to revert back to historical norms of 6 to 8 percent in the following quarters. In regards to operating expenses, GAPS-GNA was 25.9 million, an increase of 1 million from the 24.9 million reported in Q4 2021. S-GNA decreased 0.6 million or 2.4 percent when excluding 1.6 million of expenses related to menu. NetRND was 14.9 million and increased of 4.9 million from the 10 million recorded in Q4 2021.

backing out menu and non-gap adjustments, the growth in R&D is 1.8 million or 18%. Included in operating expenses for the fourth quarter was a 4.4 million reduction in the fair value of the contingent consideration liability for the menu acquisition. This contra expense is a non-gap adjustment. Total operating expenses excluding the contingent liability adjustment total 41.2 million. As said before, our plan is to hold quarterly operating expenses flat from Q4 2022 to Q4 of 2023. Net interest was 1.8 million compared to 5.6 million recorded in Q4 2021.

The decreases driven by reduction of accretion resulting from our January 1st, 2022 pronouncement adoption that resulted in our convertible debt securities being wholly accounted for as debt and negated the requirement to record accretion for the conversion feature. Now to provide information on the company's cash flow and balance sheet position.

For the 12 months ended December 31st, cash use and operating activities was 43.1 million versus 53.2 million for the prior year. Operating cash needs were primarily driven by net loss, net of non-cash charges, and additional net working capital requirements. Increase the network and capital requirements was primarily due to the growth of our business.

We have been able to reduce growth inventory by 4 million since June 30, 2022, and are focusing on reducing another 3-5 million over the combined following Q-quarters. Cash used in investing activities was 66.7 million for the 12 months ended December 31st.

versus $383 million for the prior year. Investing activities during the 12-month end of December 31st included $40.3 million for the purchase of short-term U.S. Treasury bills and notes to be held to maturity, $18.4 million of cash consideration for the Q3 2022 menu acquisition,

and $1.2 million of cash consideration for the Q1 2022 drive-through Tufton acquisition. Capitalized software for development technology costs for the 12 months ended December 31 was $6.5 million. Cash used in financing activities was $2.6 million for the 12 months ended December 31 versus cash provided by financing activities of $443.6 million for the prior year.

financing activities for 2022 was driven by stock based compensation related transactions. Day sales outstanding decreased within restaurant retail segment, going 58 days as of December 31, 2021, to 53 days as of December 31, 2022. Day sales outstanding within government segment as of December 31, 2022 was 55 days and consistent with the 55 days as of December 31, 2021. Before returning the call back to 70, I am pleased to report that we have fully remediated the material weaknesses and our internal controls over financial reporting are operating effectively. I will now turn the call back over to 70 for closing remarks prior to moving to Q&A.

Thanks Brian . Transitioning to our outlook for 2023. We continue to see strong demand across our business apart. While we see expect to see some slowness from our punch product line given the macro environment, we feel strongly in the growth in every other segment of our business. Our operator solutions of brink and payments has become a dynamic combination and the attachment of data central and soon menu comes next. Our goals in this year is to continue to grow our AR at rates similar to 2022 between 20 and 30 percent a year.

As you look and see the decelerating growth around the sector, we think our ability to maintain our growth rates is differentiated, driven by the unified approach. Our customers continue to buy more than one product and once unified, we're able to drive price given the value we provide. The macro is not an excuse at heart and will ensure our teams know that no matter what happens, we must deliver a win for our shareholders.

Part of this push is that we must continue to demonstrate ROI to our customers, such that they are not looking at buying one product from par, but the entire experience, and thereby making our growth even more defensible. As we roll out new product offerings in 2023, I believe we'll have strong proof points to show and clearly demonstrate this to our customers. In addition to our efforts to maintain our revenue growth, we want to reaffirm our focus on driving to profitability. As we stated on our last call, we are keeping operating expenses flat from Q4 2022 to Q4 2023, allowing every added dollar of gross margin to hit the bottom line. Our focus on cost control is not new. A good example to highlight is our historical cost controls around SG&A expense. Excluding menu, our menu acquisition during 2022 par SG&A actually declined while ARR grew 26.4%. Thank you for listening to thisAWC

We've been able to continually grow revenue while not increasing overhead. What this number hides though is that while costs have come down with this growth, we've been able to increase investments in needed areas of sales and internal IT. As we've proven our ability to hold SG&A costs, we now intend to demonstrate that same discipline on the R&D line. So while the macro environment may be challenged for 23, we at PAR are hoped to continue to grow through the environment and do so in an incredibly efficient manner. As always, I'd like to thank all of PAR's employees for the dedication and effort over the past quarter. Across the organization, people have stepped up to ensure we meet the needs of our customers. While at the same time, embracing the changes necessary to create a company for long-term sustainable success. With that, I'll open the call for Q&A operator. Thank you. As a reminder, to ask a question, press star 11 on your telephone and then wait for your name to be announced. To withdraw your question, press star 11 again.

Please stand by while we compile the Q&A roster. Our first question comes from Will Nance with Goldman Sachs. Your line is open. Hey guys, good morning. I appreciate you taking the questions. So, Anita, what to follow up on some of the weakness that you called out towards the latter part of Q4 in early 2023 and punch? Could you maybe provide a little bit more color across what you're seeing in the market? And I guess to talk about confidence level of the demand kind of coming back in the back half of 23?

Sure. So we thought, you know, deals pushed out in the very end of December for punch. And I, you know, most of it tied to the economy and, you know, punches funded through with called marketing development funds or basically the marketing world. He's that concept bring in from their franchisees. And during the challenge times, they tend to cut back on these expenses. And so we expect this to rebound from the conversations we have with our customers. As I said, I don't, we don't, I think you'll have a material impact on our growth for next year.

But we wanted to be sort of transparent that there is some slowdown on marketing expenses across all restaurant chains in 23. Got it. That makes sense. And then I guess just maybe can you talk through, you mentioned table services and seeing it upsize ARPU and some of those products. I'm just wondering if you could kind of talk through kind of ARPU trends on the operator line and what you guys are seeing sort of like brink ARPU uplift on locations like that relative to a QSR.

And then just maybe a quick follow up on the ARPU guidance. I mean, the lower range of ARPU guidance this year kind of in line with last year, is that largely a function of some of the weakness you're seeing in ponchers? Is there somebody else that's changing the expectation?

Yeah, I'll do the last one first. I think we're trying to maintain our revenue growth every year, which I think is unique in this environment. And again, if we felt – if we hadn't seen that slowness and punch, obviously I think it would have been higher, but we want to make sure that we hit the numbers. So that's kind of how we got to our guidance number. On the first part of your question, remind me what it was, Will. You mentioned higher ARPUs on the table. Oh, sorry, on the ARPU. Yeah. Yeah, for sure. So on the table server side, we've had –

We've kept this back, but we've been working to enable and bring to function in that market. We received our first two commitments. Table-Series change very widely in price. Oftentimes, POS is priced off of the number of terminals in the store so you can have some table service concepts that will have.

you know, half a dozen terminals, you'll have some that have 20, so they do vary tremendously. You know, in general, you know, I'd say a table service chain will have an uplift between, you know, 40 and, you know, 100% depending on the size of the concept. What's, you know, I think extra special or unique is that in the first two commitments we've gotten, they've also taken two of our other products. So, you know, they were all bundled deals. And I think that's a trend we'll see going forward in the table service market. So it's not just that I think we'll get the brink of ARPU uplift, which is, you know, a function of the market. I think it's also, we have more ability to bundle in that market too.

Awesome. Appreciate it taking the questions. Thank you. Thank you. One moment for our next question. It comes from Samada. With Jeffries, your line is open. Good morning. Thanks for taking my questions. Maybe just follow up on the 2023 error. How should we think about maybe what some of the underlying assumptions are between the different pieces. It sounds like punch maybe a bit of a down take, but I think that the core business is actually doing quite well. So maybe just help us understand.

the assumptions now that there's several different products that are driving the growth. Yeah, for sure. So I think every other segment of PAR on the software side, I think has the potential and at least we're planning for acceleration from 22. So you know, obviously payments and brink, you know, will have faster, should have, you know.

Sassar air growth in 23 versus 22. Data central will have meaningfully Sassar growth in 23 versus 22. And so the rest of the business is super, super strong and why we're so excited. And I said, you know, punch three balancers, reason for optimism, but we want to be cautious given what we're seeing and really the marketing. That's helpful. And then maybe on the payment side, now that we're some time in and you've started.

see the attach rate move up. Any early takeaways that we can do that we can kind of think about on the go-forward side, whether it's the average size of the chain that's willing to adopt payments, or if you're seeing within a chain, is it typically all the franchises are using payments, just any kind of early observations that we can think through as we think about the potential there.

I think as we roll into this year, you'll see a couple exciting things happening. One is our payment business is a lot more than just processing transactions. We've expanded into a gateway business and we'll have some cool announcements around partnerships with Apple Vass and some really interesting ways to build software around our payments product. I think a big trend you'll see is that not only what we have...

relatively strong penetration, this year 80% of brain signing took on payments, but we'll also see the expanding product portfolio that are really natural upsells for the customer base. So we're seeing really strong upticks. On the last question, all the payments deals we've signed so far are for the entire concept. So there are a little bit different, which is a positive for us, that most of them end up taking, they make a deal on behalf of older French ICs.

Great, very helpful and congrats on this your on growth and on the healthy margins that as well. Thanks. Our next question comes from Kyle Peterson with Needham & Company. Your line is open. Great. Good morning, guys. This is Kyle and from my own.

this morning. Thanks for taking the questions. And just wanted to touch on Data Central. Good to see the ARR is kind of heading back in the right direction there after kind of a little bit of a lull earlier in the year. Should we expect that to continue or is there still a little bit of choppiness ahead for that part of the business?

You should expect it to accelerate actually, so it'll get better from here. As I mentioned in the script, we signed these table service chains that are also taking Data Central and in general, I think we've kind of hit our stride as far as figuring out product market fit, attachment with Brink, new logos. So you should expect it to accelerate. I think we grew sort of 15-16% this year in Data Central.

We expect to grow meaningfully higher than that in 23. So as I mentioned in the last call, we expect all the product lines to actually do better this year from a percentage growth perspective outside of punch. Okay, that's helpful. And then I guess just kind of thinking about the seasonality of the year, I guess it sounds like the second half should be a little better at least due to punch, but I guess, should we think about that kind of error or growth rate across the whole business, maybe getting better as the year progresses or is really the only.

blip or change that you guys have seen so far is kind of within that punch product. I think it will be consistent through the year. I think we feel it will make up from punching the other parts of the business. We're not budgeting meaningful seasonality in our models. Great. Thanks, guys. Thanks.

Thank you, one moment. Our next question comes from Adam Winden with ABW Capital. Your line is open. Hey, guys, thank you for taking my questions. I want to talk a little bit about table service because, you know, that's been a product that you guys have been talking about for a while, and, you know, obviously, you know,

You know a lot of guys the incumbents are sort of slow as always the sort of Oracle and MTR And that's a you know super high product. You know sort of super high ARPU product and you know I just you know would like to Sort of and then you mentioned sort of two big chains like it's one of those probably Buffalo Wild Wings. I mean obviously it's

great that you're getting a huge logo with lots of units and whatever terminals. I mean, can you talk about what the pipeline is for table service, what kind of arpeggies we could expect and how quickly you can roll that out? Because this is a big game changer in terms of your product roadmap.

So we signed our first two deals at the end of Q4. We'll look to start rolling them out late first half, second half of the year. And as we talked on the last question, what's exciting is they are meaningfully higher R2. The average, again, it's very tremendously in this market. There are table server chains that are 25%, 30% higher than the average spring cost, and there are table server chains that are 200% to 300% higher depending on the number of terminals, configurations, so on and so forth. So it's a really wide range.

And in general, we'll, you know, even a, what's called a low price table service chain will have a meaningful difference to our Brink R group. But what, you know, I mentioned the last part of it, last question I think is really interesting here is that in the pipeline we have, most of them are also, you know, almost de facto taking our payments product and the volume of payments transactions in a table service restaurant, excuse me, are the GMV is meaningfully higher.

And so it creates also a really strong payments opportunity. And so we could potentially have higher payments ARPU within a table service chain. So there are a lot of nice tailwinds when you enter that market. And as far as strength of the pipeline, we've got our first two, we wanna get those right. We've got a nice pipeline of smaller mid-sized chains. And then as the larger ones come to RFP, we'll look to actually enter those RFPs. Historically, we've even chosen not to respond to those RFPs if we weren't ready. I think.

Given that the first couple of chains are relatively well known brands, we'll be able to leverage that to enter those bigger RFPs. Good. I didn't know that we haven't really talked about it. I think you mentioned sort of parianolytic's par data, but a lot of the R&D expense was getting shifted to new products. Obviously, I've met you, but a big part of, I think, was unified commerce platform and all the modules around that. Can you talk about, you didn't really mention par data analytics or the UCP as another driver and...

You know, that plus menu, you can talk about, because I mean, everyone's talking about punch and it's like, but you've got, you know, you've got four other products. I mean, there should, now that you're vertical and you have all these other products, there should be some sort of natural hedging mechanism. You're seeing sort of data central offset punch. I mean, can you talk about sort of the portfolio of new products? And then I've got one last question. Sure. So, you know, the portfolio is doing great. As I mentioned, you know, we're not, we feel confident that the rest of our portfolio can make up for any potential flow and CCN punch in 23. But we also have, you know, quite a bit coming after that. This year, we launched our first Unified Products, which are products that are built off of multiple par products. So, think of the most products that you can...

really only get value from if you have the product portfolio. And so those will be launched later this year. And then we've got a bunch of other levers, as I mentioned, a couple of new payments products. And so the portfolio is growing. And as I mentioned in my remarks, one of the exciting parts about what's happening is the ability to leverage all this data to then create new insights back to the customer. You know, at some point these will enter, I hope we can create models such that they can leverage the first intelligence, but for today,

All that data allows us to actually have a much more strategic conversation with the customer. They no longer look at as, hey, that's a POS product there, that's an online ordering product there. They're looking at a relationship for us to help them solve that data challenge because I think if you went to most restaurants, they have a lot of data. They truly do have endless amounts of data. The insights they're pulling from it are still relatively limited because the lack of data integrity, linearity, none of it really connects well. I think by having the suite of products, we're able to change that conversation. And I think you're seeing the results, which is, you know, you're seeing more and more customers choose multiple products. And I think that will continue. I think it also adds that as well as having the unified with the data. In fact, we also have a very large white space with our existing.

sites that we have is that it allows us to accelerate the cross-sell opportunity we have and now that we're aligning our sales organization for that, that's also going to be helping to drive and take, you know, and smooth out any kind of headwinds we have in any one individual product. Got it and then, you know, going back sort of on the product portfolio, I mean, when I think about sort of PAR when it's all grown up and adult, you know, I sort of look at it like a little market access or SS&C, you know, SS&C, but, you know, eggs and all the rest. I mean, you know, SS&C is sort of the one stop shop for the asset manager and, you know, as I think about PAR, you know, think about what the business was when I invested in originally, it was just Brinket.

low net promoter and low gross margin. Now we've got God knows how many more products in coming online. Can you talk? I look at this as many products. Can you talk a little bit about the M&A? I know you bought Men U, which was an aqua hire, tech hire. Can you talk a little bit about that rampant? What the M&A environment looks like because a lot of companies...

I know Punches thought about going into a SPAC originally, but the free money, easy money days are over for companies that are doing 10, 20, 30 million ARR that basically are funded indefinitely. And now those companies have venture funds that need liquidity events and the IPO market is closed and your lender of last resort. I think this must be a really good environment to do tuck in M&A, like more on the restaurant magic, 10, 20, 30 million ARR. Can you talk a little bit about sort of what you're seeing in the M&A pipeline and what the realities are. Are in terms of you being able to execute on sort of meaningful M&A this year?

Sure. So I'm going to break into parts. So I think if you look at the tuck-in acquisition, so call it Acquisitions and Scythe Varenges, you mentioned and smaller, that market has completely changed. You know, those are the companies that wanted to hire multiple or the last few years. They are all relatively rational and, you know, I think potentially ready to make a deal. And so we're always engaged with a number of those targets and in figuring out where we want potentially add to the product suite. And I think the key there is making sure that we can have a product that we can leverage what we have today at PAR. You know, we don't want to buy something that sort of really cool technology that we can't distribute to our sales force because that efficiency is...

of scale have come fruition. I think our customers want to work with larger partners. And I think the amount of R&D expense to keep up with the innovation is meaningful now where previously, as you suggested, DCs and their capital was funding that, I think it's harder to do on small scale. And so a big push of ours to get to profitability is also to continue the R&D investments. And if we were twice the size, that creates a meaningful difference first of small competitor trying to come in. And so I think scale will also become very valuable.

with William Blair, your line is open. Hey, good morning. Just one here for me. And what I asked about the subscription services gross margin. Nice bounce back higher this quarter. I think that happened a little sooner than I would have expected given the drag from menu and payment. So can you just talk about something and moving piece under that and how you're thinking about potential?

for subscription services, gross margin in 2023. I think in 2023, we'll sort of be low 70s for the year. Again, a little bit ahead of schedule and then we thought. We do still have, I think that hides, though, is that payments and menu are meaningfully below the rest of our products from a gross margin perspective. And so I think our run-regroced margins on our core products and our large products are meaning for hire. And we expect menu and payments to eventually get there, too. So there should be a really nice, continued tailwind for gross margins in the coming years. So, you know, came back quickly. A lot of it is some catch up from punch.

And I think you'll see a sort of being the low 70s for the year. Again, a lot of it depending on when we will allow payments and potentially menu customers as that every dollar revenue there is a meaningful impact on the growth margin base there. There are 30 to 30 copy base there. Correct. And what we saw from Q3 to Q4, right, was that continued improvement on our operator solutions both from a brink and on the efficiencies that we're getting in regards to those margins. And then in addition to that, we are starting to gather each quarter improvement on a payment as it gets more and more critical mess. Great. Thank you.

Thank you. Our next question comes from George Sutton with Craig Hallum. Your line is open. Thank you, Subneed. Given that you restructured the sales force, and obviously you...

Previously had folks selling into punch at a headquarters' level folks selling into Brink and others at a regional and franchise level what sort of an impact do you think you've seen from that restructure and I'm obviously thinking of the punch perspective in particular with that question's a great question So we still separate out the franchise team which we internally called famam and then our enterprise team So we know we will always keep those distinct because as you is suggesting it is right selling to a franchisee is selling to a small business but.

to win a brink or a punch or a data central deal, you've got to win at the corporate level, which is an enterprise sale, which is months to years, depending on the size of the chain and the relationship we have. So we haven't disrupted the franchise process and we'll always have that. And that is an excellent team that just is automatic and great. On the question of results, it's way too early to talk about the impact of it, but I can tell you right now, what I enjoy about it is we do have a view now of the customer. So if we've got a customer that has three of our products, that salesperson now has to go in and say, okay, hey, they don't have, you know, payments and their payments, current contract ends in six months. And these are the paint.

focus on cross-el and as I said it's completely doing it from the you know the small business franchise team.

And as I said, it's completely doing it from the small business franchisey team. And finally, if I could just give you...

three kind of exclamation point things that you said that I want to make sure I heard correctly. I think you said 17 new customers attached in payments which is meanfully more than we thought. You mentioned a 3000 unit fast casual enterprise which fast casual being something I'd say that's a significant relative to the normal quick service and then lastly the labor scheduling take away. We haven't talked much about this.

really well, which I think to the prior question has kind of helped us, you know, feel more confident and kind of, you know, selling more from the same salesperson. So there, on the data central side, you know, a lot of the work in addition to strong leadership has also been around the product and effectively realizing that data central is more than inventory and cost, but also a beautiful labor and scheduling module. And so we do a lot of work over the years.

those products and realizing that our products are best in class and so it's a much more strategic way of going to market.

Thank you. One moment for our next question. We have a question from Anja, Sotashram from Siddoti. Your line is open. Hi, thank you for taking my questions. Actually, all of them have been up to...

We are able to monetize that data in an unautomized way. Now, we don't have an intention to do that. And I think a lot of our excitement around the data is actually suggesting that we can build products for our customers leveraging that data. And so I think that's what's exciting to us. But as I mentioned in the transcript, it's also a way to change the conversation. Because if we have a customer that has our products and payments, we know every single transaction. We can even pull up every single customer and those insights are hard to get. So that's pretty exciting for us. Okay, thank you. That's all for me.

There are no other questions in the queue. I'd like to turn the call back to Subneet Singh for closing remarks. During the call, we look forward to updating your progress on our next call. This concludes today's conference call. Thank you for participating. You may now disconnect. Thank you.