Q3 2024 PAR Technology Corp Earnings Call
Okay.
Speaker Change: Good day, everyone and welcome to par technology fiscal year, 2024 third quarter financial results.
Speaker Change: At this time all participants are in a listen only mode.
Speaker Change: After the Speakers' presentation, there would be a question and answer session to participate you will need to press star one one on your telephone you will then hear a message of dicing. Your hand this waste to withdraw your question simply press Star one again.
Speaker Change: Be advised that today's conference is being recorded.
Speaker Change: Now I will pass the call over to the senior Vice President of Investor Relations and business development Christopher Byrnes. Please go ahead.
Thank you Carmen and good morning, everyone and thank you for joining us today for par technology 2024 third quarter financial results call.
Speaker Change: Earlier. This morning, we released our financial results. The earnings release is available on the Investor Relations page of our website at par Tech Dot Com, where you can also find the Q3 financials presentation as well as in our related form 8-K furnished to the SEC.
Speaker Change: During our call today, we will reference non-GAAP financial measures, which we believe to be useful to investors and exclude the impact of certain items.
Speaker Change: 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.
Speaker Change: I'd also like to remind participants that this conference call may include forward looking statements that reflect management's expectations based on currently available data.
Speaker Change: However, actual results are subject to future events and uncertainties.
Speaker Change: The information on this conference call related to projections or other forward looking statements may be relied upon and subject to the safe Harbor statement included in our earnings release, this morning, and in our annual and quarterly filings with the SEC.
Speaker Change: Finally, 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.
Speaker Change: Joining me on the call today is par CEO and President <unk>, <unk> and Bryan <unk>, Chief Financial Officer, I would now like to turn the call over to <unk> for the formal remarks portion of the call, which will be followed by general Q&A 70.
Speaker Change: Chris and thank you all for joining us today.
Speaker Change: Our Q3 results made available this morning represent the seventh consecutive quarter in which part is delivered greater than 20% organic growth with limited operating expense.
Speaker Change: This continued sequential growth at scale and demonstrating operating leverage efficiency has enabled <unk> to report positive adjusted EBITDA for the quarter of <unk>.
First is the company been began disclosing this metric earlier.
Speaker Change: Earlier and management's tenure.
Speaker Change: Our performance this quarter reflects the continued validation of our products as best in class Standalone and even better together.
Speaker Change: Our strategic focus on delivering a unified solution is improving user experience further and customer stickiness and expanding sales opportunities beyond that of a single product to.
Speaker Change: <unk> always talked about is working and has generated the financial return we reported today.
Speaker Change: Digging into our results.
Speaker Change: Subscription services continues to be the growth engine of our company Q3 exit Eric totaled more than $248 million in subscription services revenue for the period grew 91% when compared to Q3 last year.
Speaker Change: This revenue expansion was driven by 25% organic growth compared to Q3 last year and contributions from our EBITDA accretive 2020 for M&A activity, including the Companys acquisition of task group, which closed in July.
Speaker Change: Critically our M&A activity is expected to continue to accelerate our overall growth trajectory into the future by unlocking new verticals and multi product attachment.
Speaker Change: Operator cloud AOR grew 41% to $93 4 million in Q3, when compared to the same period last year.
Speaker Change: This growth was driven by multi product attachment of data central and part payments and continued <unk> improvement, which increased 11% from the same period last year.
Speaker Change: Observed <unk> improvement was driven by price increases in part payment service attachment.
Speaker Change: Our opportunity for new tier one deals continues to be strong and we believe ourselves to be well positioned to win and grow through both new logo signings and the upsell of data central and payments.
Speaker Change: Our Pos has a robust backlog and we have high confidence and visibility into consistent growth rates for years to come.
Speaker Change: Turning to prepayments Q.
Speaker Change: Q3 was a strong quarter marked by focused pipeline execution and the signing of several new concepts, including Acropolis greet Tavern, Burger Vale, Brooklyn pickup and Fatboy pizza.
Speaker Change: All of which are set to go live in the upcoming quarter.
Speaker Change: Q3 also marked the company's first full quarter since the launch of punch wallet a product we've seen gained strong market momentum and resulted in customer wins with <unk> and <unk>.
Additionally, we executed our first payments funded hardware deal, which helps reduce capital expenditure pressures on merchants.
Speaker Change: Looking ahead, we're expanding our opportunities for the launch of QR code pay at the table capability in Q4 with customer go live expected before the end of the year.
Speaker Change: Turning towards data central.
Speaker Change: We see strong product pipeline and anticipate the conversion of this pipeline will accelerate.
Speaker Change: The momentum momentum is real and we believe data center will be a strong growth driver as the park pass plus data central combination is becoming the go to operator solution partners.
Speaker Change: <unk> is uniquely positioned in the enterprise space with both market, leading Pos and back of House solutions, which is mirrored by our pipeline.
Speaker Change: We are excited to continue to see our operator cloud product suite gained traction with our largest customers are.
Speaker Change: Our combined Pos plus back of house deal is worth almost two extra project with only one product.
Speaker Change: It has taken time, but our vision of the connected operator suite is proving out and we're looking to double down on this in the coming months.
Speaker Change: Moving to engagement cloud Q3 results reflected our strongest year over year organic growth since 2022, driven by the go live of Wendy's.
Speaker Change: <unk> engagement cloud <unk> grew by nearly 150% from the same period last year, when including <unk> retail and the <unk> Division, a task group and now totals $155 million.
Speaker Change: Year over year AOR growth for engagement cloud with nearly 17%.
Speaker Change: Our engagement product suite continues to prove its market leadership with punch Out-front Onboarding over 12000, new locations and three major tier one clients in the last 12 months.
Speaker Change: With this growth engagement cloud site count now stands at an impressive 118000 sites.
Speaker Change: While our while we are winning and launching major new brands, we continue to invest for the future with new innovation, including punch wallet, which enables seamless earn and redeem and pay as well as new <unk> functionality with gamification and in store customer interfaces.
Speaker Change: This past quarter saw significant new customer growth with nine new brands launching on the punch platform and 12 upsell deals to existing customers.
Speaker Change: Early July we went live with Wendy's a deal we first announced in Q1. This go live represented a record timeline to take a tier one enterprise customer live on punch with over 7020 stores and reflects the urgency with which our people are empowered to operate.
Speaker Change: Looking ahead, we expect <unk> to be a strong profit contributor to par.
Speaker Change: Our retail formerly studio now operates in over 25000 convenience stores and fuel stations and provides a beachhead to cross sell additional products, including payments and back office.
Speaker Change: Retail is getting sales momentum and picked up a large tier one customer win in the quarter.
Speaker Change: We also extended our relationship with major oil with a major oil customer by adding over 400 sites and extending the current contract by two years.
Speaker Change: With more and more consumers utilizing C stores prepared food and meal delivery options. We are seeing our investment thesis play out in real time breaking.
Speaker Change: Brick and mortar formats are colliding and this is playing out even faster than we expected.
Speaker Change: <unk> is uniquely positioned to benefit from both <unk> and <unk>.
Speaker Change: We recently rebranded menu to par ordering and are seeing momentum in winning deals within the punch space. Most recently, adding a 115 cleaning source.
It can in connection with this rebrand. We also combined go to market teams to position part of ordering and every punch deal and increase our sales capabilities.
Speaker Change: We've made the necessary investments to build tighter integrations and the outputs are driving new customer wins.
Speaker Change: Part ordering is rapidly achieving scale and as we and as we've crossed over 1 million transactions per month threshold, while achieving 99% order health a key milestone that demonstrates product strength to prospective customers and the industry move.
Speaker Change: Moving to hardware.
Speaker Change: Q3 revenue grew 13% quarter over sequential quarter.
Speaker Change: We expect hardware to continue to stabilize as our team works to upgrade our legacy base of long term hardware only customers and pursue even higher attachment rates with our Pos customers.
Speaker Change: Stepping back to review our consolidated results.
Speaker Change: Today's announcement of delivering 25% year over year organic <unk> growth and positive Q3, adjusted EBITDA of $2 $4 million is an important milestone for us.
Speaker Change: And efficiency metrics continue to impress really scale with our focus on organic growth and EBITDA accretive M&A.
Speaker Change: Subscription sales and marketing expense as a percentage of subscription services revenue. This quarter was 14% a 400 basis points sequential improvement from 18% in Q2.
Speaker Change: Subscription R&D expense as a percent of subscription services revenue was 26%.
Speaker Change: 500 basis points sequential improvement from 31% in Q2 and.
Speaker Change: And organic R&D spend again decrease year over year as we remain committed to spending in areas, where we can prove ROI.
Speaker Change: We take pride in today's milestone, but today remains day one.
Speaker Change: Crucially, the combined scale ability of our products and the continued flex in our operating leverage ensures that our financial metrics will only continue to improve over the years.
Speaker Change: Ryan will now review the numbers in more detail Brian.
Ryan: Thank you Stephanie and good morning, everyone.
Ryan: Q3 was a successful quarter for par.
Ryan: Nutrition services continued to fuel top line growth, while we staged fiscally responsible managing our operating expenses.
Ryan: As a result, adjusted EBITDA for the quarter was a positive $2 4 million indicative of an inflection point.
Ryan: Having growth with profitability.
Ryan: Before moving forward and as stated in our Q2 earnings call All 2024, and comparative 2023 results that we will discuss this morning.
Ryan: Exclude any contributions from par government.
Those results, including the gain on the restricted sell a car government as an isolated within our discontinued operations results.
Total revenue were 90 total revenues were $96 8 million for the three months ended September 32024, an increase of 41% compared to the same period in 2023.
Ryan: Driven by subscription service revenue growth of 91%, partially offset by a decrease in hardware revenue of 12%.
Ryan: Net loss from continuing operations for the third quarter of 2024 was $20 7 million.
Ryan: Or <unk> 58 loss per share compared to a net loss from continuing operations of $19 2 million or <unk> 77 loss per share reported in the same period in 2023.
Ryan: non-GAAP net loss for the third quarter of 2024 was $3 1 million or <unk> <unk> loss per share a significant improvement compared to a non-GAAP net loss of $99 7 million or <unk> 37 loss per share for the same period in 2023.
Adjusted EBITDA for the third quarter of 2024 was $2 4 million compared to an adjusted EBITDA loss of $6 6 million for the same period in 'twenty three.
Now for more details on revenue.
Speaker Change: Subscription service revenue was reported at $59 9 million, an increase of $28 5 million or <unk> 90, 191% from $31 4 million.
Speaker Change: During the prior year and now represents 62% of total par revenue.
Speaker Change: Excluding car retail and task organic subscription service revenue grew 28% compared to prior year.
Speaker Change: Okay.
Speaker Change: Annual recurring revenue exiting the quarter was $248 1 million, an increase of 93% from less last year's Q3 with engagement cloud up 149% and.
And operator cloud up 41%.
Speaker Change: <unk> retail and task total organic annual recurring revenue was up 25% year over year.
Speaker Change: Hardware revenue in the quarter was $22 7 million.
Speaker Change: A decrease of $3 2 million or 12% from the $25 8 million reported in the prior year.
Speaker Change: Sequentially.
Speaker Change: Our to Q2 this year hardware was up $2 5 million or 13%.
Speaker Change: The continued interest from our legacy hardware customers as well as the continued high attachment of hardware sales in our expanding software customer base gives us confidence that our hardware business will continue to contribute meaningful revenue and margin.
Speaker Change: Professional service revenue was reported at $14 2 million, an increase of $2 7 million or 23% from $11 5 million reported in the prior year.
Speaker Change: We are pleased with our team's ability to continue to grow professional service revenue during a period of hardware revenue contraction.
Speaker Change: The growth was driven by recurring revenue service contracts $8 9 million of the professional services revenue in the quarter consisted of recurring revenue of 23% increase versus prior year.
Speaker Change: Now turning to margins.
Speaker Change: Gross profit was $43 million, an increase of $17 9 million or <unk>, 71% from about $25 1 million reported in the prior year.
Speaker Change: The increase was driven by subscription services with gross profit of $33 1 million, an increase of $17 3 million or 109% from the $15 9 million reported in the prior year.
Speaker Change: Subscription service margin for the quarter was 55, 3% compared to 56% reported in the third quarter of 2023.
Speaker Change: The increase in margin is driven by our continued focus on efficiency improvements with our hosting and customer support contracts as.
Speaker Change: As well as accretive margin contributions from recent acquisitions.
Speaker Change: Including the amortization of intangible assets.
Speaker Change: Stock based compensation and severance total non-GAAP subscription services margin for Q3, 2024 was 67% compared to 69% for Q3, 2023 and sequentially improved from Q2 to 66%.
Speaker Change: Our margin for the quarter was 25, 5% versus 25, 3% in Q3 2023.
Speaker Change: Professional service margin for the quarter was 29, 2% compared to 23, 8% reported in the third quarter of 2023.
Speaker Change: The increase primarily consist of increases in margins for field operations and installations substantially driven by improved cost management and reductions in third party spending.
Speaker Change: In regards to operating expenses.
Speaker Change: GAAP sales and marketing was $10 5 million, an increase of $1 million from the $9 5 million reported for Q3 2023.
Speaker Change: With the increase being driven by inorganic costs related to our acquisitions, while organic sales and marketing was flat year over year.
Speaker Change: GAAP G&A was $27 4 million, an increase of $9 8 million from $17 5 million reported in Q3 2023.
Speaker Change: The increase was primarily driven by non-GAAP adjustment items for M&A transaction fees and stock based compensation as well as post acquisition costs.
Speaker Change: GAAP R&D was $17 8 million, an increase of $3 2 million from the $14 7 million recorded in Q3 2023.
Speaker Change: The increase was primarily driven by post acquisition expenses, while organic R&D expenses were flat year over year.
Speaker Change: Operating expenses, excluding non-GAAP adjustments was $47 7 million, an increase of $10 3 million or 28% versus Q3 2023.
Speaker Change: And excluding inorganic growth organic operating expenses increased a modest 7%.
Speaker Change: The organic increase was primarily driven by variable compensation and benefits.
Speaker Change: Now to provide information on the company's cash flow and balance sheet position.
Speaker Change: As of September 32024, we had cash and cash equivalents of $105 8 million and short term investments of $12 six months.
For the nine months ended September 30 cash used in operating activities from continuing operations was $2 4 million versus $27 9 million for the prior year.
Speaker Change: The improvement was driven by a $10 million improvement in net loss net of noncash adjustments.
Speaker Change: Cash used in investing activities was 100 was $178 1 million. The nine months ended September 30 versus $4 8 million for the prior year.
Speaker Change: Investing activities included $293 6 million of net cash consideration in connection with our recent acquisitions and capital expenditures of $4 million for developed technology costs associated with our software platforms.
Speaker Change: Partially offset by $92 1 million of cash consideration received in connection with the disposition of par government and.
And $24 9 million of proceeds from net sales of short term held to maturity investments.
Speaker Change: Cash provided by financing activities was $279 3 million for the nine months ended September 30.
Speaker Change: Compared to cash used of $1 8 million for the prior year.
Speaker Change: Financing activities was substantially driven by private placement of common stock to fund the studio acquisition and a credit facility entered into to fund the task acquisition.
Speaker Change: I would like to take a moment to reiterate thank our par team continued to successfully execute our operating plan, while managing the integration of both par retail and test. In addition to completing the smooth divestiture of par government.
As a result, we have driven significant improvement in key financial metrics with <unk>.
Speaker Change: 25% organic <unk> growth and 93% total <unk> growth.
Speaker Change: Flat to modest growth in organic non-GAAP operating expenses for our seventh consecutive quarter.
Speaker Change: Culminating in Q3 positive adjusted EBITDA of $2 4 million.
Speaker Change: But to be sure. This is day, one and not a finish line.
Speaker Change: We are excited about the opportunity in front of us to continue to deliver outcomes that drive value for all our stakeholders.
Speaker Change: I will now I will now like to turn the call back over to Stephanie for closing remarks prior to Q&A.
Stephanie: Thanks, Brian we continue to see par is uniquely positioned in the foodservice technology sector with best in class software across key operational and engagement pillars, our ability to guarantee better together experiences across our products, while separately, enabling a robust integration infrastructure keeps us ahead of single product competitors that only control one part of the.
Stephanie: Together equation and are dependent on third party integrations.
Stephanie: Other words, our products are winning on a standalone basis, but we continue to see a growing desire in the market for vendor consolidation.
Stephanie: We believe the environment is ripe for continued M&A activity and par has shown itself uniquely capable of consolidating in the enterprise space, while driving higher growth and profitability.
Stephanie: We are delivering an impressive better together platform and our smartly investing to continue that track record balancing our need for both growth and profitability.
Stephanie: We look forward to sharing more about our longer term vision and strategy at our Investor Day on November 25. Thank.
Stephanie: Thank you to all of our employees for your dedication and effort over the past quarter across organization. Our people have stepped up to ensure we deliver the outcomes the outcomes our customers demand while embracing the hard work necessary to build a company capable of delivering long term shareholder value.
Stephanie: And as I said earlier, we're still at day one.
Chris.
Speaker Change: Carmen that concludes our formal remarks. This morning can we now open the call to Q&A. Thank you, Chris and as a reminder to ask a question simply press star one on your telephone and wait for your name to be announced to withdraw your question Press Star One again, one moment for our first question.
And he is from the line of Mike <unk> with Needham. Please proceed.
Speaker Change: Thank you good morning, congrats on the quarter.
Speaker Change: I wanted to just focus on the large deal activity I think when we came into 2024, you had called out record RFP activity and I believe there were seven large deals.
Speaker Change: One or two if im keeping cowen correctly I, just wanted to get sort of a status update on the other ones do you think you could still land a few more.
Speaker Change: The status on that and if you were able to do it could that potentially help accelerate the organic <unk> growth I know you've said.
Speaker Change: <unk> is that something that conceivable if you were to win some of these larger opportunities in the pipeline.
Speaker Change: I think we have a good shot.
Speaker Change: Of closing more before the end of the year.
Speaker Change: As far as accelerating our growth.
Speaker Change: It's hard to say it depends on the rollout of these of these deals it certainly won't hurt it. So I think our plan is built without even needing.
The megadeals, but if they come they suddenly would accelerate us.
Speaker Change: But it's hard to sequence of timing of assigning in a rollout.
Speaker Change: Understood, maybe I'll switch over to the M&A. So.
Speaker Change: We hear that the progress on the acquisition of Steuben task.
Speaker Change: Has been good could you give us a little bit more color in terms of whats.
Speaker Change: Surprised you positively uneven negatively.
Maybe it would be helpful to get any.
Sort of data points on your ability to cross sell into these accounts.
Speaker Change: Accounts and when new logos I know, it's early but any additional color beyond what you said in your prepared remarks will be helpful.
Sure on the.
Speaker Change: <unk> retail side, formerly studio.
Speaker Change: It's been a fantastic experience.
Speaker Change: We've seen really great receptivity by the end market for <unk> involvement I think at the same time, we've been able to add some go to market heft to the area and most importantly, I think.
We're really excited about the product delivery, we can we can push into that market and so it's been fantastic I think culturally it's been a tremendous fit and.
Just crazy excited as we mentioned we signed a.
Speaker Change: Our next large customer in the quarter.
Speaker Change: And we think there is a lot more to come and importantly, when we made this acquisition.
Speaker Change: It was a bit contrarian the idea of C stores.
Speaker Change: Becoming foodservice businesses was still really not us.
Speaker Change: And if you look today, it's it's not become the narrative has become consensus.
Speaker Change: Convenience stores are growing their foodservice businesses.
Double digits across the industry and for them to continue to compete with restaurants, they need they need tooling like we provide and so I think we will have the same playbook in this vertical as we did in restaurants and obviously, it's great. Because you can leverage what we've done in restaurants and markets I think we feel really good really excited and it's a nice long term place for us to be.
Speaker Change: On the task group side, we are still early we're a few months into it but I think what we are.
Speaker Change: Looking at it very quickly is the platform of special it's one of those products when you demo.
Speaker Change: Jos jobs arent dropping but the enterprise version of that and we've seen really strong interest not just in restaurants, but in these adjacent verticals called him shoulder market.
Speaker Change: Like sporting stadiums hotels casinos, and I'm, not saying, we're going to go into that but it certainly gives us sufficient of doing more than what we do today and I think importantly, as we've talked about.
Speaker Change: Giving us that international arm that we've never had before is widely important as our big United States customers are almost.
Speaker Change: All growing more internationally than domestically so.
Speaker Change: We're really excited for that as well.
Speaker Change: That's helpful. Congrats again, thank you so much.
Thank you.
Speaker Change: One moment for our next question that is from the line of Samad Samana with Jefferies. Please proceed.
Samad Samana: Hey, good morning, Thanks for taking my questions.
Maybe I will start first with 78 on the rollout of Burger King and Wendy's I know they're there.
Samad Samana: And different products.
Samad Samana: Maybe what have you observed and learned.
Samad Samana: Now that youre implementing that these larger customers what the organization and the product is stapled Bob is there anything that you've seen that maybe you could do better that they are asking for as you are rolling it out or something that's gone, particularly well and how does that maybe inform you.
As you're thinking about targeting additional large customers.
Samad Samana: That's a great question, Matt so on the <unk> side.
Speaker Change: That's our enterprise rollout of <unk>.
Speaker Change: And I think our major learning is.
Speaker Change: Doing this at scale and getting it out as we mentioned it was our fastest large rollout ever and honestly I think what you just gave us confidence that why can't we do that again and so from a business perspective, I think what it's showing is that we can operate in these large enterprises and so it is making us a lot more creative about how we structure our deals with these large tier one brands.
Speaker Change: And not giving them the cookie cutter process, we've had for the last decade or so so I think it's kind of it's not changed I think how we operate but certainly gives us confidence in thinking about how we structure of future enterprise deals.
Speaker Change: On the PR side with Burger King.
Speaker Change: We're still relatively early I think the major exciting takeaways.
Speaker Change: I think our experience there is fully convinced us and I think we'll have this in our numbers over time that.
Speaker Change: Quote unquote, just doing Pos is not.
Speaker Change: At the end game and so I think what we're going to see more and more of these large rollouts is saying Hey, I know I said I wanted to upgrade my Pos, but why don't we do pass in back office and X y Z. After that all at once and so it's created some really healthy conversations with with us with them, but also I think future brands are saying, let's not sequence that let's do it together.
Speaker Change: Gather and that's sort of the comments I had in the script about the combination of a break in data central as one.
Speaker Change: My major takeaway there, there's obviously tons of learnings around the logistics and coordination such a huge rollout, but those are all things I think you would expect us alone.
Speaker Change: Great.
I don't want to front run the analyst day too much since it's only in a couple of weeks and it looks like.
Speaker Change: Some of these strategically there but.
Speaker Change: You've obviously, demonstrating the ability to get to EBITDA positive for the core business.
Speaker Change: But youre also talking about our very robust pipeline demand M&A.
Speaker Change: Is there any thought on maybe.
Speaker Change: In the gas side.
Speaker Change: Hiring or investments that you show in the market that you can be profitable I'm just curious how you think about the philosophical.
Speaker Change: Yes, I think we're going to have to continue to invest because the opportunities. There we wouldn't invest that we do think the opportunity is there as an example, as I mentioned, we brought down R&D expense again that obviously can't continue forever.
Speaker Change: And so.
Speaker Change: We will certainly need to continue to invest as we deliver on these is this revenue growth.
Speaker Change: As I've observed there's very few software companies of our size that are still growing in the mid <unk> in and we really do feel we're at day. One of this very very large opportunity and so you'll see us continuing to invest and candidly when that opportunity out there youll see us stop and Youll see the cash flow spigot accelerate tremendously.
Speaker Change: So we are trying to balance the trade off and we think this quarter. It was really important to show you that we could still grow in the twenties, while delivering.
Speaker Change: EBITDA.
Speaker Change: And our mandate for our team we.
Speaker Change: In the mid <unk>.
Speaker Change: <unk> budgeting right now.
We need both this isn't this isn't a tradeoff, we need growth and when your profitability and so we push ourselves to get there, but we certainly will need to continue invest because as we've suggested and you said, there's a lot of pipeline and we don't want to be Penny wise pound foolish just to to.
Speaker Change: Deliver optical number we want to build something that's there for the very long run.
Speaker Change: Great Congrats on all the success guys.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question comes from the line of will Nance with Goldman Sachs. Please proceed.
Will Nance: Hey, guys I appreciate you taking questions nice results today 70, I wanted to follow up on some of the earlier commentary you had on data center I thought it sounded fairly upbeat and I think you mentioned in your response to one of the prior questions.
Will Nance: Being more aggressive about trying to attach it to pls deals and sell more of a unified experience. So just kind of wondering how are you guys.
Will Nance: The go to market changed.
Will Nance: <unk>.
Will Nance: Led to the success that you've seen in driving more captive data central to these deals and.
Will Nance: You mentioned doubling down on the strategy I think in the prepared remarks.
Speaker Change: What are you what are you kind of have in mind from that perspective over the next year or so.
Speaker Change: Yes, you definitely read that through well so.
Really excited but we're seeing a data central to your question of what's driving it.
Speaker Change: It's two things one is products.
Speaker Change: Being able to access data center reporting within the bring platform is it really a big unlock cutting.
Speaker Change: Cutting to reporting systems to one.
Speaker Change: Gives our customers a huge advantage it provides them a lot of confidence in the data not having to go from one system to validate the next system.
Speaker Change: I think that connectivity of the platform is really powerful and then the second part of it is that allowed us to then consolidate into one sales and marketing team and by going to market is to as one excuse me versus two.
Speaker Change: We were able to prove that out the other part of it I would say now we have demonstrated with customer success, showing the beauty of having both products at once and so it's the reason why I think we're excited is that we've proven it to ourselves between us and our customers and in our pipeline. It's quite remarkable how many deals you've been able to go into and say Hey, I know you are focused on point of sale.
We will absolutely deliver the best in class solution, but as you add data central it will be better together and here's our track record of proving that and we've been really encouraged how many customers and potential customers excuse me have resonated with that and said, okay. I think that makes sense.
That's great to hear I appreciate that and then just maybe more of like kind of a modeling our expectations that in question. So the 25% organic IRR growth Super impressive this quarter as we think about looking out over the next couple of quarters folding in some of the recent acquisitions into the base I know those are growing a little slower in low twenty's still.
Speaker Change: Sort of the right range to be thinking about absent.
Speaker Change: Acceleration in sort of large deal activity that you referenced in an earlier question.
Speaker Change: Yes, I think Phil.
Speaker Change: Last few years, our goal is to grow greater than 20% and when we buy a business. We want we sort of create a plan to get there.
Speaker Change: And I think what's exciting is that in every deal. We have done we have been able to accelerate the business first starting with pipeline and then deals and so we're just beginning that playbook.
Speaker Change: I already see it happening.
Speaker Change: On the retail side and we'll soon we'll see it on the <unk>.
Speaker Change: <unk> side so.
That's our hope and like I said the market is still really strong we're not seeing.
Speaker Change: These deals push out so were very helpful.
Awesome sounds great I appreciate you taking the questions.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Stephen Sheldon with William Blair. Please proceed.
Stephen Sheldon: Hey, Thanks, So really nice work here first can you just talk some about the pipeline with convenience store is really nice to hear about another tier one win there and could it make sense to put even more sales resources towards that opportunity given the growth runway in some of the secular tailwind that you've been seeing.
Speaker Change: We have a short answers we have it's actually I think in our go to market team. The only place that has a for next year, we're planning to grow the go to market team. There. So we completely agree and are adding and like I said I think its funny. When we did our CLO as people are a little bit confused and now it's so consensus that the greatest threat to restaurants in America, it's convenience stores and the greatest opportunity for convenience stores.
Speaker Change: As restaurants, and so there's these formats are colliding and we get to be a little bit of an arm supplier.
Speaker Change: Got it and then just on now that you've reached positive adjusted EBITDA can you talk about your expectations.
Speaker Change: To reach positive free cash flow and any rough sense on when you think that could happen.
Speaker Change: Absolutely what we've been telling people, we expect roughly a quarter lag it may not be perfectly scientific as you see this quarter, where operating cash flow positive.
Speaker Change: And does it mean delta will just be the interest expense.
Speaker Change: So yes.
Speaker Change: As you know we took out a notes.
To fund the <unk> acquisition, but we don't have lots of <unk>.
Speaker Change: Traditional call it capex and so on.
Speaker Change: I think there'll be roughly a quarter ish lag between between the two.
Speaker Change: Okay.
Very helpful. Thank you.
Thank you one moment for our next question.
Speaker Change: And it's from the line of Eric <unk> with Lake Street Capital markets. Please proceed.
Speaker Change: Yes good.
Speaker Change: On the organic business.
Speaker Change: All as well as far as the current state of affairs, but I was wondering from a macro perspective are you seeing any change in the top of funnel pipeline maybe.
Speaker Change: Two rfps that were there and then gone and pulled back any change up the funnel.
Speaker Change: No we haven't.
Speaker Change: We still feel pretty good.
Speaker Change: Yeah.
Speaker Change: Hi.
Speaker Change: So we haven't really seen much change at all from the last quarter and as far as demand.
Speaker Change: The only change we see is relatively positive on the datacenter side and Thats really the combination of a bank. So it's not like back office is exploding, it's that the attachment to bring because it's gotten customers excited.
Speaker Change: Okay, and then you talked about a growth rate in excess of 20%, but just taking that down another layer between engagement and.
Speaker Change: Operator segments.
Speaker Change: What's your expectation there or is there a difference between the growth rate that you're anticipating over the next two three years.
Speaker Change: Yeah, absolutely I mean, I think historically or not historically, the last kind of 12 months, you've seen tremendous growth in the operator cloud that will continue I think it's it's both a function of Tam operator cloud is in.
Speaker Change: A third of the sites roughly of the engagement cloud and so there is less market in front of it and.
Speaker Change: And so youll see more growth out of that side of business I think the other part of it is we've got more products to sell in that suite.
Speaker Change: We cannot tell you on back office payments and hopefully more to come.
But generally I think it's just a little bit earlier and its and its Tim.
Speaker Change: Got it thanks for taking my questions.
Speaker Change: Thank you.
Speaker Change: Our next question.
Is from the line of George Sutton with Craig Hallum. Please proceed.
Thank you Savi you had mentioned and obviously, we all know that the U S. Quick service restaurant brands are growing faster internationally.
Speaker Change: I'm just curious if you can give us an update now with task under your belt, a little bit what kind of.
Speaker Change: An opportunity or are you seeing core really driving those U S brands into the test system.
Speaker Change: We're really early we started the connect the connectivity if you will and it's funny.
Speaker Change: Just the announcement of the closing of the transaction led to a couple of people in down to us about potential.
Speaker Change: Partnership over there.
Speaker Change: I think what I can say, 100% validated is that our customers and not just our customers other big U S brands are looking for.
Speaker Change: Our solution internationally now we've got to prove that we can deliver on that going forward.
Speaker Change: Gotcha and one other thing on.
Speaker Change: The large brand opportunities in the U S. Obviously, you're rolling out.
Okay.
Speaker Change: Can you talk about.
Speaker Change: Your conversations with other brands as Youre talking about really scaling up and scaling down that implementation capability I'm just curious is that.
Speaker Change: Are you convinced you couldnt take on other large opportunities like that.
Speaker Change: Concurrently we are right now we are right now.
Speaker Change: I think the what I know for certain we can take it down because you.
Speaker Change: You can take down that expense.
Speaker Change: Ramping up we feel like we did a really good job for Burger King.
And potentially it could but I think given the pipeline we have we're likely to keep that going just because I think we're going to have more to rollout over time and hopefully this is our continued cadence.
Speaker Change: Perfect. Thank you.
Thank you.
Speaker Change: Our next question comes from the line of Charles Nabhan with Stephens.
Speaker Change: Good morning, and congrats on the quarter.
Speaker Change: Just a quick one on subscription gross margin based on the disclosure on slide 15, now if I look back over the past few quarters sequentially and then increasing in the mid single digit range I think four bps this quarter.
Speaker Change: Just curious if you expect that trajectory to continue and if you could remind us what specific products are accretive.
Speaker Change: To that margin I believe in the past you've said that punch is accretive brink is in line payments and menu are slightly below but.
Speaker Change: If you could just remind us of that.
Those drivers that would be helpful.
Speaker Change: Sure.
Speaker Change: You said is correct.
Speaker Change: Essentially what's happening is.
<unk> is now in line or if that has gotten close to getting in line and I think over time. It even has the potential to be more but right now it's getting in line.
Speaker Change: Punches accretive data central is very accretive.
Speaker Change: Our ordering and payments are at the moment below that.
Speaker Change: So were balances that par ordering and payments are the fastest growing part of the business.
Right now lower gross margin.
Speaker Change: That hurts margin, but the larger products are having more efficiencies come out and so that youre seeing the balance of that and obviously as we fold in our acquisitions.
Speaker Change: We will see the impact on gross margin all of our acquisitions. This year had been wildly accretive to the operating income side.
Speaker Change: As we get more disclosures out there youll see that impact on the gross margin side. So in general I think over time that number will move with move its way up quarter to quarter, it's a little bit hard because you're.
Speaker Change: Sure.
Speaker Change: Different growth rates of different parts of different times.
Got it and if I could follow up with that on.
Speaker Change: On that topic, if I recall when you acquired <unk> you had indicated that their average <unk> was a bit higher than.
Speaker Change: That of your existing product.
Speaker Change: Which would indicate that there is potential for uplift from taking a competitor out of the market with what it might be early but I was wondering if youre starting to see some.
Speaker Change: Some of that benefit from the <unk> acquisition on.
Speaker Change: On loyalty ARPA.
Speaker Change: Yes.
Speaker Change: Yes, it's too early.
Speaker Change: But I would say the benefit is not so much taking a competitor out but more of that.
Speaker Change: Converting the <unk>.
Speaker Change: Punched product customers to the studio platform, which is called open Commerce, and then I think overtime.
Speaker Change: Each market, what we believe is the best solution.
Speaker Change: And then and then obviously upsell down the road so you'll.
Speaker Change: Youll see this nice trend of the punchy store customers hopefully coming over to open open commerce platform at a higher price and then we think we can convert them to more and more products over time.
Speaker Change: Got it thanks again I appreciate the color.
Speaker Change: Thank you.
Speaker Change: As a reminder, ladies and gentlemen to ask a question simply press star one one to get in the queue.
Speaker Change: Our next question is from Adam Wyden with <unk> capital.
Speaker Change: Hey, guys.
Speaker Change: Congrats on a great quarter in the <unk>.
Reaching the milestone of $2 5 million of EBITDA I think I remember in 2018 sitting in my office with Chris Byrnes and talking about how as hardware sales go down you know youre going to lose a lot of money in it.
Speaker Change: It's just an entirely different business now today than it was six years ago and so.
Speaker Change: I think as you sort of said over the last few quarters, it's not about hardware. It's not about this stuff, it's about building $80 to 90% gross margin software in and letting that sort of.
Speaker Change: Tell the story of profitability.
So it's great to see that.
I just had a couple of questions.
Speaker Change: One is on Burger King.
Speaker Change:
Speaker Change: It doesn't at least from where I am looking at it doesn't feel like you really started ramping up Burger King a lot can you sort of give us an update on sort of the Burger King rollout and then.
Speaker Change: Sort of making inroads in terms of the other brands I know like on all the expert networks and stop the transcripts of said the relationship is really strong and they really like you. So maybe sort of expand on sort of where that rollout is in sort of how that relationship is evolving to the extent that it can be clear potential for the other brands as well.
Speaker Change: Sure so yes.
Speaker Change: We're really limited what we can say.
Speaker Change: Well, we're a vendor to a business and so there's not a ton I can give you specifics around I would say the relationship is really strong we are very close to the team.
Speaker Change: Both on a personal and a business level I think we feel like we understand each other well we have a long way to go here and so I think.
Speaker Change: The opportunity is great not just with <unk>, but with other products down the road.
Speaker Change: <unk>.
Speaker Change: Real excitement I have coming out of this.
Speaker Change: In partnership with them, but.
Speaker Change: We can't say a lot.
Yes.
Speaker Change: Without approvals and things like that.
As far as the other brands.
Speaker Change: We're actively engaged with all of them.
Speaker Change: There is.
I think great respect for what we've delivered already and I should mention that.
Speaker Change: Those other brands.
They have experienced with other products and that is incredibly helpful.
Speaker Change: And so we are.
Speaker Change: I think looking forward to leveraging not just the experience we've had a hurricane but with other products within those brands that help us.
Speaker Change: As well so I think we've got a good reputation within there I think we've got now have.
Speaker Change: Hopefully the.
Speaker Change: Their perspective as part of our deliveries.
Speaker Change: So I see no reason for us not to eventually do more.
And just in terms of like the rollout of brands I mean I know.
Speaker Change: Have a mandate internally to make the franchisees roll it out before some deadline I mean is it fair to assume that some of the 'twenty because the way Im looking at is your growth is like 25 without a kind of Burger King. So the way I'm looking at is you probably would expect more Burger King and 25 is that sort of a fair assumption.
Speaker Change: We will definitely have a lot more in 'twenty, but I don't want to definitely.
Speaker Change: I might expectation is we'll have.
Uh huh.
Speaker Change: I've got a lawyer in the room 25, greater than we have in 'twenty five 'twenty four right.
Speaker Change: Okay, Yes, that's sort of my read through is that youre picking up youre sort of sustaining a 25% growth with not a ton of Burger King, which means that it's just like it makes us more optimistic about your ability to sustain the growth rate.
Speaker Change: And then.
Speaker Change: You talked about hoping to have some more announcements on on other tier ones.
Speaker Change:
Speaker Change: Are you.
Speaker Change: Talk to me a little bit about M&A, I mean, obviously, you've done passengers or they've done well.
How do you think about being able to sort of add on more modules you sort of pseudo you've now had I guess eight months of that and it's gone really nicely task is obviously, a large public company, it's different but in terms of what I would call an industrial will be the sort of call. It bolt on M&A sort of module is not platforms and if we think about past that sort of international.
Speaker Change: Platform.
Could we do a couple I mean, obviously, it's all cost of capital dependent than obviously, what they want to pay relative to what youre trading at whatnot, but I mean do.
Speaker Change: Do you think that you could do one or two bolt ons next year to add product functionality because at least from our perspective, we're seeing a lot of businesses.
Speaker Change: The private markets that are sort of stranded that have pretty nice products, but sort of don't have the distribution that you do I mean, we spoke to accompany just yesterday thats doing AI products.
Don't know how I don't know how big it is but it's probably in the single digits or they are but they have no distribution. I mean. These are these are the types of companies that you would be able to plug into your platform and cross sell so I am curious now with sort of.
Speaker Change: Private equity leveraged in the IPO market sort of slow like you know you really don't have a ton of competition to buy these assets I mean, how do you think about like sort of returning to that market to do some of these deals at some point in valuations and growth I'm. Just curious is that still possible or front of house.
Speaker Change: So the M&A focus is definitely more on the module is the tuck ins the bolt ons than it is on our platform.
Speaker Change: So we are really.
Speaker Change: Focus on that because I think we can now proven to ourselves that when we've got long we can push it through the distribution pipeline with.
Speaker Change: Limit to no no cost so that is definitely the focus and I would completely agree with your comment on businesses being stranded.
Speaker Change: Okay.
Speaker Change: Good.
Speaker Change: We got others in the queue, Okay last one.
Speaker Change: No no.
Speaker Change: It does.
Speaker Change: I would only just say that look to the extent that you guys can get your tier one customers to be your advocates and allow you to announce that I mean look.
Speaker Change: Happy customers and letting them know that you're giving them great value I mean look I know historically these customers have had a hard time letting you press release. So what have you I think <unk> has done a phenomenal job and Jeff Jeff Kaplan if he's on the call. We appreciate all the missionary who joined for par, but to the extent that you can get your customers to speak on your behalf I mean that is the best sales and.
That you can have and to the extent that you let your customers.
Speaker Change: <unk> be an advocate for publicly but also just with the press releases I think it will help give everybody a sense of that.
Speaker Change: Our original thesis of this company is that Theres no one else really penetrate into tier one is playing out almost perfectly and so we see you guys are one of one competitive asset with no competition and so I think to the extent that others can see that and you can let other people speak on your behalf and put up these press release on the customers I think that would help accelerate your cause.
Speaker Change: But now this is this is great and congratulations.
Speaker Change: Thanks, Jonathan.
Thank you sorry.
Speaker Change: As a reminder that is star one line. If you do have a question one moment. Please for our next question.
It comes from the line of anger thunderstorm with Sidoti.
Speaker Change: Hi, and thank you for taking my questions and congratulations on the nice performance here.
Speaker Change: Most of my questions have been addressed already but can you just speak a little bit about the M&A environment and if you see any changes there.
Speaker Change: I think that it's a little bit we just talked about which is I think our focus on the M&A environment is on these bolt on tuck ins modules that we can push through our platform once fully integrated into one of our products.
Speaker Change: You know from environment perspective.
Speaker Change: It's very robust.
Speaker Change: It seems.
Speaker Change: Like.
There is more to companies for sale then there are historically.
<unk>.
Definitely some larger transactions that have happened, but we haven't seen is a lot of the smaller medium sized transactions come through yet and I think thats next.
Okay. Thank you that was all for me.
Speaker Change: Thank you so much.
Speaker Change: And our last question one moment please.
Speaker Change: Comes from the line of Mark Palmer with Debenture Mark Company.
Speaker Change: Yes. Thank you for talking to you here and very nice job on the quarter.
My question is about task group and the potential of that platform.
Speaker Change: Initial thinking with regard to the acquisition of task was that.
Speaker Change: It would enable par too.
Speaker Change: Follow.
Speaker Change: <unk> customers in the U S.
Speaker Change: Internationally.
Speaker Change: Especially because theres more growth there, but are there any other benefits.
Speaker Change: Task that you foresee.
Speaker Change: Especially in terms of.
Speaker Change: Landing new customers.
Speaker Change: Beyond the ones that you are able to accompany in there.
Speaker Change: International for Us Thank you.
Speaker Change: Certainly I think we are.
Speaker Change: I hate anecdotal stuff, but we talk to our brand. This week that we've never had a robust conversation with prior to think of.
Speaker Change: The test product is very unique very special in the international markets and hopefully we can bring that forward to.
U S relationship overtime, so absolutely I think the task.
Speaker Change: Levered for customers that we don't have relationships too and as I mentioned, a little bit earlier. It's also delivered in a market that we're not in.
Speaker Change: Like stadiums and stuff that will take a look at as well.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: Thank you and this concludes our Q&A session for today I will turn the call back to Christopher Byrnes for closing comments.
Thank you Carmen and thank you to everyone for joining us. This morning, we look forward to updating you further in the coming weeks.
Speaker Change: In closing, we look forward to seeing everyone at our upcoming Investor Day on November 25th at the New York Stock Exchange.
Speaker Change: <unk> limited for those intending to attend in person. Please register via email at IR at <unk> Dot Com, we kick off at one P. M that day and we will also be webcasting, our presentation with an accessible link on the investor page of our website.
Speaker Change: We kind of everybody.
And thank you all for participating in today's conference and you may now disconnect.
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Speaker Change: Good day, everyone and welcome to par technology fiscal year, 2024 third quarter financial results.
Speaker Change: 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 participate you will need to press star one one on your telephone you will Dan here message advising your hand. This raced to withdraw your question simply press Star one again.
Speaker Change: Please be advised that today's conference is being recorded.
Speaker Change: Now I will pass the call over to the senior Vice President of Investor Relations and business development Christopher Byrnes. Please go ahead.
Christopher Byrnes: Thank you Carmen and good morning, everyone and thank you for joining us today for <unk> technologies 2024 third quarter financial results call.
Christopher Byrnes: Earlier. This morning, 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 financial presentation as well as in our related form 8-K furnished to the SEC.
Christopher Byrnes: During our call today, we will reference non-GAAP financial measures, which we believe to be useful to investors and exclude the impact of certain items.
Christopher Byrnes: 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.
Christopher Byrnes: I'd also like to remind participants that this conference call may include forward looking statements that reflect management's expectations based on currently available data. However.
Christopher Byrnes: However, actual results are subject to future events and uncertainties.
The information on this conference call related to projections or other forward looking statements may be relied upon and subject to the safe Harbor statement included in our earnings release, this morning, and in our annual and quarterly filings with the SEC.
Christopher Byrnes: Finally, 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.
Christopher Byrnes: Joining me on the call today is par CEO and President <unk> Singh and Bryan <unk>, Chief Financial Officer, I'd now like to turn the call over to Stephanie for the formal remarks portion of the call, which will be followed by general Q&A excuse me.
Speaker Change: Chris and thank you all for joining us today.
Speaker Change: Our Q3 results made available this morning represent the seventh consecutive quarter in which part is delivered greater than 20% organic growth with limited operating expense.
Speaker Change: This continued sequential growth at scale and demonstrating operating leverage efficiency has enabled <unk> to report positive adjusted EBITDA for the quarter of <unk>.
Speaker Change #100: First is the company been began disclosing this metric earlier.
Speaker Change #100: Earlier and management's tenure.
Speaker Change #100: Our performance this quarter reflects the continued validation of our products as best in class Standalone and even better together.
Speaker Change #100: Our strategic focus on delivering a unified solution is improving user experience further and customer stickiness and expanding sales opportunities beyond that of a single product to.
Speaker Change #100: <unk> always talked about is working and has generated the financial return we reported today.
Speaker Change #100: Digging into our results.
Speaker Change #100: Subscription services continues to be the growth engine of our company Q3 exit <unk> totaled more than $248 million in subscription services revenue for the period grew 91% when compared to Q3 last year. This revenue expansion was driven by 25% organic growth compared to Q3 last year and contributions from <unk>.
Our EBITDA accretive 2020 for M&A activity, including the Companys acquisition of task group, which closed in July.
Speaker Change #100: Critically our M&A activity is expected to continue to accelerate our overall growth trajectory into the future by unlocking new verticals and multi product attachment.
Speaker Change #100: Operator cloud grew 41% to $93 4 million in Q3, when compared to the same period last year.
Speaker Change #100: This growth was driven by multi product attachment of data central and part payments and continued <unk> improvement, which increased 11% from the same period last year.
Speaker Change #100: Observed <unk> improvement was driven by price increases in part payment service attachment.
Speaker Change #100: Our opportunity for new tier one deals continues to be strong and we believe ourselves to be well positioned to win and growth through both new logo signings and the upsell of data central and payments part.
Speaker Change #100: POS has a robust backlog and we have high confidence and visibility into consistent growth rates for years to come.
Speaker Change #100: Turning to prepayments Q.
Speaker Change #100: Q3 was a strong quarter marked by focused pipeline execution and the signing of several new concepts, including Acropolis, Great Tavern, Burger Ville, Brooklyn, Pickle and Fatboy pizza.
Speaker Change #100: All of which are set to go live in the upcoming quarter.
Speaker Change #100: Q3 also marked the company's first full quarter since the launch of punch wallet a product we've seen gained strong market momentum and resulted in customer wins with cleanness and Burger Bill.
Speaker Change #100: Additionally, we executed our first payments funded hardware deal, which helps reduce capital expenditure pressures on merchants.
Looking ahead, we're expanding our opportunities with the launch of QR code pay at the table capability in Q4 with customer go live expected before the end of the year.
Speaker Change #100: Turning towards data central.
Speaker Change #100: We see strong product pipeline and anticipate the conversion of this pipeline will accelerate.
Speaker Change #100: <unk> momentum is real and we believe data center will be a strong growth driver as the park pass plus data central combination is becoming the go to operator solution partners.
Speaker Change #100: <unk> is uniquely positioned in the enterprise space with both market, leading Pos and back of House solutions, which is mirrored by our pipeline we.
Speaker Change #100: We are excited to continue to see our operator cloud products, we gained traction with our largest customers are.
Speaker Change #100: Our combined Pos plus back off of our steel is worth almost two extra project with only one product.
Speaker Change #100: It has taken time, but our vision of the connected operator suite is proving out and we're looking to double down on this in the coming months.
Speaker Change #100: Moving to engagement cloud Q3 results are fully reflected our strongest year over year organic growth since 2022, driven by the go live of Wendy's.
Speaker Change #100: Total engagement cloud <unk> grew by nearly 150% from the same period last year, when including power retail and the <unk> Division, a task group and now totals $155 million.
Speaker Change #100: Year over year AOR growth for engagement cloud with nearly 17%.
Speaker Change #100: Our engagement product suite continues to prove its market leadership with punch Out-front Onboarding over 12000, new locations and three major tier one clients in the last 12 months.
Speaker Change #100: With this growth engagement cloud site count now stands at an impressive 118000 sites.
Speaker Change #100: While our while we are winning and launching major new brands, we continue to invest for the future with new innovation, including punch wallet, which enables seamless earn redeemed and paid as well as new <unk> functionality with gamification and in store customer interfaces.
This past quarter saw significant new customer growth with nine new brands launching on the punch platform and 12 upsell deals to existing customers.
Speaker Change #100: Early July we went live with Wendy's a deal we first announced in Q1. This go live represented a record timeline to take a tier one enterprise customer live on punch with over 7001, <unk> stores and reflects the urgency with which our people are empowered to operate.
Speaker Change #100: Looking ahead, we expect punch to be a strong profit contributor to par.
Our retail formerly studio now operates in over 25000 convenience stores and fuel stations and provides a beachhead to cross sell additional products, including payments and back office.
Speaker Change #100: Power retail is getting sales momentum and picked up a large tier one customer win in the quarter.
Speaker Change #100: We also extended our relationship with major oil with a major oil customer by adding over 400 sites and extending the current contract by two years.
Speaker Change #100: With more and more consumers utilizing C stores prepared food and meal delivery options. We are seeing our investment thesis play out in real time.
Speaker Change #100: Brick and mortar formats are colliding and this is playing out even faster than we expected.
Speaker Change #100: <unk> is uniquely positioned to benefit from both <unk> and <unk>.
Speaker Change #100: We recently rebranded menu to par ordering and are seeing momentum in winning deals within the punch space. Most recently, adding a 115 cleaning stores.
In connection with this rebrand we also combined go to market teams to position par ordering and every punch deal and increase our sales capabilities.
Speaker Change #100: We've made the necessary investments to build tighter integrations and the outputs are driving new customer wins.
Speaker Change #100: <unk> is rapidly achieving scale and as we and as we've crossed over 1 million transactions per month threshold, while achieving 99% order health a key milestone.
Speaker Change #100: Stone that demonstrates product strength to prospective customers and the industry.
Moving to hardware.
Speaker Change #100: Q3 revenue grew 13% quarter over sequential quarter.
We expect hardware to continue to stabilize as our team works to upgrade our legacy base of long term hardware only customers and pursue even higher attachment rates with our Pos customers.
Speaker Change #100: Stepping back to review our consolidated results.
Speaker Change #100: Today's announcement of delivering 25% year over year organic <unk> growth and positive Q3, adjusted EBITDA of $2 $4 million is an important milestone for us.
Speaker Change #100: And efficiency metrics continue to impressively scale with our focus on organic growth and EBITDA accretive M&A.
Subscription sales and marketing expense as a percentage of subscription services revenue. This quarter was 14% a 400 basis points sequential improvement from 18% in Q2.
Speaker Change #100: Subscription R&D expense as a percent of subscription and services revenue was 26% a 500 basis point sequential improvement from 31% in Q2.
Speaker Change #100: And organic R&D spend again decrease year over year as we remain committed to spending in areas, where we can prove ROI.
Speaker Change #100: We take pride in today's milestone, but today remains stay one crucially the combined scale ability of our products and the continued flex in our operating leverage ensures that our financial metrics will only continue to improve over the years.
Speaker Change #101: Brian will now review the numbers in more detail Brian.
Thank you Stephanie and good morning, everyone.
Q3 was a successful quarter for par subscription services continue to fuel top line growth, while we stayed fiscally responsible managing our operating expenses.
As a result, adjusted EBITDA for the quarter was a positive $2 4 million indicative of an inflection point.
Speaker Change #101: Diving growth with profitability.
Speaker Change #101: Before moving forward and as stated in our Q2 earnings call All 2024, and comparative 2023 results that we will discuss this morning.
Speaker Change #101: Exclude any contributions from par government.
Speaker Change #101: So those results, including the gain on the restrictive sale of our government as an isolated within our discontinued operations results.
Speaker Change #101: Total revenue were 90 total revenues were $96 8 million for the three months ended September 32024, an increase of 41% compared to the same period in 2023.
Speaker Change #101: Driven by subscription service revenue growth of 91%, partially offset by a decrease in hardware revenue of 12%.
Net loss from continuing operations for the third quarter of 2024 was $20 7 million.
Speaker Change #101: Or <unk> 58 loss per share.
Speaker Change #101: Net loss from continuing operations of $19 2 million or <unk> 77 loss per share reported in the same period in 2023.
Speaker Change #101: non-GAAP net loss for the third quarter of 2024 was $3 1 million or <unk> <unk> loss per share a significant improvement compared to a non-GAAP net loss of $99 7 million or 35% loss per share for the same period in 2023.
Speaker Change #101: Adjusted EBITDA for the third quarter of 2024 was $2 4 million compared to an adjusted EBITDA loss of $6 6 million for the same period in 'twenty three.
Now for more details on revenue.
Speaker Change #101: Subscription service revenue was reported at $59 9 million, an increase of $28 5 million or <unk>, 91%, 91% from the third $31 4 million.
Speaker Change #101: According the prior year and now represents 62% of total par revenue.
Excluding car retail and tasks organic subscription service revenue grew 28% compared to prior year.
Speaker Change #101: Yeah.
Speaker Change #101: Sure.
Speaker Change #102: Annual recurring revenue exiting the quarter was $248 1 million, an increase of 93% from less last year's Q3 with engagement cloud up 149%.
Speaker Change #102: And operator cloud up 41%, excluding part retail on task total organic annual recurring revenue was up 25% year over year.
Speaker Change #102: Hardware revenue in the quarter was $22 7 million.
Speaker Change #102: A decrease of $3 2 million or 12% from the $25 8 million reported in the prior year.
Speaker Change #102: Sequentially.
Speaker Change #102: Q2, this year hardware was up $2 5 million or 13%.
The continued interest from our legacy hardware customers as well as the continued high attachment of hardware sales, which in our expanding software customer base gives us confidence that our hardware business will continue to contribute meaningful revenue in March.
Professional service revenue was reported at $14 2 million, an increase of $2 7 million or 23% from the $11 5 million reported in the prior year.
Speaker Change #102: We are pleased with our team's ability to continue to grow professional service revenue during a period of hardware revenue contraction.
Speaker Change #102: The growth was driven by recurring revenue service contracts $8 9 million of the professional services revenue in the quarter consisted of recurring revenue of 23% increase versus prior year.
Now turning to margins.
Speaker Change #102: Gross profit was $43 million, an increase of $17 9 million or <unk>, 71% from $25 1 million reported in the prior year.
Speaker Change #102: The increase was driven by subscription services with gross profit of $33 1 million, an increase of $17 3 million or 109% from the $16 9 million reported in the prior year.
Speaker Change #102: Subscription service margin for the quarter was 55, 3% compared to 56% reported in the third quarter of 2023.
Speaker Change #102: The increase in margin is driven by our continued focus on efficiency improvements with their hosting and customer support contracts as.
Speaker Change #102: As well as accretive margin contributions from recent acquisitions.
Speaker Change #102: <unk> the amortization of intangible assets.
Speaker Change #102: Stock based compensation and severance total non-GAAP subscription services margin for Q3, 2024 was 67% compared to 69% for Q3 2023 and sequentially improved from Q2, 66%.
Speaker Change #102: Our margin for the quarter was 25, 5% versus 25, 3% in Q3 of 2023.
Professional service margin for the quarter was 29, 2% compared to 23, 8% reported in the third quarter of 2023.
Speaker Change #102: The increase primarily consist of increases in margins for field operations and installations substantially driven by improved cost management and reductions in third party spending.
Speaker Change #102: In regards to operating expenses.
Speaker Change #102: GAAP sales and marketing was $10 5 million, an increase of $1 million from the $9 5 million reported for Q3 2023.
Speaker Change #102: With the increase being driven by inorganic costs related to our acquisitions, while organic sales and marketing was flat year over year.
Speaker Change #102: GAAP G&A was $27 4 million, an increase of $9 8 million from $17 5 million reported in Q3 2023.
Speaker Change #102: The increase was primarily driven by non-GAAP adjustment items for M&A transaction fees and stock based compensation as well as post acquisition costs.
Speaker Change #102: GAAP R&D was $17 8 million, an increase of $3 2 million from the $14 7 million recorded in Q3 2023.
Speaker Change #102: The increase was primarily driven by post acquisition expenses, while organic R&D expenses were flat year over year.
Speaker Change #102: Operating expenses, excluding non-GAAP adjustments was $47 7 million, an increase of $10 3 million or 28% versus Q3 2023.
And excluding inorganic growth organic operating expenses increased a modest 7%.
Speaker Change #102: The organic increase was primarily driven by variable compensation and benefits.
Speaker Change #102: Now to provide information on the company's cash flow and balance sheet position.
Speaker Change #102: As of September 32024, we had cash and cash equivalents of $105 8 million and short term investments of $12 six months.
Speaker Change #102: For the nine months ended September 30 cash used in operating activities from continuing operations was $2 4 million versus $27 9 million for the prior year.
Speaker Change #102: The improvement was driven by a $10 million improvement in net loss net of noncash adjustments.
Speaker Change #102: Cash used in investing activities was 100 was $178 1 million. The nine months ended September 30 versus $4 8 million for the prior year.
Speaker Change #102: Investing activities included $293 6 million of net cash consideration in connection with our recent acquisitions and capital expenditures of $4 million for developed technology costs associated with our software platforms.
Partially offset by $92 1 million of cash consideration received in connection with the disposition of par government.
Speaker Change #102: And $24 9 million of proceeds from net sales of short term held to maturity investments.
Speaker Change #102: Cash provided by financing activities was $279 3 million for the nine months ended September 30 <unk>.
Speaker Change #102: Compared to cash used of $1 8 million for the prior year.
Financing activities was substantially driven by private placement of common stock to fund the <unk> acquisition and a credit facility entered into to fund the task acquisition.
Speaker Change #103: I would like to take a moment to reiterate thank our par team.
Continuing to successfully execute our operating plan, while managing the integration of both par retail and test. In addition to completing the smooth divestiture of our government.
Speaker Change #103: As a result, we have driven significant improvement in key financial metrics with <unk>.
Speaker Change #103: 25% organic <unk> growth and 93% total <unk> growth.
Speaker Change #103: Flat to modest growth in organic non-GAAP operating expenses for our seventh consecutive quarter.
Speaker Change #103: Culminating in Q3 positive adjusted EBITDA of $2 4 million.
Speaker Change #103: But to be sure. This is day, one and not a finish line.
Speaker Change #103: We are excited about the opportunity in front of us to continue to deliver outcomes that drive value for all our stakeholders.
Speaker Change #104: I will now I will now like to turn the call back over to Stephanie for closing remarks prior to Q&A.
Speaker Change #105: Thanks, Brian we continue to see par is uniquely positioned in the foodservice technology sector with best in class software across key operational and engagement pillars, our ability to guarantee better together experiences across our products, while separately, enabling a robust integration infrastructure keeps us ahead of single product competitors that only control one part of the.
Speaker Change #105: Better together equation and are dependent on third party integrations.
Speaker Change #105: In other words, our products are winning on a standalone basis, but we continue to see a growing desire in the market for vendor consolidation.
Speaker Change #105: We believe the environment is ripe for continued M&A activity and par has shown itself uniquely capable of consolidating in the enterprise space, while driving higher growth and profitability.
Speaker Change #105: We are delivering an impressive better together platform and our smartly investing to continue that track record balancing our need for both growth and profitability.
Speaker Change #105: We look forward to sharing more about our longer term vision and strategy at our Investor day on November 25th Thank.
Speaker Change #105: Thank you to all of our employees for your dedication and effort over the past quarter across organization. Our people have stepped up to ensure we deliver the outcomes the outcomes our customers demand while embracing the hard work necessary to build a company capable of delivering long term shareholder value.
Speaker Change #105: And as I said earlier, we're still at day one.
Speaker Change #105: Chris.
Speaker Change #106: Carmen that concludes our formal remarks. This morning can we now open the call to Q&A. Thank you, Chris and as a reminder to ask a question simply press star one on your telephone and wait for your name to be announced to withdraw your question Press Star One again, one moment for our first question.
Speaker Change #107: And he is from the line of Mike <unk> with Needham. Please proceed.
Speaker Change #108: Thank you good morning, congrats on the quarter suddenly I wanted to just focus on the large deal activity I think when we came into 2024, you had called out record RFP activity and I believe there were seven large deals I think you've logged one or two if im keeping.
Speaker Change #108: Cowen correctly I, just wanted to get sort of a status update on the other ones do you think you could still land a few more whats the status of that and if you were able to do it could that potentially help accelerate the organic <unk> growth I know you've said mid <unk> is that something that conceivable. If you were to win some of these larger opportunity.
Speaker Change #108: And the pipeline.
Speaker Change #109: I think we have a good shot.
Speaker Change #109: Of closing more before the end of the year.
Speaker Change #109: As far as accelerating our growth.
Speaker Change #109: You know, it's hard to say it depends on the rollout of these of these deals and certainly won't hurt it. So I think our plan is built without even needing.
Speaker Change #109: These mega deals, but if they come they certainly would accelerate us.
Speaker Change #109: But it's hard to sequence of timing of assigning in a rollout.
Speaker Change #110: Understood, maybe I'll switch over to the M&A. So.
Speaker Change #110: We hear that the progress on the acquisition of Steuben task.
Speaker Change #110: Has been good could you give us a little bit more color in terms of whats.
Speaker Change #110: Surprised you positively uneven negatively.
Speaker Change #111: Maybe it would be helpful to get any.
Speaker Change #111: Sort of data points on your ability to.
Speaker Change #111: Ross sale into these accounts.
Accounts and when new logos I know, it's early but any additional color beyond what you said in your prepared remarks will be helpful.
Speaker Change #111: Sure on the par retail side, formerly studio.
Speaker Change #112: It's been a fantastic experience.
Speaker Change #112: We've seen really great receptivity by the end market for <unk> involvement I think at the same time, we've been able to add some go to market heft to the area and most importantly, I think.
Speaker Change #112: We're really excited about the product delivery, we can we can push into that market and so it's been fantastic I think culturally it has been a tremendous fit and.
Speaker Change #112: Just crazy excited as we mentioned we signed a.
Speaker Change #112: Our next to a large customer in the quarter.
Speaker Change #112: And we think Theres a lot more to come and importantly, when we made this acquisition.
Speaker Change #112: It was a bit contrarian the idea of C stores.
Speaker Change #112: Becoming foodservice businesses was still really not.
Speaker Change #112: And if you look today, it's because it's not become the narrative has become consensus.
Speaker Change #112: Convenience stores are growing their foodservice businesses.
Speaker Change #112: Double digits across the industry and for them to continue to compete with restaurants, they need they need tooling like we provide and so I think we will have the same playbook in this vertical as we did in restaurants, and obviously, it's great because it can leverage what we've done in restaurants in that market. So I think we feel really good really excited and it's a nice long term place for us to be.
Speaker Change #112: On the task group side. We're so early we're a few months into it but I think what we're looking at very quickly is the platform of special it's one of those products when you demo.
Speaker Change #112: Joe It's Jonathan aren't dropping but the enterprise version of that and we've seen really strong interest not just in restaurants, but in these adjacent verticals call them shoulder market.
Speaker Change #112: Like sporting stadiums hotels casinos, and I'm, not saying, we're going to go into that but it certainly gives us sufficient of doing more than what we do today and then I think importantly, as we've talked about.
Speaker Change #112: Giving us that international arm that we'd never had before is wildly important as our big United States customers are almost.
Speaker Change #112: All growing more internationally than domestically so.
Speaker Change #112: We're really excited for that as well.
Speaker Change #113: That's helpful. Congrats again, thank you so much.
Speaker Change #114: Thank you.
Speaker Change #115: One moment for our next question that is from the line of Samad Samana with Jefferies. Please proceed.
Samad Samana: Hey, good morning, Thanks for taking my question and.
Samad Samana: Maybe it will start first with the Japanese and the rollout of Burger King and Wendy's I know they're there.
And different products, maybe what have you observed or learned.
Samad Samana: Now that youre implementing any of these larger customers what the organization and the product is stable Bob is there anything that you've seen that maybe you could do better that they are asking for as you are rolling it out or something that's gone, particularly well and how does that maybe inform you.
Samad Samana: As you think about targeting additional large customers.
Speaker Change #116: That's a great question smart so on the R&D side.
Speaker Change #116: That's our enterprise rollout of <unk>.
Speaker Change #116: And I think our major learning is.
Speaker Change #116: Doing this at scale and getting it out as we mentioned it was our fastest large rollout ever and honestly I think what you just gave us confidence that why can't we do that again and so from a business perspective, I think what it's showing is that we can operate in these large enterprises and so it's making us a lot more creative about how we structure our deals with these large tier one brands.
Speaker Change #116: And not giving them the cookie cutter process, we've had for the last decade or so so I think it's kind of it's not changed I think how we operate but certainly gives us confidence in thinking about how we structure of future enterprise deals.
Speaker Change #116: On the PR side with Burger King.
We're still relatively early I think the major exciting takeaway is I.
Speaker Change #116: I think our experience there is fully convinced us and I think we'll have this in our numbers over time that.
Speaker Change #116: Quote unquote, just doing Pos is not the.
Speaker Change #116: At the end game and so I think what we're going to see more and more of these large rollouts is saying Hey, I know I said I wanted to upgrade my Pos, but why don't we do pass in back office and X y Z. After that all at once and so it's created some really healthy conversations with with us with them, but also I think future brands are saying, let's not sequence that let's do it together.
Speaker Change #116: Other than that sort of the comments I had in the script about the combination of of breaking data central as one.
Speaker Change #116: My major takeaway there, there's obviously tons of learnings around the logistics and coordination such a huge rollout, but those are all things I think you would expect us alone.
Speaker Change #116: Great.
Speaker Change #116: Don't want to front run the analyst day too much.
Speaker Change #117: Only in a couple of weeks and it looks like Youre getting some of these strategic moves there, but you've obviously demonstrating the ability to get to EBITDA positive for the core business.
Speaker Change #117: We're also talking about a very robust pipeline demand M&A.
Speaker Change #118: Is there any thought on maybe.
Speaker Change #117: In the gas side.
Speaker Change #117: Hiring or investments that you show in the market that you can be profitable I'm just curious how you think about the philosophical.
Speaker Change #119: Yes, I think we're going to have to continue to invest because the opportunity is there we wouldn't invest it we didn't need the opportunity is there as an example, as I mentioned, we brought down R&D expense again and that obviously can't continue forever.
Speaker Change #117: So.
Speaker Change #117: We will certainly need to continue invest as we deliver on these is this revenue growth.
Speaker Change #117: As I've observed there's very few software companies of our size that are still growing in the mid <unk> in and we really do feel we're at day. One of this very very large opportunity and so you'll see us continuing to invest and candidly when that opportunity out there youll see us stop and Youll see the cash flow spigot accelerate tremendously.
Speaker Change #117: So we are trying to balance the trade off and we think this quarter. It was really important to show you that we can still grow in the twenties, while delivering.
Speaker Change #117: This EBITDA.
And our mandate for our team we are in the mid.
Speaker Change #117: No our budgeting right now is we need both.
Speaker Change #117: This isn't a tradeoff, we need growth and when your profitability and so we push ourselves to get there, but we certainly will need to continue invest because as we've suggested and you said there is a lot of pipeline and we don't want to be Penny wise pound foolish just to deliver optical number we want to build something that's there for the very long run.
Speaker Change #120: Okay, great Congrats on all the cost guidance.
Speaker Change #121: Thank you.
Speaker Change #122: Thank you. Our next question comes from the line of will Nance with Goldman Sachs. Please proceed.
Will Nance: Hey, guys I appreciate you taking questions nice results today.
Will Nance: I wanted to follow up on some of the earlier commentary you had on data center I thought it sounded fairly upbeat and I think you mentioned in your response to one of the prior questions.
Being more aggressive about trying to attach it pls deals and sell more of a unified experience. So just kind of wondering how are you guys.
Will Nance: When you go to market changed.
Speaker Change #123: What's led to the success that you've seen in driving more types of data center to these deals and.
Speaker Change #123: You mentioned doubling down on the strategy I think in the prepared remarks.
Speaker Change #123: What are you what are you kind of have in mind from that perspective over the next year or so.
Speaker Change #124: Yes, you definitely read that through well so.
Speaker Change #125: Really excited but we're seeing a data central to your question of what's driving it.
Speaker Change #125: It's two things one is product.
Speaker Change #125: Being able to access data central reporting we didn't bring platform is it really a big unlock cutting to reporting systems to one it gives our customers a huge advantage. It provides them a lot of confidence in the data not having to go from one system to validate the next system.
Speaker Change #125: I think that connectivity of the platform is really powerful and then the second part of it is.
Speaker Change #125: That allowed us to then consolidate into one sales and marketing team and by going to market is to as one excuse me versus two.
Speaker Change #125: We were able to prove that out the other part of it I'd say now we have demonstrated with customer success, showing the beauty of having both products at once and so it's the reason why I think we're excited is that we've proven it to ourselves and committed to our customers and in our pipeline. It's quite remarkable how many deals you've been able to go into and say Hey, I know you are focused on point of sale.
Speaker Change #125: We will absolutely deliver the best in class solution, but as you add data central it will be better together and here's our track record of proving that and we've been really encouraged how many customers and potential customers excuse me have resonated with that and said, okay and I think that makes sense.
Speaker Change #126: That's great to hear I appreciate that and then just maybe more of like kind of a modeling our expectations that in question. So the 25% organic IRR growth Super impressive this quarter as we think about looking out over the next couple of quarters folding in some of the recent acquisitions into the base I know those are growing a little slower in low twenty's still.
Speaker Change #126: Sort of the right range to be thinking about absent.
Speaker Change #126: Acceleration in sort of large deal activity that you referenced in an earlier question.
Phil: Yes, I think Phil.
Phil: For the last few years, our goal is to grow greater than 20% and when we buy a business. We want we sort of create a plan to get there.
Phil: And I think what's exciting is that in every deal. We have done we have been able to accelerate the business first starting with pipeline and then deals and so we're just beginning that playbook.
Speaker Change #128: Already see it happening.
Speaker Change #128: On the part of retail side and we'll soon we'll see you on the tax side. So.
Speaker Change #128: That's our hope and like I said the market is still really strong we're not seeing.
Speaker Change #128: These deals push out so were very helpful.
Speaker Change #129: Awesome sounds great I appreciate you taking the questions.
Speaker Change #129: Thank you our.
Speaker Change #130: Our next question comes from the line of Stephen Sheldon with William Blair. Please proceed.
Stephen Sheldon: Hey, Thanks really nice work here first can you just talk some about the pipeline with convenience store is really nice to hear about another tier one win there and could it make sense to put even more sales resources towards that opportunity given the growth runway in some of the secular tailwind that you've been seeing.
Speaker Change #131: We have a short answers we have it's actually I think in our go to market team. The only place that has a for next year were planning to grow the go to market team. There. So we completely agree and are adding and like I said I think its funny. When we did this deal as people were a little bit confused and now it's so consensus that the greatest threat to the restaurants in America is convenience stores and the greatest opportunity for convenience stores.
Speaker Change #131: As restaurants, and so there's these formats are colliding and we get to be a little bit of an arm supplier.
Speaker Change #132: Got it and then just on now that you've reached positive adjusted EBITDA can you talk about your expectation.
Speaker Change #133: Our reach positive free cash flow and any rough sense on when you think that could happen.
Speaker Change #134: Absolutely what we've been telling people, we expect roughly a quarter lag it may not be perfectly scientific as you see this quarter, where operating cash flow positive.
Speaker Change #135: And does it mean delta will just be the interest expense.
Speaker Change #135: So.
Speaker Change #136: As you know we took out a notes to fund the <unk> acquisition, but we don't have lots of.
Traditional call it capex and so.
There'll be roughly a quarter ish lag between between the two.
Speaker Change #136: Okay.
Speaker Change #137: Very helpful. Thank you.
Speaker Change #137: Thank you one moment for our next question.
Speaker Change #138: And he is from the line of Eric Martin Newsy with Lake Street Capital markets. Please proceed.
Speaker Change #139: Yes good.
Speaker Change #140: On the organic business of.
Speaker Change #141: All as well as far as the current state of affairs, but I was wondering from a macro perspective are you seeing any change in the the top of funnel pipeline maybe.
Two rfps that were there and then gone or pulled back any change up the funnel.
Speaker Change #142: No we haven't.
Speaker Change #142: Yes, we still feel pretty good.
Speaker Change #142: Yeah.
Speaker Change #142: So we haven't really seen much change at all from the last quarter and as far as demand.
Speaker Change #142: The only.
Change, we see is relatively positive on the datacenter side and Thats really the combination of a bank.
Speaker Change #142: So it's not like back office is exploding, it's that the attachment to bring because it's gotten customers excited.
Speaker Change #143: Okay, and then you talked about a growth rate in excess of 20%, but just taking that down another layer between engagement and.
Speaker Change #144: Operator segments.
Speaker Change #145: What's your expectation there or is there a difference between the growth rate that you're anticipating over the next two three years.
Speaker Change #146: Yeah, absolutely I mean, I think historically or not historically, the last kind of 12 months, you've seen tremendous growth in the operator cloud that will continue I think it's it's both a function of Tam operator cloud is in.
Speaker Change #146: A third of the sites roughly of the engagement cloud and so there's less market in front of it and.
Speaker Change #146: And so youll see more growth out of that side of business I think the other part of it is we've got more products to sell in that suite.
Speaker Change #146: Versus we cannot tell you on back office payments and hopefully more to come but generally I think it's just a little bit earlier and its and its Tam.
Speaker Change #147: Got it thanks for taking my questions.
Speaker Change #148: Thank you.
Our next question.
Speaker Change #149: Is from the line of George Sutton with Craig Hallum. Please proceed.
Speaker Change #150: Thank you Savi you had mentioned and obviously, we all know that the U S. Quick service restaurant brands are growing faster internationally.
I'm just curious if you can give us an update now with Pascal your belt, a little bit what kind of.
Speaker Change #150: An opportunity or are you seeing core really driving those U S brands into the test system.
Speaker Change #150: We're really early we started the connect the connectivity if you will and it's funny.
Speaker Change #150: Just the announcement of the closing of the transaction led to a couple of people in down to us about potential.
Speaker Change #150: Partnership over there.
Speaker Change #150: I think what I can say, 100% validated is that our customers are not just our customers other big U S brands are looking for.
Speaker Change #150: Our solution internationally now we've got to prove that we can deliver on that going forward.
Gotcha and one other thing on.
Speaker Change #151: The large brand opportunities in the U S. Obviously, you're rolling out.
Speaker Change #151: Okay.
Speaker Change #152: Can you talk about you.
Speaker Change #153: Your conversations with other brands as Youre talking about really scaling up and scaling down that implementation capability I'm just curious is that.
Speaker Change #154: Are you convinced you can take on other large opportunities like that.
Speaker Change #155: Concurrently we are right now we are right now.
Speaker Change #155: I think the what I know for certain we can take it down because you.
Speaker Change #155: You can take down that expense.
Speaker Change #155: Ramping up we feel like we did a really good job for Burger King.
Speaker Change #155: And potentially it could but I think given the pipeline we have we're likely to keep that going just because I think we're going to have more to rollout over time and hopefully this is our continued cadence.
Speaker Change #156: Perfect. Thank you.
Speaker Change #157: Thank you.
Speaker Change #158: Our next question comes from the line of Charles Nabhan with Stephens.
Speaker Change #159: Good morning, and congrats on the quarter.
Speaker Change #160: Just a quick one on subscription gross margin based on the disclosure on slide 15, now if I look back over the past few quarters sequentially and then increasing in the mid single digit range I think four bps this quarter.
Speaker Change #160: Just curious if you expect that trajectory to continue and if you could remind us what specific products are accretive.
Speaker Change #160: To that margin I believe in the past you've said that punch is accretive breakers in line payments and menu are slightly below but.
Speaker Change #160: If you could just remind us of that.
Speaker Change #161: Those drivers that would be helpful.
Speaker Change #160: Sure.
Speaker Change #160: You said is correct.
Speaker Change #160: Essentially what's happening is.
Speaker Change #160: <unk> is now in line or if that has gotten close to getting in line and I think over time. It even has the potential to be more but right now it's getting in line.
Speaker Change #162: Punches accretive data central is very accretive.
Our ordering and payments are at the moment below that.
Speaker Change #162: So we're balancing is that partnering and payments are the fastest growing part of the business.
Speaker Change #162: Right now lower gross margin.
Speaker Change #162: That hurts margin, but the larger products are having more efficiencies come out and so that youre seeing the balance of that and obviously as we fold in our acquisitions.
We will see the impact on gross margin all of our acquisitions. This year had been wildly accretive to the operating income side.
As we get more disclosures out there youll see that impact on the gross margin side. So in general I think over time that number will move its way up quarter to quarter, it's a little bit hard because you're.
Speaker Change #162: Sure.
Speaker Change #162: Different growth rates of different parts of different times.
Speaker Change #163: Got it and if I could follow up with that on.
Speaker Change #163: On that topic, if I recall when you acquired <unk> you had indicated that their average ARPA was a bit higher than.
Speaker Change #163: That of your existing product.
Speaker Change #163: Which would indicate that theres potential for uplift from taking a competitor out of the market with what it might be early but I was wondering if youre starting to see some.
Speaker Change #163: Some of that benefit from the <unk> acquisition on.
Speaker Change #163: Loyalty Arco.
Yes.
Speaker Change #163: Yes, it's too early but.
But I would say that the benefit is not so much taking a competitor out but more of.
Speaker Change #163: Converting the.
Speaker Change #163: The punch product customers to the studio platform, which is called open Commerce, and then I think over time coming to market. What we believe is the best solution.
Speaker Change #163: Yes.
Speaker Change #163: And then and then obviously upsell down the road so youll.
Speaker Change #163: Youll see this nice trend of the punchy store customers hopefully coming over to open open commerce platform at a higher price and then we think we can convert them to more and more products over time.
Speaker Change #164: Got it thanks again appreciate the color.
Speaker Change #165: Thank you.
Speaker Change #166: As a reminder, ladies and gentlemen to ask a question simply press star one one to get in the queue.
Speaker Change #166: Our next question is from Adam Wyden with <unk> capital.
Speaker Change #167: Hey, guys.
Speaker Change #168: Congrats on a great quarter and.
Speaker Change #168: Reaching the milestone of $2 5 million of EBITDA I think I remember in 2018 sitting in my office with Chris Byrnes.
Speaker Change #168: Looking about house hardware sales go down youre going to lose a lot of money in.
Speaker Change #168: It's just an entirely different business out today than it was six years ago and so.
Speaker Change #169: I think as you sort of said over the last few quarters that it's not about hardware. It's not about this stuff, it's about building, 80% to 90% gross margin software and letting that sort of.
Speaker Change #169: Tell the story of profitability.
Speaker Change #169: So it's great to see that.
I just had a couple of questions.
One is on Burger King.
Speaker Change #169: It doesn't at least from where I am looking at it doesn't feel like you really started ramping up Burger King a lot can you sort of give us an update on sort of the Burger King rollout and then.
Speaker Change #169: Sort of making inroads in terms of the other brands I know like on all the expert networks and stop the transcripts I've said the relationship is really strong and they really like you. So maybe just sort of expand on sort of where that rollout is in sort of how that relationship is evolving to the extent that it can be great potential for the other brands as well.
Speaker Change #170: Sure so yes.
Speaker Change #170: We're really limited what we can say.
Speaker Change #170: Well, we're a vendor to a business and so there's not a ton I can give you specifics around I would say the relationship is really strong we are very close to the team both on a personal and business level I think we feel like we understand each other well.
Speaker Change #170: We have a long way to go here and so I think.
Speaker Change #170: The the opportunity is great not just with <unk>, but with other products down the road.
Speaker Change #170: <unk>.
Speaker Change #170: Real excitement I have coming out of this.
In partnership with them, but.
Speaker Change #170: We can't say a lot.
Speaker Change #170: Without approvals and things like that.
Speaker Change #170: As far as the other brands.
Speaker Change #170: We're actively engaged with all of them.
Speaker Change #170: There is.
I think great respect for what we've delivered already and I should mention that.
Speaker Change #170: Those other brands that.
They have experienced with other products and that is incredibly helpful.
Speaker Change #170: And so we are.
Speaker Change #170: I think looking forward to leveraging not just the experience we've had at Burger King, but with other products within those brands that help us.
Speaker Change #170: As well so I think we've got a good reputation within there I think we now have a.
Speaker Change #170: Hopefully the.
Speaker Change #170: Their perspective as part of our deliveries.
Speaker Change #170: So I see no reason for us not to eventually do more.
Speaker Change #170: And just in terms of like the rollout of brands I mean I know.
Have a mandate internally to make the franchisees roll it out before some deadline I mean is it fair to assume that there that some of the 'twenty because the way Im looking at is your growth is like 25 without a kind of Burger King. So the way I'm looking at is you probably would expect more Burger King and 25 is that sort of a fair assumption.
Speaker Change #171: We will definitely have a lot more in 'twenty, but I don't want to definitely.
My expectation is we'll have.
Speaker Change #172: Uh huh.
Speaker Change #172: I've got a lawyer in the room 25, greater than we had been $25 24 right.
Speaker Change #173: Okay, Yes, that's sort of my read through is that youre picking up youre sort of sustaining is 25% growth with not a ton of Burger King which means that it is just like it makes us more optimistic about your ability to sustain the growth rate.
Speaker Change #172: And then.
Speaker Change #172: You talked about hoping to have some more announcements on on other tier ones.
Speaker Change #172:
Speaker Change #174: Are you.
Speaker Change #175: Talk to me a little bit about M&A, I mean, obviously, you've done passengers or they've done well.
Speaker Change #176: How do you think about being able to sort of add on more module and when you sort of pseudo you've now had I guess eight months of that and it's gone really nicely task is obviously, a large public company, it's different but in terms of what I would call an industrial what are you sort of call. It bolt on M&A sort of module is not platforms and if we think about past that sort of international.
Speaker Change #176: Platform I mean.
Speaker Change #178: Could we do a comparable I mean, obviously, it's all cost of capital dependent.
Speaker Change #178: Obviously, what they want to pay relative to what youre trading at whatnot, but I mean do.
Speaker Change #178: Do you think that you could do one or two bolt ons next year to add product functionality because at least from our perspective, we're seeing a lot of businesses.
Speaker Change #178: Private markets that are sort of stranded that have pretty nice products, but sort of don't have the distribution that you do I mean, we spoke to accompany just yesterday, that's doing AI products and I don't know how I don't know how big it is but it's probably in the single digits or they are but they have no distribution. I mean. These are these are the types of companies that you would be able to plug into your platform and cross.
Speaker Change #178: Our cell so I'm curious now with sort of.
Speaker Change #178: Private equity leveraged in the IPO market sort of slow like you know you really don't have a ton of competition to buy these assets I mean, how do you think about like sort of returning to that market to do some of these deals at some point the valuations in growth I'm. Just curious like is that still possible or front of house.
Speaker Change #179: So the M&A focus is definitely more on the module is the tuck ins the bolt ons than it is on our platform.
Speaker Change #179: So we are really.
Speaker Change #179: On that because I think we can now proven to ourselves that when we've got long we can push it through the distribution pipeline with.
Limit to no no cost so that is definitely the focus and I would agree completely agree with your comment on businesses being stranded.
Speaker Change #179: Okay.
Speaker Change #180: Very good.
Speaker Change #179: Do you have.
Speaker Change #179: We got a really good material, okay last one article.
Speaker Change #181: No I just said.
Speaker Change #181: Only to say that like look you know to the extent that you guys can get your tier one customers to be your advocates and allow you to announce that I mean look having happy customers and letting them know that you're giving them great value. I mean look I know historically these customers have had a hard time letting you press release. So what have you I think <unk> has done a phenomenal job and Jeff Jeff Kaplan.
If he is on the call. We appreciate all the missionary who joined for par, but to the extent that you can get your customers to speak on your behalf I mean that is the best sales engine that you can have and to the extent that you let your customers.
Speaker Change #181: <unk> be an advocate for publicly but also just with the press releases I think it will help give everybody a sense that we are.
Speaker Change #181: Our original thesis of this company is that Theres no one else really penetrate into tier one is playing out almost perfectly and so we see you guys are one of one competitive asset with no competition and so I think to the extent that others can see that and you can let other people speak on your behalf and put up these press release on the customers I think that would help accelerate your cause but now. This is this is Greg.
Greg: And congratulations.
Speaker Change #183: Thanks, Jonathan.
Speaker Change #184: Thank you and as a reminder that is star one line. If you do have a question one moment. Please for our next question.
Speaker Change #185: It comes from the line of anger thunderstorm with Sidoti.
Speaker Change #186: Hi, and thank you for taking my questions and congratulations on the nice performance here.
Speaker Change #186: Most of my questions have been addressed already but can you just speak a little bit about the M&A environment and if you see any changes there.
Speaker Change #187: I think that it's a little bit we just talked about which is I think our focus on the M&A environment is on these bolt on tuck ins modules that we can push through our platform once fully integrated into one of our products.
Speaker Change #187: You know from environment perspective.
Speaker Change #187: It's very robust.
Speaker Change #187: It seems.
Like.
Speaker Change #187: There is more to companies for sale then there are historically.
<unk>.
Speaker Change #187: Definitely some larger transactions have happened, but we haven't seen is a lot of the smaller medium sized transactions come through yet and I think thats next.
Speaker Change #188: Okay. Thank you that was all for me.
Speaker Change #189: Thank you so much.
Speaker Change #190: And our last question one moment please.
Comes from the line of Mark Palmer with Debenture Mark Company.
Yes. Thank you for talking to you here and very nice job on the quarter.
Speaker Change #190: My question is about task group and the potential of that platform.
Speaker Change #191: Initial thinking with regard to the acquisition of task was that.
Speaker Change #191: It would enable par too.
Paulo.
Speaker Change #191: <unk> customers in the U S.
Speaker Change #191: Internationally.
Speaker Change #191: Especially because theres more growth there, but are there any other benefits.
Speaker Change #191: Task that you foresee.
Especially in terms of.
Speaker Change #191: Landing new customers.
Speaker Change #191: Beyond the ones that you are able to accompany in there.
International for Us Thank you.
Speaker Change #191: Certainly I think we are.
Speaker Change #191: I hate anecdotal stuff, but we talk to our brand. This week that we've never had a robust conversation with prior to who thinks of.
Speaker Change #191: The task product is very unique very special in the international markets and hopefully we can bring that forward to.
Speaker Change #191: U S relationship overtime, so absolutely I think the task.
Speaker Change #191: Levered for customers that we don't have relationships too and as I mentioned, a little bit earlier. It's also delivered in a market that we're not in.
Speaker Change #191: Like stadiums and stuff that will take a look at as well.
Speaker Change #192: Thank you.
Speaker Change #192: Okay.
Thank you and this concludes our Q&A session for today I will turn the call back to Christopher Byrnes for closing comments.
Christopher Byrnes: Thank you Carmen and thank you to everyone for joining us. This morning, we look forward to updating you further in the coming weeks.
Christopher Byrnes: In closing, we look forward to seeing everyone at our upcoming Investor Day on November 25th at the New York Stock Exchange.
Christopher Byrnes: Space is limited for those intending to attend in person. Please register via email at IR at <unk> Dot Com, we kick off at one P. M that day and we will also be webcasting, our presentation with an accessible link on the investor page of our website.
Speaker Change #193: Rick and everybody.
Speaker Change #194: And thank you all for participating in today's conference and you may now disconnect.