Q3 2023 PAR Technology Corp Earnings Call

November 9, 2023

Okay.

Good day, and thank you for standing by welcome to the par technology fiscal year 2023 third quarter financial results Conference call.

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I'd like to hand, the conference over to your first speaker today, Chris Byrnes Senior Vice President.

This development. Please go ahead.

Thank you, Steve and good afternoon, everyone and thank you for joining us for today's call to review, our third quarter financial results.

Following the close of trading this afternoon, we released our financial results.

The earnings release is available on the Investor Relations page of our website at <unk> Dot Com, where you can also find the Q3 financials presentation as well as in our related form 8-K furnished to the SEC.

During our call today, we will reference non-GAAP financial measures, which will believe to be useful to investors and exclude the impact of certain items.

A description and timing of these items along with a reconciliation of non-GAAP measures to the most comparable GAAP measures can be found in our earnings release.

As Stephen said.

Excuse me I'd like also to remind participants that this conference call may include forward looking statements that reflect management's expectations based on currently available data.

However, actual results are subject to future events and uncertainties.

The information on this conference call related to projections or other forward looking statements may be relied upon and subject to the safe Harbor statement included in our earnings release, this afternoon and in our annual and quarterly filings with the SEC.

Okay.

Finally, as Stephen said earlier I would like to remind everyone that this call is being recorded and it will be made available for replay via a link available on the Investor Relations section of our website.

Joining me on the call today, as part of CEO, and President, 17th, saying and Brian Mannar Par's Chief Financial Officer.

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

Thanks, Chris and good afternoon, everyone and thank you for joining us on today's call.

I am pleased to report we delivered a strong third quarter, we grew subscription revenue by 24, 6% and air by 24% year over year.

Adjusted EBITDA improved by over 65% from the same period last year to negative $2 6 million and contracted air came in at $143 million in the quarter.

Our gross margins rebounded as we messaged last quarter, and we continue to hold opex flat, while making important internal investments.

Operator solutions <unk> grew 38, 3% to $53 8 million in Q3, when compared to the same period last year.

Operator solutions <unk> increased by 20% from the same period last year due to higher value projects, often with multi product bundling price increases in part payment service implementations.

We're seeing continued elasticity of demand in this business unit and expect this trend to continue.

Churn continues to be extremely low at four 1% annualized for brink in the quarter. We continued to win new customer opportunities that bring due to its mission critical position within the restaurants and the feature rich capabilities upon which has proven stable and scalable cloud platform.

<unk> is the growth enabler for enterprise and emerging enterprise restaurants.

This proved out in Q3, as we announced the signing of Burger King as our next exclusive brankin menu customer with our products to be rolled out across our 7000 domestic stores.

This deal proves out our enterprise reach and the beginning of what we expect will be a wave of tier one brands transitioning from legacy third party and internally developed systems to modern SaaS based products like <unk> <unk>.

<unk> is uniquely positioned in this environment, both due to its status as a category, leading cloud native product as well as the ability to uniquely partner and innovate with our multi product offering.

Our pipeline continues to be robust with ample white space for cross sell.

Our clinic and intention are to continue to expand our relationship within RBI and their restaurant logos.

<unk> has over 30000 restaurants globally with brands that include Tim Hortons, Popeye's, Louisiana, Chicken and firehouse subs, along with Burger King.

What's more as we execute against the Burger King plan, we anticipate building deeper partnership with Burger King and we will look to push out the longer term roadmap of unified commerce, starting with brink menu and data central.

It's hard to express how transformative this new customer will be from both a strategic and a financial aspect apart.

This selection by Burger King one of the largest and most iconic restaurant brands is something that we will build upon for the years to come.

Burger King will be a strong driver for par strong revenue driver for <unk> over the next two years as we work through our rollout plans at Burger King This quarter, we'll update you on our Q4 call, but the financial impact and expectations on timing of that growth both par and BK are committed to an aggressive push working in partnership to deliver BK skoal goals of unified Pos.

I see this as a turning point for par and our broader industry as we are well positioned in the market to secure additional deals at other large enterprise restaurant companies look to unify their Pos consolidate vendors and bring on in growth enabler like brink move.

Moving to payments in Q3, we saw a par payment services more than doubled from Q3 2022 and expect this growth trajectory to continue.

This is incredibly impressive as we report payments on a net basis after all third party and interchange costs.

We saw momentum in the third quarter with customer adoption across our in store online and one tap loyalty programs in Q3, we signed brands such as Rocky Mountain Chocolate factory.

<unk> Creek, Burger and coconut Kenny to name just a few.

We completed the system wide rollout with <unk> 100, 1100 stores went live and initiated Rollouts with chop and cleaning.

Customers are increasingly attaching part payments via brink menu and punch again, validating our unified commerce strategy.

Moreover, customers are seeing robust ROI in a unified commerce integrations and innovation, one type loyalty, which combines brink punched in payments is driving a 70% increase in loyalty program sign ups for Apple wallet users and a 23% increase in repeat visits per customer using Apple wallet.

We believe that par's multi product offering gives us a strong competitive advantage and mode in the current market climate bundled savings and incremental ROI in a time when tech spend is under scrutiny.

Moving to guest engagement <unk> that includes our leading customer engagement at punch and digital ordering platform menu.

Guest engagement grew eight 2% in Q3, when compared to Q3, 2022 and totaled approximately $62 $2 million.

We again saw record usage across punch platform and are encouraged by the increased customer value, we are delivering on a daily basis.

We went live with new customers, including boost reduced Smoky mountain barbecue and dash in during the quarter equally.

Equally important we're seeing the pipeline build up from a slow start in the beginning of the year and expect to announce an exciting deals in the coming quarters.

Even more interesting while punch has very low churn and we're seeing even seeing we are even seeing some of the few brands that have churned from punch over the last few years return as they now realize <unk> delivers the most value in the marketplace.

We've invested in our platform to better support our customers business requirements and are proactively adding features to increase our addressable market and the ability to raise price in the renewal cycles.

The other important piece and guest engagement is our digital ordering engine menu menu signing up new customers customers at a rapid pace, excluding Burger King we signed over 750 locations in Q3.

Scooters coffee coconut Kenny's and restaurant services limited all signed during the past quarter.

The new customer pipeline for Q4 is healthy and we will drive additional logo signings in Q3 menus integration was fully certified on door Dash Grubhub, along with your reads and we successfully piloted RBI on those integrations as well in.

In Q3, we went live with our first customer in the U S and now have over 1100 sites signed up on menu.

The majority of our menu signings include payments attachment.

We continue to believe these early customer signings validate our investment thesis on acquiring menu and menu was a key part of our win at Burger King.

Back office and data central delivered a solid quarter reported <unk> of $12 $4 million in Q3 was 21% increase from last year's Q3.

We now have more than 7500 active stores in the quarter. We went live with Hooters restaurants, Earl enterprises and expanded our relationship with Love's travel stops.

Briefly touching on hardware, we had another solid quarter and continue to see high attachment rates at <unk> and also in shoulder markets that have rugged environments with high traffic and require maximum hardware performance and industry leading reliability.

Moving to the operating leverage of our financial model within subscription services.

Adjusted gross margins for our subscription services year to date expanded to 67%.

As we spoke about last quarter onetime items and investment spend brought down Q2 gross margins and we saw a strong return for those investments this quarter and the reduction of onetime credits.

Our goal in the medium term is to get adjusted gross margins to 70% plus and in the long run to be in the mid Seventy's and higher.

Over the last year.

Software has been transitioned to become our largest business and similar to how we broke out subscription services. Other revenue line. This year and are coming releases will begin to provide more detail on the makeup of not just our gross margin, but the operating expenses supporting the growth in subscription services.

As I start looking at Q3, we roughly estimate sales and marketing expenses for our subscription services to be around 25% of <unk>.

As we continue to grow revenues at a strong pace. We expect this number to continue to work its way down to our long term goal of 15% or less.

As we work through shared cost allocations will provide a more deep more detail on the coming releases on how this number is trending.

R&D expense as a percent of ore in Q3 was estimated to be around 41%.

R&D efficiency has been a huge focus for park and we will continue to work this number down to our long term target of 25% of <unk>.

Our investment in menu and <unk> have slowed our efficiency here a bit but we will see continued improvement going forward and as many revenue expands we will see this move.

Rapidly.

Without menu, our R&D expense as a percent of <unk> would have been 400 basis points better, but we think we'll get that investment back in spades in time.

<unk> in the coming releases will provide more details. So that you can track our progress to our long term targets.

These improvements have been layered on a G&A base that we're continuing to hold tight on.

But I think it hit it in our results is that we've been able to expand gross margin and hold operating expenses near flat, while making a tremendous investment in menu ramping head count rapidly for Burger, King and making a large internal investments into systems.

These three large investments are being made without adding to our operating expenses. We estimate that our opex has been nearly flat for the last four quarters, we've actually made incremental investments of approximately $9 million in new internal it.

Our Burger King ramp up and the additional menu investments needed for the U S market, all without adding to our Opex space.

This has been done by reallocating, our capital and teams to investment areas and becoming tremendously more efficient within brink punched in data central.

To highlight just how efficient we've gotten if we hypothetically were to remove menu from our P&L, our adjusted EBITDA will be positive for this quarter and.

An incredible an incredible accomplishment when you think about where we were just one year ago.

I highlight this to make two points first our core business of bring pension data central have gotten efficient inefficient fast while the spend on menu and Burger King cover this up it shouldn't be lost how efficient our teams are getting.

Second though is that we believe our investments in menu and Burger King will be worth the short term pain menus win win at Burger King was the first of many proof points to come.

Our plan is simple to continue to drive strong revenue growth, while holding operating expenses very tight.

We're going to push aggressively towards the rule of 40, and our path here will be accelerated the additional acquisitions, we see coming around the corner, Brian will now review the numbers in more detail and I'll come back at the end.

Thank you Stephanie and good afternoon, everyone.

Total revenues were $107 1 million for the three months ended September 32023.

An increase of 15, 5% compared to the three months ended September 32022.

With growth coming from contracts and subscription services revenue, partially offset by hardware and professional services revenue.

Net loss for the third quarter of 2023 was $15 5 million or <unk> 56 loss per share compared to a net loss of $21 3 million or <unk> 70, 979 cents loss per share reported for the same period in 2022.

Adjusted net loss for the third quarter of 2023 was $5 8 million or <unk> 21 loss per share compared to an adjusted net loss of $11 9 million or <unk> 44 loss per share for the same period in 2022.

Adjusted EBITDA for the third quarter of 2023 was a loss of $2 6 million compared to an adjusted EBIT loss of $8 million for the same period in 2022.

This improvement was driven by an increase in subscription services margin and our continued commitment to holding operating expenses flat, while allocating investments for menu and internal enterprise systems and Burger King.

Hardware revenue in the quarter was $25 8 million a decrease of $5 5 million or 17, 6% from $31 3 million reported in the prior year.

The $25 8 million revenue record in Q3 is consistent with Q1 and Q2 results and in line with expectations.

Subscription services revenue was reported at $31 4 million, an increase of $6 2 million or 24, 6% from the $25 2 million reported in the prior year.

The increase was primarily driven by increased subscription services revenue from our operator solutions business for $4 2 million.

Driven by a 21% increase in active sites and 20% increase in average revenue per site.

The remaining increase of $1 7 million was driven by increased subscription services revenue from our guest engagement business driven by one 5% increase in active sites and 5% increase in average revenue per site.

The one 5% increase in guest engagement sites as a result of approximately 6% site growth, partially offset by 5% site churn.

We've managed churn as we transitioned menu strategy from international to North America. In addition to managing the inflection point of punches product maturity to enable continued site growth and noted increase in product usage from our existing customer base.

The annual recurring revenue exiting the quarter was $128 3 million an increase of 24% from last year's Q3, with operator solutions up 38%.

Engagement up 8% and back of house up 21%.

Professional services revenue was reported at $11 5 million.

A decrease of <unk> 3 million or two 8% from $11 8 million reported in the prior year.

$7 2 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 $38 4 million, an increase of $14 million or 57, 4% from.

From the $24 4 million reported in the third quarter of 2022.

The increase in contract revenues was driven by a $14 6 million increase in governments ISR solution product line.

Increase was driven by continued growth of counter UAS task orders.

Contract backlog with our government business as of September 32023 was 327 5 million a decrease of 5% compared to $344 8 million as of September 32022.

Total funded backlog as of September 30 was $88 3 million.

Now turning to margins Harvey.

Hardware margins for the quarter was 25, 3% versus 18, 8% in Q3 2022 to.

The increase in margin year over year was driven by better inventory and cost management with kitchen displays mobile and drive through products.

The team continues to effectively execute on managing costs. In addition to pricing were deemed appropriate we continue to expect overall hardware margins of at least 20% as we go forward.

Subscription services margin for the quarter was 56% compared to 48, 1% for the third quarter of 2022.

The increase in margin is driven by continued improvements of our hosting and customer support costs.

Sequentially subscription services margin of 56% improved compared to 43, 3% in Q2.

Subscription services margin during the three months ended September 32023 included $5 8 million of amortization of identifiable intangible assets compared to $5 3 million for Q2.

Excluding the amortization of intangible assets total adjusted subscription services margin for the three months ended September 30 was 69% compared to 61% in Q2.

The increase in margin is driven by the reduction of onetime credits and efficiencies from investments we made in Q1 and Q2.

Professional service margin for the quarter was 23, 8% compared to seven 4% reported in the third quarter of 2012.

The increase in margin was driven by timing adjustments, including identified use cases in Q3 2023 for previously reserved service inventory.

We expect professional services margin to transition back to the mid to high teens as we end the year consistent with the professional services margin of 17% for the nine months ended September 32023.

Government contract margins were seven 9% as compared to 10, 4% for Q3 2023.

Margins bounce back from to normal historical levels during the quarter as the team transitioned to internal direct labor to properly support task orders and improved margins compared to the four 3% recorded in Q2 2023.

In regard to operating expenses.

GAAP SG&A was $26 2 million a decrease of <unk> 3 million from the 20.

$26 5 million reported in Q3 2022.

The decrease was driven by lower benefit expenses and corporate expenses.

Net R&D was $14 7 million, an increase of $1 8 million from the $12 8 million recorded in Q3 2022.

Backing out menu and non-GAAP adjustments to growth in R&D is $1 1 million or 7%.

The increases related to personnel hired as we continued to improve and diversify our product and service offerings, including the ramp up needed for our recent Burger King win.

Sequentially net R&D expense of $14 7 million in Q3 was down <unk> 2 million from the $14 9 million reported in Q2, as we continue to appropriately manage the effectiveness of our R&D investments.

Total non-GAAP operating expenses was $37 million, an increase of $1 6 million versus Q3 2022.

Backing out menu were flat versus Q3 2022.

As we indicated at the end of 2022, we will continue to manage the growth of our business, while keeping 2023 operating expenses flat compared to 2022 exit rate.

Net interest expense was $1 7 million compared to $2 1 million recorded in Q3 2022 the decrease.

This 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 nine months ended September 30 cash used in operating activities was $18 5 million versus $33 6 million for the prior year the reduction in cash burn compared to the prior year was due to management of net working capital, primarily resulting from improved inventory management.

As well as the impact of operating leverage resulting from our from a freeze in opex.

Cash used in investing activities was $4 8 million for the nine months ended September 30 versus.

Versus $64 3 million for the prior year.

Investing activities during the nine months ended September 32023 included capital expenditures of $5 million for internal enterprise system software, a $3 4 million for developed technology associated with a restaurant retail software platforms.

Partially offset by $3 6 million from transfer of short term investments.

Cash used in financing activities was $1 8 million for the nine months ended September 30, compared to 2 million for the prior year financing activities for 2023 was driven by stock based compensation related transactions.

Sales outstanding for the restaurant and retail segment increased from 53 days as of December 31, 2022 to 60 days as of September 32023.

We expect DSO levels to come back to historical levels, Although lower 50 day range.

Days sales outstanding for the government segment decreased from 55 days as of December 31, 2022 to 46 days as of September 32023.

As we reflect on our Q3 performance.

We delivered on improving margin rates and allowing those margin gains to flow through to the bottom line as we continue to manage opex investments to drive profitability improvement.

As <unk> mentioned, we've made considerable investments in internal it and menu development, while not growing the R&D and G&A base in a meaningful way.

This reallocation of resources highlights the agility of our team.

And corresponding subscription services revenue our growth drivers and we are confident there are significant growth runway ahead of us with both cross sell acceleration in new logo wins, such as our recent announcement of Burger King.

I will now turn the call back over to <unk> for closing remarks prior to moving to Q&A.

Thanks, Brian Let me wrap up with a few key messages before we open the call for Q&A.

Clearly we are at a unique point of inflection in part we believe our business is winning at a higher rate than ever at the same time, we're observing a strong change in our financial profile.

It makes us even more positive is that we believe we're just at the beginning of a tidal wave of large deals coming to market, which should provide for long term sustainable growth.

And our next earnings call, we look forward to giving guidance on the details of that growth. In addition to more color on a big rollout as well as more detail on our buckets of expense that you can have clarity on how to get to the rule of 40.

Second as I mentioned earlier I think is hidden in our results is that while it looks like we arent growing investment spend by our flat operating expenses in reality, we're spending large amounts on menu internal it and Burger King.

Our existing expense base, we have.

Funding Tomorrow's growth engines without net new expense.

Third we are working towards the rule of 40 this quarter, our adjusted EBITDA was negative $2 6 million.

As I mentioned, if we backed out menu from Q3, our adjusted EBITDA would have been positive.

Similar to my last point, our core products of brink payments punch and data central are becoming prop very profitable, allowing us to pump money into our growth engines.

We're making the investments into menu Burger King and internal it because we believe will make a return that far exceeds the investment.

In our wind up very against proven the value of that spend already.

This also reinforces the point I made on our Q3 2022 call.

Sure <unk>.

Every dollar of sales and marketing expense, we add about $1 <unk>.

While we've shown since then is that for those incremental dollars of AOR IRR, we have not needed to grow R&D sales and marketing or G&A to take that new revenue live.

Meaning that for every dollar of new gross profit generated from this new <unk> a dollar has been falling to the bottom line as we have not added new opex.

This highlights the scalability of our business and the underlying true cash flow of each new contract we sign.

Adding new customers with our existing product suite requires little to no incremental R&D sales and marketing and G&A expense.

We're working hard to balance our focus on profitability and between reinvesting in our products to maintain long term revenue growth and maximize our Tam.

But more to come and we'll use that same focus on profitability, we have shown on our existing products on menu once it scales.

This has also given us tremendous confidence to move faster on acquisitions broadly as our playbook is working.

In summary, our competitive the competitive position has never been stronger our strategy is winning and it's the right path to this market at the right time.

It's a special opportunity that we're not taking likely restaurants need to consolidate vendors unify their systems and data and par as the only player of enterprise scale, we think worthy of their trust.

In closing I'd like to thank our global team for their efforts and dedication on their continued success at par.

With that I'll open the call up to Q&A operator.

Thank you at this time, we will conduct a question and answer session.

As a reminder to ask a question you will need to press Star 101 on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.

Please standby, while we compile the Q&A roster.

Okay.

Our first question comes from the line of will Nance of Goldman Sachs. Your line is now open.

Hey, guys. Appreciate you taking the question and thank you for all the <unk>.

Detailed looking forward to all the new disclosures in the coming quarter.

Wanted to maybe start on the BK win.

You mentioned you think this takes off a wave of tier one restaurant.

The technology going forward wondering if maybe you could kind of double click on that and what are you seeing in the market. What do you think the timeline is.

Sure.

On that wave and then maybe on the BK wind specifically could you maybe give us a little bit better sense for how the RFP process went for this how long does it take how many competitors are in the process.

Any color on whether you were seeing more legacy competitors in that process are making more challenges like yourself and then how do you think about the competitive positioning going forward with this.

This win under your belt.

Yes. So on the first question, we feel like we are in the beginning of that title wave I'd say Jeff.

And this quarter, we've seen more rfps and interest from the largest brands in the world than we have in my entire time at par as it relates to Pos and we also see that in loyalty within <unk>. So it seems to have kicked off and I don't think it was coordinated but there is this movement by the large players to now look at third party software.

Because of the reasons I think we've talked about in the past, which is it's incredibly expensive to maintain our own it systems and it's very hard to keep them modern and the advantage of having a modern software product as you get the benefit of the development. We do for everybody. So I think we see that happening and the rfps that are kicked off again.

Just notified in the last couple.

A couple of months here are far more than we've ever had literally since I've been a part of it is very exciting to see that.

As it relates to our big win.

All prices are competitive and fair deal. This large that's an exclusive in a mandated incredibly competitive.

Sure.

The the competition I would say historically are the large enterprise players.

There isn't another large sort of upstart like ourselves in the enterprise space that can handle the scale volume and innovative demands of our brand is largest VK and so in the end I think it came down to.

One our product, yes, I think our product set.

Stood on its own and I think if you talk to anybody there I think they would say we clearly on product, but two I think there was a sense of modernity incentive culture and alignment of Hey, unifying Pos is a big project, we want to do it really fast and I think they felt that.

Really came from from who we were and our culture and and they have been an incredible partner through that so.

I think it showed all of the best parts of par showed our product I showed our culture, our speed, but also our ability to rollout quickly.

Got it very well and then and then just maybe a question the contract business, obviously firing on all cylinders right now and I know you've previously said you wanted to make sure that the market appreciated.

Multiple pump business and the size of some of the recent contract wins in.

It keeps getting better so I guess the question is.

Is now the time to evaluate our process for that business cannot performance get better and then.

Sort of asking the contact Paul you've got a lot going on huge well now it sounds like youre going to be ramping expenses to kind of absorb the BK when youre talking more acquisitions and I know youre working on menu as well. So when you think about all of that like how are you thinking about priorities for kind of like simplify the business and maybe recycling some of the capital.

Yes, no doubt the timing the time is right and.

Q2, MD&A, you can kind of say.

We're continuing on our strategic alternatives for that business and we'll push forward aggressively because we do think it's the right time.

And I think we would look to deploy that capital.

Exactly how you suggested.

Rates to Institute.

Ramping up for Burger King and stuff the beauty of our deal there is that while we ramp up quickly we're very quickly compensated for it. So there is short term.

Standard long term, it's incredibly profitable so.

I'm not too worried about there so I think the investment would be primarily in M&A.

For what we're looking to do I don't we don't need to potentially divest the business to fund. The go forward growth, we see in menu and then.

Burger King and other large deals.

Got it that's very helpful. I appreciate you taking the questions today.

Thanks, Laura.

Thank you one moment for our next question.

Next question comes from the line of George Sutton of Craig Hallum. Your line is now open.

Thank you Sandeep congrats on the BK. So curious in terms of the capacity for what you can roll out in other words, how quickly you did 1200 units. This quarter can you give us a sense of what the capacity is without substantial.

Cost increases.

I would say today, if we did nothing you'd probably double that.

Obviously, we had ramped up what we needed to.

This quarter, we're kind of working out the rollout plans with with BK and so next quarter I'll be able to kind of announce how we see that ramp up going it will be aggressive and there'll be a push but I think a big part of their evaluation of par was could we handle that and how we would handle the bursts and overages on expectations.

And so I think that was a big part of the reason why we won.

As Youre looking at these large scale rfps, how many of them are focused on the point of sale versus a broader unified solution as you.

Think of it.

I would say oftentimes start off as Pls and then we're able to bring in more to the table and so our goal is to always start every customer out with at least two products.

He was a great example, but.

I think as I look at what's coming down the Pike most of them will also be two product deals. We've got one that's.

For product the overlook working on right now and so no.

The market is definitely my comments, what I meant that the opportunity in Tam with the market is kind of now turn to our strategy. I think there is just a tremendous desire to have simplification vendor consolidation and I think.

Like I said, a big part of the reason that we one Burger King was we had the menu offering built into <unk>. So I think that helped us differentiate ourselves I think other brands will look at at the same way, particularly if theyre, saying well you can also do online ordering and you can also do back office. It helps it helps at the story.

And the ROI equation gets stronger and stronger for the brand.

Just one.

Question, when you get into a four product deal opportunity.

List of competitors gets extremely short is that correct.

I don't think Theres anyone else is generally, saying, hey, I can into part D. This Oregon put together three or four other vendors and you can just imagine in an environment when tech spend is being scrutinized where.

You've got small teams that pitch is pretty attractive.

Understand thank you very much.

Alright, Thank you on moment for our next question.

Okay.

Next question comes from the line of Samad Samana of Jefferies. Your line is now open.

Hey, guys. This is Jeremy Taylor on for some odd manav, thanks for taking the questions.

On the guest engagement churn churn you mentioned it briefly in your opening remarks, it was related to taking menu to the U S market can you maybe elaborate a little more on that what exactly drove the charge.

Yes, it's nothing meaningful.

When we acquired menu it had a large.

Yes, not a large but international base.

And we made a decision to direct their business to the U S and so.

It's kind of.

The idea is to serve hey, let's not focus on Dod and international business is unprofitable, let's bring into the U S where I think we can quickly get it to profitability and then given that our first major customer with BK, we kind of need all hands on deck to get that to get that win.

Got it that's useful color and then maybe following up on the rebates that you guys issued last quarter I know, there's some infrastructure maybe you had to invest in I guess are you all caught up there or are there still kind of investments you need to make to kind of get that up to speed.

I just thought we had the gross margin jump back pretty quickly here.

That was just weak.

The investments that we made the ROI part of that was not having any credits in this quarter. So we didn't have the credit tissue on this quarter, because it kind of address that.

We had last quarter and.

And we feel good about that.

There's always ongoing investments.

Ever expect and knock on wood, our gross margins ever dropped to where they were in Q2 again, so we feel pretty good and like I said in the short run we want to get these sort of I mean, we've got this to be 70% plus in long run I wanted to get to be much higher.

The vast majority of that will be tied to us constantly making break more scalable because thats, where we have the most aggressive usage of Dev ops cost and then the ramping of payments and menu who are who will both have very high margins that are really early in their lifecycle.

Got it but it was really useful color, maybe if I can squeeze one last one and then.

We saw earlier this week from a competitor when large brand they turned off to take their technology and their tech stack in house.

Is there any concern about becoming maybe a broader trend are you seeing that among any any of your your prospects.

We're seeing the opposite I think Burger King being a great example of that and we've got others will talk about later, but we see the opposite and I think.

That dynamic is very much if you are a single product company doing.

One vertical is need of the restaurant you are really exposed to that risk.

When youre the Pos.

It is such an enormously large product that's not something you can you really do you want to take and an expense to do that and then I think with European company like US and you can say hey, we can do this but we can also offer you loyalty online ordering back office.

It's a lot easier transition your systems. Because then you again not managing multiple vendors. So we're seeing the opposite in our market and I think thats just the nature of the product we have but also the family of products. We have it really makes it a different conversation.

Got it that makes a lot of sense. Thanks for taking my taking my questions guys.

Said differently if.

If we were very light product like you mentioned and.

And that product was deeply integrate into the Pos and loyalty I don't think you would have that churn.

I think it's really being unified is what keeps you sticky.

Alright, thanks, guys.

Alright. Thank you one moment for our next question.

Yeah.

Our next question comes from the line of Adam Wyden of Tw Capital. Your line is now open.

Thanks, guys I've got three questions first one.

Really impressive on the gross margin pick up in the burn and all sort of make sense, we're piloting menu last quarter and the punch.

If I just sort of do some back of the envelope math, assuming no sort of gross margin degradation.

As AD pick a number.

$5 million of IRR next quarter I'm sure you will likely add more than that but like at 80% incremental gross margin or even 70, it's fair to assume that with Opex flat youre going to be EBITDA positive in the fourth quarter.

Is it is it unreasonable to think that you guys could be at EBITDA breakeven in the fourth quarter or very close to it and.

Is it fair to assume that.

From obviously youll sort of make investments here and there, but I mean is it is it fair to assume that.

Your you have a path to getting to rule of 40 without M&A I mean, obviously M&A will accelerate it but I mean do you feel like there is a <unk>.

Sand alone path through over 40, I mean, it looks like there is based on the numbers I'm just trying to understand.

Yes. It's also I think we can get to the real 40 without M&A.

Let me answer that in two ways first is.

This deal for BK will accelerate our growth in the out year right. So we will likely I'm guessing and again, we'll talk about in our next call <unk> guidance will likely grow faster in 'twenty four 'twenty three and as I mentioned this is not the only deal there are deals coming down the pike that are going to expand that even more and so I think we'll be in a really good on the revenue side and then.

As I mentioned in the call.

Higher burn this quarter was with menu and.

And so the moment that we can inflect menu to positive, which we think is coming we announced scooters is a big brand and I'll comment on menu. This will also help so I think there's a path to rule of 40 on our own and we will get there we will get there no matter. What you have no choice and we will and that's our goal M&A that will accelerate it in and it's because.

The deals that were are.

Working on are.

Cash flow positive.

Not dilutive to our growth.

And I think.

Accretive to our rule of 40 score so it should help us get there faster and.

We've talked about a lot.

We are really good on the G&A side.

We are really good at cutting lots of areas of G&A, and then reinvesting those in areas of growth G&A.

You mentioned.

$9 million of our of our Opex goes when the menu.

Hey menu, the PK ramp up and it systems, we did that we're outgrowing the opex and we do that again on the next M&A deal and so I feel really good that if we acquire something we can get a lot of operating leverage out of our operating expenses.

Particularly G&A and sales and marketing so it will certainly get us there faster.

Got it.

Yes, no I mean look when you look at the sales and marketing at 15% at scale and you look at gross margin I mean, this thing can clearly be a 40% EBITDA margin business at scale.

And so if the revenue growth and 30%, 40% EBITDA margins and your rule of 40, let me ask you something about the cross sell your competitor or he who will not be named has had a very hard time sort of cross selling.

Youre starting to see cross sell I mean.

If I sort of add up all the products.

Break at 3000 payments at a couple of thousand.

Par pay maybe another thousand data central 1500 menu at 2000 pumps in 2000, and Youre well into the double digit thousands I mean.

Where do you think you are in terms of really getting everything under one house and really getting I mean, I know you are sort of the a lot on the call has been talking about the unified commerce is creating the stickiness and we're seeing that with your competitors, losing customers, but I mean, when do you expect to sort of get that $2 million AEP restaurant basically paying you.

10 to $12000 for everything.

Is that something that could be a possibility it could be have a large chain really taking every single one of our products at Max in 'twenty four.

Yeah, Alex I would say absolutely I mean I think.

If you just look at the numbers right and the growth in <unk>, the best pricing, but it's also the upsell of more products.

If you look at our last couple of big deals here, one of which we announced others that are coming none of them are single product deals and I would tell you that we're seeing this cross sell and upsell motion happened without us doing the best job of it I would say, it's the area we need the most improvement on internally, it's just happening happening naturally when I wrapped up I was saying that it's the <unk>.

<unk> time in this market and that's kind of a differing two witches and we're stumbling into doing a good job on cross sell and upsell.

Just imagine when we get great at it and we will so I think your guess is of course, what we will get there and I think youre going to see it pretty.

Pretty quickly I think youre going to see us be very good at stapling brain payments data central out the box and I think punch and many are.

<unk> combo.

As I mentioned on the call.

Almost all of our menu signings have had payments and.

And <unk>. So if you think of that at the front of house and sort of the operator side like we will get there. So I think getting up to that on a large brand is very possible.

And particularly when you look at job on this first one.

Yes.

You mentioned that earlier on the call that you know obviously in RMB.

Or something you said this earlier in the call, but RBI is a large chain, but I think the intent is that.

If we execute well on Burger king that that.

You would expect to move horizontally into other brands and perhaps sell punch in the west a menu in the west I mean, there is.

Obviously everything is competitive and the deal was the best Guy, but I think it's your expectation that if you deliver that.

<unk> should grow meaningfully is that right.

That's right.

I don't want extended timing on that which is it is going to expand in two ways. It can expand and that we.

I think we've been great partners to RV I think they've been in credit partners to us and we want to grow the relationship across the logos. They have we think we are a great fit both culturally but from a product perspective that'll be great expansion, but I also think from a product perspective, we will be pushing data central and punch and so on and so forth provided we're adding value aligns their roadmaps and so.

It's just an incredibly large opportunity that we will we will get to and I think it's a really huge sign that they chose not break but break in menu understanding that that they now have an up a sort of transaction product and off premise product from us this is highlighting that.

Thank you very much.

All of that.

My third question is about M&A.

Yes.

My question is we saw.

We've seen the public companies.

Sort of materially sort of I would say the single product companies have materially loss valuation multiple largely because of stickiness around customers and I think in the past you've sort of said the private equity firms and everyone I've sort of been hanging on to sort of 2020 in 2021 valuations.

I haven't really done an M&A deal and two and a half years, you've done a lot, but menu was sort of an aqua hire and one your burger King.

What do you think the probability is that Youll land sort of a 100 million a our business because my sense is is that if you.

You are able to sort of cross the transom and maintenance of three or 400 million IRR business at a 40% margin.

I mean, we're not going to be trading at three five times ALR, we're trading at 10 or 12 like Agilis US I mean this company is massively undervalued physically I think yes, I think there is the possibility to buy $100 million. There are absolutely exists I don't know if its in one ticket or three but I think thats, there and I would tell you. It's my number one priority as CEO, Mike API is to get that done.

Is on the M&A front and so we.

We think it's really the right time and again I can't stress enough. The fact that we got menu right on here and obviously, we've got punch really rate has just embolden us to say, we got to do this twice as fast.

What our company's thinking that are doing $200 million of ALR trading at one five times revenue whats the exit strategy I mean my questions. What do these companies do not losing customers if they're not selling to you. That's my question what is the company doing.

Yeah.

I think they all have an opinion and they'll have some idiosyncratic reasons rationale I think in the end.

Shareholder of that company, it's hard to sort of stay there forever without wanting to drive a return and I think that return is partnering with a firm like par. So I think I agree with you I think it makes a ton of sense in Indiana, I think markets are logical and objective and that benefits par.

So I'll jump to the protocol.

Thank you.

Alright. Thank you one moment for our next question.

Okay.

Our next question comes from the line of Charles upon.

Stephens Your line is now open.

Hi, Good afternoon, guys and thank you for taking my question I wanted to drill in the payments a little bit good to see the growth in that area, but wanted to understand a couple of areas better specifically.

Where and how are you winning is it on price or just.

One throat to choke consolidating vendors and then secondly, I noticed in the early stages of scaling and it's dilutive to margins at this point, but if you could give us some color on how to think about the scaling of that payments business and when it could potentially be accretive to the gross margin.

It for sure.

So why are we winning we're winning I think first because that one throat to choke the simplicity of the product.

It's so much more than that is the integration of that product into everything that we do the same dashboard like it's just so powerful to have that integrated.

And so one throat to choke if you've got a problem, but it's really the integration into the rest of what we do again, an example of one type loyalty on Apple pay.

We're the only people that can do that where you can pay with Apple pay and get enrolled in our loyalty program and pay it's so powerful for the brands. So that we wanted to show plus innovation. We can do once you are integrated across us.

And I think Thats why we why we went and we continue to win really really nicely from a margin perspective, our payments business will be accretive to our operating margins.

Now or close to now so we are seeing a lot of growth because we barely we're selling it through our same sales team right and we have one sprint team that works on it from a product perspective.

I think the gross margins are going to take a little more time, just because we're growing into the infrastructure costs, but it will no doubt be a big driver of our gross margin growth over time, just because the revenue is coming in and we're not adding a lot of cost here.

I mentioned, we we account unlike our competitors on a net basis right and so.

On an apples to apples basis, we can make our revenue growth looked like it was.

Twice as big or 10 times as they kind of payments basis, because we're giving you the true net take.

Right.

Got it and I want to follow up on the earlier question around guest engagement and menu.

The 8% growth obviously some of that is attributable to control churn.

Wanted to get a better sense for.

How long that churn is going to take place.

And how we should think about.

The normalized growth rate of that business. If there is one as well.

If you could quantify the impact of the churn this quarter I think that'd be helpful as well.

The churn was.

For the year, our churn is around 5%. So it's not been a high churn here, that's kind of our normal churn.

The the <unk>.

How do we get the growth engine going and I think.

Q3, we had a really great quarter as it relates to car signing new logos Q4 looks really getting that we'll know in the next six seven weeks here. So that ends up and that will get the growth engine going where I think we want to get this thing.

Much faster growth than where we are today, but this will also be the area I think youll see us be acquisitive, because we want we need more products to pump into the front of the house and this will be coming from from that side of the play. So I think youll see us be acquisitive in this part of the market. But also we are winning really good deals here now and I think Thats, a testament to our leadership there.

That is starting to turn and the churn has been 5% for the year, It's that's kind of where we want to be.

Year over year bigger number for both of those products that are in that business area. They were bought at an inflection point. This year right as you mentioned with menu, making the kind of transition strategically holding off and trying to grow international where they were originally when we acquired to be getting it ready for North America, which has obviously you can see we've done here with this most recent win in so.

It was getting ready for next year's growth and going forward similar paunch, where we sit in that kind of inflection point of where it needed to continue to set us up for continued growth going on and the fact that we're seeing more usage in the product as our current customers are using it more and more and seeing the value in it. So it's getting that product stabilized for that so we were not really hitting the <unk>.

On the growth engine for those so it was kind of making sure we manage the churn during that year, knowing that we're going to have a low growth year.

Got it I appreciate.

I appreciate the color guys. Thank you.

Alright, Thank you for our next question.

Okay.

Next question comes from the line of Patrick Mcilroy, William Blair. Your line is now open.

Hi, guys. Thanks for squeezing me in I just had one more question I wanted to get in here.

So last quarter I think you said you had a few sizable deals in the pipeline for menu and.

Safe to assume became was one of them. So I just wanted to ask how your pipeline. There looks now are there any other sizable deals you can expect to flow through in the coming quarters.

Could we reasonably expect any of those to drive.

<unk> and the profit trajectory from where we stand now.

Sure So BK with wine scooters and I mentioned on this call with another big chain really fast growing Canadian Presto chain.

We've got more around the corner so.

The challenge for US is actually not winning business here, we're winning business. If you think about it we've already won.

1100 stores will add.

More of this next coming quarter will be.

Compared to our big peer in the space we're not.

Leaps and downs away from what they had in a year now and so it's coming for US. The challenge is really getting the product out the door because as I said, we so rapidly brought this business the United States, we need to make that investment that's what we've been doing so well.

The way the business has been a problem, it's a superior product.

When integrating to punch, it's an incredible experience.

We've got the doors, so I think youll see.

Some of that happened in Q4, a bunch more and.

In Q1, and then hopefully have some nice flow through of payments revenue that comes with that as well.

Very clear thanks.

Alright. Thank you one moment for our next question.

Okay.

Next question comes from the line of Andrew Hart.

<unk> Your line is now open.

Hey, Jeff I, just wanted to follow up on that comment you made about M&A being your number one priority I guess.

When you think about it what boxes do you want to check because it just thinking about building scale or is there a specific capability you'd like to acquire or focus on a region just want to unpack that where your focus is the most.

Yes, so it's always product base rate.

Everything we've done so far we've taken our product been able to accelerate the revenue growth and create a better customer experience.

The acquisition.

Our menu allows to us to make break better but also punch better the acquisition. Upon just made us allow it made us made bring better allowed for things like one type loyalty with payments.

And so we focus on there the areas that I think.

As I mentioned Youll see us I think be active on the guest engagement side, where we want to ramp up the revenue bit growth. There. The other part I would say is for market share I think par continues to perform and outperform our peers and in this environment. We think it's a really good idea for us to take advantage of.

Yeah.

That by being acquisitive, bringing those businesses in house and again, given our our ability to control costs.

Values I think they create value. So I think the market share is the other part we look at which is how do we get faster market share because we know that as we add logos that we don't have today a par. We can then take that logo and penetrate with additional products, creating tremendous value. The cross sell question that someone mentioned earlier, so we're seeing that.

And then the last part I would say is new verticals and geographies.

Are getting pulled into new verticals geographies, all the time and oftentimes our answer is we're not ready for that yet, but with an acquisition we could be there and we can move quickly. So those are the three parts that we're looking at today.

Thanks, and then on our numbers it looks like sequentially <unk> kind of across all three segments was up we've talked about <unk> I think being a driver of that an operator solutions.

Anything else to kind of call out on the <unk> side, and then also on guest engagement kind of the most significant jump there or is that just a function of kind of lower our puma and new customers rolling off or anything you'd Tom Mcgough engagement.

Yes.

On the other side of it is price. So we've continued to become smarter at how we take price and renewal cycles.

How do we show value of our customers and create value for par. So it's prices the other big lever.

Thanks.

Alright. Thank you one moment for our next question.

Next question comes from the line of Eric <unk> of Lake Street Capital markets. Your line is now open.

Hey, I wanted to revisit the Burger King rollout I know youre going to have formalized plans here in Q4, but just curious to know if you got inside.

Incentives that they'll be using to motivate the installed base of franchisees too to adopt a new product, whether it's kind of in line with historical large customer deployments or maybe something a little bit greater than.

I, probably can't talk about those specifically just because those are private to them, but I would say.

<unk>.

Theyre very focused on unifying their Pos.

That's how they introduce us that surpass and the franchisees see basis, so excited for it.

Well I can say, Eric I expect this to be relatively rapid rollout for a business. This size, there's just tremendous alignment between us between them.

So.

This is not going to be the kind of China took on this for many years. This will go very quickly.

We're contracted that way and align that way and so we both want that to happen and I think thats why it will happen.

Okay, and then a follow up to that also tied to.

I'm curious to know.

Hardware run rate spending in the neighborhood of $25 million to $26 million or so is that change with the deployment.

With Burger King.

Well it will depend.

And our next call, we'll be able to give you a little bit better guidance on that as we're in we're working through these plans.

The Burger King franchisees some of them will absolutely take our hardware and our services and it'll be our push that by 25 all of them are taking it but.

Got to get them, there, but it will be a meaningful driver of our time of hardware and services and then I think as we hopefully are able to get to the other.

RBI brands it'll be a staple to all of them, but it will certainly be a nice.

A new customer for us to have on hardware.

And services going forward.

Thanks for taking my questions.

Thank you on moment for our next question.

Okay.

Next question comes from the line of Carl Peterson of Needham. Please go ahead.

Great. Good afternoon, guys. Thanks for sneaking me in here most of my questions have been answered but just.

Wanted to ask quickly on the government business here.

It looks like the revenue came in and really strongly.

Were there any kind of onetime task orders or anything that pushed that to the upside or is what we saw in the third quarter a good run rate.

To use in our models moving forward.

Yes, I think from a.

From a revenue standpoint government, obviously, hitting all cylinders this quarter.

We expected that was in the upper third as we expect it to be in the lower series.

Quarterly basis, the margin, we were able to convert that back over because the team was able to properly manage direct labor where at times, there's been pass through some of the task orders to a third party and it team was able to set up internally, so that actually leveraged internal team and that gave us higher margins or snow or back to what would you expect.

Paul.

6% to 8% margins and.

And that's what we expect to kind of move forward with.

Got it.

Helpful. Thanks, guys.

Alright, Thank you for your questions.

This does conclude the question and answer session I would now like to turn it back to <unk> for closing remarks.

Thanks, everybody for joining us during this exciting time, we look forward to updating you on our next call.

Alright. Thank you for your participation in today's conference. This does conclude the program you may now disconnect.

Okay.

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Okay.

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Okay.

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Okay.

Yes.

[music].

Good day, and thank you for standing by.

Come to the par technology fiscal year, 2023 third quarter financial results Conference call.

At this time all participants are in a listen only mode.

After the speaker's presentation, there will be a question and answer session to answer a question. During the session you will need to press star 111 on your telephone.

Then here an automated message advising your hand is raised.

To withdraw your question. Please press star one on one again.

Please be advised that today's conference is being recorded I would now.

I'd like to hand, the conference over to your first speaker today, Chris Byrnes Senior Vice President of business development.

Please go ahead.

Thank you Steven and good afternoon, everyone and thank you for joining us for today's call to review, our third quarter financial results.

Following the close of trading this afternoon, we released our financial results. The earnings release is available on the Investor Relations page of our website at <unk> Dot Com, where you can also find the Q3 financials presentation as well as in our related form 8-K furnished to the SEC.

During our call today, we will reference non-GAAP financial measures, which will believe to be useful to investors and exclude the impact of certain items.

A description and timing of these items.

Along with a reconciliation of non-GAAP measures to the most comparable GAAP measures can be found in our earnings release.

As Stephen said I'm.

Im sorry, excuse me I'd like also to remind participants that this conference call may include forward looking statements that reflect management's expectations based on currently available data.

However, actual results are subject to future events and uncertainties.

Our annual and quarterly filings with the SEC.

Okay.

Joining me on the call today, as part of CEO, and President, 17th, saying and Brian Mannar Par's Chief Financial Officer.

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

Thanks, Chris and good afternoon, everyone and thank you for joining us on today's call.

I am pleased to report we delivered a strong third quarter, we grew subscription revenue by 24, 6% and air by 24% year over year.

Adjusted EBITDA improved by over 65% from the same period last year to negative $2 6 million and contracted <unk> came in at $143 million in the quarter.

Our gross margins rebounded as we messaged last quarter, and we continue to hold opex flat, while making important internal investments.

Operator solutions <unk> grew 38, 3% to $53 8 million in Q3, when compared to the same period last year.

Operator solutions <unk> increased by 20% from the same period last year due to higher value projects, often with multi product bundling price increases and par payment services implementations.

We are seeing continued elasticity of demand in this business unit and expect this trend to continue.

<unk> continues to be extremely low at four 1% annualized we break in the quarter, we continued to win new customer opportunities with <unk> due to its mission critical position within the restaurants.

And the feature rich capabilities upon which has proven stable and scalable cloud platform.

<unk> is the growth enabler for enterprise and emerging enterprise restaurants.

This proved out in Q3, as we announced the signing of Burger King as our next exclusive brankin menu customer with our products to be rolled out across our 7000 domestic stores <unk>.

<unk> proved out our enterprise reach and the beginning of what we expect will be a wave of tier one brands transitioning from legacy third party and internally developed systems to modern SaaS based products like <unk> <unk>.

Our pipeline continues to be robust with ample white space for cross sell.

Our clinic and intention are to continue to expand our relationship within RBI and restaurant logos.

<unk> has over 30000 restaurants globally with brands that include Tim Hortons, Popeye's, Louisiana, Chicken and firehouse subs, along with Burger King.

It's hard to express how transformative this new customer will be from both a strategic and a financial aspect apart.

This selection by Burger King one of the largest and most iconic restaurant brands is something that we will build upon for the years to come.

Burger King will be a strong driver for par a strong revenue driver for par for over the next two years as we work through our rollout plans at Burger King This quarter, we'll update you on our Q4 call, but the financial impact and expectations on timing of that growth, both par and BK or committed to an aggressive push working in partnership to deliver BK skoal goals of unified Pos.

I see this as a turning point for <unk> and our broader industry as we are well positioned in the market to secure additional deals at other large enterprise restaurant companies look to unify their Pos consolidate vendors and bring on in growth enablers like brink move.

Moving to payments in Q3, we saw AAR from payment par payment services more than doubled from Q3 2022 and expect this growth trajectory to continue.

This is incredibly impressive as we report payments on a net basis after all third party and interchange costs.

We saw momentum in the third quarter with customer adoption across our in store online and one tap loyalty programs in Q3, we signed brands such as Rocky Mountain Chocolate factory.

<unk> Creek, Burger and coconut Kenny to name just a few.

We completed the system wide rollout with <unk> 100, 1100 stores went live and initiated Rollouts with chop and cleaning.

Customers are increasingly attaching par payments via brink menu and punch again, validating our unified commerce strategy.

Moreover, customers are seeing robust ROI in a unified commerce integration and innovation, one tap loyalty, which combines brink punched in payments is driving a 70% increase in loyalty program sign ups for Apple wallet users and a 23% increase in repeat visits per customer using Apple wallet.

We believe that par is multi product offering gives us a strong competitive advantage and mode. In the current market climate bundle savings and incremental ROI in a time when tech spend is under scrutiny.

Moving to guest engagement arm that includes our leading customer engagement at punch and digital ordering platform menu.

Guest engagement AOR grew eight 2% in Q3, when compared to Q3 2022 and totaled approximately $62 2 million.

We again saw record usage across punch platform and are encouraged by the increased customer value, we are delivering on a daily basis.

We went live with new customers, including boost reduced Smoky mountain barbecue and dash in during the quarter equally.

Equally important we are seeing the pipeline build up from a slow start in the beginning of the year and expect to announce an exciting deals in the coming quarters.

Even more interesting while punch has very low churn and we're seeing even seeing we're even seeing some of the few brands that have churned from punch over the last few years return as they now realize clients delivers the most value in the marketplace.

We have invested in our platform to better support our customers business requirements and are proactively adding features to increase our addressable market and the ability to raise price in the renewal cycles.

The other important piece and guest engagement as our digital ordering engine menu menu is signing up new customers customers at a rapid pace, excluding Burger King we signed over 750 locations in Q3.

Tutors coffee coconut Kenny's and restaurant services limited all signed during the past quarter.

The new customer pipeline for Q4 is healthy and will drive additional logo signings in Q3 menus integration was fully certified on door Dash Grubhub, along with <unk> and we successfully piloted RBI on those integrations as well in.

In Q3, we went live with our first customer in the U S and now have over 1100 sites signed up on menu.

The majority of our menu signings include payments attachment.

We continue to believe these early customer signings validate our investment thesis on acquiring menu and menu is a key part of our win at Burger King.

Back office and data central delivered a solid quarter reported <unk> of $12 4 million in Q3 was a 21% increase from last year's Q3.

We now have more than 7500 active stores in the quarter. We went live with Hooters restaurants, Earl enterprises and expanded our relationship with Love's travel stops.

Briefly touching on hardware, we had another solid quarter and continue to see high attachment rates at <unk> and also in shoulder market that have rugged environments with high traffic and require maximum hardware performance and industry leading reliability.

Moving to the operating leverage of our financial model within subscription services.

Adjusted gross margins for our subscription services year to date expanded to 67%.

As we spoke about last quarter onetime items and investments been brought down Q2 gross margins and we saw a strong return for those investments this quarter and the reduction of onetime credits.

Our goal in the medium term is to get adjusted gross margins to 70% plus in the long run to be in the mid 70% higher.

Over the last year.

As I start looking at Q3, we roughly estimate sales and marketing expenses for our subscription services to be around 25% of <unk>.

As we continue to grow revenues at a strong pace. We expect this number to continue to work its way down to our long term goal of 15% or less.

As we work through shared cost allocations will provide a more deep more detail on the coming releases on how this number is trending.

R&D expense as a percent of <unk> in Q3 was estimated to be around 41%.

R&D efficiency has been a huge focus for park and we'll continue to work this number down to our long term target of 25% of <unk>.

Our investment in menu and Burger King has slowed our efficiency here a bit but we will see continued improvement going forward and as many revenue expands we will see this move.

Rapidly.

Without menu, our R&D expense as a percent of <unk> would have been 400 basis points better, but we think we will get that investment back in spades in time again in the coming releases will provide more details that you can track our progress to our long term targets.

These improvements have been layered on a G&A base that we're continuing to hold tight on.

But I think it hit it in our results is that we've been able to expand gross margin and hold operating expenses near flat, while making a tremendous investment in menu ramping headcount rapidly for Burger King and making a large internal investments into it systems.

Our Burger King ramp up and the additional menu investments needed for the U S market, all without adding to our Opex space.

This has been done by reallocating, our capital and teams to investment areas and becoming tremendously more efficient within brink punched in data central.

To highlight just how efficient we've gotten if we hypothetically were to remove menu from our P&L, our adjusted EBITDA will be positive for this quarter and.

An incredible an incredible accomplishment when you think about where we were just one year ago.

The second though is that we believe our investments in menu and Burger King will be worth the short term pain menus wing win at Burger King was the first of many proof points to come.

Our plan is simple to continue to drive strong revenue growth, while holding operating expenses very tight.

Thank you <unk> and good afternoon, everyone.

Total revenues were $107 1 million for the three months ended September 32023.

An increase of 15, 5% compared to the three months ended September 32022.

With growth coming from contracts and subscription services revenue, partially offset by hardware and professional service revenue.

Net loss for the third quarter of 2023 was $15 5 million or <unk> 56 loss per share.

Compared to a net loss of $21 3 million or $70 million.79 loss per share reported for the same period in 2022.

Adjusted net loss for the third quarter of 2023 was $5 8 million or <unk> 21 loss per share compared to an adjusted net loss of $11 9 million or <unk> 44 loss per share for the same period in 2022.

Adjusted EBITDA for the third quarter of 2023 was a loss of $2 $6 million compared some adjusted EBIT loss of $8 million for the same period in 2022.

Hardware revenue in the quarter was $25 8 million a decrease of $5 5 million or 17, 6% from $31 3 million reported in the prior year.

The $25 $8 million revenue recorded in Q3 is consistent with Q1 and Q2 results and in line with expectations.

Subscription services revenue was reported at $31 4 million, an increase of $6 2 million or 24, 6% from the $25 $2 million reported in the prior year.

The increase was primarily driven by increased subscription services revenue from our operator solutions business for $4 2 million.

Driven by a 21% increase in active sites and 20% increase in average revenue per site.

The one 5% increase in guest engagement sites as a result of approximately 6% site growth, partially offset by 5% site churn.

We've managed churn as we transition menu strategy from international to North America. In addition to managing the inflection point of punches product maturity to enable continued site growth and noted increase in product usage from our existing customer base.

The annual recurring revenue exiting the quarter was $128 3 million an increase of 24% from last year's Q3, with operator solutions up 38% guest engagement up 8% and back of house up 21%.

Professional services revenue was reported at $11 5 million.

A decrease of <unk> 3 million or two 8% from $11 8 million reported in the prior year.

$7 2 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 $38 4 million, an increase of $14 million or 57, 4% from.

From the $24 4 million reported in the third quarter of 2022.

The increase in contract revenues was driven by a $14 6 million increase in government ISR solution product line to.

Increase was driven by continued growth of counter UAS task orders.

Contract backlog with our government business as of September 32023 was 327 5 million a decrease of 5% compared to $344 8 million as of September 32022.

Total funded backlog as of September 30 was $88 3 million.

Now turning to margins Harvey.

Hardware margins for the quarter was 25, 3% versus 18, 8% in Q3 2022 to.

The increase in margin year over year was driven by better inventory and cost management with kitchen displays mobile and drive through products.

The team continues to effectively execute on managing costs. In addition to pricing were deemed appropriate we continue to expect overall hardware margins of at least 20% as we go forward.

Subscription services margin for the quarter was 56% compared to 48, 1% for the third quarter of 2022.

The increase in margin is driven by continued improvements of our hosting and customer support costs.

Sequentially subscription services margin of 56% improved compared to 43, 3% in Q2.

Subscription services margin during the three months ended September 32023 included $5 8 million of amortization of identifiable intangible assets compared to $5 3 million for Q2.

Excluding the amortization of intangible assets total adjusted sufficient services margin for the three months ended September 30 was 69% compared to 61% in Q2.

The increase in margin is driven by the reduction of onetime credits and efficiencies from investments we made in Q1 and Q2.

Professional service margin for the quarter was 23, 8% compared to seven 4% reported in the third quarter of 2012.

The increase in margin was driven by timing adjustments, including identified use cases in Q3 2023 for previously reserved service inventory.

Government contract margins were seven 9% as compared to 10, 4% for Q3 2023.

In regard to operating expenses.

GAAP SG&A was $26 2 million a decrease of <unk> 3 million from the $26 5 million reported in Q3 2022 the.

The decrease was driven by lower benefit expenses and corporate expenses.

Net R&D was $14 7 million, an increase of $1 8 million from the $12 8 million recorded in Q3 2022.

Backing out menu and non-GAAP adjustments the growth in R&D is $1 1 million or 7%.

The increases related to personnel hired as we continued to improve and diversify our product and service offerings.

Including the ramp up needed for our recent Burger King win.

Sequentially net R&D expense of $14 7 million in Q3 was down $2 million from the $14 9 million reported in Q2, as we continue to appropriately manage the effectiveness of our R&D investments.

Total non-GAAP operating expenses was $37 million, an increase of $1 6 million versus Q3 2022.

I'm backing out menu, we are flat versus Q3 2022.

As we indicated at the end of 2022, we will continue to manage the growth of our business, while keeping 2023 operating expenses flat compared to 2022 exit rate.

Net interest expense was $1 7 million compared to $2 1 million recorded in Q3 2022.

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.

As well as the impact of operating leverage resulting from our from our freeze in Opex.

Cash used in investing activities was $4 8 million for the nine months ended September 30th.

Versus $64 3 million for the prior year investing.

Partially offset by $3 6 million from transfer of short term investments.

Days sales outstanding for the restaurant and retail segment increased from 53 days as of December 31, 2022 to 60 days as of September 32023.

We expect DSO levels to come back to historical levels, Although lower 50 day range.

Days sales outstanding for the government segment decreased from 55 days as of December 31, 2022 to <unk> 46 days as of September 32023.

As we reflect on our Q3 performance.

We delivered on improving margin rates and allowing those margin gains to flow through to the bottom line as we continue to manage opex investments to drive profitability improvement.

As <unk> mentioned, we've made considerable investments in internal it and menu development, while not growing the R&D and G&A base in a meaningful way.

This reallocation of resources highlights the agility of our team.

And corresponding subscription services revenue our growth drivers and we are confident there are significant growth runway ahead of us.

With both cross sell acceleration and new logo wins, such as our recent announcement of Burger King.

I will now turn the call back over to <unk> for closing remarks prior to moving to Q&A.

Thanks, Brian Let me wrap up with a few key messages before we open the call for Q&A.

We are at a unique point of inflection in part we believe our business is winning at a higher rate than ever at the same time, we're observing a strong change in our financial profile.

It makes us even more positive is that we believe we're just at the beginning of a tidal wave of large deals coming to market, which should provide for long term sustainable growth.

And our next earnings call, we'll look forward to giving guidance on the details of that growth. In addition to more color on our big rollout as well as more detail on our buckets of spend that you can have clarity on how to get to the rule of 40.

Second as I mentioned earlier I think it hit it in our results is that while it looks like we arent growing investment spend as seen by our flat operating expenses in reality, we are spending large amounts on menu internal it and Burger King.

Our existing expense base.

We are funding tomorrow's growth engines without net new expense.

Third we are working towards the rule of 40 this quarter. Our adjusted EBITDA was negative $2 6 million as I mentioned, if we backed out menu from Q3, our adjusted EBITDA would have been positive.

Similar to my last point, our core products of brink payments and data central are becoming prop very profitable, allowing us to pump money into our growth engines.

We're making investments into menu Burger King and internal it because we believe will make a return that far exceeds the investment in our wind up very against proving the value of that spend already this.

It also reinforces the point I made on our Q3 2022 call.

I shared after roughly every dollar of sales and marketing expense, we added about $1 <unk>.

While we've shown since then is.

For those incremental dollars of AOR IRR, we have not needed to grow R&D sales and marketing or G&A to take that new revenue life, meaning.

Meaning that for every dollar of new gross profit generated from this new <unk> a dollar has been falling to the bottom line as we have not added new opex.

Think that highlights the scalability of our business and the underlying true cash flow of each new contract we sign.

Adding new customers with our existing product suite requires little to no incremental R&D sales and marketing and G&A expense.

We're working hard to balance our focus on profitability and between reinvesting in our products to maintain long term revenue growth and maximize our Tam.

But more to come and we'll use that same focus on profitability, we have shown on our existing products on menu once it scales.

This has also given us tremendous confidence to move faster on acquisitions broadly as our playbook is working.

In summary, our competitive the competitive position has never been stronger our strategy is winning and it's the right path to this market at the right time.

In closing I'd like to thank our global team for their efforts and dedication on their continued success at par.

With that I'll open the call up to the Q&A operator.

Thank you at this time, we will conduct a question and answer session.

As a reminder to ask a question you will need to press Star 101 on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.

Please standby, while we compile the Q&A roster.

Okay.

Our first question comes from the line of will Nance of Goldman Sachs. Your line is now open.

Hey, guys. Appreciate you taking the question and thank you for all the.

Detailed looking forward to all the new disclosures in the coming quarter.

Wanted to maybe start on the BK Wang.

You mentioned you think this takes off a wave of tier one restaurant operators and technology going forward.

Wonder if maybe you could kind of double click on that and what are you seeing in the market.

What do you think the timeline.

Any color on whether you were seeing more legacy competitors.

In that process are making more challenges like yourself and then how do you think about the competitive positioning going forward with this with this win under your belt.

Yes. So on the first question, we feel like we are in the beginning of that title wave I'd say just in this quarter, we've seen more rfps and interest from the largest brands in the world than we have in my entire time at par as it relates to Pos and we also see that in loyalty within pension so it.

It seems to have kicked off and I don't think it was coordinated but there is this movement by the large players to now look at third party software.

A couple of months here are far more than we've ever had literally since I've been at par. So it's very exciting to see that.

As it relates to our big win.

All prices are competitive and fair deal. This large that's an exclusive in a mandated incredibly competitive.

<unk>.

The the competition I would say historically are the large enterprise players.

There isn't another large sort of upstart like ourselves in the enterprise space that can handle the scale volume and innovative demands of our branded largest VK and so in the end I think it came down to.

One our product I think our products.

Stood on its own and I think if you talk to anybody there I think they would say we've been clearly on product, but two I think there was a sense of modernity of sensitive culture and alignment of Hey, unifying Pos is a big project, we want to do it really fast and I think they felt that.

It really came from from who we were and our culture.

And they have been an incredible partner through that so.

I think it showed all of the best parts of par showed our product that showed our culture, our speed, but also our ability to rollout quickly.

It keeps getting better so I guess the question is.

Is now the time to evaluate our process for that business and the performance get better and then.

Sort of asking in the context, you've got a lot going on huge well now it sounds like youre going to be ramping expenses to kind of absorb the BK when youre talking more acquisitions and I know youre working on menu as well. So when you think about all of that like how are you thinking about priorities for kind of like simplify the business and maybe the cycle and some of the capital.

Yes, no doubt the timing the time is right and.

Q2, MD&A you can kind of say we are continuing on our strategic alternatives for that business and we'll push forward aggressively because we do think it's the right time and I think we would look to deploy that capital.

Exactly how you suggested as it relates to Institute.

Ramping up for Burger King and stuff the beauty of our deal there is that while we ramp up quickly we're very quickly compensated for it. So there is short term.

Standard long term, it's incredibly profitable so.

I'm not too worried about there so I think the investment will be primarily in M&A.

For what we're looking to do I don't we don't need to potentially divest the business to fund. The go forward growth, we see in menu and then.

Burger King and other large deals.

Got it that's very helpful. I appreciate you taking the questions today.

Thanks, Laura.

Thank you one moment for our next question.

Next question comes from the line of George Sutton of Craig Hallum. Your line is now open.

Thank you congrats on the BK. So curious in terms of the capacity for what you can rollout in other words, how quickly you did 200 units. This quarter can you give us a sense of what the capacity is without substantial.

Cost increases.

I would say today, if we did nothing you'd probably double that.

Obviously, we had ramped up what we needed to.

This quarter, we're kind of working out the rollout plans with with BK and so next quarter will be able to kind of announce how we see that ramp up going it will be aggressive and there'll be a push but I think a big part of their evaluation of par was could we handle that and how we would handle the bursts and overages on expectations.

And so I think that was a big part of the reason why we won.

As Youre looking at these large scale rfps.

Many of them are focused on the point of sale versus a broader unified solution as you.

Think of it.

I would say oftentimes start off as Pls and then we're able to bring in more to the table and so our goal is to always start every customer out with at least two products.

He was a great example, but.

I think as I look at the ones coming down the Pike most of them will also be two product deals. We've got one that's a floor product deal we're working on right now and so the.

The market is definitely my comments when I meant that the opportunity in Tam with the market is kind of now turn to our strategy. I think there is just a tremendous desire to have simplification vendor consolidation and I think.

Like I said, a big part of the reason that we one Burger King was we had the menu offering built into <unk>. So I think that helped us differentiate ourselves I think other brands will look at that the same way, particularly if they are saying well you can also do online ordering and you can also do back office. It helps it helps at the story.

And the ROI equation gets stronger and stronger for the brand.

Just one.

Clarity question, when you get into a four product deal opportunity.

List of competitors gets extremely short is that correct.

I don't think Theres anyone else is generally, saying, hey, I into part D. This or I can put together three or four other vendors and you can just imagine in an environment when tech spend is being scrutinized where.

You've got small teams.

That pitch is pretty attractive.

Understand thank you very much.

Alright, Thank you on moment for our next question.

Yeah.

Next question comes from the line of Samad Samana of Jefferies. Your line is now open.

Hey, guys. This is Jeremy Taylor on for some odd manav, thanks for taking the questions.

Yes, it's nothing meaningful.

When we acquired menu it had a large.

Yes, it's not a large but international base.

And we made a decision to direct their business to the U S and so.

It's kind of.

The idea is to say hey, let's not focus on down and international business is unprofitable, let's bring into the U S where I think we can quickly get it to profitability and then given that our first major customer with BK, we kind of need all hands on deck to get that to get that win.

I just thought we had the gross margin jump back pretty quickly here.

That was just.

The investments that we made the ROI part of that was not having any credits in this quarter. So we didn't have the credit tissue on this quarter, because it kind of address that.

We had last quarter and.

And we feel good about that.

There's always ongoing investments.

Ever expect and knock on wood, our gross margins ever dropped to where they were in Q2 again.

So we feel pretty good and like I said in the short run we want to get these sort of I mean, we've got this to be 70% plus in long run I wanted to get to be much higher.

Again, the vast majority of that will be tied to us constantly making break more scalable because thats, where we have the most aggressive usage of Dev ops cost and then the ramping of payments and menu who are who will both have very high margins that are really early in their lifecycle.

Got it but it was really useful color, maybe if I can squeeze one last one in.

We saw earlier this week from a competitor one large brand they turned off to take their tech house their tech stack in house.

Is there any concern about becoming maybe a broader trend are you seeing that any any of your your prospects.

We're seeing the opposite I think Burger King being a great example of that and we've got others will talk about later, but we see the opposite and I think.

That dynamic is very much if you are a single product company doing.

One verticalizing need of the restaurant you are really exposed to that risk.

When youre the Pos.

Got it that makes a lot of sense. Thanks for taking my taking my questions guys.

And then maybe said differently if.

If we were very light product like you mentioned and.

And that product was deeply integrate into the Pos and loyalty I don't think you would have that churn.

I think it's really being unified is what keeps you sticky.

Alright, thanks, guys.

Alright. Thank you one moment for our next question.

Yeah.

Our next question comes from the line of Adam Wyden of Tw Capital. Your line is now open.

Thanks, guys I've got three questions first one.

Really impressive on the gross margin pick up in the burn and also to make sense of piloting menu last quarter and the punch.

If I just wanted to do some back of the envelope math, assuming no sort of gross margin degradation.

I'd add pick a number.

$5 million of IRR next quarter Im sure youll likely add more than that but like at 80% incremental gross margin or even 70, it's fair to assume that with Opex flat youre going to be EBITDA positive in the fourth quarter.

Is it is it unreasonable to think that you guys could be at EBITDA breakeven in the fourth quarter or very close to it and.

Is it fair to assume that.

From obviously youll sort of make investments here and there, but I mean is it is it fair to assume that.

Your you have a path to getting to rule of 40 without M&A I mean, obviously M&A will accelerate it but I mean do you feel like there is a standalone path to rule of 40, I mean, it looks like there is based on the numbers Im just trying to understand.

Yes, so listen I think we can get to the real 40 without M&A.

Let me answer that in two ways first is.

As I mentioned in the call.

Tire burn this quarter was with menu.

And so the moment that we can inflect menu to positive, which we think is coming we announced scooters is a big brands now comment on menu. This will also help so I think there's a path to rule of 40 on our own and we will get there.

Get there no matter, what you have no choice and we will and that's our goal M&A that will accelerate it in and it's because of the deals that were are.

Working on are.

Cash flow positive.

Not dilutive to our growth.

And I think.

Creative to our rule of 40 score so it should help us get there faster and.

We've talked about a lot.

We are really good on the G&A side.

We're really good at cutting lots of areas of G&A, and then reinvesting those in areas of growth G&A.

Mentioned.

$9 million of our of our Opex goes when the menu.

Menu, the PK ramp up and it systems, we did that without growing the opex and we do that again on the next M&A deal and so I feel really good that if we acquire something we can get a lot of operating leverage out of our operating expenses.

Particularly G&A and sales and marketing so it will certainly get us there faster.

Got it.

Yes, no I mean look when you look at the sales and marketing at 15% at scale and you look at gross margin I mean, this thing can clearly be a 40% EBITDA margin business at scale.

And so if the revenue growth and 30%, 40% EBITA margins in your rule of 40, let me ask you something about the cross sell.

Competitor or he who will not be named has had a very hard time sort of cross selling.

Youre starting to see cross sell I mean.

I sort of add up all the products.

<unk> 3000 payments at a couple of thousand.

Par pay maybe another thousand data central 500 menu at 2000 pumps in 2000, I mean, you're well into the double digit thousands I mean.

When do you expect to sort of get that $2 million AEP restaurant basically paying <unk>.

10 to $12000 for everything I mean is that something that could be a possibility I mean could we have a large chain really taking every single one of our products at Max in 'twenty four.

Yes, Allison I would say absolutely I mean I think.

If you just look at the numbers right and the growth in <unk>, that's pricing, but it's also the upsell of more products.

If you look at our last couple of big deals here, one of which we announced others that are coming none of them are single product deals and I would tell you that we're seeing this cross sell and upsell motion happen without us doing the best shallow of it I would say, it's the area we need the most improvement on internally.

Just happening happening naturally when I wrapped up I was saying that it's the right time in this market and that's kind of what is referring to which is we're stumbling into doing a good job on cross sell and upsell.

And when we get great at it and we will so I think your guess is of course, what we will get there and I think youre going to see it.

Pretty quickly I think youre going to see us be very good at stapling brink payments data central out the box and I think punch in many of our <unk>.

Slammed on combo.

As I mentioned on the call.

Almost all of our menu signings have had payments and.

And <unk>. So if you think of that at the front of house and sort of the operator side like we will get there. So I think getting up to that on a large brand is very possible.

And particularly when you look at job on this first one.

Yes, and I think you mentioned that earlier on the call that Youll obviously.

Or something you said this earlier in the call, but RBI is a large chain, but I think the intent is that if we execute well on burger king that debt.

You would expect to move horizontally into other brands and perhaps sell punch in the rest of menu in the west I mean, there is.

Obviously everything is competitive and the deal was the best Guy, but I think it's your expectation that if you deliver that.

<unk> should grow meaningfully is that right.

That's right.

I want to extend the timing on that which is it is going to expand in two ways. It can expand and that we.

I think we've been great partners to RBI I think they've been in credit partners to us and we want to grow the relationship across the logos. They have we think we are a great fit both culturally but from a product perspective that will be great expansion, but I also think from a product perspective, we will be pushing data central and punch and so on so forth provided we're adding value aligns their roadmaps and so.

It's just an incredibly large opportunity that we will we will get to and I think it's a really huge sign that they chose not break but break in menu understanding that that they now have an up a sort of transaction product and a off premise product from us is highlighting that.

Thank you.

All of that.

My third question is about M&A.

Yes.

My question is we saw.

We've seen the public companies.

I haven't really done an M&A deal and two and a half years, you've done a lot, but menu was sort of an aqua hire one your burger King.

What do you think the probability is that Youll land sort of a 100 million AOR business. Because my sense is is that if you.

We were able to sort of cross the transom and maintenance of three or $400 million IRR business had a 40% margin.

I mean, we're not going to be trading at three five times ALR will trading at 10 or 12 like agilis. This I mean this company is massively undervalued physically I think yes, I think there is the possibility to buy a $100 million. There are absolutely. This I don't know if its been one ticket or three but I think thats, there and I would tell you. It's my number one priority as CEO, Mike API is to get that done.

Is on the M&A front and so we think it's really the right time and again I can't stress enough. The fact that we got menu right on here and obviously, we got punched really rate has just embolden us to say, we got to do this twice as fast.

Yeah.

I think they all have an opinion and they'll have some idiosyncratic reasons rationale I think in the end as you are a shareholder of that company, it's hard to sort of stay there forever without wanting to drive a return and I think that return is partnering with a firm like par.

I think I agree with you I think it makes a ton of sense and in the end I think markets are logical and objective and that benefits par.

So I'll jump to the protocols.

Thank you.

Alright. Thank you one moment for our next question.

Okay.

Our next question comes from the line of Charles upon.

Stephens Your line is now open.

Where and how are you winning is it on price or just.

One throat to choke consolidating vendors and then secondly, I know it's in the early stages of scaling and it's dilutive to margins at this point, but if you could give us some color on how to think about the scaling of that payments business and when it could potentially be accretive to the gross margin.

For sure.

So why are we winning we're winning I think first because that one throat to choke the simplicity of the product.

It's so much more than that it's the integration of that product into everything that we do the same dashboards. It's just so powerful to have that integrated.

And so it's one throat to choke if you've got a problem, but it's really the integration into the rest of what we do again, an example of one tap loyalty on Apple pay.

We are the only people that can do that where you can pay with Apple pay and get enrolled in our loyalty program and pay is so powerful for the brands. So that we wanted to show plus innovation. We can do once you are integrated across us and I think thats why we why we went and we continue to win really really nicely from a margin perspective, our payments business will be accretive to our operating margins.

Now or close to now so we are seeing a lot of growth because we barely we're selling it through our same sales team right and we have one sprint team that works on it from a product perspective.

I think the gross margins are going to take little more time, just because we're growing into the infrastructure costs, but it will no doubt be a big driver of our gross margin growth over time, just because the revenue is coming in and we're not adding a lot of cost here.

Got it.

We account unlike our competitors on a net basis right and so.

On an apples to apples basis, we can make our revenue growth looked like it was.

Twice as big or wherever it 10 times as big on the payment basis, because we're giving you the true net take.

Right.

Got it and I want to follow up on the earlier question around guest engagement and menu.

The 8% growth obviously some of that is attributable to controlled churn.

Wanted to get a better sense for.

How long that churn is going to take place.

And how we should think about.

The normalized growth rate of that business. If there is one as well as.

If you could quantify the impact of the churn this quarter I think that'd be helpful as well.

The churn was.

For the year, our churn is around 5%. So it's not been a high churn here, that's kind of our normal churn.

The the so.

How do we get the growth engine going and I think.

Much faster growth and where we are today, but this will also be the area I think youll see us be acquisitive, because we want we need more products to pump into the front of the house and this will be coming from from that side of the play. So I think youll see as acquisitive in this part of the market. But also we are winning really good deals here now and I think Thats a testament to our leadership there so.

That is starting to turn and again the churn has been 5% for the year, It's that's kind of where we want to be.

Year over year bigger numbers for both of those products that are in that business area. They were both at an inflection point. This year right as you mentioned with menu, making the kind of transition to strategically holding off and trying to grow international where they were originally when we acquired to be getting it ready for North America, which has obviously you can see we've done here with this most recent win in so.

It was getting ready for next year's growth and going forward similar with punch, where we sit in that kind of inflection point of where it needed to continue to set us up for continued growth going on and the fact that we're seeing more usage in the product as our current customers are using it more and more and seeing the value in it. So it is getting that product stabilized for that so we were not really hitting the <unk>.

On the growth engine for those so it was kind of making sure we manage the churn during that year, knowing that we're going to have a low growth year.

Got it I.

Appreciate the color guys. Thank you.

Alright, Thank you for our next question.

Yes.

Our next question comes from the line of Patrick Mcilroy, William Blair. Your line is now open.

Hi, guys. Thanks for squeezing me in I just had one more question I wanted to get in here.

So last quarter I think you said you had a few sizable deals in the pipeline for menu and.

Thanks to assume BK was one of them. So I just wanted to ask how your pipeline. There looks now are there any other sizable deals we can expect to flow through in the coming quarters.

Could we reasonably expect any of those to drive.

Virgin and the profit trajectory from where we stand now.

Sure So BK with wine scooters and I mentioned on this call with another big chain really faster and gaining impressive chain.

We've got more around the corner so.

The challenge for US is actually not winning business here, we're winning business. If you think about it we've already won.

1100 stores will add.

More of this next coming quarter will be.

Compared to our peer in the space, we're not leap.

The way the business has been a problem, it's a superior product.

And when you integrate into punch, it's an incredible experience.

Got the doors, so I think youll see.

Some of that happened in Q4, a bunch more and.

In Q1, and then hopefully have some nice flow through of payments revenue that comes with that as well.

Very clear thanks.

Alright. Thank you one moment for our next question.

Yes.

Next question comes from the line of Andrew Hart.

<unk> Your line is now open.

Hey, Jeff I, just wanted to follow up on that comment you made about M&A being your number one priority I guess.

Yes, so it's always product base rate.

Everything we've done so far we've taken our product been able to accelerate the revenue growth and create a better customer experience.

The acquisition.

Our menu allows to us to make break better but also punch better the acquisition. Upon its made us allow us made us made bring better allowed for things like whatsapp loyalty with payments.

And so we focus on there the areas that I think.

Like as I mentioned Youll see us I think be active on the guest engagement side, where we want to ramp up the revenue bit growth. There. The other part I would say is for market share I think par continues to perform and outperform our peers and in this environment.

It's a really good idea for us to take advantage of.

That that by being acquisitive, bringing those businesses in house and again, given our our ability to control costs.

Two value so I think they create value. So I think the market share is the other part we look at which is how do we get faster market share because we know that as we add logos that we don't have today at par. We can then take that logo and penetrate with additional products, creating tremendous value. The cross sell question that someone mentioned earlier, so we're seeing that.

And then the last part I would say is new verticals and geographies.

Thanks, and then on our numbers it looks like sequentially <unk> kind of across all three segments was up we've talked about <unk> I think being a driver of that an operator solutions.

Yes.

On the other side, but his price. So we've continued to become smarter at how we take price and renewal cycles.

How do we show value of our customers and create value for par. So it's prices the other big lever.

Thanks.

Alright. Thank you one moment for our next question.

Next question comes from the line of Eric <unk> of Lake Street.

<unk> capital markets. Your line is now open.

Hey, I wanted to revisit the Burger King rollout I know youre going to have formalized plans here in Q4, but just curious to know if you got inside on the incentives that they'll be using to motivate the installed base of franchisees to adopt the new product, whether it's kind of in line with historical.

Customer deployments or maybe something a little bit greater than.

I, probably can't talk about those specifically just because those are private to them, but I would say.

<unk>.

Theyre very focused on unifying their Pos.

That's how they introduce us that surpassed and the franchisees see basis, so excited for it.

Well I can say, Eric that I expect us to be relatively rapid rollout for a business. This size, there's just tremendous alignment between us between them.

So.

This is not going to be the kind of China took on this for many years. This will go very quickly.

And we're contracted that way and align that way and so we both want that to happen and I think thats why it will happen.

Okay, and then a follow up to that also tied to.

Curious to know your hardware run rate spending in the neighborhood of $25 million to $26 million or so is that change with the deployment with Burger King.

Well.

And our next call will be able to give you a little bit better guidance on that as we're working through these plans.

Burger King franchisees some of them will absolutely take our hardware and our services and it'll be our push that by 25 all of them are taking it but we've got to get them there, but it will be a meaningful driver of our time of hardware and services and then I think as we hopefully are able to get to the other.

RBI brands it'll be a staple to all of them, but it will certainly be a nice.

A new customer for us to have on hardware.

And services going forward.

Thanks for taking my questions.

Thank you on moment for our next question.

Okay.

Next question comes from the line of Carl Peterson of Needham. Please go ahead.

Great. Good afternoon, guys. Thanks for sneaking me in here most of my questions have been answered but just.

I wanted to ask quickly on the government business here.

It looks like the revenue came in and really strongly.

Were there any kind of one time task orders or anything that pushed that to the upside or is what we saw in the third quarter a good run rate.

To use in our models moving forward.

Yes, I think from a.

From a revenue standpoint government, obviously, hitting all cylinders this quarter.

We expect that that was in the upper third as we expect it to be in the lower series.

Quarterly basis, the margin, we were able to convert that back over because the team was able to properly manage direct labor where at times that was being pass through some of the task orders to a third party and it team was able to set up internally actually leveraged internal team and that gave us higher margins or snow or back to what would you expect.

Paul.

6% to 8% margins and.

And that's what we expect to kind of move forward with.

Got it.

Helpful. Thanks, guys.

Alright, Thank you for your questions.

This does conclude the question and answer session I would now like to turn it back to <unk> for closing remarks.

Thanks, everybody for joining us during this exciting time and we look forward to updating you on our next call.

Alright. Thank you for your participation in today's conference. This does conclude the program you may now disconnect.

Q3 2023 PAR Technology Corp Earnings Call

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