Q2 2023 PAR Technology Corporation Earnings Call
Yeah.
Good day, and thank you for standing by welcome to par technology second quarter 2023 financial results.
All participants are a listen only mode.
After the Speakers' presentation, there'll be a question and answer session.
Ask a question during the session you may need to press Star one one on your telephone you will hear an automated message advising your hand is raised to withdraw your question. Please press star. One again. Please be advised today's conference is being recorded I would now like to hand, the conference over to your speaker today, Chris Byrnes Senior Vice President of business development.
Thank you James and good afternoon, everyone.
You for joining us today to review par Technology's second quarter 2023 financial results. Our earnings press release was issued after close of market. This afternoon and is posted on our website.
With me on the call today are <unk> <unk>, Chief Executive Officer, and Brian are the company's Chief Financial Officer.
After preliminary remarks, we will open the call to a question and answer session.
During this call we may make statements related to our business that would be considered forward looking statements under federal securities laws, including projectors projections of future operating results.
Due to a number of factors actual results may differ materially from those set forth in such statements.
These factors are set forth in the earnings press release that we issued today under the section captioned forward looking statements and these and other important risk factors are described more fully in our reports filed with the Securities and Exchange Commission, we encourage all investors to read our SEC filings.
Additionally, non-GAAP financial measures will be discussed on this conference call a reconciliation for the most directly comparable GAAP financial measures is also available in our second quarter 2023 earnings press release, and Investor presentation, which can be found at www Dot <unk> dot com in the Investor Relations page.
With that I'd like to turn the call over to our Chief Executive Officer <unk> <unk>.
Thanks, Chris and good afternoon in the second quarter par again delivered strong results restaurants of all types and at all stages are using par as a growth enabler leveraging our offerings to create a more seamless cost effective and simpler infrastructure.
My position at par CEO I have the privilege and opportunity to sit down face to face with our customers and our top integration partners regularly.
The message I'm hearing is remarkably consistent again and again I hear that large enterprise restaurants are focused on creating consistent customer experiences across multiple ordering channels.
But in today's world. They are also trying to reduce cost and mitigate risk and convert cost centers to profit centers.
For years, they view technology as a capital investment and today they are coming around to the idea that software is now a key investment in the Opex line of our P&L.
We believe <unk> is well situated to take share with these dynamics.
At the end of Q2 subscription services revenue increased by 31 to 31, 2% from last year's second quarter, and <unk> $122 $5 million or 24, 3% year over year increase demonstrating the continued growth in scaling of our subscription services engine.
Contracted annual recurring revenue ended the quarter at $142 million, a strong 7% sequential increase from Q1.
Importantly, we are keeping operating expenses flat from our Q4 2022 run rate.
Operator solutions AOR grew 38, 4% to $50 million in Q2, when compared to the same period last year.
Even more impressive is that operator solutions increased 11% from the sequential prior quarter.
During Q2, operator solutions added 1100, 50, new stores and new bookings totaled approximately 100.
Churn continues to be extremely low at three 6% annualized from <unk> in the quarter.
Brent continues to be our land and expand product and this expansion as demonstrated.
By an increase of over 14% and are our per site for operator solutions from Q2 last year.
With opportunities in table service continuing to surface and interest from the largest quick service restaurant organizations increasing.
The new customer pipeline for operator solutions continues to drive new business.
The outburst solutions weighted pipeline continues to be at an all time high.
Payments is an important part of our growth for operators solutions rolling out new payments customer sites, Richard returned to the pace. We had expected and was much faster than Q1, we continue to offer a compelling and transparent pricing model along with a strong set of integrations and coupled with the ease of doing business at par that is winning for our customers.
We saw momentum in the second quarter, which resulted in record quarterly activations in gross processing volumes, along with customer adoption across our in store online and loyalty platforms.
This is highlighted by the full rollout of our one tap loyalty solution powered by Apple pay with SASSA readers in Q2.
We are confident this momentum will deliver strong results for the rest of the year.
Moving to guest engagement <unk>.
That includes our leading customer engagement.
And our digital ordering platform menu.
Guest engagement <unk> grew 14, 5% in Q2, when compared to Q2 2022.
In total approximately $61 million.
We continue to work hard to deliver on our current environment and are hyper focused on delivering scalability and innovation at the same time.
In the quarter, we successfully kicked off the deployment of a 2400 unit SaaS casual chain and we launched our new subscription product.
Store count on a year over year basis increased by 13% and we believe business will continue to improve as the year progresses.
We did this during a quarter, where we saw record campaign usage on the punch platform well beyond anything we've ever seen.
Usage has increased for X and just the last 12 months, creating a tremendous opportunities and challenges for park.
This growth of challenges.
Scale up our infrastructure quickly while also thinking through the optimal long term business model for punch.
We are humbled by the trust given to us by our customers and are committed to helping them drive ROI from our products.
Menu continued its migration to United States. This quarter, we have been impressed by the early response menu has received from prospective customers. This year.
We are signing customers at a brisk pace and I am pleased to report we are in the final stages of signing three additional brands this quarter that will more than double the number of stores signed to date.
As we scale up our operations I expect the logo and store count to grow meaningfully.
These early findings validate our investment thesis of menu and the product features and functionality that are driving this early success will continue to give us the opportunity to unify our customers ordering channels.
Menu is a special product and we believe should bleed truly the next generation of ordering allowing us to grow our footprint outside the store and set us up for the expected a proliferation of ordering channels to come.
As I mentioned last quarter, we are aggressively started tooling the business for the U S domestic market and we expect revenue to start matriculating in Q3.
We feel more confident now than we did at the same time at the time of the acquisition that menu will grow into a dominant product line and as a result, we increased our infrastructure investments in the quarter.
We are doing this methodically by focusing on customers that we can take life sooner and balancing our desire to build more for customers with our belief that we should first deliver on today's promises.
Demand isn't the problem as our existing customers see the power of menu coupled with punch.
So it's on us to build out our operations support and service teams to deliver on those trusting us today.
Back office and data central delivered a strong quarter as well reported <unk> of $11 6 million in Q2 was 25, 3% increase from last year's Q2, we had activations of 221 stores in the quarter and now have more than 7200 active stores.
Before handing the call over to Brian to review the financials I wanted to touch briefly on our gross margins in the quarter and specifically margins for our subscription services business.
We reported lower the normal adjusted gross margins for subscription services at 61% for the quarter and 65% year to date.
This decline was driven by two factors.
First as mentioned above we made a large investment in menu and part payments in advance of revenue we expect to take live later this year and throughout 2024.
Investments, while short term painful are needed in order to build out our pipeline and then future revenue. We believe we are at peak of that spend and investments should moderate from here.
Second as I referenced we expect experienced a dramatic growth in usage across our products and in particular punch.
You said it was beyond anything we had planned for it and resulted in US having short term disruptions, which led to a onetime customer credits to certain customers.
To ensure we can support this new baseline of usage, we've ramped up spend and importantly, tooling. So that we don't encounter any issues again.
Our CEO unplanned spend is not fun, but I'm confident this investment spend is more important is important and part of being able to deliver for our customers.
And I believe will make up for it many times over as I believe we're likely the only player in our category able to deploy at such a large scale.
To summarize on margins, we expect consistent future growth as part payment and menu revenues continued to scale.
While it's challenging to have given out credits those are onetime in nature and we're going all in on our infrastructure now to enjoy the spoils of 'twenty 'twenty four and beyond our spend in margins will normalize as we deliver on core investments that will again increase our efficiency.
In summary, we're heading into the second half of the year with significant momentum and a strong pipeline and we will approach 2024 with the same focus ambition and values that have shaped our company Brian will now review the numbers in more detail Brian .
Thank you <unk> and good afternoon, everyone.
Total revenues were $100 5 million for the three months ended June 32023.
An increase of 18, 2% compared to the three months ended June 32022 with.
With growth coming from both restaurant retail and government segments.
Net loss for the second quarter of 2023 was $19 7 million or <unk> 72 cents loss per share compared to a net loss of $18 8 million or 70 loss per share reported for the same period in 2022.
Adjusted net loss for the second quarter of 2023 was $14 1 million or <unk> 52 loss per share compared to an adjusted net loss of $9 8 million or <unk> 36 loss per share for the same period in 2022.
Adjusted EBITDA for the second quarter of 2023 was a loss of $9 9 million compared to an adjusted EBITDA loss of $5 8 million for the same period in 2022.
Hardware revenue in the quarter was $26 4 million, a decrease of $2 million or 7% from $28 4 million reported in the prior year sequentially Q2 hardware revenue was flat compared to Q1 and ahead of our forecast as we continue to see strong hardware sales both with our tier one legacy.
And across our <unk> customer base.
Subscription services revenue was reported at $34 million, an increase of $7 2 million or 31, 2% from the $23 2 million reported in the prior year.
The increase was essentially driven by increased subscription services revenue from our operator solutions business of $3 3 million driven by a 21% increase in active sites and 19% increase in average revenue per site.
The residual increase of $2 9 million was driven by increased subscription service revenue from our guest engagement business driven by a 13% increase in active sites.
7% increase in average revenue per site and $5 million of post acquisition menu revenue.
The annual recurring revenue exiting the quarter was $122 5 million an increase of 24, 3% from last year's Q2, with operator solutions up 38%.
First engagement up 14%.
Back of house up 25%.
Professional services revenue was reported at $12 8 million, an increase of <unk> $2 million or one 1% from the $12 6 million reported in the prior year.
$7 1 million of the professional services revenue in the quarter consisted of recurring revenue primarily from our hardware support contracts.
Contract revenue from our government business was $31 million, an increase of $10 1 million or 48, 2% from the $29 million reported in the second quarter of 2022.
The increase in contract revenues was driven by a $12 6 million increase in government ISR solutions product line.
The increase was substantially driven by continued growth of counter UAS task orders.
Contract backlog associated with our government business as of June 32023 was $297 million, an increase of 61% compared to the $184 5 million backlog as of June 32022.
Total funded backlog as of June 32000.
23 was $96 6 million.
2% increase compared to the funded backlog of $47 9 million for the prior year.
Now turning to margins.
Hardware margin for the quarter was 19, 2% versus 14, 7% from Q2 2022.
The increase in margin year over year was due to an inventory charge in Q2 2022.
We continue to expect hardware margins of 20% as we go forward.
Subscription and services margin for the quarter was 43, 3% compared to 53, 9% in the second quarter of 2022.
Decrease in margin is reflective of our continued growth within our early phase products. In addition to increased hosting cost resulting from significant utilization of our guest engagement products. We made additional investments to ensure the quality of our customers experience was not impacted <unk>.
Sequentially subscription service margin during the three months ended June 32023.
Included 53, $5 3 million of amortization of identifiable.
Intangible assets compared to $5 7 million for Q1 <unk>.
Excluding the amortization of intangible assets total adjusted sufficient service margin for the three months ended June 30th was 61% compared to 71% in Q1.
Professional services margin for the quarter was seven 7% compared to 16, 8% reported in the second quarter of 2022.
The decrease in margin was driven by one time charges, we expect professional services margin to transition back to the mid teens for the second half of the year.
Government contract margins were four 3% as compared to 11, 1% for the second quarter of 2022.
The decrease in margin was related to lower mix and direct labor associated with the counter UAS revenue, we expect contract margins to trend back to higher single digit margins as we progressed through the second half of the year.
In regards to operating expenses GAAP SG&A was $25 6 million a decrease of <unk> 8 million from the $26 $4 million reported in Q2 2022.
The decrease was driven by lower acquisition costs and corporate expenses.
Net R&D was $14 9 million, an increase of $4 8 million from the $10 1 million recorded in Q2 2022.
Backing out menu and non-GAAP adjustments the gross in R&D is $2 4 million or 24%.
Increases related to personnel hired as we continue to improve and diversify our product and service offerings.
Sequentially net R&D expense of $14 9 million in Q2 was up <unk> 6 million from $14 3 million reported in Q1.
Total non-GAAP operating expenses was $36 9 million, an increase of $4 2 million versus Q2 2022.
Menu accounted for $3 9 million of the increase as we indicated at the end of 2022, we will continue to manage the growth of our business, while keeping operating expenses flat during 2023.
Net interest expense was $1 7 million compared to $2 5 million recorded in Q2 2022.
The decreases.
The decrease was driven by increased interest revenue from our short term investments in 2023.
Now to provide information on the company's cash flow and balance sheet position.
For the six months ended June 30th cash used in operating activities was $12 8 million versus $31 6 million for the prior year.
Operating cash flow for the for Q2 was $4 million net positive due to efficient management of our net working capital needs.
Cash used in investing activities was $6 2 million for the six months ended June 30th.
Versus 5 million for the prior year.
Investing activities during the six months ended June 32023 included capital expenditures of $3 2 million for internal use software to million for developed technology costs associated with our restaurant retail software platforms, and <unk> 9 million for reinvestment of short term investments.
Cash used in financing activities was $2 5 million for the six months ended June 30th.
<unk> to $1 8 million for the prior year.
Announcing activities for 2023 was driven by stock based compensation related transactions.
Days sales outstanding for the restaurants and retail segment increased from 53 days as of December 31.
2022 to 62 days as of June 32023.
We expect DSO levels to come back to historical levels within the lower 50 day range.
Days sales outstanding for the government segment decreased from 55 days as of December 31, 2022 to 52 days as of June 32023.
I will now turn the call back over to <unk> for closing remarks prior to moving to QA Q&A let.
Let me wrap up with a few key messages before we open the call for Q&A.
The parts business organizational model and growth strategy, our strong resilient and reliable.
I believe it is most demonstrated our ability to continue to maintain our growth with outgrowing operating investments.
This fine balance as a result of a deep focus on operating efficiency recruiting top talent and an expectation that we can do more.
While theres always a chance end markets continue to be volatile we feel our growth engine is on strong footing when we wake up excited at the opportunities in front of us.
Whether it be unification of their tech stack, our vendor consolidation our customers continue to look to simplify their life and we believe part is well positioned to help.
As I said in Q1, we believe that the M&A environment is also ripe to enhance the value of our value creation today, we're pushing on a number of opportunities all of which we think add new product and talent to par.
We are increasing our financial profile M&A.
M&A has been a strong value driver to par and it will continue to be as we go forward.
I look forward to keeping you up to date on our progress.
Lastly, I wanted to pass on an employee update.
Will it work to drive results for the customer alongside his focus is also desire to drive a fulfilling and rewarding work experience.
Earlier this year par was named by <unk> as a top workplace in 2023 for the technology industry.
Their survey touched almost every employee at park and we are humbled by the employee response, and motivate not to say static and improve from here.
As always I'd like to thank all <unk> employees for their dedication and effort over the past quarter with that I'll open the call for Q&A operator.
Thank you we will now conduct the question and answer session. As a reminder to ask a question. Please press star one on your telephone.
Wait for your name to be announced to withdraw your question Press Star One one again, please standby, while we compile the Q&A roster.
Our first question comes from <unk> Tandon from Needham <unk> company.
Hey, guys. This is actually Sam on for Mike today, Thanks for taking my questions here.
Wanted to start on operator solutions, which saw really nice growth this quarter could.
Could you guys just unpack what drove some of the strength here and how we should think about growth in the back half of the year.
Yes, it's a relatively simple growth algorithm I think we've got continued nice addition of sites as we talked about $11 50 went live but also growth in.
Brink ARPA is very high alongside the attachment of payments and so yes, our goal is to.
Language break at a higher price than we have historically and then Luke bringing our payments business.
I think is impressive.
Just in the last year. The total base has <unk> has grown by about I think 14%.
And that's what's still a large portion of our base at the very very old contract pricing. So its moving up nicely payments being the biggest driver followed by.
The list price of Brent moving up throughout the last year or so.
Got it that's helpful.
And then I appreciate the color you gave on the subscription gross margins there this quarter.
I guess could you talk a little bit more about how we should think about gross margins in the back half of the year and maybe into 2024.
Maybe dive in a little bit more into how we should think about those investments that are being made in the menu in par payments.
Yeah, absolutely. So what you will expect to claw back some of that next quarter as I mentioned some of this as onetime in nature and that will come back to us.
Next quarter.
I guess that I think this is this is this is the peak of the investment spend on menu in particular.
And <unk> is growing faster than our base and so it brings down gross margin because it's still not to the SaaS gross margin it will be at.
So I think youll see us from this quarter on claw back on gross margins and then I think as we get a 24 hour we will get back to.
Low 70 is hopefully and then higher and the key aspect here is these investments we're making there really are for both the short term and the long term because not only do they do they help us recapture the gross margins that we should be but they also set us up to have higher gross margins. Once we get through these investments that we're making and then also just kind of.
I think forced us to think about how we price our product how we charge a product given how much usage, we have which are all things that I think down the road, we can play lever on so.
I think we'll see gross margins climb next quarter.
The following quarter and subsequent quarters going forward as we get back to our historical base of below 70%.
Got it that's very helpful. Thanks, guys.
Our next question comes from Jeremy Jeremy Sailor from Jefferies.
Hey, guys of my personal thoughts Manav, thanks for taking my questions.
I guess, maybe first on the three change that you signed or menu.
Can you maybe talk about I guess, what drove those wins and then what are these existing customers and are you, replacing an existing solution.
Sure and we signed more than three change I was just highlighting that we've got three more that are in the hopper there about the sign that will double the store count we have already.
So it's been very exciting.
I think what's driving that is a few things the first is.
When your partner a couple brink excuse me.
Menu and punch. It is it really a hard solution to be the integration of strong obviously your interactions between our products is very tight and our teams and so there is a real value add to the customer overnight and they see that the second is that menu fundamentally we believe is the best product in the market.
The best way to sort of seeing a demo.
When we show demos to our customers, it's always a little bit of like Wow. How did you crawl into my head and know exactly all the challenges ahead of my existing solution.
And so our demo as why we win and I mentioned in our last call that we wanted a decent chunk of business.
Without really.
Driving hard on the sales initiatives like we do on other products and that will come.
So the product itself is really what's winning and that partnership with punches very powerful.
Far as who we're displacing we're displacing the legacy online learning companies that are in this for a long time.
There's a couple of big players that we see pretty much every logo.
And it's very exciting because we're just starting and this is going to this is going to be a snowball overtime.
Got it Thats useful color and then maybe can you provide one other.
Sure.
Thank goodness.
I believe I'm pretty sure every single online ordering deal. We signed also includes payments and so it's a nice twofer deal if you will.
Got it that's helpful.
And can you maybe talk about provide an update on cable services.
Getting any specific customer sizes, I kind of I guess, where is the product now.
So you still need.
Yes.
So one of the things that I think really exciting one to bring businesses.
How much it is pulled in for this year, but the.
Large table service change that we won at the end of 2022 are actually going live as I mentioned on last call.
In in 'twenty, 'twenty, four and so we've been able to kind of continuous momentum <unk> without those but specific to your question.
We continue to see deals inbound from the very largest of chains on the table server side to smaller and midsized chains and so that pipeline is growing really nicely.
Hi, <unk>.
And it continues I think to highlight.
The sheer fact that breakeven in the Rfps I think highlights the product market fit that we have started to to to hit with our customers.
Got it thanks for answering my questions guys.
Okay.
Our next question comes from Eric <unk> from Lake Street capital markets.
Yes, I wanted to first focus.
<unk>.
Guest engagement, you are obviously, making a pretty substantial investment.
Emerging business lines, you talked about a second half scale up is that in anticipation of winning business or servicing business you've already won.
We've already won so menu has won a number of deals in.
End of Q1.
Q2, and then we expect a couple nicer ones this quarter. So it's very much.
Deals that are signed that we need to get out the door.
Gotcha, Okay and then.
On the operating solution side of the house I'm curious to know if you're.
The pipeline tempo are you seeing any change in the rate of progression for some of your up funnel conversations.
Yeah.
I don't think we see any change I think you just continues to be high I think whats exciting about this year is our engagement with some of the largest change in the world.
Coupled with our focus on the emerging change that we've always been very strong with so I don't think theres been a change it just seemed very consistent.
Theres not one sense of slowdown because of the macro at all in that business.
And I think what.
Really starting to click obviously is that consistent bundling payments with <unk>.
<unk> training time to value for par, but creating a lot more value for our customers.
Got it thanks for taking my question.
Our next question comes from will Nance from Goldman Sachs.
Yes, I appreciate you taking the question wanted to ask on the pumps business alone.
Did your expectations it seems to be maybe.
Maybe a little bit of an understanding that it looked like it was up pretty substantially sequentially. Just wondering if you can talk about the.
Sustainability of the pace.
The activation of the mall.
How youre thinking about the remainder of the year.
I think as we message on time, so I think we're we're kind of getting our footing here, we've spent a ton of money.
Mailing a platform that uses on punch.
As I mentioned.
Crazy, but the usage of the platform is up Forex in just one year and it was already a really big base of usage and so on.
We've grown into that it's taken us we definitely got some bruises through that but I think what's great is.
It also provides a great moat for us because there are not.
We're not aware of any other organization that has the ability to deploy at a scale that we do and so while painful to make investments obviously in this environment. It's also exciting because there really isn't anybody that can kind of.
Step into that scale like we can and so it is a long term strategic advantage and the pipeline looks.
Better now than the last quarter and it looks better than if you asked me two quarters ago, and so we see nice.
Momentum I just met with the sales one of the sales leaders sales leader a couple of days ago. The pipeline looks strong for for Q3 Q4, but we've got to close that business is going to win that business and make sure we pull it into 2023.
Got it and then.
I know you mentioned a little bit of our investments on the payment side. I was just wondering if you can kind of read a little pathway, there and any updates to the expectation for 10 to 15 million or exiting the year.
Okay.
We feel very good about hitting that target on.
On payments.
You can see just the big jump we had this quarter.
So I expect that to hit that range I also think that.
The year with a very strong backlog for 2024, given what we see today the attachment rates of payments on <unk> is still very high at 80% plus is my guess I'll come back to you with the actual number but it's very very high when we get a new customer we are usually successful and attaching payments because it creates a ton of value to the end customer is generally.
More cost effective simpler one hand to shake the servicing all of the above and then and then if.
If we don't.
If for some reason, we don't win the payments business generally.
Generally either because they are an existing contract with somebody else that that doesn't have a buyout costs and then we will wait around the corner for that for that opportunity to come back to us.
And will you are seeing how that attachment is high to through the <unk> increase in operator solutions because it's in essence right.
Attached through there on top of bring so the our poker site that has now bulk of brink and also the payments is what's driving that increase.
Well I think that makes sense I appreciate you taking the questions.
Thanks, Phil.
Our next question comes from Patrick Mcevoy from William Blair.
Hey, guys I'm on for Stephen Sheldon today.
My first one given some of the onetime expenses and profit that came in a little bit light this quarter, how should we be thinking about the trajectory for.
Profit adjusted EBITDA over the rest of the year and is it is it fair to expect we kind of return to pretty steady progress towards breakeven.
Absolutely I think this quarter, we took a hit on our gross margins, but the Opex line state.
Exactly where we wanted to be.
And our growth was strong I think growth will continue to be strong through the year and the key for us hitting our profitability goals will be getting to the high end of our guidance.
I'm thinking of the year.
Like I had mentioned earlier I think we feel confident we're going to claw back some of the gross margin.
Next quarter and in the following quarter and moving forward.
And I think Theres no doubt profitability is around the corner.
And if we can deliver on the high end of the revenue side I think we'll hit there.
If we don't we'll miss but I think it's on us to kind of execute as fast as we can to get there, but I think the trajectory is very clean.
Here.
I think that's right.
We've reset.
Subscription margin right.
This quarter lower Sixty's, we're seeing the visibility for mid Sixty's and then to hire 60. So as we go into Q3 Q4 getting ourselves back on to that 70% margin that we were at the end of last year before we were kind of putting putting the foot on the gas in regards to the investments on the younger products and.
It's interesting there is that most of that is coming back from a little bit of efficiency, but also just revenue turning on for these investments, we've made particularly menu which.
Start to adding revenue this quarter.
This quarter being Q3, and then really in Q4.
But with that growth that Bryan talked about doesn't take into account is the actual investments, we're making in punching break and so on and so forth, which will come in 'twenty 'twenty four so I think the.
This will be the story. This year has been the story of holding Opex flat, while maintain growth I think next year will be a deep focus on trying to get the best in class gross margins, while maintaining growth.
Okay great.
And at Punch, you had or guest engagement I should say you had 3400 activations in the quarter.
But only saw.
I think about $1 million of half step up in <unk> sequentially. So I just wanted to ask is that does that step up as expected or have you seen any pickup in churn there related to some of the budget headwinds or.
Some of the.
The capacity issues you had this quarter.
On that front.
So I think it's as expected I think theres always some churn quarter to quarter, but not.
Not anything meaningful or concerning on our end.
But theres definitely churn in the quarter for punch that offset some of that activation and then.
As you suggested there were these one time issues that kind of impacted it.
But no there's been punch as you can see from the sites versus the <unk>.
Sure.
Punch pricing is up a little bit so theres, no discounts or anything like that correct predicts survival will be kind of forecast and our look at it may recall at the beginning of the year, we were expecting some share in the first half of this year and as this was the year that we kind of had the pivot reflection point with Wisconsin and were right on forecast and those expectations and 73 <unk>.
The <unk>, that's been kind of consistent.
Primarily site growth is driving the AUR growth.
Okay. Thanks, guys appreciate the color.
Okay.
Okay.
Our next question comes from George Sutton from Craig Hallum.
Great. Thank you this is actually Adam on for George.
It was great to see the growth in our <unk>. This quarter I was hoping you could provide a little more detail on exactly how high you are thinking about our two going into the future.
It's going to continue to trend upward.
Seeing is the result of the new deals we've been taken live plus payments and as more and more of these new concepts in stores go live it'll continue to move upward and the deals that we have in pipeline today.
And then we win them.
It meaningfully fair prices and so I think it's just the base catching up to what we've been doing the last year or two so we expect that our food to continue to trend upward.
For a long time here.
And you can see it across all products, even data central obviously with an operator solutions, it's super meaningful, but even punch a little bit. So I think we feel pretty good about that lever now.
Great and just.
One follow up question for me.
With the acquisition of menu you brought along some international accounts with that acquisition.
Love to better understand how you're now thinking about the international market and how you're managing those international accounts given that you have been primarily focused on the U S up to this point.
Yes, it's a great question. So when we made the street's decision I'd say at the beginning of this year to not focus on those international accounts and business and retool the business United States, which is why the cost structure is so high because we are operating in two different geographies. So think about us support teams.
Sales teams in different Geos, plus debt lots of infrastructure in different geos.
Why it's so expensive.
And the reason why we did that with demand days. It was very clear how much demand there was for this product in United States and instead of one.
Waiting for it in Europe and doing it there we thought we should bring in here and take advantage of that and that's why you also see the cost structure hopefully nicely. The other way as the revenue turns on here that we've booked and signed.
Very much at swinging to where the customers want to ourselves and so we're feeling really excited about that in time I think we will eventually go back and build that out but today I think the main focus is getting our U S customers lives because it's not just the pipeline as long as the deals we wanted a insignificant and we've got to get those lives. So we can make sure we can take on this pipeline.
Yes.
It.
It's a unique situation where.
Sales isn't the problem.
It's us getting the stuff out the door. That's the next challenge and then we will increase the final and increase the final. So today, we're really focused on delivering for customers that need what we have.
And I think tomorrow be okay, where can we expand from there.
Okay.
Our next question comes from Adam why it'll from DW capital.
Hey, guys couple of questions here.
Obviously.
We're seeing the investment in punch and menu and there seems to be a little bit of a stop gap between the revenue being turned on in the next couple of quarters.
<unk>.
And.
And sort of the investment on the front end, but you made a comment that basically said no. One else can do what you do right I mean tell us is a big company, but but no. One else is really out there winning these large logos and based on our channel check work.
There are two I would call tier one customers one being Burger King restaurant brands, that's doing an RFP for.
Based on their entire tech stack.
North America, which could be 15000 units and then Wendy's at 5500 units I mean is this your way of saying that basically.
<unk> got <unk> got all the products.
No one else has sort of has sort of a direct integration and the ability to service the customers and that this is sort of investment basically.
Basically in customer service and support because you anticipate winning these big logos and sort of an acceleration in your growth.
Is that sort of a fair way fair way to think about it.
So.
Let me first comment on the Nikon and so actually suggesting was.
On the pump side, we've made some big investments in the Dev ops infrastructure, it really scaling the platform and and I think we realized was given how large punch.
Punch penetration is I think it's 45 46 of the top 100 restaurant chains in America.
It's been very hard for people to compete with us to deliver the sheer volume of campaigns that we deliver to our customers.
You think about it punches a largest clearly invested.
I think close to the <unk> the most.
And for someone to come in and then put that investment I, just don't see that happening and so I think what we're doing is building.
Scalability, along with the product and service model, we want to continue to build and get better at but it can be very hard for those big big.
For our competitors to come in and undercut is to do whatever they want to do to try to win large restaurant because things can be hard given the sheer infrastructure investments. We've made I think will create a nice gap.
Second part Youre, saying.
Whats exciting is I do believe that in the enterprise restaurant category.
They are not a lot of people that can deliver what we do particularly when you put it under the lens of being cloud first and also being able to provide a full solution with.
With high quality products, and so we feel really well situated to start breaking into that market.
And I think as we hopefully win one of our large next logos, we'll be able to Angola, and exelon and where that proof point, but.
I think I would say categorically, what youre, saying.
Roughly would be my pitch to our customers, which is who else has the scale and not only in the products that deliver what you need because if you think about it if youre a large restaurant organization youre, taking a huge leap of faith on your Pos in this example provider or a loyalty provider to deliver to your customers and your franchisees and so the more that we can show that we.
We have that breadth and depth of product.
The easier those conversations become.
Alright.
So said differently you're.
You've obviously, taking gross margins down to basically invest in products in anticipation of broader customer needs. In these obviously, whether it's payments upsell or whether it's winning a burger king or Wendy's I mean is it fair to assume that.
You keep you said will be EBIT EBITDA breakeven, if we hit the high end of our revenue range is it unfair to assume that we can expect sort of.
The company to grow revenues at a faster pace in 'twenty, four and 'twenty five in sort of this is sort of the short term pain for sort of accelerated revenue growth in the future.
Yeah.
I hope so I mean, I think we can't talk about customers.
We haven't disclosed publicly yet but.
But.
As the the math is pretty simple right you win one large super tier one.
It's equivalent to like half of our revenues.
There are enormous step functions and so.
Our goal as we got to continue growing it's growing at we hope and expect to win those type of customers and that's great that step function upward, but without question on the margin side.
We're going to make that whether we win a large deal or not that is just blocking and tackling and getting it right, making those investments and many ways I wish we made these investments earlier, because we have more customers live now and we would have never dealt with credits and things like that.
But on the margin side, we're going to do that irregardless of who we win.
Okay.
Second question is around M&A on the last call you basically said parts for sale every day, obviously the company still trades at a pretty big discount to what I would call sort of low churn <unk>.
Enterprise restaurant software businesses that are being bought out by private equity or other ones in the public markets I get that Youre, making investments now, but you are seeing this sort of accelerated <unk> growth in U S public company costs and whatnot.
Ah.
I guess, what I would say is that a meaningful part of sort of getting that value realized.
Is creating this company a pure play and sort of divesting the government business to sort of get the company in a place where it would be easy for you to sell to a strategic or someone that could sort of get rid of all that.
Public company costs, I mean, I know it was sort of a challenge a few years ago to sell it because you were waiting for this contract to basically be one but now you sort of have this multiyear pipeline on fast.
<unk> gotten to a certain amount of scale and you've got the balance sheet I mean.
What is the what is the hold up in terms of selling that government business and sort of.
Making the making this a pure play for others.
The company as a standalone.
So there's no holdup I think we've.
<unk> delivered when we told shareholders, we want to deliver a year of strong growth from this contract.
We needed to do that that was important so we'd get the multiple there and and we have done so.
We are always focused on creating value and as I've said many times over I think it's very logical for prior to make that decision, but I can't say anything until we come out with that decision.
Can you comment on the tuck in M&A I mean, obviously, you did menu, which.
Obviously, we're sort of a technology investment that <unk>.
You basically are internally skunk working growth, but I mean, there are plenty of companies now that are sort of orphan.
In the VC world that are doing anywhere from $10 million to $40 million of IRR that might be able to leverage our public company costs and be acquired Accretively and sort of help you sort of balance that sort of organic growth investment with cash flow and public company costs and whatnot I mean can you comment about sort of what your.
You said on the call look data central was good Concho is good those were sort of tucked in those are nice scaled businesses.
They're growing nicely and generating positive contribution margin I mean, how do we think about sort of that next layer of Av products and sort of getting scale that way as well I mean does that is that something that is a 2023 possibility and what is the quantum of M&A do you think you can do over the next 12 months.
So.
I'd say without question I expect us to be acquisitive now things can change and we won't be but we are excited by that opportunity.
So we don't I don't think we would look to buy something to offset public company cost. Because then you can really buy anything that generates cash flow I think we have to buy stuff that create synergy with our existing product suite within our customers.
And then and Thats, where youll get the operating leverage on your sales and marketing and.
And hopefully our R&D over time, and we see a number of deals that we think are very very interest us and I think we are very interesting to the sellers. So you will see par active there.
And I do expect that to happen.
It's hard to break these things, but I think youll see us very active.
As far as Dimensionalize ing.
The sizing of that.
We want it.
I think we like you believe in economies of scale here and as we are able have been able to show that we're very good at leveraging our opex base to continue to grow I think.
Scale helps and so.
I think we like larger assets, because we can push them through their established the product is more developed.
I don't think Youll see us acquire science experiments or things that need a ton of R&D R&D projects. I think you will see us buy more mature assets, where we think there's tons of energy for our customers and we can integrate them nicely and create a good home for those teams. So.
I think you'll see us very active here, it's a core focus of mine definitely shifted a decent portion of my own focus just to get these over the finish line.
Adam we've got to jump to the next caller, so don't get cut off.
Our next caller is Andrew Hardt from <unk>.
Hey, guys. Thanks for the question obviously, it sounds like <unk> was a big driver of the operator solutions. Our Pud jump is there anything else you would call out there kind of benefiting obviously I think.
Table service will comment on the mix next year, and I guess bigger picture on <unk>.
Penetrated is it within the existing base today and.
Par pay gross margins look like once it kind of reaches a more mature level.
Great question.
So the other big drivers just price, we've taken price break nicely and I think.
We will take price I think we are getting value that we deliver to our customers and I think as you know.
A large portion of our.
Initial base of break was very very underpriced.
Because it was started up trying to gain business and build a logos.
And so thats the other big driver is just pure pure price and and I think our customers.
Transparently know exactly what were charging so there is not like we're trying to sneak one by them, we really want to be open and transparent with them and show them the value we drive and so I don't we don't lose on price and we're not the cheap.
The cheapest product in the market so.
Yes, I think it's capturing value there.
As far as payments.
Payments is not even 10% penetrated into the brink base, yet and it's already a meaningful measure of the operator solutions revenue.
I think youll see us.
Have a lot of.
White space within the <unk> base for payments.
Im rare enough for these renewals that are coming up where we can show we had a par and whats.
Fascinating about it is we are processing meaningful amounts of volume every single month now.
We're well over $1 billion of annual.
Annual <unk> and and as that business scales. It helps the cost structure, because as we process more volume our rates come down more.
And it allows us to expand the margin there which is a good segue into your last question on margins.
Steady state Super scale payments margins should get close to what our SaaS margins are but what's unique about our payments business is that it's not just processing.
We have a gateway product, we've got a reporting product we've got our fraud product theres a number of product innovation that's happening in there.
All of which will expand those gross margins. So I don't expect gross margin as our payments to forever be a drag on gross margins as it is today because it's scaling.
But and.
I think theres many ways. We're excited of the products, we can build on top of payments because one of the things I feel passionate about it.
Anybody can sell itchy payments like literally anybody.
What's the value brings the customer around the payments is really what's going to make them stickier.
I think we're seeing how valuable that is today.
Thanks, and then.
You've talked about in the past of kind of this year, operator solutions and back office apps, offsetting some headwinds and guest engagement, but guessing.
<unk> engagement it really stands out.
Activation side, it seems like a really strong quarter and kind of ahead of our expectations do you still feel thats kind of the dynamic for the back half of the year were back office and operator solutions carry a lot of them away or.
Guest engagement holding in better than where we were thinking about a quarter ago.
As planned I think we expect it to we keep saying it will get better and it keeps getting better every quarter and so I think it's just it's a grind up purely from like just the sizing right.
You can't take a business, that's 61 million of revenue and flip it in a quarter back to 30, but its climbing that.
<unk> is climbing.
Coming up now.
And listen operator solutions is just got.
No.
Great momentum, we'll continue to have great momentum and so it will be the driver you can see our fastest growing almost 40% and we don't expect that to really slow down much and so.
Well.
I think one on size, but to just the existing pipeline is there.
Thanks, guys.
At this time I'm showing no further questions I would like to turn the conference back to <unk> Singh for closing remarks.
Thanks, everyone for joining us we look forward to updating you next quarter.
This concludes today's conference call. Thank you for participating you may now disconnect.
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